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EXCEL - IDEA: XBRL DOCUMENT - Travelport LTD | Financial_Report.xls |
EX-32 - EX-32 - Travelport LTD | d751223dex32.htm |
EX-31.1 - EX-31.1 - Travelport LTD | d751223dex311.htm |
EX-31.2 - EX-31.2 - Travelport LTD | d751223dex312.htm |
EX-10.1 - EX-10.1 - Travelport LTD | d751223dex101.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 June 30, 2014
or
¨ | 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 incorporation or organization) |
(I.R.S. Employer Identification Number) |
300 Galleria Parkway
Atlanta, GA 30339
(Address of principal executive offices, including zip code)
(770) 563-7400
(Registrants 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 ¨ 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 x No ¨
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.
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ |
(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 ¨ No x
As of August 7, 2014, there were 12,000 shares of the Registrants common stock, par value $1.00 per share, outstanding.
Table of Contents
Page | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. |
4 | |||||
4 | ||||||
5 | ||||||
Consolidated Condensed Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013 |
6 | |||||
7 | ||||||
8 | ||||||
Notes to the Consolidated Condensed Financial Statements (unaudited) |
9 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
37 | ||||
Item 3. |
58 | |||||
Item 4. |
58 | |||||
PART II. OTHER INFORMATION | ||||||
Item 1. |
60 | |||||
Item 1A. |
60 | |||||
Item 2. |
60 | |||||
Item 3. |
60 | |||||
Item 4. |
60 | |||||
Item 5. |
60 | |||||
Item 6. |
60 | |||||
62 |
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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 Managements 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, us or Travelport means Travelport Limited, a Bermuda company, and its consolidated subsidiaries.
The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results of operations or those anticipated or predicted by these forward-looking statements:
| factors affecting the level of travel activity, particularly air travel volume, including security concerns, pandemics, general economic conditions, natural disasters and other disruptions; |
| the impact our outstanding indebtedness may have on the way we operate our business; |
| our ability to obtain travel provider inventory from travel providers, such as airlines, hotels, car rental companies, cruise lines and other travel providers; |
| our ability to maintain existing relationships with travel agencies 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 providers and generate new revenue streams; |
| the impact on travel provider capacity and inventory resulting from consolidation of the airline industry; |
| our ability to grow adjacencies, such as eNett, in which we own a majority interest; |
| general economic and business conditions in the markets in which we operate, including fluctuations in currencies, particularly in the U.S. dollar, and the economic conditions in the eurozone; |
| pricing, regulatory and other trends in the travel industry; |
| 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 managements 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 section captioned Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the
2
Table of Contents
Securities and Exchange Commission (the SEC) on March 10, 2014, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the SEC on May 9, 2014, 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.
3
Table of Contents
Item 1. Financial Statements (unaudited)
TRAVELPORT LIMITED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in $ millions) |
Three Months Ended June 30, 2014 |
Three Months Ended June 30, 2013 |
Six Months Ended June 30, 2014 |
Six Months Ended June 30, 2013 |
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Net revenue |
$ | 551 | $ | 537 | $ | 1,123 | $ | 1,085 | ||||||||
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Costs and expenses |
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Cost of revenue |
337 | 326 | 690 | 659 | ||||||||||||
Selling, general and administrative |
97 | 106 | 185 | 200 | ||||||||||||
Depreciation and amortization |
57 | 49 | 113 | 101 | ||||||||||||
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Total costs and expenses |
491 | 481 | 988 | 960 | ||||||||||||
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Operating income |
60 | 56 | 135 | 125 | ||||||||||||
Interest expense, net |
(87 | ) | (104 | ) | (170 | ) | (174 | ) | ||||||||
Loss on early extinguishment of debt |
(9 | ) | (49 | ) | (14 | ) | (49 | ) | ||||||||
Gain on sale of shares of Orbitz Worldwide |
52 | | 52 | | ||||||||||||
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Income (loss) before income taxes and share of earnings (losses) in equity method investments |
16 | (97 | ) | 3 | (98 | ) | ||||||||||
Provision for income taxes |
(12 | ) | (6 | ) | (22 | ) | (17 | ) | ||||||||
Share of earnings (losses) in equity method investments |
1 | | (3 | ) | 2 | |||||||||||
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Net income (loss) |
5 | (103 | ) | (22 | ) | (113 | ) | |||||||||
Net income attributable to non-controlling interest in subsidiaries |
(1 | ) | (2 | ) | (3 | ) | (2 | ) | ||||||||
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Net income (loss) attributable to the Company |
$ | 4 | $ | (105 | ) | $ | (25 | ) | $ | (115 | ) | |||||
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See Notes to the Consolidated Condensed Financial Statements
4
Table of Contents
TRALVEPORT LIMITED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in $ millions) |
Three Months Ended June 30, 2014 |
Three Months Ended June 30, 2013 |
Six Months Ended June 30, 2014 |
Six Months Ended June 30, 2013 |
||||||||||||
Net income (loss) |
$ | 5 | $ | (103 | ) | $ | (22 | ) | $ | (113 | ) | |||||
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Other comprehensive income (loss), net of tax: |
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Currency translation adjustment, net of tax |
1 | (5 | ) | 2 | (8 | ) | ||||||||||
Realization of losses on cash flow hedges, net of tax |
5 | | 4 | | ||||||||||||
Unrealized actuarial loss on defined benefit plans, net of tax |
| (1 | ) | | (1 | ) | ||||||||||
Unrealized (loss) gain on equity investment, net of tax |
(3 | ) | 6 | (4 | ) | 11 | ||||||||||
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Other comprehensive income, net of tax |
3 | | 2 | 2 | ||||||||||||
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Comprehensive income (loss) |
8 | (103 | ) | (20 | ) | (111 | ) | |||||||||
Comprehensive income attributable to non-controlling interest in subsidiaries |
(1 | ) | (2 | ) | (3 | ) | (2 | ) | ||||||||
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Comprehensive income (loss) attributable to the Company |
$ | 7 | $ | (105 | ) | $ | (23 | ) | $ | (113 | ) | |||||
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See Notes to the Consolidated Condensed Financial Statements
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Table of Contents
TRAVELPORT LIMITED
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(in $ millions) |
June 30, 2014 |
December 31, 2013 |
||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 93 | $ | 154 | ||||
Accounts receivable (net of allowances for doubtful accounts of $13 and $13) |
215 | 177 | ||||||
Deferred income taxes |
1 | 1 | ||||||
Other current assets |
112 | 134 | ||||||
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Total current assets |
421 | 466 | ||||||
Property and equipment, net |
413 | 428 | ||||||
Goodwill |
1,000 | 986 | ||||||
Trademarks and tradenames |
314 | 314 | ||||||
Other intangible assets, net |
669 | 671 | ||||||
Cash held as collateral |
70 | 79 | ||||||
Investment in Orbitz Worldwide |
10 | 19 | ||||||
Deferred income tax |
5 | 5 | ||||||
Other non-current assets |
114 | 120 | ||||||
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Total assets |
$ | 3,016 | $ | 3,088 | ||||
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Liabilities and equity |
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Current liabilities: |
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Accounts payable |
$ | 58 | $ | 72 | ||||
Accrued expenses and other current liabilities |
555 | 540 | ||||||
Deferred income taxes |
24 | 24 | ||||||
Current portion of long-term debt |
46 | 45 | ||||||
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Total current liabilities |
683 | 681 | ||||||
Long-term debt |
3,210 | 3,528 | ||||||
Deferred income taxes |
24 | 18 | ||||||
Other non-current liabilities |
168 | 172 | ||||||
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Total liabilities |
4,085 | 4,399 | ||||||
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Commitments and contingencies (Note 11) |
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Shareholders equity (deficit): |
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Common shares ($1.00 par value; 12,000 shares authorized; 12,000 shares issued and outstanding) |
| | ||||||
Additional paid in capital |
956 | 691 | ||||||
Accumulated deficit |
(1,964 | ) | (1,939 | ) | ||||
Accumulated other comprehensive loss |
(80 | ) | (82 | ) | ||||
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Total shareholders equity (deficit) |
(1,088 | ) | (1,330 | ) | ||||
Equity attributable to non-controlling interest in subsidiaries |
19 | 19 | ||||||
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Total equity (deficit) |
(1,069 | ) | (1,311 | ) | ||||
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Total liabilities and equity |
$ | 3,016 | $ | 3,088 | ||||
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See Notes to the Consolidate Condensed Financial Statements
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Table of Contents
TRAVELPORT LIMITED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in $ millions) |
Six Months Ended June 30, 2014 |
Six Months Ended June 30, 2013 |
||||||
Operating activities |
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Net loss |
$ | (22 | ) | $ | (113 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
113 | 101 | ||||||
Amortization of customer loyalty payments |
37 | 29 | ||||||
Gain on sale of shares of Orbitz Worldwide |
(52 | ) | | |||||
Amortization of debt finance costs |
6 | 19 | ||||||
Accrual of repayment fee and amortization of debt discount |
5 | 1 | ||||||
Loss on early extinguishment of debt |
14 | 49 | ||||||
Payment-in-kind interest |
12 | 9 | ||||||
Share of losses (earnings) in equity method investments |
3 | (2 | ) | |||||
Equity-based compensation |
9 | 2 | ||||||
Deferred income taxes |
5 | | ||||||
Pension liability contribution |
(3 | ) | | |||||
Customer loyalty payments |
(45 | ) | (36 | ) | ||||
Changes in assets and liabilities: |
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Accounts receivable |
(38 | ) | (65 | ) | ||||
Other current assets |
9 | (4 | ) | |||||
Accounts payable, accrued expenses and other current liabilities |
(22 | ) | (9 | ) | ||||
Other |
11 | 31 | ||||||
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Net cash provided by operating activities |
42 | 12 | ||||||
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Investing activities |
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Property and equipment additions |
(54 | ) | (46 | ) | ||||
Proceeds from sale of shares of Orbitz Worldwide |
54 | | ||||||
Purchase of non-controlling interest in a subsidiary |
(65 | ) | | |||||
Business acquired, net of cash |
(10 | ) | | |||||
Purchase of equity method investment |
(10 | ) | | |||||
Other |
| (6 | ) | |||||
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Net cash used in investing activities |
(85 | ) | (52 | ) | ||||
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Financing activities |
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Proceeds from revolver borrowings |
50 | 53 | ||||||
Repayment of revolver borrowings |
(50 | ) | (73 | ) | ||||
Repayment of capital lease obligations |
(15 | ) | (8 | ) | ||||
Release of cash provided as collateral |
9 | 137 | ||||||
Repayment of term loans |
(8 | ) | (1,659 | ) | ||||
Payment related to early extinguishment of debt |
(3 | ) | | |||||
Proceeds from term loans |
| 2,169 | ||||||
Repurchase of Senior Notes |
| (413 | ) | |||||
Cash provided as collateral |
| (93 | ) | |||||
Debt finance costs |
| (55 | ) | |||||
Distribution to a parent company |
| (6 | ) | |||||
Other |
(1 | ) | (4 | ) | ||||
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Net cash (used in) provided by financing activities |
(18 | ) | 48 | |||||
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Effect of changes in exchange rate on cash and cash equivalents |
| (1 | ) | |||||
Net (decrease) increase in cash and cash equivalents |
(61 | ) | 7 | |||||
Cash and cash equivalents at beginning of period |
154 | 110 | ||||||
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Cash and cash equivalents at end of period |
$ | 93 | $ | 117 | ||||
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Supplementary disclosures of cash flow information |
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Interest payments |
150 | 145 | ||||||
Income tax payments, net |
13 | 13 | ||||||
Non-cash exchange of senior subordinated notes for equity of a parent company (see Note 9) |
257 | | ||||||
Non-cash exchange of senior notes for equity of a parent company (see Note 9) |
60 | | ||||||
Non-cash capital lease additions |
6 | 5 | ||||||
Non-cash distribution to a parent company |
| 25 | ||||||
Exchange of Senior Priority Secured Notes for Tranche 2 Loans |
| 229 | ||||||
Exchange of Senior Notes due 2014 and 2016 for new Senior Notes due 2016 |
| 591 |
See Notes to the Consolidated Condensed Financial Statements
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Table of Contents
TRAVELPORT LIMITED
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN TOTAL EQUITY (DEFICIT)
(unaudited)
(in $ millions) |
Common Shares |
Additional Paid in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Loss |
Non- Controlling Interest in Subsidiaries |
Total Equity (Deficit) |
||||||||||||||||||
Balance as of December 31, 2013 |
| $ | 691 | $ | (1,939 | ) | $ | (82 | ) | $ | 19 | $ | (1,311 | ) | ||||||||||
Contribution from a parent company |
| 323 | | | | 323 | ||||||||||||||||||
Purchase of non-controlling interest in a subsidiary |
| (62 | ) | | | (3 | ) | (65 | ) | |||||||||||||||
Equity-based compensation |
| 9 | | | | 9 | ||||||||||||||||||
Net share settlement for equity based compensation |
| (5 | ) | | | | (5 | ) | ||||||||||||||||
Comprehensive (loss) income, net of tax |
| | (25 | ) | 2 | 3 | (20 | ) | ||||||||||||||||
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Balance as of June 30, 2014 |
| $ | 956 | $ | (1,964 | ) | $ | (80 | ) | $ | 19 | $ | (1,069 | ) | ||||||||||
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See Notes to the Consolidated Condensed Financial Statements
8
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
Travelport Limited (the Company or Travelport) is a travel commerce platform providing distribution, technology, payment and other solutions for the global travel and tourism industry. With a presence in over 170 countries, Travelport is a privately owned company comprised of:
The Travel Commerce Platform (formerly known as the global distribution system or GDS business), through which the Company facilitates travel commerce by connecting the worlds leading travel providers, such as airlines and hotel chains, with online and offline travel buyers in the Companys proprietary business to business (B2B) travel commerce platform. As travel industry needs evolve, Travelport is utilizing its Travel Commerce Platform to redefine the electronic distribution and merchandising of airline core and ancillary products, as well as extending its reach into the growing world of travel commerce beyond air, including to hotel, car rental, rail, cruise-line and tour operators. In addition, Travelport has leveraged its domain expertise in the travel industry to design a pioneering B2B payment solution that addresses the need of travel agencies to efficiently and securely make payments to travel providers globally. Travelport utilizes the extensive data managed by its platform to provide an array of additional services, such as advertising solutions, subscription services, business intelligence data services, and marketing-oriented analytical tools to travel agencies, travel providers and other travel data users.
Through its Technology Services, Travelport provides critical hosting solutions to airlines, such as pricing, shopping, ticketing, ground handling and other solutions, enabling them to focus on their core business competencies and reduce costs. The Company manages reservations, inventory management and other related critical systems for Delta Air Lines Inc. (Delta).
As of June 30, 2014, the Company also owned approximately 36% of Orbitz Worldwide, Inc. (Orbitz Worldwide), a leading global online travel company, (see Note 14Subsequent Events).
These financial statements and other financial information included in this Quarterly Report on Form 10-Q are unaudited, with the exception of the December 31, 2013 balance sheet which was derived from audited financial statements. These consolidated condensed financial statements 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 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.
In presenting the consolidated condensed financial statements in accordance with US GAAP, management makes 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 managements opinion, the consolidated condensed financial statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. 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 Companys 2013 Annual Report on Form 10-K filed with the SEC on March 10, 2014.
2. Recently Issued Accounting Pronouncements
CompensationStock Compensation
In June 2014, the Financial Accounting Standards Board (the FASB) issued guidance on accounting for stock compensation where share-based payment awards granted to employees require specific performance target
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TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
2. Recently Issued Accounting Pronouncements (Continued)
to be achieved in order for employees to become eligible to vest in the awards and such performance targets could be achieved after an employee completes the requisite service period. The amendment in this update requires a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance condition.
The guidance is applicable to the Company for interim and annual reporting periods beginning after December 15, 2015, although earlier adoption is permitted. The Company is assessing the implications of adoption of this update on its consolidated condensed financial statements.
Revenue Recognition
In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entitys contracts with customers.
The guidance is applicable to the Company for the interim and annual reporting periods beginning after December 15, 2016, with early adoption not permitted. The guidance permits the use of either a retrospective or cumulative effect transition method. The Company has not yet selected a transition method and is currently evaluating the impact of the amended guidance on its consolidated condensed financial statements.
Discontinued Operations
In April 2014, the FASB issued guidance on discontinued operations that increased the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation.
This guidance is applicable to the Company on a prospective basis for interim and annual reporting periods beginning after December 15, 2014 although early adoption is permitted. The Company does not anticipate an impact on the consolidated condensed financial statements resulting from the adoption of this guidance, other than disclosures.
Presentation of an Unrecognized Tax Benefit
In July 2013, the FASB issued guidance on the presentation of an unrecognized tax benefit as a reduction to a deferred tax asset when a net operating loss carry forward, a similar tax loss, or a tax credit carry forward exists except in certain circumstances. The Company adopted the provisions of this guidance effective January 1, 2014, as required. There was no impact on the consolidated condensed financial statements resulting from the adoption of this guidance.
Accounting for Cumulative Translation Adjustment
In March 2013, the FASB issued guidance on a parent companys accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity. The guidance
10
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TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
2. Recently Issued Accounting Pronouncements (Continued)
provides the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided, or, if a controlling financial interest is no longer held.
