Orbitz 2009 Annual Report Download - page 61

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We recognize net revenue under the merchant model when we have no further obligations to our
customers. For merchant air transactions, this is at the time of booking. For merchant hotel transactions and
merchant car transactions, net revenue is recognized at the time of check-in or customer pick-up, respectively.
This timing is different for merchant air travel because our primary service to the customer is fulfilled at the
time of booking.
We accrue for the cost of merchant hotel and merchant car transactions based on amounts we expect to
be invoiced by suppliers. If we do not receive an invoice within a certain period of time, generally within six
months, or the invoice received is less than the accrued amount, we may reverse a portion of the accrued cost
when we determine it is not probable that we will be required to pay the supplier, based on our historical
experience and contract terms. This would result in an increase in net revenue and a decrease to the accrued
merchant payable.
Dynamic vacation packages offer customers the ability to book a combination of travel products. For
example, travel products booked in a dynamic vacation package may include a combination of air, hotel and
car reservations. We recognize net revenue for the entire package when customers use the reservation, which
generally occurs on the same day for each travel product included in the dynamic vacation package.
Under both the retail and merchant models, we recognize revenue for service fees charged to customers
for booking travel reservations. This revenue is recognized at the time we recognize the net revenue for the
corresponding travel product. We also may receive override commissions from suppliers if we meet certain
contractual volume thresholds. These commissions are recognized when the amount of the commissions
becomes fixed or determinable, which is generally upon notification by the respective travel supplier.
We utilize GDS services provided by Galileo, Worldspan and Amadeus. Under GDS service agreements,
we earn revenue in the form of an incentive payment for each segment that is processed through a GDS.
Revenue is recognized for these incentive payments at the time the travel reservation is processed through the
GDS, which is generally at the time of booking.
We also generate other revenue, which is primarily comprised of revenue from advertising, including
sponsoring links on our websites, and travel insurance. Advertising revenue is derived primarily from the
delivery of advertisements on our websites and is recognized either at the time of display of each individual
advertisement, or ratably over the advertising delivery period, depending on the terms of the advertising
contract. Revenues generated from sponsoring links and travel insurance revenue are both recognized upon
notification from the alliance partner that a transaction has occurred.
If our judgments regarding net revenue are inaccurate, actual net revenue could differ from the amount
we recognize, directly impacting our results of operations.
Impairment of Long-Lived Assets, Goodwill and Indefinite-Lived Intangible Assets
Long-Lived Assets
We evaluate the recoverability of our long-lived assets, including property and equipment and finite-lived
intangible assets, when circumstances indicate that the carrying value of those assets may not be recoverable
pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
(“SFAS No. 144”). This analysis is performed by comparing the respective carrying values of the assets to the
current and expected future cash flows to be generated from these assets, on an undiscounted basis. If this
analysis indicates that the carrying value of an asset is not recoverable, the carrying value is reduced to fair
value through an impairment charge in our consolidated statements of operations. The evaluation of long-lived
assets for impairment requires assumptions about operating strategies and estimates of future cash flows. An
estimate of future cash flows requires us to assess current and projected market conditions as well as operating
performance. A variation of the assumptions used could lead to a different conclusion regarding the
recoverability of an asset and could have a significant effect on our consolidated financial statements.
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