Document and Entity Information	12 Months Ended
Document and Entity Information	Dec. 31, 2009
Entity Registrant Name	Baidu, Inc.
Entity Central Index Key	0001329099
Document Type	20-F
Document Period End Date	Dec. 31, 2009
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Class A Ordinary Shares
Entity Common Stock, Shares Outstanding	26,298,960
Class B Ordinary Shares
Entity Common Stock, Shares Outstanding	8,454,332

Consolidated Balance Sheets In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2009 USD ($)	Dec. 31, 2009 CNY	Dec. 31, 2008 USD ($)	Dec. 31, 2008 CNY	Dec. 31, 2009 Class A Ordinary Shares USD ($)	Dec. 31, 2009 Class A Ordinary Shares CNY	Dec. 31, 2008 Class A Ordinary Shares CNY	Dec. 31, 2009 Class B Ordinary Shares USD ($)	Dec. 31, 2009 Class B Ordinary Shares CNY	Dec. 31, 2008 Class B Ordinary Shares CNY
Current assets:
Cash and cash equivalents	$ 615,287	4,199,889	$ 346,060	2,362,171
Short-term investments	55,839	381,149		301,244
Accounts receivable, net of allowance of RMB8,561 for 2008 and RMB9,015 (US$1,321) for 2009	23,676	161,610		92,777
Other assets, current	13,341	91,067		80,007
Receivables from a shareholder	0	0		10,697
Deferred tax assets, net	1,342	9,157		5,580
Total current assets	709,485	4,842,872		2,852,476
Non-current assets:
Fixed assets, net	146,143	997,557		789,714
Intangible assets, net	17,960	122,595		125,783
Goodwill	9,331	63,691		51,082
Long-term investments, net	2,096	14,308		12,281
Deferred tax assets, net	4,952	33,799		26,537
Other assets, non-current	12,035	82,153		80,118
Total non-current assets	192,517	1,314,103		1,085,515
TOTAL ASSETS	902,002	6,156,975		3,937,991
Current liabilities:
Accounts payable and accrued liabilities, current	109,855	749,861		423,029
Customer advances and deposits, current	89,047	607,828		422,526
Deferred revenue	6,158	42,035		3,441
Deferred income	0	0		332
Total current liabilities	205,060	1,399,724		849,328
Non-current liabilities:
Long-term payable for business acquisition	608	4,150		0
Total non-current liabilities	608	4,150		0
Total liabilities	205,668	1,403,874		849,328
Commitments and contingencies
Shareholders' equity
Ordinary shares, value					2	11	11	1	4	4
Additional paid-in capital	208,920	1,426,070		1,218,356
Accumulated other comprehensive loss	(16,630)	(113,513)		(109,552)
Retained earnings	504,041	3,440,529		1,979,844
Total shareholders' equity	696,334	4,753,101		3,088,663
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 902,002	6,156,975		3,937,991

Consolidated Balance Sheets (Parenthetical) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2009 USD ($)	Dec. 31, 2009 CNY	Dec. 31, 2008 CNY	Dec. 31, 2009 Class A Ordinary Shares USD ($)	Dec. 31, 2008 Class A Ordinary Shares USD ($)	Dec. 31, 2009 Class B Ordinary Shares USD ($)	Dec. 31, 2008 Class B Ordinary Shares USD ($)
Current assets:
Allowance for doubtful accounts receivable, current	$ 1,321	9,015	8,561
Shareholders' equity
Common stock, par value per share (US$)				$ 0.00005	$ 0.00005	$ 0.00005	$ 0.00005
Common stock, shares authorized				825,000,000	825,000,000	35,400,000	35,400,000
Common stock, shares issued				26,298,960	25,641,847	8,454,332	8,873,986
Common stock, shares outstanding				26,298,960	25,641,847	8,454,332	8,873,986

Consolidated Statements of Income In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2009 USD ($)	Dec. 31, 2009 CNY	Dec. 31, 2008 CNY	Dec. 31, 2007 CNY
Revenues:
Online marketing services	$ 651,242	4,445,310	3,194,461	1,741,021
Other services	361	2,466	3,791	3,404
Total revenues	651,603	4,447,776	3,198,252	1,744,425
Operating costs and expenses:
Cost of revenues	(236,780)	(1,616,236)	(1,155,457)	(645,406)
Selling, general and administrative	(117,785)	(803,988)	(659,804)	(411,163)
Research and development	(61,913)	(422,615)	(286,256)	(140,702)
Total operating costs and expenses	(416,478)	(2,842,839)	(2,101,517)	(1,197,271)
Operating profit	235,125	1,604,937	1,096,735	547,154
Other income:
Interest income	4,785	32,661	47,677	49,009
Foreign exchange loss, net	(6)	(42)	(1,920)	(2,425)
Loss from equity method investment	(34)	(229)	0	0
Other income, net	6,709	45,794	21,687	22,478
Total other income	11,454	78,184	67,444	69,062
Income before income taxes	246,579	1,683,121	1,164,179	616,216
Income taxes	(29,010)	(198,017)	(116,071)	12,752
Net income	$ 217,569	1,485,104	1,048,108	628,968
Earnings per share for Class A and Class B ordinary shares:
Basic	$ 6.29	42.96	30.63	18.57
Diluted	$ 6.26	42.7	30.19	18.11
Weighted average number of Class A and Class B ordinary shares outstanding
Basic	34,570,790	34,570,790	34,217,443	33,872,611
Diluted	34,776,366	34,776,366	34,717,489	34,724,365

Consolidated Statements of Cash Flows In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2009 USD ($)	Dec. 31, 2009 CNY	Dec. 31, 2008 CNY	Dec. 31, 2007 CNY
Cash flows from operating activities:
Net income	$ 217,569	1,485,104	1,048,108	628,968
Adjustments to reconcile net income to net cash generated from operating activities:
Depreciation of fixed assets and others	44,870	306,281	268,593	170,731
Fixed assets written off	382	2,606	1,675	622
Amortization of intangible assets	1,572	10,729	12,121	10,204
Deferred tax assets, net	(1,588)	(10,839)	(13,814)	(10,767)
Share-based compensation	12,646	86,318	83,977	39,848
Provision for doubtful accounts	72	493	4,980	(703)
Foreign exchange loss	0	0	1,157	1,313
Interest income from short-term investments	(1,199)	(8,181)	(5,739)	(4,914)
Impairment on long-term investments	0	0	7,986	0
Loss from equity method investments	34	229	0	0
Changes in operating assets and liabilities net of effects of acquisition:
Accounts receivable	(10,157)	(69,331)	(33,282)	(40,685)
Other assets	843	5,752	(27,349)	(50,442)
Receivables from a shareholder	1,567	10,697	(10,697)	0
Customer advances and deposits, current	27,147	185,302	164,949	116,391
Accounts payable and accrued liabilities, current	34,576	236,012	130,230	121,167
Deferred revenue	5,654	38,595	(13,876)	1,834
Deferred income	(49)	(332)	(2,485)	(4,089)
Trading securities	0	0	129,665	(44,326)
Net cash generated from operating activities	333,939	2,279,435	1,746,199	935,152
Cash flows from investing activities:
Acquisition of fixed assets	(58,500)	(399,312)	(417,898)	(569,091)
Acquisition of business	(1,758)	(12,000)	0	(14,080)
Acquisition of intangible assets	0	0	0	(9,211)
Capitalization of software costs	(1,669)	(11,392)	(17,668)	(4,041)
Acquisition of long-term investments	(330)	(2,250)	0	(8,024)
Purchases of held-to-maturity securities	(114,223)	(779,676)	(764,720)	(228,896)
Maturities of held-to-maturity securities	103,712	707,929	580,430	120,127
Acquisition of long-term prepaid computer parts	(5,767)	(39,368)	(41,246)	0
Net cash used in investing activities	(78,535)	(536,069)	(661,102)	(713,216)
Cash flows from financing activities:
Structured share repurchase, net	11,584	79,070	(68,539)	0
Repurchase of ordinary shares	(3,577)	(24,419)	0	0
Proceeds from exercise of share options	5,924	40,442	32,902	40,698
Net cash generated from (used in) financing activities	13,931	95,093	(35,637)	40,698
Effect of exchange rate changes on cash and cash equivalents	(108)	(741)	(37,889)	(48,308)
Net increase in cash and cash equivalents	269,227	1,837,718	1,011,571	214,326
Cash and cash equivalents at beginning of the year	346,060	2,362,171	1,350,600	1,136,274
Cash and cash equivalents at end of the year	615,287	4,199,889	2,362,171	1,350,600
Supplemental disclosures:
Income taxes (received) paid, net	22,000	150,170	145,830	(11,892)
Fixed asset acquisitions included in accounts payable and accrued liabilities	20,369	139,038	52,650	126,992
Other non-current assets acquisitions included in accounts payable and accrued liabilities	758	5,176	4,764	0
Non-cash acquisitions of long-term investments	$ 0	0	5,486	7,415

Consolidated Statements of Shareholders' Equity In Thousands, except Share data, unless otherwise specified	Total USD ($)	Total CNY	Ordinary Shares USD ($)	Ordinary Shares CNY	Additional Paid-in capital USD ($)	Additional Paid-in capital CNY	Accumulated other comprehensive loss USD ($)	Accumulated other comprehensive loss CNY	Retained earnings (Accumulated losses) USD ($)	Retained earnings (Accumulated losses) CNY
Beginning Balance at Dec. 31, 2006		1,357,261		14		1,088,176		(33,697)		302,768
Beginning Balance, shares at Dec. 31, 2006				33,704,399
Comprehensive income:
Foreign currency translation adjustment		(48,256)						(48,256)
Net income		628,968								628,968
Total comprehensive income		580,712
Exercise of share-based awards		42,605				42,605
Exercise of share-based awards, shares				428,590
Share-based compensation		40,794				40,794
Structured share repurchase		0
Repurchase of ordinary shares		0
Ending Balance at Dec. 31, 2007		2,021,372		14		1,171,575		(81,953)		931,736
Ending Balance, shares at Dec. 31, 2007				34,132,989
Comprehensive income:
Foreign currency translation adjustment		(27,599)						(27,599)
Net income		1,048,108								1,048,108
Total comprehensive income		1,020,509
Exercise of share-based awards		28,638		1		28,637
Exercise of share-based awards, shares				382,844
Share-based compensation		86,683				86,683
Structured share repurchase		(68,539)				(68,539)
Repurchase of ordinary shares		0
Ending Balance at Dec. 31, 2008		3,088,663		15		1,218,356		(109,552)		1,979,844
Ending Balance, shares at Dec. 31, 2008				34,515,833
Comprehensive income:
Foreign currency translation adjustment		(3,961)						(3,961)
Net income	217,569	1,485,104								1,485,104
Total comprehensive income		1,481,143
Exercise of share-based awards		41,121				41,121
Exercise of share-based awards, shares			270,199	270,199
Share-based compensation		87,523				87,523
Structured share repurchase	11,584	79,070				79,070
Repurchase of ordinary shares	(3,577)	(24,419)								(24,419)
Repurchase of ordinary shares, shares			(32,740)	(32,740)
Ending Balance at Dec. 31, 2009	$ 696,334	4,753,101	$ 3	15	$ 208,920	1,426,070	$ (16,630)	(113,513)	$ 504,041	3,440,529
Ending Balance, shares at Dec. 31, 2009			34,753,292

Organization Consolidation and Presentation of Financial Statements

12 Months Ended

Dec. 31, 2009

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS


1.	ORGANIZATION, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS

Baidu, Inc. (“Baidu” or the “Company”) was incorporated under the laws of the Cayman Islands on January 18, 2000. The Company was formerly known as Baidu.com, Inc. and changed its name to Baidu, Inc. on December 16, 2008. The Company is the 100% shareholder of Baidu Holdings Ltd. (“Baidu Holdings”) incorporated in the British Virgin Islands.