This guidance is applicable to the Company on a prospective basis for interim and annual reporting periods beginning after December 15, 2014 although early adoption is permitted. The Company does not anticipate an impact on the consolidated condensed financial statements resulting from the adoption of this guidance.
3. Orbitz Worldwide
In May 2014, the Company sold 8.6 million shares of Orbitz Worldwide for net proceeds of $54 million. This resulted in a gain of $52 million, which the Company recognized in its consolidated condensed statements of operations for the three and six months ended June 30, 2014. The Companys investment in Orbitz Worldwide reduced from approximately 45% as of December 31, 2013 to approximately 36% as of June 30, 2014. In July 2014, the Company sold substantially all of its remaining shares in Orbitz Worldwide for net proceeds of approximately $312 million and used the proceeds to repay a portion of its outstanding first lien term loans. During the three and six months ended June 30, 2014 and 2013, the Company accounted for its investments in Orbitz Worldwide under the equity method of accounting and recorded its share of Orbitz Worldwides net income (loss) and other comprehensive income (loss) in its consolidated condensed statements of operations and consolidated condensed statements of comprehensive income (loss), respectively (see Note 14Subsequent Events).
As of June 30, 2014 and December 31, 2013, the carrying value of the Companys investment in Orbitz Worldwide was $10 million and $19 million, respectively. The fair value of the Companys investment in Orbitz Worldwide as of June 30, 2014 was approximately $354 million.
Presented below are the summary results of operations for Orbitz Worldwide for the three and six months ended June 30, 2014 and 2013:
(in $ millions) |
Three Months Ended June 30, 2014 |
Three Months Ended June 30, 2013 |
Six Months Ended June 30, 2014 |
Six Months Ended June 30, 2013 |
||||||||||||
Net revenue |
$ | 248 | $ | 226 | $ | 458 | $ | 429 | ||||||||
Operating expenses |
225 | 203 | 424 | 409 | ||||||||||||
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Operating income |
23 | 23 | 34 | 20 | ||||||||||||
Interest expense, net |
(8 | ) | (13 | ) | (18 | ) | (22 | ) | ||||||||
Loss on early extinguishment of debt |
(2 | ) | (18 | ) | (2 | ) | (18 | ) | ||||||||
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Income (loss) before income taxes |
13 | (8 | ) | 14 | (20 | ) | ||||||||||
(Provision for) benefit from income taxes |
(6 | ) | 9 | (13 | ) | 167 | ||||||||||
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Net income |
$ | 7 | $ | 1 | $ | 1 | $ | 147 | ||||||||
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The Company recorded earnings (losses) of $1 million and $(3) million related to its investment in Orbitz Worldwide for the three and six months ended June 30, 2014, respectively, within the share of earnings (losses) in equity method investments in the Companys consolidated condensed statements of operations. For the three and six months ended June 30, 2013, the Company recorded earnings of $0 and $2 million, respectively, within the share of earnings (losses) in equity method investments in the Companys consolidated condensed statements of operations.
11
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
3. Orbitz Worldwide (Continued)
In the first quarter of 2013, Orbitz Worldwide concluded that a significant portion of its US valuation allowance on deferred tax assets was no longer required, resulting in a recognition of a benefit from income taxes of $158 million in its consolidated condensed statements of operations.
Net revenue disclosed above includes approximately $27 million and $52 million of net revenue earned by Orbitz Worldwide through transactions with the Company during the three and six months ended June 30, 2014, respectively. Net revenue disclosed above includes approximately $23 million and $47 million of net revenue earned by Orbitz Worldwide through transactions with the Company during the three and six months ended June 30, 2013, respectively.
As of June 30, 2014 and December 31, 2013, the Company had balances payable to Orbitz Worldwide of approximately $17 million and $12 million, respectively, which are included on the Companys consolidated condensed balance sheets within accrued expenses and other current liabilities.
4. Other Current Assets
Other current assets consisted of:
(in $ millions) |
June 30, 2014 |
December 31, 2013 |
||||||
Restricted cash |
$ | 35 | $ | 44 | ||||
Sales and use tax receivables |
28 | 30 | ||||||
Prepaid expenses |
21 | 22 | ||||||
Prepaid incentives |
12 | 20 | ||||||
Derivative assets |
1 | 3 | ||||||
Other |
15 | 15 | ||||||
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$ | 112 | $ | 134 | |||||
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Restricted cash represents cash held on behalf of clients for a short period of time before being transferred to travel industry partners. A compensating balance is held in accrued expenses and other current liabilities as customer prepayments.
5. Property and Equipment, Net
Property and equipment, net, consisted of:
June 30, 2014 | December 31, 2013 | |||||||||||||||||||||||
(in $ millions) |
Cost | Accumulated depreciation |
Net | Cost | Accumulated depreciation |
Net | ||||||||||||||||||
Capitalized software |
$ | 702 | $ | (498 | ) | $ | 204 | $ | 650 | $ | (449 | ) | $ | 201 | ||||||||||
Computer equipment |
288 | (161 | ) | 127 | 281 | (139 | ) | 142 | ||||||||||||||||
Building and leasehold improvements |
19 | (9 | ) | 10 | 17 | (8 | ) | 9 | ||||||||||||||||
Construction in progress |
72 | | 72 | 76 | | 76 | ||||||||||||||||||
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$ | 1,081 | $ | (668 | ) | $ | 413 | $ | 1,024 | $ | (596 | ) | $ | 428 | |||||||||||
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The Company recorded depreciation expense of $37 million and $29 million during the three months ended June 30, 2014 and 2013, respectively. The Company recorded depreciation expense of $74 million and $61 million during the six months ended June 30, 2014 and 2013, respectively.
12
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. Property and Equipment, Net (Continued)
As of June 30, 2014 and December 31, 2013, the Company had net capital lease assets of $94 million and $104 million, respectively, included within computer equipment.
The amount of interest on capital projects capitalized was $3 million and $1 million for the three months ended June 30, 2014 and 2013, respectively. The amount of interest on capital projects capitalized was $5 million and $2 million for the six months ended June 30, 2014 and 2013, respectively.
6. Intangible Assets
The changes in the carrying amount of goodwill and intangible assets for the Company between January 1, 2014 and June 30, 2014 are as follows:
(in $ millions) |
January 1, 2014 |
Additions | Retirements | Foreign Exchange |
June 30, 2014 |
|||||||||||||||
Non-Amortizable Assets: |
||||||||||||||||||||
Goodwill |
$ | 986 | $ | 14 | $ | | $ | | $ | 1,000 | ||||||||||
Trademarks and tradenames |
314 | | | | 314 | |||||||||||||||
Other Intangible Assets: |
||||||||||||||||||||
Acquired intangible assets |
1,129 | | | 1 | 1,130 | |||||||||||||||
Accumulated amortization |
(610 | ) | (39 | ) | | | (649 | ) | ||||||||||||
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Acquired intangible assets, net |
519 | (39 | ) | | 1 | 481 | ||||||||||||||
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Customer loyalty payments |
306 | 72 | (44 | ) | 1 | 335 | ||||||||||||||
Accumulated amortization |
(154 | ) | (37 | ) | 44 | | (147 | ) | ||||||||||||
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Customer loyalty payments, net |
152 | 35 | | 1 | 188 | |||||||||||||||
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Other intangible assets, net |
$ | 671 | $ | (4 | ) | $ | | $ | 2 | $ | 669 | |||||||||
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The changes in the carrying amount of goodwill and intangible assets for the Company between January 1, 2013 and June 30, 2013 are as follows:
(in $ millions) |
January 1, 2013 |
Additions | Retirements | Foreign Exchange |
June 30, 2013 |
|||||||||||||||
Non-Amortizable Assets: |
||||||||||||||||||||
Goodwill |
$ | 986 | $ | | $ | | $ | | $ | 986 | ||||||||||
Trademarks and tradenames |
314 | | | | 314 | |||||||||||||||
Other Intangible Assets: |
||||||||||||||||||||
Acquired intangible assets |
1,129 | | | | 1,129 | |||||||||||||||
Accumulated amortization |
(530 | ) | (40 | ) | | | (570 | ) | ||||||||||||
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Acquired intangible assets, net |
599 | (40 | ) | | | 559 | ||||||||||||||
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Customer loyalty payments |
274 | 36 | (50 | ) | (3 | ) | 257 | |||||||||||||
Accumulated amortization |
(156 | ) | (29 | ) | 50 | | (135 | ) | ||||||||||||
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Customer loyalty payments, net |
118 | 7 | | (3 | ) | 122 | ||||||||||||||
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Other intangible assets, net |
$ | 717 | $ | (33 | ) | $ | | $ | (3 | ) | $ | 681 | ||||||||
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In May 2014, the Company made an acquisition for $14 million, of which $10 million was paid in cash and $4 million is deferred consideration to be paid upon resolution of certain items. The acquisition resulted in goodwill of $14 million. As of June 30, 2014, the Company is in the process of allocating the purchase consideration to acquired identifiable assets and liabilities.
13
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
6. Intangible Assets (Continued)
The Company paid cash of $45 million and $36 million for customer loyalty payments during the six months ended June 30, 2014 and 2013, respectively. Further, as of June 30, 2014 and December 31, 2013, the Company had balances payable of $62 million and $35 million, respectively, for customer loyalty payments (see Note 8).
Amortization expense for acquired intangible assets, which consists of customer relationships, was $20 million for both of the three months ended June 30, 2014 and 2013, respectively, and $39 million and $40 million for the six months ended June 30, 2014 and 2013, respectively, and is included as a component of depreciation and amortization on the Companys consolidated condensed statements of operations.
Amortization expense for customer loyalty payments was $19 million and $15 million for the three months ended June 30, 2014 and 2013, respectively, and $37 million and $29 million for the six months ended June 30, 2014 and 2013, respectively, and is included within cost of revenue or revenue in the Companys consolidated condensed statements of operations.
7. Other Non-Current Assets
Other non-current assets consisted of:
(in $ millions) |
June 30, 2014 |
December 31, 2013 |
||||||
Deferred financing costs |
$ | 33 | $ | 40 | ||||
Supplier prepayments |
29 | 24 | ||||||
Pension assets |
13 | 11 | ||||||
Prepaid incentives |
9 | 22 | ||||||
Derivative assets |
4 | 8 | ||||||
Other |
26 | 15 | ||||||
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$ | 114 | $ | 120 | |||||
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8. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of:
(in $ millions) |
June 30, 2014 |
December 31, 2013 |
||||||
Accrued commissions and incentives |
$ | 298 | $ | 253 | ||||
Accrued interest expense |
62 | 73 | ||||||
Accrued payroll and related |
62 | 80 | ||||||
Customer prepayments |
35 | 44 | ||||||
Deferred revenue |
29 | 30 | ||||||
Accrued sponsor monitoring fee |
23 | 26 | ||||||
Income tax payable |
16 | 15 | ||||||
Pension and post-retirement benefit liabilities |
1 | 1 | ||||||
Derivative contracts |
| 1 | ||||||
Other |
29 | 17 | ||||||
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|||||
$ | 555 | $ | 540 | |||||
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|
Included in accrued commissions and incentives are $62 million and $35 million of accrued customer loyalty payments as of June 30, 2014 and December 31, 2013, respectively.
14
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
9. Long-Term Debt
Long-term debt consisted of:
(in $ millions) |
Interest rate |
Maturity(1) | June 30, 2014 |
December 31, 2013 |
||||||||||||
Secured debt |
||||||||||||||||
Senior Secured Credit Agreement |
||||||||||||||||
Revolver borrowings |
||||||||||||||||
Dollar denominated(2) |
L+4 1⁄4% | June 2018 | $ | | $ | | ||||||||||
Term loans |
||||||||||||||||
Dollar denominated(2) |
L+5% | June 2019 | 1,519 | 1,525 | ||||||||||||
Second Lien Credit Agreement |
||||||||||||||||
Tranche 1 dollar denominated term loan(3) |
L+8% | January 2016 | 647 | 644 | ||||||||||||
Tranche 2 dollar denominated term loan(4) |
8 3⁄8% | December 2016 | 239 | 234 | ||||||||||||
Unsecured debt |
||||||||||||||||
Senior Notes |
||||||||||||||||
Dollar denominated notes(5) |
13 7⁄8% | March 2016 | 370 | 411 | ||||||||||||
Dollar denominated floating rate notes(6) |
L+8 5⁄8% | March 2016 | 177 | 188 | ||||||||||||
Senior Subordinated Notes |
||||||||||||||||
Dollar denominated notes |
11 7⁄8% | September 2016 | 159 | 272 | ||||||||||||
Euro denominated notes |
10 7⁄8% | September 2016 | 47 | 192 | ||||||||||||
Capital leases |
98 | 107 | ||||||||||||||
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Total debt |
3,256 | 3,573 | ||||||||||||||
Less: current portion |
46 | 45 | ||||||||||||||
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Long-term debt |
$ | 3,210 | $ | 3,528 | ||||||||||||
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|
(1) | The term loans maturing in June 2019 and the revolver availability through June 2018 are subject to a reduction in maturity to November 2015, December 2015, June 2016 or September 2016 if the Company is unable to repay or refinance its debt outstanding under the second lien credit agreement or its unsecured debt prior to their maturity dates. (see Note 14Subsequent Events) |
(2) | Minimum LIBOR floor of 1.25% |
(3) | Minimum LIBOR floor of 1.5% |
(4) | Cash interest of 4% and payment-in-kind interest of 4.375% |
(5) | Cash interest of 11.375% and payment-in-kind interest of 2.5% |
(6) | Cash interest of LIBOR+6.125% plus payment-in-kind interest of 2.5% |
In March 2014, Travelport Worldwide Limited (Travelport Worldwide), the Companys indirect parent company, acquired $43 million of dollar denominated senior subordinated notes and $92 million (67 million) of euro denominated senior subordinated notes of the Company in exchange for its common shares. Travelport Worldwide contributed these senior subordinated notes to the Company, which the Company subsequently cancelled. The Company recorded this transaction as extinguishment of debt and recognized a loss of $5 million in its consolidated condensed statements of operations for the six months ended June 30, 2014.
In June 2014, Travelport Worldwide acquired an additional $70 million of dollar denominated senior subordinated notes, $52 million (39 million) of euro denominated senior subordinated notes, $47 million of dollar denominated fixed rate senior notes and $13 million of dollar denominated floating rate senior notes of the
15
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
9. Long-Term Debt (Continued)
Company in exchange for its common shares. Travelport Worldwide contributed these senior notes and senior subordinated notes to the Company, which the Company subsequently cancelled. The Company recorded this transaction as extinguishment of debt and recognized a loss of $9 million in its consolidated condensed statements of operations for the six months ended June 30, 2014.
On June 27, 2014, Travelport Worldwide launched an offer to exchange the senior notes and senior subordinated notes issued by the Companys subsidiaries into its common shares. As of July 25, 2014, approximately $164 million in aggregate principal amount of notes were tendered and accepted in exchange for approximately 102 million common shares of Travelport Worldwide, at a value of $1.64 per common share.
On July 11, 2014, Travelport Worldwide entered into an agreement with certain term loan lenders to exchange approximately 58 million of its common shares, at a value of $1.64 per common share, for approximately $91 million of first lien and second lien term loans under Travelport LLCs (the Companys wholly-owned subsidiary) sixth amended and restated credit agreement and second lien credit agreement.
Based on the results of the exchange offers and the term loan exchange through the date of this Quarterly Report on Form 10-Q, Travelport Worldwide exchanged approximately 360.5 million of its common shares for approximately $571 million principal amount of total debt of the Company, and as such debt was canceled by the Companys subsidiaries after such debt was contributed to the Company.
The Company also repaid $312 million of first lien term loans from the proceeds received from the sale of shares of Orbitz Worldwide (see Note 14Subsequent Events).
During the six months ended June 30, 2014, the Company (i) repaid $8 million as its quarterly repayment of term loans, (ii) accreted $2 million as interest expense towards the repayment fee on the second lien Tranche 1 loans, (iii) amortized $3 million as discount on term loans, (iv) capitalized $13 million related to payment-in-kind interest into the senior notes and second lien Tranche 2 dollar denominated term loans and (v) repaid $15 million under its capital lease obligations and entered into $6 million of new capital leases for information technology assets.
The Company has a $120 million revolving credit facility with a consortium of banks under its senior secured credit agreement. During the six months ended June 30, 2014, the Company borrowed $50 million under this facility and repaid $50 million. As of June 30, 2014, the Company had no outstanding balance under its revolving credit facility with $120 million of remaining borrowing capacity under this facility.
The Company has a $137 million of cash collateralized letters of credit facility, maturing in June 2018. The terms under the letters of credit facility provide that 103% of cash collateral has to be maintained for outstanding letters of credit. As of June 30, 2014, $67 million of letters of credit were outstanding under the terms of the facility, against which the Company provided $70 million as cash collateral, and the Company had $70 million of remaining capacity under its letters of credit facility.
