Orbitz 2010 Annual Report Download - page 79

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Worldwide, Inc. and its subsidiaries. However, the provision for income taxes was computed as if we filed our
U.S. federal, state and foreign income tax returns on a “Separate Company” basis without the inclusion of the
operations of Travelport. Furthermore, the Separate Company deferred tax assets and liabilities have been
calculated using our tax rates on a Separate Company basis. The deferred tax assets and liabilities are based
upon estimated differences between the book and tax bases of our assets and liabilities as of December 31,
2007. Our tax assets and liabilities may be adjusted in connection with the ultimate finalization of Travelport’s
income tax returns.
For the years ended December 31, 2009 and December 31, 2008, the provision for U.S. federal, state and
foreign income taxes and the calculation of the deferred tax assets and liabilities were based solely on the
operations of Orbitz Worldwide, Inc. and its subsidiaries.
Derivative Financial Instruments
We measure derivatives at fair value and recognize them in our consolidated balance sheets as assets or
liabilities, depending on our rights or obligations under the applicable derivative contract. For our derivatives
designated as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged
item are recorded in earnings. For our derivatives designated as cash flow hedges, the effective portions of
changes in fair value of the derivative are reported in other comprehensive income and are subsequently
reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative
instruments not designated as hedging instruments, and ineffective portions of hedges, are recognized in
earnings in the current period.
We manage interest rate exposure by utilizing interest rate swaps to achieve a desired mix of fixed and
variable rate debt. As of December 31, 2009, we had two interest rate swaps that effectively converted
$200 million of the $600 million term loan facility from a variable to a fixed interest rate (see Note 14 —
Derivative Financial Instruments). We determined that our interest rate swaps qualified for hedge accounting
and were highly effective as hedges. Accordingly, we have recorded the change in fair value of our interest
rate swaps in accumulated other comprehensive loss.
We have entered into foreign currency forward contracts to manage exposure to changes in foreign
currencies associated with receivables, payables and forecasted earnings. These forward contracts did not
qualify for hedge accounting treatment. As a result, the changes in fair values of the foreign currency forward
contracts were recorded in selling, general and administrative expense in our consolidated statements of
operations.
We do not enter into derivative instruments for speculative purposes. We require that the hedges or
derivative financial instruments be effective in managing the interest rate risk or foreign currency risk exposure
that they are designated to hedge. Hedges that qualify for hedge accounting are formally designated as such at
the inception of the contract. When the terms of an underlying transaction are modified, or when the
underlying hedged item ceases to exist, resulting in some ineffectiveness, the change in the fair value of the
derivative instrument will be included in earnings. Additionally, any derivative instrument used for risk
management that becomes ineffective is marked-to-market each period. We believe that our credit risk has
been mitigated by entering into these agreements with major financial institutions. Net interest differentials to
be paid or received under our interest rate swaps are included in interest expense as incurred or earned.
Concentration of Credit Risk
Our cash and cash equivalents are potentially subject to concentration of credit risk. We maintain cash
and cash equivalent balances with financial institutions that, in some cases, are in excess of Federal Deposit
Insurance Corporation insurance limits or are foreign institutions. Our cash and cash equivalents include
79
ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)