UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2010
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or
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o
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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
Suite 1000
Chicago, Illinois
(Address of principal executive
offices)
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60661
(Zip Code)
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(312) 894-5000
(Registrants telephone
number, including area code)
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 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.
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of November 1, 2010, 102,305,045 shares of Common Stock,
par value $0.01 per share, of Orbitz Worldwide, Inc. were
outstanding.
Forward-Looking
Statements
This Quarterly Report on
Form 10-Q
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 the
sections entitled Risk Factors in our 2009 Annual
Report on
Form 10-K
filed with the Securities and Exchange Commission
(SEC) on March 3, 2010 and
Managements Discussion and Analysis of Financial
Condition and Results of Operations in this Quarterly
Report on
Form 10-Q
and in our 2009 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 Quarterly Report on
Form 10-Q.
The use of the words we, us,
our and the Company in this Quarterly
Report on
Form 10-Q
refers to Orbitz Worldwide, Inc. and its subsidiaries, except
where the context otherwise requires or indicates.
3
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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ORBITZ
WORLDWIDE, INC.
(in thousands, except share and per share
data)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2010
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2009
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2010
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2009
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Net revenue
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$
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194,479
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$
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186,603
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$
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575,123
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$
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562,955
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Cost and expenses
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Cost of revenue
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38,715
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33,753
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114,314
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103,208
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Selling, general and administrative
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57,840
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64,201
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181,265
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190,125
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Marketing
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52,583
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48,090
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165,522
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165,917
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Depreciation and amortization
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17,780
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18,324
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56,449
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50,996
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Impairment of other assets (see Note 8)
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1,704
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Impairment of goodwill and intangible assets
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331,527
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Total operating expenses
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166,918
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164,368
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519,254
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841,773
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Operating income (loss)
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27,561
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22,235
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55,869
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(278,818
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)
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Other (expense) income
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Net interest expense
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(11,180
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)
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(14,071
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)
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(33,434
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)
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(43,182
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)
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Other (expense) income
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(1
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)
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18
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2,112
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Total other (expense)
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(11,180
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)
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(14,072
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)
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(33,416
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)
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(41,070
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)
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Income (loss) before income taxes
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16,381
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8,163
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22,453
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(319,888
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)
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Provision (benefit) for income taxes
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1,049
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1,183
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2,649
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(988
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)
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Net income (loss)
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$
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15,332
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$
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6,980
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$
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19,804
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$
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(318,900
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)
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Net income (loss) per share basic:
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Net income (loss) per share
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$
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0.15
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$
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0.08
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$
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0.20
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$
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(3.80
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)
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Weighted average shares outstanding
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103,066,070
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84,377,943
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100,600,016
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83,951,081
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Net income (loss) per share diluted:
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Net income (loss) per share
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$
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0.15
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$
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0.08
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$
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0.19
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$
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(3.80
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)
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Weighted average shares outstanding
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105,339,916
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86,547,214
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104,023,529
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83,951,081
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See Notes to Unaudited Condensed Consolidated Financial
Statements.
4
ORBITZ
WORLDWIDE, INC.
(in thousands, except share data)
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September 30,
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December 31,
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2010
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2009
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Assets
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Current assets:
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Cash and cash equivalents
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$
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139,066
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$
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88,656
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Accounts receivable (net of allowance for doubtful accounts of
$777 and $935, respectively)
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61,443
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54,708
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Prepaid expenses
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19,320
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17,399
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Due from Travelport, net
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17,982
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3,188
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Other current assets
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4,694
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5,702
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Total current assets
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242,505
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169,653
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Property and equipment, net
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162,800
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180,962
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Goodwill
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718,171
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713,123
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Trademarks and trade names
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156,583
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155,090
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Other intangible assets, net
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8,214
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18,562
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Deferred income taxes, non-current
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6,983
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9,954
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Other non-current assets
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51,145
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46,898
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Total Assets
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$
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1,346,401
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$
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1,294,242
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Liabilities and Shareholders Equity
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Current liabilities:
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Accounts payable
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$
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21,608
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$
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30,279
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Accrued merchant payable
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275,018
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219,073
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Accrued expenses
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115,199
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112,771
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Deferred income
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37,545
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30,924
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Term loan, current
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8,101
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20,994
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Other current liabilities
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7,375
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5,162
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Total current liabilities
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464,846
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419,203
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Term loan, non-current
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483,920
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555,582
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Line of credit
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42,221
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Tax sharing liability
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101,118
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108,736
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Unfavorable contracts
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8,448
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9,901
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Other non-current liabilities
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23,499
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28,096
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Total Liabilities
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1,081,831
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1,163,739
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Commitments and contingencies (see Note 9)
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Shareholders Equity:
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Preferred stock, $0.01 par value, 100 shares
authorized, no shares issued or outstanding
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Common stock, $0.01 par value, 140,000,000 shares
authorized, 102,303,929 and 83,831,561 shares issued and
outstanding, respectively
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1,023
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|
838
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Treasury stock, at cost, 25,237 and 24,521 shares held,
respectively
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(52
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)
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(48
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)
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Additional paid in capital
|
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1,027,433
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921,425
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Accumulated deficit
|
|
|
(765,568
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)
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(785,372
|
)
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Accumulated other comprehensive income (loss) (net of
accumulated tax benefit of $2,558 and $2,558, respectively)
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1,734
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(6,340
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)
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|
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Total Shareholders Equity
|
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|
264,570
|
|
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130,503
|
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|
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|
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Total Liabilities and Shareholders Equity
|
|
$
|
1,346,401
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$
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1,294,242
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See Notes to Unaudited Condensed Consolidated Financial
Statements.
5
ORBITZ
WORLDWIDE, INC.
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,804
|
|
|
$
|
(318,900
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
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Net gain on extinguishment of debt
|
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(57
|
)
|
|
|
(2,172
|
)
|
Depreciation and amortization
|
|
|
56,449
|
|
|
|
50,996
|
|
Impairment of other assets
|
|
|
1,704
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
331,527
|
|
Amortization of unfavorable contract liability
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|
|
(2,703
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)
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|
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(2,475
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)
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Non-cash net interest expense
|
|
|
11,929
|
|
|
|
11,786
|
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Deferred income taxes
|
|
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2,719
|
|
|
|
(5,354
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)
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Stock compensation
|
|
|
10,660
|
|
|
|
11,076
|
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Provision for bad debts
|
|
|
(235
|
)
|
|
|
519
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,718
|
)
|
|
|
(3,722
|
)
|
Deferred income
|
|
|
6,186
|
|
|
|
15,289
|
|
Due to/from Travelport, net
|
|
|
(14,741
|
)
|
|
|
(21
|
)
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Accrued merchant payable
|
|
|
56,405
|
|
|
|
26,693
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
(8,277
|
)
|
|
|
(9,382
|
)
|
Other
|
|
|
(9,476
|
)
|
|
|
(2,518
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
123,649
|
|
|
|
103,342
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Property and equipment additions
|
|
|
(27,846
|
)
|
|
|
(30,809
|
)
|
Changes in restricted cash
|
|
|
(176
|
)
|
|
|
(635
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(28,022
|
)
|
|
|
(31,444
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
48,930
|
|
|
|
|
|
Payment of fees to repurchase a portion of the term loan
|
|
|
(248
|
)
|
|
|
|
|
Payments on the term loan
|
|
|
(20,994
|
)
|
|
|
(4,449
|
)
|
Payments to extinguish debt
|
|
|
(13,488
|
)
|
|
|
(7,774
|
)
|
Payments to satisfy employee tax withholding obligations upon
vesting of equity-based awards
|
|
|
(2,884
|
)
|
|
|
(353
|
)
|
Proceeds from exercise of employee stock options
|
|
|
65
|
|
|
|
35
|
|
Payments on tax sharing liability
|
|
|
(14,058
|
)
|
|
|
(10,915
|
)
|
Proceeds from line of credit
|
|
|
|
|
|
|
99,457
|
|
Payments on line of credit
|
|
|
(42,221
|
)
|
|
|
(59,823
|
)
|
Proceeds from note payable
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(44,098
|
)
|
|
|
16,178
|
|
|
|
|
|
|
|
|
|
|
Effects of changes in exchange rates on cash and cash equivalents
|
|
|
(1,119
|
)
|
|
|
2,361
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
50,410
|
|
|
|
90,437
|
|
Cash and cash equivalents at beginning of period
|
|
|
88,656
|
|
|
|
31,193
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
139,066
|
|
|
$
|
121,630
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Income tax payments, net
|
|
$
|
1,140
|
|
|
$
|
2,032
|
|
Cash interest payments, net of capitalized interest of $17 and
$96, respectively
|
|
$
|
21,184
|
|
|
$
|
31,631
|
|
Non-cash investing activity:
|
|
|
|
|
|
|
|
|
Capital expenditures incurred not yet paid
|
|
$
|
47
|
|
|
|
|
|
Non-cash financing activity:
|
|
|
|
|
|
|
|
|
Repayment of term loan in connection with debt-equity exchange
|
|
$
|
49,564
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements.
6
ORBITZ
WORLDWIDE, INC.
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net income (loss)
|
|
$
|
15,332
|
|
|
$
|
6,980
|
|
|
$
|
19,804
|
|
|
$
|
(318,900
|
)
|
Other comprehensive (loss) income, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(693
|
)
|
|
|
7,381
|
|
|
|
6,798
|
|
|
|
4,465
|
|
Unrealized gains on floating to fixed interest rate swaps
|
|
|
376
|
|
|
|
2,096
|
|
|
|
1,276
|
|
|
|
6,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
(317
|
)
|
|
|
9,477
|
|
|
|
8,074
|
|
|
|
10,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
15,015
|
|
|
$
|
16,457
|
|
|
$
|
27,878
|
|
|
$
|
(308,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements.
7
ORBITZ
WORLDWIDE, INC.
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Balance at December 31, 2009
|
|
|
83,831,561
|
|
|
$
|
838
|
|
|
|
24,521
|
|
|
$
|
(48
|
)
|
|
$
|
921,425
|
|
|
$
|
(785,372
|
)
|
|
$
|
(6,340
|
)
|
|
$
|
130,503
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,804
|
|
|
|
|
|
|
|
19,804
|
|
Amortization of equity-based compensation awards granted to
employees, net of shares withheld to satisfy employee tax
withholding obligations upon vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,780
|
|
|
|
|
|
|
|
|
|
|
|
7,780
|
|
Common shares issued pursuant to Exchange Agreement and Stock
Purchase Agreement (see Note 6)
|
|
|
17,166,673
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
98,176
|
|
|
|
|
|
|
|
|
|
|
|
98,348
|
|
Common shares issued upon vesting of restricted stock units
|
|
|
1,295,809
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued upon exercise of stock options
|
|
|
10,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
Common shares withheld to satisfy employee tax withholding
obligations upon vesting of restricted stock
|
|
|
(716
|
)
|
|
|
|
|
|
|
716
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,074
|
|
|
|
8,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
|
102,303,929
|
|
|
$
|
1,023
|
|
|
|
25,237
|
|
|
$
|
(52
|
)
|
|
$
|
1,027,433
|
|
|
$
|
(765,568
|
)
|
|
$
|
1,734
|
|
|
$
|
264,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements.
8
ORBITZ
WORLDWIDE, INC.
(UNAUDITED)
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 HotelClub and
RatesToGo brands (collectively referred to as
HotelClub in this
Form 10-Q)
and the CheapTickets brand. 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
Form 10-Q.
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
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 September 30, 2010 and December 31, 2009,
Travelport and investment funds that own
and/or
control Travelports ultimate parent company beneficially
owned approximately 56% and 57% 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 wide array 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 unaudited condensed 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. We have prepared the accompanying unaudited condensed
consolidated financial statements in accordance with the rules
and regulations of the SEC. These condensed consolidated
financial statements include all adjustments that are, in the
opinion of management, necessary for a fair presentation of our
financial position and results of operations for the interim
periods presented. All such adjustments are of a normal and
recurring nature. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United
States of America (GAAP) have been condensed or
omitted pursuant to SEC rules and regulations for interim
reporting. These condensed consolidated financial statements
should be read in conjunction with the audited consolidated
financial statements and accompanying notes included in our 2009
Annual Report on
Form 10-K
filed with the SEC on March 3, 2010. Our consolidated
financial statements were presented in millions in our SEC
filings for periods prior to the first quarter of 2010.
Beginning with our first quarter 2010
Form 10-Q,
our consolidated financial statements are presented in thousands.
The preparation of our condensed consolidated financial
statements in conformity with GAAP requires us to make certain
estimates and assumptions. Our estimates and assumptions affect
the reported amounts of
9
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets and liabilities, the disclosure of contingent assets and
liabilities as of the date of our condensed consolidated
financial statements and the reported amounts of revenue and
expense during the reporting periods. Actual results could
differ from our estimates.
During the first quarter of 2010, we had a change in estimate
related to the timing of our recognition of travel insurance
revenue. Prior to the first quarter of 2010, we recorded travel
insurance revenue one month in arrears, upon receipt of payment,
as we did not have sufficient reporting from our travel
insurance supplier to conclude that the price was fixed or
determinable prior to that time. Our travel insurance supplier
implemented timelier reporting, and as a result, beginning with
the first quarter of 2010, we were able to recognize travel
insurance revenue on an accrual basis rather than one month in
arrears. This change in estimate resulted in a $2.8 million
increase in our net revenue and net income for the nine months
ended September 30, 2010.
|
|
2.
|
Recently
Issued Accounting Pronouncements
|
In September 2009, the Financial Accounting Standards Board
(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 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 was
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. The 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 15 Fair Value Measurements.
|
|
3.
|
Property
and Equipment, Net
|
Property and equipment, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(in thousands)
|
|
|
Capitalized software
|
|
$
|
241,047
|
|
|
$
|
221,261
|
|
Furniture, fixtures and equipment
|
|
|
71,595
|
|
|
|
68,896
|
|
Leasehold improvements
|
|
|
13,231
|
|
|
|
13,443
|
|
Construction in progress
|
|
|
17,010
|
|
|
|
13,482
|
|
|
|
|
|
|
|
|
|
|
Gross property and equipment
|
|
|
342,883
|
|
|
|
317,082
|
|
Less: accumulated depreciation and amortization
|
|
|
(180,083
|
)
|
|
|
(136,120
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
162,800
|
|
|
$
|
180,962
|
|
|
|
|
|
|
|
|
|
|
10
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We recorded depreciation and amortization expense related to
property and equipment in the amount of $15.4 million and
$14.0 million for the three months ended September 30,
2010 and September 30, 2009, respectively, and
$46.0 million and $38.1 million for the nine months
ended September 30, 2010 and September 30, 2009,
respectively.
|
|
4.
|
Goodwill
and Intangible Assets
|
Goodwill and indefinite-lived intangible assets consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
(in thousands)
|
|
Goodwill and Indefinite-Lived Intangible Assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
718,171
|
|
|
$
|
713,123
|
|
Trademarks and trade names
|
|
|
156,583
|
|
|
|
155,090
|
|
The changes in the carrying amount of goodwill during the nine
months ended September 30, 2010 were as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2009, net of accumulated impairment
of $459,199
|
|
$
|
713,123
|
|
Impact of foreign currency translation (a)
|
|
|
5,048
|
|
|
|
|
|
|
Balance at September 30, 2010, net of accumulated
impairment of $459,199
|
|
$
|
718,171
|
|
|
|
|
|
|
|
|
|
(a) |
|
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. |
Finite-lived intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
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 thousands)
|
|
|
|
|
|
(in years)
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in years)
|
|
|
Finite-Lived Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships (b)
|
|
$
|
12,000
|
|
|
$
|
(6,125
|
)
|
|
$
|
5,875
|
|
|
|
7
|
|
|
$
|
66,190
|
|
|
$
|
(50,329
|
)
|
|
$
|
15,861
|
|
|
|
4
|
|
Vendor relationships and other
|
|
|
5,461
|
|
|
|
(3,122
|
)
|
|
|
2,339
|
|
|
|
7
|
|
|
|
5,072
|
|
|
|
(2,371
|
)
|
|
|
2,701
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Finite-Lived Intangible Assets
|
|
$
|
17,461
|
|
|
$
|
(9,247
|
)
|
|
$
|
8,214
|
|
|
|
7
|
|
|
$
|
71,262
|
|
|
$
|
(52,700
|
)
|
|
$
|
18,562
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
During the third quarter of 2010, we wrote off the gross
carrying amount and corresponding accumulated amortization
related to $54.2 million of fully amortized customer
relationship intangible assets whose useful lives expired during
the period. |
We recorded amortization expense related to finite-lived
intangible assets in the amount of $2.4 million and
$4.3 million for the three months ended September 30,
2010 and September 30, 2009, respectively, and
$10.4 million and $12.9 million for the nine months
ended September 30, 2010 and September 30, 2009,
respectively. These amounts are included in depreciation and
amortization expense in our condensed consolidated statements of
operations.
