UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 _____________________________________________________________________________________________FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 _____________________________________________________________________________________________ For the fiscal year ended: December 31, 2013 Commission File No.: 0-25581priceline.com Incorporated(Exact name of Registrant as specified in its charter) Delaware(State or other Jurisdiction of Incorporation orOrganization) 06-1528493(I.R.S. Employer Identification No.) 800 Connecticut AvenueNorwalk, Connecticut(Address of Principal Executive Offices) 06854(Zip Code) Registrant’s telephone number, including area code: (203) 299-8000 _____________________________________________________________________________________________ Securities Registered Pursuant to Section 12(b) of the Act:Title of Each Class:Name of Each Exchange on which Registered:Common Stock, par value $0.008 per shareThe NASDAQ Global Select Market Securities Registered Pursuant to Section 12(g) of the Act: None. _____________________________________________________________________________________________Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No 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 thepreceding 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 No oIndicate 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 submittedand posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 x Accelerated filer o Non-accelerated filer o Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No The aggregate market value of common stock held by non-affiliates of priceline.com Incorporated as of June 30, 2013 was approximately $42.3 billion based upon theclosing price reported for such date on the NASDAQ Global Select Market. For purposes of this disclosure, shares of common stock held by executive officers and directors ofpriceline.com Incorporated on June 30, 2013 have been excluded because such persons may be deemed to be affiliates of priceline.com Incorporated. This determination ofaffiliate status is not necessarily a conclusive determination for other purposes.The number of outstanding shares of priceline.com Incorporated’s common stock was 52,142,345 as of February 13, 2014. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this Annual Report on Form 10-K, to the extent not set forth in this Form 10-K, is incorporated herein byreference from priceline.com Incorporated's definitive proxy statement relating to the annual meeting of stockholders to be held on June 5, 2014, to be filed withthe Securities and Exchange Commission within 120 days after the end of priceline.com Incorporated's fiscal year ended December 31, 2013. priceline.com Incorporated Annual Report on Form 10-K for the Year Ended December 31, 2013 Index Page No.Special Note Regarding Forward Looking Statements1PART I 1Item 1.Business1Item 1A.Risk Factors11Item 1B.Unresolved Staff Comments27Item 2.Properties27Item 3.Legal Proceedings28Item 4.Mine Safety Disclosures36 PART II36Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities36Item 6.Selected Financial Data38Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations39Item 7A.Quantitative and Qualitative Disclosures About Market Risk65Item 8.Financial Statements and Supplementary Data66Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure66Item 9A.Controls and Procedures66Item 9B.Other Information67 PART III68Item 10.Directors, Executive Officers and Corporate Governance68Item 11.Executive Compensation68Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters68Item 13.Certain Relationships and Related Transactions, and Director Independence68Item 14.Principal Accountant Fees and Services68 PART IV69Item 15.Exhibits and Financial Statement Schedules69Signatures 72Consolidated Financial Statements74 Special Note Regarding Forward-Looking Statements This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements. These forward-looking statements reflect our views regarding current expectations and projections about future events and conditions and are based on currentlyavailable information. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties andassumptions that are difficult to predict, including the Risk Factors identified in Part I, Item 1A of this Annual Report; therefore, actual results coulddiffer materially from those expressed, implied or forecast in any such forward-looking statements. Expressions of future goals and expectations and similar expressions, including "may," "will," "should," "could," "expects," "plans,""anticipates," "intends," "believes," "estimates," "predicts," "potential," "targets," and "continue," reflecting something other than historical fact are intendedto identify forward-looking statements. Our actual results could differ materially from those described in the forward-looking statements for various reasonsincluding the risks we face, which are more fully described in Part I, Item 1A, "Risk Factors." Unless required by law, we undertake no obligation to updatepublicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review thereports and documents we file or furnish from time to time with the Securities and Exchange Commission (the "SEC" or the "Commission"), particularly ourquarterly reports on Form 10-Q and current reports on Form 8-K. PART I Item 1. Business Priceline.com Incorporated is a leading online travel company that connects consumers wishing to make travel reservations with providers of travelservices around the world. We offer consumers accommodation reservations (including hotels, bed and breakfasts, hostels, apartments, vacation rentals andother properties) through our Booking.com, priceline.com and Agoda.com brands. In the United States, we also offer consumers reservations for rental cars,airline tickets, vacation packages and cruises through the priceline.com brand. We offer rental car reservations worldwide through rentalcars.com. We alsoallow consumers to easily compare airline ticket, hotel reservation and rental car reservation information from hundreds of travel websites at once throughKAYAK's websites and mobile applications (or "apps"). We refer to our company and all of our subsidiaries and brands, including Booking.com,priceline.com, Agoda.com, KAYAK and rentalcars.com, collectively as "The Priceline Group," the "Company," "we," "our" or "us." We launched our business in the United States in 1998 under the priceline.com brand and have since expanded our operations to includeBooking.com, Agoda.com, KAYAK and rentalcars.com, which are independently managed and operated brands. Our principal goal is to serve consumerswith worldwide leadership in online travel services. Our business is driven primarily by international results, which consist of the results of Booking.com,Agoda.com and rentalcars.com, as well as, to a lesser extent, the results of KAYAK's internationally based websites, in each case regardless of where theconsumer is resident, from where the consumer makes a reservation or where the travel service is provided. During the year ended December 31, 2013, ourinternational business (the substantial majority of which is generated by Booking.com) represented approximately 85% of our gross bookings (an operatingand statistical metric referring to the total dollar value, generally inclusive of all taxes and fees, of all travel services purchased by our customers), andapproximately 94% of our consolidated operating income. A significant majority of our gross profit is earned in connection with facilitating accommodationreservations. See Note 18 to the Consolidated Financial Statements for more geographic information.International: Accommodation Reservation Services. We offer accommodation reservation services through our international brands, whichconsist primarily of Booking.com, the world's largest online accommodation service with operations worldwide and headquarters in the Netherlands, andAgoda.com, an online accommodation reservation service with operations primarily in Asia. As of February 18, 2014, Booking.com offered accommodationreservation services for more than 425,000 properties in over 190 countries and territories on its various websites and in 42 languages, which includes over110,000 vacation rental properties. Vacation rentals consist of, among others, properties categorized as single-unit and multi-unit villas, holiday homes,apartments and chalets; vacation rentals are generally self-catered (i.e., include a kitchen), directly bookable properties.International: Rental Car Reservation Services. We offer a merchant rental car reservation service worldwide through rentalcars.com. Rentalcars.com offers its car rental services throughout the world, with customer support provided in 40 languages.United States. Through our priceline.com U.S. business, we offer a reservation service for accommodations, rental cars, airline tickets, vacationpackages and cruises. Our customers can make retail travel reservations on priceline.com, where1 they can select all aspects of the travel itinerary, including the travel service provider and price. Through our Name Your Own Price® service, we offer aproprietary pricing system that allows consumers to specify the price they are prepared to pay when submitting an offer for a particular travel service. Wethen access databases in which participating travel service providers file secure discounted rates not generally available to the public, to determine whether wecan fulfill the consumer's offer and decide whether we want to accept the offer at the price designated by the consumer. This Name Your Own Price® serviceuses the flexibility of consumers to enable travel service providers to accept a lower price in order to sell their excess capacity without disrupting their existingdistribution channels or retail pricing structures. We describe our Name Your Own Price® travel services as "opaque" because certain elements of the service,including the price and the identity of the travel service provider, are not disclosed to the consumer prior to making a reservation. In 2012, priceline.comlaunched Express Deals®, a merchant semi-opaque accommodation reservation service, which allows consumers to see the price of the accommodation priorto making a reservation but not the identity of the travel service provider. We believe that the combination of our priceline.com U.S. business' retail and opaquemodels allows us to provide a broad array of options to value-conscious consumers.Meta-search Services. In May 2013, we acquired KAYAK, which provides a price comparison (often referred to as "meta-search") service allowingconsumers to search and compare prices for travel services offered by travel service providers and online travel agents ("OTAs"). KAYAK currently operatesprimarily in the United States, though it intends to invest more heavily in expanding its international offerings. Priceline.com Incorporated was formed as a Delaware limited liability company in 1997 and was converted into a Delaware corporation inJuly 1998. Our common stock is listed on the NASDAQ Global Select Market under the symbol "PCLN." Our principal executive offices are located at 800Connecticut Avenue, Norwalk, Connecticut 06854.The Priceline Group Business Model We derive substantially all of our gross profit from the following sources:•Commissions earned from facilitating reservations of accommodations, rental cars, cruises and other travel services;•Transaction gross profit and customer processing fees from our accommodation, rental car, and vacation package reservation services;•Advertising revenues primarily earned by KAYAK from sending referrals to travel service providers and OTAs, as well as from advertisingplacements on KAYAK's websites and mobile apps; and•Global distribution system ("GDS") reservation booking fees related to our Name Your Own Price® accommodation, rental car and airlineticket reservation services, and price-disclosed airline ticket and rental car reservation services.The retail and semi-opaque travel services offered by our international and U.S. brands are recorded in revenue on a “net” basis and have no associated cost ofrevenue. In contrast, our priceline.com U.S. brand offers merchant Name Your Own Price® opaque travel services, which are recorded in revenue on a“gross” basis and have associated cost of revenue. Therefore, revenue increases and decreases are impacted by changes in the mix of our revenues betweenName Your Own Price® travel services and other travel services. Gross profit reflects the commission or net margin earned for our retail, Name Your OwnPrice® and semi-opaque travel services. Consequently, gross profit has become an increasingly important measure of evaluating growth in our businessbecause, in contrast to our revenues, it is not affected by the mix between our Name Your Own Price® travel services and our other travel services. For the year ended December 31, 2013, we had gross profit of approximately $5.7 billion comprised of "agency" gross profit, "merchant" grossprofit, and "other" gross profit. Agency gross profit is derived from travel related transactions where we are not the merchant of record and where the prices ofthe travel services reserved through our websites are determined by third parties. Agency gross profit, which represented the substantial majority of our totalgross profit in 2013, consisted of: (1) travel commissions earned from accommodation reservations at Booking.com and priceline.com and from reservationsfor rental cars, cruises and other travel services; (2) GDS reservation booking fees related to certain of the agency services listed above; and (3) processingfees. Merchant gross profit is derived from transactions where we are the merchant of record and therefore charge the consumer's credit card for the travelservices provided, and consisted of: (1) transaction gross profit representing the amount charged to a consumer, less the amount charged to us by travelservice providers in connection with (a) the accommodation reservations provided through our merchant accommodation reservation service at Agoda.com andpriceline.com and (b) the reservations provided through our merchant rental car service at rentalcars.com and Express Deals® service at priceline.com;(2) transaction gross profit representing revenue charged to a consumer less the cost of revenue amount charged to us by travel service providers in connectionwith the reservations provided through our Name Your Own2 Price® accommodation, rental car and airline ticket reservation services, as well as through our vacation packages services; (3) processing fees charged inconnection with our Name Your Own Price® accommodation, rental car and airline ticket reservations and our merchant price-disclosed accommodationreservations; and (4) ancillary fees, including GDS reservation booking fees related to certain of the services listed above. Other gross profit is derivedprimarily from advertising revenues earned by KAYAK from sending referrals to travel service providers and online travel agents ("OTAs"), as well as fromadvertising placements on its websites and mobile applications. See Note 2 to our Consolidated Financial Statements for more information.The Priceline Group Strategy The online travel category has continued to experience significant worldwide growth as consumer purchasing shifts from traditional off-line channelsto interactive online channels, including mobile. We are the leader in the worldwide online accommodation reservation market based on room nights booked. Our strategy is to continue to participate broadly in online travel growth by expanding our service offerings and markets. In particular, we aim to be the worldleader in online travel services by (a) providing consumers with the best experience through relentless execution and constant innovation, (b) partnering withtravel service providers to our mutual benefit, (c) operating entrepreneurial, independent brands that share best practices, and (d) investing in profitable andsustainable growth.•Providing the best consumer experience. We believe that offering consumers an outstanding online travel experience is essential for our futuresuccess. To accomplish this, we focus on providing consumers with a variety of intuitive, easy-to-use online travel reservation and searchservices, a continually increasing number, location and variety of accommodations available through our services, informative and usefulcontent, such as pictures, accommodation details and reviews, and excellent customer service. For example, Booking.com increasingly providesreservation services for accommodations other than hotels. Further, we endeavor to provide excellent customer service in a variety of ways,including through our call centers and websites, so that our customers can be confident that booking travel reservations through us will lead to apositive travel experience. We are constantly innovating our websites and mobile offerings to ensure that we are meeting the needs of online travelconsumers while aiming to exceed their expectations.•Partnering with travel service providers. We aim to establish mutually beneficial relationships with travel service providers around theworld. We believe that travel service providers can benefit from participating in our services by increasing their distribution channels, demandand inventory utilization in a more efficient and cost-effective manner than they can on their own. Travel service providers benefit from our well-known brands and online marketing efforts, expertise in offering an excellent consumer experience through our websites and mobile apps andability to offer their inventory in markets and to consumers that the travel service provider may be unable or unlikely to reach. For example, anindependent hotel in one country may not have the means or expertise to market itself to international travelers, including in other languages, tobuild and operate an effective website and online reservation service or to engage in sophisticated online marketing techniques.•Maintaining multiple, independently managed brands. We employ a strategy of operating multiple, independently managed brands, whichwe believe allows us the opportunity to offer our reservation services in ways that appeal to different consumers while maintaining anentrepreneurial, competitive spirit among our brands. We intend to invest resources to support organic growth by all of our brands, whetherthrough increased advertising, geographic expansion, technology innovation or increased access to accommodations, rental cars or other travelservices. We also believe that by operating independently managed brands, we encourage innovation and experimentation by our brands, whichallows us to more quickly discern and adapt to changing consumer behaviors and market dynamics. Although our brands are independentlyoperated, we intend to continue to share best practices, access to travel services and customers across our brands. We believe that by promotingour brands worldwide, sharing accommodation reservation supply and customer flow, and applying our industry experiences in the UnitedStates and Europe to other regions, we can further expand our travel reservation services globally and maintain and grow our position as theleading worldwide online accommodation reservation service.•Investing in profitable and sustainable growth. Our strategy is to ensure that we offer online travel services that meet the needs andexpectations of both consumers and our travel service providers and that we believe are or will be likely to result in long-term profitability andgrowth. We intend to accomplish this through continuous investment and innovation in growing our businesses in new and current markets,expanding our services and ensuring that we provide an appealing, intuitive and easy-to-use consumer experience through our websites andmobile applications. We also may pursue strategic transactions. For example, in 2010 we entered the worldwide3 online rental car reservation market when we acquired TravelJigsaw (now known as rentalcars.com) and in 2013 we entered the meta-searchbusiness when we acquired KAYAK. We regularly evaluate, and may pursue and consummate, other potential strategic acquisitions,partnerships, joint ventures or investments, whether to expand our businesses into complementary areas, expand our current businesses,acquire innovative technology or for other reasons.Service Offerings - International Accommodations. We offer accommodation reservation services worldwide, primarily through our Booking.com and Agoda.com brands. As ofFebruary 18, 2014, Booking.com worked with over 425,000 properties in over 190 countries and territories offering reservations on various websites and in42 languages. Properties participate in Booking.com, which operates under an agency model, and Agoda.com, which operates primarily under a merchantmodel, by filing rates in our proprietary extranets. Rental Cars. Rentalcars.com offers its car rental services in more than 6,000 locations throughout the world, with customer support provided in 40languages. Customers using rentalcars.com can book a full range of vehicles online through one of rentalcars.com's branded websites, or they can reservetheir cars by phone. Service Offerings - United States Opaque Hotels. Through our Name Your Own Price® opaque hotel reservation service, consumers can make reservations at hotels insubstantially all major cities and metropolitan areas in the United States and Europe. Most significant U.S. national hotel chains as well as many independentproperty owners participate in our Name Your Own Price® service. Hotels participate by filing secure private discounted rates with related rules accessiblethrough a GDS database. These specific rates generally are not available to the general public or to consolidators and other discount distributors who sell to thepublic. However, hotels may make similar rates available to consolidators or other discount providers under other arrangements. To make an offer, aconsumer specifies: (1) the city and neighborhood in which the consumer wants to stay, (2) the dates on which the consumer wishes to check in and checkout, (3) the "class" of service (1, 2, 2½, 3, 3½, 4, 5-star or "resort"), (4) the price the consumer is willing to pay, and (5) the consumer's valid credit card toguarantee the offer. When making an offer, consumers must agree to stay at any one of our participating hotels matching their selected criteria and accept areservation that cannot be refunded or changed. If a consumer's offer is not accepted, but we believe the offer is reasonably close to a price that we would bewilling to accept, we will attempt to satisfy the consumer by providing guidance to the consumer indicating that changing certain parameters of the offer wouldincrease the chances of the offer being accepted. The target market for our Name Your Own Price® hotel reservation service is the leisure travel market.In 2012, we launched Express Deals®, a semi-opaque, price-disclosed hotel reservation service at priceline.com, which allows customers to see theprice of the reservation prior to purchase but not the identity of the hotel. Retail Hotels. We operate a retail hotel reservation service in the United States which enables consumers to select the exact hotel they want to bookand the price of the reservation is disclosed prior to booking.Opaque Rental Cars. Our Name Your Own Price® opaque rental car service is currently available in substantially all major U.S. airportmarkets. Leading rental car companies in the United States participate in our opaque rental car reservation service. Consumers can access our website andselect where and when they want to rent a car, what kind of car they want to rent (e.g., economy, compact, mid-size, SUV, etc.) and the price they want to payper-day, excluding taxes, fees and surcharges. When we receive an offer, we determine whether to fulfill the offer based upon the available rates and rules. If aconsumer's offer is accepted, it cannot be refunded or changed, and we will immediately reserve the rental car, charge the consumer's credit card and notify theconsumer of the rental car company and location providing the rental car. If a consumer's offer is not accepted, but we believe the offer is reasonably close to aprice that we would be willing to accept, we will attempt to satisfy the consumer by providing guidance to the consumer indicating that changing certainparameters of the offer would increase the chances of the offer being accepted. Retail Rental Cars. We offer a retail rental car reservation service through priceline.com and other brands in the United States through whichconsumers can select the rental car brand, car type, pick-up location and price prior to booking a reservation. Opaque Airline Tickets. Our Name Your Own Price® opaque airline ticket reservation service operates in a manner similar to our Name YourOwn Price® opaque accommodation reservation service. To make an offer, a consumer specifies: (1) the origin and destination of the trip, (2) the dates onwhich the consumer wishes to depart and return, (3) the price the4 consumer is willing to pay, and (4) the consumer's valid credit card to guarantee the offer. When making an offer, consumers must agree to:•fly on any one of our participating airline partners;•leave at any time of day between 6 a.m. and 10 p.m. on their desired dates of departure and return;•purchase only coach class tickets;•accept at least one stop or connection;•receive no frequent flier miles or upgrades; and•accept tickets that cannot be refunded or changed.If a consumer's offer is not accepted, but we believe the offer is reasonably close to a price that we would be willing to accept, we will attempt to satisfy theconsumer by providing guidance to the consumer indicating that changing certain parameters of the offer would increase the chances of the offer beingaccepted. Retail Airline Tickets. We offer consumers in the United States the ability to purchase airline tickets at disclosed prices and with discloseditineraries. The airline sets the retail price paid by the consumer and is the merchant of record for the transaction. Retail airline tickets are generallychangeable and cancellable for a fee. With respect to each of our accommodation, rental car and airline ticket reservation services, we believe the combination of our Name Your OwnPrice® opaque service and the retail price-disclosed service, and in the case of hotel room reservations, our semi-opaque Express Deals® service, allows us toprovide a broad array of options to value-conscious consumers, while providing us with diverse streams of revenue. Vacation Packages. Our vacation package service allows consumers in the United States to purchase packages consisting of airfare,accommodation and rental car components. Consumers can select the exact accommodation that they want to reserve, and then select either a retail airlineticket or an opaque airline ticket for the air component of their package. In addition, consumers can elect to add a rental car to their package. Vacationpackages are sold at disclosed prices, although consumers cannot determine the exact price of the individual components on our website. Other Services. Through priceline.com, we offer consumers the opportunity to purchase cruises and travel insurance. We earn a commission oncruise reservations and we retain a fee for every insurance policy purchased through us. The travel insurance is arranged for by BerkelyCare, a division ofAffinity Insurance Services, Inc. and underwritten by Stonebridge Casualty Insurance Company, an AEGON Company. Service Offerings - Meta-searchThrough KAYAK, we offer a travel meta-search service that allows consumers to easily compare travel itineraries, including airline ticket,accommodation reservation and rental car reservation information, from hundreds of travel websites at once. KAYAK derives revenues from advertisingplacements on its websites and mobile apps and from sending referrals to travel service providers and OTAs. KAYAK currently operates primarily in theUnited States, though it intends to invest more heavily in expanding its international offerings.Marketing and Brand Awareness Booking.com, priceline.com, Agoda.com, KAYAK and rentalcars.com have established widely used and recognized e-commerce brands throughaggressive marketing and promotion campaigns. During 2013, our total online advertising expense was approximately $1.8 billion, a substantial portion ofwhich was spent internationally through Internet search engines, meta-search and travel research services and affiliate marketing. We also investedapproximately $127.5 million in offline advertising. We intend to continue a marketing strategy to aggressively promote brand awareness, primarily throughonline means although we intend to increase our offline advertising support for our brands, including expanding campaigns into additional markets. Werecognize a substantial majority of online advertising expense as incurred at the time of booking, but recognize most of our gross profit when the consumer'stravel is completed. As a result, online advertising expense may not be recognized in the same period as the associated gross profit. Advertising efficiency is impacted by a number of factors that are subject to variability and that are, in some cases, outside of our control, includingaverage daily rates ("ADRs"), costs per click, cancellation rates, foreign exchange rates and our ability to convert paid traffic to booking customers and thenhaving customers return directly to our websites or mobile apps for future bookings. We use online search engines (primarily Google), meta-search and travelresearch services, and affiliate marketing as primary means of generating traffic to our websites. As a result, our online advertising expense has5 increased significantly in recent years, a trend we expect to continue. In addition, our online advertising has grown faster than our gross profit due to (1) lowerreturns on investment ("ROIs") from our online advertising, (2) brand mix within The Priceline Group, and (3) channel mix within our brands. Our onlineadvertising ROIs have been down year-over-year. Furthermore, our international brands are generally growing faster than our U.S. brands, and typically spenda higher percentage of gross profit on online advertising. Finally, certain of our brands are obtaining an increasing share of traffic through paid onlineadvertising channels.Competition We compete with both online and traditional travel reservation services. The market for the travel reservation services we offer is intenselycompetitive, and current and new competitors can launch new services at a relatively low cost. Some of our current and potential competitors, such as Google,Apple and Facebook, have access to significantly greater and more diversified resources than we do, and they may be able to leverage other aspects of theirbusinesses (e.g., search or mobile device businesses) to enable them to compete more effectively with us. We currently or potentially will compete with a variety of companies, including:•Online travel reservation services such as Expedia, Hotels.com, Hotwire, Elong, CarRentals.com and Venere, which are owned by Expedia;Travelocity and lastminute.com, which are owned by the Sabre Group; Orbitz.com, Cheaptickets, ebookers, HotelClub and RatesToGo, which areowned by Orbitz Worldwide; laterooms and asiarooms, which are owned by Tui Travel; Hotel Reservation Service and hotel.de, which are owned byHotel Reservation Service; and AutoEurope, Car Trawler, Ctrip, HomeAway, MakeMyTrip, Webjet, Rakuten, Jalan, Hotel Urbano, ViajaNet,Submarino Viagens, Despegar/Decolar, 17u.com, Bookit.com, CheapOair, Mr. and Mrs. Smith, ODIGEO and Wotif;•large online portal, social networking, group buying and search companies, such as Google, Yahoo! (including Yahoo! Travel), Facebook, Grouponand Living Social;•traditional travel agencies, wholesalers and tour operators, many of which combine physical locations, telephone services and online services, suchas Carlson Wagonlit, American Express, Thomas Cook and Tui Travel, as well as thousands of individual travel agencies around the world;•travel service providers such as accommodation providers, rental car companies and airlines, many of which have their own branded websites towhich they drive business, including joint efforts by travel service providers such as Room Key, an online hotel reservation service owned by severalmajor hotel companies; and•online travel search services and price comparison services (generally referred to as "meta-search" services), such as trivago (in which Expedia hasacquired a majority ownership interest), TripAdvisor, Qunar, Skyscanner and HotelsCombined.TripAdvisor, the world's leading travel research and review website and the world's largest online travel service with over 260 million uniquemonthly visitors across its websites, Google, the world's largest search engine, and other large, established companies with substantial resources and expertisein developing online commerce and facilitating Internet traffic have launched meta-search services and may create additional inroads into online travel, both inthe United States and internationally. Meta-search services leverage their search technology to aggregate travel search results for the consumer's specificitinerary across travel service provider (e.g., accommodations, rental car companies or airlines), OTA and other travel websites and, in many instances,compete directly with us for consumers. Meta-search services intend to appeal to consumers by showing broader travel search results than may be availablethrough OTAs or other travel websites, which could lead to travel service providers or others gaining a larger share of search traffic. TripAdvisor has begunsupporting its meta-search service with offline advertising, and trivago, a leading meta-search service in Europe, recently expanded its offline advertisingcampaign into the United States. Google offers "Hotel Finder", a meta-search service that Google has at times placed at or near the top of hotel-related searchresults. As a result of our recent acquisition of KAYAK, a meta-search service, we now compete more directly with other meta-search services. As a meta-search service, KAYAK depends on access to information related to travel service pricing, schedules, availability and other related information from OTAsand travel service providers.As consumers attempt to be more efficient in their shopping behavior, they may favor travel services offered by meta-search sites or searchcompanies over OTAs, which could reduce traffic to our travel reservation websites, increase consumer awareness of our competitors' brands and websitesand increase our advertising and other customer acquisition costs. To the extent any such consumer behavior leads to growth in our KAYAK meta-searchbusiness, such growth may not result in6 sufficient increases in profits from our KAYAK meta-search business to offset any related decrease in profits experienced by our OTA brands. Further, meta-search services may evolve into more traditional OTAs by offering consumers the ability to make travel reservations directly through their websites. Forexample, TripAdvisor facilitates hotel reservations on its transaction websites Tingo and Jetsetter and intends to allow consumers to make a reservation whilestaying on TripAdvisor. To the extent consumers book travel services through a meta-search website or directly with a travel service provider after visiting ameta-search website or meta-search utility on a traditional search engine without using an OTA like us, or if meta-search services limit our participation withintheir search results, we may need to increase our advertising or other customer acquisition costs to maintain or grow our reservation bookings, any of whichcould have an adverse effect on our business and results of operations.Travel service providers, including multi-national hotel chains, rental car companies and airlines with which we conduct business, compete with usin online channels to drive consumers to their own websites in lieu of third-party distributors such as us. Travel service providers that sell on their ownwebsites typically do not charge a processing fee, and, in some instances, offer advantages such as loyalty points, which could make their offerings moreattractive to consumers than models like ours.Widespread adoption of mobile devices, such as the iPhone, Android-enabled smart phones, and tablets such as the iPad, coupled with the improvedweb browsing functionality and development of thousands of useful "apps" available on these devices, is driving substantial traffic and commerce activity tomobile platforms. We have experienced a significant shift of business to mobile platforms and our advertising partners are also seeing a rapid shift of trafficto mobile platforms. Our major competitors and certain new market entrants are offering mobile applications for travel products and other functionality,including proprietary last-minute discounts for accommodation reservations. Advertising and distribution opportunities may be more limited on mobiledevices given their smaller screen sizes. The gross profit earned on a mobile transaction may be less than a typical desktop transaction due to differentconsumer purchasing patterns. For example, accommodation reservations made on a mobile device typically are for shorter lengths of stay and are not made asfar in advance. We have made significant progress creating mobile offerings which have received strong reviews and solid download trends and which aredriving a material and increasing share of our business. We believe that mobile bookings present an opportunity for growth and are necessary to maintain andgrow our business as consumers increasingly turn to mobile devices instead of a personal computer and to mobile applications instead of a web browser. If weare unable to continue to rapidly innovate and create new, user-friendly and differentiated mobile offerings and efficiently and effectively advertise anddistribute on these platforms, or if our mobile apps are not downloaded and used by consumers, we could lose market share to existing competitors or newentrants and our future growth and results of operations could be adversely affected.Apple, Inc., one of the most innovative and successful companies in the world and the producer of, among other things, the iPhone and iPad,obtained a patent for "iTravel," a mobile app that would allow a traveler to check in for a travel reservation. In addition, Apple's iPhone operating systemincludes "Passbook," a virtual wallet app that holds tickets, boarding passes, coupons and gift cards, and along with iTravel, may be indicative of Apple'sintent to enter the travel reservations business in some capacity. Apple has substantial market share in the smart phone category and controls integration ofofferings, including travel services, into its mobile operating system. Apple also has more experience producing and developing mobile apps and has access togreater resources than we have. Apple may use or expand iTravel, Passbook, Siri (Apple's voice recognition "concierge" service) or another mobile app as ameans of entering the travel reservations marketplace. Similarly, Google's Android operating system is the leading smart phone operating system in the world.As a result, Google could leverage its Android operating system to give its travel services a competitive advantage, either technically or with prominence on itsGoogle Play app store or within its mobile search results. To the extent Apple or Google use their mobile operating systems or app distribution channels to favortheir own travel service offerings, our business could be harmed.There has been a proliferation of new channels through which accommodations can offer reservations. For example, some accommodations offerroom reservations through "daily deal" websites such as Groupon and Living Social, which sell coupons to customers at a substantial discount. In 2011,Expedia, one of our largest competitors, entered into a partnership with Groupon to sell accommodation reservations to Groupon customers under the"Groupon Getaways" brand name. New entrants, such as HotelTonight, BackBid, GuestMob, Tingo, Hipmunk and Room 77, have developed new anddifferentiated offerings that endeavor to provide savings on accommodation reservations to consumers and that compete directly with us. If any of these newservices are successful, we may experience less demand for our services and are likely to face more competition for access to the limited supply of discountedaccommodation room rates.In August 2013, Expedia and Travelocity announced that they had entered into an exclusive, long-term strategic marketing agreement, wherebyExpedia will power the technology platforms for Travelocity's existing websites in the United States and Canada, while providing Travelocity access toExpedia's supply and customer services. To the extent this7 arrangement enhances Expedia's and/or Travelocity's ability to compete with us in the affected markets, our market share and results of operations could beadversely affected.Competition in U.S. online travel remains intense and online travel companies are creating new promotions and consumer value features in an effortto gain competitive advantages. In particular, the competition to provide "opaque" accommodation reservation services to consumers, an area in which ourpriceline.com U.S. business has been a leader, has become more intense. For example, Expedia makes opaque accommodation room reservations available onits principal website under the name "Expedia Unpublished Rates" and, we believe, has supported this initiative with steeper discounts through lowermargins. As with our opaque Name Your Own Price® accommodation reservation service, the name of the accommodation is not disclosed until afterbooking. We believe these offerings, in particular "Expedia Unpublished Rates," have adversely impacted the market share and year-over-year growth rate ofour Name Your Own Price® opaque accommodation service, which began to experience a decline in room night reservations in the third quarter of 2011.These and other competitors could also launch opaque rental car services, which could negatively impact our opaque Name Your Own Price® rental carservice. If Expedia or others are successful in growing their opaque accommodation reservation services, we may have less consumer demand for our opaqueaccommodation reservation services over time, and we would face more competition for access to the limited supply of discounted accommodation room rates.In an effort to compete more effectively against these new offerings, in 2012 we launched Express Deals®, a semi-opaque price-disclosed accommodationreservation service. While Express Deals® has been a significant contributor to the improved performance of our opaque accommodation reservation service,the offering may not ultimately be successful at recovering or growing U.S. accommodation reservation service market share. As a result of this increasedcompetition, our share of the discount accommodation reservation market in the United States could further decrease, which would harm our business andresults of operations.We believe that a number of factors, including recent year-over-year increases in retail airfares, could cause consumers to engage in increasedshopping behavior before making a travel purchase than they engaged in previously. Increased shopping behavior reduces our advertising efficiency andeffectiveness because traffic becomes less likely to result in a purchase on our website, and such traffic is more likely to be obtained through paid onlineadvertising channels than through free direct channels. Further, as consumers attempt to be more efficient in their shopping behavior, they may favor travelservices offered by search companies or meta-search sites over OTAs, which could reduce traffic to our travel reservation websites, increase consumerawareness of our competitors' brands and websites, increase our advertising and other customer acquisition costs and adversely affect our business, marginsand results of operations. To the extent any such increased shopping behavior leads to growth in our KAYAK meta-search business, such growth may notresult in sufficient increases in revenues from our KAYAK meta-search business to offset any related decrease in gross profit or increase in advertising andother customer acquisition costs experienced by our OTA brands. See "Risk Factors - Intense competition could reduce our market share and harm ourfinancial performance" and "Risk Factors - Recent trends in consumer adoption and use of mobile devices create new challenges and may enabledevice companies such as Apple to compete directly with us."Operations and Technology Our business is supported by multiple systems platforms, which were designed with an emphasis on scalability, performance and reliability. Theplatforms are largely independent among Booking.com, priceline.com, Agoda.com, KAYAK and rentalcars.com. The software platforms and architecture usea variety of tools within each corporate implementation, including server-side Java, C++, ASP, .Net, Perl, PHP, JavaScript and SQL scripts integrated withOracle, MySQL, MongoDB, Cassandra and Microsoft SQL-server database systems. These internal platforms were designed to include open applicationprotocol interfaces that can provide connectivity to vendors in the industries in which we operate. These include large global systems, such as accommodationroom, airline ticket and rental car reservation systems and financial service providers, as well as individual accommodation service providers, such asindividual hotels. Our applications utilize digital certificates to help us conduct secure communications and transactions, as appropriate. The systems infrastructure and web and database servers of our worldwide operations are primarily hosted in England, the Netherlands, HongKong, Switzerland and three locations in the United States, each of which provides network connectivity, networking infrastructure, UPS conditioned powerand 24-hour monitoring and engineering support typical of hosted data centers. All data center facilities have a continuous power supply system, generators,redundant servers and multiple back-up systems. If one hosting facility were inaccessible, for any reason, we would need to divert all traffic to anotherhosting facility, which may lead to a disruption to our services, resulting in foregone transactions and revenue and consumer complaints. Customer service for our international business is provided primarily through in-house call centers. We outsource most of the call center andcustomer service functions for our priceline.com U.S. business, and use a real-time interactive voice response system with transfer capabilities to our callcenters and customer service centers.8 Intellectual Property Over time and through acquisitions, we have assembled a portfolio of patents, trademarks, service marks, copyrights, domain names, and tradesecrets covering our services. We regard the protection of our intellectual property as critical to our success. We protect our intellectual property rights byrelying on national, federal, state and common law rights in the United States and internationally, as well as a variety of administrative procedures,regulations, conventions and treaties. We also rely on contractual restrictions to protect our proprietary rights in our services. We enter into confidentiality andinvention assignment agreements with employees and contractors and nondisclosure agreements with parties with whom we conduct business in order to limitaccess to and disclosure of our proprietary information.We pursue the registration of our domain names, trademarks and service marks in the United States and internationally. We currently holdnumerous issued U.S. and international patents and pending U.S. and international patent applications. We file additional patent applications on newinventions, as we deem appropriate. Effective trademark, copyright, patent, domain name, trade dress and trade secret protection is expensive to maintain andmay require litigation. As we continue to expand internationally, protecting our intellectual property rights and other proprietary rights involves an increasingnumber of jurisdictions, a process that is expensive and time consuming and may not be successful in every location. See "Risk Factors - We face risksrelated to our intellectual property."Governmental Regulation The services we provide are subject to various laws and regulations. For example, our travel services are subject to laws governing the offer and/orsale of travel services as well as laws requiring us to register as a "seller of travel" in certain jurisdictions. In addition, our services may be subject to varioustaxing regulations. See "Risk Factors - We may have exposure to additional tax liabilities," "Risk Factors - Our financial results will likely be materiallyimpacted by payment of income taxes in the future" and "Risk Factors - Adverse application of state and local tax laws could have an adverse effect onour business and results of operations." We are subject to laws that require protection of user privacy and user data. In our processing of travel reservations, we receive and store a largevolume of personally identifiable data in the United States, Europe and Asia. This data is increasingly subject to laws and regulations in numerousjurisdictions around the world, including the Commission of the European Union through its Data Protection Directive and variations of that directive in themember states of the European Union. Such government action is typically intended to protect the privacy of personal data that is collected, processed andtransmitted in or from the governing jurisdiction. See "Risk Factors - Our processing, storage, use and disclosure of personal data exposes us to risks ofinternal or external security breaches and could give rise to liabilities" and "Risk Factors - 'Cookie' laws could negatively impact the way we dobusiness." In addition, our strategy involves rapid geographic expansion around the world, including in Asia, South America and elsewhere, many of whichregions and countries have different legislation, regulatory environments and tax laws. Compliance with legal, regulatory and tax requirements around theworld places demands on our time and resources, and we may nonetheless experience unforeseen and potentially adverse legal, regulatory or tax consequences,which may have an adverse effect on our business.SeasonalityA meaningful amount of gross bookings are generated early in the year, as customers plan and reserve their spring and summer vacations in Europeand North America. From a cost perspective, we expense the substantial majority of our advertising activities as they are incurred, which is typically in thequarter in which reservations are booked. However, we generally do not recognize associated revenue until future quarters when the travel occurs. As a result,we typically experience our highest levels of profitability in the second and third quarters of the year, which is when we experience the highest levels ofaccommodation checkouts for the year for our North American and European businesses.In addition, the date on which certain holidays fall can have an impact on our quarterly results. For example, if Easter falls in the first quarter of theyear but fell in the second quarter of the prior year, year over year first quarter growth rates in revenue, gross profit, operating income, and operating marginscan be favorably affected whereas second quarter year over year growth rates would be negatively affected.The impact of seasonality can be exaggerated in the short-term by the gross bookings growth rate of the business. For example, in periods where ourgrowth rate substantially decelerates, our operating margins typically benefit from relatively less9 variable advertising expense. In addition, gross profit growth is typically less impacted in the near term due to the benefit of revenue related to reservationsbooked in previous quarters.We experience the highest levels of booking and travel consumption for our Asia-Pacific and South American businesses in the first and fourthquarters. Therefore, if these businesses continue to grow faster than our North American and European businesses, our operating results for the first andfourth quarters of the year may become more significant over time as a percentage of full year operating results.Employees As of December 31, 2013, we employed approximately 9,500 employees, of which approximately 1,800 are based in the United States andapproximately 7,700 are based outside the United States. We also retain independent contractors to support our customer service, website content translationand system support functions. We have never had a work stoppage and our employees are not represented by any collective bargaining unit. We consider our relations with ouremployees to be good. Our future success will depend, in part, on our ability to continue to attract, integrate, retain and motivate highly qualified technical andmanagerial personnel, for whom competition is intense. See "Risk Factors - We rely on the performance of highly skilled personnel and, if we are unable toretain or motivate key personnel or hire, retain and motivate qualified personnel, our business would be harmed." The Priceline Group Websites We maintain websites with the addresses www.booking.com, www.priceline.com, www.agoda.com, www.kayak.com and www.rentalcars.com,among others. We are not including the information contained on our websites as a part of, or incorporating it by reference into, this Annual Report onForm 10-K. We make available free of charge through the www.priceline.com website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Qand Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of1934, as amended (the "Exchange Act"), as soon as reasonably practicable after we electronically file such material with, or furnish such material to, theSEC. These reports and other information are also available, free of charge, at www.sec.gov. Alternatively, the public may read and copy any materials we filewith the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public ReferenceRoom may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the priceline.com Incorporated Code of Conduct is available through thewww.priceline.com website and any amendments to or waivers from the Code of Conduct will be disclosed on that website.10 Item 1A. Risk Factors The following risk factors and other information included in this Annual Report should be carefully considered. The risks anduncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currentlybelieve are immaterial may also impair our business, results of operations or financial condition. If any of the following risks occur, our business,financial condition, operating results and cash flows could be materially adversely affected.Declines or disruptions in the travel industry could adversely affect our business and financial performance.Our financial prospects are significantly dependent upon the sale of travel services, particularly leisure travel. Travel, including accommodation(including hotels, bed and breakfasts, hostels, apartments, vacation rentals and other properties), rental car and airline ticket reservations, is dependent ondiscretionary spending levels. As a result, sales of travel services tend to decline during general economic downturns and recessions when consumers engage inless discretionary spending, are concerned about unemployment or inflation, have reduced access to credit or experience other concerns or effects that reducetheir ability or willingness to travel. Accordingly, the recent worldwide recession led to a weakening in the fundamental demand for our travel reservationservices and an increase in the number of consumers who canceled existing travel reservations with us. Also during the recession, the accommodation industryexperienced a significant decrease in occupancy rates and average daily rates ("ADRs"). While lower occupancy rates have historically resulted inaccommodation providers increasing their distribution of accommodation reservations through third-party intermediaries such as us, our remuneration foraccommodation reservation transactions changes proportionately with price, and therefore, lower ADRs generally have a negative effect on our accommodationreservation business and a negative effect on our gross profit.Further, many governments around the world, including the U.S. government and certain European governments, are operating at large financialdeficits, resulting in high levels of sovereign debt in such countries. Failure to reach political consensus regarding workable solutions to these issues hasresulted in a high level of uncertainty regarding the future economic outlook. This uncertainty, as well as concern over governmental austerity measuresincluding higher taxes and reduced government spending, could impair consumer spending and adversely affect travel demand. At times, we have experiencedvolatility in transaction growth rates and weaker trends in hotel ADRs across many regions of the world, particularly in those European countries that appearto be most affected by economic uncertainties. We believe that these business trends are likely impacted by weak economic conditions and sovereign debtconcerns. Disruptions in the economies of such countries could cause, contribute to or be indicative of deteriorating macro-economic conditions. In addition,during periods of elevated uncertainty, the value of the U.S. Dollar compared to other currencies, including the Euro, has often increased, which adverselyaffects our gross bookings, gross profit, operating income and net income as expressed in U.S. Dollars. The uncertainty of macro-economic factors and theirimpact on consumer behavior across regions, which may differ, makes it more difficult to forecast industry and consumer trends and the timing and degree oftheir impact on our markets and business, which in turn could adversely affect our ability to effectively manage our business and adversely affect our resultsof operations.In addition, other unforeseen events beyond our control, such as higher oil prices, terrorist attacks, unusual weather patterns, natural disasters suchas earthquakes, hurricanes, tsunamis, floods, volcanic eruptions (such as the April 2010 eruption of a volcano in Iceland), travel related health concernsincluding pandemics and epidemics such as Influenza H1N1, avian bird flu and SARS, political instability, regional hostilities, imposition of taxes orsurcharges by regulatory authorities or travel related accidents, can disrupt travel or otherwise result in declines in travel demand. Because these events arelargely unpredictable, they can dramatically and suddenly affect travel behavior by consumers, and therefore demand for our services, which can adverselyaffect our business and results of operations. For example, in late 2012 Hurricane Sandy disrupted travel in the northeastern United States. In early 2011,Japan was struck by a major earthquake, tsunami and nuclear emergency. In October 2011, severe flooding in Thailand, a key market for our Agoda.combusiness and the Asian business of Booking.com, negatively impacted booking volumes and cancellation rates in that market. In addition, Thailand hasrecently experienced disruptive civil unrest, which has negatively impacted booking volumes and cancellation rates in this market. In early 2010, Thailandalso experienced civil unrest, which caused the temporary relocation of Agoda.com's Thailand-based operations. Future natural disasters or civil or politicalunrest could further disrupt our business and operations.We face risk related to the growth rate and expansion of our international business.We derive a substantial portion of our revenues, and have significant operations, outside the United States. Our international operations include theNetherlands-based accommodation reservation service Booking.com, the Asia-based accommodation reservation service Agoda.com, the U.K.