UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
001-33599
ORBITZ WORLDWIDE,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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20-5337455
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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500 W. Madison Street
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Suite 1000
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60661
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Chicago, Illinois
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(Zip Code)
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(Address of principal executive
offices)
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(312) 894-5000
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 par value
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New York Stock Exchange
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Securities
registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates as of June 30, 2009 was
approximately $68 million based on the closing price of the
registrants common stock as reported on the New York Stock
Exchange for such date.
As of February 24, 2010, 101,003,718 shares of Common
Stock, par value $0.01 per share, of Orbitz Worldwide, Inc. were
outstanding.
DOCUMENTS INCORPORATED BY
REFERENCE
Part III of this Annual Report on
Form 10-K
incorporates by reference certain information from the
definitive proxy statement for the registrants Annual
Meeting of Shareholders to be held on or about June 2, 2010
(the 2010 Proxy Statement). The registrant intends
to file the proxy statement with the Securities and Exchange
Commission within 120 days of December 31, 2009.
Forward-Looking
Statements
This Annual Report on
Form 10-K
and its exhibits contain forward-looking statements that are
subject to risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially
different than the results, performance or achievements
expressed or implied by the forward-looking statements.
Forward-looking statements include statements about our
expectations, beliefs, plans, objectives, intentions,
assumptions and other statements that are not historical facts.
Forward-looking statements can generally be identified by
phrases such as believes, expects,
potential, continues, may,
should, seeks, predicts,
anticipates, intends,
projects, estimates, plans,
could, designed, should be
and other similar expressions that denote expectations of future
or conditional events rather than statements of fact.
Forward-looking statements also may relate to our operations,
financial results, financial condition, business prospects,
growth strategy and liquidity. Our actual results could differ
materially from those anticipated in forward-looking statements
for many reasons, including the factors described in
Item 1A, Risk Factors, and in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, in this Annual Report
on
Form 10-K.
Accordingly, you should not unduly rely on these forward-looking
statements. We undertake no obligation to update any
forward-looking statements in this Annual Report on
Form 10-K.
The use of the words we, us,
our and the Company in this Annual
Report on
Form 10-K
refers to Orbitz Worldwide, Inc. and its subsidiaries, except
where the context otherwise requires or indicates.
3
PART I
General
Description of Our Business
We are a leading global online travel company that uses
innovative technology to enable leisure and business travelers
to search for and book a broad range of travel products and
services. Our brand portfolio includes Orbitz, CheapTickets, The
Away Network, and Orbitz for Business in the Americas; ebookers
in Europe; and HotelClub and RatesToGo (collectively referred to
as HotelClub in this Annual Report on
Form 10-K)
based in Sydney, Australia, which have operations globally. We
provide customers with the ability to book a comprehensive set
of travel products and services from suppliers worldwide,
including air travel, hotels, vacation packages, car rentals,
cruises, travel insurance and destination services such as
ground transportation, event tickets and tours.
History
Orbitz, Inc. (Orbitz) was formed in early 2000 by
American Airlines, Inc., Continental Airlines, Inc., Delta Air
Lines, Inc., Northwest Airlines, Inc. and United Air Lines, Inc.
(the Founding Airlines). In November 2004, Orbitz
was acquired by Cendant Corporation (Cendant), whose
online travel distribution businesses included the CheapTickets
and HotelClub brands. In February 2005, Cendant acquired
ebookers Limited, an international online travel brand which
currently has operations in 12 countries throughout Europe
(ebookers).
On August 23, 2006, Travelport Limited
(Travelport), which consisted of Cendants
travel distribution services businesses, including the
businesses that currently comprise Orbitz Worldwide, Inc., was
acquired by affiliates of The Blackstone Group
(Blackstone) and Technology Crossover Ventures
(TCV). We refer to this acquisition as the
Blackstone Acquisition in this Annual Report on
Form 10-K.
Orbitz Worldwide, Inc. was incorporated in Delaware on
June 18, 2007 and was formed to be the parent company of
the
business-to-consumer
travel businesses of Travelport, including Orbitz, ebookers and
Travel Acquisition Corporation Pty. Ltd. (HotelClub)
and the related subsidiaries and affiliates of those businesses.
We are the registrant as a result of the completion of the
initial public offering (IPO) of
34,000,000 shares of our common stock on July 25,
2007. Our common stock trades on the New York Stock Exchange
(NYSE) under the symbol OWW.
At December 31, 2009 and December 31, 2008, there were
83,831,561 and 83,345,437 shares of our common stock
outstanding, respectively, of which approximately 57% and 58%
were beneficially owned by Travelport and investment funds that
own and/or
control Travelports ultimate parent company, respectively.
Brand
Portfolio
Our brand portfolio is comprised of Orbitz, CheapTickets, The
Away Network, Orbitz for Business, ebookers and HotelClub.
Orbitz
Orbitz (www.orbitz.com) is one of the leading online
travel websites in the U.S. Orbitz is a full-service online
travel company that offers customers the ability to book an
array of travel products and services from numerous suppliers on
a stand-alone basis or as part of a dynamic vacation package.
These travel products and services include airline tickets,
hotel rooms, car rentals, cruises, travel insurance and
destination services. Dynamic vacation packages are vacation
packages that include different combinations of travel products.
Orbitz allows customers to search based on their preferences and
then provides a comprehensive display of travel choices for any
given destination. Search results are presented in our
easy-to-use Matrix display that enables customers to select the
price and supplier that best meet their travel needs. Orbitz
also has an innovative customer care platform known as
OrbitzTLC, which offers an array of proactive care services to
travelers.
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We have taken significant steps to improve the value proposition
for customers who book on Orbitz. We launched Orbitz Price
Assurancesm
for airline tickets in 2008 and for hotel stays in 2009. Through
Orbitz Price
Assurancesm,
if the price drops for an airline ticket or hotel stay booked on
Orbitz and another customer subsequently books the same airline
ticket or hotel stay on Orbitz for a lower price, we will
automatically send the customer a cash refund for the difference
up to $250 for airline tickets and up to $500 for hotel stays.
Additionally, in 2009, we eliminated booking fees on most
flights, significantly reduced booking fees on hotels and
removed our hotel change and cancellation fees. We also
introduced Total Price hotel search results, making Orbitz the
only major online travel company that shows base rate, taxes and
fees, and total price per night upfront on the initial search
results page, improving the price transparency for consumers
searching for hotels.
CheapTickets
Our CheapTickets website (www.cheaptickets.com) is a
leading U.S. travel website that focuses on value-conscious
customers. CheapTickets offers customers the ability to book an
array of travel products and services from numerous suppliers on
a stand-alone basis or as part of a dynamic vacation package,
including airline tickets, hotel rooms, car rentals, cruises,
travel insurance and destination services. CheapTickets also
offers value-oriented promotions such as Cheap of the Week, in
which special travel offers are updated on a weekly basis to
provide customers with additional value.
The Away
Network
The Away Network is a series of travel content websites that
includes Away.com (www.away.com), Trip.com
(www.trip.com), GORP.com (www.gorp.com),
GORPTravel.com (www.gorptravel.com) and Lodging.com
(www.lodging.com).
The Away Network also hosts, maintains and develops
outsideonline.com, pursuant to an agreement with Mariah Media,
Inc., the publishers of Outside magazine. The Away
Network provides travel inspiration, trip ideas, travel planning
tools and destination content for travelers seeking information
regarding specific travel interests such as adventure, family or
romance trips. Supported by advertising sales and sponsorships,
The Away Network provides a blend of professionally-edited
articles, features, micro-sites and consumer-driven reviews.
These websites also provide search capabilities for users who
want to find travel choices online as well as contact
information for a number of leading tour operators.
Orbitz
for Business
Orbitz for Business (www.orbitzforbusiness.com) is a
full-service global travel management company that provides
online booking and call center support to a broad array of
organizations, ranging from small businesses to Fortune
500 companies. Orbitz for Business leverages our
technology, customized for corporate travelers, and provides
consolidated reporting, active travel policy management and
proactive customer care tools. In addition to its online booking
capabilities, Orbitz for Business also offers integrated expense
management tools and meeting management services.
ebookers
ebookers (www.ebookers.com) offers customers the ability
to book an array of travel products and services through
websites in Austria, Belgium, Denmark, Finland, France, Germany,
Ireland, the Netherlands, Norway, Sweden, Switzerland and the
U.K. Customers can book travel products and services on a
stand-alone basis or as part of a dynamic vacation package,
including airline tickets, hotel rooms, car rentals and travel
insurance. In addition to the ebookers websites, customers may
also book travel through our call centers.
HotelClub
HotelClub (www.hotelclub.com), Accomline
(www.accomline.com) and Asia-hotels
(www.asiahotels.com) are hotel-only websites that offer
customers the opportunity to book hotel stays in over 130
countries. Our RatesToGo website (www.ratestogo.com)
offers customers the opportunity to book hotel stays at
last-minute discounts up to four weeks in advance. On this
website, customers can book hotel stays in over 80 countries.
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HotelClub, Accomline and RatesToGo offer services on their
websites in fifteen languages, including Simplified Chinese,
Traditional Chinese, Dutch, English, French, German, Italian,
Japanese, Korean, Polish, Portuguese, Russian, Spanish, Swedish
and Thai.
Other
Businesses
Private
Label and Hosting Businesses
We license our technology and business services to third parties
and offer them access to our travel content through our private
label business. Using our technology platform, these partners
are able to operate websites under their own brands. Our private
label business helps provide the travel products that are
available on a wide range of third-party websites, including a
number of airline and hotel websites. We earn revenue from our
private label business through revenue sharing arrangements for
the travel booked on these third-party websites.
We also host and manage websites on behalf of third parties
through our hosting products. As of December 31, 2009, we
managed portions of American Airlines and Northwest
Airlines websites. We earn revenue from our hosting
business through license or fee arrangements.
Partner
Marketing
Through our partner marketing programs, we generate advertising
revenue by providing our partners access to our customer base
through a combination of display advertising, performance-based
advertising and other marketing programs. Travel companies,
convention and visitor bureaus, credit card partners, media,
packaged goods and other non-travel advertisers all advertise on
our websites.
Merchant
and Retail Models
Merchant
Model
Our merchant model provides customers the ability to book air,
hotel, car, destination services reservations and dynamic
vacation packages. Hotel transactions comprise the majority of
our merchant bookings. We generate revenue for our services
based on the difference between the total amount the customer
pays for the travel product and the negotiated net rate plus
estimated taxes that the supplier charges us for that product.
We may, depending upon the brand and the travel product, also
charge our customers a service fee for booking their travel
reservation on our websites. Generally, our net revenue per
transaction is higher under the merchant model compared with the
retail model due to our negotiation of net rates with suppliers.
Customers generally pay us for reservations at the time of
booking, which is in advance of their travel. We pay our
suppliers at a later date, which generally ranges from one to
sixty days after the customer uses the reservation. Initially,
we record these customer receipts as accrued merchant payables
and either deferred income or net revenue, depending on the
travel product. The timing difference between the cash collected
from our customers and payments to our suppliers improves our
operating cash flows and represents a source of liquidity for us.
We recognize net revenue under the merchant model when we have
no further obligations to the customer. For merchant air
transactions, this is at the time of booking. For merchant hotel
transactions and merchant car transactions, net revenue is
recognized at the time of check-in or customer
pick-up,
respectively. The timing of revenue recognition is different for
merchant air travel because our primary service to the customer
is fulfilled at the time of booking. In this model, we do not
take on credit risk with the customer, however we are subject to
fraud risk; we have the ability to determine the price; we are
not responsible for the actual delivery of the flight, hotel
room or car rental; we take no inventory risk; we have no
ability to determine or change the products or services
delivered; and the customer chooses the supplier.
When customers assemble dynamic vacation packages, we may offer
the customer the ability to book a combination of travel
products that use both the merchant model and the retail model.
Dynamic vacation packages allow us to make products available to
our customers at prices that are generally lower than booking
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each travel product separately. Our net revenue per transaction
is generally higher for dynamic vacation packages than for
travel products booked separately.
Retail
Model
Our retail model provides customers the ability to book air,
hotel, cruise and car rental reservations. Air transactions
comprise the majority of our retail bookings. Under our retail
model, we earn commissions from suppliers for airline tickets,
hotel stays, car rentals and other travel products and services
booked on our websites. We generally receive these commissions
from suppliers after the customer uses the travel reservation.
We may, depending upon the brand and the travel product, also
charge our customers a service fee for booking their travel
reservation on our websites. Generally, our net revenue per
transaction is lower under the retail model compared with the
merchant model. However, air reservations booked under the
retail model contribute substantially to our overall gross
bookings and net revenue due to the high volume of air
reservations booked on our websites. We recognize net revenue
under the retail model when the reservation is made, secured by
a customer with a credit card and we have no further obligations
to the customer. For air transactions, this is at the time of
booking. For hotel transactions and car transactions, net
revenue is recognized at the time of check-in or customer
pick-up,
respectively, net of an allowance for cancelled reservations. In
the retail model, we do not take on credit risk with the
customer; we are not the primary obligor with the customer; we
have no latitude in determining pricing; we take no inventory
risk; we have no ability to determine or change the products or
services delivered; and the customer chooses the supplier.
Supplier
Relationships and Global Distribution Systems
Supplier
Relationships
We have teams that manage relationships and negotiate agreements
with our suppliers. These agreements generally cover access to
the suppliers travel inventory as well as payment for our
services. Our teams cover air, hotel, car rental, cruise, travel
insurance and destination services suppliers. Our teams focus on
managing relationships, obtaining supplier-sponsored promotions
and negotiating contracts.
The global hotel services team is responsible for negotiating
agreements that provide us access to the inventory of
independent hotels, chains and hotel management companies. As
part of our efforts to drive global hotel transaction growth, we
have increased the number of hotel market managers on our global
hotel services team, particularly in Asia Pacific and Europe.
With this additional staff in place, we have signed a
substantial number of new direct hotel contracts, which provide
us with higher margins, better hotel content and increased
promotional opportunities.
Global
Distribution Systems
Global distribution systems (GDSs) provide us access
to a comprehensive set of supplier content through a single
source. Suppliers, such as airlines and hotels, utilize GDSs to
connect their product and service offerings with travel
providers, who in turn make these products and services
available to travelers for booking. Certain of our businesses
utilize GDS services provided by Galileo, Worldspan and Amadeus
IT Group (Amadeus). Under our GDS service
agreements, we receive revenue in the form of an incentive
payment for air, car and hotel segments that are processed
through a GDS.
Galileo and Worldspan are subsidiaries of Travelport, and we
have an agreement with Travelport that covers the GDS services
provided by both Galileo and Worldspan. This agreement contains
volume requirements for the number of segments that we must
process through Galileo and Worldspan and requires us to make
shortfall payments if we do not process the required minimum
number of segments for a given year. As a result, a significant
portion of our GDS services are provided by Travelport GDSs. For
the year ended December 31, 2009, we recognized
$112 million of incentive revenue for segments processed
through Galileo and Worldspan, which accounted for more than 10%
of our total net revenue.
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Operations
and Technology
Systems
Infrastructure and Web and Database Servers
We use SAVVIS co-location services in the U.S. to host our
systems infrastructure and web and database servers for Orbitz,
CheapTickets, The Away Network, Orbitz for Business and
ebookers. The majority of our hardware and other equipment is
located at the SAVVIS facility. SAVVIS provides data center
management services as well as emergency hands-on support. In
addition, we have our own dedicated staff
on-site at
the facility. If SAVVIS was unable, for any reason, to support
our primary web hosting facility, we have a secondary facility
through Verizon Business, which is also located in the U.S.
We use Global Switch services in the U.K. to host our systems
infrastructure and web and database servers for ebookers legacy
systems and for HotelClub. The arrangement with Global Switch is
similar to the arrangement described above with SAVVIS.
Systems
Platform
Our systems platform enables us to deconstruct the segment feeds
from our GDS partners for air flight searches and then
reassemble these segments for cost-effective and flexible
multi-leg itineraries. We also have the ability to connect to
and book air travel directly on certain airlines internal
reservation systems through our supplier link technology. Our
easy-to-use Matrix display allows customers to simultaneously
view these various travel options so that they can select the
price and supplier that best meet their travel needs. In
addition, our dynamic packaging technology enables travelers to
view multiple combinations of airlines, hotels and other travel
products and allows them to assemble a customized vacation
package that is generally more flexible and less expensive than
booking each travel product separately.
We have technology operations teams dedicated to ensuring that
our websites operate efficiently. These teams monitor our
websites as well as the performance and availability of our
third party service providers and coordinate major releases of
new functionality on our websites. These teams also developed
and implemented our new technology platform that currently
supports our ebookers brand portfolio in Europe. We expect to
begin migrating our domestic brands onto this platform in 2010.
Customer
Support
Our customer support platform includes OrbitzTLC, a proactive
customer care service for our travelers. Our OrbitzTLC team is
based in Chicago, Illinois, and monitors Federal Aviation
Administration, National Weather Service and other data to send
customers real-time updates on information that may affect their
travel plans. Our customer support platform also includes call
centers and customer service centers that utilize intelligent
voice routing and intelligent call management technology to
connect customers with the appropriate center to assist them
with their particular needs. We utilize a variety of third party
vendors, domestically and internationally, to manage these call
centers and customer service centers.
Fraud
Prevention System
We have an internally-developed fraud prevention system that
enables us to detect fraudulent bookings and reduce the costs
associated with fraud detection and prosecution. The system
automates many functions and prioritizes suspicious transactions
for review by fraud analysts within our fraud prevention team.
Marketing
We utilize a combination of online and traditional offline
marketing. Our sales and marketing efforts primarily focus on
increasing brand awareness and driving visitors to our websites.
Our long-term success will depend on our ability to continue to
increase the overall number of booked transactions in a
cost-effective manner.
We use various forms of online marketing to drive traffic to our
websites, including search engine marketing (SEM),
display advertising, affiliate programs and email marketing. We
also generate traffic and
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transactions from certain travel research websites and
meta-search travel websites. We are actively pursuing strategies
to improve our online marketing efficiency. These strategies
include increasing the amount of traffic coming to our websites
through search engine optimization (SEO) and
customer relationship management (CRM) and improving
the efficiency of our SEM and travel research spending. We also
use traditional broadcast advertising to focus on brand
differentiation and to emphasize distinct features of our
businesses that we believe are valuable to our customers.
We have a dedicated marketing team that focuses on generating
leads and building relationships with corporate travel managers.
Our sales team includes experienced corporate travel managers
and is qualified to assist organizations in choosing between the
variety of corporate booking products that are offered under our
Orbitz for Business brand.
Intellectual
Property
We regard our technology and other intellectual property,
including our brands, as a critical part of our business. We
protect our intellectual property rights through a combination
of copyright, trademark and patent laws and trade secret and
confidentiality procedures. We have a number of trademarks,
service marks and trade names that are registered or for which
we have pending registration applications or common law rights.
These include Orbitz, Orbitz Matrix, Flex Search, OrbitzTLC,
OrbitzTLC Mobile Access, the Orbitz design and the stylized
O. We have six issued U.S. patents. Three of
these patents relate to a system and method for receiving and
loading fare and schedule data that allows us to search for air
fares. These patents are scheduled to expire on
December 11, 2021, April 1, 2022 and November 10,
2024, respectively. The fourth patent relates to a method of
searching for travel products from multiple suppliers and
creating vacation packages. This patent is scheduled to expire
on April 18, 2020. The fifth patent relates to a system and
method for gathering and analyzing data related to travel
conditions and generating and sending a message explaining the
travel conditions to one or more travelers. This patent is
scheduled to expire on May 10, 2023. The sixth patent
relates to a system and method of creating a matrix display
having neighborhood categories with interactive maps displayed.
This patent is scheduled to expire on January 23, 2026. At
December 31, 2009, we had fourteen pending patent
applications in the U.S. Through these patent applications,
we are seeking patent rights in several areas of our online
travel services technology. These areas include technology
related to our process for searching using multiple data
providers, our process for synchronizing passenger name and
record data, our supplier link and related booking technology,
our system for searching for itineraries based on flexible
travel dates, our Deal Detector functionality, our system for
enabling a user to book travel via a guest registration, our
system enabling a traveler to share information about travel
conditions in real-time, and our system for replicating data and
changes between databases.
Despite these efforts and precautions, we cannot be certain that
any of these patent applications will result in issued patents,
or that we will receive any effective protection from
competition from any trademarks and issued patents. It may be
possible for a third party to copy or otherwise obtain and use
our trade secrets or our intellectual property without
authorization. In that case, legal remedies may not adequately
compensate us for the damages caused by unauthorized use.
Further, others may independently and lawfully develop
substantially similar properties.
From time to time, we may be subject to legal proceedings and
claims in the ordinary course of our business, including claims
of alleged infringement by us of the trademarks, copyrights,
patents and other intellectual property rights of third parties.
In addition, we may have to initiate lawsuits in the future to
enforce our intellectual property rights, protect our trade
secrets or to determine the validity and scope of proprietary
rights claimed by others. Any such litigation, regardless of
outcome or merit, could consume a significant amount of
financial resources or management time. It could also invalidate
or impair our intellectual rights, or result in significant
damages or onerous license terms and restrictions for us. We may
even lose our right to use certain intellectual property or
business processes. These outcomes could materially harm our
business. See Item 3, Legal Proceedings.
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At the time of the IPO, we entered into a Master License
Agreement with Travelport, which gives Travelport licenses to
use certain of our intellectual property going forward,
including:
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our supplier link technology;
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portions of ebookers booking, search and dynamic packaging
technologies;
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certain of our products and online booking tools for corporate
travel;
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portions of our private label dynamic packaging
technology; and
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our extranet supplier connectivity functionality.
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The Master License Agreement granted us the right to use a
corporate online booking product developed by Travelport. We
have entered into a value added reseller license with Travelport
for this product.
The Master License Agreement generally includes the right to
create derivative works and other improvements. Other than the
unrestricted use of our supplier link technology, Travelport is
generally prohibited from sublicensing these technologies to any
third party for competitive use. However, Travelport and its
affiliates are not restricted from using the technologies to
compete directly with us.
Information
about Segments and Geographic Areas
We operate and manage our business as a single operating
segment. For geographic related information, see
Note 20 Segment Information of the Notes to
Consolidated Financial Statements.
Industry
Conditions
General
The worldwide travel industry is a large and dynamic industry
that has been characterized by rapid and significant change. The
global economy experienced a prolonged recession during 2008 and
2009 that significantly impacted the overall travel industry.
The weakening economy caused unemployment rates to rise and
lowered consumer confidence which, in turn, has resulted in
changes to consumer spending patterns, including reduced
spending on discretionary items, such as travel.
While the overall travel market declined in 2009 due to the
weakened economy, the decline in the online travel market has
not been as sharp. In an effort to drive demand to their
websites, online travel companies (OTCs)
significantly improved their value propositions for customers
during 2009 by eliminating or reducing booking and certain other
fees, which enabled OTCs to better compete with suppliers for
market share.
We compete in various geographic markets, with our primary
markets being the United States, Europe and Asia Pacific. Within
the United States, the most mature of the global travel markets,
the growth rate of online travel bookings has slowed due to both
the maturity of the market and the weak economy. According to
PhoCusWright, an independent travel, tourism and hospitality
research firm, the online travel booking penetration rate in the
United States reached 52% in 2009. We are one of the market
leaders within the United States due to our strength in the air
business, which we are leveraging to gain market share in the
global hotel marketplace. Internationally, the European and Asia
Pacific markets are characterized by their high level of
fragmentation, particularly in the hotel industry. Both the
European and Asia Pacific markets continue to benefit from
increases in internet usage rates and growing acceptance of
online booking, which has partially offset the negative effects
of the weak economy. In Europe, we have historically lacked
scale relative to our competitors. In 2008, we completed the
migration of all of our ebookers websites onto our new
technology platform, which we believe will help us increase our
scale and improve our competitive position in Europe over time.
Growth in the Asia Pacific market is one of our primary focuses
for 2010, as it represents a region with significant growth
opportunity where our competition is not as entrenched.
According to PhoCusWright, the online travel booking penetration
rates for Europe and Asia Pacific were 35% and 20%, respectively
for 2009.
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Competition
The general market for travel products and services is intensely
competitive. The online travel industry generally has low
barriers of entry and competitors can launch new websites at a
relatively low cost. Our current competitors include online
travel companies, traditional offline travel companies,
suppliers, travel research companies, search engines and
meta-search companies. In addition, we compete internationally
with smaller regional operators. The companies that we compete
with include the following:
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Among online travel companies, our major competitors primarily
include expedia.com, hotels.com, hotwire.com and venere.com,
which are owned by Expedia, Inc.; travelocity.com and
lastminute.com, which are owned by Sabre Holdings Corporation;
priceline.com, bookings.com and agoda.com, which are owned by
priceline.com Incorporated; opodo.com, which is owned by
Amadeus; rakuten.com, which is owned by Rakuten, Inc.; and
wotif.com and asiawebdirect.com, which are owned by Wotif.com
Holdings Limited.
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In the offline travel company category, our largest competitors
include companies such as Liberty Travel, Inc., American Express
Travel Related Services Company, Inc., Thomas Cook Group PLC and
TUI Travel PLC.
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We compete with suppliers, such as airlines, hotel and rental
car companies, many of which have their own branded websites and
toll-free numbers through which they generate business.
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We compete with travel research companies such as TripAdvisor
LLC and Travelzoo Inc., through which consumers can access
content such as user-generated travel reviews. Travel research
companies also send customers to the websites of suppliers and
our direct competitors.
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We compete with search engines including Google, Bing, Yahoo!
and AOL and meta-search companies such as Kayak. Search and
meta-search websites are capable of sending customers to the
websites of suppliers and our direct competitors.
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Suppliers have increasingly focused on distributing their
products through their own websites in lieu of using third
parties. Suppliers who sell on their own websites offer
advantages such as their own bonus miles or loyalty points,
which may make their offerings more attractive than our
offerings to some consumers.
Factors affecting our competitive success include price,
availability of travel products, ability to package travel
products across multiple suppliers, brand recognition, customer
service and customer care, fees charged to customers, ease of
use, accessibility, reliability and innovation.
Seasonality
Our businesses experience seasonal fluctuations in the demand
for the products and services we offer. The majority of our
customers book leisure travel rather than business travel. Gross
bookings for leisure travel are generally highest in the first
half of the year as customers plan and book their spring and
summer vacations. However, net revenue generated under the
merchant model is generally recognized when the travel takes
place and typically lags bookings by several weeks or longer. As
a result, our cash receipts are generally highest in the first
half of the year and our net revenue is typically highest in the
second and third calendar quarters. Our seasonality may also be
affected by fluctuations in the travel products our suppliers
make available to us for booking, the growth of our
international operations or a change in our product mix.
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Company
Strategy
Our strategic focus for 2010 is on driving global hotel
transaction growth, supporting our mission to become one of the
three primary hotel platforms globally. Specifically, we think
of our activities as they relate to hotels as falling into three
areas: demand, supply and retailing.
Demand
We are focused on generating demand through both
business-to-consumer and business-to-business channels. In 2010,
we intend to further increase brand awareness and loyalty such
that consumers come directly to our websites to book their
travel. We are also focused on continuing to optimize our search
engine marketing spending to drive consumers to our websites in
a cost effective manner. We are actively pursuing strategies to
increase the amount of traffic coming to our websites through
SEO, CRM, our private label business and our corporate travel
business, Orbitz for Business.
Supply
We are focused on working with our suppliers to provide
customers the ability to book a broad range of highly
competitive travel products and services on our websites. We are
investing in enhanced hotel connectivity and infrastructure
solutions in 2010. We also intend to expand our supply footprint
in markets where online penetration is low.
Retailing
We are focused on ways to improve our ability to convert website
visitors into customers. We plan to enhance the customer
shopping experience on our websites by developing new tools and
technologies to help users research options, improving the
quality of the hotel content we make available (such as
editorial descriptions, photographs and user-generated reviews)
and through the development of systems and technology that will
allow us to use historical data to provide customers with more
relevant search results. We also intend to build upon our
existing telesales capabilities to drive volume for higher
margin travel products.
Employees
As of February 24, 2010, we had approximately 1,400
full-time employees, more than half of whom were based in the
U.S. and the remaining were based primarily in Australia
and the U.K. We believe we have a good relationship with our
employees. We outsource some of our technology support,
development and customer service functions to third parties.
Additionally, we utilize independent contractors to supplement
our workforce.
Company
Website and Public Filings
We maintain a corporate website at corp.orbitz.com.
The content of our website is not incorporated by reference
into this Annual Report on
Form 10-K
or other reports we file with or furnish to the Securities and
Exchange Commission (SEC). Our filings with the SEC
are provided to the public on our Investor Relations website,
free of charge, as soon as reasonably practicable after they are
electronically filed with, or furnished to, the SEC. Other
information regarding our corporate governance, such as our code
of conduct, governance guidelines and charters for our board
committees, is also available on our Investor Relations website
(www.orbitz-ir.com).
In addition, the SEC maintains an Internet website that contains
reports, proxy and information statements, and other information
regarding issuers, including us, that file electronically with
the SEC at www.sec.gov.
We also use our Investor Relations website
(www.orbitz-ir.com)
to make information available to our investors and the public.
Investors and other interested persons can sign up to receive
email alerts whenever we post new information to the website.
12
Executive
Officers of the Registrant
Barney Harford, age 38, is our President and
Chief Executive Officer and also serves as a director and as a
member of the executive committee of our board of directors.
Prior to joining the Company in January 2009, Mr. Harford
served in a variety of roles at Expedia, Inc. from 1999 to 2006.
From 2004 to 2006, he served as President of Expedia Asia
Pacific. Prior to 2004, Mr. Harford served as Senior Vice
President of Air, Car & Private Label and led
Expedias corporate development, strategic planning and
investor relations functions. He joined Expedia in 1999 as a
product planner. Mr. Harford currently serves on the board
of directors of GlobalEnglish Corporation, LiquidPlanner, Inc.
and Orange Hotel Group. He holds an M.B.A. from INSEAD and a
Master of Arts degree in Natural Sciences from Clare College,
Cambridge University.
Marsha C. Williams, age 58, serves as Senior
Vice President, Chief Financial Officer, having served in that
capacity since July 2007. From August 2002 to February 2007,
Ms. Williams served as Executive Vice President and Chief
Financial Officer of Equity Office Properties Trust, the
nations largest owner and operator of office buildings.
From May 1998 to August 2002, Ms. Williams was the Chief
Administrative Officer of Crate and Barrel. Ms. Williams
served as Vice President of Amoco Corporation from December 1997
until April 1998 and Treasurer of Amoco Corporation from October
1993 until April 1998, as well as in other capacities and
positions from November 1989 until October 1993. From 1988 to
1989, Ms. Williams was Vice President and Treasurer of
Carson Pirie Scott & Co., and from 1973 to 1988,
Ms. Williams served in various positions with First
National Bank of Chicago, including Vice President and Head,
Retailing Companies Division. Ms. Williams currently serves
on the board of directors of Chicago Bridge & Iron
Company, Modine Manufacturing Company, The Davis Funds and Fifth
Third Bancorp. Ms. Williams previously served on the board
of directors of the Selected Funds. Ms. Williams earned an
M.B.A. from the University of Chicago Graduate School of
Business and a Bachelor of Arts degree from Wellesley College.
Michael J. Nelson, age 43, serves as
President, Partner Services Group, responsible for partner
services and customer operations on a global basis since July
2009. Prior to his current role, Mr. Nelson served as our
Chief Operating Officer, and prior to becoming Chief Operating
Officer in 2007, Mr. Nelson had been responsible for
managing our international operations, which at the time
included ebookers, Flairview (now known as HotelClub) and
Travelbag, an offline travel subsidiary. Mr. Nelson joined
the Company in 2001, and his diverse operating experience within
the Company includes supplier relations, revenue management,
finance, product management and project management. Prior to
joining the Company, Mr. Nelson spent 10 years in
finance and marketing at: Deluxe Corporation from 1998 to 2001,
Diageo/Pillsbury from 1993 to 1998 and Arthur Andersen from 1989
to 1992. Mr. Nelson has an M.B.A. from the University of
Minnesota and a Bachelor of Science degree in Accounting from
the University of Minnesota.
Frank A. Petito, age 42, has served as
President, Orbitz for Business since June 2009. Mr. Petito
joined the Company in 2002 and previously served as Senior Vice
President of Corporate Development and was responsible for
overseeing the Companys corporate development function as
well as its investor relations function. Prior to joining the
Company, Mr. Petito was a Vice President in the mergers and
acquisitions group of Hambrecht & Quist, a
technology-focused investment bank in San Francisco.
Mr. Petito also worked as an investment banker for Roberts
Capital Markets in Buenos Aires, Argentina, and at Morgan
Stanley in New York and Los Angeles. From 1999 to 2001, Mr.
Petito was Chief Financial Officer of Unexplored, Inc., a
start-up travel company based in San Francisco, which filed for
bankruptcy in 2001. Mr. Petito earned an M.B.A. from
Stanford University and a Bachelor of Arts degree from Princeton
University.
James P. Shaughnessy, age 55, serves as
Senior Vice President, Chief Administrative Officer and General
Counsel, and is responsible for managing the Companys
legal and government affairs departments as well as the
Companys shared services, including corporate
communications, human resources and security and compliance.
Mr. Shaughnessy joined the Company in June 2007. Prior to
joining the Company, Mr. Shaughnessy was Senior Vice
President & General Counsel of Lenovo Group Ltd.,
which he joined in July 2005. Mr. Shaughnessys prior
experience includes service as Senior Vice President, General
Counsel and Secretary of PeopleSoft, Inc. and in senior legal
positions with Hewlett-Packard, Compaq and Digital Equipment
Corporation. Prior to joining Digital, Mr. Shaughnessy
worked with the Congloeum group of companies and was in private
practice in
13
Washington, D.C. Mr. Shaughnessy received a Bachelor
of Science degree from Northern Michigan University and a J.D.
and a Masters of Public Policy from the University of Michigan.
Our
results of operations and financial condition have been and may
continue to be substantially and adversely impacted by the
economic downturn and our level of indebtedness increases our
sensitivity to this risk.
While we have seen recent improvement in consumer spending, the
global economy continues to suffer following the deterioration
in the capital markets and related financial crisis in the
second half of 2008. Both our customers and suppliers have felt
the impact of this downturn. Several U.S. airlines have
implemented capacity reductions in the face of slowing customer
demand and are under increased pressure to reduce their overall
distribution costs. The weakness in the economy has also
negatively impacted consumer spending patterns, including
spending on travel. If consumer demand for travel and the
products offered on our websites continues to decrease, our
revenue may decline further.
If economic conditions do not continue to improve, or worsen,
our results of operations and financial condition could be
materially adversely impacted. In addition, a substantial or
prolonged material adverse impact on our results of operations
and financial condition could affect our ability to satisfy the
financial covenants in our senior secured credit agreement,
which could result in our having to seek amendments or waivers
from our lenders to avoid the termination of commitments
and/or the
acceleration of the maturity of amounts that are outstanding
under our term loan and revolving credit facility. The cost of
our obtaining an amendment or waiver could be significant, and
could substantially increase our cost of borrowing over the
remaining term of our senior secured credit agreement. Further,
there can be no assurance that we would be able to obtain an
amendment or waiver. If our lenders were unwilling to enter into
an amendment or provide a waiver, all amounts outstanding under
our term loan and revolving credit facility would become
immediately due and payable.
Our
liquidity has been, and may continue to be, negatively
impacted.
The weak and volatile conditions in the global financial markets
and financial sector caused a substantial deterioration in the
capital markets in late 2008 and early 2009. We experienced the
negative effects of this instability when Lehman Commercial
Paper Inc. (LCPI) filed for bankruptcy in October
2008. LCPI held a $12.5 million commitment under our
revolving credit facility, and its bankruptcy effectively
reduced the total availability under our revolving credit
facility from $85 million to $72.5 million. In the
last half of 2009, the capital markets improved and in January
2010, PAR Investment Partners, L.P. (PAR) exchanged
$50 million aggregate principal amount of term loans
outstanding under our senior secured credit agreement for
8,141,402 shares of our common stock, and Travelport
concurrently purchased 9,025,271 shares of our common stock
for $50 million in cash, which has improved our overall
liquidity. Nevertheless, in the future, we may require more
liquidity than is available to us under our revolving credit
facility as a result of changes in our business model, changes
to payment terms or other supplier or regulatory agency-imposed
requirements, lower than anticipated operating cash flows or
other unanticipated events, such as unfavorable outcomes in our
legal proceedings. The liquidity provided by cash flows from our
merchant model bookings could be reduced if our suppliers,
including credit card processors and hotels, changed their
payment terms or imposed other requirements on us, or if our
merchant model bookings declined as a result of current economic
conditions or other factors.
If in the future, we require more liquidity than is available to
us under our revolving credit facility, we cannot be certain
that funding would be available to us or be available on
attractive or acceptable terms. If funding is not available when
needed, or is available only on unfavorable terms, we may be
unable to take advantage of potential business opportunities or
respond to competitive pressures, which in turn could have a
material adverse impact on our results of operations and
liquidity.
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Our
business and results of operations could be adversely affected
if the financial condition of one or more of our major
suppliers, including airlines and car rental companies,
deteriorates or restructures its operations.
In the past several years, several major airlines have filed for
bankruptcy protection, recently exited bankruptcy or discussed
publicly the risks of bankruptcy. In addition, the economic
downturn has severely impacted the automobile industry,
including car rental companies. We depend on a relatively small
number of airlines for a significant portion of our net revenue.
Our car net revenue is also generated from a relatively small
number of car rental companies. As a result of this dependence,
our business and results of operations could be adversely
affected if the financial condition of one or more of the major
airlines or car rental companies were to deteriorate or in the
event of supplier consolidation in either of these industries.
Potential bankruptcies and consolidation in our suppliers
industries could result in capacity reductions and increased
prices, which may in turn have a negative impact on demand for
travel products.
The
travel industry is highly competitive, and we may not be able to
effectively compete in the future.
We operate in the highly competitive travel industry. Our
success depends, in large part, upon our ability to compete
effectively against numerous competitors, including other online
travel companies, traditional offline travel companies,
suppliers, travel research companies, search engines and
meta-search companies, several of which have significantly
greater financial, marketing, personnel and other resources than
we have. Factors affecting our competitive success include
price, availability of travel products, ability to package
travel products across multiple suppliers, brand recognition,
customer service and customer care, fees charged to customers,
ease of use, accessibility, reliability and innovation. If we
are not able to compete effectively against our competitors, our
business and results of operations may be adversely affected.
Suppliers have increasingly focused on distributing their
products through their own websites, which typically do not
charge customers a booking or service fee. In addition, search
and meta-search sites have grown in popularity and may drive
more traffic directly to the websites of suppliers or
competitors. In response, during 2009, certain online travel
companies, including us, reduced or eliminated booking fees on
retail airline tickets and hotel stays and removed hotel change
and cancellation fees. Although we were able to mitigate the
resulting loss of revenue in 2009 by improving our operating and
marketing efficiency, there is no assurance that we will be able
to continue to absorb the full impact of the elimination of fees
in the future. Our results of operations could be negatively
affected if competitive dynamics in the industry caused us to
further reduce or eliminate the service fees we charge our
customers. If we are unable to implement further changes to our
business in an effort to absorb the continuing impact of the
reduction or elimination of these fees or are unable to increase
revenue from other sources, our business, financial condition
and results of operations would suffer.
Our
revenue is derived from the travel industry and a prolonged
substantial decrease in travel volume, particularly air travel,
as well as other industry trends, have and continue to adversely
affect our business, financial condition and results of
operations.
Our revenue is derived from the worldwide travel industry. As a
result, our revenue is directly related to the overall level of
travel activity, particularly air travel volume, and is
therefore significantly impacted by declines in or disruptions
to travel in the U.S., Europe and the Asia Pacific region due to
factors entirely outside of our control. These factors, which
contributed in part to the 15% decline in our net revenue in
2009 compared with 2008, include:
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general economic conditions, particularly the current economic
downturn which has caused a decline in travel volume;
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global security issues, political instability, acts or threats
of terrorism, hostilities or war and other political issues that
could adversely affect travel volume in our key regions;
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epidemics or pandemics;
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natural disasters, such as hurricanes and earthquakes;
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the financial condition of suppliers, including the airline and
hotel industry, and the impact of their financial condition on
the cost and availability of air travel and hotel rooms;
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changes to regulations governing the airline and travel industry;
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fuel prices;
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work stoppages or labor unrest at any of the major airlines or
airports;
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increased airport security that could reduce the convenience of
air travel;
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travelers perceptions of the occurrence of travel related
accidents or the scope, severity and timing of the other factors
described above; and
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changes in occupancy and room rates achieved by hotels.
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If there is a prolonged substantial decrease in travel volumes,
particularly for air travel and hotel stays, for these or any
other reasons, it would have an adverse impact on our business,
financial condition and results of operations.
We
carry significant goodwill and indefinite-lived intangible
assets on our consolidated balance sheets, and if a future
impairment were to occur based on a decline in our stock price,
projected results of operations, cash flows from operations or
otherwise, we may be required to record a significant charge
against earnings.
During the years ended December 31, 2009 and
December 31, 2008, in response to changes in the economic
environment and the prolonged decline in our market
capitalization, we recorded non-cash impairment charges of
$250 million and $210 million, respectively, related
to our goodwill and $82 million and $74 million,
respectively, related to our indefinite-lived intangible assets.
As of December 31, 2009, after giving effect to these
impairment charges, we had goodwill and indefinite-lived
intangible assets of $868 million, which represented
approximately 67% of our total consolidated assets. Under
generally accepted accounting principles, goodwill and
indefinite-lived intangible assets must be tested for impairment
annually or more frequently whenever events occur and
circumstances change indicating potential impairment. Factors
that could indicate that our goodwill or indefinite-lived
intangible assets may be impaired include a prolonged decline in
our stock price and market capitalization, lower than projected
operating results and cash flows and slower growth rates in our
industry. Due to the current economic uncertainty and other
factors, we cannot predict whether our goodwill and
indefinite-lived intangible assets will be further impaired in
future periods or whether a significant charge against our
earnings may be required, which could be higher than the charges
recorded during 2009 and 2008. If we are required to record an
impairment charge for our goodwill and indefinite-lived
intangible assets in the future, this would adversely impact our
results of operations.
We
have a significant amount of indebtedness, which could limit the
manner in which we operate our business.
As of December 31, 2009, we had approximately
$619 million of outstanding borrowings under our senior
secured credit agreement, which was reduced to $527 million
as a result of the debt-equity exchange we completed with PAR
and the repayment of outstanding borrowings on our revolving
credit facility in January 2010. Our substantial level of
indebtedness could result in the following:
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it may impair our ability to obtain additional financing for
working capital, capital expenditures, acquisitions or general
corporate purposes;
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it reduces the funds available to us for purposes such as
potential acquisitions and capital expenditures because we are
required to use a portion of our cash flows from operations to
make debt service payments;
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it puts us at a competitive disadvantage because we have a
higher level of indebtedness than some of our competitors and
reduces our flexibility in planning for, or responding to,
changing conditions in the economy or our industry, including
increased competition; and
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it may make us more vulnerable to general economic downturns and
adverse developments in our business.
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The credit agreement requires us to maintain a minimum fixed
charge coverage ratio and to not exceed a maximum total leverage
ratio, which declines through March 31, 2011. If we fail to
comply with these covenants and we are unable to obtain a waiver
or amendment, our lenders could accelerate the maturity of all
amounts outstanding under our term loan and revolving credit
facility and could proceed against the collateral securing this
indebtedness. If this were to occur, there is no assurance that
alternative financing would be available to us or at favorable
terms, particularly in the wake of the current economic
environment.
In addition, restrictive covenants in our credit agreement
specifically limit our ability to, among other things:
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incur additional indebtedness or enter into guarantees;
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enter into sale or leaseback transactions;
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make new investments, loans or acquisitions;
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grant or incur liens on our assets;
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sell our assets;
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engage in mergers, consolidations, liquidations or dissolutions;
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engage in transactions with affiliates; and
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make restricted payments.
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As a result, we may operate our business differently than if we
were not subject to these covenants and restrictions.
We
rely on Travelport to issue letters of credit on our behalf
under its credit facility.
As of December 31, 2009, approximately $59 million of
letters of credit were issued by Travelport on our behalf. Under
the terms of the Separation Agreement, as amended, Travelport
has agreed to issue and renew letters of credit on our behalf
through at least March 31, 2010 and thereafter so long as
Travelport and its affiliates (as defined therein) own at least
50% of our voting stock. Travelports obligation to issue
letters of credit on our behalf is subject to certain further
conditions, including a $75 million limitation on the
aggregate amount of letters of credit that Travelport is
required to issue on our behalf at any given point in time. If
we do not have a separate letter of credit facility in place if
or when Travelport is no longer obligated to issue letters of
credit on our behalf, or if we exceed the $75 million
limitation or if we require letters of credit denominated in
foreign currencies, we would be required to issue letters of
credit under our revolving credit facility, which could
significantly reduce our borrowing capacity under our revolving
credit facility. As of December 31, 2009, we had the
equivalent of $5 million of outstanding letters of credit
issued under our revolving credit facility, which were
denominated in Pounds Sterling.
Certain
of our international subsidiaries have a history of significant
operating losses, and our inability to improve their scale and
profitability could adversely affect our business and results of
operations.
We have historically incurred significant operating losses at
our international subsidiaries and may continue to experience
operating losses in the future, particularly since we expect to
continue to incur high levels of marketing and other expenses in
order to expand our international operations. As a result, we
have made, and may continue to make, significant investments in
our international operations by using a portion of the cash flow
generated from our domestic operations or making additional
borrowings under our revolving credit facility. There can be no
assurance that our international subsidiaries will be profitable
in the future or that any profits generated by them will be
sufficient to recover our investments in them.
