Priceline 2011 Annual Report Download - page 55

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principally associated with deferred income taxes, stock-based compensation expense, depreciation and amortization, and
amortization of debt discount of our convertible notes.
Net cash provided by operating activities for the year ended December 31, 2010, was $777.3 million, resulting from
net income of $528.1 million and net favorable changes in working capital of $50.9 million, and a net favorable impact of
$198.3 million for non-cash items not affecting cash flows. Non-cash items include deferred income taxes, stock-based
compensation expense, depreciation and amortization, primarily from acquisition-related intangible assets, amortization of debt
discount and loss on conversions of our convertible notes. For the year ended December 31, 2010, accounts payable, accrued
expenses and other current liabilities increased by $84.8 million, primarily related to higher deferred merchant bookings and
accrued expenses as our business continues to expand. Other changes in working capital for the year ended December 31, 2010
include an increase in other assets and liabilities of $17.8 million, principally related to an increase in long-term liabilities,
partially offset by a $29.3 million increase in accounts receivable, and a $22.4 million increase in prepaid expenses and other
current assets. The increase in accounts receivable is primarily due to the growth in the size of our business. The increase in
prepaid expenses and other current assets is primarily related to the timing and amount of tax payments and increases in
business volume.
Net cash used in investing activities was $904.8 million for the year ended December 31, 2011. Investing activities
for the year ended December 31, 2011 were affected by payments of $68.2 million for acquisitions, principally related to the
contingent consideration associated with the 2007 acquisition of Agoda, $11.0 million net payments to settle derivative
contracts, net purchases of investments of $775.8 million, and a change in restricted cash of $2.9 million. Net cash used in
investing activities was $841.1 million for the year ended December 31, 2010. Investing activities for the year ended
December 31, 2010 were affected by $741.4 million net purchases of marketable securities and a payment of $112.4 million for
acquisitions and other equity investments, net of cash acquired, partially offset by $35.0 million net proceeds from foreign
currency forward contracts and a $0.3 million change in restricted cash. Cash invested in purchase of property and equipment
was $46.8 million and $22.6 million in the years ended December 31, 2011 and 2010, respectively. The increase in 2011 is to
support the growth of our business, including additional data center capacity and capital expenditures for new offices opened
during the year, a trend we expect to continue to support business growth.
Net cash used in financing activities was approximately $151.0 million for the year ended December 31, 2011. The
cash used in financing activities for the year ended December 31, 2011 was primarily related to treasury stock purchases of
$163.2 million, approximately $13.0 million spent to purchase a portion of the shares underlying redeemable noncontrolling
interests in rentalcars.com, and $0.2 million of principal paid upon the conversion of senior notes, partially offset by $4.3
million of proceeds from the exercise of employee stock options and $21.0 million of excess tax benefits related to stock-based
compensation. 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.
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.