Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2.    Summary of Significant Accounting Policies

Consolidation Policy

The Company’s financial statements include the accounts of Travelport, Travelport’s wholly-owned subsidiaries and entities of which Travelport controls a majority of the entity’s outstanding common stock. The Company has eliminated intercompany transactions and accounts in its financial statements.

Revenue Recognition

The Company provides global transaction processing and computer reservation services and provides travel marketing information to airline, car rental and hotel clients as described below.

Transaction Processing Revenue

The Company provides travel agencies, internet sites and other subscribers with the ability to access schedule and fare information, book reservations and print tickets for air travel. The Company also provides subscribers with information and booking capability covering car rentals and hotel reservations at properties throughout the world. Such transaction processing services are provided through the use of the GDS. As compensation for services provided, fees are collected, on a per segment basis, from airline, car rental, hotel and other travel-related suppliers for reservations booked through the Company’s GDS. Additionally, certain of the Company’s more significant contracts provide for incentive payments based upon business volume. Revenue for air travel reservations is recognized at the time of booking of the reservation, net of estimated cancellations prior to the date of departure and anticipated incentives for customers. Cancellations prior to the date of departure are estimated based on the historical level of cancellations, prior to the date of departure, which have not been significant. Revenue for car rental, hotel reservations and cruise reservations is recognized upon fulfillment of the reservation. The timing of the recognition of car, hotel and cruise reservation revenue reflects the difference in the contractual rights related to such services compared to the airline reservation services.

Airline IT Solutions Revenue

The Company provides hosting solutions and IT software subscription services to airlines, as well as travel agency services to corporations. Such revenue is recognized as the services are performed.

Cost of Revenue

Cost of revenue consists of direct costs incurred to generate the Company’s revenue, including commissions and costs incurred for third-party national distribution companies (“NDCs”), financial incentives paid to travel agencies who subscribe to the Company’s GDS, and costs for call center operations, data processing and related technology costs. Cost of revenue excludes depreciation and amortization expenses.

In markets not supported by the Company’s sales and marketing organizations, the Company utilizes an NDC structure, where feasible, in order to take advantage of the NDC’s local industry knowledge. The NDC is responsible for cultivating the relationship with subscribers in its territory, installing subscribers’ computer equipment, maintaining the hardware and software supplied to the subscribers and providing ongoing customer support. The NDC earns a share of the booking fees generated in the NDC’s territory.

The Company enters into agreements with significant subscribers, which provide for incentives in the form of development advances, including cash payments, equipment or other services at no charge. The amount of the development advance varies depending upon the expected volume of the subscriber’s business. The Company establishes liabilities for these development advances at the inception of the contract and defers the expense. The development advance expense is then recognized as revenue is earned in accordance with the contractual terms. The Company generally recognizes the development advance expense over the life of the contract on a straight line basis, as it expects the benefit of those advances, which are the air segments booked on its GDS, to accrue evenly over the life of the contract.

Technology management costs, data processing costs, and telecommunication costs which are included in cost of revenue consist primarily of internal system and software maintenance fees, data communications and other expenses associated with operating the Company’s internet sites and payments to outside contractors.

Commission costs are recognized in the same accounting period as the revenue generated from the related activities. All other costs are recognized as expenses when obligations are incurred.

Advertising Expense

Advertising costs are expensed in the period incurred and include online marketing costs such as search and banner advertising, and offline marketing such as television, media and print advertising. Advertising expense, included in selling, general and administrative expenses on the consolidated statements of operations, was approximately $16 million, $17 million and $17 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Income Taxes

The provision for income taxes for annual periods is determined using the asset and liability method, under which deferred tax assets and liabilities are calculated based on the temporary differences between the financial statement carrying amounts and income tax bases of assets and liabilities using currently enacted tax rates. The deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The realization of the deferred tax assets, net of a valuation allowance, is primarily dependent on estimated future taxable income. A change in the Company’s estimate of future taxable income may require an addition or reduction to the valuation allowance.

The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant authority. An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained. The Company classifies uncertain tax positions as non-current other liabilities unless expected to be paid within one year. Liabilities expected to be paid within one year are included in the accrued expenses and other current liabilities account. Interest and penalties are recorded in both the accrued expenses and other current liabilities, and other non-current liabilities accounts. The Company recognizes interest and penalties accrued related to unrecognized tax positions as part of the provision for income taxes.