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The profitability of our international subsidiaries depends to a
large extent on the scale of their operations. If we fail to
achieve the desired scale, we may not be able to effectively
compete in the global marketplace and our business and results
of operations may be adversely affected.
Our
international operations are subject to additional risks not
encountered when doing business in the U.S., including foreign
exchange risk, and our exposure to these risks will increase as
we expand our international operations.
With employees in approximately 20 countries outside the U.S.,
we generated 21% of our net revenue for the year ended
December 31, 2009 from our international operations. We are
subject to certain risks as a result of having international
operations and from having operations in multiple countries
generally, including:
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difficulties in staffing and managing operations due to
distance, time zones, language and cultural differences,
including issues associated with establishing management
infrastructure in various countries;
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differences and unexpected changes in regulatory requirements
and exposure to local economic conditions;
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limits on our ability to enforce our intellectual property
rights and increased risk of piracy;
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preference of local populations for local providers;
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restrictions on the repatriation of
non-U.S. investments
and earnings back to the U.S., including withholding taxes
imposed by certain foreign jurisdictions;
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diminished ability to legally enforce our contractual
rights; and
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currency exchange rate fluctuations.
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To the extent we are not able to effectively mitigate or
eliminate these risks, our results of operations could be
adversely affected.
Further, our international operations require us to comply with
a number of U.S. and international regulations, including,
among others, the Foreign Corrupt Practices Act
(FCPA). Any failure by us to adopt appropriate
compliance procedures to ensure that our employees and agents
comply with the FCPA and applicable laws and regulations in
foreign jurisdictions could result in substantial penalties or
restrictions on our ability to conduct business in certain
foreign jurisdictions.
Our
ability to attract, train and retain executives and other
qualified employees is critical to our results of operations and
future growth.
We depend substantially on the continued services and
performance of our key executives, senior management and skilled
personnel, particularly our professionals with experience in our
industry and our information technology and systems. Any of
these individuals may chose to terminate their employment with
us at any time. The specialized skills we require can be
difficult and time-consuming to acquire and, as a result, these
skills are often in short supply. A significant period of time
and expense may be required to hire and train replacement
personnel when skilled personnel depart the Company. Our
inability to hire, train and retain a sufficient number of
qualified employees could materially hinder our business by, for
example, delaying our ability to bring new products and services
to market or impairing the success of our operations or
prospects for future growth.
We
rely on information technology to operate our businesses and
maintain our competitiveness, and any failure to adapt to
technological developments or industry trends could harm our
business.
We depend upon the use of sophisticated information technologies
and systems, including technologies and systems utilized for
reservations, communications, procurement and administrative
systems. Certain of our businesses also utilize third-party fare
search solutions and GDSs or other technologies. As our
operations grow in both size and scope, we must continuously
improve and upgrade our systems and infrastructure to
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offer our customers enhanced products, services, features and
functionality, while maintaining the reliability and integrity
of our systems and infrastructure. Our future success also
depends on our ability to adapt our services and infrastructure
to meet rapidly evolving industry standards while continuing to
improve the performance, features and reliability of our service
in response to competitive service and product offerings and the
changing demands of the marketplace. In particular, expanding
our systems and infrastructure to meet any potential increases
in business volume will require us to commit additional
financial, operational and technical resources before those
increases materialize, with no assurance that they actually
will. Furthermore, our use of this technology could be
challenged by claims that we have infringed upon the patents,
copyrights or other intellectual property rights of others.
In addition, we may not be able to maintain our existing
systems, obtain new technologies and systems, or replace or
introduce new technologies and systems as quickly as our
competitors or in a cost-effective manner. Also, we may fail to
achieve the benefits anticipated or required from any new
technology or system, or we may be unable to devote financial
resources to new technologies and systems in the future. If any
of these events occur, our business could suffer.
We are
dependent upon third-party systems and service providers, and
any disruption or adverse change in their businesses could have
a material adverse effect on our business.
We currently rely on certain third-party computer systems,
service providers and software companies, including the
electronic central reservation systems and GDSs of the airline,
hotel and car rental industries. In particular, our businesses
rely on third parties to:
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conduct searches for airfares;
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process hotel room transactions;
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process credit card payments; and
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provide computer infrastructure critical to our business.
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In addition, we rely on a group of business process outsourcing
companies located in various countries to provide us with call
center and telesales services, back office administrative
services such as ticketing fulfillment, hotel rate loading and
quality control and information technology services, as well as
financial services such as accounts payable processing and bank
reconciliations. Any interruption in these third-party services
could have a material adverse effect on us.
Further, we currently utilize GDSs, including Worldspan, Galileo
and Amadeus, to process a significant portion of our bookings,
and any interruption or deterioration in our GDS partners
products or services could prevent us from searching and booking
airline and car rental reservations, which would have a material
adverse effect on our business.
Our success is dependent on our ability to maintain
relationships with our technology partners. In the event our
arrangements with any of these third parties are impaired or
terminated, we may not be able to find an alternative source of
systems support on a timely basis or on commercially reasonable
terms, which could result in significant additional costs or
disruptions to our business. In addition, some of our agreements
with third-party service providers can be terminated by those
parties on short notice and, in many cases, provide no recourse
for service interruptions. A termination of these services could
have a material adverse effect on our business, financial
condition and results of operations.
System
interruptions and the lack of redundancy may cause us to lose
customers or business opportunities.
Our inability to maintain and improve our information technology
systems and infrastructure may result in system interruptions.
System interruptions and slow delivery times, unreliable service
levels, prolonged or frequent service outages, or insufficient
capacity may prevent us from efficiently providing services to
our customers, which could result in our losing customers and
revenue or incurring liabilities. In addition to the
19
risks associated with inadequate maintenance or upgrading, our
information technologies and systems are vulnerable to damage or
interruption from various causes, including:
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natural disasters, war and acts of terrorism;
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power losses, computer systems failure, Internet and
telecommunications or data network failures, operator error,
losses and corruption of data, and similar events;
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computer viruses, penetration by individuals seeking to disrupt
operations or misappropriate information and other physical or
electronic breaches of security; and
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the failure of third-party systems or services that we rely upon
to maintain our own operations.
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We do not have backup systems for certain critical aspects of
our operations. For example, if we were unable to connect to
certain third-party systems, such as GDSs, due to failure of our
systems, our ability to process bookings could be significantly
or completely impaired. Many other systems are not fully
redundant, and our disaster recovery planning may not be
sufficient. In addition, we may have inadequate insurance
coverage or insurance limits to compensate for losses from a
major interruption, and remediation may be costly and have a
material adverse effect on our operating results and financial
condition. Any extended interruption in our technologies or
systems could significantly curtail our ability to conduct our
businesses and generate revenue.
We
depend on our supplier and partner relationships and adverse
changes in these relationships or our inability to enter into
new relationships could negatively affect our access to travel
offerings and reduce our revenue.
We rely significantly on our relationships with airlines, hotels
and other suppliers and travel partners. Adverse changes in any
of these relationships, or the inability to enter into new
relationships, could negatively impact the availability and
competitiveness of travel products offered on our websites. Our
arrangements with suppliers and other travel partners may not
remain in effect on current or similar terms, and the net impact
of future pricing or revenue sharing options may adversely
impact our revenue. For example, our suppliers and other travel
partners could attempt to terminate or renegotiate their
agreements with us on more favorable terms to them, which could
reduce the revenue we generate from those agreements. The
significant reduction by any of our major suppliers or travel
partners in their business with our companies for a sustained
period of time or their complete withdrawal of doing business
with us could have a material adverse effect on our business,
financial condition and results of operations.
In addition, we currently depend on one of Travelports
businesses, Gullivers Travel Associates (GTA), for
access to hotel inventory in certain international regions while
we work to increase our own direct relationships with hotel
suppliers in these regions. If we are unable to successfully
establish direct relationships with hotel suppliers or to
replace our access to hotel inventory currently provided by GTA
in a timely manner or on comparable terms, we may not be able to
operate our business effectively, and our financial performance
may suffer.
Our arrangements with the airlines generally do not require the
airlines to provide any specific quantity of airline tickets or
to make tickets available for any particular route or at any
particular price. In addition, certain airlines may terminate
their agreements with us for any reason or no reason prior to
the scheduled expiration date upon thirty days prior
notice. The significant reduction on the part of any of our
major suppliers of their participation with us for a sustained
period of time or their complete withdrawal could have a
material adverse effect on our business, financial condition and
results of operations.
Our relationships with the airlines may be impacted by
developments in the airline industry, such as increasing
consolidation or shifts in market share from full-service to
low-cost carriers. Some low-cost carriers, such as Southwest
Airlines, have not historically distributed their tickets
through third-party intermediaries. Because our GDS service
agreement with Travelport limits our ability to modify our
existing agreements with the airlines or to enter into new,
direct distribution arrangements, we may have limited
flexibility to respond to developments in the airline industry,
and we may be forced to forgo new partnering opportunities. See
We are
20
dependent on Travelport for our GDS services below. The
limitations imposed by the GDS service agreement may place us at
a competitive disadvantage and could negatively impact our
business and results of operations.
Our
business and financial performance could be negatively impacted
by adverse tax events.
New sales, use, occupancy or other tax laws, statutes, rules,
regulations or ordinances could be enacted at any time. Such
enactments could adversely affect our domestic and international
business operations and our business and financial performance.
Further, existing tax laws, statutes, rules, regulations or
ordinances could be interpreted, changed, modified or applied
adversely to us. These events could require us to pay additional
tax amounts on a prospective or retroactive basis, as well as
require us to pay fees, penalties
and/or
interest for past amounts deemed to be due. In addition, our
revenue may decline because we could have to charge more for our
products and services.
New, changed, modified or newly interpreted or applied tax laws
could also increase our compliance, operating and other costs,
as well as the costs of our products or services. Further, these
events could decrease the capital we have available to operate
our business. Any or all of these events could adversely impact
our business and financial performance.
We also have a $37 million receivable included in our
consolidated balance sheets at December 31, 2009 and
December 31, 2008 related to amounts due to us from Cendant
(now Avis Budget Group, Inc.) for a portion of the tax sharing
liability with the Founding Airlines. Cendant is obligated to
pay us this amount when it receives the tax benefit. If we were,
in the future, to determine that all or a portion of this
receivable is not collectable, the portion of this receivable
that was no longer deemed collectable would be charged to
expense in our consolidated statements of operations.
We and others in the online travel industry are currently
subject to various lawsuits related to hotel occupancy tax in
numerous jurisdictions in the U.S., and other jurisdictions may
be considering similar lawsuits. An adverse ruling in the
existing hotel occupancy tax cases could require us to pay tax
retroactively and prospectively, and possibly penalties,
interest
and/or fees.
We have also been contacted by several municipalities or other
taxing bodies concerning our possible obligation with respect to
local hotel occupancy or related taxes, and certain
municipalities have begun audit proceedings and some have issued
assessments against the Company. If the Company is found to be
subject to the hotel occupancy tax ordinance by a taxing
authority and appeals the decision in court, certain
jurisdictions may attempt to require us to provide financial
security or pay the assessment in order to challenge the tax
assessment in court. The proliferation of new hotel occupancy
tax cases or audit proceedings could result in substantial
additional defense costs. These events could also adversely
impact our business and financial performance (see Item 3,
Legal Proceedings).
Our
businesses are highly regulated, and any failure to comply with
such regulations or any changes in such regulations could
adversely affect us.
We operate in a highly regulated industry both in the
U.S. and internationally. Our business, financial condition
and results of operations could be adversely affected by
unfavorable changes in or the enactment of new laws, rules and
regulations applicable to us, which could decrease demand for
our products and services, increase costs or subject us to
additional liabilities. Moreover, regulatory authorities have
relatively broad discretion to grant, renew and revoke licenses
and approvals and to implement regulations. Accordingly, these
regulatory authorities could prevent or temporarily suspend us
from carrying on some or all of our activities or otherwise
penalize us if our practices were found not to comply with the
then current regulatory or licensing requirements or any
interpretation of such requirements by the regulatory authority.
Our failure to comply with any of these requirements or
interpretations could have a material adverse effect on our
operations. In addition, the various regulatory regimes to which
we are subject may conflict so that compliance with the
regulatory requirements in one jurisdiction may create
regulatory issues in another.
Our business is subject to laws and regulations relating to our
revenue generating and marketing activities, including those
prohibiting unfair and deceptive advertising or practices. Our
travel services are subject to regulation and laws governing the
offer of travel products and services, including laws requiring
us to register as a seller of travel in various
jurisdictions and to comply with certain disclosure
requirements. As an OTC
21
that offers customers the ability to book air travel in the
U.S., we are also subject to regulation by the Department of
Transportation, which has authority to enforce economic
regulations and may assess civil penalties or challenge our
operating authority.
Our failure to comply with these laws and regulations may
subject us to fines, penalties and potential criminal
violations. Any changes to these laws or regulations or any new
laws or regulations may make it more difficult for us to operate
our businesses and may have a material adverse effect on our
operations.
Our
processing, storage, use and disclosure of personal data could
give rise to liabilities as a result of governmental regulation,
conflicting legal requirements, differing views of personal
privacy rights or security breaches.
In the processing of customer transactions, we receive and store
a large volume of personally identifiable information. This
information is increasingly subject to legislation and
regulations in numerous jurisdictions around the world. This
legislation and regulation is generally intended to protect the
privacy and security of personal information, including credit
card information, that is collected, processed and transmitted
in or from the governing jurisdiction. We could be adversely
affected if domestic or international legislation or regulations
are expanded to require changes in our business practices, or if
governing jurisdictions interpret or implement their legislation
or regulations in ways that negatively affect our business.
Travel companies have also been subjected to investigations,
lawsuits and adverse publicity due to allegedly improper
disclosure of passenger information. As privacy and data
protection have become more sensitive issues, we may also become
exposed to potential liabilities as a result of differing views
on the privacy of travel data. These and other privacy concerns,
including security breaches, could adversely impact our
business, financial condition and results of operations.
We are
exposed to risks associated with online commerce security and
credit card fraud.
The secure transmission of confidential information over the
Internet is essential in maintaining customer and supplier
confidence in our services. Substantial or ongoing security
breaches, whether instigated internally or externally on our
system or other Internet-based systems, could significantly harm
our business. We currently require customers to guarantee their
transactions with their credit cards online. We rely on licensed
encryption and authentication technology to effect secure
transmission of confidential customer information, including
credit card numbers. It is possible that advances in computer
capabilities, new discoveries or other developments could result
in a compromise or breach of the technology that we use to
protect customer transaction data.
We incur substantial expense to protect against and remedy
security breaches and their consequences. However, our security
measures may not prevent security breaches. We may be
unsuccessful in implementing our remediation plan to address
these potential exposures. A party (whether internal, external,
an affiliate or unrelated third party) that is able to
circumvent our security systems could steal proprietary
information or cause significant interruptions in our
operations. Security breaches also could damage our reputation
and expose us to a risk of loss or litigation and possible
liability. Security breaches could also cause customers and
potential customers to lose confidence in our security, which
would have a negative effect on the demand for our products and
services.
Moreover, public perception concerning security and privacy on
the Internet could adversely affect customers willingness
to use our websites. A publicized breach of security, even if it
only affects other companies conducting business over the
Internet, could inhibit the growth of the Internet and,
therefore, our services as a means of conducting commercial
transactions.
We are
involved in various legal proceedings and may experience
unfavorable outcomes, which could harm us.
We are involved in various legal proceedings, including, but not
limited to, actions relating to intellectual property, in
particular patent infringement claims against us, tax matters,
employment law and other
22
negligence, breach of contract and fraud claims, that involve
claims for substantial amounts of money or for other relief or
that might necessitate changes to our business or operations.
The defense of these actions may be both time consuming and
expensive. If any of these legal proceedings were to result in
an unfavorable outcome, it could have a material adverse effect
on our business, financial position and results of operations.
In addition, historically, our insurers have reimbursed us for a
significant portion of costs we incurred to defend the hotel
occupancy tax cases. If in the future these costs are reimbursed
at a lower rate, or not at all, our results of operations would
be adversely impacted.
We may
not protect our intellectual property effectively, which would
allow competitors to duplicate our products and services. This
could make it more difficult for us to compete with
them.
Our success and ability to compete depend, in part, upon our
technology and other intellectual property, including our
brands. Among our significant assets are our software and other
proprietary information and intellectual property rights. We
rely on a combination of copyright, trademark and patent laws,
trade secrets, confidentiality procedures and contractual
provisions to protect these assets. However, we have a limited
number of patents, and our software and related documentation
are protected principally under trade secret and copyright laws,
which afford only limited protection, and the laws of some
jurisdictions provide less protection for our proprietary rights
than the laws of the U.S. We have granted Travelport an
exclusive license to our supplier link technology, including our
patents related to that technology. Under the exclusive license,
Travelport has the first right to enforce those patents, and so
we will only be able to bring actions to enforce those patents
if Travelport declines to do so. Unauthorized use and misuse of
our intellectual property could have a material adverse effect
on our business, financial condition and results of operations,
and the legal remedies available to us may not adequately
compensate us for the damages caused by unauthorized use.
Further, intellectual property challenges have been increasingly
brought against members of the travel industry. These legal
actions have in the past and might in the future result in
substantial costs and diversion of resources and management
attention. In addition, we may need to take legal action in the
future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the
proprietary rights of others, and these enforcement actions
could result in the invalidation or other impairment of
intellectual property rights we assert.
Travelports
controlling holders control us and may have strategic interests
that differ from ours or our other shareholders.
Currently, Travelport and investment funds that own
and/or
control Travelports ultimate parent company beneficially
own approximately 56% of our outstanding common stock and
therefore, indirectly control us and all of our subsidiaries. As
a result of this ownership, Travelports controlling
holders are entitled to nominate and elect all of our directors
and own sufficient shares to determine the outcome of any
actions requiring the approval of our stockholders, including
adopting most amendments to our certificate of incorporation and
approving or rejecting proposed mergers, significant new
investments or divestments or sales of all or substantially all
of our assets.
The interests of Travelports controlling holders may
differ from those of our public shareholders in material
respects. Travelports controlling holders and their
affiliates are in the business of making investments in
companies and maximizing the return on those investments. They
currently have, and may from time to time in the future acquire,
interests in businesses that directly or indirectly compete with
certain portions of our business or our suppliers or customers
or businesses on which we are substantially dependent, such as
the Travelport GDSs. In an effort to increase its revenues and
improve its overall profitability, Travelport could seek to
change the terms of its commercial relationships with its GDS
customers. Because we are limited in our ability to pursue
alternative GDS options or direct connections with suppliers
during the term of our GDS agreement with Travelport, any such
actions by Travelport could make us a less attractive
distribution channel to our suppliers, who could attempt to
terminate or renegotiate their agreements with us, and could
place us at a competitive disadvantage relative to other online
travel companies. See We are dependent on Travelport for
our GDS services below. In addition, Travelports
customers, many of which are also major suppliers to us, have
previously sought and may in the future seek to exert commercial
leverage over us in an effort to obtain
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concessions from Travelport, which could negatively affect our
access to travel offerings and adversely affect our business and
results of operations.
As long as Travelports controlling holders continue to
indirectly own a significant amount of our outstanding voting
stock, even if that amount is less than 50%, they will continue
to be able to strongly influence or effectively control us. The
interests of these holders may differ from our other
shareholders interests in material respects.
Actual
or potential conflicts of interest may develop between our
management and directors as well as the management and directors
of Travelport.
Jeff Clarke serves as Chairman of our Board of Directors, while
retaining his role as President, Chief Executive Officer and
Director of Travelport. The fact that Mr. Clarke holds
positions with both Travelport and us could create, or appear to
create, potential conflicts of interest for him when he faces
decisions that may affect both Travelport and us. In addition,
Mr. Paul C. Schorr IV, who is a senior managing director at
The Blackstone Group, and Mr. William J.G. Griffith, who is
a general partner of TCV, both currently serve on the board of
directors of Travelport and serve on our board of directors. The
fact that Mr. Schorr and Mr. Griffith hold positions
with their respective entities, Travelport and us, could create,
or appear to create, potential conflicts of interest when they
face decisions that may affect two or more of these entities. In
addition, Jill A. Greenthal, who is a senior advisor in the
Private Equity Group of The Blackstone Group, currently serves
on our board of directors. Affiliates of The Blackstone Group
exercise control over Travelports ultimate parent company
and therefore, the fact that Ms. Greenthal holds a position
with The Blackstone Group could create, or appear to create, a
potential conflict of interest when she faces decisions that
affect both Travelport and us.
Further, our certificate of incorporation provides that no
officer or director of Travelport who is also an officer or
director of ours may be liable to us or our stockholders for a
breach of any fiduciary duty by reason of the fact that any such
individual directs a corporate opportunity to Travelport instead
of us or does not communicate information regarding a corporate
opportunity to us because the officer or director has directed
the corporate opportunity to Travelport. These provisions may
have the effect of exacerbating the risk of conflicts of
interest between Travelport and us because the provisions
effectively shield an overlapping director/executive.
Because of their former positions with Travelport or its
subsidiaries, certain members of our senior management team have
equity interests in Travelports ultimate parent company,
some of which may be significant relative to their total assets.
Continued ownership by our officers of these interests creates,
or may create, the appearance of conflicts of interest when
these officers are faced with decisions that could have
different implications for Travelport than the decisions have
for us. Potential conflicts of interest could arise in
connection with the resolution of any dispute between Travelport
and us regarding the terms of commercial agreements between the
parties or their affiliates. Potential conflicts of interest
could also arise if we enter into any other commercial
arrangements with Travelport in the future.
We are
dependent on Travelport for our GDS services.
To varying extents, suppliers use GDSs to connect their products
and services with travel companies, who in turn make these
products and services available to travelers for booking. Under
our GDS service agreement with Travelport, we are required,
subject to certain exceptions, to utilize Galileo and Worldspan,
which are subsidiaries of Travelport, for a significant portion
of our GDS services, and our contractual obligations to
Travelport for GDS services may limit our ability to pursue
alternative GDS options. As a result, if Travelport became
unwilling or was unable to provide these services to us, we may
not be able to obtain alternative providers on a commercially
reasonable basis, in a timely manner or at all, and our business
would be materially and adversely affected.
Furthermore, our GDS service agreement with Travelport limits
our ability to modify the terms of our agreements with existing
suppliers or to pursue direct connections with new or existing
suppliers during the term of the agreement, which expires on
December 31, 2014. These contractual obligations may reduce
our
24
flexibility to implement changes to our business in response to
changing economic conditions, industry trends, or technological
developments. As a result, the limitations imposed by the GDS
service agreement could place us at a competitive disadvantage
and negatively impact our business and results of operations,
particularly in the current economic environment where our
suppliers are under increased pressure to reduce their overall
distribution costs.
We
have granted Travelport perpetual licenses to use certain of our
intellectual property, which could facilitate Travelports
ability to compete with us.
We are party to a Master License Agreement with Travelport that
governs each of our and Travelports rights to use certain
of the others intellectual property. The master license
agreement permits Travelport and its affiliates to use and, in
some cases, to sublicense to third parties certain of our
intellectual property, including:
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our supplier link technology;
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portions of ebookers booking, search and dynamic packaging
technologies;
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certain of our products and online booking tools for corporate
travel;
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portions of our private label dynamic packaging
technology; and
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our extranet supplier connectivity functionality.
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Travelport and its affiliates may use these technologies as part
of, or in support of, their own products or services, including
in some cases to directly compete with us.
The Master License Agreement permits Travelport to sublicense
our intellectual property (other than our supplier link
technology) to a party that is not an affiliate of Travelport,
except that Travelport may not sublicense our intellectual
property to a third party for a use that competes with our
business, unless Travelport incorporates or uses our
intellectual property with Travelport products or services to
enhance or improve Travelport products or services (other than
to provide our intellectual property to third parties on a
stand-alone basis). Travelport and its affiliates are permitted
to use our intellectual property to provide their own products
and services to third parties that compete with us. With respect
to our supplier link technology, Travelport has an unrestricted
license. These Travelport rights could facilitate
Travelports, its affiliates and third parties
ability to compete with us, which could have a material adverse
effect on our business, financial condition and results of
operations.
Our
certificate of incorporation limits our ability to engage in
many transactions without the consent of
Travelport.
Our certificate of incorporation provides Travelport with a
greater degree of control and influence in the operation of our
business and the management of our affairs than is typically
available to a stockholder of a publicly-traded company. Until
Travelport ceases to beneficially own shares entitled to 33% or
more of the votes entitled to be cast by the holders of our then
outstanding common stock, the prior consent of Travelport is
required for:
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any consolidation or merger of us or any of our subsidiaries
with any person, other than a subsidiary;
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any sale, lease, exchange or other disposition or any
acquisition or investment, other than certain permitted
investments, by us, other than transactions between us and our
subsidiaries, or any series of related dispositions or
acquisitions, except for those for which we give Travelport at
least 15 days prior written notice and which involve
consideration not in excess of $15 million in fair market
value, except (1) any disposition of cash equivalents or
investment grade securities or obsolete or worn out equipment
and (2) the lease, assignment or sublease of any real or
personal property, in each case, in the ordinary course of
business;
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any change in our authorized capital stock or our creation of
any class or series of capital stock;
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the issuance or sale by us or one of our subsidiaries of any
equity securities or equity derivative securities or the
adoption of any equity incentive plan, except for (1) the
issuance of equity securities by us or one of our subsidiaries
to Travelport or to another restricted subsidiary of Travelport
and (2) the issuance by us of equity securities under our
equity incentive plans in an amount not to exceed
$15 million per year in fair market value annually;
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the amendment of various provisions of our certificate of
incorporation and bylaws;
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the declaration of dividends on any class of our capital stock;
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the authorization of any series of preferred stock;
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the creation, incurrence, assumption or guaranty by us or any of
our subsidiaries of any indebtedness for borrowed money, except
for (1) up to $675 million of indebtedness at any one
time outstanding under our credit agreement and (2) up to
$25 million of other indebtedness so long as we give
Travelport at least 15 days prior written notice of the
incurrence thereof;
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the creation, existence or effectiveness of any consensual
encumbrance or consensual restriction by us or any of our
subsidiaries on (1) payment of dividends or other
distributions, (2) payment of indebtedness, (3) the
making of loans or advances and (4) the sale, lease or
transfer of any properties or assets, in each case, to
Travelport or any of its restricted subsidiaries;
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any change in the number of directors on our board of directors,
the establishment of any committee of the board, the
determination of the members of the board or any committee of
the board, and the filling of newly created memberships and
vacancies on the board or any committee of the board; and
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any transactions with affiliates of Travelport involving
aggregate payments or consideration in excess of
$10 million, except (1) transactions between or among
Travelport or any of its restricted subsidiaries, including us;
(2) the payment of reasonable and customary fees paid to,
and indemnities provided for the benefit of, officers,
directors, employees or consultants of Travelport, any of its
direct or indirect parent companies or any of its restricted
subsidiaries, including us; (3) any agreement as in effect
on the date of the consummation of this offering; and
(4) investments by The Blackstone Group and certain of its
affiliates in our or our subsidiaries securities so long
as (i) the investment is being offered generally to other
investors on the same or more favorable terms and (ii) the
investment constitutes less than 5% of the proposed or
outstanding issue amount of such class of securities.
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These restrictions could prevent us from being able to pursue
transactions or relationships that would otherwise be in the
best interests of our stockholders. These restrictions could
also limit stockholder value by preventing a change of control
that you might consider favorable.
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Item 1B.
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Unresolved
Staff Comments.
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None.
Our corporate headquarters are located in leased office space in
Chicago, Illinois. We also lease office space for our ebookers
brand portfolio in various countries, including the U.K.,
Finland, Germany, the Netherlands, Sweden and Switzerland. In
addition, we lease office space for our HotelClub brand
portfolio, primarily in Sydney, Australia. We believe that our
existing facilities are adequate to meet our current
requirements and that additional space will be available as
needed to accommodate any further expansion of our business.
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Item 3.
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Legal
Proceedings.
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We are involved in various claims, legal proceedings and
governmental inquiries related to contract disputes, business
practices, intellectual property and other commercial,
employment and tax matters. The costs of defense and amounts
that may be recovered in certain matters may be partially
covered by insurance.
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The following list identifies all litigation matters for which
we believe that an adverse outcome could be material to our
financial position or results of operations, as well as other
matters that may be of particular interest to our stockholders.
Consumer
Class Actions
In re Orbitz Taxes and Fees Litigation. On
May 24, 2005, a consolidated class action complaint was
filed in the Circuit Court of Cook County, Illinois against
Orbitz, LLC, Orbitz, Inc. and Cendant, Inc. This case purports
to be a national class action brought by persons who paid a fee
in connection with paying for a hotel room through the Orbitz
website from March 19, 2003 to the present. The plaintiff
also seeks actual damages, attorneys fees, costs, interest
and penalties on behalf of the purported class. On May 31,
2006, the Court dismissed Cendant from this case for a second
time, and dismissed all of the claims except for the Consumer
Fraud and Deceptive Business Practices Act claim. On
May 30, 2007, the plaintiff filed a motion for leave to
file a Third Consolidated Amended Class Action Complaint.
This most recent complaint only asserts a claim under the
Illinois Consumer Fraud and Deceptive Business Practices Act and
names only one class representative, an Illinois resident. The
plaintiff alleges that Orbitz failed to provide proper
disclosures to consumers relating to fees charged by Orbitz when
the consumer is booking a hotel room through the Orbitz website.
Orbitz is also alleged to have misled consumers by failing to
break out the exact amount of the service fee in the taxes and
fees line displayed to consumers before the booking is complete.
On June 26, 2007, the plaintiff filed a motion seeking an
order certifying the action as a nationwide class action. On
that same date, Orbitz filed a motion for summary judgment. At
the close of the December 19, 2007 hearing on both motions,
the Court denied the plaintiffs motion for class
certification and granted summary judgment in favor of Orbitz.
On January 17, 2008, the plaintiff filed its Notice of
Appeal. On September 30, 2009, the Appellate Court of
Illinois affirmed the Circuit Courts December 19,
2007 order granting summary judgment in favor of Orbitz and
denied the plaintiffs motion for class certification. On
January 27, 2010, the Illinois Supreme Court denied the
plaintiffs Petition for Leave to File an Appeal,
concluding this matter.
Ronald Bush, et al. v. CheapTickets, Inc., et
al. On February 17, 2005, a class action
complaint was filed in the Superior Court of the State of
California, County of Los Angeles on behalf of all Californians
who were assessed a Taxes/Fees charge when paying
for a hotel, motel, or resort room through the defendants
websites. The complaint was brought against a number of Internet
travel companies, including Trip Network, Inc. (d/b/a
CheapTickets), Cendant Corporation, Orbitz, Inc., and Orbitz,
LLC. The plaintiffs claims are based on allegations that
the defendants charged for taxes that were not legitimate in
that they were not required by the taxing authorities to be
collected. The plaintiffs also allege that the defendants failed
to disclose this improper practice. The plaintiffs seek an order
certifying the action as a class action, actual damages,
punitive damages, restitution
and/or
disgorgement, attorneys fees, costs, interest, and
injunctive relief. On October 15, 2008, the plaintiffs
filed a second amended complaint removing all other Internet
travel companies except for Trip Network, Inc., Orbitz, Inc.,
and Orbitz, LLC and adding Orbitz Worldwide. The
second amended complaint asserts claims under the California
Business and Professions Code and the Consumers Legal Remedies
Act, breach of contract and breach of the implied covenant of
good faith and fair dealing. On August 22, 2008, the
defendants filed a motion seeking a stay of all further
proceedings pending final determination of the appeal in the
In re Orbitz Taxes and Fees Litigation case described
above. On October 10, 2008, the court granted the motion to
stay as to the claims asserted against Orbitz, Inc. and Orbitz,
LLC, but denied it as to the claims asserted against Trip
Network, Inc. and Orbitz Worldwide. On September 21, 2009,
pursuant to the parties stipulated request for dismissal,
the court dismissed the action with prejudice.
Litigation
Relating to Hotel Occupancy Taxes
Orbitz Worldwide, Inc. and certain of its subsidiaries and
affiliates, including Orbitz, Inc., Orbitz, LLC, Trip Network,
Inc. (d/b/a Cheaptickets.com), Travelport Inc. (f/k/a Cendant
Travel Distribution Services Group, Inc.), and Internetwork
Publishing Corp. (d/b/a Lodging.com), are parties to various
cases brought by municipalities and other governmental entities
involving hotel occupancy taxes and our merchant hotel business
model. Some of the cases are purported class actions, and most
of the cases were brought simultaneously against other online
travel companies, including Expedia, Travelocity and Priceline.
The cases
27
allege, among other things, that we violated the
jurisdictions hotel occupancy tax ordinance. While not
identical in their allegations, the cases generally assert
similar claims, including violations of local or state occupancy
tax ordinances, violations of consumer protection ordinances,
conversion, unjust enrichment, imposition of a constructive
trust, demand for a legal or equitable accounting, injunctive
relief, declaratory judgment, and in some cases, civil
conspiracy. The plaintiffs seek relief in a variety of forms,
including: declaratory judgment, full accounting of monies owed,
imposition of a constructive trust, compensatory and punitive
damages, disgorgement, restitution, interest, penalties and
costs, attorneys fees, and where a class action has been
claimed, an order certifying the action as a class action.
An adverse ruling in one or more of these cases could require us
to pay tax retroactively and prospectively and possibly
penalties, interest and fines. The proliferation of additional
cases could result in substantial additional defense costs.
|
|
|
|
|
City or County Filing
|
|
Date Litigation
|
|
|
Litigation
|
|
Instituted
|
|
Court Where Litigation is Pending
|
|
City of Los Angeles, California*
|
|
December 30, 2004
|
|
Superior Court for the State of California, County of Los Angeles
|
City of Findlay, Ohio
|
|
October 25, 2005
|
|
United States District Court for the Northern District of Ohio
|
City of Chicago, Illinois
|
|
November 1, 2005
|
|
Circuit Court of Cook County, Illinois
|
City of Rome, Georgia*
|
|
November 18, 2005
|
|
United States District Court for the Northern District of Georgia
|
City of San Diego, California
|
|
February 9, 2006
|
|
Superior Court for the State of California, County of Los Angeles
|
|
|
|
|
Case was coordinated with the City of Los Angeles case (above)
on July 12, 2006
|
Orange County, Florida
|
|
March 13, 2006
|
|
Ninth Judicial Circuit in and for Orange County, Florida
|
City of Atlanta, Georgia
|
|
March 29, 2006
|
|
Supreme Court of Georgia
|
City of Charleston, South Carolina
|
|
April 26, 2006
|
|
United States District Court for the District of South Carolina
|
City of San Antonio, Texas**
|
|
May 8, 2006
|
|
United States District Court for the Western District of Texas
|
Town of Mt. Pleasant, South Carolina
|
|
May 23, 2006
|
|
United States District Court for the District of South Carolina
|
|
|
|
|
Case was coordinated with the City of Charleston case (above) on
April 26, 2007
|
Columbus, Georgia
|
|
June 7, 2006
|
|
Superior Court of Muscogee County, Georgia
|
Lake County Convention and Visitor Bureau and Marshall County,
Indiana*
|
|
June 12, 2006
|
|
United States District Court for the Northern District of Indiana
|
Cities of Columbus and Dayton, Ohio
|
|
August 8, 2006
|
|
United States District Court for the Northern District of Ohio
|
|
|
|
|
Case was consolidated with the City of Findlay case (above) on
November 6, 2007
|
City of North Myrtle Beach, South Carolina
|
|
August 28, 2006
|
|
United States District Court for the District of South Carolina
|
County of Nassau, New York*
|
|
October 24, 2006
|
|
United States District Court for the Eastern District of New
York
|
28
|
|
|
|
|
City or County Filing
|
|
Date Litigation
|
|
|
Litigation
|
|
Instituted
|
|
Court Where Litigation is Pending
|
|
Wake County, North Carolina
|
|
November 3, 2006
|
|
General Court of Justice, Superior Court Division, Wake County,
North Carolina
|
City of Branson, Missouri
|
|
December 18, 2006
|
|
Circuit Court of Greene County, Missouri
|
Dare County, North Carolina
|
|
January 26, 2007
|
|
General Court of Justice, Superior Court Division, Dare County,
North Carolina
|
|
|
|
|
Case was coordinated with the Wake County case (above) on April
4, 2007
|
Buncombe County, North Carolina
|
|
February 1, 2007
|
|
General Court of Justice, Superior Court Division, Buncombe
County, North Carolina Case was coordinated with the Wake County
case (above) on April 4, 2007
|
Horry County, South Carolina
|
|
February 2, 2007
|
|
Court of Common Pleas, Horry County, South Carolina
|
City of Myrtle Beach, South Carolina
|
|
February 2, 2007
|
|
Court of Common Pleas, Horry County, South Carolina
|
City of Gallup, New Mexico**
|
|
July 6, 2007
|
|
United States District Court for the District of New Mexico
|
Mecklenburg County, North Carolina
|
|
January 10, 2008
|
|
General Court of Justice, Superior Court Division, Mecklenburg
County, North Carolina
|
|
|
|
|
Case was coordinated with the Wake County case (above) on
February 19, 2008
|
City of Goodlettsville, Tennessee*
|
|
June 2, 2008
|
|
United States District Court for the Middle District of Tennessee
|
Township of Lyndhurst, New Jersey*
|
|
June 18, 2008
|
|
United States Court of Appeals for the Third Circuit
|
City of Jacksonville, Florida*
|
|
July 1, 2008
|
|
Fourth Judicial Circuit for Duval County, Florida
|
City of Baltimore, Maryland
|
|
December 10, 2008
|
|
United States District Court for the District of Maryland
|
Worcester County, Maryland
|
|
January 6, 2009
|
|
United States District Court for the District of Maryland
|
Monroe County, Florida*
|
|
January 12, 2009
|
|
United States District Court for the Southern District of Florida
|
City of Bowling Green, Kentucky
|
|
March 10, 2009
|
|
Warren County Circuit Court, Kentucky
|
County of Genesee, Michigan*
|
|
April 16, 2009
|
|
Circuit Court for the County of Ingham, Michigan
|
St. Louis County, Missouri
|
|
July 6, 2009
|
|
Circuit Court for the County of St. Louis, Missouri
|
Village of Rosemont, Illinois
|
|
July 24, 2009
|
|
Circuit Court of Cook County, Illinois
|
Palm Beach, Florida
|
|
July 30, 2009
|
|
Circuit Court of the Fifteenth Judicial Circuit in and for Palm
Beach County, Florida
|
Brevard County, Florida
|
|
October 2, 2009
|
|
United States District Court for the Middle District of Florida
|
29
|
|
|
|
|
City or County Filing
|
|
Date Litigation
|
|
|
Litigation
|
|
Instituted
|
|
Court Where Litigation is Pending
|
|
Leon County, Florida
|
|
November 5, 2009
|
|
Circuit Court of the Second Judicial Circuit in and for Leon
County, Florida
|
Leon County, Florida
|
|
December 14, 2009
|
|
Circuit Court of the Second Judicial Circuit in and for Leon
County, Florida
|
County of Lawrence, Pennsylvania*
|
|
November 20, 2009
|
|
Court of Common Pleas of Lawrence County, Pennsylvania
|
Birmingham, Alabama
|
|
December 11, 2009
|
|
Circuit Court of Jefferson County, Alabama
|
|
|
|
* |
|
Indicates purported class action filed on behalf of named City
or County and other (unnamed) cities, counties, governments or
other taxing authorities with similar tax ordinances. |
|
** |
|
Indicates court certified class action on behalf of named City
or County and other (unnamed) cities, counties, governments or
other taxing authorities with similar tax ordinances. |
The following legal proceedings relating to hotel occupancy
taxes previously reported by us were dismissed since
October 1, 2009:
On November 17, 2009, the County of Lawrence, Pennsylvania
filed a notice of voluntary dismissal of the complaint which had
been pending in the United States District Court for the Western
District of Pennsylvania. On November 20, 2009, the County
re-filed its claim in Pennsylvania state court.
On December 22, 2009, the United States Court of Appeals
for the Sixth Circuit affirmed the United States District Court
for the Western District of Kentuckys dismissal of
Louisville/Jefferson County Metro Government, Kentuckys
complaint finding that the defendant Internet travel companies
are not subject to the hotel occupancy tax.
On December 29, 2009, the Nineteenth Judicial Circuit Court
of Cole County, Missouri dismissed the City of Jefferson,
Missouris complaint with prejudice following the
parties confidential settlement of the case.
On January 19, 2010, the District Court of Harris County,
Texas granted the defendant Internet travel companies
motion for summary judgment on the City of Houston, Texas
complaint.
On January 19, 2010, the Circuit Court of Jefferson County,
Arkansas, Fifth Division, granted the defendant Internet travel
companies motion to dismiss Pine Bluff Advertising and
Promotion Commission and Jefferson County, Arkansas
complaint.
In addition, the following other material developments in the
legal proceedings relating to hotel occupancy taxes occurred
during the quarter ended December 31, 2009:
On October 30, 2009, in the case titled City of
San Antonio, Texas v. Hotels.com, L.P., et. al.,
the defendant Internet travel companies received a jury verdict
finding that each has been or currently are controlling
hotels under the local hotel occupancy tax ordinances. The
jurys verdict further found that Orbitz, LLC, Trip
Network, Inc. (d/b/a Cheaptickets.com) and Internetwork
Publishing Corp. (d/b/a Lodging.com) did not convert any alleged
tax monies belonging to the City of San Antonio or any
other class member, and the jury therefore rejected the City of
San Antonios request for punitive damages. The final
amount of any judgment that may be rendered in the future
against Orbitz, LLC, Trip Network, Inc. (d/b/a Cheaptickets.com)
and Internetwork Publishing Corp. (d/b/a Lodging.com) has not
been determined. The jurys verdict found that Orbitz, LLC,
Trip Network, Inc. (d/b/a Cheaptickets.com) and Internetwork
Publishing Corp. (d/b/a Lodging.com), combined, owed the City of
San Antonio and the other 172 class members approximately
$1.9 million in hotel occupancy taxes through May, 2009.
The court will conduct further proceedings, including among
other things, determining the amount of any taxes, interest and
penalties owed, which may be substantial. At this time, we are
unable to estimate the final amount of any judgment that may be
rendered in the future. Orbitz, LLC, Trip Network, Inc. (d/b/a
Cheaptickets.com) and Internetwork
30
Publishing Corp. (d/b/a Lodging.com) intend to continue to
defend themselves vigorously in this matter, including an appeal
to the United States Court of Appeals for the Fifth Circuit, if
necessary.
We have also been contacted by several municipalities or other
taxing bodies concerning our possible obligations with respect
to state or local hotel occupancy or related taxes. The cities
of Phoenix, Arizona; North Little Rock and Pine Bluff, Arkansas;
Colorado Springs and Steamboat Springs, Colorado; Osceola
County, Florida; 42 cities in California; an entity
representing 84 cities and 14 counties in Alabama; the
counties of Jefferson, Arkansas; Brunswick and Stanly, North
Carolina; Duval County, Florida; Davis, Summit, Salt Lake, Utah
and Weber, Utah; the South Carolina Department of Revenue; the
Colorado Department of Revenue and the Hawaii Department of
Taxation have issued notices to the Company. These taxing
authorities have not issued assessments, but have requested
information to conduct an audit
and/or have
requested that the Company register to pay local hotel occupancy
taxes.
In addition, the cities of Anaheim, Los Angeles, San Diego
and San Francisco, California; the counties of Miami-Dade
and Broward, Florida; the cities of Alpharetta, Cartersville,
Cedartown, College Park, Dalton, East Point, Hartwell, Macon,
Rockmart, Rome, Tybee Island and Warner Robins, Georgia; the
counties of Augusta, Clayton, Cobb, DeKalb, Fulton, Gwinnett,
Hart and Richmond, Georgia; the city of Philadelphia,
Pennsylvania, and state tax officials from Indiana and Wisconsin
have begun audit proceedings and some have issued assessments
against the Company, ranging from almost nil to approximately
$3 million, and totaling approximately $10 million.
Certain assessments made in these audit proceedings have become
final, and the Company has filed lawsuits challenging the final
assessments. The following is a list of lawsuits brought by the
Company challenging such final assessments:
On January 12, 2009, Orbitz, LLC and Internetwork
Publishing Corp. (d/b/a Lodging.com) filed a complaint against
Broward County and the Florida Department of Revenue asserting
that they are not subject to the Tourist Development Tax. On
August 25, 2009, the Company filed a second complaint
against Broward County and the Florida Department of Revenue
asserting the same claims but addressing additional assessments
issued by the County.
On February 11, 2009, Orbitz, LLC, Trip Network, Inc.
(d/b/a Cheaptickets.com) and Internetwork Publishing Corp.
(d/b/a Lodging.com) field a writ of administrative mandamus
against the City of Anaheim, California challenging their
liability under the transient occupancy tax. On February 1,
2010, the Superior Court for the County of Los Angeles,
California granted a writ of mandate finding that the City of
Anaheims ordinance does not impose transient occupancy tax
on the service provided by OTCs, including Orbitz, LLC, Trip
Network, Inc. (d/b/a Cheaptickets.com) and Internetwork
Publishing Corp. (d/b/a Lodging.com). The courts decision
set aside the hearing officers finding that the Company
and other OTCs were subject to the transient occupancy tax and
owed taxes, interest and penalties to the City of Anaheim.
