Orbitz 2008 Annual Report Download - page 113

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ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Derivative Financial Instruments
Interest Rate Hedges
On July 25, 2007, we entered into two interest rate swaps that effectively convert $300 million of the Term Loan from a variable to a fixed interest rate. The
first swap has a notional amount of $100 million and matures on December 31, 2008. The second swap has a notional amount of $200 million and matures on
December 31, 2009. We pay a fixed rate of 5.207% on both swaps and in exchange receive a variable rate based on LIBOR. The objective of entering into these
swaps is to protect against volatility of future cash flows and effectively hedge the variable interest payments on the Term Loan. We determined that these
designated hedging instruments qualify for cash flow hedge accounting treatment under SFAS No. 133.
The interest rate swaps are reflected in our consolidated balance sheet at market value. The total market value of the swaps at December 31, 2007
represented a liability of $6 million, of which $1 million was included in other current liabilities and $5 million was included in other non-current liabilities,
respectively, in our consolidated balance sheet. The corresponding market adjustment was recorded to accumulated other comprehensive income. There was no
hedge ineffectiveness recorded during the year ended December 31, 2007.
Foreign Currency Hedges
We enter into foreign currency forward contracts ("forward contracts") from time to time to manage exposure to changes in the foreign currency associated
with foreign receivables, payables, intercompany transactions and forecasted earnings. As of December 31, 2007, we have forward contracts outstanding with a
total net notional amount of $15 million, which mature in January 2008. The forward contracts do not qualify for hedge accounting treatment under SFAS
No. 133. Accordingly, changes in the fair value of the forward contracts are recorded in net income, as a component of selling, general and administrative
expenses in the consolidated statements of operations. We recognized (losses) and gains related to foreign currency forward contracts of $(2) million, $(1)
million, and $2 million for the year ended December 31, 2007 and for the period January 1, 2006 to August 22, 2006 and for the year ended December 31, 2005,
respectively. The total market value of forward contracts at December 31, 2007 represented an asset of almost nil, which was included in other current assets in
the consolidated balance sheet. There were no forward contracts held by us, or on our behalf, during the period from August 23, 2006 to December 31, 2006.
14. Employee Benefit Plans
Travelport and Cendant sponsored defined contribution savings plans for employees in the U.S. that provided certain of our eligible employees an
opportunity to accumulate funds for retirement. In addition, HotelClub and ebookers sponsor similar defined contribution savings plans. In September 2007, we
adopted a qualified defined contribution savings plan for employees in the U. S. that replaced the existing defined contribution savings plans sponsored by
Travelport and Cendant, but did not alter the plans of HotelClub and ebookers. We match the contributions of participating employees on the basis specified by
the plans.
We recorded expense related to these plans in the amount of $5 million, $2 million, $2 million and $3 million for the year ended December 31, 2007 and for
the periods August 23, 2006 to December 31, 2006 and January 1, 2006 to August 22, 2006 and for the year ended December 31, 2005, respectively.
106
Source: Orbitz Worldwide, In, 10-K/A, August 28, 2008