Amadeus IT Holding, S.A. and Subsidiaries - Investor relations at ...

AMADEUS IT HOLDING, S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS FOR THE YEARS ENDED
DECEMBER 31, 2011, AND 2010
(EXPRESSED IN THOUSANDS OF EUROS - KEUR)
o) Cancellation provision
Gross revenue from airline reservations, is recorded at the time that the booking
is made. However, if the booking is cancelled in a later month, the corresponding
booking fee must be refunded to the airline. At the same time the distribution fee
and related commercial incentives (“distribution costs”) payable to the third party
distributors (travel agencies, airlines and ACOs which are not subsidiaries of the
group) are also cancelled.
Accordingly, revenues are recorded net of the cancellation provision of booking
fees, and costs of revenues are offset by the distribution costs derived from the
cancelled booking fee. Accounts receivable are recorded net of a cancellation
reserve, and accounts payable are recorded net of the reduction in distribution
costs derived from cancellations. This reserve is calculated based on:
p) Provisions
� The cancellation rate, which is estimated based on historical cancellation
rates, is calculated dividing the number of cancellations net of rebookings,
during the reporting period (e.g. during the year 2011) by the
inventory of unused bookings at the end of the previous reporting period
(e.g. as of December 31, 2010). When estimating the cancellation rate,
we assume that a significant percentage of cancellations are followed by
an immediate re-booking without net loss of revenues; and
� The inventory of open bookings, which is the number of bookings made
but not yet used by final customers and which may still be cancelled.
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event; when it is probable that the Group will be
required to settle the obligation; and when a reliable estimate can be made of the
amount of the obligation. The amount recognised as a provision is the best
estimate of the consideration required to settle the present obligation at the
balance sheet date, and the risks and uncertainties surrounding the obligation are
taken into account. Where the effect of the time value of money is material,
provisions are discounted.
q) Doubtful debt provision
As of each balance sheet date, we make an allowance for potentially uncollectible
accounts receivable. Our management assesses credit risk for large customers
(airlines) on a client-by-client basis taking into consideration, among other factors,
that credit risk is mitigated by the fact that the majority of our customers’ accounts
receivables and payables are settled through the clearing houses operated by the
International Air Transport Association (“IATA”) and Airlines Clearing House, Inc.
(“ACH”). Through this system we guarantee that cash inflows from our customers
will be settled at a certain fixed date, and we mitigate the credit risk partially by the
fact that the members of the clearing house are required to make deposits that
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