On March 30, 2009, Orbitz, LLC filed a Petition Appealing
Final Determination of the Indiana Department of Revenue and a
Petition to Enjoin Collection of Tax seeking a determination
that Orbitz, LLC is not subject to the Indiana Gross Retail Tax
and the County Innkeepers Tax and that the Indiana
Department of Revenue violated the Internet Tax Freedom Act, the
Supremacy Clause, the Commerce Clause and the Due Process Clause.
On December 21, 2009, Orbitz, LLC, Trip Network, Inc.
(d/b/a Cheaptickets.com) and Internetwork Publishing Corp.
(d/b/a Lodging.com) filed a complaint against Miami-Dade,
Florida and the Florida Department of Revenue challenging their
liability under the Tourist Development Tax and Convention
Development Tax.
The Company disputes that any hotel occupancy or related tax is
owed under these ordinances and is challenging the assessments
made against the Company. If the Company is found to be subject
to the hotel occupancy tax ordinance by a taxing authority and
appeals the decision in court, certain jurisdictions may attempt
to require us to provide financial security or pay the
assessment to the municipality in order to challenge the tax
assessment in court.
31
Litigation
related to Intellectual Property
DDR Holdings, LLC v. Hotels.com, L.P., et
al. On January 31, 2006, DDR Holdings, LLC
(DDR) filed an action in the United States District
Court for the Eastern District of Texas (Marshall Division)
against a number of Internet companies, including Cendant
Corporation, for alleged infringement of U.S. Patents Nos.
6,629,135 (entitled Affiliate Commerce System and
Method), and 6,993,572 (entitled System and Method
for Facilitating Internet Commerce with Outsourced
Websites), which DDR claims full right and title to. The
plaintiff asserts only patent infringement claims. The plaintiff
seeks unspecified damages, injunctive relief, a declaratory
judgment and attorneys fees. On April 12, 2006, the
plaintiff amended its complaint to add Internetwork Publishing
Corporation (d/b/a Lodging.com) as a defendant. On
April 12, 2006, the plaintiff voluntarily dismissed Cendant
Corporation and named Cendant Travel Distribution Services
Group, Inc. as a defendant. On July 14, 2006, certain
defendants filed a motion for summary judgment alleging that
both patents are invalid (Cendant Travel Distribution Services
Group, Inc. and Internetwork Publishing Corporation joined on
July 19, 2006). On September 22, 2006, the plaintiff
filed a second amended complaint adding Neat Group Corporation
as a defendant and not including Cendant Travel Distribution
Services Group, Inc. as a defendant. On September 26, 2006,
DDR filed a request of reexamination in the United States Patent
and Trademark Office, of the
patents-in-suit.
DDR moved to stay the lawsuit pending the outcome of any
reexamination. On December 19, 2006, the court
administratively closed the case pending reexamination. The
court ruled that actions by defendants during the reexamination
may not be used to argue willful infringement, but the court
reserved judgment on whether damages are tolled. On
February 2, 2007, the Patent and Trademark Office granted
DDRs requests for reexamination of the two
patents-in-suit.
We intend to defend vigorously against the claims described
above. We are unable to predict the outcome of these proceedings
or reasonably estimate a range of possible loss that may result.
If any of these legal proceedings were to result in an
unfavorable outcome, it could have a material adverse effect on
us.
32
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
Market
Information
Our common stock trades on the New York Stock Exchange
(NYSE) under the symbol OWW. The
following table sets forth the high and low sales prices for our
common stock for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
Fourth Quarter
|
|
$
|
8.11
|
|
|
$
|
4.66
|
|
|
$
|
6.05
|
|
|
$
|
2.00
|
|
Third Quarter
|
|
$
|
6.76
|
|
|
$
|
1.74
|
|
|
$
|
7.63
|
|
|
$
|
3.49
|
|
Second Quarter
|
|
$
|
2.75
|
|
|
$
|
1.25
|
|
|
$
|
8.99
|
|
|
$
|
4.92
|
|
First Quarter
|
|
$
|
4.39
|
|
|
$
|
1.10
|
|
|
$
|
8.66
|
|
|
$
|
4.51
|
|
Holders
As of February 24, 2010, there were approximately 53
holders of record of our common stock. Several brokerage firms,
banks and other institutions (nominees) are listed
once on the stockholders of record listing. However, in most
cases, the nominees holdings represent blocks of our
common stock held in brokerage accounts for a number of
individual stockholders. As such, our actual number of
stockholders is higher than the number of registered
stockholders of record.
Dividends
We did not declare or pay any cash dividends on our common stock
during the years ended December 31, 2009 or
December 31, 2008, and we do not intend to in the
foreseeable future. Any future determination to pay dividends
will be at the discretion of our board of directors, may require
the consent of Travelport and will depend on several factors,
including our financial condition, results of operations,
capital requirements, restrictions contained in existing and
future financing instruments and other factors that our board of
directors may deem relevant.
Securities
Authorized for Issuance under Equity Compensation
Plans
The following table provides information as of December 31,
2009 with respect to shares of our common stock that may be
issued under our equity compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
|
|
|
|
|
|
Future Issuance Under
|
|
|
|
Number of Securities to be
|
|
|
Weighted Average
|
|
|
Equity Compensation Plans
|
|
|
|
Issued Upon Exercise of
|
|
|
Exercise Price of
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Outstanding Options
|
|
|
Outstanding Options
|
|
|
Reflected in First Column)
|
|
|
Equity compensation plans approved by security holders
|
|
|
4,236,083
|
|
|
$
|
9.46
|
|
|
|
3,222,601
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,236,083
|
|
|
$
|
9.46
|
|
|
|
3,222,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Performance
Graph
The following graph shows the total shareholder return through
December 31, 2009 of an investment of $100 in cash on
July 20, 2007 (which is the first date that our common
stock began trading on the NYSE) for our common stock and an
investment of $100 in cash on July 20, 2007 for
(i) the S&P MidCap 400 Index and (ii) the
Research Data Group (RDG) Internet Composite Index.
The RDG Internet Composite Index is an index of stocks
representing the Internet industry, including Internet software
and services companies and
e-commerce
companies. Historic stock performance is not necessarily
indicative of future stock price performance. All values assume
reinvestment of the full amount of all dividends and are
calculated as of the last day of each month.
COMPARISON
OF 30 MONTH CUMULATIVE TOTAL RETURN
Among
Orbitz Worldwide, Inc., the S&P Midcap 400 Index
and the RDG Internet Composite Index
34
Issuer
Purchases of Equity Securities
The following table sets forth repurchases of our common stock
during the fourth quarter of 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Maximum Number of
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
Shares That May Yet be
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
Purchased Under the
|
|
Period
|
|
Shares Purchased(a)
|
|
|
Paid Per Share
|
|
|
Programs(b)
|
|
|
Plans or Programs(b)
|
|
|
October 1, 2009 to October 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2009 to November 30, 2009
|
|
|
324
|
|
|
$
|
6.08
|
|
|
|
|
|
|
|
|
|
December 1, 2009 to December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
324
|
|
|
$
|
6.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents shares of our common stock transferred to us from
employees in satisfaction of minimum tax withholding obligations
associated with the vesting of restricted stock during the
period. These shares are held by us in treasury. |
|
(b) |
|
During the fourth quarter of 2009, we did not have a publicly
announced plan or program for the repurchase of our common stock. |
|
|
Item 6.
|
Selected
Financial Data.
|
The selected financial data presented in the table below is
derived from our audited consolidated financial statements. This
data should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and our consolidated
financial statements and notes thereto included in Item 8
of this Annual Report on
Form 10-K.
Prior to the completion of the initial public offering
(IPO) of shares of our common stock in July 2007, we
had not operated as an independent standalone company. As a
result, our consolidated financial statements have been carved
out of the historical financial statements of Cendant for the
period prior to the Blackstone Acquisition and out of the
historical financial statements of Travelport for the period
subsequent to the Blackstone Acquisition. In connection with the
Blackstone Acquisition, the carrying values of our assets and
liabilities were revised to reflect their fair values as of
August 23, 2006, based upon an allocation of the overall
purchase price of Travelport to the underlying net assets of the
various Travelport affiliates acquired. Selected financial data
is presented below on a Successor basis (reflecting
Travelports ownership of us) and Predecessor
basis (reflecting Cendants ownership of us) and has been
separated by a vertical line to identify these different bases
of accounting.
Our historical consolidated financial statements do not reflect
what our financial position, results of operations and cash
flows would have been had we operated as a separate, standalone
company without the shared resources of Cendant in the
Predecessor periods and Travelport in the Successor periods. In
addition, Cendant acquired ebookers in February 2005. As a
result, our consolidated financial statements for the year ended
December 31, 2005 include the financial condition, results
of operations and cash flows of ebookers since February 2005.
35
SELECTED
FINANCIAL DATA
(in millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Period from
August 23,
2006 to
December 31,
|
|
|
|
Period from
January 1,
2006 to
August 22,
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
2006
|
|
|
2006(a)
|
|
|
2005
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
|
Predecessor
|
|
Statements of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
738
|
|
|
$
|
870
|
|
|
$
|
859
|
|
|
$
|
242
|
|
|
|
$
|
510
|
|
|
$
|
752
|
|
|
$
|
686
|
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
138
|
|
|
|
163
|
|
|
|
157
|
|
|
|
38
|
|
|
|
|
75
|
|
|
|
113
|
|
|
|
101
|
|
Selling, general and administrative
|
|
|
257
|
|
|
|
272
|
|
|
|
301
|
|
|
|
112
|
|
|
|
|
191
|
|
|
|
303
|
|
|
|
293
|
|
Marketing
|
|
|
215
|
|
|
|
310
|
|
|
|
302
|
|
|
|
89
|
|
|
|
|
188
|
|
|
|
277
|
|
|
|
224
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
66
|
|
|
|
57
|
|
|
|
18
|
|
|
|
|
37
|
|
|
|
55
|
|
|
|
78
|
|
Impairment of goodwill and intangible assets
|
|
|
332
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
122
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,011
|
|
|
|
1,108
|
|
|
|
817
|
|
|
|
257
|
|
|
|
|
613
|
|
|
|
870
|
|
|
|
1,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(273
|
)
|
|
|
(238
|
)
|
|
|
42
|
|
|
|
(15
|
)
|
|
|
|
(103
|
)
|
|
|
(118
|
)
|
|
|
(410
|
)
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(57
|
)
|
|
|
(63
|
)
|
|
|
(83
|
)
|
|
|
(9
|
)
|
|
|
|
(18
|
)
|
|
|
(27
|
)
|
|
|
(22
|
)
|
Gain on extinguishment of debt
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense)
|
|
|
(55
|
)
|
|
|
(63
|
)
|
|
|
(83
|
)
|
|
|
(9
|
)
|
|
|
|
(17
|
)
|
|
|
(26
|
)
|
|
|
(20
|
)
|
Loss before income taxes
|
|
|
(328
|
)
|
|
|
(301
|
)
|
|
|
(41
|
)
|
|
|
(24
|
)
|
|
|
|
(120
|
)
|
|
|
(144
|
)
|
|
|
(430
|
)
|
Provision (benefit) for income taxes
|
|
|
9
|
|
|
|
(2
|
)
|
|
|
43
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(337
|
)
|
|
|
(299
|
)
|
|
|
(84
|
)
|
|
|
(25
|
)
|
|
|
|
(121
|
)
|
|
|
(146
|
)
|
|
|
(388
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Orbitz Worldwide, Inc.
|
|
$
|
(337
|
)
|
|
$
|
(299
|
)
|
|
$
|
(85
|
)
|
|
$
|
(25
|
)
|
|
|
$
|
(121
|
)
|
|
$
|
(146
|
)
|
|
$
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 18,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
2007 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Orbitz Worldwide, Inc. common
shareholders
|
|
$
|
(337
|
)
|
|
$
|
(299
|
)
|
|
$
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Orbitz Worldwide, Inc.
common shareholders basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Orbitz Worldwide, Inc. common
shareholders
|
|
$
|
(4.01
|
)
|
|
$
|
(3.58
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
84,073,593
|
|
|
|
83,342,333
|
|
|
|
81,600,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
2005
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
89
|
|
|
$
|
31
|
|
|
$
|
25
|
|
|
$
|
18
|
|
|
|
$
|
28
|
|
Working capital (deficit)(b)
|
|
|
(250
|
)
|
|
|
(258
|
)
|
|
|
(301
|
)
|
|
|
(283
|
)
|
|
|
|
(259
|
)
|
Total assets
|
|
|
1,294
|
|
|
|
1,590
|
|
|
|
1,925
|
|
|
|
2,061
|
|
|
|
|
2,060
|
|
Total long-term debt
|
|
|
598
|
|
|
|
608
|
|
|
|
594
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity/invested equity
|
|
|
130
|
|
|
|
438
|
|
|
|
738
|
|
|
|
1,267
|
|
|
|
|
1,424
|
|
|
|
|
(a) |
|
The combined results of the Successor and the Predecessor for
the periods in 2006 are not necessarily comparable due to the
change in basis of accounting resulting from the Blackstone
Acquisition and the associated change in capital structure. The
presentation of the results for the year ended December 31,
2006 on this combined basis does not comply with generally
accepted accounting principles in the U.S. (GAAP);
however, we believe that this provides useful information to
assess the relative performance of our businesses in the periods
presented in the financial statements on an ongoing basis. The
captions included within our consolidated statements of
operations that are materially impacted by the change in basis
of accounting primarily include net revenue, depreciation and
amortization and impairment of goodwill and intangible assets. |
|
(b) |
|
Defined as current assets less current liabilities. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
EXECUTIVE
OVERVIEW
General
We are a leading global online travel company that uses
innovative technology to enable leisure and business travelers
to search for and book a broad range of travel products and
services. Our brand portfolio includes Orbitz, CheapTickets, The
Away Network, and Orbitz for Business in the Americas; ebookers
in Europe; and HotelClub based in Sydney, Australia, which has
operations globally. We provide customers with the ability to
book a comprehensive set of travel products and services from
suppliers worldwide, including air travel, hotels, vacation
packages, car rentals, cruises, travel insurance and destination
services such as ground transportation, event tickets and tours.
Our strategic focus is on driving global hotel transaction
growth. See Item 1, Business Company
Strategy for a discussion of our strategic initiatives.
We generate revenue primarily from the booking of travel
products and services on our websites. We provide customers the
ability to book travel products and services on both a
standalone basis and as part of a dynamic vacation package,
primarily through our merchant and retail business models. Under
our merchant model, we generate revenue for our services based
on the difference between the total amount the customer pays for
the travel product and the negotiated net rate plus estimated
taxes that the supplier charges us for that product. Under our
retail model, we earn commissions from suppliers for airline
tickets, hotel rooms, car rentals and other travel products and
services booked on our websites. In addition, under both the
merchant and retail business models, we may, depending upon the
brand and the travel product, earn revenue by charging customers
a service fee for booking their travel reservation on our
websites (see Industry Trends below). We also
receive incentive payments for air, car and hotel segments that
are processed through a global distribution system
(GDS).
We also generate advertising revenue through our partner
marketing programs. These programs provide access to our
customers through a combination of display advertising,
performance-based advertising and other marketing programs. In
addition, we generate revenue from our private label and hosting
businesses. We earn revenue from our private label business
through revenue sharing arrangements for travel booked on
third-party websites. We earn revenue from our hosting business
through license or fee arrangements.
37
We took significant steps in 2009 to improve our customer value
proposition by launching Total Price hotel search results and
Orbitz Hotel Price Assurance, both of which are industry-leading
innovations. We also removed our hotel change and cancellation
fees and reduced booking fees on hotels booked through
Orbitz.com and CheapTickets.com. We believe these improvements
to our global hotel offering deliver value to our customers and
should improve our competitiveness over time.
In light of current economic and industry conditions, we are
also focused on improving our operating and marketing
efficiency, simplifying the way we do business, and continuing
to innovate. In late 2008 and in 2009, we lowered our cost
structure by reducing our global workforce and use of contract
labor and by cutting various other operating and capital costs.
We also completed the launch of a common technology platform for
all of our ebookers websites in Europe. We will continue to
focus on opportunities to further streamline our cost structure.
We believe these actions will position us to more effectively
compete in this challenging environment.
Industry
Trends
The economic recession significantly impacted the travel
industry during 2009. As demand for air travel continued to be
weak, certain domestic and international airlines reduced
capacity and reduced ticket prices in 2009 to levels
significantly below 2008 levels to drive volume. We expect
airline capacity to increase nominally in 2010 as compared with
2009. However, bankruptcies and consolidation in the airline
industry could result in further capacity reductions, which
would reduce the number of airline tickets available for booking
on online travel companies (OTCs) websites.
In 2009, certain OTCs who historically charged booking fees,
including us, eliminated booking fees on most, if not all,
flights and reduced booking fees on hotels. We believe these fee
actions will be permanent. The elimination of air booking fees
on OTCs websites has significantly reduced the net revenue
that OTCs generate from airline tickets. We were able to offset
most of the impact of the fee reduction in 2009 through our cost
reductions, our improved marketing efficiency and the increase
in air transactions we have experienced since removing fees.
Fundamentals in the U.S. hotel industry appear to be
stabilizing but continue to be weak. Hotel occupancy rates and
average daily rates (ADRs) continued to decline in
2009. We believe that hotel suppliers will maintain 2010 ADRs at
levels similar to 2009 in an attempt to increase hotel
occupancy. Fundamentals in the European and Asia Pacific hotel
industries are also weak. Lower ADRs reduce the net revenue that
OTCs earn on hotel bookings.
The economic recession has also significantly impacted the car
rental industry. As a result of lower demand for air travel,
demand for car rentals declined in 2009. In addition, car rental
companies reduced their rental car fleets in 2009, which
resulted in a significant increase in ADRs for domestic car
rentals. This increase in ADRs partially offset the negative
impact of reduced demand for car rentals. In 2010, we expect
demand for car rentals to improve as car rental companies
increase their fleet sizes and demand for air travel improves.
We believe that our gross bookings and net revenue for the years
ended December 31, 2009 and December 31, 2008 were
significantly negatively impacted by the economic and industry
conditions described above. Although we have begun to see
initial signs of a recovery in the economy and industry
fundamentals, we expect weak economic conditions will continue
to impact our gross bookings and net revenue in 2010. In
response to economic and industry conditions, in late 2008 and
in 2009, we lowered our cost structure by reducing our global
workforce and use of contract labor and by cutting various other
operating and capital costs. In 2009, we also significantly
restructured our approach to marketing, placing greater emphasis
on attracting more traffic to our websites through search engine
optimization (SEO) and customer relationship
management (CRM) and improving the efficiency of our
search engine marketing (SEM) and travel research
spending.
The growth rate of online travel bookings in the domestic market
has slowed due to both the maturity of this market and weak
economic conditions. Going forward, we believe that growth rates
in the domestic online
38
travel market will be more closely aligned with the growth rates
of the overall travel industry. Internationally, the online
travel industry continues to benefit from rapidly increasing
Internet usage and growing acceptance of online booking. We
expect international growth rates for the online travel industry
will continue to outpace growth rates of the overall travel
industry.
We believe that OTCs will continue to focus on differentiating
themselves from supplier websites in a variety of ways,
including offering customers the ability to selectively combine
travel products such as air, car, hotel and destination services
into dynamic vacation packages. Through dynamic vacation
packages, we make certain products available to our customers at
prices that are generally lower than booking each travel product
separately. We foresee growth potential for OTCs for these types
of services, particularly since travelers are increasingly
price-sensitive. Our net revenue per transaction is generally
higher for dynamic vacation packages than for travel products
booked separately.
OTCs make significant investments in marketing through both
online and traditional offline channels. Key areas of online
marketing include SEM, travel research, display advertising,
affiliate programs and email marketing. Search engine marketing
costs have been rising in the U.S. over time, although to a
lesser extent in the current economic environment, and
competition for search-engine key words continues to be intense.
If these trends continue, we could experience lower margins or
declines in transaction growth rates. We are actively pursuing
strategies to improve the efficiency of our marketing efforts.
These strategies include increasing the amount of non-paid
traffic coming to our websites through SEO and customer
relationship management and eliminating unprofitable SEM and
travel research spending. Our retailing efforts are designed to
improve conversion and ultimately reclaim previously
unprofitable SEM and travel research transactions on a
profitable basis.
RESULTS
OF OPERATIONS
This Managements Discussion and Analysis of Financial
Condition and Results of Operations should be read in
conjunction with our accompanying consolidated financial
statements and related notes.
Key
Operating Metrics
Our operating results are affected by certain key metrics that
represent overall transaction activity. Gross bookings and net
revenue are key metrics that drive our business. Gross bookings
is defined as the total amount paid by a consumer for travel
products booked under both the merchant and retail models. Net
revenue includes: commissions earned from suppliers under our
retail model; the difference between the total amount the
customer pays us for a travel product and the negotiated net
rate plus estimated taxes that the supplier charges us for that
travel product under our merchant model; service fees earned
from customers under both our merchant and retail models;
advertising revenue and certain other fees and commissions.
Gross bookings provide insight into changes in overall travel
demand, both industry-wide and on our websites. We track net
revenue trends for our various brands, geographies and product
categories to gain insight into the performance of our business
across these categories.
39
The table below shows our gross bookings and net revenue for the
years ended December 31, 2009, December 31, 2008 and
December 31, 2007. Air gross bookings are comprised of
stand-alone air gross bookings, while non-air gross bookings are
comprised of gross bookings from hotels, car rentals, dynamic
vacation packages (which include a combination of travel
products, such as air, hotel and car reservations), cruises,
destination services and travel insurance. Air net revenue is
comprised of net revenue from stand-alone air bookings, while
non-air net revenue is comprised of net revenue from hotel
bookings, dynamic vacation packages, advertising and media and
other sources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
$
|
|
|
%
|
|
|
Years Ended December 31,
|
|
|
$
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change(a)
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change(a)
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Gross bookings (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
$
|
6,445
|
|
|
$
|
6,810
|
|
|
$
|
(365
|
)
|
|
|
(5
|
)%
|
|
$
|
6,810
|
|
|
$
|
7,111
|
|
|
$
|
(301
|
)
|
|
|
(4
|
)%
|
Non-air
|
|
|
2,297
|
|
|
|
2,324
|
|
|
|
(27
|
)
|
|
|
(1
|
)%
|
|
|
2,324
|
|
|
|
2,282
|
|
|
|
42
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total domestic gross bookings
|
|
|
8,742
|
|
|
|
9,134
|
|
|
|
(392
|
)
|
|
|
(4
|
)%
|
|
|
9,134
|
|
|
|
9,393
|
|
|
|
(259
|
)
|
|
|
(3
|
)%
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
|
904
|
|
|
|
1,073
|
|
|
|
(169
|
)
|
|
|
(16
|
)%
|
|
|
1,073
|
|
|
|
853
|
|
|
|
220
|
|
|
|
26
|
%
|
Non-air
|
|
|
503
|
|
|
|
601
|
|
|
|
(98
|
)
|
|
|
(16
|
)%
|
|
|
601
|
|
|
|
545
|
|
|
|
56
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international gross bookings
|
|
|
1,407
|
|
|
|
1,674
|
|
|
|
(267
|
)
|
|
|
(16
|
)%
|
|
|
1,674
|
|
|
|
1,398
|
|
|
|
276
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross bookings
|
|
$
|
10,149
|
|
|
$
|
10,808
|
|
|
$
|
(659
|
)
|
|
|
(6
|
)%
|
|
$
|
10,808
|
|
|
$
|
10,791
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
$
|
214
|
|
|
$
|
277
|
|
|
$
|
(63
|
)
|
|
|
(23
|
)%
|
|
$
|
277
|
|
|
$
|
305
|
|
|
$
|
(28
|
)
|
|
|
(9
|
)%
|
Non-air
|
|
|
371
|
|
|
|
409
|
|
|
|
(38
|
)
|
|
|
(9
|
)%
|
|
|
409
|
|
|
|
374
|
|
|
|
35
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total domestic net revenue
|
|
|
585
|
|
|
|
686
|
|
|
|
(101
|
)
|
|
|
(15
|
)%
|
|
|
686
|
|
|
|
679
|
|
|
|
7
|
|
|
|
1
|
%
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
|
56
|
|
|
|
62
|
|
|
|
(6
|
)
|
|
|
(10
|
)%
|
|
|
62
|
|
|
|
70
|
|
|
|
(8
|
)
|
|
|
(12
|
)%
|
Non-air
|
|
|
97
|
|
|
|
122
|
|
|
|
(25
|
)
|
|
|
(20
|
)%
|
|
|
122
|
|
|
|
110
|
|
|
|
12
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international net revenue
|
|
|
153
|
|
|
|
184
|
|
|
|
(31
|
)
|
|
|
(17
|
)%
|
|
|
184
|
|
|
|
180
|
|
|
|
4
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue (c)
|
|
$
|
738
|
|
|
$
|
870
|
|
|
$
|
(132
|
)
|
|
|
(15
|
)%
|
|
$
|
870
|
|
|
$
|
859
|
|
|
$
|
11
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Percentages are calculated on unrounded numbers. |
|
(b) |
|
Gross bookings data for the year ended December 31, 2007 in
the table above excludes Travelbag, an offline U.K. travel
subsidiary that we sold in July 2007. |
|
(c) |
|
For the years ended December 31, 2009, December 31,
2008 and December 31, 2007, $117 million,
$117 million and $116 million of our total net
revenue, respectively, was attributed to incentive payments
earned for air, car and hotel segments processed through global
distribution systems. |
Comparison
of the year ended December 31, 2009 to the year ended
December 31, 2008
Gross
Bookings
For our domestic business, which is comprised principally of
Orbitz, CheapTickets and Orbitz for Business, total gross
bookings decreased $392 million, or 4%, during the year
ended December 31, 2009 from
40
the year ended December 31, 2008. Of the $392 million
decrease, $365 million was due to a decrease in domestic
air gross bookings, which was driven by a lower average price
per airline ticket, partially offset by higher transaction
volume. Transaction volume increased primarily due to the
removal of booking fees in April 2009 on most flights booked
through our Orbitz.com and CheapTickets.com websites and lower
air fares. The lower average price per airline ticket was
primarily due to lower fuel prices and weaker demand for air
travel.
Non-air gross bookings decreased $27 million, or 1%, during
the year ended December 31, 2009 from the year ended
December 31, 2008. This decrease was primarily driven by
lower gross bookings for hotels and car rentals, partially
offset by higher gross bookings for dynamic packages. Gross
bookings for hotels decreased due to a significant decline in
ADRs for hotel rooms and a significant reduction in hotel
booking fees charged on our websites, which was partially offset
by higher transaction volume. During this period of weak travel
demand, most hotel suppliers have tried to stimulate occupancy
by reducing hotel room rates. Gross bookings for car rentals
decreased due to lower transaction volume, partially offset by a
higher average price per transaction. The average price per
transaction increased primarily due to a reduction in rental car
fleets, which was partially the result of limited access to
financing by car rental companies. Volume for dynamic packaging
increased due to a general shift in traveler preference towards
dynamic packaging, from stand-alone travel products, because of
the value offered through packaging. Higher dynamic packaging
volume was partially offset by a lower average price per
transaction due mainly to a decline in hotel ADRs and a decline
in airline ticket prices.
For our international business, which is comprised principally
of ebookers and HotelClub, total gross bookings decreased
$267 million, or 16%, during the year ended
December 31, 2009 from the year ended December 31,
2008. Of this decrease, $166 million was due to foreign
currency fluctuations. The remaining $101 million decrease
was due to a $58 million decrease in air gross bookings and
a $43 million decrease in non-air gross bookings. The
decrease in air gross bookings was primarily due to a lower
average price per airline ticket driven by lower demand for air
travel and a shift in customer preference towards low cost
carriers and short-haul flights.
The decline in non-air gross bookings was primarily driven by a
significant decline in hotel gross bookings for our HotelClub
brand, and to a much lesser extent, a decline in gross bookings
for car rentals for our ebookers brand. For our HotelClub brand,
lower transaction volume in Europe and lower average price per
transaction, due to lower ADRs for hotel rooms and lower average
length of hotel stays, drove the decrease in hotel gross
bookings. The decrease in gross bookings for car rentals was due
to lower transaction volume. An increase in gross bookings for
dynamic packaging for our ebookers brand partially offset the
decline in gross bookings for hotels and car rentals.
Net
Revenue
See
discussion of net revenue in the Results of Operations section
below.
Comparison
of the year ended December 31, 2008 to the year ended
December 31, 2007
Gross
Bookings
For our domestic business, total gross bookings decreased
$259 million, or 3%, during the year ended
December 31, 2008 from the year ended December 31,
2007. Of the $259 million decrease, $301 million was
due to a decrease in domestic air gross bookings, which was
driven by lower transaction volume as a result of the adverse
impact of economic conditions on air traveler demand, capacity
reductions and our reduction in online marketing expenditures. A
higher average price per airline ticket, due to higher fuel
prices during the majority of 2008 and capacity reductions,
partially offset the decrease in volume.
Non-air gross bookings increased $42 million, or 2%, during
the year ended December 31, 2008 from the year ended
December 31, 2007. This increase was primarily driven by
higher gross bookings for dynamic packaging. Gross bookings for
dynamic packaging increased due to higher transaction volume and
a higher average price per dynamic package. An increase in the
average price per airline ticket included in a dynamic package
primarily drove the higher average price per dynamic package. A
decrease in gross bookings for car rentals and hotels partially
offset this increase. Lower transaction volume, offset in part
by a higher average price per transaction, drove the decline in
gross bookings for car rentals and hotels. The higher average
price
41
per transaction for domestic hotel gross bookings was mainly due
to growth in ADRs through August of 2008, as we experienced a
significant decline in ADRs in the fourth quarter of 2008.
For our international business, total gross bookings increased
$276 million, or 20%, during the year ended
December 31, 2008 from the year ended December 31,
2007. Of this increase, $28 million was due to foreign
currency fluctuations. The remaining $248 million increase
was due to a $204 million increase in air gross bookings
and a $44 million increase in non-air gross bookings. The
increase in air gross bookings primarily resulted from a higher
average price per airline ticket, due in part to higher fuel
prices during the majority of 2008, and higher transaction
volume.
The growth in non-air gross bookings was primarily driven by
increases in gross bookings for dynamic packaging, and, to a
lesser extent, car rentals. A decline in gross bookings for
hotels, due to lower transaction volume, partially offset these
increases.
Net Revenue See discussion of net revenue in
the Results of Operations section below.
Results
of Operations
Comparison
of the year ended December 31, 2009 to the year ended
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
$
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change(a)
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
$
|
270
|
|
|
$
|
339
|
|
|
$
|
(69
|
)
|
|
|
(21
|
)%
|
Hotel
|
|
|
184
|
|
|
|
239
|
|
|
|
(55
|
)
|
|
|
(23
|
)%
|
Dynamic Packaging
|
|
|
117
|
|
|
|
114
|
|
|
|
3
|
|
|
|
3
|
%
|
Advertising and media
|
|
|
60
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
107
|
|
|
|
118
|
|
|
|
(11
|
)
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
738
|
|
|
|
870
|
|
|
|
(132
|
)
|
|
|
(15
|
)%
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
138
|
|
|
|
163
|
|
|
|
(25
|
)
|
|
|
(15
|
)%
|
Selling, general and administrative
|
|
|
257
|
|
|
|
272
|
|
|
|
(15
|
)
|
|
|
(5
|
)%
|
Marketing
|
|
|
215
|
|
|
|
310
|
|
|
|
(95
|
)
|
|
|
(31
|
)%
|
Depreciation and amortization
|
|
|
69
|
|
|
|
66
|
|
|
|
3
|
|
|
|
4
|
%
|
Impairment of goodwill and intangible assets
|
|
|
332
|
|
|
|
297
|
|
|
|
35
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,011
|
|
|
|
1,108
|
|
|
|
(97
|
)
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss)
|
|
|
(273
|
)
|
|
|
(238
|
)
|
|
|
(35
|
)
|
|
|
14
|
%
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(57
|
)
|
|
|
(63
|
)
|
|
|
6
|
|
|
|
(8
|
)%
|
Gain on extinguishment of debt
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense)
|
|
|
(55
|
)
|
|
|
(63
|
)
|
|
|
8
|
|
|
|
(12
|
)%
|
Loss before income taxes
|
|
|
(328
|
)
|
|
|
(301
|
)
|
|
|
(27
|
)
|
|
|
9
|
%
|
Provision (benefit) for income taxes
|
|
|
9
|
|
|
|
(2
|
)
|
|
|
11
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Orbitz Worldwide, Inc.
|
|
$
|
(337
|
)
|
|
$
|
(299
|
)
|
|
$
|
(38
|
)
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of net revenue(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
19
|
%
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
35
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
Marketing expense
|
|
|
29
|
%
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
** |
|
Not meaningful. |
|
(a) |
|
Percentages are calculated on unrounded numbers. |
42
Net
Revenue
Net revenue decreased $132 million, or 15%, to
$738 million for the year ended December 31, 2009 from
$870 million for the year ended December 31, 2008.
Air. Net revenue from air bookings decreased
$69 million, or 21%, to $270 million for the year
ended December 31, 2009 from $339 million for the year
ended December 31, 2008. Foreign currency fluctuations
drove $6 million of this decrease. The decrease in net
revenue from air bookings, excluding the impact of foreign
currency fluctuations, was $63 million.
Domestic air net revenue declined $76 million due to lower
average net revenue per airline ticket. Net revenue per airline
ticket declined primarily due to the elimination of booking fees
in April 2009 on most flights booked through our Orbitz.com and
CheapTickets.com websites and to a much lesser extent, due to a
reduction in paper tickets and an increase in refunds issued for
Orbitz Price
Assurancesm
due to the full year impact of the program, which we launched
for flights in June 2008. This decrease was partially offset by
a $13 million increase in domestic air net revenue due to
higher transaction volume, which resulted primarily from the
removal of booking fees and lower air fares.
International air net revenue remained flat (excluding the
impact of foreign currency fluctuations) primarily due to lower
net revenue per airline ticket, offset by higher transaction
volume. The decrease in net revenue per airline ticket is
primarily due to lower average air fares, which impact the net
revenue per ticket for our merchant air transactions, and a
shift in customer preference towards low cost carriers and
short-haul flights.
Hotel. Net revenue from hotel bookings
decreased $55 million, or 23%, to $184 million for the
year ended December 31, 2009 from $239 million for the
year ended December 31, 2008. Foreign currency fluctuations
drove $8 million of this decrease. The decrease in net
revenue from hotel bookings, excluding the impact of foreign
currency fluctuations, was $47 million.
A decrease in average net revenue per transaction resulted in a
$31 million decrease in domestic hotel net revenue. Average
net revenue per transaction decreased primarily due to lower
ADRs, a significant reduction in hotel booking fees charged on
our websites and a reduction in hotel breakage revenue. This
decrease was partially offset by a $2 million increase in
domestic hotel net revenue due to higher transaction volume,
which resulted primarily from the reduction in hotel booking
fees and lower ADRs.
The decrease in international hotel net revenue of
$18 million (excluding the impact of foreign currency
fluctuations) was primarily driven by lower volume and lower
average net revenue per transaction for our HotelClub brand.
Lower volume drove $10 million of the decrease in
international hotel net revenue. The decline in volume was
driven by poor performance of HotelClub in Europe and more
intense competition in the industry. Lower net revenue per
transaction, which resulted from lower ADRs, lower average
length of hotel stays and a shift in the geographic mix of
bookings at HotelClub towards markets where average booking
values are lower and where we earn lower margins, drove
$8 million of the decrease in international hotel net
revenue.
Dynamic packaging. Net revenue from dynamic
packaging bookings increased $3 million, or 3%, to
$117 million for the year ended December 31, 2009 from
$114 million for the year ended December 31, 2008.
Foreign currency fluctuations decreased dynamic packaging net
revenue by $1 million. The increase in net revenue from
dynamic packaging bookings, excluding the impact of foreign
currency fluctuations, was $4 million.
Lower average net revenue per transaction drove a
$23 million decrease in domestic net revenue from dynamic
packaging, which was partially offset by a $20 million
increase in volume. Net revenue per transaction decreased mainly
due to lower ADRs, a significant reduction in hotel booking fees
charged on our websites and a reduction in hotel breakage
revenue. Volume for dynamic packaging increased due to a shift
in traveler preference from stand-alone travel products towards
dynamic packaging.
43
The increase in international net revenue from dynamic packaging
(excluding the impact of foreign currency fluctuations) was
$7 million. Net revenue from dynamic packaging increased
due to higher transaction volume, which was partially offset by
lower average net revenue per transaction.
Advertising and media. Advertising and media
net revenue remained flat at $60 million for each of the
years ended December 31, 2009 and December 31, 2008
due to a general reduction in online display advertising
spending by companies and our focus on driving transaction
growth and optimizing our mix of advertising, media and
transaction revenue during 2009.
We have historically derived a portion of our advertising
revenue from third party referral programs, specifically
membership discount programs. During the years ended
December 31, 2009 and December 31, 2008, revenue from
third party referral programs was $14 million and
$16 million, respectively. We expect the revenue that we
earn from these programs to significantly decline in 2010, and
we are actively seeking out opportunities to offset some or all
of this revenue decline over time.
Other. Other net revenue is comprised
primarily of net revenue from car bookings, cruise bookings,
destination services, travel insurance and our hosting business.
Other net revenue decreased $11 million, or 9%, to
$107 million for the year ended December 31, 2009 from
$118 million for the year ended December 31, 2008.
Foreign currency fluctuations decreased other net revenue by
$3 million. The decrease in other net revenue, excluding
the impact of foreign currency fluctuations, was $8 million.
A decline in global car net revenue and travel insurance net
revenue primarily drove the decrease in other net revenue. The
decline in car net revenue was driven by lower volume, partially
offset by higher net revenue per car booking. More favorable
agreements with certain car rental suppliers and decreased
inventory available from suppliers drove the higher net revenue
per car booking. The decrease in travel insurance revenue was
primarily due to lower air fares and lower incentives, partially
offset by an increase in air and dynamic packaging transaction
volume.
We have historically hosted and managed portions of third-party
websites, and as a result, we earned $12 million of net
revenue from our hosting business during each of the years ended
December 31, 2009 and December 31, 2008. We expect net
revenue derived from our hosting business to decline by over 50%
in 2010 due to the termination of one of our hosting agreements
in 2010.
Cost of
Revenue
Our cost of revenue is primarily comprised of costs to operate
our customer service call centers, credit card processing fees,
and other costs such as ticketing and fulfillment, customer
refunds and charge-backs, affiliate commissions and connectivity
and other processing costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
$
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change(a)
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer service costs
|
|
$
|
53
|
|
|
$
|
61
|
|
|
$
|
(8
|
)
|
|
|
(13
|
)%
|
Credit card processing fees
|
|
|
40
|
|
|
|
42
|
|
|
|
(2
|
)
|
|
|
(7
|
)%
|
Other
|
|
|
45
|
|
|
|
60
|
|
|
|
(15
|
)
|
|
|
(23
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
138
|
|
|
$
|
163
|
|
|
$
|
(25
|
)
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Percentages are calculated on unrounded numbers. |
The decrease in cost of revenue was primarily driven by an
$8 million decrease in customer service costs, a
$2 million decrease in credit card processing costs, an
$11 million decrease in customer refunds and charge-backs
and a $2 million decrease in ticketing and fulfillment
costs.
Customer service costs decreased primarily due to cost savings
driven by reductions in headcount and contract labor and
increased automation of the handling of customer service calls.
In the second half of 2009, we increased our customer service
staffing levels to support the higher volume of air transactions
we have
44
generated since the elimination of booking fees in April 2009 on
most flights booked through our Orbitz.com and CheapTickets.com
websites. The decrease in credit card processing costs was
primarily due to a decline in our merchant gross bookings and
air booking fees.
During the year ended December 31, 2008, we had a higher
level of charge-backs primarily due to sharply higher fraudulent
credit card usage at one of our international locations. To
address this issue, we installed new revenue protection software
and instituted tighter security measures during the second
quarter of 2008. As a result, we have experienced a significant
decline in charge-backs since that time. Customer refunds also
decreased, primarily due to our efforts to improve the customer
experience, which have reduced the number of incidents in which
customer refunds were required.
Ticketing and fulfillment costs decreased as the industry
continues to move towards electronic ticketing to meet the
International Air Transport Association mandate to eliminate
paper tickets.
Selling,
General and Administrative
Our selling, general and administrative expense is primarily
comprised of wages and benefits, contract labor costs, and
network communications, systems maintenance and equipment costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
$
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change(a)
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages and benefits(b)
|
|
$
|
160
|
|
|
$
|
160
|
|
|
$
|
|
|
|
|
|
|
Contract labor(b)
|
|
|
21
|
|
|
|
34
|
|
|
|
(13
|
)
|
|
|
(38
|
)%
|
Network communications, systems maintenance and equipment
|
|
|
27
|
|
|
|
33
|
|
|
|
(6
|
)
|
|
|
(20
|
)%
|
Other
|
|
|
49
|
|
|
|
45
|
|
|
|
4
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general, and administrative
|
|
$
|
257
|
|
|
$
|
272
|
|
|
$
|
(15
|
)
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Percentages are calculated on unrounded numbers. |
|
(b) |
|
The amounts presented above for wages and benefits and contract
labor are net of amounts capitalized. |
The decrease in selling, general and administrative expense was
primarily driven by a $13 million decrease in contract
labor costs, a $6 million decrease in network
communications, systems maintenance and equipment costs, a
$3 million decrease in travel expenses and a
$2 million decrease in professional fees, partially offset
by the absence of $14 million of income recorded in 2008 as
a result of the reduction in the present value of our tax
sharing liability following a reduction in our effective state
income tax rate (see Note 9 Tax Sharing
Liability of the Notes to Consolidated Financial Statements).
The remaining decrease in selling, general and administrative
expense is due to decreases in foreign currency losses and other
operating expenses.
Our network communications, systems maintenance and equipment
costs, our use of contract labor and our travel costs decreased
as a result of expense reductions we undertook to manage through
the economic recession and industry downturn. Professional fees
decreased due to lower audit fees and lower tax consulting costs
as a result of completing the post-IPO transition to an in-house
corporate tax department, partially offset by higher legal fees.
Wages and benefits expense remained flat as the decrease in
expense that resulted from global work force reductions that we
undertook was partially offset by total severance expense of
$7 million and additional equity-based compensation expense
of $2 million that we incurred in 2009 in connection with
these work force reductions and the departure of the
Companys former Chief Executive Officer in January 2009
(see Note 15 Severance of the Notes to
Consolidated Financial Statements). This decrease in wages and
benefits expense was further offset by an increase in the amount
of employee incentive compensation expense incurred in 2009.
45
Marketing
Our marketing expense is primarily comprised of online marketing
costs, such as search and banner advertising, and offline
marketing costs, such as television, radio and print
advertising. Our investment in online marketing is significantly
greater than our investment in offline marketing. Marketing
expense decreased $95 million, or 31%, to $215 million
for the year ended December 31, 2009 from $310 million
for the year ended December 31, 2008.
Marketing expense for our domestic brands decreased
$69 million, to $157 million for the year ended
December 31, 2009 from $226 million for the year ended
December 31, 2008. Marketing expense for our international
brands decreased $26 million, to $58 million for the
year ended December 31, 2009 from $84 million for the
year ended December 31, 2008. The decrease in marketing
expense for both our domestic and international brands was due
to lower online and offline marketing costs. The decrease in
online marketing costs was primarily driven by a change in our
approach to online marketing, placing greater emphasis on
attracting more traffic to our websites through SEO and CRM and
improving the efficiency of our SEM and travel research
spending. The decrease in offline marketing costs was mainly due
to cost reductions taken by us in order to manage through the
economic recession and industry downturn.
Depreciation
and Amortization
Depreciation and amortization increased $3 million, or 4%,
to $69 million for the year ended December 31, 2009
from $66 million for the year ended December 31, 2008.
The increase in depreciation and amortization was primarily due
to the acceleration of depreciation on certain assets whose
useful lives were shortened during the year ended
December 31, 2009 and additional assets placed in service
during the period.
Impairment
of Goodwill and Intangible Assets
During the three months ended March 31, 2009, we
experienced a significant decline in our stock price, and
economic and industry conditions continued to weaken. These
factors, coupled with an increase in competitive pressures,
indicated potential impairment of our goodwill and trademarks
and trade names. As a result, in connection with the preparation
of our financial statements for the first quarter of 2009, we
performed an interim impairment test of our goodwill and
trademarks and trade names. Based on the testing performed, we
recorded a non-cash impairment charge of $332 million, of
which $250 million related to goodwill and $82 million
related to trademarks and trade names.
During the year ended December 31, 2008, in connection with
our annual planning process, we lowered our long-term earnings
forecast in response to changes in the economic environment,
including the potential future impact of airline capacity
reductions, increased fuel prices and a weakening global
economy. These factors, coupled with a prolonged decline in our
market capitalization, indicated potential impairment of our
goodwill and trademarks and trade names. Additionally, given the
economic environment, our distribution partners were under
increased pressure to reduce their overall costs and could have
attempted to terminate or renegotiate their agreements with us
on more favorable terms to them. These factors indicated that
the carrying value of certain of our finite-lived intangible
assets, specifically customer relationships, may not be
recoverable. As a result, we performed an impairment test of our
goodwill, indefinite-lived intangible assets and finite-lived
intangible assets. Based on the testing performed, we recorded a
non-cash impairment charge of $297 million, of which
$210 million related to goodwill, $74 million related
to trademarks and trade names and $13 million related to
customer relationships (see Note 3 Impairment
of Goodwill and Intangible Assets of the Notes to Consolidated
Financial Statements).