11
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below shows estimated amortization expense related to
our finite-lived intangible assets over the next five years:
|
|
|
|
|
Year
|
|
(in thousands)
|
|
|
2010 (remaining 3 months)
|
|
$
|
690
|
|
2011
|
|
|
2,697
|
|
2012
|
|
|
2,427
|
|
2013
|
|
|
1,677
|
|
2014
|
|
|
723
|
|
|
|
|
|
|
Total
|
|
$
|
8,214
|
|
|
|
|
|
|
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(in thousands)
|
|
|
Advertising and marketing (a)
|
|
$
|
29,428
|
|
|
$
|
17,897
|
|
Tax sharing liability, current
|
|
|
21,582
|
|
|
|
17,390
|
|
Employee costs (b)
|
|
|
19,590
|
|
|
|
32,684
|
|
Contract exit costs
|
|
|
6,909
|
|
|
|
4,858
|
|
Rebates
|
|
|
6,124
|
|
|
|
5,928
|
|
Customer service costs
|
|
|
5,472
|
|
|
|
5,575
|
|
Technology costs
|
|
|
5,149
|
|
|
|
4,413
|
|
Professional fees
|
|
|
4,815
|
|
|
|
4,414
|
|
Unfavorable contracts, current
|
|
|
3,754
|
|
|
|
3,300
|
|
Facilities costs
|
|
|
801
|
|
|
|
2,588
|
|
Other
|
|
|
11,575
|
|
|
|
13,724
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
115,199
|
|
|
$
|
112,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The change in accrued advertising and marketing is primarily due
to the timing of our marketing spending, in part due to
seasonality, and the timing of related payments made during the
year. |
|
(b) |
|
The change in accrued employee costs primarily represents lower
accrued employee incentive compensation and lower accrued
severance costs at September 30, 2010 compared with
December 31, 2009. |
|
|
|
At September 30, 2010 and December 31, 2009, the
employee costs line item included accrued severance costs of
$1.5 million and $3.2 million, respectively, of which
$0.3 million and $3.2 million, respectively, were
associated with actions taken in 2009. The majority of the costs
related to these 2009 actions are expected to be paid during the
remainder of 2010. |
|
|
6.
|
Term Loan
and Revolving Credit Facility
|
On July 25, 2007, concurrent with the IPO, we entered into
a $685.0 million senior secured credit agreement
(Credit Agreement) consisting of a seven-year
$600.0 million term loan facility (Term Loan)
and a six-year $85.0 million revolving credit facility,
which was effectively reduced to a $72.5 million revolving
credit facility following the bankruptcy of Lehman Commercial
Paper Inc. in October 2008 (Revolver).
12
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
$1.3 million, with the final installment (equal to the
remaining outstanding balance) due upon maturity in July 2014.
In addition, 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. Based on our excess cash flow for the
year ended December 31, 2009, we made a $21.0 million
prepayment on the Term Loan in the first quarter of 2010.
Prepayments from excess cash flow are applied, in order of
maturity, to the scheduled quarterly Term Loan principal
payments. As a result, we are not required to make any scheduled
principal payments on the Term Loan during the remainder of
2010. Based on our current financial projections for the year
ending December 31, 2010, we estimate that we will be
required to make an $8.1 million prepayment on the Term
Loan in the first quarter of 2011. The amount of prepayment
required is subject to change based on actual results, which
could differ materially from our financial projections as of
September 30, 2010.
The changes in the Term Loan during the nine months ended
September 30, 2010 were as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2009
|
|
$
|
576,576
|
|
Principal prepayments
|
|
|
(20,994
|
)
|
Repurchases (a)
|
|
|
(63,561
|
)
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
492,021
|
|
|
|
|
|
|
|
|
|
(a) |
|
On January 26, 2010, pursuant to an Exchange Agreement we
entered into with PAR Investment Partners, L.P.
(PAR), as amended, PAR exchanged $49.6 million
aggregate principal amount of the Term Loan for
8,141,402 shares of our common stock. We immediately
retired the portion of the Term Loan purchased from PAR in
accordance with the amendment (the Amendment) to the
Credit Agreement that we entered into in June 2009. The fair
value of our common shares issued in the exchange was
$49.4 million. After taking into account the write-off of
unamortized debt issuance costs of $0.4 million and
$0.2 million of other miscellaneous fees incurred to
purchase this portion of the Term Loan, we recorded a
$0.4 million loss on extinguishment of this portion of the
Term Loan, which is included in other (expense) income in our
condensed consolidated statement of operations for the nine
months ended September 30, 2010. Concurrently, pursuant to
a Stock Purchase Agreement we entered into with Travelport,
Travelport purchased 9,025,271 shares of our common stock
for $50.0 million in cash. We incurred $1.1 million of
issuance costs associated with these equity investments by PAR
and Travelport, which are included in additional paid in capital
in our condensed consolidated balance sheet at
September 30, 2010. |
|
|
|
In May 2010, we used a portion of the cash proceeds received
from Travelports purchase of shares of our common stock in
January 2010 to purchase $14.0 million in principal amount
of the Term Loan. We immediately retired this portion of the
Term Loan in accordance with the Amendment. The principal amount
of the Term Loan purchased (net of associated unamortized debt
issuance costs of $0.1 million) exceeded the amount we paid
to purchase this portion of the Term Loan by $0.4 million.
Accordingly, we recorded a $0.4 million gain on
extinguishment of a portion of the Term Loan, which is included
in other (expense) income in our condensed consolidated
statement of operations for the nine months ended
September 30, 2010. |
13
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At September 30, 2010, $300.0 million of the Term Loan
had a fixed interest rate as a result of interest rate swaps and
$192.0 million had a variable interest rate based on LIBOR,
resulting in a blended weighted average interest rate of 4.28%
(see Note 12 Derivative Financial Instruments).
Revolver
The Revolver provides for borrowings and letters of credit of up
to $72.5 million ($42.6 million in U.S. dollars
and the equivalent of $29.9 million denominated in Euros
and Pounds Sterling) and bears interest at a variable rate, at
our option, of LIBOR plus a margin of 200 basis points or
an Alternative Base Rate plus a margin of 100 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 incur a commitment fee
of 50 basis points on any unused amounts on the Revolver.
The Revolver matures in July 2013.
At September 30, 2010, there were no outstanding borrowings
under the Revolver and the equivalent of $12.5 million of
outstanding letters of credit issued under the Revolver, which
were denominated in Pounds Sterling. At December 31, 2009,
there were $42.2 million of borrowings outstanding under
the Revolver, all of which were denominated in
U.S. dollars, and the equivalent of $4.5 million of
outstanding letters of credit issued under the Revolver, which
were denominated in Pounds Sterling. The amount of letters of
credit issued under the Revolver reduces the amount available to
us for borrowings. We had $60.0 million and
$25.8 million of availability under the Revolver at
September 30, 2010 and December 31, 2009,
respectively. Commitment fees on unused amounts under the
Revolver were $0 for each of the three months ended
September 30, 2010 and September 30, 2009 and
$0.2 million and $0.1 million for the nine months
ended September 30, 2010 and September 30, 2009,
respectively.
The table below shows the aggregate maturities of the Term Loan
over the next five years, excluding any mandatory prepayments
that could be required under the Term Loan beyond the first
quarter of 2011. The potential amount of prepayment from excess
cash flow that will be required beyond the first quarter of 2011
is not reasonably estimable as of September 30, 2010.
|
|
|
|
|
Year
|
|
(in thousands)
|
|
|
2010 (remaining 3 months)
|
|
$
|
|
|
2011
|
|
|
8,101
|
|
2012
|
|
|
|
|
2013
|
|
|
|
|
2014
|
|
|
483,920
|
|
|
|
|
|
|
Total
|
|
$
|
492,021
|
|
|
|
|
|
|
14
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have a liability included in our condensed consolidated
balance sheets that relates to a tax sharing agreement between
Orbitz and the Founding Airlines. As of September 30, 2010,
the estimated remaining payments that may be due under this
agreement were approximately $199.9 million. We estimated
that the net present value of our obligation to pay tax benefits
to the Founding Airlines was $122.7 million and
$126.1 million at September 30, 2010 and
December 31, 2009, respectively. The table below shows the
changes in the tax sharing liability during the nine months
ended September 30, 2010:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2009
|
|
$
|
126,126
|
|
Accretion of interest expense (a)
|
|
|
10,632
|
|
Cash payments
|
|
|
(14,058
|
)
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
122,700
|
|
|
|
|
|
|
|
|
|
(a) |
|
We accreted interest expense related to the tax sharing
liability of $3.5 million and $3.1 million for the
three months ended September 30, 2010 and
September 30, 2009, respectively, and $10.6 million
and $10.2 million for the nine months ended
September 30, 2010 and September 30, 2009,
respectively. |
Based upon the future payments we expect to make, the current
portion of the tax sharing liability of $21.6 million and
$17.4 million is included in accrued expenses in our
condensed consolidated balance sheets at September 30, 2010
and December 31, 2009, respectively. The long-term portion
of the tax sharing liability of $101.1 million and
$108.7 million is reflected as the tax sharing liability in
our condensed consolidated balance sheets at September 30,
2010 and December 31, 2009, respectively.
The table below shows the estimated payments under the tax
sharing agreement over the next five years:
|
|
|
|
|
Year
|
|
(in thousands)
|
|
|
2010 (remaining 3 months)
|
|
$
|
4,827
|
|
2011
|
|
|
24,544
|
|
2012
|
|
|
16,870
|
|
2013
|
|
|
17,574
|
|
2014
|
|
|
18,145
|
|
Thereafter
|
|
|
117,917
|
|
|
|
|
|
|
Total
|
|
$
|
199,877
|
|
|
|
|
|
|
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 recorded a receivable of $37.0 million for such
amounts, which is included in other non-current assets in our
condensed consolidated balance sheets at September 30, 2010
and December 31, 2009.
In December 2003, we entered into amended and restated airline
charter associate agreements (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 the Charter Associate Agreements, we must pay
a portion of the global distribution system (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
15
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Associate Airline are booked through our Orbitz.com and
OrbitzforBusiness.com websites utilizing Worldspan. We also
receive in-kind marketing and promotional support from the
Charter Associate Airlines under the Charter Associate
Agreements. 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, a net unfavorable contract liability was established on
the acquisition date. The amount of this liability was
determined based on the discounted cash flows of the expected
future rebate payments we would be required to make to the
Charter Associate Airlines, net of the fair value of the
expected in-kind marketing and promotional support we would
receive from the Charter Associate Airlines. The portion of the
net unfavorable contract liability related to the expected
future rebate payments is amortized as an increase to net
revenue, whereas the partially offsetting asset for the expected
in-kind marketing and promotional support is amortized as an
increase to marketing expense in our condensed consolidated
statements of operations, both on a straight-line basis over the
remaining contractual term.
The table below shows the changes in the net unfavorable
contract liability during the nine months ended
September 30, 2010:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2009
|
|
$
|
13,201
|
|
Amortization (a)
|
|
|
(2,703
|
)
|
Impairment (b)
|
|
|
1,704
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
12,202
|
|
|
|
|
|
|
|
|
|
(a) |
|
We recognized net amortization for the unfavorable portion of
the Charter Associate Agreements in the amount of
$0.9 million ($2.2 million was recorded as an increase
to net revenue and $1.3 million was recorded as an increase
to marketing expense) for the three months ended
September 30, 2010 and $0.8 million ($2.3 million
was recorded as an increase to net revenue and $1.5 million
was recorded as an increase to marketing expense) for the three
months ended September 30, 2009. We recognized net
amortization for the unfavorable portion of the Charter
Associate Agreements in the amount of $2.7 million
($6.7 million was recorded as an increase to net revenue
and $4.0 million was recorded as an increase to marketing
expense) for the nine months ended September 30, 2010 and
$2.5 million ($7.0 million was recorded as an increase
to net revenue and $4.5 million was recorded as an increase
to marketing expense) for the nine months ended
September 30, 2009. |
|
(b) |
|
During the first quarter of 2010, we recorded a non-cash charge
to impair the portion of the asset related to the expected
in-kind marketing and promotional support to be received from
Northwest Airlines under our Charter Associate Agreement with
that airline. As a result of the completion of the operational
merger of Northwest Airlines and Delta Airlines into a single
operating carrier, Northwest Airlines was no longer obligated to
provide us with in-kind marketing and promotional support after
June 1, 2010. This impairment charge is reflected as
impairment of other assets in our condensed consolidated
statement of operations for the nine months ended
September 30, 2010. |
At September 30, 2010 and December 31, 2009, the net
unfavorable contract liability was $12.2 million and
$13.2 million, respectively. The current portion of the
liability of $3.8 million and $3.3 million is included
in accrued expenses in our condensed consolidated balance sheets
at September 30, 2010 and December 31, 2009,
respectively. The long-term portion of the liability of
$8.4 million and $9.9 million is reflected as
unfavorable contracts in our condensed consolidated balance
sheets at September 30, 2010 and December 31, 2009,
respectively.
16
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Commitments
and Contingencies
|
Our commitments as of September 30, 2010 did not materially
change from the amounts set forth in our 2009 Annual Report on
Form 10-K,
except for the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 (remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 months)
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
|
|
(in thousands)
|
|
Telecommunications service agreement (a)
|
|
$
|
|
|
|
$
|
2,500
|
|
|
$
|
2,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,000
|
|
|
|
|
(a) |
|
In January 2010, we entered into a three-year telecommunications
service agreement, which requires a minimum annual commitment of
$2.5 million. |
In addition to the commitment shown above, the amount and timing
of future principal payments on the Term Loan (see
Note 6 Term Loan and Revolving Credit Facility)
and the amount and timing of future payments in connection with
the tax sharing agreement with the Founding Airlines have
changed (see Note 7 Tax Sharing Liability).
