UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended March 31, 2015

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-25581

The Priceline Group Inc.

(Exact name of Registrant as specified in its charter) 

Delaware	06-1528493
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

800 Connecticut Avenue

Norwalk, Connecticut 06854

(address of principal executive offices)

(203) 299-8000

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed, since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.   Yes ý No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ý No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one): 

Large accelerated filer ý	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes o No ý

Number of shares of Common Stock outstanding at April 30, 2015:

Common Stock, par value $0.008 per share	51,836,843
(Class)	(Number of Shares)

The Priceline Group Inc.

Form 10-Q

For the Three Months Ended March 31, 2015

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	3
Consolidated Balance Sheets (unaudited) at March 31, 2015 and December 31, 2014	3
Consolidated Statements of Operations (unaudited) For the Three Months Ended March 31, 2015 and 2014	4
Consolidated Statements of Comprehensive Income (unaudited) For the Three Months Ended March 31, 2015 and 2014	5
Consolidated Statement of Changes in Stockholders' Equity (unaudited) For the Three Months Ended March 31, 2015	6
Consolidated Statements of Cash Flows (unaudited) For the Three Months Ended March 31, 2015 and 2014	7
Notes to Unaudited Consolidated Financial Statements	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	44
Item 4. Controls and Procedures	45
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	46
Item 1A. Risk Factors	46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 6. Exhibits	66
SIGNATURES	67

2

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

The Priceline Group Inc.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	March 31, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	3,255,814		$	3,148,651
Restricted cash	863			843
Short-term investments	1,379,641			1,142,182
Accounts receivable, net of allowance for doubtful accounts of $15,656 and $14,212, respectively	706,776			643,894
Prepaid expenses and other current assets	487,285			178,050
Deferred income taxes	137,102			153,754
Total current assets	5,967,481			5,267,374
Property and equipment, net	214,863			198,953
Intangible assets, net	2,282,347			2,334,761
Goodwill	3,327,784			3,326,474
Long-term investments	4,973,644			3,755,653
Other assets	76,373			57,348
Total assets	$	16,842,492		$	14,940,563
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	567,322		$	281,480
Accrued expenses and other current liabilities	610,764			600,758
Deferred merchant bookings	525,148			460,558
Convertible debt	—			37,195
Total current liabilities	1,703,234			1,379,991
Deferred income taxes	1,072,038			1,040,260
Other long-term liabilities	132,987			103,533
Long-term debt	5,304,108			3,849,756
Total liabilities	8,212,367			6,373,540
Convertible debt	—			329
Stockholders' equity:
Common stock, $0.008 par value; authorized 1,000,000,000 shares, 61,974,020 and 61,821,097 shares issued, respectively	481			480
Treasury stock, 10,139,421 and 9,888,024 shares, respectively	(3,046,203		)	(2,737,585		)
Additional paid-in capital	4,926,560			4,923,196
Accumulated earnings	6,973,832			6,640,505
Accumulated other comprehensive loss	(224,545		)	(259,902		)
Total stockholders' equity	8,630,125			8,566,694
Total liabilities and stockholders' equity	$	16,842,492		$	14,940,563

See Notes to Unaudited Consolidated Financial Statements.

3

The Priceline Group Inc.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended March 31,
	2015			2014
Agency revenues	$	1,199,348		$	1,041,144
Merchant revenues	494,675			526,998
Advertising and other revenues	146,671			73,660
Total revenues	1,840,694			1,641,802
Cost of revenues	168,458			235,331
Gross profit	1,672,236			1,406,471
Operating expenses:
Advertising — Online	643,216			520,848
Advertising — Offline	63,582			53,474
Sales and marketing	81,944			64,311
Personnel, including stock-based compensation of $54,008 and $38,803, respectively	258,984			194,531
General and administrative	100,178			72,981
Information technology	25,361			23,224
Depreciation and amortization	65,002			38,376
Total operating expenses	1,238,267			967,745
Operating income	433,969			438,726
Other income (expense):
Interest income	11,596			1,041
Interest expense	(33,479		)	(17,745		)
Foreign currency transactions and other	(4,843		)	(5,969		)
Total other income (expense)	(26,726		)	(22,673		)
Earnings before income taxes	407,243			416,053
Income tax expense	73,916			84,835
Net income	$	333,327		$	331,218
Net income applicable to common stockholders per basic common share	$	6.42		$	6.35
Weighted-average number of basic common shares outstanding	51,909			52,153
Net income applicable to common stockholders per diluted common share	$	6.36		$	6.25
Weighted-average number of diluted common shares outstanding	52,406			53,018

See Notes to Unaudited Consolidated Financial Statements.

4

The Priceline Group Inc.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Three Months Ended March 31,
	2015			2014
Net income	$	333,327		$	331,218
Other comprehensive income, net of tax
Foreign currency translation adjustments (1)	(127,011		)	7,914
Unrealized gain on marketable securities (2)	162,368			108
Comprehensive income	$	368,684		$	339,240

(1) Net of tax of $76,605 and $1,137 for the three months ended March 31, 2015 and 2014, respectively, associated with net investment hedges. See Note 11.

(2) Net of tax of $9,976 and $49 for the three months ended March 31, 2015 and 2014, respectively. Net gains realized during the three months ended March 31, 2015 were not significant. There were no realized gains or losses related to investments for the three months ended March 31, 2014.

See Notes to Unaudited Consolidated Financial Statements.

5

The Priceline Group Inc.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2015

(In thousands)

	Common Stock			Treasury Stock					Additional Paid-In Capital			Accumulated Earnings		Accumulated Other Comprehensive Loss
	Shares	Amount		Shares		Amount											Total
Balance, December 31, 2014	61,821	$	480	(9,888	)	$	(2,737,585	)	$	4,923,196		$	6,640,505	$	(259,902	)	$	8,566,694
Net income applicable to common stockholders	—	—		—		—			—			333,327		—			333,327
Foreign currency translation adjustments, net of tax of $76,605	—	—		—		—			—			—		(127,011		)	(127,011		)
Unrealized gain on marketable securities, net of tax of $9,976	—	—		—		—			—			—		162,368			162,368
Reclassification adjustment for convertible debt in mezzanine	—	—		—		—			329			—		—			329
Exercise of stock options and vesting of restricted stock units and performance share units	153	1		—		—			9,069			—		—			9,070
Repurchase of common stock	—	—		(251	)	(308,618		)	—			—		—			(308,618		)
Stock-based compensation and other stock-based payments	—	—		—		—			54,533			—		—			54,533
Conversion of debt	—	—		—		—			(110,105		)	—		—			(110,105		)
Excess tax benefits on stock-based compensation	—	—		—		—			49,538			—		—			49,538
Balance, March 31, 2015	61,974	$	481	(10,139	)	$	(3,046,203	)	$	4,926,560		$	6,973,832	$	(224,545	)	$	8,630,125

See Notes to Unaudited Consolidated Financial Statements.

6

The Priceline Group Inc.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended March 31,
	2015			2014
OPERATING ACTIVITIES:
Net income	$	333,327		$	331,218
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	21,674			15,552
Amortization	43,328			22,824
Provision for uncollectible accounts, net	9,021			3,671
Deferred income taxes	(35,172		)	8,828
Stock-based compensation expense and other stock-based payments	54,533			39,412
Amortization of debt issuance costs	1,543			1,346
Amortization of debt discount	16,691			12,412
Loss on early extinguishment of debt	3			3,396
Changes in assets and liabilities:
Accounts receivable	(120,593		)	(94,156		)
Prepaid expenses and other current assets	(292,668		)	(317,812		)
Accounts payable, accrued expenses and other current liabilities	201,215			147,608
Other	(23,919		)	2,705
Net cash provided by operating activities	208,983			177,004
INVESTING ACTIVITIES:
Purchase of investments	(1,969,292		)	(2,612,047		)
Proceeds from sale of investments	880,774			2,652,013
Additions to property and equipment	(31,263		)	(29,731		)
Acquisitions and other investments, net of cash acquired	(26,162		)	(2,633		)
Proceeds from foreign currency contracts	453,818			—
Payments on foreign currency contracts	(448,640		)	(43,380		)
Change in restricted cash	(55		)	(5,077		)
Net cash used in investing activities	(1,140,820		)	(40,855		)
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt	1,619,951			—
Payment of debt issuance costs	(8,064		)	—
Payments related to conversion of senior notes	(147,629		)	(58,449		)
Repurchase of common stock	(308,618		)	(96,660		)
Proceeds from exercise of stock options	9,070			7,693
Excess tax benefits on stock-based compensation	49,538			5,499
Net cash provided by (used in) financing activities	1,214,248			(141,917		)
Effect of exchange rate changes on cash and cash equivalents	(175,248		)	3,924
Net increase (decrease) in cash and cash equivalents	107,163			(1,844		)
Cash and cash equivalents, beginning of period	3,148,651			1,289,994
Cash and cash equivalents, end of period	$	3,255,814		$	1,288,150
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for income taxes	$	379,603		$	367,160
Cash paid during the period for interest	$	10,841		$	5,821
Non-cash investing activity for contingent consideration	$	9,170		$	—

See Notes to Unaudited Consolidated Financial Statements.

7

The Priceline Group Inc.

Notes to Unaudited Consolidated Financial Statements

1.BASIS OF PRESENTATION

Management of The Priceline Group Inc. (the "Company") is responsible for the Unaudited Consolidated Financial Statements included in this document.  The Unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operating results.  The Company prepared the Unaudited Consolidated Financial Statements following the requirements of the Securities and Exchange Commission for interim reporting.  As permitted under those rules, the Company condensed or omitted certain footnotes or other financial information that are normally required by GAAP for annual financial statements.  These statements should be read in combination with the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

The Unaudited Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, including its primary brands of Booking.com, priceline.com, KAYAK, agoda.com and rentalcars.com and since its acquisition on July 24, 2014, OpenTable, Inc. ("OpenTable"). All inter-company accounts and transactions have been eliminated in consolidation.  The functional currency of the Company's foreign subsidiaries is generally the respective local currency.  Assets and liabilities are translated into U.S. Dollars at the rate of exchange existing at the balance sheet date.  Income statement amounts are translated at the average exchange rates for the period.  Translation gains and losses are included as a component of "Accumulated other comprehensive loss" in the accompanying Unaudited Consolidated Balance Sheets.  Foreign currency transaction gains and losses are included in the Unaudited Consolidated Statements of Operations in "Foreign currency transactions and other."

Revenues, expenses, assets and liabilities can vary during each quarter of the year.  Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board ("FASB") issued a new accounting update which changes the presentation of debt issuance costs in our financial statements. Under this new guidance, debt issuance costs will be presented in our balance sheets as a direct deduction from the related debt liability rather than as an asset. This accounting change is consistent with the current presentation under U.S. GAAP for debt discounts and it also converges the guidance under U.S. GAAP with that in the International Financial Reporting Standards ("IFRS"). Debt issuance costs will reduce the proceeds from debt borrowings in our cash flow statement instead of being presented as a separate caption in the financing section of that statement. Amortization of debt issuance costs will continue to be reported as interest expense in our income statements. This accounting update does not affect the current accounting guidance for the recognition and measurement of debt issuance costs. This update is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for all entities for financial statements that have not been previously issued.

In April 2015, the FASB issued a new accounting update which requires a customer to determine whether a cloud computing arrangement contains a software license. The accounting update cites software as a service, platform as a service, infrastructure as a service and other similar hosting arrangements as examples of cloud computing arrangements. A software license arrangement exists if both of the following criteria are met: (1) the customer has a contractual right to take possession of the underlying software without significant penalty and (2) it is feasible for the customer to run the software on their own hardware or to contract with another party unrelated to the vendor to run the software. If the arrangement meets both of these criteria, the customer would need to identify what portion of the cost relates to purchasing the software and what portion relates to paying for the service of hosting the software. The purchased software would be accounted for using the internal-use software guidance and the service costs would be accounted for as an operating expense. If the arrangement does not meet both of the criteria, the cost is an operating expense for a service contract. The guidance in this update does not change the accounting for a service contract. The update is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for all entities. The Company is currently evaluating the impact on its consolidated financial statements of adopting this new guidance.

