Orbitz 2008 Annual Report Download - page 63

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affect the amounts reported therein. An accounting policy is considered to be critical if it meets the following two criteria:
•
the policy requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate
is made; and
•
different estimates that reasonably could have been used or changes in the estimates that are reasonably likely to occur from period to
period would have a material impact on the consolidated financial statements.
We believe that the estimates and assumptions used when preparing the financial statements were the most appropriate at that time. However, events that are
outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. We have discussed these
estimates with our Audit Committee.
Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect our reported results.
Although we believe these policies to be the most critical, other accounting policies also have a significant effect on our financial statements and certain of these
policies may also require the use of estimates and assumptions (see Note 2—Summary of Significant Accounting Policies of the Notes to Consolidated Financial
Statements).
Revenue Recognition
We record revenue based on SEC Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." We recognize revenue when it is earned and
realizable, when persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable, and collectability is reasonably
assured. We record revenue earned net of all amounts paid to our suppliers under both our retail and merchant models, in accordance with the criteria established
in Emerging Issues Task Force ("EITF") No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent."
We offer customers the ability to book airline, hotel, car rental and other travel reservations through our various brands, including Orbitz, CheapTickets,
ebookers, HotelClub and RatesToGo. These products and services are made available to our customers for booking on a stand-alone basis or as part of a dynamic
vacation package. We have two primary types of contractual arrangements with our vendors, which we refer to herein as the "retail" and "merchant" models.
Under the retail model, we pass reservations booked by our customers to the travel supplier for a fee or commission. We also charge our customers a service
fee for booking the travel reservation. Under this model, we do not take on credit risk with travelers; we are not the primary obligor with the customer; we have
no latitude in determining pricing; we take no inventory risk; we have no ability to determine or change the products or services delivered; and we have no
discretion in the selection of the service supplier.
We recognize net revenue under the retail model when the reservation is made, secured by a customer with a credit card and we have no further obligations
to our customers. For air transactions, this is at the time of booking. For hotel transactions and car transactions, net revenue is recognized at the time of check-in
or customer pick-up, respectively, net of an allowance for cancelled reservations. This timing is different than for retail air travel because unlike air travel where
the reservation is secured by a customer's credit card at booking, car rental bookings and hotel bookings are not secured by a customer's credit card until the
pick-up date and check-in date, respectively. Allowances for cancelled reservations primarily relate to cancellations that do not occur through our website, but
instead occur directly through the supplier of the travel product. The amount of the allowance is determined based on our historical experience. The majority of
fees or commissions earned under the retail model are based upon contractual agreements.
56
Source: Orbitz Worldwide, In, 10-K/A, August 28, 2008