Also, in January 2010 we repaid the $42.2 million of
borrowings that were outstanding under the Revolver as of
December 31, 2009. There were no outstanding borrowings
under the Revolver at September 30, 2010.
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 ordinances. 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 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
following taxing bodies have issued notices to the Company: the
Louisiana Department of Revenue; the New Mexico Taxation and
Revenue Department; the Wyoming Department of Revenue; the
Colorado Department of Revenue; the Montana Department of
Revenue; the Hawaii Department of Taxation; an entity
representing 84 cities and 14 counties in Alabama;
43 cities in California; the cities of Phoenix, Arizona;
North Little Rock and Pine Bluff, Arkansas; Colorado Springs and
Steamboat Springs, Colorado; St. Louis, Missouri; and the
counties of Jefferson, Arkansas; Brunswick and Stanly, North
Carolina; Duval, Florida; and Davis, Summit, Salt Lake and
Weber, Utah. 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, individually ranging from almost nil to approximately
$10.0 million, and totaling approximately
$27.3 million.
17
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assessments that are administratively final and subject to
judicial review have been issued by the cities of Anaheim,
San Francisco and San Diego, California; the counties
of Miami-Dade and Broward, Florida; 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
West Virginia Department of Revenue; the Texas Comptroller; the
South Carolina Department of Revenue; the cities of Los Angeles
and Santa Monica, California; the city of Denver, Colorado; the
city of Philadelphia, Pennsylvania; the cities of Alpharetta,
Cartersville, Cedartown, College Park, Dalton, East Point,
Hartwell, Macon, Rockmart, Rome, Tybee Island and Warner Robins,
Georgia; and the counties of Augusta, Clayton, Cobb, DeKalb,
Fulton, Gwinnett, Hart and Richmond, Georgia; and Osceola,
Florida. 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. As of September 30, 2010, we had a
$0.5 million accrual related to various legal proceedings.
Litigation is inherently unpredictable and, although we believe
we have valid defenses in these matters, 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 condensed consolidated statements of operations
for reimbursements received of $1.1 million and
$0.9 million for the three months ended September 30,
2010 and September 30, 2009, respectively, and
$4.4 million and $4.0 million for the nine months
ended September 30, 2010 and September 30, 2009,
respectively. The recovery of additional amounts, if any, by us
and the timing of receipt of these recoveries is unclear. As
such, as of September 30, 2010, we had not recognized a
reduction to selling, general and administrative expense in our
condensed 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 September 30, 2010 and December 31, 2009,
there were $0.7 million and $0.8 million of surety
bonds outstanding, respectively. At September 30, 2010 and
December 31, 2009, there were $2.3 million and
$1.5 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 (the Separation
Agreement), entered into in connection with the IPO. At
September 30, 2010 and December 31, 2009, there were
$67.1 million and $59.3 million of outstanding letters
of credit issued by Travelport on our behalf, respectively (see
Note 14 Related Party Transactions). In
addition, at September 30, 2010 and December 31, 2009,
there were the equivalent of $12.5 million and
$4.5 million of outstanding letters of credit issued under
the Revolver, respectively, which were denominated in Pounds
Sterling. Total letter of credit fees were $1.0 million and
$0.9 million for the three months ended September 30,
2010 and September 30, 2009, respectively, and
$2.8 million for each of the nine months ended
September 30, 2010 and September 30, 2009.
18
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have established a liability for unrecognized tax benefits
that management believes to be adequate. The table below shows
the changes in this liability during the nine months ended
September 30, 2010:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2009
|
|
$
|
4,910
|
|
Decrease in unrecognized tax benefits as a result of tax
positions taken during the prior year
|
|
|
(80
|
)
|
Impact of foreign currency translation
|
|
|
9
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
4,839
|
|
|
|
|
|
|
The total amount of unrecognized tax benefits that, if
recognized, would affect our effective tax rate was
$1.1 million at September 30, 2010. 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 recognized interest and penalties of $0 and $0.1 million
during the three months ended September 30, 2010 and
September 30, 2009, respectively, and $0.1 million and
$0.2 million during the nine months ended
September 30, 2010 and September 30, 2009,
respectively. Accrued interest and penalties were
$0.7 million and $0.6 million at September 30,
2010 and December 31, 2009, respectively.
In computing the tax provision for the nine months ended
September 30, 2010, we recognized an income tax provision
in tax jurisdictions in which we had pre-tax income for the nine
months ended September 30, 2010 and are expected to
generate pre-tax book income during the remainder of fiscal year
2010. We recognized an income tax benefit in tax jurisdictions
in which we incurred pre-tax losses for the nine months ended
September 30, 2010 and are expected to be able to realize
the benefits associated with these losses during the remainder
of fiscal year 2010 or are expected to recognize a deferred tax
asset related to such losses at December 31, 2010.
|
|
11.
|
Equity-Based
Compensation
|
We currently issue share-based awards under the Orbitz
Worldwide, Inc. 2007 Equity and Incentive Plan, as amended (the
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 for
participation in the Plan. At our Annual Meeting of Shareholders
on June 2, 2010, our shareholders approved an amendment to
the Plan, increasing the number of shares of our common stock
available for issuance under the Plan from
15,100,000 shares to 18,100,000 shares, subject to
adjustment as provided by the Plan. As of September 30,
2010, 5,836,601 shares were available for future issuance
under the Plan.
19
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Options
The table below summarizes the stock option activity under the
Plan during the nine months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value
|
|
|
|
Shares
|
|
|
(per share)
|
|
|
(in years)
|
|
|
(in thousands)
|
|
|
Outstanding at December 31, 2009
|
|
|
4,236,083
|
|
|
$
|
9.46
|
|
|
|
6.5
|
|
|
$
|
4,737
|
|
Granted
|
|
|
950,000
|
|
|
$
|
4.78
|
|
|
|
6.7
|
|
|
|
|
|
Granted in connection with stock option exchange (a)
|
|
|
433,488
|
|
|
$
|
5.22
|
|
|
|
6.8
|
|
|
|
|
|
Exercised
|
|
|
(10,602
|
)
|
|
$
|
6.11
|
|
|
|
4.7
|
|
|
|
|
|
Forfeited
|
|
|
(603,012
|
)
|
|
$
|
13.41
|
|
|
|
6.4
|
|
|
|
|
|
Cancelled in connection with stock option exchange (a)
|
|
|
(1,260,598
|
)
|
|
$
|
15.00
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010
|
|
|
3,745,359
|
|
|
$
|
5.30
|
|
|
|
5.6
|
|
|
$
|
4,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2010
|
|
|
1,471,185
|
|
|
$
|
5.63
|
|
|
|
5.4
|
|
|
$
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On May 3, 2010, we commenced an offer to eligible employees
to exchange certain
out-of-the-money
options to purchase our common stock for a lesser number of new
stock options with an exercise price equal to the fair market
value of our common stock at the completion of the exchange
offer. Stock options eligible for the exchange were those with
an exercise price per share of $15.00 that were granted at the
time of the IPO. The offering period closed on May 28,
2010. On that date, 1,260,598 stock options were tendered and
exchanged for 433,488 new stock options with an exercise price
of $5.22 per share. No incremental compensation expense was
recognized in connection with the exchange because the fair
value of the new stock options granted approximated the fair
value of the stock options exchanged. The vesting terms and
contractual expiration of the new stock options granted in the
exchange are the same as those of the old stock options.
However, the option holders who elected to participate in the
exchange are required to wait until the six-month anniversary of
the completion of the exchange before exercising any of their
new stock options, including those new stock options that vest
during that six-month period. |
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 Travelports long-term
incentive plan vested quarterly over a three-year period and
became fully vested in May 2010. All other stock options vest
annually over a four-year period, or 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. 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 nine months ended September 30,
2010, excluding the stock options granted in connection with the
stock option exchange, 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
20
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED 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.
|
|
|
|
|
Assumptions:
|
|
|
|
|
Dividend yield
|
|
|
|
|
Expected volatility
|
|
|
43
|
%
|
Expected life (in years)
|
|
|
4.68
|
|
Risk-free interest rate
|
|
|
2.13
|
%
|
Based on the above assumptions, the weighted average grant-date
fair value of stock options granted during the nine months ended
September 30, 2010 was $1.86.
Restricted
Stock Units
The table below summarizes activity regarding unvested
restricted stock units under the Plan for the nine months ended
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
Stock Units
|
|
|
(per share)
|
|
|
Unvested at December 31, 2009
|
|
|
5,650,750
|
|
|
$
|
4.31
|
|
Granted
|
|
|
1,445,000
|
|
|
$
|
4.94
|
|
Vested (a)
|
|
|
(1,884,414
|
)
|
|
$
|
7.00
|
|
Forfeited
|
|
|
(626,592
|
)
|
|
$
|
4.52
|
|
|
|
|
|
|
|
|
|
|
Unvested at September 30, 2010
|
|
|
4,584,744
|
|
|
$
|
3.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We issued 1,295,809 shares of common stock in connection
with the vesting of restricted stock units during the nine
months ended September 30, 2010, 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 Travelports long-term incentive plan
vested quarterly over a three-year period and became 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.
The total number of restricted stock units that vested during
the nine months ended September 30, 2010 and the total fair
value thereof was 1,884,414 restricted stock units and
$13.2 million, respectively.
Performance-Based
Restricted Stock Units
The table below summarizes activity regarding unvested
performance-based restricted stock units (PSUs)
under the Plan for the nine months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Performance-Based
|
|
|
Grant Date
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
Stock Units
|
|
|
(per share)
|
|
|
Unvested at December 31, 2009
|
|
|
227,679
|
|
|
$
|
6.28
|
|
Granted (a)
|
|
|
387,000
|
|
|
$
|
4.90
|
|
|
|
|
|
|
|
|
|
|
Unvested at September 30, 2010
|
|
|
614,679
|
|
|
$
|
5.41
|
|
|
|
|
|
|
|
|
|
|
21
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(a) |
|
On June 2, 2010, the Compensation Committee approved a
grant of PSUs to certain of our executive officers. The PSUs
entitle the executives to receive one share of our common stock
for each PSU, subject to the satisfaction of a performance
condition. The performance condition requires that the
Companys adjusted EBITDA for fiscal year 2010 equal or
exceed a certain threshold, or each PSU will be forfeited. If
this performance condition is met, the PSUs will vest annually
over a four-year period. As of September 30, 2010, the
Company expects that the performance condition will be satisfied. |
Restricted
Stock
There was no significant activity related to restricted stock
during the nine months ended September 30, 2010. As of
September 30, 2010, there was no restricted stock
outstanding.
Non-Employee
Directors Deferred Compensation Plan
The table below summarizes the deferred stock unit activity
under the Plan for the nine months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Deferred
|
|
|
Fair Value
|
|
|
|
Stock Units
|
|
|
(per share)
|
|
|
Outstanding at December 31, 2009
|
|
|
692,066
|
|
|
$
|
4.13
|
|
Granted
|
|
|
250,036
|
|
|
$
|
5.01
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010
|
|
|
942,102
|
|
|
$
|
4.36
|
|
|
|
|
|
|
|
|
|
|
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.
Compensation
Expense
We recognized total equity-based compensation expense of
$2.1 million and $2.8 million during the three months
ended September 30, 2010 and September 30, 2009,
respectively, and $10.7 million and $11.1 million
during the nine months ended September 30, 2010 and
September 30, 2009, respectively, none of which has
provided us a tax benefit.
As of September 30, 2010, a total of $15.5 million of
unrecognized compensation costs related to unvested stock
options, unvested restricted stock units and unvested PSUs are
expected to be recognized over the remaining weighted-average
period of 3 years.
22
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Derivative
Financial Instruments
|
Interest
Rate Hedges
At September 30, 2010, we had the following interest rate
swaps outstanding that effectively converted $300.0 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
|
|
$100.0 million
|
|
May 30, 2008
|
|
May 31, 2011
|
|
|
3.39
|
%
|
|
Three-month LIBOR
|
$100.0 million
|
|
January 29, 2010
|
|
January 31, 2012
|
|
|
1.15
|
%
|
|
One-month LIBOR
|
$100.0 million
|
|
January 29, 2010
|
|
January 31, 2012
|
|
|
1.21
|
%
|
|
Three-month LIBOR
|
The following interest rate swap that effectively converted an
additional $100.0 million of the Term Loan from a variable
to a fixed interest rate matured during the nine months ended
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Interest
|
|
Variable Interest
|
Notional Amount
|
|
Effective Date
|
|
Maturity Date
|
|
Rate Paid
|
|
Rate Received
|
|
$100.0 million
|
|
September 30, 2008
|
|
September 30, 2010
|
|
|
2.98
|
%
|
|
One-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 condensed
consolidated balance sheets at market value. The corresponding
market adjustment is recorded to accumulated other comprehensive
income (loss). The following table shows the fair value of our
interest rate swaps at September 30, 2010 and
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
Balance Sheet Location
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
|
|
(in thousands)
|
|
Liability Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
Other current liabilities
|
|
|
$
|
2,059
|
|
|
$
|
1,899
|
|
Interest rate swaps
|
|
|
Other non-current liabilities
|
|
|
|
2,001
|
|
|
|
3,437
|
|
23
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows the market adjustments recorded during
the three and nine months ended September 30, 2010 and
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
|
|
|
Recognized in
|
|
|
|
|
(Loss) Reclassified
|
|
Income (Ineffective
|
|
|
Gain in Other
|
|
from Accumulated
|
|
Portion and the
|
|
|
Comprehensive
|
|
OCI into
|
|
Amount Excluded
|
|
|
Income
|
|
Interest Expense
|
|
from Effectiveness
|
|
|
(OCI)
|
|
(Effective Portion)
|
|
Testing)
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
376
|
|
|
$
|
2,096
|
|
|
$
|
(1,843
|
)
|
|
$
|
(3,772
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
|
|
|
Recognized in
|
|
|
|
|
(Loss) Reclassified
|
|
Income (Ineffective
|
|
|
Gain in Other
|
|
from Accumulated
|
|
Portion and the
|
|
|
Comprehensive
|
|
OCI into
|
|
Amount Excluded
|
|
|
Income
|
|
Interest Expense
|
|
from Effectiveness
|
|
|
(OCI)
|
|
(Effective Portion)
|
|
Testing)
|
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
1,276
|
|
|
$
|
6,334
|
|
|
$
|
(5,520
|
)
|
|
$
|
(9,912
|
)
|
|
$
|
|
|
|
$
|
|
|
The amount of loss recorded in accumulated other comprehensive
income at September 30, 2010 that is expected to be
reclassified to interest expense in the next twelve months if
interest rates remain unchanged is approximately
$3.9 million after-tax.
Foreign
Currency Hedges
We enter into foreign currency contracts to manage our 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 September 30, 2010, we had foreign currency
contracts outstanding with a total net notional amount of
$198.0 million, almost all of which matured in October
2010. The foreign currency contracts do not qualify for hedge
accounting treatment. Accordingly, changes in the fair value of
the foreign currency contracts are recorded in net income
(loss), as a component of selling, general and administrative
expense in our condensed consolidated statements of operations.
