Attached files

file filename
EX-32 - EX-32 - Travelport LTDy87496exv32.htm
EX-10.1 - EX-10.1 - Travelport LTDy87496exv10w1.htm
EX-10.2 - EX-10.2 - Travelport LTDy87496exv10w2.htm
EX-10.4 - EX-10.4 - Travelport LTDy87496exv10w4.htm
EX-31.1 - EX-31.1 - Travelport LTDy87496exv31w1.htm
EX-31.2 - EX-31.2 - Travelport LTDy87496exv31w2.htm
EX-10.3 - EX-10.3 - Travelport LTDy87496exv10w3.htm
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-Q
 
     
(Mark One)    
 
x
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended September 30, 2010
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from          to          
 
Commission File No. 333-141714
 
 
 
Travelport Limited
(Exact name of registrant as specified in its charter)
 
     
Bermuda   98-0505100
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)
 
405 Lexington Avenue
New York, NY 10174
(Address of principal executive offices, including zip code)

(212) 915-9150
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 
 
 
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 o  No x
 
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. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x
 
As of November 10, 2010, there were 12,000 shares of the Registrants’ common stock, par value $1.00 per share, outstanding.
 


 

 
Table of Contents
 
         
        Page
 
PART I     3
Item 1.     3
      3
      4
      5
      6
      7
Item 2.     31
Item 3.     49
Item 4.     49
         
PART II  
Other Information
  50
Item 1.     50
Item 1A.     50
Item 2.     50
Item 3.     50
Item 4.     50
Item 5.     50
Item 6.     50
      51
 EX-10.1
 EX-10.2
 EX-10.3
 EX-10.4
 EX-31.1
 EX-31.2
 EX-32


1


Table of Contents

FORWARD-LOOKING STATEMENTS
 
The forward-looking statements contained herein involve risks and uncertainties. Many of the statements appear, in particular, in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those in the forward-looking statements. In some cases you can identify forward-looking statements by words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “potential”, “should”, “will” and “would” or other similar words. You should read statements that contain these words carefully because they discuss our future priorities, goals, strategies, actions to improve business performance, market growth assumptions and expectations, new products, product pricing, changes to our business processes, future business opportunities, capital expenditures, financing needs, financial position and other information that is not historical information. References within this Quarterly Report on Form 10-Q to “we”, “our” or “us” means Travelport Limited, a Bermuda company, and its subsidiaries.
 
The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:
 
  •     factors affecting the level of travel activity, particularly air travel volume, including security concerns, general economic conditions, natural disasters and other disruptions;
 
  •     the impact outstanding indebtedness may have on the way we operate our business;
 
  •     our ability to obtain travel supplier inventory from travel suppliers, such as airlines, hotels, car rental companies, cruise lines and other travel suppliers;
 
  •     our ability to maintain existing relationships with travel agencies and tour operators and to enter into new relationships on acceptable financial and other terms;
 
  •     our ability to develop and deliver products and services that are valuable to travel agencies and travel suppliers and generate new revenue streams, including our new universal desktop product;
 
  •     the impact on supplier capacity and inventory resulting from consolidation of the airline industry;
 
  •     our ability to grow adjacencies, such as our recent acquisition of Sprice and our controlling interest in eNett;
 
  •     general economic and business conditions in the markets in which we operate, including fluctuations in currencies;
 
  •     pricing, regulatory and other trends in the travel industry, including the direct connect efforts of American Airlines and our litigation with American Airlines related thereto;
 
  •     risks associated with doing business in multiple countries and in multiple currencies;
 
  •     our ability to achieve expected cost savings from our efforts to improve operational efficiency;
 
  •     maintenance and protection of our information technology and intellectual property; and
 
  •     financing plans and access to adequate capital on favorable terms.
 
We caution you that the foregoing list of important factors may not contain all of the factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur.
 
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The factors listed in the sections captioned “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2010, as amended by Amendment No. 1 to the Form 10-K filed with the SEC on April 16, 2010, as well as any other cautionary language in this Quarterly Report on Form 10-Q, provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described in the forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this report could have an adverse effect on our business, results of operations, financial position and cash flows.
 
Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.


2


Table of Contents

 
PART I—FINANCIAL INFORMATION
 
Item 1.  Financial Statements (unaudited)
 
TRAVELPORT LIMITED
 
 
 
                                 
    Three Months
    Three Months
    Nine Months
    Nine Months
 
    Ended
    Ended
    Ended
    Ended
 
    September 30,
    September 30,
    September 30,
    September 30,
 
(in $ millions)   2010     2009     2010     2009  
 
Net revenue
    582       570       1,761       1,715  
                                 
Costs and expenses
                               
Cost of revenue
    291       270       899       834  
Selling, general and administrative
    121       139       410       416  
Restructuring charges
          5       5       18  
Depreciation and amortization
    66       63       188       187  
Impairment of goodwill and intangible assets
          833             833  
Other income
                      (5 )
                                 
Total costs and expenses
    478       1,310       1,502       2,283  
                                 
Operating income (loss)
    104       (740 )     259       (568 )
Interest expense, net
    (73 )     (85 )     (202 )     (223 )
Gain on early extinguishment of debt
          4             10  
                                 
Income (loss) from operations before income taxes and equity in earnings (losses) of investment in Orbitz Worldwide
    31       (821 )     57       (781 )
(Provision) benefit for income taxes
    (15 )     78       (42 )     64  
Equity in earnings (losses) of investment in Orbitz Worldwide
    8       3       10       (153 )
                                 
Net income (loss)
    24       (740 )     25       (870 )
Net loss (income) attributable to non-controlling interest in subsidiaries
    1             1       (2 )
                                 
Net income (loss) attributable to the Company
    25       (740 )     26       (872 )
                                 
 
See Notes to the Consolidated Condensed Financial Statements


3


Table of Contents

TRAVELPORT LIMITED
 
 
 
                 
(in $ millions)   September 30, 2010     December 31, 2009  
 
Assets
               
Current assets:
               
Cash and cash equivalents
    269       217  
Accounts receivable (net of allowances for doubtful accounts of $43 and $59)
    449       346  
Deferred income taxes
    22       22  
Other current assets
    208       156  
                 
Total current assets
    948       741  
Property and equipment, net
    532       452  
Goodwill
    1,282       1,285  
Trademarks and tradenames
    414       419  
Other intangible assets, net
    1,079       1,183  
Investment in Orbitz Worldwide
    123       60  
Other non-current assets
    210       206  
                 
Total assets
    4,588       4,346  
                 
Liabilities and equity
               
Current liabilities:
               
Accounts payable
    205       139  
Accrued expenses and other current liabilities
    885       765  
Current portion of long-term debt
    17       23  
                 
Total current liabilities
    1,107       927  
Long-term debt
    3,698       3,640  
Deferred income taxes
    129       143  
Other non-current liabilities
    226       228  
                 
Total liabilities
    5,160       4,938  
                 
Commitments and contingencies (note 13)
               
Shareholders’ equity:
               
Common shares $1.00 par value; 12,000 shares authorized; 12,000 shares issued and outstanding
           
Additional paid in capital
    1,008       1,006  
Accumulated deficit
    (1,617 )     (1,643 )
Accumulated other comprehensive income
    26       30  
                 
Total shareholders’ equity
    (583 )     (607 )
Equity attributable to non-controlling interest in subsidiaries
    11       15  
                 
Total equity
    (572 )     (592 )
                 
Total liabilities and equity
    4,588       4,346  
                 
 
See Notes to the Consolidated Condensed Financial Statements


4


Table of Contents

TRAVELPORT LIMITED
 
 
 
                 
    Nine Months
    Nine Months
 
    Ended
    Ended
 
    September 30,
    September 30,
 
(in $ millions)   2010     2009  
 
Operating activities
               
Net income (loss)
    25       (870 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation and amortization
    188       187  
Impairment of goodwill and intangible assets
          833  
Gain on sale of assets
          (5 )
Provision for bad debts
    2       14  
Equity-based compensation
    2       6  
Gain on early extinguishment of debt
          (10 )
Amortization of debt finance costs
    19       12  
Loss on interest rate derivative instruments
    5       10  
Gain on foreign exchange derivative instruments
    (3 )     (14 )
Equity in (earnings) losses of investment in Orbitz Worldwide
    (10 )     153  
FASA liability
    (14 )     (21 )
Deferred income taxes
    (3 )     (103 )
Changes in assets and liabilities, net of effects from acquisitions:
               
Accounts receivable
    (108 )     (59 )
Other current assets
    (9 )     (5 )
Accounts payable, accrued expenses and other current liabilities
    167       74  
Other
    (7 )     (11 )
                 
Net cash provided by operating activities
    254       191  
                 
Investing activities
               
Property and equipment additions
    (159 )     (39 )
Investment in Orbitz Worldwide
    (50 )      
Businesses acquired
    (16 )      
Loan to parent company
    (9 )      
Loan repaid by parent company
    9        
Proceeds from sale of assets
          5  
Other
    5       (2 )
                 
Net cash used in investing activities
    (220 )     (36 )
                 
Financing activities
               
Principal repayment
    (295 )     (298 )
Proceeds from new borrowings
    380       144  
(Payments) proceeds on settlement of derivative contracts
    (64 )     87  
Net share settlement for equity-based compensation
          (7 )
Debt finance costs
    (5 )     (3 )
Distribution to a parent company
          (194 )
Other
    (3 )      
                 
Net cash provided by (used in) financing activities
    13       (271 )
                 
Effect of changes in exchange rates on cash and cash equivalents
    5       6  
                 
Net increase (decrease) in cash and cash equivalents
    52       (110 )
Cash and cash equivalents at beginning of period
    217       345  
                 
Cash and cash equivalents at end of period
    269       235  
                 
Supplemental disclosure of cash flow information
               
Interest payments
    200       223  
Income tax payments, net
    24       28  
 
See Notes to the Consolidated Condensed Financial Statements


5


Table of Contents

TRAVELPORT LIMITED
 
 
 
