Orbitz 2008 Annual Report Download - page 69

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Translation Exposure
Foreign exchange rate fluctuations may adversely impact our financial position as the assets and liabilities of our foreign operations are translated into U.S.
dollars in preparing our consolidated balance sheets. The effect of foreign exchange rate fluctuations on our consolidated balance sheets at December 31, 2007
and 2006 was a net translation (loss) gain of $(2) million and $2 million, respectively. This (loss) gain is recognized as an adjustment to shareholders' equity
through accumulated other comprehensive income.
Interest Rate Risk
Our $600 million Term Loan and $85 million Revolver bear interest at a variable rate based on LIBOR or an alternative base rate. We limit interest rate risk
associated with the Term Loan using interest rate swaps with a combined notional amount of $300 million to hedge fluctuations in LIBOR (see
Note 13—Derivative Financial Instruments of the Notes to Consolidated Financial Statements). We did not have any third-party debt outstanding as of
December 31, 2006. We do not engage in trading, market making or speculative activities in the derivatives markets.
Sensitivity Analysis
We assess our market risk based on changes in foreign currency exchange rates and interest rates utilizing a sensitivity analysis that measures the potential
impact in earnings, fair values, and cash flows based on a hypothetical 10% change (increase and decrease) in foreign currency rates and a hypothetical 100 basis
point change in interest rates. We used December 31, 2007 market rates to perform a sensitivity analysis separately for each of our market risk exposures. The
estimates assume instantaneous, parallel shifts in interest rate yield curves and exchange rates. We determined, through this analysis, that the potential decrease
in net current assets from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be $6 million at December 31, 2007 compared to
$8 million at December 31, 2006. There are inherent limitations in the sensitivity analysis, primarily due to assumptions that foreign exchange rate movements
are linear and instantaneous. The effect of a hypothetical change in market rates of interest on interest expense would be $3 million at December 31, 2007.
62
Source: Orbitz Worldwide, In, 10-K/A, August 28, 2008