Financial Instruments

9 Months Ended

Sep. 30, 2011

Financial Instruments [Abstract]

Financial Instruments

11.  Financial Instruments

The Company uses derivative instruments as part of its overall strategy to manage its exposure to market risks primarily associated with fluctuations in foreign currency and interest rates. The Company does not use derivatives for trading or speculative purposes.

As of September 30, 2011, the Company had a net liability position of $29 million related to derivative instruments associated with its euro denominated and floating rate debt, its foreign currency denominated receivables and payables, and forecasted earnings of its foreign subsidiaries.

Interest Rate Risk

A portion of the Company’s long-term debt is exposed to interest rate fluctuations. The Company uses hedging strategies and derivative financial instruments to create an appropriate mix of fixed and floating rate debt. The primary interest rate exposure as of September 30, 2011 was to interest rate fluctuations in the United States and Europe, specifically USLIBOR and EURIBOR interest rates. During the nine months ended September 30, 2011, the Company used interest rate and cross currency swaps as the derivative instruments in these hedging strategies. The Company does not designate these interest rate and cross currency swaps as accounting hedges; however, the fluctuations in the value of these contracts recorded within the Company’s consolidated condensed statements of operations largely offset the impact of the changes in the value of the underlying risk they are intended to economically hedge.

Foreign Currency Risk

The Company uses foreign currency forward contracts to manage its exposure to changes in foreign currency exchange rates associated with its euro denominated debt. The Company does not designate these forward contracts as cash flow hedges; however, the fluctuations in the value of these forward contracts recorded within the Company’s consolidated condensed statements of operations largely offset the impact of the changes in the value of the euro denominated debt they are intended to economically hedge.

The Company also uses foreign currency forward contracts to manage its exposure to changes in foreign currency exchange rates associated with its foreign currency denominated receivables and payables and forecasted earnings of its foreign subsidiaries. The Company primarily enters into foreign currency forward contracts to manage its foreign currency exposure to the British pound, Euro and Australian dollar. During the nine months ended September 30, 2011, none of the derivative contracts used to manage the Company’s foreign currency exposure was designated as cash flow hedges, although during the nine months ended September 30, 2010, certain contracts were designated as hedges for accounting purposes. The fluctuations in the value of these forward contracts do, however, largely offset the impact of changes in the value of the underlying risk they are intended to economically hedge.

The fair value of all the forward contracts and the impact of the changes in the fair value of these forward contracts are presented in the tables below.

Fair Value Disclosures for Derivative Instruments

The Company’s financial assets and liabilities recorded at fair value consist primarily of derivative instruments. These amounts have been categorized based upon a fair value hierarchy and are categorized as Level 2 — Significant Other Observable Inputs as of September 30, 2011 and December 31, 2010.

The fair value of interest rate and cross currency swap derivative instruments is determined using pricing models based on discounted cash flows that use inputs from actively quoted markets for similar instruments, adjusted for the Company’s own credit risk and counterparty credit risk. This adjustment is calculated based on the default probability of the banking counterparty and/or the Company and is obtained from active credit default swap markets. The fair value of foreign currency forward contracts is determined by comparing the contract rate to a published forward price of the underlying currency, which is based on market rates for comparable transactions.

Changes in fair value of derivatives not designated as hedging instruments and the ineffective portion of derivatives designated as hedging instruments are recognized in earnings in the Company’s consolidated condensed statements of operations.

Presented below is a summary of the fair value of the Company’s derivative contracts, none of which have been designated as hedging instruments, recorded on the consolidated condensed balance sheets at fair value.