As of December 31, 2009, Baidu Holdings owns three subsidiaries, details of which are as follows:


	•	Baidu Online Network Technology (Beijing) Co., Ltd. (“Baidu Online”) incorporated under the laws of the People’s Republic of China (“PRC”) on January 18, 2000,

	•	Baidu, Inc. (“Baidu Japan”) incorporated in Tokyo under the laws of Japan on December 13, 2006, and

	•	Baidu (Hong Kong) Limited (“Baidu HK”) incorporated in Hong Kong under the laws of Hong Kong on November 27, 2007.

Baidu HK owns three subsidiaries in the PRC, details of which are as follows:


	•	Baidu (China) Co., Ltd. (“Baidu China”) incorporated under the laws of the PRC on June 6, 2005,

	•	Baidu.com Times Technology (Beijing) Co., Ltd. (“Baidu Times”) incorporated under the laws of the PRC on April 19, 2006, and

	•	Baidu Interaction (Shenzhen) Network Technology Co., Ltd. (“Baidu Interaction”), which obtained its business license in March 2009, to be incorporated under the laws of the PRC.

Baidu Japan has established two wholly-owned subsidiaries in Japan, details of which are as follows:


	•	Hyakudo Inc. (“Hyakudo”) incorporated in Tokyo under the laws of Japan on April 14, 2008, and

	•	Baido, Inc. (“Baido”) incorporated in Tokyo under the laws of Japan on April 14, 2008

As of December 31, 2009, the Company also effectively controls three variable interest entities (“VIEs”):


	•	Beijing Baidu Netcom Science Technology Co., Ltd. (“Baidu Netcom”) incorporated under the laws of the PRC on June 5, 2001,

	•	Beijing Perusal Technology Co., Ltd. (“Beijing Perusal”) incorporated under the laws of the PRC on June 6, 2006, and

	•	Beijing BaiduPay Science and Technology Co., Ltd. (“BaiduPay”) incorporated under the laws of the PRC on February 27, 2008.

On July 13, 2009, Beijing Perusal, together with Paibo Online (Beijing) Technology Co., Ltd. (“Paibo”), a subsidiary of Beijing News, set up a joint venture, Beijing Paibo Times Technology Co., Ltd. (“Paibo Times”), to operate a community website and provide information of interest to Beijing local residents. The registered capital of Paibo Times is RMB5.00 million (US$0.73 million). Paibo and Beijing Perusal hold 55% and 45% of the Paibo Times’ equity interest, respectively. The Company accounts for its investment in Paibo Times under the equity method.

The Company, its subsidiaries and VIEs are hereinafter collectively referred to as the “Group.” The Group offers Internet search solutions and online marketing solutions, operates an e-commerce platform with an online payment tool which enables e-commerce merchants and customers to make payments online, develops and markets scalable web application software and provides related services. The Group’s principal geographic market is in the PRC and Japan. The Company does not conduct any substantive operations of its own but conducts its primary business operations through its wholly-owned subsidiaries and VIEs in the PRC and Japan.

PRC laws and regulations prohibit or restrict foreign ownership of Internet content and advertising businesses. To comply with these foreign ownership restrictions, the Group operates its websites and provides online advertising services in the PRC through VIEs, the PRC legal entities that were established by the individuals authorized by the Group. The paid-in capital of the VIEs was funded by the Group through loans extended to the authorized individuals. The Group has entered into certain exclusive agreements with the VIEs through Baidu Online, which obligate Baidu Online to absorb a majority of the risk of loss from the VIEs’ activities and entitles Baidu Online to receive a majority of their residual returns. In addition, the Group has entered into certain agreements with the authorized individuals through Baidu Online, including loan agreements for the paid-in capital of the VIEs, option agreements to acquire the equity interests in the VIEs when permitted by the PRC laws, and share pledge agreements for the equity interests in the VIEs held by the authorized individuals.

Based on these contractual arrangements, the Company consolidates the VIEs as required by Accounting Standards Codification (“ASC”) subtopic 810-10 (“ASC 810-10”), Consolidation: Overall (Pre-Codification: Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51), because the Company holds all the variable interests of VIEs through Baidu Online, which is the primary beneficiary of the VIEs. Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the Company and VIEs through the aforementioned agreements, whereby the equity holders of VIEs effectively assigned all of their voting rights underlying their equity interest in VIEs to Baidu Online. In addition, through the other aforementioned agreements, the Company demonstrates its ability and intention to continue to exercise the ability to absorb substantially all of the profits and all of the expected losses of VIEs.

The carrying amount of the total assets of VIEs as of December 31, 2009 was RMB611.55 million (US$89.59 million) and there was no pledge or collateralization of their assets. The amount of the net assets of VIEs as of December 31, 2009 was RMB244.87 million (US$35.87 million).

- Definition

Description containing the entire organization, consolidation and basis of presentation of financial statements disclosure. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.

+ References+ Details

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2009

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The consolidated financial statements include the financial statements of the Company, its subsidiaries and VIEs in which the Company holds all the variable interests of VIEs through Baidu Online. All inter-company transactions and balances between the Company, its subsidiaries and VIEs are eliminated upon consolidation. The Company has included the results of operations of acquired businesses from the respective dates of acquisition.

Currency Translation for Financial Statements Presentation

Translations of amounts from RMB into US$ for the convenience of the reader have been calculated at the exchange rate of RMB6.8259 per US$1.00 on December 31, 2009 as published on the website of the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at such rate.

Foreign Currency

The Company’s functional currency is the US$. The Company’s subsidiaries and VIEs determine their functional currencies based on the criteria of ASC subtopic 830-10 (“ASC 830-10”), Foreign Currency Matters: Overall (Pre-Codification: Statements of Financial Accounting Standards (“SFAS”) No. 52, Foreign Currency Translation), and have determined their functional currencies to be their respective local currency. The Company uses the RMB as its reporting currency. The Company uses the average exchange rate for the year and the exchange rate at the balance sheet date to translate its operating results and financial position respectively. Any translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a component of shareholders’ equity. The Company recorded RMB48.26 million, RMB27.60 million and RMB3.96 million (US$0.58 million) of net foreign currency translation loss for the years ended December 31, 2007, 2008 and 2009, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date. Exchange gains and losses are included in the consolidated statements of income as a component of other income.

Guarantees

The Company accounts for guarantees in accordance with ASC subtopic 460-10 (“ASC 460-10”), Guarantees: Overall (Pre-Codification: Financial Accounting Standards Board (“FASB”) Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34). Accordingly, the Company evaluates its guarantees to determine whether (a) the guarantee is specifically excluded from the scope of ASC 460-10, (b) the guarantee is subject to ASC 460-10 disclosure requirements only, but not subject to the initial recognition and measurement provisions, or (c) the guarantee is required to be recorded in the financial statements at fair value.

The corporate by-laws require that the Company indemnify its officers and directors, as well as those who act as directors and officers of other entities at the Company’s request, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceedings arising out of their services to the Company. In addition, the Company has entered into separate indemnification agreements with each director and each executive officer of the Company that provide for indemnification of these directors and officers under similar circumstances and under additional circumstances. The indemnification obligations are more fully described in the by-laws and the indemnification agreements. The Company purchases standard directors and officers insurance to cover claims or a portion of the claims made against its directors and officers. Since a maximum obligation is not explicitly stated in the Company’s by-laws or in the indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, the Company has not been required to make payments related to these obligations, and the fair value for these obligations is zero in the consolidated balance sheets as of December 31, 2008 and 2009.

The Company has no other guarantees for any of the years presented.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Management evaluates estimates, including those related to the accounts receivable allowances, recoverability and useful lives of intangibles and long-lived assets, fair values of options to purchase the Company’s ordinary shares, and deferred tax valuation allowance, among others. Management bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.

Fair Value Measurements of Financial Instruments

The carrying amounts of the financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities, customer advances and deposits, deferred revenue and deferred income, approximate fair value because of their generally short maturities.

Cash, Cash Equivalents and Short-Term Investments

Cash and cash equivalents are stated at cost, which approximates fair value, and primarily consist of cash and investments in interest bearing demand deposit accounts, time deposits, highly liquid investments and money market funds. All highly liquid investments with original maturities of three months or less from the date of purchase are classified as cash equivalents. All highly liquid investments with original maturities of greater than three months, but less than 12 months, are classified as short-term investments which are stated at their approximate fair value. In 2008, the Company introduced an e-commerce platform and an online payment platform which enables e-commerce merchants and customers to send and receive payments online. Cash balances deposited by the customers of the Company’s e-commerce platform are included as cash and cash equivalents in the consolidated balance sheets. The cash deposits of such nature are considered restricted because they cannot be used for the operations of the Group or any other purpose not designated by customers. When customers fund their account in the e-commerce platform using their bank accounts, the deposited balance is included in the Company’s bank account until customers either use the cash to settle their online transactions or withdraw the cash.

As of December 31, 2008 and 2009, there was RMB4.56 million and RMB19.51 million (US$2.86 million), respectively, in the Company’s cash and cash equivalents balance which was related to the deposits made by customers and designated for settlement of their online transactions on the e-commerce platform.

The Company accounts for short-term investments in accordance with ASC subtopic 320-10 (“ASC 320-10”), Investments — Debt and Equity Securities: Overall (Pre-Codification: SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities). The Company classifies the short-term investments in debt and equity securities as “held-to-maturity”, “trading” or “available-for-sale”, whose classification determines the respective accounting methods stipulated by the accounting standard for financial instruments. The securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. The securities that the Company has positive intent and ability to hold to maturity are classified as held-to-maturity securities and stated at amortized cost. The Company did not have available-for-sale securities as of any of the balance sheet date presented. Unrealized holding gains and losses for trading securities are included in earnings. Dividend and interest income, including amortization of the premium and discount arising at acquisition, for all categories of investments in securities are included in earnings. Any realized gains or losses on the sale of the short-term investments are determined on a specific identification method, and such gains and losses are reflected in the consolidated statements of income as a component of interest income.

For individual securities classified as held-to-maturity securities, the Company evaluates whether a decline in fair value below the amortized cost basis is other than temporary in accordance with the Company’s policy and ASC subtopic 320-10 (“ASC 320-10”), Investments — Debt and Equity Securities: Overall (Pre-Codification: FASB Staff Position (“FSP”) SFAS 115-1/SFAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments). If the Company concludes that it does not intend or is not required to sell an impaired debt security before the recovery of its amortized cost basis, the impairment is considered temporary and the held-to-maturity securities continue to be recognized at the amortized costs. When the Company intends to sell an impaired debt security or it is more likely than not that it will be required to sell prior to recovery of its amortized cost basis, an other-than-temporary impairment is deemed to have occurred. In these instances, the other-than-temporary impairment loss is recognized in the consolidated statements of income equal to the entire excess of the debt security’s amortized cost basis over its fair value at the balance sheet date. When the Company does not intend to sell an impaired debt security and it is more likely than not that it will not be required to sell prior to recovery of its amortized cost basis, the Company must determine whether or not it will recover its amortized cost basis. If the Company concludes that it will not, an other-than-temporary impairment exists and that portion of the credit loss is recognized in the consolidated statements of income, while the portion of loss related to all other factors is recognized in other comprehensive income.

Long-term Investments

Long-term investments include cost method investments and equity method investments.

In accordance with ASC subtopic 325-20 (“ASC 325-20”), Investments-Other: Cost Method Investments (Pre-Codification: Accounting Principles Board (“APB”) No. 18 (“APB 18”), The Equity Method of Accounting for Investments in Common Stock), for investments in an investee over which the Company does not have significant influence, the Company carries the investment at cost and only adjusts for other-than-temporary declines in fair value and distributions of earnings. The management regularly evaluates the impairment of the cost method investments based on performance and financial position of the investee as well as other evidence of market value. Such evaluation includes, but is not limited to, reviewing the investee’s cash position, recent financing, projected and historical financial performance, cash flow forecasts and financing needs. An impairment loss is recognized in the consolidated statements of income equal to the excess of the investment’s cost over its fair value at the balance sheet date of the reporting period for which the assessment is made. The fair value would then become the new cost basis of investment. The impairment charge was nil, RMB7.99 million and nil for the years ended December 31, 2007, 2008 and 2009, respectively.

Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC subtopic 323-10 (“ASC 323-10”), Investments-Equity Method and Joint Ventures: Overall (Pre-Codification: APB 18). Under the equity method, the Company initially records its investment at cost and adjusts the carrying amount of the investment to recognize the Company’s proportionate share of each equity investee’s net income or loss into consolidated statements of income after the date of acquisition. The difference between the cost of the equity investee and the amount of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill included in equity method investment on the consolidated balance sheets. The Company evaluated the equity method investments for impairment under ASC 323-10. An impairment loss on the equity method investments is recognized in the consolidated statements of income when the decline in value is determined to be other-than-temporary.

Capitalization of Software Developed for Internal Use

The Company has capitalized certain internal use software development costs in accordance with ASC subtopic 350-40 (“ASC 350-40”), Intangibles-Goodwill and Other: Internal-Use Software (Pre-Codification: Statement of Position (“SOP”) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use), amounting to RMB6.49 million, RMB19.49 million and RMB12.59 million (US$1.84 million) for the years ended December 31, 2007, 2008 and 2009, respectively. The Company capitalizes certain costs relating to software acquired, developed, or modified solely to meet the Company’s internal requirements and for which there are no substantive plans to market the software. These costs mainly included payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal use software projects during the application development stage. The estimated useful life of software development costs is determined to be three years. The amortization expense for capitalized software amounted to RMB1.26 million, RMB3.44 million and RMB9.77 million (US$1.43 million) for the years ended December 31, 2007, 2008 and 2009, respectively. Capitalized internal use software costs are included in fixed assets, net. The unamortized amount of capitalized internal use software developed costs, which are included in fixed assets, net, is RMB23.34 million and RMB26.16 million (US$3.83 million) as of December 31, 2008 and 2009, respectively.

Fixed Assets

Fixed assets are stated at cost less accumulated depreciation. Depreciation or amortization is recorded on a straight-line basis over the shorter of the estimated useful lives of the assets or the term of the related lease, as follows:


Office building		— 45 years
Office building related facility, machinery and equipment		— 15 years
Computer equipment		— 3 or 5 years
Internal use software development costs		— 3 years
Vehicles and office equipment		— 5 years
Leasehold improvements		— over the shorter of lease terms or estimated useful lives of the assets

Fixed assets have no estimated residual value except for the office building and its related facility, machinery and equipment, which have an estimated residual value of 4% of the cost.

Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterments that extend the useful life of fixed assets are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected in the consolidated statements of income.

All direct and indirect costs that are related to the construction of fixed assets and incurred before the assets are ready for their intended use are capitalized as construction in progress. Construction in progress is transferred to specific fixed assets items and depreciation of these assets commences when they are ready for their intended use.

Intangible Assets

Intangible assets with finite lives are carried at cost less accumulated amortization. The land use right is amortized using a straight-line method over the shorter of its estimated economic life or the term of related land use right contract. All other intangible assets with definite lives are amortized using the straight-line method over the estimated economic life. As of December 31, 2009, intangible assets have weighted average useful lives from the date of purchase as follows:


Domain names		— 5 years
Customer relationships		— 4.9 years
Non-competition agreements		— 3.9 years
Software		— 6.3 years
Contract-based assets		— 2.3 years
Trademark		— 9.6 years
Land use right		— 50 years

Intangible assets with an indefinite useful life are not amortized. One of the domain name assets acquired in July 2006 is not subject to amortization, as the remaining useful life is indefinite. The total amount assigned to this domain name is RMB9.36 million (US$1.37 million) as of December 31, 2009. In addition, in March 2008, the Company’s trademark of “BAIDU” was qualified as a China well-known trademark by the State Trademark Office. The registration costs amounted to RMB1.05 million as of December 31, 2008 and were recorded as an intangible asset not subject to amortization, as the remaining useful life is indefinite. If the intangible assets that are not being amortized are subsequently determined to have a finite useful life, the assets will be tested for impairment in accordance with ASC subtopic 350-30 (“ASC 350-30”), Intangibles-Goodwill and Other: General Intangibles Other than Goodwill (Pre-Codification: SFAS 142, Goodwill and Other Intangible Assets), and then amortized prospectively over their estimated remaining useful lives and accounted for in the same manner as other intangible assets that are subject to amortization. Intangible assets with indefinite useful lives are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired. There have been no impairment charges of the Company’s intangible assets with indefinite useful lives in any of the years presented.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets, such as fixed assets and purchased or internally developed intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with ASC subtopic 360-10 (“ASC 360-10”), Property, Plant and Equipment: Overall (Pre-Codification: SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets). When such events occur, the Company assesses the recoverability of the assets group based on the undiscounted future cash flow the assets group is expected to generate and recognizes an impairment loss when estimated undiscounted future cash flow expected to result from the use of the assets group plus net proceeds expected from disposition of the assets group, if any, is less than the carrying value of the assets group. If the Company identifies an impairment, the Company reduces the carrying amount of the assets group to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. The Company uses estimates and judgments in its impairment tests and if different estimates or judgments had been utilized, the timing or the amount of any impairment charges could be different. Asset groups to be disposed of would be reported at the lower of the carrying amount or fair value less costs to sell, and no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. There have been no impairment charges relating to the Company’s long-lived assets in any of the years presented.

Accounting for Impairment of Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business combination. The Company assesses goodwill for impairment in accordance with ASC subtopic 350-20 (“ASC 350-20”), Intangibles — Goodwill and Other: Goodwill (Pre-Codification: SFAS 142, Goodwill and Other Intangible Assets), which requires that goodwill be tested for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events, as defined by ASC 350-20. Consistent with the management’s operational perspective, the Company has determined that it has only one reporting unit as Baidu’s chief operational decision maker only reviews the Company’s discrete financials at its consolidated level. Goodwill was tested for impairment in the annual impairment tests on December 31 in each year using the two-step process required by ASC 350-20. First, the Company reviewed the carrying amount of the reporting unit compared to the “fair value” of the reporting unit based on quoted market prices of the ordinary shares. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. That is, the Company would then prepare the discounted cash flow analyses. Such analyses are based on cash flow assumptions that are consistent with the plans and estimates being used to manage the business. An excess carrying value compared to fair value would indicate that goodwill may be impaired. Finally, if the Company determined that goodwill may be impaired, the implied fair value of the goodwill, as defined by ASC 350-20, would be compared to its carrying amount to determine the impairment loss, if any. There has been no impairment of goodwill in any of the years presented.

Accounts Receivable and Other Receivables

Accounts receivable are recognized and carried at original invoiced amount less an allowance for any potential uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. The Company generally does not require collateral from its customers.

The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make payments on time. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectibility of individual balances. In evaluating the collectibility of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s historical payment history, its current credit-worthiness and current economic trends.

Revenue Recognition

The Company recognizes revenue based on the following principles:

Online marketing services

(1) Auction-based pay-for-performance service

The Company’s auction-based pay-for-performance (“P4P”) platform enables a customer to place its website link and related description on the Company’s search result list. The customers make bids on keywords based on how much they are willing to pay for each click to their listings in the search results listed on the Company’s website and the relevance between the keywords and the customer’s businesses. Internet users’ search of the keyword will trigger the display of the listings. The ranking of the customer’s listing depends on both the bidding price and the listing’s relevance to the keyword searched. Customer pays the Company only when a user clicks on one of its website links. Revenue is generally recognized when a user clicks on one of the customer-sponsored website links, as there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection is reasonably assured, as prescribed by ASC subtopic 605-10 (“ASC 605-10”), Revenue Recognition: Overall (Pre-Codification: Securities and Exchange Committee (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104).

For certain P4P customers engaged through direct sales, the Company may provide certain value-added consulting support services to help its customers to better utilize its P4P online marketing system. Fees for such services are generally recognized as revenue on a pro-rata basis over the contracted service period.

(2) Other performance-based online marketing services

To the extent the Company provides online marketing services based on performance criteria other than click-throughs, such as the number of telephone calls brought to its customers, the number of users registered with its customers, or the number of minimum click-throughs, revenue is recognized when the specified performance criteria are met together with satisfaction of other applicable revenue recognition criteria as prescribed by ASC 605-10.

(3) Time-based online advertising services

For time-based online advertising services such as text links, banners, or other forms of graphical advertisements, the Company recognizes revenue, in accordance with ASC 605-10, on a pro-rata basis over the contractual term commencing on the date the customer’s advertisement is displayed in a specified webpage. For certain time-based contractual agreements, the Company may also provide certain performance guarantees, in which cases revenue is recognized at the later of the completion of the time commitment or performance guarantee.

(4) Online marketing services involving Baidu Union

Baidu Union is the program through which the Company expands distribution of its customers’ sponsored links or advertisements by leveraging traffic of the Baidu Union members’ internet properties or distributing the Company’s customers’ paid links through Union members’ properties. The Company makes payments to Baidu Union members for acquisition of traffic. The Company recognizes gross revenue for the amount of fees it receives from its customers. Payments made to Baidu Union members are included in cost of revenues as traffic acquisition costs.

(5) Barter transactions

The Company engages in barter transactions occasionally and in such situation follows the provisions of ASC subtopic 845-10 (“ASC 845-10”), Nonmonetary Transactions: Overall (Pre-Codification: APB 29, Accounting for Nonmonetary Transactions). While nonmonetary transactions are generally recorded at fair value, if such value is not determinable within reasonable limits, the transaction is recognized based on the carrying value of the product or services provided. The amount of revenues recognized for barter transactions was insignificant for each of the periods presented.

The Company recognizes revenues for barter transactions involving advertising in accordance with ASC subtopic 605-20 (“ASC 605-20”), Revenue recognition: Services (Pre-Codification: Emerging Issues Task Force (“EITF”) Issue No. 99-17, Accounting for Advertising Barter Transactions). However, neither the amount recognized nor the volume of such transactions qualified for income recognition was material for any of the periods presented.

According to ASC subtopic 505-50 (“ASC 505-50”), Equity: Equity-based Payments to Non-Employees (Pre-Codification: EITF 00-08, Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction with Providing Goods or Services), if the Company provides services in exchange for equity instruments, the Company is required to measure the fair value of those equity instruments for revenue recognition purposes as of the earlier of either of the following dates:


	•	The date the parties come to a mutual understanding of the terms of the equity-based compensation arrangement and a commitment for performance by the Company to earn the equity instruments is reached;

	•	The date at which the Company’s performance necessary to earn the equity instruments is completed.

If, as of the measurement date, the fair value of the equity instruments received is not determinable within reasonable limits, the transaction is recognized based on the fair value of the services provided. If the fair value of both the equity instruments received and the services provided cannot be determined, no revenue is recognized for the services provided and the equity instrument received is recorded at zero carrying value. The amount of revenues recognized for such transactions was insignificant in each of the years presented.

(6) Other revenue recognition related policies

If a sales contract stipulates more than one of the services described in (1), (2) and (3) above (collectively the “Services”), and the Services are considered multiple accounting units in accordance with ASC subtopic 605-25 (“ASC 605-25”), Revenue recognition: Multiple-Element Arrangements (Pre-Codification: EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables), the total revenue on such arrangements is allocated to the individual deliverables based on their relative fair values. If sufficient vendor-specific objective evidence of fair value does not exist for the allocation of revenue, the fee for the entire arrangement is recognized ratably over the term of the arrangement.

The Company engages third party distributors to deliver some of its online marketing services to end customers. In this context, the Company may provide cash incentives to distributors. The cash incentives are accounted for as reduction of revenue in accordance with ASC subtopic 605-50 (“ASC 605-50”), Revenue recognition: Customer Payments and Incentives (Pre-Codification: EITF Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)).

