Priceline 2014 Annual Report Download - page 92

In certain taxing jurisdictions, the Company is required by passage of a new statute or by court order to collect and remit certain taxes
(local occupancy tax, general excise and/or sales tax) imposed upon its margin and/or service fee, or in the case of Hawaii, on the full amount
collected from the consumer. In those jurisdictions, the Company is collecting and remitting tax as required. The tax recovery charge and
occupancy and other related taxes collected from customers and remitted to those jurisdictions are reported on a net basis on the Consolidated
Statement of Operations. Except in those jurisdictions, the Company does not charge the customer or remit occupancy or other related taxes
based on its margin or service fee, because the Company believes that such taxes are not owed on its compensation for its services (see Note
16 ).
Advertising - Online — Online advertising expenses consist primarily of the costs of (1) search engine keyword purchases; (2) referrals
from meta-search and travel research websites; (3) affiliate programs; and (4) banner, pop-up and other Internet and mobile advertisements.
Online advertising expense is generally recognized as incurred. Included in "Accrued expenses and other current liabilities" on the Consolidated
Balance Sheets are accrued online advertising liabilities of $164.0 million and $130.3 million at December 31, 2014 and 2013 , respectively.
Advertising - Offline — Offline advertising expenses are primarily related to the Company's Booking.com, KAYAK and priceline.com
businesses and primarily consist of television advertising. The Company expenses advertising production costs the first time the advertising is
broadcast.
Sales and Marketing — Sales and marketing expenses consist primarily of (1) credit card processing fees associated with merchant
transactions; (2) fees paid to third parties that provide call center, website content translations and other services; (3) provisions for credit card
chargebacks; and (4) provisions for bad debt, primarily related to agency accommodation commission receivables.
Personnel — Personnel expenses consist of compensation to the Company's personnel, including salaries, bonuses, stock-based
compensation, payroll taxes and employee health benefits. Included in "Accrued expenses and other current liabilities" on the Consolidated
Balance Sheets are accrued compensation liabilities of $159.0 million and $142.7 million at December 31, 2014 and 2013 , respectively.
Stock-Based Compensation — The cost of stock-based compensatory transactions is recognized in the financial statements based upon
fair value. The fair value of performance share units and restricted stock units is determined based on the number of units or shares, as
applicable, granted and the quoted price of the Company's common stock as of the grant date or acquisition date. Stock-based compensation
related to performance share units reflects the estimated probable outcome at the end of the performance period. The fair value of employee
stock options assumed in acquisitions was determined using the Black Scholes model and the market value of the Company's common stock at
the respective acquisition dates. Fair value is recognized as expense on a straight line basis, net of estimated forfeitures, over the employee
requisite service period.
The benefits of tax deductions in excess of recognized compensation costs are reported as a credit to additional paid-in capital and as
financing cash flows, but only when such excess tax benefits are realized by a reduction to current taxes payable. See Note 3 for further
information on stock-based awards.
Information Technology — Information technology expenses consist primarily of: (1) software license and system maintenance fees;
(2) data communications and other expenses associated with operating our services; (3) outsourced data center costs; and (4) payments to outside
consultants.
Income Taxes — The Company accounts for income taxes under the asset and liability method. The Company records the estimated
future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported on the Consolidated Balance
Sheets, as well as operating loss and tax credit carryforwards. Deferred taxes are classified as current or noncurrent based on the balance sheet
classification of the related assets and liabilities.
The Company records deferred tax assets to the extent it believes these assets will more likely than not be realized. The Company
regularly reviews its deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected
timing of the reversals of existing temporary differences, the carryforward periods available for tax reporting purposes, and tax planning
strategies. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary
differences become deductible. In determining the future tax consequences of events that have been recognized in the financial statements or tax
returns, significant judgments, estimates, and interpretation of statutes are required.
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