Due to the current economic uncertainty and other factors, we
cannot assure that goodwill, indefinite-lived intangible assets
and finite-lived intangible assets will not be further impaired
in future periods.
46
Net
Interest Expense
Net interest expense decreased by $6 million, or 8%, to
$57 million for the year ended December 31, 2009 from
$63 million for the year ended December 31, 2008. The
decrease in net interest expense was primarily due to lower
interest expense incurred on the Term Loan, which was primarily
driven by lower interest rates. A decrease in interest expense
accreted on the tax sharing liability also contributed to the
decrease. These decreases were partially offset by a decline in
interest income earned. During the years ended December 31,
2009 and December 31, 2008, $15 million and
$18 million of the total net interest expense recorded was
non-cash, respectively.
Gain on
Extinguishment of Debt
During the year ended December 31, 2009, we purchased and
retired $10 million in principal amount of the Term Loan.
The principal amount of the Term Loan purchased (net of
associated unamortized debt issuance costs of almost nil)
exceeded the amount we paid to purchase the debt (inclusive of
miscellaneous fees incurred) by $2 million. Accordingly, we
recorded a $2 million gain on extinguishment of a portion
of the Term Loan during the year ended December 31, 2009.
There was no gain on extinguishment of debt recorded during the
year ended December 31, 2008 (see Note 7
Term Loan and Revolving Credit Facility of the Notes
to Consolidated Financial Statements).
Provision
(Benefit) for Income Taxes
We recorded a tax provision of $9 million for the year
ended December 31, 2009 and a tax benefit of
$2 million for the year ended December 31, 2008. The
provision for income taxes for the year ended December 31,
2009 was primarily due to a full valuation allowance established
against the deferred tax assets of our Australia-based business
(see Note 12 Income Taxes of the Notes to
Consolidated Financial Statements).
The tax benefit recorded for the year ended December 31,
2008 related to certain of our international subsidiaries. The
amount of the tax benefit recorded during the year ended
December 31, 2008 was disproportionate to the amount of
pre-tax net loss incurred during that period primarily because
we were not able to realize any tax benefits on the goodwill
impairment charge and only a limited amount of tax benefit on
the trademarks and trade names impairment charge, which were
recorded during the third quarter of 2008.
47
Comparison
of the year ended December 31, 2008 to the year ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
$
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change(a)
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
$
|
339
|
|
|
$
|
375
|
|
|
$
|
(36
|
)
|
|
|
(10
|
)%
|
Hotel
|
|
|
239
|
|
|
|
235
|
|
|
|
4
|
|
|
|
2
|
%
|
Dynamic packaging
|
|
|
114
|
|
|
|
105
|
|
|
|
9
|
|
|
|
9
|
%
|
Advertising and media
|
|
|
60
|
|
|
|
43
|
|
|
|
17
|
|
|
|
40
|
%
|
Other
|
|
|
118
|
|
|
|
101
|
|
|
|
17
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
870
|
|
|
|
859
|
|
|
|
11
|
|
|
|
1
|
%
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
163
|
|
|
|
157
|
|
|
|
6
|
|
|
|
4
|
%
|
Selling, general and administrative
|
|
|
272
|
|
|
|
301
|
|
|
|
(29
|
)
|
|
|
(10
|
)%
|
Marketing
|
|
|
310
|
|
|
|
302
|
|
|
|
8
|
|
|
|
3
|
%
|
Depreciation and amortization
|
|
|
66
|
|
|
|
57
|
|
|
|
9
|
|
|
|
16
|
%
|
Impairment of goodwill and intangible assets
|
|
|
297
|
|
|
|
|
|
|
|
297
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,108
|
|
|
|
817
|
|
|
|
291
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(238
|
)
|
|
|
42
|
|
|
|
(280
|
)
|
|
|
**
|
|
Other (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(63
|
)
|
|
|
(83
|
)
|
|
|
20
|
|
|
|
(25
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense)
|
|
|
(63
|
)
|
|
|
(83
|
)
|
|
|
20
|
|
|
|
(25
|
)%
|
Loss before income taxes
|
|
|
(301
|
)
|
|
|
(41
|
)
|
|
|
(260
|
)
|
|
|
**
|
|
(Benefit) provision for income taxes
|
|
|
(2
|
)
|
|
|
43
|
|
|
|
(45
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(299
|
)
|
|
|
(84
|
)
|
|
|
(215
|
)
|
|
|
**
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Orbitz Worldwide, Inc.
|
|
$
|
(299
|
)
|
|
$
|
(85
|
)
|
|
$
|
(214
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of net revenue(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
19
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
31
|
%
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
Marketing expense
|
|
|
36
|
%
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Percentages are calculated on unrounded numbers. |
Net
Revenue
Net revenue increased $11 million, or 1%, to
$870 million for the year ended December 31, 2008 from
$859 million for the year ended December 31, 2007. As
a result of the Blackstone Acquisition, our net revenue during
the year ended December 31, 2007 was reduced due to
deferred revenue that was written off at the time of the
acquisition. Accordingly, we could not record revenue that was
generated before the Blackstone Acquisition but not yet
recognized at the time of the acquisition. The following
discussion and analysis describes the impact on the
comparability of net revenue
year-over-year
due to our inability to record this revenue, and refers to these
amounts as purchase accounting adjustments.
Air. Net revenue from air bookings decreased
$36 million, or 10%, to $339 million for the year
ended December 31, 2008 from $375 million for the year
ended December 31, 2007. Foreign currency fluctuations
resulted in an increase of $2 million in air net revenue.
The decrease in net revenue from air bookings, excluding the
impact of foreign currency fluctuations, was $38 million.
48
A decrease in domestic volume resulted in a $35 million
decrease in air net revenue, which was partially offset by a
$7 million increase in air net revenue driven by higher net
revenue per air ticket. The decrease in volume was partially due
to increased competition and the adverse impact of economic
conditions on air traveler demand. The higher net revenue per
air ticket was primarily due to an increase in service fees
charged on our Orbitz and CheapTickets websites, an increase in
incentive revenue earned from GDS services provided by Worldspan
resulting from the re-negotiation of our GDS contract in July
2007, and a shift in our carrier mix. A reduction in paper
ticket fees partially offset these increases, as the industry
continues to move towards electronic ticketing to meet the
International Air Transport Association mandate to eliminate
paper tickets.
Lower net revenue per air ticket and the impact of the sale of
our offline U.K. travel subsidiary in July 2007 primarily drove
the decrease in international air net revenue. Competitive
pressures drove the decrease in net revenue per air ticket. This
decrease was largely offset by an increase in air net revenue
resulting from higher international volume.
Hotel. Net revenue from hotel bookings
increased $4 million, or 2%, to $239 million for the
year ended December 31, 2008 from $235 million for the
year ended December 31, 2007. Foreign currency fluctuations
resulted in an increase of $1 million in hotel net revenue.
In addition, hotel net revenue increased $4 million
year-over-year
due to purchase accounting adjustments, which reduced our net
revenue by $4 million for the year ended December 31,
2007. The decrease in net revenue from hotel bookings, excluding
the impact of foreign currency fluctuations and the purchase
accounting adjustments, was $1 million.
Higher average net revenue per transaction, primarily due to an
increase in merchant hotel mix, resulted in a $7 million
increase in domestic hotel net revenue. This increase was
partially offset by a $6 million decline in domestic hotel
net revenue due to lower volume, which resulted primarily from
increased competition and the adverse impact of economic
conditions. International hotel net revenue decreased
$2 million due to lower volume.
Dynamic packaging. Net revenue from dynamic
packaging bookings increased $9 million, or 9%, to
$114 million for the year ended December 31, 2008 from
$105 million for the year ended December 31, 2007. Of
this increase, almost nil was due to foreign currency
fluctuations.
Higher volume drove a $5 million increase in domestic
dynamic packaging net revenue. The increase in volume is largely
due to an increase in supplier-driven sales promotions in 2008,
enhancements we made to our car packaging product during 2008
and a general shift in traveler preference from stand-alone
travel products towards dynamic packaging. International net
revenue from dynamic packaging increased $4 million.
Advertising and media. Advertising and media
net revenue increased $17 million, or 40%, to
$60 million for the year ended December 31, 2008 from
$43 million for the year ended December 31, 2007. Of
this increase, almost nil was due to foreign currency
fluctuations.
The increase in net revenue from advertising and media was
primarily attributed to the launch of a new advertising campaign
during 2008 promoting a third partys fee membership
programs. The terms of this agreement were more favorable than
the terms with our former membership program advertiser.
Advertising revenue also increased as a result of our continued
efforts to seek out new opportunities to further monetize
traffic on our websites.
Other. Other net revenue increased
$17 million, or 16%, to $118 million for the year
ended December 31, 2008 from $101 million for the year
ended December 31, 2007. Foreign currency fluctuations
resulted in an increase of $1 million in other net revenue.
In addition, other net revenue increased $2 million
year-over-year
due to purchase accounting adjustments, which reduced our other
net revenue by $2 million for the year ended
December 31, 2007. The increase in other net revenue,
excluding the impact of foreign currency fluctuations and the
purchase accounting adjustments, was $14 million.
Domestic other net revenue increased due to an increase in
travel insurance revenue and net revenue from car bookings. The
increase in travel insurance revenue was driven primarily by
higher attachment rates for travel insurance and more favorable
economics resulting from the execution of a new agreement with
our travel insurance provider, which was effective in 2008. The
increase in net revenue from car bookings was
49
mainly due to an increase in average net revenue per car
booking, primarily driven by the re-negotiation of contracts
with certain car suppliers during the second quarter of 2008.
Lower car volume partially offset the higher average net revenue
per transaction.
International other net revenue increased primarily due to an
increase in travel insurance revenue and an increase in car net
revenue. The increase in travel insurance revenue was largely
due to the introduction of a new travel insurance product on one
of our ebookers websites as well as higher attachment rates for
travel insurance. Higher volume and higher net revenue per car
booking drove the increase in car net revenue.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
$
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change(a)
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer service costs
|
|
$
|
61
|
|
|
$
|
68
|
|
|
$
|
(7
|
)
|
|
|
(10
|
)%
|
Credit card processing fees
|
|
|
42
|
|
|
|
41
|
|
|
|
1
|
|
|
|
3
|
%
|
Other
|
|
|
60
|
|
|
|
48
|
|
|
|
12
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
163
|
|
|
$
|
157
|
|
|
$
|
6
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Percentages are calculated on unrounded numbers. |
The increase in cost of revenue was driven by an $8 million
increase in affiliate commissions, a $4 million increase in
GDS connectivity costs, a $3 million increase in
charge-backs and a $1 million increase in credit card
processing fees, partially offset by a $7 million decrease
in customer service costs and a $3 million decrease in
ticketing costs.
The increase in affiliate commissions was primarily due to the
growth of our private label business. Higher transaction volume
from our international locations primarily drove the increase in
GDS connectivity costs. The increase in charge-backs was due
primarily to an increase in fraudulent credit card usage at one
of our international locations. We installed new revenue
protection software and instituted tighter security measures,
and as a result, we experienced a significant decrease in these
charge-backs towards the end of the second quarter of 2008 that
continued through the remainder of the year. Growth in our
merchant bookings resulted in higher credit card processing fees.
Lower domestic transaction volume primarily drove the decrease
in customer service costs. Ticketing costs decreased during 2008
as the industry continued to move towards electronic ticketing
to meet the International Air Transport Association mandate to
eliminate paper tickets.
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
$
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change(a)
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages and benefits(b)
|
|
$
|
160
|
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
Contract labor(b)
|
|
|
34
|
|
|
|
38
|
|
|
$
|
(4
|
)
|
|
|
(10
|
)%
|
Network communications, systems maintenance and equipment
|
|
|
33
|
|
|
|
36
|
|
|
|
(3
|
)
|
|
|
(8
|
)%
|
Other
|
|
|
45
|
|
|
|
67
|
|
|
|
(22
|
)
|
|
|
(35
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general, and administrative
|
|
$
|
272
|
|
|
$
|
301
|
|
|
$
|
(29
|
)
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Percentages are calculated on unrounded numbers. |
|
(b) |
|
The amounts presented above for wages and benefits and contract
labor are net of amounts capitalized. |
50
During the year ended December 31, 2007, we recorded a
one-time exit penalty of $13 million due to the early
termination of an agreement and incurred $8 million of
one-time audit and consulting fees in connection with the IPO
and the post-IPO transition period. The absence of these costs
in the year ended December 31, 2008 primarily drove the
decrease in selling, general and administrative expense. In
addition, our selling, general and administrative expense
decreased by $14 million during the year ended
December 31, 2008 due to a reduction in the present value
of our liability under the tax sharing agreement, which
primarily arose from a reduction in our effective state income
tax rate (see Note 9 Tax Sharing Liability of
the Notes to Consolidated Financial Statements). We also
recorded an $8 million reduction to selling, general and
administrative expense during the year ended December 31,
2008 compared with a $3 million reduction in the year ended
December 31, 2007 for the insurance reimbursement of costs
we previously incurred to defend hotel occupancy tax cases,
which also contributed to the decrease. In addition, there was a
decrease in selling, general and administrative expense related
to the sale of our offline U.K. travel subsidiary in July 2007
(due to the inclusion of seven months of expense from that
subsidiary in 2007).
These expense decreases were partially offset by a
$4 million increase in our tax consulting costs, a
$3 million increase in losses resulting from foreign
currency fluctuations and a $4 million increase in other
operating expenses. We incurred higher tax consulting costs
during the year ended December 31, 2008 as a result of the
transition of the corporate tax function, which was previously
provided by Travelport, to us.
Marketing
Marketing expense increased $8 million, or 3%, to
$310 million for the year ended December 31, 2008 from
$302 million for the year ended December 31, 2007. The
increase in marketing expense was driven by an increase in our
international marketing expense, which increased
$8 million, to $84 million for the year ended
December 31, 2008 from $76 million for the year ended
December 31, 2007. Higher online marketing costs for our
international locations, driven by growth in transaction volume
and higher cost per transaction, primarily drove this increase.
A reduction in offline marketing costs at our international
locations partially offset this increase. Offline marketing
costs decreased due to a general shift in spending from offline
to online marketing. In the prior year, we launched a new
offline advertising campaign for our ebookers brand in the U.K.,
which did not continue into 2008. Our domestic marketing expense
remained flat year over year, at $226 million for each of
the years ended December 31, 2008 and December 31,
2007.
Depreciation
and Amortization
Depreciation and amortization increased $9 million, or 16%,
to $66 million for the year ended December 31, 2008
from $57 million for the year ended December 31, 2007.
The increase in depreciation and amortization expense resulted
from an increase in capitalized software placed in service,
primarily related to the roll-out of our new technology platform
in July 2007, and the acceleration of depreciation on certain
assets whose useful lives were shortened during the year ended
December 31, 2008.
Impairment
of Goodwill and Intangible Assets
During the year ended December 31, 2008, in connection with
our annual planning process, we lowered our long-term earnings
forecast in response to changes in the economic environment,
including the potential future impact of airline capacity
reductions, increased fuel prices and a weakening global
economy. These factors, coupled with a prolonged decline in our
market capitalization, indicated potential impairment of our
goodwill and trademarks and trade names. Additionally, given the
economic environment, our distribution partners were under
increased pressure to reduce their overall costs and could have
attempted to terminate or renegotiate their agreements with us
on more favorable terms to them. These factors indicated that
the carrying value of certain of our finite-lived intangible
assets, specifically customer relationships, may not be
recoverable. As a result, we performed an impairment test of our
goodwill, indefinite-lived intangible assets and finite-lived
intangible assets. Based on the testing performed, we recorded a
non-cash impairment charge of $297 million, of which
$210 million related to goodwill, $74 million related
to trademarks and trade names and $13 million related to
customer relationships (see Note 3 Impairment
of Goodwill and Intangible
51
Assets of the Notes to Consolidated Financial Statements). There
was no impairment during the year ended December 31, 2007.
Net
Interest Expense
Net interest expense decreased by $20 million, or 25%, to
$63 million for the year ended December 31, 2008 from
$83 million for the year ended December 31, 2007. The
decrease in net interest expense was primarily due to the
repayment of $860 million of intercompany notes payable to
Travelport and, to a lesser extent, the assignment of certain
notes payable between subsidiaries of Travelport and our
subsidiaries to us, both of which occurred in connection with
the IPO. This decrease was offset in part by interest expense
incurred on the $600 million term loan facility entered
into concurrent with the IPO and the corresponding interest rate
swaps entered into to hedge a portion of the variable interest
payments on the term loan. An increase in interest expense
accreted on the tax sharing liability and a decrease in
capitalized interest on internal software development projects
also partially offset the decrease in interest expense. During
the years ended December 31, 2008 and December 31,
2007, $18 million and $15 million of the total net
interest expense recorded was non-cash, respectively.
(Benefit)
Provision for Income Taxes
We recorded a tax benefit of $2 million for the year ended
December 31, 2008 and a tax provision of $43 million
for the year ended December 31, 2007. The tax benefit
recorded during the year ended December 31, 2008 related to
certain of our international subsidiaries. The amount of the tax
benefit recorded during the year ended December 31, 2008
was disproportionate to the amount of pre-tax net loss incurred
during the year primarily because we were not able to realize
any tax benefit on the goodwill impairment charge and only a
limited amount of tax benefit on the trademarks and trade names
impairment charge recorded during the year ended
December 31, 2008.
The tax provision recorded during the year ended
December 31, 2007 was primarily due to a valuation
allowance established in the third quarter of 2007 against
$30 million of foreign net operating loss carryforwards,
net of tax, related to portions of our U.K.-based business. This
item was unique to 2007 and did not recur in 2008.
Related
Party Transactions
For a discussion of certain relationships and related party
transactions, see Note 18 Related Party
Transactions of the Notes to Consolidated Financial Statements.
Seasonality
For a discussion of seasonal fluctuations in the demand for the
products and services we offer, see Item 1,
Business Seasonality.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Our principal sources of liquidity are our cash flows from
operations, cash and cash equivalents, and borrowings under our
$85 million revolving credit facility. At December 31,
2009 and December 31, 2008, our cash and cash equivalents
balances were $89 million and $31 million,
respectively. We had $26 million and $52 million of
availability under our revolving credit facility at
December 31, 2009 and December 31, 2008, respectively.
This availability reflects the effective reduction in total
availability under our revolving credit facility in 2008
following the bankruptcy of Lehman Commercial Paper Inc.
(LCPI) as described in Financing
Arrangements below. Total available liquidity from cash
and cash equivalents and our revolving credit facility was
$115 million and $83 million at December 31, 2009
and December 31, 2008, respectively.
We require letters of credit to support certain commercial
agreements, leases and certain regulatory agreements. The
majority of these letters of credit have been issued by
Travelport on our behalf. At
52
December 31, 2009 and December 31, 2008, there were
$59 million and $67 million of outstanding letters of
credit issued by Travelport on our behalf, respectively,
pursuant to the Separation Agreement, as amended, that we
entered into with Travelport in connection with the IPO (the
Separation Agreement). Under the Separation
Agreement, Travelport has agreed to issue U.S. Dollar
denominated letters of credit on our behalf in an aggregate
amount not to exceed $75 million through at least
March 31, 2010 and thereafter so long as Travelport and its
affiliates (as defined in the Separation Agreement) own at least
50% of our voting stock.
In addition, at December 31, 2009, there was the equivalent
of $5 million of outstanding letters of credit issued under
our revolving credit facility, which were denominated in Pounds
Sterling. There were no outstanding letters of credit issued
under our revolving credit facility at December 31, 2008.
The amount of letters of credit issued under our revolving
credit facility reduces the amount available to us for
borrowings.
In January 2010, certain regulatory requirements required us to
provide additional letters of credit of $16 million,
$11 million of which were denominated in U.S. Dollars
and issued by Travelport on our behalf and the equivalent of
$5 million of which were denominated in Pounds Sterling and
issued under our revolving credit facility.
Under our merchant model, customers generally pay us for
reservations at the time of booking, and we pay our suppliers at
a later date, which is generally after the customer uses the
reservation. Initially, we record these customer receipts as
accrued merchant payables and either deferred income or net
revenue, depending on the travel product. We generally recognize
net revenue when the customer uses the reservation, and we pay
our suppliers once we have received an invoice, which typically
ranges from one to sixty days after the customer uses the
reservation. The timing difference between when cash is
collected from our customers and when payments are made to our
suppliers improves our operating cash flow and represents a
source of liquidity for us. If our merchant model gross bookings
increase, we would expect our operating cash flow to increase.
Conversely, if our merchant model gross bookings decline or
there are changes to the model which reduce the time between the
receipt of cash from our customers and payments to suppliers, we
would expect our operating cash flow to decline.
Historically, under both our merchant and retail models, we
charged customers a service fee for booking airline tickets,
hotel stays and certain other travel products on our websites,
and cash generated by these booking fees represented a
significant portion of our operating cash flow and a source of
liquidity for us. In 2009, we removed booking fees on most
flights booked through Orbitz.com and CheapTickets.com, and we
significantly reduced booking fees on all hotel stays booked
through Orbitz.com and CheapTickets.com. The combination of our
cost reductions, our improved marketing efficiency and the
increase in air transactions we have experienced since removing
fees enabled us to offset most, if not all, of the decrease in
our operating cash flow and liquidity due to lower booking fees.
If we are unable to effectively continue to offset the impact of
the booking fee reductions, our cash flow and liquidity could be
materially reduced.
Seasonal fluctuations in our business also affect the timing of
our cash flows. Gross bookings are generally highest in the
first half of the year as customers plan and purchase their
spring and summer vacations. As a result, our cash receipts are
generally highest in the first half of the year. We generally
have net cash outflows during the second half of the year since
cash payments to suppliers typically exceed the cash inflows
from new merchant booking reservations. While we expect this
seasonal cash flow pattern to continue, changes in our business
model could affect the seasonal nature of our cash flows.
In 2009, in light of concerns about the financial industry and
in order to ensure availability of liquidity, we borrowed
$63 million under our revolving credit facility, which
increased our cash position throughout year. We repaid
$21 million of these borrowings during the fourth quarter
of 2009 and repaid the remaining borrowings during the first
quarter of 2010.
On January 26, 2010, we completed two transactions that
improved our overall liquidity and financial position. In the
first transaction, PAR Investment Partners L.P.
(PAR) exchanged $50 million principal amount of
term loans under our senior secured credit agreement for
8,141,402 shares of our common stock. We immediately
retired the term loans received from PAR in accordance with the
amendment to the credit agreement that we entered into with our
lenders in June 2009. As a result, the amount outstanding on the
53
Term Loan was reduced to $527 million. Concurrently,
Travelport, through one if its controlled affiliates, purchased
9,025,271 shares of our common stock for $50 million
in cash (see Note 8 Exchange Agreement and
Stock Purchase Agreement of the Notes to Consolidated Financial
Statements). We intend to use the proceeds from the stock
purchase for general corporate purposes, which could include
additional capital investments
and/or
further debt reduction.
As of December 31, 2009, we had a working capital deficit
of $250 million as compared with a deficit of
$258 million as of December 31, 2008. Prior to the
IPO, we operated with a working capital deficit primarily as a
result of the cash management system used by Travelport to pool
cash from all of its subsidiaries, including us, as well as the
fact that certain operating cash flows generated by us were used
to fund certain of our financing and investing activities, such
as capital expenditures incurred for the development and
implementation of our new technology platform. The net proceeds
we received from the IPO of our common stock and the
$600 million term loan did not decrease this working
capital deficit because those proceeds were used to repay
$860 million of intercompany notes payable to affiliates of
Travelport, to pay a $109 million dividend to an affiliate
of Travelport and to settle other intercompany balances between
us and Travelport that were generated prior to the IPO. As a
result, immediately following the IPO, we continued to have a
working capital deficit. Because of this deficit, we use cash
from customer transactions as well as borrowings under our
revolving credit facility to fund our working capital
requirements and certain investing and financing commitments,
such as capital expenditures and principal payments on our term
loan, respectively.
Over time, we expect to continue to decrease this deficit
through growth in our business and the generation of positive
cash flow from operations, which we expect to achieve by driving
global hotel transaction growth and by continuing to offer new
and innovative functionality on our websites, improving our
operating efficiency and simplifying the way we do business.
We generated positive cash flow from operations for the years
ended December 31, 2007 through 2009 despite experiencing
net losses, and we expect annual cash flow from operations to
remain positive in the foreseeable future. We generally use this
cash flow to fund our operations, make principal and interest
payments on our debt, finance capital expenditures and meet our
other cash operating needs. For the year ended December 31,
2010, we expect our capital expenditures to be between
$40 million and $45 million, most of which is
discretionary in nature. We do not intend to declare or pay any
cash dividends on our common stock in the foreseeable future.
We currently believe that cash flow generated from operations,
cash on hand and cash available under our revolving credit
facility will provide sufficient liquidity to fund our operating
activities, capital expenditures and other obligations over at
least the next twelve months. However, in the future, our
liquidity could be reduced as a result of changes in our
business model, including changes to payment terms or other
requirements imposed by suppliers or regulatory agencies, lower
than anticipated operating cash flows, or other unanticipated
events, such as unfavorable outcomes in our legal proceedings,
including in the case of hotel occupancy proceedings, certain
jurisdictions requirements that we provide financial
security or pay the assessment to the municipality in order to
challenge the assessment in court. The liquidity provided by
cash flows from our merchant model gross bookings could be
negatively impacted if our merchant model gross bookings decline
as a result of economic conditions or other factors or if
suppliers or regulatory agencies imposed other requirements on
us, such as requiring us to provide letters of credit or to
establish cash reserves. If as a result of these requirements,
we require letters of credit which exceed the availability under
the facility provided by Travelport, or if the Travelport
facility is no longer available to us, we would be required to
issue these letters of credit under our revolving credit
facility or to establish cash reserves which would reduce our
available liquidity.
In regards to our long-term liquidity needs, we believe that
cash flow generated from operations, cash on hand and cash
available under our revolving credit facility through its
maturity in July 2013 will provide sufficient liquidity to fund
our operating activities and capital expenditures. However,
unless we re-finance our term loan before the July 2014 maturity
date, we will be required to pay the final installment (equal to
the remaining outstanding balance) on our $600 million term
loan, and our cash flow generated from operations and cash on
hand may not be adequate to fund this payment in full. As a
result, we may need to raise
54
additional funds through debt or equity offerings. We also may
be required to raise additional capital if, in the future, we
require more liquidity than is available under our revolving
credit facility.
Cash
Flows
Our net cash flows from operating, investing and financing
activities for the periods indicated in the tables below were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Beginning cash and cash equivalents
|
|
$
|
31
|
|
|
$
|
25
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
105
|
|
|
|
76
|
|
|
|
69
|
|
Investing activities
|
|
|
(43
|
)
|
|
|
(58
|
)
|
|
|
(80
|
)
|
Financing activities
|
|
|
(6
|
)
|
|
|
(8
|
)
|
|
|
13
|
|
Effect of changes in exchange rates on cash and cash equivalents
|
|
|
2
|
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
58
|
|
|
|
6
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
89
|
|
|
$
|
31
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of the year ended December 31, 2009 to the year ended
December 31, 2008
Operating
Activities
Cash provided by operating activities consists of net loss,
adjusted for non-cash items such as depreciation, amortization,
impairment of goodwill and intangible assets, and stock based
compensation and changes in various working capital items,
principally accounts receivable, accrued expenses, accrued
merchant payables, deferred income and accounts payable.
We generated cash flow from operations of $105 million for
the year ended December 31, 2009 compared with
$76 million for the year ended December 31, 2008. The
increase in operating cash flow was primarily due to cost
reductions taken by us in 2009, improvements in our overall
marketing efficiency and a decrease in cash interest payments.
These operating cash flow increases were partially offset by a
decrease in operating cash flow due to lower merchant hotel
gross bookings in the first three quarters of 2009 compared with
the first three quarters of 2008, as a result of lower global
ADRs. The elimination of most air booking fees, the reduction of
hotel booking fees and the shortening of payment terms with a
key vendor during 2009 also negatively impacted our operating
cash flow.
The changes in our working capital accounts, which are partially
due to the factors mentioned above and to the general timing of
payments, also contributed to the increase in our operating cash
flow. During the fourth quarter of 2009, there was a significant
increase in merchant bookings compared with the fourth quarter
of 2008, which also drove the increase in operating cash flow
for the year ended December 31, 2009.
Investing
Activities
Cash flow used in investing activities decreased
$15 million, to $43 million for the year ended
December 31, 2009 from $58 million for the year ended
December 31, 2008 due to lower capital spending during the
year ended December 31, 2009 resulting from cost reduction
efforts taken in late 2008 and 2009.
55
Financing
Activities
Cash flow used in financing activities decreased
$2 million, to $6 million for the year ended
December 31, 2009 from $8 million for the year ended
December 31, 2008 primarily due to a $9 million
decrease in payments made under the tax sharing agreement with
the Founding Airlines, a decrease in capital lease payments and
a decrease in payments made to satisfy tax withholding
obligations upon the vesting of equity-based awards. The
decrease in cash flow used in financing activities is partially
offset by $8 million of payments made by us in June 2009 to
purchase $10 million in principal amount of the Term Loan
(see Note 7 Term Loan and Revolving Credit
Facility of the Notes to Consolidated Financial Statements) and
a decrease in net borrowings made under our revolving credit
facility during the year ended December 31, 2009.
Comparison
of the year ended December 31, 2008 to the year ended
December 31, 2007
Operating
Activities
We generated cash flow from operations of $76 million for
the year ended December 31, 2008 compared with
$69 million for the year ended December 31, 2007. The
increase in operating cash flows was largely driven by a
$48 million decrease in cash interest expense due to the
repayment of intercompany notes to Travelport in connection with
the IPO, offset in part by a $22 million increase in cash
interest expense incurred on our $85 million revolving
credit facility, the $600 million term loan and the
corresponding interest rate swaps entered into to hedge a
portion of the variable interest payments on the term loan.
Accrued expenses drove an additional $25 million increase
in operating cash flows. This increase was primarily driven by
the timing of payments of domestic accrued marketing
expenditures. The remaining increase in operating cash flows
during the year ended December 31, 2008 was primarily due
to the overall growth of our operations.
The cash flow increases discussed above were partially offset by
a $23 million decrease in accounts payable, driven largely
by timing of payments, as a result of changes in our payment
mechanisms and cash management policies following the IPO. A
$35 million decrease in accrued merchant payables and an
$8 million decrease in deferred income also offset the cash
flow increases. These decreases were primarily driven by a
decrease in transaction volume, particularly for hotel bookings,
during the fourth quarter of 2008. The cash flow increases above
were further offset by changes in other operating assets and
liabilities.
Investing
Activities
Cash flow used in investing activities decreased
$22 million, to $58 million for the year ended
December 31, 2008 from $80 million for the year ended
December 31, 2007. The decrease in cash flow used in
investing activities was primarily due to the sale of an offline
U.K. travel subsidiary in July 2007. The sale of this subsidiary
resulted in a $31 million reduction in cash due to the
buyers assumption of this subsidiarys cash balance
at the time of sale, partially offset by the cash proceeds we
received for the sale of the subsidiary. This decrease in cash
flow used in investing activities was partially offset by a
$5 million increase in capital expenditures as well as the
absence of the receipt of proceeds from asset sales during 2008.
We received $4 million of cash proceeds from asset sales
during 2007.
Financing
Activities
Cash flow used in financing activities for the year ended
December 31, 2008 was $8 million compared with
$13 million of cash flow provided by financing activities
for the year ended December 31, 2007. The decrease in cash
flow provided by financing activities of $21 million was
partially due to the absence of net proceeds received from the
IPO and the $600 million term loan facility entered into
concurrent with the IPO, offset in part by repayments of the
intercompany notes to Travelport, a dividend paid to Travelport
in connection with the IPO and net cash distributed to and
received from Travelport in 2007 prior to the IPO. Following the
IPO, we are no longer required to distribute available cash to
Travelport. Cash flow used in financing activities increased
largely due to $20 million of payments made under the tax
sharing agreement with the Founding Airlines, a $5 million
increase in principal payments made on the $600 million
term loan facility and $1 million of payments made to
satisfy employee minimum tax withholding obligations upon
56
vesting of equity-based awards during the year ended
December 31, 2008. The decrease in cash flow provided by
financing activities was offset in part by a $19 million
increase in borrowings made under our revolving credit facility
during the year ended December 31, 2008 and a
$1 million decrease in capital lease payments.
Financing
Arrangements
On July 25, 2007, concurrent with the IPO, we entered into
a $685 million senior secured credit agreement
(Credit Agreement) consisting of a seven-year
$600 million term loan facility (Term Loan) and
a six-year $85 million revolving credit facility
(Revolver). The Term Loan and the Revolver bear
interest at variable rates, at our option, of LIBOR or an
alternative base rate plus a margin. At December 31, 2009
and December 31, 2008, $577 million and
$593 million was outstanding on the Term Loan,
respectively, and $42 million and $21 million of
borrowings were outstanding under the Revolver, respectively,
all of which were denominated in U.S. dollars.
In addition, at December 31, 2009, there was the equivalent
of $5 million of outstanding letters of credit issued under
the Revolver, which were denominated in Pounds Sterling. There
were no outstanding letters of credit issued under the Revolver
at December 31, 2008. The amount of letters of credit
issued under the Revolver reduces the amount available to us for
borrowings.
On June 2, 2009, we entered into an amendment (the
Amendment) to our Credit Agreement, which permits us
to purchase portions of the outstanding Term Loan on a non-pro
rata basis using cash up to $10 million and future cash
proceeds from equity issuances and in exchange for equity
interests on or prior to June 2, 2010. Any portion of the
Term Loan purchased by us will be retired pursuant to the terms
of the amendment. On June 17, 2009, we completed the
purchase of $10 million in principal amount of the Term
Loan, as required by the terms of the Amendment (see
Note 7 Term Loan and Revolving Credit Facility
of the Notes to Consolidated Financial Statements), and on
January 26, 2010, we completed the purchase of an
additional $50 million in principal amount of the Term Loan
(see Note 23 Subsequent Events of the Notes to
Consolidated Financial Statements).
LCPI, which filed for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code on
October 5, 2008, held a $12.5 million commitment, or
14.7% percent, of the $85 million available under the
Revolver. As a result, total availability under the Revolver has
effectively been reduced from $85 million to
$72.5 million. Despite this reduction, we currently believe
that our cash flow generated from operations, cash on hand and
cash available under the Revolver will provide sufficient
liquidity to fund our operating activities, capital expenditures
and other obligations in the short-term (see
Liquidity above).
The Term Loan and Revolver are both secured by substantially all
of our and our domestic subsidiaries tangible and
intangible assets, including a pledge of 100% of the outstanding
capital stock or other equity interests of substantially all of
our direct and indirect domestic subsidiaries and 65% of the
capital stock or other equity interests of certain of our
foreign subsidiaries, subject to certain exceptions. The Term
Loan and Revolver are also guaranteed by substantially all of
our domestic subsidiaries.
The Credit Agreement contains various customary restrictive
covenants that limit our ability to, among other things:
|
|
|
|
|
incur additional indebtedness or enter into guarantees;
|
|
|
|
enter into sale or leaseback transactions;
|
|
|
|
make investments, loans or acquisitions;
|
|
|
|
grant or incur liens on our assets;
|
|
|
|
sell our assets;
|
|
|
|
engage in mergers, consolidations, liquidations or dissolutions;
|
|
|
|
engage in transactions with affiliates; and
|
|
|
|
make restricted payments.
|
57
The Credit Agreement requires us to maintain a minimum fixed
charge coverage ratio and not to exceed a maximum total leverage
ratio, each as defined in the Credit Agreement. The minimum
fixed charge coverage ratio that we are required to maintain as
of December 31, 2009 and for the remaining term of the
Credit Agreement is 1 to 1. The maximum total leverage ratio
that we are required not to exceed is 4.25 to 1 as of
December 31, 2009 and declines to 3.5 to 1 effective
March 31, 2010 and to 3 to 1 effective March 31, 2011.
If we fail to comply with these covenants and we are unable to
obtain a waiver or amendment, our lenders could accelerate the
maturity of all amounts borrowed under the Term Loan and
Revolver and could proceed against the collateral securing this
indebtedness. We are permitted, however, to cure any such
failure by issuing equity to certain permitted holders, as
defined in the Credit Agreement, which include The Blackstone
Group and certain of its affiliates. The amount of the net cash
proceeds received from this equity issuance would then be
applied to increase consolidated EBITDA, as defined in the
Credit Agreement and on which the covenant calculations are
based, for the applicable quarter. As of December 31, 2009,
we were in compliance with all covenants and conditions of the
Credit Agreement.
In addition, beginning in the first quarter of 2009, we are
required to make an annual prepayment on the Term Loan in the
first quarter of each fiscal year in an amount up to 50% of the
prior years excess cash flow, as defined in the Credit
Agreement. These prepayments from excess cash flow are applied,
in order of maturity, to the scheduled quarterly term loan
principal payments. Based on our cash flow for the year ended
December 31, 2008, we were not required to make a
prepayment in 2009. Based on our cash flow for the year ended
December 31, 2009, we are required to make a prepayment on
the Term Loan of $21 million in the first quarter of 2010.
The potential amount of prepayment from excess cash flow that
will be required beyond the first quarter of 2010 is not
reasonably estimable as of December 31, 2009.
When we were a wholly owned subsidiary of Travelport, Travelport
provided guarantees, letters of credit and surety bonds on our
behalf under our commercial agreements and leases and for the
benefit of regulatory agencies. Under the Separation Agreement,
we are required to use commercially reasonable efforts to have
Travelport released from any then outstanding guarantees and
surety bonds. Travelport no longer provides surety bonds on our
behalf or guarantees in connection with commercial agreements or
leases entered into or replaced by us subsequent to the IPO. At
December 31, 2009 and December 31, 2008, there were
$59 million and $67 million of letters of credit
issued by Travelport on our behalf, respectively. Under the
Separation Agreement, Travelport has agreed to issue
U.S. Dollar denominated letters of credit on our behalf in
an aggregate amount not to exceed $75 million through at
least March 31, 2010 and thereafter so long as Travelport
and its affiliates (as defined in the Separation Agreement) own
at least 50% of our voting stock.
Financial
Obligations
Commitments
and Contingencies
We and certain of our affiliates are parties to cases brought by
consumers and municipalities and other U.S. governmental
entities involving hotel occupancy taxes. We believe that we
have meritorious defenses, and we are vigorously defending
against these claims, proceedings and inquiries (see
Note 11 Commitments and Contingencies of the
Notes to Consolidated Financial Statements).
Litigation is inherently unpredictable and, although we believe
we have valid defenses in these matters based upon advice of
counsel, unfavorable resolutions could occur. While we cannot
estimate our range of loss and believe it is unlikely that an
adverse outcome will result from these proceedings, an adverse
outcome could be material to us with respect to earnings or cash
flows in any given reporting period.
We are currently seeking to recover insurance reimbursement for
costs incurred to defend the hotel occupancy tax cases. We
recorded a reduction to selling, general and administrative
expense in our consolidated statements of operations for
reimbursements received of $6 million, $8 million and
$3 million for the years ended December 31, 2009,
December 31, 2008 and December 31, 2007, respectively.
The recovery of additional amounts, if any, by us and the timing
of receipt of these recoveries is unclear. As such, as of
December 31, 2009, we have not recognized a reduction to
selling, general and administrative expense in our
58
consolidated statements of operations for the outstanding
contingent claims for which we have not received reimbursement.
Contractual
Obligations
The following table summarizes our future contractual
obligations as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Term Loan(a)
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
553
|
|
|
$
|
|
|
|
$
|
577
|
|
Revolver(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Interest(b)
|
|
|
23
|
|
|
|
20
|
|
|
|
18
|
|
|
|
18
|
|
|
|
10
|
|
|
|
|
|
|
|
89
|
|
Contract exit costs(c)
|
|
|
5
|
|
|
|
4
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
13
|
|
Operating leases
|
|
|
7
|
|
|
|
5
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
24
|
|
|
|
48
|
|
Travelport GDS contract(d)
|
|
|
42
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
122
|
|
Tax sharing liability(e)
|
|
|
19
|
|
|
|
20
|
|
|
|
21
|
|
|
|
18
|
|
|
|
18
|
|
|
|
118
|
|
|
|
214
|
|
Telecommunications service agreement
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Systems infrastructure agreements
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Software license agreement
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations (f)
|
|
$
|
130
|
|
|
$
|
69
|
|
|
$
|
65
|
|
|
$
|
106
|
|
|
$
|
606
|
|
|
$
|
142
|
|
|
$
|
1,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In July 2007, concurrent with the IPO, we entered into the
$685 million Credit Agreement consisting of the seven-year
$600 million Term Loan and the six-year $85 million
Revolver. The Term Loan and Revolver bear interest at variable
rates, at our option, of LIBOR or an alternative base rate plus
a margin. The amounts shown in the table above represent future
payments under the Term Loan and Revolver (see
Note 7 Term Loan and Revolving Credit Facility
of the Notes to Consolidated Financial Statements). However, the
timing of the future payments shown in the table above could
change with respect to the Term Loan, as we are required to make
an annual prepayment on the Term Loan in the first quarter of
each fiscal year in an amount up to 50% of the prior years
excess cash flow, as defined in the Credit Agreement.
Prepayments from excess cash flow are applied, in order of
maturity, to the scheduled quarterly term loan principal
payments. Based on our cash flow for the year ended
December 31, 2009, we are required to make a prepayment on
the Term Loan of $21 million in the first quarter of 2010.
The potential amount of prepayments from excess cash flow that
will be required beyond the first quarter of 2010 is not
reasonably estimable as of December 31, 2009. As a result,
the table above excludes prepayments that could be required from
excess cash flow beyond the first quarter of 2010. |
|
|
|
In January 2010, we retired $50 million aggregate principal
amount of term loans exchanged by PAR for shares of our common
stock. As a result, the amount outstanding on the Term Loan was
reduced to $527 million (see Note 23
Subsequent Events of the Notes to Consolidated Financial
Statements). |
|
(b) |
|
Represents estimated interest payments on the variable portion
of the Term Loan based on the one-month LIBOR as of
December 31, 2009 and fixed interest payments under
interest rate swaps. |
|
(c) |
|
Represents costs due to the early termination of an agreement. |
|
(d) |
|
In connection with the IPO, we entered into an agreement with
Travelport to use GDS services provided by both Galileo and
Worldspan (the Travelport GDS Service Agreement).
The Travelport GDS Service Agreement is structured such that we
earn incentive revenue for each segment that is processed
through the Worldspan and Galileo GDSs (the Travelport
GDSs). This agreement requires that we process a certain
minimum number of segments for our domestic brands through the
Travelport GDSs each year. Our domestic brands were required to
process a total of 36 million segments during the year
ended December 31, 2009, 16 million segments through
Worldspan and 20 million segments through Galileo. The
required number of segments processed annually for Worldspan is
fixed at 16 million segments, while the required number of
segments for Galileo is subject to adjustment based upon the
actual segments processed by our domestic brands in the
preceding year. We are required to process approximately
18 million |
59
|
|
|
|
|
segments through Galileo during the year ending
December 31, 2010. Our failure to process at least 95% of
these segments through the Travelport GDSs would result in a
shortfall payment of $1.25 per segment below the required
minimum. Historically, we have met the minimum segment
requirement for our domestic brands. The table above includes
shortfall payments required by the agreement if we do not
process any segments through Worldspan during the remainder of
the contract term and shortfall payments required if we do not
process any segments through Galileo during the year ending
December 31, 2010. Because the required number of segments
for Galileo adjusts based on the actual segments processed in
the preceding year, we are unable to predict shortfall payments
that may be required beyond 2010. However, we do not expect to
make any shortfall payments for our domestic brands in the
foreseeable future. |
|
|
|
The Travelport GDS Service Agreement also requires that ebookers
use the Travelport GDSs exclusively in certain countries for
segments processed through GDSs in Europe. Our failure to
process at least 95% of these segments through the Travelport
GDSs would result in a shortfall payment of $1.25 per segment
for each segment processed through an alternative GDS provider.
We failed to meet this minimum segment requirement during each
of the years ended December 31, 2009 and December 31,
2008, and as a result, we were required to make nominal
shortfall payments to Travelport related to each of these years.
Because the required number of segments to be processed through
the Travelport GDSs is dependent on the actual segments
processed by ebookers in certain countries in a given year, we
are unable to predict shortfall payments that may be required
for the years beyond 2009. As a result, the table above excludes
any shortfall payments that may be required related to our
ebookers brands for the years beyond 2009. If we meet the
minimum number of segments, we are not required to make
shortfall payments to Travelport (see Note 18
Related Party Transactions of the Notes to Consolidated
Financial Statements). |
|
(e) |
|
We expect to make approximately $214 million of payments in
connection with the tax sharing agreement with the Founding
Airlines (see Note 9 Tax Sharing Liability of
the Notes to Consolidated Financial Statements). |
|
(f) |
|
Excluded from the above table are $5 million of liabilities
for uncertain tax positions for which the period of settlement
is not currently determinable. |
Other
Commercial Commitments and Off-Balance Sheet
Arrangements
In the ordinary course of business, we obtain surety bonds and
bank guarantees, issued for the benefit of a third party, to
secure performance of certain of our obligations to third
parties (see Note 11 Commitments and
Contingencies of the Notes to Consolidated Financial Statements).
We are also required to issue letters of credit to certain
suppliers and
non-U.S. regulatory
and government agencies. See Financing Arrangements
above for further discussion of our outstanding letters of
credit.
