Financial Instruments

12 Months Ended

Dec. 31, 2011

Financial Instruments [Abstract]

Financial Instruments

13.     Financial Instruments

The Company uses derivative financial 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 December 31, 2011, the Company had a net liability position of $37 million related to derivative financial instruments associated with its euro denominated and floating rate debt, its foreign currency denominated receivables and payables, and forecasted earnings of its foreign subsidiaries.

During 2011, the Company received $34 million in cash on settlement of certain foreign currency forward contracts. Further, during 2011, the Company also received $4 million related to a receivable for derivative contracts which were terminated before 2010. In 2010, the Company paid $77 million and received $16 million in cash to settle certain foreign currency forward contracts.

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 December 31, 2011 was to interest rate fluctuations in the United States and Europe, specifically the impact of USLIBOR and EURIBOR interest rates on our variable rate borrowings. During 2011, the Company used interest rate and cross currency swaps as the derivative financial instruments in these hedging strategies. The Company does not designate these interest rate and cross currency swaps as accounting hedges; therefore, the fluctuations in the value of these contracts are recorded within the Company’s consolidated statements of operations, which largely offset the impact of the changes in the value of the underlying risk they are intended to economically hedge. The fair value and the impact of the changes in the fair value of these interest rate and cross currency swaps are presented in the tables below.

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, its foreign currency denominated receivables and payables, and forecasted earnings of its foreign subsidiaries (primarily to manage its foreign currency exposure to British pound, Euro and Australian dollar). The Company does not designate these forward contracts as cash flow hedges; therefore, the fluctuations in the value of these forward contracts are recorded within the Company’s consolidated statements of operations, which largely offset the impact of the changes in the value of the euro denominated debt, foreign currency denominated receivables and payables and forecasted earnings they are intended to economically hedge. During the years ended December 31, 2010 and 2009, certain contracts were designated as hedges for accounting purposes.

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.

Credit Risk and Exposure

The Company is exposed to counterparty credit risk in the event of non-performance by counterparties to various agreements and sales transactions. The Company manages such risk by evaluating the financial position and creditworthiness of such counterparties and by requiring collateral where financing is provided. The Company mitigates counterparty credit risk associated with its derivative contracts by monitoring the amounts at risk with each counterparty to such contracts, periodically evaluating counterparty creditworthiness and financial position, and where possible, dispersing its risk among multiple counterparties. As of December 31, 2011, there were no significant concentrations of credit risk with any individual counterparty or group of counterparties.

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 were all are categorized as Level 3 — Significant Other Unobservable Inputs as of December 31, 2011, and as Level 2 — Significant Other Observable Inputs as of December 31, 2010. See Note 2 — Summary of Significant Accounting Policies, for a discussion of the Company’s policies regarding this hierarchy.

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. 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. The fair value is then adjusted for the Company’s own credit risk or counterparty credit risk, as appropriate. This adjustment is calculated based on the default probability of the banking counterparty or the Company and is obtained from active credit default swap markets.

The Company reviews the fair value hierarchy classification for financial assets and liabilities at the end of each quarter. Changes in significant unobservable valuation inputs may trigger reclassification of financial assets and liabilities between fair value hierarchy levels. As of December 31, 2011, credit risk fair value adjustments constituted more than 15% of the unadjusted fair value of derivative instruments. In such circumstances the Company’s policy is to categorize the overall pricing model within Level 3 of the fair value hierarchy.

Changes in the 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 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 balance sheets at fair value.

		Fair Value Asset (Liability)						Fair Value Asset (Liability)
(in $ millions)	Balance Sheet Location	December 31, 2011		December 31, 2010			Balance Sheet Location	December 31, 2011			December 31, 2010
Interest rate swaps	Other current assets		—		(3	)	Accrued expenses and other current liabilities		(4	)		(32	)
Interest rate swaps							Other non-current liabilities		(2	)		(4	)
Foreign currency impact of cross currency swaps	Other current assets		—		8
Foreign currency forward contracts	Other current assets		2		10		Accrued expenses and other current liabilities		(33	)		(3	)
Foreign currency forward contracts	Other non-current assets		—		5		Other non-current liabilities		—			(2	)
Total fair value of derivative assets (liabilities)			2		20				(39	)		(41	)

As of December 31, 2011, the Company had an aggregate outstanding notional $250 million of interest rate swaps and $1,006 million of foreign currency forward contracts. All 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 year and the impact derivatives not designated as hedges had on income (loss) during that year.

	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)									Amount of Gain (Loss) Recorded into Income (Loss)
	Year Ended December 31,								Location of Gain (Loss) Recorded in Income (Loss)	Year Ended December 31,
(in $ millions)	2011		2010			2009				2011			2010			2009
Derivatives designated as hedging instruments:
Interest rate swaps		—		(4	)		9		Interest expense, net		(9	)		(10	)		(13	)
Foreign exchange impact of cross currency swaps		—		(15	)		26		Selling, general and administrative		—			(15	)		26
Foreign exchange forward contracts		—		(9	)		(4	)	Selling, general and administrative		—			(12	)		—
Derivatives not designated as hedging instruments:
Interest rate swaps									Interest expense, net		(4	)		(22	)		(30	)
Foreign exchange impact of cross currency swaps									Selling, general and administrative		14			—			—
Foreign exchange forward contracts									Selling, general and administrative		(16	)		(50	)		9
											(15	)		(109	)		(8	)

During 2010, the Company de-designated as hedges certain of its derivative contracts. The total loss in relation to these contracts of $9 million as of December 31, 2010 was included within accumulated other comprehensive income (loss) and has been recorded in income (loss) in the Company’s consolidated statement of operations over the year to December 31, 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 statements of operations during the years ended December 31, 2011, 2010 and 2009 was $9 million, $10 million and nil, respectively.

The total amount of loss reclassified into net interest expense from accumulated other comprehensive income (loss) for the interest rate swaps designated as hedges include amounts for ineffectiveness of less than $1 million for each of the years ended December 31, 2010 and 2009. No such amounts were reclassified for the year ended December 31, 2011.

Fair Value Disclosures for All Financial Instruments

The carrying amounts of cash and cash equivalents, cash held as collateral, accounts receivable, other current assets, accounts payable and accrued expenses and other current liabilities approximate 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:

	December 31, 2011						December 31, 2010
(in $ millions)	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Asset (liability)
Investment in Orbitz Worldwide		77			184			91			273
Derivative assets (see above)		2			2			20			20
Derivative liabilities (see above)		(39	)		(39	)		(41	)		(41	)
Total debt		(3,407	)		(2,353	)		(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 second priority notes, 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.