Orbitz 2009 Annual Report Download - page 74

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Our significant estimates include assessing the collectability of accounts receivable, sales allowances, the
realization of deferred tax assets, amounts that may be due under the tax sharing agreement, the fair value of
assets and liabilities acquired in business combinations, and impairment of tangible and intangible assets.
Actual results could differ from our estimates.
Foreign Currency Translation
Balance sheet accounts of our operations outside of the U.S. are translated from foreign currencies into
U.S. dollars at the exchange rates as of the consolidated balance sheet dates. Revenues and expenses are
translated at average exchange rates during the period. Foreign currency translation gains or losses are
included in accumulated other comprehensive loss in shareholders’ equity. Gains and losses resulting from
foreign currency transactions, which are denominated in currencies other than the entity’s functional currency,
are included in our consolidated statements of operations.
Revenue Recognition
We record revenue based on Securities and Exchange Commission (“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
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. The timing of recognition is
different for retail hotel and retail car transactions 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 commissions earned under the retail model are based upon contractual
agreements.
Under the merchant model, we provide customers the ability to book the travel reservation, and we
contract with various suppliers that provide the travel products needed to fulfill the reservation. We generate
revenue for our services based on the difference between the total amount the customer pays for the travel
product and the negotiated net rate plus estimated taxes that the supplier charges for that travel product. We
also charge our customers a service fee for booking the travel reservation. Customers generally pay for
74
ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)