                                                 
                      Accumulated
             
          Additional
          Other
    Non- Controlling
       
    Common
    Paid in
    Accumulated
    Comprehensive
    Interest in
    Total
 
(in $ millions)   Stock     Capital     Deficit     Income     Subsidiaries     Equity  
 
Balance as of January 1, 2010
          1,006       (1,643 )     30       15       (592 )
Equity-based compensation
          2                         2  
Dividend to non-controlling interest shareholders
                            (3 )     (3 )
Comprehensive income (loss)
                                               
Net income (loss)
                26             (1 )     25  
Currency translation adjustment, net of tax of $0
                      (16 )           (16 )
Unrealized gain on cash flow hedges, net of tax of $0
                      5             5  
Unrealized gain on equity investment and other, net of tax of $0
                      7             7  
                                                 
Total comprehensive income
                                            21  
                                                 
Balance as of September 30, 2010
          1,008       (1,617 )     26       11       (572 )
                                                 
 
See Notes to the Consolidated Condensed Financial Statements


6


Table of Contents

TRAVELPORT LIMITED
 
 
 
1.  Basis of Presentation
 
Travelport Limited (the “Company” or “Travelport”) is a broad-based business services company and a leading provider of critical transaction processing solutions to companies operating in the global travel industry. Travelport is comprised of the global distribution system (“GDS”) business that includes the Worldspan and Galileo brands and its Airline IT Solutions business, which hosts mission critical applications and provides business and data analysis solutions for major airlines, and Gullivers Travel Associates (“GTA”), a leading global, multi-channel provider of hotel and ground services. The Company also owns approximately 48% of Orbitz Worldwide, Inc., a leading global online travel company. The Company has approximately 5,400 employees and operates in 160 countries. Travelport is a closely held company owned by affiliates of The Blackstone Group (“Blackstone”), Technology Crossover Ventures (“TCV”), One Equity Partners (“OEP”) and Travelport management.
 
These financial statements and other financial information included in this Quarterly Report on Form 10-Q are unaudited. They have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules and regulations of the US Securities and Exchange Commission (“SEC”) for interim reporting. Certain disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations.
 
The December 31, 2009 balance sheet was derived from audited financial statements but does not include all disclosures required by US GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading.
 
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgments and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Company’s consolidated condensed financial statements contain all normal recurring adjustments necessary for a fair presentation of these interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 17, 2010, as amended by Amendment No. 1 to the Form 10-K filed with the SEC on April 16, 2010.
 
2.  Recently Issued Accounting Pronouncements
 
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses
 
In July 2010, the Financial Accounting Standards Board (“FASB”) issued guidance related to new disclosures about the credit quality of financing receivables and the allowance for credit losses. This guidance requires new disclosures on (i) the nature of credit risk inherent in the Company’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses, and (iii) the changes and reasons for those changes in the allowance for credit losses. Among other things, the expanded disclosures require information to be disclosed at disaggregated levels (“segments” or “classes”), along with roll-forward schedules of the allowance for credit losses and information regarding the credit quality of receivables (including their aging) as of the end of a reporting period. This guidance is effective for interim and annual reporting periods ending on or after December 15, 2010. The Company is assessing the impact of this new guidance, but does not anticipate a material impact on the consolidated financial statements.


7


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
2.  Recently Issued Accounting Pronouncements (Continued)
 
Improving Disclosures about Fair Value Measurements
 
In January 2010, the FASB issued guidance related to new disclosures about fair value measurements and clarification on certain existing disclosure requirements. This guidance requires new disclosures on significant transfers in and out of Level 1 and Level 2 categories of fair value measurements. This guidance also clarifies existing requirements on (i) the level of disaggregation in determining the appropriate classes of assets and liabilities for fair value measurement disclosures, and (ii) disclosures about inputs and valuation techniques. The Company adopted the provisions of this guidance on January 1, 2010, except for the new disclosures around the activity in Level 3 categories of fair value measurements which will be adopted on January 1, 2011, as required. There was no material impact on the consolidated financial statements resulting from the adoption of this guidance.
 
Accounting and Reporting for Decreases in Ownership of a Subsidiary
 
In January 2010, the FASB issued guidance related to accounting and reporting for decreases in ownership of a subsidiary. This guidance clarifies the scope of the requirements surrounding the decrease in ownership of a subsidiary and expands the disclosure requirements for deconsolidation of a subsidiary or de-recognition of a group of assets. The Company adopted the provisions of this guidance on January 1, 2010. There was no impact on the consolidated financial statements resulting from the adoption of this guidance.
 
Amendment to Revenue Recognition involving Multiple Deliverable Arrangements
 
In October 2009, the FASB issued amended revenue recognition guidance for arrangements with multiple deliverables. The new guidance eliminates the residual method of revenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence of fair value or third-party evidence is unavailable. This guidance is effective for all new or materially modified arrangements entered into in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. Full retrospective application of the new guidance is optional. The Company is assessing the impact of this new guidance but does not expect a material impact on the consolidated financial statements.
 
Amendment to Software Revenue Recognition
 
In October 2009, the FASB issued guidance which amends the scope of existing software revenue recognition accounting. Tangible products containing software components and non-software components that function together to deliver the product’s essential functionality would be scoped out of the accounting guidance on software and accounted for based on other appropriate revenue recognition guidance. This guidance is effective for all new or materially modified arrangements entered into in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. Full retrospective application of the new guidance is optional. This guidance must be adopted in the same period that the Company adopts the amended accounting for arrangements with multiple deliverables described in the preceding paragraph. The Company is assessing the impact of this new guidance but does not expect a material impact on the consolidated financial statements.


8


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
3.  Restructuring Charges
 
Following the acquisition of Worldspan Technologies, Inc. (“Worldspan”) in 2007 and the completion of plans to integrate Worldspan into the GDS segment, the Company committed to various strategic initiatives, including the relocation of certain finance and administrative positions from the United States to the United Kingdom.
 
The recognition of the restructuring charges and the corresponding utilization of accrued balances during the nine months ended September 30, 2010 are summarized as follows:
 
         
(in $ millions)      
 
Balance as of January 1, 2010
    8  
Restructuring charges
    5  
Cash payments
    (8 )
         
Balance as of September 30, 2010
    5  
         
 
During the nine months ended September 30, 2010, the Company incurred approximately $5 million of costs related to the relocation, including charges related to exiting a lease arrangement in the United States. Less than $1 million of costs were incurred in the three months ended September 30, 2010. The Company expects to incur $1 million of additional restructuring charges for personnel related costs under this plan during the remainder of 2010.
 
The restructuring charges of $5 million incurred during the nine months ended September 30, 2010 included $1 million recorded within the GTA segment.
 
The restructuring charges of $5 million incurred during the three months ended September 30, 2009 included $2 million recorded within the GDS segment. The restructuring charges of $18 million incurred during the nine months ended September 30, 2009 included $6 million and $3 million recorded within the GDS and GTA segments, respectively. Cash payments for restructuring charges were $16 million during the nine months ended September 30, 2009.
 
The accrued restructuring balance of $5 million as of September 30, 2010 primarily relates to future retention and severance payments.
 
4.  Other Current Assets
 
Other current assets consisted of:
 
                 
    September 30,
    December 31,
 
(in $ millions)   2010     2009  
 
Upfront inducement payments and supplier deposits
    86       70  
Sales and use tax receivables
    47       48  
Derivative assets
    25       1  
Prepaid expenses
    21       20  
Assets held for sale
    19       2  
Deferred costs
          10  
Other
    10       5  
                 
      208       156  
                 
 
Assets held for sale consisted of land and buildings expected to be sold within the next 12 months.
 
Deferred costs as of December 31, 2009 related to costs incurred directly in relation to a proposed offering of securities. These costs were expensed in the first quarter of 2010 due to events occurring in the first quarter of 2010 which resulted in a postponement of the Company’s proposed offering of securities.


9


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
4.  Other Current Assets (Continued)
 
During the nine months ended September 30, 2010, the Company loaned approximately $9 million to its ultimate parent. The loan notes accrued interest at 9.5% per annum. The principal, together with accrued and unpaid interest, was fully repaid during September 2010.
 
5.  Property and Equipment, Net
 
Property and equipment consisted of:
 
                                                 
    September 30, 2010     December 31, 2009  
          Accumulated
                Accumulated
       
(in $ millions)   Cost     depreciation     Net     Cost     depreciation     Net  
 
Land
                      4             4  
Capitalized software
    605       (258 )     347       455       (182 )     273  
Furniture, fixtures and equipment
    241       (135 )     106       230       (129 )     101  
Building and leasehold improvements
    24       (11 )     13       48       (20 )     28  
Construction in progress
    66             66       46             46  
                                                 
      936       (404 )     532       783       (331 )     452  
                                                 
 
Additions in the nine months ended September 30, 2010 include a transaction processing facility software license and equipment from International Business Machines Corporation (“IBM”) as part of the investment in the Company’s GDS information technology infrastructure.
 
During the nine months ended September 30, 2010, $4 million of land and $12 million of freehold buildings were reclassified to assets held for sale.
 
The Company recorded depreciation expense of $36 million and $26 million during the three months ended September 30, 2010 and 2009, respectively. The Company recorded depreciation expense of $99 million and $84 million during the nine months ended September 30, 2010 and 2009, respectively.
 
6.  Intangible Assets
 
The changes in the carrying amount of goodwill and intangible assets for the Company between January 1, 2010 and September 30, 2010 are as follows:
 
                                 
    January 1,
          Foreign
    September 30,
 
(in $ millions)   2010     Additions     Exchange     2010  
 
Non-Amortizable Intangible Assets:
                               
Goodwill
                               
GDS
    979       6       1       986  
GTA
    306       5       (15 )     296  
                                 
      1,285       11       (14 )     1,282  
                                 
Trademarks and tradenames
    419             (5 )     414  
                                 
Amortizable Intangible Assets:
                               
Customer relationships
    1,564             (21 )     1,543  
Vendor relationships and other
    51       1       (3 )     49  
                                 
      1,615       1       (24 )     1,592  
Accumulated amortization
    (432 )     (89 )     8       (513 )
                                 
Amortizable intangible assets, net
    1,183       (88 )     (16 )     1,079  
                                 


10


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
6.  Intangible Assets (Continued)
 
During the nine months ended September 30, 2010, the Company made two acquisitions for total cash consideration of $16 million, resulting in goodwill in the GDS and GTA segments of $6 million and $5 million, respectively.
 
