Financial Instruments

3 Months Ended

Mar. 31, 2013

Financial Instruments [Abstract]

Financial Instruments

8. 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. During the three months ended March 31, 2013, there has been no material change in the Company’s interest rate and foreign currency risk management policies or in its fair value methodology.

As of March 31, 2013, the Company had a net liability position of $5 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.

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 Asset (Liability)					Fair Value Asset (Liability)
(in $ millions)	Balance Sheet Location	March 31, 2013		December 31, 2012		Balance Sheet Location	March 31, 2013		December 31, 2012
Interest rate swaps	Other current assets		—		—	Accrued expenses and other current liabilities		(2)		(3)
Foreign currency contracts	Other current assets		3		10	Accrued expenses and other current liabilities		(6)		(1)
Foreign currency contracts	Other non-current assets		—		5	Other non-current liabilities		—		—
Total fair value of derivative assets (liabilities)			3		15			(8)		(4)

As of March 31, 2013, the Company had an aggregate outstanding notional $250 million of interest rate swaps, $204 million of foreign currency option contracts and $461 million of foreign currency forward contracts. All derivative contracts cover transactions for periods that do not exceed one year.

The following table provides a reconciliation of the movement in the net carrying amount of derivative financial instruments, during the three months ended March 31, 2013.

(in $ millions)	Three Months Ended March 31, 2013
Net derivative asset (liability) as of January 1		11
Total loss (gain) for the period included in net loss		(15)
Proceeds from settlement of foreign exchange derivative contracts		(2)
Settlement of interest rate derivative contracts		1
Net derivative liability as of March 31		(5)

During the three months ended March 31, 2013, the Company paid $7 million in relation to certain foreign currency derivative contracts which were terminated in 2012 and included within accrued expenses and other current liabilities as at December 31, 2012.

The significant unobservable inputs used to fair value the Company’s derivative financial instruments have a probability of default of approximately 20% and a recovery rate of 20% has been applied to the Company’s credit default swap adjustments. A 10% change in the significant unobservable inputs will not have a material impact on the fair value of the derivative financial instruments as of March 31, 2013.

The table below presents the impact of changes in fair values of derivatives on income (loss) during the period.

		Amount of Gain (Loss) Recorded into Income (Loss)
	Location of Gain (Loss) Recorded in Income (Loss)	Three Months Ended March 31,
(in $ millions)		2013		2012
Derivatives not designated as hedging instruments:
Interest rate swaps	Interest expense, net		(1)		1
Foreign currency contracts	Selling, general and administrative		(14)		14
			(15)		15

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 fair value due to the short-term maturities of these assets and liabilities. The carrying value of cash held as collateral approximates to its fair value.

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

			March 31, 2013				December 31, 2012
(in $ millions)	Fair Value Hierarchy		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Asset (liability)
Investment in Orbitz Worldwide		Level 1		7		279		—		133
Derivative assets (see above)		Level 3		3		3		15		15
Derivative liabilities (see above)		Level 2		(8)		(8)		(4)		(4)
Total debt		Level 2		(3,464)		(3,354)		(3,430)		(2,899)