In May 2014, the FASB and the International Accounting Standards Board ("IASB") issued a new accounting standard on the recognition of revenue from contracts with customers that is designed to create greater comparability for financial statement users across industries and jurisdictions. The core principle of the standard is that an "entity recognizes revenue to

8

depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." Additionally, the new guidance specified the accounting for some costs to obtain or fulfill a contract with a customer. The new standard will also require enhanced disclosures. The accounting standard is effective for public entities for annual and interim periods beginning after December 15, 2016. In April 2015, the FASB issued an exposure draft which proposes to defer the effective date of the new revenue standard to annual periods beginning after December 15, 2017 with early adoption permitted as of the original effective date. The Company is currently evaluating the impact on its consolidated financial statements of adopting this new guidance.

In April 2014, the FASB issued an accounting update which amended the definition of a discontinued operation. The new definition limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have or will have a major effect on an entity's operations and financial results. The new definition includes an acquired business that is classified as held for sale at the date of acquisition. The accounting update requires new disclosures of both discontinued operations and a disposal of an individually significant component of an entity. The accounting update is effective for annual and interim periods beginning on or after December 15, 2014. The Company adopted this update in the first quarter of 2015 and this accounting update did not have an impact on the Company's consolidated financial statements.

2.STOCK-BASED EMPLOYEE COMPENSATION

Stock-based compensation expense included in personnel expenses in the Unaudited Consolidated Statements of Operations was approximately $54.0 million and $38.8 million for the three months ended March 31, 2015 and 2014, respectively.

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

Restricted Stock Units and Performance Share Units

The following table summarizes the activity of restricted stock units and performance share units ("share-based awards") during the three months ended March 31, 2015: 

Share-Based Awards	Shares		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2014	570,315			$	912.26
Granted	156,721			$	1,242.03
Vested	(130,908	)		$	685.37
Performance Share Units Adjustment	1,322			$	1,212.95
Forfeited	(6,213	)		$	1,029.03
Unvested at March 31, 2015	591,237			$	1,051.82

As of March 31, 2015, there was $402.3 million of total future compensation cost related to unvested share-based awards to be recognized over a weighted-average period of 2.6 years.

During the three months ended March 31, 2015, the Company made broad-based grants of 67,886 restricted stock units that generally vest after three years, subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability. These share-based awards had a total grant date fair value of $84.3 million based on a weighted-average grant date fair value per share of $1,242.03.

In addition, during the three months ended March 31, 2015, the Company granted 88,835 performance share units to executives and certain other employees.  The performance share units had a total grant date fair value of $110.3 million based upon a weighted-average grant date fair value per share of $1,242.03.  The performance share units are payable in shares of the Company's common stock upon vesting. Subject to certain exceptions for terminations other than for "cause," for "good

9

reason" or on account of death or disability, recipients of these performance share units generally must continue their service through the three-year requisite service period in order to receive any shares.  Stock-based compensation related to performance share units reflects the estimated probable outcome at the end of the performance period.  The actual number of shares to be issued on the vesting date will be determined upon completion of the performance period, which, for most of these performance share units, ends December 31, 2017, assuming there is no accelerated vesting for, among other things, a termination of employment under certain circumstances.  As of March 31, 2015, the estimated number of probable shares to be issued is a total of 88,835 shares.  If the maximum performance thresholds are met at the end of the performance period, a maximum number of 207,864 total shares could be issued.  If the minimum performance thresholds are not met, 37,223 shares would be issued at the end of the performance period.

2014 Performance Share Units

During the year ended December 31, 2014, the Company granted 72,277 performance share units with a grant date fair value of $96.1 million, based on a weighted-average grant date fair value per share of $1,329.11. The actual number of shares to be issued will be determined upon completion of the performance period which generally ends December 31, 2016.

At March 31, 2015, there were 70,688 unvested 2014 performance share units outstanding, net of performance share units that were forfeited or vested since the grant date. As of March 31, 2015, the number of shares estimated to be issued pursuant to these performance share units at the end of the performance period is a total of 111,532 shares. If the maximum thresholds are met at the end of the performance period, a maximum of 142,904 total shares could be issued pursuant to these performance share units. If the minimum performance thresholds are not met, 49,731 shares would be issued at the end of the performance period.

2013 Performance Share Units

During the year ended December 31, 2013, the Company granted 104,865 performance share units with a grant date fair value of $74.4 million, based on a weighted-average grant date fair value per share of $709.74.  The actual number of shares to be issued will be determined upon completion of the performance period which ends December 31, 2015.

At March 31, 2015, there were 101,407 unvested 2013 performance share units outstanding, net of performance share units that were forfeited or vested since the grant date.  As of March 31, 2015, the number of shares estimated to be issued pursuant to these performance share units at the end of the performance period is a total of 193,478 shares.  If the maximum performance thresholds are met at the end of the performance period, a maximum of 221,694 total shares could be issued pursuant to these performance share units. If the minimum performance thresholds are not met, 39,401 shares would be issued at the end of the performance period.

Stock Options

The following table summarizes the activity for the three months ended March 31, 2015 for employee stock options: 

Assumed Employee Stock Options	Number of Shares		Weighted-Average Exercise Price			Aggregate  Intrinsic Value (in thousands)			Weighted-Average Remaining Contractual Term (in years)
Balance, December 31, 2014	146,385			$	380.05		$	111,277	6.5
Assumed in acquisitions	1,422			$	230.37
Exercised	(21,602	)		$	391.00
Forfeited	(1,132	)		$	757.64
Balance, March 31, 2015	125,073			$	373.03		$	98,948	6.2
Vested and exercisable as of March 31, 2015	78,906			$	305.86		$	67,725	5.4
Vested and exercisable as of March 31, 2015 and unvested expected to vest thereafter, net of estimated forfeitures	123,968			$	372.92		$	98,088	6.2

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The aggregate intrinsic value of employee stock options exercised during the three months ended March 31, 2015 was $17.0 million compared to $26.5 million for the three months ended March 31, 2014. During the three months ended March 31, 2015, stock options vested for 11,170 shares of common stock with an acquisition date fair value of $7.5 million, compared to 9,478 shares of common stock vested with an acquisition date fair value of $4.1 million for the three months ended March 31, 2014.

For the three months ended March 31, 2015, the Company recorded stock-based compensation expense related to employee stock options of $7.4 million compared to $4.1 million for the three months ended March 31, 2014. For the three months ended March 31, 2015, employee stock options were assumed in an acquisition for a total acquisition date fair value of $1.4 million based on a weighted-average acquisition date fair value of $1,015.81 per share. As of March 31, 2015, there was $29.8 million of total future compensation costs related to unvested employee stock options to be recognized over a weighted-average period of 1.5 years.

3.NET INCOME PER SHARE

The Company computes basic net income per share by dividing net income by the weighted-average number of common shares outstanding during the period.  Diluted net income per share is based upon the weighted-average number of common and common equivalent shares outstanding during the period.

Common equivalent shares related to stock options, restricted stock units and performance share units are calculated using the treasury stock method.  Performance share units are included in the weighted-average common equivalent shares based on the number of shares that would be issued if the end of the reporting period were the end of the performance period, if the result would be dilutive.

The Company's convertible debt issues have net share settlement features requiring the Company upon conversion to settle the principal amount of the debt for cash and the conversion premium for cash or shares of the Company's common stock, at the Company's option.  The convertible notes are included in the calculation of diluted net income per share if their inclusion is dilutive under the treasury stock method.

A reconciliation of the weighted-average number of shares outstanding used in calculating diluted earnings per share is as follows (in thousands): 

	Three Months Ended March 31,
	2015	2014
Weighted-average number of basic common shares outstanding	51,909	52,153
Weighted-average dilutive stock options, restricted stock units and performance share units	257	317
Assumed conversion of Convertible Senior Notes	240	548
Weighted-average number of diluted common and common equivalent shares outstanding	52,406	53,018
Anti-dilutive potential common shares	2,616	2,069

Anti-dilutive potential common shares for the three months ended March 31, 2015 include approximately 2.1 million shares that could be issued under the Company's outstanding convertible notes.  Under the treasury stock method, the convertible notes will generally have a dilutive impact on net income per share if the Company's average stock price for the period exceeds the conversion price for the convertible notes.

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4.INVESTMENTS

The following table summarizes, by major security type, the Company's investments as of March 31, 2015 (in thousands): 

	Cost		Gross  Unrealized  Gains		Gross  Unrealized Losses			Fair Value
Available-for-sale securities:
Short-term investments:
Foreign government securities	$	141,303	$	3	$	(40	)	$	141,266
U.S. government securities	655,798		21		(75		)	655,744
Corporate debt securities	546,066		62		(318		)	545,810
Commercial paper	32,198		—		—			32,198
U.S. government agency securities	4,624		—		(1		)	4,623
Total short-term investments	$	1,379,989	$	86	$	(434	)	$	1,379,641
Long-term investments:
Foreign government securities	$	311,247	$	119	$	(112	)	$	311,254
U.S. government securities	697,558		4,001		(42		)	701,517
Corporate debt securities	3,031,365		12,635		(1,333		)	3,042,667
U.S. government agency securities	2,542		4		—			2,546
U.S. municipal securities	1,106		1		—			1,107
Ctrip corporate debt securities	500,000		—		(17,488		)	482,512
Ctrip equity securities	421,930		10,111		—			432,041
Total long-term investments	$	4,965,748	$	26,871	$	(18,975	)	$	4,973,644

The Company's investment policy seeks to preserve capital and maintain sufficient liquidity to meet operational and other needs of the business.  As of March 31, 2015, the weighted-average life of the Company’s U.S. Dollar and Euro fixed income investment portfolios, excluding the Company's fixed income investment in Ctrip, was approximately 1.5 years with an average credit quality of A1/A+.

As of March 31, 2015, foreign government securities included investments in debt securities issued by the governments of the Netherlands, Belgium, France, Austria, the United Kingdom and Sweden. 

In August 2014, the Company used its international cash to invest in a five-year Senior Convertible Note issued by Ctrip.com International Ltd. ("Ctrip"). The note was issued at par in an aggregate principal amount of $500 million. Additionally, as of March 31, 2015, the Company had invested $421.9 million of its international cash in Ctrip American Depositary Shares ("ADSs"). The convertible debt and equity securities of Ctrip have been marked to market in accordance with the accounting guidance for available-for-sale securities and at March 31, 2015 show a $17.5 million unrealized loss and $10.1 million unrealized gain, respectively. In connection with the purchase of the convertible note, Ctrip granted the Company the right to appoint an observer to Ctrip's board of directors and permission to acquire Ctrip shares (including through the acquisition of Ctrip ADSs in the open market) over the twelve months following the purchase date, so that combined with ADSs issuable upon conversion of the note, the Company may hold up to 10% of Ctrip's outstanding equity.