As of September 30, 2010, the GDS and GTA segments had a gross carrying value of intangible assets excluding goodwill of $1,440 million and $566 million, respectively.
 
As of December 31, 2009, the GDS and GTA segments had a gross carrying value of intangible assets excluding goodwill of $1,439 million and $595 million, respectively.
 
Amortization expense relating to all intangible assets was as follows:
 
                                 
    Three Months
    Three Months
    Nine Months
    Nine Months
 
    Ended
    Ended
    Ended
    Ended
 
    September 30,
    September 30,
    September 30,
    September 30,
 
(in $ millions)   2010     2009     2010     2009  
 
Customer relationships
    29       36       87       101  
Vendor relationships and other
    1       1       2       2  
                                 
Total*
    30       37       89       103  
                                 
 
Included as a component of depreciation and amortization on the consolidated condensed statements of operations.
 
The Company expects amortization expense relating to intangible assets to be approximately $30 million for the remainder of 2010 and $117 million, $112 million, $110 million, $107 million and $99 million for each of the five succeeding fiscal years, respectively.
 
The assessment of the fair value of goodwill and other intangible assets requires the utilization of various assumptions including projections of future cash flows and discount rates. A change in these underlying assumptions could cause a change in the results of the tests and as such, could cause the fair value to be less than the respective carrying amount. Although the Company believes such assets are recoverable as of September 30, 2010, the Company cannot assure these assets will not be impaired in future periods.
 
7.  Orbitz Worldwide
 
The Company accounts for its investment of approximately 48% in Orbitz Worldwide, Inc. (“Orbitz Worldwide”) under the equity method of accounting. As of September 30, 2010 and December 31, 2009, the carrying value of the Company’s investment in Orbitz Worldwide was $123 million and $60 million, respectively. The fair market value of the Company’s investment in Orbitz Worldwide as of September 30, 2010 was approximately $308 million.
 
On January 26, 2010, the Company purchased approximately $50 million of newly-issued common shares of Orbitz Worldwide. After this investment, and a simultaneous agreement between Orbitz Worldwide and PAR Investment Partners to exchange approximately $49.68 million of Orbitz Worldwide debt for Orbitz Worldwide common shares, the Company continues to own approximately 48% of Orbitz Worldwide’s outstanding shares.


11


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
7.  Orbitz Worldwide (Continued)
 
Presented below are the summary results of operations for Orbitz Worldwide for the three and nine months ended September 30, 2010 and 2009, respectively.
 
                                 
    Three Months
    Three Months
    Nine Months
    Nine Months
 
    Ended
    Ended
    Ended
    Ended
 
    September 30,
    September 30,
    September 30,
    September 30,
 
(in $ millions)   2010     2009     2010     2009  
 
Net revenue
    194       187       575       563  
Operating expenses
    167       165       517       510  
Impairment of assets
                2       332  
                                 
Operating income (loss)
    27       22       56       (279 )
Interest expense, net
    (11 )     (14 )     (33 )     (43 )
Gain on extinguishment of debt
                      2  
                                 
Income (loss) before income taxes
    16       8       23       (320 )
Income tax (provision) benefit
    (1 )     (1 )     (3 )     1  
                                 
Net income (loss)
    15       7       20       (319 )
                                 
 
The Company recorded earnings of $8 million and $10 million related to its investment in Orbitz Worldwide for the three and nine months ended September 30, 2010, respectively, within the equity in earnings (losses) of investment in Orbitz Worldwide on the Company’s consolidated condensed statements of operations. For the three and nine months ended September 30, 2009, the Company recorded earnings (losses) of $3 million and $(153) million, respectively, within the equity in earnings (losses) of investment in Orbitz Worldwide on the Company’s consolidated condensed statements of operations.
 
The loss in the nine months ended September 30, 2009, includes the Company’s share of a non-cash impairment charge recorded by Orbitz Worldwide of $332 million, of which $250 million related to goodwill and $82 million related to trademarks and tradenames. During that period, Orbitz Worldwide experienced a significant decline in its stock price and a decline in its operating results due to continued weakness in economic and industry conditions. These factors, coupled with an increase in competitive pressures, resulted in the recognition of an impairment charge.
 
Net revenue disclosed above includes approximately $28 million and $91 million of net revenue earned by Orbitz Worldwide through transactions with the Company during the three and nine months ended September 30, 2010, respectively.
 
Net revenue disclosed above includes approximately $17 million and $56 million of net revenue earned by Orbitz Worldwide through transactions with the Company during the three and nine months ended September 30, 2009, respectively.
 
As of September 30, 2010 and December 31, 2009, the Company had balances payable to Orbitz Worldwide of approximately $18 million and $3 million, respectively, which are included on the Company’s consolidated condensed balance sheets within accrued expenses and other current liabilities.


12


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
8.  Accrued Expenses and Other Current Liabilities
 
Accrued expenses and other current liabilities consisted of:
 
                 
    September 30,
    December 31,
 
(in $ millions)   2010     2009  
 
Accrued travel supplier payments, deferred revenue and customer advances
    317       206  
Accrued commissions and incentives
    268       197  
Accrued payroll and related
    46       63  
Derivative contracts
    36       43  
Accrued sales and use tax
    68       75  
Accrued sponsor monitoring fees
    42       49  
Other
    108       132  
                 
      885       765  
                 
 
9.  Long-Term Debt
 
Long-term debt consisted of:
 
                     
        September 30,
    December 31,
 
(in $ millions)   Maturity   2010     2009  
 
Senior Secured Credit Facility
                   
Term loan facility
                   
Dollar denominated
  August 2013(a)     1,695       1,846  
Euro denominated
  August 2013(a)     477       501  
Senior notes
                   
Dollar denominated floating rate notes
  September 2014     143       143  
Euro denominated floating rate notes
  September 2014     221       232  
97/8% Dollar denominated notes
  September 2014     443       443  
9% Dollar denominated notes
  March 2016     250        
Senior subordinated notes
                   
117/8% Dollar denominated notes
  September 2016     247       247  
107/8% Euro denominated notes
  September 2016     191       201  
Capital leases and other
        48       50  
                     
Total debt
        3,715       3,663  
Less: current portion
        17       23  
                     
Long-term debt
        3,698       3,640  
                     
 
 
(a) Effective October 22, 2010, the maturities on approximately 90% of the term loans have been extended to August 2015, subject to certain acceleration provisions, as per an amendment to the Company’s senior secured credit agreement. See Note 15 — Subsequent Events for further details.
 
In August 2010, the Company issued $250 million of 9% Dollar denominated senior notes. These notes mature on March 1, 2016. All of the other key terms and conditions of these notes, and the guarantor entities, are the same as those for the Company’s other senior notes. The Company used part of these proceeds to make a repayment of $149 million principal amount of Dollar denominated term loans under its senior secured credit facility. As a result of this repayment, the Company amortized an additional $5 million of discount which had been recorded upon the original issuance of that debt.
 
During the nine months ended September 30, 2010, the Company repaid approximately $8 million of its Dollar denominated debt under its senior secured credit facility as required under the senior secured credit


13


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
9.  Long-Term Debt (Continued)
 
agreement and approximately $8 million under its capital lease obligations. The Company borrowed and repaid approximately $130 million under its revolving credit facility during this period.
 
The principal amount of Euro denominated long-term debt decreased by approximately $45 million as a result of foreign exchange fluctuations during the nine months ended September 30, 2010. This foreign exchange gain was largely offset by losses on foreign exchange hedge instruments contracted by the Company and the Company’s net investment hedging strategies.
 
As of September 30, 2010, there were $29 million of letter of credit commitments outstanding under the Company’s revolving credit facility. The remaining capacity under the Company’s revolving credit facility was $241 million as of September 30, 2010.
 
Additionally, as of September 30, 2010, the Company had approximately $141 million of commitments outstanding under its $150 million synthetic letter of credit facility, including commitments of approximately $67 million in letters of credit issued by the Company on behalf of Orbitz Worldwide pursuant to the Company’s Separation Agreement with Orbitz Worldwide. As of September 30, 2010, this facility had remaining capacity of $9 million.
 
10.  Financial Instruments
 
The Company uses derivative instruments as part of its overall strategy to manage its exposure to market risks primarily associated with fluctuations in foreign currency and interest rates. The Company does not use derivatives for trading or speculative purposes.
 
As of September 30, 2010, the Company had a net liability position of $17 million related to derivative instruments associated with its Euro denominated and floating rate debt, its foreign currency denominated receivables and payables, and forecasted earnings of its foreign subsidiaries.
 
During the nine months ended September 30, 2010, the Company paid $64 million in cash to settle certain foreign currency forward contracts.
 
Interest Rate Risk
 
A portion of the debt used to finance much of the Company’s operations is exposed to interest rate fluctuations. The Company uses hedging strategies and derivative financial instruments to create an appropriate mix of fixed and floating rate debt. The primary interest rate exposure as of September 30, 2010 and December 31, 2009 was to interest rate fluctuations in the United States and Europe, specifically USLIBOR and EURIBOR interest rates. During the nine months ended September 30, 2010, the Company used interest rate and cross currency swaps as the derivative instruments in these hedging strategies. As of September 30, 2010, the Company’s interest rate hedges cover transactions for periods that do not exceed three years.
 