16
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
9. Long-Term Debt (Continued)
Debt Maturities
Aggregate maturities of debt as of June 30, 2014 are as follows (see Note 14Subsequent Events):
(in $ millions) |
Twelve Months Ending June 30,(2) |
|||
2015 |
$ | 46 | ||
2016 |
1,235 | |||
2017 |
481 | |||
2018 |
26 | |||
2019(1) |
1,459 | |||
Thereafter |
9 | |||
|
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|||
$ | 3,256 | |||
|
|
(1) | The term loans maturing in June 2019 and the revolver availability through June 2018 are subject to a reduction in maturity to November 2015, December 2015, June 2016 or September 2016 if the Company is unable to repay or refinance its outstanding debt under the second lien credit agreement or its unsecured debt prior to their maturity dates. (see Note 14Subsequent Events) |
(2) | The above table excludes (i) $56 million of payment-in-kind interest and $7 million of repayment fees for the term loans under the second lien credit agreement and senior notes, of which $5 million of payment-in-kind interest has been accrued within other non-current liabilities as of June 30, 2014 and (ii) $23 million of debt discount on term loans under the senior secured credit agreement and second lien credit agreement. |
10. Financial Instruments
The Company uses derivative financial 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. During the six months ended June 30, 2014, there was no material change in the Companys interest rate and foreign currency risk management policies or in its fair value methodology except as set out below.
In June 2014, the Company ceased hedge accounting for its interest rate cap derivative instruments. With the exchange of common shares of Travelport Worldwide for the Companys term loans in July 2014, which the Company subsequently canceled and reduced the principal amount of debt being hedged to under 100% of its notional amount and the Companys announcement of the proposed refinancing of its capital structure in August 2014 (see Note 14Subsequent Events), the Company determined that the hedge effectiveness could no longer be achieved. Further, the underlying future interest cash outflows hedged were considered as not probable of occurring, resulting in the Company realizing losses of $8 million accumulated within other comprehensive income (loss) and recognizing it within its consolidated condensed statements of operations.
As of June 30, 2014, the Company had a net asset position of $5 million related to derivative financial instruments associated with its floating rate debt, its foreign currency denominated receivables and payables, and forecasted earnings of its foreign subsidiaries.
17
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 Companys derivative contracts recorded on the consolidated condensed balance sheets at fair value.
Balance Sheet Location |
Fair Value Asset | Balance Sheet Location |
Fair Value (Liability) | |||||||||||||||||
(in $ millions) |
June 30, 2014 |
December 31, 2013 |
June 30, 2014 |
December 31, 2013 |
||||||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||||||
Interest rate caps |
Other non-current assets | $ | | $ | 8 | Other non-current liabilities | $ | | $ | | ||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||||
Foreign currency contracts |
Other current assets | 1 | 3 | Accrued expenses and other current liabilities |
| (1 | ) | |||||||||||||
Interest rate caps |
Other non-current assets | 4 | | Accrued expenses and other current liabilities |
| | ||||||||||||||
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|||||||||||||
Total fair value of derivative assets (liabilities) |
$ | 5 | $ | 11 | $ | | $ | (1 | ) | |||||||||||
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As of June 30, 2014, the notional amounts of the above derivative contracts were as follows:
(in $ millions) |
Amount | |||
Interest rate caps |
$ | 2,330 | ||
Foreign currency forwards |
$ | 103 |
The interest rate cap derivative contracts cover transactions for periods that do not exceed three years. All other contracts cover transactions for periods that do not exceed one year.
The following table provides a reconciliation of the movement in the net carrying amount of derivative financial instruments, during the six months ended June 30, 2014.
(in $ millions) |
Six Months Ended June 30, 2014 |
Six Months Ended June 30, 2013 |
||||||
Net derivative asset as of January 1 |
$ | 10 | $ | 11 | ||||
Total gain (loss) for the period included in net loss |
2 | (14 | ) | |||||
Total loss for period accounted through other comprehensive income (loss) |
(4 | ) | | |||||
Proceeds from settlement of foreign exchange derivative contracts |
(3 | ) | (2 | ) | ||||
Settlement of interest rate derivative contracts |
| 3 | ||||||
Termination of foreign exchange derivative contracts (settlement pending) |
| (2 | ) | |||||
|
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|
|
|||||
Net derivative asset (liability) as of June 30 |
$ | 5 | $ | (4 | ) | |||
|
|
|
|
During the six months ended June 30, 2014, the Company received $3 million in relation to certain foreign exchange derivative contracts which were terminated in 2013 and included in other current assets as of December 31, 2013. During the six months ended June 30, 2013, the Company paid $7 million in relation to certain foreign exchange derivative contracts which were terminated in 2012 and included within accrued expenses and other current liabilities as of December 31, 2012.
The significant unobservable inputs used to fair value the Companys derivative financial instruments are probability of default of approximately 2% and a recovery rate of 20% which are applied to the Companys credit default swap adjustments. As the credit valuation adjustment applied to arrive at the fair value of derivatives is less than 15% of the unadjusted fair value of derivative instruments for two consecutive quarters, the Company
18
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
10. Financial Instruments (Continued)
has categorized derivative fair valuations at Level 2 of the fair value hierarchy. A 10% change in the significant unobservable inputs will not have a material impact on the fair value of the derivative financial instruments as of June 30, 2014.
The table below presents the impact of changes in fair values of derivatives on accumulated other comprehensive income (loss) and on net income (loss) during the three and six months ended June 30, 2014:
Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) |
Location of Gain (Loss) Recorded in Income (Loss) |
Amount of Gain (Loss) Recorded Net Income (Loss) |
||||||||||||||||||||||||||||||||
Three Months Ended June 30, |
Six Months Ended June 30, |
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||||||||||||||||||
(in $ millions) |
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||||||||||||||||||||
Interest rate caps |
$ | 5 | $ | | $ | 4 | $ | | Interest expense, net | $ | | $ | | $ | | $ | | |||||||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||||||||||||||||||
Interest rate swaps |
N/A | N/A | N/A | N/A | Interest expense, net | (8 | ) | (2 | ) | (8 | ) | (3 | ) | |||||||||||||||||||||
Foreign currency contracts |
N/A | N/A | N/A | N/A | Selling, general and administrative | | 3 | 2 | (11 | ) | ||||||||||||||||||||||||
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$ | (8 | ) | $ | 1 | $ | (6 | ) | $ | (14 | ) | ||||||||||||||||||||||||
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The table above includes unrealized gain on foreign currency derivative contracts of $1 million and $2 million for the three and six months ended June 30, 2014, respectively.
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 fair value due to the short-term maturities of these assets and liabilities. The carrying value of cash held as collateral approximates to its fair value.
The fair values of the Companys other financial instruments are as follows:
Fair Value Hierarchy |
June 30, 2014 | December 31, 2013 | ||||||||||||||||
(in $ millions) |
Carrying Amount |
Fair Value | Carrying Amount |
Fair Value | ||||||||||||||
Asset (liability) |
||||||||||||||||||
Investment in Orbitz Worldwide |
Level 1 | $ | 10 | $ | 354 | $ | 19 | $ | 349 | |||||||||
Derivative assets |
Level 2 | 5 | 5 | 11 | 11 | |||||||||||||
Derivative liabilities |
Level 2 | | | (1 | ) | (1 | ) | |||||||||||
Total debt |
Level 2 | (3,256 | ) | (3,363 | ) | (3,573 | ) | (3,693 | ) |
The fair value of the Companys investment in Orbitz Worldwide, which is categorized within Level 1 of the fair value hierarchy, has been determined based on quoted prices in active markets.
The fair value of the Companys total debt has been determined by calculating the fair value of term loans, senior notes and senior subordinated notes based on quoted prices obtained from independent brokers for identical debt instruments when traded as an asset and is categorized within Level 2 of the fair value hierarchy.
19
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
11. 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 June 30, 2014, the Company had approximately $108 million of outstanding purchase commitments, primarily relating to service contracts for information technology, of which $48 million relates to the twelve months ending June 30, 2015. These purchase obligations extend through 2017.
Contingencies
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. 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 effect on the Companys results of operations or cash flows in a particular reporting period.
Standard Guarantees/Indemnification
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 the Companys 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 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.
12. Equity
Contribution from a Parent Company
During the six months ended June 30, 2014, Travelport Worldwide acquired $257 million of senior subordinated notes and $60 million of senior notes of the Company from the holders of the notes, and such notes were contributed to the Company by Travelport Holdings Limited, its direct parent. The Company subsequently cancelled these notes, and the debt was considered as extinguished. The Company recorded the notes received from Travelport Holdings Limited at their fair value of $323 million as a contribution from its parent company.
20
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
12. Equity (Continued)
Purchase of Non-Controlling Interest in a Subsidiary
In June 2014, the Company acquired an additional 16% of equity from the non-controlling shareholders of its majority-owned subsidiary, eNett International (Jersey) Limited (eNett), for a total consideration of $65 million thereby increasing its ownership in eNett from 57% to 73%. The excess of consideration paid by the Company of $65 million over the carrying value of non-controlling interest acquired is recorded within additional paid in capital on the consolidated condensed balance sheets.
13. Equity-Based Compensation
Travelport Worldwide has two equity-based long-term incentive programs, the 2011 Equity Plan and 2013 Equity Plan under which restricted share units (RSUs) and stock options of Travelport Worldwide have been granted to the key employees of the Company. On January 1, 2014, all of the outstanding RSUs granted under the 2011 Equity Plan vested.
In May 2014, the Company communicated performance targets for the performance-based RSUs and stock options under the 2013 Equity Plan. Also in May 2014, the Company made a grant of time-based RSUs to certain employees. Consequently, 23.3 million of RSUs and 2 million of stock options were considered as granted for accounting purposes. The RSUs and stock options vest in April 2015 and April 2016, respectively, if the performance conditions are met and the participants remain in employment until then. Under the terms of the grant of the RSUs, vesting of a substantial portion of the time-based RSUs accelerates upon the completion of the proposed initial public offering by Travelport Worldwide or its wholly-owned subsidiary.
The activity of the Companys RSUs and stock options for the six months ended June 30, 2014 is presented below:
Shares | Restricted Share Units |
Stock Options | ||||||||||||||||||||||
(in millions, except per share, RSU or stock option fair value) |
Number of Shares |
Weighted Average Grant Date Fair Value |
Number of RSUs |
Weighted Average Grant Date Fair Value |
Number of Options |
Weighted Average Grant Date Fair Value |
||||||||||||||||||
Balance as of January 1, 2014 |
6.4 | $ | 0.74 | 41.8 | $ | 0.39 | 2.0 | $ | 0.12 | |||||||||||||||
Granted at fair market value |
| | 23.9 | $ | 1.56 | 2.0 | $ | 1.09 | ||||||||||||||||
Vesting of restricted share units |
8.5 | $ | 0.44 | (8.5 | ) | $ | 0.44 | | | |||||||||||||||
Forfeited/cancelled |
| | (3.6 | ) | $ | 0.40 | | | ||||||||||||||||
Net share settlement(1) |
(3.7 | ) | $ | 0.45 | | | | | ||||||||||||||||
|
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|
|
|
|
|||||||||||||||||||
Balance as of June 30, 2014 |
11.2 | $ | 0.61 | 53.6 | $ | 0.90 | 4.0 | $ | 0.61 | |||||||||||||||
|
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|
(1) | The Company completed net share settlements for 3.7 million shares in Travelport Worldwide in connection with employee taxable income created upon issuance of shares. The Company agreed to pay these taxes on behalf of the employees in return for the employees returning an equivalent value of shares. |
The fair values of employee options granted in June 2014 have been estimated as of the date of grant using the following weighted-average assumptions:
Expected term from grant date (in years) |
3 | |||
Risk free interest rate |
0.80 | % | ||
Expected volatility |
60 | % | ||
Dividend yield |
0 | % |
21
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
13. Equity-Based Compensation (Continued)
The weighted-average exercise price of options granted in June 2014 was $0.75 per option, with the remaining weighted average expected term as of June 30, 2014 of 3 years. None of the stock options have vested or have become exercisable as of June 30, 2014.
Compensation expense for the six months ended June 30, 2014 and 2013 resulted in a credit to equity on the Companys consolidated condensed balance sheets of $9 million and $2 million, respectively, which was offset by a decrease of approximately $5 million and $0, respectively, due to net share settlements as the cash payment of the taxes was effectively a repurchase of previously granted equity awards. The Company expects the future equity-based compensation expense in relation to awards recognized for accounting purposes as being granted as of June 30, 2014 will be approximately $44 million based on the fair value of the RSUs and the stock options on the grant date.
14. Subsequent Events
Debt Refinancing
On August 1, 2014, the Company announced the launch of a debt refinancing transaction seeking commitments from lenders (i) under a new senior secured credit agreement for an aggregate principal amount of $2,400 million, and the Company currently expects the new senior secured credit facility to be comprised of (a) a single tranche of term loans of $2,300 million maturing in 2021 and (b) a revolving credit facility of $100 million (which may be increased) maturing in 2019 and (ii) under a senior unsecured bridge loan facility in an aggregate principal amount of $500 million. The Company intends to use the net proceeds from this refinancing to repay certain existing indebtedness, including first and second lien term loans under the Companys sixth amended and restated credit agreement and senior secured credit agreement, senior notes and senior subordinated notes.
Debt for Equity Exchanges
See Note 9Long-Term Debt for a discussion of debt for equity exchanges.
Sale of shares of Orbitz Worldwide
On July 22, 2014, pursuant to an underwritten agreement, the Company sold 34 million shares of common stock of Orbitz Worldwide, along with an additional 5 million shares of common stock pursuant to the underwriters option to purchase additional shares. The price paid to the Company for the shares was $8.00 per firm share and $8.04 per optional share, with aggregate net proceeds of approximately $312 million. After giving effect to this sale, the Company owns less than 1% of the outstanding shares of Orbitz Worldwide and will discontinue equity method of accounting. The proceeds from the sale of Orbitz Worldwide shares were used to repay $312.2 million principal amount of term loans under the Companys senior secured credit agreement.
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements
All of the Companys secured debt and its unsecured senior notes and senior subordinated notes are unconditionally guaranteed by Travelport Limited, as parent guarantor, Waltonville Limited and TDS Investor (Luxembourg) S.à.r.l., as intermediate parent guarantors, and, subject to certain exceptions, each of the Companys existing and future domestic 100% owned subsidiaries (the guarantor subsidiaries). The guarantees are full, unconditional, joint and several.
The following consolidating condensed financial statements presents the Companys consolidating condensed statements of operations for the three and six months ended June 30, 2014 and 2013, the consolidating condensed statements of comprehensive income (loss) for the three and six months ended June 30, 2014 and 2013, consolidating condensed balance sheets as of June 30, 2014 and December 31, 2013, and the consolidating
22
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
condensed statements of cash flows for the six months ended June 30, 2014 and 2013 for: (a) Travelport Limited (the Parent Guarantor); (b) Waltonville Limited and TDS Investor (Luxembourg) S.à.r.l. (together, the Intermediate Parent Guarantor); (c) Travelport LLC (the Issuer); (d) the guarantor subsidiaries; (e) the non-guarantor subsidiaries; (f) elimination and adjusting entries necessary to combine the Parent, Intermediate Parent Guarantor and Issuer with the guarantor and non-guarantor subsidiaries; and (g) the Company on a consolidated basis.
In addition, the Companys secured debt is unconditionally guaranteed by certain existing non-domestic wholly-owned subsidiaries, the net revenue, assets and operating income of which are included in the non-guarantor subsidiaries.