CRITICAL
ACCOUNTING POLICIES
The preparation of our consolidated financial statements and
related notes in conformity with generally accepted accounting
principles requires us to make judgments, estimates and
assumptions that affect the amounts reported therein. An
accounting policy is considered to be critical if it meets the
following two criteria:
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the policy requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time
the estimate is made; and
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different estimates that reasonably could have been used or
changes in the estimates that are reasonably likely to occur
from period to period would have a material impact on our
consolidated financial statements.
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We believe that the estimates and assumptions used when
preparing our consolidated financial statements were the most
appropriate at that time. However, events that are outside of
our control cannot be predicted and, as such, they cannot be
contemplated in evaluating such estimates and assumptions. We
have discussed these estimates with our Audit Committee.
60
Presented below are those accounting policies that we believe
require subjective and complex judgments that could potentially
affect our reported results. Although we believe these policies
to be the most critical, other accounting policies also have a
significant effect on our consolidated financial statements and
certain of these policies may also require the use of estimates
and assumptions (see Note 2 Summary of
Significant Accounting Policies of the Notes to Consolidated
Financial Statements).
Revenue
Recognition
We recognize revenue when it is earned and realizable, when
persuasive evidence of an arrangement exists, services have been
rendered, the price is fixed or determinable, and collectability
is reasonably assured. We record revenue earned net of all
amounts paid to our suppliers under both our retail and merchant
models.
We offer customers the ability to book airline, hotel, car
rental and other travel reservations through our various brands,
including Orbitz, CheapTickets, ebookers and HotelClub. These
products and services are made available to our customers for
booking on a stand-alone basis or as part of a dynamic vacation
package. We have two primary types of contractual arrangements
with our vendors, which we refer to herein as the
merchant and retail models.
Under the merchant model, we generate revenue for our services
based on the difference between the total amount the customer
pays for the travel product and the negotiated net rate plus
estimated taxes that the supplier charges for that travel
product. Customers generally pay for reservations in advance, at
the time of booking. Initially, we record these advance payments
as accrued merchant payables and either deferred income or net
revenue, depending on the travel product. In the merchant model,
we do not take on credit risk with the customer, however we are
subject to fraud risk; we have the ability to determine the
price; we are not responsible for the actual delivery of the
flight, hotel room or car rental; we take no inventory risk; we
have no ability to determine or change the products or services
delivered; and the customer chooses the supplier.
We recognize net revenue under the merchant model when we have
no further obligations to the customer. For merchant air
transactions, this is at the time of booking. For merchant hotel
transactions and merchant car transactions, net revenue is
recognized at the time of check-in or customer
pick-up,
respectively. The timing of revenue recognition is different for
merchant air travel because our primary service to the customer
is fulfilled at the time of booking.
We accrue for the cost of merchant hotel and merchant car
transactions based on amounts we expect to be invoiced by
suppliers. If we do not receive an invoice within a certain
period of time, generally within six months, or the invoice
received is less than the accrued amount, we reverse a portion
of the accrued cost when we determine it is not probable that we
will be required to pay the supplier, based on our historical
experience and contract terms. This would result in an increase
in net revenue and a decrease to the accrued merchant payable.
Under the retail model, we pass reservations booked by our
customers to the travel supplier for a commission. Under this
model, we do not take on credit risk with the customer; we are
not the primary obligor with the customer; we have no latitude
in determining pricing; we take no inventory risk; we have no
ability to determine or change the products or services
delivered; and the customer chooses the supplier.
We recognize net revenue under the retail model when the
reservation is made, secured by a customer with a credit card
and we have no further obligations to the customer. For air
transactions, this is at the time of booking. For hotel
transactions and car transactions, net revenue is recognized at
the time of check-in or customer
pick-up,
respectively, net of an allowance for cancelled reservations.
The timing of recognition is different for retail hotel and
retail car transactions than for retail air travel because
unlike air travel where the reservation is secured by a
customers credit card at booking, car rental bookings and
hotel bookings are not secured by a customers credit card
until the
pick-up date
and check-in date, respectively. Allowances for cancelled
reservations primarily relate to cancellations that do not occur
through our website, but instead occur directly through the
supplier of the travel product. The amount of the allowance is
determined based on our
61
historical experience. The majority of commissions earned under
the retail model are based upon contractual agreements.
Dynamic vacation packages offer customers the ability to book a
combination of travel products. For example, travel products
booked in a dynamic vacation package may include a combination
of air, hotel and car reservations. We recognize net revenue for
the entire package when the customer uses the reservation, which
generally occurs on the same day for each travel product
included in the dynamic vacation package.
Under both the merchant and retail models, we may, depending
upon the brand and the travel product, charge our customers a
service fee for booking the travel reservation. We recognize
revenue for service fees at the time we recognize the net
revenue for the corresponding travel product. We also may
receive override commissions from suppliers if we meet certain
contractual volume thresholds. These commissions are recognized
when the amount of the commissions becomes fixed or
determinable, which is generally upon notification by the
respective travel supplier.
We utilize GDS services provided by Galileo, Worldspan and
Amadeus IT Group. Under our GDS service agreements, we earn
revenue in the form of an incentive payment for air, car and
hotel segments that are processed through a GDS. Revenue is
recognized for these incentive payments at the time the travel
reservation is processed through the GDS, which is generally at
the time of booking.
We also generate other revenue, which is primarily comprised of
revenue from advertising, including sponsoring links on our
websites, and travel insurance. Advertising revenue is derived
primarily from the delivery of advertisements on our websites
and is recognized either at the time of display of each
individual advertisement, or ratably over the advertising
delivery period, depending on the terms of the advertising
contract. Revenues generated from sponsoring links and travel
insurance revenue are both recognized upon notification from the
alliance partner that a transaction has occurred.
If our judgments regarding net revenue are inaccurate, actual
net revenue could differ from the amount we recognize, directly
impacting our results of operations.
Impairment
of Long-Lived Assets, Goodwill and Indefinite-Lived Intangible
Assets
Long-Lived
Assets
We evaluate the recoverability of our long-lived assets,
including property and equipment and finite-lived intangible
assets, when circumstances indicate that the carrying value of
those assets may not be recoverable. This analysis is performed
by comparing the respective carrying values of the assets to the
current and expected future cash flows to be generated from
these assets, on an undiscounted basis. If this analysis
indicates that the carrying value of an asset is not
recoverable, the carrying value is reduced to fair value through
an impairment charge in our consolidated statements of
operations. The evaluation of long-lived assets for impairment
requires assumptions about operating strategies and estimates of
future cash flows. An estimate of future cash flows requires us
to assess current and projected market conditions as well as
operating performance. A variation of the assumptions used could
lead to a different conclusion regarding the recoverability of
an asset and could have a significant effect on our consolidated
financial statements.
Goodwill
and Other Intangibles
We assess the carrying value of goodwill and other
indefinite-lived intangible assets for impairment annually or
more frequently whenever events occur and circumstances change
indicating potential impairment. We perform our annual
impairment testing of goodwill and other indefinite-lived
intangible assets in the fourth quarter of each year, in
connection with our annual planning process.
We assess goodwill for possible impairment using a two-step
process. The first step identifies if there is potential
goodwill impairment. If step one indicates that an impairment
may exist, a second step is performed to measure the amount of
the goodwill impairment, if any. Application of the goodwill
impairment test requires managements judgment, including
the identification of reporting units, assigning assets and
liabilities to reporting units and determining the fair value of
each reporting unit. We estimate the fair value of our
62
reporting units to which goodwill is allocated using generally
accepted valuation methodologies, including market and income
based approaches, and relevant data available through and as of
the testing date. The market approach is a valuation method in
which fair value is estimated based on observed prices in actual
transactions and on asking prices for similar assets. Under the
market approach, the valuation process is essentially that of
comparison and correlation between the subject asset and other
similar assets. The income approach is a method in which fair
value is estimated based on the cash flows that an asset could
be expected to generate over its useful life, including residual
value cash flows. These cash flows are then discounted to their
present value equivalents using a rate of return that accounts
for the relative risk of not realizing the estimated annual cash
flows and for the time value of money. Variations of the income
approach are used to estimate certain of the intangible asset
fair values.
Our trademarks and trade names are indefinite-lived intangible
assets. We test these assets for impairment by comparing their
carrying value to their estimated fair value. If the estimated
fair value is less than the carrying amount of the intangible
asset, then the carrying value is reduced to fair value through
an impairment charge recorded to our consolidated statement of
operations. We use a market or income valuation approach, as
described above, to estimate fair values of the relevant
trademarks and trade names.
Our testing for impairment involves estimates of our future cash
flows, which requires us to assess current and projected market
conditions as well as operating performance. Our estimates may
differ from actual cash flows due to changes in our operating
performance, capital structure or requirements for operating and
capital expenditures as well as changes to general economic
conditions and the travel industry in particular. We must also
make estimates and judgments in the selection of a discount rate
that reflects the risk inherent in those future cash flows. The
impairment analysis may also require certain assumptions about
other businesses with limited financial histories. A variation
of the assumptions used could lead to a different conclusion
regarding the carrying value of an asset and could have a
significant effect on our consolidated financial statements.
Accounting
for Income Taxes
Our provision for income taxes is determined using the asset and
liability method. Under this method, deferred tax assets and
liabilities are calculated based upon the temporary differences
between the financial statement and income tax bases of assets
and liabilities using the combined federal and state effective
tax rates that are applicable to us in a given year. The
deferred tax assets are recorded net of a valuation allowance
when, based on the weight of available evidence, we believe it
is more likely than not that some portion or all of the recorded
deferred tax assets will not be realized in future periods.
Increases to the valuation allowance are recorded as increases
to the provision for income taxes. As a result of our adoption
of updated guidance issued by the Financial Accounting Standards
Board regarding business combinations, effective January 1,
2009, to the extent that any valuation allowances established by
us in purchase accounting are reduced, these reductions are
recorded through our consolidated statements of operations.
These reductions were previously recorded through goodwill. The
realization of the deferred tax assets, net of a valuation
allowance, is primarily dependent on estimated future taxable
income. A change in our estimate of future taxable income may
require an increase or decrease to the valuation allowance.
For the period January 1, 2007 to February 7, 2007,
the operations of Travelport were included in the consolidated
U.S. federal and state income tax returns for the year
ended December 31, 2007 for Orbitz Worldwide, Inc. and its
subsidiaries. However, the provision for income taxes was
computed as if we filed our U.S. federal, state and foreign
income tax returns on a Separate Company basis
without the inclusion of the operations of Travelport.
Furthermore, the Separate Company deferred tax assets and
liabilities have been calculated using our tax rates on a
Separate Company basis. The deferred tax assets and liabilities
are based upon estimated differences between the book and tax
bases of our assets and liabilities as of December 31,
2007. Our tax assets and liabilities may be adjusted in
connection with the ultimate finalization of Travelports
income tax returns.
For the years ended December 31, 2009 and December 31,
2008, the provision for U.S. federal, state and foreign
income taxes and the calculation of the deferred tax assets and
liabilities were based solely on the operations of Orbitz
Worldwide, Inc. and its subsidiaries.
63
Accounting
for Tax Sharing Liability
We have a liability included in our consolidated balance sheets
that relates to a tax sharing agreement between Orbitz and the
Founding Airlines. The agreement governs the allocation of tax
benefits resulting from a taxable exchange that took place in
connection with the Orbitz initial public offering in December
2003 (Orbitz IPO). As a result of this taxable
exchange, the Founding Airlines incurred a taxable gain. The
taxable exchange caused Orbitz to have additional future tax
deductions for depreciation and amortization due to the
increased tax basis of its assets. The additional tax deductions
for depreciation and amortization may reduce the amount of taxes
we are required to pay in future years. For each tax period
during the term of the tax sharing agreement, we are obligated
to pay the Founding Airlines a significant percentage of the
amount of the tax benefit realized as a result of the taxable
exchange. The tax sharing agreement commenced upon consummation
of the Orbitz IPO and continues until all tax benefits have been
utilized.
We use discounted cash flows in calculating and recognizing the
tax sharing liability. We review the calculation of the tax
sharing liability on a quarterly basis and make revisions to our
estimated timing of payments when appropriate. We also assess
whether there are any significant changes, such as changes in
timing of payments and tax rates, that could materially affect
the present value of the tax sharing liability. Although the
expected gross remaining payments that may be due under this
agreement are $214 million as of December 31, 2009,
the timing of payments may change. Any changes in timing of
payments are recognized prospectively as accretions to the tax
sharing liability in our consolidated balance sheets and
non-cash interest expense in our consolidated statements of
operations.
The valuation of the tax sharing liability requires us to make
certain estimates in projecting the quarterly depreciation and
amortization benefit we expect to receive, as well as the
associated effective income tax rates. The estimates require
certain assumptions as to our future operating performance and
taxable income, the tax rate, the timing of tax payments,
current and projected market conditions, and the applicable
discount rate. The discount rate assumption is based on our
weighted average cost of capital at the time of the Blackstone
Acquisition, which was approximately 12%. A variation of the
assumptions used could lead to a different conclusion regarding
the carrying value of the tax sharing liability and could have a
significant effect on our consolidated financial statements.
At the time of the Blackstone Acquisition, Cendant (now Avis
Budget Group, Inc.) indemnified Travelport and us for a portion
of the amounts due under the tax sharing agreement. As a result,
we have a $37 million receivable included in other
non-current assets in our consolidated balance sheets at
December 31, 2009 and December 31, 2008. Cendant is
obligated to pay us this amount when it receives the tax
benefit. We regularly monitor the financial condition of Cendant
to assess the collectability of this receivable.
Equity-Based
Compensation
We measure equity-based compensation cost at fair value and
recognize the corresponding compensation expense on a
straight-line basis over the service period during which awards
are expected to vest. We include equity-based compensation
expense in the selling, general and administrative line of our
consolidated statements of operations. The fair value of
restricted stock and restricted stock units is determined based
on the average of the high and low price of our common stock on
the date of grant. The fair value of stock options is determined
on the date of grant using the Black-Scholes valuation model,
which incorporates a number of variables, some of which are
based on estimates and assumptions. These variables include
stock price, exercise price, expected life, expected volatility,
dividend yield, and the risk-free rate. Stock price and exercise
price are set at fair value on the date of grant. Expected
volatility is based on implied volatilities for publicly traded
options and historical volatility for comparable companies over
the estimated expected life of the stock options. The expected
life represents the period of time the stock options are
expected to be outstanding and is based on the simplified
method. We use the simplified method due to
the lack of sufficient historical exercise data to provide a
reasonable basis upon which to otherwise estimate the expected
64
life of the stock options. The risk-free interest rate is based
on yields on U.S. Treasury strips with a maturity similar
to the estimated expected life of the stock options.
The amount of equity-based compensation expense recorded each
period is net of estimated forfeitures. We estimate forfeitures
based on historical employee turnover rates, the terms of the
award issued and assumptions regarding future employee turnover.
We periodically perform an analysis to determine if estimated
forfeitures are reasonable based on actual facts and
circumstances, and adjustments are made as necessary. If our
estimates differ significantly from actual results, our
consolidated financial statements could be materially affected.
Internal
Use Software
We capitalize the costs of software developed for internal use.
Capitalization commences when the preliminary project stage of
the application has been completed and it is probable that the
project will be completed and used to perform the function
intended. Amortization commences when the software is placed
into service. We also capitalize interest on internal software
development projects. The amount of interest capitalized is
computed by applying our weighted average borrowing rate to
qualifying expenditures. The determination of costs to be
capitalized as well as the useful life of the software requires
us to make estimates and judgments.
Recently
Issued Accounting Pronouncements
See Note 2 Summary of Significant Accounting
Policies of the Notes to Consolidated Financial Statements for
information regarding recently issued accounting pronouncements.
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk.
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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, payables,
intercompany transactions and borrowings under our revolving
credit facility. We primarily hedge our foreign currency
exposure to the Pound Sterling, Euro and Australian dollar. We
do not engage in trading, market making or speculative
activities in the derivatives markets. The forward contracts
utilized by us do not qualify for hedge accounting treatment,
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, 2009 and
December 31, 2008, we had outstanding foreign currency
forward contracts with net notional values equivalent to
approximately $130 million and $61 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, 2009 and December 31, 2008 was a net
translation loss of $3 million and $9 million,
respectively. This loss is recognized as an adjustment to
shareholders equity through accumulated other
comprehensive loss.
65
Interest
Rate Risk
The 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 $200 million as of
December 31, 2009 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, 2009 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 $9 million at
December 31, 2009 compared with $5 million at
December 31, 2008. 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% change in market rates of interest on
interest expense would be almost nil at December 31, 2009
and December 31, 2008, respectively, which represents the
effect on 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.
66
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Item 8.
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Financial
Statements and Supplementary Data.
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MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. Under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial
reporting based on the Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
evaluation, our management concluded that our internal control
over financial reporting was effective as of December 31,
2009. Our independent registered public accounting firm,
Deloitte & Touche LLP, audited our financial
statements contained in this Annual Report on
Form 10-K
and has issued an attestation report on the effectiveness of our
internal control over financial reporting as of
December 31, 2009, which is included below.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Orbitz Worldwide, Inc.
We have audited the accompanying consolidated balance sheets of
Orbitz Worldwide, Inc. and subsidiaries (the
Company) as of December 31, 2009 and 2008, and
the related consolidated statements of operations, cash flows,
comprehensive loss, and invested equity/shareholders
equity for each of the three years in the period ended
December 31, 2009. Our audits also included the financial
statement schedule listed in the Index at Item 15. We also
have audited the Companys internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for these financial statements and
financial statement schedule, for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on these financial statements and
financial statement schedule and an opinion on the
Companys internal control over financial reporting based
on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
67
statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Orbitz Worldwide, Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein. Also, in
our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 3, 2010
68
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenue
|
|
$
|
738
|
|
|
$
|
870
|
|
|
$
|
859
|
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
138
|
|
|
|
163
|
|
|
|
157
|
|
Selling, general and administrative
|
|
|
257
|
|
|
|
272
|
|
|
|
301
|
|
Marketing
|
|
|
215
|
|
|
|
310
|
|
|
|
302
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
66
|
|
|
|
57
|
|
Impairment of goodwill and intangible assets
|
|
|
332
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,011
|
|
|
|
1,108
|
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(273
|
)
|
|
|
(238
|
)
|
|
|
42
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(57
|
)
|
|
|
(63
|
)
|
|
|
(83
|
)
|
Gain on extinguishment of debt
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense)
|
|
|
(55
|
)
|
|
|
(63
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(328
|
)
|
|
|
(301
|
)
|
|
|
(41
|
)
|
Provision (benefit) for income taxes
|
|
|
9
|
|
|
|
(2
|
)
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(337
|
)
|
|
|
(299
|
)
|
|
|
(84
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Orbitz Worldwide, Inc.
|
|
$
|
(337
|
)
|
|
$
|
(299
|
)
|
|
$
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
July 18, 2007 to
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net loss attributable to Orbitz Worldwide, Inc. common
shareholders
|
|
$
|
(337
|
)
|
|
$
|
(299
|
)
|
|
$
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Orbitz Worldwide, Inc.
common shareholders basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Orbitz Worldwide, Inc. common
shareholders
|
|
$
|
(4.01
|
)
|
|
$
|
(3.58
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
84,073,593
|
|
|
|
83,342,333
|
|
|
|
81,600,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
69
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
89
|
|
|
$
|
31
|
|
Accounts receivable (net of allowance for doubtful accounts of
$1 and $1, respectively)
|
|
|
55
|
|
|
|
58
|
|
Prepaid expenses
|
|
|
17
|
|
|
|
17
|
|
Deferred income taxes, current
|
|
|
|
|
|
|
6
|
|
Due from Travelport, net
|
|
|
3
|
|
|
|
10
|
|
Other current assets
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
169
|
|
|
|
128
|
|
Property and equipment, net
|
|
|
181
|
|
|
|
190
|
|
Goodwill
|
|
|
713
|
|
|
|
949
|
|
Trademarks and trade names
|
|
|
155
|
|
|
|
232
|
|
Other intangible assets, net
|
|
|
19
|
|
|
|
34
|
|
Deferred income taxes, non-current
|
|
|
10
|
|
|
|
9
|
|
Other non-current assets
|
|
|
47
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,294
|
|
|
$
|
1,590
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
30
|
|
|
$
|
37
|
|
Accrued merchant payable
|
|
|
219
|
|
|
|
205
|
|
Accrued expenses
|
|
|
113
|
|
|
|
106
|
|
Deferred income
|
|
|
31
|
|
|
|
23
|
|
Term loan, current
|
|
|
21
|
|
|
|
6
|
|
Other current liabilities
|
|
|
5
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
419
|
|
|
|
386
|
|
Term loan, non-current
|
|
|
556
|
|
|
|
587
|
|
Line of credit
|
|
|
42
|
|
|
|
21
|
|
Tax sharing liability
|
|
|
109
|
|
|
|
109
|
|
Unfavorable contracts
|
|
|
10
|
|
|
|
13
|
|
Other non-current liabilities
|
|
|
28
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,164
|
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 11)
|
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 100 shares
authorized, no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 140,000,000 shares
authorized, 83,831,561 and 83,345,437 shares issued and
outstanding, respectively
|
|
|
1
|
|
|
|
1
|
|
Treasury stock, at cost, 24,521 and 18,055 shares held,
respectively
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
922
|
|
|
|
908
|
|
Accumulated deficit
|
|
|
(787
|
)
|
|
|
(450
|
)
|
Accumulated other comprehensive loss (net of accumulated tax
benefit of $2 and $2, respectively)
|
|
|
(6
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
130
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
1,294
|
|
|
$
|
1,590
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(337
|
)
|
|
$
|
(299
|
)
|
|
$
|
(84
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
66
|
|
|
|
57
|
|
Impairment of goodwill and intangible assets
|
|
|
332
|
|
|
|
297
|
|
|
|
|
|
Non-cash revenue
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(7
|
)
|
Non-cash net interest expense
|
|
|
15
|
|
|
|
18
|
|
|
|
15
|
|
Deferred income taxes
|
|
|
7
|
|
|
|
(4
|
)
|
|
|
38
|
|
Stock compensation
|
|
|
14
|
|
|
|
15
|
|
|
|
8
|
|
Provision for bad debts
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
Deconsolidation of noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
4
|
|
|
|
|
|
|
|
(2
|
)
|
Deferred income
|
|
|
9
|
|
|
|
|
|
|
|
8
|
|
Due to/from Travelport, net
|
|
|
6
|
|
|
|
(5
|
)
|
|
|
2
|
|
Accrued merchant payable
|
|
|
4
|
|
|
|
3
|
|
|
|
34
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
(11
|
)
|
|
|
(3
|
)
|
|
|
4
|
|
Other
|
|
|
(3
|
)
|
|
|
(9
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
105
|
|
|
|
76
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment additions
|
|
|
(43
|
)
|
|
|
(58
|
)
|
|
|
(53
|
)
|
Proceeds from sale of business, net of cash assumed by buyer
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
Proceeds from asset sales
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(43
|
)
|
|
|
(58
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering, net of offering costs
|
|
|
|
|
|
|
|
|
|
|
477
|
|
Proceeds from issuance of debt, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
595
|
|
Repayment of note payable to Travelport
|
|
|
|
|
|
|
|
|
|
|
(860
|
)
|
Dividend to Travelport
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
Capital contributions from Travelport
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Capital lease payments and principal payments on the term loan
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
(3
|
)
|
Payments to extinguish debt
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
Advances to Travelport
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
Payments to satisfy employee tax withholding obligations upon
vesting of equity-based awards
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Payments on tax sharing liability
|
|
|
(11
|
)
|
|
|
(20
|
)
|
|
|
|
|
Proceeds from line of credit
|
|
|
100
|
|
|
|
69
|
|
|
|
152
|
|
Payments on line of credit
|
|
|
(81
|
)
|
|
|
(49
|
)
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(6
|
)
|
|
|
(8
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of changes in exchange rates on cash and cash equivalents
|
|
|
2
|
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
58
|
|
|
|
6
|
|
|
|
7
|
|
Cash and cash equivalents at beginning of period
|
|
|
31
|
|
|
|
25
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
89
|
|
|
$
|
31
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax payments (refunds), net
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
|
$
|
11
|
|
Cash interest payments, net of capitalized interest of almost
nil, $1 and $3, respectively
|
|
$
|
42
|
|
|
$
|
47
|
|
|
$
|
74
|
|
Non-cash investing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures incurred not yet paid
|
|
|
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Non-cash allocation of purchase price related to the Blackstone
Acquisition
|
|
|
|
|
|
|
|
|
|
$
|
7
|
|
Non-cash financing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash capital contributions and distributions to Travelport
|
|
|
|
|
|
|
|
|
|
$
|
(814
|
)
|
See Notes to Consolidated Financial Statements.
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net loss
|
|
$
|
(337
|
)
|
|
$
|
(299
|
)
|
|
$
|
(84
|
)
|
Other comprehensive income (loss), net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
6
|
|
|
|
(7
|
)
|
|
|
(4
|
)
|
Unrealized gains (losses) on floating to fixed interest rate
swaps (net of tax benefit of $0, $0 and $2, respectively)
|
|
|
9
|
|
|
|
(8
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
15
|
|
|
|
(15
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss)
|
|
|
(322
|
)
|
|
|
(314
|
)
|
|
|
(92
|
)
|
Less: Comprehensive income attributable to noncontrolling
interest
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) attributable to Orbitz Worldwide,
Inc.
|
|
$
|
(322
|
)
|
|
$
|
(314
|
)
|
|
$
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orbitz Worldwide, Inc. Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
Cendant or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized (Losses) Gains from
|
|
|
|
|
|
Total
Invested
|
|
|
|
Travelport
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Interest
|
|
|
Foreign
|
|
|
|
|
|
Equity/
|
|
|
|
Net
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Rate
|
|
|
Currency
|
|
|
Non-controlling
|
|
|
Shareholders
|
|
|
|
Investment
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Swaps
|
|
|
Translation
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
1,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2
|
|
|
|
|
|
|
$
|
1,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital distribution to Travelport and other, net
|
|
|
(854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of subsidiary to noncontrolling interest
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock to Travelport in connection with
Reorganization
|
|
|
(381
|
)
|
|
|
48,912,526
|
|
|
$
|
1
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with initial public
offering, net of offering costs
|
|
|
|
|
|
|
34,000,000
|
|
|
|
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend paid to Travelport
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from Travelport
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of equity-based compensation awards granted to
employees, net of shares withheld to satisfy employee tax
withholding obligations upon vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from January 1, 2007 through July 17, 2007
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from July 18, 2007 through
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock granted
|
|
|
|
|
|
|
61,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued upon vesting of restricted stock units
|
|
|
|
|
|
|
142,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares withheld to satisfy employee tax withholding
obligations upon vesting of restricted stock
|
|
|
|
|
|
|
(2,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeited
|
|
|
|
|
|
|
(6,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax benefit of $2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
|
83,107,909
|
|
|
|
1
|
|
|
|
894
|
|
|
|
(151
|
)
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of equity-based compensation awards granted to
employees, net of shares withheld to satisfy employee tax
withholding obligations upon vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued upon vesting of restricted stock units
|
|
|
|
|
|
|
233,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued upon lapse of restrictions on deferred
stock units
|
|
|
|
|
|
|
12,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares withheld to satisfy employee tax withholding
obligations upon vesting of restricted stock
|
|
|
|
|
|
|
(2,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeited
|
|
|
|
|
|
|
(6,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax benefit of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
|
83,345,437
|
|
|
$
|
1
|
|
|
$
|
908
|
|
|
$
|
(450
|
)
|
|
$
|
(12
|
)
|
|
$
|
(9
|
)
|
|
|
|
|
|
$
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
73
ORBITZ
WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF INVESTED EQUITY/SHAREHOLDERS
EQUITY (Continued)
(in millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orbitz Worldwide, Inc. Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
Cendant or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized (Losses) Gains from
|
|
|
|
|
|
Total
Invested
|
|
|
|
Travelport
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Interest
|
|
|
Foreign
|
|
|
|
|
|
Equity/
|
|
|
|
Net
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Rate
|
|
|
Currency
|
|
|
Non-controlling
|
|
|
Shareholders
|
|
|
|
Investment
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Swaps
|
|
|
Translation
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
|
83,345,437
|
|
|
$
|
1
|
|
|
$
|
908
|
|
|
$
|
(450
|
)
|
|
$
|
(12
|
)
|
|
$
|
(9
|
)
|
|
|
|
|
|
$
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of equity-based compensation awards granted to
employees, net of shares withheld to satisfy employee tax
withholding obligations upon vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued upon vesting of restricted stock units
|
|
|
|
|
|
|
425,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued upon exercise of stock options
|
|
|
|
|
|
|
67,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares withheld to satisfy employee tax withholding
obligations upon vesting of restricted stock
|
|
|
|
|
|
|
(4,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeited
|
|
|
|
|
|
|
(2,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax benefit of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
6
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
83,831,561
|
|
|
$
|
1
|
|
|
$
|
922
|
|
|
$
|
(787
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
|
|
|
|
$
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
74
ORBITZ
WORLDWIDE, INC.
Description
of the Business
Orbitz, Inc. (Orbitz) was formed in early 2000 by
American Airlines, Inc., Continental Airlines, Inc., Delta Air
Lines, Inc., Northwest Airlines, Inc. and United Air Lines, Inc.
(the Founding Airlines). In November 2004, Orbitz
was acquired by Cendant Corporation (Cendant), whose
online travel distribution businesses included the CheapTickets
and HotelClub brands. In February 2005, Cendant acquired
ebookers Limited, an international online travel brand which
currently has operations in 12 countries throughout Europe
(ebookers).
On August 23, 2006, Travelport Limited
(Travelport), which consisted of Cendants
travel distribution services businesses, including the
businesses that currently comprise Orbitz Worldwide, Inc., was
acquired by affiliates of The Blackstone Group
(Blackstone) and Technology Crossover Ventures
(TCV). We refer to this acquisition as the
Blackstone Acquisition.
Orbitz Worldwide, Inc. was incorporated in Delaware on
June 18, 2007 and was formed to be the parent company of
the
business-to-consumer
travel businesses of Travelport, including Orbitz, ebookers and
Travel Acquisition Corporation Pty. Ltd. (HotelClub)
and the related subsidiaries and affiliates of those businesses.
We are the registrant as a result of the completion of the
initial public offering (IPO) of
34,000,000 shares of our common stock on July 25,
2007. At December 31, 2009 and December 31, 2008,
Travelport and investment funds that own
and/or
control Travelports ultimate parent company beneficially
owned approximately 57% and 58% of our outstanding common stock,
respectively.
We are a leading global online travel company that uses
innovative technology to enable leisure and business travelers
to search for and book a broad range of travel products and
services. Our brand portfolio includes Orbitz, CheapTickets, The
Away Network, and Orbitz for Business in the Americas; ebookers
in Europe; and HotelClub based in Sydney, Australia, which has
operations globally. We provide customers with the ability to
book a comprehensive set of travel products and services from
suppliers worldwide, including air travel, hotels, vacation
packages, car rentals, cruises, travel insurance and destination
services such as ground transportation, event tickets and tours.
Basis of
Presentation
The accompanying consolidated financial statements present the
accounts of Orbitz, ebookers and HotelClub and the related
subsidiaries and affiliates of those businesses, collectively
doing business as Orbitz Worldwide, Inc. These entities became
wholly owned subsidiaries of ours as part of an intercompany
restructuring that was completed on July 18, 2007 (the
Reorganization) in connection with the IPO. Prior to
the IPO, these entities had operated as indirect, wholly-owned
subsidiaries of Travelport. Travelport is beneficially owned by
affiliates of Blackstone, TCV and One Equity Partners.
Prior to the IPO, we had not operated as an independent
standalone company. As a result, our consolidated financial
statements for the period in 2007 prior to the IPO have been
carved out of the historical financial statements of Travelport
and do not necessarily reflect what our consolidated financial
statements would have been had we operated as a separate,
standalone entity during that period.
The legal entity of Orbitz Worldwide, Inc. was formed in
connection with the Reorganization, and prior to the
Reorganization there was no single capital structure upon which
to calculate historical loss per share information. Accordingly,
loss per share information is not presented on our consolidated
statements of operations for periods prior to the Reorganization.
Prior to the IPO, certain corporate general and administrative
expenses, including those related to executive management,
information technology, tax, insurance, accounting, legal,
treasury services and certain employee benefits, were allocated
to us by Travelport based on forecasted revenue or directly
billed based on
75
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
actual usage. In addition, certain of our revenue streams were
related to contractual arrangements entered into by Travelport
on behalf of one or more of its subsidiaries. As a result,
portions of the reported revenue have been determined through
intercompany relationships with other Travelport companies.
Management believes these allocations are reasonable. However,
the associated revenues and expenses recorded in the
accompanying consolidated statements of operations prior to the
IPO may not be indicative of the actual revenues and expenses
that would have been reported had we been operating as a
standalone entity.
On July 5, 2007, we sold Tecnovate eSolutions Private
Limited (Tecnovate), an Indian services
organization, to Travelport. Following this sale, we continued
to consolidate the results of operations of Tecnovate since we
were the primary beneficiary of this variable interest entity
(VIE). Our variable interest was the result of the
terms of a contractual relationship we had with Tecnovate.
On December 3, 2007, Travelport subsequently sold
Tecnovate, at which time we were no longer considered the
primary beneficiary of this VIE. Accordingly, net income
attributable to noncontrolling interest is reported in our
consolidated financial statements for the period from
July 5, 2007 to December 3, 2007 since although we
were the primary beneficiary of Tecnovate, we did not have an
ownership interest in the VIE. We no longer consolidate the
results of operations of Tecnovate following the sale on
December 3, 2007 (see Note 18 Related
Party Transactions).
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States (GAAP). All
intercompany balances and transactions have been eliminated in
the consolidated financial statements.
Use of
Estimates
The preparation of our consolidated financial statements in
conformity with GAAP requires us to make certain estimates and
assumptions. Our estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities as of the date of our consolidated
financial statements and the reported amounts of revenue and
expense during any period.
Our significant estimates include assessing the collectability
of accounts receivable and other non-current assets, sales
allowances, the realization of deferred tax assets, amounts that
may be due under the tax sharing agreement, the fair value of
assets and liabilities acquired in business combinations, and
impairment of tangible and intangible assets. Actual results
could differ from our estimates.
Foreign
Currency Translation
Balance sheet accounts of our operations outside of the
U.S. are translated from foreign currencies into
U.S. dollars at the exchange rates as of the consolidated
balance sheet dates. Revenues and expenses are translated at
average exchange rates during the period. Foreign currency
translation gains or losses are included in accumulated other
comprehensive loss in shareholders equity. Gains and
losses resulting from foreign currency transactions, which are
denominated in currencies other than the entitys
functional currency, are included in our consolidated statements
of operations.
Revenue
Recognition
We recognize revenue when it is earned and realizable, when
persuasive evidence of an arrangement exists, services have been
rendered, the price is fixed or determinable, and collectability
is reasonably assured. We record revenue earned net of all
amounts paid to our suppliers under both our merchant and retail
models.
76
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We offer customers the ability to book airline, hotel, car
rental and other travel products and services through our
various brands, including Orbitz, CheapTickets, ebookers and
HotelClub. These products and services are made available to our
customers for booking on a stand-alone basis or as part of a
dynamic vacation package. We have two primary types of
contractual arrangements with our vendors, which we refer to
herein as the merchant and retail models.
Under the merchant model, we generate revenue for our services
based on the difference between the total amount the customer
pays for the travel product and the negotiated net rate plus
estimated taxes that the supplier charges for that travel
product. Customers generally pay for reservations in advance, at
the time of booking. Initially, we record these customer
receipts as accrued merchant payables and either deferred income
or net revenue, depending on the travel product. In the merchant
model, we do not take on credit risk with the customer, however
we are subject to fraud risk; we have the ability to determine
the price; we are not responsible for the actual delivery of the
flight, hotel room or car rental; we take no inventory risk; we
have no ability to determine or change the products or services
delivered; and the customer chooses the supplier.
We recognize net revenue under the merchant model when we have
no further obligations to the customer. For merchant air
transactions, this is at the time of booking. For merchant hotel
transactions and merchant car transactions, net revenue is
recognized at the time of check-in or customer
pick-up,
respectively. The timing of revenue recognition is different for
merchant air travel because our primary service to the customer
is fulfilled at the time of booking.
We accrue for the cost of merchant hotel and merchant car
transactions based on amounts we expect to be invoiced by
suppliers. If we do not receive an invoice within a certain
period of time, generally within six months, or the invoice
received is less than the accrued amount, we reverse a portion
of the accrued cost when we determine it is not probable that we
will be required to pay the supplier, based on our historical
experience and contract terms. This would result in an increase
in net revenue and a decrease to the accrued merchant payable.
Under the retail model, we pass reservations booked by our
customers to the travel supplier for a commission. Under this
model, we do not take on credit risk with the customer; we are
not the primary obligor with the customer; we have no latitude
in determining pricing; we take no inventory risk; we have no
ability to determine or change the products or services
delivered; and the customer chooses the supplier.
We recognize net revenue under the retail model when the
reservation is made, secured by a customer with a credit card
and we have no further obligations to the customer. For air
transactions, this is at the time of booking. For hotel
transactions and car transactions, net revenue is recognized at
the time of check-in or customer
pick-up,
respectively, net of an allowance for cancelled reservations.
The timing of recognition is different for retail hotel and
retail car transactions than for retail air travel because
unlike air travel where the reservation is secured by a
customers credit card at booking, car rental bookings and
hotel bookings are not secured by a customers credit card
until the
pick-up date
and check-in date, respectively. Allowances for cancelled
reservations primarily relate to cancellations that do not occur
through our website, but instead occur directly through the
supplier of the travel product. The amount of the allowance is
determined based on our historical experience. The majority of
commissions earned under the retail model are based upon
contractual agreements.
Dynamic vacation packages offer customers the ability to book a
combination of travel products. For example, travel products
booked in a dynamic vacation package may include a combination
of air, hotel and car reservations. We recognize net revenue for
the entire package when the customer uses the reservation, which
generally occurs on the same day for each travel product
included in the dynamic vacation package.
Under both the merchant and retail models, we may, depending
upon the brand and the travel product, charge our customers a
service fee for booking the travel reservation. We recognize
revenue for service fees at
77
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the time we recognize the net revenue for the corresponding
travel product. We also may receive override commissions from
suppliers if we meet certain contractual volume thresholds.
These commissions are recognized when the amount of the
commissions becomes fixed or determinable, which is generally
upon notification by the respective travel supplier.
We utilize global distribution systems (GDS)
services provided by Galileo, Worldspan and Amadeus IT Group
(Amadeus). Under our GDS service agreements, we earn
revenue in the form of an incentive payment for air, car and
hotel segments that are processed through a GDS. Revenue is
recognized for these incentive payments at the time the travel
reservation is processed through the GDS, which is generally at
the time of booking.
We also generate other revenue, which is primarily comprised of
revenue from advertising, including sponsoring links on our
websites, and travel insurance. Advertising revenue is derived
primarily from the delivery of advertisements on our websites
and is recognized either at the time of display of each
individual advertisement, or ratably over the advertising
delivery period, depending on the terms of the advertising
contract. Revenues generated from sponsoring links and travel
insurance revenue are both recognized upon notification from the
alliance partner that a transaction has occurred.
Cost of
Revenue
Our cost of revenue is primarily comprised of direct costs
incurred to generate revenue, including costs to operate our
customer service call centers, credit card processing fees, and
other costs such as ticketing and fulfillment, customer refunds
and charge-backs, affiliate commissions and connectivity and
other processing costs. These costs are generally variable in
nature and are primarily driven by transaction volume.
Marketing
Expense
Our marketing expense is primarily comprised of online marketing
costs, such as search and banner advertising, and offline
marketing costs, such as television, radio and print
advertising. Online advertising expense is recognized based on
the terms of the individual agreements, which are generally over
the ratio of the number of impressions delivered over the total
number of contracted impressions, or
pay-per-click,
or on a straight-line basis over the term of the contract.
Offline marketing expense is recognized in the period in which
it is incurred. Our online marketing costs are significantly
greater than our offline marketing costs.
Income
Taxes
Our provision for income taxes is determined using the asset and
liability method. Under this method, deferred tax assets and
liabilities are calculated based upon the temporary differences
between the financial statement and income tax bases of assets
and liabilities using the combined federal and state effective
tax rates that are applicable to us in a given year. The
deferred tax assets are recorded net of a valuation allowance
when, based on the weight of available evidence, we believe it
is more likely than not that some portion or all of the recorded
deferred tax assets will not be realized in future periods.
Increases to the valuation allowance are recorded as increases
to the provision for income taxes. As a result of our adoption
of updated guidance issued by the Financial Accounting Standards
Board (FASB) regarding business combinations,
effective January 1, 2009, to the extent that any valuation
allowances established by us in purchase accounting are reduced,
these reductions are recorded through our consolidated
statements of operations. These reductions were previously
recorded through goodwill. The realization of the deferred tax
assets, net of a valuation allowance, is primarily dependent on
estimated future taxable income. A change in our estimate of
future taxable income may require an increase or decrease to the
valuation allowance.
For the period January 1, 2007 to February 7, 2007,
the operations of Travelport were included in the consolidated
U.S. federal and state income tax returns for the year
ended December 31, 2007 for Orbitz
78
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Worldwide, Inc. and its subsidiaries. However, the provision for
income taxes was computed as if we filed our U.S. federal,
state and foreign income tax returns on a Separate
Company basis without the inclusion of the operations of
Travelport. Furthermore, the Separate Company deferred tax
assets and liabilities have been calculated using our tax rates
on a Separate Company basis. The deferred tax assets and
liabilities are based upon estimated differences between the
book and tax bases of our assets and liabilities as of
December 31, 2007. Our tax assets and liabilities may be
adjusted in connection with the ultimate finalization of
Travelports income tax returns.
For the years ended December 31, 2009 and December 31,
2008, the provision for U.S. federal, state and foreign
income taxes and the calculation of the deferred tax assets and
liabilities were based solely on the operations of Orbitz
Worldwide, Inc. and its subsidiaries.
Derivative
Financial Instruments
We measure derivatives at fair value and recognize them in our
consolidated balance sheets as assets or liabilities, depending
on our rights or obligations under the applicable derivative
contract. For our derivatives designated as fair value hedges,
the changes in the fair value of both the derivative instrument
and the hedged item are recorded in earnings. For our
derivatives designated as cash flow hedges, the effective
portions of changes in fair value of the derivative are reported
in other comprehensive income and are subsequently reclassified
into earnings when the hedged item affects earnings. Changes in
fair value of derivative instruments not designated as hedging
instruments, and ineffective portions of hedges, are recognized
in earnings in the current period.
We manage interest rate exposure by utilizing interest rate
swaps to achieve a desired mix of fixed and variable rate debt.
As of December 31, 2009, we had two interest rate swaps
that effectively converted $200 million of the
$600 million term loan facility from a variable to a fixed
interest rate (see Note 14 Derivative Financial
Instruments). We determined that our interest rate swaps
qualified for hedge accounting and were highly effective as
hedges. Accordingly, we have recorded the change in fair value
of our interest rate swaps in accumulated other comprehensive
loss.
We have entered into foreign currency forward contracts to
manage exposure to changes in foreign currencies associated with
receivables, payables and forecasted earnings. These forward
contracts did not qualify for hedge accounting treatment. As a
result, the changes in fair values of the foreign currency
forward contracts were recorded in selling, general and
administrative expense in our consolidated statements of
operations.
We do not enter into derivative instruments for speculative
purposes. We require that the hedges or derivative financial
instruments be effective in managing the interest rate risk or
foreign currency risk exposure that they are designated to
hedge. Hedges that qualify for hedge accounting are formally
designated as such at the inception of the contract. When the
terms of an underlying transaction are modified, or when the
underlying hedged item ceases to exist, resulting in some
ineffectiveness, the change in the fair value of the derivative
instrument will be included in earnings. Additionally, any
derivative instrument used for risk management that becomes
ineffective is
marked-to-market
each period. We believe that our credit risk has been mitigated
by entering into these agreements with major financial
institutions. Net interest differentials to be paid or received
under our interest rate swaps are included in interest expense
as incurred or earned.
Concentration
of Credit Risk
Our cash and cash equivalents are potentially subject to
concentration of credit risk. We maintain cash and cash
equivalent balances with financial institutions that, in some
cases, are in excess of Federal Deposit Insurance Corporation
insurance limits or are foreign institutions. Our cash and cash
equivalents include
79
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest bearing bank account balances, U.S. treasury funds
and investment grade institutional money market accounts.
Cash and
Cash Equivalents
We consider highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. These
short-term investments are stated at cost, which approximates
market value.
Allowance
for Doubtful Accounts
Our accounts receivable are reported in our consolidated balance
sheets net of an allowance for doubtful accounts. We provide for
estimated bad debts based on our assessment of our ability to
realize receivables, considering historical collection
experience, the general economic environment and specific
customer information. When we determine that a receivable is not
collectable, the account is written-off. Bad debt expense is
recorded in selling, general and administrative expense in our
consolidated statements of operations. We recorded bad debt
expense of $1 million, almost nil and $2 million
during the years ended December 31, 2009, December 31,
2008 and December 31, 2007, respectively.
Property
and Equipment, Net
Property and equipment is recorded at cost, net of accumulated
depreciation and amortization. We depreciate and amortize
property and equipment over their estimated useful lives using
the straight-line method. The estimated useful lives by asset
category are:
|
|
|
Asset Category
|
|
Estimated Useful Life
|
|
Leasehold improvements
|
|
Shorter of assets useful life or non-cancelable lease term
|
Capitalized software
|
|
3 - 10 years
|
Furniture, fixtures and equipment
|
|
3 - 7 years
|
We capitalize the costs of software developed for internal use
when the preliminary project stage of the application has been
completed and it is probable that the project will be completed
and used to perform the function intended. Amortization
commences when the software is placed into service.