Foreign Currency Risk
 
The Company uses foreign currency forward contracts to manage its exposure to changes in foreign currency exchange rates associated with its Euro denominated debt. In the first quarter of 2010, the Company replaced its net investment hedging strategy with additional foreign currency forward contracts to manage its exposure to changes in foreign currency exchange risk associated with its Euro denominated debt. The Company does not designate these forward contracts as cash flow hedges; however, the fluctuations in the value of these forward contracts recorded within the Company’s consolidated condensed statements of


14


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
10.  Financial Instruments (Continued)
 
operations largely offset the impact of the changes in the value of the Euro denominated debt they are intended to economically hedge. The fair value of the forward contracts and the impact of the changes in the fair value of these forward contracts are presented in the tables below.
 
The Company also uses foreign currency forward contracts to manage its exposure to changes in foreign currency exchange rates associated with its foreign currency denominated receivables and payables and forecasted earnings of its foreign subsidiaries. The Company primarily enters into foreign currency forward contracts to manage its foreign currency exposure to the British pound, Euro and Japanese yen. As of September 30, 2010, certain derivatives used to manage the Company’s foreign currency exposure are designated as cash flow hedges. Deferred amounts to be recognized in earnings will change with market conditions and will be substantially offset by changes in the value of the related hedge transactions. The Company records the effective portion of designated cash flow hedges in other comprehensive income (loss). Some of these forward contracts are not designated as hedges for accounting purposes. The fluctuations in the value of these forward contracts do, however, largely offset the impact of changes in the value of the underlying risk that they are intended to economically hedge.
 
Fair Value Disclosures for Derivative Instruments
 
The Company’s financial assets and liabilities recorded at fair value consist primarily of derivative instruments. These amounts have been categorized based upon a fair value hierarchy and are categorized as Level 2 — Significant Other Observable Inputs.
 
The fair value of interest rate and cross currency derivative instruments is determined using pricing models based on discounted cash flows that use inputs from actively quoted markets for similar instruments, adjusted for the Company’s own credit risk and counterparty credit risk. This adjustment is calculated based on the default probability of the banking counterparty and/or the Company and is obtained from active credit default swap markets. The fair value of foreign currency forward contracts is determined by comparing the contract rate to a published forward price of the underlying currency, which is based on market rates for comparable transactions.
 
Changes in fair value of derivatives not designated as hedging instruments and the ineffective portion of derivatives designated as hedging instruments are recognized in earnings in the Company’s consolidated condensed statements of operations.


15


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
10.  Financial Instruments (Continued)
 
Presented below is a summary of the fair value of the Company’s derivative contracts recorded on the consolidated condensed balance sheets at fair value.
 
                         
    Assets   Liabilities
        Fair Value Asset
      Fair Value Asset
        (Liability)       (Liability)
    Balance Sheet
  September 30,
  December 31,
      September 30,
  December 31,
(in $ millions)   Location   2010   2009   Balance Sheet Location   2010   2009
 
Derivatives designated as hedging instruments:
                       
Interest rate swaps
  Other current assets       Accrued expenses and other current liabilities     (8)
Interest rate swaps
  Other non-current assets     (5)   Other non-current liabilities     (3)
Foreign currency impact of cross currency swaps
  Other non-current assets     23   Other non-current liabilities    
Foreign currency forward contacts
  Other current assets   1     Accrued expenses and other current liabilities   (1)   (4)
                         
        1   18       (1)   (15)
                         
Derivatives not designated as hedging instruments:
                       
Interest rate swaps
  Other current assets   (3)     Accrued expenses and other current liabilities   (32)   (25)
Interest rate swaps
  Other non-current assets   (2)     Other non-current liabilities   (14)   (10)
Foreign currency impact of cross currency swaps
  Other current assets   11     Accrued expenses and other current liabilities    
Foreign currency forward contracts
  Other current assets   16   1   Accrued expenses and other current liabilities   (3)   (6)
Foreign currency forward contracts
  Other non-current assets   10     Other non-current liabilities    
                         
        32   1       (49)   (41)
                         
Total fair value of derivative assets (liabilities)
      33   19       (50)   (56)
                         
 
As of September 30, 2010, the Company had an aggregate outstanding notional $1,250 million of interest rate swaps, $180 million of cross currency swaps, and $907 million of foreign currency forward contracts.


16


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
10.  Financial Instruments (Continued)
 
The table below presents the impact that changes in fair values of derivatives designated as hedges had on accumulated other comprehensive income and income (loss) during the period and the impact derivatives not designated as hedges had on income (loss) during that period.
 
                                                                     
    Amount of (Loss) Gain Recognized
        Amount of Gain (Loss)
 
    in Other Comprehensive Income (Loss)         Recorded into Income (Loss)  
    Three Months
    Nine Months
        Three Months
    Nine Months
 
    Ended September 30,     Ended September 30,     Location of Gain (Loss)
  Ended September 30,     Ended September 30,  
(in $ millions)   2010     2009     2010     2009     Recorded in Income (Loss)   2010     2009     2010     2009  
 
Derivatives designated as hedging instruments:
                                                                   
Interest rate swaps
          13       (4 )     10     Interest expense, net     (3 )     5       (8 )     (10 )
Foreign exchange impact of cross currency swaps
          33       (15 )     36     Selling, general and
administrative
          33       (15 )     36  
Foreign exchange forward contracts
    8             (10 )         Selling, general and
administrative
    (5 )           (11 )      
Derivatives not designated as hedging instruments:
                                                                   
Interest rate swaps
                                  Interest expense, net     (10 )     (17 )     (26 )     (25 )
Foreign exchange impact of cross currency swaps
                                  Selling, general and
administrative
    19             3        
Foreign exchange forward contracts
                                  Selling, general and
administrative
    76             (37 )     10  
                                                                     
                                          77       21       (94 )     11  
                                                                     
 
During the nine months ended September 30, 2010, the Company de-designated as hedges certain of its derivative contracts. The total loss in relation to these contracts of $12 million as of September 30, 2010 is included within accumulated other comprehensive income and is being recorded into income (loss) in the Company’s consolidated condensed statements of operations over the period to December 2011, in line with the previously hedged cash flows relating to these contracts. The total amount of loss recorded on these contracts in the consolidated condensed statements of operations during the three and nine months ended September 30, 2010, was $4 million and $6 million, respectively.
 
The total amount of gain (loss) reclassified into net interest expense from accumulated other comprehensive income for the interest rate swaps designated as hedges includes amounts for ineffectiveness of $nil and $(3) million for the three months ended September 30, 2010 and 2009, respectively, and less than $(1) million and $(1) million for the nine months ended September 30, 2010 and 2009, respectively.
 
The total amount of loss to be reclassified from accumulated other comprehensive income to the Company’s consolidated condensed statements of operations within the next 12 months is expected to be $11 million.
 
Fair Value Disclosures for All Financial Instruments
 
The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses and other current liabilities approximate to their fair value due to the short-term maturities of these assets and liabilities.


17


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
10.  Financial Instruments (Continued)
 
The fair values of the Company’s other financial instruments are as follows:
 
                                 
    September 30, 2010     December 31, 2009  
    Carrying
          Carrying
       
(in $ millions)   Amount     Fair Value     Amount     Fair Value  
 
Asset (liability)
                               
Investment in Orbitz Worldwide
    123       308       60       292  
Derivative assets (see above)
    33       33       19       19  
Derivative liabilities (see above)
    (50 )     (50 )     (56 )     (56 )
Total debt
    (3,715 )     (3,640 )     (3,663 )     (3,526 )
 
The fair value of the investment in Orbitz Worldwide has been determined based on quoted prices in active markets.
 
The fair value of the total debt has been determined by calculating the fair value of the senior notes and senior subordinated notes based on quoted prices in active markets for identical debt instruments; and by calculating amounts outstanding under the senior secured credit facility based on market observable inputs.
 
11.  Equity-Based Compensation
 
As detailed in the Company’s Annual Report on Form 10-K filed with the SEC on March 17, 2010, as amended by Amendment No. 1 to the Form 10-K filed with the SEC on April 16, 2010, the partnership that owns 100% of the Company (the “Partnership”) has an equity-based, long-term incentive program for the purpose of retaining certain key employees. Under several plans within this program, key employees have been granted restricted equity units and profit interests in the Partnership.
 
In May 2009, the board of directors of the Partnership authorized the grant of 33.3 million restricted equity units under the 2009 Travelport Long-Term Incentive Plan. Of these, 8.2 million restricted equity units were recognized for accounting purposes as being granted in May 2009. In addition, 8.4 million restricted equity units were recognized for accounting purposes as being granted in March 2010 at a grant date fair value of $1.13 per unit. The remainder will be recognized as granted for accounting purposes over the subsequent period up to December 31, 2012. The level of award vesting each year is dependent upon continued service and performance measures of the business as established by the board of directors of the Partnership towards the start of each year.
 
In August and September 2010, the board of directors of the Partnership authorized the grant of 9.9 million restricted equity units under a new long term incentive plan (the “2010 Travelport Long-Term Incentive Plan”). Of these, 2.5 million restricted equity units were recognized for accounting purposes as being granted in the three months ended September 30, 2010 at a grant date fair value of $1.09 per unit. The remainder will be recognized as granted for accounting purposes over the subsequent period up to December 31, 2013. The level of award vesting each year is dependent upon continued service and performance measures of the business as established by the board of directors of the Partnership towards the start of each year.
 
The fair value of the restricted equity units, recognized as grants for accounting purposes, is based on a valuation of the total equity of the Partnership at the time of each grant.


18


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
11.  Equity-Based Compensation (Continued)
 
The activity of all the Company’s equity award programs is presented below:
 
                 
    Restricted Equity Units  
    Class A-2  
    Number of
    Weighted Average
 
    Shares
    Grant Date
 
    (in millions)     Fair Value  
 
Balance as of January 1, 2010
    90.0     $ 2.32  
Granted at fair market value
    10.9     $ 1.12  
Forfeited
    (0.9 )   $ 1.34  
                 
Balance as of September 30, 2010
    100.0     $ 2.20  
                 
 
The Company recorded non-cash equity compensation (credit) expense of $(1) million and $2 million in the three and nine months ended September 30, 2010, respectively, and $3 million and $5 million in the three and nine months ended September 30, 2009, respectively.
 