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2014
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Net revenue |
$ | | $ | | $ | | $ | 215 | $ | 336 | $ | | $ | 551 | ||||||||||||||
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|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of revenue |
| | | 138 | 199 | | 337 | |||||||||||||||||||||
Selling, general and administrative |
12 | (1 | ) | | 82 | 4 | | 97 | ||||||||||||||||||||
Depreciation and amortization |
| | | 40 | 17 | | 57 | |||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
12 | (1 | ) | | 260 | 220 | | 491 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating (loss) income |
(12 | ) | 1 | | (45 | ) | 116 | | 60 | |||||||||||||||||||
Interest expense, net |
| | (85 | ) | (2 | ) | | | (87 | ) | ||||||||||||||||||
Loss on early extinguishment of debt |
| | (9 | ) | | | | (9 | ) | |||||||||||||||||||
Gain on sale of shares of Orbitz Worldwide |
| 52 | | | | | 52 | |||||||||||||||||||||
Equity in earnings (losses) of subsidiaries |
16 | (144 | ) | (50 | ) | | | 178 | | |||||||||||||||||||
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|
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|
|||||||||||||||
Income (loss) before income taxes and share of earnings in equity method investments |
4 | (91 | ) | (144 | ) | (47 | ) | 116 | 178 | 16 | ||||||||||||||||||
Provision for income taxes |
| | | (3 | ) | (9 | ) | | (12 | ) | ||||||||||||||||||
Share of earnings in equity method investments |
| 1 | | | | | 1 | |||||||||||||||||||||
|
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|
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|
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|
|
|
|||||||||||||||
Net income (loss) |
4 | (90 | ) | (144 | ) | (50 | ) | 107 | 178 | 5 | ||||||||||||||||||
Net income attributable to non-controlling interest in subsidiaries |
| | | | (1 | ) | | (1 | ) | |||||||||||||||||||
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|
|||||||||||||||
Net income (loss) attributable to the Company |
$ | 4 | $ | (90 | ) | $ | (144 | ) | $ | (50 | ) | $ | 106 | $ | 178 | $ | 4 | |||||||||||
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23
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended June 30, 2014
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Net income (loss) |
$ | 4 | $ | (90 | ) | $ | (144 | ) | $ | (50 | ) | $ | 107 | $ | 178 | $ | 5 | |||||||||||
|
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|
|
|
|
|
|
|||||||||||||||
Other comprehensive income (loss), net of tax |
||||||||||||||||||||||||||||
Currency translation adjustment, net of tax |
| | | | 1 | | 1 | |||||||||||||||||||||
Realization of losses on cash flow hedges, net of tax |
| | 5 | | | | 5 | |||||||||||||||||||||
Unrealized loss on equity investment, net of tax |
| (3 | ) | | | | | (3 | ) | |||||||||||||||||||
Equity in other comprehensive income of subsidiaries |
3 | 5 | | | | (8 | ) | | ||||||||||||||||||||
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|
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|
|
|
|
|
|||||||||||||||
Other comprehensive income (loss), net of tax |
3 | 2 | 5 | | 1 | (8 | ) | 3 | ||||||||||||||||||||
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|
|
|
|
|
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|
|
|||||||||||||||
Comprehensive income (loss) |
7 | (88 | ) | (139 | ) | (50 | ) | 108 | 170 | 8 | ||||||||||||||||||
Comprehensive income attributable to non-controlling interest in subsidiaries |
| | | | (1 | ) | | (1 | ) | |||||||||||||||||||
|
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|
|
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|
|||||||||||||||
Comprehensive income (loss) attributable to the Company |
$ | 7 | $ | (88 | ) | $ | (139 | ) | $ | (50 | ) | $ | 107 | $ | 170 | $ | 7 | |||||||||||
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24
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMTED
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2013
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Net revenue |
$ | | $ | | $ | | $ | 205 | $ | 332 | $ | | $ | 537 | ||||||||||||||
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|
|
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|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of revenue |
| | | 115 | 211 | | 326 | |||||||||||||||||||||
Selling, general and administrative |
8 | | 12 | 33 | 53 | | 106 | |||||||||||||||||||||
Depreciation and amortization |
| | | 35 | 14 | | 49 | |||||||||||||||||||||
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|
|||||||||||||||
Total costs and expenses |
8 | | 12 | 183 | 278 | | 481 | |||||||||||||||||||||
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|
|
|
|
|
|||||||||||||||
Operating (loss) income |
(8 | ) | | (12 | ) | 22 | 54 | | 56 | |||||||||||||||||||
Interest expense, net |
| | (101 | ) | (3 | ) | | | (104 | ) | ||||||||||||||||||
Loss on early extinguishment of debt |
| | (49 | ) | | | | (49 | ) | |||||||||||||||||||
Equity in (losses) earnings of subsidiaries |
(97 | ) | (143 | ) | 18 | | | 222 | | |||||||||||||||||||
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|
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(Loss) income before income taxes and share of earnings (losses) in equity method investments |
(105 | ) | (143 | ) | (144 | ) | 19 | 54 | 222 | (97 | ) | |||||||||||||||||
Provision for income taxes |
| | 1 | (1 | ) | (6 | ) | | (6 | ) | ||||||||||||||||||
Share of earnings (losses) in equity method investments |
| | | | | | | |||||||||||||||||||||
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|
|
|||||||||||||||
Net (loss) income |
(105 | ) | (143 | ) | (143 | ) | 18 | 48 | 222 | (103 | ) | |||||||||||||||||
Net income attributable to non-controlling interest in subsidiaries |
| | | | (2 | ) | | (2 | ) | |||||||||||||||||||
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|
|||||||||||||||
Net (loss) income attributable to the Company |
$ | (105 | ) | $ | (143 | ) | $ | (143 | ) | $ | 18 | $ | 46 | $ | 222 | $ | (105 | ) | ||||||||||
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25
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended June 30, 2013
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Net (loss) income |
$ | (105 | ) | $ | (143 | ) | $ | (143 | ) | $ | 18 | $ | 48 | $ | 222 | $ | (103 | ) | ||||||||||
|
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|
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|
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|
|
|
|||||||||||||||
Other comprehensive income (loss), net of tax |
||||||||||||||||||||||||||||
Currency translation adjustment, net of tax |
| | | | (5 | ) | | (5 | ) | |||||||||||||||||||
Unrealized actuarial loss on defined benefit plans, net of tax |
| | | (1 | ) | | | (1 | ) | |||||||||||||||||||
Unrealized gain on equity investment, net of tax |
| 6 | | | | | 6 | |||||||||||||||||||||
Equity in other comprehensive loss of subsidiaries |
| (1 | ) | (1 | ) | | | 2 | | |||||||||||||||||||
|
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|
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|
|
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|
|
|
|
|
|
|
|||||||||||||||
Other comprehensive income (loss), net of tax |
| 5 | (1 | ) | (1 | ) | (5 | ) | 2 | | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive (loss) income |
(105 | ) | (138 | ) | (144 | ) | 17 | 43 | 224 | (103 | ) | |||||||||||||||||
Comprehensive income attributable to non-controlling interest in subsidiaries |
| | | | (2 | ) | | (2 | ) | |||||||||||||||||||
|
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|
|||||||||||||||
Comprehensive (loss) income attributable to the Company |
$ | (105 | ) | $ | (138 | ) | $ | (144 | ) | $ | 17 | $ | 41 | $ | 224 | $ | (105 | ) | ||||||||||
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26
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2014
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Net revenue |
$ | | $ | | $ | | $ | 425 | $ | 698 | $ | | $ | 1,123 | ||||||||||||||
|
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|
|
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|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of revenue |
| | | 274 | 416 | | 690 | |||||||||||||||||||||
Selling, general and administrative |
15 | (3 | ) | (1 | ) | 85 | 89 | | 185 | |||||||||||||||||||
Depreciation and amortization |
| | | 94 | 19 | | 113 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
15 | (3 | ) | (1 | ) | 453 | 524 | | 988 | |||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating (loss) income |
(15 | ) | 3 | 1 | (28 | ) | 174 | | 135 | |||||||||||||||||||
Interest expense, net |
| | (166 | ) | (4 | ) | | | (170 | ) | ||||||||||||||||||
Loss on early extinguishment of debt |
| | (14 | ) | | | | (14 | ) | |||||||||||||||||||
Gain on sale of shares of Orbitz Worldwide |
| 52 | | | | | 52 | |||||||||||||||||||||
Equity in earnings (losses) of subsidiaries |
(10 | ) | (217 | ) | (38 | ) | | | 265 | | ||||||||||||||||||
|
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|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(Loss) income before income taxes and share of losses in equity method investments |
(25 | ) | (162 | ) | (217 | ) | (32 | ) | 174 | 265 | 3 | |||||||||||||||||
Provision for income taxes |
| | | (6 | ) | (16 | ) | | (22 | ) | ||||||||||||||||||
Share of losses in equity method investments |
| (3 | ) | | | | | (3 | ) | |||||||||||||||||||
|
|
|
|
|
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|
|
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|
|
|||||||||||||||
Net (loss) income |
(25 | ) | (165 | ) | (217 | ) | (38 | ) | 158 | 265 | (22 | ) | ||||||||||||||||
Net income attributable to non-controlling interest in subsidiaries |
| | | | (3 | ) | | (3 | ) | |||||||||||||||||||
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|
|
|||||||||||||||
Net (loss) income attributable to the Company |
$ | (25 | ) | $ | (165 | ) | $ | (217 | ) | $ | (38 | ) | $ | 155 | $ | 265 | $ | (25 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
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|
27
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended June 30, 2014
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Net (loss) income |
$ | (25 | ) | $ | (165 | ) | $ | (217 | ) | $ | (38 | ) | $ | 158 | $ | 265 | $ | (22 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other comprehensive income (loss), net of tax |
||||||||||||||||||||||||||||
Currency translation adjustment, net of tax |
| | | | 2 | | 2 | |||||||||||||||||||||
Realization of losses on cash flow hedges, net of tax |
| | 4 | | | | 4 | |||||||||||||||||||||
Unrealized loss on equity investment, net of tax |
| (4 | ) | | | | | (4 | ) | |||||||||||||||||||
Equity in other comprehensive income of subsidiaries |
2 | 4 | | | | (6 | ) | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other comprehensive income (loss), net of tax |
2 | | 4 | | 2 | (6 | ) | 2 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive (loss) income |
(23 | ) | (165 | ) | (213 | ) | (38 | ) | 160 | 259 | (20 | ) | ||||||||||||||||
Comprehensive income attributable to non-controlling interest in subsidiaries |
| | | | (3 | ) | | (3 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive (loss) income attributable to the Company |
$ | (23 | ) | $ | (165 | ) | $ | (213 | ) | $ | (38 | ) | $ | 157 | $ | 259 | $ | (23 | ) | |||||||||
|
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|
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28
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2013
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Net revenue |
$ | | $ | | $ | | $ | 417 | $ | 668 | $ | | $ | 1,085 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of revenue |
| | | 253 | 406 | | 659 | |||||||||||||||||||||
Selling, general and administrative |
16 | | 8 | 55 | 121 | | 200 | |||||||||||||||||||||
Depreciation and amortization |
| | | 74 | 27 | | 101 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
16 | | 8 | 382 | 554 | | 960 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating (loss) income |
(16 | ) | | (8 | ) | 35 | 114 | | 125 | |||||||||||||||||||
Interest expense, net |
| | (169 | ) | (5 | ) | | | (174 | ) | ||||||||||||||||||
Loss on early extinguishment of debt |
| | (49 | ) | | | | (49 | ) | |||||||||||||||||||
Equity in (losses) earnings of subsidiaries |
(99 | ) | (198 | ) | 28 | | | 269 | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(Loss) income before income taxes and share of earnings in equity method investments |
(115 | ) | (198 | ) | (198 | ) | 30 | 114 | 269 | (98 | ) | |||||||||||||||||
Provision for income taxes |
| | | (2 | ) | (15 | ) | | (17 | ) | ||||||||||||||||||
Share of earnings in equity method investments |
| 2 | | | | | 2 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net (loss) income |
(115 | ) | (196 | ) | (198 | ) | 28 | 99 | 269 | (113 | ) | |||||||||||||||||
Net income attributable to non-controlling interest in subsidiaries |
| | | | (2 | ) | | (2 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net (loss) income attributable to the Company |
$ | (115 | ) | $ | (196 | ) | $ | (198 | ) | $ | 28 | $ | 97 | $ | 269 | $ | (115 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
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|
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|
29
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended June 30, 2013
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Net (loss) income |
$ | (115 | ) | $ | (196 | ) | $ | (198 | ) | $ | 28 | $ | 99 | $ | 269 | $ | (113 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other comprehensive income (loss), net of tax |
||||||||||||||||||||||||||||
Currency translation adjustment, net of tax |
| | | | (8 | ) | | (8 | ) | |||||||||||||||||||
Unrealized actuarial loss on defined benefit plans, net of tax |
| | | (1 | ) | | | (1 | ) | |||||||||||||||||||
Unrealized gain on equity investment, net of tax |
| 11 | | | | | 11 | |||||||||||||||||||||
Equity in other comprehensive income (loss) of subsidiaries |
2 | (1 | ) | (1 | ) | | | | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other comprehensive income (loss), net of tax |
2 | 10 | (1 | ) | (1 | ) | (8 | ) | | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive (loss) income |
(113 | ) | (186 | ) | (199 | ) | 27 | 91 | 269 | (111 | ) | |||||||||||||||||
Comprehensive income attributable to non-controlling interest in subsidiaries |
| | | | (2 | ) | | (2 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive (loss) income attributable to the Company |
$ | (113 | ) | $ | (186 | ) | $ | (199 | ) | $ | 27 | $ | 89 | $ | 269 | $ | (113 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED BALANCE SHEETS
As of June 30, 2014
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | 29 | $ | 5 | $ | 59 | $ | | $ | 93 | ||||||||||||||
Accounts receivable, net |
| | | 4 | 211 | | 215 | |||||||||||||||||||||
Deferred income taxes |
| | | | 1 | | 1 | |||||||||||||||||||||
Other current assets |
2 | | 3 | 20 | 87 | | 112 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current assets |
2 | | 32 | 29 | 358 | | 421 | |||||||||||||||||||||
Investment in subsidiary/intercompany |
(1,081 | ) | (1,266 | ) | 1,851 | | | 496 | | |||||||||||||||||||
Property and equipment, net |
| | | 390 | 23 | | 413 | |||||||||||||||||||||
Goodwill |
| | | 960 | 40 | | 1,000 | |||||||||||||||||||||
Trademarks and tradenames |
| | | 313 | 1 | | 314 | |||||||||||||||||||||
Other intangible assets, net |
| | | 554 | 115 | | 669 | |||||||||||||||||||||
Cash held as collateral |
| | 70 | | | | 70 | |||||||||||||||||||||
Investment in Orbitz Worldwide |
| 10 | | | | | 10 | |||||||||||||||||||||
Deferred income tax |
| | | | 5 | | 5 | |||||||||||||||||||||
Other non-current assets |
| | 35 | 27 | 52 | | 114 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | (1,079 | ) | $ | (1,256 | ) | $ | 1,988 | $ | 2,273 | $ | 594 | $ | 496 | $ | 3,016 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Liabilities and equity |
||||||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | | $ | 37 | $ | 21 | | $ | 58 | |||||||||||||||
Accrued expenses and other current liabilities |
9 | | 91 | 136 | 319 | | 555 | |||||||||||||||||||||
Deferred income taxes |
| | | 24 | | | 24 | |||||||||||||||||||||
Current portion of long-term debt |
| | 16 | 30 | | | 46 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current liabilities |
9 | | 107 | 227 | 340 | | 683 | |||||||||||||||||||||
Long-term debt |
| | 3,142 | 68 | | | 3,210 | |||||||||||||||||||||
Deferred income taxes |
| | | 19 | 5 | | 24 | |||||||||||||||||||||
Other non-current liabilities |
| | 5 | 108 | 55 | | 168 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities |
9 | | 3,254 | 422 | 400 | 4,085 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total shareholders equity (deficit) / intercompany |
(1,088 | ) | (1,256 | ) | (1,266 | ) | 1,851 | 175 | 496 | (1,088 | ) | |||||||||||||||||
Equity attributable to non-controlling interest in subsidiaries |
| | | | 19 | | 19 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total equity (deficit)/intercompany |
(1,088 | ) | (1,256 | ) | (1,266 | ) | 1,851 | 194 | 496 | (1,069 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities and equity |
$ | (1,079 | ) | $ | (1,256 | ) | $ | 1,988 | $ | 2,273 | $ | 594 | $ | 496 | $ | 3,016 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED BALANCE SHEETS
As of December 31, 2013
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | 25 | $ | 51 | $ | 78 | $ | | $ | 154 | ||||||||||||||
Accounts receivable, net |
| | | 51 | 126 | | 177 | |||||||||||||||||||||
Deferred income taxes |
| | | | 1 | | 1 | |||||||||||||||||||||
Other current assets |
| | 7 | 26 | 101 | | 134 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current assets |
| | 32 | 128 | 306 | | 466 | |||||||||||||||||||||
Investment in subsidiary/intercompany |
(1,315 | ) | (1,426 | ) | 1,991 | | | 750 | | |||||||||||||||||||
Property and equipment, net |
| | | 405 | 23 | | 428 | |||||||||||||||||||||
Goodwill |
| | | 960 | 26 | | 986 | |||||||||||||||||||||
Trademarks and tradenames |
| | | 313 | 1 | | 314 | |||||||||||||||||||||
Other intangible assets, net |
| | | 577 | 94 | | 671 | |||||||||||||||||||||
Cash held as collateral |
| | 79 | | | | 79 | |||||||||||||||||||||
Investment in Orbitz Worldwide |
| 19 | | | | | 19 | |||||||||||||||||||||
Deferred income tax |
| | | | 5 | | 5 | |||||||||||||||||||||
Other non-current assets |
| | 48 | 35 | 37 | | 120 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | (1,315 | ) | $ | (1,407 | ) | $ | 2,150 | $ | 2,418 | $ | 492 | $ | 750 | $ | 3,088 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Liabilities and equity |
||||||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | | $ | 45 | $ | 27 | $ | | $ | 72 | ||||||||||||||
Accrued expenses and other current liabilities |
15 | 1 | 104 | 124 | 296 | | 540 | |||||||||||||||||||||
Deferred income taxes |
| | | 24 | | | 24 | |||||||||||||||||||||
Current portion of long-term debt |
| | 16 | 29 | | | 45 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current liabilities |
15 | 1 | 120 | 222 | 323 | | 681 | |||||||||||||||||||||
Long-term debt |