Cash and Cash Equivalents

The Company considers highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s trade receivables are reported in the consolidated balance sheets net of an allowance for doubtful accounts. The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filings, failure to pay amounts due to the Company, or other known customer liquidity issues), the Company records a specific reserve for bad debts in order to reduce the receivable to the amount reasonably believed to be collectable. For all other customers, the Company recognizes a reserve for estimated bad debts. Due to the number of different countries in which the Company operates, its policy of determining when a reserve is required to be recorded considers the appropriate local facts and circumstances that apply to an account. Accordingly, the length of time to collect, relative to local standards, does not necessarily indicate an increased credit risk. In all instances, local review of accounts receivable is performed on a regular basis by considering factors such as historical experience, credit worthiness, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

Bad debt expense (recovery) is recorded in selling, general and administrative expenses on the consolidated statements of operations and amounted to $1 million, $(1) million and $2 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Derivative Instruments

The Company uses derivative instruments as part of its overall strategy to manage exposure to market risks primarily associated with fluctuations in foreign currency and interest rates. All derivatives are recorded at fair value either as assets or liabilities. As a matter of policy, the Company does not use derivatives for trading or speculative purposes and does not offset derivative assets and liabilities.

As of December 31, 2011 and 2010, the Company has not designated the derivative instruments used to hedge its foreign currency and interest rate risks as cash flow hedges. Changes in the fair value of derivatives not designated as hedging instruments are recognized directly in earnings in the consolidated statements of operations. Prior to December 31, 2010, certain derivative instruments were designated as cash flow instruments. The effective portion of changes in the fair value of derivatives designated as cash flow hedging instruments is recorded as a component of accumulated other comprehensive income (loss). The ineffective portion is reported directly in earnings on the consolidated statements of operations. Amounts included in accumulated other comprehensive income (loss) are reflected in earnings in the same period during which the hedged cash flow affects earnings.

Fair Value Measurement

The financial assets and liabilities on the Company’s consolidated balance sheets that are required to be recorded at fair value on a recurring basis are assets and liabilities related to derivative instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market rates obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s estimates about the assumptions market participants would use in the pricing of the asset or liability based on the best information available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1  — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2  — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3  — Valuations based on inputs that are unobservable and significant to overall fair value measurement.

The Company determines the fair value of its derivative instruments using pricing models that use inputs from actively quoted markets for similar instruments that do not entail significant judgment. These amounts include fair value adjustments related to the Company’s own credit risk and counterparty credit risk. These pricing models are categorized within Level 3 of the fair value hierarchy.

Property and Equipment

Property and equipment (including leasehold improvements) are recorded at cost, net of accumulated depreciation and amortization. Depreciation, recorded as a component of depreciation and amortization expense on the consolidated statements of operations, is computed using the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements, also recorded as a component of depreciation and amortization, is computed using the straight-line method over the shorter of the estimated benefit period of the related assets or the lease term. Useful lives are up to 30 years for buildings, up to 20 years for leasehold improvements, from three to ten years for capitalized software and from three to seven years for furniture, fixtures and equipment.

Capitalization of software developed for internal use commences during the development phase of the project. The Company amortizes software developed or obtained for internal use on a straight-line basis when such software is substantially ready for use. For the years ended December 31, 2011, 2010 and 2009, the Company amortized internal use software costs of $81 million, $65 million and $50 million, respectively, as a component of depreciation and amortization expense on the consolidated statements of operations.

Impairment of Long-Lived Assets

The Company is required to assess goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company assesses goodwill for possible impairment by comparing the carrying value of its reporting units to their fair values. The Company determines the fair value of its reporting units utilizing estimated future discounted cash flows and incorporates assumptions that it believes marketplace participants would utilize. The Company uses comparative market multiples and other factors to corroborate the discounted cash flow results, if available. If, as a result of testing, the Company determines that the carrying value exceeds the fair value, then the level of impairment is assessed by allocating the total estimated fair value of the reporting unit to the fair value of the individual assets and liabilities of that reporting unit, as if that reporting unit is being acquired in a business combination. This results in the implied fair value of the goodwill. Other indefinite-lived assets are tested for impairment by estimating their fair value utilizing estimated future discounted cash flows attributable to those assets and are written down to the estimated fair value where necessary.

The Company performs its annual impairment testing for goodwill and other indefinite-lived intangible assets in the fourth quarter of each year subsequent to completing its annual forecasting process or more frequently if circumstances indicate impairment may have occurred. The Company performed its annual impairment test during the fourth quarter of 2011 and did not identify any impairment.

The Company evaluates the recoverability of its other long-lived assets, including definite-lived intangible assets, if circumstances indicate impairment may have occurred. This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value through a charge to the consolidated statements of operations.