12.  Comprehensive Income (Loss)
 
Other comprehensive income (loss) amounts are recorded directly as an adjustment to shareholders’ equity, net of tax, and were as follows:
 
                                 
    Three Months
    Nine Months
 
    Ended September 30,     Ended September 30,  
(in $ million)   2010     2009     2010     2009  
 
Net income (loss)
    24       (740 )     25       (870 )
Other comprehensive income (loss)
                               
Currency translation adjustment, net of tax of $0
    54       37       (16 )     43  
Unrealized gain on cash flow hedges, net of tax of $0
    14       6       5       20  
Defined benefit plan settlement, net of tax of $0
          1             4  
Unrecognized actuarial loss on defined benefit plans, net of tax of $0
          (29 )           (29 )
Unrealized gain on equity investment and other, net of tax of $0
    1       4       7       5  
                                 
Comprehensive income (loss)
    93       (721 )     21       (827 )
                                 
 
13.  Commitments and Contingencies
 
Purchase Commitments
 
In the ordinary course of business, the Company makes various commitments to purchase goods and services from specific suppliers, including those related to capital expenditures. As of September 30, 2010, the Company had approximately $191 million of outstanding purchase commitments, primarily relating to service contracts for information technology. These purchase obligations extend through 2015.
 
Company Litigation
 
The Company is involved in various claims, legal proceedings and governmental inquiries related to contract disputes, business practices, intellectual property and other commercial, employment and tax matters.


19


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
13.  Commitments and Contingencies (Continued)
 
The Company believes it has adequately accrued for such matters as appropriate or, for matters not requiring accrual, believes they will not have a material adverse effect on its results of operations, financial position or cash flows based on information currently available. However, litigation is inherently unpredictable and although the Company believes its accruals are adequate and/or that it has valid defenses in these matters, unfavorable resolutions could occur, which could have a material adverse effect on the Company’s results of operations or cash flows in a particular reporting period.
 
In connection with the Company’s former national distribution company (“NDC”) arrangements in the Middle East, the Company is involved in a dispute with certain of its former NDC partners regarding the payment of certain disputed fees. While no assurance can be provided, the Company believes the dispute is without merit and does not believe the outcome of this dispute will have a material adverse effect on the Company’s results of operations or its liquidity condition.
 
Standard Guarantees/Indemnifications
 
In the ordinary course of business, the Company enters into numerous agreements that contain standard guarantees and indemnities whereby the Company indemnifies another party for breaches of representations and warranties. In addition, many of these parties are also indemnified against any third-party claim resulting from the transaction that is contemplated in the underlying agreement. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases, sales or outsourcing of assets or businesses, (ii) leases of real estate, (iii) licensing of trademarks, (iv) use of derivatives and (v) issuances of debt securities. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords in lease contracts, (iii) licensees of trademarks, (iv) financial institutions in derivative contracts and (v) underwriters in debt security issuances. While some of these guarantees extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under these guarantees, nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these guarantees, as the triggering events are not subject to predictability and there is little or no history of claims against the Company under such arrangements. With respect to certain of the aforementioned guarantees, such as indemnifications of landlords against third-party claims for the use of real estate property leased by the Company, the Company maintains insurance coverage that mitigates any potential payments to be made.
 
14.  Segment Information
 
The US GAAP measures which management and the Chief Operating Decision Maker (the “CODM”) evaluate the performance of the Company are net revenue and Segment EBITDA, which is defined as operating income before depreciation and amortization, each of which is presented on the Company’s consolidated condensed statements of operations.
 
Although not presented here, the Company also evaluates its performance based on Segment Adjusted EBITDA, which is Segment EBITDA adjusted to exclude the impact of purchase accounting, impairment of goodwill and intangibles assets, expenses incurred in conjunction with Travelport’s separation from Cendant, expenses incurred to acquire and integrate Travelport’s portfolio of businesses, costs associated with Travelport’s restructuring efforts, non-cash equity-based compensation, and other adjustments made to exclude expenses management and the CODM view as outside the normal course of operations.


20


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
14.  Segment Information (Continued)
 
The reportable segments presented below represent the Company’s operating segments for which separate financial information is available and which is utilized on a regular basis by its management and the CODM to assess financial performance and to allocate resources. Certain expenses which are managed outside of the segments are excluded from the results of the segments and are included within corporate and unallocated, as reconciling items.
 
The Company’s presentation of Segment EBITDA may not be comparable to similarly titled measures used by other companies.
 
                                 
    Three Months
    Three Months
    Nine Months
    Nine Months
 
    Ended
    Ended
    Ended
    Ended
 
(in $ millions)   September 30, 2010     September 30, 2009     September 30, 2010     September 30, 2009  
 
GDS
                               
Net revenue
    488       488       1,544       1,514  
Segment EBITDA
    135       156       446       475  
GTA
                               
Net revenue
    94       82       217       201  
Segment EBITDA
    40       (802 )     61       (792 )
                                 
Combined Totals
                               
Net revenue
    582       570       1,761       1,715  
Segment EBITDA
    175       (646 )     507       (317 )
Reconciling items:
                               
Corporate and unallocated(a)
    (5 )     (31 )     (60 )     (64 )
Gain on early extinguishment of debt
          4             10  
Interest expense, net
    (73 )     (85 )     (202 )     (223 )
Depreciation and amortization
    (66 )     (63 )     (188 )     (187 )
                                 
Income (loss) from operations before income taxes and equity in earnings (losses) of investment in Orbitz Worldwide
    31       (821 )     57       (781 )
                                 
 
 
(a) Corporate and unallocated includes corporate general and administrative costs not allocated to the segments, such as treasury, legal and human resources and other costs that are managed at the corporate level, including company-wide equity compensation plans and the impact of foreign exchange derivative contracts.
 
Provided below is a reconciliation of segment assets to total assets:
 
                 
    September 30,
    December 31,
 
(in $ millions)   2010     2009  
 
GDS
    3,125       3,007  
GTA
    1,189       1,089  
                 
Total segment assets
    4,314       4,096  
Reconciling items: corporate and unallocated
    274       250  
                 
Total
    4,588       4,346  
                 


21


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
15.  Subsequent Events
 
On October 22, 2010, the Company entered into an agreement to amend certain terms under its senior secured credit facility. The main impacts of those amendments was to (i) extend the maturities for approximately 90% of the term loans and approximately 90% of the synthetic letter of credit commitments by two years to August 2015, subject to a reduction in those maturities to May 2014 under certain circumstances; (ii) provide cash collateral for existing and future letters of credit issued under the extended letter of credit commitments by establishing new “Tranche S” term loans, which were funded to the Company with proceeds on deposit in a credit-linked deposit account and deposited into a blocked account; (iii) amend the total leverage ratio test, beginning December 31, 2010; (iv) provide the flexibility to request maturity extensions for the revolving credit facility in the future through one or more loan modification offers; (v) provide the ability to incur certain additional junior refinancing indebtedness; and (vi) bring into effect several technical and conforming changes. The amendment also increased the interest rate margin on extended borrowings by 200 basis points, which the Company anticipates will result in additional annual interest payments of approximately $40 million based upon the current level of borrowings.
 
16.  Guarantor and Non-Guarantor Consolidating Condensed Financial Statements
 
The following consolidating condensed financial statements presents the Company’s consolidating condensed statements of operations for the three and nine months ended September 30, 2010, consolidating condensed balance sheets as of September 30, 2010 and December 31, 2009 and the consolidating condensed statements of cash flows for the nine months ended September 30, 2010 and 2009 for: (a) Travelport Limited (“the Parent Guarantor”); (b) Waltonville Limited and TDS Investor (Luxembourg) S.a.r.l. (together, “the Intermediate Parent Guarantor”); (c) Travelport LLC and Travelport Inc. (from August 18, 2010) (together, “the Issuer”); (d) the guarantor subsidiaries; (e) the non-guarantor subsidiaries; (f) elimination and adjusting entries necessary to combine the Parent and Intermediate Parent Guarantor with the guarantor and non-guarantor subsidiaries; and (g) the Company on a consolidated basis.


22


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
16.  Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
 
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2010
 
                                                         
          Intermediate
                               
    Parent
    Parent
          Guarantor
    Non-Guarantor
          Travelport
 
(in $ millions)   Guarantor     Guarantor     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Net revenue
        —           —           —           238           344           —           582  
                                                         
Costs and expenses
                                                       
Cost of revenue
                      157       134             291  
Selling, general and administrative
    4             (2 )     (28 )     147             121  
Depreciation and amortization
                      45       21             66  
                                                         
Total costs and expenses
    4             (2 )     174       302             478  
                                                         
Operating (loss) income
    (4 )           2       64       42             104  
Interest expense, net
                (71 )     (2 )                 (73 )
Equity in earnings (losses) of subsidiaries
    29       (9 )     60                   (80 )      
                                                         
Income (loss) from operations before income taxes and equity in earnings of investment in Orbitz Worldwide
    25       (9 )     (9 )     62       42       (80 )     31  
Provision for income taxes
          (1 )           (2 )     (12 )           (15 )
Equity in earnings of investment in Orbitz Worldwide
          8                               8  
                                                         
Net income (loss)
    25       (2 )     (9 )     60       30       (80 )     24  
Net loss attributable to non-controlling interest in subsidiaries
                            1             1  
                                                         
Net income (loss) attributable to the Company
    25       (2 )     (9 )     60       31       (80 )     25  
                                                         


23


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
16.  Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
 
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2010
 
                                                         
          Intermediate
                               
    Parent
    Parent
          Guarantor
    Non-Guarantor
          Travelport
 
(in $ millions)   Guarantor     Guarantor     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Net revenue
        —           —           —           743           1,018           —           1,761  
                                                         