Cash received in advance from customers is recorded as customer advances and deposits. The unused cash balances remaining in customers’ accounts are included as a liability of the Company. Deferred revenue is recorded when services are provided before the applicable revenue recognition criteria set forth in ASC 605-10 are fulfilled.

Cost of Revenues

Cost of revenues consists primarily of business taxes and surcharges, traffic acquisition costs, bandwidth costs, depreciation, payroll and related costs of operations.

The Company incurs business taxes and surcharges in connection with the provision of online marketing services, technical and consulting service fees charged by Baidu Online to VIEs and other taxable services in the PRC. According to ASC subtopic 605-45 (“ASC 605-45”), Revenue Recognition: Principal Agent Considerations (Pre-Codification: EITF Issue No. 06-03, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement), the Company includes the business tax and surcharges incurred on its online marketing revenues in cost of revenues. The business tax and surcharges in cost of revenues for the years ended December 31, 2007, 2008 and 2009 were RMB108.78 million, RMB200.09 million and RMB275.92 million (US$40.42 million), respectively.

Traffic acquisition costs represent the amounts paid or payable to Baidu Union members who direct search queries to the Company’s websites or distribute the Company’s customers’ paid links through their properties. These payments are primarily based on revenue sharing arrangements under which the Company pays its Baidu Union members a percentage of the fees it earns from its online marketing customers.

Advertising Expenses

Advertising expenses, primarily advertisements through various forms of media, are included in “Selling, general and administrative expense” in the consolidated statements of income and are expensed when incurred. Advertising expenses for the years ended December 31, 2007, 2008 and 2009 were RMB19.83 million, RMB29.22 million and RMB77.80 million (US$11.40 million), respectively.

Research and Development Expenses

Research and development expenses consist primarily of personnel-related costs. The Company has expensed substantially all development costs included in the research and development of products and new functionality added to the existing products as incurred, except for certain core technologies with alternative future uses.

Other Income

Other income consists primarily of interest income, government subsidies, impairment and non-operating expenses. Interest income is generated from bank deposits and other interest-earning financial assets and is recognized on an accrual basis. Other income, net primarily consists of financial subsidies received from provincial and local governments for operating a business in their jurisdictions and compliance with specific policies promoted by the local governments. During the years ended December 31, 2007, 2008 and 2009, the Group received financial subsidies of RMB18.99 million, RMB22.72 million and RMB42.50 million (US$6.23 million), respectively, from various local PRC government authorities. There are no defined rules and regulations to govern the criteria necessary for companies to receive such benefits, and the amount of financial subsidy is determined at the discretion of the relevant government authorities. Such amounts are recorded as other income when received.

Leases

Leases have been classified as either capital or operating leases. Leases that transfer substantially all the benefits and risks incidental to the ownership of assets are accounted for as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases wherein rental payments are expensed as incurred. The Company had no capital leases for the years ended December 31, 2007, 2008 and 2009.

Income Taxes

The Company recognizes income taxes under the liability method. Deferred income taxes are recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted tax rates in effect for the years in which the differences are expected to reverse. The Company records a valuation allowance against the amount of deferred tax assets that it determines is not more likely than not being realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company adopted the provisions of ASC subtopic 740-10 (“ASC 740-10”), Income Taxes: Overall (Pre-Codification: FIN 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109), on January 1, 2007. ASC 740-10 clarified the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. No cumulative effect adjustment resulted from the adoption of ASC 740-10, nor did the standard have any impact on the Company’s financial statements for the years ended December 31, 2008 and 2009. The Company has elected to classify interest and penalties related to an uncertain tax position (if and when required) as part of income tax expense in the consolidated statements of income. As of and for the years ended December 31, 2007, 2008 and 2009, no unrecognized tax benefits or interest and penalties associated with uncertainty in income taxes have been recognized.

Comprehensive Income

Comprehensive income is defined as the change in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Comprehensive income is reported in the consolidated statements of shareholders’ equity. Accumulated other comprehensive loss of the Company consists of the foreign currency translation adjustments.

Share-based Compensation

The Company adopted ASC subtopic 718-10 (“ASC 718-10”), Compensation-Stock Compensation: Overall (Pre-Codification: SFAS No. 123(R), Share-Based Payment), using the modified prospective transition approach from January 1, 2006. Pursuant to ASC 718-10, the Company recognized share-based compensation expense over the requisite service periods for any share-based awards granted after January 1, 2006 based on the fair values of all share-based awards on the dates of grant.

The Company has elected to recognize share-based compensation after the date of adoption of ASC 718-10 using the straight-line method for all share-based awards issued. Forfeitures have been estimated based on historical experience and periodically reviewed. Cancellation of an award accompanied by the concurrent grant of a replacement award is accounted for as a modification of the terms of the cancelled award (“modification awards”). The compensation costs associated with the modification awards will be recognized if either the original vesting condition or the new vesting condition is achieved and the compensation costs cannot be less than the grant-date fair value of the original award. The incremental compensation cost was measured as the excess of the fair value of the replacement award over the fair value of the cancelled award at the cancellation date. Therefore, in relation to the modification awards, the Company recognizes share-based compensation over the vesting periods of the new options, which comprises, (1) the amortization of the incremental portion of share-based compensation over the remaining vesting term and (2) plus any unrecognized compensation cost of original award, using either the original term or the new term, whichever is higher for each reporting period.

The Company accounts for share awards issued to non-employees in accordance with the provisions of ASC subtopic 505-50 (“ASC 505-50”), Equity: Equity-based Payments to Non-Employees (Pre-Codification: EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services). Under ASC 505-50, the Company uses the Black-Scholes option pricing model method to measure the value of options granted to non-employees at each vesting date to determine the appropriate charge to share-based compensation.

ASC 718-10 also requires share-based compensation to be presented in the same manner as cash compensation rather than as a separate line item.

Earnings Per Share (“EPS”)

The Company computes earnings per Class A and Class B ordinary shares in accordance with ASC subtopic 260-10 (“ASC 260-10”), Earnings Per Share: Overall (Pre-Codification: SFAS No. 128, Earnings per Share), using the two class method. Under the provisions of ASC 260-10, basic net income per share is computed using the weighted average number of ordinary shares outstanding during the period except that it does not include unvested ordinary shares subject to repurchase or cancellation. Diluted net income per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstanding during the period. Potentially dilutive securities have been excluded from the computation of diluted net income per share if their inclusion is anti-dilutive. Potential ordinary shares consist of the incremental ordinary shares issuable upon the exercise of stock options and restricted shares subject to cancellation. The dilutive effect of outstanding stock options and restricted shares is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A ordinary shares assumes the conversion of Class B ordinary shares, while the diluted net income per share of Class B ordinary shares does not assume the conversion of those shares.

The liquidation and dividend rights of the holders of the Company’s Class A and Class B ordinary shares are identical, except with respect to voting. As a result, and in accordance with ASC subtopic 260-10 (“ASC 260-10”), Earnings Per Share: Overall (Pre-Codification: EITF Issue No. 03-06, Participating Securities and the Two-Class Method under FASB Statement No. 128), the undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B ordinary shares as if the earnings for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as the conversion of Class B ordinary shares is assumed in the computation of the diluted net income per share of Class A ordinary shares, the undistributed earnings are equal to net income for that computation.

For the purposes of calculating the Company’s basic and diluted earnings per Class A and Class B ordinary shares, the ordinary shares relating to the options that were exercised are assumed to have been outstanding from the date of exercise of such options.

The following table sets forth the computation of basic and diluted net income per Class A and Class B ordinary shares.

(Amounts in thousands of Renminbi (“RMB”), and in thousands of U.S. Dollars (“US$”), except for number of shares and per share data)


	For the Years Ended December 31,
	2007				2008				2009
	Class A		Class B		Class A		Class B		Class A		Class A		Class B		Class B
	RMB		RMB		RMB		RMB		RMB		US$		RMB		US$

Numerator:
Allocation of undistributed earnings		428,128		200,840		772,330		275,778		1,107,191		162,204		377,913		55,365
Denominator:
Weighted average of issued shares outstanding		23,056,501		10,816,110		25,214,154		9,003,290		25,773,593		25,773,593		8,797,198		8,797,198

Denominator used for basic earnings per Class A and Class B ordinary shares		23,056,501		10,816,110		25,214,154		9,003,290		25,773,593		25,773,593		8,797,198		8,797,198
Basic earnings per Class A and Class B ordinary shares		18.57		18.57		30.63		30.63		42.96		6.29		42.96		6.29

Numerator:
Allocation of undistributed earnings for diluted computation		420,463		208,505		765,509		282,599		1,107,067		162,186		378,037		55,383
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares		208,505		—		282,599		—		378,037		55,383		—		—

Allocation of undistributed earnings-diluted		628,968		208,505		1,048,108		282,599		1,485,104		217,569		378,037		55,383
Denominator:
Weighted average ordinary shares outstanding-basic		23,056,501		10,816,110		25,214,154		9,003,290		25,773,593		25,773,593		8,797,198		8,797,198
Conversion of Class B to Class A ordinary shares		10,816,110		—		9,003,290		—		8,797,198		8,797,198		—		—
Share-based awards		851,754		695,130		500,046		357,512		205,576		205,576		55,210		55,210

Denominator used for diluted earnings per Class A and Class B ordinary shares		34,724,365		11,511,240		34,717,490		9,360,802		34,776,366		34,776,366		8,852,408		8,852,408
Diluted earnings per Class A and Class B ordinary shares		18.11		18.11		30.19		30.19		42.70		6.26		42.70		6.26

Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS 167, (subsequently codified by Accounting Standards Update (“ASU”) No. 2009-17 (“ASU 2009-17”)), Amendments to FASB Interpretation No. 46(R), which amends guidance regarding consolidation of variable interest entities to address the elimination of the concept of a qualifying special purpose entity. SFAS 167 also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of the variable interest entity, and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, SFAS 167 requires any enterprise that holds a variable interest in a variable interest entity to provide enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective for interim and annual reporting periods beginning after November 30, 2009. The Company does not expect the adoption of SFAS 167 will have a material impact on its consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-13 (“ASU 2009-13”), Multiple-Deliverable Revenue Arrangements. ASU 2009-13 amends ASC sub-topic 605-25 (“ASC 605-25”), Revenue Recognition: Multiple-Element Arrangements, regarding revenue arrangements with multiple deliverables. These updates addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the arrangement consideration should be allocated among the separate units of accounting. These updates are effective for fiscal years beginning after June 15, 2010 and to be applied retrospectively or prospectively for new or materially modified arrangements. In addition, early adoption is permitted. The Company does not expect the adoption of ASU 2009-13 will have a material impact on its consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-14 (“ASU 2009-14”), Certain Revenue Arrangements That Include Software Elements. ASU 2009-14 amends the scope of ASC sub-topic 985-605 (“ASC 985-605”), Software: Revenue Recognition, to exclude all tangible products containing both software and non-software components that function together to deliver the product’s essential functionality. ASU 2009-14 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and is to be applied on a prospective basis. Early application is permitted as of the beginning of an entity’s fiscal year. The Company does not expect the adoption of ASU 2009-14 will have a material impact on its consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06 (“ASU 2010-06”), Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC 820 to require a number of additional disclosures regarding (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company does not expect that the adoption of ASU 2010-06 will have a material impact on its consolidated financial statements.

Concentration of Risks

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents, short-term investments and accounts receivable. The Company has RMB4.58 billion (US$671.13 million) in cash and cash equivalents, and short-term investments. The Company has approximately RMB 4.18 billion (US$612.78 million) in cash, bank deposits and money market funds in the PRC, which constitute about 91% of total cash and cash equivalents and short-term investments. Since the global financial crisis during the third quarter of 2008, the risk of bankruptcy of those banks in which the Company has deposits or investments has increased significantly. In the event of bankruptcy of one of these financial institutions, it may be unlikely to claim its deposits or investments back in full. The Company continues to monitor the financial strength of the financial institutions.