We also capitalize interest on internal software development
projects. The amount of interest capitalized is computed by
applying our weighted average borrowing rate to qualifying
expenditures. We capitalized almost nil, $1 million and
$3 million of interest during the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007, respectively.
We evaluate the recoverability of our long-lived assets,
including property and equipment and finite-lived intangible
assets, when circumstances indicate that the carrying value of
those assets may not be recoverable. This analysis is performed
by comparing the carrying values of the assets to the current
and expected future cash flows to be generated from these
assets, on an undiscounted basis. If this analysis indicates
that the carrying value of an asset is not recoverable, the
carrying value is reduced to fair value through an impairment
charge in our consolidated statements of operations.
Goodwill,
Trademarks and Other Intangible Assets
Goodwill represents the excess of the purchase price over the
estimated fair value of the underlying assets acquired and
liabilities assumed in the acquisition of a business. We assign
goodwill to reporting units that are expected to benefit from
the business combination as of the acquisition date. Goodwill is
not subject to amortization.
80
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our indefinite-lived intangible assets include our trademarks
and trade names, which are not subject to amortization. Our
finite-lived intangible assets primarily include our customer
and vendor relationships and are amortized over their estimated
useful lives, generally 4 to 8 years, using the
straight-line method. Our intangible assets primarily relate to
the acquisition of entities accounted for using the purchase
method of accounting and are estimated by management based on
the fair value of assets received.
We assess the carrying value of goodwill and other
indefinite-lived intangible assets for impairment annually or
more frequently whenever events occur and circumstances change
indicating potential impairment. We perform our annual
impairment testing of goodwill and other indefinite-lived
intangible assets in the fourth quarter of each year, in
connection with our annual planning process.
We assess goodwill for possible impairment using a two-step
process. The first step identifies if there is potential
goodwill impairment. If step one indicates that an impairment
may exist, a second step is performed to measure the amount of
the goodwill impairment, if any. Goodwill impairment exists when
the estimated fair value of goodwill is less than its carrying
value. If impairment exists, the carrying value of the goodwill
is reduced to fair value through an impairment charge in our
consolidated statements of operations.
For purposes of goodwill impairment testing, we estimate the
fair value of our reporting units to which goodwill is allocated
using generally accepted valuation methodologies, including
market and income based approaches, and relevant data available
through and as of the testing date. The market approach is a
valuation method in which fair value is estimated based on
observed prices in actual transactions and on asking prices for
similar assets. Under the market approach, the valuation process
is essentially that of comparison and correlation between the
subject asset and other similar assets. The income approach is a
method in which fair value is estimated based on the cash flows
that an asset could be expected to generate over its useful
life, including residual value cash flows. These cash flows are
then discounted to their present value equivalents using a rate
of return that accounts for the relative risk of not realizing
the estimated annual cash flows and for the time value of money.
Variations of the income approach are used to estimate certain
of the intangible asset fair values.
We assess our trademarks and trade names for impairment by
comparing their carrying value to their estimated fair value.
Impairment exists when the estimated fair value of the trademark
or trade name is less than its carrying value. If impairment
exists, then the carrying value is reduced to fair value through
an impairment charge recorded to our consolidated statements of
operations. We use a market or income valuation approach, as
described above, to estimate fair values of the relevant
trademarks and trade names.
Tax
Sharing Liability
We have a liability included in our consolidated balance sheets
that relates to a tax sharing agreement between Orbitz and the
Founding Airlines. The agreement governs the allocation of tax
benefits resulting from a taxable exchange that took place in
connection with the Orbitz initial public offering in December
2003 (Orbitz IPO). As a result of this taxable
exchange, the Founding Airlines incurred a taxable gain. The
taxable exchange caused Orbitz to have additional future tax
deductions for depreciation and amortization due to the
increased tax basis of its assets. The additional tax deductions
for depreciation and amortization may reduce the amount of taxes
we are required to pay in future years. For each tax period
during the term of the tax sharing agreement, we are obligated
to pay the Founding Airlines a significant percentage of the
amount of the tax benefit realized as a result of the taxable
exchange. The tax sharing agreement commenced upon consummation
of the Orbitz IPO and continues until all tax benefits have been
utilized.
We use discounted cash flows in calculating and recognizing the
tax sharing liability. We review the calculation of the tax
sharing liability on a quarterly basis and make revisions to our
estimated timing of payments when appropriate. We also assess
whether there are any significant changes, such as changes in
timing of payments and tax rates, that could materially affect
the present value of the tax sharing liability.
81
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Although the expected gross remaining payments that may be due
under this agreement are $214 million as of
December 31, 2009, the timing of payments may change. Any
changes in timing of payments are recognized prospectively as
accretions to the tax sharing liability in our consolidated
balance sheets and non-cash interest expense in our consolidated
statements of operations.
At the time of the Blackstone Acquisition, Cendant (now Avis
Budget Group, Inc.) indemnified Travelport and us for a portion
of the amounts due under the tax sharing agreement. As a result,
we have a $37 million receivable included in other
non-current assets in our consolidated balance sheets at
December 31, 2009 and December 31, 2008. Cendant is
obligated to pay us this amount when it receives the tax
benefit. We regularly monitor the financial condition of Cendant
to assess the collectability of this receivable.
Equity-Based
Compensation
We measure equity-based compensation cost at fair value and
recognize the corresponding compensation expense on a
straight-line basis over the service period during which awards
are expected to vest. We include equity-based compensation
expense in the selling, general and administrative line of our
consolidated statements of operations. The fair value of
restricted stock and restricted stock units is determined based
on the average of the high and low price of our common stock on
the date of grant. The fair value of stock options is determined
on the date of grant using the Black-Scholes valuation model.
The amount of equity-based compensation expense recorded each
period is net of estimated forfeitures. We estimate forfeitures
based on historical employee turnover rates, the terms of the
award issued and assumptions regarding future employee turnover.
Recently
Issued Accounting Pronouncements
In September 2006, the FASB issued guidance that defines fair
value, establishes a framework for measuring fair value and
expands disclosure about fair value measurements. This guidance,
as it applies to non-financial assets and non-financial
liabilities that are recognized at fair value on a nonrecurring
basis, was effective beginning on January 1, 2009. Our
adoption of this guidance for our non-financial assets and
non-financial liabilities did not have a material impact on our
consolidated financial position or results of operations.
In December 2007, the FASB issued updated guidance that
establishes principles and requirements for the reporting entity
in a business combination, including recognition and measurement
in the financial statements of the identifiable assets acquired,
the liabilities assumed, and any non-controlling interest in the
acquiree. This guidance also establishes disclosure requirements
to enable financial statement users to evaluate the nature and
financial effects of the business combination. We adopted this
guidance on January 1, 2009. Our adoption of this guidance
will not have an effect on our consolidated financial statements
unless we enter into a business combination or reduce our
deferred tax valuation allowance that was established in
purchase accounting. Prior to our adoption of this guidance, any
reductions in our remaining deferred income tax valuation
allowance that was originally established in purchase accounting
were recorded through goodwill. Beginning January 1, 2009,
these reductions are recorded through our consolidated
statements of operations.
In December 2007, the FASB issued updated guidance that
establishes accounting and reporting standards for the
noncontrolling interest (previously referred to as minority
interest) in a subsidiary and for the deconsolidation of a
subsidiary. This guidance requires that noncontrolling interests
be classified as a separate component of equity in the
consolidated financial statements and requires that the amount
of net income attributable to noncontrolling interests be
included in consolidated net income. This guidance was effective
January 1, 2009 on a prospective basis, except for the
presentation and disclosure requirements, which are
82
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
applied retrospectively. Our adoption of this guidance did not
have a material impact on our consolidated financial position or
results of operations.
In March 2008, the FASB issued guidance that changes the
disclosure requirements for derivative instruments and hedging
activities previously identified. This guidance provides for
enhanced disclosures regarding (a) how and why an entity
uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for and (c) how
derivative instruments and related hedged items affect an
entitys financial position, financial performance, and
cash flows. We adopted this guidance on January 1, 2009.
Our adoption of this guidance did not have an impact on our
consolidated financial position or results of operations. The
applicable disclosures are included in Note 14
Derivative Financial Instruments.
In June 2008, the FASB issued guidance that states that unvested
share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the
computation of earnings per share using the two-class method.
This guidance also requires all prior period earnings per share
data presented to be adjusted retrospectively. We adopted this
guidance on January 1, 2009, and it did not have an impact
on our consolidated financial statements or calculation of
earnings per share.
In April 2009, the FASB issued guidance that requires
disclosures about the fair value of financial instruments for
interim reporting periods and in annual financial statements.
This guidance was effective for interim reporting periods ending
after June 15, 2009. Our adoption of this guidance did not
have an impact on our consolidated financial position or results
of operations. The applicable disclosures are included in
Note 19 Fair Value Measurements.
In May 2009, the FASB issued guidance that establishes general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued or available to be issued. This guidance sets forth the
period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance
sheet date in its financial statements, and the disclosures that
an entity should make about events or transactions that occurred
after the balance sheet date. This guidance was effective for
interim or annual periods ending after June 15, 2009. Our
adoption of this guidance did not have an impact on our
consolidated financial position or results of operations.
In June 2009, the FASB issued The FASB Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting Principles,
which identifies the sources of accounting principles and the
framework for selecting principles used in the preparation of
financial statements of nongovernmental entities that are
presented in conformity with GAAP in the United States. The new
codification was effective for interim and annual periods ending
after September 15, 2009. Our adoption of the new
codification did not have an impact on our consolidated
financial position or results of operations.
In August 2009, the FASB issued guidance that addresses the
impact of transfer restrictions on the fair value of a liability
and the ability to use the fair value of a liability that is
traded as an asset as an input to the valuation of the
underlying liability. The guidance also clarifies the
application of certain valuation techniques, including when to
make adjustments to fair value. This guidance was effective in
the fourth quarter of 2009. The adoption of this guidance did
not have an impact on our consolidated financial position or
results of operations.
In September 2009, the FASB issued guidance that allows
companies to allocate arrangement consideration in a multiple
element arrangement in a way that better reflects the
transaction economics. It provides another alternative for
establishing fair value for a deliverable when vendor specific
objective evidence or third party evidence for deliverables in
an arrangement cannot be determined. When this evidence cannot
be determined, companies will be required to develop a best
estimate of the selling price to separate deliverables
83
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and allocate arrangement consideration using the relative
selling price method. The guidance also expands the disclosure
requirements to require that an entity provide both qualitative
and quantitative information about the significant judgments
made in applying this guidance. This guidance is effective on a
prospective basis for revenue arrangements entered into or
materially modified on or after January 1, 2011. We are
currently assessing the impact of this guidance on our financial
position and results of operations.
In January 2010, the FASB issued guidance that requires expanded
disclosures about fair value measurements. This guidance adds
new requirements for disclosures about transfers into and out of
Levels 1 and 2 and separate disclosures about purchases,
sales, issuances, and settlements relating to Level 3
measurements. It also clarifies existing fair value disclosures
about the level of disaggregation and about inputs and valuation
techniques used to measure fair value. This guidance is
effective for the first reporting period beginning after
December 15, 2009, except for the requirement to provide
the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010, and for interim
periods within those fiscal years. We are currently assessing
the impact of this guidance on our financial position and
results of operations.
|
|
3.
|
Impairment
of Goodwill and Intangible Assets
|
We assess the carrying value of goodwill and other
indefinite-lived intangible assets for impairment annually or
more frequently whenever events occur and circumstances change
indicating potential impairment. We also evaluate the
recoverability of our long-lived assets, including our
finite-lived intangible assets, when circumstances indicate that
the carrying value of those assets may not be recoverable. See
Note 2 Summary of Significant Accounting
Policies for further information on our accounting policy for
goodwill, other indefinite-lived intangible assets and
finite-lived intangible assets.
2009
During the three months ended March 31, 2009, we
experienced a significant decline in our stock price, and
economic and industry conditions continued to weaken. These
factors, coupled with an increase in competitive pressures,
indicated potential impairment of our goodwill and trademarks
and trade names. As a result, in connection with the preparation
of our financial statements for the first quarter of 2009, we
performed an interim impairment test of goodwill and trademarks
and trade names.
For purposes of testing goodwill for potential impairment, we
estimated the fair value of the applicable reporting units to
which all goodwill is allocated using generally accepted
valuation methodologies, including market and income based
approaches, and relevant data available through and as of
March 31, 2009.
For purposes of testing our indefinite-lived intangible assets
for impairment, we used appropriate valuation techniques to
separately estimate the fair values of all of our
indefinite-lived intangible assets as of March 31, 2009 and
compared those estimates to the respective carrying values. Our
indefinite-lived intangible assets are comprised of trademarks
and trade names. We used an income valuation approach to
estimate fair values of the relevant trademarks and trade names.
The key inputs to the discounted cash flow model were our
historical and estimated future revenues, an assumed royalty
rate, and the discount rate, among others. While certain of
these inputs are observable, significant judgment was required
to select certain inputs from observed market data.
As part of our interim impairment test, we were required to
determine the fair values of our finite-lived intangible assets,
including our customer and vendor relationships, as of
March 31, 2009. We determined the fair values of our
finite-lived intangible assets by discounting the estimated
future cash flows of these assets.
As a result of this testing, we concluded that the goodwill and
trademarks and trade names related to both our domestic and
international subsidiaries were impaired. Accordingly, we
recorded a non-cash impairment charge of $332 million
during the year ended December 31, 2009, of which
$250 million related to goodwill
84
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and $82 million related to trademarks and trade names. This
charge is included in the impairment of goodwill and intangible
assets expense line item in our consolidated statement of
operations.
Due to the current economic uncertainty and other factors, we
cannot assure that the remaining amounts of goodwill,
indefinite-lived intangible assets and finite-lived intangible
assets will not be further impaired in future periods.
2008
During the year ended December 31, 2008, in connection with
our annual planning process, we lowered our long-term earnings
forecast in response to changes in the economic environment,
including the potential future impact of airline capacity
reductions, increased fuel prices and a weakening global
economy. These factors, coupled with a prolonged decline in our
market capitalization, indicated potential impairment of our
goodwill and trademarks and trade names. Additionally, given the
economic environment, our distribution partners were under
increased pressure to reduce their overall costs and could have
attempted to terminate or renegotiate their agreements with us
on more favorable terms to them. These factors indicated that
the carrying value of certain of our finite-lived intangible
assets, specifically customer relationships, may not be
recoverable. As a result, in connection with the preparation of
our financial statements for the third quarter of 2008, we
performed an interim impairment test of our goodwill,
indefinite-lived intangible assets and finite-lived intangible
assets.
For purposes of testing goodwill for potential impairment, we
estimated the fair value of the applicable reporting units to
which all goodwill is allocated using generally accepted
valuation methodologies, including the market and income based
approaches, and relevant data available through and as of
September 30, 2008.
We further used appropriate valuation techniques to separately
estimate the fair values of all of our indefinite-lived
intangible assets as of September 30, 2008 and compared
those estimates to the respective carrying values. We used a
market or income valuation approach to estimate fair values of
the relevant trademarks and trade names.
We also determined the estimated fair values of certain of our
finite-lived intangible assets as of September 30, 2008,
specifically certain of our customer relationships whose
carrying values exceeded their expected future cash flows on an
undiscounted basis. We determined the fair values of these
customer relationships by discounting the estimated future cash
flows of these assets. We then compared the estimated fair
values to the respective carrying values.
As a result of this testing, we concluded that the goodwill and
trademarks and trade names related to both our domestic and
international subsidiaries as well as the customer relationships
related to our domestic subsidiaries were impaired. Accordingly,
we recorded a non-cash impairment charge of $297 million
during the year ended December 31, 2008, of which
$210 million related to goodwill, $74 million related
to trademarks and trade names and $13 million related to
customer relationships. This charge is included in the
impairment of goodwill and intangible assets expense line item
in our consolidated statements of operations.
85
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Property
and Equipment, Net
|
Property and equipment, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
|
Capitalized software
|
|
$
|
221
|
|
|
$
|
188
|
|
Furniture, fixtures and equipment
|
|
|
69
|
|
|
|
60
|
|
Leasehold improvements
|
|
|
13
|
|
|
|
13
|
|
Construction in progress
|
|
|
14
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Gross property and equipment
|
|
|
317
|
|
|
|
276
|
|
Less: accumulated depreciation and amortization
|
|
|
(136
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
181
|
|
|
$
|
190
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009, December 31,
2008 and December 31, 2007, we recorded depreciation and
amortization expense related to property and equipment in the
amount of $52 million, $48 million and
$37 million, respectively.
There were no assets subject to capital leases at
December 31, 2009 and December 31, 2008.
|
|
5.
|
Goodwill
and Intangible Assets
|
In connection with the Blackstone Acquisition, the carrying
value of our assets and liabilities was revised to reflect fair
values as of August 23, 2006. The total amount of resulting
goodwill that was assigned to us was $1.2 billion.
Goodwill and indefinite-lived intangible assets consisted of the
following at December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
|
Goodwill and Indefinite-Lived Intangible Assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
713
|
|
|
$
|
949
|
|
Trademarks and trade names
|
|
|
155
|
|
|
|
232
|
|
The changes in the carrying amount of goodwill were as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in millions)
|
|
|
Balance at December 31, 2007, net of accumulated impairment
of $0
|
|
$
|
1,181
|
|
Impairment (a)
|
|
|
(210
|
)
|
Impact of foreign currency translation (b)
|
|
|
(22
|
)
|
|
|
|
|
|
Balance at December 31, 2008, net of accumulated impairment
of $210
|
|
|
949
|
|
Impairment (a)
|
|
|
(250
|
)
|
Impact of foreign currency translation (b)
|
|
|
14
|
|
|
|
|
|
|
Balance at December 31, 2009, net of accumulated impairment
of $460
|
|
$
|
713
|
|
|
|
|
|
|
|
|
|
(a) |
|
During the years ended December 31, 2009 and
December 31, 2008, we recorded non-cash impairment charges
related to goodwill and trademarks and trade names (see
Note 3 Impairment of Goodwill and Intangible
Assets). |
|
(b) |
|
Goodwill is allocated among our subsidiaries, including certain
international subsidiaries. As a result, the carrying amount of
our goodwill is impacted by foreign currency translation each
period. |
86
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Finite-lived intangible assets consisted of the following at
December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Weighted
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Average
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Useful Life
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Useful Life
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
(in years)
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
(in years)
|
|
|
Finite-Lived Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships (a)
|
|
$
|
66
|
|
|
$
|
(50
|
)
|
|
$
|
16
|
|
|
|
4
|
|
|
$
|
68
|
|
|
$
|
(37
|
)
|
|
$
|
31
|
|
|
|
4
|
|
Vendor relationships and other
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
7
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Finite-Lived Intangible Assets
|
|
$
|
71
|
|
|
$
|
(52
|
)
|
|
$
|
19
|
|
|
|
5
|
|
|
$
|
72
|
|
|
$
|
(38
|
)
|
|
$
|
34
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During the year ended December 31, 2008, we recorded a
non-cash impairment charge of $13 million related to our
customer relationships (see Note 3 Impairment
of Goodwill and Intangible Assets). |
For the years ended December 31, 2009, December 31,
2008 and December 31, 2007, we recorded amortization
expense related to finite-lived intangible assets in the amount
of $17 million, $18 million and $20 million,
respectively. These amounts are included in depreciation and
amortization expense in our consolidated statements of
operations.
The table below shows estimated amortization expense related to
our finite-lived intangible assets over the next five years:
|
|
|
|
|
Year
|
|
(in millions)
|
|
|
2010
|
|
$
|
11
|
|
2011
|
|
|
3
|
|
2012
|
|
|
2
|
|
2013
|
|
|
2
|
|
2014
|
|
|
1
|
|
|
|
|
|
|
Total
|
|
$
|
19
|
|
|
|
|
|
|
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
|
Employee costs (a)
|
|
|
$33
|
|
|
|
$13
|
|
Advertising and marketing
|
|
|
18
|
|
|
|
29
|
|
Tax sharing liability, current
|
|
|
17
|
|
|
|
15
|
|
Rebates
|
|
|
6
|
|
|
|
6
|
|
Customer service costs
|
|
|
6
|
|
|
|
5
|
|
Contract exit costs (b)
|
|
|
5
|
|
|
|
4
|
|
Technology costs
|
|
|
4
|
|
|
|
7
|
|
Professional fees
|
|
|
4
|
|
|
|
4
|
|
Unfavorable contracts, current
|
|
|
3
|
|
|
|
3
|
|
Facilities costs
|
|
|
3
|
|
|
|
4
|
|
Other
|
|
|
14
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
|
$113
|
|
|
|
$106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
At December 31, 2009, the employee costs line item includes
amounts accrued related to our Performance-Based Annual
Incentive Plan. At December 31, 2008, based on Company
performance, no such amounts were accrued. |
87
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(b) |
|
In connection with our early termination of an agreement during
the year ended December 31, 2007, we are required to make
termination payments totaling $18 million from
January 1, 2008 to December 31, 2016, and we recorded
a $13 million charge to selling, general and administrative
expense in our consolidated statements of operations for the
year ended December 31, 2007. We accreted interest expense
of $1 million related to the termination liability during
each of the years ended December 31, 2009,
December 31, 2008 and December 31, 2007. We also made
the required termination payments of $4 million,
$1 million and $0 during the years ended December 31,
2009, December 31, 2008 and December 31, 2007,
respectively. At December 31, 2009, the net present value
of the remaining termination payments of $11 million was
included in our consolidated balance sheets, $5 million of
which was included in accrued expenses and $6 million of
which was included in other non-current liabilities. At
December 31, 2008, the net present value of the remaining
termination payments of $14 million was included in our
consolidated balance sheets, $4 million of which was
included in accrued expenses and $10 million of which was
included in other non-current liabilities. |
|
|
7.
|
Term Loan
and Revolving Credit Facility
|
On July 25, 2007, concurrent with the IPO, we entered into
a $685 million senior secured credit agreement
(Credit Agreement) consisting of a seven-year
$600 million term loan facility (Term Loan) and
a six-year $85 million revolving credit facility
(Revolver).
Term
Loan
The Term Loan bears interest at a variable rate, at our option,
of LIBOR plus a margin of 300 basis points or an
alternative base rate plus a margin of 200 basis points.
The alternative base rate is equal to the higher of the Federal
Funds Rate plus one half of 1% and the prime rate
(Alternative Base Rate). The principal amount of the
Term Loan is payable in quarterly installments of
$1.5 million, with the final installment (equal to the
remaining outstanding balance) due upon maturity in July 2014.
In addition, beginning with the first quarter of 2009, we are
required to make an annual prepayment on the Term Loan in the
first quarter of each fiscal year in an amount up to 50% of the
prior years excess cash flow, as defined in the Credit
Agreement. Prepayments from excess cash flow are applied, in
order of maturity, to the scheduled quarterly term loan
principal payments. Based on our cash flow for the year ended
December 31, 2008, we were not required to make a
prepayment in 2009. Based on our cash flow for the year ended
December 31, 2009, we are required to make a prepayment on
the Term Loan of $21 million in the first quarter of 2010.
The potential amount of prepayment from excess cash flow that
will be required beyond the first quarter of 2010 is not
reasonably estimable as of December 31, 2009.
The changes in the Term Loan during the years ended
December 31, 2009 and December 31, 2008 were as
follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in millions)
|
|
|
Balance at December 31, 2007
|
|
$
|
599
|
|
Scheduled principal payments
|
|
|
(6
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
593
|
|
Scheduled principal payments
|
|
|
(6
|
)
|
Repurchases (a)
|
|
|
(10
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
577
|
|
|
|
|
|
|
|
|
|
|
(a)
|
On June 2, 2009, we entered into an amendment (the
Amendment) to our Credit Agreement, which permits us
to purchase portions of the outstanding Term Loan on a non-pro
rata basis using cash up to $10 million and future cash proceeds
from equity issuances and in exchange for equity interests on
|
88
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
or prior to June 2, 2010. Any portion of the Term Loan
purchased by us will be retired pursuant to the terms of the
amendment.
On June 17, 2009, we completed the purchase of
$10 million in principal amount of the Term Loan, as
required by the Amendment. The principal amount of the Term Loan
purchased (net of associated unamortized debt issuance costs of
almost nil) exceeded the amount we paid to purchase the debt
(inclusive of miscellaneous fees incurred) by $2 million.
Accordingly, we recorded a $2 million gain on
extinguishment of a portion of the Term Loan, which is included
in gain on extinguishment of debt in our consolidated statements
of operations for the year ended December 31, 2009.
At December 31, 2009, we had interest rate swaps
outstanding that effectively converted $200 million of the
Term Loan to a fixed interest rate (see Note 14
Derivative Financial Instruments). At December 31, 2009,
$100 million of the Term Loan effectively bears interest at
a fixed rate of 6.39% and an additional $100 million of the
Term Loan effectively bears interest at a fixed rate of 5.98%,
through these interest rate swaps. Of the remaining
$377 million of the Term Loan, $327 million bears
interest at a variable rate of LIBOR plus 300 basis points,
or 3.23%, as of December 31, 2009, which is based on the
one-month LIBOR, and $50 million bears interest at a
variable rate of LIBOR plus 300 basis points, or 3.26%, as
of December 31, 2009, which is based on the three-month
LIBOR.
At December 31, 2008, we had interest rate swaps
outstanding that effectively converted $400 million of the
Term Loan to a fixed interest rate. At December 31, 2008,
$200 million of the Term Loan effectively had a fixed
interest rate of 8.21%, $100 million of the Term Loan
effectively had a fixed interest rate of 6.39% and an additional
$100 million of the Term Loan effectively had a fixed
interest rate of 5.98%, through these interest rate swaps. Of
the remaining $193 million of the Term Loan,
$100 million had a variable interest rate of LIBOR plus
300 basis points, or 4.46%, as of December 31, 2008,
which was based on the three-month LIBOR, and $93 million
had a variable interest rate of LIBOR plus 300 basis
points, or 3.46%, as of December 31, 2008, which was based
on the one-month LIBOR.
Revolver
The Revolver provides for borrowings and letters of credit of up
to $85 million ($50 million in U.S. dollars and
the equivalent of $35 million denominated in Euros and
Pounds Sterling) and bears interest at a variable rate, at our
option, of LIBOR plus a margin of 225 basis points or an
Alternative Base Rate plus a margin of 125 basis points.
The margin is subject to change based on our total leverage
ratio, as defined in the Credit Agreement, with a maximum margin
of 250 basis points on LIBOR-based loans and 150 basis
points on Alternative Base Rate loans. We also incur a
commitment fee of 50 basis points on any unused amounts on
the Revolver. The Revolver matures in July 2013.
Lehman Commercial Paper Inc., which filed for bankruptcy
protection under Chapter 11 of the United States Bankruptcy
Code on October 5, 2008, held a $12.5 million
commitment, or 14.7% percent, of the $85 million available
under the Revolver. As a result, total availability under the
Revolver has effectively been reduced from $85 million to
$72.5 million.
At December 31, 2009 and December 31, 2008,
$42 million and $21 million of borrowings were
outstanding under the Revolver, respectively, all of which were
denominated in U.S. dollars. In addition, at
December 31, 2009, there was the equivalent of
$5 million of outstanding letters of credit issued under
the Revolver, which were denominated in Pounds Sterling. There
were no outstanding letters of credit issued under the Revolver
at December 31, 2008. The amount of letters of credit
issued under the Revolver reduces the amount available to us for
borrowings. We had $26 million and $52 million of
availability under the Revolver at December 31, 2009 and
December 31, 2008, respectively.
At December 31, 2009, the $42 million of borrowings
outstanding under the Revolver bear interest at a variable rate
equal to the
U.S.-dollar
LIBOR rate plus 225 basis points, or 2.48%. At
December 31, 2008,
89
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$11 million of the outstanding borrowings had an interest
rate equal to the Alternative Base Rate plus 150 basis
points, or 4.75%, and $10 million of the outstanding
borrowings had a variable interest rate of LIBOR plus
250 basis points, or 2.96%. Commitment fees on unused
amounts under the Revolver were almost nil for each of the years
ended December 31, 2009, December 31, 2008 and
December 31, 2007.
We incurred an aggregate of $5 million of debt issuance
costs in connection with the Term Loan and Revolver. These costs
are being amortized to interest expense over the contractual
terms of the Term Loan and Revolver based on the effective-yield
method. Amortization of debt issuance costs was $1 million,
$1 million and almost nil for the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007, respectively.
The Term Loan and Revolver are both secured by substantially all
of our and our domestic subsidiaries tangible and
intangible assets, including a pledge of 100% of the outstanding
capital stock or other equity interests of substantially all of
our direct and indirect domestic subsidiaries and 65% of the
capital stock or other equity interests of certain of our
foreign subsidiaries, subject to certain exceptions. The Term
Loan and Revolver are also guaranteed by substantially all of
our domestic subsidiaries.
The Credit Agreement contains various customary restrictive
covenants that limit our ability to, among other things: incur
additional indebtedness or enter into guarantees; enter into
sale or leaseback transactions; make investments, loans or
acquisitions; grant or incur liens on our assets; sell our
assets; engage in mergers, consolidations, liquidations or
dissolutions; engage in transactions with affiliates; and make
restricted payments.
The Credit Agreement requires us not to exceed a maximum total
leverage ratio, which declines through March 31, 2011, and
to maintain a minimum fixed charge coverage ratio, each as
defined in the Credit Agreement. As of December 31, 2009,
we were required not to exceed a maximum total leverage ratio of
4.25 to 1 and to maintain a minimum fixed charge coverage ratio
of 1 to 1. As of December 31, 2009, we were in compliance
with all covenants and conditions of the Credit Agreement.
The table below shows the aggregate maturities of the Term Loan
and Revolver over the next five years, excluding any mandatory
repayments that could be required under the Term Loan beyond the
first quarter of 2010:
|
|
|
|
|
Year
|
|
(in millions)
|
|
|
2010
|
|
$
|
21
|
|
2011
|
|
|
|
|
2012
|
|
|
|
|
2013
|
|
|
45
|
|
2014
|
|
|
553
|
|
|
|
|
|
|
Total
|
|
$
|
619
|
|
|
|
|
|
|
|
|
8.
|
Exchange
Agreement and Stock Purchase Agreement
|
On November 4, 2009, we entered into an Exchange Agreement
(the Exchange Agreement) with PAR Investment
Partners, L.P. (PAR). Pursuant to the Exchange
Agreement, as amended, PAR agreed to exchange $50 million
aggregate principal amount of term loans outstanding under our
senior secured credit agreement for 8,141,402 shares of our
common stock. Concurrently with the entry into the Exchange
Agreement, we also entered into a Stock Purchase Agreement (the
Stock Purchase Agreement) with Travelport pursuant
to which Travelport agreed to purchase 9,025,271 shares of
our common stock for $50 million in cash. Both equity
investments were priced at $5.54 per share based on the market
closing price of the Companys common stock on Tuesday,
November 3, 2009.
90
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The equity investments contemplated by the Exchange Agreement
and the Stock Purchase Agreement were subject to customary
closing conditions, including a condition that both transactions
must close simultaneously, and were subject to shareholder
approval under the New York Stock Exchange rules.
In connection with the Exchange Agreement and the Stock Purchase
Agreement, the Company entered into a Shareholders
Agreement with PAR and Travelport pursuant to which, contingent
upon the completion of the transactions contemplated by the
Exchange Agreement and the Stock Purchase Agreement, PAR has the
right to designate one director and Travelport has the right to
designate an additional director to our Board of Directors. Both
transactions closed in January 2010 (see
Note 23 Subsequent Events).
We have a liability included in our consolidated balance sheets
that relates to a tax sharing agreement between Orbitz and the
Founding Airlines. The agreement governs the allocation of tax
benefits resulting from a taxable exchange that took place in
connection with the Orbitz IPO in December 2003. As a result of
this taxable exchange, the Founding Airlines incurred a taxable
gain. The taxable exchange caused Orbitz to have additional
future tax deductions for depreciation and amortization due to
the increased tax basis of its assets. The additional tax
deductions for depreciation and amortization may reduce the
amount of taxes we are required to pay in future years. For each
tax period during the term of the tax sharing agreement, we are
obligated to pay the Founding Airlines a significant percentage
of the amount of the tax benefit realized as a result of the
taxable exchange. The tax sharing agreement commenced upon
consummation of the Orbitz IPO and continues until all tax
benefits have been utilized.
As of December 31, 2009, the estimated remaining payments
that may be due under this agreement were approximately
$214 million. Payments under the tax sharing agreement are
generally due in the second, third and fourth calendar quarters
of the year, with two payments due in the second quarter. We
estimate that the net present value of our obligation to pay tax
benefits to the Founding Airlines was $126 million and
$124 million at December 31, 2009 and
December 31, 2008, respectively. This estimate is based
upon certain assumptions, including our future operating
performance and taxable income, the tax rate, the timing of tax
payments, current and projected market conditions, and the
applicable discount rate, all of which we believe are
reasonable. The discount rate assumption is based on our
weighted average cost of capital at the time of the Blackstone
Acquisition, which was approximately 12%. These assumptions are
inherently uncertain, however, and actual results could differ
from our estimates.
The table below shows the changes in the tax sharing liability
over the past two years:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in millions)
|
|
|
Balance at December 31, 2007
|
|
$
|
141
|
|
Accretion of interest expense (a)
|
|
|
17
|
|
Cash payments
|
|
|
(20
|
)
|
Adjustment due to a reduction in our effective tax rate (b)
|
|
|
(14
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
124
|
|
Accretion of interest expense (a)
|
|
|
13
|
|
Cash payments
|
|
|
(11
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
|
(a)
|
We accreted interest expense related to the tax sharing
liability of $13 million, $17 million and
$14 million for the years ended December 31, 2009,
December 31, 2008 and December 31, 2007, respectively.
|
91
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
(b)
|
This adjustment was recorded to appropriately reflect our
liability under the tax sharing agreement following a reduction
in our effective tax rate during the year ended
December 31, 2008, which resulted from a change in state
tax law as it relates to the apportionment of income. The
reduction in our effective tax rate reduces the estimated
remaining payments that may be due to the airlines under the tax
sharing agreement. The adjustment to the tax sharing liability
was recorded as a reduction to selling, general and
administrative expense in our consolidated statements of
operations, as this liability represents a commercial liability,
not a tax liability. If our effective tax rate changes in the
future, at either the federal or state level, we may be required
to further adjust our liability under the tax sharing agreement.
|
Based upon the future payments we expect to make, the current
portion of the tax sharing liability of $17 million and
$15 million is included in accrued expenses in our
consolidated balance sheets at December 31, 2009 and
December 31, 2008, respectively. The long-term portion of
the tax sharing liability of $109 million is reflected as
the tax sharing liability in our consolidated balance sheets at
December 31, 2009 and December 31, 2008. At the time
of the Blackstone Acquisition, Cendant (now Avis Budget Group,
Inc.) indemnified Travelport and us for a portion of the amounts
due under the tax sharing agreement. As a result, we recorded a
receivable of $37 million which is included in other
non-current assets in our consolidated balance sheets at
December 31, 2009 and December 31, 2008, respectively.
We expect to collect this receivable when Cendant receives the
tax benefit. Similar to our trade accounts receivable, if we
were, in the future, to determine that all or a portion of this
receivable is not collectable, the portion of this receivable
that was no longer deemed collectable would be written off.
The table below shows the estimated payments under our tax
sharing liability over the next five years:
|
|
|
|
|
Year
|
|
(in millions)
|
|
|
2010
|
|
$
|
19
|
|
2011
|
|
|
20
|
|
2012
|
|
|
21
|
|
2013
|
|
|
18
|
|
2014
|
|
|
18
|
|
Thereafter
|
|
|
118
|
|
|
|
|
|
|
Total
|
|
$
|
214
|
|
|
|
|
|
|
|
|
10.
|
Unfavorable
Contracts
|
In December 2003, we entered into amended and restated airline
charter associate agreements, or Charter Associate
Agreements, with the Founding Airlines as well as US
Airways (Charter Associate Airlines). These
agreements pertain to our Orbitz business, which was owned by
the Founding Airlines at the time we entered into the
agreements. Under each Charter Associate Agreement, the Charter
Associate Airline has agreed to provide Orbitz with information
regarding the airlines flight schedules, published air
fares and seat availability at no charge and with the same
frequency and at the same time as this information is provided
to the airlines own website or to a website branded and
operated by the airline and any of its alliance partners or to
the airlines internal reservation system. The agreements
also provide Orbitz with nondiscriminatory access to seat
availability for published fares, as well as marketing and
promotional support. Under each agreement, the Charter Associate
Airline provides us with agreed upon transaction payments when
consumers book air travel on the Charter Associate Airline on
Orbitz.com. The payments we receive are based on the value of
the tickets booked and gradually decrease over time. The
agreements expire on December 31, 2013. However, certain of
the Charter Associate Airlines may terminate their agreements
for any reason or no reason prior to the scheduled expiration
date upon thirty days prior notice to us.
92
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under the Charter Associate Agreements, we must pay a portion of
the GDS incentive revenue we earn from Worldspan back to the
Charter Associate Airlines in the form of a rebate. The rebate
payments are required when airline tickets for travel on a
Charter Associate Airline are booked through the Orbitz.com
website utilizing Worldspan. The rebate payments are made in
part for in-kind marketing and promotional support we receive.
However, a portion of the rebate payments are deemed to be
unfavorable because we receive no benefit for these payments.
The rebate structure under the Charter Associate Agreements was
considered unfavorable when compared with market conditions at
the time of the Blackstone Acquisition. As a result, an
unfavorable contract liability was recorded at its fair value at
the acquisition date. The fair value of the unfavorable contract
liability was determined using the discounted cash flows of the
expected rebates, net of the expected fair value of in-kind
marketing support.
At December 31, 2009 and December 31, 2008, the net
present value of the unfavorable contract liability was
$13 million and $16 million, respectively. The current
portion of the liability of $3 million was included in
accrued expenses in our consolidated balance sheets at
December 31, 2009 and December 31, 2008. The long term
portion of the liability of $10 million and
$13 million is included in unfavorable contracts in our
consolidated balance sheets at December 31, 2009 and
December 31, 2008, respectively.
This liability is being amortized to revenue in our consolidated
statements of operations on a straight-line basis over the
remaining contractual term. We recognized revenue for the
unfavorable portion of the Charter Associate Agreements in the
amount of $3 million for each of the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007.
|
|
11.
|
Commitments
and Contingencies
|
The following table summarizes our commitments as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Operating leases (a)
|
|
$
|
7
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
24
|
|
|
$
|
48
|
|
Travelport GDS contract (b)
|
|
|
42
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
122
|
|
Telecommunications service agreement
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Systems infrastructure agreements
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Software license agreement
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
62
|
|
|
$
|
25
|
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
These operating leases are primarily for facilities and
equipment and represent non-cancelable leases. Certain leases
contain periodic rent escalation adjustments and renewal
options. Our operating leases expire at various dates, with the
latest maturing in 2023. For the years ended December 31,
2009, December 31, 2008 and December 31, 2007, we
recorded rent expense in the amount of $7 million,
$6 million and $8 million, respectively. As a result
of various subleasing arrangements that we have entered into, we
are expecting approximately $4 million in sublease income
through 2012.
|
|
|
|
|
(b)
|
In connection with the IPO, we entered into an agreement with
Travelport to use GDS services provided by both Galileo and
Worldspan (the Travelport GDS Service Agreement).
The Travelport GDS Service Agreement is structured such that we
earn incentive revenue for each segment that is processed
through the Worldspan and Galileo GDSs (the Travelport
GDSs). This agreement requires that we process a certain
minimum number of segments for our domestic brands through the
Travelport GDSs each year. Our domestic brands were required to
process a total of 36 million segments during the year
ended December 31, 2009, 16 million segments through
Worldspan and 20 million segments through Galileo. The
required number of segments processed annually for
|
93
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Worldspan is fixed at 16 million segments, while the
required number of segments for Galileo is subject to adjustment
based upon the actual segments processed by our domestic brands
in the preceding year. We are required to process approximately
18 million segments through Galileo during the year ending
December 31, 2010. Our failure to process at least 95% of
these segments through the Travelport GDSs would result in a
shortfall payment of $1.25 per segment below the required
minimum. Historically, we have met the minimum segment
requirement for our domestic brands. The table above includes
shortfall payments required by the agreement if we do not
process any segments through Worldspan during the remainder of
the contract term and shortfall payments required if we do not
process any segments through Galileo during the year ending
December 31, 2010. Because the required number of segments
for Galileo adjusts based on the actual segments processed in
the preceding year, we are unable to predict shortfall payments
that may be required beyond 2010. However, we do not expect to
make any shortfall payments for our domestic brands in the
foreseeable future.
The Travelport GDS Service Agreement also requires that ebookers
use the Travelport GDSs exclusively in certain countries for
segments processed through GDSs in Europe. Our failure to
process at least 95% of these segments through the Travelport
GDSs would result in a shortfall payment of $1.25 per segment
for each segment processed through an alternative GDS provider.
We failed to meet this minimum segment requirement during each
of the years ended December 31, 2009 and December 31,
2008, and as a result, we were required to make nominal
shortfall payments to Travelport related to each of these years.
Because the required number of segments to be processed through
the Travelport GDSs is dependent on the actual segments
processed by ebookers in certain countries in a given year, we
are unable to predict shortfall payments that may be required
for the years beyond 2009. As a result, the table above excludes
any shortfall payments that may be required related to our
ebookers brands for the years beyond 2009. If we meet the
minimum number of segments, we are not required to make
shortfall payments to Travelport (see Note 18
Related Party Transactions).
In addition to the commitments and contingencies shown above, we
are required to make principal payments on the Term Loan and
repay amounts outstanding on the Revolver at maturity (see
Note 7 Term Loan and Revolving Credit
Facility). We also expect to make approximately
$214 million of payments in connection with the tax sharing
agreement with the Founding Airlines (see
Note 9 Tax Sharing Liability). Also excluded
from the above table are $5 million of liabilities for
uncertain tax positions for which the period of settlement is
not currently determinable.
Company
Litigation
We are involved in various claims, legal proceedings and
governmental inquiries related to contract disputes, business
practices, intellectual property and other commercial,
employment and tax matters.
We are party to various cases brought by consumers and
municipalities and other U.S. governmental entities
involving hotel occupancy taxes and our merchant hotel business
model. Some of the cases are purported class actions, and most
of the cases were brought simultaneously against other online
travel companies, including Expedia, Travelocity and Priceline.
The cases allege, among other things, that we violated the
jurisdictions hotel occupancy tax ordinance. While not
identical in their allegations, the cases generally assert
similar claims, including violations of local or state occupancy
tax ordinances, violations of consumer protection ordinances,
conversion, unjust enrichment, imposition of a constructive
trust, demand for a legal or equitable accounting, injunctive
relief, declaratory judgment, and in some cases, civil
conspiracy. The plaintiffs seek relief in a variety of forms,
including: declaratory judgment, full accounting of monies owed,
imposition of a constructive trust, compensatory and punitive
damages, disgorgement, restitution, interest, penalties and
costs, attorneys
94
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fees, and where a class action has been claimed, an order
certifying the action as a class action. An adverse ruling in
one or more of these cases could require us to pay tax
retroactively and prospectively and possibly pay penalties,
interest and fines. The proliferation of additional cases could
result in substantial additional defense costs.
We have also been contacted by several municipalities or other
taxing bodies concerning our possible obligations with respect
to state or local hotel occupancy or related taxes. The cities
of Phoenix, Arizona; North Little Rock and Pine Bluff, Arkansas;
Colorado Springs and Steamboat Springs, Colorado; Osceola
County, Florida; 42 cities in California; an entity
representing 84 cities and 14 counties in Alabama; the
counties of Jefferson, Arkansas; Brunswick and Stanly, North
Carolina; Duval County, Florida; Davis, Summit, Salt Lake, Utah
and Weber, Utah; the South Carolina Department of Revenue; the
Colorado Department of Revenue and the Hawaii Department of
Taxation have issued notices to the Company. These taxing
authorities have not issued assessments, but have requested
information to conduct an audit
and/or have
requested that the Company register to pay local hotel occupancy
taxes. Additional taxing authorities have begun audit
proceedings and some have issued assessments against the
Company, ranging from almost nil to approximately
$3 million, and totaling approximately $10 million.
Assessments that are administratively final and subject to
judicial review have been issued by the city of Anaheim,
California; the counties of Miami-Dade and Broward, Florida and
the Florida Department of Revenue; the Indiana Department of
Revenue and the Wisconsin Department of Revenue. In addition,
the following taxing authorities have issued assessments which
are subject to further review by the taxing authorities: the
cities of Los Angeles, San Diego and San Francisco,
California; the cities of Alpharetta, Cartersville, Cedartown,
College Park, Dalton, East Point, Hartwell, Macon, Rockmart,
Rome, Tybee Island and Warner Robins, Georgia; the counties of
Augusta, Clayton, Cobb, DeKalb, Fulton, Gwinnett, Hart and
Richmond, Georgia and the city of Philadelphia, Pennsylvania.
The Company disputes that any hotel occupancy or related tax is
owed under these ordinances and is challenging the assessments
made against the Company. If the Company is found to be subject
to the hotel occupancy tax ordinance by a taxing authority and
appeals the decision in court, certain jurisdictions may attempt
to require us to provide financial security or pay the
assessment to the municipality in order to challenge the tax
assessment in court.