-based rental carreservation service rentalcars.com and, to a lesser extent, KAYAK's international meta-search services. Our international operations have achieved significantyear-over-year growth in their gross bookings (an operating and statistical metric referring to the total dollar value, generally inclusive of all11 taxes and fees, of all travel services purchased by our customers). This growth rate, which has contributed significantly to our growth in consolidatedrevenue, gross profit and earnings per share, has declined, a trend we expect to continue as the absolute level of our gross bookings grows larger. Other factorsmay also slow the growth rates of our revenues derived from our international business, including, for example, worldwide economic conditions, anystrengthening of the U.S. Dollar versus the Euro and other currencies, declines in ADRs, increases in cancellations, adverse changes in travel marketconditions and the competitiveness of the market. A decline in the growth rates of our international business could have a negative impact on our future grossprofit and earnings per share growth rates and, as a consequence, our stock price.Our strategy involves continued rapid international expansion in regions throughout the world. Many of these regions have different customs,currencies, levels of customer acceptance of the Internet, legislation, regulatory environments, tax laws and levels of political stability. International marketsmay have strong local competitors with an established brand and travel service provider relationships that may make expansion in that market difficult andcostly and take more time than anticipated. In addition, compliance with non-U.S. legal, regulatory or tax requirements places demands on our time andresources, and we may nonetheless experience unforeseen and potentially adverse legal, regulatory or tax consequences. In some markets such as China, legaland other regulatory requirements may prohibit or limit participation by foreign businesses, such as by making foreign ownership or management of Internetor travel-related businesses illegal or difficult, or may make direct participation in those markets uneconomic, which could make our entry into and expansionin those markets difficult or impossible, require that we work with a local partner or result in higher operating costs. If we are unsuccessful in rapidlyexpanding in new and existing markets and managing that expansion, our business, results of operations and financial condition could be adversely affected.Certain markets in which we operate that are in earlier stages of development have lower operating margins compared to more mature markets, whichcould have a negative impact on our overall margins as these markets increase in size over time. Also, we intend to continue to invest in addingaccommodations available for reservation on our websites, including hotels, bed and breakfasts, hostels and vacation rentals. Vacation rentals generallyconsist of, among others, properties categorized as single-unit and multi-unit villas, holiday homes, apartments and chalets and are generally self-catered (i.e.,include a kitchen), directly bookable properties. Many of the newer accommodations we add to our travel reservation services, especially in highly penetratedmarkets, may have fewer rooms, lower ADRs or higher credit risk and may appeal to a smaller subset of consumers (e.g., hostels and bed and breakfasts),and therefore may also negatively impact our margins. For example, because a vacation rental is either a single unit or a small collection of independent units,vacation rental properties represent more limited booking opportunities than non-vacation rental properties, which generally have more units to rent perproperty. Our non-hotel accommodations in general may be subject to increased seasonality due to local tourism seasons, weather or other factors. If weincrease our non-hotel accommodation business, these different market characteristics could negatively impact our profit margins; and, if these propertiesrepresent an increasing percentage of the properties added to our websites, our gross bookings growth rate and property growth rate will likely diverge over time(since each such property has fewer booking opportunities). As a result of the foregoing, as the percentage of non-hotel accommodations increases, the numberof reservations per property will likely decrease.We believe that the increase in the number of accommodation providers that participate on our websites, and the corresponding access toaccommodation room nights, has been a key driver of the growth of our accommodation hotel reservation business. The growth in our accommodationbookings typically makes us an attractive source of consumer demand for our accommodation providers. However, accommodation providers may wish tolimit the amount of business that flows through a single distribution channel. As a result, we may experience constraints on the number of accommodationroom nights available to us, which could negatively impact our growth rate and results of operations.The number of our employees worldwide has grown from less than 700 in the first quarter of 2007, to approximately 9,500 as of December 31,2013, which growth is mostly comprised of hires by our international operations, including as a result of our international acquisitions. As a result of suchrapid expansion, the average tenure of our employees has become shorter. We may not be able to hire, train, retain, motivate and manage required personnel,which may limit our growth, damage our reputation, negatively affect our financial performance, and otherwise harm our business. In addition, expansionincreases the complexity of our business and places additional strain on our management, operations, technical performance, financial resources and internalfinancial control and reporting functions. Our current and planned personnel, systems, procedures and controls may not be adequate to support andeffectively manage this growth and our future operations, especially as we employ personnel in multiple geographic locations around the world. We are subjectto risks typical of international businesses, including differing economic conditions, differing customs, languages and consumer expectations, changes inpolitical climate, differing tax structures and other regulations and restrictions, including labor laws and customs, and foreign exchange rate volatility.12 Intense competition could reduce our market share and harm our financial performance.We compete with both online and traditional travel reservation services. The market for the travel reservation services we offer is intenselycompetitive, and current and new competitors can launch new services at a relatively low cost. Some of our current and potential competitors, such as Google,Apple and Facebook, have access to significantly greater and more diversified resources than we do, and they may be able to leverage other aspects of theirbusinesses (e.g., search or mobile device businesses) to enable them to compete more effectively with us.We currently, or potentially will, compete with a variety of companies, including:•Online travel reservation services such as Expedia, Hotels.com, Hotwire, Elong, CarRentals.com and Venere, which are owned by Expedia;Travelocity and lastminute.com, which are owned by the Sabre Group; Orbitz.com, Cheaptickets, ebookers, HotelClub and RatesToGo, which areowned by Orbitz Worldwide; laterooms and asiarooms, which are owned by Tui Travel; Hotel Reservation Service and hotel.de, which are owned byHotel Reservation Service; and AutoEurope, Car Trawler, Ctrip, HomeAway, MakeMyTrip, Webjet, Rakuten, Jalan, Hotel Urbano, ViajaNet,Submarino Viagens, Despegar/Decolar, 17u.com, Bookit.com, CheapOair, Mr. and Mrs. Smith, ODIGEO and Wotif;•large online portal, social networking, group buying and search companies, such as Google, Yahoo! (including Yahoo! Travel), Facebook, Grouponand Living Social;•traditional travel agencies, wholesalers and tour operators, many of which combine physical locations, telephone services and online services, suchas Carlson Wagonlit, American Express, Thomas Cook and Tui Travel, as well as thousands of individual travel agencies around the world;•travel service providers such as accommodation providers, rental car companies and airlines, many of which have their own branded websites towhich they drive business, including joint efforts by travel service providers such as Room Key, an online hotel reservation service owned by severalmajor hotel companies; and•online travel search and price comparison services (generally referred to as "meta-search" services), such as trivago (in which Expedia has acquired amajority ownership interest), TripAdvisor, Qunar, Skyscanner and HotelsCombined.TripAdvisor, the world's leading travel research and review website and the world's largest online travel service with over 260 million uniquemonthly visitors across its websites, Google, the world's largest search engine, and other large, established companies with substantial resources and expertisein developing online commerce and facilitating Internet traffic have launched meta-search services and may create additional inroads into online travel, both inthe United States and internationally. Meta-search services leverage their search technology to aggregate travel search results for the consumer's specificitinerary across travel service provider (e.g., accommodations, rental car companies or airlines), OTA and other travel websites and, in many instances,compete directly with us for consumers. Meta-search services intend to appeal to consumers by showing broader travel search results than may be availablethrough OTAs or other travel websites, which could lead to travel service providers or others gaining a larger share of search traffic. TripAdvisor has begunsupporting its meta-search service with offline advertising, and trivago, a leading meta-search service in Europe, recently expanded its offline advertisingcampaign into the United States. Google offers "Hotel Finder", a meta-search service that Google has at times placed at or near the top of hotel-related searchresults. As a result of our recent acquisition of KAYAK, a meta-search service, we now compete more directly with other meta-search services. As a meta-search service, KAYAK depends on access to information related to travel service pricing, schedules, availability and other related information from OTAsand travel service providers. To the extent OTAs or travel service providers no longer provide such information to KAYAK, whether due to its affiliation withus or otherwise, KAYAK's business and results of operations could be harmed and the value of our investment in KAYAK could be adversely affected.As consumers attempt to be more efficient in their shopping behavior, they may favor travel services offered by meta-search sites or searchcompanies over OTAs, which could reduce traffic to our travel reservation websites, increase consumer awareness of our competitors' brands and websitesand increase our advertising and other customer acquisition costs. To the extent any such consumer behavior leads to growth in our KAYAK meta-searchbusiness, such growth may not result in sufficient increases in profits from our KAYAK meta-search business to offset any related decrease in profitsexperienced by our OTA brands. Further, meta-search services may evolve into more traditional OTAs by offering consumers the ability to make travelreservations directly through their websites. For example, TripAdvisor facilitates hotel reservations on its transaction websites Tingo and Jetsetter and intendsto allow consumers to make a reservation while staying on TripAdvisor. To the extent consumers book travel services through a meta-search website or directlywith a travel service provider after13 visiting a meta-search website or meta-search utility on a traditional search engine without using an OTA like us, or if meta-search services limit ourparticipation within their search results, we may need to increase our advertising or other customer acquisition costs to maintain or grow our reservationbookings, any of which could have an adverse effect on our business and results of operations.Travel service providers, including multi-national hotel chains, rental car companies and airlines with which we conduct business, compete with usin online channels to drive consumers to their own websites in lieu of third-party distributors such as us. Travel service providers that sell on their ownwebsites typically do not charge a processing fee, and, in some instances, offer advantages such as loyalty points, which could make their offerings moreattractive to consumers than models like ours.There has been a proliferation of new channels through which accommodations can offer reservations. For example, some accommodations offerreservations through "daily deal" websites such as Groupon and Living Social, which sell coupons to customers at a substantial discount. In 2011, Expedia,one of our largest competitors, entered into a partnership with Groupon to sell accommodation reservations to Groupon customers under the "GrouponGetaways" brand name. New entrants, such as HotelTonight, BackBid, GuestMob, Tingo, Hipmunk and Room 77, have developed new and differentiatedofferings that endeavor to provide savings on accommodation reservations to consumers and that compete directly with us. If any of these new services aresuccessful, we may experience less demand for our services and are likely to face more competition for access to the limited supply of discountedaccommodation room rates.In August 2013, Expedia and Travelocity announced that they had entered into an exclusive, long-term strategic marketing agreement, wherebyExpedia will power the technology platforms for Travelocity's existing websites in the United States and Canada, while providing Travelocity access toExpedia's supply and customer services. To the extent this arrangement enhances Expedia's and/or Travelocity's ability to compete with us in the affectedmarkets, our market share and results of operations could be adversely affected.Competition in U.S. online travel remains intense and online travel companies are creating new promotions and consumer value features in an effortto gain competitive advantages. In particular, the competition to provide "opaque" accommodation reservation services to consumers, an area in which ourpriceline.com U.S. business has been a leader, has become more intense. For example, Expedia makes opaque accommodation reservations available on itsprincipal website under the name "Expedia Unpublished Rates" and, we believe, has supported this initiative with steeper discounts through lower margins.As with our opaque Name Your Own Price® and Express Deals® accommodation reservation services, the name of the accommodation is not disclosed untilafter booking the reservation. We believe these offerings, in particular "Expedia Unpublished Rates," have adversely impacted the market share and year-over-year growth rate of our Name Your Own Price® opaque accommodation service, which began to experience a decline in room night reservations in the thirdquarter of 2011. These and other competitors could also launch opaque rental car services, which could negatively impact our opaque Name Your OwnPrice® rental car service. If Expedia or others are successful in growing their opaque accommodation reservation services, we may have less consumer demandfor our opaque accommodation reservation services over time, and we would face more competition for access to the limited supply of discountedaccommodation room rates. In an effort to compete more effectively against these new offerings, in 2012 we launched Express Deals®, a semi-opaque price-disclosed accommodation reservation service. While Express Deals® has been a significant contributor to the improved performance of our opaqueaccommodation reservation service, the offering may not ultimately be successful at recovering or growing U.S. accommodation reservation service marketshare. As a result of this increased competition, our share of the discount accommodation reservation market in the United States could further decrease,which would harm our business and results of operations.We believe that a number of factors, including recent year-over-year increases in retail airfares, could cause consumers to engage in increasedshopping behavior before making a travel purchase than they engaged in previously. Increased shopping behavior reduces our advertising efficiency andeffectiveness because traffic becomes less likely to result in a purchase on our website, and such traffic is more likely to be obtained through paid onlineadvertising channels than through free direct channels. Further, as consumers attempt to be more efficient in their shopping behavior, they may favor travelservices offered by search companies or meta-search sites over OTAs, which could reduce traffic to our travel reservation websites, increase consumerawareness of our competitors' brands and websites, increase our advertising and other customer acquisition costs and adversely affect our business, marginsand results of operations. To the extent any such increased shopping behavior leads to growth in our KAYAK meta-search business, such growth may notresult in sufficient increases in revenues from our KAYAK meta-search business to offset any related decrease in gross profit or increase in advertising andother customer acquisition costs experienced by our OTA brands.14 We rely on online advertising channels to enhance our brand awareness and to generate a significant amount of traffic to our websites.We believe that maintaining and expanding the Booking.com, priceline.com, Agoda.com, KAYAK and rentalcars.com brands, along with our otherowned brands, are important aspects of our efforts to attract and retain customers. Effective online advertising has been an important factor in our growth, andwe believe it will continue to be important to our future success. As our competitors spend increasingly more on advertising, we are required to spend more inorder to maintain our brand recognition and, in the case of online advertising, to maintain and grow traffic to our websites. In addition, we have investedconsiderable money and resources in the establishment and maintenance of the Booking.com, priceline.com, Agoda.com, KAYAK and rentalcars.com brands,and we will continue to invest resources in advertising, marketing and other brand building efforts to preserve and enhance consumer awareness of ourbrands. We may not be able to successfully maintain or enhance consumer awareness and acceptance of these brands, and, even if we are successful in ourbranding efforts, such efforts may not be cost-effective. If we are unable to maintain or enhance consumer awareness and acceptance of our brands in a cost-effective manner, our business, market share and results of operations would be materially adversely affected.Our advertising efficiency is impacted by a number of factors that are subject to variability and that are, in some cases, outside of our control,including ADRs, costs per click, cancellation rates, foreign exchange rates and our ability to convert paid traffic to booking customers and then havingcustomers return directly to our websites or mobile apps for future bookings. We use third party websites, including online search engines (primarily Google),meta-search and travel research services, and affiliate marketing as primary means of generating traffic to our websites. As a result, our online advertisingexpense has increased significantly in recent years, a trend we expect to continue. In addition, our online advertising has grown faster than our gross profit dueto (1) lower returns on investment ("ROIs") from our online advertising, (2) brand mix within The Priceline Group and (3) channel mix within certain of ourbrands. Our online advertising ROIs were down year-over-year for the year ended December 31, 2013. Furthermore, our international brands are generallygrowing faster than our U.S. brands, and typically spend a higher percentage of gross profit on online advertising. Finally, certain of our brands are obtainingan increasing share of traffic through paid online advertising channels. Any reduction in our advertising efficiency could have an adverse effect on ourbusiness and results of operations, whether through reduced gross profit or gross profit growth or through advertising expenses increasing faster than grossprofit and thereby reducing margins and earnings growth.Recent trends in consumer adoption and use of mobile devices create new challenges and may enable device companies such as Apple tocompete directly with us.Widespread adoption of mobile devices, such as the iPhone, Android-enabled smart phones, and tablets such as the iPad, coupled with the improvedweb browsing functionality and development of thousands of useful "apps" available on these devices, is driving substantial traffic and commerce activity tomobile platforms. We have experienced a significant shift of business to mobile platforms and our advertising partners are also seeing a rapid shift of traffic tomobile platforms. Our major competitors and certain new market entrants are offering mobile applications for travel products and other functionality,including proprietary last-minute discounts for accommodation reservations. Advertising and distribution opportunities may be more limited on mobiledevices given their smaller screen sizes. The gross profit earned on a mobile transaction may be less than a typical desktop transaction due to differentconsumer purchasing patterns. For example, accommodation reservations made on a mobile device typically are for shorter lengths of stay and are not made asfar in advance. Further, given the device sizes and technical limitations of tablets and smartphones, mobile consumers may not be willing to downloadmultiple apps from multiple travel service providers and instead prefer to use one or a limited number of apps for their mobile travel activity. As a result, theconsumer experience with mobile apps as well as brand recognition and loyalty are likely to become increasingly important. We have made significant progresscreating mobile offerings that have received strong reviews and achieved solid download trends, and that are driving a material and increasing share of ourbusiness. We believe that mobile bookings present an opportunity for growth and are necessary to maintain and grow our business as consumers increasinglyturn to mobile devices instead of a personal computer and to mobile applications instead of a web browser. Further, many consumers use a mobile devicebased web browser instead of an app. As a result, it is increasingly important for us to develop and maintain effective mobile websites optimized for mobiledevices to provide customers with appealing easy-to-use mobile website functionality. If we are unable to continue to rapidly innovate and create new, user-friendly and differentiated mobile offerings and efficiently and effectively advertise and distribute on these platforms, or if our mobile apps are notdownloaded and used by consumers, we could lose market share to existing competitors or new entrants and our future growth and results of operations couldbe adversely affected.Apple, one of the most innovative and successful companies in the world and producer of, among other things, the iPhone and iPad, obtained apatent for "iTravel," a mobile app that would allow a traveler to check in for a travel reservation. In addition, Apple's iPhone operating system includes"Passbook," a virtual wallet app that holds tickets, boarding passes, coupons and gift cards, and, along with iTravel, may be indicative of Apple's intent toenter the travel reservations business in15 some capacity. Apple has substantial market share in the smart phone category and controls integration of offerings, including travel services, into its mobileoperating system. Apple also has more experience producing and developing mobile apps and has access to greater resources than we have. Apple may use orexpand iTravel, Passbook, Siri (Apple's voice recognition "concierge" service) or another mobile app as a means of entering the travel reservationsmarketplace. Similarly, Google's Android operating system is the leading smart phone operating system in the world. As a result, Google could leverage itsAndroid operating system to give its travel services a competitive advantage, either technically or with prominence on its Google Play app store or within itsmobile search results. To the extent Apple or Google use their mobile operating systems or app distribution channels to favor their own travel service offerings,our business could be harmed.We are exposed to fluctuations in currency exchange rates.We conduct a substantial majority of our business outside the United States but are reporting our results in U.S. Dollars. As a result, we faceexposure to adverse movements in currency exchange rates as the financial results of our international business are translated from local currency (principallythe Euro and the British Pound Sterling) into U.S. Dollars upon consolidation. For example, a strengthening of the Euro increases our Euro-denominated netassets, gross bookings, gross profit, operating expenses, and net income as expressed in U.S. Dollars, while a weakening of the Euro decreases our Euro-denominated net assets, gross bookings, gross profit, operating expenses, and net income as expressed in U.S. Dollars. Additionally, foreign exchange ratefluctuations on transactions denominated in currencies other than the functional currency result in gains and losses that are reflected in our financial results.Certain European Union countries with high levels of sovereign debt have had difficulty refinancing their debt. Concern around devaluation or abandonmentof the Euro common currency, or that sovereign default risk may become more widespread and could include the United States, has led to significant volatilityin the exchange rate between the Euro, the British Pound Sterling, the U.S. Dollar and other currencies. Sovereign debt issues in the European Union couldlead to further significant, and potentially longer-term, devaluation of the Euro against the U.S. Dollar, which would adversely impact our Euro-denominatednet assets, gross bookings, revenues, operating expenses, and net income as expressed in U.S. Dollars.Our processing, storage, use and disclosure of personal data exposes us to risks of internal or external security breaches and could give riseto liabilities.The security of data when engaging in electronic commerce is essential to maintaining consumer and travel service provider confidence in ourservices. Any security breach whether instigated internally or externally on our system or other Internet based systems could significantly harm our reputationand therefore our business, brand, market share and results of operations. We currently require consumers who use certain of our services to guarantee theiroffers with their credit card, either online or, in some instances, through our toll-free telephone service. We require user names and passwords in order toaccess our information technology systems. We also use encryption and authentication technologies to secure the transmission and storage of data and preventaccess to our data or accounts. It is possible that computer circumvention capabilities, new discoveries or advances or other developments, including our ownacts or omissions, could result in a compromise or breach of consumer data. For example, third parties may attempt to fraudulently induce employees orcustomers to disclose user names, passwords or other sensitive information ("phishing"), which may in turn be used to access our information technologysystems. Our efforts to protect information from unauthorized access may be unsuccessful or may result in the rejection of legitimate attempts to bookreservations through our services, any of which could result in lost business and materially adversely affect our business, reputation and results ofoperations.Our existing security measures may not be successful in preventing security breaches. A party (whether internal, external, an affiliate or unrelatedthird party) that is able to circumvent our security systems could steal consumer information or transaction data or other proprietary information. In the lastfew years, several major companies, including Target, Zappos, Apple, AOL, LinkedIn, Google, and Yahoo! experienced high-profile security breaches thatexposed their customers' personal information. We expend significant resources to protect against security breaches, and we may need to increase our securityrelated expenditures to maintain or increase our systems' security or to address problems caused and liabilities incurred by breaches. These issues are likely tobecome more difficult to manage as we expand the number of places where we operate and as the tools and techniques used in such attacks become moreadvanced. Security breaches could result in negative publicity, damage our reputation, expose us to risk of loss or litigation and possible liability and subjectus to regulatory penalties and sanctions. Security breaches could also cause consumers to lose confidence in our security and choose to use the services of ourcompetitors, which would have a negative effect on the value of our brand, our market share and our results of operations. Our insurance policies carry lowcoverage limits, and would likely not be adequate to reimburse us for losses caused by security breaches.We also face risks associated with security breaches affecting third parties conducting business over the Internet. Consumers generally are concernedwith security and privacy on the Internet, and any publicized security problems could inhibit the growth of the Internet and negatively affect consumers'willingness to provide private information or effect16 commercial transactions on the Internet generally, including through our services. Some of our business is conducted with third party marketing affiliates,which may generate travel reservations through our infrastructure or through other systems. Additionally, consumers using our services could be affected bysecurity breaches at third parties such as travel service providers or global distribution systems ("GDSs") upon which we rely. A security breach at any suchthird party marketing affiliate, travel service provider, GDS or other third party on which we rely could be perceived by consumers as a security breach of oursystems and in any event could result in negative publicity, damage our reputation, expose us to risk of loss or litigation and possible liability and subject usto regulatory penalties and sanctions. In addition, such third parties may not comply with applicable disclosure requirements, which could expose us toliability.In our processing of travel transactions, we receive and store a large volume of personally identifiable data. This data is increasingly subject tolegislation and regulations in numerous jurisdictions around the world, including the Commission of the European Union through its Data Protection Directiveand variations of that directive in the member states of the European Union. This government action is typically intended to protect the privacy of personaldata that is collected, processed and transmitted in or from the governing jurisdiction. In many cases, these laws apply not only to third-party transactions,but also to transfers of information between us and our subsidiaries, including employee information. These laws continue to develop and may be inconsistentfrom jurisdiction to jurisdiction. Non-compliance with these laws could result in penalties or significant legal liability. We could be adversely affected iflegislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation orregulations in ways that negatively affect our business, results of operations or financial condition.We are also subject to payment card association rules and obligations under our contracts with payment card processors. Under these rules andobligations, if information is compromised, we could be liable to payment card issuers for associated expenses and penalties. In addition, if we fail to followpayment card industry security standards, even if no customer information is compromised, we could incur significant fines or experience a significantincrease in payment card transaction costs.System capacity constraints, system failures or "denial-of-service" or other attacks could harm our business.We have experienced rapid growth in consumer traffic to our websites and through our mobile apps, the number of accommodations on our extranetsand the geographic breadth of our operations. If our systems cannot be expanded to cope with increased demand or fail to perform, we could experienceunanticipated disruptions in service, slower response times, decreased customer service and customer satisfaction and delays in the introduction of newservices, any of which could impair our reputation, damage our brands and materially and adversely affect our results of operations. Further, as an onlinebusiness, we are dependent on the Internet and maintaining connectivity between ourselves and consumers, sources of Internet traffic, such as Google, and ourtravel service providers. As consumers increasingly turn to mobile devices, we also become dependent on consumers' access to the Internet through mobilecarriers and their systems. Disruptions in Internet access, whether generally, in a specific market or otherwise, especially if widespread or prolonged, couldmaterially adversely affect our business and results of operations. While we do maintain redundant systems and hosting services, it is possible that we couldexperience an interruption in our business, and we do not carry business interruption insurance sufficient to compensate us for all losses that may occur.Our computer hardware for operating our services is currently located at hosting facilities around the world. These systems and operations arevulnerable to damage or interruption from human error, floods, fires, power loss, telecommunication failures and similar events. They are also subject tobreak-ins, sabotage, intentional acts of vandalism and similar misconduct. Despite any precautions we may take, the occurrence of any disruption of servicedue to any such misconduct, natural disaster or other unanticipated problems at such facilities, or the failure by such facilities to provide our required datacommunications capacity could result in lengthy interruptions or delays in our services. Any system failure that causes an interruption or delay in servicecould impair our reputation, damage our brands or result in consumers choosing to use a competitive service, any of which could have a material adverseeffect on our business and results of operations.Our existing security measures may not be successful in preventing attacks on our systems, and any such attack could cause significantinterruptions in our operations. For instance, from time to time, we have experienced "denial-of-service" type attacks on our systems that have made portionsof our websites slow or unavailable for periods of time. There are numerous other potential forms of attack, such as "phishing" (where a third party attemptsto infiltrate our systems or acquire information by posing as a legitimate inquiry or electronic communication), SQL injection (where a third party attempts toobtain information or otherwise insert malicious code into our software through data entry fields in our websites) and attempting to use our websites as aplatform to launch a "denial-of-service" attack on another party, each of which could cause significant interruptions in our operations and potentiallyadversely affect our brand, operations and results of operations or involve us in legal or regulatory proceedings. We expend significant resources in an attemptto prepare for and mitigate the effects of any such attacks. Reductions in website availability and response time could cause loss of substantial businessvolumes during the17 occurrence of any such attack on our systems, and measures we may take to divert suspect traffic in the event of such an attack could result in the diversionof bona fide customers. These issues are likely to become more difficult to manage as we expand the number of places where we operate and as the tools andtechniques used in such attacks become more advanced. Successful attacks could result in negative publicity, damage our reputation and prevent consumersfrom booking travel services through us during the attack, any of which could cause consumers to use the services of our competitors, which would have anegative effect on the value of our brand, our market share and our results of operations.We rely on certain third party computer systems and third party service providers, including GDSs and computerized central reservation systems ofthe accommodation, rental car and airline industries in connection with providing some of our services. Any interruption in these third party services systemsor deterioration in their performance could prevent us from booking related accommodation, rental car and airline reservations and have a material adverseeffect on our business, brands and results of operations. Our agreements with some third party service providers are terminable upon short notice and often donot provide recourse for service interruptions. In the event our arrangement with any such third party is terminated, we may not be able to find an alternativesource of systems support on a timely basis or on commercially reasonable terms and, as a result, it could have a material adverse effect on our business andresults of operations.We depend upon various third parties to process credit cards for our merchant transactions around the world. In addition, we rely on third parties toprovide credit card numbers which we use as a payment mechanism for merchant transactions. If any such third party were wholly or partially compromised,our cash flows could be disrupted or we may not be able to generate merchant transactions (and related revenues) until such a time as a replacement processcould be put in place with a different vendor.We do not have a completely formalized or comprehensive disaster recovery plan in every geographic region in which we conduct business. In theevent of certain system failures, we may not be able to switch to back-up systems immediately and the time to full recovery could be prolonged. Like manyonline businesses, we have experienced system failures from time to time. In addition to placing increased burdens on our engineering staff, these outages createa significant amount of consumer questions and complaints that need to be addressed by our customer support personnel. Any unscheduled interruption inour service could result in an immediate loss of revenues that can be substantial, increase customer service cost, harm our reputation and cause someconsumers to switch to our competitors. If we experience frequent or persistent system failures, our reputation and brand could be permanently andsignificantly harmed. We have taken and continue to take steps to increase the reliability and redundancy of our systems. These steps are expensive, mayreduce our margins and may not be successful in reducing the frequency or duration of unscheduled downtime.We use both internally developed systems and third-party systems to operate our services, including transaction processing, order management andfinancial systems. If the number of consumers using our services increases substantially, or if critical third-party systems stop operating as designed, we willneed to significantly expand and upgrade our technology, transaction processing systems, financial and accounting systems and other infrastructure. We maynot be able to upgrade our systems and infrastructure to accommodate such conditions in a timely manner, and, depending on the third-party systemsaffected, our transactional, financial and accounting systems could be impacted for a meaningful amount of time before upgrade, expansion or repair.We may have exposure to additional tax liabilities.As an international business providing travel reservation and advertising services around the world, we are subject to income taxes and non-incomebased taxes in both the United States and various non-U.S. jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions may besubject to significant change. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates,changes in the valuation of deferred tax assets or changes in tax laws or their interpretation. If our effective tax rates were to increase, our cash flows, financialcondition and results of operations would be adversely affected.Although we believe that our tax filing positions are reasonable, the final determination of tax audits or tax disputes may be different from what isreflected in our historical income tax provisions and accruals. To date, we have been audited in several taxing jurisdictions with no significant impact on ourfinancial condition, results of operations or cash flows. If future audits find that additional taxes are due, we may be subject to incremental tax liabilities,possibly including interest and penalties, which could have a material adverse effect on our cash flows, financial condition and results of operations.For example, French authorities have initiated an audit to determine whether we are in compliance with our tax obligations in France. While webelieve that we comply with French tax law, French tax authorities may determine that we owe additional taxes, and may also assess penalties and interest. Ingeneral, governments in the United States and Europe are increasingly focused on ways to increase revenues, which has contributed to an increase in auditactivity and harsher stances18 taken by tax authorities. Any such additional taxes or other assessments may be in excess of our current tax provisions or may require us to modify ourbusiness practices in order to reduce our exposure to additional taxes going forward, any of which could have a material adverse effect on our business, resultsof operations and financial condition.We will be subject to increased income taxes in the event that our cash balances held outside the United States are remitted to the United States. As ofDecember 31, 2013, we held approximately $4.9 billion of cash, cash equivalents and short-term investments outside of the United States. We currentlyintend to use our cash held outside the United States to reinvest in our non-U.S. operations. If our cash balances outside the United States continue to growand our ability to reinvest those balances outside the United States diminishes, it will become increasingly likely that we will repatriate some of these cashbalances to the United States. In such event, we would likely be subject to additional income tax expense in the United States with respect to our unremittednon-U.S. earnings. We would not make additional income tax payments unless we were to actually repatriate our international cash balances to the UnitedStates. We would only pay federal alternative minimum tax and certain state income taxes as long as we have net operating loss carryforwards available tooffset our U.S. taxable income. Additionally, if we were to repatriate cash held outside the United States to the United States, it would use a portion of ourU.S. net operating loss carryforwards which could result in us being subject to a cash income tax liability on the earnings of our U.S. business sooner thanwould otherwise have been the case.U.S. President Barack Obama's Administration has proposed significant changes to U.S. international tax laws that include a minimum tax onforeign earnings, limiting U.S. deductions for interest expense related to un-repatriated non-U.S.-source income and putting in place certain tax disincentivesfor offshoring jobs or business segments. We cannot determine whether all of these proposals will be enacted into law or what, if any, changes may be made tosuch proposals prior to being enacted into law. If U.S. tax laws change in a manner that increases our tax obligations, our results of operations could beadversely impacted.Additionally, the Organisation for Economic Co-Operation and Development ("OECD") issued an action plan in July 2013 calling for a coordinatedmulti-jurisdictional approach to "base erosion and profit shifting" by multinational companies. The action plan expressed the OECD's view that internationaltax standards have not kept pace with changes in global business practices and concluded that changes are needed to international tax laws to addresssituations where multinationals may pay little or no tax in certain jurisdictions by shifting profits away from jurisdictions where the activities creating thoseprofits may take place. The action plan identified 15 actions the OECD determined are needed to address "base erosion and profit shifting" and generally settarget dates for completion of each of the items between 2014 and 2015. Any changes to international tax laws, including new definitions of permanentestablishment, could impact the tax treatment of our foreign earnings and adversely impact our effective tax rate. Due to the large and expanding scale of ourinternational business activities, any changes in U.S. or international taxation of our activities may increase our worldwide effective tax rate and couldadversely affect our financial position and results of operations.We are also subject to non-income based taxes, such as value-added, payroll, sales, use, net worth, property and goods and services taxes, in theUnited States and various non-U.S. jurisdictions, as well as the potential for travel transaction taxes in the United States as discussed below. From time totime, we are under audit by tax authorities with respect to these non-income based taxes and may have exposure to additional non-income based tax liabilities.For example, in July 2012 and December 2013, the Dutch Government enacted certain amendments to Dutch tax law including a one-time irrevocablelevy on an employer applied to employee earnings, equal to 16% of an employee's earnings in excess of 150,000 Euros. This levy resulted in additional payrolltaxes of approximately $12 million (approximately $9 million after tax) in the fourth quarter of 2013 and approximately $14 million (approximately $10million after tax) principally recorded in the third quarter of 2012.We may not be able to maintain our "Innovation Box Tax" benefit.The Netherlands corporate income tax law provides that income generated from qualifying "innovative" activities is taxed at the rate of 5%("Innovation Box Tax") rather than the Dutch statutory rate of 25%. Booking.com obtained a ruling from the Dutch tax authorities in February 2011confirming that a portion of its earnings ("qualifying earnings") is eligible for Innovation Box Tax treatment. This ruling was renewed in July 2013 and isvalid through December 31, 2017.In order to be eligible for Innovation Box Tax treatment, Booking.com must, among other things, apply for and obtain a research and development("R&D") certificate from a Dutch governmental agency every six months confirming that the activities that Booking.com intends to be engaged in over thesubsequent six month period are "innovative." The R&D certificate is current but should Booking.com fail to secure such a certificate in any future period -for example, because the governmental agency does not view Booking.com's new or anticipated activities as innovative - or should this agency determine thatthe activities contemplated to be performed in a prior period were not performed as contemplated or did not19 comply with the agency's requirements, Booking.com may lose its certificate and, as a result, the Innovation Box Tax benefit may be reduced or eliminated.Booking.com intends to apply for continued Innovation Box Tax treatment for future periods. However, Booking.com's application may not beaccepted, or, if accepted, the amount of qualifying earnings may be reduced or the applicable tax rate on qualifying earnings may be higher than the currentrate. In addition, the tax law may change resulting in a reduction or elimination of the tax benefit. The loss of the Innovation Box Tax benefit would increaseour effective tax rate and adversely impact our results of operations.Our financial results will likely be materially impacted by payment of income taxes in the future.Until our U.S. net operating loss carryforwards are utilized or expire, we do not expect to make tax payments on most of our U.S. income, except forU.S. federal alternative minimum tax and state income taxes. However, we expect to pay non-U.S. taxes on our non-U.S. income other than in countries wherewe have operating loss carryfowards. We expect that our international business will continue to generate most of our revenues and profits and will continue togrow pretax income at a higher rate than our U.S. business and, therefore, we expect that our tax payments will continue to increase. Any increase in oureffective tax rate would have an adverse effect on our results of operations.Adverse application of state and local tax laws could have an adverse effect on our business and results of operations.A number of jurisdictions in the United States have initiated lawsuits against online travel companies, including us, related to, among other things,the payment of travel transaction taxes (e.g., hotel occupancy taxes, excise taxes, sales taxes, etc.). In addition, a number of U.S. states, counties andmunicipalities have initiated audit proceedings, issued proposed tax assessments or started inquiries relating to the payment of travel transaction taxes. SeeNote 16 to the Consolidated Financial Statements for a description of these pending cases and proceedings. Additional state and local jurisdictions are likely toassert that we are subject to, among other things, travel transaction taxes and could seek to collect such taxes, either retroactively or prospectively, or both.In connection with some travel transaction tax audits and assessments, we may be required to pay any assessed taxes, which amounts may besubstantial, prior to being allowed to contest the assessments and the applicability of the laws in judicial proceedings. This requirement is commonly referredto as "pay to play" or "pay first." Payment of these amounts, if any, is not an admission that we believe that we are subject to such taxes and, even if we makesuch payments, we intend to continue to vigorously assert our position that we should not be subject to such taxes.Litigation is subject to uncertainty and there could be adverse developments in these pending or future cases and proceedings. For example, inSeptember 2012, the Superior Court in the District of Columbia granted a summary judgment in favor of the city and against online travel companies.Similarly, in January 2013, the Tax Appeal Court for the State of Hawaii held that online travel companies, including us, are liable for the State's generalexcise tax on the full amount the online travel company collects from the customer for a hotel room reservation, without any offset for amounts passed throughto the hotel. We recorded an accrual for travel transaction taxes (including estimated interest and penalties) of approximately $16.5 million in December 2012and approximately $18.7 million in the three months ended March 31, 2013, primarily related to this ruling. During the year ended December 31, 2013, theCompany paid approximately $20.6 million under protest to the State of Hawaii related to this ruling. The Company has filed an appeal with the Tax AppealCourt and intends to vigorously appeal this ruling. These decisions and any similar decisions in other jurisdictions could have a material adverse effect on ourbusiness, margins and results of operations. An unfavorable outcome or settlement of pending litigation may encourage the commencement of additionallitigation, audit proceedings or other regulatory inquiries. In addition, an unfavorable outcome or settlement of these actions or proceedings could result insubstantial liabilities for past and/or future bookings, including, among other things, interest, penalties, punitive damages and/or attorney fees and costs.There have been, and will continue to be, substantial ongoing costs, which may include "pay first" payments, associated with defending our position inpending and any future cases or proceedings. An adverse outcome in one or more of these unresolved proceedings could have a material adverse effect on ourbusiness and results of operations and could be material to our results of operations or cash flows in any given fiscal period.To the extent that any tax authority succeeds in asserting that we have a tax collection responsibility, or we determine that we have such aresponsibility, with respect to future transactions, we may collect any such additional tax obligation from our customers, which would have the effect ofincreasing the cost of travel reservations to our customers and, consequently, could make our travel reservation service less competitive (i.e., versus thewebsites of other online travel companies or travel service providers) and reduce our travel reservation transactions; alternatively, we could choose to reduceour profit on affected travel transactions. Either action could have a material adverse effect on our business and results of operations.20 In many of the judicial and other proceedings initiated to date, the taxing jurisdictions seek not only historical taxes that are claimed to be owed on ourgross profit, but also, among other things, interest, penalties, punitive damages and/or attorney fees and costs. Therefore, any liability associated with traveltransaction tax matters is not constrained to our liability for tax owed, but may also include, among other things, penalties, interest and attorneys' fees. Todate, the majority of the taxing jurisdictions in which we facilitate travel reservations have not asserted that taxes are due and payable on our travel services. With respect to taxing jurisdictions that have not initiated proceedings to date, it is possible that they will do so in the future or that they will seek to amendtheir tax statutes and seek to collect taxes from us only on a prospective basis.We are dependent on providers of accommodations, rental cars and airline tickets.We rely on providers of accommodations, rental cars and airline tickets to make their services available to consumers through us. Our arrangementswith travel service providers generally do not require them to make available any specific quantity of accommodation reservations, rental cars or airlinetickets, or to make accommodation reservations, rental cars or airline tickets available in any geographic area, for any particular route or at any particularprice. During the course of our business, we are in continuous dialog with our major travel service providers about the nature and extent of their participationin our services. A significant reduction on the part of any of our major travel service providers or providers that are particularly popular with consumers intheir participation in our services for a sustained period of time or their complete withdrawal could have a material adverse effect on our business, marketshare and results of operations. To the extent any of those major or popular travel service providers ceased to participate in our services in favor of one of ourcompetitors' systems or decided to require consumers to purchase services directly from them, our business, market share and results of operations could beharmed.Further, KAYAK, a meta-search service, depends on access to information related to travel service pricing, schedules, availability and other relatedinformation from OTAs and travel service providers to attract consumers. To obtain this information, KAYAK maintains relationships with travel serviceproviders and OTAs. Many of KAYAK's agreements with travel service providers and OTAs are short-term agreements that may be terminated on 30 days'notice. To the extent OTAs or travel service providers no longer provide such information to KAYAK, whether due to its affiliation with us or otherwise,KAYAK's ability to provide comprehensive travel service information to consumers could be diminished and its brand, business and results of operationscould be harmed. To the extent consumers do not view KAYAK as a reliable source of comprehensive travel service information, fewer consumers wouldlikely visit its websites, which would also likely have a negative impact on KAYAK's advertising revenue and results of operations. In addition, if travelservice providers or OTAs choose not to advertise with KAYAK or choose to reduce or eliminate the fees paid to KAYAK for referrals from query results,KAYAK's results of operations and the value of our investment in KAYAK could be materially adversely affected.Our business could be negatively affected by changes in Internet search engine algorithms and dynamics or traffic-generating arrangements.We utilize Google and, to a much lesser extent, other search engines and travel demand aggregation websites to generate traffic to our websites,principally through the purchase of travel-related keywords. Search engines such as Google frequently update and change the logic which determines theplacement and display of results of a consumer's search, such that the placement of links to our websites can be negatively affected. For example, Googlelaunched "Hotel Finder," a utility that allows consumers to search and compare hotel accommodations based on parameters set by the consumer and thatGoogle has at times placed at or near the top of hotel-related search results. If Google changes its search algorithms in a manner that is competitivelydisadvantageous to us, whether to support its own travel related services or otherwise, our ability to generate traffic to our websites would be harmed, which inturn could have an adverse effect on our business, market share and results of operations.A significant amount of our website traffic is directed to our websites through participation in pay-per-click advertising campaigns on Internet searchengines whose pricing and operating dynamics can experience rapid change commercially, technically and competitively. In addition, we purchase websitetraffic from a number of sources, including some operated by our competitors, in the form of pay-per-click arrangements that can be terminated with little orno notice. If one or more of such arrangements is terminated, our business, market share and results of operations could be adversely affected.In addition, we rely on various third party distribution channels (i.e., marketing affiliates) to distribute hotel room and rental car reservations.Should one or more of such third parties cease distribution of reservations made through us, or suffer deterioration in its search engine ranking, due tochanges in search engine algorithms or otherwise, our business and results of operations could be negatively affected.21 We rely on the performance of highly skilled personnel; and, if we are unable to retain or motivate key personnel or hire, retain and motivatequalified personnel, our business would be harmed.Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability toidentify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. In particular, the contributions of certain key seniormanagement in the United States, Europe and Asia are critical to the overall management of our business. We may not be able to retain the services of anymembers of our senior management or other key employees, the loss of whom could harm our business.In addition, competition for well-qualified employees in all aspects of our business, including software engineers, mobile communication talent andother technology professionals, is intense both in the United States and abroad. Our international success in particular has led to increased efforts by ourcompetitors and others to hire our international employees. Our continued ability to compete effectively depends on our ability to attract new employees and toretain and motivate existing employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our businesswould be adversely affected. We do not maintain any key person life insurance policies.Regulatory and legal requirements and uncertainties could harm our business.The services we offer are subject to legal regulations (including laws, ordinances, rules and other requirements and regulations) of national and localgovernments and regulatory authorities around the world, many of which are evolving and subject to the possibility of new or revised interpretations. Ourability to provide our services is and will continue to be affected by such regulations. The implementation of unfavorable regulations or unfavorableinterpretations of existing regulations by judicial or regulatory bodies could require us to incur significant compliance costs, cause the development of theaffected markets to become impractical and otherwise have a material adverse effect on our business and results of operations.Compliance with the laws and regulations of multiple jurisdictions increases our cost of doing business. These laws and regulations, which varyand sometimes conflict, include the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and local laws which also prohibit corrupt payments togovernmental officials or third parties, data privacy requirements, labor relations laws, tax laws, antitrust or competition laws, U.S., E.U. or U.N.sanctioned country or sanctioned persons mandates, and consumer protection laws. Violations of these laws and regulations could result in fines and/orcriminal sanctions against us, our officers or our employees and/or prohibitions on the conduct of our business. Any such violations could result inprohibitions on our ability to offer our services in one or more countries, could delay or prevent potential acquisitions, and could also materially damage ourreputation, our brands, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. In addition,these restrictions may provide a competitive advantage to our competitors unless they are also subject to comparable restrictions. Our success depends, in part,on our ability to anticipate these risks and manage these difficulties. We are also subject to a variety of other regulatory and legal risks and challenges inmanaging an organization operating in various countries, including those related to:•regulatory changes or other government actions;•additional complexity to comply with regulations in multiple jurisdictions, as well as overlapping or inconsistent legal regimes, in particular withrespect to tax, labor, consumer protection, digital content, advertising, promotions, privacy and anti-trust laws;•our ability to repatriate funds held by our non-U.S. subsidiaries to the United States at favorable tax rates;•difficulties in transferring funds from or converting currencies in certain countries; and•reduced protection for intellectual property rights in some countries.Our business has grown substantially over the last several years and continues to expand into new geographic locations. In addition, we have madeefforts and expect to make further efforts to integrate access to travel services across our various brands. These changes add complexity to legal and taxcompliance, and our increased size and operating history may increase the likelihood that we will be subject to audits by tax authorities in variousjurisdictions.As the size of our business grows, we may become increasingly subject to the scrutiny of anti-trust and competition regulators.In July 2012, the Office of Fair Trading (the "OFT"), the competition authority in the United Kingdom, issued a "Statement of Objections" ("SO")to Booking.com, which set out the OFT's preliminary views on why it believed Booking.com22 and others in the online accommodation reservation sector were allegedly in breach of E.U. and U.K. competition law. The SO alleged, among other things,that there were agreements or concerted practices between accommodations and Booking.com and at least one other online travel company that restrictedBooking.com's (and the other online travel company's) ability to discount hotel room reservations, which the OFT alleged was a form of resale pricemaintenance. We dispute the allegations against Booking.com in the SO. Booking.com runs an agency model accommodation reservation platform in whichaccommodations have complete discretion and control over setting the prices that appear on the Booking.com website. Booking.com is a facilitator ofaccommodation room reservations; it does not take possession of or title to accommodation rooms and is not a reseller of accommodation rooms. BecauseBooking.com plays no role in price setting, does not control pricing and does not resell accommodation rooms, it does not believe that it engages in the conductalleged in the SO. On August 9, 2013, the OFT announced its intention to accept commitments offered by Booking.com, as well as Expedia andIntercontinental Hotel Group, to close the investigation. The OFT sought feedback on the proposed commitments from the public. In light of the feedbackreceived during the consultation and input from the European Commission, the parties submitted revised commitments. On December 20, 2013, the OFTopened a further public consultation on the revised commitments proposed by the parties. This further consultation closed on January 17, 2014. On January31, 2014, the OFT announced that it accepted the revised commitments ("Commitments") from the parties on the basis that they address the OFT'scompetition concerns. The OFT has now closed its investigation with no finding of infringement or admission of wrongdoing and no imposition of a fine. TheCommitments provide, among other things, that hotels will continue to be able to set retail prices for hotel room reservations on all online travel companywebsites, such as Booking.com. Online travel companies, such as Booking.com, now have the flexibility to discount a hotel's retail price, but only tomembers of closed groups, a concept that is defined in the Commitments, who have previously made a reservation with the online travel company. Thediscount may be up to Booking.com's commission. In addition, Booking.com will not require rate parity from hotels in relation to discounted rates that areprovided by other online travel companies or hotels to members of their closed groups, provided the discounted rate is not made public. The Commitmentsapply to bookings by EEA residents at U.K. hotels.In addition, the competition authorities of many governments have begun investigations into competitive practices within the online travel industry,and we may be involved or affected by such investigations and their results. For example, national competition authorities in France, Germany, Austria,Hungary, Sweden and Switzerland have opened investigations that focus on Booking.com's rate parity clause in its contracts with accommodation providersin those jurisdictions. All of these investigations are at a preliminary stage. We are currently unable to predict the outcome of these investigations or how ourbusiness may be affected. Possible outcomes include requiring Booking.com to remove its rate parity clause from its contracts with accommodation providersin those jurisdictions. We note that the German competition authority has required Hotel Reservation Service to remove its rate parity clause from its contractswith hotels, though this decision is currently subject to appeal. To the extent that regulatory authorities require changes to our business practices or to thosecurrently common to the industry, our business, competitive position and results of operations could be materially and adversely affected. Negative publicityregarding any such investigations could adversely affect our brand and therefore our market share and results of operations.Further, as our business grows, we may increasingly become the target of such investigations or be limited by anti-trust or competition laws. Forexample, our size and market share may negatively affect our ability to obtain regulatory approval of proposed acquisitions or our ability to expand intocomplementary businesses, any of which could adversely affect our ability to grow and compete."Cookie" laws could negatively impact the way we do business.A "cookie" is a text file that is stored on a user's web browser by a website. Cookies are common tools used by thousands of websites, includingours, to, among other things, store or gather information (e.g., remember log-on details so a user does not have to re-enter them when revisiting a website) andenhance the user experience on a website. Cookies are valuable tools for websites like ours to improve the customer experience and increase conversion on theirwebsites.The European Union's ePrivacy Directive requires member countries to adopt regulations governing the use of "cookies" by websites servicingconsumers in the European Union. For example, on June 5, 2012, an amendment to the Dutch Telecommunications Act became effective. The amended actrequires websites, including Booking.com, to provide Dutch users with clear and comprehensive information about the storage and use of certain cookies andobtain prior consent from the user before placing certain cookies on a user's web browser. To the extent any such regulations require "opt-in" consent beforecertain cookies can be placed on a user's web browser, our ability, in particular Booking.com's ability, to serve certain customers in the manner we currentlydo might be adversely affected and our ability to continue to improve and optimize performance on our websites might be impaired, either of which couldnegatively affect a consumer's experience using our services. As a result, these regulations could have a material adverse effect on our business, market shareand results of operations.23 Our stock price is highly volatile.The market price of our common stock is highly volatile and is likely to continue to be subject to wide fluctuations in response to factors such as thefollowing, some of which are beyond our control:•operating results that vary from the expectations of securities analysts and investors;•quarterly variations in our operating results;•changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;•worldwide economic conditions in general and in Europe in particular;•fluctuations in currency exchange rates, particularly between the U.S. Dollar and the Euro;•announcements of technological innovations or new services by us or our competitors;•changes in our capital structure;•changes in market valuations of other Internet or online service companies;•announcements by us or our competitors of price reductions, promotions, significant contracts, acquisitions, strategic partnerships, joint ventures orcapital commitments;•loss of a major travel service provider participant, such as a hotel chain, rental car company or airline, from our services;•changes in the status of our intellectual property rights;•lack of success in the expansion of our business model geographically;•announcements by third parties of significant claims or initiation of litigation proceedings against us or adverse developments in pendingproceedings;•occurrences of a significant security breach;•additions or departures of key personnel; and•trading volume fluctuations.Sales of a substantial number of shares of our common stock could adversely affect the market price of our common stock by introducing a largenumber of sellers to the market. Given the volatility that exists for our shares, such sales could cause the market price of our common stock to declinesignificantly. In addition, fluctuations in our stock price and our price-to-earnings multiple may have made our stock attractive to momentum, hedge or day-trading investors who often shift funds into and out of stocks rapidly, exacerbating price fluctuations in either direction, particularly when viewed on aquarterly basis.The trading prices of Internet company stocks in general, including ours, have experienced extreme price and volume fluctuations. To the extent thatthe public's perception of the prospects of Internet or e-commerce companies is negative, our stock price could decline, regardless of our results. Other broadmarket and industry factors may decrease the market price of our common stock, regardless of our operating performance. Market fluctuations, as well asgeneral political and economic conditions, such as a recession or interest rate or currency rate fluctuations, could cause our stock price to decline. Negativemarket conditions could adversely affect our ability to raise additional capital or the value of our stock for purposes of acquiring other companies orbusinesses.We have, in the past, been a defendant in securities class action litigation. Securities class action litigation has often been brought against a companyfollowing periods of volatility in the market price of its securities. To the extent our stock price declines or is volatile, we may in the future be the target ofadditional litigation. This additional litigation could result in24 substantial costs and divert management's attention and resources, either of which could adversely affect our business, financial condition and results ofoperations.We may not be able to keep up with rapid technological changes.The markets in which we compete are characterized by rapidly changing technology, evolving industry standards, consolidation, frequent newservice announcements, introductions and enhancements and changing consumer demands. We may not be able to keep up with these rapid changes. Inaddition, these market characteristics are heightened by the progress of technology adoption in various markets, including the continuing adoption of theInternet and online commerce in certain geographies and the emergence and growth of the use of smart phones and tablets for mobile e-commerce transactions,including through the increasing use of mobile apps. As a result, our future success will depend on our ability to adapt to rapidly changing technologies, toadapt our services to evolving industry standards and to continually innovate and improve the performance, features and reliability of our service in responseto competitive service offerings and the evolving demands of the marketplace. In particular, we believe that it will be increasingly important for us to effectivelyoffer our services through mobile applications and mobile optimized websites on smart phones and tablets. Any failure by us to successfully develop andachieve customer adoption of our mobile applications and mobile optimized websites would likely have a material and adverse effect on our growth, marketshare, business and results of operations. We believe that ease-of-use, comprehensive functionality and the look and feel of our mobile apps and mobileoptimized websites will be increasingly competitively critical as consumers obtain more of their travel services through mobile devices. As a result, we intendto continue to spend significant resources maintaining, developing and enhancing our websites, including our mobile optimized websites, and our mobile appsand other technology.In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require usto incur substantial expenditures to modify or adapt our services or infrastructure to those new technologies, which could adversely affect our results ofoperations or financial condition. For example, KAYAK generates revenues, in part, by allowing consumers to compare search results that appear in additional"pop-under" windows. Recent changes in browser functionality may either block or otherwise limit the use of "pop-under" windows, which could have anegative impact on our revenues. Any failure to implement or adapt to new technologies in a timely manner or at all could adversely affect our ability tocompete, increase our customer acquisition costs or otherwise adversely affect our business, and therefore adversely affect our brand, market share andresults of operations.We face risks related to our intellectual property.We regard our intellectual property as critical to our success, and we rely on domain name, trademark, copyright and patent law, trade secretprotection and confidentiality and/or license agreements with our employees, travel service providers, partners and others to protect our proprietary rights. Wehave filed various applications for protection of certain aspects of our intellectual property in the United States and other jurisdictions, and we currently hold anumber of issued patents in multiple jurisdictions. Further, in the future we may acquire additional patents or patent portfolios, which could requiresignificant cash expenditures. However, we may choose not to patent or otherwise register some of our intellectual property and instead rely on trade secret orother means of protecting our intellectual property. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such astrademarks or copyrighted material, to third parties, and these licensees may take actions that diminish the value of our proprietary rights or harm ourreputation. In addition, effective intellectual property protection may not be available in every country in which our services are made available online. We maybe required to expend significant time and resources to prevent infringement or to enforce our intellectual property rights.While we believe that our intellectual property rights, including our issued patents and pending patent applications, help to protect our business,there can be no assurance that:•a third party will not have or obtain one or more patents that can prevent us from practicing features of our business or that will require us to pay fora license to use those features;•our operations do not or will not infringe valid, enforceable patents of third parties;•we can successfully defend our patents against challenges by third parties;•pending patent applications will result in the issuance of patents;•competitors or potential competitors will not devise new methods of competing with us that are not covered by our patents or patent applications;25 •because of variations in the application of our business model to each of our services, our patents will be effective in preventing one or more thirdparties from utilizing a copycat business model to offer the same service in one or more categories;•new prior art will not be discovered that may diminish the value of or invalidate an issued patent; or•legislative or judicial action will not directly or indirectly affect the scope and validity of any of our patent rights, including the ability to obtain andenforce so called "business method patents".If we are not successful in protecting our intellectual property, it could have a material adverse effect on our business, brands and results ofoperations.From time to time, in the ordinary course of our business, we have been subject to, and are currently subject to, legal proceedings and claims relatingto the intellectual property rights of others, and we expect that third parties will continue to assert intellectual property claims, in particular patent claims,against us, particularly as we expand the complexity and scope of our business. We endeavor to defend our intellectual property rights diligently, butintellectual property litigation is extremely expensive and time consuming, and has and is likely to continue to divert managerial attention and resources fromour business objectives. Successful infringement claims against us could result in significant monetary liability or prevent us from operating our business, orportions of our business. In addition, resolution of claims may require us to obtain licenses to use intellectual property rights belonging to third parties, whichmay be expensive to procure, or possibly to cease using those rights altogether. Any of these events could have a material adverse effect on our business,results of operations or financial condition.Our use of "open source" software could adversely affect our ability to protect our proprietary software and subject us to possible litigation.We use open source software in connection with our software development. From time to time, companies that use open source software have facedclaims challenging the use of open source software and/or compliance with open source license terms. We could be subject to suits by parties claimingownership of what we believe to be open source software, or claiming non-compliance with open source licensing terms. Some open source licenses requireusers who distribute software containing open source to make available all or part of such software, which in some circumstances could include valuableproprietary code of the user. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to discloseour proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because opensource license terms are often ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract could be harmful toour business, results of operations or financial condition, and could help our competitors develop services that are similar to or better than ours.Our business is exposed to risks associated with processing credit card transactions.Our results have been negatively impacted by purchases made using fraudulent credit cards. Because we act as the merchant of record in a majorityof our priceline.com transactions as well as those of Agoda.com and rentalcars.com, we may be held liable for accepting fraudulent credit cards on ourwebsites as well as other payment disputes with our customers. Additionally, we are held liable for accepting fraudulent credit cards in certain retailtransactions when we do not act as merchant of record. Accordingly, we calculate and record an allowance for the resulting credit card chargebacks. If we areunable to combat the use of fraudulent credit cards on our websites, our business, results of operations and financial condition could be materially adverselyaffected.In addition, in the event that one of our major travel service providers voluntarily or involuntarily declares bankruptcy, we could experience anincrease in credit card chargebacks from customers with travel reservations with such travel service provider. For example, airlines that participate in ourservices and declare bankruptcy or cease operations may be unable or unwilling to honor tickets sold for their flights. Our policy in such event is to directcustomers seeking a refund or exchange to the airline, and not to provide a remedy ourselves. Because we are the merchant-of-record on sales of Name YourOwn Price® airline tickets to our customers, however, we could experience a significant increase in demands for refunds or credit card chargebacks fromcustomers, which could materially adversely affect our results of operations and financial condition. For example, in April 2008, Aloha Airlines and ATAAirlines each ceased operations, and we experienced an increase in credit card chargebacks from customers with tickets on those airlines. Agoda.com andrentalcars.com process credit card transactions and operate in numerous currencies. Credit card costs are typically higher for foreign currency transactionsand in instances where cancellations occur.26 The success of our recent acquisition of KAYAK is subject to numerous risks and uncertainties.As a result of our acquisition of KAYAK, we are subject to risks associated with KAYAK's business. Such risks include: continued access to travelservices information provided by other OTAs and travel service providers; reduction in advertising on KAYAK's websites by competitors of ours; consumeradoption of meta-search services generally and KAYAK's services in particular, and KAYAK's ability to expand its offerings into international markets.Uncertainty regarding KAYAK's business operations following the acquisition may cause consumers, travel service providers and advertisers to delay or deferdecisions concerning KAYAK's services. Some of our competitors, such as Expedia, have commercial arrangements with KAYAK that they may decide toterminate or not renew out of competitive concerns related to our ownership of KAYAK. In addition, management focus and resources could be diverted fromthe day-to-day operation of the business to matters relating to integration of KAYAK with The Priceline Group. Current and prospective KAYAK employeesmay experience uncertainty about their future roles with us or may decide that they do not want to work for The Priceline Group, which could adversely affectour ability to attract and retain key KAYAK management, sales, marketing, operations and technical personnel. Any of these risks could harm KAYAK'sbusiness and results of operations and adversely affect the value of our investment in KAYAK.A substantial portion of our goodwill relates to our acquisition of the KAYAK business in May 2013. If KAYAK is unsuccessful in profitablygrowing its global online travel brand or it experiences a significant reduction in advertising revenues due to factors such as a loss of continued access to travelservices information provided by other OTAs and travel service providers or a reduction in advertising on its websites and mobile apps, we may incur animpairment charge related to this goodwill.Investment in new business strategies and acquisitions could disrupt our ongoing business and present risks not originally contemplated.We have invested, and in the future may invest, in new business strategies or acquisitions. Such endeavors may involve significant risks anduncertainties, including distraction of management from current operations, greater than expected liabilities and expenses, inadequate return of capital, andunidentified issues not discovered in our investigations and evaluations of those strategies and acquisitions. We may decide to make minority investments,including through joint ventures, in which we have limited or no management or operational control. The controlling person in such a case may have businessinterests, strategies or goals that are inconsistent with ours, and decisions of the company or venture in which we invested may result in harm to our reputationor adversely affect the value of our investment. Further, we may issue shares of our common stock in these transactions, which could result in dilution to ourstockholders.Item 1B. Unresolved Staff Comments None. Item 2. Properties Our corporate headquarters and the headquarters of our priceline.com business are located in Norwalk, Connecticut, United States of America,where we lease approximately 70,000 square feet of office space. Our Booking.com business is headquartered in Amsterdam, Netherlands, where we leaseapproximately 202,000 square feet of office space; our Agoda.com business has significant support operations in Bangkok, Thailand, where we leaseapproximately 76,000 square feet of office space; our KAYAK business is headquartered in Stamford, Connecticut, United States of America, where we leaseapproximately 18,000 square feet of office space; and our rentalcars.com business is headquartered in Manchester, England, where we lease approximately49,000 square feet of office space. We lease additional office space to support our operations in various locations around the world, including hosting and datacenter facilities in the United States, the United Kingdom, Switzerland, the Netherlands and Hong Kong and sales and support facilities in numerouslocations. We do not own any real estate as of December 31, 2013. We believe that our existing facilities are adequate to meet our current requirements, and that suitable additional or substitute space will be availableas needed to accommodate any further expansion of corporate operations.27 Item 3. Legal Proceedings Litigation Related to Travel Transaction Taxes We and certain third-party online travel companies ("OTCs") are currently involved in approximately forty lawsuits, including certified and putativeclass actions, brought by or against states, cities and counties over issues involving the payment of travel transaction taxes (e.g., hotel occupancy taxes, excisetaxes, sales taxes, etc.). Our subsidiaries Lowestfare.com LLC and Travelweb LLC are named in some but not all of these cases. Generally, each complaintalleges, among other things, that the OTCs violated each jurisdiction's respective relevant travel transaction tax ordinance with respect to the charges andremittance of amounts to cover taxes under each law. Each complaint typically seeks compensatory damages, disgorgement, penalties available by law,attorneys' fees and other relief. In addition, approximately seventy-nine municipalities or counties, and at least thirteen states, have initiated audit proceedings(including proceedings initiated by more than forty municipalities in California, which have been inactive for several years), issued proposed tax assessmentsor started inquiries relating to the payment of travel transaction taxes. Additional state and local jurisdictions are likely to assert that we are subject to traveltransaction taxes and could seek to collect such taxes, retroactively and/or prospectively. With respect to the principal claims in these matters, we believe that the laws at issue do not apply to the services we provide, namely the facilitationof travel reservations, and, therefore, that we do not owe the taxes that are claimed to be owed. Rather, we believe that the laws at issue generally impose traveltransaction taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar accommodations or othertravel services. In addition, in many of these matters, the taxing jurisdictions have asserted claims for "conversion" - essentially, that we have collected a taxand wrongfully "pocketed" those tax dollars - a claim that we believe is without basis and have vigorously contested. The taxing jurisdictions that arecurrently involved in litigation and other proceedings with us, and that may be involved in future proceedings, have asserted contrary positions and will likelycontinue to do so. From time to time, we have found it expedient to settle, and may in the future agree to settle, claims pending in these matters withoutconceding that the claims at issue are meritorious or that the claimed taxes are in fact due to be paid. In connection with some of these tax audits and assessments, we may be required to pay any assessed taxes, which amounts may be substantial,prior to being allowed to contest the assessments and the applicability of the laws in judicial proceedings. This requirement is commonly referred to as "pay toplay" or "pay first." For example, the City and County of San Francisco assessed us approximately $3.4 million (an amount that includes interest andpenalties) relating to hotel occupancy taxes, which we paid in July 2009, and issued a second assessment totaling approximately $2.7 million, which we paidin January 2013. Payment of these amounts, if any, is not an admission that we believe we are subject to such taxes and, even if such payments are made, weintend to continue to assert our position vigorously that we should not be subject to such taxes. In the San Francisco action, for example, the court ruled inFebruary 2013 that we and OTCs do not owe transient accommodations tax to the city and ordered the city to refund the pay first amounts paid in July 2009;we also are seeking a refund of the amounts paid first in January 2013. The city has taken the position that it need not refund the pay first amounts until afterit has exhausted all appeals. Litigation is subject to uncertainty and there could be adverse developments in these pending or future cases and proceedings. For example, inJanuary 2013, the Tax Appeal Court for the State of Hawaii held that we and other OTCs are not liable for the State's transient accommodations tax, but heldthat the OTCs, including us, are liable for the State's general excise tax on the full amount the OTC collects from the customer for a hotel room reservation,without any offset for amounts passed through to the hotel. We recorded an accrual for travel transaction taxes (including estimated interest and penalties),with a corresponding charge to cost of revenues, of approximately $16.5 million in December 2012 and approximately $18.7 million in the three monthsended March 31, 2013, primarily related to this ruling. During the twelve months ended December 31, 2013, we paid approximately $20.6 million underprotest to the State of Hawaii related to this ruling. We have filed an appeal now pending before the Hawaii Supreme Court and intend to vigorously appeal thisruling. Other adverse rulings include a decision in September 2012, in which the Superior Court in the District of Columbia granted summary judgment infavor of the District and against the OTCs ruling that tax is due on the OTCs' margin and service fees. Also, in July 2013, the Circuit Court of Cook County,Illinois, ruled that we and the other OTCs are liable for tax and other obligations under Chicago Hotel Accommodations Tax. In addition, in October 2009, ajury in a San Antonio class action found that we and the other OTCs that are defendants in the lawsuit "control" hotels for purposes of the local hoteloccupancy tax ordinances at issue and are, therefore, subject to the requirements of those ordinances. We intend to vigorously appeal the trial court's finaljudgment.An unfavorable outcome or settlement of pending litigation may encourage the commencement of additional litigation, audit proceedings or otherregulatory inquiries. In addition, an unfavorable outcome or settlement of these actions or proceedings could result in substantial liabilities for past and/orfuture bookings, including, among other things, interest,28 penalties, punitive damages and/or attorney fees and costs. There have been, and will continue to be, substantial ongoing costs, which may include "payfirst" payments, associated with defending our position in pending and any future cases or proceedings. An adverse outcome in one or more of theseunresolved proceedings could have a material adverse effect on our business and could be material to our results of operations or cash flow in any givenoperating period. To the extent that any tax authority succeeds in asserting that we have a tax collection responsibility, or we determine that we have such aresponsibility, with respect to future transactions, we may collect any such additional tax obligation from our customers, which would have the effect ofincreasing the cost of travel reservations to our customers and, consequently, could make our travel reservation services less competitive (as compared to theservices of other OTCs or travel service providers) and reduce our travel reservation transactions; alternatively, we could choose to reduce the compensationfor our services. Either action could have a material adverse effect on our business and results of operations. We estimate that, since our inception through December 31, 2013, we have earned aggregate gross profit, including fees, from our entire U.S.merchant hotel business (which includes, among other things, the differential between the price paid by a customer for our services and the cost of theunderlying room) of approximately $1.9 billion. This gross profit was earned in over a thousand taxing jurisdictions that we believe have aggregate tax rates(which may include hotel occupancy taxes and state and local taxes, among other taxes) associated with a typical transaction between a consumer and a hotelthat generally range from approximately 3% to approximately 18%, depending on the jurisdiction. In many of the judicial and other proceedings initiated todate, the taxing jurisdictions seek not only historical taxes that are claimed to be owed on our gross profit, but also, among other things, interest, penalties,punitive damages and/or attorney fees and costs. Therefore, any liability associated with hotel occupancy tax matters is not constrained to our liability for taxowed on its historical gross profit, but may also include, among other things, penalties, interest and attorneys' fees. To date, the majority of the taxingjurisdictions in which we facilitate hotel reservations have not asserted that these taxes are due and payable on our U.S. merchant hotel business. With respectto taxing jurisdictions that have not initiated proceedings to date, it is possible that they will do so in the future or that they will seek to amend their tax statutesand seek to collect taxes from us only on a prospective basis. The gross profit figure above reflects all jurisdictions, including those where legal proceedingshave been resolved and some jurisdictions that have chosen to revise their tax ordinances rather than pursue claims for past taxes.Reserve for Travel Transaction Taxes As a result of this litigation and other attempts by jurisdictions to levy similar taxes, we have established an accrual (including estimated interest andpenalties) for the potential resolution of issues related to travel transaction taxes in the amount of approximately $55 million at December 31, 2013 compared toapproximately $56 million at December 31, 2012 (which includes, among other things, amounts related to the litigation in the State of Hawaii, District ofColumbia, San Antonio and Chicago). The accrual is based on our estimate of the probable cost of resolving these issues. Our legal expenses for these mattersare expensed as incurred and are not reflected in the amount accrued. The actual cost may be less or greater, potentially significantly, than the liabilitiesrecorded. An estimate for a reasonably possible loss or range of loss in excess of the amount accrued cannot be reasonably made.Developments in and after the Year Ended December 31, 2013 In and after the year ended December 31, 2013, ten new actions commenced. •Fargo v. Expedia, Inc., et al., (District Court for Cass County, North Dakota; filed in February 2013) is an action brought by the City of Fargo,North Dakota against us and other OTC defendants asserting violation of the city's lodging and sales tax ordinances, as well claims for conversion,unjust enrichment and seeking injunctive relief. •On June 17, 2013, we and other OTCs each filed in the Hawaii Tax Appeal Court appeals of a second set of hotel tax and general excise taxassessments issued by the State; these assessments relate to the tax year 2012. Those actions are captioned In the Matter of the Tax Appeal ofpriceline.com Inc. and In the Matter of Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii) and have been consolidated. OnDecember 16, 2013, the Tax Appeal Court stayed these actions pending resolution of the appeal currently pending before the Hawaii Supreme Court.•On July 8, 2013, in Warrenville, et al. v. Priceline.com Incorporated, et al. (U.S. District Court for the Northern District of Illinois; filed in April2013), the plaintiffs voluntarily dismissed the putative class action pending in federal court, and filed a new class action complaint in Illinois statecourt. That action, which was removed to federal court, is captioned Village of Bedford Park, et al. v. Expedia, Inc., et al. (U.S. District Court forthe Northern District of Illinois; filed in July 2013). The complaint alleges violation of the municipalities' respective accommodations ordinances,conversion, civil conspiracy, unjust enrichment and breach of fiduciary duty, and seeks a declaratory judgment, imposition of a constructive trust,and an accounting.•Department of Revenue, Finance and Administration Cabinet, Commonwealth of Kentucky v. Expedia, Inc., et al.29 (Franklin County Circuit Court, Kentucky) was filed on July 15, 2013. The complaint alleges violation of the Commonwealth's sales tax law,breach of fiduciary duty, conversion and money had and received, and seeks imposition of a constructive trust and injunctive relief.•City of Columbia, South Carolina, et al. v. Hotelguides.com, Inc. et al. (Court of Common Pleas, Ninth Judicial Circuit, County of Charleston; filedin July 2013) is a putative class action brought on behalf of South Carolina local governments and taxing authorities against us and other OTCs (andother defendants) alleging that the defendants have failed to collect and/or remit transient accommodations taxes as required by the putative classmembers' respective ordinances. The complaint asserts violations of these ordinances, conversion, civil conspiracy, "voluntary undertaking" and"contractual undertaking" by defendants, and other equitable claims, including constructive trust, unjust enrichment and an accounting.•On September 27, 2013, we and other OTCs filed a complaint in Expedia, Inc., et al. v. Oregon Department of Revenue (Oregon Tax Court), seekingdeclaratory relief as to Oregon House Bill 2656. On the same date, we and other OTCs filed a request with the Oregon Department of Revenue for anadministrative ruling with respect to that bill. HB 2656 purports to amend Oregon's transient lodging tax statute, effective October 7, 2013, tosubject the OTCs' compensation to the tax insofar as the OTCs are "transient lodging intermediaries."•State of New Hampshire v. priceline.com Incorporated, et al. (Merrimack Superior Court) was filed on October 16, 2013. The complaint allegesviolation of the state meals and rooms tax, violation of the New Hampshire Consumer Protection Act, breach of fiduciary duty, conversion, unjustenrichment, an equitable claim for money had and received and civil conspiracy, and seeks an accounting, imposition of a constructive trust andinjunctive relief with respect to the OTCs' merchant hotel and rental car services.•On November 5, 2013, we and other OTCs filed in the Superior Court of California for the County of San Francisco appeals of a second set of hoteltax assessments issued by the City and County of San Francisco; these assessments relate to tax years 2011 and 2012. On January 8, 2014, theSuperior Court of California for the County of Los Angeles granted the OTCs' motion to transfer those cases to the Superior Court of California forthe County of Los Angeles, where the other California state court cases have been coordinated. The court has issued an order staying this actionpending the outcome of the city's appeal of the decision in the first San Francisco action, which appeal is currently pending in the California Court ofAppeal.•On January 7, 2014, we and other OTCs filed in the Hawaii Tax Appeal Court appeals of general excise tax assessments issued by the State for carrental transactions allegedly made during tax years 2000 to 2012. Those actions are captioned In the Matter of the Tax Appeal of priceline.com Inc.and In the Matter of Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii).There were decisions on dispositive motions in several of the pending matters, as well as decisions on appeal, and other decisions of note, includingthose described below.•As set forth above, in In the Matter of the Appeal of priceline.com Incorporated (and a related action brought by Travelweb LLC) (Tax Appeal Courtof the State of Hawaii; filed July 3, 2012); (Hawaii Supreme Court; appeal transferred December 24, 2013), the Tax Appeal Court for the State ofHawaii entered judgment on August 15, 2013, holding (a) we and other OTCs are not liable for the State's transient accommodations tax, and (b) weand the other OTCs are liable for the general excise tax on the full amount the OTC collects from the customer for a hotel room reservation, withoutany offset for amounts passed through to the hotel. On August 19, 2013, the State appealed the transient accommodations tax ruling to theIntermediate Court of Appeals. On September 11, 2013, we and other OTCs filed a cross-appeal of the general excise tax ruling in the IntermediateCourt of Appeals. On December 24, 2013, the Hawaii Supreme Court granted the parties' joint motion to transfer the appeal to that court from theIntermediate Court of Appeals.•On January 9, 2013, the trial court in Orbitz, LLC, et al. v. Broward County, Florida, et al. denied the county's motion for rehearing on its previousruling, issued July 13, 2012, granting summary judgment to OTCs. The county filed a notice of appeal to the Florida First District Court of Appealon February 5, 2013. The First District heard oral argument on Broward County's appeal on February 11, 2014 and affirmed judgment in favor ofthe OTCs on February 12, 2014. On February 14, 2014, Broward County filed motions seeking expedited certification of an appeal to the FloridaSupreme Court.•In City of Branson, Missouri v. Hotels.com, L.P., et al. (Circuit Court of Greene County, Missouri), on January 23, 2013, the Missouri Court ofAppeals, Northern Division, affirmed the judgment of the trial court, entered January 31, 2012, granting defendants' motion to dismiss. On April30, 2013 the Supreme Court of Missouri denied the plaintiff's request to transfer the case to that court.•On January 23, 2013, the California Supreme Court denied petitions for review filed by the cities of Anaheim and Santa Monica. Those cities hadsought review of appellate court decisions holding we and other OTCs are not liable for transient occupancy taxes. The Supreme Court's denial ofthe petitions marked the end of the cases captioned Priceline.com Inc., et al. v. City of Anaheim, California, et al. (California Superior Court, Countyof Orange; filed in30 February 2009), and City of Santa Monica v. Expedia, Inc., et al. (California Superior Court, Los Angeles County; filed in June 2010). On January31, 2013, the City of Santa Monica refunded to us the amounts we had "paid first" in order to appeal the city's assessments.•On February 6, 2013, the Los Angeles Superior Court in Priceline.com, Inc., et al. v. City and County of San Francisco, California, et al.(California Superior Court, County of Los Angeles; filed in June 2009); (California Court of Appeal; filed in December 2013) granted summaryjudgment in favor of us and the other OTCs, holding they are not liable to the City and County of San Francisco for transient occupancy taxes. Thecourt also granted the OTCs' claim for a refund of the pay first amounts the OTCs paid to San Francisco in July 2009. The court entered judgmentin October 2013. San Francisco filed its notice of appeal in December 2013.•In Leon County, et al. v. Expedia, Inc., et al. (Second Judicial Circuit Court for Leon County; filed November 2009); (Florida First District Court ofAppeal; filed in May 2012); (Supreme Court of Florida; filed in May 2013), on February 28, 2013, the First District Court of Appeal affirmedsummary judgment in favor of defendant OTCs. The plaintiffs filed a notice of appeal to the Florida Supreme Court. Oral argument before theFlorida Supreme Court in this case is scheduled for April 30, 2014.•The Wyoming State Board of Equalization issued its findings of fact, conclusions of law, decision and order on February 28, 2013, finding thatOTCs are subject to that state's accommodations tax. On March 27, 2013, in Travelocity.com LP, et al., v. Wyoming Department of Revenue(District Court for the County of Laramie, 1st Judicial Dist.; petition for review filed and petition granted by Wyoming Supreme Court in April2013), we and the other OTCs filed a petition for judicial review. The Wyoming Supreme Court heard oral argument on November 21, 2013.•On March 12, 2013, in Expedia, Inc., et al. v. City and County of Denver, et al. (District Court for City and County of Denver, Colorado; filedMarch 2012); (Colorado Court of Appeals; appeal filed in April 2013), the trial court entered an order upholding the administrative hearing officer'sopinion that OTCs are subject to accommodations tax, but also finding that the statute of limitations limits any recovery by the City of Denver to theperiod April 30, 2007 forward. We filed with the Colorado Court of Appeals a notice of appeal of that decision on April 26, 2013. The parties havefully briefed the issues on appeal and have requested oral argument, however the Court of Appeals has not set a date for argument.•On April 4, 2013, in City of San Antonio, Texas v. Hotels.com, L.P., et al. (U.S. District Court for the Western District of Texas; filed in May2006), the court entered its judgment against us and other OTC defendants. We are appealing the judgment. On May 2, 2013, the OTC defendantsfiled a renewed motion for judgment as a matter of law and, alternatively, motion for new trial. On the same day, plaintiffs filed a motion to amendthe judgment as it concerns the court's penalty calculations. In further proceedings, the court will determine, among other things, the amount ofattorneys' fees, which could be significant.•On April 18, 2013, in City of Los Angeles v. Hotels.com, et al., (California Superior Court, Los Angeles County, filed in December 2004), the LosAngeles Superior Court granted the OTC defendants' motion for judgment, holding the OTCs are not subject to the city's transient occupancy tax. The court signed the judgment on January 8, 2014. The city may appeal the decision.•On April 30, 2013, in Elizabeth McAllister, et al. v. Hotels.com L.P., et al., (Circuit Court of Saline County, Arkansas; filed in February 2011);(Arkansas Supreme Court; appeal filed in June 2013), the trial court granted the OTC defendants' motion to dismiss, holding plaintiffs lackstanding. On June 19, 2013, Plaintiffs appealed to the Arkansas Supreme Court but subsequently moved to voluntarily dismiss the appeal. OnJanuary 9, 2014, the Arkansas Supreme Court granted plaintiffs' motion to voluntarily dismiss the appeal.•On July 8, 2013, in City of Chicago, Illinois v. Hotels.com, L.P., et al. (Circuit Court of Cook County Illinois; filed in November 2005), the CookCounty Circuit Court entered an order denying the OTCs' motion for summary judgment and granting, in part, the City's motion for summaryjudgment relating to the Chicago Hotel Accommodations Tax ("CHAT") and related common law claims, holding that we and the other OTCs areliable for that tax and other obligations under CHAT. The Court's order applied only to liability and did not address or resolve any issues as todamages.•On August 16, 2013, in Leon County v. Expedia, Inc. et al. (Second Judicial Circuit Court for Leon County, Florida; filed in December 2009);(Florida First District Court of Appeal; appeal filed in October 2012); (Supreme Court of Florida; appeal filed in October 2013) the First DistrictCourt of Appeal affirmed the trial court's grant of summary judgment in favor of the OTCs. The parties have completed jurisdictional briefingbefore the Florida Supreme Court. On December 31, 2013, the Florida Supreme Court stayed the appeal pending the outcome of the pending appealin Leon County, et al. v. Expedia, Inc., et al.•In Hamilton County, Ohio, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of Ohio; filed in August 2010), the districtcourt granted summary judgment to defendant OTCs on August 30, 2013. Plaintiffs did not appeal that decision.•On September 30, 2013, in City of Atlanta, Georgia v. Hotels.com L.P., et al. (Superior Court of Fulton County, Georgia; filed in March 2006);(Court of Appeals of the State of Georgia; appeal filed in January 2007); (Georgia Supreme Court; appeal filed in November 2013), the trial courtgranted defendant OTCs' motion for summary31 judgment dismissing all of plaintiff's remaining claims. On November 25, 2013, plaintiffs filed with the Georgia Supreme Court a notice of appealof the summary judgment order.•On October 15, 2013, in District of Columbia v. Expedia, Inc., et al. (Superior Court of District of Columbia; filed in March 2011), we entered intoa stipulated judgment for damage claims asserted through March 31, 2013 but reserved for each party the right to appeal any and all of the court'srulings on liability. On October 28, 2013, the court stayed the case between the District and us but is allowing the case to proceed against theremaining defendants. On December 6, 2013, the court granted partial summary judgment in favor of the OTCs, ruling that a failure to separatelystate the tax amount does not render the OTCs' tax recovery charge part of the "sales price" subject to tax.•On December 13, 2013, in City of Rome, Georgia, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of Georgia; filed inNovember 2005); (U.S. Court of Appeals for the Eleventh Circuit appeal filed in September 2012), the Eleventh Circuit affirmed the district court'sgrant of summary judgment in favor of the defendant OTCs on plaintiffs' "collect but not remit" theory and claim for back taxes. Plaintiffs' petitionfor rehearing and rehearing en banc was denied on February 6, 2014.Class certification rulings were issued in two matters. On April 11, 2013, in County of Nassau v. Expedia, Inc., et al. (Supreme Court of NassauCounty, New York; filed in September 2011); (Appellate Division, Second Department; appeal filed in April 2013), the trial court certified the action as aclass action. On April 26, 2013, we and other OTC defendants filed a notice of appeal of that decision and the trial court's prior denial of the OTCdefendants' motion to dismiss. On October 10, 2013, in Pine Bluff Advertising and Promotion Commission, Jefferson County, Arkansas, et al. v. Hotels.com,LP, et al. (Circuit Court of Jefferson County, Arkansas; filed in September 2009); (Arkansas Supreme Court; appeal filed in March 2013), the ArkansasSupreme Court affirmed certification of a class.Four matters were resolved through settlement. Baltimore County, Maryland v. Priceline.com, Inc., et al. (U.S. District Court for the District ofMaryland; filed in May 2010) was dismissed against us on January 7, 2013 pursuant to a settlement. Montgomery County, Maryland v. Priceline.com, Inc.,et al. (U.S. District Court for the District of Maryland;filed in December 2010) was dismissed against us on April 5, 2013 pursuant to a settlement. In The Village of Rosemont, Illinois v. Priceline.com, Inc., et al.