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The following table summarizes, by major security type, the Company's investments as of December 31, 2014 (in thousands): 

	Cost		Gross  Unrealized  Gains		Gross  Unrealized Losses			Fair Value
Available-for-sale securities:
Short-term investments:
Foreign government securities	$	52,524	$	—	$	(34	)	$	52,490
U.S. government securities	364,276		24		(34		)	364,266
Corporate debt securities	582,160		15		(652		)	581,523
Commercial paper	39,092		—		—			39,092
U.S. government agency securities	104,829		—		(18		)	104,811
Total short-term investments	$	1,142,881	$	39	$	(738	)	$	1,142,182
Long-term investments:
Foreign government securities	$	12,707	$	—	$	(36	)	$	12,671
U.S. government securities	557,130		80		(762		)	556,448
Corporate debt securities	2,332,030		2,299		(5,296		)	2,329,033
U.S. government agency securities	95,108		97		(111		)	95,094
U.S. municipal securities	1,114		—		(12		)	1,102
Ctrip corporate debt securities	500,000		—		(74,039		)	425,961
Ctrip equity securities	421,930		—		(86,586		)	335,344
Total long-term investments	$	3,920,019	$	2,476	$	(166,842	)	$	3,755,653

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

The Company recognized $1.8 million of net realized gains related to investments for the three months ended March 31, 2015. There were no realized gains or losses related to investments for the three months ended March 31, 2014.

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5.FAIR VALUE MEASUREMENTS

Financial assets and liabilities carried at fair value as of March 31, 2015 are classified in the tables below in the categories described below (in thousands): 

	Level 1		Level 2		Total
ASSETS:
Cash equivalents:
Money market funds	$	286,477	$	—	$	286,477
Foreign government securities	—		386,404		386,404
U.S. government securities	—		1,241,506		1,241,506
Commercial paper	—		221,735		221,735
Short-term investments:
Foreign government securities	—		141,266		141,266
U.S. government securities	—		655,744		655,744
Corporate debt securities	—		545,810		545,810
Commercial paper	—		32,198		32,198
U.S. government agency securities	—		4,623		4,623
Foreign exchange derivatives	—		374		374
Long-term investments:
Foreign government securities	—		311,254		311,254
U.S. government securities	—		701,517		701,517
Corporate debt securities	—		3,042,667		3,042,667
U.S. government agency securities	—		2,546		2,546
U.S. municipal securities	—		1,107		1,107
Ctrip corporate debt securities	—		482,512		482,512
Ctrip equity securities	432,041		—		432,041
Total assets at fair value	$	718,518	$	7,771,263	$	8,489,781

	Level 1		Level 2		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	493	$	493

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Financial assets and liabilities carried at fair value as of December 31, 2014 are classified in the tables below in the categories described below (in thousands):

	Level 1		Level 2		Total
ASSETS:
Cash equivalents:
Money market funds	$	155,608	$	—	$	155,608
Foreign government securities	—		974,855		974,855
U.S. government securities	—		676,503		676,503
Corporate debt securities	—		45,340		45,340
Commercial paper	—		382,544		382,544
U.S. government agency securities	—		10,000		10,000
Short-term investments:
Foreign government securities	—		52,490		52,490
U.S. government securities	—		364,266		364,266
Corporate debt securities	—		581,523		581,523
Commercial paper	—		39,092		39,092
U.S. government agency securities	—		104,811		104,811
Foreign exchange derivatives	—		336		336
Long-term investments:
Foreign government securities	—		12,671		12,671
U.S. government securities	—		556,448		556,448
Corporate debt securities	—		2,329,033		2,329,033
U.S. government agency securities	—		95,094		95,094
U.S. municipal securities	—		1,102		1,102
Ctrip corporate debt securities	—		425,961		425,961
Ctrip equity securities	335,344		—		335,344
Total assets at fair value	$	490,952	$	6,652,069	$	7,143,021

	Level 1		Level 2		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	129	$	129

There are three levels of inputs to measure fair value.  The definition of each input is described below:

Level 1: Quoted prices in active markets that are accessible by the Company at the measurement date for

identical assets and liabilities.

Level 2: Inputs that are observable, either directly or indirectly.  Such prices may be based upon quoted

prices for identical or comparable securities in active markets or inputs not quoted on active

markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available.

Investments in corporate debt securities, sovereign debt, commercial paper, government agency securities, corporate debt securities and municipal securities are considered "Level 2" valuations because the Company has access to quoted prices, but does not have visibility to the volume and frequency of trading for all of these investments.  For the Company's investments, a market approach is used for recurring fair value measurements and the valuation techniques use inputs that are observable, or can be corroborated by observable data, in an active marketplace. 

The Company's derivative instruments are valued using pricing models.  Pricing models take into account the contract terms as well as multiple inputs where applicable, such as interest rate yield curves, option volatility and currency rates. Derivatives are considered "Level 2" fair value measurements. The Company's derivative instruments are typically short term in nature.

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As of March 31, 2015 and December 31, 2014, the Company's cash consisted of bank deposits and cash held in investment accounts.  Other financial assets and liabilities, including restricted cash, accounts receivable, accounts payable, accrued expenses and deferred merchant bookings are carried at cost which approximates their fair value because of the short-term nature of these items.  See Note 4 for information on the carrying value of investments and Note 8 for the estimated fair value of the Company's outstanding Senior Notes. The Company's contingent liabilities associated with business acquisitions are considered "Level 3" fair value measurements (see Note 12).

In the normal course of business, the Company is exposed to the impact of foreign currency fluctuations.  The Company limits these risks by following established risk management policies and procedures, including the use of derivatives.  The Company does not use derivatives for trading or speculative purposes.  All derivative instruments are recognized in the Unaudited Consolidated Balance Sheets at fair value.  Gains and losses resulting from changes in the fair value of derivative instruments that are not designated as hedging instruments for accounting purposes are recognized in the Unaudited Consolidated Statements of Operations in the period that the changes occur.  Changes in the fair value of derivatives designated as net investment hedges are recorded as currency translation adjustments to offset a portion of the translation adjustment from Euro-denominated net assets held by certain subsidiaries and are recognized in the Unaudited Consolidated Balance Sheets in "Accumulated other comprehensive loss."

Derivatives Not Designated as Hedging Instruments — The Company is exposed to adverse movements in currency exchange rates as the operating results of its international operations are translated from local currency into U.S. Dollars upon consolidation.  The Company's derivative contracts principally address short-term foreign exchange fluctuations for the Euro and British Pound Sterling versus the U.S. Dollar.  As of March 31, 2015 and December 31, 2014, there were no outstanding derivative contracts related to foreign currency translation risk.  Foreign exchange gains of $1.9 million for the three months ended March 31, 2015 compared to foreign exchange losses of $0.3 million for the three months ended March 31, 2014, are recorded in "Foreign currency transactions and other" in the Unaudited Consolidated Statements of Operations related to these derivatives.

The Company also enters into foreign currency forward contracts to hedge its exposure to the impact of movements in currency exchange rates on its transactional balances denominated in currencies other than the functional currency. Foreign exchange derivatives outstanding as of March 31, 2015 associated with foreign currency transaction risks resulted in a net liability of $0.1 million, with a liability in the amount of $0.5 million recorded in "Accrued expenses and other current liabilities" and an asset in the amount of $0.4 million recorded in "Prepaid expenses and other current assets" in the Unaudited Consolidated Balance Sheet. Foreign exchange derivatives outstanding as of December 31, 2014 associated with foreign exchange transactions resulted in a net asset of $0.2 million, with an asset in the amount of $0.3 million recorded in "Prepaid expenses and other current assets" and a liability in the amount of $0.1 million recorded in "Accrued expenses and other current liabilities" in the Unaudited Consolidated Balance Sheet.  Derivatives associated with these transaction risks resulted in foreign exchange losses of $32.0 million for the three months ended March 31, 2015 compared to foreign exchange gains of $0.6 million for the three months ended March 31, 2014. These mark to market adjustments on the derivative contracts, offset by the effect of changes in currency exchange rates on transactions denominated in currencies other than the functional currency, resulted in net losses of $6.1 million and $0.6 million for the three months ended March 31, 2015 and 2014, respectively. The net impacts related to these derivatives are recorded in "Foreign currency transactions and other" in the Unaudited Consolidated Statements of Operations.

The settlement of derivative contracts not designated as hedging instruments resulted in a net cash outflow of $26.1 million for the three months ended March 31, 2015 compared to a net cash inflow of $0.2 million for the three months ended March 31, 2014, and are reported within "Net cash provided by operating activities" in the Unaudited Consolidated Statements of Cash Flows.

Derivatives Designated as Hedging Instruments — The Company had no foreign currency forward contracts designated as hedges of its net investment in a foreign subsidiary outstanding as of March 31, 2015 or December 31, 2014. A net cash inflow of $5.2 million for the three months ended March 31, 2015, compared to a net cash outflow of $43.4 million for the three months ended March 31, 2014, are reported within "Net cash used in investing activities" in the Unaudited Consolidated Statements of Cash Flows.

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6.INTANGIBLE ASSETS AND GOODWILL

The Company's intangible assets at March 31, 2015 and December 31, 2014 consisted of the following (in thousands): 

	March 31, 2015							December 31, 2014
	Gross  Carrying  Amount		Accumulated Amortization			Net  Carrying  Amount		Gross  Carrying  Amount		Accumulated Amortization			Net  Carrying  Amount		Amortization Period	Weighted  Average  Useful Life
Supply and distribution agreements	$	819,293	$	(186,578	)	$	632,715	$	842,642	$	(188,441	)	$	654,201	10 - 20 years	16 years
Technology	109,091		(46,782		)	62,309		108,987		(43,746		)	65,241		1 - 5 years	5 years
Patents	1,623		(1,534		)	89		1,623		(1,524		)	99		15 years	15 years
Internet domain names	37,246		(16,498		)	20,748		41,652		(16,895		)	24,757		2 - 20 years	8 years
Trade names	1,671,026		(120,585		)	1,550,441		1,674,218		(100,850		)	1,573,368		5 - 20 years	20 years
Non-compete agreements	21,720		(5,678		)	16,042		21,000		(3,908		)	17,092		3 years	3 years
Other	141		(138		)	3		141		(138		)	3		3 - 10 years	3 years
Total intangible assets	$	2,660,140	$	(377,793	)	$	2,282,347	$	2,690,263	$	(355,502	)	$	2,334,761

Intangible assets with determinable lives are amortized on a straight-line basis.  Intangible asset amortization expense was approximately $43.3 million for the three months ended March 31, 2015 and $22.8 million for the three months ended March 31, 2014.

The amortization expense for intangible assets for the remainder of 2015, the annual expense for the next five years, and the expense thereafter is expected to be as follows (in thousands): 

2015	$	126,037
2016	166,245
2017	159,042
2018	140,470
2019	130,596
2020	123,701
Thereafter	1,436,256
	$	2,282,347

The change in goodwill for the three months ended March 31, 2015 consists of the following (in thousands): 

Balance at December 31, 2014	$	3,326,474
Acquisitions	26,935
Currency translation adjustments	(25,625		)
Balance at March 31, 2015	$	3,327,784

A substantial portion of the intangibles and goodwill relates to the acquisition of OpenTable in July 2014 and KAYAK in May 2013.

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7.OTHER ASSETS

Other assets at March 31, 2015 and December 31, 2014 consisted of the following (in thousands): 

	March 31, 2015		December 31, 2014
Deferred debt issuance costs	$	35,422	$	27,204
Security deposits	12,093		12,368
Deferred tax assets	8,121		8,548
Other	20,737		9,228
Total	$	76,373	$	57,348

Deferred 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 entered into in October 2011; (iii) the $1.0 billion aggregate principal amount of 0.35% Convertible Senior Notes, due June 15, 2020, issued in May 2013; (iv) the $1.0 billion aggregate principal amount of 0.9% Convertible Senior Notes, due September 15, 2021, issued in August 2014; (v) the 1.0 billion Euro aggregate principal amount of 2.375% Senior Notes, due September 23, 2024, issued in September 2014; (vi) the 1.0 billion Euro aggregate principal amount of 1.8% Senior Notes, due March 3, 2027, issued in March 2015 and (vii) the $500 million aggregate principal amount of 3.65% Senior Notes, due March 15, 2025, issued in March 2015.  Included in the December 31, 2014 balance were debt issuance costs related to the $575.0 million aggregate principal amount of 1.25% Convertible Senior Notes, due March 15, 2015, issued in March 2010. Deferred debt issuance costs are being amortized using the effective interest rate method and the period of amortization was determined at inception of the related debt agreements based upon the stated maturity dates. Unamortized debt issuance costs charged to interest expense for the three months ended March 31, 2014 related to early conversion of convertible debt amounted to $0.3 million. Security deposits principally relate to the Company's leased office spaces.

