Orbitz 2011 Annual Report Download - page 53

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53
Interest Rate Risk
The Term Loan and the 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 $300.0 million at
December 31, 2011 to hedge fluctuations in LIBOR (see Note 12 - 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, 2011 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 $6.2 million at
December 31, 2011 compared with $7.5 million at December 31, 2010. 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
10% adverse change in market rates of interest on interest expense would be $0.1 million at December 31, 2011 and
December 31, 2010, which represents the effect on annual interest expense related to the unhedged portion of the Term Loan.
The hedged portion of the Term Loan is not affected by changes in market rates of interest as it has effectively been converted
to a fixed interest rate through interest rate swaps.