Orbitz 2011 Annual Report Download - page 52

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Tax Sharing Liability
We have a liability included in our consolidated balance sheets that relates to a tax sharing agreement between Orbitz
and the Founding Airlines (see Note 7 - Tax Sharing Liability of the Notes to the Consolidated Financial Statements for further
details). We use discounted cash flows in calculating and recognizing the tax sharing liability. We review the calculation of the
tax sharing liability on a quarterly basis and make revisions to our estimated timing of payments when appropriate. We also
assess whether there are any significant changes, such as changes in the amount of payments and tax rates, that could materially
affect the present value of the tax sharing liability.
The valuation of the tax sharing liability requires us to make certain estimates in projecting the quarterly depreciation
and amortization benefit we expect to receive, as well as the associated effective income tax rates. The estimates require certain
assumptions as to our future operating performance and taxable income, the tax rate, the timing of tax payments, current and
projected market conditions, and the applicable discount rate. A variation of the assumptions used could lead to a different
conclusion regarding the carrying value of the tax sharing liability and could have a significant effect on our consolidated
financial statements.
Internal Use Software
We capitalize the costs of software developed for internal use. Capitalization commences 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. Amortization commences when the software is placed into service. The determination of costs to be
capitalized and the useful life of the software requires us to make estimates and judgments.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
Our international operations are subject to risks typical of international operations, including, but not limited to, differing
economic conditions, changes in political climate, differing tax structures and foreign exchange rate volatility. Accordingly, our
future results could be materially adversely impacted by changes in these or other factors.
Transaction Exposure
We use foreign currency contracts to manage our exposure to changes in foreign currency exchange rates associated with
our foreign currency denominated receivables, payables, intercompany transactions and borrowings under the Revolver. We
primarily hedge our foreign currency exposure to the Pound sterling, Euro, Swiss franc and Australian dollar. We do not engage
in trading, market making or speculative activities in the derivatives markets. The foreign currency contracts utilized by us do
not qualify for hedge accounting treatment and, as a result, any fluctuations in the value of these foreign currency contracts are
recognized in selling, general and administrative expense in our consolidated statements of operations as incurred. The
fluctuations in the value of these foreign currency contracts do, however, largely offset the impact of changes in the value of the
underlying risk that they are intended to economically hedge. At December 31, 2011 and 2010, we had foreign currency
contracts with net notional values equivalent to $256.1 million and $174.1 million, respectively.
Translation Exposure
Foreign exchange rate fluctuations may adversely impact our financial position as the assets and liabilities of our foreign
operations are translated into U.S. dollars in preparing our consolidated balance sheets. The effect of foreign exchange rate
fluctuations on our consolidated balance sheets at December 31, 2011 and 2010 was a net translation gain of $2.4 million and
$3.6 million, respectively. This gain is recognized as an adjustment to shareholders’ equity through accumulated other
comprehensive income.