| | 3,450 | 78 | | | 3,528 | |||||||||||||||||||||
Deferred income taxes |
| | | 14 | 4 | | 18 | |||||||||||||||||||||
Other non-current liabilities |
| | 6 | 113 | 53 | | 172 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities |
15 | 1 | 3,576 | 427 | 380 | | 4,399 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total shareholders equity (deficit) / intercompany |
(1,330 | ) | (1,408 | ) | (1,426 | ) | 1,991 | 93 | 750 | (1,330 | ) | |||||||||||||||||
Equity attributable to non-controlling interest in subsidiaries |
| | | | 19 | | 19 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total equity (deficit)/ intercompany |
(1,330 | ) | (1,408 | ) | (1,426 | ) | 1,991 | 112 | 750 | (1,311 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities and equity |
$ | (1,315 | ) | $ | (1,407 | ) | $ | 2,150 | $ | 2,418 | $ | 492 | $ | 750 | $ | 3,088 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2014
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Operating activities |
||||||||||||||||||||||||||||
Net (loss) income |
$ | (25 | ) | $ | (165 | ) | $ | (217 | ) | $ | (38 | ) | $ | 158 | $ | 265 | $ | (22 | ) | |||||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
||||||||||||||||||||||||||||
Depreciation and amortization |
| | | 94 | 19 | | 113 | |||||||||||||||||||||
Amortization of customer loyalty payments |
| | | 11 | 26 | | 37 | |||||||||||||||||||||
Gain on sale of shares of Orbitz Worldwide |
| (52 | ) | | | | | (52 | ) | |||||||||||||||||||
Amortization of debt finance costs |
| | 6 | | | | 6 | |||||||||||||||||||||
Accrual of repayment fee and amortization of debt discount |
| | 5 | | | | 5 | |||||||||||||||||||||
Loss on early extinguishment of debt |
| | 14 | | | | 14 | |||||||||||||||||||||
Payment-in-kind interest |
| | 12 | | | | 12 | |||||||||||||||||||||
Share of losses in equity method investments |
| 3 | | | | | 3 | |||||||||||||||||||||
Equity-based compensation |
9 | | | | | | 9 | |||||||||||||||||||||
Deferred income taxes |
| | | 5 | | | 5 | |||||||||||||||||||||
Pension liability contribution |
| | | (3 | ) | | | (3 | ) | |||||||||||||||||||
Customer loyalty payments |
| | | (22 | ) | (23 | ) | | (45 | ) | ||||||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||||||||
Accounts receivable |
| | | 9 | (47 | ) | | (38 | ) | |||||||||||||||||||
Other current assets |
(2 | ) | | 4 | 6 | 1 | | 9 | ||||||||||||||||||||
Accounts payable, accrued expenses and other current liabilities |
6 | 1 | 12 | (4 | ) | (37 | ) | | (22 | ) | ||||||||||||||||||
Other |
| | 7 | 13 | (9 | ) | | 11 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net cash (used in) provided by operating activities |
(12 | ) | (213 | ) | (157 | ) | 71 | 88 | 265 | 42 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Investing activities |
||||||||||||||||||||||||||||
Property and equipment additions |
| | | (52 | ) | (2 | ) | | (54 | ) | ||||||||||||||||||
Proceeds from sale of shares of Orbitz Worldwide |
| 54 | | | | | 54 | |||||||||||||||||||||
Purchase of non-controlling interest in a subsidiary |
| | | | (65 | ) | | (65 | ) | |||||||||||||||||||
Business acquired |
| | | | (10 | ) | | (10 | ) | |||||||||||||||||||
Purchase of equity method investment |
| | | | (10 | ) | | (10 | ) | |||||||||||||||||||
Net intercompany funding |
12 | 159 | 164 | (50 | ) | (20 | ) | (265 | ) | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net cash provided by (used in) investing activities |
12 | 213 | 164 | (102 | ) | (107 | ) | (265 | ) | (85 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Table of Contents
TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2014
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Financing activities |
||||||||||||||||||||||||||||
Proceeds from revolver borrowings |
| | 50 | | | | 50 | |||||||||||||||||||||
Repayment of revolver borrowings |
| | (50 | ) | | | | (50 | ) | |||||||||||||||||||
Repayment of capital lease obligations |
| | | (15 | ) | | | (15 | ) | |||||||||||||||||||
Release of cash provided as collateral |
| | 9 | | | | 9 | |||||||||||||||||||||
Repayment of term loans |
| | (8 | ) | | | | (8 | ) | |||||||||||||||||||
Payment related to early extinguishment of debt |
| | (3 | ) | | | | (3 | ) | |||||||||||||||||||
Other |
| | (1 | ) | | | | (1 | ) | |||||||||||||||||||
|
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|
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Net cash used in financing activities |
| | (3 | ) | (15 | ) | | | (18 | ) | ||||||||||||||||||
|
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|||||||||||||||
Net increase (decrease) in cash and cash equivalents |
| | 4 | (46 | ) | (19 | ) | | (61 | ) | ||||||||||||||||||
Cash and cash equivalents at beginning of period |
| | 25 | 51 | 78 | | 154 | |||||||||||||||||||||
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Cash and cash equivalents at end of period |
| | $ | 29 | $ | 5 | $ | 59 | | $ | 93 | |||||||||||||||||
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TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2013
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Operating activities |
||||||||||||||||||||||||||||
Net (loss) income |
$ | (115 | ) | $ | (196 | ) | $ | (198 | ) | $ | 28 | $ | 99 | $ | 269 | $ | (113 | ) | ||||||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
||||||||||||||||||||||||||||
Depreciation and amortization |
| | | 74 | 27 | | 101 | |||||||||||||||||||||
Amortization of customer loyalty payments |
| | | 8 | 21 | | 29 | |||||||||||||||||||||
Amortization of debt finance costs and debt discount |
| | 19 | | | | 19 | |||||||||||||||||||||
Accrual of repayment fee and amortization of debt discount |
| | 1 | | | | 1 | |||||||||||||||||||||
Loss on early extinguishment of debt |
| | 49 | | | | 49 | |||||||||||||||||||||
Payment-in-kind interest |
| | 9 | | | | 9 | |||||||||||||||||||||
Share of earnings in equity method investments |
| (2 | ) | | | | | (2 | ) | |||||||||||||||||||
Equity-based compensation |
2 | | | | | | 2 | |||||||||||||||||||||
Equity in losses (earnings) of subsidiaries |
99 | 198 | (28 | ) | | | (269 | ) | | |||||||||||||||||||
Customer loyalty payments |
| | | (8 | ) | (28 | ) | | (36 | ) | ||||||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||||||||
Accounts receivable |
| | | (25 | ) | (40 | ) | | (65 | ) | ||||||||||||||||||
Other current assets |
| | | 7 | (11 | ) | | (4 | ) | |||||||||||||||||||
Accounts payable, accrued expenses and other current liabilities |
| | 19 | 28 | (56 | ) | | (9 | ) | |||||||||||||||||||
Other |
| | 21 | 21 | (11 | ) | | 31 | ||||||||||||||||||||
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Net cash (used in) provided by operating activities |
(14 | ) | | (108 | ) | 133 | 1 | | 12 | |||||||||||||||||||
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Investing activities |
||||||||||||||||||||||||||||
Property and equipment additions |
| | | (44 | ) | (2 | ) | | (46 | ) | ||||||||||||||||||
Other |
| | | (6 | ) | | | (6 | ) | |||||||||||||||||||
Net intercompany funding |
20 | | 35 | (75 | ) | 20 | | | ||||||||||||||||||||
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Net cash provided by (used in) investing activities |
20 | | 35 | (125 | ) | 18 | | (52 | ) | |||||||||||||||||||
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TRAVELPORT LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
15. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements (Continued)
TRAVELPORT LIMITED
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2013
(in $ millions) |
Parent Guarantor |
Intermediate Parent Guarantor |
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Travelport Consolidated |
|||||||||||||||||||||
Financing activities |
||||||||||||||||||||||||||||
Proceeds from revolver borrowings |
| | 53 | | | | 53 | |||||||||||||||||||||
Repayment of revolver borrowings |
| | (73 | ) | | | | (73 | ) | |||||||||||||||||||
Repayment of capital lease obligations |
| | | (8 | ) | | | (8 | ) | |||||||||||||||||||
Release of cash provided as collateral |
| | 137 | | | | 137 | |||||||||||||||||||||
Repayment of term loans |
| | (1,659 | ) | | | | (1,659 | ) | |||||||||||||||||||
Proceeds from new term loans |
| | 2,169 | | | | 2,169 | |||||||||||||||||||||
Repurchase of Senior Notes |
| | (413 | ) | | | | (413 | ) | |||||||||||||||||||
Cash provided as collateral |
| | (93 | ) | | | | (93 | ) | |||||||||||||||||||
Debt finance costs |
| | (55 | ) | | | | (55 | ) | |||||||||||||||||||
Distribution to a parent company |
(6 | ) | | | | | | (6 | ) | |||||||||||||||||||
Other |
| | (4 | ) | | | | (4 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net cash provided by (used in) financing activities |
(6 | ) | | 62 | (8 | ) | | | 48 | |||||||||||||||||||
|
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|
|
|
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|
|
|
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|
|
|
|||||||||||||||
Effect of changes in exchange rates on cash and cash equivalents |
| | | (1 | ) | | | (1 | ) | |||||||||||||||||||
Net (decrease) increase in cash and cash equivalents |
| | (11 | ) | (1 | ) | 19 | | 7 | |||||||||||||||||||
Cash and cash equivalents at beginning of period |
| | 51 | 3 | 56 | | 110 | |||||||||||||||||||||
|
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|
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|
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|
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Cash and cash equivalents at end of period |
| | $ | 40 | $ | 2 | $ | 75 | | $ | 117 | |||||||||||||||||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our results of operations and financial condition for the three and six months ended June 30, 2014 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. The following discussion and analysis includes forward-looking statements that reflect the current view of management and involve risks and uncertainties. Our actual results may differ materially from those contained in any forward-looking statements as a result of factors discussed below and elsewhere in this Quarterly Report, particularly under the headings Risk Factors and Forward-Looking Statements.
Overview
We are a leading travel commerce platform providing distribution, technology, payment and other solutions for the $7 trillion global travel and tourism industry. We facilitate travel commerce by connecting the worlds leading travel providers, such as airlines and hotel chains, with online and offline travel agencies and other travel buyers in our proprietary business-to-business (B2B) travel commerce platform. We processed over $85 billion of travel spending in 2013. Since 2012, we have strategically invested with a focus on redefining our Travel Commerce Platform to address the trends, inefficiencies and unmet needs of all components of the travel value chain.
During the first quarter of 2014, our management realigned our internal reporting to better reflect the underlying operations and revenue streams. As a consequence of this transformation, we have represented our revenues in line with our focus of enabling travel commerce through our platform. We now present Travel Commerce Platform revenue which includes Air and Beyond Air revenue and Technology Services revenue which includes airline hosting. We no longer present Transaction Processing revenue and Airline IT Solutions revenue. As a result of this, we have also recomputed our performance metric RevPas for prior quarters in line with 2014 calculation and presentation. We have only one reporting segment.
Travel Commerce Platform
Our Travel Commerce Platform combines state-of-the-art technology with features, functionality and innovative solutions to address the high-volume and growing transaction processing requirements for the evolving needs of the travel industry.
Air
We provide comprehensive real-time search, pricing, booking, change, payment and integrated itinerary creation for travelers who use the services of online and offline travel agencies for both leisure and business travel. We provide such services to approximately 400 airlines globally, including approximately 85 Low Cost Carriers (LCCs). Our access to business travelers, merchandising capabilities and ability to process complex itineraries has recently attracted several fast-growing LCCs such as Air Asia, Ryanair and Spirit Airlines into our Travel Commerce Platform.
Beyond Air
We have expanded our Travel Commerce Platform with a fast growing portfolio of Beyond Air initiatives. Our Beyond Air portfolio includes hospitality, payment solutions, advertising and other platform services.
For the hospitality sector of the travel industry, we provide innovative distribution and merchandising solutions for hotel, car rental, rail, cruise-line and tour operators. Based on our estimates we offer the largest inventory of hotel properties on any travel platform in the world via our innovative distribution and merchandising solutions for both chain and independent hotels.
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We are an early adopter in automated B2B payments, which we believe are redefining payments between travel agencies to travel providers. eNetts core offering is a Virtual Account Number (VAN) payment solution that automatically generates unique MasterCard numbers used to process payments globally. eNetts operations currently focus on Asia Pacific and Europe, and we believe the model is highly scalable. We have expanded beyond the core hospitality sector into air travel, including LCCs, with further opportunities for growth in other sectors of the travel industry. eNett was formed in 2009, and in 2013, eNett settled over 10 million VANs.
In addition to distribution and payments, we utilize the broad connections and extensive data managed by our Travel Commerce Platform to provide advertising solutions that allow our travel providers to easily and cost-effectively promote upgrades, ancillary products or services, package deals and other offers. We also offer other platform services, including subscription services, processing services, business intelligence data services, and marketing-oriented analytical tools to travel agencies, travel providers and other travel data users.
Technology Services
We provide critical hosting solutions to airlines, such as pricing, shopping, ticketing, ground handling and other services, enabling them to focus on their core business competencies and reduce costs. We also host and manage reservations, inventory management and other related critical systems for Delta Air Lines Inc. (Delta), and in May 2014, we signed a new long-term agreement to continue to run the system infrastructure for the Delta platform in our Atlanta data center. In addition, we own 51% of IGT Solutions Private Ltd, an application development services provider based in New Delhi, India that is used for both internal and external software development.
Management Performance Metrics
Our management team monitors the performance of our operations against our strategic objectives. We assess our performance using both financial and non-financial measures. As a Travel Commerce Platform, we measure performance primarily on the basis of increases in both Reported Segments and Travel Commerce Platform revenue per Reported Segment (RevPas). Travel Commerce Platform RevPas is computed by dividing Travel Commerce Platform revenue by the total number of Reported Segments. Travel Commerce Platform revenue is generated from a wide portfolio of products and services, including traditional air bookings, ancillaries, hospitality, payment solutions, advertising and other platform services. Reported Segments means travel provider revenue generating units (net of cancellations) sold by our travel agency network, geographically presented by region based upon the point of sale location. We also use Adjusted Net Income (Loss) and Adjusted EBITDA as performance metric.
The table below sets out our performance metrics:
Three Months Ended June 30, |
Change | Six Months Ended June 30, |
Change | |||||||||||||||||||||||||||||
(in $ millions, except segment data and RevPas) |
2014 | 2013 |
|
% | 2014 | 2013 |
|
% | ||||||||||||||||||||||||
Adjusted Net Loss(1) |
$ | (9 | ) | $ | (15 | ) | $ | 6 | 34 | $ | (6 | ) | $ | (1 | ) | $ | (5 | ) | * | |||||||||||||
Adjusted EBITDA(1) |
146 | 139 | 7 | 5 | 297 | 280 | 17 | 6 | ||||||||||||||||||||||||
Travel Commerce Platform RevPas |
5.75 | 5.66 | 0.09 | 2 | 5.68 | 5.56 | 0.12 | 2 | ||||||||||||||||||||||||
Reported Segments |
90 | 89 | 1 | 1 | 187 | 184 | 3 | 1 |
* | Not meaningful |
(1) | Adjusted Net Income (Loss) is defined as net income (loss) from continuing operations excluding amortization of acquired intangible assets, gain (loss) on early extinguishment of debt, share of earnings (losses) in equity method investments, and items that are excluded under our debt covenants, such as gain on sale of shares of Orbitz Worldwide, non-cash equity-based compensation, certain corporate and restructuring costs, certain litigation and related costs, and other non-cash items such as foreign currency gains (losses) on euro denominated debt, and earnings hedges along with any income tax related to these exclusions. |
(2) | Adjusted EBITDA is defined as Adjusted Net Income (Loss) excluding depreciation and amortization of property and equipment, amortization of customer loyalty payments, interest, and income taxes. |
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We have included Adjusted Net Income (Loss) and Adjusted EBITDA as they are supplemental measures of operating performance that do not represent and should not be considered as alternatives to net income (loss), as determined under US GAAP. In addition, Adjusted Net Income (Loss) and Adjusted EBITDA may not be comparable to similarly named measures used by other companies. The presentation of Adjusted Net Income (Loss) and Adjusted EBITDA have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of Travelports results as reported under US GAAP.
We have included Adjusted Net Income (Loss) and Adjusted EBITDA as they are primary metrics used by management to evaluate and understand the underlying operations and business trends, forecast future results and determine future capital investment allocations. Further, Adjusted EBITDA is a key element used to calculate our covenant ratios under our credit agreements and is used by the Board of Directors to determine incentive compensation for future periods.
We believe Adjusted Net Income and Adjusted EBITDA are useful measures as they allow management to monitor our ongoing core operations. The core operations represent the primary 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.
As a travel commerce platform provider, we measure our growth primarily on the basis of increase in RevPas combined with measuring total air and non-air segment growth processed through our platform. As a result of realignment of revenue streams in the first quarter of 2014, certain revenue forming part of Transaction processing revenue is now a part of Technology Services and certain revenue forming part of Airline IT Solutions is now part of Travel Commerce Platform. As a result, our RevPas reported for earlier period has been recomputed to align with current period methodology.