8.DEBT

Revolving Credit Facility

In October 2011, the Company entered into a $1.0 billionfive-year unsecured revolving credit facility with a group of lenders. Borrowings under the revolving credit facility will bear interest, at the Company's option, at a rate per annum equal to either (i) the adjusted LIBOR for the interest period in effect for such borrowing plus an applicable margin ranging from 1.00% to 1.50%; or (ii) the greatest of (a) JPMorgan Chase Bank, National Association's prime lending rate, (b) the federal funds rate plus 0.50%, and (c) an adjusted LIBOR for an interest period of one month plus 1.00%, plus an applicable margin ranging from 0.00% to 0.50%. Undrawn balances available under the revolving credit facility are subject to commitment fees at the applicable rate ranging from 0.10% 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 $50.0 million on same-day notice, referred to as swingline loans. Borrowings under the revolving credit facility may be made in U.S. Dollars, Euros, British Pounds Sterling and any other foreign currency agreed to by the lenders. The proceeds of loans made under the facility will be used for working capital and general corporate purposes.

As of March 31, 2015 and December 31, 2014, there were no borrowings under the facility. As of March 31, 2015 and December 31, 2014, there were approximately $3.9 million and $4.0 million of letters of credit issued under the facility, respectively. 

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Outstanding Debt

Outstanding debt as of March 31, 2015 consisted of the following (in thousands): 

March 31, 2015	Outstanding Principal  Amount		Unamortized Debt Discount			Carrying Value
Long-term debt:
1.0% Convertible Senior Notes due March 2018	$	1,000,000	$	(69,222	)	$	930,778
0.35% Convertible Senior Notes due June 2020	1,000,000		(132,240		)	867,760
0.9% Convertible Senior Notes due September 2021	1,000,000		(131,662		)	868,338
2.375% (€1 Billion) Senior Notes due September 2024	1,074,229		(9,599		)	1,064,630
3.65% Senior Notes due March 2025	500,000		(1,285		)	498,715
1.8% (€1 Billion) Senior Notes due March 2027	1,074,229		(342		)	1,073,887
Total long-term debt	$	5,648,458	$	(344,350	)	$	5,304,108

Outstanding debt as of December 31, 2014 consisted of the following (in thousands): 

December 31, 2014	Outstanding Principal  Amount		Unamortized Debt Discount			Carrying Value
Short-term debt:
1.25% Convertible Senior Notes due March 2015	$	37,524	$	(329	)	$	37,195
Long-term debt:
1.0% Convertible Senior Notes due March 2018	$	1,000,000	$	(74,834	)	$	925,166
0.35% Convertible Senior Notes due June 2020	1,000,000		(138,114		)	861,886
0.9% Convertible Senior Notes due September 2021	1,000,000		(136,299		)	863,701
2.375% (€1 Billion) Senior Notes due September 2024	1,210,068		(11,065		)	1,199,003
Total long-term debt	$	4,210,068	$	(360,312	)	$	3,849,756

The 2015 Notes became convertible on December 15, 2014, at the option of the holders, and remained convertible until the scheduled trading day immediately preceding the maturity date of March 15, 2015. Since these notes were convertible at the option of the holders and the principal amount is required to be paid in cash, the difference between the principal amount and the carrying value was reflected as convertible debt in the mezzanine section in the Company's Unaudited Consolidated Balance Sheets. Therefore, with respect to the 2015 Notes, the Company reclassified the unamortized debt discount for these 1.25% Notes in the amount of $0.3 million before tax as of December 31, 2014, from additional paid-in capital to convertible debt in the mezzanine section in the Company's Unaudited Consolidated Balance Sheets.

Based upon the closing price of the Company's common stock for the prescribed measurement period during the three months ended March 31, 2015 and December 31, 2014, the respective contingent conversion thresholds of the 2018 Notes (as defined below), the 2020 Notes (as defined below) and the 2021 Notes (as defined below) were not exceeded and therefore these Notes are reported as a non-current liability in the Unaudited Consolidated Balance Sheets.

Fair Value of Debt

As of March 31, 2015 and December 31, 2014, the estimated market value of all outstanding Senior Notes was approximately $6.2 billion and $4.8 billion, respectively, and was considered a "Level 2" fair value measurement (see Note 5). Fair value was estimated based upon actual trades at the end of the reporting period or the most recent trade available as well as the Company's stock price at the end of the reporting period.  A substantial portion of the market value of the Company's debt in excess of the outstanding principal amount relates to the conversion premium on the Convertible Senior Notes.

Convertible Debt

If the note holders exercise their option to convert, the Company delivers cash to repay the principal amount of the notes and delivers shares of common stock or cash, at its option, to satisfy the conversion value in excess of the principal

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amount.  In cases where holders decide to convert prior to the maturity date, the Company charges off the proportionate amount of remaining debt issuance costs to interest expense.

Description of Senior Convertible Notes

In August 2014, the Company issued in a private placement $1.0 billion aggregate principal amount of Convertible Senior Notes due September 15, 2021, with an interest rate of 0.9% (the "2021 Notes"). The Company paid $11.0 million in debt issuance costs during the year ended December 31, 2014, related to this offering. The 2021 Notes are convertible, subject to certain conditions, into the Company's common stock at a conversion price of approximately $2,055.50 per share. The 2021 Notes are convertible, at the option of the holder, prior to September 15, 2021, upon the occurrence of specific events, including but not limited to a change in control, or if the closing sales price of the Company's common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 150% of the applicable conversion price in effect for the notes on the last trading day of the immediately preceding quarter. In the event that all or substantially all of the Company's common stock is acquired on or prior to the maturity of the 2021 Notes in a transaction in which the consideration paid to holders of the Company's common stock consists of all or substantially all cash, the Company would be required to make additional payments in the form of additional shares of common stock to the holders of the 2021 Notes in an aggregate value ranging from $0 to approximately $375 million depending upon the date of the transaction and the then current stock price of the Company. As of June 15, 2021, holders will have the right to convert all or any portion of the 2021 Notes. The 2021 Notes may not be redeemed by the Company prior to maturity.  The holders may require the Company to repurchase the 2021 Notes for cash in certain circumstances.  Interest on the 2021 Notes is payable on March 15 and September 15 of each year.

In May 2013, the Company issued in a private placement $1.0 billion aggregate principal amount of Convertible Senior Notes due June 15, 2020, with an interest rate of 0.35% (the "2020 Notes"). The 2020 Notes were issued with an initial discount of $20.0 million. The Company paid $1.0 million in debt issuance costs during the year ended December 31, 2013, related to this offering. The 2020 Notes are convertible, subject to certain conditions, into the Company's common stock at a conversion price of approximately $1,315.10 per share. The 2020 Notes are convertible, at the option of the holder, prior to June 15, 2020, upon the occurrence of specific events, including but not limited to a change in control, or if the closing sales price of the Company's common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 150% of the applicable conversion price in effect for the notes on the last trading day of the immediately preceding quarter. In the event that all or substantially all of the Company's common stock is acquired on or prior to the maturity of the 2020 Notes in a transaction in which the consideration paid to holders of the Company's common stock consists of all or substantially all cash, the Company would be required to make additional payments in the form of additional shares of common stock to the holders of the 2020 Notes in an aggregate value ranging from $0 to approximately $397 million depending upon the date of the transaction and the then current stock price of the Company. As of March 15, 2020, holders will have the right to convert all or any portion of the 2020 Notes. The 2020 Notes may not be redeemed by the Company prior to maturity.  The holders may require the Company to repurchase the 2020 Notes for cash in certain circumstances.  Interest on the 2020 Notes is payable on June 15 and December 15 of each year.

In March 2012, the Company issued in a private placement $1.0 billion aggregate principal amount of Convertible Senior Notes due March 15, 2018, with an interest rate of 1.0% (the "2018 Notes"). The Company paid $20.9 million in debt issuance costs during the year ended December 31, 2012, related to this offering. The 2018 Notes are convertible, subject to certain conditions, into the Company's common stock at a conversion price of approximately $944.61 per share. The 2018 Notes are convertible, at the option of the holder, prior to March 15, 2018, upon the occurrence of specific events, including but not limited to a change in control, or if the closing sales price of the Company's common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 150% of the applicable conversion price in effect for the notes on the last trading day of the immediately preceding quarter. In the event that all or substantially all of the Company's common stock is acquired on or prior to the maturity of the 2018 Notes in a transaction in which the consideration paid to holders of the Company's common stock consists of all or substantially all cash, the Company would be required to make additional payments in the form of additional shares of common stock to the holders of the 2018 Notes in aggregate value ranging from $0 to approximately $344 million depending upon the date of the transaction and the then current stock price of the Company. As of December 15, 2017, holders will have the right to convert all or any portion of the 2018 Notes. The 2018 Notes may not be redeemed by the Company prior to maturity.  The holders may require the Company to repurchase the 2018 Notes for cash in certain circumstances.  Interest on the 2018 Notes is payable on March 15 and September 15 of each year.

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 2015 Notes were convertible, subject to certain conditions, into the Company's common stock at a conversion price of approximately $303.06 per share.  For the

20

three months ended March 31, 2015, in connection with the maturity or conversion prior to maturity of the remaining outstanding 1.25% Convertible Senior Notes, the Company paid $37.5 million to satisfy the aggregate principal amount due and paid an additional $110.1 million in satisfaction of the conversion value in excess of the principal amount.

Accounting guidance requires that cash-settled convertible debt, such as the Company's Convertible Senior Notes, be separated into debt and equity components at issuance and each be assigned a value.  The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar bond without the conversion feature.  The difference between the bond cash proceeds and this estimated fair value, representing the value assigned to the equity component, is recorded as a debt discount.  Debt discount is amortized using the effective interest method over the period from the origination date through the stated maturity date.  The Company estimated the straight debt borrowing rates at debt origination to be 3.50% for the 2018 Notes, 3.13% for the 2020 Notes and 3.18% for the 2021 Notes.  The yield to maturity was estimated at an at-market coupon priced at par.

Debt discount after tax of $82.5 million ($142.9 million before tax) and financing costs associated with the equity component of convertible debt of $1.6 million after tax were recorded in additional paid-in capital related to the 2021 Notes at December 31, 2014. Debt discount after tax of $92.4 million ($154.3 million before tax) and financing costs associated with the equity component 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. Debt discount after tax of $80.9 million ($135.2 million before tax) and financing costs associated with the equity component of convertible debt of $2.8 million after tax were recorded in additional paid-in capital related to the 2018 Notes at March 31, 2012. Debt discount after tax of $69.1 million ($115.2 million before tax) and financing costs associated with the equity component of convertible debt of $1.6 million after tax were recorded in additional paid-in-capital related to the 2015 Notes at March 31, 2010.