Accounts receivable are typically unsecured and derived from revenue earned from customers and agents in China, which are exposed to credit risk. The risk is mitigated by credit evaluations the Company performs on its customers and its ongoing monitoring process of outstanding balances. We maintain reserves for estimated credit losses and these losses have generally been within our expectations.

Business and economic risks

The Company participates in a dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations or cash flows: changes in the overall demand for services and products; changes in business offerings; competitive pressures due to new entrants; advances and new trends in new technologies and industry standards; changes in bandwidth suppliers; changes in certain strategic relationships or customer relationships; regulatory considerations; copyright regulations; and risks associated with the Company’s ability to attract and retain employees necessary to support its growth.

No customer or any of Baidu Union member generated greater than 10% of total revenues in any of the periods presented.

The Company’s operations could be adversely affected by significant political, economic and social uncertainties in the PRC.

Currency convertibility risk

Substantially all of the Company’s businesses are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

Foreign currency exchange rate risk

The Company’s exposure to foreign currency exchange rate risk primarily relates to cash and cash equivalents and short-term investments denominated in the U.S. dollar. The functional currency of the Company is US$, and the reporting currency is RMB. Since July 21, 2005, the RMB has been permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. The appreciation of the US$ against RMB was approximately 0.05% in 2009. Any significant revaluation of RMB may materially and adversely affect the cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, the ADS in U.S. dollars. As a result, an appreciation of RMB against the U.S. dollar would result in foreign currency translation losses when translating the net assets of the Company from the U.S. dollar into RMB.

The functional currency of the subsidiaries in Japan is Japanese Yen (“JPY”), and the reporting currency is RMB. During 2009, JPY depreciated by approximately 2.4% against RMB. The depreciation of JPY against RMB results in foreign currency translation loss when translating the net assets into RMB.

For the years ended December 31, 2007, 2008 and 2009, the net foreign currency translation loss resulting from the translation from the respective functional currencies to the RMB reporting currency recorded in the Company’s other comprehensive loss was RMB48.26 million, RMB27.60 million and RMB3.96 million (US$0.58 million) respectively.

Comparative Information

Certain items in prior years’ consolidated financial statements have been reclassified to conform to the current year’s presentation in accordance with the requirement under eXtensible Business Reporting Language (“XBRL”) to facilitate comparison.

Short-Term Investments

12 Months Ended

Dec. 31, 2009

Short-Term Investments [Abstract]

SHORT-TERM INVESTMENTS


3.	SHORT-TERM INVESTMENTS


	December 31,
	2008		2009		2009
	RMB		RMB		US$
	(In thousands)

Held-to-maturity securities:
Fixed rate investments		140,033		381,149		55,839
Adjustable rate investments		161,211		—		—

		301,244		381,149		55,839

During the years ended December 31, 2007, 2008 and 2009, the Company recorded short-term investment gains and interest income of RMB5.25 million, RMB8.75 million and RMB8.18 million (US$1.20 million) in the consolidated statements of income, respectively.

As of December 31, 2008 and 2009, short-term investments of RMB140.03 million and RMB381.15 million (US$55.84 million), respectively, are fixed rate investments with the original maturity of less than one year.

As of December 31, 2009, RMB346.71 million out of the total fixed rate investments are six-month time deposits in commercial banks and financial institutions. In addition, the remaining RMB34.44 million of investment was initially adjustable rate investments issued by a financial institution, with the original maturity of less than one year. The adjustable rate investment is structured notes in nature with an adjustable interest rate depending on whether a reference equity-index is within a predetermined range. During the year ended December 31, 2009, the reference interest rate index was outside of the predetermined range and thus the interest rate became a fixed rate of 1% for the adjustable rate investment. Therefore, as of December 31, 2009, such RMB34.44 million of investment was recorded as fixed rate investment.

As of December 31, 2008 and 2009, the fair value of short-term investments is RMB304.25 million and RMB381.50 million (US$55.89 million), respectively, with respective gross unrecognized gain of RMB3.01 million and RMB0.35 million (US$0.05 million).

The following table summarizes the estimated fair value of the held-to-maturity securities as of December 31, 2009 (in thousands):

Gross

Carrying

Unrealized

Fair

Value

Gains

Losses

Value

RMB

US$

Short-term investments:

Fixed-rate investments

381,149

354

—

381,503

55,891

Total

381,149

354

—

381,503

55,891

- Definition

This item represents the entire disclosure related to Investments in Certain Debt and Equity Securities (and certain other trading assets) which include all debt and equity securities (other than those equity securities accounted for under the equity or cost methods of accounting) with readily determinable fair values. Other trading assets include assets that are carried on the balance sheet at fair value and held for trading purposes. A debt security represents a creditor relationship with an enterprise that is in the form of a security. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities (and other trading assets).

+ References+ Details

Accounts Receivable

12 Months Ended

Dec. 31, 2009

Accounts Receivable [Abstract]

ACCOUNTS RECEIVABLE


4.	ACCOUNTS RECEIVABLE


	December 31,
	2008			2009			2009
	RMB			RMB			US$
	(In thousands)

Accounts receivable		101,338			170,625			24,997
Less: Allowance for doubtful accounts		(8,561	)		(9,015	)		(1,321	)

		92,777			161,610			23,676


	2007			2008			2009		2009
	RMB			RMB			RMB		US$

Movements in allowance for doubtful accounts Balance at the beginning of the year		4,211			3,581			8,561		1,254
Amounts (credited against) charged to costs and expenses		(243	)		7,390			454		67
Write-offs		(387	)		(2,410	)		—		—

Balance at the end of the year		3,581			8,561			9,015		1,321

Other Assets, Current

12 Months Ended

Dec. 31, 2009

Other Assets, Current [Abstract]

OTHER ASSETS, CURRENT


5.	OTHER ASSETS, CURRENT


	December 31,
	2008		2009		2009
	RMB		RMB		US$
	(In thousands)

Deposits		10,777		13,736		2,012
Prepaid expenses		11,194		8,026		1,176
Advances to suppliers		9,080		8,965		1,314
Interest receivable		2,887		5,469		801
Receivables from employees		5,878		52,118		7,635
Receivables from service provider		1,836		2,614		383
Income taxes receivable		38,312		—		—
Other		43		139		20

		80,007		91,067		13,341

Fixed Assets

12 Months Ended

Dec. 31, 2009

Fixed Assets [Abstract]

FIXED ASSETS


6.	FIXED ASSETS


	December 31,
	2008			2009			2009
	RMB			RMB			US$
	(In thousands)

Office building		—			363,198			53,209
Office building related facility, machinery and equipment		—			118,844			17,411
Computer equipment		944,807			1,128,844			165,377
Internal use software development costs		26,811			44,925			6,581
Vehicles		4,019			4,020			589
Office equipment		17,134			57,687			8,451
Leasehold improvements		43,132			31,118			4,559

		1,035,903			1,748,636			256,177
Less: Accumulated depreciation		(535,199	)		(766,716	)		(112,325	)
Construction in progress		289,010			15,637			2,291

		789,714			997,557			146,143

The Company started the construction of its new office building in Beijing (“Baidu Campus”) in 2007 and completed the construction in late 2009. Direct costs related to the construction of Baidu Campus of RMB102.05 million, RMB172.29 million and RMB209.20 million (US$30.65 million) were capitalized as construction in progress for the years ended December 31, 2007, 2008 and 2009, respectively. Construction in progress of RMB482.04 million (US$70.62 million) was transferred to property, plant and equipment upon substantial completion of the construction of Baidu Campus in November 2009. The depreciation of Baidu Campus and its related facility, machinery and equipment is calculated using the straight-line method over their respective estimated useful life. In addition, the remainder construction in progress of RMB8.73 million (US$1.28 million) relating to Baidu Campus that has not yet been placed in service for its intended use is anticipated to be transferred to property, plant and equipment in 2010.

Depreciation expense was RMB170.13 million, RMB259.64 million and RMB285.20 million (US$41.78 million) for the years ended December 31, 2007, 2008 and 2009, respectively.

Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2009

Goodwill and Intangible Assets [Abstract]

GOODWILL AND INTANGIBLE ASSETS


7.	GOODWILL AND INTANGIBLE ASSETS

In 2009, Baidu Online completed acquisitions of certain intangible assets, including domain name, software, trademark and non-competition agreement, that met the definition of a business acquisition in accordance with ASC subtopic 805-10 (“ASC 805-10”), Business Combinations: Overall (Pre-Codification: SFAS No. 141(R), Business Combinations). The acquisitions resulted in the increase of intangible assets and goodwill by RMB7.54 million (US$1.10 million) and RMB12.61 million (US$1.85 million), respectively. The acquisitions were insignificant either individually or in the aggregate.

The changes in the carrying amount of goodwill are as follows:


	2008			2009		2009
	RMB			RMB		US$
	(In thousands)

Balance as of January 1		51,093			51,082		7,484
Goodwill acquired		—			12,609		1,847
Foreign currency translation adjustment		(11	)		—		—

Balance as of December 31		51,082			63,691		9,331

Intangible assets consist of the following:


	As of December 31, 2008
	Gross					Net
	Carrying		Accumulated			Carrying
	Value		Amortization			Value
	RMB		RMB			RMB
	(In thousands)

Land use right		97,611		(3,091	)		94,520
Domain names		24,184		(12,724	)		11,460
Customer relationships		31,363		(15,234	)		16,129
Non-competition agreements		1,022		(703	)		319
Software		3,221		(916	)		2,305
Contract-based assets		210		(210	)		—
Trademark		1,050		—			1,050

		158,661		(32,878	)		125,783


	As of December 31, 2009
	Gross					Net		Net
	Carrying		Accumulated			Carrying		Carrying
	Value		Amortization			Value		Value
			RMB			RMB		US$
	RMB		(In thousands)

Land use right		97,611		(5,043	)		92,568		13,561
Domain names		24,185		(14,567	)		9,618		1,409
Customer relationships		31,363		(21,165	)		10,198		1,494
Non-competition agreements		1,115		(936	)		179		26
Software		8,814		(1,616	)		7,198		1,055
Contract-based assets		338		(226	)		112		16
Trademark		2,777		(55	)		2,722		399

		166,203		(43,608	)		122,595		17,960

Amortization expense for the years ended December 31, 2007, 2008 and 2009 was RMB10.29 million, RMB12.08 million and RMB10.73 million (US$1.57 million), respectively. Estimated amortization expense relating to the existing intangible assets with definite lives for the each of next five years is as follows:


	RMB		US$
	(In thousands)

For the year ending December 31,
2010		7,865		1,152
2011		5,313		778
2012		2,824		414
2013		1,857		272
2014		535		78

- Definition

Discloses the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain or loss on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss. This element may be used as a single block of text to include the entire intangible asset disclosure including data and tables.

+ References+ Details

Accounts Payable and Accrued Liabilities, Current

12 Months Ended

Dec. 31, 2009

Accounts Payable and Accrued Liabilities, Current [Abstract]

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES, CURRENT


8.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES, CURRENT


	December 31,
	2008		2009		2009
	RMB		RMB		US$
	(In thousands)

Accrued payroll and welfare		61,854		95,412		13,978
Accrued operating expenses		102,843		162,963		23,874
Taxes payable		84,524		147,656		21,632
Distributors’ deposits		4,671		3,971		582
Purchase of fixed assets		57,414		144,214		21,127
Traffic acquisition costs		62,497		107,533		15,754
Bandwidth costs		15,680		16,417		2,405
Professional expenses		17,062		19,420		2,845
Other		16,484		52,275		7,658

		423,029		749,861		109,855

The increase in accrued operating expenses resulted primarily from the incentives accrued for advertising agents.

The increase in purchase of fixed assets was mainly due to the construction of Baidu Campus.

The increase in traffic acquisition costs was primarily due to the growth of revenue contribution from Baidu Union members.