The following table provides a reconciliation of net income (loss) to Adjusted Net Loss and to Adjusted EBITDA:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(in $ millions) |
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income (loss) |
$ | 5 | $ (103 | ) | $ (22 | ) | $ (113 | ) | ||||||||
Adjustments: |
||||||||||||||||
Amortization of intangible assets(1) |
20 | 20 | 39 | 40 | ||||||||||||
Loss on early extinguishment of debt |
9 | 49 | 14 | 49 | ||||||||||||
Share of (earnings) losses in equity method investments |
(1 | ) | | 3 | (2 | ) | ||||||||||
Gain on sale of shares of Orbitz Worldwide |
(52 | ) | | (52 | ) | | ||||||||||
Equity-based compensation |
8 | 2 | 9 | 2 | ||||||||||||
Corporate and restructuring costs(2) |
3 | 3 | 6 | 4 | ||||||||||||
Litigation and related costs(3) |
| 2 | | 12 | ||||||||||||
Othernon cash(4) |
(1 | ) | 12 | (3 | ) | 7 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted Net Loss |
(9 | ) | (15 | ) | (6 | ) | (1 | ) | ||||||||
Adjustments: |
||||||||||||||||
Depreciation and amortization of property and equipment |
37 | 29 | 74 | 61 | ||||||||||||
Amortization of customer loyalty payments |
19 | 15 | 37 | 29 | ||||||||||||
Interest expense, net |
87 | 104 | 170 | 174 | ||||||||||||
Provision for income taxes |
12 | 6 | 22 | 17 | ||||||||||||
|
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|
|||||||||
Adjusted EBITDA |
$ | 146 | $ | 139 | $ | 297 | $ | 280 | ||||||||
|
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|
|
(1) | Relates primarily to intangible assets acquired in the sale of Travelport to Blackstone in 2006 and from the acquisition of Worldspan in 2007. |
(2) | Relates to costs associated with corporate development transactions and costs incurred to enhance our organizations efficiency. |
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(3) | Litigation and related costs relate to the American Airlines and bondholders litigation costs, each of which were settled in 2013. |
(4) | Othernon cash primarily includes unrealized losses (gains) on foreign currency exchange derivatives and revaluation losses (gains) of our euro denominated debt of $0 and $11 million for the three months ended June 30, 2014 and 2013, respectively, and $(1) million and $6 million for the six months ended June 30, 2014 and 2013, respectively. |
Factors Affecting Results of Operations
Geographic Mix: Our geographically dispersed footprint helps insulate us from particular country or regional instability, allows for optimal information technology efficiency and enhances our value proposition to travel providers. We are well positioned to capture higher value business from travel providers operating in away markets, which results in higher per transaction revenue for both us and the travel providers we serve. The table below sets forth revenue by region for our Travel Commerce Platform for the three and six months ended June 30, 2014 and 2013:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(in $ millions) |
2014 | 2013 | 2014 | 2013 | ||||||||||||
Asia Pacific |
$ | 100 | $ | 96 | $ | 201 | $ | 190 | ||||||||
Europe |
155 | 150 | 333 | 314 | ||||||||||||
Latin America and Canada |
22 | 22 | 45 | 44 | ||||||||||||
Middle East and Africa |
75 | 74 | 147 | 144 | ||||||||||||
|
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|
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International |
352 | 342 | 726 | 692 | ||||||||||||
United States |
166 | 165 | 334 | 332 | ||||||||||||
|
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|
|||||||||
Travel Commerce Platform |
$ | 518 | $ | 507 | $ | 1,060 | $ | 1,024 | ||||||||
|
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|
We expect some of the regions in which we currently operate, such as Asia Pacific, Latin America and the Middle East, to experience growth in travel that is greater than the global average due to factors such as economic growth and a growing middle class, while more mature regions, such as the United States, remain stable. As these emerging travel regions may grow at a higher rate than mature regions, the geographic distribution of our revenue may similarly shift.
Customer Mix: We believe our customer mix is broadly diversified, supporting our stable and recurring business model with high revenue visibility. We provide air distribution services to approximately 400 airlines globally, including approximately 85 LCCs. In addition, we serve numerous Beyond Air travel providers, including approximately 35,000 car rental locations and 55 cruise-line and tour operators. We aggregate travel content across approximately 67,000 travel agency locations representing 234,000 online and offline travel agency terminals worldwide, which in turn serves millions of end customers globally. Although none of our travel buyers or travel providers accounted for more than 10% of our revenue for the six months ended June 30, 2014, a change in the mix of our customers and services used by them on our Travel Commerce Platform can cause our revenue to change.
Renegotiated Legacy Contracts: Orbitz Worldwide is currently our largest travel agency on our Travel Commerce Platform and accounted for 7% of our net revenue for the six months ended June 30, 2014. In February 2014, we entered into a new long-term agreement under which Orbitz Worldwide will use our services in the United States and other countries. Under the new agreement, which replaced our existing agreement with Orbitz Worldwide, we will pay incremental benefits in 2014 and further increased fees in later years for each air, car and hotel segment. In addition, Orbitz Worldwide will receive wider flexibility to use traditional GDS providers for services beginning in 2015. In exchange for the enhanced payments, Orbitz Worldwide agreed to generate a minimum specified book of business through our Travel Commerce Platform and pay a shortfall
40
Table of Contents
payment if the minimum volume is not met. Due to the increase in payments payable to Orbitz Worldwide under the new agreement, we expect a negative impact on our 2014 cash flow and no impact to our 2014 Adjusted EBITDA. From 2015 onwards, the combination of increased payments and greater flexibility for Orbitz Worldwide will have a greater impact on both our earnings and cash flow.
In May 2014, we restructured and extended our Technology Services relationship with Delta. Delta will acquire the data and intellectual property rights central to its passenger service and flight operations systems. We will continue to run the systems infrastructure and hosting for the Delta platform in our Atlanta data center on our hardware and with our systems monitoring and support. We will see a reduction in both revenue and costs, effective July 1, 2014, when we transitioned approximately 175 employees to Delta, and we estimate there will be a minor impact to our Adjusted EBITDA in 2015.
Seasonality: Our revenue can experience seasonal fluctuations, reflecting seasonal demand trends for the products and services we offer. These trends generally cause our revenue to be higher in the first and second quarters as compared to the third and fourth quarters of the calendar year. Revenue typically peaks during these times as travelers plan and purchase their upcoming spring and summer travel.
Foreign Exchange Fluctuations: We are exposed to movements in currency exchange rates that impact our operating results. While substantially all of our revenue is denominated in US dollars, a portion of our operating cost base, primarily commissions, is transacted in non-US dollar currencies (principally, the British pound, Euro and Australian dollar), and a portion of our debt is euro denominated.
Litigation and Related Costs: We are involved in various claims, legal proceedings and governmental inquiries related to contract disputes, business practices, intellectual property and other commercial, employment and tax matters. We believe we have adequately accrued for such matters, and for costs of defending against such matters. However, litigation is inherently unpredictable and although we believe that our accruals are adequate and we have valid defenses in these matters, unfavorable resolutions could occur, which could have a material adverse effect on our results of operations or cash flows in a particular reporting period.
Results of Operations
Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
Three Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Net revenue |
$ | 551 | $ | 537 | $ | 14 | 3 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Costs and expenses |
||||||||||||||||
Cost of revenue |
337 | 326 | 11 | 4 | ||||||||||||
Selling, general and administrative |
97 | 106 | (9 | ) | (9 | ) | ||||||||||
Depreciation and amortization |
57 | 49 | 8 | 17 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total costs and expenses |
491 | 481 | 10 | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
60 | 56 | 4 | 7 | ||||||||||||
Interest expense, net |
(87 | ) | (104 | ) | 17 | 17 | ||||||||||
Loss on early extinguishment of debt |
(9 | ) | (49 | ) | 40 | 82 | ||||||||||
Gain on sale of shares of Orbitz Worldwide |
52 | | 52 | * | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes and share of earnings in equity method investments |
16 | (97 | ) | 113 | * | |||||||||||
Provision for income taxes |
(12 | ) | (6 | ) | (6 | ) | 73 | |||||||||
Share of earnings in equity method investments |
1 | | 1 | * | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 5 | $ | (103 | ) | $ | 108 | * | ||||||||
|
|
|
|
|
|
|
|
* | Not meaningful |
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Table of Contents
Net Revenue
Net revenue is comprised of:
Three Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Air |
$ | 410 | $ | 410 | $ | | | |||||||||
Beyond Air |
108 | 97 | 11 | 12 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Travel Commerce Platform |
518 | 507 | 11 | 2 | ||||||||||||
Technology Services |
33 | 30 | 3 | 7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Revenue |
$ | 551 | $ | 537 | $ | 14 | 3 | |||||||||
|
|
|
|
|
|
|
|
During the three months ended June 30, 2014, Net revenue increased by $14 million, or 3%, compared to the three months ended June 30, 2013. This increase was primarily driven by an increase of $11 million, or 2% in Travel Commerce Platform revenue.
Travel Commerce Platform
The table below sets forth Travel Commerce Platform RevPas and Reported Segments:
Three Months Ended June 30, |
Change | |||||||||||||||
2014 | 2013 | $ | % | |||||||||||||
Travel Commerce Platform RevPas (in $) |
$ | 5.75 | $ | 5.66 | $ | 0.09 | 2 | |||||||||
Reported Segments (in millions) |
90 | 89 | 1 | 1 |
The increase in Travel Commerce Platform revenue of $11 million, or 2%, was due to an $11 million, or 12%, increase in Beyond Air revenue with Air revenue remaining flat. Overall, there was a 2% increase in Travel Commerce Platform RevPas and a 1% increase in Reported Segments.
Our Travel Commerce Platform continues to benefit from growth in Beyond Air revenue. The value of transactions processed on the Travel Commerce Platform increased to $23.7 billion for the three months ended June 30, 2014 from $22.9 billion for the three months ended June 30, 2013. We issued 31 million airline tickets in each period, and our percentage of Air segment revenue from away bookings was 63% in each period. We increased our hospitality segments per 100 airline tickets issued to 43 from 42, and we increased our hotel room nights sold to 16 million from 15 million, our car rental days sold to 22 million from 20 million and our eNett VANs settled to 3.5 million from 2.6 million.
The table below sets forth Travel Commerce Platform revenue by region:
Three Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Asia Pacific |
$ | 100 | $ | 96 | $ | 4 | 5 | |||||||||
Europe |
155 | 150 | 5 | 4 | ||||||||||||
Latin America and Canada |
22 | 22 | | (1 | ) | |||||||||||
Middle East and Africa |
75 | 74 | 1 | 1 | ||||||||||||
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International |
352 | 342 | 10 | 3 | ||||||||||||
United States |
166 | 165 | 1 | | ||||||||||||
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Travel Commerce Platform |
$ | 518 | $ | 507 | $ | 11 | 2 | |||||||||
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The table below sets forth Reported Segments and RevPas by region:
Segments (in millions) | RevPas (in $) | |||||||||||||||||||||||||||||||
Three Months Ended June 30, |
Change | Three Months Ended June, 30 |
Change | |||||||||||||||||||||||||||||
2014 | 2013 |
|
% | 2014 | 2013 | $ | % | |||||||||||||||||||||||||
Asia Pacific |
14 | 14 | | (1 | ) | $ | 7.09 | $ | 6.67 | $ | 0.42 | 6 | ||||||||||||||||||||
Europe |
22 | 22 | | 1 | 7.14 | 6.98 | 0.16 | 2 | ||||||||||||||||||||||||
Latin America and Canada |
4 | 3 | 1 | | 5.92 | 5.89 | 0.03 | | ||||||||||||||||||||||||
Middle East and Africa |
10 | 10 | | (1 | ) | 7.31 | 7.14 | 0.17 | 2 | |||||||||||||||||||||||
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International |
50 | 49 | 1 | | 7.07 | 6.84 | 0.23 | 3 | ||||||||||||||||||||||||
United States |
40 | 40 | | 1 | 4.13 | 4.17 | (0.04 | ) | (1 | ) | ||||||||||||||||||||||
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Travel Commerce Platform |
90 | 89 | 1 | 1 | $ | 5.75 | $ | 5.66 | $ | 0.09 | 2 | |||||||||||||||||||||
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International
Our International Travel Commerce Platform revenue increased $10 million, or 3%, due to a 3% increase in RevPas with Reported Segments remaining flat. The RevPas increase across the regions was a result of growing our Beyond Air offerings, including growth in payment solutions, hospitality, advertising and other platform services. Our International Travel Commerce Platform revenue as a percentage of Total Commerce Platform revenue increased from 67% for the three months ended June 30, 2013 to 68% for the three months ended June 30, 2014.
Asia Pacific
Revenue in Asia Pacific increased $4 million, or 5%, due to a 6% increase in RevPas offset by a 1% decrease in Reported Segments primarily due to a reduction of Reported Segments in Australia. RevPas increased 6% due to growth in Air revenue and growth in Beyond Air including increased revenue from other platform services.
Europe
Revenue in Europe increased $5 million, or 4%, due to a 1% increase in Reported Segments and a 2% increase in RevPas. Reported Segment increased primarily due to increased segments with strong growth in the United Kingdom and Greece offset by declining segments in France. RevPas increased due to Beyond Air growth, including increased revenue from eNett.
Latin America and Canada
Revenue in Latin America and Canada substantially remained flat.
Middle East and Africa
Revenue in the Middle East and Africa increased $1 million, or 1%, due to a 2% increase in RevPas offset by a 1% decrease in Reported Segments.
United States
Revenue in the United States increased $1 million, primarily due to 1% increase in Reported Segments partially offset by a 1% decrease in RevPas.
Technology Services
Technology Services revenue increased by $3 million, or 7%, due to increased hosting revenue.
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Cost of Revenue
Cost of revenue is comprised of:
Three Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Commissions |
$ | 258 | $ | 249 | $ | 9 | 3 | |||||||||
Technology costs |
79 | 77 | 2 | 3 | ||||||||||||
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Cost of revenue |
$ | 337 | $ | 326 | $ | 11 | 4 | |||||||||
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Cost of revenue increased by $11 million, or 4%, primarily as a result of a $9 million, or 3%, increase in commission costs. Commissions paid to travel agencies increased due to a 2% increase in travel distribution cost per segment, a 1% increase in Reported Segments and incremental commission costs from our payment processing business. Commissions included amortization of customer loyalty payments of $19 million and $15 million for the three months ended June 30, 2014 and 2013, respectively. Technology costs across the shared infrastructure that runs our Travel Commerce Platform and Technology Services increased by $2 million, or 3%.
Selling, General and Administrative (SG&A)
SG&A is comprised of:
Three Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Workforce |
$ | 73 | $ | 68 | $ | 5 | 7 | |||||||||
Non-workforce |
14 | 19 | (5 | ) | (26 | ) | ||||||||||
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Sub-total |
87 | 87 | | | ||||||||||||
Non-core corporate costs |
10 | 19 | (9 | ) | (49 | ) | ||||||||||
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SG&A |
$ | 97 | $ | 106 | $ | (9 | ) | (9 | ) | |||||||
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SG&A expenses decreased by $9 million, or 9%, during the three months ended June 30, 2014 compared to June 30, 2013. SG&A expenses include $10 million and $19 million of charges for the three months ended June 30, 2014 and 2013, respectively, for non-core corporate costs that are removed from Adjusted EBITDA. Excluding these items, our SG&A expenses for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 were flat. Workforce expenses, which include the wages and benefits of our selling, marketing, advertising, finance and legal personnel increased by $5 million, or 7%, primarily as a result of increased headcount and merit increases awarded to staff during 2013. Non-workforce expenses, which include costs of finance and legal professional fees, communications and marketing and foreign exchange related costs, decreased $5 million, or 26%, primarily due to favorable foreign exchange movement.
Non-core corporate costs of $10 million and $19 million for the three months ended June 30, 2014 and 2013, respectively, represent costs related to strategic transactions and restructurings, equity-based compensation, certain legal and related costs and foreign currency gains and losses related to euro denominated debt and derivatives. The decrease of $9 million is primarily due to a $2 million reduction in legal and related costs, $11 million lower unrealized foreign exchange losses on euro denominated debt and derivatives partially offset by a $6 million increase in equity-based compensation.
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Depreciation and Amortization
Depreciation and amortization is comprised of:
Three Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Depreciation on property and equipment |
$ | 37 | $ | 29 | $ | 8 | 33 | |||||||||
Amortization of acquired intangible assets |
20 | 20 | | (6 | ) | |||||||||||
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Total depreciation and amortization |
$ | 57 | $ | 49 | $ | 8 | 17 | |||||||||
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Total depreciation and amortization increased by $8 million, or 17%, due to an increase in depreciation on property and equipment primarily due to a higher capitalized cost of internally developed software as we continue to develop our systems to enhance our Travel Commerce Platform.
Interest Expense, Net
Interest expense, net, decreased by $17 million, or 17%, due to a decrease in debt refinance costs incurred during the three months ended June 30, 2013 in relation to comprehensive debt refinancings, partially offset by higher interest rates during the three months ended June 30, 2014.
Loss on Early Extinguishment of Debt
During the three months ended June 30, 2014, we cancelled $122 million of our senior subordinated notes and $60 million of our senior notes, contributed to us by our parent company, which resulted in a loss on early extinguishment of debt of $9 million. During the three months ended June 30, 2013, we amended our senior secured credit agreement, repaid dollar denominated term loans under senior secured credit agreement and refinanced senior notes resulting in $49 million loss on early extinguishment of debt, which comprised of $39 million of unamortized debt finance costs written-off, $5 million of unamortized debt discount written-off and $5 million of early repayment penalty.
Gain on Sale of Shares of Orbitz Worldwide
During the three months ended June 30, 2014, we sold 8.6 million shares of common stock of Orbitz Worldwide in an underwritten public offering and recognized a gain of $52 million.
Provision for Income Taxes
Our tax provision differs significantly from the US Federal statutory rate primarily as a result of (i) being subject to income tax in numerous non-US jurisdictions with varying income tax rates, (ii) a valuation allowance established in the US due to the historical losses in that jurisdiction, (iii) certain expenses that are not deductible for tax or do not secure an effective tax deduction under the relevant jurisdictions and (iv) certain income or gains which are not subject to tax.