(U.S. District Court for the Northern District of Illinois; filed in July 2009) (U.S. Court of Appeals for the Seventh Circuit, appeal filed in November 2012),we and other OTC defendants resolved the litigation through settlement. The case was dismissed with prejudice on August 6, 2013. We and other OTCdefendants also resolved the remaining issues in City of Gallup, New Mexico v. Hotels.com, L.P., et al. (U.S. District Court for the District of New Mexico;filed in July 2007); (U.S. Court of Appeals for the Tenth Circuit; appeal filed in April 2013). The case was remanded to the district court, which has grantedpreliminary approval of the settlement.In addition, in State of Florida Attorney General v. Expedia, Inc., et al. (filed in November 2010), the Attorney General for the State of Florida filed anotice of voluntary dismissal on April 8, 2013. We intend to vigorously defend against the claims in all of the proceedings described below.Statewide Class Actions and Putative Class ActionsSuch actions include:•City of Los Angeles, California v. Hotels.com, Inc., et al. (California Superior Court, Los Angeles County; filed in December 2004);•City of Rome, Georgia, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of Georgia; filed in November 2005);(U.S. Court of Appeals for the Eleventh Circuit appeal filed in September 2012);•City of San Antonio, Texas v. Hotels.com, L.P., et al. (U.S. District Court for the Western District of Texas; filed in May 2006);•City of Gallup, New Mexico v. Hotels.com, L.P., et al. (U.S. District Court for the District of New Mexico; filed in July 2007); (U.S. Courtof Appeals for the Tenth Circuit; appeal filed in April 2013);•Pine Bluff Advertising and Promotion Commission, Jefferson County, Arkansas, et al. v. Hotels.com, LP, et al. (Circuit Court of JeffersonCounty, Arkansas; filed in September 2009); (Arkansas Supreme Court; appeal filed in March 2013);•County of Lawrence, Pennsylvania v. Hotels.com, L.P., et al. (Court of Common Pleas of Lawrence County, Pennsylvania; filed Nov.2009); (Commonwealth Court of Pennsylvania; appeal filed in November 2010);•Town of Breckenridge, Colorado v. Colorado Travel Company, LLC, et al. (District Court for Summit County, Colorado; filed in July2011);•County of Nassau v. Expedia, Inc., et al. (Supreme Court of Nassau County, New York; filed in September32 2011); (Appellate Division, Second Department; appeal filed in April 2013);•Village of Bedford Park, et al. v. Expedia, Inc. et al. (U.S. District Court for the Northern District of Illinois; filed in July 2013); and•City of Columbia, South Carolina, et al. v. Hotelguides.com, Inc. et al. (Court of Common Pleas, Ninth Judicial Circuit, County ofCharleston; filed in July 2013).Actions Filed on Behalf of Individual Cities, Counties and StatesSuch actions include:•City of Chicago, Illinois v. Hotels.com, L.P., et al. (Circuit Court of Cook County Illinois; filed in November 2005);•City of San Diego, California v. Hotels.com L.P., et al. (California Superior Court, San Diego County; filed in September 2006) (SuperiorCourt of California, Los Angeles County) (California Court of Appeal; appeal filed in August 2012);•City of Atlanta, Georgia v. Hotels.com L.P., et al. (Superior Court of Fulton County, Georgia; filed in March 2006); (Court of Appeals ofthe State of Georgia; appeal filed in January 2007); (Georgia Supreme Court; further appeal filed in December 2007; petition for writs ofmandamus and prohibition filed in December 2012; further appeal filed in November 2013);•Wake County, North Carolina v. Hotels.com, L.P., et al. (General Court of Justice, Superior Court Division, Wake County, NorthCarolina; filed in November 2006); (Court of Appeals of North Carolina; appeal filed in January 2013); Dare County, North Carolina v.Hotels.com, LP, et al. (General Court of Justice, Superior Court Division, Dare County, North Carolina; filed in January 2007); (Court ofAppeals of North Carolina; appeal filed in January 2013); Buncombe County, North Carolina v. Hotels.com, LP, et al. (General Court ofJustice, Superior Court Division, Buncombe County, North Carolina; filed in February 2007); (Court of Appeals of North Carolina;appeal filed in January 2013); Mecklenburg County, North Carolina v. Hotels.com LP, et al. (General Court of Justice, Superior CourtDivision, Mecklenburg County, North Carolina; filed in January 2008); (Court of Appeals of North Carolina; appeal filed in January2013);•Leon County, et al. v. Expedia, Inc., et al. (Second Judicial Circuit Court for Leon County, Florida; filed November 2009); (Florida FirstDistrict Court of Appeal; appeal filed in May 2012); (Florida Supreme Court; jurisdiction accepted in September 2013);•Leon County v. Expedia, Inc. et al. (Second Judicial Circuit Court for Leon County, Florida; filed in December 2009); (Florida FirstDistrict Court of Appeal; appeal filed in October 2012); (Florida Supreme Court; notice to invoke jurisdiction filed in October 2013);•Montana Department of Revenue v. Priceline.com, Inc., et al. (First Judicial District Court of Lewis and Clark County, Montana; filed inNovember 2010);•District of Columbia v. Expedia, Inc., et al. (Superior Court of District of Columbia; filed in March 2011);•Volusia County, et al. v. Expedia, Inc., et al. (Circuit Court for Volusia County, Florida; filed in April 2011);•State of Mississippi v. Priceline.com Inc., et al., (Chancery Court of Hinds County, Mississippi; filed in January 2012);•County of Kalamazoo, Michigan v. Hotels.com L.P., et al. (Circuit Court for the County of Kalamazoo; filed August 2012);•Fargo v. Expedia, Inc. et al. (District Court for the County of Cass; filed in February 2013);•Department of Revenue, Finance and Administration Cabinet, Commonwealth of Kentucky v. Expedia, Inc. et al. (Franklin Circuit Court,Kentucky; filed in July 2013); and•State of New Hampshire v. priceline.com Incorporated, et al. (Merrimack Superior Court; filed in October 2013).Judicial Actions Relating to Assessments Issued by Individual Cities, Counties and StatesWe may seek judicial review of assessments issued by an individual city or county. Currently pending actions seeking such a review include:•Priceline.com, Inc., et al. v. Broward County, Florida (Circuit Court - Second Judicial Circuit, Leon County, Florida; filed in January2009); (Florida First District Court of Appeal; filed in February 2013);•Priceline.com, Inc. v. Indiana Department of State Revenue (Indiana Tax Court; filed in March 2009);•Priceline.com, Inc., et al. v. City and County of San Francisco, California, et al. (California Superior Court, County of Los Angeles; filedin June 2009); Priceline.com, Inc. v. City and County of San Francisco, California, et al. (California Superior Court, County of LosAngeles; filed in November 2013);33 •Priceline.com, Inc. v. Miami-Dade County, Florida, et al. (Eleventh Judicial Circuit Court for Miami-Dade, County, Florida; filed inDecember 2009);•Priceline.com Incorporated, et al. v. Osceola County, Florida, et al. (Circuit Court of the Second Judicial Circuit, in and For Leon County,Florida; filed in January 2011);•In the Matter of the Tax Appeal of priceline.com Inc. and In the Matter of the Tax Appeal of Travelweb LLC (Tax Appeal Court of the Stateof Hawaii; filed in March 2011) (Hawaii Supreme Court; appeal transferred in December 2013); In the Matter of the Tax Appeal ofpriceline.com Inc. and In the Matter of the Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii, filed in July 2012)(Hawaii Supreme Court; appeal transferred in December 2013); In the Matter of the Tax Appeal of priceline.com Inc. and In the Matter ofTax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii, filed in June 2013); In the Matter of the Tax Appeal ofpriceline.com Inc. and In the Matter of Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii; filed in January 2014);•Expedia, Inc. et al. v. City of Portland (Circuit Court for Multnomah County, Oregon, filed in February 2012);•Expedia, Inc., et al. v. City and County of Denver, et al. (District Court for Denver County, Colorado, filed in March 2012); (ColoradoCourt of Appeal; appeal filed in April 2013);•Travelocity.com LP, et al., v. Wyoming Department of Revenue (District Court for the County of Laramie, 1st Judicial Dist.; petition forreview filed and petition granted by Wyoming Supreme Court in April 2013); and•Expedia, Inc., et al. v. Oregon Department of Revenue (Oregon Tax Court; filed in September 2013).Administrative Proceedings and Other Possible ActionsAt various times, we have also received inquiries or proposed tax assessments from municipalities and other taxing jurisdictions relating to ourcharges and remittance of amounts to cover state and local travel transaction taxes. Among others, the City of Phoenix, Arizona (on behalf of itself and twelveother Arizona cities); the City of Paradise Valley, Arizona; fifteen cities (and one county) in Colorado; Arlington, Texas; Lake County, Indiana; SaratogaCounty, New York; and state tax officials from Arkansas, Colorado, Louisiana, Maine, Maryland, Michigan, South Dakota, Texas, West Virginia, andWisconsin have begun formal or informal administrative procedures or stated that they may assert claims against us relating to allegedly unpaid state or localtravel transaction taxes. Between 2008 and 2010, we received audit notices from more than forty cities in the state of California. The audit proceedings inthose cities have not been active but have not been formally closed. We have also been contacted for audit by five counties in the state of Utah.OFT InquiryIn July 2012, the Office of Fair Trading (the "OFT"), the competition authority in the United Kingdom, issued a "Statement of Objections" ("SO")to Booking.com, which set out the OFT's preliminary views on why it believed Booking.com and others in the hotel online booking sector were allegedly inbreach of E.U. and U.K. competition law. The SO alleged, among other things, that there were agreements or concerted practices between hotels andBooking.com and between hotels and at least one other OTC that restricted Booking.com's (and the other OTC's) ability to discount hotel room reservations,which the OFT alleged was a form of resale price maintenance. We dispute the allegations in the SO. On August 9, 2013, the OFT announced its intention to accept commitments offered by Booking.com, as well as Expedia and Intercontinental HotelGroup, to close the investigation. The OFT sought feedback on the proposed commitments from the public. In light of the feedback receivedduring the consultation and input from the European Commission, the parties submitted revised commitments. On December 20, 2013, the OFT opened afurther public consultation on the revised commitments proposed by the parties. This further consultation closed on January 17, 2014. On January 31, 2014, the OFT announced that it accepted the revised commitments ("Commitments") from the parties on the basis thatthey address the OFT's competition concerns. The OFT has now closed its investigation with no finding of infringement or admission of wrongdoing and noimposition of a fine. The Commitments provide, among other things, that hotels will continue to be able to set retail prices for hotel room reservations on all OTCwebsites, such as Booking.com. OTCs, such as Booking.com, now have the flexibility to discount a hotel's retail price, but only to members of closedgroups, a concept that is defined in the Commitments, who have previously made a booking with the OTC. The discount may be up to Booking.com'scommission. In addition, Booking.com will not require rate parity from hotels in relation to discounted rates that are provided by other OTCs or hotels tomembers of their closed groups, provided the discounted rate is not made public. The Commitments apply to bookings by EEA residents at UK hotels.34 Investigations have also been opened by the national competition authorities in France, Germany, Austria, Hungary, Sweden and Switzerland thatfocus on Booking.com's rate parity clause in its contracts with accommodation providers in those jurisdictions. All of these investigations are at a preliminarystage. We are currently unable to predict the outcome of these investigations or how our business may be affected. Possible outcomes includerequiring Booking.com to remove its rate parity clause from its contracts with accommodation providers in those jurisdictions.Lawsuits Alleging Antitrust ViolationsOn August 20, 2012, one complaint was filed on behalf of a putative class of persons who purchased hotel room reservations from certain hotels (the"Hotel Defendants") through certain OTC defendants, including us. The initial complaint, Turik v. Expedia, Inc., Case No. 12-cv-4365, filed in the U.S.District Court for the Northern District of California, alleges that the Hotel Defendants and the OTC defendants violated federal and state laws by entering intoa conspiracy to enforce a minimum resale price maintenance scheme pursuant to which putative class members paid inflated prices for hotel room reservationsthat they purchased through the OTC defendants. Thirty-one other complaints containing similar allegations have been filed in a number of federaljurisdictions across the country. Plaintiffs in these actions seek treble damages and injunctive relief. The Judicial Panel on Multidistrict Litigation ("JPML") heard arguments on a motion for consolidation and transfer of pretrial proceedings under 28U.S.C. § 1407 on November 29, 2012. Pursuant to JPML orders, all of the pending cases were consolidated before Judge Boyle in the U.S. District Court forthe Northern District of Texas. On May 1, 2013, an amended consolidated complaint was filed.On July 1, 2013, we, together with the other OTC defendants and Hotel Defendants, filed a joint motion to dismiss the amended consolidatedcomplaint. On August 15, 2013, plaintiffs filed their opposition to defendants' motion to dismiss and, on September 16, 2013, the defendants filed their replybrief. On December 17, 2013 the Court heard oral arguments on the defendants' motion to dismiss. On February 18, 2014, Judge Boyle dismissed theamended consolidated complaint without prejudice, and ordered that plaintiffs must move for leave to amend within thirty days if they wish to file a secondconsolidated amended complaint, and further ordered that any such motion for leave to amend be accompanied by a synopsis explaining why a secondamended complaint would overcome the deficiencies stated in the court's February 18, 2014 Memorandum Opinion and Order. If plaintiffs move for leave toamend, the defendants may file a response to that motion within fourteen days of plaintiffs' motion.We intend to defend vigorously against the claims in all of the proceedings described in Note 16. We have accrued for certain legal contingencieswhere it is probable that a loss has been incurred and the amount can be reasonably estimated. Except as disclosed, such amounts accrued are not material toour consolidated balance sheets and provisions recorded have not been material to our consolidated results of operations or cash flows. We are unable toestimate a reasonably possible range of loss. From time to time, we have been, and expect to continue to be, subject to legal proceedings and claims in the ordinary course of business, includingclaims of alleged infringement of third party intellectual property rights. Such claims, even if not meritorious, could result in the expenditure of significantfinancial and managerial resources, divert management's attention from our business objectives and adversely affect our business, results of operations,financial condition and cash flows. 35 Item 4. Mine Safety Disclosures Not applicable.PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Price Range of Common Stock Our common stock is quoted on the NASDAQ Global Select Market under the symbol "PCLN." The following table sets forth, for the periodsindicated, the high and low sales prices per share of the common stock as reported on the NASDAQ Global Select Market: 2013 High Low First Quarter $728.70 $627.67Second Quarter 847.33 677.72Third Quarter 1,019.95 831.11Fourth Quarter 1,198.75 972.40 2012 High Low First Quarter $736.92 $469.28Second Quarter 774.96 603.49Third Quarter 695.15 553.42Fourth Quarter 679.23 553.97 Holders As of February 13, 2014, there were approximately 266 stockholders of record of priceline.com Incorporated's common stock. Dividend Policy We have not declared or paid any cash dividends on our capital stock since our inception and do not expect to pay any cash dividends for theforeseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business.Performance Measurement ComparisonThe following graph shows the total stockholder return through December 31, 2013 of an investment of $100 in cash on December 31, 2008 forpriceline.com Incorporated common stock and an investment of $100 in cash on December 31, 2008 for (i) the NASDAQ Composite Index, (ii) the Standardand Poor's 500 Index and (iii) the Research Data Group ("RDG") Internet Composite Index. The RDG Internet Composite Index is an index of stocksrepresenting the Internet industry, including Internet software and service companies and e-commerce companies. Historic stock performance is not necessarilyindicative of future stock price performance. All values assume reinvestment of the full amount of all dividends and are calculated as of the last day of eachmonth:36 Measurement PointDecember 31 Priceline.comIncorporated NASDAQComposite Index S&P 500Index RDG InternetComposite 2008 $100.00 $100.00 $100.00 $100.00 2009 296.55 144.88 126.46 175.07 2010 542.50 170.58 145.51 202.22 2011 635.04 171.30 148.59 209.97 2012 842.35 199.99 172.37 253.14 2013 1,578.28 283.39 228.19 344.69 Sales of Unregistered Securities Between November 5, 2013 and December 31, 2013, we issued 432,392 shares of our common stock in connection with the conversion of$183,199,000 principal amount of our 1.25% Convertible Senior Notes due 2015. The conversions were effected in accordance with the indenture, whichprovides that the principal amount of converted notes be paid in cash and the conversion premium be paid in cash and/or shares of common stock at ourelection. In each case, we chose to pay the conversion premium in shares of common stock (fractional shares are paid in cash). The issuances of the shareswere not registered under the Securities Act of 1933, as amended (the "Act") pursuant to Section 3(a)(9) of the Act. 37 Issuer Purchases of Equity Securities The following table sets forth information relating to repurchases of our equity securities during the three months ended December 31, 2013:ISSUER PURCHASES OF EQUITY SECURITIES Period (a) Total Numberof Shares (orUnits) Purchased(b) AveragePrice Paid perShare (or Unit) (c) Total Number ofShares (or Units)Purchased as Part ofPublicly AnnouncedPlans or Programs (d) Maximum Number (orApproximate Dollar Value)of Shares (or Units) that MayYet Be Purchased Under thePlans or Programs October 1, 2013 — — — — $382 (1) October 31, 2013 — — — $654,533,249 (2) 13(3) $1,068.55 N/A N/A (3) November 1, 2013 — — — — $382 (1) November 30, 2013 — — — $654,533,249 (2) 438(3) $1,125.70 N/A N/A (3) December 1, 2013 — — — — $382 (1) December 31, 2013 — — — $654,533,249 (2) — — N/A N/A (3) Total 451(3) $1,124.05 — $654,533,631 _____________________________(1) Pursuant to a stock repurchase program announced on March 4, 2010, whereby the Company was authorized to repurchase up to $500,000,000 ofits common stock.(2) Pursuant to a stock repurchase program announced on May 29, 2013, whereby the Company was authorized to repurchase up to $1,000,000,000 ofits common stock.(3) Pursuant to a general authorization, not publicly announced, whereby the Company is authorized to repurchase shares of its common stock tosatisfy employee withholding tax obligations related to stock-based compensation.38 Item 6. Selected Financial Data SELECTED FINANCIAL DATA The following selected consolidated financial data presented below are derived from the Consolidated Financial Statements and related Notes of theCompany, and should be read in connection with those statements, some of which are included herein. Selected financial data reflects data related torentalcars.com from its acquisition date of May 2010 and KAYAK from its acquisition date of May 2013. The information set forth below is not necessarilyindicative of future results and should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results ofOperations." Year Ended December 31,2013 2012 2011 2010 2009(In thousands, except per share amounts) Total revenues$6,793,306 $5,260,956 $4,355,610 $3,084,905 $2,338,212Cost of revenues1,077,420 1,177,275 1,275,730 1,175,934 1,077,449Gross profit5,715,886 4,083,681 3,079,880 1,908,971 1,260,763Total operating expenses3,303,472 2,253,888 1,680,958 1,122,174 789,928Operating income2,412,414 1,829,793 1,398,922 786,797 470,835Total other expense115,877 67,924 31,128 40,514 28,533Income tax expense (benefit)(1)403,739 337,832 308,663 218,141 (47,168)Equity in income (loss) income of investees— — — — 2Net income(1)1,892,798 1,424,037 1,059,131 528,142 489,472Net income attributable to noncontrolling interests(2)135 4,471 2,760 601 —Net income applicable to common stockholders (1)1,892,663 1,419,566 1,056,371 527,541 489,472Net income applicable to common stockholders perbasic common share(1)37.17 28.48 21.27 11.00 11.54Net income applicable to common stockholders perdiluted share(1)36.11 27.66 20.63 10.35 9.88Total assets10,444,460 6,569,742 3,970,671 2,905,953 1,834,224Long-term obligations, redeemable noncontrollinginterests(3)2,304,917 1,731,385 788,218 621,624 263,708Total liabilities3,526,198 2,457,825 1,191,971 1,046,828 476,610Total stockholders' equity6,909,729 3,896,975 2,574,295 1,813,336 1,321,629_____________________________(1) The Company recorded non-cash income tax benefits for the year ended December 31, 2009, resulting from the reversal of a portion of its valuationallowance on its deferred tax assets related to net operating loss carryforwards of $183.3 million. (2) Redeemable noncontrolling interests beginning in 2010 relates to the Company's purchase of rentalcars.com in May 2010. In April 2011, inconnection with the exercise of certain call and put options in March 2011, the redeemable noncontrolling interests in rentalcars.com were reducedfrom 24.4% to 19.0%. In April 2012, in connection with the exercise of certain call and put options in March 2012, the redeemable noncontrollinginterests in rentalcars.com were reduced from 19.0% to 12.7%. In April 2013, in connection with the exercise of certain call and put options in March2013, the Company purchased the remaining outstanding shares underlying the redeemable noncontrolling interests.(3) Includes convertible debt which is classified as a current liability.39 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our financial statements, including the notes to those statements, includedelsewhere in this Form 10-K, and the Section entitled "Special Note Regarding Forward-Looking Statements" in this Form 10-K. As discussedin more detail in the Section entitled "Special Note Regarding Forward-Looking Statements," this discussion contains forward-lookingstatements which involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-lookingstatements. Factors that might cause those differences include those discussed in "Risk Factors" and elsewhere in this Form 10-K.Overview We are a leading online travel company that connects consumers wishing to make travel reservations with providers of travel services around theworld. We offer consumers accommodation reservations through our Booking.com, priceline.com, and Agoda.com brands. In the United States, we also offerconsumers reservations for rental cars, airline tickets, vacation packages and cruises through the priceline.com brand. We offer rental car reservationsworldwide through rentalcars.com. We also allow consumers to easily compare airline ticket, hotel reservation and rental car reservation information fromhundreds of travel websites at once through KAYAK's websites and mobile applications (or "apps"). We refer to our company and all of our subsidiaries andbrands, including Booking.com, priceline.com, Agoda.com, KAYAK and rentalcars.com, collectively as "The Priceline Group," the "Company," "we,""our" or "us."We launched our business in the United States in 1998 under the priceline.com brand and have since expanded our operations to includeBooking.com, Agoda.com, KAYAK, and rentalcars.com, which are independently managed and operated brands. Our principal goal is to serve consumerswith worldwide leadership in online travel services. Our business is driven primarily by international results, which consist of the results of Booking.com,Agoda.com and rental cars.com, as well as the results of KAYAK's international based websites, in each case regardless of where the consumer is resident,from where the consumer makes a reservation or where the travel service is provided. During the year ended December 31, 2013, our international business(the substantial majority of which is generated by Booking.com) represented approximately 85% of our gross bookings (an operating and statistical metricreferring to the total dollar value, generally inclusive of all taxes and fees, of all travel services purchased by our customers), and approximately 94% of ourconsolidated operating income. A significant majority of our gross profit is earned in connection with facilitating accommodation reservations.We derive substantially all of our gross profit from the following sources:•Commissions earned from facilitating reservations of accommodations, rental cars, cruises and other travel services;•Transaction gross profit and customer processing fees from our accommodation, rental car, and vacation package reservation services;•Advertising revenues primarily earned by KAYAK from sending referrals to travel service providers and OTAs as well as from advertisingplacements on KAYAK's websites and mobile apps; and•Global distribution system ("GDS") reservation booking fees related to our Name Your Own Price® accommodation, rental car and airlineticket reservation services, and price-disclosed airline ticket and rental car reservation services.The retail and semi-opaque travel services offered by our U.S. and international brands are recorded in revenue on a "net" basis and have no associated cost ofrevenue. Our priceline.com U.S. brand offers merchant Name Your Own Price® opaque travel services, which are recorded in revenue on a "gross" basis andhave associated cost of revenue. Therefore, revenue increases and decreases are impacted by changes in the mix of our revenues between Name Your OwnPrice® travel services and other travel services. Gross profit reflects the commission or net margin earned for our retail, Name Your Own Price® and semi-opaque travel services. Consequently, gross profit has become an increasingly important measure of evaluating growth in our business because, in contrast toour revenues, it is not affected by the mix between our Name Your Own Price® travel services and our other travel services.Over the last several years we have experienced strong growth in our accommodation reservation services. We believe this growth is the result of,among other things, the broader shift of travel purchases from offline to online, the widespread adoption of mobile devices, the high growth of travel overall inemerging markets such as Asia-Pacific and South America, and the continued innovation and execution by our teams around the world to buildaccommodation supply, content and distribution and to improve the customer experience on our websites and mobile apps. We experienced strong year-over-year growth in recent years, though that growth has generally decelerated. For example, for the year ended December 31, 2013, our accommodation room nightreservation growth was 37%, a deceleration from 40% in 2012 and 53% in 2011. Given40 the size of our hotel reservation business, we believe it is highly likely that our year-over-year growth rates will continue to decelerate, though the rate ofdeceleration may fluctuate.Many governments around the world, including the U.S. government and certain European governments, are operating at large financial deficits,resulting in high levels of sovereign debt in such countries. Failure to reach political consensus regarding workable solutions to these issues has resulted in ahigh level of uncertainty regarding the future economic outlook. This uncertainty, as well as concern over governmental austerity measures including highertaxes and reduced government spending, could impair consumer spending and adversely affect travel demand. At times, we have experienced volatility intransaction growth rates and weaker trends in hotel average daily rates ("ADRs") across many regions of the world, particularly in those European countriesthat appear to be most affected by economic uncertainties. We believe that these business trends are likely impacted by weak economic conditions andsovereign debt concerns. Disruptions in the economies of such countries could cause, contribute to or be indicative of deteriorating macro-economic conditions.In addition, during periods of elevated uncertainty, the value of the U.S. Dollar compared to other currencies, including the Euro, has often increased, whichadversely affects our gross bookings, gross profit, operating income and net income as expressed in U.S. Dollars. The uncertainty of macro-economic factorsand their impact on consumer behavior across regions, which may differ, makes it more difficult to forecast industry and consumer trends and the timingand degree of their impact on our markets and business, which in turn could adversely affect our ability to effectively manage our business and adverselyaffect our results of operations.We compete with both online and traditional travel reservation services. The market for the travel reservation services we offer is intenselycompetitive, and current and new competitors can launch new services at a relatively low cost. Some of our current and potential competitors, such as Google,Apple and Facebook, have access to significantly greater and more diversified resources than we do, and they may be able to leverage other aspects of theirbusinesses (e.g., search or mobile device businesses) to enable them to compete more effectively with us.We currently, or potentially will, compete with a variety of companies, including:•Online travel reservation services such as those owned by Expedia, Orbitz, Travelocity, Ctrip, Rakuten, ODIGEO, Jalan and Wotif;•large online portal, social networking, group buying and search companies, such as Google, Facebook and Groupon;•traditional travel agencies, wholesalers and tour operators, such as Carlson Wagonlit, American Express, Thomas Cook and Tui Travel, as well asthousands of individual travel agencies around the world;•travel service providers such as accommodation providers, rental car companies and airlines; and•online travel search and price comparison services (generally referred to as "meta-search" services), such as trivago (in which Expedia has acquired amajority ownership interest), TripAdvisor, Qunar and HotelsCombined.TripAdvisor, the world's leading travel research and review website and the world's largest online travel service with over 260 million uniquemonthly visitors across its websites, Google, the world's largest search engine, and other large, established companies with substantial resources and expertisein developing online commerce and facilitating Internet traffic have launched meta-search services and may create additional inroads into online travel, both inthe United States and internationally. Meta-search services leverage their search technology to aggregate travel search results for the consumer's specificitinerary across travel service provider (e.g. hotels, rental car companies or airlines), OTA and other travel websites and, in many instances, compete directlywith us for customers. Meta-search services intend to appeal to consumers by showing broader travel search results than may be available through OTAs orother travel websites, which could lead to travel service providers or others gaining a larger share of search traffic. TripAdvisor has begun supporting its meta-search service with offline advertising, and trivago, a leading meta-search service in Europe, recently expanded its offline advertising campaign into the UnitedStates. Google offers "Hotel Finder", a meta-search service that Google has at times placed at or near the top of hotel-related search results. As a result of ourrecent acquisition of KAYAK, a meta-search service, we now compete more directly with other meta-search services. As a meta-search service, KAYAKdepends on access to information related to travel service pricing, schedules, availability and other related information from OTAs and travel serviceproviders.As consumers attempt to be more efficient in their shopping behavior, they may favor travel services offered by meta-search websites or searchcompanies over OTAs, which could reduce traffic to our travel reservation websites, increase consumer awareness of our competitors' brands and websitesand increase our advertising and other customer acquisition costs. To the extent any such consumer behavior leads to growth in our KAYAK meta-searchbusiness, such growth may not result in sufficient increases in profits from our KAYAK meta-search business to offset any related decrease in profitsexperienced by41 our OTA brands. Further, meta-search services may evolve into more traditional OTAs by offering consumers the ability to make travel reservations directlythrough their websites. For example, TripAdvisor facilitates hotel reservations on its transactional websites Tingo and Jetsetter and intends to allow consumersto make a reservation while staying on TripAdvisor. To the extent consumers book travel services through a meta-search website or directly with a travelservice provider after visiting a meta-search website or meta-search utility on a traditional search engine without using an OTA like us, or if meta-searchservices limit our participation within their search results, we may need to increase our advertising or other customer acquisition costs to maintain or grow ourreservation bookings, any of which could have an adverse effect on our business and results of operations.Travel service providers, including multi-national hotel chains, rental car companies and airlines with which we conduct business, compete with usin online channels to drive consumers to their own websites in lieu of third-party distributors such as us. Travel service providers who sell on their ownwebsites typically do not charge a processing fee, and, in some instances, offer advantages such as loyalty points, which could make their offerings moreattractive to consumers than models like ours.Widespread adoption of mobile devices, such as the iPhone, Android-enabled smart phones, and tablets such as the iPad, coupled with the improvedweb browsing functionality and development of thousands of useful "apps" available on these devices, is driving substantial traffic and commerce activity tomobile platforms. We have experienced a significant shift of business to mobile platforms and our advertising partners are also seeing a rapid shift of trafficto mobile platforms. Our major competitors and certain new market entrants are offering mobile applications for travel products and other functionality,including proprietary last-minute discounts for accommodation reservations. Advertising and distribution opportunities may be more limited on mobiledevices given their smaller screen sizes. The gross profit earned on a mobile transaction may be less than a typical desktop transaction due to differentconsumer purchasing patterns. For example, accommodation reservations made on a mobile device typically are for shorter lengths of stay and are not made asfar in advance. Further, given the device sizes and technical limitations of tablets and smartphones, mobile consumers may not be willing to downloadmultiple apps from multiple travel service providers and instead prefer to use one or a limited number of apps for their mobile travel activity. As a result, theconsumer experience with mobile apps as well as brand recognition and loyalty are likely to become increasingly important. We have made significant progresscreating mobile offerings, which have received strong reviews and solid download trends, and which are driving a material and increasing share of ourbusiness. We believe that mobile bookings present an opportunity for growth and are necessary to maintain and grow our business as consumers increasinglyturn to mobile devices instead of a personal computer and to mobile applications instead of a web browser. If we are unable to continue to rapidly innovate andcreate new, user-friendly and differentiated mobile offerings and efficiently and effectively advertise and distribute on these platforms, or if our mobile appsare not downloaded and used by consumers, we could lose market share to existing competitors or new entrants and our future growth and results ofoperations could be adversely affected.Apple, Inc., one of the most innovative and successful companies in the world and producer of, among other things, the iPhone and iPad, obtained apatent for "iTravel," a mobile app that would allow a traveler to check in for a travel reservation. In addition, Apple's iPhone operating system includes"Passbook," a virtual wallet app that holds tickets, boarding passes, coupons and gift cards, and along with iTravel, may be indicative of Apple's intent toenter the travel reservations business in some capacity. Apple has substantial market share in the smart phone category and controls integration of offerings,including travel services, into its mobile operating system. Apple also has more experience producing and developing mobile apps and has access to greaterresources than we have. Apple may use or expand iTravel, Passbook, Siri (Apple's voice recognition "concierge" service) or another mobile app as a means ofentering the travel reservations marketplace. Similarly, Google's Android operating system is the leading smart phone operating system in the world. As aresult, Google could leverage its Android operating system to give its travel services a competitive advantage, either technically or with prominence on itsGoogle Play app store or within its mobile search results. To the extent Apple or Google use their mobile operating systems or app distribution channels to favortheir own travel service offerings, our business could be harmed.There has been a proliferation of new channels through which accommodation providers can offer reservations. For example, some accommodationsoffer reservations through "daily deal" websites such as Groupon and Living Social, which sell coupons to customers at a substantial discount. In 2011,Expedia, one of our largest competitors, entered into a partnership with Groupon to facilitate accommodation reservations to Groupon customers under the"Groupon Getaways" brand name. New entrants, such as HotelTonight, BackBid, GuestMob, Tingo, Hipmunk and Room 77, have developed new anddifferentiated offerings that endeavor to provide savings on accommodation reservations to consumers and that compete directly with us. If any of these newservices are successful, we may experience less demand for our services and are likely to face more competition for access to the limited supply of discountedhotel room rates.42 In August 2013, Expedia and Travelocity announced that they had entered into an exclusive, long-term strategic marketing agreement, wherebyExpedia will power the technology platforms for Travelocity's existing websites in the United States and Canada, while providing Travelocity access toExpedia's supply and customer services. To the extent this arrangement enhances Expedia's and/or Travelocity's ability to compete with us in the affectedmarkets, our market share and results of operations could be adversely affected.We use third party websites, including online search engines (primarily Google) and meta-search and travel research services, and affiliate marketingas primary means of generating traffic to our websites. As a result, our online advertising expense has increased significantly in recent years, a trend we expectto continue. In addition, our online advertising expense has generally been growing faster than our gross profit due to (1) lower returns on investment ("ROIs")from our online advertising, (2) brand mix within The Priceline Group and (3) channel mix within certain of our brands. Our online advertising ROIs weredown year-over-year for the year ended December 31, 2013. Furthermore, our international brands are generally growing faster than our U.S. brands, andtypically spend a higher percentage of gross profit on online advertising. Finally, certain of our brands are obtaining an increasing share of traffic through paidonline advertising channels. We also intend to continue to invest in offline advertising, in particular for our Booking.com, priceline.com and KAYAK brands,and expect to increase our overall offline advertising spend in 2014. For example, building on its first offline advertising campaign, which it launched in theUnited States in 2013, Booking.com recently began offline advertising campaigns in Australia, Canada and the United Kingdom and may expand its offlineadvertising into other markets during 2014.The inclusion of KAYAK since its acquisition on May 21, 2013 had a favorable impact on online advertising as a percentage of gross profit for theyear ended December 31, 2013 because KAYAK spends a lower percentage of gross profit on online advertising than our other brands, and our consolidatedresults exclude intercompany advertising by our brands on KAYAK. This favorable impact will benefit year-over-year comparisons until the anniversary ofthe acquisition on May 21, 2014.Advertising efficiency is impacted by a number of factors that are subject to variability and that are, in some cases, outside of our control, includingADRs, costs per click, cancellation rates, foreign exchange rates and our ability to convert paid traffic to booking customers and then having customers returndirectly to our websites or mobile apps for future bookings.International Trends. The size of the travel market outside of the United States is substantially greater than that within the United States.Historically, Internet adoption rates and e-commerce adoption rates of international consumers have trailed those of the United States. However, internationalconsumers are rapidly moving to online means for purchasing travel. Accordingly, recent international online travel growth rates have substantially exceeded,and are expected to continue to exceed, the growth rates within the United States. We expect that over the long-term, international online travel growth rates willfollow a similar trend to that experienced in the United States. In addition, the base of hotel properties in Europe and Asia is particularly fragmented comparedto that in the United States, where the hotel market is dominated by large hotel chains. We believe online reservation systems like ours may be more appealingto small chains and independent hotels more commonly found outside of the United States. Our growth has primarily been generated by our internationalaccommodation reservation service brands, Booking.com and Agoda.com. Booking.com, our most significant brand, includes over 425,000 properties on itswebsite as of February 18, 2014 (updated property counts are available on the Booking.com website). Booking.com has added properties over the past year inits core European market as well as higher-growth markets such as North America (which is a newer market for Booking.com), Asia-Pacific and SouthAmerica. An increasing amount of our business from both a destination and point-of-sale perspective is conducted in these newer markets which are growingfaster than our overall growth rate. We believe that the opportunity to continue to grow our business exists for the markets in which we operate. We believe thesetrends and factors have enabled us to become the leading online accommodation reservation service provider in the world as measured by room nights booked.As our international business represents the substantial majority of our financial results, we expect to continue to see our operating results and otherfinancial metrics largely driven by international performance. For example, certain newer markets in which we operate that are in earlier stages of developmenthave lower operating margins compared to more mature markets, which could have a negative impact on our overall margins as these markets increase in sizeover time. Also, we intend to continue to invest in adding accommodations available for reservation on our websites, including hotels, bed and breakfasts,hostels and vacation rentals. Vacation rentals generally consist of, among others, properties categorized as single-unit and multi-unit villas, holiday homes,apartments and chalets and are generally self-catered (i.e., include a kitchen), directly bookable properties. Many of the newer accommodations we add to ourtravel reservation services, especially in highly penetrated markets, may have fewer rooms, lower ADRs or higher credit risk and may appeal to a smallersubset of consumers (e.g., hostels and bed and breakfasts), and therefore may also negatively impact our margins. For example, because a vacation rental iseither a single unit or a small collection of independent units, vacation rental properties represent more limited booking opportunities than non-vacation rentalproperties, which generally have more units to rent per property. Our non-hotel43 accommodations in general may be subject to increased seasonality due to local tourism seasons, weather or other factors. If we increase our non-hotelaccommodation business, these different market characteristics could negatively impact our profit margins; and, if these properties represent an increasingpercentage of the properties added to our websites, our gross bookings growth rate and property growth rate will likely diverge over time (since each suchproperty has fewer booking opportunities). As a result of the foregoing, as the percentage of non-hotel accommodations increases, the number of reservationsper property will likely decrease.Another impact of the size of our international business is our exposure to foreign currency exchange risk. Because we conduct a substantial majorityof our business outside the United States and report our results in U.S. Dollars, we face exposure to adverse movements in currency exchange rates as thefinancial results of our international business are translated from local currency (principally the Euro and the British Pound Sterling) into U.S. Dollars uponconsolidation. For example, a strengthening of the Euro increases our Euro-denominated net assets, gross bookings, gross profit, operating expenses, and netincome as expressed in U.S. Dollars, while a weakening of the Euro decreases our Euro-denominated net assets, gross bookings, gross profit, operatingexpenses, and net income as expressed in U.S. Dollars. Certain European Union countries with high levels of sovereign debt have had difficulty refinancingtheir debt. Concern around devaluation or abandonment of the Euro common currency, or that sovereign default risk may be more widespread and couldinclude the United States, has led to significant volatility in the exchange rate between the Euro, the U.S. Dollar and other currencies. We generally enter intoderivative instruments to minimize the impact of short-term currency fluctuations on our consolidated operating results. However, such derivative instrumentsare short term in nature and not designed to hedge against currency fluctuations that could impact our foreign currency denominated gross bookings, revenueor gross profit (see Note 5 to the Consolidated Financial Statements for additional information on our derivative contracts). For example, while revenue fromour international operations grew year-over-year on a local currency basis by approximately 40% for the year ended December 31, 2013, compared to the sameperiod in 2012, as a result of the positive impact of currency exchange rates, revenue from our international operations as reported in U.S. Dollars grew 41.2%for the year ended December 31, 2013.The competition authorities of many governments have begun investigations into competitive practices within the online travel industry, and we maybe involved or affected by such investigations and their results. For example, national competition authorities in France, Germany, Austria, Hungary, Swedenand Switzerland have opened investigations that focus on Booking.com's rate parity clause in its contracts with accommodation providers in thosejurisdictions. All of these investigations are at a preliminary stage. We are currently unable to predict the outcome of these investigations or how our businessmay be affected. Possible outcomes include requiring Booking.com to remove its rate parity clause from its contracts with accommodation providers in thosejurisdictions. We note that the German competition authority has required Hotel Reservation Service to remove its rate parity clause from its contracts withhotels, though this decision is currently subject to appeal. To the extent that regulatory authorities require changes to our business practices or to thosecurrently common to the industry, our business, competitive position and results of operations could be materially and adversely affected. Negative publicityregarding any such investigations could adversely affect our brand and therefore our market share and results of operations. Further, as our business grows,we may increasingly become the target of such investigations or be limited by anti-trust or competition laws. For example, our size and market share maynegatively affect our ability to obtain regulatory approval of proposed acquisitions or our ability to expand into complementary businesses, any of which couldadversely affect our ability to grow and compete.Domestic Trends. Competition in U.S. online travel remains intense and online travel companies are creating new promotions and consumer valuefeatures in an effort to gain competitive advantages. In particular, the competition to provide "opaque" hotel reservation services to consumers, an area inwhich our priceline.com U.S. business has been a leader, has become more intense. For example, Expedia makes opaque hotel reservations available on itsprincipal website under the name "Expedia Unpublished Rates" and has, we believe, supported this initiative with steeper discounts through lower margins.As with our opaque Name Your Own Price® and Express Deals® hotel reservation services, the name of the hotel is not disclosed until after booking thereservation. We believe these offerings, in particular "Expedia Unpublished Rates," have adversely impacted the market share and year-over-year room nightreservations growth rate for our Name Your Own Price® opaque hotel reservation service, which began to experience a decline in the third quarter of 2011. Inaddition, some hotels offer discounted room reservations through "daily deal" websites such as Groupon and Living Social. If Expedia or others are successfulin growing their opaque hotel reservation services, and/or "daily deal" websites are successful in garnering a sizable share of discounted hotel bookings, wemay have less consumer demand for our opaque hotel reservation services over time, and we would face more competition for access to the limited supply ofdiscounted hotel room rates. In an effort to compete more effectively against these new offerings, in 2012 we launched Express Deals®, a semi-opaque price-disclosed hotel reservation service. While Express Deals® has been a significant contributor to the improved performance of our opaque hotel reservationservice, the offering may not ultimately be successful at recovering or growing U.S. hotel reservation service market share. As a result of this increasedcompetition, our share of the discount hotel reservation market in the United States could further decrease.44 While demand for online travel services in the United States continues to experience growth, we believe that the U.S. market share of third-partydistributors is impacted in part by a concerted initiative by travel service providers to direct customers to their own websites in an effort to reduce distributionexpenses and establish more direct control over their pricing.U.S. airlines have, at times, reduced capacity and increased fares. Decreases in capacity reduce the amount of airline tickets available, whilesignificant increases in average airfares have adversely impacted leisure travel demand. Generally, reduced airline capacity and demand negatively impact ourpriceline.com air ticket reservation service, which in turn can have negative repercussions on our priceline.com hotel and rental car services. We expectcontinued variability in the breadth and depth of discounted airline tickets and rental car rates made available to us in the future, depending on marketconditions from time to time.Seasonality. A meaningful amount of gross bookings are generated early in the year, as customers plan and reserve their spring and summervacations in Europe and North America. From a cost perspective, we expense the substantial majority of our advertising activities as they are incurred, whichis typically in the quarter in which reservations are booked. However, we generally do not recognize associated revenue until future quarters when the traveloccurs. As a result, we typically experience our highest levels of profitability in the second and third quarters of the year, which is when we experience thehighest levels of accommodation checkouts for the year for our North American and European businesses.In addition, the date on which certain holidays fall can have an impact on our quarterly results. For example, in 2013 our first quarter year-over-yeargrowth rates in revenue, gross profit, operating income, and operating margins were favorably affected by Easter falling in the first quarter instead of thesecond quarter in 2012. Conversely, those year-over-year growth rates were negatively impacted in our second quarter 2013.The impact of seasonality can be exaggerated in the short-term by the gross bookings growth rate of the business. For example, in periods where ourgrowth rate substantially decelerates, our operating margins typically benefit from relatively less variable advertising expense. In addition, gross profit growthis typically less impacted in the near term due to the benefit of revenue related to reservations booked in previous quarters.We experience the highest levels of booking and travel consumption for our Asia-Pacific and South American businesses in the first and fourthquarters. Therefore, if these businesses continue to grow faster than our North American and European businesses, our operating results for the first andfourth quarters of the year may become more significant over time as a percentage of full year operating results.Other Factors. We believe that our success will depend in large part on our ability to continue to profitably grow our brands worldwide, and, overtime, to offer other travel services and further expand into other international markets. Factors beyond our control, such as worldwide recession, higher oilprices, terrorist attacks, unusual weather patterns, natural disasters such as earthquakes, hurricanes, tsunamis, floods, volcanic eruptions (such as the April2010 eruption of a volcano in Iceland), travel related health concerns including pandemics and epidemics such as Influenza H1N1, avian bird flu and SARS,political instability, regional hostilities, imposition of taxes or surcharges by regulatory authorities or travel related accidents, could adversely affect ourbusiness and results of operations and impair our ability to effectively implement all or some of the initiatives described above.For example, in late 2012 Hurricane Sandy disrupted travel in the northeastern United States. In early 2011, Japan was struck by a majorearthquake, tsunami and nuclear emergency. In October 2011, severe flooding in Thailand, a key market for our Agoda.com business and the Asian businessof Booking.com, negatively impacted booking volumes and cancellation rates in this market. In addition, Thailand has recently experienced disruptive civilunrest, which has negatively impacted booking volumes and cancellation rates in this market. In early 2010, Thailand also experienced civil unrest, whichcaused the temporary relocation of Agoda.com's Thailand-based operations. Future natural disasters or civil or political unrest could further disrupt ourbusiness and operations.We intend to continue to invest in marketing and promotion, technology and personnel within parameters consistent with attempts to improve long-term operating results, even if those expenditures create pressure on operating margins. We have experienced pressure on operating margins as we prioritizeinitiatives that drive growth. We also intend to broaden the scope of our business, and to that end, we explore strategic alternatives from time to time in the formof, among other things, mergers and acquisitions. Our goal is to grow gross profit and achieve healthy operating margins in an effort to maintain profitability.The uncertain environment described above makes the prediction of future results of operations difficult, and accordingly, we may not be able to sustain grossprofit growth and profitability.45 On May 21, 2013, we acquired KAYAK Software Corporation, a leading travel meta-search service, in a stock and cash transaction. The purchasevalue was $2.1 billion ($1.9 billion net of cash acquired). We paid $0.5 billion in cash, from cash on hand in the United States, and $1.6 billion in sharesof our common stock and assumed stock options. See Note 3 and Note 20 to the Consolidated Financial Statements for further information on the acquisition.Critical Accounting Policies and EstimatesManagement's Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements,which have been prepared in accordance with accounting principles generally accepted in the United States of America. Our significant accounting policies andestimates are more fully described in Note 2 to the Consolidated Financial Statements. Certain of our accounting policies and estimates are particularlyimportant to our financial position and results of operations and require us to make difficult and subjective judgments, often as a result of the need to makeestimates of matters that are inherently uncertain. In applying those policies, our management uses its judgment to determine the appropriate assumptions to beused in the determination of certain estimates. On an on-going basis, we evaluate our estimates, including those related to the items described below. Thoseestimates are based on, among other things, historical experience, terms of existing contracts, our observance of trends in the travel industry and on variousother assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates under different assumptions orconditions. Our significant accounting policies that involve significant estimates and judgments of management include the following:•Accounting for Travel Transaction Taxes. As discussed in Note 16 to the Consolidated Financial Statements, we are currently involved inapproximately forty lawsuits brought by or against states, cities and counties over issues involving the payment of travel transaction taxes(e.g. hotel occupancy taxes, excise taxes, sales taxes, etc.). In addition, over seventy-nine municipalities or counties, and at least thirteenstates, have initiated audit proceedings, issued proposed tax assessments or started inquiries relating to the payment of travel transactiontaxes. Additional state and local jurisdictions are likely to assert that we are subject to travel transaction taxes and could seek to collect suchtaxes, retroactively and/or prospectively. Historically, we have not collected travel transaction taxes on the gross profit earned from merchanthotel transactions; however, in a handful of jurisdictions, we have been required recently by passage of a new statute or by court order, tostart collecting and remitting certain taxes (local occupancy and/or sales or excise tax) imposed upon our margin and/or service fee, or in thecase of Hawaii, on the full amount collected from the consumer. The ultimate resolution of these matters in all jurisdictions cannot bedetermined at this time. We have established an accrual (including estimated interest and penalties) for potential resolution of issues relatedto travel transaction taxes for prior and current periods, consistent with applicable accounting principles and in light of all current facts andcircumstances. We accrue for legal contingencies where it is probable that a loss has occurred and the amount can be reasonably estimated;our legal expenses for these matters are expensed as incurred and are not reflected in the amount accrued. A variety of factors could affectthe amount of the liability (both past and future), which factors include, but are not limited to, the number of, and amount of gross profitrepresented by, jurisdictions that ultimately assert a claim and prevail in assessing such additional tax or negotiate a settlement and changesin relevant statutes. The ultimate resolution of these matters may be greater or less than the liabilities recorded.•Stock-Based Compensation. We record stock-based compensation expense for equity-based awards over the recipient's service periodbased upon the grant date fair value of the award. A number of our equity awards have performance targets (a performance "contingency")which, if satisfied, can increase the number of shares issued to the recipients at the end of the performance period or, in certain instances,if not satisfied, reduce the number of shares issued to the recipients, sometimes to zero, at the end of the performance period. Theperformance periods for our performance based equity awards are typically three years. We record stock-based compensation expense forthese performance-based awards based upon our estimate of the probable outcome at the end of the performance period (i.e., the estimatedperformance against the performance targets). We periodically adjust the cumulative stock-based compensation recorded when the probableoutcome for these performance-based awards is updated based upon changes in actual and forecasted operating results. Stock-basedcompensation for the years ended December 31, 2013, 2012 and 2011 includes charges amounting to $24.1 million, $0.9 million and$10.3 million, respectively, representing the cumulative impact of adjusting the estimated probable outcome of unvested performance shareunits. Our actual performance against the performance targets could differ materially from our estimates.We record stock-based compensation expense net of estimated forfeitures. In determining the estimated forfeiture rates, we periodicallyreview actual and projected forfeitures. To the extent that actual or projected46 forfeiture rates differ from current estimates, such amounts are recorded as a cumulative adjustment in the period in which the estimate isrevised.•Valuation of Goodwill. We have recorded goodwill related to businesses we have acquired. Goodwill is reviewed at least annually forimpairment using appropriate valuation techniques. In the event that future circumstances indicate that any portion of our goodwill isimpaired, an impairment charge would be recorded.A substantial portion of our goodwill relates to our acquisition of the KAYAK business in May 2013. If KAYAK is unsuccessful inprofitably growing its global online travel brand or it experiences a significant reduction in advertising revenues due to factors such as aloss of continued access to travel services information provided by other OTAs and travel service providers or a reduction in advertising onits websites and mobile apps, we may incur an impairment charge related to this goodwill. The estimated fair values of our other reportingunits substantially exceed their respective carrying values. Since the annual impairment test in September 2013, there have been no eventsor changes in circumstances to indicate a potential impairment.