Income Taxes

12 Months Ended

Dec. 31, 2009

Income Taxes [Abstract]

INCOME TAXES


9.	INCOME TAXES

The Company is incorporated in the Cayman Islands and conducts its primary business operations through the subsidiaries and VIEs in the PRC and Japan. It also has intermediate holding companies in the British Virgin Islands (“BVI”) and Hong Kong. Under the current laws of the Cayman Islands and BVI, the Company is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands and BVI withholding tax will be imposed. Under the Hong Kong tax laws, Baidu Hong Kong is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

China

Prior to January 1, 2008, the Company’s subsidiaries and VIEs were governed by the Income Tax Law of the People’s Republic of China concerning Foreign Investment Enterprises (the “FIE”) and Foreign Enterprises, and the Enterprise Income Tax (“EIT”) laws of the PRC respectively (the “Previous EIT Law”). Under the Previous EIT Law, the Company’s PRC subsidiaries and VIEs were generally subjected to enterprise income taxes at a statutory rate of 33% (30% state income tax plus 3% local income tax) while certain preferential tax treatments were granted for qualified businesses. The Company’s PRC subsidiaries were entitled to preferential tax rates and special tax holidays.


	•	Baidu Online, being a foreign invested enterprise, was recognized as a “Technologically Advanced Enterprise” by the Beijing Municipal Bureau of Commerce and thus entitled to a preferential tax rate of 10% from 2006 to 2007.

	•	Baidu China, being a foreign invested enterprise, has been granted “Software Enterprise” status and thus entitled to a “tax holiday” for a full exemption from EIT from 2006 to 2007, and a 50% tax reduction from 2008 to 2010.

	•	Baidu Times, being a foreign invested enterprise, had been recognized as a “High and New Technology Enterprise” and thus entitled to a reduced EIT rate of 15% upon expiration of the tax holiday, as well as exemption from local income tax. The tax holiday granted to Baidu Times was for a full exemption from EIT from 2006 to 2008, and a 50% tax reduction (at 7.5%) from 2009 to 2011.

On March 16, 2007, the National People’s Congress enacted the Enterprise Income Tax Law (“the New EIT Law”), which became effective on January 1, 2008 and has replaced the previous separate income tax laws for domestic enterprises and FIEs by adopting a unified 25% enterprise income tax rate applicable to all resident enterprises in China, including FIEs and foreign enterprises operating in the PRC, except for certain entities that still enjoyed the tax holidays which were grandfathered by the New EIT Law or that are entitled to tax incentives under the New EIT Law. In accordance with the implementation rules of the New EIT Law, a qualified “High and New Technology Enterprise” (“HNTE”) under the New EIT Law is granted the preferential tax rate of 15%. Baidu Online and Baidu Times are recognized as HNTE under the New EIT Law by the relevant authorities and applied the preferential tax rate of 15% upon receiving the HNTE certificates on February 23, 2009. Therefore, Baidu Online enjoys the reduced EIT rate of 15% and Baidu Times is entitled to its remaining tax holiday granted prior to the effectiveness of the New EIT Law. Baidu China, being a foreign invested enterprise located in Pudong, Shanghai, has been granted the “Software Enterprise” status and is thereby entitled to 2-year exemption for years 2006 and 2007 and subsequent 50% tax rate reduction for years 2008 to 2010. According to the relevant tax regulations provided under the New EIT Law, Baidu China, which has been approved as a software company, is entitled to the transitional arrangement in relation to tax rate as stipulated in Guofa [2007] No. 39 and enjoys the gradual increase in tax rate from 18% in 2008 to 25% in 2012.

Under the New EIT Law, dividends paid by a FIE to any of its foreign non-resident enterprise investors are subject to a 10% withholding tax, which were exempt under the Previous EIT Law. Thus, the dividends, if and when payable by Baidu Online to Baidu BVI, would be subject to 10% withholding tax. A lower tax rate will be applied if such foreign non-resident enterprise investor’s jurisdiction of incorporation has signed a tax treaty or arrangement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income with China. There is such a tax arrangement between PRC and Hong Kong. Thus, the dividends, if and when payable by Baidu Times and Baidu China to Baidu HK, would be subject to 5% withholding tax rather than statutory rate of 10% provided that Baidu HK meets the requirements stipulated by relevant PRC tax regulations. Furthermore, pursuant to the applicable circular and interpretations of the New EIT Law, dividends from earnings created prior to 2008 but distributed after 2008 are not subject to withholding income tax.

Moreover, the New EIT Law treats enterprises established outside of China with “effective management and control” located in China as PRC resident enterprises for tax purposes. The term “effective management and control” is generally defined as exercising overall management and control over the business, personnel, accounting, properties, etc. of an enterprise. The Company, if considered a PRC resident enterprise for tax purposes, would be subject to the PRC Enterprise Income Tax at the rate of 25% on its worldwide income for the period after January 1, 2008. As of December 31, 2009, the Company has not accrued for PRC tax on such basis. The Company will continue to monitor its tax status.

Japan

Baidu Japan with a paid-in capital in excess of JPY100.00 million is subject to national income tax of 30%. Baidu Japan is also subject to inhabitants tax, assessed by both prefectures and municipalities. Inhabitants tax is computed as a percentage of national income tax. The per capita tax is based on the company’s capitalization and the number of employees. In addition, Baidu Japan is subject to a corporate enterprise tax on a pro forma basis based on the amount of taxable profit subject to the corporate tax, added-value components, (e.g. labor costs, net interest and rental payments, income/loss for current year) and a capital component. Baidu Japan has been in a cumulative loss position since its inception.

The Company had minimal operations in jurisdictions other than the PRC and Japan. Income (loss) before income taxes consists of:


	For the Years Ended December 31,
	2007			2008			2009			2009
	RMB			RMB			RMB			US$
	(In thousands)

PRC		699,332			1,360,326			1,907,575			279,461
Non-PRC		(83,116	)		(196,147	)		(224,454	)		(32,882	)

		616,216			1,164,179			1,683,121			246,579

The pre-tax losses from non-PRC operations consists primarily of the operating costs, administration expenses, interest income and charges for share-based compensation. Income taxes consist of:


	For the Years Ended December 31,
	2007			2008			2009			2009
	RMB			RMB			RMB			US$
	(In thousands)

Current income tax		19,409			129,885			222,778			32,637
Income tax refund due to reduced transitional tax rate		—			—			(13,923	)		(2,040	)
Reinvestment tax refund		(21,198	)		—			—			—
Deferred income tax benefit		(39,691	)		(58,553	)		(62,308	)		(9,128	)
Valuation allowance		28,728			44,739			51,470			7,541

		(12,752	)		116,071			198,017			29,010

In 2009 the Company received a total tax refund of RMB55.88 million for overpaid income tax of the year 2008, out of which RMB34.40 million was the refund for overpaid income tax attributed to Baidu Online before it obtained the certificate of High and New Technology Enterprise, which provides Baidu Online with the preferential tax rate of 15% from 2008 to 2010. The remaining refund of RMB21.48 million to Baidu China was composed of RMB7.56 million for over-paid income tax of the year 2008 and a tax refund of RMB13.92 million resulting from the reduced transitional tax rate granted to Baidu China, which was credited to income tax expense upon receipt.

The reconciliation of tax computed by applying respective statutory income tax rate to pre-tax income is as follows (Amounts in thousands of Renminbi (“RMB”), and in thousands of U.S. Dollars (“US$”), except for number of shares and per share data):


	For the Years Ended December 31,
	2007			2008			2009			2009
	RMB			RMB			RMB			US$

Expected taxation at PRC EIT statutory rate		203,352			291,045			420,780			61,645
Effect of differing tax rates in different jurisdictions		(1,486	)		3,533			5,101			747
Permanent differences — non-taxable income		(1,325	)		(2,121	)		(6,640	)		(973	)
Permanent differences — non-deductible expenses		2,410			2,703			9,001			1,319
Tax incentives relating to R&D expenditures		(8,791	)		(17,848	)		(9,125	)		(1,337	)
Effect of tax exemption and reduction inside PRC		(214,442	)		(205,980	)		(258,647	)		(37,892	)
Reinvestment tax refund		(21,198	)		—			—			—
Income tax refund due to reduced transitional tax rate		—			—			(13,923	)		(2,040	)
Addition to (reversal of) valuation allowance		28,728			44,739			51,470			7,541

Taxation for the year		(12,752	)		116,071			198,017			29,010

Effective tax rate		(2.1	%)		9.97	%		11.76	%		11.76	%
Basic earnings per Class A and Class B ordinary shares effect of tax exemptions and reductions inside PRC		6.33			6.02			7.48			1.10

The statutory EIT rate was 33% for the year ended December 31, 2007, and 25% for the years ended December 31, 2008 and 2009.

Baidu Online and Baidu China enjoyed an additional tax incentive relating to its research and development expenses. The Company has claimed an additional tax deduction amounting to 50% of the current year’s research and development expenses. The amount that exceeds the current year’s taxable profit would be carried forward for up to the following five years in order to be utilized. In 2007, 2008 and 2009, the Company has no deductible research and development expenses carried forward.

The Company’s effective tax rate increased in fiscal year 2009 compared with 2008, primarily due to the fact that Baidu Times had been entitled to tax exemption for year 2008 and was subject to 7.5% tax rate for year 2009. The Company’s effective tax rate increased in fiscal year 2008 compared with 2007, primarily due to the fact that Baidu China had been entitled to tax exemption for year 2007 and was subject to 9% tax rate for year 2008. Another factor was due to the cessation of reinvestment credit under the New EIT Law. Prior to the New EIT Law, a foreign investor could apply for a tax refund when it reinvested its share of accumulated profits from an existing FIE to increase the registered capital of the existing FIE. In 2007, Baidu Holdings obtained such a reinvestment tax refund, as it increased the registered capital in Baidu Online by reinvesting the retained earnings of Baidu Online. The preferential tax refund was repealed under the New EIT Law.

The tax effects of temporary differences that give rise to the deferred tax balance at December 31, 2008 and 2009 are as follows:


	December 31
	2008			2009			2009
	RMB			RMB			US$
	(In thousands)

Provision for doubtful receivables		1,548			2,103			308
Fixed assets		24,984			37,800			5,538
Net operating loss carry-forward		73,357			117,964			17,282
Other		5,695			10,007			1,466

Deferred tax assets		105,584			167,874			24,594
Valuation allowance		(73,467	)		(124,918	)		(18,300	)

Deferred tax assets, net		32,117			42,956			6,294

The Company does not believe that sufficient positive evidence exists to conclude that the recoverability of Baidu Japan and Baidu Hong Kong’s net deferred tax assets is more likely than not to be realized. Consequently, the Company has provided full valuation allowances on the related net deferred tax assets.

As of December 31, 2009, the Company had net operating losses of approximately RMB315.00 million (US$46.00 million) from Baidu Japan, Baidu HK and BaiduPay, which can be carried forward to offset future net profit for income tax purposes. The Japan net operating loss will expire beginning 2015; the PRC net operating loss will expire beginning 2014; and the HK net operating loss can be carried forward without an expiration date.

The Company has evaluated its income tax uncertainty under ASC 740-10. ASC 740-10 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. The Company has elected to classify interest and penalties related to an uncertain tax position, if and when required, as part of income tax expense in the consolidated statements of operations. As of December 31, 2009, there is no significant tax uncertainty impact on the Company’s financial position and result of operations.

The Company did not provide for deferred income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries and its VIEs as of December 31, 2008 and 2009 on the basis of its intent to permanently reinvest foreign subsidiaries’ earnings. If these foreign earnings were to be repatriated in the future, the related tax liability may be reduced by any foreign income taxes previously paid on these earnings. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable. In the case of its VIEs, undistributed earnings were insignificant as of each of the balance sheet dates.

In general, the PRC and Japanese tax authorities have up to five and seven years respectively to conduct examinations of the Company’s tax filings. Accordingly, the PRC subsidiaries’ tax years 2006-2009 and the Japanese subsidiary’s tax years 2006-2009 remain open to examination by the respective taxing jurisdictions.

