Orbitz 2009 Annual Report Download - page 65

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Risk
Our international operations are subject to risks typical of international operations, including, but not
limited to, differing economic conditions, changes in political climate, differing tax structures and foreign
exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in
these or other factors.
Transaction Exposure
We use foreign currency forward contracts to manage our exposure to changes in foreign currency
exchange rates associated with our foreign currency denominated receivables and payables and forecasted
earnings of our foreign subsidiaries. We primarily hedge our foreign currency exposure to the British pound,
Euro and Australian dollar. We do not engage in trading, market making or speculative activities in the
derivatives markets. Substantially all of the forward contracts utilized by us do not qualify for hedge
accounting treatment under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
and as a result, any fluctuations in the value of these forward contracts are recognized in our consolidated
statements of operations as incurred. The fluctuations in the value of these forward contracts do, however,
largely offset the impact of changes in the value of the underlying risk that they are intended to economically
hedge. As of December 31, 2008 and December 31, 2007, we had outstanding foreign currency forward
contracts with net notional values equivalent to approximately $61 million and $15 million, respectively.
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, 2008 and
2007 was a net translation loss of $9 million and $2 million, respectively. This loss is recognized as an
adjustment to shareholders’ equity through accumulated other comprehensive income.
Interest Rate Risk
Our Term Loan and 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 $400 million as of December 31, 2008 to hedge fluctuations in LIBOR (see Note 14 — Derivative
Financial Instruments of the Notes to Consolidated Financial Statements). 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 on earnings, fair values, and cash flows based on a
hypothetical 10% change (increase and decrease) in foreign currency rates and interest rates. We used
December 31, 2008 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 $5 million at December 31, 2008
compared to $6 million at December 31, 2007. 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 almost nil at December 31,
2008 compared to $3 million at December 31, 2007.
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