Orbitz 2010 Annual Report Download - page 65

life of the stock options. The risk-free interest rate is based on yields on U.S. Treasury strips with a maturity
similar to the estimated expected life of the stock options.
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, our consolidated financial statements could be materially
affected.
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. We also capitalize interest on internal software development projects. The amount of interest
capitalized is computed by applying our weighted average borrowing rate to qualifying expenditures. 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, payables, intercompany transac-
tions and borrowings under our revolving credit facility. We primarily hedge our foreign currency exposure to
the Pound Sterling, Euro and Australian dollar. We do not engage in trading, market making or speculative
activities in the derivatives markets. The forward contracts utilized by us do not qualify for hedge accounting
treatment, 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, 2009 and December 31, 2008, we had outstanding foreign currency
forward contracts with net notional values equivalent to approximately $130 million and $61 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, 2009 and
December 31, 2008 was a net translation loss of $3 million and $9 million, respectively. This loss is
recognized as an adjustment to shareholders’ equity through accumulated other comprehensive loss.
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