Employee Defined Contribution Plan

12 Months Ended

Dec. 31, 2009

Employee Defined Contribution Plan [Abstract]

EMPLOYEE DEFINED CONTRIBUTION PLAN


10.	EMPLOYEE DEFINED CONTRIBUTION PLAN

Full time employees of the Group in the PRC participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the Group make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The Group has no legal obligation for the benefits beyond the required contributions. The total amounts for such employee benefits, which were expensed as incurred, were RMB55.12 million, RMB98.18 million and RMB141.84 million (US$20.78 million) for the years ended December 31, 2007, 2008 and 2009, respectively.

Commitments and Contingencies

12 Months Ended

Dec. 31, 2009

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES


11.	COMMITMENTS AND CONTINGENCIES

Capital commitments

The Company’s capital commitments relate primarily to leasehold improvements. Total capital commitments contracted but not yet reflected in the financial statements amounted to RMB40.29 million (US$5.90 million) at December 31, 2009. All of these capital commitments are to be fulfilled within the next year.

Operating lease commitments

The Company leases facilities in the PRC under non-cancelable operating leases expiring on different dates. Payments under operating leases are expensed on a straight-line basis over the periods of the respective leases. Total rental expense under all operating leases was RMB45.41 million, RMB68.86 million and RMB84.43 million (US$12.37 million) for the years ended December 31, 2007, 2008 and 2009, respectively.

Future minimum payments under non-cancelable operating leases with initial terms of one-year or more consist of the following at December 31, 2009:


	RMB		US$
	(In thousands)

2010		216,606		31,733
2011		18,395		2,695
2012		7,923		1,161
2013		7,923		1,161
2014		5,793		848

		256,640		37,598

Litigation

Baidu Netcom, Baidu China and Baidu Online were involved in a number of cases pending in various courts and arbitration as of December 31, 2009. These cases include alleged copyright infringement, unfair competition, and defamation, among others. Adverse results in these lawsuits may include awards of damages and may also result in, or even compel, a change in the Company’s business practices, which could result in a loss of revenue or otherwise harm the business of the Company.

As of December 31, 2009, the plaintiffs associated with various cases claimed an aggregate remedy of RMB77.19 million (US$11.31 million). Although the results of litigation and claims cannot be predicted with certainty, the Company does not expect that the outcome of the matters referred to above will result in a material adverse effect on its business, consolidated financial position, results of operations or cash flow.

Ordinary Shares

12 Months Ended

Dec. 31, 2009

Ordinary Shares [Abstract]

ORDINARY SHARES


12.	ORDINARY SHARES

Upon completion of the company’s initial public offering (“IPO”) in August 2005, 16,648,877 Class B Ordinary shares were issued upon conversion of all convertible preferred shares. In addition, immediately following the closing of the IPO, the Memorandum and Articles of Association were amended and restated such that the authorized share capital consisted of 870,400,000 ordinary shares at a par value of US$0.00005 per share, of which 825,000,000 shares were designated as Class A ordinary shares, 35,400,000 as Class B ordinary shares, and 10,000,000 shares designated as preferred shares. The rights of the holders of Class A and Class B ordinary shares are identical, except with respect to voting and conversion rights. Each share of Class A ordinary shares is entitled to one vote per share and is not convertible into Class B ordinary shares under any circumstances. Each share of Class B ordinary shares is entitled to ten votes per share and is convertible into one Class A ordinary share at any time by the holder thereof. Upon any transfer of Class B ordinary shares by the holder thereof to any person or entity that is not an affiliate of such holder, such Class B ordinary shares would be automatically converted into an equal number of Class A ordinary shares. There were 2,133,176, 122,856 and 419,654 Class B ordinary shares transferred to Class A ordinary shares in 2007, 2008 and 2009, respectively.

As of December 31, 2009 there were 26,298,960 and 8,454,332 Class A and Class B ordinary shares outstanding, respectively.

As of December 31, 2008 and 2009, there were no preferred shares issued and outstanding.

On December 16, 2008, a resolution was passed during the 2008 annual general meeting of shareholders authorizing the Company to repurchase its Class A ordinary shares represented by American depositary shares (“ADSs”) before the end of 2009. As part of its share repurchase program, the Company entered into two types of share repurchase arrangement with a financial institution as follows:

(a) In December 2008 and March 2009, the Company entered into a structured share repurchase program which required the Company to make an upfront cash payment in exchange for the right to receive either the Company’s own ordinary shares or cash at the expiration of the agreement, depending on the closing price of the Company’s ordinary share at the maturity date. Pursuant to the structured share repurchase program, the Company made upfront payments of US$10.00 million and US$20.00 million to the financial institution in December 2008 and March 2009, respectively. The upfront cash payments were recorded in shareholders’ equity as a reduction to additional paid-in capital in accordance with ASC subtopic 815-40 (“ASC 815-40”), Derivatives and Hedging: Contracts in Entity’s Own Equity (Pre-Codification: EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock). At the maturity dates in March and June 2009, the Company received its upfront cash payments with premium of US$0.84 million and US$0.73 million, respectively, from the financial institution. The settlement amounts of US$10.84 million and US$20.73 million received by the Company were treated as equity transactions and were credited to additional paid-in capital.

(b) In December 2008 and March 2009, the Company also entered into a preset share repurchase program which engaged the financial institution to act as a broker on behalf of the Company to repurchase ADSs in the open market based on a predetermined quantity and price range. Pursuant to the preset share repurchase program, the Company made an upfront payment of US$10.00 million and US$20.00 million to the financial institution in December 2008 and March 2009, respectively, to repurchase up to an aggregate of US$10.00 million and US$20.00 million of ADSs during an agreed period. The Company had the right to cancel the preset repurchase program with the financial institution at any time so long as the Company provided a three-day notice to the financial institution. The upfront US$10 million cash had no restriction otherwise and could have been withdrawn by the Company at any time. The Company repurchased 32,740 ordinary shares from the open market during the agreed periods for an aggregate purchase price of US$3.57 million, including transaction costs of US$982.00. The repurchased shares were considered cancelled under Cayman Islands law upon repurchase and the difference between the par value and the repurchase price was debited to retained earnings.

- Definition

This element is used to capture the complete disclosure pertaining to an entity's stock, including par or stated value per share, number and dollar amount of share subscriptions, shares authorized, shares issued, shares outstanding, number and dollar amount of shares held in an employee trust, dividend per share, total dividends, share conversion features, par value plus additional paid in capital, the value of treasury stock and other information necessary to a fair presentation. Stock by Class includes common, convertible and preferred stocks which are not redeemable or redeemable solely at the option of the issuer. Includes preferred stock with redemption features that are solely within the control of the issuer and mandatorily redeemable stock if redemption is required to occur only upon liquidation or termination of the reporting entity. If more than one issue is outstanding, state the title of each issue and the corresponding dollar amount; dollar amount of any shares subscribed but unissued and the deduction of subscriptions receivable there from; number of shares authorized, issued and outstanding.

+ References+ Details

Retained Earnings

12 Months Ended

Dec. 31, 2009

Retained Earnings [Abstract]

RETAINED EARNINGS


13.	RETAINED EARNINGS

In accordance with the Regulations on Enterprises with Foreign Investment of China and their articles of association, the Company’s PRC subsidiaries, being foreign invested enterprises established in China, are required to provide for certain statutory reserves, namely a general reserve fund, an enterprise expansion fund, a staff welfare fund and a bonus fund, all of which are appropriated from net profit as reported in their PRC statutory accounts. Each of the Company’s subsidiaries is required to allocate at least 10% of its after-tax profits to a general reserve fund until such fund has reached 50% of its respective registered capital. Appropriations to the enterprise expansion fund and staff welfare and bonus funds are at the discretion of the board of directors of the Company’s subsidiaries.

In accordance with the China Company Laws, the Company’s VIEs must make appropriations from their after-tax profits as reported in their PRC statutory accounts to non-distributable reserve funds, namely a statutory surplus fund, a statutory public welfare fund and a discretionary surplus fund. Each of the Company’s VIEs is required to allocate at least 10% of its after-tax profits to the statutory surplus fund until such fund has reached 50% of its respective registered capital. Appropriation to the statutory public welfare fund is 5% to 10% of the after-tax profits as reported in the PRC statutory accounts. Effective from January 1, 2006, under the revised China Company Laws, appropriation to the statutory public welfare fund is no longer mandatory. Appropriations to the discretionary surplus fund are made at the discretion of the Company’s VIEs.

General reserve and statutory surplus funds are restricted to set-off against losses, expansion of production and operation and increasing registered capital of the respective company. Staff welfare and bonus fund and statutory public welfare funds are restricted to capital expenditures for the collective welfare of employees. The reserves are not allowed to be transferred to the Company in terms of cash dividends, loans or advances, nor are they allowed for distribution except under liquidation.


	December 31,
	2008		2009		2009
	RMB		RMB		US$
	(In thousands)

PRC statutory reserve funds		136,034		187,675		27,495
Unreserved retained earnings		1,843,810		3,252,854		476,546

		1,979,844		3,440,529		504,041

Under PRC laws and regulations, there are restrictions on the Company’s PRC subsidiaries and VIEs with respect to transferring certain of their net assets to the Company either in the form of dividends, loans, or advances. Amounts restricted include paid up capital and statutory reserve funds of the Company’s PRC subsidiaries and the net assets of VIEs in which the Company has no legal ownership, totaling approximately RMB803.77 million and RMB879.43 million (US$128.84 million) as of December 31, 2008 and 2009, respectively.

Share-Based Awards Plan

12 Months Ended

Dec. 31, 2009

Share-Based Awards Plan [Abstract]

SHARE-BASED AWARDS PLAN


14.	SHARE-BASED AWARDS PLAN

Incentive Compensation Plans

In January 2000, the Company adopted the 2000 Option Plan (the “2000 Plan”). The 2000 Plan provides for the granting of share options and restricted ordinary shares to employees and consultants of the Company. Options granted under the 2000 Plan may be either incentive share options or nonqualified share options. Incentive share options (“ISO”) may be granted only to Company employees (including officers and directors who are also employees). Nonqualified share options (“NSO”) may be granted to Company employees and consultants. The Company has reserved 5,040,000 ordinary shares for issuance under the 2000 Plan. Under the 2000 Plan, which expires in ten years, options granted generally vest 25% after the first year of service and ratably each month over the remaining 36-month period.

Under the 2000 Plan, the employees may exercise their options immediately, if such provisions are set forth in the award agreement, but the Company has a right to repurchase unvested shares at the amount equal to the original purchase price paid by the grantee for each such share. The right to repurchase lapses at the rate of at least twenty percent of the shares subject to the award per year over five years from the date the award is granted (without respect to the date the award was exercised or became exercisable). Such repurchase right is exercisable at any time (i) during the 90-day period following employee termination date, or (ii) during the 90-day period following an exercise of the option that occurs after employee termination date. The contractual term of options granted is generally five years.

In December 2008, the Company amended the 2000 Plan by adding a new section regarding adjustment of exercise price. The exercise price per share subject to an option may be amended or adjusted in the absolute discretion of the 2000 Plan administrator, which is the Board of Directors, and the determination of which shall be final, binding and conclusive. A downward adjustment of the exercise prices shall be effective without the approval of the Company’s shareholders or the approval of the affected grantees.

Starting from February 15, 2006, the Company has granted restricted Class A ordinary shares (“Restricted Shares”) of the Company under the 2000 Plan, which generally vest 50% after the first year of service and ratably each month over the remaining 12-month period. Terms for Restricted Shares are the same as share options except that Restricted Shares do not require exercise and generally have a two-year vesting term. The contractual term of Restricted Shares granted is generally five years.

