Orbitz 2013 Annual Report Download - page 62

ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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Allowance for Doubtful Accounts
Our accounts receivable are reflected in our consolidated balance sheets net of an allowance for doubtful accounts. We
provide for estimated bad debts based on our assessment of our ability to realize receivables, considering historical collection
experience, the general economic environment and specific customer information. When we determine that a receivable is not
collectible, the account is charged to expense in our consolidated statements of operations. Bad debt expense is recorded in
selling, general and administrative expense in our consolidated statements of operations. We recorded bad debt expense of $0.6
million and $0.3 million for the years ended December 31, 2013 and 2011, respectively. Bad debt expense was not significant
for the year ended December 31, 2012.
Property and Equipment, Net
Property and equipment is recorded at cost, net of accumulated depreciation. We depreciate property and equipment over
their estimated useful lives using the straight-line method. The estimated useful lives by asset category are:
Asset Category Estimated Useful Life
Leasehold improvements Shorter of asset's useful life or non-cancellable lease term
Capitalized software 3 - 10 years
Furniture, fixtures and equipment 3 - 7 years
We capitalize the costs of software developed for internal use when the preliminary project stage of the application has
been completed and it is probable that the project will be completed and used to perform the function intended. Depreciation
commences when the software is placed into service.
We evaluate the recoverability of the carrying value 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 fully recoverable.
This analysis is performed by comparing the carrying values of the assets to the expected undiscounted future cash flows to be
generated from these assets, including estimated sales proceeds when appropriate. 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.
Goodwill, Trademarks and Other Intangible Assets
Goodwill represents the excess of the purchase price over the estimated fair value of the underlying assets acquired and
liabilities assumed in the acquisition of a business. We assign goodwill to reporting units that are expected to benefit from the
business combination as of the acquisition date. Goodwill is not subject to amortization.
Our indefinite-lived intangible assets include our trademarks and trade names, which are not subject to amortization. Our
finite-lived intangible assets primarily include our customer and vendor relationships and are amortized over their estimated
useful lives, generally 4 to 8 years, using the straight-line method. Our intangible assets relate to the acquisition of entities
accounted for using the purchase method of accounting and are estimated by management based on the fair value of assets
received.
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 as of December 31.
We assess goodwill for possible impairment using a two-step process. The first step identifies if there is potential
goodwill impairment. If the step one analysis indicates that impairment may exist, a step two analysis is performed to measure
the amount of the goodwill impairment, if any. Goodwill impairment exists when the estimated fair value of goodwill is less
than its carrying value. If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment
charge in our consolidated statements of operations.
For purposes of goodwill impairment testing, we estimate the fair value of our reporting units to which goodwill is
allocated using generally accepted valuation methodologies, including market and income based approaches, and relevant data
available through and as of the testing date. The market approach is a valuation method in which fair value is estimated based
on observed prices in actual transactions and on asking prices for similar assets. Under the market approach, the valuation