We believe that we have meritorious defenses, and we are
vigorously defending against these claims, proceedings and
inquiries. We have not recorded any reserves related to these
hotel occupancy tax matters. Litigation is inherently
unpredictable and, although we believe we have valid defenses in
these matters based upon advice of counsel, unfavorable
resolutions could occur. While we cannot estimate our range of
loss and believe it is unlikely that an adverse outcome will
result from these proceedings, an adverse outcome could be
material to us with respect to earnings or cash flows in any
given reporting period.
We are currently seeking to recover insurance reimbursement for
costs incurred to defend the hotel occupancy tax cases. We
recorded a reduction to selling, general and administrative
expense in our consolidated statements of operations for
reimbursements received of $6 million, $8 million and
$3 million for the years ended December 31, 2009,
December 31, 2008 and December 31, 2007, respectively.
The recovery of additional amounts, if any, by us and the timing
of receipt of these recoveries is unclear. As such, as of
December 31, 2009, we had not recognized a reduction to
selling, general and administrative expense in our consolidated
statements of operations for the outstanding contingent claims
for which we have not received reimbursement.
Surety
Bonds and Bank Guarantees
In the ordinary course of business, we obtain surety bonds and
bank guarantees, issued for the benefit of a third party, to
secure performance of certain of our obligations to third
parties. At December 31, 2009 and December 31, 2008,
there were $1 million and $3 million of surety bonds
outstanding, respectively. At
95
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009 and December 31, 2008, there were
$1 million and $2 million of bank guarantees
outstanding, respectively.
Financing
Arrangements
We are required to issue letters of credit to certain suppliers
and
non-U.S. regulatory
and government agencies. The majority of these letters of credit
were issued by Travelport on our behalf under the terms of the
Separation Agreement (as amended) entered into in connection
with the IPO. The letter of credit fees were $4 million,
$3 million and $2 million for the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007, respectively. At December 31, 2009
and December 31, 2008, there were $59 million and
$67 million of outstanding letters of credit issued by
Travelport on our behalf, respectively (see
Note 18 Related Party Transactions). In
addition, at December 31, 2009, there was the equivalent of
$5 million of outstanding letters of credit issued under
the Revolver, which were denominated in Pounds Sterling. There
were no outstanding letters of credit issued under the Revolver
at December 31, 2008.
Pre-tax (loss) for U.S. and
non-U.S. operations
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
U.S.
|
|
$
|
(275
|
)
|
|
$
|
(124
|
)
|
|
$
|
(6
|
)
|
Non-U.S.
|
|
|
(53
|
)
|
|
|
(177
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(328
|
)
|
|
$
|
(301
|
)
|
|
$
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal and state
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
Non-U.S.
|
|
|
1
|
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
5
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal and state
|
|
|
|
|
|
|
1
|
|
|
|
6
|
|
Non-U.S.
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
(4
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
9
|
|
|
$
|
(2
|
)
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The results of operations of Travelport for the period from
January 1, 2007 to February 7, 2007 were included in
the consolidated U.S. federal and state income tax returns
for the year ended December 31, 2007 filed by Orbitz
Worldwide, Inc. and its subsidiaries. However, the provision for
income taxes was computed as if we filed our U.S. federal,
state and foreign income tax returns on a Separate Company basis
without including the results of operations of Travelport for
the period from January 1, 2007 to February 7, 2007.
For the years ended December 31, 2009 and December 31,
2008, the provision for U.S. federal, state and foreign
income taxes and the calculation of the deferred tax assets and
liabilities were based solely on the
96
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operations of Orbitz Worldwide, Inc. and its subsidiaries. As of
December 31, 2009 and December 31, 2008, our
U.S. federal, state and foreign income taxes receivable was
almost nil and $1 million, respectively.
The provision for income taxes for the year ended
December 31, 2009 was primarily due to a full valuation
allowance established against $11 million of foreign
deferred tax assets related to our Australia-based business, as
it was determined that these deferred tax assets were no longer
realizable. We are required to assess whether valuation
allowances should be established against our deferred tax assets
based on the consideration of all available evidence using a
more likely than not standard. We assessed the
available positive and negative evidence to estimate if
sufficient future taxable income would be generated to utilize
the existing deferred tax assets. A significant piece of
objective negative evidence evaluated in our determination was
cumulative losses incurred over the three year period ended
December 31, 2009. This objective evidence limited our
ability to consider other subjective evidence such as future
growth projections. Additionally, we were not able to realize
any tax benefit on the goodwill and trademarks and trade names
impairment charge, which was recorded during the year ended
December 31, 2009.
The amount of the tax benefit recorded during the year ended
December 31, 2008 is disproportionate to the amount of
pre-tax net loss incurred during the year primarily because we
were not able to realize any tax benefit on the goodwill
impairment charge and only a limited amount of tax benefit on
the trademarks and trade names impairment charge, which were
recorded during the year ended December 31, 2008.
The amount of the tax provision recorded during the year ended
December 31, 2007 is disproportionate to the amount of
pre-tax net loss incurred during the year primarily because we
recorded a full valuation allowance against $30 million of
foreign deferred tax assets related to portions of our
U.K.-based business. Prior to the IPO, we had the ability to
offset these losses with taxable income of Travelport
subsidiaries and affiliates in the U.K. As a result of the IPO,
these subsidiaries are no longer in our U.K. group and, as a
result, their income is not available to offset our losses in
the U.K. group at December 31, 2007.
Our effective income tax rate differs from the U.S. federal
statutory rate as follows for the years ended December 31,
2009, December 31, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal benefit
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
|
|
(1.2
|
)
|
Rate change impact on deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
Taxes on
non-U.S.
operations at differing rates
|
|
|
(0.8
|
)
|
|
|
(1.3
|
)
|
|
|
(2.4
|
)
|
Change in valuation allowance
|
|
|
(10.5
|
)
|
|
|
(9.0
|
)
|
|
|
(110.6
|
)
|
Goodwill impairment
|
|
|
(26.6
|
)
|
|
|
(24.8
|
)
|
|
|
|
|
Foreign deemed dividends
|
|
|
|
|
|
|
|
|
|
|
(12.5
|
)
|
Non deductible public offering costs
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
Reserve for uncertain tax positions
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
(5.1
|
)
|
Other
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(2.8
|
)%
|
|
|
0.7
|
%
|
|
|
(102.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Current and non-current deferred income tax assets and
liabilities in various jurisdictions are comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Current deferred income tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Accrued liabilities and deferred income
|
|
$
|
5
|
|
|
$
|
12
|
|
Provision for bad debts
|
|
|
|
|
|
|
1
|
|
Prepaid expenses
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Tax sharing liability
|
|
|
6
|
|
|
|
6
|
|
Change in reserve accounts
|
|
|
2
|
|
|
|
2
|
|
Other
|
|
|
|
|
|
|
3
|
|
Valuation allowance
|
|
|
(11
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
Current net deferred income tax assets
|
|
$
|
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred income tax assets (liabilities):
|
|
|
|
|
|
|
|
|
U.S. net operating loss carryforwards
|
|
$
|
47
|
|
|
$
|
45
|
|
Non-U.S. net
operating loss carryforwards
|
|
|
95
|
|
|
|
97
|
|
Accrued liabilities and deferred income
|
|
|
6
|
|
|
|
6
|
|
Depreciation and amortization
|
|
|
116
|
|
|
|
107
|
|
Tax sharing liability
|
|
|
39
|
|
|
|
39
|
|
Change in reserve accounts
|
|
|
4
|
|
|
|
5
|
|
Other
|
|
|
22
|
|
|
|
13
|
|
Valuation allowance
|
|
|
(319
|
)
|
|
|
(304
|
)
|
|
|
|
|
|
|
|
|
|
Non-current net deferred income tax assets
|
|
$
|
10
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
The current and deferred income tax assets and liabilities are
presented in our consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Current net deferred income tax assets:
|
|
|
|
|
|
|
|
|
Deferred income tax asset, current
|
|
$
|
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Current net deferred income tax assets
|
|
$
|
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Non-current net deferred income tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Deferred income tax asset, non-current
|
|
$
|
10
|
|
|
$
|
9
|
|
Deferred income tax liability, non-current(a)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Non-current net deferred income tax assets
|
|
$
|
10
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
The non-current portion of the deferred income tax liability at
December 31, 2008 of $1 million is included in other
non-current liabilities in our consolidated balance sheet.
|
At December 31, 2009 and December 31, 2008, we
established valuation allowances against the majority of our
deferred tax assets. As a result, any changes in our gross
deferred tax assets and liabilities during the
98
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
years ended December 31, 2009 and December 31, 2008
were largely offset by corresponding changes in our valuation
allowances, resulting in a decrease in our net deferred tax
assets of $4 million and $1 million, respectively.
The net deferred tax assets at December 31, 2009 and
December 31, 2008 amounted to $10 million and
$14 million, respectively. These net deferred tax assets
relate to temporary tax to book differences in
non-U.S. jurisdictions,
the realization of which is, in managements judgment, more
likely than not. We have assessed, based on experience with
relevant taxing authorities, our expectations of future taxable
income, carry-forward periods available and other relevant
factors, that we will be more likely than not to recognize these
deferred tax assets.
As of December 31, 2009, we had U.S. federal and state
net operating loss carry-forwards of approximately
$116 million and $149 million, respectively, which
expire between 2021 and 2029. In addition, we had
$336 million of
non-U.S. net
operating loss carry-forwards, most of which do not expire.
Additionally, we have $5 million of U.S. federal and
state income tax credit carry-forwards which expire between 2027
and 2029 and $1 million of U.S. federal income tax
credits which have no expiration date. No provision has been
made for U.S. federal or
non-U.S. deferred
income taxes on approximately $10 million of accumulated
and undistributed earnings of foreign subsidiaries at
December 31, 2009. A provision has not been established
because it is our present intention to reinvest the
undistributed earnings indefinitely in those foreign operations.
The determination of the amount of unrecognized
U.S. federal or
non-U.S. deferred
income tax liabilities for unremitted earnings at
December 31, 2009 is not practicable.
In December 2009, as permitted under the U.K. group relief
provisions, we surrendered $17 million of net operating
losses generated in 2007 to Donvand Limited, a subsidiary of
Travelport. A full valuation allowance had previously been
established for such net operating losses. As a result, upon
surrender, we reduced our gross deferred tax assets and the
corresponding valuation allowance by $5 million.
We have established a liability for unrecognized tax benefits
that management believes to be adequate. Once established,
unrecognized tax benefits are adjusted if more accurate
information becomes available, or a change in circumstance or an
event occurs necessitating a change to the liability. Given the
inherent complexities of the business and that we are subject to
taxation in a substantial number of jurisdictions, we routinely
assess the likelihood of additional assessment in each of the
taxing jurisdictions.
The table below shows the changes in this liability during the
years ended December 31, 2009, December 31, 2008 and
December 31, 2007:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in millions)
|
|
|
Balance as of January 1, 2007
|
|
$
|
2
|
|
Increase in unrecognized tax benefits as a result of tax
positions taken during the current year
|
|
|
2
|
|
Decrease in unrecognized tax benefits as a result of tax
positions taken during the prior year
|
|
|
(1
|
)
|
Settlements
|
|
|
(1
|
)
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
2
|
|
Increase in unrecognized tax benefits as a result of tax
positions taken during the prior year
|
|
|
6
|
|
Decrease in unrecognized tax benefits as a result of tax
positions taken during the prior year
|
|
|
(1
|
)
|
Impact of foreign currency translation
|
|
|
(1
|
)
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
6
|
|
Decrease in unrecognized tax benefits as a result of tax
positions taken during the prior year
|
|
|
(1
|
)
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
5
|
|
|
|
|
|
|
99
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total amount of unrecognized tax benefits that, if
recognized, would affect our effective tax rate was
$1 million, $1 million and $2 million as of
December 31, 2009, December 31, 2008 and
December 31, 2007, respectively. We do not expect to make
any cash tax payments nor do we expect any statutes of
limitations to lapse related to our liability for unrecognized
tax benefits within the next twelve months.
We recognize interest and penalties related to unrecognized tax
benefits in income tax expense. We recognized interest and
penalties of almost nil during each of the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007, respectively. Accrued interest and
penalties were $1 million and almost nil as of
December 31, 2009 and December 31, 2008, respectively.
We file income tax returns in the U.S. federal jurisdiction
and various state and foreign jurisdictions. A number of years
may elapse before an uncertain tax position, for which we have
unrecognized tax benefits, is audited and finally resolved. We
adjust these unrecognized tax benefits, as well as the related
interest and penalties, in light of changing facts and
circumstances. Settlement of any particular position could
require the use of cash. Favorable resolution could be
recognized as a reduction to our effective income tax rate in
the period of resolution.
The number of years with open tax audits varies depending on the
tax jurisdiction. Our major taxing jurisdictions include the
U.S. (federal and state), the U.K. and Australia. With
limited exceptions, we are no longer subject to
U.S. federal, state and local income tax examinations by
tax authorities for the years before 2005. We are no longer
subject to U.K. federal income tax examinations for years before
2008. We are no longer subject to Australian federal income tax
examinations for the years before 2005.
With respect to periods prior to the Blackstone Acquisition, we
are only required to take into account income tax returns for
which we or one of our subsidiaries is the primary taxpaying
entity, namely separate state returns and
non-U.S. returns.
Uncertain tax positions related to U.S. federal and state
combined and unitary income tax returns filed are only
applicable in the post-acquisition accounting period. We and our
domestic subsidiaries currently file a consolidated income tax
return for U.S. federal income tax purposes.
In connection with the IPO, on July 25, 2007, the Company
entered into a tax sharing agreement with Travelport, pursuant
to which the Company and Travelport agreed to split, on a
29%/71% basis, all:
|
|
|
|
|
taxes attributable to certain restructuring transactions
undertaken in contemplation of the IPO;
|
|
|
|
certain taxes imposed as a result of prior membership in a
consolidated group, including (i) the consolidated group
for U.S. federal income tax purposes of which the Company
was the common parent and (ii) the consolidated group of
which Cendant Corporation was the common parent; and
|
|
|
|
any tax-related liabilities under the agreement by which
Travelport (which, at the time, included the Company) was
acquired from Cendant Corporation.
|
|
|
13.
|
Equity-Based
Compensation
|
Our employees have participated in the Orbitz Worldwide, Inc.
2007 Equity and Incentive Plan, as amended (the
Plan) since the IPO. Prior to the IPO, our employees
had participated in the Travelport Equity-Based Long-Term
Incentive Plan (the Travelport Plan). The awards
granted under each plan are described below.
Orbitz
Worldwide, Inc. 2007 Equity and Incentive Plan
The Plan provides for the grant of equity-based awards,
including restricted stock, restricted stock units, stock
options, stock appreciation rights and other equity-based awards
to our directors, officers and other employees, advisors and
consultants who are selected by the Compensation Committee of
the Board of Directors (the Compensation Committee)
for participation in the Plan. The number of shares of our
common
100
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stock available for issuance under the Plan is
15,100,000 shares. As of December 31, 2009,
3,222,601 shares were available for future issuance under
the Plan.
Stock Options
The table below summarizes the stock option activity under the
Plan for the years ended December 31, 2009 and
December 31, 2008 and the period from July 18, 2007 to
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value(a)
|
|
|
|
Shares
|
|
|
(per share)
|
|
|
(in years)
|
|
|
(in millions)
|
|
|
Outstanding at July 18, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,732,950
|
|
|
$
|
14.96
|
|
|
|
9.6
|
|
|
|
|
|
Forfeited
|
|
|
(172,274
|
)
|
|
$
|
15.00
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
2,560,676
|
|
|
$
|
14.96
|
|
|
|
9.6
|
|
|
|
|
|
Granted
|
|
|
2,130,059
|
|
|
$
|
6.26
|
|
|
|
6.5
|
|
|
|
|
|
Forfeited
|
|
|
(473,930
|
)
|
|
$
|
12.19
|
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
4,216,805
|
|
|
$
|
10.88
|
|
|
|
7.6
|
|
|
|
|
|
Granted
|
|
|
1,000,000
|
|
|
$
|
4.15
|
|
|
|
6.0
|
|
|
|
|
|
Exercised
|
|
|
(67,522
|
)
|
|
$
|
6.25
|
|
|
|
5.5
|
|
|
|
|
|
Forfeited
|
|
|
(913,200
|
)
|
|
$
|
10.42
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
4,236,083
|
|
|
$
|
9.46
|
|
|
|
6.5
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
1,556,949
|
|
|
$
|
12.81
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Intrinsic value for stock options is defined as the difference
between the current market value and the exercise price. The
aggregate intrinsic value for stock options exercisable at
December 31, 2009 was almost nil. The aggregate intrinsic
value for stock options outstanding at December 31, 2009,
December 31, 2008 and December 31, 2007 was
$5 million, almost nil and $0, respectively.
|
The exercise price of stock options granted under the Plan is
equal to the fair market value of the underlying stock on the
date of grant. Stock options generally expire seven to ten years
from the grant date. The stock options granted at the time of
the IPO as additional compensation to our employees who
previously held equity awards under the Travelport Plan, as
described below, vested 5.555% in August 2007 and vested an
additional 8.586% on each subsequent November, February, May and
August through February 2010, and become fully vested in May
2010. The stock options granted in the year ended
December 31, 2009 vest over a four-year period, with 25% of
the awards vesting after one year and the remaining awards
vesting on a monthly basis thereafter. All other stock options
granted vest annually over a four-year period. The fair value of
stock options on the date of grant is amortized on a
straight-line basis over the requisite service period.
The fair value of stock options granted under the Plan is
estimated on the date of grant using the Black-Scholes
option-pricing model. The weighted average assumptions for stock
options granted during the years ended December 31, 2009
and December 31, 2008 and the period from July 18,
2007 to December 31, 2007 are outlined in the following
table. Expected volatility is based on implied volatilities for
publicly traded options and historical volatility for comparable
companies over the estimated expected life of the stock options.
The expected life represents the period of time the stock
options are expected to be outstanding and is based on the
simplified method. We use the simplified
method due to the lack of sufficient historical exercise
data to provide a reasonable basis upon which to otherwise
estimate the expected life of the stock
101
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
options. The risk-free interest rate is based on yields on
U.S. Treasury strips with a maturity similar to the
estimated expected life of the stock options. We use historical
turnover to estimate employee forfeitures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Period from
|
|
|
|
December 31,
|
|
|
July 18, 2007 to
|
|
Assumptions:
|
|
2009
|
|
|
2008
|
|
|
December 31, 2007
|
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
49
|
%
|
|
|
41
|
%
|
|
|
38
|
%
|
Expected life (in years)
|
|
|
4.58
|
|
|
|
4.76
|
|
|
|
6.16
|
|
Risk-free interest rate
|
|
|
1.47
|
%
|
|
|
3.62
|
%
|
|
|
4.86
|
%
|
Based on the above assumptions, the weighted average grant-date
fair value of stock options granted during the years ended
December 31, 2009 and December 31, 2008 and the period
from July 18, 2007 to December 31, 2007 was $1.73,
$2.54 and $6.89, respectively.
Restricted
Stock Units
The table below summarizes activity regarding unvested
restricted stock units under the Plan for the years ended
December 31, 2009 and December 31, 2008 and the period
from July 18, 2007 to December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
Stock Units
|
|
|
(per share)
|
|
|
Unvested at July 18, 2007
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,687,836
|
|
|
$
|
13.16
|
|
Vested (a)
|
|
|
(181,003
|
)
|
|
$
|
11.73
|
|
Forfeited
|
|
|
(210,482
|
)
|
|
$
|
13.08
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2007
|
|
|
2,296,351
|
|
|
$
|
13.28
|
|
Granted
|
|
|
1,492,703
|
|
|
$
|
6.12
|
|
Vested (a)
|
|
|
(296,366
|
)
|
|
$
|
11.61
|
|
Forfeited
|
|
|
(768,332
|
)
|
|
$
|
12.26
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2008
|
|
|
2,724,356
|
|
|
$
|
9.83
|
|
Granted
|
|
|
4,011,642
|
|
|
$
|
1.92
|
|
Vested (a)
|
|
|
(587,829
|
)
|
|
$
|
8.91
|
|
Forfeited
|
|
|
(497,419
|
)
|
|
$
|
9.79
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2009
|
|
|
5,650,750
|
|
|
$
|
4.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
We issued 425,068 shares, 233,878 shares and
142,440 shares of common stock in connection with the
vesting of restricted stock units during the years ended
December 31, 2009 and December 31, 2008 and the period
from July 18, 2007 to December 31, 2007, respectively,
which is net of the number of shares retained (but not issued)
by us in satisfaction of minimum tax withholding obligations
associated with the vesting.
|
The restricted stock units granted at the time of the IPO upon
conversion of unvested equity-based awards previously held by
our employees under the Travelport Plan, as described below,
vested 5.555% in August 2007 and vested an additional 8.586% on
each subsequent November, February, May and August through
February 2010, and become fully vested in May 2010. All other
restricted stock units cliff vest at the end of either a
two-year or three-year period, or vest annually over a
three-year or four-year period. The fair value of restricted
stock units on the date of grant is amortized on a straight-line
basis over the requisite service period.
102
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total number of restricted stock units that vested during
the years ended December 31, 2009 and December 31,
2008 and the period from July 18, 2007 to December 31,
2007 and the total fair value thereof was 587,829 restricted
stock units, 296,366 restricted stock units and 181,003
restricted stock units, respectively, and $5 million,
$3 million and $2 million, respectively.
Restricted
Stock
The table below summarizes activity regarding unvested
restricted stock under the Plan for the years ended
December 31, 2009 and December 31, 2008 and the period
from July 18, 2007 to December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
Stock
|
|
|
(per share)
|
|
|
Unvested at July 18, 2007
|
|
|
|
|
|
|
|
|
Granted
|
|
|
61,795
|
|
|
$
|
8.45
|
|
Vested (a)
|
|
|
(13,130
|
)
|
|
$
|
8.45
|
|
Forfeited (b)
|
|
|
(6,586
|
)
|
|
$
|
8.45
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2007
|
|
|
42,079
|
|
|
$
|
8.45
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested (a)
|
|
|
(16,832
|
)
|
|
$
|
8.45
|
|
Forfeited (b)
|
|
|
(6,586
|
)
|
|
$
|
8.45
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2008
|
|
|
18,661
|
|
|
$
|
8.45
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested (a)
|
|
|
(14,453
|
)
|
|
$
|
8.45
|
|
Forfeited (b)
|
|
|
(2,013
|
)
|
|
$
|
8.45
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2009
|
|
|
2,195
|
|
|
$
|
8.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes 4,453 shares, 2,617 shares and
2,266 shares of common stock transferred to us in
satisfaction of minimum tax withholding obligations associated
with the vesting of restricted stock during the years ended
December 31, 2009 and December 31, 2008 and the period
from July 18, 2007 to December 31, 2007, respectively.
These shares are held by us in treasury.
|
|
|
|
|
(b)
|
These shares are held by us in treasury.
|
Shares of restricted stock were granted upon conversion of the
Class B partnership interests previously held by our
employees under the Travelport Plan. The restricted stock vested
5.555% in August 2007 and vested an additional 8.586% on each
subsequent November, February, May and August through February
2010, and become fully vested in May 2010. The fair value of
restricted stock on the date of grant is amortized on a
straight-line basis over the requisite service period.
The total number of shares of restricted stock that vested
during the years ended December 31, 2009 and
December 31, 2008 and the period from July 18, 2007 to
December 31, 2007 was 14,453 shares,
16,832 shares and 13,130 shares, respectively. The
total fair value of the restricted stock that vested was almost
nil for each of the years ended December 31, 2009 and
December 31, 2008 and the period from July 18, 2007 to
December 31, 2007.
Performance-Based
Restricted Stock Units
On June 19, 2008, the Compensation Committee approved a
grant of performance-based restricted stock units
(PSUs) under the Plan to certain of our executive
officers. The PSUs entitle the executives to receive a
103
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
certain number of shares of our common stock based on the
Companys satisfaction of certain financial and strategic
performance goals, including net revenue growth, adjusted EBITDA
margin improvement and the achievement of specified technology
milestones during fiscal years 2008, 2009 and 2010 (the
Performance Period). The performance conditions also
provide that if the Companys aggregate adjusted EBITDA
during the Performance Period does not equal or exceed a certain
threshold, each PSU award will be forfeited. Based on the
achievement of the performance conditions during the Performance
Period, the final settlement of the PSU awards will range
between 0 and
1662/3%
of the target shares underlying the PSU awards based on a
specified objective formula approved by the Compensation
Committee. The PSUs will vest within 75 days of the end of
the Performance Period.
The table below summarizes the PSU activity under the Plan for
the years ended December 31, 2009 and December 31,
2008. There was no PSU activity during the period from
July 18, 2007 to December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Performance-Based
|
|
|
Grant Date
|
|
|
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
|
|
|
Stock Units
|
|
|
(per share)
|
|
|
|
|
|
Unvested at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted (a)
|
|
|
249,108
|
|
|
$
|
6.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2008
|
|
|
249,108
|
|
|
$
|
6.28
|
|
|
|
|
|
Forfeited
|
|
|
(21,429
|
)
|
|
$
|
6.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2009 (b)
|
|
|
227,679
|
|
|
$
|
6.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents the target number of shares underlying the PSUs that
were granted to certain executive officers.
|
|
|
|
|
(b)
|
As of December 31, 2009, the Company expects that none of
the PSUs will vest.
|
Non-Employee
Directors Deferred Compensation Plan
In connection with the IPO, we adopted a deferred compensation
plan to enable our non-employee directors to defer the receipt
of certain compensation earned in their capacity as non-employee
directors. Eligible directors may elect to defer up to 100% of
their annual retainer fees (which are paid by us on a quarterly
basis). We require that at least 50% of the annual retainer be
deferred under the plan. In addition, 100% of the annual equity
grant payable to non-employee directors is deferred under the
plan.
We grant deferred stock units to each participating director on
the date that the deferred fees would have otherwise been paid
to the director. The deferred stock units are issued as
restricted stock units under the Plan and are immediately vested
and non-forfeitable. The deferred stock units entitle the
non-employee director to receive one share of our common stock
for each deferred stock unit on the date that is 200 days
immediately following the non-employee directors
retirement or termination of service from the board of
directors, for any reason. The entire grant date fair value of
deferred stock units is expensed on the date of grant.
104
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes the deferred stock unit activity
under the Plan for the years ended December 31, 2009 and
December 31, 2008 and the period from July 18, 2007 to
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Deferred
|
|
|
Fair Value
|
|
|
|
Stock Units
|
|
|
(per share)
|
|
|
Outstanding at July 18, 2007
|
|
|
|
|
|
|
|
|
Granted
|
|
|
62,316
|
|
|
$
|
12.90
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
62,316
|
|
|
$
|
12.90
|
|
Granted
|
|
|
203,353
|
|
|
$
|
5.58
|
|
Common stock issued (a)
|
|
|
(12,853
|
)
|
|
$
|
11.94
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
252,816
|
|
|
$
|
7.06
|
|
Granted
|
|
|
439,250
|
|
|
$
|
2.45
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
692,066
|
|
|
$
|
4.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
A non-employee director terminated service from our board of
directors during the year ended December 31, 2008. As a
result, the non-employee director was entitled to receive one
share of our common stock for each deferred stock unit held by
him, or 12,853 shares of our common stock. |
Travelport
Equity-Based Long-Term Incentive Program
Travelport introduced an equity-based long-term incentive
program in 2006 for the purpose of retaining certain key
employees, including certain of our employees. Under this
program, key employees were granted restricted equity units and
interests in the partnership that indirectly owns Travelport.
The equity awards issued consisted of four classes of
partnership interest. The
Class A-2
equity units vested at a pro-rata rate of 6.25% per quarter
through May 2010. The Class B partnership interests vested
annually over a four-year period beginning in August 2007. The
Class C and D partnership interests were scheduled to vest
upon the occurrence of certain liquidity events.
On July 18, 2007, the unvested restricted equity units and
Class B partnership interests held by our employees were
converted to restricted stock units and restricted shares under
the Orbitz Worldwide, Inc. 2007 Equity and Incentive Plan. This
conversion affected 14 employees of Orbitz Worldwide. The
conversion of the restricted equity units was based on the
relative value of the shares of our common stock compared with
that of Travelports
Class A-2
capital interests at the time of the IPO. The conversion of the
Class B partnership interests was based on the relative
value of the shares of our common stock compared with the
aggregate liquidation value of the Class B partnership
interests at the time of the IPO. The Class C and D
partnership interests were deemed to have no fair value as of
the conversion date and as such were forfeited. Subsequent to
the conversion, we also granted restricted stock units and stock
options as additional compensation to the employees who
previously held the Travelport interests. This compensation was
granted as an award in consideration of potential future
increases in value of the awards previously granted under the
Travelport Plan. No incremental compensation expense was
recognized as a result of the conversion.
The fair value of the
Class A-2
capital interests granted under the Travelport Plan was
estimated on the date of grant based on the fair market value of
Travelports common equity relative to the number of
Class A shares then outstanding. The fair value of the
Class B, Class C and Class D partnership
interests was estimated on the date of grant using the
Monte-Carlo valuation model. The weighted average assumptions
for the Class B, Class C and Class D partnership
interests granted during the year ended December 31, 2007
are outlined in the table below.
105
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Assumptions:
|
|
|
|
|
Dividend yield
|
|
|
|
|
Expected volatility
|
|
|
45
|
%
|
Expected life (in years)
|
|
|
6.2
|
|
Risk-free interest rate
|
|
|
4.64
|
%
|
The table below summarizes our activity under the Travelport
Plan during 2007, immediately prior to the conversion date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Equity
|
|
|
|
|
|
|
Units
|
|
|
Partnership Interest
|
|
|
|
Class A-2
|
|
|
Class B
|
|
|
Class C
|
|
|
Class D
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Grant Date
|
|
|
Number
|
|
|
Grant Date
|
|
|
Number
|
|
|
Grant Date
|
|
|
Number
|
|
|
Grant Date
|
|
|
|
of
|
|
|
Fair Value
|
|
|
of
|
|
|
Fair Value
|
|
|
of
|
|
|
Fair Value
|
|
|
of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
(per share)
|
|
|
Shares
|
|
|
(per share)
|
|
|
Shares
|
|
|
(per share)
|
|
|
Shares
|
|
|
(per share)
|
|
|
Balance at December 31, 2006
|
|
|
5,367,234
|
|
|
$
|
1.00
|
|
|
|
1,103,501
|
|
|
$
|
0.49
|
|
|
|
1,103,501
|
|
|
$
|
0.43
|
|
|
|
1,103,501
|
|
|
$
|
0.38
|
|
Granted
|
|
|
230,881
|
|
|
$
|
1.84
|
|
|
|
99,863
|
|
|
$
|
0.67
|
|
|
|
99,863
|
|
|
$
|
0.65
|
|
|
|
99,863
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance immediately prior to conversion date
|
|
|
5,598,115
|
|
|
$
|
1.03
|
|
|
|
1,203,364
|
|
|
$
|
0.50
|
|
|
|
1,203,364
|
|
|
$
|
0.45
|
|
|
|
1,203,364
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2007, prior to the conversion date, 728,625 restricted
equity units vested for a total fair value of $1 million.
No partnership interests were vested prior to the conversion
date. We expensed the restricted equity units and the
Class B partnership interests on a straight-line basis over
the requisite service period based upon the fair value of the
award on the grant date. We did not record any compensation
expense for the Class C and Class D partnership
interests as it was determined that it was not probable that
these awards would vest.
Compensation
Expense
We recognized total equity-based compensation expense of
$14 million, $15 million, and $8 million during
the years ended December 31, 2009, December 31, 2008
and December 31, 2007, respectively, none of which has
provided us a tax benefit. Of the total equity-based
compensation expense recorded in the year ended
December 31, 2009, $2 million related to the
accelerated vesting of certain equity-based awards held by our
former President and Chief Executive Officer who resigned in
January 2009. These awards vested on his last day of employment
with the Company, or April 6, 2009, as provided for in the
agreements related to these equity-based awards (see
Note 15 Severance).
As of December 31, 2009, a total of $16 million of
unrecognized compensation costs related to unvested stock
options, unvested restricted stock units, unvested PSUs and
unvested restricted stock are expected to be recognized over the
remaining weighted-average period of 2 years.
|
|
14.
|
Derivative
Financial Instruments
|
Interest
Rate Hedges
At December 31, 2009, we had the following interest rate
swaps that effectively converted $200 million of the Term
Loan from a variable to a fixed interest rate. We pay a fixed
interest rate on the swaps and in exchange receive a variable
interest rate based on either the three-month or the one-month
LIBOR.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Interest
|
|
Variable Interest
|
Notional Amount
|
|
Effective Date
|
|
Maturity Date
|
|
Rate Paid
|
|
Rate Received
|
|
$100 million
|
|
May 30, 2008
|
|
May 31, 2011
|
|
3.39%
|
|
Three-month LIBOR
|
$100 million
|
|
September 30, 2008
|
|
September 30, 2010
|
|
2.98%
|
|
One-month LIBOR
|
106
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following interest rate swaps that effectively converted
$300 million of the Term Loan from a variable to a fixed
interest rate have matured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Interest
|
|
Variable Interest
|
Notional Amount
|
|
Effective Date
|
|
Maturity Date
|
|
Rate Paid
|
|
Rate Received
|
|
$100 million
|
|
July 25, 2007
|
|
December 31, 2008
|
|
|
5.21
|
%
|
|
Three-month LIBOR
|
$200 million
|
|
July 25, 2007
|
|
December 31, 2009
|
|
|
5.21
|
%
|
|
Three-month LIBOR
|
The objective of entering into our interest rate swaps is to
protect against volatility of future cash flows and effectively
hedge a portion of the variable interest payments on the Term
Loan. We determined that these designated hedging instruments
qualify for cash flow hedge accounting treatment. Our interest
rate swaps are the only derivative financial instruments that we
have designated as hedging instruments.
The interest rate swaps are reflected in our consolidated
balance sheets at market value. The corresponding market
adjustment is recorded to accumulated other comprehensive loss.
The following table shows the fair value of our interest rate
swaps at December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
Balance Sheet Location
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
(in millions)
|
|
|
Liability Derivatives:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other current liabilities
|
|
$
|
2
|
|
|
$
|
8
|
|
Interest rate swaps
|
|
Other non-current liabilities
|
|
|
4
|
|
|
|
7
|
|
The following table shows the market adjustments recorded during
the years ended December 31, 2009, December 31, 2008
and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
|
(Loss) Reclassified
|
|
Recognized in Income
|
|
|
|
|
From Accumulated
|
|
(Ineffective Portion
|
|
|
Gain (Loss) in Other
|
|
OCI into
|
|
and the Amount
|
|
|
Comprehensive Income
|
|
Interest Expense
|
|
Excluded from
|
|
|
(OCI)(a)
|
|
(Effective Portion)
|
|
Effectiveness Testing)
|
|
|
Years Ended
|
|
Years Ended
|
|
Years Ended
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
(in millions)
|
|
Interest rate swaps
|
|
$
|
9
|
|
|
$
|
(8
|
)
|
|
$
|
(4
|
)
|
|
$
|
(14
|
)
|
|
$
|
(6
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(a) |
|
The gain (loss) recorded in OCI is net of a tax benefit of $0,
$0 and $2 million for the years ended December 31,
2009, December 31, 2008 and December 31, 2007,
respectively. |
The amount of loss recorded in accumulated other comprehensive
loss at December 31, 2009 that is expected to be
reclassified to interest expense in the next twelve months if
interest rates remain unchanged is approximately $5 million
after-tax.
Foreign
Currency Hedges
We enter into foreign currency forward contracts (forward
contracts) to manage exposure to changes in the foreign
currency associated with foreign currency receivables, payables,
intercompany transactions and borrowings under the Revolver. We
primarily hedge our foreign currency exposure to the Pound
Sterling, Euro and Australian dollar. As of December 31,
2009, we had forward contracts outstanding with a total net
notional amount of $130 million, which matured in January
2010. The forward contracts do not qualify for hedge accounting
treatment. Accordingly, changes in the fair value of the forward
contracts are recorded in net income, as a component of selling,
general and administrative expense in our consolidated
statements of operations.
107
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows the fair value of our foreign currency
hedges at December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
As of December 31, 2008
|
|
|
|
Balance Sheet
|
|
Fair Value
|
|
|
Balance Sheet
|
|
Fair Value
|
|
|
|
Location
|
|
Measurements
|
|
|
Location
|
|
Measurements
|
|
|
|
|
|
(in millions)
|
|
|
|
|
(in millions)
|
|
|
Liability Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedges
|
|
Other current liabilities
|
|
$
|
1
|
|
|
Other current liabilities
|
|
$
|
1
|
|
The following table shows the changes in the fair value of our
forward contracts recorded in net income during the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Gain in Selling, General &
|
|
|
Administrative Expense
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(in millions)
|
|
Foreign currency hedges (a)
|
|
$
|
(7
|
)
|
|
$
|
14
|
|
|
$
|
(2
|
)
|
|
|
|
(a) |
|
We recorded transaction gains (losses) associated with the
re-measurement of our foreign denominated assets and liabilities
of $3 million and $(19) million in the years ended
December 31, 2009 and December 31, 2008, respectively,
and a net transaction gain of almost nil in the year ended
December 31, 2007. Transaction gains (losses) are included
in selling, general and administrative expense in our
consolidated statements of operations. The net impact of
transaction gains (losses) associated with the re-measurement of
our foreign denominated assets and liabilities and (losses)
gains incurred on our foreign currency hedges was a net loss of
$(4) million, $(5) million, and $(2) million in
the years ended December 31, 2009, December 31, 2008
and December 31, 2007, respectively. |
On January 6, 2009, our former President and Chief
Executive Officer resigned. In connection with his resignation
and pursuant to the terms of his employment agreement with the
Company, we incurred total expenses of $2 million in the
year ended December 31, 2009 relating to severance benefits
and other termination-related costs, which are included in
selling, general and administrative expense in our consolidated
statements of operations. The majority of these cash payments
will be made in equal amounts over a twenty-four month period
from his resignation date. In addition, we recorded
$2 million of additional equity-based compensation expense
in the year ended December 31, 2009 related to the
accelerated vesting of certain equity-based awards held by him
(see Note 13 Equity-Based Compensation).
We also reduced our workforce by approximately 130 domestic and
international employees during the year ended December 31,
2009, and as a result we incurred $5 million of expenses
related to severance benefits and other termination-related
costs, which are included in selling, general and administrative
expense in our consolidated statements of operations. Of the
total employees severed, approximately 50 were severed in the
first quarter of 2009 and an additional 50 employees were
severed in the second quarter of 2009 in response to weakening
demand in the travel industry and deteriorating economic
conditions. The remaining 30 employees were severed in the
fourth quarter of 2009 in an effort to better align the staffing
levels of ebookers with its business objectives. As of
December 31, 2009, $2 million of these costs had not
yet been paid. These costs are expected to be paid during the
first half of 2010.
During the year ended December 31, 2008, we reduced our
workforce by approximately 160 domestic and international
employees, primarily in response to weakening demand in the
travel industry and deteriorating economic conditions. In
connection with this workforce reduction, we incurred total
expenses of $3 million during the year ended
December 31, 2008 related to severance benefits and other
termination-related costs, which are included in selling,
general and administrative expense in our consolidated
statements of operations.
108
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Employee
Benefit Plans
|
Prior to the IPO, Travelport (subsequent to the Blackstone
Acquisition) sponsored a defined contribution savings plan for
employees in the U.S. that provided certain of our eligible
employees an opportunity to accumulate funds for retirement.
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, 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 reduced our matching
contribution percentage for our defined contribution savings
plan for employees in the U.S. from a maximum of 6% of
participant compensation to a maximum of 3% of participant
compensation beginning on January 1, 2009. Additionally,
effective January 1, 2009, new employees in the
U.S. are not eligible for Company matching contributions
until they have attained one year of service with the Company.
We recorded expense related to these plans in the amount of
$5 million, $7 million and $5 million for the
years ended December 31, 2009, December 31, 2008 and
December 31, 2007, respectively.
The following table presents the calculation of basic and
diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Years Ended December 31,
|
|
|
July 18, 2007 to
|
|
|
|
2009
|
|
|
2008
|
|
|
December 31, 2007
|
|
|
|
(in millions, except share and per share data)
|
|
|
Net loss attributable to Orbitz Worldwide, Inc.
common shareholders
|
|
$
|
(337
|
)
|
|
$
|
(299
|
)
|
|
$
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Orbitz Worldwide, Inc.
common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic and diluted net
loss per share attributable to Orbitz Worldwide, Inc. common
shareholders (a)
|
|
|
84,073,593
|
|
|
|
83,342,333
|
|
|
|
81,600,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted (b)
|
|
$
|
(4.01
|
)
|
|
$
|
(3.58
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Stock options, restricted stock, restricted stock units and PSUs
are not included in the calculation of diluted net loss per
share for the years ended December 31, 2009 and
December 31, 2008 and the period from July 18, 2007 to
December 31, 2007 because we had a net loss for each
period. Accordingly, the inclusion of these equity awards would
have had an antidilutive effect on diluted net loss per share. |
|
(b) |
|
Net loss per share may not recalculate due to rounding. |
The following equity awards are not included in the diluted net
loss per share calculation above because they would have had an
antidilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Antidilutive equity awards
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
|
4,236,083
|
|
|
|
4,216,805
|
|
|
|
2,560,676
|
|
Restricted stock units
|
|
|
5,650,750
|
|
|
|
2,724,356
|
|
|
|
2,296,351
|
|
Restricted stock
|
|
|
2,195
|
|
|
|
18,661
|
|
|
|
42,079
|
|
Performance-based restricted stock units
|
|
|
227,679
|
|
|
|
249,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,116,707
|
|
|
|
7,208,930
|
|
|
|
4,899,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
18.
|
Related
Party Transactions
|
Related
Party Transactions with Travelport and its
Subsidiaries
The following table summarizes the related party balances with
Travelport and its subsidiaries as of December 31, 2009 and
December 31, 2008, reflected in our consolidated balance
sheets. We net settle amounts due to and from Travelport.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
|
Due from Travelport, net
|
|
$
|
3
|
|
|
$
|
10
|
|
We also purchased assets of $1 million from Travelport and
its subsidiaries during the year ended December 31, 2008,
which are included in property and equipment, net in our
consolidated balance sheets.
The following table summarizes the related party transactions
with Travelport and its subsidiaries for the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007, reflected in our consolidated statements
of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Net revenue (a)
|
|
$
|
122
|
|
|
$
|
149
|
|
|
$
|
126
|
|
Cost of revenue
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
|
|
|
|
3
|
|
|
|
11
|
|
Interest expense
|
|
|
4
|
|
|
|
3
|
|
|
|
48
|
|
|
|
|
|
(a)
|
These amounts include net revenue related to our GDS services
agreement and bookings sourced through Donvand Limited and
OctopusTravel Group Limited (doing business as Gullivers Travel
Associates, GTA) for the periods presented.
|
In 2007, in connection with the IPO, we paid a dividend to
Travelport in the amount of $109 million. Any future
determination to pay dividends would require the prior consent
of Travelport, until such time as Travelport no longer
beneficially owns at least 33% of the votes entitled to be cast
by our outstanding common shares.
Stock
Purchase Agreement
On November 4, 2009, the Company entered into a Stock
Purchase Agreement with Travelport pursuant to which Travelport
agreed to purchase 9,025,271 shares of the Companys
common stock for approximately $50 million in cash (see
Note 8 Exchange Agreement and Stock Purchase
Agreement). This transaction closed on January 26, 2010.
Net
Operating Losses
In December 2009, as permitted under the U.K. group relief
provisions, we surrendered $17 million of net operating
losses generated in 2007 to Donvand Limited, a subsidiary of
Travelport (see Note 12 Income Taxes).
Capital
Contributions
In 2007, prior to the IPO, we received capital contributions
from Travelport for operational funding.
110
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Corporate
Related Functions
Our consolidated statement of operations for the year ended
December 31, 2007 reflects an allocation from Travelport of
both general corporate overhead expenses and direct billed
expenses incurred on our behalf prior to the IPO. General
corporate overhead expenses were allocated based on a percentage
of the forecasted revenue. Direct billed expenses were based
upon actual utilization of the services. Costs subject to the
overhead allocations and direct billings included executive
management, tax, insurance, accounting, legal, treasury,
information technology, telecommunications, call center support
and real estate expenses.
Intercompany
Notes Payable
On January 26, 2007 and January 30, 2007, we became
the obligor on two intercompany notes payable to affiliates of
Travelport in the amounts of $25 million and
$835 million, respectively. These notes accrued interest at
a fixed rate of 10.25% and were scheduled to mature on
February 19, 2014. These notes represented a portion of the
debt used to finance the Blackstone Acquisition. Because we did
not receive any cash consideration for the assumption of this
debt from Travelport in January 2007, the transaction was
effectively a distribution of capital. Accordingly, we recorded
an $860 million reduction to net invested equity. On
July 25, 2007, we used proceeds from the IPO and Term Loan
to repay the notes and the interest accrued thereon in full.
Separation
Agreement
We entered into a Separation Agreement with Travelport at the
time of the IPO. This agreement, as amended, provided the
general terms for the separation of our respective businesses.
When we were a wholly-owned subsidiary of Travelport, Travelport
provided guarantees, letters of credit and surety bonds on our
behalf under our commercial agreements and leases and for the
benefit of regulatory agencies. Under the Separation Agreement,
we are required to use commercially reasonable efforts to have
Travelport released from any then outstanding guarantees and
surety bonds. As a result, Travelport no longer provides surety
bonds on our behalf or guarantees in connection with commercial
agreements or leases entered into or replaced by us subsequent
to the IPO.