In December 2008, the Company adopted a share incentive plan (the “2008 Plan”). The 2008 Plan provides for the granting of share incentives, which include ISO, restricted shares and any other form of award pursuant to the 2008 Plan, to members of the board, employees and consultants of the Company. However, the Company may grant ISOs only to its employees. The Company has reserved 3,428,777 ordinary shares for issuance under the 2008 Plan, which expires in ten years. The vesting schedule, time and condition to exercise options will be determined by the compensation committee. The term of the options may not exceed ten years from the date of the grant, except that five years is the maximum term of an ISO granted to an employee who holds more than 10% of the voting power of the Company’s share capital.

Under the 2008 Plan, the exercise price per share subject to an option may be amended or adjusted at the discretion of the compensation committee, and the determination of which shall be final, binding and conclusive. To the extent not prohibited by applicable laws or exchange rules, a downward adjustment of the exercise prices shall be effective without the approval of the Company’s shareholders or the approval of the affected grantees. If the Company grants an ISO to an employee who, at the time of that grant, owns shares representing more than 10% of the voting power of all classes of the Company’s share capital, the exercise price cannot be less than 110% of the fair market value of the Company’s ordinary shares on the date of that grant.

The following table summarizes the option activity for the year ended December 31, 2009:

Weighted-

Average

Weighted-

Remaining

Aggregate

Number of

Average

Contractual

Intrinsic

Share Option

Shares

Exercise Price

Life (Years)

Value (US$)

(In thousands)

Outstanding, December 31, 2008

328,093

US$72.06

1.95

24,681

Granted

57,739

US$133.86

Exercised

(198,296

)

US$30.39

Forfeited/Cancelled

(31,386

)

US$260.31

Expired

(1,476

)

US$25.64

Outstanding, December 31, 2009

154,674

US$110.80

2.56

46,469

Vested and expected to vest at December 31, 2009

149,441

US$110.11

2.53

45,000

Exercisable at December 31, 2009

74,996

US$88.07

1.50

24,236

The aggregate intrinsic value in the table above represents the difference between the Company’s closing stock price on the last trading day in 2009 and the exercise price.

Total intrinsic value of options exercised for the three years ended December 31, 2007, 2008 and 2009 was RMB559.59 million, RMB465.25 million and RMB340.13 million (US$49.83 million), respectively.

As of December 31, 2009, there was RMB36.45 million (US$5.34 million) unrecognized share-based compensation cost related to share options. That deferred cost is expected to be recognized over a weighted-average vesting period of 2.60 years. To the extent the actual forfeiture rate is different from original estimate, actual share-based compensation costs related to these awards may be different from the expectation.

On February 11 2009, the Company cancelled options previously granted to certain executives with the exercise price significantly higher than the fair market value at that time, and concurrently re-granted the same number of options at the then current fair market value. The vesting of the replacement option starts from the date of grant, and all other terms remain the same as the original option. The cancellation and re-grant was intended to provide incentives for these executives. In accordance with ASC 718-10, the Company accounted for the cancellation of an award accompanied by the concurrent grant of a replacement award as a modification of the terms of the cancelled award. Therefore, incremental compensation cost was measured as the excess of the fair value of the replacement award over the fair value of the cancelled award at the cancellation date. The total compensation cost measured at the date of cancellation and replacement was US$2.96 million, representing the portion of the grant-date fair value of the original award for which the requisite service is expected to be rendered (or has already been rendered) at that date of US$2.36 million plus the incremental cost resulting from the cancellation and replacement of US$0.60 million. The cost is being amortized on a straight-line basis over the vesting term of four years of the replacement option.

Restricted Shares

Restricted shares activity for the year ended December 31, 2009 was as follows:


				Weighted
				Average
				Grant Date
Restricted Shares	Number of Shares			Fair Value

Nonvested, December 31, 2008		82,382		US$	210.76
Granted		40,223		US$	214.55
Vested		(71,903	)	US$	199.69
Forfeited		(3,008	)	US$	211.19
Nonvested, December 31, 2009		47,694		US$	224.34

As of December 31, 2009, there was RMB53.79 million (US$7.88 million) unrecognized share-based compensation cost related to restricted shares. That deferred cost will be recognized over a weighted-average vesting period of 1.24 years. To the extent the actual forfeiture rate is different from the original estimate, actual share-based compensation costs related to these awards may be different from the expectation.

The fair value of each option award was estimated on the date of grant using the Black-Scholes Method valuation model. The volatility assumption was estimated based on implied volatility and historical volatility of the Company’s share price applying the guidance provided by ASC subtopic 718-10 (“ASC 718-10”), Compensation-Stock Compensation: Overall (Pre-Codification: SAB 107, Share-Based Payment). Assumptions about the expected term were based on the vesting and contractual terms and employee demographics. The Company considered the comparable data in 2007 and 2008 because the Company had limited relevant historical information to support the expected exercise behavior of employees who had been granted options as the Company has been a public company only since August 2005. The Company begins to estimate the volatility assumption solely based on its historical information since 2009. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The following table presents the assumptions used to estimate the fair values of the share options granted in the periods presented:


	2007	2008	2009

Risk-free interest rate	4.54%~5.03%	1.74%~2.60%	1.18%
Dividend yield	—	—	—
Expected volatility range	63.94%~72.90%	63.52%~70.82%	85.43%
Weighted average expected volatility	68.28%	66.54%	85.43%
Expected life (in years)	1~2.6	1.63~2.64	2.65

In addition, the Company applies an expected forfeiture rate in determining the grant date fair value of the option grants. The estimation of the forfeiture rate was based primarily upon historical experience of employee turnover. To the extent the Company revises this estimate in the future, the share-based payments could be materially impacted in the quarter of revision, as well as in following quarters. During the year ended December 31, 2009, the Company decreased the forfeiture rate for the employee group primarily due to changes in historical employee turnover rates.

The table below summarizes the weighted average fair value and exercise price of share options granted:


	2007		2008		2009
	US$		US$		US$

Weighted average grant-date fair value of share options granted during the year:
Where exercise price is lower than market price		—		—		—
Where exercise price is equal to market price		57.02		136.97		94.10
Weighted average exercise price of share options granted during the year:
Where exercise price is lower than market price		—		—		—
Where exercise price is equal to market price		131.09		247.05		133.86

The total fair value of shares vested during the year ended December 31, 2007, 2008 and 2009 was RMB14.86 million, RMB37.57 million, RMB201.83 million (US$29.57 million), respectively.

Total compensation cost recognized is as follows:


	For the Years Ended December 31,
	2007		2008		2009		2009
	RMB		RMB		RMB		US$
	(In thousands)

Cost of revenues		1,717		4,542		6,374		934
Selling, general and administrative		17,371		41,651		38,681		5,667
Research and development		20,760		37,784		41,263		6,045
Share-based compensation cost capitalized as part of internally used software in fixed assets		714		2,706		1,217		178

		40,562		86,683		87,535		12,824

Related Party Transactions

12 Months Ended

Dec. 31, 2009

RELATED PARTY TRANSACTIONS


15.	RELATED PARTY TRANSACTIONS

Employees who exercise their options with cash will be required to pay individual income tax (“IIT”) through the Company. As of December 31, 2008, the Company accrued withholding individual income tax for one employee, who is also one of the major shareholders, of RMB10.70 million (US$1.57 million). The balance was subsequently paid by the employee to the tax authority through the Company in February 2009. No balances were due from any shareholders, officers or directors as of December 31, 2009.

- Definition

This element may be used for the entire related party transactions disclosure as a single block of text. Disclosure may include: the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References+ Details

Segment Reporting

12 Months Ended

Dec. 31, 2009

Segment Reporting [Abstract]

SEGMENT REPORTING


16.	SEGMENT REPORTING

In accordance with ASC subtopic 280-10 (“ASC 280-10”), Segment Reporting: Overall (Pre-Codification: SFAS 131, Disclosures about segments of an Enterprise and Related Information), the Company’s chief operating officer relies upon consolidated results of operations when making decisions about allocating resources and assessing performance of the Company; hence, the Company has only one single operating segment. The Company does not distinguish between markets or segments for the purpose of internal reporting.

The Company’s revenue and long-lived assets are primarily derived from and located in the PRC and Japan.

Fair Value Measurement

12 Months Ended

Dec. 31, 2009

Fair Value Measurement [Abstract]

FAIR VALUE MEASUREMENT


17.	FAIR VALUE MEASUREMENT

Effective January 1, 2008, the Group adopted ASC subtopic 820-10 (“ASC 820-10”), Fair Value Measurements and Disclosures: Overall (Pre-Codification: SFAS 157, Fair Value Measurement). ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Although the adoption of ASC 820-10 did not impact the Group’s financial condition, results of operations, or cash flow, ASC 820-10 requires additional disclosures to be provided on fair value measurement.

ASC 820-10 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets

Level 2 — Include other inputs that are directly or indirectly observable in the marketplace

Level 3 — Unobservable inputs which are supported by little or no market activity

ASC 820-10 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

In accordance with ASC 820-10, the Company measures cash equivalents and short-term investments at fair value. Cash equivalents are classified within Level 1 or Level 2. This is because cash equivalents are valued using either quoted market prices or discounted cash flow model with market interest rates as discount curve. The Company’s short-term investments were classified as held-to-maturity securities and stated at amortized cost. The fair value of short-term investments was determined based on discounted cash flow model with market interest rates as discount curve.

Assets measured at fair value on a recurring basis are summarized below (in thousands):


					Fair Value Measurement at Reporting Date Using
					Quoted Prices in		Significant Other		Significant
					Active Markets for		Observable		Unobservable
	Total Fair Value at				Identical Assets		Inputs		Inputs
Description	December 31, 2009				(Level 1)		(Level 2)		(Level 3)
	(RMB)		(US$)		(RMB)		(RMB)		(RMB)

Cash equivalents
Time deposits		1,658,678		242,998		1,658,678		—		—
Money market fund		234,782		34,396		234,782		—		—
Short-term Investments
Fixed-rate investments		381,503		55,890		—		381,503		—

Total		2,274,963		333,284		1,893,460		381,503		—

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the Company is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risk is are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References+ Details

Subsequent Events (Unaudited)

12 Months Ended

Dec. 31, 2009

Subsequent Events Abstract

SUBSEQUENT EVENTS (UNAUDITED)


18.	SUBSEQUENT EVENTS (UNAUDITED)

On September 28, 2008, the Company entered into agreements with UiTV, a third-party operator of an Internet television platform in China, pursuant to which UiTV would operate the Baidu Internet TV Channel host on the Company’s website at movie.baidu.com. The agreements were terminated in December 2009. In February 2010, the Company and Providence Equity Partners, a private equity firm, signed an agreement, pursuant to which Providence Equity Partners invested US$50.00 million in March 2010 to subscribe for convertible redeemable preferred shares of Ding Xin, Inc., a Cayman Islands company newly established by the Company. Ding Xin, Inc. and entities under its control will operate the Baidu Internet TV channel and develop an advertising supported online video business.

On January 18, 2010, the Company entered into certain agreements with Ku6 Holding Limited (“Ku6”) and Hurray! Holding Co., Ltd. (“Hurray!”). Pursuant to the agreements, Baidu agreed to exchange 8,641,975 series A preferred shares of Ku6, which is all of Ku6 shares held by the Company, into 12,561,924 ordinary shares of Hurray!. The series A preferred shares of Ku6 were obtained on December 12, 2006 by providing online market services and the related investment had been fully impaired during 2008. The acquired ordinary shares of Hurray! are subject to a lock-up period of 180 days during which the Company could not offer, pledge, sell, contract to sell or enter into any swap or other arrangement to transfer, in whole or in part of the shares to others.

On January 27, 2010, the Company signed an agreement with Rakuten, Inc. (“Rakuten”), the largest e-commerce website in Japan, to establish a joint venture to build a B2B2C online shopping mall for Chinese Internet users. B2B2C refers to an online marketplace that links and provides value-added services to both business to business and business to consumer. The online mall will provide customers with high-quality merchandise from well-known Chinese and foreign brands as well as small and medium sized enterprises at competitive prices. According to the agreement, Rakuten will own 51% and Baidu will own 49% of the new joint venture.