•Valuation of Long-Lived Assets and Intangibles. We evaluate whether events or circumstances have occurred which indicate that thecarrying amounts of long-lived assets and intangibles may be impaired. The significant factors that are considered that could trigger animpairment review include changes in business strategies, market conditions, or the manner of use of an asset; under performance relativeto historical or expected future operating results; and negative industry or economic trends. In evaluating an asset for possible impairment,management estimates that asset's future undiscounted cash flows to measure whether the carrying value of the asset is recoverable. If it isdetermined that the asset is not recoverable, we measure the impairment based upon the fair value of the asset compared to its carryingvalue. The fair value represents the projected discounted cash flows of the asset over its remaining life.Recent Accounting PronouncementsIn February 2013, the Financial Accounting Standards Board ("FASB") issued accounting guidance which requires entities to provide additionalinformation about items reclassified out of accumulated other comprehensive income ("AOCI") to net income. Changes in AOCI balances by component, bothbefore tax and after tax, must be disclosed and significant items reclassified out of AOCI by component must be reported either on the face of the incomestatement or in a separate footnote to the financial statements. The accounting guidance is effective for public companies for fiscal years, and interim periodswithin those years, beginning after December 15, 2012. See Note 14 for information on AOCI balances. There were no reclassifications out of AOCI to netincome for the years ended December 31, 2013, 2012, and 2011.In July 2013, the FASB issued an accounting update which provides guidance on financial statement presentation of an unrecognized tax benefitwhen a net operating loss carryforward or a tax credit carryforward exists in the same taxing jurisdiction. Per this guidance, an entity must present theunrecognized tax benefit as a reduction to a deferred tax asset, except when the carryforward is not available as of the reporting date under the governing tax lawto settle taxes or the entity does not intend to use the deferred tax asset for this purpose. This amendment does not impact the recognition or measurement ofuncertain tax positions or the disclosure reconciliation of gross unrecognized tax benefits. The update is effective for public companies beginning afterDecember 15, 2013. Early adoption of the update is permitted and an entity may choose to apply this amendment retrospectively to each reporting periodpresented. The adoption of this accounting update is not expected to have a material impact on the Company's consolidated financial statements.47 Results of Operations Year Ended December 31, 2013 compared to Year Ended December 31, 2012 Operating and Statistical Metrics Our financial results are driven by certain operating metrics that encompass the booking activity generated by our travel services. Specifically,reservations of accommodation room nights, rental car days and airline tickets capture the volume of units purchased by our customers. Gross bookings isan operating and statistical metric that captures the total dollar value, generally inclusive of taxes and fees, of all travel services booked by our customers andis widely used in the travel business. International gross bookings reflect gross bookings generated principally by our Booking.com, Agoda.com, andrentalcars.com businesses and domestic gross bookings reflect gross bookings generated principally by our priceline.com business, in each case withoutregard to the travel destination or the location of the customer purchasing the travel.Gross bookings resulting from accommodation room nights, rental car days and airline tickets reserved through our international and U.S.operations for the years ended December 31, 2013 and 2012 were as follows (numbers may not total due to rounding): Year Ended December 31, (in millions) 2013 2012 ChangeInternational$33,300 $23,370 42.5%Domestic5,873 5,086 15.5%Total$39,173 $28,456 37.7% Gross bookings increased by 37.7% for the year ended December 31, 2013, compared to the same period in 2012 (growth on a local currency basiswas approximately 38%), principally due to growth of 36.9% in accommodation room night reservations and growth of 37.0% in rental car day reservations.The 42.5% increase in international gross bookings (growth on a local currency basis was approximately 42%) was primarily attributable to growth in hoteland accommodation room night reservations for our Booking.com and Agoda.com businesses, as well as growth in rental car day reservations for ourrentalcars.com business. Domestic gross bookings increased by 15.5% for the year ended December 31, 2013, compared to the same period in 2012,primarily due to an increase in priceline.com's retail airline ticket service, Express Deals® hotel reservation service, and retail rental car service, partiallyoffset by a decline in our Name Your Own Price® opaque hotel reservation service (driven in part by customer shift to Express Deals®). Gross bookings resulting from reservations of accommodation room nights, rental car days and airline tickets made through our agency andmerchant models for the years ended December 31, 2013 and 2012 were as follows (numbers may not total due to rounding): Year Ended December 31, (in millions) 2013 2012 ChangeAgency$32,672 $23,284 40.3%Merchant6,501 5,172 25.7%Total$39,173 $28,456 37.7% Agency gross bookings increased 40.3% for the year ended December 31, 2013, primarily due to growth in Booking.com accommodation room nightreservations, as well as growth in priceline.com's retail airline ticket and rental car services. Merchant gross bookings increased 25.7% for the year endedDecember 31, 2013, compared to the same period in 2012, primarily due to an increase in the sale of Agoda.com accommodation room night reservations,priceline.com Express Deals® hotel room night reservations, rentalcars.com rental car day reservations and Name Your Own Price® airline ticketreservations, partially offset by a decline in our Name Your Own Price® opaque hotel reservation service.48 Units sold for accommodation room nights, rental car days and airline tickets for the years ended December 31, 2013 and 2012 were as follows:Year Ended December 31, (in millions) 2013 2012 ChangeRoom Nights270.5 197.5 36.9%Rental Car Days43.9 32.0 37.0%Airline Tickets7.0 6.4 9.1% Accommodation room night reservations increased by 36.9% for the year ended December 31, 2013, over the same period in 2012, principally due toan increase in Booking.com, Agoda.com and priceline.com Express Deals® and retail accommodation room night reservations, partially offset by a decline inour Name Your Own Price® opaque hotel room night reservations in part due to a concerted effort to emphasize Express Deals® over Name Your OwnPrice® in our offline advertising campaigns. Booking.com, our most significant brand, includes over 425,000 properties on its website as compared to about275,000 properties last year (updated property counts are available on the Booking.com website). Booking.com has added properties over the past year in itscore European market as well as higher-growth markets such as North America (which is a newer market for Booking.com), Asia-Pacific and South America. An increasing amount of our business from a destination and point-of-sale perspective is conducted in these newer markets which are growing faster than ouroverall growth rate and our core European market. Our priceline.com agency hotel reservations benefited from the integration of the growing number ofproperties on the Booking.com extranet.Rental car day reservations increased by 37.0% for the year ended December 31, 2013, over the same period in 2012, due to an increase in rental carday reservations for rentalcars.com and priceline.com.Airline ticket reservations increased by 9.1% for the year ended December 31, 2013, over the same period in 2012, due to an increase in Name YourOwn Price® and price-disclosed airline ticket reservations. RevenuesWe classify our revenue into three categories: •Agency revenues are derived from travel related transactions where we are not the merchant of record and where the prices of the travel servicesare determined by third parties. Agency revenues include travel commissions, GDS reservation booking fees related to certain travel services andcustomer processing fees and are reported at the net amounts received, without any associated cost of revenue. Substantially all of the revenue forBooking.com is agency revenue comprised of travel commissions. •Merchant revenues are derived from services where we are the merchant of record and therefore charge the customer's credit card for the travelservices provided. Merchant revenues include (1) transaction revenues representing the selling price of Name Your Own Price® hotel roomnight, rental car and airline ticket reservations and vacation packages; (2) transaction revenues representing the amount charged to a customer,less the amount charged by travel service providers in connection with (a) the accommodation room reservations provided through our merchantprice-disclosed hotel service at Agoda.com and priceline.com and (b) the reservations provided through our merchant rental car service atrentalcars.com and merchant Express Deals® hotel service at priceline.com, which allows customers to see the price of the reservation prior topurchase but not the identity of the travel service provider; (3) customer processing fees charged in connection with the sale of Name Your OwnPrice® hotel room night, rental car and airline ticket reservations and merchant price-disclosed hotel reservations; and (4) ancillary fees,including GDS reservation booking fees related to certain of the services listed above. •Advertising and other revenues are derived primarily from KAYAK for sending referrals to travel service providers and OTAs as well as fromadvertising placements on KAYAK's websites and mobile applications. 49 Year EndedDecember 31, ($000) 2013 2012 ChangeAgency Revenues$4,410,689 $3,142,815 40.3%Merchant Revenues2,211,474 2,104,752 5.1%Advertising and Other Revenues171,143 13,389 1,178.2%Total Revenues$6,793,306 $5,260,956 29.1% Agency RevenuesAgency revenues for the year ended December 31, 2013 increased 40.3% compared to the same period in 2012, primarily as a result of growth in thebusiness of Booking.com. Our priceline.com agency revenues benefited from growth in our retail rental car business as well as the integration on thepriceline.com website of the growing number of properties on the Booking.com extranet.Merchant RevenuesMerchant revenues for the year ended December 31, 2013 increased 5.1% compared to the same period in 2012, primarily due to increases in ourAgoda.com hotel reservation service, rentalcars.com rental car reservation service and priceline.com Express Deals® hotel reservation and Name Your OwnPrice® air services, partially offset by a decline in Name Your Own Price® opaque hotel revenues for the year ended December 31, 2013, compared to thesame period in 2012. Merchant revenue growth over the prior year period was substantially lower than merchant gross bookings growth because our merchantrevenues are disproportionately affected by our Name Your Own Price® service. Name Your Own Price® revenues are recorded "gross" with a correspondingsupplier cost recorded in cost of revenues, and represented a smaller percentage, year-over-year, of total revenues compared to our faster-growing Agoda.com,rentalcars.com and priceline.com Express Deals® services, which are recorded in revenue "net" of supplier cost. As a result, we believe that gross profit is animportant measure of evaluating growth in our business.Advertising and Other RevenuesAdvertising and other revenues during the year ended December 31, 2013 consisted primarily of advertising revenues. Advertising revenues for theyear ended December 31, 2013 includes $154.5 million as a result of the inclusion of KAYAK since its acquisition on May 21, 2013, and excludesintercompany revenues earned by KAYAK from other Priceline Group brands. Cost of Revenues Year EndedDecember 31, ($000) 2013 2012 ChangeCost of Revenues$1,077,420 $1,177,275 (8.5)% Cost of Revenues For the year ended December 31, 2013, cost of revenues consisted primarily of: (1) the cost of Name Your Own Price® hotel room reservations fromour suppliers, net of applicable taxes, (2) the cost of Name Your Own Price® rental cars from our suppliers, net of applicable taxes; (3) the cost of NameYour Own Price® airline tickets, net of the federal air transportation tax, segment fees and passenger facility charges imposed in connection with the sale ofairline tickets; (4) the cost of vacation packages from our suppliers, net of applicable taxes; and (5) the cost related to accruals for travel transaction taxes(e.g., hotel occupancy taxes, excise taxes, sales taxes, etc.). Cost of revenues for the year ended December 31, 2013 decreased by 8.5%, primarily due to adecrease in our Name Your Own Price® hotel reservation service, partially offset by increases in our other Name Your Own Price® services and higheraccruals for travel transaction taxes. Cost of revenues for the year ended December 31, 2013 includes an accrual recorded in the first quarter of 2013 ofapproximately $20.5 million (including estimated interest and penalties) for travel transaction taxes, principally related to unfavorable rulings in the State ofHawaii and the District of Columbia, partially offset by a reduction in our accrual related to travel transaction taxes of $6.3 million recorded in the fourth50 quarter of 2013, principally related to a favorable agreement and ruling in the District of Columbia. Cost of revenue for the year ended December, 2012includes an accrual of approximately $21 million (including estimated interest and penalties) for travel transaction taxes, principally related to unfavorablerulings in the State of Hawaii and in the District of Columbia.Agency revenues have no cost of revenue. Agency revenues principally consist of travel commissions on accommodation reservations.Gross Profit Year EndedDecember 31, ($000) 2013 2012 ChangeGross Profit$5,715,886 $4,083,681 40.0%Gross Margin84.1% 77.6% Total gross profit for the year ended December 31, 2013 increased by 40.0% compared to the same period in 2012, primarily as a result of increasedrevenue discussed above. Total gross margin (gross profit expressed as a percentage of total revenue) increased during the year ended December 31, 2013,compared to the same period in 2012, because our revenues are disproportionately affected by our Name Your Own Price® service. Name Your Own Price®revenues are recorded "gross" with a corresponding travel service provider cost recorded in cost of revenues, and in the year ended December 31, 2013represented a smaller percentage of total revenues than in the same period in 2012. Our retail and semi-opaque services, which are recorded in revenue "net" ofsupplier cost have been growing faster than our Name Your Own Price® services. As a result, we believe that gross profit is an important measure ofevaluating growth in our business. Our international operations accounted for approximately $5.02 billion of our gross profit for the year ended December 31,2013, which compares to $3.56 billion for the same period in 2012. Gross profit attributable to our international operations increased, on a local currencybasis, by approximately 40% for the year ended December 31, 2013 compared to the same period in 2012. Gross profit attributable to our U.S. businessesincreased by approximately 32.5% for the year ended December 31, 2013, compared to the same period in 2012. Gross profit for the year ended December 31,2013 was positively impacted by the inclusion of KAYAK since its acquisition on May 21, 2013. Gross profit for the year ended December 31, 2013 wasnegatively impacted by an accrual recorded in the first quarter of 2013 of approximately $20.5 million (including estimated interest and penalties) for traveltransaction taxes, principally related to unfavorable rulings in the State of Hawaii and the District of Columbia, partially offset by a credit in the fourthquarter of 2013 of $6.3 million, principally related to a favorable agreement and ruling in the District of Columbia. Gross profit for the year ended December31, 2012 was negatively impacted by an accrual of approximately $21 million (including estimated interest and penalties) for travel transaction taxes,principally related to unfavorable rulings in the State of Hawaii and in the District of Columbia. Operating Expenses Advertising Year EndedDecember 31, ($000) 2013 2012 ChangeOnline Advertising$1,798,645 $1,273,637 41.2%% of Total Gross Profit31.5% 31.2% Offline Advertising$127,459 $35,492 259.1%% of Total Gross Profit2.2% 0.9% Online advertising expenses primarily consist of the costs of (1) search engine keyword purchases; (2) referrals from meta-search and travel researchwebsites; (3) affiliate programs; (4) banner, pop-up and other Internet advertisements; and (5) e-mail campaigns. For the year ended December 31, 2013,online advertising expenses increased 41.2% over the same period in 2012, primarily to generate increased gross bookings. Online advertising as a percentageof gross profit increased for the year ended December 31, 2013 compared to the same period in 2012 due to (1) lower ROIs for our online advertising, (2) brandmix within The Priceline Group and (3) channel mix within certain of our brands. Our online advertising ROIs were down year-over-year for the year endedDecember 31, 2013. Furthermore, our international brands are generally growing51 faster than our U.S. brands, and typically spend a higher percentage of gross profit on online advertising. Finally, certain of our brands are obtaining anincreasing share of traffic through paid online advertising channels.The inclusion of KAYAK since its acquisition on May 21, 2013 had a favorable impact on online advertising as a percentage of gross profit for theyear ended December 31, 2013 because KAYAK spends a lower percentage of gross profit on online advertising than our other brands, and our consolidatedresults exclude intercompany advertising by our brands on KAYAK. This favorable impact will benefit year-over-year comparisons until the anniversary ofthe acquisition on May 21, 2014.Offline advertising expenses are related to our television, print and radio advertising for our Booking.com, priceline.com and KAYAK businesses.For the year ended December 31, 2013, offline advertising increased 259.1% compared to the same period in 2012, due mainly to Booking.com launching inthe United States its first offline advertising campaign in 2013, as well as the inclusion of KAYAK since its acquisition on May 21, 2013. Booking.com alsolaunched an offline advertising campaign in Australia in the fourth quarter of 2013. Booking.com recently launched offline advertising campaigns in Canadaand the United Kingdom and may expand its offline advertising into other markets during 2014.Sales and Marketing Year EndedDecember 31, ($000) 2013 2012 ChangeSales and Marketing$235,817 $195,934 20.4%% of Total Gross Profit4.1% 4.8% Sales and marketing expenses consist primarily of (1) credit card processing fees associated with merchant transactions; (2) fees paid to third-partiesthat provide call center, website content translations and other services; (3) provisions for bad debt, primarily related to agency accommodation commissionreceivables; and (4) provisions for credit card chargebacks. For the year ended December 31, 2013, sales and marketing expenses, which are substantiallyvariable in nature, increased over the same period in 2012, primarily due to increased gross booking volumes as well as expenses related to increased contenttranslations and the inclusion of KAYAK since its acquisition on May 21, 2013. Sales and marketing expenses as a percentage of gross profit are typicallyhigher for our merchant business, which incurs credit card processing fees. Our merchant business grew more slowly than our agency business, and as aresult, sales and marketing expenses as a percentage of total gross profit for the year ended December 31, 2013 declined compared to the same period in 2012.In addition, our Agoda.com business achieved a year-over-year decline in its sales and marketing expense per transaction.Personnel Year EndedDecember 31, ($000) 2013 2012 ChangePersonnel$698,692 $466,828 49.7%% of Total Gross Profit12.2% 11.4% Personnel expenses consist of compensation to our personnel, including salaries, stock-based compensation, bonuses, payroll taxes and employeehealth benefits. For the year ended December 31, 2013, personnel expenses increased over the same period in 2012, due primarily to increased headcount tosupport the growth of our businesses and the inclusion of KAYAK since its acquisition on May 21, 2013. Stock-based compensation expense wasapproximately $140.5 million for the year ended December 31, 2013, compared to $71.6 million for the year ended December 31, 2012. Stock-basedcompensation expense of $30.9 million for KAYAK unvested assumed employee stock options and payroll taxes of $3.4 million for KAYAK stock optionexercises were recorded during the year ended December 31, 2013. Stock-based compensation expense for the years ended December 31, 2013 and 2012 alsoincludes charges amounting to $24.1 million and $0.9 million, respectively, representing the cumulative impact of adjusting the estimated probable outcome atthe end of the performance period for outstanding unvested performance share units.52 In July 2012 and December 2013, the Dutch Government enacted certain amendments to Dutch tax law including a one-time irrevocable levy on anemployer applied to employee earnings, equal to 16% of an employee's earnings in excess of 150,000 Euros. This levy resulted in additional payroll taxesrecorded in personnel expense of approximately $12 million (approximately $9 million after tax) in the fourth quarter of 2013 and approximately $14 million(approximately $10 million after tax) principally recorded in the third quarter of 2012.General and Administrative Year EndedDecember 31, ($000) 2013 2012 ChangeGeneral and Administrative$252,994 $173,171 46.1%% of Total Gross Profit4.4% 4.2% General and administrative expenses consist primarily of: (1) personnel related expenses such as recruiting, training and travel expenses; (2)occupancy expenses; and (3) fees for outside professionals, including litigation expenses. General and administrative expenses increased during the year endedDecember 31, 2013 over the same period in 2012, primarily due to higher recruiting, training and travel expenses related to increased headcount in all ourbusinesses, higher occupancy and office expenses related to the expansion of our international businesses, and the inclusion of KAYAK since its acquisitionon May 21, 2013. General and administrative expenses for the year ended December 31, 2013 included approximately $8.5 million of professional fees relatedto the acquisition of KAYAK. General and administrative expenses for the year ended December 31, 2012 includes approximately $3 million of professionalfees related to the acquisition of KAYAK and a charge of approximately $3 million related to certain leased space that was vacated in connection with therelocation of Booking.com's headquarters to a new location in Amsterdam. Information Technology Year EndedDecember 31, ($000) 2013 2012 ChangeInformation Technology$71,890 $43,685 64.6%% of Total Gross Profit1.3% 1.1% Information technology expenses consist primarily of: (1) outsourced data center costs; (2) system maintenance and software license fees; (3) datacommunications and other expenses associated with operating our services; and (4) payments to outside consultants. For the year ended December 31, 2013,the increase in information technology expenses compared to the same period in 2012 was due primarily to growth in our worldwide operations and theinclusion of KAYAK since its acquisition on May 21, 2013.Depreciation and Amortization Year EndedDecember 31, ($000) 2013 2012 ChangeDepreciation and Amortization$117,975 $65,141 81.1%% of Total Gross Profit2.1% 1.6% Depreciation and amortization expenses consist of: (1) amortization of intangible assets with determinable lives; (2) depreciation on computerequipment; (3) depreciation of internally developed and purchased software; and (4) depreciation of leasehold improvements, office equipment and furnitureand fixtures. For the year ended December 31, 2013, depreciation and amortization expense increased from the same period in 2012 due primarily to intangibleamortization from the KAYAK acquisition for $33.4 million, and increased depreciation expense due to capital expenditures for additional data center capacityand office build outs to support growth and geographic expansion, principally related to our Booking.com brand. 53 Other Income (Expense) Year EndedDecember 31, ($000) 2013 2012 ChangeInterest Income$4,167 $3,860 8.0%Interest Expense(83,289) (62,064) 34.2%Foreign Currency Transactions and Other(36,755) (9,720) 278.1%Total$(115,877) $(67,924) 70.6% For the year ended December 31, 2013, interest income on cash and marketable securities increased over the same period in 2012, primarily due to anincrease in the average invested balance partially offset by lower yields. Interest expense increased for the year ended December 31, 2013 as compared to thesame period in 2012, primarily due to an increase in the average outstanding debt resulting from the May 2013 issuance of $1.0 billion aggregate principalamount of convertible senior notes and the March 2012 issuance of $1.0 billion aggregate principal amount of convertible senior notes.Derivative contracts that hedge our exposure to the impact of currency fluctuations on the translation of our international operating results into U.S.Dollars upon consolidation resulted in foreign exchange gains of $0.3 million for the year ended December 31, 2013 compared with foreign exchange gains of$0.7 million for the year ended December 31, 2012, and are recorded in "Foreign currency transactions and other" on the Consolidated Statements ofOperations.Foreign exchange transaction losses, including costs related to foreign exchange transactions, resulted in losses of $10.2 million for the year endedDecember 31, 2013, compared to foreign exchange transaction losses of $10.5 million for the year ended December 31, 2012, and are recorded in "Foreigncurrency transactions and other" on the Consolidated Statements of Operations.During the fourth quarter of 2013, the Company delivered cash of $414.6 million to repay the aggregate principal amount and issued 972,235shares of its common stock in satisfaction of the conversion value in excess of the principal amount associated with the 1.25% Convertible Senior Notes dueMarch 2015 that were converted prior to maturity. The conversion of our convertible debt prior to maturity resulted in a non-cash loss of $26.7 million for theyear ended December 31, 2013, and is recorded in "Foreign currency transactions and other" on the Consolidated Statements of Operations.Income Taxes Year EndedDecember 31, ($000) 2013 2012 ChangeIncome Tax Expense$403,739 $337,832 19.5% Our effective tax rates for the years ended December 31, 2013 and 2012 were 17.6% and 19.2%, respectively. Our effective tax rate differs from theexpected tax provision at the U.S. statutory tax rate of 35%, principally due to lower tax rates outside the United States, partially offset by state income taxesand certain non-deductible expenses. Our effective tax rates were lower for the year ended December 31, 2013, compared to the same period in 2012, due togrowth in our international businesses.According to Dutch corporate income tax law, income generated from qualifying "innovative" activities is taxed at a rate of 5% ("Innovation BoxTax") rather than the Dutch statutory rate of 25%. Booking.com obtained a ruling from the Dutch tax authorities in February 2011 confirming that a portionof its earnings is eligible for Innovation Box Tax treatment. The ruling from the Dutch tax authorities is valid through December 31, 2017.Until our U.S. net operating loss carryforwards are utilized or expire, most of our U.S. income will not be subject to a cash tax liability, other thanfederal alternative minimum tax and state income taxes. However, we expect to pay foreign taxes on our non-U.S. income other than in countries where we haveoperating loss carryforwards. We expect that our international operations will grow their pretax income at higher rates than the U.S. business over the long termand, therefore, it is our54 expectation that our cash tax payments will increase as our international businesses generate an increasing share of our pre-tax income.Redeemable Noncontrolling Interests Year EndedDecember 31, ($000) 2013 2012 ChangeNet Income Attributable to Noncontrolling Interests$135 $4,471 (97.0)% Net income attributable to noncontrolling interest is lower for the year ended December 31, 2013, compared to the same period in 2012, mainly due toa reduction in redeemable noncontrolling interests. We purchased the remaining outstanding shares underlying the redeemable noncontrolling interests in April2013.Results of Operations Year Ended December 31, 2012 compared to Year Ended December 31, 2011 Operating and Statistical Metrics Gross bookings resulting from hotel room night reservations, rental car days and airline tickets sold through our international and domesticoperations for the years ended December 31, 2012 and 2011 were as follows (numbers may not total due to rounding): Year Ended December 31, (in millions) 2012 2011 ChangeInternational$23,370 $16,909 38.2%Domestic5,086 4,748 7.1%Total$28,456 $21,658 31.4% Gross bookings increased by 31.4% for the year ended December 31, 2012, compared to the same period in 2011 (growth on a local currency basiswas approximately 37%), principally due to 39.5% growth in hotel room night reservations, partly offset by foreign currency impact and slower growth ratesfor our non-hotel businesses. The 38.2% increase in international gross bookings for the year ended December 31, 2012 (growth on a local currency basis wasapproximately 46%) was primarily attributable to growth in hotel room night reservations for our Booking.com and Agoda.com businesses, as well as growthin rental car reservations for our rentalcars.com business. Domestic gross bookings increased by 7.1% for the year ended December 31, 2012, compared tothe same period in 2011, primarily due to an increase in price-disclosed airline ticket reservations and associated higher airfares, as well as an increase inprice-disclosed hotel room night reservations and associated higher average daily rates ("ADRs"). Retail rental car day reservations for our priceline.combusiness also increased in the year ended December 31, 2012. Our Name Your Own Price® hotel, air, and rental car businesses experienced a decline inreservations in the year ended December 31, 2012, compared to the same period in 2011. Gross bookings resulting from hotel room night reservations, rental car days and airline tickets sold through our agency and merchant models for theyears ended December 31, 2012 and 2011 were as follows (numbers may not total due to rounding):Year Ended December 31, (in millions) 2012 2011 ChangeAgency$23,284 $17,610 32.2%Merchant5,172 4,048 27.8%Total$28,456 $21,658 31.4% 55 Agency gross bookings increased 32.2% for the year ended December 31, 2012, compared to the same period in 2011, due primarily to growth inBooking.com hotel room night reservations. Our U.S. priceline.com business also experienced growth in reservations of agency price-disclosed hotel roomnights, airline tickets, and rental car days. Merchant gross bookings increased 27.8% for the year ended December 31, 2012, compared to the same period in2011, primarily due to an increase in Agoda.com hotel room night reservations and rentalcars.com rental car day reservations. Higher ADRs drove growth inmerchant gross bookings related to our priceline.com price-disclosed hotel business, while our Name Your Own Price® hotel business experienced a decline inhotel room night reservations for the year ended December 31, 2012 compared to the same period in 2011, due to competitive pressures. Gross bookings relatedto Name Your Own Price® rental car reservations and airline ticket reservations also experienced a decline for the year ended December 31, 2012, compared tothe same period in 2011.Units sold for hotel room nights, rental car days and airline tickets for the years ended December 31, 2012 and 2011 were as follows:Year Ended December 31, (in millions) 2012 2011 ChangeHotel Room Nights197.5 141.6 39.5%Rental Car Days32.0 23.8 34.9%Airline Tickets6.4 6.2 2.7%Hotel room night reservations increased by 39.5% for the year ended December 31, 2012, compared to the same period in 2011, principally due to anincrease in Booking.com, Agoda.com and priceline.com price-disclosed hotel room night reservations, partially offset by a decline in Name Your OwnPrice® hotel room night reservations as a result of increased domestic competition in the opaque hotel room reservation market, including from Expedia's"Expedia Unpublished Rates" service. Booking.com, our most significant brand, includes over 275,000 properties on its website as of February 25, 2013(updated property counts are available on the Booking.com website). Booking.com added properties in 2012 in its core European market as well as higher-growth markets such as North America (which is a newer market for Booking.com), Asia-Pacific and South America. An increasing amount of our businessfrom a destination and point-of-sale perspective is conducted in these newer markets, which are growing faster than our overall growth rate and our coreEuropean market. Our U.S. priceline.com agency hotel reservations benefited from the integration of properties from the Booking.com extranet on thepriceline.com website.Rental car day reservations increased by 34.9% for the year ended December 31, 2012, compared to the same period in 2011, due primarily to anincrease in rental car day reservations for our rentalcars.com business and priceline.com price-disclosed business, partially offset by a decline in Name YourOwn Price® rental car day reservations due to limited availability of discounted supply as well as lower retail pricing. Airline ticket reservations increased by 2.7% for the year ended December 31, 2012, compared to the same period in 2011, due to an increase inprice-disclosed airline ticket reservations partially offset by a decrease in Name Your Own Price® ticket reservations for the year ended December 31, 2012,compared to the same period in 2011, due to limited availability of discounted supply. Revenues Year EndedDecember 31, ($000) 2012 2011 Change Agency Revenues$3,142,815 $2,339,253 34.4%Merchant Revenues2,104,752 2,004,432 5.0%Advertising and Other Revenues13,389 11,925 12.3%Total Revenues$5,260,956 $4,355,610 20.8%56 Agency Revenues Agency revenues for the year ended December 31, 2012 increased 34.4% compared to the same period in 2011, primarily as a result of growth in thebusiness of Booking.com. Our U.S. agency revenues benefited from the integration of properties from the Booking.com extranet on the priceline.com websiteas well as growth in our priceline.com retail rental car business.Merchant Revenues Merchant revenues for the year ended December 31, 2012 increased 5.0% compared to the same period in 2011, primarily due to increases in ourAgoda.com hotel reservation business, rentalcars.com rental car business and priceline.com merchant price-disclosed hotel reservation business, partiallyoffset by a decline in our Name Your Own Price® businesses. Merchant revenue growth over the prior year period was substantially lower than merchantgross bookings growth because our merchant revenues are disproportionately affected by our Name Your Own Price® business. Name Your Own Price®revenues are recorded "gross" with a corresponding provider cost recorded in cost of revenues, and represented a smaller percentage, year-over-year, of totalrevenues compared to our faster-growing Agoda.com and rentalcars.com businesses, which are recorded in revenue "net" of provider cost. As a result, webelieve that gross profit is an important measure of evaluating growth in our business. Advertising and Other Revenues Advertising and other revenues consisted primarily of advertising revenues. Advertising and other revenues for the year ended December 31, 2012increased compared to the same period in 2011.Cost of Revenues Year EndedDecember 31, ($000) 2012 2011 ChangeCost of Revenues$1,177,275 $1,275,730 (7.7)% Cost of Revenues For the year ended December 31, 2012, cost of revenues consisted primarily of: (1) the cost of Name Your Own Price® hotel room reservations fromour suppliers, net of applicable taxes, (2) the cost of Name Your Own Price® rental cars from our suppliers, net of applicable taxes; and (3) the cost of NameYour Own Price® airline tickets, net of the federal air transportation tax, segment fees and passenger facility charges imposed in connection with the sale ofairline tickets. Cost of revenues for the year ended December 31, 2012 decreased by 7.7%, compared to the same period in 2011, primarily due to a decrease inour Name Your Own Price® businesses. Merchant price-disclosed hotel room and rental car reservations are recorded in merchant revenues net of the amountspaid to travel service providers, and therefore, there is no associated cost of revenues for merchant price-disclosed hotel revenues. Cost of revenues as apercentage of merchant revenues decreased for the year ended December 31, 2012, compared to the same period in 2011, a trend we expect to continue,primarily due to the increase in Agoda.com and rentalcars.com revenues, all of which are recorded in revenue "net" of provider cost. Cost of revenues alsoincludes approximately $21 million (including estimated interest and penalties) for an accrual recorded for the year ended December 31, 2012 related to traveltransaction taxes in the State of Hawaii and in the District of Columbia. Gross Profit Year EndedDecember 31, ($000) 2012 2011 ChangeGross Profit$4,083,681 $3,079,880 32.6%Gross Margin77.6% 70.7% 57 Total gross profit for the year ended December 31, 2012 increased by 32.6% compared to the same period in 2011, primarily as a result of increasedrevenue discussed above. Total gross margin (gross profit expressed as a percentage of total revenue) increased during the year ended December 31, 2012,compared to the same period in 2011, because our revenues are disproportionately affected by our Name Your Own Price® business. Name Your OwnPrice® revenues are recorded "gross" with a corresponding travel service provider cost recorded in cost of revenues, and in 2012 represented a smallerpercentage of total revenues than in 2011. Our retail price-disclosed businesses, which are recorded in revenue "net" of provider cost, grew faster than ourName Your Own Price® businesses. As a result, we believe that gross profit is an important measure of evaluating growth in our business. Our internationaloperations accounted for approximately $3.6 billion of our gross profit for the year ended December 31, 2012, which compares to $2.6 billion for the sameperiod in 2011. Gross profit attributable to our international operations increased, on a local currency basis, by approximately 48% for the year endedDecember 31, 2012, compared to the same period in 2011. Gross profit attributable to our priceline.com U.S. business increased by approximately 2% for theyear ended December 31, 2012, compared to the same period in 2011. Gross profit for our priceline.com U.S. business was negatively impacted by an accrualof approximately $21 million (including estimated interest and penalties) recorded for the year ended December 31, 2012 related to legal rulings in the State ofHawaii and the District of Columbia pertaining to travel transaction taxes.Operating Expenses Advertising Year EndedDecember 31, ($000) 2012 2011 ChangeOnline Advertising$1,273,637 $919,214 38.6%% of Total Gross Profit31.2% 29.8% Offline Advertising$35,492 $35,470 0.1%% of Total Gross Profit0.9% 1.2% Online advertising expenses primarily consisted of the costs of (1) search engine keyword purchases; (2) referrals from meta-search and travelresearch websites; (3) affiliate programs; (4) banner and pop-up advertisements; and (5) email campaigns. For the year ended December 31, 2012, onlineadvertising expenses increased over the same period in 2011, primarily to support increased hotel room night reservations for Booking.com and Agoda.com,increased rental car day reservations for rentalcars.com and increased travel reservations for priceline.com. Online advertising as a percentage of gross profitincreased for the year ended December 31, 2012, compared to the same period in 2011. The increase is driven by (1) brand mix within the Priceline Group, (2)the channel mix within our brands and (3) recently lower returns on investment ("ROIs") from our online advertising. Our international brands grew fasterthan our priceline.com U.S. brand, and spent a higher percentage of gross profit on online advertising. Furthermore, our brands generally obtained anincreasing share of traffic through paid online advertising channels. Finally, our online advertising ROIs were down year-over-year.Offline advertising expenses are related to our television, print and radio advertising for our priceline.com U.S. business. For the year endedDecember 31, 2012, offline advertising was flat compared to the same period in 2011. Sales and Marketing Year EndedDecember 31, ($000) 2012 2011 ChangeSales and Marketing$195,934 $162,690 20.4%% of Total Gross Profit4.8% 5.3% Sales and marketing expenses consisted primarily of (1) credit card processing fees associated with merchant transactions; (2) fees paid to third-parties that provide call center, website content translations and other services; (3) provisions for credit card chargebacks; and (4) provisions for bad debt,primarily related to agency hotel commission receivables. For the year ended December 31, 2012, sales and marketing expenses, which are substantiallyvariable in nature, increased over the same period in 2011, primarily due to increased gross booking volumes as well as expenses related to increased content58 translations. The increase was partially offset by reduced credit card processing fees resulting from the Durbin Amendment to the Dodd-Frank FinancialReform and Consumer Protection Act (which amendment caps the interchange fee for debit card transactions and went into effect on October 1, 2011). Salesand marketing expenses as a percentage of gross profit are typically higher for our merchant business which incurs credit card processing fees. Our merchantbusiness grew more slowly than our agency business, and as a result, sales and marketing expenses as a percentage of total gross profit for year endedDecember 31, 2012, declined compared to the same period in 2011. Personnel Year EndedDecember 31, ($000) 2012 2011 ChangePersonnel$466,828 $352,295 32.5%% of Total Gross Profit11.4% 11.4% Personnel expenses consisted of compensation to our personnel, including salaries, stock-based compensation, bonuses, payroll taxes and employeehealth benefits. For the year ended December 31, 2012, personnel expenses increased over the same period in 2011, due primarily to increased headcount tosupport the growth of our international businesses and the one-time wage tax levy of approximately $14 million described below. Stock-based compensationexpense was approximately $71.6 million for the year ended December 31, 2012 compared to $65.7 million for the year ended December 31, 2011. Stock-based compensation for the years ended December 31, 2012 and 2011 included charges amounting to $0.9 million and $10.3 million, respectively,representing the cumulative impact of adjusting the estimated probable outcome at the end of the performance period for certain outstanding unvestedperformance share units.In July 2012, the Dutch Government enacted certain amendments to Dutch tax law including, among other things, a one-time irrevocable levy on anemployer equal to 16% of an employee's 2012 earnings in excess of 150,000 Euros. The levy was remitted to the tax authorities in 2013. This levy resulted inadditional payroll taxes recorded in personnel expense of approximately $14 million (approximately $10 million after tax). Of the total additional payroll taxes,approximately $13 million were recorded in the third quarter of 2012.General and Administrative Year EndedDecember 31, ($000) 2012 2011 ChangeGeneral and Administrative$173,171 $123,652 40.0%% of Total Gross Profit4.2% 4.0% General and administrative expenses consisted primarily of: (1) personnel related expenses such as recruiting, training and travel expenses; (2) feesfor outside professionals, including litigation expenses; and (3) occupancy expenses. General and administrative expenses increased during the year endedDecember 31, 2012 over the same period in 2011, primarily due to expansion of our office capacity worldwide to support continued growth in our internationaloperations. General and administrative expenses for the year ended December 31, 2012 includes approximately $3 million of professional fees related to theacquisition of KAYAK and a charge of approximately $3 million related to certain leased space that was vacated in connection with the relocation ofBooking.com's headquarters to a new location in Amsterdam. Additionally, we have had higher recruiting, training and travel expenses related to increasedheadcount in all of our businesses.59 Information Technology Year EndedDecember 31, ($000) 2012 2011 ChangeInformation Technology$43,685 $33,813 29.2%% of Total Gross Profit1.1% 1.1% Information technology expenses consisted primarily of: (1) outsourced data center costs relating to our U.S. and international data centers; (2)system maintenance and software license fees; (3) data communications and other expenses associated with operating our services; and (4) payments to outsideconsultants. For the year ended December 31, 2012, the increase in information technology expenses compared to the same period in 2011 was due primarily togrowth in our worldwide operations.Depreciation and Amortization Year EndedDecember 31, ($000) 2012 2011 ChangeDepreciation and Amortization$65,141 $53,824 21.0%% of Total Gross Profit1.6% 1.7% Depreciation and amortization expenses consisted of: (1) amortization of intangible assets with determinable lives; (2) depreciation on computerequipment; (3) amortization of internally developed and purchased software; and (4) depreciation of leasehold improvements, office equipment and furnitureand fixtures. For the year ended December 31, 2012, depreciation expense increased from the same period in 2011 due principally to capital expenditures foradditional data center capacity and office build outs to support growth and geographic expansion, principally related to our Booking.com brand.Other Income (Expense) Year EndedDecember 31, ($000) 2012 2011 ChangeInterest Income$3,860 $8,119 (52.5)%Interest Expense(62,064) (31,721) 95.7 %Foreign Currency Transactions and Other(9,720) (7,526) 29.2 %Total$(67,924) $(31,128) 118.2 % For the year ended December 31, 2012, interest income on cash and marketable securities decreased over the same period in 2011, primarily due tolower yields partially offset by an increase in the average balance invested. Interest expense increased for the year ended December 31, 2012 as compared to thesame period in 2011, primarily due to an increase in the average outstanding debt resulting from the March 2012 issuance of $1.0 billion aggregate principalamount of convertible senior notes, and fees on the undrawn $1.0 billion revolving credit facility entered into in October 2011.Derivative contracts that hedge our exposure to the impact of currency fluctuations on the translation of our international operating results into U.S.Dollars upon consolidation resulted in foreign exchange gains of $0.7 million and $4.0 million for the years ended December 31, 2012 and 2011, respectively,and were recorded in "Foreign currency transactions and other" on the Consolidated Statements of Operations.Foreign exchange transaction losses, including costs related to foreign exchange transactions, resulted in losses of $10.5 million and $11.3 millionfor the years ended December 31, 2012 and 2011, respectively, and were recorded in "Foreign currency transactions and other" on the Consolidated Statementsof Operations. During the fourth quarter of 2011, we began classifying certain foreign currency processing fees as an offset to revenue earned from the thirdparty that processes the60 payments for merchant hotel transactions. Such processing fees recorded to "Foreign currency transactions and other" for the nine months ended September30, 2011 amounted to approximately $5.0 million.Income Taxes Year EndedDecember 31, ($000) 2012 2011 ChangeIncome Tax Expense$337,832 $308,663 9.5% Our effective tax rates for the years ended December 31, 2012 and 2011 were 19.2% and 22.6%, respectively. The decrease in our effective tax ratewas primarily due to an increase in the Innovation Box Tax benefit in 2012. Our effective tax rate differed from the expected tax provision at the U.S. statutorytax rate of 35%, principally due to lower foreign tax rates, partially offset by state income taxes and certain non-deductible expenses.The Internal Revenue Service initiated an audit of our 2009 and 2010 federal income tax returns for the first time in the third quarter of 2011. Theaudit was concluded in June 2012 with no impact on our financial position, results of operations or cash flows (see Note 15 to the Consolidated FinancialStatements for further information on the audit).Redeemable Noncontrolling Interests Year EndedDecember 31, ($000) 2012 2011 ChangeNet Income Attributable to Noncontrolling Interests4,471 2,760 62.0% The net income attributable to noncontrolling interests for the year ended December 31, 2012, compared to the same period in 2011 increased duemainly to improved year-over-year operating performance for the rentalcars.com business, partially offset by a reduction in redeemable noncontrolling interestsfrom 19.0% in April 2011 to 12.7% in April 2012. 61 Liquidity and Capital Resources As of December 31, 2013, we had $6.8 billion in cash, cash equivalents and short-term investments. Approximately $4.9 billion of our cash, cashequivalents and short-term investments are held by our international subsidiaries and are denominated primarily in Euros and, to a lesser extent, in BritishPound Sterling and other currencies. We currently intend to permanently reinvest this cash in our international operations. If we repatriate this cash to theUnited States, we would utilize our net operating loss carryforwards and beyond that amount incur additional tax payments in the United States. Cashequivalents and short-term investments are primarily comprised of foreign and U.S. government securities and bank deposits.In May 2013, we issued in a private placement $1.0 billion aggregate principal amount of convertible senior notes due 2020, with an interest rate of0.35%. We used approximately $144.6 million of the net proceeds to repurchase outstanding common stock in privately negotiated, off-market transactionsconcurrent with the issuance of the convertible notes. Interest on the notes is payable in June and December of each year. See Note 11 to the ConsolidatedFinancial Statements for further details on these notes.In March 2012, we issued in a private placement $1.0 billion aggregate principal amount of convertible senior notes due 2018, with an interest rate of1.0%. We used approximately $166.2 million of the net proceeds to repurchase outstanding common stock in privately negotiated, off-market transactionsconcurrent with the issuance of the convertible notes. Interest on the notes is payable in March and September of each year. See Note 11 to the ConsolidatedFinancial Statements for further details on these notes.In October 2011, we entered into a $1.0 billion five-year unsecured revolving credit facility with a group of lenders. Borrowings under the revolvingcredit facility will bear interest, at our option, at a rate per annum equal to either (i) the adjusted LIBOR for the interest period in effect for such borrowing plusan applicable margin ranging from 1.00% to 1.50%; or (ii) the greatest of (a) JPMorgan Chase Bank, National Association's prime lending rate, (b) the federalfunds 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 0.10% to 0.25%. The revolving credit facility provides for the issuance of up to $100.0 million of letters of credit as well as borrowings of up to $50 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 andany other foreign currency agreed to by the lenders. The proceeds of loans made under the facility will be used for working capital and general corporatepurposes. As of December 31, 2013, there were no borrowings under the facility, and approximately $2.2 million of letters of credit were issued under thefacility.For the year ended December 31, 2013, the Company purchased 916,271 shares of its common stock for a total value of $804.7 million, whichincludes the purchase of 182,538 shares made concurrent with the issuance of the convertible notes in May 2013 in privately negotiated, off-markettransactions.As of December 31, 2013, we have a remaining aggregate amount of $654.5 million authorized by our Board of Directors to purchase our commonstock. We may from time to time make additional repurchases of our common stock, depending on prevailing market conditions, alternate uses of capital, andother factors.In April 2013, we purchased the remaining outstanding shares underlying redeemable noncontrolling interests in TravelJigsaw Holdings Limited foran aggregate purchase price of approximately $192.5 million. See Note 13 to the Consolidated Financial Statements for further details.On May 21, 2013, we acquired KAYAK Software Corporation, a leading travel meta-search service, in a stock and cash transaction. The purchasevalue was $2.1 billion ($1.9 billion net of cash acquired). We paid $0.5 billion in cash, from cash on hand in the United States, and $1.6 billion in sharesof our common stock and assumed stock options. See Note 3 and Note 20 to the Consolidated Financial Statements for further information on the acquisition.During the fourth quarter of 2013, the Company delivered cash of $414.6 million to repay the aggregate principal amount and issued 972,235shares of its common stock in satisfaction of the conversion value in excess of the principal amount associated with the 1.25% Convertible Senior Notes dueMarch 2015 that were converted prior to maturity. As of February 11, 2014, the Company had received conversion notices that will be settled in the firstquarter of 2014 for an aggregate principal amount of approximately $58 million associated with the 2015 Notes, and, as a result, during the first quarter of2014, the Company will deliver cash of approximately $58 million to satisfy the aggregate principal amount for these conversion notices.62 Our merchant transactions are structured such that we collect cash up front from our customers and then we pay most of our suppliers at asubsequent date. We therefore tend to experience significant swings in deferred merchant bookings and supplier payables depending on the absolute level of ourmerchant transactions during the last few weeks of every quarter.Net cash provided by operating activities for the year ended December 31, 2013, was $2.3 billion, resulting from net income of $1.9 billion, afavorable impact of non-cash items not affecting cash flows of $355.7 million and net favorable changes in working capital and other assets and liabilities of$52.9 million. The changes in working capital for the year ended December 31, 2013, were primarily related to a $182.2 million increase in accountspayable, accrued expenses and other current liabilities, partially offset by a $111.6 million increase in accounts receivable. The increase in these workingcapital balances was primarily related to increases in business volumes. Non-cash items were primarily associated with stock-based compensation expense,depreciation and amortization, amortization of debt discount, a non-cash loss on convertible notes converted prior to maturity, and deferred income taxes.Net cash provided by operating activities for the year ended December 31, 2012, was $1.8 billion, resulting from net income of $1.4 billion, afavorable impact of non-cash items not affecting cash flows of $217.9 million and net favorable changes in working capital and other assets and liabilities of$143.8 million. The changes in working capital for the year ended December 31, 2012, were primarily related to a $256.0 million increase in accountspayable, accrued expenses and other current liabilities, partially offset by a $105.3 million increase in accounts receivable. The increase in these workingcapital balances were primarily related to increases in business volumes. Non-cash items were primarily associated with deferred income taxes, stock-basedcompensation expense, depreciation and amortization, and amortization of debt discount.Net cash used in investing activities was $2.2 billion for the year ended December 31, 2013. Investing activities for the year ended December 31,2013 were affected by net purchases of investments of $1.7 billion, payments of $331.9 million for acquisitions, net of cash acquired, a change in restrictedcash of $2.8 million, and net cash payments of $78.6 million for the settlement of foreign currency contracts. Net cash used in investing activities was $1.6billion for the year ended December 31, 2012. Investing activities for the year ended December 31, 2012 were affected by net purchases of investments of $1.6billion, payments of $33.9 million for acquisitions, and a change in restricted cash of $2.8 million, partially offset by net cash proceeds of $82.1 million forthe settlement of foreign currency contracts. Cash invested in purchase of property and equipment was $84.4 million and $55.2 million in the years endedDecember 31, 2013 and 2012, respectively. The increase in 2013 was related to additional data center capacity and new offices to support growth andgeographic expansion, principally related to our Booking.com brand.Net cash used in financing activities was approximately $403.5 million for the year ended December 31, 2013. The cash used in financing activitiesfor the year ended December 31, 2013 was primarily related to payments for treasury stock purchases of $883.5 million, $192.5 million spent to purchasethe remaining shares underlying noncontrolling interests in rentalcars.com, $414.6 million to satisfy the aggregate principal amount due upon the earlyconversion of senior notes, and $1.0 million of debt issuance costs, partially offset by proceeds from the issuance of convertible senior notes with an aggregateprincipal amount of $1.0 billion, $91.6 million of proceeds from the exercise of employee stock options, and $17.7 million of excess tax benefits from stock-based compensation. Net cash provided by financing activities was approximately $668.9 million for the year ended December 31, 2012. The cash providedby financing activities for the year ended December 31, 2012 was primarily related to proceeds from the issuance of convertible senior notes with an aggregateprincipal amount of $1.0 billion, $2.7 million of proceeds from the exercise of employee stock options, and $5.2 million of excess tax benefits from stock-based compensation partially offset by treasury stock purchases of $257.0 million, $61.1 million spent to purchase a portion of the shares underlyingnoncontrolling interests in rentalcars.com, and $20.9 million of debt issuance costs. ContingenciesA number of jurisdictions have initiated lawsuits against online travel companies, including us, related to, among other things, the payment of traveltransaction taxes (e.g., hotel occupancy taxes, excise taxes, sales taxes, etc.). In addition, a number of U.S. states, counties and municipalities have initiatedaudit proceedings, issued proposed tax assessments or started inquiries relating to the payment of travel transaction taxes. To date, the majority of taxingjurisdictions in which we facilitate the making of travel reservations have not asserted that taxes are due and payable on our travel services. With respect tojurisdictions that have not initiated proceedings to date, it is possible that they will do so in the future or that they will seek to amend their tax statutes and seekto collect taxes from us only on a prospective basis. See Note 16 to the Consolidated Financial Statements for a description of these pending cases andproceedings, and Part I Item 1A Risk Factors - "Adverse application of state and local tax laws could have an adverse effect on our business and resultsof operations" in this Annual Report.63 As a result of this litigation and other attempts by jurisdictions to levy similar taxes, we have established an accrual for the probable cost of resolvingissues related to travel transaction taxes in the amount of approximately $55 million at December 31, 2013 and approximately $56 million at December 31,2012 (which includes, among other things, amounts related to the litigation in the State of Hawaii, District of Columbia, San Antonio and Chicago). Our legalexpenses for these matters are expensed as incurred and are not reflected in the amount accrued. The actual cost may be less or greater, potentially significantly,than the liabilities recorded. An estimate for a reasonably possible loss or range of loss in excess of the amount accrued cannot be reasonably made. We believethat even if we were to suffer adverse determinations in the near term in more of the pending proceedings than currently anticipated given results to date,because of our available cash, it would not have a material impact on our liquidity.The following table represents our material contractual obligations and commitments as of December 31, 2013 (see Note 16 to the ConsolidatedFinancial Statements): Payments due by Period (in thousands)Contractual Obligations Total Less than1 Year 1 to 3Years 3 to 5 Years More than 5YearsOperating lease obligations $320,026 $49,691 $92,369 $68,431 $109,535Convertible debt(1) 2,228,216 177,065 27,000 1,019,056 1,005,095Revolving credit facility(2) 5,477 2,235 3,242 — —Total(3) $2,553,719 $228,991 $122,611 $1,087,487 $1,114,630_____________________________(1)Convertible debt represents the aggregate principal amount of the Notes outstanding as of December 31, 2013 and interest of $68 million. Convertibledebt does not reflect the market value in excess of the outstanding principal amount because we can settle the conversion premium amount in cash orshares of common stock at our option. See Note 11 to the Consolidated Financial Statements.