Orbitz 2013 Annual Report Download - page 59

ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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including those related to matters that require a significant level of judgment or are otherwise subject to an inherent degree of
uncertainty.
Our significant estimates include elements of revenue recognition, the realization of deferred tax assets, amounts that
may be due under the tax sharing agreement, impairment of long-lived assets, goodwill and indefinite-lived intangible assets,
costs to be capitalized as well as the useful life of capitalized software, and contingent liabilities, including taxes related to
hotel occupancy. Actual amounts may differ from these estimates.
Foreign Currency Translation
Balance sheet accounts of our operations outside of the United States 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
income (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 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 have two primary types of
contractual arrangements with our vendors, which we refer to herein as the “merchant” and “retail” models. Under both the
merchant and retail models, we record revenue earned net of all amounts paid to our suppliers.
We provide customers the ability to book air travel, hotels, car rentals and other travel products and services through our
various websites. These travel products and services are made available to our customers for booking on a stand-alone basis or
as part of a vacation package.
Under the merchant model, 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 us for that
product. Customers generally pay us for reservations at the time of booking. Initially, we record these customer receipts as
accrued merchant payables and either deferred income or net revenue, depending on the travel product. In the merchant model:
we do not take on credit risk with the customer since we are paid via a credit card processor while the cardholder's issuing bank
collects funds from the customer. However we are subject to charge-backs and fraud risk which we monitor closely; we have
the ability to determine the price; we are not responsible for the actual delivery of the flight, hotel room or car rental; we take
no inventory risk; we have no ability to determine or change the products or services delivered; and the customer chooses the
supplier. Transaction related taxes are recorded net of any amounts received from customers.
We recognize net revenue under the merchant model when we have no further obligations to the customer. 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. The timing of revenue recognition 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 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 results in an increase in net revenue
and a decrease to the accrued merchant payable.
Under the retail model, we pass reservations booked by our customers to the travel supplier for a commission. In the
retail model: we do not take on credit risk with the customer; 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 the customer chooses the 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 the customer. 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