For the three months ended March 31, 2015 and 2014, the Company recognized interest expense of $23.3 million and $17.1 million, respectively, related to convertible notes.  Interest expense related to convertible notes for the three months ended March 31, 2015 and 2014 was comprised of $5.7 million and $3.5 million, respectively, for the contractual coupon interest, $16.5 million and $12.4 million, respectively, related to the amortization of debt discount, and $1.1 million and $1.2 million, respectively, related to the amortization of debt issuance costs.  For the three months ended March 31, 2015 and 2014, included in the amortization of debt discount mentioned above was $0.7 million and $0.7 million, respectively, of original issuance discount related to the 2020 Notes. In addition, the Company incurred interest expense of $0.3 million related to debt conversions during the three months ended March 31, 2014. The remaining period for amortization of debt discount and debt issuance costs is the stated maturity dates for the respective debt. The weighted-average effective interest rate for the three months ended March 31, 2015 and 2014 was 3.5% and 3.6%, respectively, related to convertible notes.

In addition, if the Company's convertible debt is redeemed or converted prior to maturity, a gain or loss on extinguishment is recognized.  The gain or loss is the difference between the fair value of the debt component immediately prior to extinguishment and its carrying value.  To estimate the fair value of the debt at the conversion date, the Company estimated its straight debt borrowing rate, considering its credit rating and straight debt of comparable corporate issuers.  For the three months ended March 31, 2014, the Company recognized a non-cash loss of $3.4 million ($2.1 million after tax) in "Foreign currency transactions and other" in the Unaudited Consolidated Statements of Operations in connection with the conversion of the 2015 Notes.

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Other Long-term Debt

In March 2015, the Company issued Senior Notes due March 15, 2025, with an interest rate of 3.65% (the "2025 Notes") for an aggregate principal amount of $500 million. The 2025 Notes were issued with an initial discount of $1.3 million. In addition, the Company paid $2.7 million in debt issuance costs during the three months ended March 31, 2015. Interest on the 2025 Notes is payable semi-annually on March 15 and September 15, beginning September 15, 2015.

In March 2015, the Company issued Senior Notes due March 3, 2027, with an interest rate of 1.8% (the "2027 Notes") for an aggregate principal amount of 1.0 billion Euros. The 2027 Notes were issued with an initial discount of 0.3 million Euros. In addition, the Company paid $5.4 million in debt issuance costs during the three months ended March 31, 2015. Interest on the 2027 Notes is payable annually on March 3, beginning March 3, 2016. Subject to certain limited exceptions, all payments of interest and principal for the 2027 Notes will be made in Euros.

In September 2014, the Company issued Senior Notes due September 23, 2024, with an interest rate of 2.375% (the "2024 Notes") for an aggregate principal amount of 1.0 billion Euros. The 2024 Notes were issued with an initial discount of 9.4 million Euros. In addition, the Company paid $6.5 million in debt issuance costs during the year ended December 31, 2014. Interest on the 2024 Notes is payable annually on September 23, beginning September 23, 2015. Subject to certain limited exceptions, all payments of interest and principal for the 2024 Notes will be made in Euros.

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

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

For the three months ended March 31, 2015, the Company recognized interest expense of $9.5 million related to other long-term debt which was comprised of $9.0 million for the contractual coupon interest, $0.3 million related to the amortization of debt discount and $0.2 million related to the amortization of debt issuance costs. The remaining period for amortization of debt discount and debt issuance costs is the stated maturity date for the debt.

9.TREASURY STOCK

In the first quarter of 2015, the Company's Board of Directors authorized the repurchase of up to $3.0 billion of the Company's common stock, in addition to amounts previously authorized. In the first quarter of 2015, the Company repurchased 198,335 shares of its common stock in the open market for an aggregate cost of $242.8 million.

As of March 31, 2015, the Company had a remaining authorization of $2.8 billion to purchase its common stock.  The Company may make additional repurchases of shares under its stock repurchase programs, depending on prevailing market conditions, alternate uses of capital and other factors. Whether and when to initiate and/or complete any purchase of common stock and the amount of common stock purchased will be determined at the Company's discretion.

The Board of Directors has given the Company the general authorization to repurchase shares of its common stock to satisfy employee withholding tax obligations related to stock-based compensation.  The Company repurchased 53,062 shares and 72,277 shares at aggregate costs of $65.8 million and $96.7 million in the three months ended March 31, 2015 and 2014, respectively, to satisfy employee withholding taxes related to stock-based compensation.

As of March 31, 2015, there were approximately 10.1 million shares of the Company's common stock held in treasury.

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10.INCOME TAXES

Income tax expense consists of U.S. and international income taxes, determined using an estimate of the Company's annual effective tax rate.  A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences and operating loss and tax credit carryforwards.  A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The Company recognizes income tax expense based upon the applicable tax rates and tax laws of the countries in which the income is generated.  During the three months ended March 31, 2015 and 2014, a substantial majority of the Company's international sourced income was generated in the Netherlands.  Income tax expense for the three months ended March 31, 2015 and 2014 differs from the expected tax expense at the U.S. federal statutory rate of 35%, primarily due to lower international tax rates, including the Innovation Box Tax benefit discussed below, partially offset by U.S. state income taxes and certain non-deductible expenses. 

According to Dutch corporate income tax law, income generated from qualifying innovative activities is taxed at a rate of 5% ("Innovation Box Tax") rather than the Dutch statutory rate of 25%.  Booking.com obtained a ruling from the Dutch tax authorities in February 2011 confirming that a portion of its earnings is eligible for Innovation Box Tax treatment.  The ruling from the Dutch tax authorities is valid until December 31, 2017.

The Company has significant deferred tax assets, resulting principally from U.S. net operating loss carryforwards ("NOLs"). The amount of NOLs available for the Company's use is limited by Section 382 of the U.S. Internal Revenue Code ("IRC Section 382"). At December 31, 2014, after considering the impact of IRC Section 382, the Company had approximately $1.2 billion of available NOLs for U.S. federal income tax purposes, comprised of $22 million of NOLs generated from operating losses and approximately $1.2 billion of NOLs generated from equity-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. Pursuant to accounting guidance, tax benefits related to equity deductions will be recognized by crediting additional paid-in capital when they are realized by reducing the Company's current income tax liability. The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of these deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future income, the carryforward periods available for tax reporting purposes, and other relevant factors.

It is the practice and current intention of the Company to reinvest the earnings of its international subsidiaries in those operations.  At December 31, 2014, no provision had been made for U.S. taxes on approximately $7.3 billion of international earnings because such earnings are intended to be indefinitely reinvested outside of the United States.  It is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not indefinitely reinvested.

11.ACCUMULATED OTHER COMPREHENSIVE LOSS

The table below provides the balances for each classification of accumulated other comprehensive loss as of March 31, 2015 and December 31, 2014 (in thousands): 

	March 31, 2015			December 31, 2014
Foreign currency translation adjustments, net of tax (1)	$	(229,769	)	$	(102,758	)
Net unrealized gain (loss) on marketable securities, net of tax (2)	5,224			(157,144		)
Accumulated other comprehensive loss	$	(224,545	)	$	(259,902	)

(1) Foreign currency translation adjustments, net of tax, includes net losses from fair value adjustments at March 31, 2015 of $34.8 million after tax ($52.6 million before tax) and net losses from fair value adjustments at December 31, 2014 of $37.8 million after tax ($57.8 million before tax) associated with derivatives designated as net investment hedges (see Note 5).

Foreign currency translation adjustments, net of tax, includes foreign currency transaction gains at March 31, 2015 of $157.0 million after tax ($266.9 million before tax) associated with the Company's 2024 Notes and 2027 Notes and foreign

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currency transaction gains at December 31, 2014 of $48.3 million after tax ($83.8 million before tax) associated with the Company's 2024 Notes. The 2024 Notes and 2027 Notes are Euro-denominated debt and are designated as hedges of certain of the Company's Euro-denominated net assets (see Note 8).

The remaining balance in currency translation adjustments excludes income taxes as a result of the Company's current intention to indefinitely reinvest the earnings of its international subsidiaries outside of the United States.

(2) The unrealized gain before tax at March 31, 2015 was $7.6 million, compared to an unrealized loss before tax at December 31, 2014 of $164.7 million.

12.COMMITMENTS AND CONTINGENCIES

Competition Reviews

In July 2012, the Office of Fair Trading (the "OFT"), the predecessor competition authority in the United Kingdom to the Competition and Markets Authority ("CMA"), issued a "Statement of Objections" ("SO") to Booking.com, which alleged, among other things, that there were agreements or concerted practices between hotels and Booking.com and between hotels and at least one other online travel company ("OTC") that restricted Booking.com's (and the other OTC's) ability to discount hotel room reservations and that this was a form of resale price maintenance.  Although we dispute the allegations in the SO, on January 31, 2014, the OFT announced that it had accepted commitments offered by Booking.com, as well as by Expedia and Intercontinental Hotel Group, (the "Commitments") to close the investigation on the basis that they address the OFT's competition concerns and with no finding of infringement or admission of wrongdoing by Booking.com and no imposition 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 OTC websites, such as Booking.com, but that OTCs have the flexibility to discount a hotel's retail price up to the OTC's commission, but only to members of closed groups, a concept that is defined in the Commitments, who have previously made a reservation through the OTC.  In addition, the Commitments provide that Booking.com will not require rate parity from hotels in relation to discounted rates that are provided by other OTCs or hotels to members of their closed groups, provided the discounted rate is not made public.  The Commitments apply to bookings by European Economic Area residents at U.K. hotels. On March 31, 2014, Skyscanner, a meta-search site based in the United Kingdom, filed an appeal in the Competition Appeal Tribunal ("CAT") against the OFT's decision to accept the Commitments. In its decision dated September 26, 2014, the CAT found that the CMA was wrong to reject Skyscanner's arguments about the negative impact of the Commitments on its business and price transparency generally without properly exploring these arguments. The CAT's decision vacates the CMA's Commitments decision and remits the matter to the CMA for reconsideration in accordance with the CAT's ruling. The CMA did not appeal the CAT's decision, and it is uncertain what action the CMA will take in response to the CAT's ruling, which could involve re-opening, closing or suspending the investigation.

Investigations have also been opened by the national competition authorities in the Czech Republic, France, Germany, Italy, Austria, Hungary, Sweden, Ireland, Denmark and Switzerland that focus on Booking.com's rate parity clause in its contracts with accommodation providers in those jurisdictions.  Competition related inquiries have also been received from the competition authority in China.

On December 15, 2014, the French, Italian and Swedish national competition authorities ("NCAs"), working in close cooperation with the European Commission, announced their intention to seek public feedback on commitments offered by Booking.com in connection with investigations of Booking.com's rate parity provisions in its contractual arrangements with accommodation providers. The public comment period expired at the end of January 2015. On April 21, 2015, the French, Italian and Swedish NCAs announced that they had accepted revised commitments offered by Booking.com. Under the revised commitments, Booking.com will replace its existing price parity agreements with accommodation providers with "narrow" price parity agreements. Under the "narrow" price parity agreement, subject to certain exceptions, an accommodation provider will still be required to offer the same or better rates on Booking.com as it offers to a consumer directly, but it will no longer be required to offer the same or better rates on Booking.com as it offers to other on-line travel companies. The revised commitments will also allow an accommodation provider to, among other things, offer different terms and conditions (e.g., free WiFi) and availability to consumers that book with on-line travel companies that offer lower rates of commission or other benefits, offer lower rates to consumers that book through off-line channels and continue to discount through, among other things, accommodation loyalty programs, as long as those rates are not published or marketed online. The revised commitments apply to accommodations in France, Italy and Sweden. The foregoing description is a summary only and is qualified in its entirety by reference to the commitments published by the NCAs on April 21, 2015.

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The Company is in ongoing discussions with the relevant regulatory authorities regarding their concerns. Booking.com intends to implement these commitments throughout the European Economic Area and is working with certain other European NCAs towards this objective. However, the Company is currently unable to predict the impact the commitments in France, Italy and Sweden will have on its business or on the on-going investigations in other European countries, in particular in Germany where competition authorities have alleged that any parity requirements, "narrow" or otherwise, are anti-competitive. Further, the Company is unable to predict how the investigations in the other countries will be resolved.