(2)Represents fees on uncommitted funds and outstanding letters of credit as of December 31, 2013.(3)We reported "Other long-term liabilities" of $76 million on the Consolidated Balance Sheet at December 31, 2013, of which approximately $55 millionrelated to our accrual for potential resolution of issues related to travel transaction taxes (refer to Note 16 to the Consolidated Financial Statements) andapproximately $15 million related to unrecognized tax benefits (refer to Note 15 to the Consolidated Financial Statements). A variety of factors couldaffect the timing of payments for these liabilities. We believe that these matters will likely not be resolved in the next twelve months and accordingly wehave classified the estimated liability as "non-current" on the Consolidated Balance Sheet. We have excluded "Other long-term liabilities" in the amount of$76 million from the contractual obligations table because we cannot reasonably estimate the timing of such payments.Since the contingent conversion threshold for the 1.25% Convertible Senior Notes due 2015 was exceeded as of December 31, 2013, these notes areconvertible at the option of the holders. If the holders elect to convert, we will be required to pay the aggregate principal amount in cash and we will deliver cashor shares of common stock, at our option, for the conversion value in excess of the aggregate principal amount. We would likely fund our conversionobligations with cash and cash equivalents, short-term investments and borrowings under our revolving credit facility.We believe that our existing cash balances and liquid resources will be sufficient to fund our operating activities, capital expenditures and otherobligations through at least the next twelve months. However, if during that period or thereafter, we are not successful in generating sufficient cash flow fromoperations or in raising additional capital when required in sufficient amounts and on terms acceptable to us, we may be required to reduce our planned capitalexpenditures and scale back the scope of our business plan, either of which could have a material adverse effect on our future financial condition or results ofoperations. If additional funds were raised through the issuance of equity securities, the percentage ownership of our then current stockholders would bediluted. We may not generate sufficient cash flow from operations in the future, revenue growth or sustained profitability may not be realized, and futureborrowings or equity sales may not be available in amounts sufficient to make anticipated capital expenditures, finance our strategies or repay ourindebtedness. Off-Balance Sheet Arrangements. As of December 31, 2013, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effecton our financial condition, results of operations, liquidity, capital expenditures or capital resources.64 Item 7A. Quantitative and Qualitative Disclosures About Market Risk We manage our exposure to interest rate risk and foreign currency risk through internally established policies and procedures and, when deemedappropriate, through the use of derivative financial instruments. We use foreign exchange derivative contracts to manage short-term foreign currency risk.The objective of our policies is to mitigate potential income statement, cash flow and fair value exposures resulting from possible future adversefluctuations in rates. We evaluate our exposure to market risk by assessing the anticipated near-term and long-term fluctuations in interest rates and foreignexchange rates. This evaluation includes the review of leading market indicators, discussions with financial analysts and investment bankers regardingcurrent and future economic conditions and the review of market projections as to expected future rates. We utilize this information to determine our owninvestment strategies as well as to determine if the use of derivative financial instruments is appropriate to mitigate any potential future market exposure that wemay face. Our policy does not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are nounderlying exposures. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. To the extent that changes ininterest rates and currency exchange rates affect general economic conditions, we would also be affected by such changes.We did not experience any material changes in interest rate exposures during the year ended December 31, 2013. Based upon economic conditions andleading market indicators at December 31, 2013, we do not foresee a significant adverse change in interest rates in the near future.Fixed rate investments are subject to unrealized gains and losses due to interest rate volatility. We performed a sensitivity analysis to determine theimpact a change in interest rates would have on the fair value of our available for sale investments assuming an adverse change of 100 basis points. Ahypothetical 100 basis point (1.0%) increase in interest rates would have resulted in a decrease in the fair values of our investments as of December 31, 2013 ofapproximately $16 million. These hypothetical losses would only be realized if we sold the investments prior to their maturity.As of December 31, 2013, the outstanding aggregate principal amount of our debt is $2.2 billion. We estimate that the market value of such debt wasapproximately $3.1 billion as of December 31, 2013. A substantial portion of the market value of our debt in excess of the outstanding principal amount isrelated to the conversion premium on our outstanding convertible bonds.We conduct a significant portion of our business outside the United States through subsidiaries with functional currencies other than the U.S. Dollar(primarily Euros). As a result, we face exposure to adverse movements in currency exchange rates as the operating results of our international operations aretranslated from local currency into U.S. Dollars upon consolidation. If the U.S. Dollar weakens against the local currency, the translation of these foreign-currency-denominated balances will result in increased net assets, gross bookings, gross profit, operating expenses, and net income. Similarly, our net assets,gross bookings, gross profit, operating expenses, and net income will decrease if the U.S. Dollar strengthens against the local currency. Additionally, foreignexchange rate fluctuations on transactions denominated in currencies other than the functional currency results in gains and losses that are reflected in theConsolidated Statement of Operations.From time to time, we enter into foreign exchange derivative contracts to minimize the impact of short-term foreign currency fluctuations on ourconsolidated operating results. Our derivative contracts principally address foreign exchange fluctuation risk for the Euro and the British Pound Sterlingversus the U.S. Dollar. As of December 31, 2013 and 2012, there were no such outstanding derivative contracts. Foreign exchange gains of $0.3 million, $0.7million, and $4.0 million for the years ended December 31, 2013, 2012, and 2011, respectively, were recorded in "Foreign currency transactions and other" inthe Consolidated Statements of Operations.As of December 31, 2013 and 2012, we had outstanding forward currency contracts with a notional value of 3.0 billion Euros and 1.5 billion Euros,respectively, that are designated as hedges of our net investment in a foreign subsidiary for accounting purposes. These contracts are all short-term in nature.Mark-to-market adjustments on these net investment hedges are recorded as currency translation adjustments. The fair value of these derivatives at December31, 2013 was a liability of $121.3 million, with $121.5 million recorded in "Accrued expenses and other current liabilities" and $0.2 million recorded in"Prepaid and other current assets" on the Consolidated Balance Sheet. The fair value of these derivatives at December 31, 2012 was a liability of $62.4million, with $62.6 million recorded in "Accrued expenses and other current liabilities" and $0.265 million recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet. A hypothetical 10% strengthening of the foreign exchangerates relative to the U.S. Dollar, with all other variables held constant, would have resulted in a derivative liability of approximately $530.7 million as ofDecember 31, 2013. See Note 5 to the Consolidated Financial Statements for further detail on our derivative instruments.Item 8. Financial Statements and Supplementary Data The following Consolidated Financial Statements of the Company and the report of our independent registered public accounting firm are filed aspart of this Annual Report on Form 10-K (See Item 15). Consolidated Balance Sheets as of December 31, 2013 and 2012; Consolidated Statements of Operations, Consolidated Statements ofComprehensive Income, Consolidated Statements of Changes in Stockholders' Equity and Consolidated Statements of Cash Flows for the years endedDecember 31, 2013, 2012 and 2011; Notes to Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.Item 9A. Controls and Procedures Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executiveofficer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Exchange ActRule 13a-15(e). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls andprocedures were effective as of the end of the period covered by this annual report.Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we include a report of our management's assessment of the design and effectiveness ofour internal controls over financial reporting for the year ended December 31, 2013.Management's Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequateinternal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of ourmanagement, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal controlover financial reporting based on the framework in the Internal Control - Integrated Framework (1992) issued by the Committee of SponsoringOrganizations of the Treadway Commission.Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2013. Ourindependent registered public accounting firm also attested to, and reported on, our management's assessment of the effectiveness of internal control overfinancial reporting.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.Changes in Internal Controls. No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f))occurred during the three months ended December 31, 2013 that materially affected, or is reasonably likely to materially affect, our internal control overfinancial reporting.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders ofpriceline.com IncorporatedNorwalk, Connecticut We have audited the internal control over financial reporting of priceline.com Incorporated and subsidiaries (the "Company") as of December 31,2013, based on criteria established in Internal Control - Integrated Framework (1992) issued66 by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in "Management's Report onInternal Control Over Financial Reporting" appearing in Item 9A. Our responsibility is to express an opinion on the Company's internal control over financialreporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'sassets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management overrideof controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changesin conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, basedon the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedfinancial statements as of and for the year ended December 31, 2013 of the Company and our report dated February 20, 2014 expressed an unqualified opinionon those financial statements. /s/ DELOITTE & TOUCHE LLP Stamford, ConnecticutFebruary 20, 2014 Item 9B. Other Information None.67 PART III Item 10. Directors, Executive Officers and Corporate Governance Information required by Part III, Item 10, will be included in our Proxy Statement relating to our 2014 annual meeting of stockholders to be filed withthe Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2013, and is incorporated herein by reference. Item 11. Executive Compensation Information required by Part III, Item 11, will be included in our Proxy Statement relating to our 2014 annual meeting of stockholders to be filed withthe Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2013, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by Part III, Item 12, will be included in our Proxy Statement relating to our 2014 annual meeting of stockholders to be filed withthe Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2013, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence Information required by Part III, Item 13, will be included in our Proxy Statement relating to our 2014 annual meeting of stockholders to be filed withthe Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2013, and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services Information required by Part III, Item 14, will be included in our Proxy Statement relating to our 2014 annual meeting of stockholders to be filed withthe Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2013 and is incorporated herein by reference.68 PART IV Item 15. Exhibits and Financial Statement Schedules. (a) List of Documents Filed as a Part of this Annual Report on Form 10-K: The following Consolidated Financial Statements of the Company and the report of our independent registered public accounting firm are filed aspart of this Annual Report on Form 10-K. Consolidated Balance Sheets as of December 31, 2013 and 2012; and the related Consolidated Statements of Operations, Consolidated Statements ofComprehensive Income, Consolidated Statements of Changes in Stockholders' Equity and Consolidated Statements of Cash Flows for the years endedDecember 31, 2013, 2012 and 2011; Notes to Consolidated Financial Statements; and Report of Independent Registered Public Accounting Firm. All financial statement schedules have been omitted because they are not applicable, not material or the required information is shown in theConsolidated Financial Statements or the notes thereto. (b) Exhibits In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember they are included to provide you withinformation regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to theagreements. Some agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warrantieshave been made solely for the benefit of the other parties to the applicable agreement and:•should not be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to beinaccurate;•may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement,which-disclosures-are-not necessarily reflected in the agreement;•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to morerecent developments.Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additionalinformation about the Company may be found elsewhere in this Annual Report on Form 10‑K and the Company's other public filings, which are availablewithout charge through the SEC's website at http://www.sec.gov.Exhibit NumberDescription2.1(a)Agreement and Plan of Merger, dated as of November 8, 2012, by and among KAYAK Software Corporation, the Registrant and ProduceMerger Sub, Inc.3.1(b)Amended and Restated Certificate of Incorporation of the Registrant.3.2(c)Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated June 13, 2003.3.3(d)Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated June 3, 2009.3.4(e)Amended and Restated By-Laws of the Registrant.4.1Reference is hereby made to Exhibits 3.1, 3.2, 3.3 and 3.4.4.2(f)Specimen Certificate for Registrant's Common Stock.4.3(g)Indenture, dated as of March 10, 2010, between the Registrant and American Stock Transfer & Trust Company, LLC as Trustee.4.4(h)Indenture, dated as of March 12, 2012, between the Registrant and American Stock Transfer & Trust Company, LLC as Trustee.4.5(i)Indenture, dated as of June 4, 2013, between the Registrant and American Stock Transfer & Trust Company, LLC as Trustee.10.1(j)+priceline.com Incorporated 1999 Omnibus Plan (As Amended and Restated Effective June 6, 2013).69 10.2(k)+Form of Stock Option Grant Agreement under the 1999 Omnibus Plan.10.3(l)+Form of Restricted Stock Unit Award Agreement for Employees in the Netherlands under the 1999 Omnibus Plan.10.4(m)+2011 Form of Performance Share Unit Agreement for awards under the 1999 Omnibus Plan to certain U.S.-based executives.10.5(m)+2011 Form of Performance Share Unit Agreement for awards under the 1999 Omnibus Plan to Netherlands-based executive.10.6(m)+Form of Restricted Stock Unit Agreement for awards under the 1999 Omnibus Plan to non-employee directors.10.7(n)+2012 Form of Performance Share Unit Agreement under the 1999 Omnibus Plan.10.8(o)+2013 Form of Performance Share Unit Agreement under the 1999 Omnibus Plan.10.9(p)+KAYAK Software Corporation 2012 Equity Incentive Plan.10.10(j)+Amendment to KAYAK Software Corporation 2012 Equity Incentive Plan.10.11(q)+priceline.com Incorporated Annual Bonus Plan, adopted on February 20, 2007.10.12(o)+Form of Non-Competition and Non-Solicitation Agreement.10.13(r)+Amended and Restated Employment Agreement, dated August 22, 2008, by and between the Registrant and Jeffery H. Boyd.10.14(s)+Letter amendment, dated December 18, 2008, to Amended and Restated Employment Agreement, by and between the Registrant and JefferyH. Boyd.10.15(t)+Transition Agreement dated November 7, 2013 by and between the Registrant and Jeffery H. Boyd.10.16(t)+Amended and Restated Employment Agreement dated November 7, 2013 by and between the Registrant, Booking.com Holding B.V. andDarren R. Huston.10.17(t)+Amended and Restated Non-Competition and Non-Solicitation Agreement dated November 7, 2013 by and between the Registrant andDarren R. Huston.10.18(u)+Indemnification Agreement, dated September 12, 2011, by and between the Registrant and Darren R. Huston.10.19(v)+Letter agreement, dated October 19, 2005 by and between the Registrant and Daniel J. Finnegan.10.20(s)+Letter amendment, dated December 16, 2008, to letter agreement, dated October 19, 2005 by and between the Registrant and Daniel J.Finnegan.10.21(s)+Amended and Restated Employment Agreement, dated December 18, 2008, by and between the Registrant and Peter J. Millones.10.22(s)+Amended and Restated Employment Agreement, dated December 18, 2008, by and between the Registrant and Chris Soder.10.23(u)Credit Agreement, dated as of October 28, 2011, among the Registrant, the lenders from time to time party thereto, RBS Citizens, N.A., asDocumentation Agent, Bank of America, N.A. and Wells Fargo Bank, National Association, as Co‑Syndication Agents and JPMorganChase Bank, N.A., as Administrative Agent.10.24(h)Purchase Agreement, dated March 7, 2012, between the Registrant and Goldman, Sachs & Co., as representative of the Initial Purchasers.10.25(i)Purchase Agreement, dated May 29, 2013, between the Registrant and Goldman, Sachs & Co.21List of Subsidiaries.23.1Consent of Deloitte & Touche LLP.24.1Power of Attorney (included in the Signature Page).31.1Certification of Darren R. Huston, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2Certification of Daniel J. Finnegan, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1(w)Certification of Darren R. Huston, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350,Chapter 63 of Title 18, United States Code).32.2(w)Certification of Daniel J. Finnegan, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350,Chapter 63 of Title 18, United States Code).101The following financial statements from the Company's Annual Report on Form 10‑K for the year ended December 31, 2013 formatted inXBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of ComprehensiveIncome, (iv) Consolidated Statements of Changes in Stockholders' Equity, (v) Consolidated Statements of Cash Flows, and (v) Notes toConsolidated Financial Statements.____________________________70 (a)Previously filed as an exhibit to the Current Report on Form 8‑K filed on November 9, 2012 (File No. 0-25581).(b)Previously filed as an exhibit to Amendment No. 1 to Registration Statement on Form S‑1 (File No. 333‑69657) filed on February 16,1999.(c)Previously filed as an exhibit to the Registration Statement on Form S‑3 (File No. 333‑109929) filed on October 23, 2003.(d)Previously filed as an exhibit to the Current Report on Form 8-K filed on June 5, 2009 (File No. 0-25581).(e)Previously filed as an exhibit to the Annual Report on Form 10-K filed for the year ended December 31, 2012 (File No. 0-25581).(f)Previously filed as an exhibit to Amendment No. 2 to Registration Statement on Form S-1 (File No. 333-69657) filed on March 18, 1999.(g)Previously filed as an exhibit to the Current Report on Form 8-K filed on March 10, 2010 (File No. 0-25581).(h)Previously filed as an exhibit to the Current Report on Form 8-K filed on March 12, 2012 (File No. 0-25581).(i)Previously filed as an exhibit to the Current Report on Form 8-K filed on June 4, 2013 (File No. 0-25581).(j)Previously filed as an exhibit to the Current Report on Form 8‑K filed on June 6, 2013 (File No. 0-25581).(k)Previously filed as an exhibit to the Registration Statement on Form S-8 (File No. 333-122414) filed on January 31, 2005.(l)Previously filed as an exhibit to the Current Report on Form 8‑K filed on November 8, 2005 (File No. 0-25581).(m)Previously filed as an exhibit to the Current Report on Form 8‑K filed on March 9, 2011 (File No. 0-25581).(n)Previously filed as an exhibit to the Current Report on Form 8-K filed on March 8, 2012 (File No. 0-25581).(o)Previously filed as an exhibit to the Current Report on Form 8-K filed on March 4, 2013 (File No. 0-25581).(p)Previously filed as an exhibit to the Registration Statement on Form S-8 (File No. 333-188733) filed on May 21, 2013.(q)Previously filed as an exhibit to the Current Report on Form 8‑K filed on February 23, 2007 (File No. 0-25581).(r)Previously filed as an exhibit to the Current Report on Form 8‑K filed on August 6, 2008 (File No. 0-25581).(s)Previously filed as an exhibit to the Annual Report on Form 10-K filed for the year ended December 31, 2008 (File No. 0-25581).(t)Previously filed as an exhibit to the Current Report on Form 8-K filed on November 8, 2013 (File No. 0-25581).(u)Previously filed as an exhibit to the Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2011 (File No. 0-25581).(v)Previously filed as an exhibit to the Current Report on Form 8-K filed on October 21, 2005 (File No. 0-25581).(w)This document is being furnished in accordance with SEC Release Nos. 33‑8212 and 34‑47551.+Indicates a management contract or compensatory plan or arrangement.71 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. PRICELINE.COM INCORPORATED By:/s/ Darren R. HustonName:Darren R. HustonTitle:Chief Executive OfficerDate:February 20, 2014 Power of Attorney KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Darren R. Huston,Daniel J. Finnegan and Peter J. Millones, and each of them severally, his or her true and lawful attorney-in-fact with power of substitution and resubstitution tosign in his or her name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deemnecessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the Securities and Exchange Commission inconnection with this Annual Report on Form 10-K and any and all amendments hereto, as fully and for all intents and purposes as he or she might do or coulddo in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her substitute or substitutes, may lawfullydo or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. 72 Signature Title Date /s/ Jeffery H. Boyd Director, Chairman of the Board February 20, 2014Jeffery H. Boyd /s/ Darren R. Huston Director, President and Chief ExecutiveFebruary 20, 2014Darren R. Huston Officer (Principal Executive Officer) /s/ Daniel J. Finnegan Chief Financial Officer and Chief Accounting February 20, 2014Daniel J. Finnegan Officer (Principal Financial Officer and PrincipalAccounting Officer) /s/ Timothy M. Armstrong Director February 20, 2014Timothy M. Armstrong /s/ Howard W. Barker, Jr. DirectorFebruary 20, 2014Howard W. Barker, Jr. /s/ Jan L. DocterDirectorFebruary 20, 2014Jan L. Docter /s/ Jeffrey E. EpsteinDirectorFebruary 20, 2014Jeffrey E. Epstein /s/ James M. GuyetteDirectorFebruary 20, 2014James M. Guyette /s/ Nancy B. PeretsmanDirectorFebruary 20, 2014Nancy B. Peretsman /s/ Thomas E. RothmanDirectorFebruary 20, 2014Thomas E. Rothman /s/ Craig W. Rydin Director February 20, 2014Craig W. Rydin 73 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Report of Independent Registered Public Accounting Firm75 Consolidated Balance Sheets for the years ended December 31, 2013 and 201276 Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 201177 Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012, and 201178 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2013, 2012 and 201179 Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 201180 Notes to Consolidated Financial Statements8174 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders ofpriceline.com IncorporatedNorwalk, Connecticut We have audited the accompanying consolidated balance sheets of priceline.com Incorporated and subsidiaries (the "Company") as of December 31, 2013 and2012, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for each of the three yearsin the period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express anopinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of priceline.com Incorporated andsubsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2013, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal controlover financial reporting as of December 31, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2014 expressed an unqualified opinion on theCompany's internal control over financial reporting. /s/ DELOITTE & TOUCHE LLPStamford, ConnecticutFebruary 20, 201475 priceline.com IncorporatedCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) December 31,2013 2012ASSETS Current assets: Cash and cash equivalents$1,289,994 $1,536,349Restricted cash10,476 6,641Short-term investments5,462,720 3,646,845Accounts receivable, net of allowance for doubtful accounts of $14,116 and $10,322, respectively535,962 367,512Prepaid expenses and other current assets107,102 84,290Deferred income taxes74,687 40,738Total current assets7,480,941 5,682,375 Property and equipment, net135,053 89,269Intangible assets, net1,019,985 208,113Goodwill1,767,912 522,672Deferred income taxes7,055 31,485Other assets33,514 35,828Total assets$10,444,460 $6,569,742 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable$247,345 $184,648Accrued expenses and other current liabilities545,342 387,911Deferred merchant bookings437,127 368,823Convertible debt (See Note 11)151,931 520,344Total current liabilities1,381,745 1,461,726 Deferred income taxes326,425 45,159Other long-term liabilities75,981 68,944Convertible debt (See Note 11)1,742,047 881,996Total liabilities3,526,198 2,457,825 Commitments and Contingencies (See Note 16) Redeemable noncontrolling interests (See Note 13)— 160,287Convertible debt (See Note 11)8,533 54,655 Stockholders' equity: Common stock, $0.008 par value, authorized 1,000,000,000 shares, 61,265,160 and 58,055,586 sharesissued, respectively476 450Treasury stock, 9,256,721 and 8,184,787, respectively(1,987,207) (1,060,607)Additional paid-in capital4,592,979 2,612,197Accumulated earnings4,218,752 2,368,611Accumulated other comprehensive income (loss)84,729 (23,676)Total stockholders' equity6,909,729 3,896,975Total liabilities and stockholders' equity$10,444,460 $6,569,742 See Notes to Consolidated Financial Statements.76 priceline.com IncorporatedCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) Year Ended December 31, 2013 2012 2011Agency revenues$4,410,689 $3,142,815 $2,339,253Merchant revenues2,211,474 2,104,752 2,004,432Advertising and other revenues171,143 13,389 11,925Total revenues6,793,306 5,260,956 4,355,610Cost of revenues1,077,420 1,177,275 1,275,730Gross profit5,715,886 4,083,681 3,079,880Operating expenses: Advertising — Online1,798,645 1,273,637 919,214Advertising — Offline127,459 35,492 35,470Sales and marketing235,817 195,934 162,690Personnel, including stock-based compensation of $140,526, $71,565 and $65,724,respectively698,692 466,828 352,295General and administrative252,994 173,171 123,652Information technology71,890 43,685 33,813Depreciation and amortization117,975 65,141 53,824Total operating expenses3,303,472 2,253,888 1,680,958Operating income2,412,414 1,829,793 1,398,922Other income (expense): Interest income4,167 3,860 8,119Interest expense(83,289) (62,064) (31,721)Foreign currency transactions and other(36,755) (9,720) (7,526)Total other income (expense)(115,877) (67,924) (31,128)Earnings before income taxes2,296,537 1,761,869 1,367,794Income tax expense403,739 337,832 308,663Net income1,892,798 1,424,037 1,059,131Less: net income attributable to noncontrolling interests135 4,471 2,760Net income applicable to common stockholders$1,892,663 $1,419,566 $1,056,371Net income applicable to common stockholders per basic common share$37.17 $28.48 $21.27Weighted average number of basic common shares outstanding50,924 49,840 49,654Net income applicable to common stockholders per diluted common share$36.11 $27.66 $20.63Weighted average number of diluted common shares outstanding52,413 51,326 51,211 See Notes to Consolidated Financial Statements.77 priceline.com IncorporatedCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In thousands) Year Ended December 31, 2013 2012 2011Net income $1,892,798 $1,424,037 $1,059,131Other comprehensive income (loss), net of tax Foreign currency translation adjustments(1) 97,970 69,683 (55,128)Unrealized gain (loss) on marketable securities(2) 21 (620) 212Comprehensive income 1,990,789 1,493,100 1,004,215Less: Comprehensive income (loss) attributable to redeemablenoncontrolling interests (10,279) 9,628 2,537Comprehensive income attributable to common stockholders $2,001,068 $1,483,472 $1,001,678(1) Foreign currency translation adjustments includes tax benefits of $55,001 and $18,001 for the years ended December 31, 2013 and 2012, respectively,and tax of $21,547, for the year ended December 31, 2011 associated with hedges of foreign denominated net assets. The remaining balance in currencytranslation adjustments excludes income taxes due to the Company's practice and intention to reinvest the earnings of its foreign subsidiaries in thoseoperations. See Note 15.(2) Net of tax benefits of $43 and $158 for the years ended December 31, 2013 and 2012, respectively, and tax of $96 for the year ended December 31, 2011.See Notes to Consolidated Financial Statements.78 priceline.com IncorporatedCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYFOR THE YEARS ENDED DECEMBER 31, 2013, 2012 and 2011(In thousands) Common Stock Treasury Stock AdditionalPaid-inCapital AccumulatedEarnings AccumulatedOtherComprehensiveIncome (Loss) Total Shares Amount Shares Amount Balance, December 31, 201056,567 $438 (7,421) $(640,415) $2,417,092 $69,110 $(32,889) $1,813,336Net income applicable to common stockholders— — — — — 1,056,371 — 1,056,371Unrealized gain (loss) on marketable securities, net of tax of $96— — — — — — 212 212Currency translation adjustments, net of tax of $21,547— — — — — — (54,905) (54,905)Redeemable noncontrolling interests fair value adjustments— — — — — (91,743) — (91,743)Reclassification adjustment for convertible debt in mezzanine— — — — (77,342) — — (77,342)Exercise of stock options and vesting of restricted stock units andperformance share units1,007 8 — — 4,294 — — 4,302Repurchase of common stock— — (359) (163,171) — — — (163,171)Stock-based compensation and other stock-based payments— — — — 66,194 — — 66,194Issuance of senior convertible notes— — — — — — — —Conversion of debt5 — — — — — — —Excess tax benefit from stock-based compensation— — — — 21,041 — — 21,041Balance, December 31, 201157,579 $446 (7,780) $(803,586) $2,431,279 $1,033,738 $(87,582) $2,574,295Net income applicable to common stockholders— — — — — 1,419,566 — 1,419,566Unrealized gain (loss) on marketable securities, net of tax benefit of $158— — — — — — (620) (620)Currency translation adjustments, net of tax benefit of $18,001— — — — — — 64,526 64,526Redeemable noncontrolling interests fair value adjustments— — — — — (84,693) — (84,693)Reclassification adjustment for convertible debt in mezzanine— — — — 22,705 — — 22,705Exercise of stock options and vesting of restricted stock units andperformance share units477 4 — — 2,679 — — 2,683Repurchase of common stock— — (405) (257,021) — — — (257,021)Stock-based compensation and other stock-based payments— — — — 72,035 — — 72,035Issuance of senior convertible notes— — — — 78,310 — — 78,310Conversion of debt— — — — — — — —Excess tax benefit from stock-based compensation— — — — 5,189 — — 5,189Balance, December 31, 201258,056 $450 (8,185) $(1,060,607) $2,612,197 $2,368,611 $(23,676) $3,896,975Net income applicable to common stockholders— — — — — 1,892,663 — 1,892,663Unrealized gain (loss) on marketable securities, net of tax benefit of $43— — — — — — 21 21Currency translation adjustments, net of tax benefit of $55,001— — — — — — 108,384 108,384Redeemable noncontrolling interests fair value adjustments— — — — — (42,522) — (42,522)Reclassification adjustment for convertible debt in mezzanine— — — — 46,122 — — 46,122Exercise of stock options and vesting of restricted stock units andperformance share units715 6 — — 91,601 — — 91,607Repurchase of common stock— — (1,030) (883,515) — — — (883,515)Stock-based compensation and other stock-based payments— — — — 142,098 — — 142,098Issuance of senior convertible notes— — — — 93,402 — — 93,402Common stock issued in an acquisition1,522 12 — — 1,281,122 — — 1,281,134Vested stock options assumed in an acquisition— — — — 264,423 — — 264,423Conversion of debt972 8 — — 1,224 — — 1,232Settlement of conversion spread hedges— — (42) (43,085) 43,104 — — 19Excess tax benefit from stock-based compensation— — — — 17,686 — — 17,686Balance, December 31, 201361,265 $476 (9,257) $(1,987,207) $4,592,979 $4,218,752 $84,729 $6,909,729 See Notes to Consolidated Financial Statements.79 priceline.com IncorporatedCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2013 2012 2011OPERATING ACTIVITIES: Net income$1,892,798 $1,424,037 $1,059,131Adjustments to reconcile net income to net cash provided by operating activities: Depreciation48,365 32,818 20,648Amortization69,610 32,323 33,176Provision for uncollectible accounts, net16,451 16,094 9,331Deferred income tax expense (benefit)(11,104) 19,596 44,747Stock-based compensation and other stock based payments142,098 72,035 66,194Amortization of debt issuance costs7,898 5,212 2,360Amortization of debt discount55,718 39,820 21,414Loss on early extinguishment of debt26,661 — 32Changes in assets and liabilities: Accounts receivable(111,572) (105,277) (125,793)Prepaid expenses and other current assets(6,909) (40,793) 12,213Accounts payable, accrued expenses and other current liabilities182,163 256,021 210,325Other(10,741) 33,864 (11,966)Net cash provided by operating activities2,301,436 1,785,750 1,341,812 INVESTING ACTIVITIES: Purchase of investments(9,955,800) (6,352,495) (3,005,397)Proceeds from sale of investments8,291,283 4,799,412 2,229,563Additions to property and equipment(84,445) (55,158) (46,833)Acquisitions and other equity investments, net of cash acquired(331,918) (33,861) (68,192)Proceeds from foreign currency contracts3,266 86,159 31,045Payments on foreign currency contracts(81,870) (4,014) (42,032)Change in restricted cash(2,783) (2,756) (2,922)Net cash used in investing activities(2,162,267) (1,562,713) (904,768) FINANCING ACTIVITIES: Proceeds from the issuance of convertible senior notes980,000 1,000,000 —Payment of debt issuance costs(1,018) (20,916) —Payments related to conversion of senior notes(414,569) (1) (213)Repurchase of common stock(883,515) (257,021) (163,171)Payments to purchase subsidiary shares from noncontrolling interests(192,530) (61,079) (12,986)Proceeds from exercise of stock options91,607 2,683 4,302Proceeds from the termination of conversion spread hedges19 — —Payments of stock issuance costs(1,191) — —Excess tax benefit from stock-based compensation17,686 5,189 21,041Net cash (used in) provided by financing activities(403,511) 668,855 (151,027)Effect of exchange rate changes on cash and cash equivalents17,987 11,621 (12,148)Net (decrease) increase in cash and cash equivalents(246,355) 903,513 273,869Cash and cash equivalents, beginning of period1,536,349 632,836 358,967Cash and cash equivalents, end of period$1,289,994 $1,536,349 $632,836 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for income taxes$391,169 $300,539 $232,762Cash paid during the period for interest$20,954 $13,933 $7,573Non-cash fair value increase for redeemable noncontrolling interests$42,522 $84,693 $91,743Non-cash financing activity for acquisitions$1,546,748 $— $— See Notes to Consolidated Financial Statements.80 priceline.com IncorporatedNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS DESCRIPTION Priceline.com Incorporated ("The Priceline Group" or the "Company") is a leading online travel company that connects consumers wishing to maketravel reservations with providers of travel services around the world. The Company offers consumers accommodation reservations (including hotels, bed andbreakfasts, hostels, apartments, vacation rentals and other properties) worldwide through its Booking.com, priceline.com and Agoda.com brands. In theUnited States, the Company also offers consumers reservations for rental cars, airline tickets, vacation packages and cruises through the priceline.com brand.The Company offers rental car reservations worldwide through rentalcars.com. In May 2013, the Company acquired KAYAK Software Corporation("KAYAK"), a leading meta-search service, through which the Company allows consumers to easily compare airline ticket, hotel reservation and rental carreservation information from hundreds of travel websites at once. KAYAK earns advertising revenues mainly by sending referrals to travel service providersand online travel agents ("OTAs"), as well as from advertising placements on its websites and mobile applications.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation — The Company's Consolidated Financial Statements include the accounts of the Company and its wholly-ownedsubsidiaries, including KAYAK Software Corporation since its acquisition in May 2013. All intercompany accounts and transactions have been eliminatedin consolidation. Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actualresults may differ significantly from those estimates. The estimates underlying the Company's Consolidated Financial Statements relate to, among otherthings, the deferred tax valuation allowance, the accrual for travel transaction taxes, stock-based compensation, the allowance for doubtful accounts, thevaluation of goodwill and long-lived assets and intangibles and the valuation of redeemable noncontrolling interests. Fair Value of Financial Instruments — The Company's financial instruments, including cash, restricted cash, accounts receivable, accountspayable, accrued expenses and deferred merchant bookings, are carried at cost which approximates their fair value because of the short-term nature of thesefinancial instruments. See Notes 4, 5, 11 and 13 for information on fair value for investments, derivatives, the Company's outstanding Convertible SeniorNotes, and redeemable noncontrolling interests. Cash and Cash Equivalents — Cash and cash equivalents consists primarily of cash and highly liquid investment grade securities with an originalmaturity of three months or less. Restricted Cash — Restricted cash at December 31, 2013 and 2012 collateralizes office leases and supplier obligations. Investments — The Company has classified its investments as available-for-sale securities. These securities are carried at estimated fair value withthe aggregate unrealized gains and losses related to these investments, net of taxes, reflected as a part of "Accumulated other comprehensive income (loss)"within stockholders' equity. The fair value of the investments is based on the specific quoted market price of the securities or comparable securities at the balance sheet dates. Investments in debt securities are considered to be impaired when a decline in fair value is judged to be other than temporary because the Company eitherintends to sell or it is more-likely-than not that it will have to sell the impaired security before recovery. Once a decline in fair value is determined to be otherthan temporary, an impairment charge is recorded and a new cost basis in the investment is established. If the Company does not intend to sell the debtsecurity, but it is probable that the Company will not collect all amounts due, then only the impairment due to the credit risk would be recognized in earningsand the remaining amount of the impairment would be recognized in "Accumulated other comprehensive Income (loss)" within stockholders' equity. Themarketable securities are presented as current assets on the Company's Consolidated Balance Sheets, if they are available to meet the short-term workingcapital needs of the Company. See Notes 4 and 5 for further detail of investments. 81 Property and Equipment — Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation andamortization of property and equipment is computed on a straight-line basis over the estimated useful lives of the assets or, when applicable, the life of thelease, whichever is shorter. Goodwill — The Company accounts for acquired businesses using the purchase method of accounting which requires that the assets acquired andliabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the netassets acquired is recorded as goodwill. The Company's Consolidated Financial Statements reflect an acquired business starting at the date of the acquisition. Goodwill is not subject to amortization and is reviewed at least annually for impairment, or earlier if an event occurs or circumstances change andthere is an indication of impairment. The Company tests goodwill at a reporting unit level. The fair value of the reporting unit is compared to its carryingvalue, including goodwill. Fair values are determined based on discounted cash flows, market multiples or appraised values and are based on marketparticipant assumptions. An impairment is recorded to the extent that the implied fair value of goodwill is less than the carrying value of goodwill. See Note 9for further information. Impairment of Long-Lived Assets and Intangible Assets — The Company reviews long-lived assets and amortizable intangible assets forimpairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The assessment of possibleimpairment is based upon the Company's ability to recover the carrying value of the assets from the estimated undiscounted future net cash flows, beforeinterest and taxes, of the related operations. The amount of impairment loss, if any, is measured as the excess of the carrying value of the asset over thepresent value of estimated future cash flows, using a discount rate commensurate with the risks involved and based on assumptions representative of marketparticipants. Software Capitalization — Certain direct development costs associated with internal-use software are capitalized and include external direct costs ofservices and payroll costs for employees devoting time to the software projects principally related to software coding, designing system interfaces andinstallation and testing of the software. These costs are recorded as property and equipment and are generally amortized over a period of three to five yearsbeginning when the asset is substantially ready for use. Costs incurred during the preliminary project stage, as well as maintenance and training costs, areexpensed as incurred.Agency Revenues Agency revenues are derived from travel-related transactions where the Company is not the merchant of record and where the prices of the servicessold are determined by third parties. Agency revenues include travel commissions, global distribution system ("GDS") reservation booking fees and customerprocessing fees, and are reported at the net amounts received, without any associated cost of revenue. Such revenues are generally recognized by the Companywhen the customers complete their travel. Merchant Revenues and Cost of Merchant Revenues Merchant revenues and related cost of revenues are derived from services where the Company is the merchant of record and therefore charges thecustomer's credit card and subsequently pays the travel service provider for the services provided.Opaque Services: The Company refers to its Name Your Own Price® and Express Deals® services as "opaque" services because not all aspectsof the travel service are visible to the consumer before making an offer. The Name Your Own Price® service connects consumers that are willing to accept alevel of flexibility regarding their travel itinerary with travel service providers that are willing to accept a lower price in order to sell their excess capacity withoutdisrupting their existing distribution channels or retail pricing structures. The Company's Name Your Own Price® services use a unique pricing system thatallows consumers to "bid" the price they are prepared to pay when submitting an offer for a particular leisure travel service. The Company accesses databasesin which participating travel service providers file secure discounted rates, not generally available to the public, to determine whether it can fulfill theconsumer's offer. The Company selects the travel service provider and determines the price it will accept from the consumer. Merchant revenues and cost ofmerchant revenues include the selling price and cost, respectively, of the Name Your Own Price® travel services and are reported on a gross basis. In 2012, the Company launched Express Deals®, a merchant semi-opaque hotel reservation service at priceline.com, which allows consumers toselect hotel reservations with price and certain information regarding amenities offered by the hotel provider disclosed prior to making the reservation. Theidentity of the hotel is not known prior to committing to the non-82 refundable reservation. The Company records the difference between the reservation price to the consumer and the travel service provider cost to the Companyof its merchant Express Deals® reservation services on a net basis in merchant revenue.The Company recognizes revenues and costs for these services when it confirms the customer's non-refundable offer. In very limited circumstances,the Company makes certain customer concessions to satisfy disputes and complaints. The Company accrues for such estimated losses and classifies theresulting expense as adjustments to merchant revenue and cost of merchant revenues. Merchant Retail Services: Merchant revenues for the Company's merchant retail services are derived from transactions where consumers bookaccommodation reservations or rental car reservations from travel service providers at disclosed rates which are subject to contractual arrangements. Chargesare billed to consumers by the Company at the time of booking and are included in deferred merchant bookings until the consumer completes theaccommodation stay or returns the rental car. Such amounts are generally refundable upon cancellation, subject to cancellation penalties in certain cases. Merchant revenues and accounts payable to the travel service provider are recognized at the conclusion of the consumer's stay at the accommodation or returnof the rental car. The Company records the difference between the reservation price to the consumer and the travel service provider cost to the Company of itsmerchant retail reservation services on a net basis in merchant revenue.Pursuant to the terms of the Company's opaque and retail merchant services, its travel service providers are permitted to bill the Company for theunderlying cost of the service during a specified period of time. In the event that the Company is not billed by the travel provider within the specified timeperiod, the Company reduces its cost of revenues by the unbilled amounts.Advertising and Other RevenuesAdvertising and other revenues are earned primarily by KAYAK by sending referrals to travel service providers and OTAs, as well as fromadvertising placements on its websites and mobile applications. The Company recognizes advertising revenue when earned, generally, upon the completion oftravel by the consumer, when a consumer clicks on an advertisement or when the Company displays an advertisement.Tax Recovery Charge, Occupancy Taxes and State and Local Taxes The Company provides an online travel service to facilitate online travel purchases by consumers from travel service providers, includingaccommodation, rental car and airline ticket reservations, and sometimes as part of a vacation package reservation. For merchant model transactions, theCompany charges the consumer an amount intended to cover the taxes that the Company anticipates the travel service provider will owe and remit to the localtaxing authorities ("tax recovery charge"). Tax rate information for calculating the tax recovery charge is provided to the Company by the travel serviceproviders. In a handful of taxing jurisdictions, the Company recently was required by passage of a new statute or by court order to start collecting and remittingcertain taxes (local occupancy tax, general excise and/or sales tax) imposed upon its margin and/or service fee, or in the case of Hawaii, on the full amountcollected from the consumer. In those jurisdictions, the Company is collecting and remitting tax as required. Except in those jurisdictions, the Company doesnot charge the customer or remit occupancy or other related taxes based on its margin or service fee, because the Company believes that such taxes are not owedon its compensation for its services (refer to Note 16). The tax recovery charge and occupancy and other related taxes collected from customers and remitted tothose jurisdictions are reported on a net basis on the Consolidated Statement of Operations. Advertising - Online — Online advertising expenses consist primarily of the costs of (1) search engine keyword purchases; (2) referrals from meta-search websites and travel research websites; (3) affiliate programs; (4) banner and pop-up advertisements; and (5) email campaigns. Online advertisingexpense is generally recognized as incurred. Included in "Accrued expenses and other current liabilities" on the Consolidated Balance Sheets are accrued onlineadvertising liabilities of $130.3 million and $99.6 million at December 31, 2013 and 2012, respectively.Advertising - Offline — Offline advertising expenses are comprised primarily of costs for television, print, and radio advertising for Booking.com,priceline.com and KAYAK. The Company expenses advertising production costs the first time the advertising takes place. Sales and Marketing — Sales and marketing expenses consist primarily of (1) credit card processing fees associated with merchant transactions;(2) fees paid to third-parties that provide call center, website content translations and other83 services; (3) provisions for credit card chargebacks; and (4) provisions for bad debt, primarily related to agency accommodation commission receivables. Personnel — Personnel expenses consist of compensation to the Company's personnel, including salaries, bonuses, payroll taxes, employee healthinsurance and other benefits, and stock based compensation. Included in "Accrued expenses and other current liabilities" on the Consolidated Balance Sheetsare accrued compensation liabilities of $142.7 million and $97.9 million at December 31, 2013 and 2012, respectively. Stock-Based Compensation — The cost of stock-based transactions are recognized in the financial statements based upon fair value. The fairvalue of performance share units and restricted stock units is determined based on the number of units or shares, as applicable, granted and the quoted priceof the Company's common stock as of the grant date. Stock-based compensation related to performance share units reflects the estimated probable outcome atthe end of the performance period. The fair value of employee stock options assumed in the acquisition of KAYAK was determined using the Black Scholesmodel and the market value of the Company's common stock at the merger date. Fair value is recognized as expense on a straight line basis, net of estimatedforfeitures, over the employee requisite service period. The fair value at grant date for restricted stock units with a market condition is estimated, based on the complexity of the award, using both closed-form models and lattice models. All compensation cost for an award that has a market condition is recognized as stock based compensation cost if therequisite service period is fulfilled, even if the market condition is never satisfied. The benefits of tax deductions in excess of recognized compensation costs are reported as a credit to additional paid-in capital and as financing cashflows, but only when such excess tax benefits are realized by a reduction to current taxes payable. See Note 3 for further information on stock-based awards. Information Technology — Information technology expenses are comprised primarily of outsourced data center costs, system maintenance andsoftware license fees, data communications and other expenses associated with operating the Company's Internet websites and payments to outside contractors.Such costs are expensed as incurred. Income Taxes — The Company accounts for income taxes under the asset and liability method. The Company records the estimated future taxeffects of temporary differences between the tax bases of assets and liabilities and amounts reported on the Consolidated Balance Sheets, as well as operatingloss and tax credit carryforwards. Deferred taxes are classified as current or noncurrent based on the balance sheet classification of the related assets andliabilities. The Company records deferred tax assets to the extent it believes these assets will more likely than not be realized. The Company regularly reviewsits deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existingtemporary differences, the carryforward periods available for tax reporting purposes, and tax planning strategies. A valuation allowance is provided when it ismore likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generationof future taxable income during the period in which related temporary differences become deductible. In determining the future tax consequences of events thathave been recognized in the financial statements or tax returns, significant judgments, estimates, and interpretation of statutes are required.Deferred taxes are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date ofsuch change. Income taxes are not accrued for unremitted earnings of international operations that have been or are intended to be reinvested indefinitely. The Company recognizes liabilities when it believes that uncertain positions may not be fully sustained upon review by the tax authorities. Liabilities recognized for uncertain tax positions are based on a two step approach for recognition and measurement. First, the Company evaluates the taxposition for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit basedon its technical merits. Secondly, the Company measures the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimatesettlement. Interest and penalties attributable to uncertain tax positions, if any, are recognized as a component of income tax expense. See Note 15 for furtherdetails on income taxes. 