The Company is required under US GAAP to review its investments in equity interests for impairment when events or changes in circumstance indicate the carrying value may not be recoverable. The Company has an equity investment in Orbitz Worldwide that is evaluated quarterly for impairment. This analysis is focused on the market value of Orbitz Worldwide shares as compared to the book value of such shares. Factors that could lead to impairment of the investment in the equity of Orbitz Worldwide include, but are not limited to, a prolonged period of decline in the price of Orbitz Worldwide stock or a decline in the operating performance of, or an announcement of adverse changes or events by, Orbitz Worldwide. The Company may be required in the future to record a charge to earnings if its investment in equity of Orbitz Worldwide becomes impaired.

Equity Method Investments

The Company accounts for its investment in Orbitz Worldwide under the equity method of accounting. The investment was initially recorded at cost at the time Orbitz Worldwide was deconsolidated on October 31, 2007, and the carrying amount has been adjusted to recognize the Company’s share of Orbitz Worldwide earnings and losses since deconsolidation and the additional investment by the Company in 2010.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consists of accumulated foreign currency translation adjustments, unrealized gains and losses on derivative financial instruments related to foreign currency and interest rate hedge transactions designated in hedge relationships, unrealized actuarial gains and losses on defined benefit plans and unrealized gains and losses on equity investments. Foreign currency translation adjustments exclude income taxes related to indefinite investments in foreign subsidiaries. Assets and liabilities of foreign subsidiaries having non-US dollar functional currencies are translated at period end exchange rates. The gains and losses resulting from translating foreign currency financial statements into US dollars, net of hedging gains, hedging losses and taxes, are included in accumulated other comprehensive income (loss) on the consolidated balance sheets. Gains and losses resulting from foreign currency transactions are included in earnings as a component of net revenue, cost of revenue or selling, general and administrative expense, based upon the nature of the underlying transaction, in the consolidated statements of operations. The effect of exchange rates on cash balances denominated in foreign currency is included as a separate component in the consolidated statements of cash flows.

Equity-Based Compensation

TDS Investor (Cayman) L.P., the partnership indirectly owning a majority shareholding in the Company (the “Partnership”), and Travelport Worldwide Limited, a parent company indirectly owning 100% of the Company (“Worldwide”), have equity-based, long-term incentive programs for the purpose of retaining certain key employees. Under several plans within these programs, key employees are granted restricted equity units and/or partnership interests in the Partnership and restricted share units and/or shares in Worldwide.

The Company expenses all employee equity-based compensation over the relevant vesting period based upon the fair value of the award on the date of grant, the estimated achievement of any performance targets and anticipated staff retention. The equity-based compensation expense is included as a component of equity on the Company’s consolidated balance sheets, as the ultimate payment of such awards will not be achieved through use of the Company’s cash or other assets.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results may differ materially from those estimates.

The Company’s accounting policies, which include significant estimates and assumptions, include estimation of the collectability of accounts receivables, including amounts due from airlines that are in bankruptcy or which have faced financial difficulties, amounts for future cancellations of airline bookings processed through the GDS, determination of the fair value of assets and liabilities acquired in a business combination, the evaluation of the recoverability of the carrying value of intangible assets and goodwill, discount rates and rates of return affecting the calculation of the assets and liabilities associated with the employee benefit plans and the evaluation of uncertainties surrounding the calculation of the Company’s tax assets and liabilities.

Pension and Other Post-Retirement Benefits

The Company sponsors a defined contribution savings plan, under which the Company matches the contributions of participating employees on the basis specified by the plan. The Company’s costs for contributions to this plan are recognized in the Company’s consolidated statements of operations as incurred.

The Company also sponsors both non-contributory and contributory defined benefit pension plans whereby benefits are based on an employee’s years of credited service and a percentage of final average compensation, or as otherwise described by the plan. The Company also maintains other post-retirement health and welfare benefit plans for certain eligible employees. The Company recognizes the funded status of its pension and other post-retirement defined benefit plans within other non-current assets and other non-current liabilities on its consolidated balance sheets. The measurement date used to determine benefit obligations and the fair value of assets for all plans is December 31 of each year. Pension and other post-retirement defined benefit costs are recognized in the Company’s consolidated statements of operations based upon various actuarial assumptions including expected return rates on plan assets, discount rates, employee turnover, healthcare costs and mortality rates. Unexpected actuarial gains or losses arise from returns on plan assets and from changes in the projected benefit obligation and these are deferred within accumulated other comprehensive income (loss), net of tax.

Recently Issued Accounting Pronouncements

Disclosures about Offsetting Assets and Liabilities

In December 2011, the Financial Accounting Standards Board (“FASB”) issued guidance on disclosures about offsetting and related arrangements for financial instruments and derivative instruments. This guidance requires disclosure of both gross and net information about both instruments and transactions eligible for offset in the balance sheets and transactions subject to an agreement similar to a master netting agreement. This guidance is to be applied on a retrospective basis for all annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. The Company does not anticipate an impact on the consolidated financial statements resulting from the adoption of this guidance, apart from disclosure.

