Orbitz 2008 Annual Report Download - page 68

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The amount of equity-based compensation expense recorded each period is net of estimated forfeitures. We estimate forfeitures based on historical
employee turnover rates, the terms of the award issued, and assumptions regarding future employee turnover. We periodically perform an analysis to determine if
estimated forfeitures are reasonable based on actual facts and circumstances, and adjustments are made as necessary. If our estimates differ significantly from
actual results, the consolidated financial statements could be materially affected.
Internal Use Software
We capitalize the costs of software developed for internal use in accordance with Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1") and EITF Issue No. 00-2, "Accounting for Website Development Costs."
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. We also capitalize interest on internal software development
projects in accordance with SFAS No. 34, "Capitalization of Interest Cost," and SOP 98-1. The amount of interest capitalized is computed by applying our
weighted average borrowing rate to the average amount of accumulated expenditures in the period. The determination of costs to be capitalized as well as the
useful life of the software requires us to make estimates and judgments.
Recently Issued Accounting Pronouncements
See Note 2—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for information regarding recently issued
accounting pronouncements.
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 forward contracts to manage our exposure to changes in foreign currency exchange rates associated with our foreign currency
denominated receivables and payables and forecasted earnings of our foreign subsidiaries. We primarily hedge our foreign currency exposure to the British
pound, euro and Australian dollar. We do not engage in trading, market making or speculative activities in the derivatives markets. Substantially all of the
forward contracts utilized by us do not qualify for hedge accounting treatment under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and as a result, any fluctuations in the value of these forward contracts are recognized in our consolidated statements of operations as incurred. The
fluctuations in the value of these forward contracts do, however, largely offset the impact of changes in the value of the underlying risk that they are intended to
economically hedge. As of December 31, 2007, we had outstanding foreign currency forward contracts with net notional values equivalent to approximately
$15 million with maturity dates within 31 days. There were no forward contracts held by us, or on our behalf, as of December 31, 2006.
61
Source: Orbitz Worldwide, In, 10-K/A, August 28, 2008