Costs and expenses
                                                       
Cost of revenue
                      425       474             899  
Selling, general and administrative
    6             6       56       342             410  
Restructuring charges
                      4       1             5  
Depreciation and amortization
                      133       55             188  
                                                         
Total costs and expenses, net
    6             6       618       872             1,502  
                                                         
Operating (loss) income
    (6 )           (6 )     125       146             259  
Interest expense, net
                (196 )     (6 )                 (202 )
Equity in earnings (losses) of subsidiaries
    32       (97 )     105                   (40 )      
                                                         
Income (loss) from operations before income taxes and equity in earnings of investment in Orbitz Worldwide
    26       (97 )     (97 )     119       146       (40 )     57  
Provision for income taxes
          (2 )           (14 )     (26 )           (42 )
Equity in earnings of investment in Orbitz Worldwide
          10                               10  
                                                         
Net income (loss)
    26       (89 )     (97 )     105       120       (40 )     25  
Net loss attributable to non-controlling interest in subsidiaries
                            1             1  
                                                         
Net income (loss) attributable to the Company
    26       (89 )     (97 )     105       121       (40 )     26  
                                                         


24


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
16.  Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
 
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2009
 
                                                         
          Intermediate
                               
    Parent
    Parent
          Guarantor
    Non-Guarantor
          Travelport
 
(in $ millions)   Guarantor     Guarantor     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Net revenue
                    —       249       321             570  
                                                         
Cost and expenses
                                                       
Cost of revenue
                      149       121             270  
Selling, general and administrative
    1             2       (32 )     168             139  
Restructuring charges
                      3       2             5  
Depreciation and amortization
                      44       19             63  
Impairment of goodwill and intangible assets
                            833             833  
Other income
                                         
                                                         
Total costs and expenses, net
    1             2       164       1,143             1,310  
                                                         
Operating (loss) income
    (1 )           (2 )     85       (822 )           (740 )
Interest expense, net
                (83 )     (2 )                 (85 )
Gain on early extinguishment of debt
                4                         4  
Equity in (losses) earnings of subsidiaries
    (739 )     1       82                   656        
                                                         
(Loss) income from operations before income taxes and equity in earnings of investment in Orbitz Worldwide
    (740 )     1       1       83       (822 )     656       (821 )
(Provision) benefit for income taxes
          (1 )           (1 )     80             78  
Equity in earnings of investment in Orbitz Worldwide
          3                               3  
                                                         
Net (loss) income
    (740 )     3       1       82       (742 )     656       (740 )
Net income attributable to non-controlling interest in subsidiaries
                                         
                                                         
Net (loss) income attributable to the Company
      (740 )       3         1         82         (742 )       656         (740 )
                                                         


25


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
16.  Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
 
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2009
 
                                                         
          Intermediate
                               
    Parent
    Parent
          Guarantor
    Non-Guarantor
          Travelport
 
(in $ millions)   Guarantor     Guarantor     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Net revenue
                      803       912             1,715  
                                                         
Cost and expenses
                                                       
Cost of revenue
                      450       384             834  
Selling, general and administrative
    (11 )           5       (39 )     461             416  
Restructuring charges
                      13       5             18  
Depreciation and amortization
                      133       54             187  
Impairment of goodwill and intangible assets
                            833             833  
Other income
                      (5 )                 (5 )
                                                         
Total costs and expenses, net
    (11 )           5       552       1,737             2,283  
                                                         
Operating income (loss)
    11             (5 )     251       (825 )           (568 )
Interest expense, net
                (216 )     (7 )                 (223 )
Gain on early extinguishment of debt
                10                         10  
Equity in (losses) earnings of subsidiaries
    (883 )     33       244                   606        
                                                         
(Loss) Income from operations before income taxes and equity in losses of investment in Orbitz Worldwide
    (872 )     33       33       244       (825 )     606       (781 )
(Provision) benefit for income taxes
          (2 )                 66             64  
Equity in losses of investment in Orbitz Worldwide
          (153 )                             (153 )
                                                         
Net (loss) income
    (872 )     (122 )     33       244       (759 )     606       (870 )
Net income attributable to non-controlling interest in subsidiaries
                            (2 )           (2 )
                                                         
Net (loss) income attributable to the Company
      (872 )       (122 )       33         244         (761 )       606         (872 )
                                                         


26


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
16.  Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
 
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED BALANCE SHEETS
As of September 30, 2010
 
                                                         
          Intermediate
                               
    Parent
    Parent
          Guarantor
    Non-Guarantor
          Travelport
 
(in $ millions)   Guarantor     Guarantor     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Assets
                                                       
Current assets:
                                                       
Cash and cash equivalents
                51       1       217             269  
Accounts receivable, net
                      67       382             449  
Deferred income taxes
                      16       6             22  
Other current assets
                45       42       121             208  
                                                         
Total current assets
                96       126       726             948  
Investment in subsidiary/intercompany
    (584 )     (1,620 )     1,978                   226        
Property and equipment, net
                      412       120             532  
Goodwill
                      986       296             1,282  
Trademarks and tradenames
                      232       182             414  
Other intangible assets, net
                      475       604             1,079  
Investment in Orbitz Worldwide
          123                               123  
Other non-current assets
    3             40       54       113             210  
                                                         
Total assets
    (581 )     (1,497 )     2,114       2,285       2,041       226       4,588  
                                                         
Liabilities and equity
                                                       
Current liabilities:
                                                       
Accounts payable
                      43       162             205  
Accrued expenses and other current liabilities
    2       50       48       49       736             885  
Current portion of long-term debt
                10       7                   17  
                                                         
Total current liabilities
    2       50       58       99       898             1,107  
Long-term debt
                3,656       42                   3,698  
Deferred income taxes
                      35       94             129  
Other non-current liabilities
                20       131       75             226  
                                                         
Total liabilities
    2       50       3,734       307       1,067             5,160  
Total shareholders’ equity/intercompany
    (583 )     (1,547 )     (1,620 )     1,978       963       226       (583 )
Equity attributable to non-controlling interest in subsidiaries
                            11             11  
                                                         
Total equity
    (583 )     (1,547 )     (1,620 )     1,978       974       226       (572 )
                                                         
Total liabilities and equity
      (581 )       (1,497 )       2,114         2,285         2,041         226         4,588  
                                                         


27


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
16.  Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
 
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED BALANCE SHEETS
As of December 31, 2009
 
                                                         
          Intermediate
                               
    Parent
    Parent
          Guarantor
    Non-Guarantor
          Travelport
 
(in $ millions)   Guarantor     Guarantor     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Assets
                                                       
Current assets:
                                                       
Cash and cash equivalents
                      38       179             217  
Accounts receivable, net
                      77       269             346  
Deferred income taxes
                      16       6             22  
Other current assets
    1             2       45       108             156  
                                                         
Total current assets
    1             2       176       562             741  
Investment in subsidiary/intercompany
    (608 )     (1,408 )     2,250                   (234 )      
Property and equipment, net
                      324       128             452  
Goodwill
                      985       300             1,285  
Trademarks and tradenames
                      313       106             419  
Other intangible assets, net
                      701       482             1,183  
Investment in Orbitz Worldwide
          60                               60  
Other non-current assets
    4             45       71       86             206  
                                                         
Total assets
    (603 )     (1,348 )     2,297       2,570       1,664       (234 )     4,346  
                                                         
Liabilities and equity
                                                       
Current liabilities:
                                                       
Accounts payable
                      27       112             139  
Accrued expenses and other current liabilities
    4       35       78       77       571             765  
Current portion of long-term debt
                12       11                   23  
                                                         
Total current liabilities
    4       35       90       115       683             927  
Long-term debt
                3,601       39                   3,640  
Deferred income taxes
                      33       110             143  
Other non-current liabilities
                14       133       81             228  
                                                         
Total liabilities
    4       35       3,705       320       874             4,938  
Total shareholders’ equity/intercompany
    (607 )     (1,383 )     (1,408 )     2,250       775       (234 )     (607 )
Equity attributable to non-controlling interest in subsidiaries
                            15             15  
                                                         
Total equity
    (607 )     (1,383 )     (1,408 )     2,250       790       (234 )     (592 )
                                                         
Total liabilities and equity
      (603 )       (1,348 )       2,297         2,570         1,664         (234 )       4,346  
                                                         


28


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
16.  Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
 
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2010
 
                                                         
          Intermediate
                               
    Parent
    Parent
          Guarantor
    Non-Guarantor
          Travelport
 
(in $ millions)   Guarantor     Guarantor     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Operating activities
                                                       
Net income (loss)
    26       (89 )     (97 )     105       120       (40 )     25  
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
                                                       
Depreciation and amortization
                      133       55             188  
Provision for bad debts
                            2             2  
Equity-based compensation
    2                                     2  
Amortization of debt finance costs
                19                         19  
Loss on interest rate derivative instruments
                5                         5  
Gain on foreign exchange derivative instruments
                (3 )                       (3 )
Equity in earnings of investment in Orbitz Worldwide
          (10 )                             (10 )
FASA liability
                      (14 )                 (14 )
Deferred income tax
                      2       (5 )           (3 )
Equity in (earnings) losses of subsidiaries
    (32 )     97       (105 )                 40        
Changes in assets and liabilities, net of effects from acquisitions:
                                                       
Accounts receivable
                      10       (118 )           (108 )
Other current assets
                      (6 )     (3 )           (9 )
Accounts payable, accrued expenses and other current liabilities
          15       (25 )     4       173             167  
Other
                13       (14 )     (6 )           (7 )
                                                         
Net cash (used in) provided by operating activities
    (4 )     13       (193 )     220       218             254  
                                                         
Investing activities
                                                       
Property and equipment additions
                      (154 )     (5 )           (159 )
Investment in Orbitz Worldwide
          (50 )                             (50 )
Businesses acquired
                      (11 )     (5 )           (16 )
Intercompany funding
    4       37       220       (86 )     (175 )            
Loan to parent company
                      (9 )                 (9 )
Loan repaid by parent company
                      9                   9  
Other
                      5                   5  
                                                         