The following table shows the fair value of our foreign currency
hedges at September 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
Balance Sheet Location
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
|
|
(in thousands)
|
|
Liability Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedges
|
|
|
Other current liabilities
|
|
|
$
|
2,278
|
|
|
$
|
1,208
|
|
24
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows the changes in the fair value of our
foreign currency contracts recorded in net income (loss) during
the three and nine months ended September 30, 2010 and
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Gain in
|
|
|
Selling, General &
|
|
|
Administrative Expense
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(in thousands)
|
|
Foreign currency hedges (a)
|
|
$
|
(5,777
|
)
|
|
$
|
869
|
|
|
$
|
(419
|
)
|
|
$
|
(6,204
|
)
|
|
|
|
(a) |
|
We recorded transaction gains (losses) associated with the
re-measurement of our foreign denominated assets and liabilities
of $5.1 million and $(2.1) million in the three months
ended September 30, 2010 and September 30, 2009,
respectively, and $(4.1) million and $5.0 million in
the nine months ended September 30, 2010 and
September 30, 2009, respectively. Transaction gains
(losses) are included in selling, general and administrative
expense in our condensed 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 $(0.7) million and $(1.2) million in the
three months ended September 30, 2010 and
September 30, 2009, respectively, and a net loss of
$(4.5) million and $(1.2) million in the nine months
ended September 30, 2010 and September 30, 2009,
respectively. |
|
|
13.
|
Net
Income (Loss) per Share
|
The following table presents the calculation of basic and
diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Net income (loss)
|
|
|
$15,332
|
|
|
|
$6,980
|
|
|
|
$19,804
|
|
|
|
$(318,900
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$0.15
|
|
|
|
$0.08
|
|
|
|
$0.20
|
|
|
|
$(3.80
|
)
|
Diluted
|
|
|
$0.15
|
|
|
|
$0.08
|
|
|
|
$0.19
|
|
|
|
$(3.80
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
103,066,070
|
|
|
|
84,377,943
|
|
|
|
100,600,016
|
|
|
|
83,951,081
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
863
|
|
|
|
266
|
|
|
|
100,990
|
|
|
|
|
|
Restricted stock units
|
|
|
2,272,983
|
|
|
|
2,168,682
|
|
|
|
3,322,170
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
323
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (a)
|
|
|
105,339,916
|
|
|
|
86,547,214
|
|
|
|
104,023,529
|
|
|
|
83,951,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Stock options, restricted stock, restricted stock units and PSUs
are not included in the calculation of diluted net loss per
share for the nine months ended September 30, 2009 because
we had a net loss for the period. Accordingly, the inclusion of
these equity awards would have had an antidilutive effect on
diluted net loss per share. |
25
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following equity awards are not included in the diluted net
income (loss) per share calculation above because they would
have had an antidilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
Antidilutive Equity Awards
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Stock options
|
|
|
3,741,451
|
|
|
|
4,322,735
|
|
|
|
2,603,117
|
|
|
|
4,329,434
|
|
Restricted stock units
|
|
|
504,192
|
|
|
|
1,672,802
|
|
|
|
265,313
|
|
|
|
5,677,647
|
|
Restricted stock
|
|
|
|
|
|
|
3,293
|
|
|
|
|
|
|
|
3,293
|
|
Performance-based restricted stock units
|
|
|
614,679
|
|
|
|
227,679
|
|
|
|
614,679
|
|
|
|
227,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,860,322
|
|
|
|
6,226,509
|
|
|
|
3,483,109
|
|
|
|
10,238,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
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 September 30, 2010
and December 31, 2009, reflected in our condensed
consolidated balance sheets. We net settle amounts due to and
from Travelport.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(in thousands)
|
|
|
Due from Travelport, net
|
|
$
|
17,982
|
|
|
$
|
3,188
|
|
The following table summarizes the related party transactions
with Travelport and its subsidiaries for the three and nine
months ended September 30, 2010 and September 30,
2009, reflected in our condensed consolidated statements of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net revenue (a)
|
|
$
|
29,047
|
|
|
$
|
30,989
|
|
|
$
|
92,722
|
|
|
$
|
94,020
|
|
Cost of revenue
|
|
|
98
|
|
|
|
257
|
|
|
|
359
|
|
|
|
500
|
|
Selling, general and administrative expense
|
|
|
145
|
|
|
|
(148
|
)
|
|
|
308
|
|
|
|
576
|
|
Interest expense
|
|
|
953
|
|
|
|
906
|
|
|
|
2,739
|
|
|
|
2,762
|
|
|
|
|
(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. |
The tables above reflect amounts resulting from agreements with
Travelport and its subsidiaries, including our transition
services agreement, master license agreement, equipment,
services and use agreements, GDS service agreement, hotel
sourcing and franchise agreement, corporate travel agreement and
travel agent agreement.
Letters
of Credit
Travelport is obligated to issue letters of credit on our behalf
so long as Travelport and its affiliates (as defined in the
Separation Agreement) own at least 50% of our voting stock, in
an aggregate amount not to exceed $75.0 million
(denominated in U.S. dollars). At September 30, 2010
and December 31, 2009, there were $67.1 million and
$59.3 million of outstanding letters of credit issued by
Travelport on our behalf, respectively (see
Note 9 Commitments and Contingencies).
26
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Purchase Agreement
On January 26, 2010, Travelport purchased
9,025,271 shares of our common stock for $50.0 million
in cash (see Note 6 Term Loan and Revolving
Credit Facility).
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. In addition, various Blackstone and TCV affiliates
utilize our partner marketing programs and corporate travel
services.
We have also entered into various outsourcing agreements with
Intelenet Global Services (Intelenet), an affiliate
of Blackstone, that provide us with call center and telesales,
back office administrative, information technology and financial
services. In April 2010, we entered into an agreement with
Intelenet pursuant to which Intelenet loaned us
$0.8 million to finance the cost of outsourcing customer
service functions for certain of our ebookers websites to
Intelenet. This loan is interest-free and is payable in equal
monthly installments beginning in October 2010 through its
maturity in March 2014.
The following table summarizes the related party balances with
affiliates of Blackstone and TCV as of September 30, 2010
and December 31, 2009, reflected in our condensed
consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(in thousands)
|
|
|
Accounts receivable
|
|
$
|
274
|
|
|
$
|
62
|
|
Prepaid expenses
|
|
|
|
|
|
|
78
|
|
Accounts payable
|
|
|
7,867
|
|
|
|
5,432
|
|
Accrued expenses
|
|
|
2,058
|
|
|
|
2,461
|
|
Accrued merchant payable
|
|
|
9,412
|
|
|
|
6,131
|
|
Other current liabilities
|
|
|
229
|
|
|
|
|
|
Other non-current liabilities
|
|
|
571
|
|
|
|
|
|
The following table summarizes the related party transactions
with affiliates of Blackstone and TCV for the three and nine
months ended September 30, 2010 and September 30,
2009, reflected in our condensed consolidated statements of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net revenue
|
|
$
|
5,824
|
|
|
$
|
4,307
|
|
|
$
|
16,365
|
|
|
$
|
11,968
|
|
Cost of revenue (a)
|
|
|
7,330
|
|
|
|
8,970
|
|
|
|
22,793
|
|
|
|
19,729
|
|
Selling, general and administrative expense (b)
|
|
|
650
|
|
|
|
756
|
|
|
|
2,080
|
|
|
|
2,618
|
|
Marketing
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts shown represent call center and telesales costs
incurred under our outsourcing agreements with Intelenet. |
|
(b) |
|
Of the amounts shown for the three months ended
September 30, 2010 and September 30, 2009 and the nine
months ended September 30, 2010 and September 30,
2009, $0.6 million, $0.6 million, $1.8 million
and $2.2 million, respectively, represent costs incurred
under our outsourcing agreements with Intelenet for back office
administrative, information technology and financial services. |
27
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Fair
Value Measurements
|
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 September 30, 2010
and December 31, 2009, which are classified as other
current liabilities and other non-current liabilities in our
condensed consolidated balance sheets. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
prices in
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
prices in
|
|
|
other
|
|
|
Significant
|
|
|
|
Balance at
|
|
|
active
|
|
|
observable
|
|
|
unobservable
|
|
|
Balance at
|
|
|
active
|
|
|
observable
|
|
|
unobservable
|
|
|
|
September 30,
|
|
|
markets
|
|
|
inputs
|
|
|
inputs
|
|
|
December 31,
|
|
|
markets
|
|
|
inputs
|
|
|
inputs
|
|
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(in thousands)
|
|
|
Foreign currency hedge liabilities (see Note 12
Derivative Financial Instruments)
|
|
$
|
2,278
|
|
|
$
|
2,278
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,208
|
|
|
$
|
1,208
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap liabilities (see Note 12
Derivative Financial Instruments)
|
|
$
|
4,060
|
|
|
$
|
|
|
|
$
|
4,060
|
|
|
$
|
|
|
|
$
|
5,336
|
|
|
$
|
|
|
|
$
|
5,336
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We value our foreign currency hedges based on the difference
between the foreign currency contract rate and widely available
foreign currency rates as of the measurement date. Our foreign
currency hedges are short-term in nature, generally maturing
within 30 days.
We value our interest rate hedges using valuations that are
calibrated to the initial trade prices. Using a market-based
approach, subsequent valuations are based on observable inputs
to the valuation model including interest rates, credit spreads
and volatilities.
During the first quarter of 2010, we were required to measure
the asset related to expected in-kind marketing and promotional
support to be received from Northwest Airlines at fair value. As
Northwest Airlines was no longer obligated to provide us with
this in-kind marketing and promotional support after
June 1, 2010, we recorded a $1.7 million charge to
impair this asset (see Note 8 Unfavorable
Contracts).
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 $492.0 million at
September 30, 2010, compared with a fair value of
approximately $474.6 million. At December 31, 2009,
the carrying value of the Term Loan was $576.6 million,
compared with a fair value of $537.9 million. The fair
values were determined based on quoted market ask prices.
On November 1, 2010, American Airlines, Inc.
(AA) notified us of its election to terminate the
Second Amended and Restated Airline Charter Associate Agreement,
dated December 19, 2003, by and between AA and Orbitz (the
Agreement), effective December 1, 2010. The
Agreement sets forth the terms under which Orbitz can offer air
travel on behalf of AA to consumers and requires AA to provide
us with agreed upon transaction payments when consumers book
this travel. The Agreement also provides Orbitz with
nondiscriminatory access to seat availability for published
fares as well as marketing and promotional support.
28
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Agreement was scheduled to otherwise expire on
December 31, 2013 (see Note 8 Unfavorable
Contracts).
In the notice, AA also exercised its right to terminate the
Supplier Link Agreement that it entered into with Orbitz in
February 2004. The Supplier Link Agreement establishes a direct
link between Orbitz.com and AAs internal reservation
systems and requires that Orbitz book certain airline tickets
through that direct link rather than through a GDS. The
termination of the Supplier Link Agreement will also be
effective as of December 1, 2010. Additionally, AA has
informed us that it will terminate our authority to ticket AA
flights on our Orbitz.com and OrbitzforBusiness.com websites as
of December 1, 2010.
29
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The following discussion should be read in conjunction with
our condensed consolidated financial statements included
elsewhere in this report and our 2009 Annual Report on
Form 10-K
filed with the SEC on March 3, 2010.
OVERVIEW
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 wide array 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.
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
stand-alone basis and as part of a vacation package, primarily
through our merchant and retail business models. Under our
merchant model, we generate revenue 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. Under both the merchant and retail
business models, we may, depending upon the brand and the
product, earn revenue by charging customers a service fee for
booking their travel on our websites (see Industry
Trends below). We also receive incentive payments for air,
car and hotel segments that are processed through a GDS.
We also generate advertising revenue through display
advertising, performance-based advertising and other marketing
programs available on our websites. In addition, we generate
revenue from our private label business through revenue sharing
arrangements for travel booked on third-party websites. We also
have an airline hosting business which earns revenue through
licensing or fee arrangements.
Our strategic focus is to drive global hotel transaction growth,
supporting our mission to become one of the three primary hotel
distribution platforms globally. Specifically, we organize our
activities into three categories: demand, supply and retailing.
Demand
We seek to generate demand through both
business-to-consumer
and
business-to-business
channels. Our goal is to further increase brand awareness and
loyalty so that consumers come directly to our websites to book
their travel. For example, in July 2010, we launched a new
offline marketing campaign for Orbitz.com to reinforce our hotel
value proposition. Our new brand message, When You Orbitz,
You Know, highlights the information, tools and resources
that we make available to help customers make informed decisions
when it comes to booking a hotel.
We are also focused on further optimizing our search engine
marketing (SEM) 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 search engine optimization (SEO),
customer relationship management (CRM), our private
label business and our corporate travel business, Orbitz for
Business.
Supply
We work with our suppliers to provide our customers with a broad
range of highly competitive travel products and services on our
websites. For hotels, we are particularly focused on improving
our infrastructure. We also intend to expand our footprint in
markets where online penetration is low and where our supply is
limited.
30
For airlines, we have long-standing and, we believe, generally
good relationships with our suppliers. However, on
November 1, 2010, AA sent a letter to us indicating its
intent to terminate its participation on our Orbitz and Orbitz
for Business websites effective December 1, 2010. To the
extent we are unable to reach an acceptable commercial
arrangement with AA prior to December 1, 2010 and AA
terminates its participation on our websites for a sustained
period of time, our business, financial condition and results of
operations could be negatively impacted (see Note 16
Subsequent Event of the Notes to Condensed Consolidated
Financial Statements). We will continue to work with our
suppliers, including AA, to provide our customers with a highly
competitive product offering.
Retailing
We are focused on ways to improve our ability to convert website
visitors into customers. We are enhancing the customer shopping
experience on our websites by developing new tools and
technologies to help users research options, by improving the
quality of the hotel content we make available (such as
editorial descriptions, photographs and user-generated reviews)
and by developing systems and technologies that will allow us to
use historical data to provide customers with more relevant
search results. For example, in the third quarter 2010, we
completed the migration of the hotel booking path for our
domestic websites to our global technology platform, and we are
in the process of migrating the rest of our domestic booking
paths and HotelClub to this platform. We believe this technology
platform, which is already being used by our ebookers websites,
provides meaningful improvements to both the speed and customer
shopping experience on our websites and enables us to deliver
innovation to our customers more quickly. We are also building
upon our existing telesales capabilities to drive incremental
volume for higher margin travel products.
Industry
Trends
The recession significantly impacted the travel industry during
2009. Although the economy has appeared to have stabilized or
slightly improved, there is still uncertainty surrounding the
timing and sustainability of a recovery. As a result, we have
limited visibility into when travel industry fundamentals will
fully recover.
In 2009, in response to lower demand for air travel, certain
domestic and international airlines reduced ticket prices to
drive volume and significantly reduced their capacity. In 2010,
airlines have added only limited amounts of capacity back into
their fleets. We expect capacity will further increase in 2011.
However, recent and any further consolidation in the airline
industry could put additional pressure on capacity and on the
number of airline tickets available for booking on OTCs
websites.
Air fares have increased significantly over 2009 levels in
response to improved demand, particularly for corporate travel.