To the extent that regulatory authorities impose fines on the Company or require changes to the Company's business practices or to those currently common to the industry, the Company's business, competitive position and results of operations could be materially and adversely affected. Negative publicity regarding any such investigations could adversely affect the Company's brands and therefore its market share and results of operations.

Litigation Related to Travel Transaction Taxes

The Company and certain third-party OTCs are currently involved in approximately forty lawsuits, including certified and putative class actions, brought by or against U.S. states, cities and counties over issues involving the payment of travel transaction taxes (e.g., hotel occupancy taxes, excise taxes, sales taxes, etc.).  The Company's subsidiaries priceline.com LLC, Lowestfare.com LLC and Travelweb LLC are named in some but not all of these cases.  Generally, the complaints allege, among other things, that the OTCs violated each jurisdiction's respective relevant travel transaction tax ordinance with respect to the charge and remittance of amounts to cover taxes under each law.  The complaints typically seek compensatory damages, disgorgement, penalties available by law, attorneys' fees and other relief.  In addition, approximately seventy-nine municipalities or counties, and at least eleven 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 assessments or started inquiries relating to the payment of travel transaction taxes.  Additional state and local jurisdictions are likely to assert that the 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 the facilitation 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 issue generally impose travel transaction taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar accommodations 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 vigorously contested.  The taxing jurisdictions that are currently involved in litigation and other proceedings with the Company, and that may be involved in future proceedings, 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 in the 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 be paid.

In connection with some of these tax audits and assessments, the Company 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 to play" or "pay first."  For example, the City and County of San Francisco assessed the Company approximately $3.4 million (an amount that includes interest and penalties) relating to hotel occupancy taxes, which the Company paid in July 2009, and issued a second assessment totaling approximately $2.7 million, which the Company paid in January 2013.  Payment of these amounts, if any, is not an admission that the Company believes it is subject to such taxes.  In the San Francisco action, for example, the court ruled in February 2013 that the Company and OTCs do not owe transient accommodations tax to the city and ordered the city to refund the amount paid in July 2009; the Company also is seeking a refund of the amount paid in January 2013. San Francisco has appealed the court's ruling and has not refunded the amount paid in July 2009 pending resolution of the appeal. The matter has been stayed while the appeal in another case with the City of San Diego is pending before the California Supreme Court.

Litigation is subject to uncertainty and there could be adverse developments in these pending or future cases and proceedings.  For example, in September 2012, the Superior Court in the District 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, which the Company is appealing. As a result, the Company increased its accrual for travel transaction taxes (including estimated interest), with a corresponding charge to cost of revenues, by approximately $4.8 million in September 2012 and by approximately $5.6 million in the three months ended March 31, 2013. 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 under the Chicago Hotel Accommodations Tax. In July 2014, the Company resolved all claims in this case through settlement and the claims against the Company were dismissed on September 3, 2014. In addition, in October 2009, a jury in a San Antonio class action found that the Company and the other

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OTCs that are defendants in the lawsuit "control" hotels for purposes of the local hotel occupancy tax ordinances at issue and are, therefore, subject to the requirements of those ordinances. The Company intends to vigorously appeal the trial court's judgment when it becomes final.

In a mixed decision, on March 17, 2015 the Hawaii Supreme Court affirmed a ruling of the Tax Appeal Court for the State of Hawaii holding that the Company and other OTCs are not liable for the State's transient accommodations tax and upheld, in part, the Tax Court's ruling that the OTCs, including the Company, are liable for the State's general excise tax ("GET") on the margin and fee retained by an OTC as compensation in a transaction. The Hawaii Supreme Court reversed that portion of the Tax Court's decision that had held that OTCs are liable for GET on the full amount the OTC collects from the customer for a hotel room reservation, not just margin and fee, without any offset for amounts passed through to the hotel. The Company had 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 months ended March 31, 2013, primarily related to the Tax Court ruling. Also, during the year ended December 31, 2014 and three months ended March 31, 2015, the Company had paid approximately $2.2 million and $0.6 million, respectively, to the State of Hawaii related to the Tax Court ruling. The March 2015 ruling by the Hawaii Supreme Court significantly reduced the Company's (and other OTCs') liability under the GET statute since GET tax is now owed only on the Company's margin and fee, not the gross amount charged to a customer in a transaction. As a result, the Company reduced its accrual for travel transaction taxes (including estimated interest and penalties) by $16.4 million with a corresponding reduction to cost of revenues. In addition, the Company will seek a refund of approximately $20 million paid to date in excess of its actual liability. The Company will record a reduction in cost of revenues for the taxes refunded by the State of Hawaii in the periods in which the cash refunds are received.

An unfavorable outcome or settlement of pending litigation may encourage the commencement of additional litigation, audit proceedings or other regulatory inquiries and also could result in substantial 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 the Company's position in pending and any future cases or proceedings.  An adverse outcome in one or more of these unresolved proceedings could have a material adverse effect on the Company's business and could be material to the Company's results of operations or cash flow in any given operating period. However, the Company believes that even if it were to suffer adverse determinations in the near term in more of the pending proceedings than currently anticipated, given results to date it would not have a material impact on the Company's liquidity because of the Company's available cash.

To the extent that any tax authority succeeds in asserting that the Company's services are subject to travel transaction taxes and that the Company has a tax collection responsibility for those taxes, or the Company determines that it has such a responsibility, with respect to future transactions, the Company may collect any such additional tax obligation from its customers, which would have the effect of increasing the cost of travel reservations to its customers and, consequently, could make the Company's travel reservation services less competitive (as compared to the services of other OTCs or travel service providers) and reduce the Company's travel reservation transactions; alternatively, the Company could choose to reduce the compensation for its services.  Either action could have a material adverse effect on the Company's business and results of operations.

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 the Company's gross profit, but also, among other things, interest, penalties, punitive damages and/or attorney fees and costs.  Therefore, any liability associated with travel transaction tax matters is not constrained 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 payable.  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 amend their tax statutes and seek to collect taxes from the Company only on a prospective basis.

Accrual 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 estimated interest and penalties) for the potential resolution of issues related to travel transaction taxes in the amount of approximately $35 million at March 31, 2015 and $52 million at December 31, 2014. The March 2015 ruling by the Hawaii Supreme Court significantly reduced the Company's (and other OTCs') liability and as a result the Company reduced its accrual for travel transaction taxes (including estimated interest and penalties) by $16.4 million with a corresponding reduction to cost of revenues. The Company's legal expenses for these matters are expensed as incurred and are not reflected in the

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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.

Patent Infringement

On February 9, 2015, International Business Machines Corporation ("IBM") filed a complaint in the U.S. District Court for the District of Delaware against The Priceline Group Inc. and its subsidiaries KAYAK Software Corporation, OpenTable, Inc. and priceline.com LLC (the "Subject Companies").  In the complaint, IBM alleges that the Subject Companies have infringed and continue to willfully infringe certain IBM patents that IBM claims relate to the presentation of applications and advertising in an interactive service, preserving state information in online transactions and single sign-on processes in a computing environment and seeks unspecified damages (including a request that the amount of compensatory damages be trebled), injunctive relief and costs and reasonable attorneys’ fees.  The Company believes the claims to be without merit and intends to contest them vigorously.

Other

The Company intends to defend vigorously against the claims in all of the proceedings described in this Note 12.  The Company has accrued for certain legal contingencies where 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 to the Company's consolidated balance sheets and provisions recorded have not been material to the Company's consolidated results of operations or cash flows.  An estimate for a reasonably possible loss or range of loss in excess of the amount accrued cannot be reasonably made.

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 of significant financial and managerial resources, divert management's attention from the Company's business objectives and adversely affect the Company's business, results of operations, financial condition and cash flows.

Contingent Consideration for Business Acquisitions

As of March 31, 2015 and December 31, 2014, the Company recognized a liability of approximately $20 million and $11 million, respectively, for estimated contingent payments related to acquisitions. The estimated contingent payments are based upon the probability weighted-average payments for specific performance factors from the acquisition dates through the performance periods which end at December 31, 2018 and March 31, 2019. The range of undiscounted outcomes for the estimated contingent payments is approximately $0 to $161 million.

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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our Unaudited Consolidated Financial Statements, including the notes to those statements, included elsewhere in this Quarterly Report on Form 10-Q, and the Section entitled "Special Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q.  As discussed in more detail in the Section entitled "Special Note Regarding Forward-Looking Statements," this discussion contains forward-looking statements, which involve risks and uncertainties.  Our actual results may differ materially from the results discussed in the forward-looking statements.  Factors that might cause those differences include those discussed in "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. The information on our websites is not a part of this Quarterly Report on Form 10-Q and is not incorporated herein by reference.

Overview

We are a leading provider of online travel and travel-related reservation and search services. Through our online travel reservation services, we connect consumers wishing to make travel reservations with providers of travel services around the world. We offer consumers accommodation reservations (including hotels, bed and breakfasts, hostels, apartments, vacation rentals and other properties) through our Booking.com, priceline.com and agoda.com brands. Our priceline.com brand also offers consumers reservations for rental cars, airline tickets, vacation packages and cruises. We offer rental car reservations worldwide through rentalcars.com. We also allow consumers to easily compare airline ticket, hotel reservation and rental car reservation information from hundreds of travel websites at once through KAYAK. We recently acquired OpenTable, a leading provider of online restaurant reservations. We believe that the online restaurant reservation business is complementary to our online travel businesses, and that both OpenTable and our travel businesses will benefit from adding OpenTable to The Priceline Group. We refer to our company and all of our subsidiaries and brands, including Booking.com, priceline.com, KAYAK, agoda.com, rentalcars.com and, as of July 24, 2014, OpenTable, 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 include Booking.com, KAYAK, agoda.com, rentalcars.com and OpenTable, which are independently managed and operated brands.  Our principal goal is to serve consumers and our travel service provider and restaurant partners with worldwide leadership in online reservation services.  Our business is driven primarily by international results, which consist of the results of Booking.com, agoda.com and rentalcars.com and the results of the internationally based websites of KAYAK and, as of July 24, 2014, OpenTable (in each case regardless of where the consumer resides, where the consumer is physically located while making a reservation or the location of the travel service provider or restaurant). During the year ended December 31, 2014, our international business (the substantial majority of which is generated by Booking.com) represented approximately 87% of our gross bookings (an operating and statistical metric referring to the total dollar value, generally inclusive of all taxes and fees, of all travel services purchased by our customers), and approximately 94% of our consolidated 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, airline ticket and vacation package reservation services;

• Advertising revenues primarily earned by KAYAK from sending referrals to online travel companies ("OTCs") and travel service providers, as well as from advertising placements on KAYAK's websites and mobile apps;

• Beginning on July 24, 2014, revenues recognized by OpenTable, which consist of reservation revenues (a fee for restaurant guests seated through OpenTable's online reservation service), subscription fees for restaurant reservation management services and other revenues; and

• Damage excess waiver fees, travel insurance fees and global distribution system ("GDS") reservation booking fees, in each case related to certain of our travel services.

Our priceline.com 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. All of our other services are recorded in revenue on a "net" basis and have no associated cost of revenue. Therefore, revenue increases and decreases are impacted by changes in the mix of our revenues between Name Your Own Price^® travel services and other services. Gross profit reflects the commission or net margin earned for our retail, Name Your Own Price^® and semi-opaque travel services and our advertising and other services. Consequently, gross profit is an important measure to evaluate growth in our business because, in contrast to our revenues, it is

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not affected by the different methods of recording revenue and cost of revenue between our Name Your Own Price^® travel services and our other services.