Amendments to Goodwill Impairment Testing

In September 2011, the FASB issued amended guidance to allow the use of a qualitative approach to test goodwill for impairment. There will no longer be a requirement to perform the two step goodwill impairment test if, based on a qualitative assessment, it is determined to be more likely than not (more than 50 percent) that the fair value of goodwill is greater than its carrying amount. This guidance is to be applied on a prospective basis for all annual and interim periods beginning on or after December 15, 2011. The Company does not anticipate an impact on the consolidated financial statements resulting from the adoption of this guidance.

Amendments to Presentation of Other Comprehensive Income

In June 2011, the FASB issued guidance on the presentation of comprehensive income. This guidance eliminates the option to present components of other comprehensive income (“OCI”) as part of the statement of changes in equity and requires companies to report components of comprehensive income in either (1) a single continuous statement of comprehensive income or (2) two separate but consecutive statements. This guidance also requires items reclassified from OCI to net income to be disclosed in both net income and OCI. This guidance is to be applied on a retrospective basis for all annual and interim periods beginning on or after December 15, 2011. The Company does not anticipate an impact on the consolidated financial statements resulting from the adoption of this guidance, other than presentation.

In December 2011, the FASB issued a revision to this guidance, deferring the effective date indefinitely for amendments pertaining to the presentation of items reclassified from OCI.

Fair Value Measurements and Disclosures

In May 2011, the FASB issued guidance on measuring fair value and on disclosing information about fair value measurements. This new guidance provides clarification on the application of certain valuation methods, clarification on measuring the fair value of an instrument classified in an entity’s own equity, new guidance related to measuring the fair value of financial instruments that are managed within a portfolio, and new guidance related to the use of premiums and discounts in a fair value measurement. This guidance also requires additional disclosures to be made for fair value measurements categorized as Level 3. This guidance is to be applied on a prospective basis for all annual and interim periods beginning after December 15, 2011. The Company is assessing the impact of this new guidance, but does not anticipate a material impact on the consolidated financial statements.

Disclosure of Supplementary Pro-Forma Information for Business Combinations

In December 2010, the FASB issued guidance to clarify disclosure requirements for pro-forma information on revenues and earnings for business combinations. This guidance clarifies that where comparative financial statements are presented, revenue and earnings of the combined entity should be disclosed as though the business combination(s) that occurred during the current reporting period had occurred as of the beginning of the comparable prior annual reporting period. This guidance also expands disclosure requirements to include a description of the nature and amount of material, non-recurring pro-forma adjustments directly attributable to the business combination included in the reported pro-forma revenue and earnings. The Company adopted the provisions of this guidance effective January 1, 2011, and there was no impact on the consolidated financial statements resulting from the adoption of this guidance.

Goodwill Impairment Testing

In December 2010, the FASB issued amended goodwill impairment testing guidance for reporting units with an overall nil or negative carrying amount, but a positive goodwill balance. This amended guidance requires that for these reporting units, the second stage of goodwill impairment testing should be performed when it is considered more likely than not that goodwill impairment exists. This assessment should be made by considering whether there are any adverse qualitative factors indicating impairment of the goodwill. The Company adopted the provisions of this guidance effective January 1, 2011, and there was no impact on the consolidated financial statements resulting from the adoption of this guidance.

Improving Disclosures about Fair Value Measurements

In January 2010, the FASB issued guidance related to new disclosures about fair value measurements and clarification on certain existing disclosure requirements. This guidance requires new disclosures on significant transfers in and out of Level 1 and Level 2 categories of fair value measurements. This guidance also clarifies existing requirements on (i) the level of disaggregation in determining the appropriate classes of assets and liabilities for fair value measurement disclosures, and (ii) disclosures about inputs and valuation techniques. The Company adopted the provisions of this guidance on January 1, 2010, except for the new disclosures around the activity in Level 3 categories of fair value measurements, which the Company adopted on January 1, 2011, as required. There was no impact on the consolidated financial statements resulting from the adoption of this guidance.

Amendment to Revenue Recognition involving Multiple Deliverable Arrangements

In October 2009, the FASB issued amended revenue recognition guidance for arrangements with multiple deliverables. The new guidance eliminates the residual method of revenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence of fair value or third-party evidence is unavailable. This guidance is effective for all new or materially modified arrangements entered into in fiscal years beginning on or after June 15, 2010. The Company adopted the provisions of this guidance effective January 1, 2011, as required. There was no material impact on the consolidated financial statements resulting from the adoption of this guidance.