While air fares began to moderate in the third quarter of 2010,
we expect air fares will remain above last years levels
throughout the remainder of 2010. In general, OTCs benefit from
low air fares because low fares encourage leisure travel, which
represents the majority of our bookings. Our air net revenue is
primarily driven by the number of tickets we sell rather than
ticket prices.
In 2009, we, along with other OTCs, removed domestic booking
fees on most, if not all, flights and reduced booking fees on
hotels. The removal of domestic air booking fees has
significantly reduced the net revenue that OTCs generate from
airline tickets. However, these fee cuts resulted in a
significant increase in airline tickets sold through OTCs during
the last three quarters of 2009 and the first quarter of 2010.
As a result of the anniversary in early April 2010 of the air
booking fee removals on our domestic websites, our air
transaction growth rate has slowed. The higher air fare
environment has also contributed to this slowdown.
Globally, airlines continue to look for ways to decrease their
overall costs, including the costs of distributing airline
tickets through OTCs and GDSs. As certain supply agreements
renew and as airlines and GDSs renegotiate their agreements in
2011, the net revenue we earn from GDSs in the form of incentive
payments or from airlines in the form of commissions may be
impacted.
Recently, fundamentals in the U.S. hotel industry have
begun to improve. In the first nine months of 2010, we saw a
year-over-year
increase in average daily rates (ADRs) for hotel
rooms booked on our domestic websites. While ADRs for hotel
rooms are still below 2008 levels, this is the first increase we
have
31
seen in ADRs since September 2008. Although higher ADRs increase
the net revenue that OTCs earn on hotel bookings, leisure travel
demand could be lower as a result. Based on recent trends, we
expect domestic ADRs will remain above 2009 levels for the rest
of 2010 and will further increase in 2011. Fundamentals in the
European and Asia Pacific hotel markets have also modestly
improved.
The recession also significantly impacted the car rental
industry last year. In 2009, car rental companies had limited
access to financing, which caused them to reduce their rental
car fleets. This reduction in rental car fleets resulted in a
significant increase in ADRs for domestic car rentals in 2009.
In the first nine months of 2010, fleet sizes remained fairly
constant, while ADRs declined year over year. We expect these
trends to continue for the remainder of 2010.
We believe the domestic online travel market has matured.
However, internationally, the online travel industry continues
to benefit from increasing internet usage and growing acceptance
of online booking. As a result, we expect that international
growth rates for the online travel industry will continue to
outpace growth rates for online travel domestically.
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 CRM. In 2010, competition for
search-engine key words has intensified as economic conditions
have improved and certain OTCs and travel suppliers have
increased their marketing spending. We are actively pursuing
strategies to enhance the effectiveness of our SEM and travel
research spending and to increase the amount of non-paid traffic
coming to our websites through SEO and CRM.
Other
Developments
In April 2010, volcanic ash from an eruption in Iceland
significantly disrupted air travel to and from European
destinations. As a result of the volcanic ash, a significant
portion of European airspace was closed and several airports
halted flights. While we do not believe this travel disruption
materially impacted our financial results for the nine months
ended September 30, 2010, it did result in lost revenue due
to flight and hotel cancellations, higher customer service costs
and higher customer refunds.
RESULTS
OF OPERATIONS
Key
Operating Metrics
Our operating results are driven by certain key metrics, which
include transaction growth, hotel room night growth, gross
bookings and net revenue. Transaction growth is defined as the
year-over-year
change in transactions booked on our websites. Hotel room night
growth represents the
year-over-year
change in stayed hotel room nights and includes both stand-alone
hotel room nights and hotel room nights booked as part of a
vacation package. Gross bookings are defined as the total amount
paid by consumers for travel products booked on our websites.
Net revenue includes: commissions earned from suppliers under
our retail model; the difference between the total amount the
consumer pays us for travel and the negotiated net rate plus
estimated taxes that the supplier charges us for that travel
under our merchant model; service fees earned from consumers
under both our merchant and retail models; advertising revenue
and certain other fees and commissions, such as incentive
revenue earned for air, car and hotel segments processed through
GDSs.
Transactions, hotel room nights and 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 products to gain insight
into the performance of our business across these categories.
The table below shows our gross bookings, net revenue,
transaction growth and hotel room night growth for the three and
nine months ended September 30, 2010 and September 30,
2009. Air gross bookings are comprised of stand-alone air gross
bookings, while non-air gross bookings include gross bookings
from hotels, car rentals, vacation packages, cruises,
destination services and travel insurance. Air net revenue is
comprised of net revenue from stand-alone air bookings, while
non-air net revenue includes net revenue from hotel bookings,
vacation packages, advertising and media and other sources.
32
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Three Months Ended
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Nine Months Ended
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|
September 30,
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$
|
|
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%
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|
September 30,
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|
|
$
|
|
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%
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|
|
|
2010
|
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|
2009
|
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|
Change
|
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|
Change
|
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2010
|
|
|
2009
|
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|
Change
|
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Change
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(in thousands)
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|
(in thousands)
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|
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|
Gross bookings
|
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|
Domestic
|
|
|
|
|
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|
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Air
|
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$
|
1,768,632
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$
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1,595,580
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|
|
$
|
173,052
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|
|
|
11
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%
|
|
$
|
5,658,693
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|
|
$
|
4,731,593
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|
|
$
|
927,100
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|
|
|
20
|
%
|
Non-air
|
|
|
584,691
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|
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|
540,456
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|
|
|
44,235
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|
|
|
8
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%
|
|
|
1,790,145
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|
|
|
1,688,016
|
|
|
|
102,129
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|
|
|
6
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%
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
Total domestic gross bookings
|
|
|
2,353,323
|
|
|
|
2,136,036
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|
|
|
217,287
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|
|
|
10
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%
|
|
|
7,448,838
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|
|
|
6,419,609
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|
|
|
1,029,229
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|
|
|
16
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%
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
Air
|
|
|
280,848
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|
|
|
212,524
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|
|
|
68,324
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|
|
|
32
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%
|
|
|
871,548
|
|
|
|
660,874
|
|
|
|
210,674
|
|
|
|
32
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%
|
Non-air
|
|
|
177,375
|
|
|
|
151,793
|
|
|
|
25,582
|
|
|
|
17
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%
|
|
|
499,042
|
|
|
|
405,206
|
|
|
|
93,836
|
|
|
|
23
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%
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international gross bookings
|
|
|
458,223
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|
|
|
364,317
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|
|
|
93,906
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|
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|
26
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%
|
|
|
1,370,590
|
|
|
|
1,066,080
|
|
|
|
304,510
|
|
|
|
29
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%
|
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|
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|
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|
Total gross bookings (a)
|
|
$
|
2,811,546
|
|
|
$
|
2,500,353
|
|
|
$
|
311,193
|
|
|
|
12
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%
|
|
$
|
8,819,428
|
|
|
$
|
7,485,689
|
|
|
$
|
1,333,739
|
|
|
|
18
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%
|
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|
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|
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|
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|
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Net revenue
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Domestic
|
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|
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|
|
Air
|
|
$
|
48,280
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|
|
$
|
47,945
|
|
|
$
|
335
|
|
|
|
1
|
%
|
|
$
|
154,993
|
|
|
$
|
167,585
|
|
|
$
|
(12,592
|
)
|
|
|
(8
|
)%
|
Non-air
|
|
|
100,293
|
|
|
|
96,068
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|
|
|
4,225
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|
|
|
4
|
%
|
|
|
288,885
|
|
|
|
282,491
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|
|
|
6,394
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|
|
2
|
%
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|
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|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
Total domestic net revenue
|
|
|
148,573
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|
|
|
144,013
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|
|
|
4,560
|
|
|
|
3
|
%
|
|
|
443,878
|
|
|
|
450,076
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|
|
|
(6,198
|
)
|
|
|
(1
|
)%
|
International
|
|
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
|
16,920
|
|
|
|
11,930
|
|
|
|
4,990
|
|
|
|
42
|
%
|
|
|
52,695
|
|
|
|
42,584
|
|
|
|
10,111
|
|
|
|
24
|
%
|
Non-air
|
|
|
28,986
|
|
|
|
30,660
|
|
|
|
(1,674
|
)
|
|
|
(5
|
)%
|
|
|
78,550
|
|
|
|
70,295
|
|
|
|
8,255
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international net revenue
|
|
|
45,906
|
|
|
|
42,590
|
|
|
|
3,316
|
|
|
|
8
|
%
|
|
|
131,245
|
|
|
|
112,879
|
|
|
|
18,366
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue (b)
|
|
$
|
194,479
|
|
|
$
|
186,603
|
|
|
$
|
7,876
|
|
|
|
4
|
%
|
|
$
|
575,123
|
|
|
$
|
562,955
|
|
|
$
|
12,168
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and hotel room night growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction growth (a)
|
|
|
5
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
9
|
%
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Hotel room night growth
|
|
|
5
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
9
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In the second quarter of 2010, we revised our methodology for
calculating global gross bookings and transactions to reduce
these amounts for all cancellations made through our websites.
Historically, we reported these amounts net of
same-day
cancellations only. As a result, the prior period amounts in the
table above have been updated to reflect this new methodology,
which more closely corresponds with the way we report net
revenue and is consistent with how management now reviews global
gross bookings and transactions. |
|
(b) |
|
For the three months ended September 30, 2010 and
September 30, 2009, $29.7 million and
$31.6 million of our total net revenue, respectively, was
from incentive payments earned for air, car and hotel segments
processed through GDSs. For the nine months ended
September 30, 2010 and September 30, 2009,
$94.9 million and $91.9 million of our total net
revenue, respectively, was from incentive payments earned for
air, car and hotel segments processed through GDSs. |
Comparison
of the three months ended September 30, 2010 to the three
months ended September 30, 2009
Gross
Bookings
For our domestic business, which is comprised principally of
Orbitz, CheapTickets and Orbitz for Business, total gross
bookings increased $217.3 million, or 10%, for the three
months ended September 30, 2010 compared with the three
months ended September 30, 2009. Of the $217.3 million
increase, $173.1 million was due to an increase in domestic
air gross bookings, which was driven by higher average air fares
and, to a much lesser extent, higher transaction volume.
Non-air gross bookings increased $44.2 million, or 8%, for
the three months ended September 30, 2010 compared with the
three months ended September 30, 2009. This increase was
primarily driven by higher gross bookings for hotels, car
rentals and vacation packages. Gross bookings for hotels
increased primarily due
33
to higher transaction volume and, to a lesser extent, a higher
average price per transaction. The average price per transaction
increased due to an increase in ADRs, partially offset by a
lower average length of stay. Gross bookings for car rentals
increased due to higher transaction volume, partially offset by
lower ADRs. Vacation package gross bookings increased due to a
higher average price per transaction as a result of higher
average air fares and higher hotel ADRs, partially offset by
lower transaction volume.
For our international business, which is comprised principally
of ebookers and HotelClub, total gross bookings increased
$93.9 million, or 26%, for the three months ended
September 30, 2010 compared with the three months ended
September 30, 2009. International gross bookings decreased
by $9.0 million due to foreign currency fluctuations. Of
the remaining $102.9 million increase, $80.1 million
was due to an increase in air gross bookings and
$22.8 million was due to an increase in non-air gross
bookings.
The increase in air gross bookings was primarily due to higher
transaction volume. The $22.8 million increase in non-air
gross bookings was primarily driven by higher gross bookings for
vacation packages and, to a lesser extent, higher gross bookings
for hotels. Gross bookings for vacation packages increased
primarily due to higher transaction volume. The increase in
hotel gross bookings was driven by higher hotel gross bookings
at ebookers, partially offset by a decline in hotel gross
bookings at HotelClub. The increase in hotel gross bookings at
ebookers was primarily due to the strength of our technology
platform in Europe, improvements in our European hotel supply
and higher online marketing spending. The decline at HotelClub
was primarily driven by lower transaction volume in European
destinations.
Net
Revenue
See
discussion of net revenue in the Results of Operations section
below.
Transaction
and Hotel Room Night Growth
Our transactions and stayed hotel room nights each grew by 5%
year-over-year
in the third quarter of 2010. The
year-over-year
growth in transactions and hotel room nights was primarily due
to higher volume at ebookers as a result of the strength of our
technology platform, improvements in our European supply and
higher online marketing spending. Transactions and room nights
also increased due to the growth of our private label and
corporate travel businesses. These increases were partially
offset by lower volume at HotelClub, particularly for European
destinations. Transactions and room nights for our domestic
leisure brands were relatively flat
year-over-year.
Transactions were flat due in part to the higher air fare
environment. In addition, we experienced a significant decline
in the quality of the traffic we received from a travel research
marketing partner and received a reduced share of the
transactions generated by a meta-search marketing partner. Both
of these factors contributed to the flat
year-over-year
domestic transaction and room night growth in the third quarter
2010. We are actively working with our marketing partners to
address these issues. The migration of our domestic hotel
booking path to the global technology platform was also a
contributing factor, as we are still in the process of
optimizing and fine tuning the platform.
Comparison
of the nine months ended September 30, 2010 to the nine
months ended September 30, 2009
Gross
Bookings
For our domestic business, total gross bookings increased
$1,029.2 million, or 16%, for the nine months ended
September 30, 2010 compared with the nine months ended
September 30, 2009. Of the $1,029.2 million increase,
$927.1 million was due to an increase in domestic air gross
bookings, which was driven by higher air fares and higher
transaction volume. Transaction volume increased primarily due
to the removal of most domestic air booking fees in April 2009.
Non-air gross bookings increased $102.1 million, or 6%, for
the nine months ended September 30, 2010 compared with the
nine months ended September 30, 2009. This increase was
primarily driven by higher gross bookings for hotels and car
rentals, partially offset by lower gross bookings for vacation
packages. Gross bookings for hotels increased primarily due to
higher transaction volume. Gross bookings for car rentals
increased due to higher transaction volume, partially offset by
lower ADRs. Vacation package gross bookings
34
declined primarily due to lower transaction volume, partially
offset by a higher average price per transaction as a result of
higher average air fares and higher hotel ADRs.
For our international business, total gross bookings increased
$304.5 million, or 29%, for the nine months ended
September 30, 2010 compared with the nine months ended
September 30, 2009. Of this increase, $32.7 million
was due to foreign currency fluctuations. The remaining
$271.8 million increase was due to a $214.5 million
increase in air gross bookings and a $57.3 million increase
in non-air gross bookings. The increase in air gross bookings
was primarily due to higher transaction volume, partially offset
by a lower average price per airline ticket as a result of a
shift towards short-haul flights and markets where average
booking values are lower.
The $57.3 million increase in non-air gross bookings was
primarily driven by higher gross bookings for vacation packages
and car rentals. Gross bookings for vacation packages increased
due to higher transaction volume and, to a lesser extent, a
higher average price per transaction. Car rental gross bookings
increased primarily due to a higher average price per
transaction, partially offset by lower transaction volume.
Net
Revenue
See
discussion of net revenue in the Results of Operations section
below.