Net cash provided by (used in) investing activities
    4       (13 )     220       (246 )     (185 )           (220 )
                                                         
Financing activities
                                                       
Principal repayments
                (287 )     (8 )                 (295 )
Proceeds from new borrowings
                380                         380  
Payments on settlement of derivative contracts
                (64 )                       (64 )
Debt finance costs
                (5 )                       (5 )
Other
                      (3 )                 (3 )
                                                         
Net cash provided by (used in) financing activities
                24       (9 )                 13  
                                                         
Effect of changes in exchange rates on cash and cash equivalents
                            5             5  
                                                         
Net increase (decrease) in cash and cash equivalents
                51       (37 )     38             52  
                                                         
Cash and cash equivalents at beginning of period
                      38       179             217  
                                                         
Cash and cash equivalents at end of period
      —         —         51         1         217         —         269  
                                                         


29


Table of Contents

TRAVELPORT LIMITED
 
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(unaudited)
 
16.  Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
 
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2009
 
                                                         
          Intermediate
                               
    Parent
    Parent
          Guarantor
    Non-Guarantor
          Travelport
 
(in $ millions)   Guarantor     Guarantor     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Operating activities
                                                       
Net (loss) income
    (872 )     (122 )     33       244       (759 )     606       (870 )
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
                                                       
Depreciation and amortization
                      133       54             187  
Impairment of goodwill and intangible assets
                            833             833  
Gain on sale of assets
                      (5 )                 (5 )
Provision for bad debts
                      2       12             14  
Equity-based compensation
                      6                   6  
Gain on early extinguishment of debt
                (10 )                       (10 )
Amortization of debt finance costs
                12                         12  
Loss on interest rate derivative instruments
                10                         10  
Gain on foreign exchange derivative instruments
    (11 )           (3 )                       (14 )
Equity in losses of investment in Orbitz Worldwide
          153                               153  
FASA liability
                      (21 )                 (21 )
Deferred income taxes
                      3       (106 )           (103 )
Equity in losses (earnings) of subsidiaries
    883       (33 )     (244 )                 (606 )      
Changes in assets and liabilities, net of effects from acquisitions and disposals:
                                                       
Accounts receivable
                      (12 )     (47 )           (59 )
Other current assets
                      4       (9 )           (5 )
Accounts payable, accrued expenses and other current liabilities
          2       (22 )     (34 )     128             74  
Other
                3       (9 )     (5 )           (11 )
                                                         
Net cash (used in) provided by operating activities
                (221 )     311       101             191  
                                                         
Investing activities
                                                       
Property and equipment additions
                      (35 )     (4 )           (39 )
Proceeds from sale of assets
                      5                   5  
Acquisition related payments and other
                      (1 )     (1 )           (2 )
Net intercompany funding
    110             280       (338 )     (52 )            
                                                         
Net cash provided by (used in) investing activities
    110             280       (369 )     (57 )           (36 )
                                                         
Financing activities
                                                       
Principal repayments
                (287 )     (11 )                 (298 )
Proceeds from new borrowings
                144                         144  
Proceeds from settlement of derivative instruments
                87                         87  
Debt finance costs
                (3 )                       (3 )
Net share settlement for equity-based compensation
                      (7 )                 (7 )
Distribution to a parent company
    (194 )                                   (194 )
                                                         
Net cash used in financing activities
    (194 )           (59 )     (18 )                 (271 )
                                                         
Effect of changes in exchange rates on cash and cash equivalents
                            6             6  
                                                         
Net (decrease) increase in cash and cash equivalents
    (84 )                 (76 )     50             (110 )
                                                         
Cash and cash equivalents at beginning of period
    94                   189       62             345  
                                                         
Cash and cash equivalents at end of period
      10         —         —         113         112         —         235  
                                                         


30


Table of Contents

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion should be read in conjunction with our consolidated condensed financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements. See “Forward-Looking Statements” beginning on page 2 of this Form 10-Q. Unless otherwise noted, all amounts are in $ millions.
 
Segments
 
Our operations are organized under the following business segments:
 
  •     The Global Distribution System (“GDS”) business consists of Travelport GDSs, which provide aggregation, search and transaction processing services to travel suppliers and travel agencies, allowing travel agencies to search, compare, process and book itinerary and pricing options across multiple travel suppliers. Our GDS business operates three systems, Galileo, Apollo and Worldspan, providing travel agencies with booking technology and access to supplier inventory that we aggregate from airlines, hotels, car rental companies, rail networks, cruise and tour operators, and destination service providers. Within our GDS business, our Airline IT Solutions business provides hosting solutions and a number of IT services to airlines to enable them to focus on their core business competencies and reduce costs.
 
  •     The GTA business receives access to accommodation, ground travel, sightseeing and other destination services from travel suppliers at negotiated rates and then distributes this inventory through multiple channels to other travel wholesalers, tour operators and travel agencies, as well as directly to consumers via its affiliate channels.
 
Key Performance Indicators (“KPIs”)
 
Management monitors our performance against our strategic objectives and the financial performance of our operations on a regular basis. Performance is assessed against the strategy, budget and forecasts using financial and non-financial measures. We use the following primary measures to assess our financial performance and the performance of our operating business.
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
(in $ millions, except where indicated)   2010     2009     2010     2009  
 
Travelport KPIs
                               
Net revenue
    582       570       1,761       1,715  
Operating income (loss)
    104       (740 )     259       (568 )
Travelport Adjusted EBITDA
    175       178       490       494  
GDS KPIs
                               
Net revenue
    488       488       1,544       1,514  
GDS Segment EBITDA
    135       156       446       475  
GDS Segment Adjusted EBITDA
    145       162       462       495  
Segments (in millions)
                               
Americas
    44       44       135       131  
Europe
    20       19       65       62  
MEA
    9       9       30       31  
APAC
    13       12       42       36  
Total
    86       84       272       260  
GTA KPIs
                               
Net revenue
    94       82       217       201  
GTA Segment EBITDA
    40       (802 )     61       (792 )
GTA Segment Adjusted EBITDA
    40       31       60       44  
Room nights (in millions)
    3.7       3.0       8.9       7.5  
Total Transaction Value (TTV)
    599       507       1,407       1,187  


31


Table of Contents

Travelport KPIs
 
The key performance indicators used by management to monitor group performance include Travelport Adjusted EBITDA.
 
Travelport Adjusted EBITDA is a non-GAAP financial measure and should not be considered as a measure comparable to net income as determined under US GAAP as it does not take into account certain expenses such as depreciation, interest, income tax, and other costs that we believe are unrelated to our ongoing operations. In addition, Travelport Adjusted EBITDA may not be comparable to similarly named measures used by other companies. The presentation of Travelport Adjusted EBITDA has limitations as an analytical tool, and this measure should not be considered in isolation or as a substitute for analysis of Travelport’s results as reported under US GAAP.
 
We define Travelport Adjusted EBITDA as income (loss) before equity in earning (losses) of investment in Orbitz Worldwide, interest, income tax, depreciation and amortization and adjusted to exclude items we believe potentially restrict our ability to assess the results of our underlying business.
 
We have included Travelport Adjusted EBITDA as it is the primary metric used by management across our company to evaluate and understand the underlying operations and business trends, forecast future results and determine future capital investment allocations. In addition, it is used by the Board to determine incentive compensation.
 
We believe Travelport Adjusted EBITDA is a useful measure as it allows management to monitor our ongoing core operations. The core operations represent the primary trading operations of the business. Since our formation, actual results have been significantly affected by events that are unrelated to our ongoing operations due to the number of changes to our business during that time. These events include, among other things, the acquisition of Worldspan and subsequent integration, the deconsolidation of Orbitz Worldwide, the transfer of certain administrative functions from our headquarters in the United States to the United Kingdom and their associated restructuring costs. During the periods presented, these items primarily relate to the impact of purchase accounting, impairment of goodwill and intangible assets, expenses incurred in conjunction with Travelport’s separation from Cendant, expenses incurred to acquire and integrate Travelport’s portfolio of businesses, costs associated with Travelport’s restructuring efforts and development of a global on-line travel platform and non-cash equity-based compensation.


32


Table of Contents

The following table provides a reconciliation of Travelport Adjusted EBITDA to net income (loss):
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
(in $ millions)   2010     2009     2010     2009  
 
Net income (loss)
      24         (740 )       25         (870 )
Equity in (earnings) losses of investment in Orbitz Worldwide
    (8 )     (3 )     (10 )     153  
Provision (benefit) for income taxes
    15       (78 )     42       (64 )
Depreciation and amortization
    66       63       188       187  
Interest expense, net
    73       85       202       223  
                                 
EBITDA
    170       (673 )     447       (371 )
Adjustments:
                               
Sponsor monitoring fees
          3             7  
Acquisition and corporate transaction costs(1)
    6       4       30       18  
Restructuring charges(2)
          5       5       18  
Impairment
          833             833  
Equity-based compensation
    (1 )     4       2       7  
Unrealized (gains) losses on foreign exchange derivatives
    (3 )     5       1       (7 )
Other(3)
    3       (3 )     5       (11 )
                                 
Total Adjustments
    5       851       43       865  
                                 
Travelport Adjusted EBITDA
      175         178         490         494  
                                 
 
 
(1) Acquisition and corporate transaction costs include costs related to the integration of Worldspan, costs associated with the relocation of Travelport’s finance and human resource functions from the United States to the United Kingdom, strategic transaction costs (including a proposed offering of securities for the Company), other costs related to non-core GDS businesses and the gain on the sale of Travelport’s Indian service organization. These amounts do not include items classified as impairment or restructuring charges, which are included as separate line items.
 
(2) Restructuring charges represent the costs incurred to enhance our organizational efficiency and to consolidate and rationalize existing processes.
 
