Orbitz 2010 Annual Report Download - page 62

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historical experience. The majority of commissions earned under the retail model are based upon contractual
agreements.
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 the customer uses the reservation,
which generally occurs on the same day for each travel product included in the dynamic vacation package.
Under both the merchant and retail models, we may, depending upon the brand and the travel product,
charge our customers a service fee for booking the travel reservation. We recognize revenue for service fees 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 IT Group. Under our GDS service
agreements, we earn revenue in the form of an incentive payment for air, car and hotel segments that are
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.
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.
Goodwill and Other Intangibles
We assess the carrying value of goodwill and other indefinite-lived intangible assets for impairment
annually or more frequently whenever events occur and circumstances change indicating potential impairment.
We perform our annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth
quarter of each year, in connection with our annual planning process.
We assess goodwill for possible impairment using a two-step process. The first step identifies if there is
potential goodwill impairment. If step one indicates that an impairment may exist, a second step is performed
to measure the amount of the goodwill impairment, if any. Application of the goodwill impairment test
requires management’s judgment, including the identification of reporting units, assigning assets and liabilities
to reporting units and determining the fair value of each reporting unit. We estimate the fair value of our
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