Orbitz 2014 Annual Report Download - page 62

ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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Equity-Based Compensation
We measure equity-based compensation cost at fair value and recognize the corresponding compensation expense over
the service period during which awards are expected to vest. Performance-based compensation is amortized on a graded basis
over the requisite service period of each vesting tranche. We include equity-based compensation in Selling, general and
administrative expense in our Consolidated Statements of Operations. The fair value of restricted stock and restricted stock
units is determined based on the average of the high and low price of our common stock on the date of grant. The fair value of
stock options is determined on the date of grant using the Black-Scholes valuation model. The fair value of the restricted stock
subject to market-based conditions is determined on the date of grant using a Monte Carlo simulation for sampling random
outcomes. The amount of equity-based compensation expense recorded each period is net of estimated forfeitures based on
historical forfeiture rates.
Hotel Occupancy Taxes
Some states and localities impose a tax on the use or occupancy of hotel accommodations (“hotel occupancy tax”).
Generally, hotels collect hotel occupancy tax based on the amount of money they receive for renting their hotel rooms and
remit the tax to the appropriate taxing authorities. Using the travel services our websites offer, customers are able to make hotel
room reservations. While applicable tax laws vary among different taxing jurisdictions, we generally believe that these laws do
not require us to collect and remit hotel occupancy tax on the compensation that we receive for our travel services. Some tax
authorities have initiated lawsuits or administrative proceedings asserting that we are required to collect and remit hotel
occupancy tax on the amount of money we receive from customers for facilitating their reservations and are more frequently
addressing the taxability of fees by online travel companies through new legislation. The ultimate resolution of these lawsuits
and proceedings in all jurisdictions cannot be determined at this time. We establish an accrual for legal proceedings (tax or
otherwise) when we determine that a loss is both probable and can be reasonably estimated. See Note 9 - Commitments and
Contingencies.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued a new financial accounting standard on revenue from contracts with customers, ASU No.
2014-09, “Revenue from Contracts with Customers”. The standard outlines a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The
accounting standard is effective for annual reporting periods (including interim reporting periods within those periods)
beginning after December 15, 2016. Early adoption is not permitted. The Company is currently assessing the impact of this
ASU on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern”. ASU
2014-15 provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s
ability to continue as a going concern and sets rules for how this information should be disclosed in the financial statements.
ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early adoption is
permitted. The Company does not expect the adoption of ASU 2014-15 to have an impact on its consolidated financial
condition and results of operations.
3. Acquisitions
On February 19, 2014, the Company entered into an asset sale and purchase agreement with Travelocity.com LP
(“Travelocity”) for certain assets and contracts of the Travelocity Partner Network (“TPN”), which provides private label travel
technology solutions for bank loyalty programs and online commerce sites. On February 28, 2014, the Company closed the
transaction for cash consideration of $10.0 million with the potential for additional consideration of up to $10.0 million payable
if post-acquisition revenue targets for 2014 and 2015 are achieved in excess of agreed amounts (“Earn-Out”). The companies
also entered into a transition services agreement, under which Travelocity will provide the Company various services and
support, which expires no later than 24 months from the contract date. The Company may, at its sole discretion, terminate one
or more of the services under the agreement with 15 days’ notice to Travelocity at which time the parties will have no further
obligation with respect to such terminated services. It has been determined that the transition services agreement is unfavorable
as compared with market conditions as of the purchase date and a net unfavorable contract liability of approximately $0.8
million has been established, of which $0.5 million remains at December 31, 2014. Transaction costs were incurred in
connection with this acquisition of approximately $0.8 million and $0.4 million for the years ended December 31, 2014 and