Trends

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 in emerging markets such as Asia-Pacific and South America, and the continued innovation and execution by our teams around the world to build accommodation supply, content and distribution and to improve the customer experience on our websites and mobile apps. These year-over-year growth rates have generally decelerated in recent years. For example, for the three months ended March 31, 2015, our accommodation room night reservation growth was 25% compared to 32% in the three months ended March 31, 2014. Given the size of our hotel reservation business, we expect that our year-over-year growth rates will continue to decelerate, though the rate of deceleration may fluctuate.

The size of the travel market outside of the United States is substantially greater than that within the United States. Historically, Internet use and e-commerce activity of international consumers have trailed that of consumers in the United States. However, international consumers 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 will follow a similar trend to that experienced in the United States. In addition, the base of hotel properties in Europe and Asia is particularly fragmented compared to 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 appealing to small chains and independent hotels more commonly found outside of the United States. Our growth has primarily been generated by our international accommodation reservation service brands, Booking.com and agoda.com. Booking.com, our most significant brand, included over 635,000 properties on its website as of May 4, 2015, which included over 270,000 vacation rental properties (updated property counts are available on the Booking.com website). Booking.com has added properties over the past year around the world, including in its core European market and in its newer markets, including North America, Asia-Pacific and South America. An increasing amount of our business from both a destination and point-of-sale perspective is conducted in our newer markets which are growing faster 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 these trends 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 other financial metrics largely driven by international performance. For example, certain markets in which we operate that are in earlier stages of development have lower operating margins compared to more mature markets, which could have a negative impact on our overall margins as these markets increase in size over 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, apartments, "aparthotels" (which are apartments with a front desk and cleaning service) 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 penetrated markets, may have fewer rooms, lower average daily rates ("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 per property. Our non-hotel accommodations in general may be subject to increased seasonality due to local tourism seasons, weather or other factors. As we increase our non-hotel accommodation business, these different market characteristics could negatively impact our profit margins; and, to the extent these properties represent 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 number of reservations per property will likely decrease. In addition, non-hotel accommodations, including vacation rentals, tend to be more seasonal in nature and may close during "off-season," which impacts our property counts quarter to quarter.

Concerns persist about the outlook for the global economy in general, and the European Union in particular, with recent declines in broad Eurozone economic indicators raising fears about the pace of economic growth and the risk of deflation. In addition, many governments around the world, including the U.S. government and certain European governments, continue to operate at large financial deficits, resulting in high levels of sovereign debt in such countries. Greece, Ireland, Portugal and certain other European Union countries with high levels of sovereign debt at times have had difficulty refinancing

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their debt. Failure to reach political consensus regarding workable solutions to these issues has resulted in a high level of uncertainty regarding the future economic outlook. This uncertainty, as well as concern over governmental austerity measures including higher taxes and reduced government spending, could impair consumer spending and adversely affect travel demand. At times, we have experienced volatility in transaction growth rates and weaker trends in hotel ADRs across many regions of the world, particularly in those European countries that appear to be most affected by economic uncertainties. We believe that these business trends are likely impacted by weak economic conditions and sovereign debt concerns. Disruptions in the economies of such countries could cause, contribute to or be indicative of deteriorating macro-economic conditions.

Greece's newly elected government, which campaigned against austerity measures, may not be able to reach an acceptable solution to the country's debt crisis with the European Union. This may increase the likelihood that Greece, and in turn other countries, could exit the European Union, which could lead to added economic uncertainty and further devaluation or eventual abandonment of the Euro common currency. These and other macro-economic uncertainties, such as sovereign default risk becoming more widespread, declining oil prices and geopolitical tensions, have led to significant volatility in the exchange rate between the Euro, the U.S. Dollar and other currencies. The European Central Bank, in an effort to stimulate the European economy, recently launched a quantitative easing program to purchase public debt, which in turn has caused the Euro exchange rate to weaken compared to the U.S. Dollar.

As noted earlier, our international business represents a substantial majority of our financial results. Therefore, because we report our results in U.S. Dollars, we face exposure to adverse movements in currency exchange rates as the financial results of our international businesses are translated from local currency (principally the Euro and the British Pound Sterling) into U.S. Dollars. The U.S. Dollar significantly strengthened against the Euro during 2014, moving from an exchange rate of 1.38 U.S. Dollars per Euro as of January 1, 2014 to 1.21 U.S. Dollars per Euro as of December 31, 2014. The U.S. Dollar strengthened further in the first quarter of 2015 to an exchange rate of 1.07 U.S. Dollars per Euro as of March 31, 2015. The U.S. Dollar also strengthened significantly during this time frame as compared to many other currencies. As a result, our foreign currency denominated net assets, gross bookings, gross profit, operating expenses and net income have been negatively impacted as expressed in U.S. Dollars. Since our expenses are generally denominated in foreign currencies on a basis similar to our revenues, our operating margins are not significantly impacted by currency fluctuations. The aggregate principal value of the Euro-denominated 2024 Notes and 2027 Notes, and accrued interest thereon, provide a natural hedge of the net assets of certain of our Euro functional currency subsidiaries.

For example, gross profit from our international operations grew year-over-year on a constant currency basis by approximately 30% for the three months ended March 31, 2015, but, as a result of the impact of changes in currency exchange rates, grew 15.7% as reported in U.S. Dollars. We generally enter into derivative instruments to minimize the impact of short-term currency fluctuations on our consolidated operating results. However, such derivative instruments are short term in nature and not designed to hedge against currency fluctuations that could impact our gross bookings, revenues or gross profit (see Note 5 to the Unaudited Consolidated Financial Statements for additional information on our derivative contracts).

Significant fluctuations in currency exchange rates can also impact consumer travel behavior. For example, recent dramatic depreciation of the Russian Ruble has resulted in it becoming more expensive for Russians to travel to Europe and most other non-Ruble destinations. Consumers traveling from a country whose currency has weakened against other currencies may book lower ADR accommodations, choose to shorten or cancel their international travel plans or choose to travel domestically rather than internationally, any of which could adversely affect our gross bookings, revenues and results of operations, in particular when expressed in U.S. Dollars.

The uncertainty of macro-economic factors, the volatility in foreign exchange rates and their impact on consumer behavior, which may differ across regions, makes it more difficult to forecast industry and consumer trends and the timing and degree of their impact on our markets and business, which in turn could adversely affect our ability to effectively manage our business and adversely affect our results of operations.

We compete with both online and traditional travel and travel-related reservation and search services. The market for the travel reservation and search services we offer is intensely competitive, a trend we expect to continue, and current and new competitors can launch new services at a relatively low cost. We currently, or potentially may in the future, compete with a variety of companies, including:

• online travel reservation services such as those owned by Expedia, Orbitz (which has agreed to be acquired by Expedia), Ctrip, Rakuten, eDreams ODIGEO and Jalan;

• online accommodation search and/or reservation services, such as HomeAway and Airbnb, focused on vacation rental properties, including individually owned properties;

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• large online companies, including search, social networking and marketplace companies such as Google, Facebook, Alibaba, Amazon and Groupon;

• traditional travel agencies, wholesalers and tour operators, such as 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;

• online travel search and price comparison services (generally referred to as "meta-search" services), such as TripAdvisor, trivago (in which Expedia has acquired a majority ownership interest), Qunar and HotelsCombined; and

• online restaurant reservation services, such as TripAdvisor's LaFourchette and Yelp's SeatMe.

For more detail regarding the competitive trends and risks we face, see Part II Item 1A Risk Factors - "Intense competition could reduce our market share and harm our financial performance." and "Recent trends in consumer adoption and use of mobile devices create new challenges and may enable device companies such as Apple to compete directly with us."

After entering into an exclusive, long-term strategic marketing agreement in August 2013, Expedia acquired Travelocity in January 2015. On February 12, 2015, Expedia announced that it had entered into an agreement to acquire Orbitz. To the extent these acquisitions enhance Expedia's ability to compete with us, in particular in the United States, which is Expedia's, Travelocity's and Orbitz's largest market, our market share and results of operations could be adversely affected.

Widespread adoption of mobile devices, such as the iPhone, Android-enabled smart phones and tablets such as the iPad, coupled with the improved web browsing functionality and development of thousands of useful "apps" available on these devices, is driving substantial online traffic and commerce to mobile platforms.  We have experienced a significant shift of business to mobile platforms and our advertising partners are also seeing a rapid shift of traffic to mobile platforms. Our major competitors and certain new market entrants are offering mobile applications for travel products and other mobile functionality, including proprietary last-minute discounts for accommodation reservations.  Advertising and distribution opportunities may be more limited on mobile devices given their smaller screen sizes.  The gross profit earned on a mobile transaction may be less than a typical desktop transaction due to different consumer purchasing patterns. For example, accommodation reservations made on a mobile device typically are for shorter lengths of stay and are not made as far in advance. Further, given the device sizes and technical limitations of tablets and smart phones, mobile consumers may not be willing to download multiple apps from multiple companies providing a similar service and instead prefer to use one or a limited number of apps for their mobile travel and restaurant research and reservation activity. As a result, the consumer experience with mobile apps as well as brand recognition and loyalty are likely to become increasingly important. Our mobile offerings have received strong reviews and achieved solid download trends, and are driving a material and increasing share of our business. We believe that mobile bookings present an opportunity for growth and are necessary to maintain and grow our business as consumers increasingly turn to mobile devices instead of a personal computer and to mobile applications in addition to a web browser. 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 not downloaded and used by consumers, we could lose market share to existing competitors or new entrants and our future growth and results of operations could be adversely affected.

In addition, we have observed an increase in promotional pricing to closed user groups (such as loyalty program participants or customers with registered accounts), including through mobile apps. If we are not as effective as our competition in offering discounted prices to closed user groups or if we are unable to entice members of our competitors' closed user groups to use our services, our ability to grow and compete could be harmed. Further, growth in discounted closed user group retail prices for hotel rooms lessens the price difference for members of closed user groups between a retail hotel reservation and an opaque hotel reservation, which may lead to fewer consumers using our opaque hotel reservation services. If we need to fund discounts out of our gross profit, our profitability could be adversely affected.

We have established widely used and recognized e-commerce brands through aggressive marketing and promotional campaigns. As a result, both our online and offline advertising expense has increased significantly in recent years, a trend we expect to continue. For the three months ended March 31, 2015, our total online advertising expense was approximately $643 million, a substantial portion of which was spent internationally through Internet search engines (primarily Google), meta-search and travel research services and affiliate marketing. We also invested $64 million in offline advertising. We intend to continue a strategy of aggressively promoting brand awareness, primarily through online means although we also intend to increase our offline advertising efforts, including by expanding offline campaigns into additional markets. For example, building on its first offline advertising campaign, which it launched in the United States in 2013, Booking.com has begun

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offline advertising campaigns in other markets, including Australia, Canada, the United Kingdom and Germany. We have observed increased offline advertising by OTCs, meta-search services and travel service providers, particularly in North America and Europe, which may make our offline advertising efforts more expensive and less effective.

Online advertising efficiency, expressed as online advertising expense as a percentage of gross profit, 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, our ability to convert paid traffic to booking customers and the extent to which consumers come directly to our websites or mobile apps for bookings. For example, competition for desired rankings in search results and/or a decline in ad clicks by consumers, could increase our costs-per-click and reduce our online advertising efficiency. From 2011 to 2013, our online advertising expense grew faster than our gross profit due to (1) year-over-year declines in online advertising returns on investment ("ROIs") and (2) brand mix within The Priceline Group as our international brands grew faster than our U.S. brands and spent a higher percentage of gross profit on online advertising. In 2014, these long-term trends were more than offset by the inclusion of KAYAK and OpenTable because they spend a lower percentage of gross profit on online advertising than our other brands. Also, our consolidated results exclude intercompany advertising by our brands on KAYAK since our acquisition of KAYAK in May 2013. In the first quarter of 2015, online advertising efficiency declined compared to the prior year, mainly due to lower ROIs. If Google changes how it presents travel search results or the manner in which it conducts the auction for placement among search results in a manner that is competitively disadvantageous to us, whether to support its own travel-related services or otherwise, our ability to efficiently generate traffic to our websites could be harmed. See Part II Item 1A Risk Factors- "We rely on online advertising channels to enhance our brand awareness and to generate a significant amount of traffic to our websites." and "Our business could be negatively affected by changes in Internet search engine algorithms and dynamics or traffic-generating arrangements."