Transaction
and Hotel Room Night Growth
Our transactions and stayed hotel room nights each grew by 9%
year-over-year
in the nine months ended September 30, 2010. The
year-over-year
growth in transactions and hotel room nights was largely the
result of improvements we made to our customer value proposition
and our continued focus on driving global hotel transaction
growth. For our domestic leisure brands, in April 2009, we
removed most air booking fees and significantly reduced hotel
booking fees on our Orbitz.com and CheapTickets.com websites,
and in September 2009 we eliminated our hotel change and
cancellation fees on these same websites. In addition, we
launched two industry-leading, hotel-focused innovations, Orbitz
Hotel Price Assurance and Total Price hotel search results. As a
result of the anniversary in early April 2010 of the removal of
most domestic air booking fees and the higher air fare
environment, our air transaction growth slowed beginning in the
second quarter of 2010. The transaction and hotel room night
growth for our domestic leisure brands was offset in part by a
significant decline in the quality of the traffic we received
from a travel research marketing partner and a reduction in the
share we received of the transactions generated by a meta-search
marketing partner. We are actively working with our marketing
partners to address these issues. The migration of our domestic
hotel booking path to the global technology platform also
partially offset the growth, as we are still in the process of
optimizing and fine tuning the platform. At ebookers, the
strength of our technology platform, improvements in our
European supply and higher online marketing spending helped
drive growth in transactions and stayed hotel room nights. The
growth of our private label and corporate travel businesses was
also a contributing factor. However, transactions and stayed
hotel room nights at HotelClub continued to be weak, largely due
to poor performance in European destinations.
35
Results
of Operations
Comparison
of the three months ended September 30, 2010 to the three
months ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
$
|
65,200
|
|
|
$
|
59,875
|
|
|
$
|
5,325
|
|
|
|
9
|
%
|
Hotel
|
|
|
56,537
|
|
|
|
52,421
|
|
|
|
4,116
|
|
|
|
8
|
%
|
Vacation package
|
|
|
30,175
|
|
|
|
29,978
|
|
|
|
197
|
|
|
|
1
|
%
|
Advertising and media
|
|
|
12,189
|
|
|
|
14,530
|
|
|
|
(2,341
|
)
|
|
|
(16
|
)%
|
Other
|
|
|
30,378
|
|
|
|
29,799
|
|
|
|
579
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
194,479
|
|
|
|
186,603
|
|
|
|
7,876
|
|
|
|
4
|
%
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
38,715
|
|
|
|
33,753
|
|
|
|
4,962
|
|
|
|
15
|
%
|
Selling, general and administrative
|
|
|
57,840
|
|
|
|
64,201
|
|
|
|
(6,361
|
)
|
|
|
(10
|
)%
|
Marketing
|
|
|
52,583
|
|
|
|
48,090
|
|
|
|
4,493
|
|
|
|
9
|
%
|
Depreciation and amortization
|
|
|
17,780
|
|
|
|
18,324
|
|
|
|
(544
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
166,918
|
|
|
|
164,368
|
|
|
|
2,550
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
27,561
|
|
|
|
22,235
|
|
|
|
5,326
|
|
|
|
24
|
%
|
Other (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(11,180
|
)
|
|
|
(14,071
|
)
|
|
|
2,891
|
|
|
|
(21
|
)%
|
Other expense
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense)
|
|
|
(11,180
|
)
|
|
|
(14,072
|
)
|
|
|
2,892
|
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
16,381
|
|
|
|
8,163
|
|
|
|
8,218
|
|
|
|
101
|
%
|
Provision for income taxes
|
|
|
1,049
|
|
|
|
1,183
|
|
|
|
(134
|
)
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,332
|
|
|
$
|
6,980
|
|
|
$
|
8,352
|
|
|
|
120
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
20
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
30
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
Marketing expense
|
|
|
27
|
%
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue increased $7.9 million, or 4%, for the three
months ended September 30, 2010 compared with the three
months ended September 30, 2009.
Air. Net revenue from air bookings increased
$5.3 million, or 9%, for the three months ended
September 30, 2010 compared with the three months ended
September 30, 2009. Foreign currency fluctuations decreased
air net revenue by $0.5 million. The increase in net
revenue from air bookings, excluding the impact of foreign
currency fluctuations, was $5.8 million.
Domestic air net revenue increased $0.1 million due to
higher transaction volume and $0.2 million due to higher
average net revenue per airline ticket.
International air net revenue increased $5.5 million
(excluding the impact of foreign currency fluctuations)
primarily due to higher transaction volume and, to a lesser
extent, higher average net revenue per airline ticket. Higher
average net revenue per airline ticket was primarily driven by
higher air override revenue, which represents additional
commissions received from certain suppliers when volume
thresholds are
36
met, and higher credit card fee revenue, partially offset by a
shift in air bookings towards markets where average booking
values are lower and where we earn lower margins.
Hotel. Net revenue from hotel bookings
increased $4.1 million, or 8%, for the three months ended
September 30, 2010 compared with the three months ended
September 30, 2009. Foreign currency fluctuations drove
$1.0 million of this increase. The increase in net revenue
from hotel bookings, excluding the impact of foreign currency
fluctuations, was $3.1 million.
Domestic hotel net revenue increased $3.2 million due to
higher transaction volume and $2.7 million due to higher
average net revenue per transaction. Higher average net revenue
per transaction was driven by higher hotel ADRs, fewer
promotional coupons issued by us and increased payment vendor
rebates, partially offset by a lower average length of stay.
The decrease in international hotel net revenue of
$2.8 million (excluding the impact of foreign currency
fluctuations) was primarily due to a decline in hotel net
revenue at HotelClub due to lower transaction volume in European
destinations and lower average net revenue per transaction. The
lower net revenue per transaction at HotelClub was primarily
driven by a change in our estimate of the redemption rate for
points earned under the loyalty program at HotelClub and, to a
lesser extent, a shift in the geographic mix of its bookings
away from European destinations and towards markets where
average booking values are lower and where we earn lower
margins. The decline at HotelClub was partially offset by higher
transaction volume at ebookers, due to the improved
functionality of our technology platform and improvements to our
European hotel supply.
Vacation package. Net revenue from vacation
package bookings increased $0.2 million, or 1%, for the
three months ended September 30, 2010 compared with the
three months ended September 30, 2009. Vacation package net
revenue decreased by $0.2 million due to foreign currency
fluctuations. The increase in net revenue from vacation package
bookings, excluding the impact of foreign currency fluctuations,
was $0.4 million.
Domestic net revenue from vacation packages increased
$0.8 million as a result of higher average net revenue per
transaction, due to higher average air fares, higher ADRs and
fewer promotional coupons issued by us, partially offset by
lower hotel breakage revenue and lower margins. This increase
was partially offset by a $0.7 million decrease due to
lower transaction volume due in part to higher average package
prices.
International net revenue from vacation packages (excluding the
impact of foreign currency fluctuations) increased
$0.3 million primarily due to higher transaction volume,
partially offset by lower average net revenue per transaction.
Advertising and media. Advertising and media
net revenue decreased $2.3 million, or 16%, for the three
months ended September 30, 2010 compared with the three
months ended September 30, 2009. This decrease was due to a
$3.2 million decline in net revenue from membership
discount programs which we discontinued on our domestic websites
effective March 31, 2010. We do not expect to generate any
material net revenue from third party membership discount
programs on our websites in the future. This decrease was offset
in part by additional advertising and media revenue driven by
our ongoing efforts to monetize our websites globally.
Other. Other net revenue is comprised
primarily of net revenue from car bookings, cruise bookings,
destination services, travel insurance and our airline hosting
business. Other net revenue increased $0.6 million, or 2%,
for the three months ended September 30, 2010 compared with
the three months ended September 30, 2009. Foreign currency
fluctuations decreased other net revenue by $0.3 million.
The increase in other net revenue, excluding the impact of
foreign currency fluctuations, was $0.9 million.
The increase in other net revenue was primarily driven by higher
global travel insurance revenue and car net revenue. Travel
insurance revenue increased due to a higher attachment rate,
higher average air fares and higher air transaction volume. Car
net revenue increased primarily due to higher transaction
volume, partially offset by lower average daily rates for car
rentals. These increases were offset by a decline in net revenue
from our airline hosting business due to the termination of one
of our hosting agreements in 2010.
37
Cost of
Revenue
Our cost of revenue is primarily comprised of costs to operate
our customer service call centers, credit card processing fees,
customer refunds and charge-backs, commissions to private label
partners (affiliate commissions) and connectivity
and other processing costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer service costs
|
|
$
|
13,593
|
|
|
$
|
12,917
|
|
|
$
|
676
|
|
|
|
5
|
%
|
Credit card processing fees
|
|
|
11,594
|
|
|
|
10,115
|
|
|
|
1,479
|
|
|
|
15
|
%
|
Other
|
|
|
13,528
|
|
|
|
10,721
|
|
|
|
2,807
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
38,715
|
|
|
$
|
33,753
|
|
|
$
|
4,962
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in cost of revenue was primarily driven by a
$0.7 million increase in customer service costs, a
$1.5 million increase in credit card processing costs, a
$1.5 million increase in customer refunds and
charge-backs
and a $1.4 million increase in affiliate commissions.
Customer service costs increased primarily due to higher
customer service staffing levels required to support the higher
volume of air transactions we have experienced since eliminating
most air booking fees on our domestic websites in April 2009.
The increase in credit card processing costs and customer
refunds and
charge-backs
was largely driven by growth in our merchant hotel gross
bookings during the third quarter of 2010. Affiliate commissions
increased due to the growth of our private label business.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages and benefits (a)
|
|
$
|
33,725
|
|
|
$
|
38,673
|
|
|
$
|
(4,948
|
)
|
|
|
(13
|
)%
|
Contract labor (a)
|
|
|
4,968
|
|
|
|
5,128
|
|
|
|
(160
|
)
|
|
|
(3
|
)%
|
Network communications, systems maintenance and equipment
|
|
|
6,083
|
|
|
|
6,390
|
|
|
|
(307
|
)
|
|
|
(5
|
)%
|
Other
|
|
|
13,064
|
|
|
|
14,010
|
|
|
|
(946
|
)
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative
|
|
$
|
57,840
|
|
|
$
|
64,201
|
|
|
$
|
(6,361
|
)
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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 $4.9 million decrease in wages and
benefits expense, a $0.2 million decrease in contract labor
costs, a $0.3 million decrease in network communications,
systems maintenance and equipment costs, a $0.5 million
decrease in facilities costs and a $0.5 million decrease in
foreign currency losses and hedging costs.
Wages and benefits decreased as a result of lower employee
incentive compensation expense. Contract labor, network
communications, systems maintenance and equipment costs and
facilities costs declined due to cost cutting efforts undertaken
by us.
38
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 increased $4.5 million, or 9%, for the three months
ended September 30, 2010 compared with the three months
ended September 30, 2009. The increase in marketing expense
was primarily driven by higher online marketing costs due to
higher transaction volume at ebookers and a higher cost per
transaction for our domestic brands and HotelClub.
Depreciation
and Amortization
Depreciation and amortization decreased $0.5 million, or
3%, for the three months ended September 30, 2010 compared
with the three months ended September 30, 2009. The
decrease in depreciation and amortization was primarily due to
the expiration of the useful lives of certain customer
relationship intangible assets during the third quarter of 2010
(see Note 4 Goodwill and Intangible Assets of
the Notes to Condensed Consolidated Financial Statements). This
decrease was partially offset by the acceleration of
depreciation on certain assets whose useful lives were shortened
during the three months ended September 30, 2010, and to a
lesser extent, due to additional assets placed in service since
September 30, 2009.
Net
Interest Expense
Net interest expense decreased by $2.9 million, or 21%, for
the three months ended September 30, 2010 compared with the
three months ended September 30, 2009. The decrease in net
interest expense was primarily due to a lower effective interest
rate on the Term Loan as a result of a floating to fixed
interest rate swap maturing on December 31, 2009 and to a
lesser extent, lower amounts outstanding on both the Term Loan
and the Revolver. During the three months ended
September 30, 2010 and September 30, 2009, non-cash
interest expense totaled $3.9 million and
$3.7 million, respectively.
Provision
for Income Taxes
We recorded a tax provision of $1.0 million and
$1.2 million for the three months ended September 30,
2010 and September 30, 2009, respectively, primarily due to
taxes on the net income of certain foreign subsidiaries that had
not established a valuation allowance and U.S. state and
local income taxes.
39
Comparison
of the nine months ended September 30, 2010 to the nine
months ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
$
|
207,688
|
|
|
$
|
210,169
|
|
|
$
|
(2,481
|
)
|
|
|
(1
|
)%
|
Hotel
|
|
|
152,110
|
|
|
|
137,936
|
|
|
|
14,174
|
|
|
|
10
|
%
|
Vacation package
|
|
|
89,189
|
|
|
|
90,375
|
|
|
|
(1,186
|
)
|
|
|
(1
|
)%
|
Advertising and media
|
|
|
36,827
|
|
|
|
42,825
|
|
|
|
(5,998
|
)
|
|
|
(14
|
)%
|
Other
|
|
|
89,309
|
|
|
|
81,650
|
|
|
|
7,659
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
575,123
|
|
|
|
562,955
|
|
|
|
12,168
|
|
|
|
2
|
%
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
114,314
|
|
|
|
103,208
|
|
|
|
11,106
|
|
|
|
11
|
%
|
Selling, general and administrative
|
|
|
181,265
|
|
|
|
190,125
|
|
|
|
(8,860
|
)
|
|
|
(5
|
)%
|
Marketing
|
|
|
165,522
|
|
|
|
165,917
|
|
|
|
(395
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
56,449
|
|
|
|
50,996
|
|
|
|
5,453
|
|
|
|
11
|
%
|
Impairment of other assets
|
|
|
1,704
|
|
|
|
|
|
|
|
1,704
|
|
|
|
**
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
331,527
|
|
|
|
(331,527
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
519,254
|
|
|
|
841,773
|
|
|
|
(322,519
|
)
|
|
|
(38
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
55,869
|
|
|
|
(278,818
|
)
|
|
|
334,687
|
|
|
|
**
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(33,434
|
)
|
|
|
(43,182
|
)
|
|
|
9,748
|
|
|
|
(23
|
)%
|
Other income
|
|
|
18
|
|
|
|
2,112
|
|
|
|
(2,094
|
)
|
|
|
(99
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense)
|
|
|
(33,416
|
)
|
|
|
(41,070
|
)
|
|
|
7,654
|
|
|
|
(19
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
22,453
|
|
|
|
(319,888
|
)
|
|
|
342,341
|
|
|
|
**
|
|
Provision (benefit) for income taxes
|
|
|
2,649
|
|
|
|
(988
|
)
|
|
|
3,637
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,804
|
|
|
$
|
(318,900
|
)
|
|
$
|
338,704
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
20
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
32
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
Marketing expense
|
|
|
29
|
%
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue increased $12.2 million, or 2%, for the nine
months ended September 30, 2010 compared with the nine
months ended September 30, 2009.
Air. Net revenue from air bookings decreased
$2.5 million, or 1%, for the nine months ended
September 30, 2010 compared with the nine months ended
September 30, 2009. Foreign currency fluctuations increased
air net revenue by $0.3 million. The decrease in net
revenue from air bookings, excluding the impact of foreign
currency fluctuations, was $2.8 million.
Domestic air net revenue declined $22.9 million due to
lower average net revenue per airline ticket, due primarily to
the elimination of most air booking fees on our domestic
websites in April 2009. This was partially offset by higher net
revenue per ticket from merchant air transactions and higher
commissions from those airlines with variable commission
structures, both of which were the result of higher average air
fares.