Share of Earnings (Losses) in Equity Method Investments
Our share of earnings in equity method investments was primarily from Orbitz Worldwide and was $1 million for the three months ended June 30, 2014 compared to earnings of $0 for the three months ended June 30, 2013. During the three months ended June 30, 2014, these earnings reflect approximately 44% of our ownership interest for April and May 2014 and approximately 36% of our ownership interest for the month of June 2014 following our sale of 8.6 million shares of Orbitz Worldwides common stock. In July 2014, we sold substantially all of the remaining shares of Orbitz Worldwide for approximately $312 million and used the
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proceeds to repay a portion of our outstanding first lien term loans. Consequently, we will discontinue equity method of accounting. For the three months ended June 30, 2013, these earnings reflect approximately 45% of our ownership interest in Orbitz Worldwide.
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
Six Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Net revenue |
$ | 1,123 | $ | 1,085 | $ | 38 | 4 | |||||||||
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Costs and expenses |
||||||||||||||||
Cost of revenue |
690 | 659 | 31 | 5 | ||||||||||||
Selling, general and administrative |
185 | 200 | (15 | ) | (7 | ) | ||||||||||
Depreciation and amortization |
113 | 101 | 12 | 11 | ||||||||||||
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Total costs and expenses |
988 | 960 | 28 | 3 | ||||||||||||
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Operating income |
135 | 125 | 10 | 8 | ||||||||||||
Interest expense, net |
(170 | ) | (174 | ) | 4 | 3 | ||||||||||
Loss on early extinguishment of debt |
(14 | ) | (49 | ) | 35 | 71 | ||||||||||
Gain on sale of shares of Orbitz Worldwide |
52 | | 52 | * | ||||||||||||
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Income (loss) before income taxes and share of (losses) earnings in equity method investments |
3 | (98 | ) | 101 | * | |||||||||||
Provision for income taxes |
(22 | ) | (17 | ) | (5 | ) | (28 | ) | ||||||||
Share of earnings (losses) in equity method investments |
(3 | ) | 2 | (5 | ) | * | ||||||||||
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Net loss |
$ | (22 | ) | $ | (113 | ) | $ | 91 | 80 | |||||||
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* | Not meaningful |
Net Revenue
Net revenue is comprised of:
Six Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Air |
$ | 855 | $ | 838 | $ | 17 | 2 | |||||||||
Beyond Air |
205 | 186 | 19 | 10 | ||||||||||||
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Travel Commerce Platform |
1,060 | 1,024 | 36 | 4 | ||||||||||||
Technology Services |
63 | 61 | 2 | 3 | ||||||||||||
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Net Revenue |
$ | 1,123 | $ | 1,085 | $ | 38 | 4 | |||||||||
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During the six months ended June 30, 2014, Net revenue increased by $38 million, or 4%, compared to the six months ended June 30, 2013. This increase was primarily driven by an increase in Travel Commerce Platform revenue of $36 million, or 4%.
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Travel Commerce Platform
The table below sets forth Travel Commerce Platform RevPas and Reported Segments:
Six Months Ended June 30, |
Change | |||||||||||||||
2014 | 2013 | $ | % | |||||||||||||
Travel Commerce Platform RevPas (in $) |
$ | 5.68 | $ | 5.56 | $ | 0.12 | 2 | |||||||||
Reported Segments (in millions) |
187 | 184 | 3 | 1 |
The increase in Travel Commerce Platform revenue of $36 million, or 4%, was due to a $17 million, or 2%, increase in our Air revenue and a $19 million, or 10%, increase in our Beyond Air revenue. Overall, there was a 2% increase in Travel Commerce Platform RevPas and a 1% increase in Reported Segments.
Our Travel Commerce Platform continues to benefit from growth in Air revenue and Beyond Air revenue. The value of transactions processed on the Travel Commerce Platform increased to $46.6 billion for the six months ended June 30, 2014 from $45.5 billion for the six months ended June 30, 2013. We increased our airline tickets sold to 64 million from 63 million and our percentage of Air segment revenue from away bookings was 63% in each period. We increased our hospitality segments per 100 airline tickets issued to 40 from 39 and we increased our hotel room nights sold to 31 million from 30 million, our car rental days sold to 41 million from 37 million and our eNett VANs settled to 6.6 million from 4.9 million.
The table below sets forth Travel Commerce Platform revenue by region:
Six Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Asia Pacific |
$ | 201 | $ | 190 | $ | 11 | 6 | |||||||||
Europe |
333 | 314 | 19 | 6 | ||||||||||||
Latin America and Canada |
45 | 44 | 1 | 2 | ||||||||||||
Middle East and Africa |
147 | 144 | 3 | 2 | ||||||||||||
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International |
726 | 692 | 34 | 5 | ||||||||||||
United States |
334 | 332 | 2 | | ||||||||||||
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Travel Commerce Platform |
$ | 1,060 | $ | 1,024 | $ | 36 | 4 | |||||||||
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The table below sets forth Reported Segments and RevPas by region:
Segments (in millions) | RevPas (in $) | |||||||||||||||||||||||||||||||
Six Months Ended June 30, |
Change | Six Months Ended June, 30 |
Change | |||||||||||||||||||||||||||||
2014 | 2013 |
|
% | 2014 | 2013 | $ | % | |||||||||||||||||||||||||
Asia Pacific |
30 | 29 | 1 | 1 | $ | 6.89 | $ | 6.55 | $ | 0.34 | 5 | |||||||||||||||||||||
Europe |
47 | 46 | 1 | 3 | 7.05 | 6.87 | 0.18 | 3 | ||||||||||||||||||||||||
Latin America and Canada |
8 | 7 | 1 | 1 | 5.84 | 5.80 | 0.04 | 1 | ||||||||||||||||||||||||
Middle East and Africa |
20 | 20 | | 1 | 7.21 | 7.12 | 0.09 | 1 | ||||||||||||||||||||||||
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International |
105 | 102 | 3 | 2 | 6.95 | 6.75 | 0.20 | 3 | ||||||||||||||||||||||||
United States |
82 | 82 | | | 4.07 | 4.06 | 0.01 | | ||||||||||||||||||||||||
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Travel Commerce Platform |
187 | 184 | 3 | 1 | $ | 5.68 | $ | 5.56 | $ | 0.12 | 2 | |||||||||||||||||||||
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47
Table of Contents
International
Our International Travel Commerce Platform revenue increased $34 million, or 5%, due to a 2% increase in Reported Segments and a 3% increase in RevPas. The RevPas increase across the regions was a result of growing our ancillary Air revenue, including our premium functionality services, and Beyond Air offerings including growth in payment solutions, hospitality, advertising, and other platform services. Our International Travel commerce Platform revenue as a percentage of Total Commerce Platform revenue increased from 68% for the six months ended June 30, 2013 to 69% for the six months ended June 30, 2014.
Asia Pacific
Revenue in Asia Pacific increased $11 million, or 6%, due to a 5% increase in RevPas and a 1% increase in Reported Segments. RevPas increased due to growth in Air revenue and Beyond Air growth including increased revenue from other platform services.
Europe
Revenue in Europe increased $19 million, or 6%, due to a 3% increase in both Reported Segments and RevPas. Reported Segments increased primarily due to increased segments in Western Europe, with strong growth in the United Kingdom, Italy and Greece offset by a decline in France. RevPas increased due to Beyond Air growth, including increased revenue from eNett.
Latin America and Canada
Revenue in Latin America and Canada increased $1 million, or 2%, due to a 1% increase in Reported Segments and a 1% increase in RevPas. Reported Segments increased due to continued expansion of our content offerings in Canada and Colombia.
Middle East and Africa
Revenue in the Middle East and Africa increased $3 million, or 2%, due to a 1% increase in each of Reported Segments and RevPas.
United States
Revenue in the United States increased $2 million primarily due to Beyond Air growth in hospitality and advertising.
Technology Services
Technology Services revenue increased by $2 million, or 3%, primarily due to an increased hosting revenue.
Cost of Revenue
Cost of revenue is comprised of:
Six Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Commissions |
$ | 535 | $ | 507 | $ | 28 | 5 | |||||||||
Technology costs |
155 | 152 | 3 | 2 | ||||||||||||
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Cost of revenue |
$ | 690 | $ | 659 | $ | 31 | 5 | |||||||||
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Cost of revenue increased by $31 million, or 5%, primarily as a result of a $28 million, or 5%, increase in commission costs. Commissions paid to travel agencies increased due to a 3% increase in travel distribution cost per segment, a 1% increase in Reported Segments and incremental commission costs from our payment processing business. Commissions included amortization of customer loyalty payments of $37 million and $29 million for the six months ended June 30, 2014 and 2013, respectively. Technology costs across the shared infrastructure that runs our Travel Commerce Platform and Technology Services increased by $3 million, or 2%.
Selling, General and Administrative (SG&A)
SG&A is comprised of:
Six Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Workforce |
$ | 148 | $ | 143 | $ | 5 | 4 | |||||||||
Non-workforce |
25 | 32 | (7 | ) | (22 | ) | ||||||||||
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Sub-total |
173 | 175 | (2 | ) | (1 | ) | ||||||||||
Non-core corporate costs |
12 | 25 | (13 | ) | (51 | ) | ||||||||||
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SG&A |
$ | 185 | $ | 200 | $ | (15 | ) | (7 | ) | |||||||
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|
|
SG&A expenses decreased by $15 million, or 7%, during the six months ended June 30, 2014 compared to June 30, 2013. SG&A expenses include $12 million and $25 million of charges for the six months ended June 30, 2014 and 2013, respectively, for non-core corporate costs that are removed from Adjusted EBITDA. Excluding these items, our SG&A expenses for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 decreased by $2 million, or 1%. Workforce expenses, which include the wages and benefits of our selling, marketing, advertising, finance and legal personnel increased by $5 million, or 4%, primarily as a result of increased headcount and merit increases awarded to staff in 2013. Non-workforce expenses, which include costs of finance and legal professional fees, communications and marketing and foreign exchange related costs, decreased $7 million, or 22%, primarily due to favorable foreign exchange movement.
Non-core corporate costs of $12 million and $25 million for the six months ended June 30, 2014 and 2013, respectively, represent costs related to strategic transactions and restructurings, equity-based compensation, certain legal and related costs and foreign currency gains and losses related to euro denominated debt and derivatives. The decrease of $13 million is due to a $12 million reduction in legal and related costs and $7 million lower unrealized foreign exchange losses on euro denominated debt and derivatives offset by a $7 million increase in equity based compensation and a $2 million increase in corporate and restructuring costs.
Depreciation and Amortization
Depreciation and amortization is comprised of:
Six Months Ended June 30, |
Change | |||||||||||||||
(in $ millions) |
2014 | 2013 | $ | % | ||||||||||||
Depreciation on property and equipment |
$ | 74 | $ | 61 | $ | 13 | 22 | |||||||||
Amortization of acquired intangible assets |
39 | 40 | (1 | ) | (5 | ) | ||||||||||
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Total depreciation and amortization |
$ | 113 | $ | 101 | $ | 12 | 11 | |||||||||
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|
Total depreciation and amortization increased by $12 million, or 11%. Depreciation on property and equipment increased $13 million primarily due to a higher capitalized cost of internally developed software as we
49
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continue to develop our systems to enhance our Travel Commerce Platform. Amortization of acquired intangible assets decreased by $1 million, as the useful lives expired on a portion of the assets acquired on the sale of Travelport to Blackstone in 2006 and the acquisition of Worldspan in 2007.
Interest Expense, Net
Interest expense, net, decreased by $4 million, or 3%, due to a decrease in debt refinance costs incurred during the three months ended June 30, 2013 in relation to comprehensive debt refinancings, partially offset by higher interest rates during the six months ended June 30, 2014.
Loss on Early Extinguishment of Debt
During the six months ended June 30, 2014, we cancelled $257 million of our senior subordinated notes and $60 million of our senior notes, contributed to us by our parent company, which resulted in a loss on early extinguishment of debt of $14 million. During the six months ended June 30, 2013, we amended our senior secured credit agreement, repaid dollar denominated term loans under senior secured credit agreement and refinanced senior notes resulting in $49 million loss on early extinguishment of debt, which was comprised of $39 million of unamortized debt finance costs written-off, $5 million of unamortized debt discount written-off and $5 million of early repayment penalty.
Gain on Sale of Shares of Orbitz Worldwide
During the six months ended June 30, 2014, we sold 8.6 million shares of common stock of Orbitz Worldwide in an underwritten public offering and recognized a gain of $52 million. This reduced our ownership in Orbitz Worldwide to approximately 36%.
Provision for Income Taxes
Our tax provision differs significantly from the US Federal statutory rate primarily as a result of (i) being subject to income tax in numerous non-US jurisdictions with varying income tax rates, (ii) a valuation allowance established in the US due to the historical losses in that jurisdiction, (iii) certain expenses that are not deductible for tax or do not secure an effective tax deduction under the relevant jurisdictions and (iv) certain income or gains which are not subject to tax.
Share of Earnings (Losses) in Equity Method Investments
Our share of losses in equity method investments was primarily from Orbitz Worldwide and was $3 million for the six months ended June 30, 2014 compared to earnings of $2 million for the six months ended June 30, 2013. During the six months ended June 30, 2014, these earnings reflect approximately 44% of ownership interest until May 2014 and approximately 36% of ownership interest for the month of June 2014 following our sale of 8.6 million shares of Orbitz Worldwides common stock. In July 2014, we sold substantially all of the remaining shares of Orbitz Worldwide for approximately $312 million and used the proceeds to repay a portion of our outstanding first lien term loans. Consequently, we will discontinue equity method of accounting. For the six months ended June 30, 2013, these earnings reflect approximately 45% of our ownership interest in Orbitz Worldwide.
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Liquidity and Capital Resources
Our principal sources of liquidity are (i) cash and cash equivalents, (ii) cash flows generated from operations and (iii) borrowings under our revolving credit facility. As of June 30, 2014, our cash and cash equivalents, cash held as collateral and revolving credit facility availability were as follows:
(in $ millions) |
June 30, 2014 | |||
Cash and cash equivalents |
$ | 93 | ||
Cash held as collateral |
70 | |||
Revolver availability |
120 |
With the cash and cash equivalents on our consolidated condensed balance sheets, our ability to generate cash from operations and access to our revolving credit facility and other lending sources, we believe we have sufficient liquidity to meet our ongoing needs for at least the next 12 months.
Cash Flows
We believe an important measure of our liquidity is Unlevered Adjusted Free Cash Flow. This measure is a useful indicator of our ability to generate cash to meet our liquidity demands. We believe Unlevered Adjusted Free Cash Flow provides investors with an understanding of how assets are performing and measures managements effectiveness in managing cash. We define Unlevered Adjusted Free Cash Flow as net cash provided by (used in) operating activities of continuing operations, adjusted to remove the impact of interest payments and cash paid for other adjusting items which we believe are unrelated to our ongoing operations and to deduct capital expenditures on property and equipment additions including capital lease repayments. We believe this measure gives management and investors a better understanding of the cash flows generated by our underlying business, as our interest payments are primarily related to the debt incurred in relation to previous business acquisitions, cash paid for other adjusting items are unrelated to the underlying business and our capital expenditures are primarily related to the development of our operating platforms.
In addition, we present Adjusted EBITDA as a liquidity measure as we believe it is a useful measure to our investors to assess our ability to comply with certain debt covenants, including our maximum leverage ratios. Our total leverage ratio under our credit agreements is computed by dividing the total debt (as defined under these credit agreements) at the balance sheet date by a number which is broadly computed from the last twelve months of Adjusted EBITDA.
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Adjusted EBITDA and unlevered free cash flow are non-GAAP measures and may not be comparable to similarly named measures used by other companies. These measures should not be considered as measures of liquidity or cash flows from operations as determined under US GAAP. The following table provides a reconciliation of these non-GAAP measures:
Six Months Ended, June 30 |
||||||||
(in $ millions) |
2014 | 2013 | ||||||
Adjusted EBITDA |
$ | 297 | $ | 280 | ||||
Interest payments |
(150 | ) | (145 | ) | ||||
Tax payments |
(13 | ) | (13 | ) | ||||
Customer loyalty payments |
(45 | ) | (36 | ) | ||||
Changes in trading working capital(1) |
13 | (17 | ) | |||||
Changes in accounts payable and employee related |
(32 | ) | (25 | ) | ||||
Pensions liability contribution |
(3 | ) | | |||||
Changes in other assets and liabilities |
(16 | ) | 8 | |||||
Other adjusting items(2) |
(9 | ) | (40 | ) | ||||
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Net cash provided by operating activities |
42 | 12 | ||||||
Add: other adjusting items(2) |
9 | 40 | ||||||
Less: capital expenditures on property and equipment additions |
(54 | ) | (46 | ) | ||||
Less: repayment of capital lease obligations |
(15 | ) | (8 | ) | ||||
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Adjusted free cash flow |
(18 | ) | (2 | ) | ||||
Add: interest payments |
150 | 145 | ||||||
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Unlevered Adjusted Free Cash Flow |
$ | 132 | $ | 143 | ||||
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(1) | Trading working capital consists of accounts receivables and deferred revenue from travel providers and travel agencies, current prepaid travel agency incentive payments and accrued liabilities for commissions. |
(2) | Other adjusting items relate to payments for costs included within operating income but excluded from Adjusted EBITDA. These include (i) $9 million and $17 million of corporate cost payments during the six months ended June 30, 2014 and 2013, respectively, and (ii) $23 million of legal and related costs payments for the six months ended June 30, 2013. |
The following table summarizes the changes to our cash flows provided by (used in) operating, investing and financing activities for the six months ended June 30, 2014 and 2013:
Six Months Ended June 30, |
Change | |||||||||||
(in $ millions) |
2014 | 2013 | $ | |||||||||
Cash provided by (used in): |
||||||||||||
Operating activities |
$ | 42 | $ | 12 | $ | 30 | ||||||
Investing activities |
(85 | ) | (52 | ) | (33 | ) | ||||||
Financing activities |
(18 | ) | 48 | (66 | ) | |||||||
Effect of exchange rate changes |
| (1 | ) | 1 | ||||||||
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Net (decrease) increase in cash and cash equivalents |
$ | (61 | ) | $ | 7 | $ | (68 | ) | ||||
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As of June 30, 2014, we had $93 million of cash and cash equivalents, a decrease of $61 million compared to December 31, 2013. The following discussion summarizes changes to our cash flows from operating, investing and financing activities for the six months ended June 30, 2014 compared to the six months ended June 30, 2013.