(3) Other includes gains on the extinguishment of debt (totaling $4 million and $10 million for the three months and nine months ended September 30, 2009, respectively), amounts relating to purchase accounting impacts (including deferred revenue adjustments) recorded at the time of the acquisition of the Travelport business from Cendant (totaling $1 million, $1 million, $3 million and $3 million for the three months ended September 30, 2010 and 2009, and for the nine months ended September 30, 2010 and 2009, respectively), a $5 million gain on the sale of assets for the nine months ended September 30, 2009, and a write-off of property and equipment in the three and nine months ended September 2010.
 
GDS KPIs
 
We monitor the performance of our GDS segment based on both financial and operational measures. These include the following:
 
Segments. We record and charge one booking fee for each segment of an air travel itinerary (e.g., two segments for a round-trip airline ticket) and one booking fee for each hotel booking, car rental or cruise booking, regardless of the length of time or cost associated with the booking.
 
Average Revenue Per Segment. Average revenue per segment is calculated by dividing our transaction processing revenue by total segments for the period.
 
Segment Adjusted EBITDA. Segment Adjusted EBITDA is defined as Segment EBITDA (our GAAP segment profitability measure) adjusted to exclude certain items that management believes are necessary to


33


Table of Contents

provide a measure of performance for our segment operations. Segment Adjusted EBTIDA is a non-GAAP financial measure and is not a substitute for Segment EBITDA. We use Segment Adjusted EBITDA for evaluating our business results, forecasting and determining future capital investment allocations.
 
Provided below is a reconciliation of GDS Segment EBITDA to GDS Segment Adjusted EBITDA:
 
                                 
    GDS  
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
(in $ millions)   2010     2009     2010     2009  
 
GDS Segment EBITDA
      135         156         446         475  
Adjustments:
                               
Acquisition and corporate transaction costs(1)
    6       3       10       12  
Restructuring charges(2)
          2             6  
Other(3)
    4       1       6       2  
                                 
Total Adjustments
    10       6       16       20  
                                 
GDS Segment Adjusted EBITDA
    145       162       462       495  
                                 
 
 
(1) GDS Acquisition and corporate transaction costs include costs related to the integration of Worldspan, costs associated with the relocation of our finance and human resource functions from the United States to the United Kingdom, strategic transaction costs, and other non-recurring costs related to non-core GDS businesses. This measure does not include items classified as impairment or restructuring charges, which are included as separate line items.
 
(2) Restructuring charges represent the costs incurred to enhance our organizational efficiency and consolidate and rationalize existing processes.
 
(3) Other includes amounts relating to purchase accounting impacts (including deferred revenue adjustments) recorded at the time of the acquisition of the Travelport business from Cendant (totaling $1 million, $1 million, $3 million and $3 million for the three months ended September 30, 2010 and 2009, and for the nine months ended September 30, 2010 and 2009, respectively) and a write-off of property and equipment in three and nine months ended September 30, 2010.
 
GTA KPIs
 
We monitor the performance of our GTA segment based on both financial and operational measures. These include the following:
 
Room Nights. Room nights for GTA represents the total number of room nights sold to tour operators, wholesalers, travel agencies and directly to travelers on our customer websites.
 
Total Transaction Value. Total transaction value (TTV) for GTA represents the total dollar value of the inventory of hotel rooms sold to tour operators, wholesalers, travel agencies and directly to travelers on our customer websites and the dollar value of ground transportation and other services provided to travel agencies and tour operators.
 
Segment Adjusted EBITDA. Segment Adjusted EBITDA is defined as Segment EBITDA (our GAAP segment profitability measure) adjusted to exclude certain items that management believes are necessary to provide a measure of performance for our segment operations. Segment Adjusted EBTIDA is a non-GAAP financial measure and is not a substitute for Segment EBITDA. We use Segment Adjusted EBITDA for evaluating our business results, forecasting and determining future capital investment allocations.


34


Table of Contents

Provided below is a reconciliation of GTA Segment EBITDA to GTA Segment Adjusted EBITDA:
 
                                 
    GTA  
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
(in $ millions)   2010     2009     2010     2009  
 
GTA Segment EBITDA
      40         (802 )       61         (792 )
Adjustments:
                               
Acquisition and corporate transaction costs(1)
                (2 )      
Restructuring charges(2)
                1       3  
Impairment
          833             833  
                                 
Total Adjustments
          833       (1 )     836  
                                 
GTA Segment Adjusted EBITDA
    40       31       60       44  
                                 
 
 
(1) GTA acquisition and corporate transaction costs comprise non-recurring items, including a gain on the sale of our Indian service organization and GTA committed costs arising from the acquisition of GTA by Cendant. This measure does not include items classified as impairment or restructuring charges, which are included as separate line items.
 
(2) Restructuring charges represent the costs incurred to enhance our organizational efficiency and to consolidate and rationalize existing processes.
 
Factors Affecting Results of Operations
 
Macroeconomic and Travel Industry Conditions: Our business is highly correlated to the overall performance of the travel industry, in particular, growth in air passenger travel which, in turn, is linked to the global macro-economic environment. During the recent global economic recession, our air travel volumes declined. Nonetheless, the GDS industry has recently shown signs of entering a cyclical recovery, with air passenger volumes increasing by 8% in the nine months ended September 30, 2010, compared to the corresponding period in the previous year. Total GDS air bookings also increased by 4% in the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009. TTV for the GTA business is driven by hotel room nights and daily rates. The GTA business has recovered strongly, with an increase in room nights in the nine months ended September 30, 2010 as compared to the corresponding period in the previous year.
 
Impact of Delta and Northwest Merger: Delta, one of our largest Airline IT services customers, completed its acquisition of Northwest, another of our largest Airline IT services customers, in 2009. As part of their integration, Delta and Northwest have migrated to a common IT platform and will have reduced needs for our IT services after the integration. As a result, our annual revenue and EBITDA has decreased compared to 2009.
 
Seasonality: Our businesses experience seasonal fluctuations, reflecting seasonal trends for the products and services we offer. These trends cause our revenue to be generally higher in the second and third calendar quarters of the year, with GDS revenue peaking as travelers plan and purchase their spring and summer travel. GTA revenue is traditionally highest in the third quarter, as group travel peaks in this quarter. Revenue typically flattens or declines in the fourth and first quarters of the calendar year. Our results may also be affected by seasonal fluctuations in the inventory made available to us by our travel suppliers.
 
Foreign Exchange Movements: We transact our business primarily in US dollars. While the majority of our revenue is denominated in US dollars, a portion of costs are denominated in other currencies (principally, the British pound, Euro and Japanese yen). We use foreign currency forward contracts to manage our exposure to changes in foreign currency exchange rates associated with our foreign currency denominated receivables and payables and forecasted earnings of foreign subsidiaries. The fluctuations in the value of these forward contracts largely offset the impact of changes in the value of the underlying risk they are intended to


35


Table of Contents

economically hedge. Nevertheless, our operating results are impacted to a certain extent by movements in the underlying exchange rates between those currencies listed above.
 
Restructuring: Historically, we have taken a number of actions to enhance organizational efficiency and to consolidate and rationalize existing processes, which included, among others, the migration of the Galileo data center, formerly located in Denver, Colorado, into the Worldspan data center, located in Atlanta, Georgia; consolidating certain administrative and support functions of Galileo and Worldspan; and the renegotiation of several material vendor contracts. The most significant impact of these initiatives was the elimination of redundant staff positions, reduced technology costs associated with renegotiated vendor contracts, and, to a lesser extent, cost savings and synergies resulting from a reduction in the amount of office rental space required and related utilities, maintenance and other facility operating costs. Our results of operations have historically been significantly impacted by these actions.
 
Results of Operations
 
Our management and CODM use Segment EBITDA to measure segment operating performance. Segment EBITDA is defined as operating income before depreciation and amortization, each of which is presented on the Company’s consolidated condensed statements of operations. Segment EBITDA is not intended to be a measure of free cash flow available for either management or the CODM’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Management and the CODM believe Segment EBITDA is helpful in highlighting trends because it excludes the results of transactions that are not considered to be directly related to the underlying segment operations and excludes costs associated with decisions made at the corporate level such as company-wide equity compensation plans and the impact of financing arrangements and derivative transactions.
 
Segment EBITDA may not be comparable to similarly named measures used by other companies. In addition, this measure should neither be considered as a measure of liquidity or cash flow from operations nor a measure comparable to net income as determined under US GAAP as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments, and other costs associated with items unrelated to our ongoing operations.


36


Table of Contents

Three Months Ended September 30, 2010 compared to Three Months Ended September 30, 2009
 
                                                                 
                            Reconciling Items              
                            Corporate and
             
                            Unallocated
             
    GDS Segment     GTA Segment     Expenses     Consolidated  
    Three Months
    Three Months
    Three Months
    Three Months
 
    Ended
    Ended
    Ended
    Ended
 
    September 30,     September 30,     September 30,     September 30,  
(in $ millions)   2010     2009     2010     2009     2010     2009     2010     2009  
 
Net revenue
         488            488            94            82            —            —            582            570  
                                                                 
Costs and expenses
                                                               
Cost of revenue
    279       260       12       10                   291       270  
Selling, general and administrative
    74       70       42       41       5       28       121       139  
Restructuring charges
          2                         3             5  
Depreciation and amortization
    54       45       11       16       1       2       66       63  
Impairment of goodwill and intangible assets
                      833                         833  
                                                                 
Total costs and expenses
    407       377       65       900       6       33       478       1,310  
                                                                 
Operating income (loss)
    81       111       29       (818 )     (6 )     (33 )     104       (740 )
Depreciation and amortization
    54       45       11       16                                  
                                                                 
Segment EBITDA
    135       156       40       (802 )                                
                                                                 
Interest expense, net
                                                    (73 )     (85 )
Gain on early extinguishment of debt
                                                          4  
                                                                 
Income (loss) from operations before income taxes and equity in earnings of investment in Orbitz Worldwide
                                                    31       (821 )
(Provision) benefit for income taxes
                                                    (15