84 Segment Reporting — The Company operates and manages its business as a single reportable unit. Operating segments that have similar economiccharacteristics are aggregated. For geographic related information, see Note 18 to the Company's Consolidated Financial Statements. Foreign Currency Translation — The functional currency of the Company's foreign subsidiaries is generally their 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 ataverage monthly exchange rates applicable for the period. Translation gains and losses are included as a component of "Accumulated other comprehensiveincome (loss)" on the Company's Consolidated Balance Sheets. Foreign currency transaction gains and losses are included in "Foreign currency transactionsand other" in the Company's Consolidated Statements of Operations. Derivative Financial Instruments — As a result of the Company's international operations, it is exposed to various market risks that may affect itsconsolidated results of operations, cash flow and financial position. These market risks include, but are not limited to, fluctuations in currency exchangerates. The Company's primary foreign currency exposures are in Euros and British Pound Sterling, in which it conducts a significant portion of its businessactivities. As a result, the Company faces exposure to adverse movements in currency exchange rates as the financial results of its international operations aretranslated from local currency into U.S. Dollars upon consolidation. Additionally, foreign exchange rate fluctuations on transactions denominated incurrencies other than the functional currency result in gains and losses that are reflected in income. The Company may enter into derivative instruments to hedge certain net exposures of nonfunctional currency denominated assets and liabilities andthe volatility associated with translating earnings for its international businesses into U.S. Dollars, even though it does not elect to apply hedge accounting orhedge accounting does not apply. Gains and losses resulting from a change in fair value for these derivatives are reflected in income in the period in which thechange occurs and are recognized on the Consolidated Statements of Operations in "Foreign currency transactions and other." Cash flows related to thesecontracts are classified within "Net cash provided by operating activities" on the cash flow statement. The Company also utilizes derivative instruments to hedge the impact of changes in currency exchange rates on the net assets of its foreignsubsidiaries. These instruments are designated as net investment hedges. Hedge ineffectiveness is assessed and measured based on changes in forwardexchange rates. The Company records gains and losses on these derivative instruments as currency translation adjustments, which offset a portion of thetranslation adjustments related to the foreign subsidiary's net assets. Gains and losses are recognized on the Consolidated Balance Sheet in "Accumulatedother comprehensive Income (loss)" and will be realized upon a partial sale or liquidation of the investment. The Company formally documents all derivativesdesignated as hedging instruments for accounting purposes, both at hedge inception and on an on-going basis. These net investment hedges expose theCompany to liquidity risk as the derivatives have an immediate cash flow impact upon maturity, which is not offset by the translation of the underlyinghedged equity. The cash flows from these contracts are classified within "Net cash used in investing activities" on the cash flow statement. The Company does not use financial instruments for trading or speculative purposes. The Company recognizes all derivative instruments on thebalance sheet at fair value and its derivative instruments are generally short-term in duration. The derivative instruments do not contain leverage features. The Company is exposed to the risk that counterparties to derivative contracts may fail to meet their contractual obligations. The Company regularlyreviews its credit exposure as well as assessing the creditworthiness of its counterparties. See Note 5 for further detail on derivatives. Recent Accounting PronouncementsIn February 2013, the Financial Accounting Standards Board ("FASB") issued accounting guidance which requires entities to provide additionalinformation about items reclassified out of accumulated other comprehensive income ("AOCI") to net income. Changes in AOCI balances by component, bothbefore tax and after tax, must be disclosed and significant items reclassified out of AOCI by component must be reported either on the face of the incomestatement or in a separate footnote to the financial statements. The accounting guidance is effective for public companies for fiscal years, and interim periodswithin those years, beginning after December 15, 2012. See Note 14 for information on AOCI balances. There were no reclassifications out of AOCI to netincome for the years ended December 31, 2013, 2012 and 2011.In July 2013, the FASB issued an accounting update which provides guidance on financial statement presentation of an unrecognized tax benefitwhen a net operating loss carryforward or a tax credit carryforward exists in the same taxing jurisdiction. Per this guidance, an entity must present theunrecognized tax benefit as a reduction to a deferred tax asset, except when the carryforward is not available as of the reporting date under the governing tax lawto settle taxes or the entity does not85 intend to use the deferred tax asset for this purpose. This amendment does not impact the recognition or measurement of uncertain tax positions or thedisclosure reconciliation of gross unrecognized tax benefits. The update is effective for public companies beginning after December 15, 2013. Early adoptionof the update is permitted and an entity may choose to apply this amendment retrospectively to each reporting period presented. The adoption of thisaccounting update is not expected to have a material impact on the Company's consolidated financial statements.On January 1, 2012, the Company adopted the amended accounting guidance issued by the Financial Accounting Standards Board ("FASB")concerning the presentation of comprehensive income. The new guidance requires comprehensive income to be reported in either a single statement or in twoconsecutive statements reporting net income and other comprehensive income. The Company selected to present two consecutive statements. This amendedguidance did not change the items that constitute net income or other comprehensive income, the timing of when other comprehensive income is reclassified tonet income, or the earnings per share computation.In September 2011, the FASB issued an accounting update, which amended the guidance on testing goodwill for impairment. Under the revisedguidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit.If, based on the qualitative factors, it is more-likely-than not that the fair value of the reporting unit is less than its carrying value, then the unchanged two-stepapproach previously used would be required. The new accounting guidance did not change how goodwill is calculated, how goodwill is assigned to thereporting unit, or the requirements for testing goodwill annually or when events and circumstances warrant testing. The accounting update was effective forannual and interim periods beginning after December 15, 2011, with early adoption permitted. In September 2013, the Company performed its annualquantitative goodwill impairment testing and concluded that there was no impairment of goodwill.In May 2010, the FASB issued amended guidance on fair value to largely achieve common fair value measurement and disclosure requirementsbetween U.S. GAAP and IFRS. The new accounting guidance did not extend the use of fair value but rather provided guidance about how fair value should bedetermined. For U.S. GAAP, most of the changes were clarifications of existing guidance or wording changes to align with IFRS. The amended guidanceexpanded disclosure, particularly that relating to fair value measurements based on unobservable inputs, permitted fair value measurements for financialassets and liabilities on a net position if market or credit risks are managed on a net basis and other criteria are met, and allowed premiums and discountsonly if a market participant would also include them in the fair value measurement. This accounting update was effective for public companies for interim orannual periods beginning after December 15, 2011, with early adoption permitted. The adoption of this accounting guidance, effective with the three monthsended March 31, 2012, did not impact the Company's consolidated financial statements or disclosure.3. STOCK-BASED COMPENSATION The Company has adopted the priceline.com Incorporated 1999 Omnibus Plan, as amended and restated effective June 6, 2013, (the "1999 Plan")as the stock compensation plan from which broad-based employee grants may be made. As of December 31, 2013, there were 2,807,340 shares of commonstock available for future grant under our 1999 Plan. In addition, in connection with the acquisition of KAYAK in May 2013, the Company assumed theKAYAK Software Corporation 2012 Equity Incentive Plan (the "KAYAK Plan"). As of December 31, 2013, there were 31,946 shares of common stockavailable for future grant under the KAYAK Plan. Stock-based compensation issued under the plans generally consists of restricted stock units, performance share units and stock options. The costof share-based transactions is recognized in the financial statements based upon fair value. Fair value is recognized as expense on a straight line basis, net ofestimated forfeitures, over the employee's requisite service period. The fair value of restricted stock units and performance share units is determined based onthe number of shares or units, as applicable, granted and the quoted price of the Company's common stock as of the grant date. Stock-based compensationrelated to performance share units reflects the estimated probable outcome at the end of the performance period. The fair value of the employee stock optionsassumed in the acquisition of KAYAK was determined using the Black-Scholes model and the market value of the Company's common stock at the mergerdate. Stock options granted to employees have a term of 10 years. Restricted stock units, performance share units and restricted stock generally vest overperiods from 1 to 4 years. The Company issues new shares of common stock upon the issuance of restricted stock, the exercise of stock options and thevesting of restricted stock units and performance share units. Stock-based compensation included in personnel expenses in the Consolidated Statements of Operations was approximately $140.5 million,$71.6 million and $65.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. Stock-based compensation for the years endedDecember 31, 2013, 2012 and 2011 includes charges amounting to86 $24.1 million, $0.9 million and $10.3 million, respectively, representing the cumulative impact of adjusting the estimated probable outcome at the end of theperformance period for outstanding unvested performance share units. Included in the stock-based compensation are approximately $2.1 million, $1.8million, and $1.7 million for the years ended December 31, 2013, 2012, and 2011, respectively, for grants to non-employee directors. The related tax benefitfor stock-based compensation is $18.5 million, $7.6 million and $8.1 million for the years ended December 31, 2013, 2012 and 2011, respectively. Restricted Stock Units and Performance Share UnitsThe following table summarizes the activity of unvested restricted stock units ("RSUs") and performance share units during the years endedDecember 31, 2011, 2012 and 2013: Share-Based Awards SharesWeighted Average GrantDate Fair Value Unvested at December 31, 2010 1,530,647 $130.93 Granted 125,564 $469.29 Vested (858,019) $113.37 Performance Shares Adjustment 73,710 $496.34 Forfeited (71,922) $182.90 Unvested at December 31, 2011 799,980 $231.87 Granted 95,062 $643.12 Vested (353,819) $108.31 Performance Shares Adjustment 6,649 $532.26 Forfeited (7,744) $444.18 Unvested at December 31, 2012 540,128 $389.21 Granted 162,341 $730.47 Vested (258,198) $242.63 Performance Shares Adjustment 101,490 $681.13 Forfeited (11,442) $579.71 Unvested at December 31, 2013 534,319 $615.10 RSUs and performance share units granted by the Company during the years ended December 31, 2013, 2012 and 2011 had aggregate grant datefair values of approximately $118.6 million, $61.1 million and $58.9 million, respectively. Share-based awards that vested during the years endedDecember 31, 2013, 2012, and 2011 had grant date fair values of $62.6 million, $38.3 million and $97.3 million, respectively. As of December 31, 2013, there is $154.1 million of total future compensation cost related to unvested share-based awards to be recognized over aweighted-average period of 1.4 years.During the year ended December 31, 2013, stock based awards included grants of 104,865 performance share units to executives and certain otheremployees. The performance share units had a total grant date fair value of $74.4 million based upon the weighted-average grant date fair value per share of$709.74. The performance share units are payable in shares of the Company's common stock upon vesting. Stock-based compensation for performance shareunits is recorded based on the estimated probable outcome if the Company, and with respect to certain grants, the businesses of its subsidiaries, achievecertain financial goals at the end of the performance period. The actual number of shares to be issued on the vesting date will be determined upon completionof the performance period which ends December 31, 2015, assuming there is no accelerated vesting for, among other things, a termination of employmentunder certain circumstances, or a change in control. At December 31, 2013, there were 103,162 unvested 2013 performance share units outstanding, net ofperformance share units that were forfeited or vested since the grant date. As of December 31, 2013, the number of shares estimated to be issued pursuant tothese performance shares units is a total of 170,046 shares. If the maximum performance thresholds are met at the end of the performance period, a maximumof 225,894 total shares could be issued. If the minimum performance thresholds are not met, 40,466 shares would be issued at the end of the performanceperiod.87 2012 Performance Share Units During the year ended December 31, 2012, stock-based awards included grants of 60,365 performance share units with a grant date fair value of$39.0 million, based on a weighted average grant date fair value of $645.86 per share. The actual number of shares will be determined upon completion of theperformance period which ends December 31, 2014.At December 31, 2013, there were 58,004 unvested 2012 performance share units outstanding, net of performance share units that were forfeited orvested since the grant date. As of December 31, 2013, the number of shares estimated to be issued pursuant to these performance share units at the end of theperformance period is a total of 97,204 shares. If the maximum performance thresholds are met at the end of the performance period, a maximum of 116,008total shares could be issued pursuant to these performance share units. If the minimum performance thresholds are not met, 36,250 shares would be issued atthe end of the performance period.2011 Performance Share Units During the year ended December 31, 2011, stock-based awards included grants of 77,144 performance share units with a grant date fair value of$35.9 million, based on a weighted average grant date fair value of $464.79 per share. The actual number of shares will be determined upon completion ofthe performance period which ended on December 31, 2013. At December 31, 2013, there were 72,830 unvested 2011 performance share units outstanding, net of performance share units that were forfeited orvested since the grant date. As of December 31, 2013, the total number of shares to be issued pursuant to these performance shares units on the March 4, 2014vesting date is 149,345 shares.Stock Options - Other than Stock Options Assumed in the Acquisition of KAYAKThe disclosures in this section do not include employee stock options assumed in the acquisition of KAYAK (described below). During the yearended December 31, 2013, stock options were exercised for 62,001 shares of common stock with a weighted average exercise price per share of $19.32. As ofDecember 31, 2013, the aggregate number of stock options outstanding and exercisable was 9,000 shares, with a weighted average exercise price per share of$22.55, a weighted average remaining term of 1.2 years, and an aggregate intrinsic value of $10.3 million. No stock options were granted during the yearsended December 31, 2013, 2012 or 2011. As of December 31, 2008, all stock options were fully vested and exercisable. The intrinsic value of stock optionsexercised during the years ended December 31, 2013, 2012 and 2011 was $44.9 million, $75.2 million and $77.1 million, respectively.KAYAK Employee Stock Options Assumed in the Acquisition of KAYAKThe following table summarizes for the year ended December 31, 2013 stock option activity for the vested and unvested employee stock optionsassumed in the acquisition of KAYAK:Assumed Employee Stock Options Number ofShares Weighted Average Exercise Price Aggregate Intrinsic Value(000's) Weighted AverageRemainingContractualTerm (in years)Balance, May 21, 2013 540,179 $260.96 $314,133 6.8Exercised (387,669) $222.73 Forfeited (23,802) $478.83 Balance, December 31, 2013 128,708 $335.83 $106,386 6.9Vested and exercisable as of December 31, 2013 86,340 $261.71 $77,765 6.2Vested and exercisable as of December 31, 2013 andexpected to vest thereafter, net of estimated forfeitures 126,428 $332.64 $104,905 6.9The aggregate intrinsic value of employee stock options assumed in the acquisition of KAYAK that were exercised during the period of May 22, 2013through December 31, 2013 was $236.9 million.88 At May 21, 2013, there were vested employee stock options assumed in the acquisition of KAYAK for 408,716 shares of common stock with a fairvalue of $260.9 million. The fair value of these assumed vested employee stock options was included in the purchase price allocation, with a correspondingincrease in additional paid-in capital.At May 21, 2013, there were unvested employee stock options assumed in the acquisition of KAYAK for 131,463 shares of common stock with afair value of $57.4 million and a weighted average fair value per share of $443.92. During the period of May 22, 2013 through December 31, 2013, assumedunvested employee stock options vested for 65,293 shares with a fair value of $30.9 million.The following assumptions were used at the merger date to determine the fair value of the assumed options. Weighted Average RangeRisk-free interest rate 0.23% 0.11% - 0.63%Expected volatility 32% 25% - 39%Expected life (in years) 2.2 9 months - 4 yearsDividend yield —% For the period of May 22 through December 31, 2013, the Company recorded stock-based compensation expense of $30.9 million for the KAYAKunvested assumed employee stock options. As of December 31, 2013, there was $16.6 million of total future compensation costs related to these KAYAKunvested assumed employee stock options to be recognized over a weighted-average period of 2.1 years.4.INVESTMENTS The following table summarizes, by major security type, the Company's short-term investments as of December 31, 2013 (in thousands): Cost GrossUnrealizedGains GrossUnrealizedLosses Fair ValueForeign government securities$4,019,530 $233 $(356) $4,019,407U.S. government securities1,443,083 250 (20) 1,443,313Total$5,462,613 $483 $(376) $5,462,720 As of December 31, 2013, foreign government securities included investments in debt securities issued by the governments of Germany, theNetherlands, and the United Kingdom.The following table summarizes, by major security type, the Company's short-term investments as of December 31, 2012 (in thousands): Cost GrossUnrealizedGains GrossUnrealizedLosses Fair ValueForeign government securities$1,886,822 $18 $(287) $1,886,553U.S. government securities1,759,773 520 (1) 1,760,292Total$3,646,595 $538 $(288) $3,646,845 There were no realized gains or losses related to investments for the years ended December 31, 2013, 2012 and 2011.89 5.FAIR VALUE MEASUREMENTS Financial assets carried at fair value as of December 31, 2013 are classified in the table below in the categories described below (in thousands): Level 1 Level 2 Level 3 TotalASSETS: Short-term investments: Foreign government securities$— $4,019,407 $— $4,019,407 U.S. government securities— 1,443,313 — 1,443,313Foreign exchange derivatives— 292 — 292Total assets at fair value$— $5,463,012 $— $5,463,012 Level 1 Level 2 Level 3 TotalLIABILITIES: Foreign exchange derivatives$— 122,091 $— $122,091Financial assets and liabilities are carried at fair value as of December 31, 2012 are classified in the tables below in the categories described below (inthousands): Level 1 Level 2 Level 3 TotalASSETS: Short-term investments: Foreign government securities$— $1,886,553 $— $1,886,553U.S. government securities— 1,760,292 — 1,760,292Foreign exchange derivatives— 1,038 — 1,038Total assets at fair value$— $3,647,883 $— $3,647,883 Level 1 Level 2 Level 3 TotalLIABILITIES: Foreign exchange derivatives$— $63,151 $— $63,151Redeemable noncontrolling interests— — 160,287 160,287Total liabilities at fair value$— $63,151 $160,287 $223,438 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 are observable, either directly or indirectly. Such prices may be based upon quoted prices for identical or comparablesecurities 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 U.S. Treasury securities and foreign government securities are considered "Level 2" valuations because the Company has access toquoted prices, but does not have visibility to the volume and frequency of trading for all investments. For the Company's investments, a market approach isused for recurring fair value measurements and the valuation techniques use inputs that are observable, or can be corroborated by observable data, in an activemarketplace.90 The Company's derivative instruments are valued using pricing models. Pricing models take into account the contract terms as well as multipleinputs where applicable, such as interest rate yield curves, option volatility and currency rates. Derivatives are considered "Level 2" fair valuemeasurements. The Company's derivative instruments are typically short-term in nature. The Company considered its redeemable noncontrolling interests to represent a "Level 3" fair value measurement that required a high level ofjudgment to determine fair value. The fair value of the redeemable noncontrolling interests was determined by industry peer comparable analysis and adiscounted cash flow valuation model. In April 2013, the Company purchased the remaining shares underlying redeemable noncontrolling interests. See Note13 for information on the estimated fair value for redeemable noncontrolling interests. As of December 31, 2013 and 2012, the carrying value of the Company's cash and cash equivalents approximated their fair value and consistedprimarily of foreign and U.S. government securities and 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 also approximates their fair value because of the short-termnature of these items. See Note 4 for information on the carrying value of investments and Note 11 for the estimated fair value of the Company's SeniorConvertible Notes. In the normal course of business, the Company is exposed to the impact of foreign currency fluctuations. The Company limits these risks byfollowing established risk management policies and procedures, including the use of derivatives. See Note 2 for further information on our accounting policyfor derivative financial instruments. Derivatives Not Designated as Hedging Instruments — The Company is exposed to adverse movements in currency exchange rates as the operatingresults of its international operations are translated from local currency into U.S. Dollars upon consolidation. The Company's derivative contracts principallyaddress short-term foreign exchange fluctuations for the Euro and British Pound Sterling versus the U.S. Dollar. As of December 31, 2013 and 2012, therewere no outstanding derivative contracts. Foreign exchange gains of $0.3 million, $0.7 million and $4.0 million for the years ended December 31, 2013, 2012and 2011, respectively, were recorded in "Foreign currency transactions and other" in the Consolidated Statements of Operations.Foreign exchange derivatives outstanding as of December 31, 2013 associated with foreign currency transaction risks resulted in a net liability of$0.5 million, with a liability in the amount of $0.6 million recorded in "Accrued expenses and other current liabilities" and an asset in the amount of $0.1million recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet. Foreign exchange derivatives outstanding at December 31,2012 associated with foreign exchange transaction risks resulted in a net asset of $0.3 million, with $0.8 million recorded in "Prepaid and other current assets"and $0.5 million recorded in "Accrued expenses and other current liabilities" on the Consolidated Balance Sheet. Foreign exchange gains of $3.6 million and$0.8 million for the years ended December 31, 2013 and 2012, respectively, and foreign exchange losses of $2.9 million for the year ended December 31, 2011were recorded in "Foreign currency transactions and other" in the Consolidated Statements of Operations. The settlement of derivative contracts not designated as hedging instruments for the years ended December 31, 2013 and 2012 resulted in net cashinflows of $4.4 million and $1.9 million, respectively, compared to a net cash outflow of $0.6 million for the year ended December 31, 2011, and werereported within "Net cash provided by operating activities" on the Consolidated Statements of Cash Flows. Derivatives Designated as Hedging Instruments — As of December 31, 2013 and 2012, the Company had outstanding foreign currency forwardcontracts with a notional value of 3.0 billion Euros and 1.5 billion Euros, respectively, to hedge a portion of its net investment in a foreign subsidiary. Thesecontracts are all short-term in nature. Hedge ineffectiveness is assessed and measured based on changes in forward exchange rates. The fair value of thesederivatives at December 31, 2013 was a net liability of $121.3 million, with a liability in the amount of $121.5 million recorded in "Accrued expenses andother current liabilities" and an asset in the amount of $0.2 million recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet.The fair value of these derivatives at December 31, 2012 was a net liability of $62.4 million, with $62.6 million recorded in "Accrued expenses and othercurrent liabilities" and $0.2 million recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet. These hedging instrumentsgenerated a net cash outflow of $78.6 million for the year ended December 31, 2013, compared to a net cash inflow of $82.1 million for the year endedDecember 31, 2012 and a net cash outflow of $11.0 million for the year ended December 31, 2011, and were reported within "Net cash used in investingactivities" on the Consolidated Statements of Cash Flows.91 6. ACCOUNTS RECEIVABLE RESERVES The Company records a provision for uncollectible agency commissions, principally receivables from accommodations related to agencyreservations. The Company also accrues for costs associated with merchant transactions made on its websites by individuals using fraudulent credit cardsand for other amounts "charged back" as a result of payment disputes. Changes in accounts receivable reserves consisted of the following (in thousands): For the Year Ended December 31,2013 2012 2011Balance, beginning of year$10,322 $6,103 $6,353Provision charged to expense16,451 16,094 9,331Charge-offs and adjustments(13,072) (11,977) (9,449)Currency translation adjustments415 102 (132)Balance, end of year$14,116 $10,322 $6,103 7.NET INCOME PER SHARE The Company computes basic net income per share by dividing net income by the weighted average number of common shares outstanding duringthe period. Diluted net income per share is based upon the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares related to stock options, restricted stock, restricted stock units, and performance share units are calculated using thetreasury stock method. Performance share units are included in the weighted average common equivalent shares based on the number of shares that would beissued if the end of the reporting period were the end of the performance period, if the result would be dilutive. The Company's convertible debt issues have net share settlement features requiring the Company upon conversion to settle the principal amount ofthe 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 areincluded in the calculation of diluted net income per share if their inclusion is dilutive under the treasury stock method.A reconciliation of the weighted average number of shares outstanding used in calculating diluted earnings per share is as follows (in thousands): For the Year Ended December 31,2013 2012 2011Weighted average number of basic common shares outstanding50,924 49,840 49,654Weighted average dilutive stock options, restricted stock units and performanceshare units382 501 828Assumed conversion of Convertible Senior Notes1,107 985 729Weighted average number of diluted common and common equivalent sharesoutstanding52,413 51,326 51,211Anti-dilutive potential common shares2,384 2,202 1,453 Anti-dilutive potential common shares for the years ended December 31, 2013, 2012 and 2011 include approximately 2.0 million shares, 2.0million shares and 1.2 million shares, respectively, that could be issued under the Company's convertible notes if the Company experiences substantialincreases in its common stock price. Under the treasury stock method, the convertible notes will generally have a dilutive impact on net income per share ifthe Company's average stock price for the period exceeds the conversion price for the convertible notes. In 2006, the Company issued $172.5 million aggregate principal amount of convertible notes due September 30, 2013 (the "2013 Notes"). In 2006,the Company also entered into hedge transactions (the "Conversion Spread Hedges") relating to the potential dilution of the Company's common stock uponconversion of the 2013 Notes at their stated maturity date. The Conversion Spread Hedges were settled in October 2013 and the Company received 42,160shares of common stock from the92 counterparties. The settlement was accounted for as an equity transaction. Since the impact of the Conversion Spread Hedges was anti-dilutive, it wasexcluded from the calculation of net income per share until the shares of common stock were received in October 2013. 8.PROPERTY AND EQUIPMENT Property and equipment at December 31, 2013 and 2012 consisted of the following (in thousands): 2013 2012 EstimatedUseful Lives(years)Computer equipment and software$244,845 $193,282 2 to 5Office equipment, furniture, fixtures & leasehold improvements67,942 39,201 2 to 11Total312,787 232,483 Less: accumulated depreciation and amortization(177,734) (143,214) Property and equipment, net$135,053 $89,269 Fixed asset depreciation and amortization expense are approximately $48.4 million, $32.8 million and $20.6 million for the years endedDecember 31, 2013, 2012 and 2011, respectively.9.INTANGIBLE ASSETS AND GOODWILL The Company's intangible assets at December 31, 2013 and 2012 consisted of the following (in thousands): December 31, 2013 December 31, 2012 Gross CarryingAmount AccumulatedAmortization Net CarryingAmount Gross CarryingAmount AccumulatedAmortization Net CarryingAmount AmortizationPeriod WeightedAverage UsefulLife Supply and distributionagreements$581,742 $(160,499) $421,243 $269,523 $(122,940) $146,583 10 - 20 years 16 years Technology93,322 (29,271) 64,051 23,329 (23,250) 79 3 - 5 years 5 years Patents1,623 (1,478) 145 1,638 (1,446) 192 15 years 15 years Customer lists— — — 20,500 (20,500) — 0 years 0 years Internet domain names45,799 (12,112) 33,687 39,559 (3,817) 35,742 2 - 20 years 8 years Trade names548,243 (47,388) 500,855 53,817 (28,305) 25,512 5 - 20 years 19 years Other141 (137) 4 326 (321) 5 3 - 10 years 3 yearsTotal intangible assets$1,270,870 $(250,885) $1,019,985 $408,692 $(200,579) $208,113 Intangible assets with determinable lives are amortized on a straight-line basis. Intangible assets amortization expense is approximately $69.6million, $32.3 million and $33.2 million for the years ended December 31, 2013, 2012 and 2011, respectively.93 The annual estimated amortization expense for intangible assets for the next five years and thereafter is expected to be as follows (in thousands): 2014$90,533201587,518201684,451201780,373201864,365Thereafter612,745$1,019,985 A roll-forward of goodwill for the years ended December 31, 2013 and 2012 consists of the following (in thousands): 2013 2012Balance, beginning of year$522,672 $504,784Acquisition1,232,342 4,462Currency translation adjustments12,898 13,426Balance, end of year$1,767,912 $522,672 A substantial portion of the intangibles and goodwill relates to the acquisition of the KAYAK business in May 2013. See Note 20 for furtherinformation on the acquisition.As of September 30, 2013, the Company performed its annual goodwill impairment testing using standard valuation techniques. Since the annualimpairment test, there have been no events or changes in circumstances to indicate a potential impairment.10.OTHER ASSETS Other assets at December 31, 2013 and 2012 consisted of the following (in thousands): 2013 2012Deferred debt issuance costs$16,465 $23,523Other17,049 12,305Total$33,514 $35,828Deferred debt issuance costs arose from (i) the $1.0 billion aggregate principal amount of 1.0% Convertible Senior Notes, due March 15, 2018,issued in March 2012; (ii) a $1.0 billion revolving credit facility in October 2011; and (iii) the Company's issuance, in March 2010, of the $575.0 millionaggregate principal amount of 1.25% Convertible Senior Notes, due March 15, 2015, and (iv) the $1.0 billion aggregate principal amount of 0.35%Convertible Senior Notes, due June 15, 2020, issued in May 2013. Deferred debt issuance costs are being amortized using the effective interest rate methodand the period of amortization was determined at inception of the related debt agreements based upon the stated maturity dates. Unamortized debt issuancecosts written off to interest expense in the year ended December 31, 2013 related to early conversion of convertible debt amounted to $2.4 million.11. DEBT Revolving Credit FacilityIn October 2011, the Company entered into a $1.0 billion five-year unsecured revolving credit facility with a group of lenders. Borrowings under therevolving 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 forsuch borrowing plus an applicable margin ranging from 1.00% to 1.50%; or (ii) the greatest of (a) JPMorgan Chase Bank, National Association's primelending rate, (b) the federal funds rate94 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%. Undrawnbalances available under the revolving credit facility are subject to commitment fees at the applicable rate ranging from 0.10% to 0.25%. The revolving credit facility provides for the issuance of up to $100 million of letters of credit as well as borrowings of up to $50 million on same-day notice, referred to as swingline loans. Borrowings under the revolving credit facility may be made in U.S. Dollars, Euros, Pound Sterling and any otherforeign currency agreed to by the lenders. The proceeds of loans made under the facility will be used for working capital and general corporate purposes. As ofDecember 31, 2013 and 2012, there were no borrowings under the facility, and approximately $2.2 million and $1.9 million, respectively, of letters of creditissued under the facility. Convertible Debt Convertible debt as of December 31, 2013 consisted of the following (in thousands): December 31, 2013 OutstandingPrincipalAmount UnamortizedDebtDiscount CarryingValue1.25% Convertible Senior Notes due March 2015 $160,464 $(8,533) $151,9311.0% Convertible Senior Notes due March 2018 1,000,000 (96,797) 903,2030.35% Convertible Senior Notes due June 2020 1,000,000 (161,156) 838,844Outstanding convertible debt $2,160,464 $(266,486) $1,893,978 Convertible debt as of December 31, 2012 consisted of the following (in thousands): December 31, 2012 OutstandingPrincipalAmount UnamortizedDebtDiscount CarryingValue1.25% Convertible Senior Notes due March 2015 $574,999 $(54,655) $520,3441.0% Convertible Senior Notes due March 2018 1,000,000 (118,004) 881,996Outstanding convertible debt $1,574,999 $(172,659) $1,402,340 Based upon the closing price of the Company's common stock for the prescribed measurement periods during the three months ended December 31,2013 and 2012, respectively, the contingent conversion threshold of the 2015 Notes (as defined below) was exceeded. Therefore, the 2015 Notes are convertibleat the option of the holders. Accordingly, the Company reported the carrying value of the 2015 Notes as a current liability as of December 31, 2013 and 2012.Since these notes are convertible at the option of the holders and the principal amount is required to be paid in cash, the difference between the principalamount and the carrying value is reflected as convertible debt in the mezzanine section on the Company's Consolidated Balance Sheet. Therefore, with respectto the 2015 Notes, the Company reclassified amounts before tax of $8.5 million and $54.7 million from additional paid-in-capital to convertible debt in themezzanine section on the Company's Consolidated Balance Sheet as of December 31, 2013 and 2012, respectively.The contingent consideration thresholds on the 2018 Notes (as defined below) and the 2020 Notes (as defined below)were not exceeded atDecember 31, 2013, and therefore these Notes are reported as a non-current liability on the Consolidated Balance Sheet. If the note holders exercise their option to convert, the Company delivers cash to repay the principal amount of the notes and delivers shares ofcommon 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 thematurity date, the Company writes off the proportionate amount of remaining debt issuance costs to interest expense. In the year ended December 31, 2013, theCompany paid $414.6 million to satisfy the aggregate principal amount due and issued 972,235 shares of its common stock in satisfaction of the conversionvalue in excess of the principal amount for debt converted prior to maturity. In the year ended December 31, 2011, the Company delivered cash of $0.2 millionto repay the principal amount and issued 4,869 shares of its common stock in satisfaction of the conversion value in excess of the principal amount forconvertible debt that was converted prior to maturity. As of February 11, 2014, the Company had received conversion notices that will be settled in the firstquarter of 2014 for an aggregate principal amount of approximately $58 million associated with the 2015 Notes, and, as a result, during the first95 quarter of 2014, the Company will deliver cash of approximately $58 million to satisfy the aggregate principal amount and will deliver cash or issue shares ofits common stock, at its option, in satisfaction of the conversion value in excess of the principal amount. As of December 31, 2013 and 2012, the estimated market value of the outstanding senior notes was approximately $3.1 billion and $2.3 billion,respectively, and was considered a "Level 2" fair value measurement. Fair value was estimated based upon actual trades at the end of the reporting period orthe 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 theCompany's debt in excess of the outstanding principal amount relates to the conversion premium on the bonds.Description of Senior Notes 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 aninterest 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 debtissuance costs during the year ended December 31, 2013, related to this offering. The 2020 Notes are convertible, subject to certain conditions, into theCompany'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 toJune 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 commonstock 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 ismore than 150% of the applicable conversion price in effect for the notes on the last trading day of the immediately preceding quarter. In the event that all orsubstantially 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 toholders 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 ofadditional shares of common stock to the holders of the 2020 Notes in an aggregate value ranging from $0 million to approximately $397 million dependingupon 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 anyportion 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 the2020 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 ofapproximately $944.61 per share. The 2018 Notes are convertible, at the option of the holder, prior to March 15, 2018, upon the occurrence of specificevents, 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 periodof 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 150% of the applicable conversionprice 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 commonstock 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 stockconsists 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 theholders of the 2018 Notes in aggregate value ranging from $0 to approximately $344 million depending upon the date of the transaction and the then currentstock 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 beredeemed by the Company prior to maturity. The holders may require the Company to repurchase the 2018 Notes for cash in certain circumstances. Intereston the 2018 Notes is payable on March 15 and September 15 of each year.In March 2010, the Company issued in a private placement $575.0 million aggregate principal amount of Convertible Senior Notes due March 15,2015, with an interest rate of 1.25% (the "2015 Notes"). The Company paid $13.3 million in debt issuance costs associated with the 2015 Notes for the yearended December 31, 2010. The 2015 Notes are convertible, subject to certain conditions, into the Company's common stock at a conversion price ofapproximately $303.06 per share. The 2015 Notes are convertible, at the option of the holder, prior to March 15, 2015, upon the occurrence of specifiedevents, 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 periodof the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 150% of the applicable conversionprice in effect for the notes on the last trading day of the immediately preceding quarter. The 2015 Notes may not be redeemed by the Company prior tomaturity. The holders may require the Company to repurchase the 2015 Notes for cash in certain circumstances. Interest on the 2015 Notes is payable onMarch 15 and September 15 of each year. 96 Accounting guidance requires that cash-settled convertible debt, such as the Company's convertible senior notes, be separated into debt and equity atissuance and each be assigned a value. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar bond withoutthe conversion feature. The difference between the bond cash proceeds and this estimated fair value, representing the value assigned to the equity component,is recorded as a debt discount. Debt discount is amortized using the effective interest method over the period from origination date through the stated maturitydate. The Company estimated the straight debt borrowing rates at debt origination to be 5.89% for the 2015 Notes, 3.50% for the 2018 Notes, and 3.13% forthe 2020 Notes. The yield to maturity was estimated at an at-market coupon priced at par. Debt discount after tax of $69.1 million ($115.2 million before tax) net of financing costs associated with the equity component of convertible debtof $1.6 million after tax were recorded in additional paid-in capital related to the 2015 Notes in March 2010. The Company reclassified before tax amounts of$8.5 million and $54.7 million out of additional paid-in-capital to the mezzanine section on the Company's Consolidated Balance Sheets at December 31,2013 and 2012, respectively, because the 2015 Notes were convertible at the option of the holders. Debt discount after tax of $80.9 million ($135.2 millionbefore tax) net of financing costs associated with the equity component of convertible debt of $2.8 million after tax were recorded in additional paid-in capitalrelated to the 2018 Notes in March 2012. Debt discount after tax of $92.4 million ($154.3 million before tax) and financing costs associated with the equitycomponent of convertible debt of $0.1 million after tax were recorded in additional paid-in capital related to the 2020 Notes at June 30, 2013.For the years ended December 31, 2013, 2012 and 2011, the Company recognized interest expense of $78.2 million, $59.4 million and $30.6million, respectively, related to convertible notes, comprised of $17.7 million, $15.2 million and $7.2 million, respectively, for the contractual couponinterest, $55.7 million, $39.8 million and $21.4 million, respectively, related to the amortization of debt discount and $4.8 million, $4.4 million and $2.0million, respectively, related to the amortization of debt issuance costs. For the year ended December 31, 2013, included in the amortization of debt discountmentioned above was $1.5 million of original issuance discount amortization related to the 2020 Notes. In addition, the Company incurred interest expense of$2.4 million related to debt conversions in 2013. The remaining period for amortization of debt discount and debt issuance costs is the stated maturity datesfor the respective debt. The effective interest rates for the years ended December 31, 2013, 2012, and 2011 are 4.5%, 4.8% and 6.3%, respectively. In addition, if the Company's convertible debt is redeemed or converted prior to maturity, a gain or loss on extinguishment is recognized. The gainor 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 ofthe debt at the conversion date, the Company estimated its straight rate borrowing rate, considering its credit rating and straight debt of comparable corporateissuers. In the year ended December 31, 2013, the Company recognized a non-cash loss of $26.7 million ($16.2 million after tax) in "Foreign currencytransactions and other" in the Consolidated Statements of Operations in connection with the conversion of the 2015 Notes.12.TREASURY STOCK In the second quarter of 2013, the Company's Board of Directors authorized a program to purchase $1.0 billion of the Company's common stock.The Company repurchased 431,910 shares in the second quarter of 2013 for an aggregate cost of $345.5 million in privately negotiated, off-markettransactions.In the third quarter of 2013, the Company repurchased 484,361 shares for an aggregate cost of $459.2 million. These shares were covered under ourremaining authorizations as of December 31, 2012 to repurchase common stock.In October 2013, the Company settled Conversion Spread Hedges and received 42,160 shares of common stock, with a fair value of $43.1 million,from the counterparties (see Note 7 for further detail on the Conversion Spread Hedges).In the first quarter of 2012, the Company's Board of Directors authorized a one-time purchase of the Company's common stock up to $200 millionconcurrent with the issuance of the 2018 Notes. The Company repurchased 263,913 shares in the first quarter of 2012 for an aggregate cost of $166.2million.The Board of Directors has also given the Company the general authorization to repurchase shares of its common stock to satisfy employeewithholding tax obligations related to stock-based compensation. In the years ended December 31, 2013, 2012 and 2011, the Company repurchased 113,503,141,229, and 358,517 shares at an aggregate cost of approximately $78.8 million, $90.8 million and $163.2 million, respectively, to satisfy employeewithholding taxes related to stock-based compensation.97 The Company may make additional repurchases of shares under its stock repurchase program, depending on prevailing market conditions, alternateuses of capital and other factors. Whether and when to initiate and/or complete any purchase of common stock and the amount of common stock purchasedwill be determined in the Company's complete discretion. The Company has a remaining authorization of $654.5 million to repurchase common stock. Asof December 31, 2013, there were approximately 9.3 million shares of the Company's common stock held in treasury.13.REDEEMABLE NONCONTROLLING INTERESTS On May 18, 2010, the Company, through its wholly-owned subsidiary, priceline.com International Ltd. ("PIL"), paid $108.5 million, net of cashacquired, to purchase a controlling interest of the outstanding equity of TravelJigsaw Holdings Limited (now known as rentalcars.com), a Manchester, U.K.-based international rental car reservation service. Transaction costs of $1.9 million were expensed during the three months ended June 30, 2010. Certain key members of rentalcars.com's management team retained a noncontrolling ownership interest in rentalcars.com. In addition, certain keymembers of the management team of Booking.com purchased a 3% ownership interest in rentalcars.com from PIL in June 2010 (together with rentalcars.commanagement's investment, the "Redeemable Shares"). The holders of the Redeemable Shares had the right to put their shares to PIL and PIL had the right tocall the shares in each case at a purchase price reflecting the fair value of the Redeemable Shares at the time of exercise. Subject to certain exceptions, one-thirdof the Redeemable Shares were subject to the put and call options in each of 2011, 2012 and 2013, respectively, during specified option exercise periods. InApril 2012 and 2011, in connection with the exercise of call and put options, PIL purchased a portion of the shares underlying redeemable noncontrollinginterests for an aggregate purchase price of approximately $61.1 million and $13.0 million, respectively. As a result of the April 2011 purchase, theredeemable noncontrolling interests in rentalcars.com were reduced from 24.4% to 19.0%. As a result of the April 2012 purchase, the redeemablenoncontrolling interests in rentalcars.com were further reduced to 12.7%. In April 2013, in connection with the exercise of the March 2013 call and put options,PIL purchased the remaining outstanding shares underlying redeemable noncontrolling interests for an aggregate purchase price of approximately $192.5million. Redeemable noncontrolling interests are measured at fair value, both at the date of acquisition and subsequently at each reporting period. Theredeemable noncontrolling interests are reported on the Consolidated Balance Sheets in mezzanine equity in "Redeemable noncontrolling interests."A reconciliation of redeemable noncontrolling interests for the years ended December 31, 2013, 2012 and 2011 is as follows (in thousands): 2013 2012 2011Balance, beginning of period$160,287 $127,045 $45,751Net income attributable to noncontrolling interests135 4,471 2,760Fair value adjustments(1)42,522 84,693 91,743Purchase of subsidiary shares at fair value(1)(192,530) (61,079) (12,986)Currency translation adjustments(10,414) 5,157 (223)Balance, end of period$— $160,287 $127,045_____________________________(1) The fair value of the redeemable noncontrolling interests was determined by industry peer comparable analysis and a discounted cash flow valuationmodel.98 14.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The table below provides the balances for each classification of accumulated other comprehensive income (loss) as of December 31, 2013 and 2012(in thousands): December 31,2013 December 31,2012Foreign currency translation adjustments (1)$84,598 $(23,786)Net unrealized gain on investment securities (2)131 110Accumulated other comprehensive income (loss)$84,729 $(23,676) _____________________________(1) Includes a net loss of $58.7 million after tax ($98.8 million before tax) and a net gain of $23.8 million after tax ($38.7 million before tax) from fairvalue adjustments at December 31, 2013 and 2012, respectively, associated with net investment hedges. The remaining balance in currencytranslation adjustments excludes income taxes due to the Company's practice and intention to reinvest the earnings of its foreign subsidiaries in thoseoperations.(2) The unrealized gains before tax at December 31, 2013 and 2012 were $0.2 million for each period.15.INCOME TAXES International pre-tax income was $2.2 billion, $1.7 billion and $1.2 billion for the years ended December 31, 2013, 2012 and 2011, respectively.Domestic pre-tax income was $48.5 million, $95.0 million, and $144.9 million for the years ended December 31, 2013, 2012, and 2011, respectively. The income tax expense (benefit) for the year ended December 31, 2013 is as follows (in thousands): Current Deferred TotalInternational$396,162 $(16,314) $379,848Federal5,250 11,454 16,704State13,431 (6,244) 7,187Total$414,843 $(11,104) $403,739 The income tax expense (benefit) for the year ended December 31, 2012 is as follows (in thousands): Current Deferred TotalInternational$302,352 $(13,792) $288,560Federal3,681 37,956 41,637State12,203 (4,568) 7,635Total$318,236 $19,596 $337,832 The income tax expense (benefit) for the year ended December 31, 2011 is as follows (in thousands): Current Deferred TotalInternational$251,542 $(7,411) $244,131Federal2,699 53,547 56,246State9,675 (1,389) 8,286Total$263,916 $44,747 $308,663The Company has significant deferred tax assets, resulting principally from U.S. net operating loss carryforwards ("NOLs"). The amount of NOLsavailable for the Company's use is limited by Section 382 of the Internal Revenue Code ("IRC Section 382"). IRC Section 382 imposes limitations on theavailability of a company's NOLs after a more than 50% ownership change occurs. It was determined that ownership changes, as defined in IRCSection 382, occurred in 2000 and99 2002. The amount of the Company's NOLs incurred prior to each ownership change is limited based on the value of the Company on the respective dates ofownership change. Future ownership changes, if any, could give rise to further limitation under IRC Section 382. At December 31, 2013, after considering the impact of IRC Section 382, the Company had approximately $1.4 billion of available NOL's for U.S.federal income tax purposes, comprised of $0.3 billion of NOLs generated from operating losses and approximately $1.1 billion of NOLs generated fromequity-related transactions, including equity-based compensation and stock warrants. The NOLs mainly expire from December 31, 2019 to December 31,2021. The utilization of these NOLs is dependent upon the Company's ability to generate sufficient future taxable income in the United States. The Companyperiodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of these deferred tax assets by a valuationallowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of thedeferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future income, the carryforward periods availablefor tax reporting purposes, and other relevant factors.The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2013 and 2012 areas follows (in thousands): 2013 2012Deferred tax assets/(liabilities): Net operating loss carryforward — U.S.263,994 244,016Net operating loss carryforward — Foreign21,660 19,638Fixed assets818 38Investments— 5,139Accrued expenses22,708 20,488Stock-based compensation and other stock based payments40,346 12,326Other33,530 15,881Subtotal383,056 317,526 Discount on convertible notes(97,550) (68,594)Intangible assets and other(356,669) (47,053)Less valuation allowance on deferred tax assets(173,558) (175,594)Net deferred tax assets (liabilities)(1)$(244,721) $26,285 (1) Includes current deferred tax liabilities of $38 thousand and $0.8 million as of December 31, 2013 and 2012, respectively, which are reported in"Accrued expenses and other current liabilities" on the Consolidated Balance Sheets. The valuation allowance on deferred tax assets of $173.6 million at December 31, 2013 includes $150.1 million related to U.S. federal net operatingloss carryforwards derived from equity transactions and $21.7 million related to international operations. Additionally, since January 1, 2006, the Companyhas generated additional federal tax benefits of $235.5 million related to equity transactions that are not included in the deferred tax asset table above. Pursuant to accounting guidance, these tax benefits related to equity deductions will be recognized by crediting paid in capital, if and when they are realized byreducing the Company's current income tax liability. It is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. Thus at December 31, 2013,no provision had been made for U.S. taxes on approximately $4.9 billion of international earnings because such earnings are intended to be indefinitelyreinvested outside of the United States. Estimating the tax liability that would arise if these earnings were repatriated is not practicable at this time. At December 31, 2013, the Company has approximately $576.0 million of state net operating loss carryforwards that expire mainly betweenDecember 31, 2020 and December 31,2033, $130.0 million of foreign net operating loss carryforwards, of which $41.5 million expire between December 31,2019 and December 31, 2020 and $3.7 million which expire between December 31, 2028 and December 31, 2030, and $1.8 million of foreign capitalallowance carryforwards that do not expire. At December 31, 2013, the Company also had approximately $17.4 million of U.S. research credit carryforwardsthat mainly expire by December 31, 2033 and are also subject to annual limitation.100 A significant portion of the Company's taxable earnings are derived from the Netherlands. According to Dutch corporate income tax law, incomegenerated from qualifying innovative activities is taxed at a rate of 5% ("Innovation Box Tax") rather than the Dutch statutory rate of 25%. Booking.comobtained a ruling from the Dutch tax authorities in February 2011 confirming that a portion of its earnings ("qualifying earnings") is eligible for InnovationBox Tax treatment. The ruling from the Dutch tax authorities is valid until December 31, 2017. The effective income tax rate of the Company is different from the amount computed using the expected U.S. statutory federal rate of 35% as a resultof the following items (in thousands): 2013 2012 2011Income tax expense at federal statutory rate$803,788 $616,654 $478,728Adjustment due to: Foreign rate differential(226,894) (175,932) (125,824)Innovation Box Tax benefit(177,195) (118,916) (48,101)Other4,040 16,026 3,860Income tax expense$403,739 $337,832 $308,663 The Company accounts for uncertain tax positions based on a two step approach of recognition and measurement. The first step involves assessingwhether the tax position is more likely than not to be sustained upon examination based upon its technical merits. The second step involves measurement ofthe amount to recognize. Tax positions that meet the more likely than not threshold are measured at the largest amount of tax benefit that is greater than 50%likely of being realized upon ultimate finalization with the taxing authority. The following is a reconciliation of the total amount of unrecognized tax benefits (in thousands): 2013 2012 2011Unrecognized tax benefit — January 1$7,343 $3,192 $13,386Gross increases — tax positions in current period8,597 4,423 1,455Gross increases — tax positions in prior period3,507 343 876Increase acquired in business combination7,089 — —Gross decreases — tax positions in prior period(495) (615) (12,525)Reduction due to lapse in statute of limitations(3,937) — —Unrecognized tax benefit — December 31$22,104 $7,343 $3,192 The unrecognized tax benefits are included in "Other long-term liabilities" on the Consolidated Balance Sheets for the years ended December 31, 2013and 2012. Following the conclusion of an audit, the Company reversed approximately $12.5 million in the three months ended June 30, 2011 for unrecognizedtax benefits attributable to tax positions taken in 2010. The Company does not expect further significant changes in the amount of unrecognized tax benefitsduring the next twelve months. The Company's Netherlands, U.S. federal and Connecticut, Singapore, and U.K. income tax returns, constituting the returns of the major taxingjurisdictions, are subject to examination by the taxing authorities as prescribed by applicable statute. The statute of limitations remains open for theCompany's Netherlands returns from 2007 and forward; for the Singapore returns 2010 and forward; for the U.S. Federal and Connecticut returns from 2010and forward, and for the U.K., the tax years 2008, 2012, and 2013 are open. No income tax waivers have been executed that would extend the period subject toexamination beyond the period prescribed by statute in the major taxing jurisdictions in which the company is a taxpayer.101 16.COMMITMENTS AND CONTINGENCIES Litigation Related to Travel Transaction Taxes The Company and certain third-party online travel companies ("OTCs") are currently involved in approximately forty lawsuits, including certifiedand putative class actions, brought by or against states, cities and counties over issues involving the payment of travel transaction taxes (e.g., hotel occupancytaxes, excise taxes, sales taxes, etc.). The Company's subsidiaries Lowestfare.com LLC and Travelweb LLC are named in some but not all of these cases. Generally, each complaint alleges, among other things, that the OTCs violated each jurisdiction's respective relevant travel transaction tax ordinance withrespect to the charges and remittance of amounts to cover taxes under each law. Each complaint typically seeks compensatory damages, disgorgement,penalties available by law, attorneys' fees and other relief. In addition, approximately seventy-nine municipalities or counties, and at least thirteen states, haveinitiated audit proceedings (including proceedings initiated by more than forty municipalities in California, which have been inactive for several years), issuedproposed tax assessments or started inquiries relating to the payment of travel transaction taxes. Additional state and local jurisdictions are likely to assert thatthe Company is subject to travel transaction taxes and could seek to collect such taxes, retroactively and/or prospectively. With respect to the principal claims in these matters, the Company believes that the laws at issue do not apply to the services it provides, namely thefacilitation of travel reservations, and, therefore, that it does not owe the taxes that are claimed to be owed. Rather, the Company believes that the laws at issuegenerally impose travel transaction taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similaraccommodations or other travel services. In addition, in many of these matters, the taxing jurisdictions have asserted claims for "conversion" - essentially,that the Company has collected a tax and wrongfully "pocketed" those tax dollars - a claim that the Company believes is without basis and has vigorouslycontested. The taxing jurisdictions that are currently involved in litigation and other proceedings with the Company, and that may be involved in futureproceedings, have asserted contrary positions and will likely continue to do so. From time to time, the Company has found it expedient to settle, and may inthe future agree to settle, claims pending in these matters without conceding that the claims at issue are meritorious or that the claimed taxes are in fact due to bepaid. In connection with some of these tax audits and assessments, the Company may be required to pay any assessed taxes, which amounts may besubstantial, prior to being allowed to contest the assessments and the applicability of the laws in judicial proceedings. This requirement is commonly referredto as "pay to play" or "pay first." For example, the City and County of San Francisco assessed the Company approximately $3.4 million (an amount thatincludes interest and penalties) relating to hotel occupancy taxes, which the Company paid in July 2009, and issued a second assessment totalingapproximately $2.7 million, which the Company paid in January 2013. Payment of these amounts, if any, is not an admission that the Company believes itis subject to such taxes and, even if such payments are made, the Company intends to continue to assert its position vigorously that it should not be subject tosuch taxes. In the San Francisco action, for example, the court ruled in February 2013 that the Company and OTCs do not owe transient accommodations taxto the city and ordered the city to refund the pay first amounts paid in July 2009; the Company also is seeking a refund of the amounts paid first in January2013. The city has taken the position that it need not refund the pay first amounts until after it has exhausted all appeals. Litigation is subject to uncertainty and there could be adverse developments in these pending or future cases and proceedings. For example, inJanuary 2013, the Tax Appeal Court for the State of Hawaii held that the Company and other OTCs are not liable for the State's transient accommodations tax,but held that the OTCs, including the Company, are liable for the State's general excise tax on the full amount the OTC collects from the customer for a hotelroom reservation, without any offset for amounts passed through to the hotel. The Company recorded an accrual for travel transaction taxes (includingestimated interest and penalties), with a corresponding charge to cost of revenues, of approximately $16.5 million in December 2012 and approximately $18.7million in the three months ended March 31, 2013, primarily related to this ruling. During the twelve months ended December 31, 2013, the Company paidapproximately $20.6 million under protest to the State of Hawaii related to this ruling. The Company has filed an appeal now pending before the HawaiiSupreme Court and intends to vigorously appeal this ruling. Other adverse rulings include a decision in September 2012, in which the Superior Court in theDistrict of Columbia granted summary judgment in favor of the District and against the OTCs ruling that tax is due on the OTCs' margin and service fees.Also, in July 2013, the Circuit Court of Cook County, Illinois, ruled that the Company and the other OTCs are liable for tax and other obligations underChicago Hotel Accommodations Tax. In addition, in October 2009, a jury in a San Antonio class action found that the Company and the other OTCs that aredefendants in the lawsuit "control" hotels for purposes of the local hotel occupancy tax ordinances at issue and are, therefore, subject to the requirements ofthose ordinances. The Company intends to vigorously appeal the trial court's final judgment.An unfavorable outcome or settlement of pending litigation may encourage the commencement of additional litigation, audit proceedings or otherregulatory inquiries. In addition, an unfavorable outcome or settlement of these actions or proceedings could result in substantial liabilities for past and/orfuture bookings, including, among other things, interest,102 penalties, punitive damages and/or attorney fees and costs. There have been, and will continue to be, substantial ongoing costs, which may include "payfirst" payments, associated with defending the Company's position in pending and any future cases or proceedings. An adverse outcome in one or more ofthese unresolved proceedings could have a material adverse effect on the Company's business and could be material to the Company's results of operations orcash flow in any given operating period. To the extent that any tax authority succeeds in asserting that the Company has a tax collection responsibility, or the Company determines that it hassuch a responsibility, with respect to future transactions, the Company may collect any such additional tax obligation from its customers, which would havethe effect of increasing the cost of travel reservations to its customers and, consequently, could make the Company's travel reservation services lesscompetitive (as compared to the services of other OTCs or travel service providers) and reduce the Company's travel reservation transactions; alternatively, theCompany could choose to reduce the compensation for its services. Either action could have a material adverse effect on the Company's business and resultsof operations.The Company estimates that, since its inception through December 31, 2013, it has earned aggregate gross profit, including fees, from its entire U.S.merchant hotel business (which includes, among other things, the differential between the price paid by a customer for the Company’s service and the cost ofthe underlying room) of approximately $1.9 billion. This gross profit was earned in over a thousand taxing jurisdictions that the Company believes haveaggregate tax rates (which may include hotel occupancy taxes and state and local taxes, among other taxes) associated with a typical transaction between aconsumer and a hotel that generally range from approximately 3% to approximately 18%, depending on the jurisdiction. In many of the judicial and otherproceedings initiated to date, the taxing jurisdictions seek not only historical taxes that are claimed to be owed on the Company's gross profit, but also, amongother things, interest, penalties, punitive damages and/or attorney fees and costs. Therefore, any liability associated with hotel occupancy tax matters is notconstrained to the Company's liability for tax owed on its historical gross profit, but may also include, among other things, penalties, interest and attorneys'fees. To date, the majority of the taxing jurisdictions in which the Company facilitates hotel reservations have not asserted that these taxes are due and payableon the Company's U.S. merchant hotel business. With respect to taxing jurisdictions that have not initiated proceedings to date, it is possible that they will doso in the future or that they will seek to amend their tax statutes and seek to collect taxes from the Company only on a prospective basis. The gross profitfigure above reflects all jurisdictions, including those where legal proceedings have been resolved and some jurisdictions that have chosen to revise their taxordinances rather than pursue claims for past taxes.Reserve for Travel Transaction Taxes As a result of this litigation and other attempts by jurisdictions to levy similar taxes, the Company has established an accrual (including estimatedinterest and penalties) for the potential resolution of issues related to travel transaction taxes in the amount of approximately $55 million at December 31, 2013compared to approximately $56 million at December 31, 2012 (which includes, among other things, amounts related to the litigation in the State of Hawaii,District of Columbia, San Antonio and Chicago). The accrual is based on the Company's estimate of the probable cost of resolving these issues. TheCompany's legal expenses for these matters are expensed as incurred and are not reflected in the amount accrued. The actual cost may be less or greater,potentially significantly, than the liabilities recorded. An estimate for a reasonably possible loss or range of loss in excess of the amount accrued cannot bereasonably made.Developments in and after the Year Ended December 31, 2013 In and after the year ended December 31, 2013, ten new actions commenced. •Fargo v. Expedia, Inc., et al., (District Court for Cass County, North Dakota; filed in February 2013) is an action brought by the City of Fargo,North Dakota against the Company and other OTC defendants asserting violation of the city's lodging and sales tax ordinances, as well claims forconversion, unjust enrichment and seeking injunctive relief. •On June 17, 2013, the Company and other OTCs each filed in the Hawaii Tax Appeal Court appeals of a second set of hotel tax and general excisetax assessments issued by the State; these assessments relate to the tax year 2012. Those actions are captioned In the Matter of the Tax Appeal ofpriceline.com Inc. and In the Matter of Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii) and have been consolidated. OnDecember 16, 2013, the Tax Appeal Court stayed these actions pending resolution of the appeal currently pending before the Hawaii Supreme Court.