40
This decline was partially offset by a $10.3 million
increase in domestic air net revenue due to higher transaction
volume, as a result of the removal of booking fees.
International air net revenue increased $9.8 million
(excluding the impact of foreign currency fluctuations)
primarily due to higher transaction volume, offset by lower
average net revenue per airline ticket. Lower average net
revenue per airline ticket was primarily driven by lower air
override revenue and a shift in air bookings towards markets
where average booking values are lower and where we earn lower
margins, partially offset by higher credit card fee revenue.
Hotel. Net revenue from hotel bookings
increased $14.2 million, or 10%, for the nine months ended
September 30, 2010 compared with the nine months ended
September 30, 2009. Foreign currency fluctuations drove
$5.9 million of this increase. The increase in net revenue
from hotel bookings, excluding the impact of foreign currency
fluctuations, was $8.3 million.
Domestic hotel net revenue increased $13.3 million due to
higher transaction volume, partially offset by a
$2.5 million decrease due to lower average net revenue per
hotel transaction. Lower average net revenue per hotel
transaction was driven by a significant reduction in hotel
booking fees charged on our domestic websites and a lower
average length of stay, partially offset by higher hotel ADRs,
fewer promotional coupons issued by us, more timely receipt of
customer refund reimbursements from hotels and increased payment
vendor rebates.
The decrease in international hotel net revenue of
$2.5 million (excluding the impact of foreign currency
fluctuations) was primarily due to a decline in hotel net
revenue at HotelClub due to lower transaction volume in European
destinations and lower average net revenue per transaction. The
lower net revenue per transaction was primarily driven by a
shift in the geographic mix of its bookings away from European
destinations and towards markets where average booking values
are lower and where we earn lower margins. A change in our
estimate of the redemption rate for points earned under the
loyalty program at HotelClub also contributed to the lower net
revenue per transaction. Higher transaction volume at ebookers,
due to the improved functionality of our technology platform and
improvements to our European hotel supply, partially offset the
decline at HotelClub.
Vacation package. Net revenue from vacation
package bookings decreased $1.2 million, or 1%, for the
nine months ended September 30, 2010 compared with the nine
months ended September 30, 2009. Vacation package net
revenue decreased by $0.1 million due to foreign currency
fluctuations. The decrease in net revenue from vacation package
bookings, excluding the impact of foreign currency fluctuations,
was $1.1 million.
Lower transaction volume due in part to higher average package
prices drove a $6.7 million decrease in domestic net
revenue from vacation packages. This decline was partially
offset by a $1.9 million increase in domestic vacation
package net revenue due to higher average net revenue per
transaction, as a result of higher average air fares, higher
ADRs and fewer promotional coupons issued by us, partially
offset by lower hotel breakage revenue.
International net revenue from vacation packages (excluding the
impact of foreign currency fluctuations) increased
$3.7 million primarily due to higher transaction volume.
Advertising and media. Advertising and media
net revenue decreased $6.0 million, or 14%, for the nine
months ended September 30, 2010 compared with the nine
months ended September 30, 2009. This decrease is due to a
$9.1 million decline in net revenue from membership
discount programs which we discontinued on our domestic websites
effective March 31, 2010. We do not expect to generate any
material net revenue from third party membership discount
programs on our websites in the future. This decrease was offset
in part by additional advertising and media revenue driven by
our ongoing efforts to monetize our websites globally.
Other. Other net revenue increased
$7.7 million, or 9%, for the nine months ended
September 30, 2010 compared with the nine months ended
September 30, 2009. Foreign currency fluctuations decreased
other net revenue by $0.1 million. The increase in other
net revenue, excluding the impact of foreign currency
fluctuations, was $7.8 million.
41
The increase in other net revenue was primarily driven by higher
global travel insurance revenue and domestic car net revenue.
Travel insurance revenue increased primarily due to a change in
estimate related to the timing of our recognition of this
revenue. Historically, we recorded travel insurance revenue one
month in arrears, upon receipt of payment, as we did not have
sufficient reporting from our travel insurance supplier to
conclude that the price was fixed or determinable prior to that
time. However, in the first quarter of 2010, our travel
insurance supplier implemented more timely reporting, and as a
result, we are now able to recognize travel insurance revenue on
an accrual basis rather than one month in arrears. Travel
insurance revenue further increased due to a higher attachment
rate, higher average air fares and higher air transaction
volume. Domestic car net revenue increased primarily due to
higher transaction volume, partially offset by lower average
daily rates for car rentals. These increases were offset by a
decline in net revenue from our airline hosting business due to
the termination of one of our hosting agreements in 2010.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer service costs
|
|
$
|
42,469
|
|
|
$
|
38,696
|
|
|
$
|
3,773
|
|
|
|
10
|
%
|
Credit card processing fees
|
|
|
34,237
|
|
|
|
30,441
|
|
|
|
3,796
|
|
|
|
12
|
%
|
Other
|
|
|
37,608
|
|
|
|
34,071
|
|
|
|
3,537
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
114,314
|
|
|
$
|
103,208
|
|
|
$
|
11,106
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in cost of revenue was primarily driven by a
$3.8 million increase in customer service costs, a
$3.8 million increase in credit card processing costs, a
$3.1 million increase in customer refunds and
charge-backs
and a $2.3 million increase in affiliate commissions,
partially offset by a $1.1 million decrease in costs
related to our airline hosting business and a $0.8 million
decrease in connectivity and processing costs.
Customer service costs increased primarily due to higher
customer service staffing levels required to support the higher
volume of air transactions we have experienced since eliminating
most air booking fees on our domestic websites in April 2009.
Our customer service staffing levels were lower in the first
nine months of 2009 compared with the first nine months of 2010,
as it took us several months to increase staffing levels at our
call centers to support the sharply higher transaction volumes
we experienced following these fee removals. Customer service
costs also increased due to higher call volumes as a result of
the travel disruptions caused by the volcano eruption in Iceland
in April 2010. The increase in credit card processing costs and
customer refunds and charge-backs was primarily due to growth in
our merchant hotel gross bookings in the first nine months of
2010. Customer refunds also increased as a result of the volcano
eruption. Affiliate commissions increased due to the growth of
our private label business. The decrease in costs related to our
airline hosting business resulted from the termination of one of
our hosting agreements in 2010. Connectivity and processing
costs decreased primarily due to more favorable pricing terms
with one of our GDS providers.
42
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages and benefits (a)
|
|
$
|
110,832
|
|
|
$
|
119,091
|
|
|
$
|
(8,259
|
)
|
|
|
(7
|
)%
|
Contract labor (a)
|
|
|
14,181
|
|
|
|
16,043
|
|
|
|
(1,862
|
)
|
|
|
(12
|
)%
|
Network communications, systems maintenance and equipment
|
|
|
18,765
|
|
|
|
20,333
|
|
|
|
(1,568
|
)
|
|
|
(8
|
)%
|
Other
|
|
|
37,487
|
|
|
|
34,658
|
|
|
|
2,829
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative
|
|
$
|
181,265
|
|
|
$
|
190,125
|
|
|
$
|
(8,860
|
)
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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 an $8.3 million decrease in wages and
benefits expense, a $1.9 million decrease in contract labor
costs, a $1.6 million decrease in network communications,
systems maintenance and equipment costs, a $0.8 million
decrease in facilities costs and a $0.8 million decrease in
bad debt expense, partially offset by a $3.3 million
increase in foreign currency losses and hedging costs and a
$1.1 million increase in legal expenses.
Wages and benefits decreased due to lower severance and lower
employee incentive compensation expense. Contract labor, network
communications, systems maintenance and equipment costs and
facilities costs declined due to cost cutting efforts undertaken
by us. Legal expenses increased primarily due to accruals
established related to certain legal proceedings.
Marketing
Marketing expense decreased $0.4 million for the nine
months ended September 30, 2010 compared with the nine
months ended September 30, 2009. The decrease in marketing
expense was primarily due to lower offline marketing costs. This
decrease was partially offset by higher online marketing costs
driven by an increase in transaction volume, offset in part by
lower cost per transaction as a result of our ongoing efforts to
improve the efficiency of our SEM and travel research spending.
Depreciation
and Amortization
Depreciation and amortization increased $5.5 million, or
11%, for the nine months ended September 30, 2010 compared
with the nine months ended September 30, 2009. The increase
in depreciation and amortization was due in part to additional
assets placed in service and the acceleration of depreciation on
certain assets whose useful lives were shortened during the nine
months ended September 30, 2010. This increase was
partially offset by lower amortization due to the expiration of
the useful lives of certain customer relationship intangible
assets during the third quarter of 2010 (see
Note 4 Goodwill and Intangible Assets of the
Notes to Condensed Consolidated Financial Statements).
Impairment
of Other Assets
During the nine months ended September 30, 2010, we
recorded a non-cash charge of $1.7 million to impair an
asset related to in-kind marketing and promotional support we
expected to receive from Northwest Airlines under our Charter
Associate Agreement with them. As a result of the completion of
the operational merger of Northwest Airlines and Delta Airlines
into a single operating carrier, Northwest Airlines was no
longer obligated to provide us with in-kind marketing and
promotional support after June 1, 2010 (see
Note 8 Unfavorable Contracts of the Notes to
Condensed Consolidated Financial Statements). There was no
similar impairment charge recorded during the nine months ended
September 30, 2009.
43
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 condensed consolidated financial statements for the first
quarter of 2009, we recorded a non-cash impairment charge of
$331.5 million, of which $249.4 million related to
goodwill and $82.1 million related to trademarks and trade
names.
There was no similar impairment charge recorded during the nine
months ended September 30, 2010. Due to the current
economic uncertainty and other factors, particularly if the
performance of HotelClub deteriorates further, we cannot assure
that goodwill, indefinite-lived intangible assets and
finite-lived intangible assets will not be impaired in future
periods.
Net
Interest Expense
Net interest expense decreased by $9.7 million, or 23%, for
the nine months ended September 30, 2010 compared with the
nine months ended September 30, 2009. The decrease in net
interest expense was primarily due to a lower effective interest
rate on the Term Loan as a result of a floating to fixed
interest rate swap maturing on December 31, 2009 and to a
lesser extent, lower amounts outstanding on both the Term Loan
and the Revolver. During the nine months ended
September 30, 2010 and September 30, 2009, non-cash
interest expense totaled $11.9 million and
$11.8 million, respectively.
Other
Income
Other income decreased by $2.1 million, or 99%, for the
nine months ended September 30, 2010 compared with the nine
months ended September 30, 2009 due to a decrease in the
net gain on Term Loan repurchases. During the nine months ended
September 30, 2010, we recorded a net gain of $0 on the
extinguishment of a portion of the Term Loan compared with a
$2.2 million gain on extinguishment of a portion of the
Term Loan during the nine months ended September 30, 2009
(see Note 6 Term Loan and Revolving Credit
Facility of the Notes to Condensed Consolidated Financial
Statements).
Provision
(Benefit) for Income Taxes
We recorded a tax provision of $2.6 million during the nine
months ended September 30, 2010 compared with a tax benefit
of $1.0 million for the nine months ended
September 30, 2009. The provision for income taxes for the
nine months ended September 30, 2010 was primarily due to
taxes on the net income of certain foreign subsidiaries that had
not established a valuation allowance and U.S. state and
local income taxes.
The tax benefit recorded for the nine months ended
September 30, 2009 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 first quarter of 2009. The benefit for
income taxes for the nine months ended September 30, 2009
only includes the tax effect of the net income or net loss of
those subsidiaries that had not established a valuation
allowance.
Related
Party Transactions
For a discussion of certain relationships and related party
transactions, see Note 14 Related Party
Transactions of the Notes to Condensed Consolidated Financial
Statements.
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
44
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.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Our principal sources of liquidity are our cash flows from
operations, cash and cash equivalents, and borrowings under the
Revolver. At September 30, 2010 and December 31, 2009,
our cash and cash equivalents balances were $139.1 million
and $88.7 million, respectively. We had $60.0 million
and $25.8 million of availability under the Revolver at
September 30, 2010 and December 31, 2009,
respectively. Total available liquidity from cash and cash
equivalents and the Revolver was $199.1 million and
$114.5 million at September 30, 2010 and
December 31, 2009, 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 September 30, 2010 and
December 31, 2009, there were $67.1 million and
$59.3 million of outstanding letters of credit issued by
Travelport on our behalf, respectively, pursuant to the
Separation Agreement. In addition, at September 30, 2010
and December 31, 2009, there were the equivalent of
$12.5 million and $4.5 million of outstanding letters
of credit issued under the Revolver, respectively, which were
denominated in Pounds Sterling. The amount of letters of credit
issued under the Revolver reduces the amount available to us for
borrowings.
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 April 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.
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 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.
On January 26, 2010, we completed two transactions that
improved our overall liquidity and financial position. In the
first transaction, PAR exchanged $49.6 million aggregate
principal amount of the Term Loan for 8,141,402 shares of
our common stock. We immediately retired the portion of the Term
Loan purchased from PAR in accordance with the Amendment to the
Credit Agreement that we entered into in June 2009.
Concurrently, Travelport purchased 9,025,271 shares of our
common stock for $50.0 million in cash (see
Note 6 Term Loan and Revolving Credit Facility
of the Notes to Condensed Consolidated Financial
45
Statements). We used a portion of the proceeds from
Travelports stock purchase to purchase an additional
$14.0 million aggregate principal amount of the Term Loan
in May 2010. We intend to use the remaining proceeds from
Travelports stock purchase for general corporate purposes.
As of September 30, 2010, we had a working capital deficit
of $222.3 million as compared with a deficit of
$249.6 million as of December 31, 2009. Over time, we
expect to continue to decrease this deficit through growth in
our business and generating positive cash flow from operations,
which we expect to achieve by increasing our global hotel
transactions, 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 and the nine months
ended September 30, 2010, despite experiencing net losses
in some of these periods, 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 $39.0 million and
$42.0 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 the Revolver 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, changes to payment
terms or other requirements imposed by suppliers or regulatory
agencies, the termination of any major suppliers
participation on our websites, 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 an
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 impose 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 the Revolver 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 the Revolver through its maturity in July 2013
will provide sufficient liquidity to fund our operating
activities and capital expenditures. However, unless we
re-finance the Term Loan before the July 2014 maturity date, we
will be required to pay the final installment (equal to the
remaining outstanding balance) on the 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 additional funds through debt or equity offerings. We
also may be required to raise additional capital if we require
more liquidity in the future than is available under the
Revolver.
46
Cash
Flows
Our net cash flows from operating, investing and financing
activities for the periods indicated in the tables below were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Beginning cash and cash equivalents
|
|
$
|
88,656
|
|
|
$
|
31,193
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
123,649
|
|
|
|
103,342
|
|
Investing activities
|
|
|
(28,022
|
)
|
|
|
(31,444
|
)
|
Financing activities
|
|
|
(44,098
|
)
|
|
|
16,178
|
|
Effect of changes in exchange rates on cash and cash equivalents
|
|
|
(1,119
|
)
|
|
|
2,361
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
50,410
|
|
|
|
90,437
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
139,066
|
|
|
$
|
121,630
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Cash provided by operating activities consists of our net income
(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 $123.6 million
for the nine months ended September 30, 2010 compared with
$103.3 million for the nine months ended September 30,
2009. The increase in operating cash flow was mainly due to
higher merchant gross bookings in the nine months ended
September 30, 2010 compared with the nine months ended
September 30, 2009, a decrease in cash interest payments
and the timing of payments related to our marketing spending.