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, Booking.com has been the subject of a competition investigation by U.K. competition authorities since July 2012. Other national competition authorities, including those in the Czech Republic, France, Germany, Italy, Austria, Hungary, Sweden and Switzerland, have more recently opened investigations that focus on Booking.com's rate parity clause in its contracts with accommodation providers in those jurisdictions. We are currently unable to predict the outcome of all of these investigations or how our business may be affected.  Possible outcomes include requiring Booking.com to remove its rate parity clause from its contracts with accommodation providers in those jurisdictions. In the U.K. investigation, Booking.com and the other subjects of the investigation had reached a settlement with the competition authorities; however, that settlement has been vacated on appeal. The French, Italian and Swedish national competition authorities have accepted commitments by Booking.com in connection with their investigations. Booking.com intends to implement these commitments throughout the European Economic Area and is working with certain other European national competition authorities towards this objective. For more information on these investigations, see Footnote 12 to our Unaudited Consolidated Financial Statements and Part II Item 1A Risk Factors - "As the size of our business grows, we may become increasingly subject to the scrutiny of anti-trust and competition regulators." To the extent that regulatory authorities impose fines or require changes to our business practices or to those currently common to the industry, our business, competitive position and results of operations could be materially and adversely affected. Negative publicity regarding any such investigations could adversely affect our brand and therefore our market share and results of operations.

Hotels typically make available only a limited number of hotel rooms for opaque services like ours, especially during periods of high occupancy. As a result, recent high hotel occupancy levels in the United States have had an adverse impact on our access to hotel rooms for our opaque hotel reservation services, which has negatively affected our opaque hotel reservation gross profits.

Seasonality

A meaningful amount of gross bookings are generated early in the year, as customers plan and reserve their spring and summer vacations in Europe and North America. From a cost perspective, we expense the substantial majority of our advertising activities as the expense is incurred, which is typically in the quarter 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 of accommodation checkouts for the year for our European and North American businesses.

In addition, the date on which certain holidays fall can have an impact on our quarterly results. For example, in 2013 our second quarter year-over-year growth rates in revenue, gross profit, operating income and operating margins were adversely affected by Easter falling in the first quarter instead of the second quarter, as it did in 2012. Conversely, our second quarter

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2014 year-over-year growth rates in revenue, gross profit, operating income and operating margins were favorably impacted by Easter falling in the second quarter instead of the first quarter, as it did in 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 our growth rate substantially decelerates, our operating margins typically benefit from relatively less variable advertising expense. In addition, gross profit growth is 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 fourth quarters. Therefore, if these businesses grow faster than our North American and European businesses, our operating results for the first and fourth quarters of the year may become more significant over time as a percentage of full year operating results.

Other Factors

We believe that our future success depends in large part on our ability to continue to profitably grow our brands worldwide, and, over time, to offer other travel and travel-related services and further expand into other international markets. Factors beyond our control, such as worldwide recession, oil prices, terrorist attacks, unusual weather patterns, natural disasters such as earthquakes, hurricanes, tsunamis, floods and volcanic eruptions, travel-related health concerns including pandemics and epidemics such as Ebola, 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 our business 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 major earthquake, tsunami and nuclear emergency. In October 2011, severe flooding in Thailand, a key market for our agoda.com business and the Asian business of Booking.com, negatively impacted booking volumes and cancellation rates in this market. In addition, Thailand has recently experienced disruptive civil unrest, which has negatively impacted booking volumes and cancellation rates in this market. In early 2010, Thailand also experienced civil unrest, which caused the temporary relocation of agoda.com's Thailand-based operations. Future natural disasters, health concerns or civil or political unrest could further disrupt our business 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 prioritize initiatives that drive growth. For example, we are investing in growth initiatives at OpenTable, including international expansion, and in building our BookingSuite partner-facing software services platform. We expect pressure on operating margins resulting from these initiatives to continue during the remainder of 2015, though to a lesser extent in the second half of the year after we reach the anniversary of these initiatives. We also intend to broaden the scope of our business, and to that end, we explore strategic alternatives from time to time in the form of, 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 gross profit growth and profitability.

On July 24, 2014, we acquired OpenTable, a leading provider of online restaurant reservations, for $2.5 billion ($2.4 billion net of cash acquired) and on May 21, 2013, we acquired KAYAK Software Corporation, a leading travel meta-search service, for $2.1 billion ($1.9 billion net of cash acquired). A substantial portion of the total consideration for these acquisitions related to identifiable acquired intangibles and goodwill (see Note 6 to the Unaudited Consolidated Financial Statements). In 2015, we intend to invest in OpenTable to accelerate its global expansion, increase the value offered to its restaurant partners and enhance the end-to-end experience for customers across desktop and mobile devices. As a result, we expect OpenTable's profitability in 2015 to decline year-over-year as we invest for future growth. If the investments we intend to make in 2015 and beyond, in particular internationally, are unsuccessful in growing OpenTable's global online restaurant reservation business or OpenTable experiences a significant reduction in revenues or profitability due to factors such as competition, increased capital expenditures or investments in its business, we may recognize an impairment in the value of our acquired intangible assets and goodwill. Likewise, if KAYAK is unsuccessful in profitably growing its global online travel brand or it experiences a significant reduction in advertising revenues on its websites or mobile apps or profitability due to factors such as a loss of continued access to travel services information provided by other OTCs or travel service providers, we may incur an impairment.

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Results of Operations

Three Months Ended March 31, 2015 compared to the Three Months Ended March 31, 2014

Operating and Statistical Metrics

Our financial results are driven by certain operating metrics that encompass the booking and other business activity generated by our travel and travel-related services.  Specifically, reservations of accommodation room nights, rental car days and airline tickets capture the volume of units purchased by our travel reservation services customers.  Gross bookings, net of cancellations, is an operating and statistical metric that captures the total dollar value, generally inclusive of taxes and fees, of all travel services booked by our customers and is widely used in the travel business.  International gross bookings reflect gross bookings generated principally by our Booking.com, agoda.com and rentalcars.com businesses and U.S. gross bookings reflect gross bookings generated principally by our priceline.com business, in each case regardless of where the consumer resides, where the consumer is physically located while making a reservation or the location of the travel service provider or restaurant. We follow a similar approach for reporting the international and U.S. revenue and gross profit of those businesses.

Gross bookings resulting from accommodation room nights, rental car days and airline tickets reserved through our international and U.S. operations for the three months ended March 31, 2015 and 2014 were as follows (numbers may not total due to rounding): 

	Three Months Ended March 31, (in millions)
	2015		2014		Change
International	$	12,104	$	10,643	13.7	%
U.S.	1,672		1,637		2.1	%
Total	$	13,775	$	12,280	12.2	%

Gross bookings increased by 12.2% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 (growth on a constant currency basis was approximately 26%), principally due to growth of 25.4% in accommodation room night reservations, 2% growth on a constant currency basis in ADRs and growth of 18.0% in rental car day reservations, partially offset by a 3.2% decline in airline ticket reservations.  International gross bookings grew by 13.7% (growth on a constant currency basis was approximately 29%) for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. International gross bookings growth was primarily attributable to growth in accommodation room night reservations for our Booking.com and agoda.com businesses, as well as growth in rental car day reservations for our rentalcars.com business.  The U.S. Dollar significantly strengthened against the Euro during 2014, moving from an exchange rate of 1.38 U.S. Dollars per Euro as of January 1, 2014 to 1.21 U.S. Dollars per Euro as of December 31, 2014. The U.S. Dollar strengthened further during the first quarter of 2015 to an exchange rate of 1.07 U.S. Dollars per Euro as of March 31, 2015. The U.S. Dollar has also strengthened against many other currencies since January 1, 2014. At these exchange rates, the growth of our total gross bookings and the growth of our international gross bookings, each expressed in U.S. Dollars, have been and will continue to be significantly adversely impacted through the remainder of 2015. We therefore believe that unit growth rates and total gross bookings, international gross bookings and gross profit growth on a local currency basis, excluding the impact of foreign exchange rate fluctuations, are important measures to understand the fundamental performance of the business.

U.S. gross bookings increased by 2.1% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily due to increases in priceline.com's retail hotel, retail rental car and Express Deals^®hotel reservation services, partially offset by declines in priceline.com's Name Your Own Price^®reservation services and retail airline ticket service. Travel service providers typically provide a limited amount of availability to opaque services like those of priceline.com, especially during periods of healthy travel demand. As a result, the recent healthy travel environment in the United States has had an adverse impact on our access to availability for our opaque reservation services.

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Gross bookings resulting from reservations of accommodation room nights, rental car days and airline tickets made through our agency and merchant models for the three months ended March 31, 2015 and 2014 were as follows (numbers may not total due to rounding): 

	Three Months Ended March 31, (in millions)
	2015		2014		Change
Agency	$	11,908	$	10,516	13.2	%
Merchant	1,867		1,764		5.8	%
Total	$	13,775	$	12,280	12.2	%

Agency gross bookings are derived from travel-related transactions where we are not the merchant of record and merchant gross bookings are derived from services where we are the merchant of record. Agency gross bookings increased 13.2% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily due to growth in Booking.com accommodation room night reservations, as well as growth in priceline.com retail rental car and hotel reservation services and rentalcars.com rental car reservations. Merchant gross bookings increased 5.8% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily due to increases in agoda.com and priceline.com retail hotel reservation services, rentalcars.com rental car reservations and priceline.com's Express Deals^®hotel reservation service, partially offset by declines in priceline.com's Name Your Own Price^®reservation services. The U.S. Dollar is significantly stronger against the Euro and many other currencies as of March 31, 2015 compared to 2014. At these exchange rates, the growth of our agency and merchant gross bookings, expressed in U.S. Dollars, has been and will continue to be significantly adversely impacted through the remainder of 2015.

Units sold for accommodation room nights, rental car days and airline tickets for the three months ended March 31, 2015 and 2014 were as follows:

	Three Months Ended March 31, (in millions)
	2015	2014	Change
Room Nights	104.6	83.4	25.4	%
Rental Car Days	14.6	12.3	18.0	%
Airline Tickets	2.0	2.0	(3.2	)%

Accommodation room night reservations increased by 25.4% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, due to an increase in Booking.com, agoda.com and priceline.comaccommodation room night reservations. Booking.com, our most significant brand, included over 635,000 properties on its website as of May 4, 2015, which included over 270,000 vacation rental properties, compared to over 455,000 properties as of May 7, 2014, which included over 140,000 vacation rental properties (updated property counts are available on the Booking.com website).  Booking.com has added properties over the past year around the world, including in its core European market and in its newer markets, including North America, Asia-Pacific and South America. An increasing amount of our business from both a destination and point-of-sale perspective is conducted in our newer markets which are growing faster than our overall growth rate and our core European market.

Rental car day reservations increased by 18.0% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, due to an increase in price-disclosed rental car day reservations for rentalcars.com and priceline.com, partially offset by a decline in priceline.com's Name Your Own Price^® rental car reservation service.

Airline ticket reservations decreased by 3.2% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, due to a decline in priceline.com's Name Your Own Price^®and price-disclosed airline ticket reservation services.

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