•On July 8, 2013, in Warrenville, et al. v. Priceline.com Incorporated, et al. (U.S. District Court for the Northern District of Illinois; filed in April2013), the plaintiffs voluntarily dismissed the putative class action pending in federal court, and filed a new class action complaint in Illinois statecourt. That action, which was removed to federal court, is captioned Village of Bedford Park, et al. v. Expedia, Inc., et al. (U.S. District Court forthe Northern District of Illinois; filed in July 2013). The complaint alleges violation of the municipalities' respective accommodations103 ordinances, conversion, civil conspiracy, unjust enrichment and breach of fiduciary duty, and seeks a declaratory judgment, imposition of aconstructive trust, and an accounting.•Department of Revenue, Finance and Administration Cabinet, Commonwealth of Kentucky v. Expedia, Inc., et al. (Franklin County Circuit Court,Kentucky) was filed on July 15, 2013. The complaint alleges violation of the Commonwealth's sales tax law, breach of fiduciary duty, conversionand money had and received, and seeks imposition of a constructive trust and injunctive relief.•City of Columbia, South Carolina, et al. v. Hotelguides.com, Inc. et al. (Court of Common Pleas, Ninth Judicial Circuit, County of Charleston; filedin July 2013) is a putative class action brought on behalf of South Carolina local governments and taxing authorities against the Company and otherOTCs (and other defendants) alleging that the defendants have failed to collect and/or remit transient accommodations taxes as required by theputative class members' respective ordinances. The complaint asserts violations of these ordinances, conversion, civil conspiracy, "voluntaryundertaking" and "contractual undertaking" by defendants, and other equitable claims, including constructive trust, unjust enrichment and anaccounting.•On September 27, 2013, the Company and other OTCs filed a complaint in Expedia, Inc., et al. v. Oregon Department of Revenue (Oregon TaxCourt), seeking declaratory relief as to Oregon House Bill 2656. On the same date, the Company and other OTCs filed a request with the OregonDepartment of Revenue for an administrative ruling with respect to that bill. HB 2656 purports to amend Oregon's transient lodging tax statute,effective October 7, 2013, to subject the OTCs' compensation to the tax insofar as the OTCs are "transient lodging intermediaries."•State of New Hampshire v. priceline.com Incorporated, et al. (Merrimack Superior Court) was filed on October 16, 2013. The complaint allegesviolation of the state meals and rooms tax, violation of the New Hampshire Consumer Protection Act, breach of fiduciary duty, conversion, unjustenrichment, an equitable claim for money had and received and civil conspiracy, and seeks an accounting, imposition of a constructive trust andinjunctive relief with respect to the OTCs' merchant hotel and rental car services.•On November 5, 2013, the Company and other OTCs filed in the Superior Court of California for the County of San Francisco appeals of a secondset of hotel tax assessments issued by the City and County of San Francisco; these assessments relate to tax years 2011 and 2012. On January 8,2014, the Superior Court of California for the County of Los Angeles granted the OTCs' motion to transfer those cases to the Superior Court ofCalifornia for the County of Los Angeles, where the other California state court cases have been coordinated. The court has issued an order stayingthis action pending the outcome of the city's appeal of the decision in the first San Francisco action, which appeal is currently pending in theCalifornia Court of Appeal.•On January 7, 2014, the Company and other OTCs filed in the Hawaii Tax Appeal Court appeals of general excise tax assessments issued by theState for car rental transactions allegedly made during tax years 2000 to 2012. Those actions are captioned In the Matter of the Tax Appeal ofpriceline.com Inc. and In the Matter of Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii).There were decisions on dispositive motions in several of the pending matters, as well as decisions on appeal, and other decisions of note, includingthose described below.•As set forth above, in In the Matter of the Appeal of priceline.com Incorporated (and a related action brought by Travelweb LLC) (Tax Appeal Courtof the State of Hawaii; filed July 3, 2012); (Hawaii Supreme Court; appeal transferred December 24, 2013), the Tax Appeal Court for the State ofHawaii entered judgment on August 15, 2013, holding (a) the Company and other OTCs are not liable for the State's transient accommodations tax,and (b) the Company and the other OTCs are liable for the general excise tax on the full amount the OTC collects from the customer for a hotel roomreservation, without any offset for amounts passed through to the hotel. On August 19, 2013, the State appealed the transient accommodations taxruling to the Intermediate Court of Appeals. On September 11, 2013, the Company and other OTCs filed a cross-appeal of the general excise taxruling in the Intermediate Court of Appeals. On December 24, 2013, the Hawaii Supreme Court granted the parties' joint motion to transfer the appealto that court from the Intermediate Court of Appeals.•On January 9, 2013, the trial court in Orbitz, LLC, et al. v. Broward County, Florida, et al. denied the county's motion for rehearing on its previousruling, issued July 13, 2012, granting summary judgment to OTCs. The county filed a notice of appeal to the Florida First District Court of Appealon February 5, 2013. The First District heard oral argument on Broward County's appeal on February 11, 2014 and affirmed judgment in favor ofthe OTCs on February 12, 2014. On February 14, 2014, Broward County filed motions seeking expedited certification of an appeal to the FloridaSupreme Court.•In City of Branson, Missouri v. Hotels.com, L.P., et al. (Circuit Court of Greene County, Missouri), on January 23, 2013, the Missouri Court ofAppeals, Northern Division, affirmed the judgment of the trial court, entered January 31, 2012, granting defendants' motion to dismiss. On April30, 2013, the Supreme Court of Missouri denied the plaintiff's request to transfer the case to that court.104 •On January 23, 2013, the California Supreme Court denied petitions for review filed by the cities of Anaheim and Santa Monica. Those cities hadsought review of appellate court decisions holding the Company and other OTCs are not liable for transient occupancy taxes. The Supreme Court'sdenial of the petitions marked the end of the cases captioned Priceline.com Inc., et al. v. City of Anaheim, California, et al. (California SuperiorCourt, County of Orange; filed in February 2009), and City of Santa Monica v. Expedia, Inc., et al. (California Superior Court, Los AngelesCounty; filed in June 2010). On January 31, 2013, the City of Santa Monica refunded to the Company the amounts the Company had "paid first"in order to appeal the city's assessments.•On February 6, 2013, the Los Angeles Superior Court in Priceline.com, Inc., et al. v. City and County of San Francisco, California, et al.(California Superior Court, County of Los Angeles; filed in June 2009); (California Court of Appeal; filed in December 2013) granted summaryjudgment in favor of the Company and other OTCs, holding they are not liable to the City and County of San Francisco for transient occupancytaxes. The court also granted the OTCs' claim for a refund of the pay first amounts the OTCs paid to San Francisco in July 2009. The courtentered judgment in October 2013. San Francisco filed its notice of appeal in December 2013.•In Leon County, et al. v. Expedia, Inc., et al. (Second Judicial Circuit Court for Leon County; filed November 2009); (Florida First District Court ofAppeal; filed in May 2012); (Supreme Court of Florida; filed in May 2013), on February 28, 2013, the First District Court of Appeal affirmedsummary judgment in favor of defendant OTCs. The plaintiffs filed a notice of appeal to the Florida Supreme Court. Oral argument before theFlorida Supreme Court in this case is scheduled for April 30, 2014.•The Wyoming State Board of Equalization issued its findings of fact, conclusions of law, decision and order on February 28, 2013, finding thatOTCs are subject to that state's accommodations tax. On March 27, 2013, in Travelocity.com LP, et al., v. Wyoming Department of Revenue(District Court for the County of Laramie, 1st Judicial Dist.; petition for review filed and petition granted by Wyoming Supreme Court in April2013), the Company and other OTCs filed a petition for judicial review. The Wyoming Supreme Court heard oral argument on November 21, 2013.•On March 12, 2013, in Expedia, Inc., et al. v. City and County of Denver, et al. (District Court for City and County of Denver, Colorado; filedMarch 2012); (Colorado Court of Appeals; appeal filed in April 2013), the trial court entered an order upholding the administrative hearing officer'sopinion that OTCs are subject to accommodations tax, but also finding that the statute of limitations limits any recovery by the City of Denver to theperiod April 30, 2007 forward. The Company filed with the Colorado Court of Appeals a notice of appeal of that decision on April 26, 2013. Theparties have fully briefed the issues on appeal and have requested oral argument, however the Court of Appeals has not set a date for argument.•On April 4, 2013, in City of San Antonio, Texas v. Hotels.com, L.P., et al. (U.S. District Court for the Western District of Texas; filed in May2006), the court entered its judgment against the Company and other OTC defendants. The Company is appealing the judgment. On May 2, 2013,the OTC defendants filed a renewed motion for judgment as a matter of law and, alternatively, motion for new trial. On the same day, plaintiffs fileda motion to amend the judgment as it concerns the court's penalty calculations. In further proceedings, the court will determine, among other things,the amount of attorneys' fees, which could be significant.•On April 18, 2013, in City of Los Angeles v. Hotels.com, et al., (California Superior Court, Los Angeles County, filed in December 2004), the LosAngeles Superior Court granted the OTC defendants' motion for judgment, holding the OTCs are not subject to the city's transient occupancy tax. The court signed the judgment on January 8, 2014. The city may appeal the decision.•On April 30, 2013, in Elizabeth McAllister, et al. v. Hotels.com L.P., et al., (Circuit Court of Saline County, Arkansas; filed in February 2011);(Arkansas Supreme Court; appeal filed in June 2013), the trial court granted the OTC defendants' motion to dismiss, holding plaintiffs lackstanding. On June 19, 2013, Plaintiffs appealed to the Arkansas Supreme Court but subsequently moved to voluntarily dismiss the appeal. OnJanuary 9, 2014, the Arkansas Supreme Court granted plaintiffs' motion to voluntarily dismiss the appeal.•On July 8, 2013, in City of Chicago, Illinois v. Hotels.com, L.P., et al. (Circuit Court of Cook County Illinois; filed in November 2005), the CookCounty Circuit Court entered an order denying the OTCs' motion for summary judgment and granting, in part, the City's motion for summaryjudgment relating to the Chicago Hotel Accommodations Tax ("CHAT") and related common law claims, holding that the Company and the otherOTCs are liable for that tax and other obligations under CHAT. The Court's order applied only to liability and did not address or resolve any issuesas to damages.•On August 16, 2013, in Leon County v. Expedia, Inc. et al. (Second Judicial Circuit Court for Leon County, Florida; filed in December 2009);(Florida First District Court of Appeal; appeal filed in October 2012); (Supreme Court of Florida; appeal filed in October 2013) the First DistrictCourt of Appeal affirmed the trial court's grant of summary judgment in favor of the OTCs. The parties have completed jurisdictional briefingbefore the Florida Supreme Court. On December 31, 2013, the Florida Supreme Court stayed the appeal pending the outcome of the pending appealin Leon County, et al. v. Expedia, Inc., et al.105 •In Hamilton County, Ohio, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of Ohio; filed in August 2010), the districtcourt granted summary judgment to defendant OTCs on August 30, 2013. Plaintiffs did not appeal that decision.•On September 30, 2013, in City of Atlanta, Georgia v. Hotels.com L.P., et al. (Superior Court of Fulton County, Georgia; filed in March 2006);(Court of Appeals of the State of Georgia; appeal filed in January 2007); (Georgia Supreme Court; appeal filed in November 2013), the trial courtgranted defendant OTCs' motion for summary judgment dismissing all of plaintiff's remaining claims. On November 25, 2013, plaintiffs filedwith the Georgia Supreme Court a notice of appeal of the summary judgment order.•On October 15, 2013, in District of Columbia v. Expedia, Inc., et al. (Superior Court of District of Columbia; filed in March 2011), the Companyentered into a stipulated judgment for damage claims asserted through March 31, 2013 but reserved for each party the right to appeal any and all ofthe court's rulings on liability. On October 28, 2013, the court stayed the case between the District and the Company but is allowing the case toproceed against the remaining defendants. On December 6, 2013, the court granted partial summary judgment in favor of the OTCs, ruling that afailure to separately state the tax amount does not render the OTCs' tax recovery charge part of the "sales price" subject to tax.•On December 13, 2013, in City of Rome, Georgia, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of Georgia; filed inNovember 2005); (U.S. Court of Appeals for the Eleventh Circuit appeal filed in September 2012), the Eleventh Circuit affirmed the district court'sgrant of summary judgment in favor of the defendant OTCs on plaintiffs' "collect but not remit" theory and claim for back taxes. Plaintiffs' petitionfor rehearing and rehearing en banc was denied on February 6, 2014.Class certification rulings were issued in two matters. On April 11, 2013, in County of Nassau v. Expedia, Inc., et al. (Supreme Court of NassauCounty, New York; filed in September 2011); (Appellate Division, Second Department; appeal filed in April 2013), the trial court certified the action as aclass action. On April 26, 2013, the Company and other OTC defendants filed a notice of appeal of that decision and the trial court's prior denial of the OTCdefendants' motion to dismiss. On October 10, 2013, in Pine Bluff Advertising and Promotion Commission, Jefferson County, Arkansas, et al. v. Hotels.com,LP, et al. (Circuit Court of Jefferson County, Arkansas; filed in September 2009); (Arkansas Supreme Court; appeal filed in March 2013), the ArkansasSupreme Court affirmed certification of a class.Four matters were resolved through settlement. Baltimore County, Maryland v. Priceline.com, Inc., et al. (U.S. District Court for the District ofMaryland; filed in May 2010) was dismissed against the Company on January 7, 2013 pursuant to a settlement. Montgomery County, Maryland v.Priceline.com, Inc., et al. (U.S. District Court for the District of Maryland; filed in December 2010) was dismissed against the Company on April 5, 2013pursuant to a settlement. In The Village of Rosemont, Illinois v. Priceline.com, Inc., et al. (U.S. District Court for the Northern District of Illinois; filed in July2009) (U.S. Court of Appeals for the Seventh Circuit, appeal filed in November 2012), the Company and other OTC defendants resolved the litigationthrough settlement. The case was dismissed with prejudice on August 6, 2013. The Company and other OTC defendants also resolved the remaining issues inCity of Gallup, New Mexico v. Hotels.com, L.P., et al. (U.S. District Court for the District of New Mexico; filed in July 2007); (U.S. Court of Appeals for theTenth Circuit; appeal filed in April 2013). The case was remanded to the district court, which has granted preliminary approval of the settlement.In addition, in State of Florida Attorney General v. Expedia, Inc., et al. (filed in November 2010), the Attorney General for the State of Florida filed anotice of voluntary dismissal on April 8, 2013. The Company intends to vigorously defend against the claims in all of the proceedings described below.Statewide Class Actions and Putative Class ActionsSuch actions include:•City of Los Angeles, California v. Hotels.com, Inc., et al. (California Superior Court, Los Angeles County; filed in December 2004);•City of Rome, Georgia, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of Georgia; filed in November 2005);(U.S. Court of Appeals for the Eleventh Circuit appeal filed in September 2012);•City of San Antonio, Texas v. Hotels.com, L.P., et al. (U.S. District Court for the Western District of Texas; filed in May 2006);•City of Gallup, New Mexico v. Hotels.com, L.P., et al. (U.S. District Court for the District of New Mexico; filed in July 2007); (U.S. Courtof Appeals for the Tenth Circuit; appeal filed in April 2013);•Pine Bluff Advertising and Promotion Commission, Jefferson County, Arkansas, et al. v. Hotels.com, LP, et106 al. (Circuit Court of Jefferson County, Arkansas; filed in September 2009); (Arkansas Supreme Court; appeal filed in March 2013);•County of Lawrence, Pennsylvania v. Hotels.com, L.P., et al. (Court of Common Pleas of Lawrence County, Pennsylvania; filed Nov.2009); (Commonwealth Court of Pennsylvania; appeal filed in November 2010);•Town of Breckenridge, Colorado v. Colorado Travel Company, LLC, et al. (District Court for Summit County, Colorado; filed in July2011);•County of Nassau v. Expedia, Inc., et al. (Supreme Court of Nassau County, New York; filed in September 2011); (Appellate Division,Second Department; appeal filed in April 2013);•Village of Bedford Park, et al. v. Expedia, Inc. et al. (U.S. District Court for the Northern District of Illinois; filed in July 2013); and•City of Columbia, South Carolina, et al. v. Hotelguides.com, Inc. et al. (Court of Common Pleas, Ninth Judicial Circuit, County ofCharleston; filed in July 2013).Actions Filed on Behalf of Individual Cities, Counties and StatesSuch actions include:•City of Chicago, Illinois v. Hotels.com, L.P., et al. (Circuit Court of Cook County Illinois; filed in November 2005);•City of San Diego, California v. Hotels.com L.P., et al. (California Superior Court, San Diego County; filed in September 2006) (SuperiorCourt of California, Los Angeles County) (California Court of Appeal; appeal filed in August 2012);•City of Atlanta, Georgia v. Hotels.com L.P., et al. (Superior Court of Fulton County, Georgia; filed in March 2006); (Court of Appeals ofthe State of Georgia; appeal filed in January 2007); (Georgia Supreme Court; further appeal filed in December 2007; petition for writs ofmandamus and prohibition filed in December 2012; further appeal filed in November 2013);•Wake County, North Carolina v. Hotels.com, L.P., et al. (General Court of Justice, Superior Court Division, Wake County, NorthCarolina; filed in November 2006); (Court of Appeals of North Carolina; appeal filed in January 2013); Dare County, North Carolina v.Hotels.com, LP, et al. (General Court of Justice, Superior Court Division, Dare County, North Carolina; filed in January 2007); (Court ofAppeals of North Carolina; appeal filed in January 2013); Buncombe County, North Carolina v. Hotels.com, LP, et al. (General Court ofJustice, Superior Court Division, Buncombe County, North Carolina; filed in February 2007); (Court of Appeals of North Carolina;appeal filed in January 2013); Mecklenburg County, North Carolina v. Hotels.com LP, et al. (General Court of Justice, Superior CourtDivision, Mecklenburg County, North Carolina; filed in January 2008); (Court of Appeals of North Carolina; appeal filed in January2013);•Leon County, et al. v. Expedia, Inc., et al. (Second Judicial Circuit Court for Leon County, Florida; filed November 2009); (Florida FirstDistrict Court of Appeal; appeal filed in May 2012); (Florida Supreme Court; jurisdiction accepted in September 2013);•Leon County v. Expedia, Inc. et al. (Second Judicial Circuit Court for Leon County, Florida; filed in December 2009); (Florida FirstDistrict Court of Appeal; appeal filed in October 2012); (Florida Supreme Court; notice to invoke jurisdiction filed in October 2013);•Montana Department of Revenue v. Priceline.com, Inc., et al. (First Judicial District Court of Lewis and Clark County, Montana; filed inNovember 2010);•District of Columbia v. Expedia, Inc., et al. (Superior Court of District of Columbia; filed in March 2011);•Volusia County, et al. v. Expedia, Inc., et al. (Circuit Court for Volusia County, Florida; filed in April 2011);•State of Mississippi v. Priceline.com Inc., et al., (Chancery Court of Hinds County, Mississippi; filed in January 2012);•County of Kalamazoo, Michigan v. Hotels.com L.P., et al. (Circuit Court for the County of Kalamazoo; filed August 2012);•Fargo v. Expedia, Inc. et al. (District Court for the County of Cass; filed in February 2013)•Department of Revenue, Finance and Administration Cabinet, Commonwealth of Kentucky v. Expedia, Inc. et al. (Franklin Circuit Court,Kentucky; filed in July 2013); and•State of New Hampshire v. priceline.com Incorporated, et al. (Merrimack Superior Court; filed in October 2013).107 Judicial Actions Relating to Assessments Issued by Individual Cities, Counties and StatesThe Company may seek judicial review of assessments issued by an individual city or county. Currently pending actions seeking such a reviewinclude:•Priceline.com, Inc., et al. v. Broward County, Florida (Circuit Court - Second Judicial Circuit, Leon County, Florida; filed in January2009); (Florida First District Court of Appeal; filed in February 2013);•Priceline.com, Inc. v. Indiana Department of State Revenue (Indiana Tax Court; filed in March 2009);•Priceline.com, Inc., et al. v. City and County of San Francisco, California, et al. (California Superior Court, County of Los Angeles; filedin June 2009); Priceline.com, Inc. v. City and County of San Francisco, California, et al. (California Superior Court, County of LosAngeles; filed in November 2013);•Priceline.com, Inc. v. Miami-Dade County, Florida, et al. (Eleventh Judicial Circuit Court for Miami-Dade, County, Florida; filed inDecember 2009);•Priceline.com Incorporated, et al. v. Osceola County, Florida, et al. (Circuit Court of the Second Judicial Circuit, in and For Leon County,Florida; filed in January 2011);•In the Matter of the Tax Appeal of priceline.com Inc. and In the Matter of the Tax Appeal of Travelweb LLC (Tax Appeal Court of the Stateof Hawaii; filed in March 2011) (Hawaii Supreme Court; appeal transferred in December 2013); In the Matter of the Tax Appeal ofpriceline.com Inc. and In the Matter of the Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii, filed in July 2012)(Hawaii Supreme Court; appeal transferred in December 2013); In the Matter of the Tax Appeal of priceline.com Inc. and In the Matter ofTax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii, filed in June 2013); In the Matter of the Tax Appeal ofpriceline.com Inc. and In the Matter of Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii; filed in January 2014);•Expedia, Inc. et al. v. City of Portland (Circuit Court for Multnomah County, Oregon, filed in February 2012);•Expedia, Inc., et al. v. City and County of Denver, et al. (District Court for Denver County, Colorado, filed in March 2012); (ColoradoCourt of Appeal; appeal filed in April 2013);•Travelocity.com LP, et al., v. Wyoming Department of Revenue (District Court for the County of Laramie, 1st Judicial Dist.; petition forreview filed and petition granted by Wyoming Supreme Court in April 2013); and•Expedia, Inc., et al. v. Oregon Department of Revenue (Oregon Tax Court; filed in September 2013).Administrative Proceedings and Other Possible ActionsAt various times, the Company has also received inquiries or proposed tax assessments from municipalities and other taxing jurisdictions relating tothe Company's charges and remittance of amounts to cover state and local travel transaction taxes. Among others, the City of Phoenix, Arizona (on behalf ofitself and twelve other Arizona cities); the City of Paradise Valley, Arizona; fifteen cities (and one county) in Colorado; Arlington, Texas; Lake County,Indiana; Saratoga County, New York; and state tax officials from Arkansas, Colorado, Louisiana, Maine, Maryland, Michigan, South Dakota, Texas, WestVirginia, and Wisconsin have begun formal or informal administrative procedures or stated that they may assert claims against the Company relating toallegedly unpaid state or local travel transaction taxes. Between 2008 and 2010, the Company received audit notices from more than forty cities in the state ofCalifornia. The audit proceedings in those cities have not been active but have not been formally closed. The Company has also been contacted for audit byfive counties in the state of Utah.OFT InquiryIn July 2012, the Office of Fair Trading (the "OFT"), the competition authority in the United Kingdom, issued a "Statement of Objections" ("SO")to Booking.com, which set out the OFT's preliminary views on why it believed Booking.com and others in the hotel online booking sector were allegedly inbreach of E.U. and U.K. competition law. The SO alleged, among other things, that there were agreements or concerted practices between hotels andBooking.com and between hotels and at least one other OTC that restricted Booking.com's (and the other OTC's) ability to discount hotel room reservations,which the OFT alleged was a form of resale price maintenance. The Company disputes the allegations in the SO. On August 9, 2013, the OFT announced its intention to accept commitments offered by Booking.com, as well as Expedia and Intercontinental HotelGroup, to close the investigation. The OFT sought feedback on the proposed commitments from the public. In light of the feedback receivedduring the consultation and input from the European Commission, the parties submitted revised commitments. On December 20, 2013, the OFT opened afurther public consultation on the revised commitments proposed by the parties. This further consultation closed on January 17, 2014. 108 On January 31, 2014, the OFT announced that it accepted the revised commitments ("Commitments") from the parties on the basis thatthey address the OFT's competition concerns. The OFT has now closed its investigation with no finding of infringement or admission of wrongdoing and noimposition of a fine. The Commitments provide, among other things, that hotels will continue to be able to set retail prices for hotel room reservations on all OTCwebsites, such as Booking.com. OTCs, such as Booking.com, now have the flexibility to discount a hotel's retail price, but only to members of closedgroups, a concept that is defined in the Commitments, who have previously made a booking with the OTC. The discount may be up to Booking.com'scommission. In addition, Booking.com will not require rate parity from hotels in relation to discounted rates that are provided by other OTCs or hotels tomembers of their closed groups, provided the discounted rate is not made public. The Commitments apply to bookings by EEA residents at UK hotels.Investigations have also been opened by the national competition authorities in France, Germany, Austria, Hungary, Sweden and Switzerland thatfocus on Booking.com's rate parity clause in its contracts with accommodation providers in those jurisdictions. All of these investigations are at a preliminarystage. The Company is currently unable to predict the outcome of these investigations or how the Company's business may be affected. Possible outcomesinclude requiring Booking.com to remove its rate parity clause from its contracts with accommodation providers in those jurisdictions.Lawsuits Alleging Antitrust ViolationsOn August 20, 2012, one complaint was filed on behalf of a putative class of persons who purchased hotel room reservations from certain hotels (the"Hotel Defendants") through certain OTC defendants, including the Company. The initial complaint, Turik v. Expedia, Inc., Case No. 12-cv-4365, filed inthe U.S. District Court for the Northern District of California, alleges that the Hotel Defendants and the OTC defendants violated federal and state laws byentering into a conspiracy to enforce a minimum resale price maintenance scheme pursuant to which putative class members paid inflated prices for hotel roomreservations that they purchased through the OTC defendants. Thirty-one other complaints containing similar allegations have been filed in a number offederal jurisdictions across the country. Plaintiffs in these actions seek treble damages and injunctive relief. The Judicial Panel on Multidistrict Litigation ("JPML") heard arguments on a motion for consolidation and transfer of pretrial proceedings under 28U.S.C. § 1407 on November 29, 2012. Pursuant to JPML orders, all of the pending cases were consolidated before Judge Boyle in the U.S. District Court forthe Northern District of Texas. On May 1, 2013, an amended consolidated complaint was filed.On July 1, 2013, the Company, together with the other OTC defendants and Hotel Defendants, filed a joint motion to dismiss the amendedconsolidated complaint. On August 15, 2013, plaintiffs filed their opposition to defendants' motion to dismiss and, on September 16, 2013, the defendantsfiled their reply brief. On December 17, 2013 the Court heard oral arguments on the defendants' motion to dismiss. On February 18, 2014, Judge Boyledismissed the amended consolidated complaint without prejudice, and ordered that plaintiffs must move for leave to amend within thirty days if they wish tofile a second consolidated amended complaint, and further ordered that any such motion for leave to amend be accompanied by a synopsis explaining why asecond amended complaint would overcome the deficiencies stated in the court's February 18, 2014 Memorandum Opinion and Order. If plaintiffs move forleave to amend, the defendants may file a response to that motion within fourteen days of plaintiffs' motion.The Company intends to defend vigorously against the claims in all of the proceedings described in this Note 16. The Company has accrued forcertain legal contingencies where it is probable that a loss has been incurred and the amount can be reasonably estimated. Except as disclosed, such amountsaccrued are not material to the Company's consolidated balance sheets and provisions recorded have not been material to the Company's consolidated results ofoperations or cash flows. The Company is unable to estimate a reasonably possible range of loss. From time to time, the Company has been, and expects to continue to be, subject to legal proceedings and claims in the ordinary course of business,including claims of alleged infringement of third party intellectual property rights. Such claims, even if not meritorious, could result in the expenditure ofsignificant financial and managerial resources, divert management's attention from the Company's business objectives and adversely affect the Company'sbusiness, results of operations, financial condition and cash flows.109 Employment Contracts The Company has employment agreements with certain members of senior management that provide for cash severance payments of up toapproximately $30 million, accelerated vesting of equity instruments, including without limitation, restricted stock, restricted stock units and performanceshare units upon, among other things, death or termination without "cause" or "good reason," as those terms are defined in the agreements, and a gross-up forthe payment of "golden parachute" excise taxes. In addition, certain of the agreements provide for the extension of health and insurance benefits aftertermination for periods up to three years. Operating Leases The Company leases certain facilities and equipment through operating leases. Rental expense for leased office space was approximately $40.0million, $30.9 million and $17.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. The Company's headquarters and the headquarters of the priceline.com business are located in Norwalk, Connecticut, United States of America,where the Company leases approximately 70,000 square feet of office space. The Booking.com business is headquartered in Amsterdam, Netherlands, wherethe Company leases approximately 202,000 square feet of office space; the Agoda.com business has significant support operations in Bangkok, Thailand,where the Company leases approximately 76,000 square feet of office space; the KAYAK business is headquartered in Stamford, Connecticut, United Statesof America, where the Company leases approximately 18,000 square feet of office space; and the rentalcars.com business is headquartered in Manchester,England, where the Company leases approximately 49,000 square feet of office space. The Company leases additional office space to support our operationsin various locations around the world, including hosting and data center facilities in the United States, the United Kingdom, Switzerland, the Netherlandsand Hong Kong and sales and support facilities in numerous locations. The Company does not own any real estate as of December 31, 2013. Minimumpayments for operating leases for office space, data centers and equipment having initial or remaining non-cancellable terms in excess of one year have beentranslated into U.S. Dollars at the December 31, 2013 spot exchange rates, as applicable, and are as follows (in thousands): 2014 2015 2016 2017 2018 After2018 Total$49,691 $48,812 $43,557 $37,446 $30,985 $109,535 $320,026 17.BENEFIT PLANS Priceline.com has a defined contribution 401(k) savings plan (the "Plan") covering certain U.S. employees. With the acquisition of KAYAK in May2013, the Company assumed a defined contribution plan covering KAYAK's U.S. employees. The Company also maintains certain other defined contributionplans outside of the United States for which it provides contributions for participating employees. The Company's matching contributions during the yearsended December 31, 2013, 2012 and 2011 were approximately $5.8 million, $5.0 million and $2.8 million, respectively.110 18.GEOGRAPHIC INFORMATION The geographic information below is based upon the location of the Company's brands, regardless of where the consumer is resident, from where theconsumer makes a reservation or where the travel service is provided. The Company's geographic information is as follows (in thousands): United States The Netherlands Other (1) TotalCompany2013 Revenues$1,769,696 $4,103,393 $920,217 $6,793,306Intangible assets, net838,494 123,847 57,644 1,019,985Goodwill1,247,686 156,261 363,965 1,767,912Other long-lived assets49,750 61,164 64,708 175,622 2012 Revenues$1,661,710 $2,675,976 $923,270 $5,260,956Intangible assets, net1,337 137,255 69,521 208,113Goodwill37,306 149,464 335,902 522,672Other long-lived assets76,623 37,035 42,924 156,582 2011 Revenues$1,761,065 $1,638,851 $955,694 $4,355,610Intangible assets, net1,776 78,850 119,525 200,151Goodwill37,306 142,576 324,902 504,784Other long-lived assets148,150 22,716 28,026 198,892__________________________(1)For the year ended December 31, 2013, geographical data for the United Kingdom was not material. Revenues and related data for assets for the yearsended December 31, 2012 and 2011 were reclassified to "Other" to conform with our current year presentation. Revenues for the United Kingdom forthe years ended December 31, 2012 and 2011 were $491 million and $709 million, respectively.111 19.SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) FirstQuarter SecondQuarter ThirdQuarter FourthQuarter(In thousands, except per share data) 2013 Total revenues(1)$1,302,012 $1,680,238 $2,269,903 $1,541,153 Gross profit1,009,665 1,383,855 1,989,065 1,333,301 Net income244,292 437,440 832,989 378,077 Net income applicable to common stockholders244,271 437,326 832,989 378,077 Net income applicable to common stockholders per basic commonshare$4.89 $8.62 $16.22 $7.32 Net income applicable to common stockholders per diluted commonshare$4.76 $8.39 $15.72 $7.14 _____________________________ FirstQuarter SecondQuarter ThirdQuarter FourthQuarter(In thousands, except per share data) 2012 Total revenues(1)$1,037,247 $1,326,759 $1,706,310 $1,190,640 Gross profit743,288 1,004,142 1,396,501 939,750 Net income181,816 352,654 599,973 289,595 Net income applicable to common stockholders181,970 352,347 596,586 288,663 Net income applicable to common stockholders per basic commonshare$3.65 $7.07 $11.97 $5.79 Net income applicable to common stockholders per diluted commonshare$3.54 $6.88 $11.66 $5.63_____________________________(1) As the Company's retail accommodation business, which recognizes revenue at the completion of the stay, continues to expand, our quarterly resultsbecome increasingly impacted by seasonal factors.112 20. ACQUISITIONOn May 21, 2013, the Company acquired 100% of KAYAK Software Corporation in a stock and cash transaction. The purchase value was $2.1billion ($1.9 billion net of cash acquired). The Company paid $0.5 billion in cash, from cash on hand in the United States, and $1.6 billion in shares of itscommon stock (based upon the market value of the Company's common stock at the merger date) and the fair value of the assumed vested KAYAK stockoptions. These assumed vested KAYAK stock options are related to pre-combination service.KAYAK is a leading travel meta-search website that allows people to easily compare hundreds of travel websites at once when searching for flights,hotels, and rental cars, and gives travelers choices on where to book. KAYAK has built a strong brand with consumers and advertisers. KAYAK also is atechnology leader among online travel companies and has had success building innovative user interfaces across multiple platforms and devices. TheCompany believes that it can leverage its experience and success in building international businesses to help KAYAK grow internationally and build a globalonline travel brand.Also in conjunction with the acquisition, the Company assumed unvested KAYAK employee stock options, which relate to post-combinationservice, with an acquisition date fair value of $57.4 million. See Note 3 for further information on the assumed KAYAK unvested employee stock options.As a result of the acquisition of KAYAK, the Company expensed approximately $8.5 million of professional fees for the year ended December 31,2013. These acquisition-related expenses were included in "General and administrative" expenses on the Consolidated Statements of Operations. In addition,the Company paid approximately $1.2 million of stock issuance costs for the year ended December 31, 2013, with an offsetting charge to additional paid-incapital.The aggregate purchase price was allocated to the assets acquired and liabilities assumed as follows (in millions):Current assets (1) $322.0Identifiable intangible assets (2) 871.0Goodwill (3) 1,232.3Other long-term assets 11.7Total liabilities (4) (368.8)Total consideration $2,068.2(1) Includes cash acquired of $194 million.(2) Acquired definite-lived intangibles, with a weighted average life of 18.7 years, consisted of trade names of $496 million with anestimated useful life of 20 years, supply and distribution agreements of $302 million with an estimated useful life of 20 years, andtechnology of $73 million with estimated useful life of 5 years.(3) Goodwill is not tax deductible.(4) Includes deferred tax liabilities of $326 million.KAYAK's revenues and earnings since the acquisition date and pro forma results of operations have not been presented as such financial informationis not material to the Company's results of operations. 113 INDEX TO EXHIBITSIn reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember they are included to provide you withinformation regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to theagreements. Some agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warrantieshave been made solely for the benefit of the other parties to the applicable agreement and:•should not be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to beinaccurate;•may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement,which-disclosures-are-not necessarily reflected in the agreement;•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to morerecent developments.Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additionalinformation about the Company may be found elsewhere in this Annual Report on Form 10‑K and the Company's other public filings, which are availablewithout charge through the SEC's website at http://www.sec.gov.Exhibit NumberDescription2.1(a)Agreement and Plan of Merger, dated as of November 8, 2012, by and among KAYAK Software Corporation, the Registrant and ProduceMerger Sub, Inc.3.1(b)Amended and Restated Certificate of Incorporation of the Registrant.3.2(c)Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated June 13, 2003.3.3(d)Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated June 3, 2009.3.4(e)Amended and Restated By-Laws of the Registrant.4.1Reference is hereby made to Exhibits 3.1, 3.2, 3.3 and 3.4.4.2(f)Specimen Certificate for Registrant's Common Stock.4.3(g)Indenture, dated as of March 10, 2010, between the Registrant and American Stock Transfer & Trust Company, LLC as Trustee.4.4(h)Indenture, dated as of March 12, 2012, between the Registrant and American Stock Transfer & Trust Company, LLC as Trustee.4.5(i)Indenture, dated as of June 4, 2013, between the Registrant and American Stock Transfer & Trust Company, LLC as Trustee.10.1(j)+priceline.com Incorporated 1999 Omnibus Plan (As Amended and Restated Effective June 6, 2013).10.2(k)+Form of Stock Option Grant Agreement under the 1999 Omnibus Plan.10.3(l)+Form of Restricted Stock Unit Award Agreement for Employees in the Netherlands under the 1999 Omnibus Plan.10.4(m)+2011 Form of Performance Share Unit Agreement for awards under the 1999 Omnibus Plan to certain U.S.-based executives.10.5(m)+2011 Form of Performance Share Unit Agreement for awards under the 1999 Omnibus Plan to Netherlands-based executive.10.6(m)+Form of Restricted Stock Unit Agreement for awards under the 1999 Omnibus Plan to non-employee directors.10.7(n)+2012 Form of Performance Share Unit Agreement under the 1999 Omnibus Plan.10.8(o)+2013 Form of Performance Share Unit Agreement under the 1999 Omnibus Plan.10.9(p)+KAYAK Software Corporation 2012 Equity Incentive Plan.10.10(j)+Amendment to KAYAK Software Corporation 2012 Equity Incentive Plan.10.11(q)+priceline.com Incorporated Annual Bonus Plan, adopted on February 20, 2007.10.12(o)+Form of Non-Competition and Non-Solicitation Agreement.114 10.13(r)+Amended and Restated Employment Agreement, dated August 22, 2008, by and between the Registrant and Jeffery H. Boyd.10.14(s)+Letter amendment, dated December 18, 2008, to Amended and Restated Employment Agreement, by and between the Registrant and JefferyH. Boyd.10.15(t)+Transition Agreement dated November 7, 2013 by and between the Registrant and Jeffery H. Boyd.10.16(t)+Amended and Restated Employment Agreement dated November 7, 2013 by and between the Registrant, Booking.com Holding B.V. andDarren R. Huston.10.17(t)+Amended and Restated Non-Competition and Non-Solicitation Agreement dated November 7, 2013 by and between the Registrant andDarren R. Huston.10.18(u)+Indemnification Agreement, dated September 12, 2011, by and between the Registrant and Darren R. Huston.10.19(v)+Letter agreement, dated October 19, 2005 by and between the Registrant and Daniel J. Finnegan.10.20(s)+Letter amendment, dated December 16, 2008, to letter agreement, dated October 19, 2005 by and between the Registrant and Daniel J.Finnegan.10.21(s)+Amended and Restated Employment Agreement, dated December 18, 2008, by and between the Registrant and Peter J. Millones.10.22(s)+Amended and Restated Employment Agreement, dated December 18, 2008, by and between the Registrant and Chris Soder.10.23(u)Credit Agreement, dated as of October 28, 2011, among the Registrant, the lenders from time to time party thereto, RBS Citizens, N.A., asDocumentation Agent, Bank of America, N.A. and Wells Fargo Bank, National Association, as Co‑Syndication Agents and JPMorganChase Bank, N.A., as Administrative Agent.10.24(h)Purchase Agreement, dated March 7, 2012, between the Registrant and Goldman, Sachs & Co., as representative of the Initial Purchasers.10.25(i)Purchase Agreement, dated May 29, 2013, between the Registrant and Goldman, Sachs & Co.21List of Subsidiaries.23.1Consent of Deloitte & Touche LLP.24.1Power of Attorney (included in the Signature Page).31.1Certification of Darren R. Huston, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2Certification of Daniel J. Finnegan, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1(w)Certification of Darren R. Huston, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350,Chapter 63 of Title 18, United States Code).32.2(w)Certification of Daniel J. Finnegan, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350,Chapter 63 of Title 18, United States Code).101The following financial statements from the Company's Annual Report on Form 10‑K for the year ended December 31, 2012, formatted inXBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of ComprehensiveIncome, (iv) Consolidated Statements of Changes in Stockholders' Equity, (v) Consolidated Statements of Cash Flows, and (v) Notes toConsolidated Financial Statements.____________________________115 (a)Previously filed as an exhibit to the Current Report on Form 8‑K filed on November 9, 2012 (File No. 0-25581).(b)Previously filed as an exhibit to Amendment No. 1 to Registration Statement on Form S‑1 (File No. 333‑69657) filed on February 16,1999.(c)Previously filed as an exhibit to the Registration Statement on Form S‑3 (File No. 333‑109929) filed on October 23, 2003.(d)Previously filed as an exhibit to the Current Report on Form 8-K filed on June 5, 2009 (File No. 0-25581).(e)Previously filed as an exhibit to the Annual Report on Form 10-K filed for the year ended December 31, 2012 (File No. 0-25581).(f)Previously filed as an exhibit to Amendment No. 2 to Registration Statement on Form S-1 (File No. 333-69657) filed on March 18, 1999.(g)Previously filed as an exhibit to the Current Report on Form 8-K filed on March 10, 2010 (File No. 0-25581).(h)Previously filed as an exhibit to the Current Report on Form 8-K filed on March 12, 2012 (File No. 0-25581).(i)Previously filed as an exhibit to the Current Report on Form 8-K filed on June 4, 2013 (File No. 0-25581).(j)Previously filed as an exhibit to the Current Report on Form 8-K filed on June 6, 2013 (File No. 0-25581).(k)Previously filed as an exhibit to the Registration Statement on Form S-8 (File No. 333-122414) filed on January 31, 2005.(l)Previously filed as an exhibit to the Current Report on Form 8-K filed on November 8, 2005 (File No. 0-25581).(m)Previously filed as an exhibit to the Current Report on Form 8‑K filed on March 9, 2011 (File No. 0-25581).(n)Previously filed as an exhibit to the Current Report on Form 8‑K filed on March 8, 2012 (File No. 0-25581).(o)Previously filed as an exhibit to the Current Report on Form 8-K filed on March 4, 2013 (File No. 0-25581).(p)Previously filed as an exhibit to the Registration Statement on Form S-8 (File No. 333-188733) filed on May 21, 2013.(q)Previously filed as an exhibit to the Current Report on Form 8‑K filed on February 23, 2007 (File No. 0-25581).(r)Previously filed as an exhibit to the Current Report on Form 8‑K filed on August 6, 2008 (File No. 0-25581).(s)Previously filed as an exhibit to the Annual Report on Form 10‑K filed for the year ended December 31, 2008 (File No. 0-25581).(t)Previously filed as an exhibit to the Current Report on Form 8-K filed on November 8, 2013 (File No. 0-25581).(u)Previously filed as an exhibit to the Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2011 (File No. 0-25581).(v)Previously filed as an exhibit to the Current Report on Form 8-K filed on October 21, 2005 (File No. 0-25581).(w)This document is being furnished in accordance with SEC Release Nos. 33‑8212 and 34‑47551.+Indicates a management contract or compensatory plan or arrangement.116 Exhibit 21LIST OF SUBSIDIARIESAS OF DECEMBER 31, 2013*Name Jurisdiction ofIncorporation PercentOwnership Booking.com B.V. The Netherlands 100%Booking.com Holding B.V. The Netherlands 100%Booking.com Limited United Kingdom 100%KAYAK Software Corporation Delaware 100%Lowestfare.com LLC Delaware 100%Priceline.com Agoda Holdco, LLC Delaware 100%Priceline.com Bookings Acquisition Company Limited United Kingdom 100%Priceline.com Europe Holdco, Inc. Delaware 100%Priceline.com Holdco U.K. Limited United Kingdom 100%priceline.com International Ltd. United Kingdom 100%priceline.com Mauritius Company Limited Mauritius 100%TravelJigsaw Holdings Limited United Kingdom 100%TravelJigsaw Limited United Kingdom 100%Travelweb LLC Delaware 100% *Subsidiaries which, when considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of December 31, 2013,have been excluded. Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statements Nos. 333-151413, 333-122414, 333-65034, 333-55578, 333-83233, 333-188733 and 333-189145 onForm S-8 of our reports dated February 20, 2014, relating to the consolidated financial statements of priceline.com Incorporated and subsidiaries (the “Company”) and theeffectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2013. /s/ DELOITTE & TOUCHE LLP Stamford, Connecticut February 20, 2014 1 Exhibit 31.1 CERTIFICATIONS I, Darren R. Huston, certify that: 1. I have reviewed the Annual Report on Form 10-K of priceline.com Incorporated (the “Registrant”) for the year ended December 31, 2013; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary inorder to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the Registrant and we have: a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in which this report is being prepared; b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; c.evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and d.disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’smost recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the Registrant’s internal control over financial reporting; and 5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and b.any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’sinternal control over financial reporting. Dated: February 20, 2014/s/ Darren R. HustonName:Darren R. HustonTitle:Chief Executive Officer Exhibit 31.2 CERTIFICATIONS I, Daniel J. Finnegan., certify that: 1. I have reviewed the Annual Report on Form 10-K of priceline.com Incorporated (the “Registrant”) for the year ended December 31, 2013; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary inorder to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have: a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and d. disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’smost recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the Registrant’s internal control over financial reporting; and 5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’sinternal control over financial reporting. Dated: February 20, 2014/s/ Daniel J. FinneganName:Daniel J. FinneganTitle:Chief Financial Officer and ChiefAccounting Officer Exhibit 32.1 CertificationPursuant to Section 906 of the Sarbanes-Oxley Act of 2002(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), theundersigned officer of priceline.com Incorporated, a Delaware corporation (the “Company”), hereby certifies that, to his knowledge: The Annual Report on Form 10-K for the 12 months ended December 31, 2013 (the “Report”) of the Company fully complies with the requirementsof section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company. February 20, 2014/s/ Darren R. HustonName:Darren R. HustonTitle:Chief Executive Officer The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,chapter 63 of title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished tothe Securities and Exchange Commission or its staff upon request. Exhibit 32.2 CertificationPursuant to Section 906 of the Sarbanes-Oxley Act of 2002(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), theundersigned officer of priceline.com Incorporated, a Delaware corporation (the “Company”), hereby certifies that, to his knowledge: The Annual Report on Form 10-K for the 12 months ended December 31, 2013 (the “Report”) of the Company fully complies with the requirementsof section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company. February 20, 2014/s/ Daniel J. FinneganName:Daniel J. FinneganTitle:Chief Financial Officer and Chief Accounting Officer The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,chapter 63 of title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished tothe Securities and Exchange Commission or its staff upon request.
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