Priceline 2010 Annual Report Download - page 136

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million for acquisitions and other equity investments, net of cash acquired, partially offset by $8.9 million received
in connection with the dissolution of pricelinemortgage.com and a reduction in restricted cash of $1.2 million. Cash
invested in purchase of property and equipment was $22.6 million and $15.1 million in the years ended December
31, 2010 and 2009, respectively.
Net cash provided by financing activities was approximately $213.0 million for the year ended December
31, 2010. The cash provided by financing activities during the year ended December 31, 2010 was primarily related
to proceeds from the issuance of convertible senior notes with an aggregate principal amount of $575.0 million,
$43.0 million of proceeds from the termination of conversion spread hedges, $25.8 million of proceeds from the
exercise of employee stock options, $3.1 million of excess tax benefits from stock-based compensation and proceeds
of $4.3 million from the sale of subsidiary shares to noncontrolling interests, partially offset by $295.4 million paid
upon the conversion of senior notes, $129.5 million of treasury stock purchases and $13.3 million of debt issuance
costs. Net cash used in financing activities was approximately $169.0 million for the year ended December 31,
2009. The cash used in financing activities during the year ended December 31, 2009 was primarily related to
$197.1 million of principal paid upon the conversion of senior notes, $17.4 million of treasury stock purchases,
partially offset by $43.4 million of proceeds from the exercise of employee stock options and $2.1 million of excess
tax benefits from stock-based compensation.
Contingencies
A number of jurisdictions have initiated lawsuits against us related to, among other things, the payment of
hotel occupancy and other taxes (i.e., state and local sales tax). In addition, a number of municipalities have
initiated audit proceedings, issued proposed tax assessments or started inquiries relating to the payment of hotel
occupancy and other taxes. To date, the majority of taxing jurisdictions in which we facilitate the making of hotel
room reservations have not asserted that taxes are due and payable on our U.S. “merchant” hotel business. With
respect to jurisdictions that have not initiated proceedings to date, it is possible that they will do so in the future or
that they will seek to amend their tax statutes and seek to collect taxes from us only on a prospective basis. See Item
3 – Legal Proceedings and Note 16 to the Consolidated Financial Statements for a description of these pending
cases and proceedings, and Item 1A Risk Factors – “Adverse application of state and local tax laws could have an
adverse effect on our business and results of operation” in this Annual Report.
We are vigorously defending against these claims and proceedings. However, litigation is subject to
uncertainty and there could be adverse developments in these pending or future cases and proceedings. An
unfavorable outcome or settlement of these actions or proceedings could result in substantial liabilities for past
and/or future bookings, including, among other things, interest, penalties, punitive damages and/or attorney fees and
costs, which could have a material adverse effect on our cash flows in any given operating period. Also, there have
been, and will continue to be, ongoing costs associated with defending our position in pending and any future cases
or proceedings.
To the extent that any tax authority succeeds in asserting that we have a tax collection responsibility, or we
determine that we have one, with respect to future transactions, we may collect any such additional tax obligations
from our customers, which would have the effect of increasing the cost of hotel room reservations to our customers
and, consequently, could make our hotels services less competitive (i.e., versus the websites of other online travel
companies or hotel company websites) and reduce hotel reservation transactions; alternatively, we could choose to
reduce the compensation for our services on “merchant” hotel transactions. Either step could have a material
adverse effect on our business and results of operations.
As a result of this litigation and other attempts by jurisdictions to levy similar taxes, we have established a
reserve which amounted to approximately $26 million and $21 million as of December 31, 2010 and 2009,
respectively. The reserve is based on our reasonable estimate, and the ultimate resolution of these issues may be less
or greater than the liabilities recorded. We believe that even if we were to suffer adverse determinations in the near
term in more of the pending proceedings than currently anticipated given results to date, because of our available
cash, it would not have a material impact on our liquidity.