This increase was partially offset by the elimination of most
air booking fees and the significant reduction of hotel booking
fees in April 2009 as well as changes in the timing of payments
received from vendors. In addition, during the nine months ended
September 30, 2010, we made payments related to employee
incentive compensation costs accrued in 2009. There were no such
payments made in the nine months ended September 30, 2009.
The changes in our other working capital accounts also decreased
operating cash flow.
Investing
Activities
Cash flow used in investing activities decreased
$3.4 million, to $28.0 million for the nine months
ended September 30, 2010 from $31.4 million for the
nine months ended September 30, 2009 due to lower capital
spending.
Financing
Activities
Cash flow used in financing activities was $44.1 million
for the nine months ended September 30, 2010 compared with
cash flow provided by financing activities of $16.2 million
for the nine months ended September 30, 2009. This change
was primarily due to the repayment of borrowings made under the
Revolver, an increase in principal payments made on the Term
Loan due to our requirement to make a prepayment from excess
cash flow in March 2010 and an increase in cash used to
repurchase portions of the Term Loan (see
Note 6 Term Loan and Revolving Credit Facility
of the Notes to Condensed Consolidated Financial Statements).
The increase in cash flow used in financing activities was
partially offset by cash proceeds received, net of issuance
costs, from the stock purchase by Travelport in January 2010
(see Note 6 Term Loan and Revolving Credit
Facility of the Notes to Condensed Consolidated Financial
Statements).
47
Financing
Arrangements
On July 25, 2007, concurrent with the IPO, we entered into
the Credit Agreement consisting of the Term Loan and the
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 September 30, 2010 and
December 31, 2009, $492.0 million and
$576.6 million of borrowings were outstanding on the Term
Loan, respectively. At September 30, 2010, there were no
outstanding borrowings under the Revolver. At December 31,
2009, $42.2 million of borrowings were outstanding under
the Revolver, all of which were denominated in U.S. dollars.
In addition, at September 30, 2010 and December 31,
2009, there were the equivalent of $12.5 million and
$4.5 million of outstanding letters of credit issued under
the Revolver, respectively, which were denominated in Pounds
Sterling. 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 the Amendment to the
Credit Agreement, which permitted us to purchase portions of the
outstanding Term Loan on a non-pro rata basis using cash up to
$10.0 million and 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 was retired
pursuant to the terms of the Amendment. During the nine months
ended September 30, 2010, we purchased $63.6 million
aggregate principal amount of the Term Loan (see
Note 6 Term Loan and Revolving Credit Facility
of the Notes to Condensed Consolidated Financial Statements).
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 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 3.5 to 1 and declines to 3 to 1 effective March 31,
2011. As of September 30, 2010, we were in compliance with
all covenants and conditions of the Credit Agreement.
In addition, 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. Based on our excess cash flow for the
year ended December 31, 2009, we made a $21.0 million
prepayment on the Term Loan in the first quarter of 2010.
Prepayments from excess cash flow are applied, in order of
maturity, to the scheduled quarterly Term Loan principal
payments. As a result, we are not required to make any scheduled
principal payments on the Term Loan during the remainder of
2010. Based on our current financial projections for the year
ending December 31, 2010, we estimate that we will be
required to make an $8.1 million prepayment on the Term
Loan in the first quarter of 2011. The amount of prepayment
required is subject to change based on actual results, which
could differ materially from our financial projections as of
September 30, 2010. The potential amount of prepayment from
excess cash flow that will be required beyond the first quarter
of 2011 is not reasonably estimable as of September 30,
2010.
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
September 30, 2010 and December 31, 2009, there were
$67.1 million and $59.3 million of outstanding 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 $75.0 million so long as
Travelport and its affiliates (as defined in the Separation
Agreement) own at least 50% of our voting stock.
48
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 and our merchant hotel
business model. We believe that we have meritorious defenses,
and we are vigorously defending against these claims,
proceedings and inquiries (see Note 9
Commitments and Contingencies of the Notes to Condensed
Consolidated Financial Statements).
Litigation is inherently unpredictable and, although we believe
we have valid defenses in these matters, 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 condensed consolidated statements of operations
for reimbursements received of $1.1 million and
$0.9 million for the three months ended September 30,
2010 and September 30, 2009, respectively, and
$4.4 million and $4.0 million for the nine months
ended September 30, 2010 and September 30, 2009,
respectively. The recovery of additional amounts, if any, by us
and the timing of receipt of these recoveries is unclear. As a
result, as of September 30, 2010, we had not recognized a
reduction to selling, general and administrative expense in our
condensed consolidated statements of operations for the
outstanding contingent claims for which we have not received
reimbursement.
Contractual
Obligations
Our contractual obligations as of September 30, 2010 did
not materially change from the amounts set forth in our 2009
Annual Report on
Form 10-K,
except for the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 months)
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Term Loan (a)
|
|
$
|
|
|
|
$
|
8,101
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
483,920
|
|
|
$
|
|
|
|
$
|
492,021
|
|
Interest (b)
|
|
|
5,249
|
|
|
|
18,732
|
|
|
|
15,590
|
|
|
|
15,434
|
|
|
|
8,765
|
|
|
|
|
|
|
|
63,770
|
|
Tax sharing liability (c)
|
|
|
4,827
|
|
|
|
24,544
|
|
|
|
16,870
|
|
|
|
17,574
|
|
|
|
18,145
|
|
|
|
117,917
|
|
|
|
199,877
|
|
Telecommunications service agreement (d)
|
|
|
|
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
10,076
|
|
|
$
|
53,877
|
|
|
$
|
34,960
|
|
|
$
|
33,008
|
|
|
$
|
510,830
|
|
|
$
|
117,917
|
|
|
$
|
760,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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. The potential amount of prepayments from excess cash
flow that will be required beyond the first quarter of 2011 is
not reasonably estimable as of September 30, 2010. As a
result, the table above excludes prepayments that could be
required from excess cash flow beyond the first quarter of 2011,
and the timing of future payments shown in the table above could
change. |
|
(b) |
|
Represents estimated interest payments on the variable portion
of the Term Loan based on the one-month LIBOR as of
September 30, 2010 and fixed interest payments under
interest rate swaps. |
|
(c) |
|
We expect to make approximately $199.9 million of payments
in connection with the tax sharing agreement with the Founding
Airlines (see Note 7 Tax Sharing Liability of
the Notes to Condensed Consolidated Financial Statements). |
|
(d) |
|
In January 2010, we entered into a three-year telecommunications
service agreement, which requires a minimum annual commitment of
$2.5 million. |
49
In addition, in January 2010 we repaid the $42.2 million of
borrowings that were outstanding under the Revolver as of
December 31, 2009. There were no outstanding borrowings
under the Revolver at September 30, 2010.
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 9 Commitments and
Contingencies of the Notes to Condensed 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 condensed 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. See Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Critical Accounting Policies in our
2009 Annual Report on
Form 10-K
for a discussion of these judgments, estimates and assumptions.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Foreign
Currency Risk
Our international operations are subject to risks typical of
international operations, including, but not limited to,
differing economic conditions, changes in political climate,
differing tax structures and foreign exchange rate volatility.
Accordingly, our future results could be materially adversely
impacted by changes in these or other factors.
Transaction
Exposure
We use foreign currency 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 the Revolver. 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
foreign currency contracts utilized by us do not qualify for
hedge accounting treatment, and as a result, any fluctuations in
the value of these foreign currency contracts are recognized in
selling, general and administrative expense in our condensed
consolidated statements of operations as incurred. The
fluctuations in the value of these foreign currency 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 September 30, 2010 and December 31, 2009,
we had outstanding foreign currency contracts with net notional
values equivalent to $198.0 million and
$130.4 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 condensed consolidated balance sheets. The effect of foreign
exchange rate fluctuations on our condensed consolidated balance
sheets at September 30, 2010 and December 31, 2009 was
a net translation gain of $3.2 million and a net
translation loss of $(3.6) million, respectively. This gain
or loss is recognized as an adjustment to shareholders
equity through accumulated other comprehensive income (loss).
Interest
Rate Risk
The Term Loan and the Revolver bear interest at a variable rate
based on LIBOR or an alternative base rate. We limit interest
rate risk associated with the Term Loan using interest rate
swaps with a combined
50
notional amount of $300.0 million as of September 30,
2010 to hedge fluctuations in LIBOR (see
Note 12 Derivative Financial Instruments of the
Notes to Condensed 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 September 30, 2010 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 $11.7 million at
September 30, 2010 compared with $8.5 million at
December 31, 2009. 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 $0 and $0.1 million at
September 30, 2010 and December 31, 2009,
respectively, which represents the effect on annual interest
expense related to the unhedged portion of the Term Loan. The
hedged portion of the Term Loan is not affected by changes in
market rates of interest as it has effectively been converted to
a fixed interest rate through interest rate swaps.
|
|
Item 4.
|
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 September 30, 2010. 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
September 30, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
During the three months ended September 30, 2010, there
were no new material pending legal proceedings, other than
routine litigation arising in the ordinary course of business,
to which we are a party or of which our property is subject, and
no material developments in the legal proceedings previously
reported in our 2009 Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 or in our
Quarterly Reports on
Form 10-Q
for the quarterly periods ended March 31, 2010 and
June 30, 2010, except as described below.
Litigation
Relating to Hotel Occupancy Taxes
St. Louis County, Missouri On July 12,
2010, the Circuit Court for the County of St. Louis denied
the defendant OTCs motion to dismiss the Amended
Complaint. On September 8, 2010, the court granted the
defendants motion to reconsider and thereby granted the
defendants motion to dismiss with prejudice. On
51
September 30, 2010, the County filed its Notice of Appeal
with the Supreme Court of Missouri seeking to reverse the
Circuit Courts ruling on the defendants motion for
reconsideration.
Columbus, Georgia On July 13, 2010,
Orbitz, LLC and the City of Columbus finalized the settlement
agreement that the parties had preliminarily reached on
June 8, 2010. On July 14, 2010, the Superior Court of
Muscogee County entered an order vacating several prior rulings,
including its April 15, 2010 interim order granting the
City of Columbus Motion for Discovery Sanctions for
Orbitz, LLCs failure to provide discovery and comply with
the Courts discovery.
City of Atlanta, Georgia On July 22,
2010, the Superior Court of Fulton County granted in part and
denied in part the defendant OTCs motion for summary
judgment. On August 19, 2010, the City of Atlanta filed its
Notice of Appeal of the Superior Courts ruling. On
August 20, 2010, Orbitz, LLC, Trip Network, Inc. (d/b/a
Cheaptickets.com) and certain of the other defendants filed
their Notice of Appeal of the Superior Courts ruling.
City of San Diego, California On
August 4, 2010, the OTCs filed a verified petition in the
Superior Court for Los Angeles County for writ of mandate
against the City of San Diego and a verified
cross-complaint
for declaratory relief seeking to overturn the Hearing
Officers ruling and vacate the assessments issued by the
City of San Diego against the OTCs.
Hamilton County, Ohio On August 23,
2010, the counties of Hamilton, Erie and Cuyahoga, Ohio filed a
complaint in the Hamilton County Common Pleas Court against
Orbitz, LLC, Orbitz, Inc, Trip Network, Inc. (d/b/a
Cheaptickets.com), Internetwork Publishing Corp (d/b/a
Lodging.com), Cendant Travel Distribution Services Group and
various other OTCs asserting violations Uniform Transient
Occupancy Tax Ordinances and the Code of Regulations, unjust
enrichment, money had and received, conversion, imposition of
constructive trust, breach of contract, declaratory judgment and
damages.
City of Anaheim, California On
August 30, 2010, the Superior Court for Los Angeles County
granted the OTCs Consolidated Demurrer to the City of
Anaheims First Amended Cross-Complaint.
Leon County Department of Revenue On
September 1, 2010, the Circuit Court of the Second Judicial
Circuit in and for Leon County, Florida denied the OTCs
motion to dismiss the complaint.
County of Genesee, Michigan (purported class
action) On September 13, 2010, the
plaintiff Counties moved for partial summary disposition with
respect to liability under Count I of their complaint.
Consumer
Class Actions
Peluso v. Orbitz.com, Orbitz, LLC (d/b/a Orbitz.com),
Orbitz Worldwide, Inc., Orbitz Worldwide Development, LLC,
Orbitz Worldwide International, Inc., Orbitz Worldwide, LLC, et
al. On October 1, 2010, a putative consumer
class action complaint was filed in the United States District
Court for the Southern District of New York. In the complaint,
the plaintiff alleges that the defendants overbilled customers
for hotel occupancy taxes and sales taxes imposed by the City
and State of New York and asserts claims for violation of New
Yorks deceptive business practices statute, declaratory
and injunctive relief, conversion, breach of fiduciary duty,
breach of contract and unjust enrichment. On October 7,
2010, the case was consolidated with similar cases that were
previously filed against other OTCs. The court has stayed this
case pending the outcome of motions to dismiss that were filed
by the other OTCs.
Litigation
related to Intellectual Property
DDR Holdings, LLC v. Hotels.com, L.P., et
al. On July 20, 2010, the United States
Patent and Trademark Office issued Reissue certificates with
respect to the two patents at issue in the case. On
October 6, 2010, the United States District Court for the
Eastern District of Texas (Marshall Division) granted the
plaintiffs motion to reopen the case.
52
There have been no material changes from the risk factors
previously disclosed in our 2009 Annual Report on
Form 10-K.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
Not applicable.
|
|
Item 3.
|
Defaults
Upon Senior Securities.
|
Not applicable.
|
|
Item 5.
|
Other
Information.
|
Not applicable.
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.1
|
|
Eighth Amendment, dated as of August 23, 2010, to
Subscriber Services Agreement, dated as of July 23, 2007,
between Travelport, LP (f/k/a Travelport International, L.L.C.),
Travelport Global Distribution System B.V. (f/k/a Galileo
Nederland B.V.) and Orbitz Worldwide, LLC.
|
|
10
|
.2
|
|
Ninth Amendment, dated as of September 28, 2010, to
Subscriber Services Agreement, dated as of July 23, 2007,
between Travelport, LP (f/k/a Travelport International, L.L.C.),
Travelport Global Distribution System B.V. (f/k/a Galileo
Nederland B.V.) and Orbitz Worldwide, LLC.
|
|
10
|
.3
|
|
Amendment No. 2 to Employment Agreement, effective as of
July 17, 2010, by and between Orbitz Worldwide, Inc. and
Barnaby Harford.
|
|
10
|
.4
|
|
Letter Agreement, effective as of August 2, 2010, between
Orbitz Worldwide, Inc. and James P. Shaughnessy.
|
|
10
|
.5
|
|
Orbitz Worldwide, Inc. Non-Employee Directors Deferred
Compensation Plan (amended and restated effective
January 1, 2011).
|
|
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.
|
53
SIGNATURES
Pursuant to the requirements 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: November 8, 2010
|
|
By:
/s/ Barney
Harford
Barney
Harford
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
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Date: November 8, 2010
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By:
/s/ Marsha
C. Williams
Marsha
C. Williams
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
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