In addition, Travelport agreed to continue to issue letters of
credit on our behalf through at least March 31, 2010 and
thereafter so long as Travelport and its affiliates (as defined
in the Separation Agreement, as amended) own at least 50% of our
voting stock, in an aggregate amount not to exceed
$75 million (denominated in U.S. dollars). Travelport
charges us fees for issuing, renewing or extending letters of
credit on our behalf. This fee is included in interest expense
in our consolidated statements of operations. At
December 31, 2009 and December 31, 2008, there were
$59 million and $67 million of letters of credit
issued by Travelport on our behalf, respectively (see
Note 11 Commitments and Contingencies).
Transition
Services Agreement
At the time of the IPO, we entered into a Transition Services
Agreement with Travelport. Under this agreement, as amended,
Travelport provided us with certain transition services,
including insurance, human resources and employee benefits,
payroll, tax, communications, collocation and data center
facilities, information technology and other existing shared
services. We also provided Travelport with certain services,
including accounts payable, information technology hosting, data
warehousing and storage as well as Sarbanes-Oxley compliance
testing and deficiency remediation. The terms for the services
provided under the Transition Services Agreement generally
expired on March 31, 2008, subject to certain exceptions.
The term of the Transition Services Agreement was extended until
September 30, 2009 for services Travelport provided us
related to the support and maintenance of applications for
storage of certain financial and human resources data and until
December 31, 2009 for services Travelport provided to us
related to non-income tax return
111
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
preparation and consulting services. The charges for these
services were based on the time expended by the employee or
service provider billed at the approximate human resource cost,
including wages and benefits.
Master
License Agreement
We entered into a Master License Agreement with Travelport at
the time of the IPO. Pursuant to this agreement, Travelport
licenses certain of our intellectual property and pays us fees
for related maintenance and support services. The licenses
include our supplier link technology; portions of ebookers
booking, search and dynamic packaging technologies; certain of
our products and online booking tools for corporate travel;
portions of our private label dynamic packaging technology; and
our extranet supplier connectivity functionality.
The Master License Agreement granted us the right to use a
corporate online booking product developed by Travelport. We
have entered into a value added reseller license with Travelport
for this product.
Equipment,
Services and Use Agreements
Prior to the IPO, we shared office locations with Travelport in
twelve locations worldwide. In connection with the IPO, we
separated the leasehold properties based upon our respective
business operations and assigned a leasehold interest where one
company had exclusive use or occupation of a property.
We also entered into an Equipment, Services and Use Agreement
for each office occupied by both parties. This agreement
commenced in most locations on June 1, 2007 and provided
that the cost of the shared space would be ratably allocated.
The agreement expired on December 31, 2007 but
automatically renewed if no termination notice was served.
Termination notices were served for all but three locations as
of December 31, 2009.
Travelport remained liable to landlords for all lease
obligations with guarantee agreements, unless expressly released
from this liability by the relevant landlord.
GDS
Service Agreements
Prior to the IPO, certain of our subsidiaries had subscriber
services agreements with Galileo, a subsidiary of Travelport.
Under these agreements, Galileo provided us GDS services and
paid us an incentive payment for air, car and hotel segments
processed using its GDS services.
In connection with the IPO, we entered into a new agreement with
Travelport to use GDS services provided by both Galileo and
Worldspan (the Travelport GDS Service Agreement).
The Travelport GDS Service Agreement replaced the former Galileo
agreement discussed above as well as a GDS contract we had with
Worldspan. This agreement became effective in July 2007 with
respect to GDS services provided by Galileo. In August 2007,
upon completion of Travelports acquisition of Worldspan,
this agreement became effective for GDS services provided by
Worldspan. The agreement expires on December 31, 2014.
The Travelport GDS Service Agreement is structured such that we
earn incentive revenue for each segment that is processed
through the Worldspan and Galileo GDSs (the Travelport
GDSs). This agreement requires that we process a certain
minimum number of segments for our domestic brands through the
Travelport GDSs each year. Our domestic brands were required to
process a total of 36 million, 38 million and
33 million segments through the Travelport GDSs during the
years ended December 31, 2009, December 31, 2008 and
December 31, 2007, respectively. Of the required number of
segments, 16 million segments were required to be processed
each year through Worldspan, and 20 million,
22 million and 17 million segments were required to be
processed through Galileo during the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007, respectively. The required number of
segments processed in future years for Worldspan is fixed at
16 million segments, while the required number of segments
for Galileo is subject to
112
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
adjustment based upon the actual segments processed by our
domestic brands in the preceding year. Our failure to process at
least 95% of these segments through the Travelport GDSs would
result in a shortfall payment of $1.25 per segment below the
required minimum. No payments were made to Travelport related to
the minimum segment requirement for our domestic brands for the
years ended December 31, 2009, December 31, 2008 and
December 31, 2007.
The Travelport GDS Service Agreement also requires that ebookers
use the Travelport GDSs exclusively in certain countries for
segments processed through GDSs in Europe. Our failure to
process at least 95% of these segments through the Travelport
GDSs would result in a shortfall payment of $1.25 per segment
for each segment processed through an alternative GDS provider.
We failed to meet this minimum segment requirement during each
of the years ended December 31, 2009 and December 31,
2008, and as a result, we were required to make nominal
shortfall payments to Travelport related to each of these years.
No payments were made to Travelport for the year ended
December 31, 2007.
A significant portion of our GDS services are provided through
the Travelport GDS Service Agreement. For the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007, we recognized $112 million,
$108 million and $111 million of incentive revenue for
segments processed through Galileo and Worldspan, respectively,
which accounted for more than 10% of our total net revenue. For
the year ended December 31, 2007, this amount includes
incentive payments received for GDS services provided under the
Travelport GDS Service Agreement as well as the former Galileo
agreement and Worldspan contract.
Hotel
Sourcing and Franchise Agreement
GTA is a wholly-owned subsidiary of Travelport and provided
certain of our subsidiaries with hotel consulting services and
access to hotels and destination services pursuant to franchise
agreements. As franchisees, we have the ability to make
available for booking hotel rooms and destination services
provided by GTA at
agreed-upon
rates. When a customer books a hotel room that we have sourced
through GTA, we record to net revenue the difference between
what the customer paid and the
agreed-upon
rate we paid to GTA. We also paid franchise fees to GTA, which
we recorded as contra revenue. These franchise agreements
continued until December 31, 2007, when our new Master
Supply and Services Agreement (the GTA Agreement)
became effective.
Under the GTA Agreement, we pay GTA a contract rate for hotel
and destination services inventory it makes available to us for
booking on our websites. The contract rate exceeds the prices at
which suppliers make their inventory available to GTA for
distribution and is based on a percentage of the rates GTA makes
such inventory available to its other customers. We are also
subject to additional fees if we exceed certain specified
booking levels. The initial term of the GTA Agreement expires on
December 31, 2010. Under this agreement, we are restricted
from providing access to hotels and destination services content
to certain of GTAs clients until December 31, 2010.
Corporate
Travel Agreement
We provide corporate travel management services to Travelport
and its subsidiaries. We believe that this agreement was
executed on terms comparable to those of unrelated third parties.
Agreements
Involving Tecnovate
On July 5, 2007, we sold Tecnovate to Travelport for
$25 million. In connection with the sale, we entered into
an agreement to continue using the services of Tecnovate, which
included call center and telesales, back office administrative,
information technology and financial services. Tecnovate charges
us based on an hourly billing rate for the services provided to
us.
113
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The agreement included a termination clause in the event of
certain changes in control. In December 2007, Travelport
completed the sale of Tecnovate to an affiliate of Blackstone,
Intelenet Global Services (Intelenet), which
qualified as a change in control under the termination clause.
Prior to the sale, Travelport paid us an incentive fee of
$5 million for entering into an amended service agreement
to continue using the services of Tecnovate. We deferred the
incentive fee and recognize it as a reduction to expense on a
straight-line basis over the original
three-year
term of the agreement.
Financial
Advisory Services Agreement
On July 16, 2007, we completed the sale of an offline U.K.
travel subsidiary. Pursuant to an agreement between Travelport
and Blackstone, Blackstone provided financial advisory services
to Travelport and to us in connection with certain business
transactions, including dispositions. Under the terms of that
agreement, Travelport paid $2 million to Blackstone on our
behalf for advisory services upon completion of the sale. As a
result, in 2007, we recorded a $2 million capital
contribution from Travelport in our consolidated balance sheet.
Related
Party Transactions with Affiliates of Blackstone and
TCV
In the normal course of conducting business, we have entered
into various agreements with affiliates of Blackstone and TCV.
We believe that these agreements have been executed on terms
comparable to those of unrelated third parties. For example, we
have agreements with certain hotel management companies that are
affiliates of Blackstone and that provide us with access to
their inventory. We also purchase services from certain
Blackstone and TCV affiliates such as telecommunications and
advertising. We have also entered into various outsourcing
agreements with Intelenet, an affiliate of Blackstone, that
provide us with call center and telesales, back office
administrative, information technology and financial services.
In addition, various Blackstone and TCV affiliates utilize our
partner marketing programs and corporate travel services.
The following table summarizes the related party balances with
affiliates of Blackstone and TCV as of December 31, 2009
and December 31, 2008, reflected in our consolidated
balance sheets:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
|
Accounts payable
|
|
$
|
5
|
|
|
$
|
5
|
|
Accrued expenses
|
|
|
2
|
|
|
|
1
|
|
Accrued merchant payable
|
|
|
6
|
|
|
|
|
|
The following table summarizes the related party transactions
with affiliates of Blackstone and TCV for the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007, reflected in our consolidated statements
of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Net revenue
|
|
$
|
17
|
|
|
$
|
14
|
|
|
$
|
12
|
|
Cost of revenue(b)
|
|
|
26
|
|
|
|
30
|
|
|
|
|
|
Selling, general and administrative expense(c)
|
|
|
3
|
|
|
|
5
|
|
|
|
1
|
|
Marketing expense
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
(b) |
|
These amounts shown represent call center and telesales costs
incurred under our outsourcing agreements with Intelenet. |
|
(c) |
|
Of the amounts shown for the years ended December 31, 2009,
December 31, 2008 and December 31, 2007,
$3 million, $5 million and $0, respectively, represent
costs incurred under our outsourcing agreements with Intelenet
for back office administrative, information technology and
financial services. |
114
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Value Measurements
|
We adopted the FASBs new fair value guidance for our
financial assets and financial liabilities on January 1,
2008 and for our non-financial assets and non-financial
liabilities on January 1, 2009 (see Note 2
Summary of Significant Accounting Policies). Under this
guidance, fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date (an exit price). This guidance outlines a
valuation framework and creates a fair value hierarchy in order
to increase the consistency and comparability of fair value
measurements and the related disclosures.
We have derivative financial instruments that must be measured
under this guidance. We currently do not have non-financial
assets and non-financial liabilities that are required to be
measured at fair value on a recurring basis. The guidance
establishes a valuation hierarchy for disclosure of the inputs
to valuation used to measure fair value. In accordance with the
fair value hierarchy, the following table shows the fair value
of our financial assets and financial liabilities that are
required to be measured at fair value on a recurring basis as of
December 31, 2009 and December 31, 2008, which are
classified as other current liabilities and other non-current
liabilities in our consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
prices in
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
prices in
|
|
|
other
|
|
|
Significant
|
|
|
|
Balance at
|
|
|
active
|
|
|
observable
|
|
|
unobservable
|
|
|
Balance at
|
|
|
active
|
|
|
observable
|
|
|
unobservable
|
|
|
|
December 31,
|
|
|
markets
|
|
|
inputs
|
|
|
inputs
|
|
|
December 31,
|
|
|
markets
|
|
|
inputs
|
|
|
inputs
|
|
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(in millions)
|
|
|
Foreign currency hedge liability (see Note 14
Derivative Financial Instruments)
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap liabilities (see Note 14
Derivative Financial Instruments)
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We value our interest rate hedges using valuations that are
calibrated to the initial trade prices. Subsequent valuations
are based on observable inputs to the valuation model including
interest rates, credit spreads and volatilities.
We value our foreign currency hedges based on the difference
between the foreign currency forward contract rate and widely
available foreign currency forward rates as of the measurement
date. Our foreign currency hedges consist of forward contracts
that are short-term in nature, generally maturing within
30 days.
The following table shows the fair value of our non-financial
assets that were required to be measured at fair value on a
non-recurring basis during the year ended December 31,
2009. These non-financial assets, which included our goodwill
and trademarks and trade names, were required to be measured at
fair value as of
115
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31, 2009 in connection with the interim impairment
test we performed on our goodwill and trademarks and trade names
in the first quarter of 2009 (see Note 3
Impairment of Goodwill and Intangible Assets).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
prices in
|
|
|
observable
|
|
|
unobservable
|
|
|
|
|
|
|
Balance at
|
|
|
active markets
|
|
|
inputs
|
|
|
inputs
|
|
|
Total
|
|
|
|
March 31, 2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
|
|
(in millions)
|
|
|
Goodwill
|
|
$
|
698
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
698
|
|
|
$
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
$
|
150
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
150
|
|
|
$
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of Financial Instruments
For certain of our financial instruments, including cash and
cash equivalents, accounts receivable, accounts payable, accrued
merchant payable and accrued expenses, the carrying value
approximates or equals fair value due to their short-term nature.
The carrying value of the Term Loan was $577 million at
December 31, 2009, compared with a fair value of
approximately $538 million. At December 31, 2008, the
carrying value of the Term Loan was $593 million, compared
with a fair value of $261 million. The fair values were
determined based on quoted market ask prices.
We determine operating segments based on how our chief operating
decision maker manages the business, including making operating
decisions and evaluating operating performance. We operate in
one segment and have one reportable segment.
We maintain operations in the U.S., U.K., Australia, Germany,
Sweden, France, Finland, Ireland, the Netherlands, Switzerland
and other international territories. The table below presents
net revenue by geographic area: the U.S. and all other
countries. We allocate net revenue based on where the booking
originated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
585
|
|
|
$
|
686
|
|
|
$
|
679
|
|
All other countries
|
|
|
153
|
|
|
|
184
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
738
|
|
|
$
|
870
|
|
|
$
|
859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents property and equipment, net, by
geographic area: the U.S. and all other countries.
116
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
(in millions)
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
168
|
|
|
$
|
181
|
|
|
$
|
174
|
|
All other countries
|
|
|
13
|
|
|
|
9
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
181
|
|
|
$
|
190
|
|
|
$
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.
|
Quarterly
Financial Data (Unaudited)
|
The following table presents certain unaudited consolidated
quarterly financial information for each of the eight quarters
in the period ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009(a)
|
|
|
|
(in millions, except per share data)
|
|
|
Net revenue
|
|
$
|
175
|
|
|
$
|
187
|
|
|
$
|
188
|
|
|
$
|
188
|
|
Cost and expenses
|
|
|
169
|
|
|
|
165
|
|
|
|
166
|
|
|
|
511
|
|
Operating income (loss)
|
|
|
6
|
|
|
|
22
|
|
|
|
22
|
|
|
|
(323
|
)
|
Net (loss) income attributable to Orbitz Worldwide, Inc.
|
|
|
(18
|
)
|
|
|
7
|
|
|
|
10
|
|
|
|
(336
|
)
|
Basic and diluted net (loss) income per share attributable to
Orbitz Worldwide, Inc. common shareholders
|
|
|
(0.21
|
)
|
|
|
0.08
|
|
|
|
0.12
|
|
|
|
(4.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2008(a)
|
|
|
2008
|
|
|
2008
|
|
|
|
(in millions, except per share data)
|
|
|
Net revenue
|
|
$
|
180
|
|
|
$
|
240
|
|
|
$
|
231
|
|
|
$
|
219
|
|
Cost and expenses
|
|
|
156
|
|
|
|
516
|
|
|
|
216
|
|
|
|
220
|
|
Operating income (loss)
|
|
|
24
|
|
|
|
(276
|
)
|
|
|
15
|
|
|
|
(1
|
)
|
Net income (loss) attributable to Orbitz Worldwide, Inc.
|
|
|
8
|
|
|
|
(287
|
)
|
|
|
(5
|
)
|
|
|
(15
|
)
|
Basic and diluted net income (loss) per share attributable to
Orbitz Worldwide, Inc. common shareholders
|
|
|
0.10
|
|
|
|
(3.44
|
)
|
|
|
(0.06
|
)
|
|
|
(0.18
|
)
|
|
|
|
|
(a)
|
During the three months ended March 31, 2009 and
September 30, 2008, we recorded non-cash impairment charges
related to goodwill and intangible assets in the amount of
$332 million and $297 million, respectively (see
Note 3 Impairment of Goodwill and Intangible
Assets).
|
|
|
22.
|
Global
Access Agreement Amendment
|
On July 28, 2009, ebookers and Amadeus entered into an
amendment to the Global Access Agreement, dated January 1,
2004, extending the term of the agreement to December 31,
2012. Under this agreement, as amended, Amadeus provides certain
of our ebookers websites with access to travel supplier content,
including air, hotel and car reservation information. We receive
incentive payments based on the number of reservation segments
we process annually through Amadeus.
117
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On January 26, 2010, PAR and Travelport each completed
their purchases of additional common shares of the Company. PAR
exchanged $50 million aggregate principal amount of term
loans outstanding under our senior secured credit agreement for
8,141,402 newly-issued shares of our common stock. We
immediately retired the term loans received from PAR in
accordance with the amendment to the Credit Agreement that we
entered into with our lenders in June 2009. As a result, the
amount outstanding on the Term Loan was reduced to
$527 million. Concurrently, Travelport purchased 9,025,271
newly-issued shares of our common stock for $50 million in
cash. In connection with these transactions, PAR and Travelport
have each exercised their right to appoint a director to our
Board of Directors. The appointees will be named at a later
date. See Note 8 Exchange Agreement and Stock
Purchase Agreement.
On January 29, 2010, we entered into two interest rate
swaps that effectively convert $200 million of the Term
Loan from a variable to a fixed rate. The first swap was
effective on January 29, 2010, has a notional amount of
$100 million and matures on January 31, 2012. We pay a
fixed rate of 1.15% on the swap and in exchange receive a
variable rate based on one-month LIBOR. The second swap was
effective on January 29, 2010, has a notional amount of
$100 million and matures on January 31, 2012. We pay a
fixed rate of 1.21% on the swap and in exchange receive a
variable rate based on three-month LIBOR.
In January 2010, certain regulatory requirements required us to
provide additional letters of credit of $16 million,
$11 million of which were denominated in U.S. Dollars
and issued by Travelport on our behalf and the equivalent of
$5 million of which were denominated in Pounds Sterling and
issued under our revolving credit facility.
118
Schedule II
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Period
|
|
|
Expenses
|
|
|
Other Accounts
|
|
|
Deductions
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
Tax Valuation Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
$
|
320
|
|
|
$
|
35
|
|
|
$
|
(20
|
)(a)
|
|
$
|
(5
|
)(c)
|
|
$
|
330
|
|
Year Ended December 31, 2008
|
|
|
330
|
|
|
|
27
|
|
|
|
(37
|
)(a)
|
|
|
|
|
|
|
320
|
|
Year Ended December 31, 2007
|
|
|
415
|
|
|
|
46
|
|
|
|
(117
|
)(b)
|
|
|
(14
|
)(d)
|
|
|
330
|
|
|
|
|
(a) |
|
Represents foreign currency translation adjustments to the
valuation allowance. In addition, the 2009 amount also includes
a reclassification adjustment between our gross deferred tax
assets and the corresponding valuation allowance. |
|
(b) |
|
Represents adjustments made to reflect the decreases in the
valuation allowance related to the tax sharing agreement with
the Founding Airlines. |
|
(c) |
|
Represents the surrender of $17 million of net operating
losses generated in 2007 to Donvand Limited, a subsidiary of
Travelport, as permitted under the U.K. group relief provisions.
A full valuation allowance had previously been established for
these net operating losses. As a result, upon surrender, we
reduced our gross deferred tax assets and the corresponding
valuation allowance by $5 million. |
|
(d) |
|
Represents the expiration of a U.S. federal income tax capital
loss carryforward. |
119
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such
term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of December 31, 2009. Based
on such evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such
period, our disclosure controls and procedures were effective.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting (as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the fiscal quarter ended
December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Managements
Report on Internal Control over Financial Reporting
Management is required to assess and report on the effectiveness
of its internal control over financial reporting as of
December 31, 2009. As a result of that assessment,
management determined that there were no material weaknesses as
of December 31, 2009 and, therefore, concluded that our
internal control over financial reporting was effective.
Managements Report on Internal Control over Financial
Reporting is included in Item 8, Financial Statements
and Supplementary Data.
The effectiveness of our internal control over financial
reporting as of December 31, 2009 has been audited by
Deloitte & Touche LLP, our independent registered
public accounting firm, as stated in their report included in
Item 8, Financial Statements and Supplementary
Data.
|
|
Item 9B.
|
Other
Information.
|
None.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
Certain information required by Item 401 of
Regulation S-K
will be included under the caption
Proposal 1 Election of Directors in
the 2010 Proxy Statement, and that information is incorporated
by reference herein. The information required by Item 405
of
Regulation S-K
will be included under the caption Corporate
Governance Section 16(a) Beneficial Ownership
Reporting Compliance in the 2010 Proxy Statement, and that
information is incorporated by reference herein.
The information required by Item 407(c)(3) of
Regulation S-K
will be included under the caption Corporate
Governance Director Selection Procedures, and
the information required under Items 407(d)(4) and (d)(5)
of
Regulation S-K
will be included under the caption Corporate
Governance Committees of the Board of
Directors Audit Committee in the 2010 Proxy
Statement, and that information is incorporated by reference
herein.
Code of
Business Conduct
We have adopted the Orbitz Worldwide, Inc. Code of Business
Conduct and Ethics (the Code of Business Conduct)
which applies to all of our directors and employees, including
our chief executive officer,
120
chief financial officer and principal accounting officer. In
addition, we have adopted a Code of Ethics for our chief
executive officer and senior financial officers. The Code of
Business Conduct and the Code of Ethics are available on the
corporate governance page of our Investor Relations website at
www.orbitz-ir.com. Amendments to, or waivers from,
the Code of Business Conduct applicable to these senior
executives will be posted on our website and provided to you
without charge upon written request to Orbitz Worldwide, Inc.,
Attention: Corporate Secretary, 500 W. Madison Street,
Suite 1000, Chicago, Illinois 60661.
|
|
Item 11.
|
Executive
Compensation.
|
The information required by Item 402 of
Regulation S-K
will be included under the caption Executive
Compensation in the 2010 Proxy Statement, and that
information is incorporated by reference herein.
The information required by Items 407(e)(4) and (e)(5) of
Regulation S-K
will be included under the captions Corporate
Governance Compensation Committee Interlocks and
Insider Participation and Compensation Committee
Report in the 2010 Proxy Statement, and that information
is incorporated by reference herein.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information required by Item 201(d) of
Regulation S-K
is included in Item 5, Market for Registrants
Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities. The information required by
Item 403 of
Regulation S-K
will be included under the caption Security
Ownership in the 2010 Proxy Statement, and that
information is incorporated by reference herein.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information required by Item 404 of
Regulation S-K
will be included under the caption Certain Relationships
and Related Party Transactions in the 2010 Proxy
Statement, and that information is incorporated by reference
herein.
The information required by Item 407(a) of
Regulation S-K
will be included under the caption Corporate
Governance Independence of Directors in the
2010 Proxy Statement, and that information is incorporated by
reference herein.
|
|
Item 14.
|
Principal
Accounting Fees and Services.
|
The information concerning principal accounting fees and
services and the information required by Item 14 will be
included under the caption Fees Incurred for Services of
Deloitte & Touche LLP and Approval of
Services Provided by Independent Registered Public Accounting
Firm in the 2010 Proxy Statement, and that information is
incorporated by reference herein.
121
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules.
|
|
|
(a)(1) |
Financial Statements: The following financial statements are
included in Item 8 herein:
|
|
|
(a)(2) |
Financial Statement Schedules: The following financial statement
schedule is included in Item 8 herein:
|
All other schedules are omitted because they are either not
required, are not applicable, or the information is included in
the consolidated financial statements and notes thereto.
(a)(3) Exhibits:
122
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Orbitz
Worldwide, Inc. (incorporated by reference to Exhibit 3.1
to Amendment No. 6 to the Orbitz Worldwide, Inc.
Registration Statement on
Form S-1
(Reg.
No. 333-142797)
filed on July 18, 2007).
|
|
3
|
.2
|
|
Amended and Restated Bylaws of Orbitz Worldwide, Inc.
(incorporated by reference to Exhibit 3.2 to Amendment
No. 6 to the Orbitz Worldwide, Inc. Registration Statement
on
Form S-1
(Reg.
No. 333-142797)
filed on July 18, 2007).
|
|
3
|
.3
|
|
Amendment to the Amended and Restated By-laws of Orbitz
Worldwide, Inc., effective as of December 4, 2007
(incorporated by reference to Exhibit 3.1 to the Orbitz
Worldwide, Inc. Current Report on
Form 8-K
filed on December 5, 2007).
|
|
4
|
.1
|
|
Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 6 to the Orbitz
Worldwide, Inc. Registration Statement on
Form S-1
(Reg.
No. 333-142797)
filed on July 18, 2007).
|
|
10
|
.1
|
|
Form of Second Amended and Restated Airline Charter Associate
Agreement between Orbitz, LLC and the Founding Airlines
(incorporated by reference to Exhibit 10.1 to Amendment
No. 5 to the Orbitz, Inc. Registration Statement on
Form S-1
(Registration
No. 333-88646)
filed on November 25, 2003).
|
|
10
|
.2
|
|
Second Amendment to the Second Amended and Restated Airline
Charter Associate Agreement, dated as of July 7, 2009,
between Orbitz, LLC and United Air Lines, Inc. (incorporated by
reference to Exhibit 10.2 to the Orbitz Worldwide, Inc.
Quarterly Report on
Form 10-Q
for the Quarterly Period ended September 30, 2009).
|
|
10
|
.3
|
|
Form of Supplier Link Agreement between Orbitz Worldwide, Inc.
and certain airlines (incorporated by reference to
Exhibit 10.7 to Amendment No. 2 to the Orbitz
Worldwide, Inc. Registration Statement on
Form S-1
(Registration
No. 333-142797)
filed on June 13, 2007).
|
|
10
|
.4
|
|
Amendment to the Orbitz Supplier Link Agreement, dated as of
July 7, 2009, between Orbitz, LLC and United Air Lines,
Inc. (incorporated by reference to Exhibit 10.3 to the
Orbitz Worldwide, Inc. Quarterly Report on
Form 10-Q
for the Quarterly Period ended September 30, 2009).
|
|
10
|
.5
|
|
Tax Agreement, dated as of November 25, 2003, between
Orbitz, Inc. and American Airlines, Inc., Continental Airlines,
Inc., Omicron Reservations Management, Inc., Northwest Airlines,
Inc. and UAL Loyalty Services, Inc. (incorporated by reference
to Exhibit 10.36 to Amendment No. 5 to the Orbitz,
Inc. Registration Statement on
Form S-1
(Registration
No. 333-88646)
filed on November 25, 2003).
|
|
10
|
.6
|
|
Global Agreement, dated as of January 1, 2004, between
ebookers Limited and Amadeus Global Travel Distribution, S.A.
(incorporated by reference to Exhibit 10.17 to Amendment
No. 5 to the Orbitz Worldwide, Inc. Registration Statement
on
Form S-1
(Registration
No. 333-142797)
filed on July 13, 2007).
|
|
10
|
.7
|
|
Amendment to Global Agreement, dated as of July 30, 2004,
between ebookers Limited and Amadeus Global Travel Distribution,
S.A. (incorporated by reference to Exhibit 10.18 to
Amendment No. 3 to the Orbitz Worldwide, Inc. Registration
Statement on
Form S-1
(Registration
No. 333-142797)
filed on June 29, 2007).
|
|
10
|
.8
|
|
Complementary and Amendment Agreement to Global Agreement,
effective as of September 1, 2006, between ebookers Limited
and Amadeus Global Travel Distribution, S.A. (incorporated by
reference to Exhibit 10.19 to Amendment No. 5 to the
Orbitz Worldwide, Inc. Registration Statement on
Form S-1
(Registration
No. 333-142797)
filed on July 13, 2007).
|
|
10
|
.9
|
|
Amendment, effective October 1, 2007, between Amadeus IT
Group, S.A. and ebookers Limited (incorporated by reference to
Exhibit 10.2 to the Orbitz Worldwide, Inc.
Form 10-Q
for the Quarterly Period Ended March 31, 2008).
|
|
10
|
.10
|
|
Amendment, effective February 1, 2008, between Amadeus IT
Group, S.A. and ebookers Limited (incorporated by reference to
Exhibit 10.1 to the Orbitz Worldwide, Inc.
Form 10-Q
for the Quarterly Period Ended September 30, 2008).
|
123
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.11
|
|
Complimentary and Amendment Agreement, effective as of
July 1, 2009, between Amadeus IT Group S.A. and ebookers
Limited (incorporated by reference to Exhibit 10.1 to the
Orbitz Worldwide, Inc. Current Report on
Form 8-K
filed on July 30, 2009).
|
|
10
|
.12
|
|
Credit Agreement, dated as of July 25, 2007, among Orbitz
Worldwide, Inc., UBS AG, Stamford Branch, as administrative
agent, collateral agent and an L/C issuer, UBS Loan Finance LLC,
as swing line lender, Credit Suisse Securities (USA) LLC, as
syndication agent, and Lehman Brothers Inc., as documentation
agent, and the other Lenders party thereto (incorporated by
reference to Exhibit 10.1 to the Orbitz Worldwide, Inc.
Current Report on
Form 8-K
filed on July 27, 2007).
|
|
10
|
.13
|
|
Amendment No. 1, dated as of June 2, 2009, by and
among Orbitz Worldwide, Inc., the lenders party thereto, and UBS
AG, Stamford Branch, as administrative agent (incorporated by
reference to Exhibit 10.1 to the Orbitz Worldwide, Inc.
Current Report on
Form 8-K
filed on June 4, 2009).
|
|
10
|
.14
|
|
Separation Agreement, dated as of July 25, 2007, by and
between Travelport Limited and Orbitz Worldwide, Inc.
(incorporated by reference to Exhibit 10.2 to the Orbitz
Worldwide, Inc. Current Report on
Form 8-K
filed on July 27, 2007).
|
|
10
|
.15
|
|
First Amendment to Separation Agreement, dated as of May 5,
2008, between Travelport Limited and Orbitz Worldwide, Inc.
(incorporated by reference to Exhibit 10.1 to the Orbitz
Worldwide, Inc. Current Report on
Form 8-K
filed on May 6, 2008).
|
|
10
|
.16
|
|
Second Amendment to Separation Agreement, dated as of
January 23, 2009, between Travelport Limited and Orbitz
Worldwide, Inc. (incorporated by reference to Exhibit 10.12
to the Orbitz Worldwide, Inc. Annual Report on
Form 10-K
for the Fiscal Year ended December 31, 2008).
|
|
10
|
.17
|
|
Tax Sharing Agreement, dated as of July 25, 2007, by and
between Travelport Inc. and Orbitz Worldwide, Inc. (incorporated
by reference to Exhibit 10.4 to the Orbitz Worldwide, Inc.
Current Report on
Form 8-K
filed on July 27, 2007).
|
|
10
|
.18
|
|
Master License Agreement, dated as of July 23, 2007, by and
among Galileo International Technology, LLC, Galileo
International, LLC, Orbitz, LLC, ebookers Limited, Donvand
Limited, Travelport for Business, Inc., Orbitz Development, LLC
and Neat Group Corporation (incorporated by reference to
Exhibit 10.5 to the Orbitz Worldwide, Inc. Current Report
on
Form 8-K/A
filed on February 27, 2008).
|
|
10
|
.19
|
|
Master Supply and Services Agreement, dated as of July 23,
2007, by and among Orbitz Worldwide, LLC, Octopus Travel Group
Limited and Donvand Limited (incorporated by reference to
Exhibit 10.6 to the Orbitz Worldwide, Inc. Current Report
on
Form 8-K/A
filed on February 27, 2008).
|
|
10
|
.20
|
|
Amendment No. 1, dated as of December 31, 2009, to
Master Supply and Services Agreement, dated as of July 23,
2007, among Orbitz Worldwide, LLC, Octopus Travel Group Limited
and Donvand Limited.
|
|
10
|
.21
|
|
Software License Agreement, dated as of July 23, 2007, by
and between Orbitz Worldwide, LLC and ITA Software, Inc.
(incorporated by reference to Exhibit 10.8 to the Orbitz
Worldwide, Inc. Current Report on
Form 8-K/A
filed on February 27, 2008).
|
|
10
|
.22
|
|
Subscriber Services Agreement, dated as of July 23, 2007,
by and among Orbitz Worldwide, Inc., Galileo International,
L.L.C. and Galileo Nederland B.V. (incorporated by reference to
Exhibit 10.7 to the Orbitz Worldwide, Inc. Current Report
on
Form 8-K/A
filed on February 27, 2008).
|
|
10
|
.23
|
|
First Amendment, dated as of February 9, 2008, to
Subscriber Services Agreement, dated as of July 23, 2007,
between Galileo International, L.L.C., Galileo Nederland B.V.
and Orbitz Worldwide, LLC (incorporated by reference to
Exhibit 10.3 to the Orbitz Worldwide, Inc.
Form 10-Q
for the Quarterly Period ended March 31, 2008).
|
|
10
|
.24
|
|
Second Amendment, dated as of April 4, 2008, to Subscriber
Services Agreement, dated as of July 23, 2007, between
Galileo International, L.L.C., Galileo Nederland B.V. and Orbitz
Worldwide, LLC (incorporated by reference to Exhibit 10.3
to the Orbitz Worldwide, Inc.
Form 10-Q
for the Quarterly Period ended June 30, 2008).
|
124
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.25
|
|
Third Amendment, dated as of January 23, 2009, to
Subscriber Services Agreement, dated as of July 23, 2007,
between Travelport International, L.L.C. (f/k/a Galileo
International, L.L.C.), Travelport Global Distribution System
B.V. (f/k/a Galileo Nederland B.V.) and Orbitz Worldwide, LLC
(incorporated by reference to Exhibit 10.24 to the Orbitz
Worldwide, Inc. Annual Report on
Form 10-K
for the Fiscal Year ended December 31, 2008).
|
|
10
|
.26
|
|
Fourth Amendment, dated as of July 8, 2009, to Subscriber
Services Agreement, dated as of July 23, 2007, between
Travelport International, L.L.C. (f/k/a Galileo International,
L.L.C.), Travelport Global Distribution System B.V. (f/k/a
Galileo Nederland B.V.) and Orbitz Worldwide, LLC (incorporated
by reference to Exhibit 10.1 to the Orbitz Worldwide, Inc.
Quarterly Report on
Form 10-Q
for the Quarterly Period ended September 30, 2009).
|
|
10
|
.27
|
|
Fifth Amendment, dated as of November 5, 2009, to
Subscriber Services Agreement, dated as of July 23, 2007,
between Travelport International, L.L.C. (f/k/a Galileo
International, L.L.C.), Travelport Global Distribution System
B.V. (f/k/a Galileo Nederland B.V.) and Orbitz Worldwide, LLC.
|
|
10
|
.28
|
|
Master Services Agreement, effective as of August 8, 2007,
between Pegasus Solutions, Inc. and Orbitz Worldwide, LLC
(incorporated by reference to Exhibit 10.1 to the Orbitz
Worldwide, Inc. Current Report on
Form 8-K
filed on September 27, 2007).
|
|
10
|
.29
|
|
Amendment, effective as of January 16, 2008, between
Pegasus Solutions, Inc. and Orbitz Worldwide, LLC (incorporated
by reference to Exhibit 10.16 to the Orbitz Worldwide, Inc.
Annual Report on
Form 10-K
for the Fiscal Year ended December 31, 2007).
|
|
10
|
.30
|
|
Exchange Agreement, dated as of November 4, 2009, between
Orbitz Worldwide, Inc. and PAR Investment Partners, L.P.
(incorporated by reference to Exhibit 10.1 to the Orbitz
Worldwide, Inc. Current Report on
Form 8-K
filed on November 10, 2009).
|
|
10
|
.31
|
|
Amendment No. 1, dated as of January 15, 2010, to
Exchange Agreement, by and among Orbitz Worldwide, Inc. and PAR
Investment Partners, L.P.
|
|
10
|
.32
|
|
Stock Purchase Agreement, dated as of November 4, 2009,
between Orbitz Worldwide, Inc. and Travelport Limited
(incorporated by reference to Exhibit 10.2 to the Orbitz
Worldwide, Inc. Current Report on
Form 8-K
filed on November 10, 2009).
|
|
10
|
.33
|
|
Shareholders Agreement, dated as of November 4, 2009,
among Orbitz Worldwide, Inc, PAR Investment Partners, L.P. and
Travelport Limited (incorporated by reference to
Exhibit 10.3 to the Orbitz Worldwide, Inc. Current Report
on
Form 8-K
filed on November 10, 2009).
|
|
10
|
.34
|
|
Orbitz Worldwide, Inc. 2007 Equity and Incentive Plan, as
amended and restated, effective June 2, 2009 (incorporated
by reference to Exhibit 10.3 to the Orbitz Worldwide, Inc.
Current Report on
Form 8-K
filed on June 4, 2009).
|
|
10
|
.35*
|
|
Employment Agreement (including Form of Option Award Agreement),
dated as of January 6, 2009, by and between Orbitz
Worldwide, Inc. and Barnaby Harford (incorporated by reference
to Exhibit 10.2 to Orbitz Worldwide, Inc. Current Report on
Form 8-K
filed on January 12, 2009).
|
|
10
|
.36*
|
|
Amendment to Employment Agreement, effective as of July 17,
2009, by and between Orbitz Worldwide, Inc. and Barnaby Harford
(incorporated by reference to Exhibit 10.4 to the Orbitz
Worldwide, Inc. Quarterly Report on
Form 10-Q
for the Quarterly Period ended September 30, 2009).
|
|
10
|
.37*
|
|
Amended and Restated Employment Agreement, dated as of
December 5, 2008, between Orbitz Worldwide, Inc. and Marsha
Williams (incorporated by reference to Exhibit 10.29 to the
Orbitz Worldwide, Inc. Annual Report on
Form 10-K
for the Fiscal Year ended December 31, 2008).
|
|
10
|
.38*
|
|
Separation Agreement, dated as of January 6, 2009, by and
between Orbitz Worldwide, Inc. and Steven D. Barnhart
(incorporated by reference to Exhibit 10.1 to Orbitz
Worldwide, Inc. Current Report on
Form 8-K
filed on January 12, 2009).
|
|
10
|
.39*
|
|
Letter Agreement, effective as of August 13, 2007, between
Orbitz Worldwide, Inc. and Mike Nelson (incorporated by
reference to Exhibit 10.10 to the Orbitz Worldwide, Inc.
Quarterly Report on
10-Q for the
Quarterly Period ended September 30, 2007).
|
125
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.40*
|
|
Letter Agreement, effective as of August 14, 2007, between
Orbitz Worldwide, Inc. and James P. Shaughnessy (incorporated by
reference to Exhibit 10.32 to the Orbitz Worldwide, Inc.
Annual Report on
Form 10-K
for the Fiscal Year ended December 31, 2008).
|
|
10
|
.41*
|
|
Letter Agreement, dated March 3, 2009, between Orbitz
Worldwide, Inc. and James P. Shaughnessy (incorporated by
reference to Exhibit 10.33 to the Orbitz Worldwide, Inc.
Annual Report on
Form 10-K
for the Fiscal Year ended December 31, 2008).
|
|
10
|
.42*
|
|
Letter Agreement, dated July 31, 2009, between Orbitz
Worldwide, Inc. and James P. Shaughnessy (incorporated by
reference to Exhibit 10.5 to the Orbitz Worldwide, Inc.
Quarterly Report on
Form 10-Q
for the Quarterly Period ended September 30, 2009).
|
|
10
|
.43*
|
|
Letter Agreement, effective as of August 13, 2007, between
Orbitz Worldwide, Inc. and Frank Petito.
|
|
10
|
.44*
|
|
Form of Option Award Agreement (incorporated by reference to
Exhibit 10.38 to Amendment No. 6 to the Orbitz
Worldwide, Inc. Registration Statement on
Form S-1
(Registration
No. 333-142797)
filed on July 18, 2007).
|
|
10
|
.45*
|
|
Form of RSU Award Agreement (incorporated by reference to
Exhibit 10.38 to Amendment No. 6 to the Orbitz
Worldwide, Inc. Registration Statement on
Form S-1
(Registration
No. 333-142797)
filed on July 18, 2007).
|
|
10
|
.46*
|
|
Form of Restricted Stock Award Agreement for Converted
Travelport Equity Awards (incorporated by reference to
Exhibit 10.13 to the Orbitz Worldwide, Inc. Quarterly
Report on
10-Q for the
Quarterly Period ended September 30, 2007).
|
|
10
|
.47*
|
|
Form of Restricted Stock Unit Award Agreement for Converted
Travelport Equity Awards (incorporated by reference to
Exhibit 10.14 to the Orbitz Worldwide, Inc. Quarterly
Report on
10-Q for the
Quarterly Period ended September 30, 2007).
|
|
10
|
.48*
|
|
Form of Restricted Stock Unit Award Agreement for Senior
Management (incorporated by reference to Exhibit 10.2 to
the Orbitz Worldwide, Inc. Current Report on
Form 8-K
filed on December 18, 2007).
|
|
10
|
.49*
|
|
Form of Option Award Agreement for Converted Travelport Equity
Awards (incorporated by reference to Exhibit 10.15 to the
Orbitz Worldwide, Inc. Quarterly Report on
10-Q for the
Quarterly Period ended September 30, 2007).
|
|
10
|
.50*
|
|
Form of Stock Option Award Agreement (Executive
Officers) 2008 Equity Grants (incorporated by
reference to Exhibit 10.1 to the Orbitz Worldwide, Inc.
Current Report on
Form 8-K
filed on June 25, 2008).
|
|
10
|
.51*
|
|
Form of Restricted Stock Unit Award Agreement (Executive
Officers) 2008 Equity Grants (incorporated by
reference to Exhibit 10.2 to the Orbitz Worldwide, Inc.
Current Report on
Form 8-K
filed on June 25, 2008).
|
|
10
|
.52*
|
|
Form of Performance-Based Restricted Stock Unit Award Agreement
(incorporated by reference to Exhibit 10.3 to the Orbitz
Worldwide, Inc. Current Report on
Form 8-K
filed on June 25, 2008).
|
|
10
|
.53*
|
|
Form of CEO Restricted Stock Unit Award Agreement (incorporated
by reference to Exhibit 10.6 to the Orbitz Worldwide, Inc.
Quarterly Report on
Form 10-Q
for the Quarterly Period ended September 30, 2009).
|
|
10
|
.54*
|
|
Amended and Restated Orbitz Worldwide, Inc. Performance-Based
Annual Incentive Plan, effective June 2, 2009 (incorporated
by reference to Exhibit 10.2 to the Orbitz Worldwide, Inc.
Current Report on
Form 8-K
filed on June 4, 2009).
|
|
10
|
.55*
|
|
Orbitz Worldwide, Inc. Non-Employee Directors Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.16 to the Orbitz Worldwide, Inc. Quarterly
Report on
10-Q for the
Quarterly Period ended September 30, 2007).
|
|
10
|
.56*
|
|
Form of Indemnity Agreement for Directors and Officers
(incorporated by reference to Exhibit 10.1 to the Orbitz
Worldwide, Inc. Current Report on
Form 8-K
filed on December 18, 2007).
|
|
21
|
.1
|
|
List of Subsidiaries.
|
|
23
|
.1
|
|
Consent of Deloitte & Touche LLP, independent
registered public accounting firm.
|
126
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer of Orbitz Worldwide,
Inc. pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
|
|
31
|
.2
|
|
Certification of Chief Financial Officer of Orbitz Worldwide,
Inc. pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
|
|
32
|
.1
|
|
Certification of Chief Executive Officer of Orbitz Worldwide,
Inc. pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Chief Financial Officer of Orbitz Worldwide,
Inc. pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement. |
127
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
|
|
|
ORBITZ WORLDWIDE, INC
|
|
|
|
Date: March 3, 2010
|
|
By: /s/ Barney
Harford
Barney
Harford
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
Date: March 3, 2010
|
|
By: /s/ Barney
Harford
Barney
Harford
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
Date: March 3, 2010
|
|
By: /s/ Marsha
C. Williams
Marsha
C. Williams
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
Date: March 3, 2010
|
|
By: /s/ John
W. Bosshart
John
W. Bosshart
Vice President of Global Accounting
(Principal Accounting Officer)
|
|
|
|
Date: March 3, 2010
|
|
By: /s/ Jeff
Clarke
Jeff
Clarke
Chairman of the Board of Directors
|
|
|
|
Date: March 3, 2010
|
|
By: /s/ William
C. Cobb
William
C. Cobb
Director
|
128
|
|
|
Date: March 3, 2010
|
|
By: /s/ Richard
P. Fox
Richard
P. Fox
Director
|
|
|
|
Date: March 3, 2010
|
|
By: /s/ Jill
A. Greenthal
Jill
A. Greenthal
Director
|
|
|
|
Date: March 3, 2010
|
|
By: /s/ William
J.G. Griffith
William
J.G. Griffith
Director
|
|
|
|
Date: March 3, 2010
|
|
By: /s/ Paul
C. Schorr IV
Paul
C. Schorr IV
Director
|
|
|
|
Date: March 3, 2010
|
|
By: /s/ Jaynie
Miller Studenmund
Jaynie
Miller Studenmund
Director
|
129