		Fair Value			Fair Value
		Asset (Liability)			Asset (Liability)
		September 30,	December 31,		September 30,	December 31,
(in $ millions)	Balance Sheet Location	2011	2010	Balance Sheet Location	2011	2010
Interest rate swaps	Other current assets	(2)	(3)	Accrued expenses and other current liabilities	(14)	(32)
Interest rate swaps	Other non-current assets	—	—	Other non-current liabilities	(4)	(4)
Foreign currency impact of cross currency swaps	Other current assets	—	8
Foreign currency forward contracts	Other current assets	10	10	Accrued expenses and other current liabilities	(19)	(3)
Foreign currency forward contracts	Other non-current assets	—	5	Other non-current liabilities	—	(2)
Total fair value of derivative assets (liabilities)		8	20		(37)	(41)

As of September 30, 2011, the Company had an aggregate outstanding notional $1,250 million of interest rate swaps, and $995 million of foreign currency forward contracts. Of these, $1,000 million of interest rate swaps expire in December 2011 and all other derivative contracts cover transactions for periods that do not exceed two years.

The table below presents the impact that changes in fair values of derivatives designated as hedges had on accumulated other comprehensive income (loss) and income (loss) during the period and the impact derivatives not designated as hedges had on income (loss) during that period.

	Amount of Gain (Loss) Recognized										Amount of Gain (Loss)
	in Other Comprehensive Income (Loss)										Recorded into Income (Loss)
	Three Months				Nine Months					Location of Gain	Three Months						Nine Months
	Ended September 30,				Ended September 30,					(Loss) Recorded in	Ended September 30,						Ended September 30,
(in $ millions)	2011		2010		2011		2010			Income (Loss)	2011			2010			2011			2010
Derivatives designated as hedging instruments:
Interest rate swaps		—		—		—		(4	)	Interest expense, net		(2	)		(3	)		(7	)		(8	)
Foreign exchange impact of cross currency swaps		—		—		—		(15	)	Selling, general and administrative		—			—			—			(15	)
Foreign exchange forward contracts		—		8		—		(10	)	Selling, general and administrative		—			(5	)		—			(11	)
Derivatives not designated as hedging instruments:
Interest rate swaps										Interest expense, net		2			(10	)		(9	)		(26	)
Foreign exchange impact of cross currency swaps										Selling, general and administrative		(1	)		19			14			3
Foreign exchange forward contracts										Selling, general and administrative		(63	)		76			3			(37	)
												(64	)		77			1			(94	)

During 2010, the Company de-designated as hedges certain of its derivative contracts. The total loss in relation to these contracts of $2 million as of September 30, 2011 is included within accumulated other comprehensive income (loss) and is being recorded in income (loss) in the Company’s consolidated condensed statements of operations over the period to December 2011, in line with the previously hedged cash flows relating to these contracts. The total amount of loss recorded on these contracts in the consolidated condensed statements of operations during the three and nine months ended September 30, 2011 was $2 million and $7 million, respectively. The total amount of loss recorded on these contracts in the consolidated condensed statements of operations during the three and nine months ended September 30, 2010 was $4 million and $6 million, respectively.

The total amount of gain (loss) reclassified into interest expense from accumulated other comprehensive income (loss) for the interest rate swaps designated as hedges includes amounts for ineffectiveness of nil and less than $(1) million for each of the three and nine months ended September 30, 2010.

The total amount of loss expected to be reclassified from accumulated other comprehensive income (loss) to the Company’s consolidated condensed statements of operations within the next 12 months is expected to be $2 million.

Fair Value Disclosures for All Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses and other current liabilities approximate to their fair value due to the short-term maturities of these assets and liabilities.

The fair values of the Company’s other financial instruments are as follows:

	September 30, 2011						December 31, 2010
	Carrying						Carrying
(in $ millions)	Amount			Fair Value			Amount			Fair Value
Asset (liability)
Investment in Orbitz Worldwide		100			106			91			273
Derivative assets (see above)		8			8			20			20
Derivative liabilities (see above)		(37	)		(37	)		(41	)		(41	)
Total debt		(3,384	)		(2,495	)		(3,814	)		(3,644	)

The fair value of the investment in Orbitz Worldwide has been determined based on quoted prices in active markets.

The fair value of the total debt has been determined by calculating the fair value of the senior notes and senior subordinated notes based on quoted prices in active markets for identical debt instruments and by calculating amounts outstanding under the senior secured credit agreement based on market observable inputs.