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Operating activities: For the six months ended June 30, 2014, cash provided by operating activities was $42 million compared to $12 million for the six months ended June 30, 2013. The increase of $30 million is primarily a result of $31 million of lower cash outflows from other adjusting items during the six months ended June 30, 2014 compared to the six months ended June 30, 2013.
Investing activities: The cash used in investing activities for the six months ended June 30, 2014 was $85 million compared to $52 million for the six months ended June 30, 2013. The increase of $33 million primarily relates to (i) the $65 million purchase of additional equity in eNett, bring our total shareholding in eNett to 73% as of June 30, 2014, (ii) the purchase of an equity method investment of $10 million, (iii) a business acquired for $10 million, net of cash, (iv) an $8 million increase in additions to property and equipment, offset by (v) $54 million proceeds from the sale of shares of Orbitz Worldwide.
Our investing activities for the six months ended June 30, 2014 and 2013 include:
Six Months Ended June 30, |
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(in $ millions) |
2014 | 2013 | ||||||
Cash additions to software developed for internal use |
$ | 41 | $ | 30 | ||||
Cash additions to computer equipment |
13 | 16 | ||||||
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Total |
$ | 54 | $ | 46 | ||||
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Cash additions to software developed for internal use represent the continuing development of our systems to enhance our Travel Commerce Platform. Our expenditures have been focused on key areas, including investing in our data center by implementing zTPF software on our mainframes, the development of our uAPI that underpins our new and existing applications, the development of Smartpoint, our innovative booking solution delivering multisource content and pricing, and the development of our Travelport Merchandising Platform to allow airlines to showcase their content in travel agency workflows.
Cash additions to computer equipment is primarily for our continuing investment in our data center.
We view our capital expenditure for the period to include cash additions to our property and equipment and capital lease repayments and was $69 million and $54 million for the six months ended June 30, 2014 and 2013, respectively.
Financing activities: Cash used in financing activities for the six months ended June 30, 2014 was $18 million. This primarily comprised of (i) $15 million of capital lease payments, (ii) $8 million of term loan repayments, (iii) $5 million net share settlement of equity-based compensation, offset by (iv) $9 million release of cash provided as collateral. Cash provided by financing activities for the six months ended June 30, 2013 was $48 million. This primarily comprised of (i) $2,169 million of proceeds from term loans, (ii) $44 million net release of cash collateralized offset by (iii) $1,659 million repayments of term loans, (iv) $413 million repayment of senior notes, (v) $20 million net repayment of revolver borrowings, (vi) $55 million of debt finance costs and (vii) $18 million of capital lease repayments, distributions to a parent company and settlement of derivative contracts.
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Financing Arrangements
Our financing arrangements include our senior secured credit facilities, senior notes, senior subordinated notes and obligations under our capital leases. The following table summarizes our net debt position as of June 30, 2014 and December 31, 2013:
(in $ millions) |
Interest rate | Maturity(1) | June 30, 2014 |
December 31, 2013 |
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Secured debt |
||||||||||||||||
Senior Secured Credit Agreement |
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Revolver borrowings |
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Dollar denominated(2) |
L+4 1⁄4 | % | June 2018 | $ | | $ | | |||||||||
Term loans |
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Dollar denominated(2) |
L+5 | % | June 2019 | 1,519 | 1,525 | |||||||||||
Second Lien Credit Agreement |
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Tranche 1 dollar denominated term loan(3) |
L+8 | % | January 2016 | 647 | 644 | |||||||||||
Tranche 2 dollar denominated term loan(4) |
8 3⁄8 | % | December 2016 | 239 | 234 | |||||||||||
Unsecured debt |
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Senior Notes |
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Dollar denominated notes(5) |
13 7⁄8 | % | March 2016 | 370 | 411 | |||||||||||
Dollar denominated floating rate notes(6) |
L+8 5⁄8 | % | March 2016 | 177 | 188 | |||||||||||
Senior Subordinated Notes |
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Dollar denominated notes |
11 7⁄8 | % | September 2016 | 159 | 272 | |||||||||||
Euro denominated notes |
10 7⁄8 | % | September 2016 | 47 | 192 | |||||||||||
Capital leases |
98 | 107 | ||||||||||||||
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Total debt |
3,256 | 3,573 | ||||||||||||||
Less: cash and cash equivalents |
(93 | ) | (154 | ) | ||||||||||||
Less: cash held as collateral |
(70 | ) | (79 | ) | ||||||||||||
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Net debt |
$ | 3,093 | $ | 3,340 | ||||||||||||
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(1) | The term loans maturing in June 2019 and the revolver availability through June 2018 are subject to a reduction in maturity to November 2015, December 2015, June 2016 or September 2016 if the Company is unable to repay or refinance its debt outstanding under the second lien credit agreement or its unsecured debt prior to their maturity dates. |
(2) | Minimum LIBOR floor of 1.25% |
(3) | Minimum LIBOR floor of 1.5% |
(4) | Cash interest of 4% and payment-in-kind interest of 4.375% |
(5) | Cash interest of 11.375% and payment-in-kind interest of 2.5% |
(6) | Cash interest of LIBOR+6.125% plus payment-in-kind interest of 2.5% |
In March 2014, Travelport Worldwide Limited (Travelport Worldwide), our indirect parent company, acquired $43 million of dollar denominated senior subordinated notes and $92 million (67 million) of euro denominated senior subordinated notes of the Company in exchange for its common shares. Travelport Worldwide contributed these senior subordinated notes to us, which we subsequently cancelled. We recorded this transaction as extinguishment of debt and recognized a loss of $5 million in its consolidated condensed statements of operations for the six months ended June 30, 2014.
In June 2014, Travelport Worldwide, acquired an additional $70 million of dollar denominated senior subordinated notes, $52 million (39 million) of euro denominated senior subordinated notes, $47 million of dollar denominated fixed rate senior notes and $13 million of dollar denominated floating rate notes of ours in exchange for its common shares. These senior notes and senior subordinated notes were contributed to us, and we subsequently cancelled such notes. We recorded this transaction as extinguishment of debt and recognized a loss of $9 million in our consolidated condensed statements of operations for the six months ended June 30, 2014.
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During the six months ended June 30, 2014, we (i) repaid $8 million as our quarterly repayment of term loans, (ii) accreted $2 million as interest expense towards repayment fee of second lien Tranche 1 loans, (iii) amortized $3 million as discount on term loans, (iv) capitalized $13 million related to payment-in-kind interest into the senior notes and second lien Tranche 2 dollar denominated term loans and (v) repaid $15 million under our capital lease obligations and entered into $6 million of new capital leases for information technology assets.
We have a $120 million revolving credit facility with a consortium of banks under our senior secured credit agreement. During the six months ended June 30, 2014, we borrowed $50 million under this facility and repaid $50 million. As of June 30, 2014, we had no outstanding balance under our revolving credit facility with $120 million of remaining borrowing capacity under this facility.
We have a $137 million of cash collateralized letters of credit facility, maturing in June 2018. The terms under the letters of credit facility provide that 103% of cash collateral has to be maintained for outstanding letters of credit. As of June 30, 2014, $67 million of letters of credit were outstanding under the terms of the facility, against which we provided $70 million as cash collateral, and we had $70 million of remaining capacity under our letters of credit facility.
Travelport LLC, our indirect 100% owned subsidiary, is the obligor (the Obligor) under our long-term debt arrangements. All obligations under our long-term debt arrangements are unconditionally guaranteed by certain of our foreign subsidiaries, and, subject to certain exceptions, each of our existing and future domestic 100% owned subsidiaries. In addition, our secured debt is unconditionally guaranteed by certain additional existing non-domestic 100% owned subsidiaries. All obligations under our secured debt, and the guarantees of those obligations, are secured by substantially all the following assets of the Obligor and each guarantor, subject to certain exceptions: (i) a pledge of 100% of the capital stock of the Obligor, 100% of the capital stock of each guarantor and 65% of the capital stock of each of our 100% owned non-US subsidiaries that are directly owned by us or one of the guarantors; and (ii) a security interest in, and mortgages on, substantially all tangible and intangible assets of the Obligor and each U.S. guarantor subject to additional collateral and guarantee obligations.
Borrowings under our senior secured credit agreement are subject to amortization and prepayment requirements, and our senior secured credit agreement contains various covenants, including leverage ratios, events of defaults and other provisions.
Total debt per our credit agreements and indentures is broadly defined as total debt, less cash and cash equivalents. Adjusted EBITDA is also a defined term under our debt covenants and is broadly computed in a manner as calculated for management purposes and discussed earlier.
As of June 30, 2014, our total leverage ratio was 5.94 compared to the maximum total leverage ratio allowable of 7.15; our total senior secured leverage ratio was 4.61 compared to the maximum total senior secured leverage ratio allowable of 5.15; our cash balance was $93 million; and we were in compliance with all financial covenants related to our long-term debt. Under the terms of our current debt arrangements, the maximum total leverage ratio with which we need to comply reduces to 6.95 for September 30, 2014 and December 31, 2014 and later reduces to 6.75 from March 31, 2015; and the total senior secured leverage ratio with which we need to comply remains at 5.15 until December 31, 2014 and later reduces to 4.90 from March 31, 2015.
On June 27, 2014, Travelport Worldwide launched an offer to exchange the senior notes and senior subordinated notes issued by our subsidiaries into its common shares. As of July 25, 2014, approximately $164 million in aggregate principal amount of notes were tendered and accepted in exchange for approximately 102 million common shares of Travelport Worldwide, at a value of $1.64 per common share. In addition, on July 11, 2014, Travelport Worldwide entered into an agreement with certain term loan lenders to exchange approximately 58 million of its common shares, at a value of $1.64 per common share, for approximately $91 million of first lien and second lien term loans under our senior secured credit agreement and second lien credit agreement. Based on
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the results of exchange offers and the term loan exchange through the date of this Quarterly Report on Form 10-Q, Travelport Worldwide exchanged approximately 360.5 million of its common shares for approximately $571 million principal amount of our total debt. Such debt was contributed to, and then canceled by, our subsidiaries.
On July 24, 2014, we sold 39 million shares of common stock of Orbitz Worldwide, with aggregate net proceeds of approximately $312 million. The proceeds from the sale of shares were used to repay $312.2 million principal amount of our term loans under our senior secured credit agreement.
On August 1, 2014, we announced the launch of a debt refinancing transaction seeking commitments from lenders (i) under a new senior secured credit agreement for an aggregate principal amount of $2,400 million, and we expect the new senior secured credit facility to be comprised of (a) a single tranche of term loans of $2,300 million maturing in 2021 and (b) a revolving credit facility of $100 million (which may be increased) maturing in 2019 and (ii) under a senior unsecured bridge loan facility in an aggregate principal amount of $500 million. We intend to use the net proceeds from this refinancing to repay certain existing indebtedness, including first and second lien term loans under our senior secured credit agreement and second lien credit agreement, senior notes and senior subordinated notes.
We successfully completed deleveraging transactions amounting to $937 million as of the date of this Quarterly Report on Form 10-Q, including debt for equity exchanges and the sale of substantially all of our shares in Orbitz Worldwide, reducing our net debt to approximately $2.5 billion with a total leverage ratio of 4.9x.
Based on our current financial forecast, we believe we will continue to be in compliance with, or be able to avoid an event of default under the credit agreements and the indentures governing our notes and meet our cash flow needs during the next 12 months.
Subsequent to our comprehensive refinancing in 2013, substantially all of our debt is now scheduled for repayment on or after January 2016. However, the term loans maturing in June 2019 and the revolver availability through June 2018 are subject to a reduction in maturity to November 2015, December 2015, June 2016 or September 2016 if we are unable to repay or refinance our debt outstanding under the second lien credit agreement or our unsecured debt prior to their maturity dates. We may not have the ability to repay such amounts.
We continue to assess and evaluate potential capital markets transactions, including potential debt-for-equity exchanges and similar transactions. We can give no assurances that we will pursue or consummate such transactions as they are dependent, among other things, on market conditions and other factors that are inherently unpredictable.
Foreign Currency and Interest Rate Risk
A portion of the debt used to finance much of our operations is exposed to interest rate and foreign currency exchange rate fluctuations. We use various hedging strategies and derivative financial instruments to create an appropriate mix of fixed and floating rate debt and to manage our exposure to changes in foreign currency exchange rates associated with our euro denominated debt. The primary interest rate exposure during the six months ended June 30, 2014 and 2013 was due to interest rate fluctuations in the United States and Europe, specifically USLIBOR and EURIBOR interest rates. We currently use interest rate caps and foreign currency derivative contracts, including derivative contracts and currency options, as the derivative instruments in these hedging strategies.
We also use foreign currency forward contracts to manage our exposure to changes in foreign currency exchange rates associated with our foreign currency denominated receivables and payables and forecasted earnings of our foreign subsidiaries. We primarily enter into foreign currency forward contracts to manage our foreign currency exposure to the British pound, Euro and Australian dollar.
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During the six months ended June 30, 2014 and 2013, none of the derivative financial instruments used to manage our interest rate and foreign currency exposures were designated as accounting hedges except for interest rate cap derivative instruments which were designated as accounting hedges until June 2014. The fluctuations in the fair value of interest rate derivative financial instruments not designated as hedges for accounting purposes are recorded as a component of interest expense, net, in our consolidated condensed statements of operations. Losses on these interest rate derivative financial instruments amounted to $8 million and $3 million for the six months ended June 30, 2014 and 2013, respectively. The fluctuations in the fair value of foreign currency derivative financial instruments not designated as hedges for accounting purposes are recorded as a component of selling, general and administrative expenses in our consolidated condensed statements of operations. Gains (losses) on these foreign currency derivative financial instruments amounted to $2 million and $(11) million for the six months ended June 30, 2014 and 2013, respectively. The fluctuations in the fair values of our derivative financial instruments partially offset the impact of the changes in the value of the underlying risks they are intended to economically hedge.
In 2013, we entered into interest rate cap derivative contracts to cap the USLIBOR rate at 1.5%. The purpose of these contracts was to hedge the risk of increase in interest costs on our floating rate debt due to an increase in USLIBOR rates. We had designated these interest rate cap derivative contracts as accounting cash flow hedges and recorded the effective portion of changes in fair value of these derivative contracts, amounting to a loss of $4 million during the six months ended June 30, 2014, as a component of other comprehensive loss. In June 2014, we ceased hedge accounting for our interest rate cap derivative instruments. With the exchange of common shares of Travelport Worldwide for our term loans in July 2014, which we subsequently canceled and reduced the principal amount of debt being hedged to under 100% of its notional amount and our announcement of the proposed refinancing of our capital structure in August 2014, we determined that the hedge effectiveness could no longer be achieved. Further, the underlying future interest cash outflows hedged were considered as not probable of occurring, resulting in realization of losses of $8 million accumulated within other comprehensive income (loss) and recognizing it within our consolidated condensed statements of operations.
As of June 30, 2014, our interest rate cap contracts cover transactions for periods that do not exceed three years. All other contracts cover transactions for periods that do not exceed one year. As of June 30, 2014, we had a net asset position of $5 million related to derivative instruments associated with our euro denominated and floating rate debt, our foreign currency denominated receivables and payables, and forecasted earnings of our foreign subsidiaries.
Contractual Obligations
The following table summarizes our future contractual obligations as of June 30, 2014. The table below does not include future cash payments related to (i) contingent payments that may be made to third parties at a future date; (ii) income tax payments for which the timing is uncertain; (iii) the various guarantees and indemnities described in the notes to the consolidated financial statements; or (iv) obligations related to pension and other post-retirement defined benefit plans.
Twelve Month Period Ended June 30, | ||||||||||||||||||||||||||||
(in $ millions) |
2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total | |||||||||||||||||||||
Debt(1) |
$ | 46 | $ | 1,235 | $ | 481 | $ | 26 | $ | 1,459 | $ | 9 | $ | 3,256 | ||||||||||||||
Interest payments(2) |
251 | 250 | 147 | 96 | 93 | 2 | 839 | |||||||||||||||||||||
Operating leases(3) |
13 | 11 | 10 | 8 | 7 | 34 | 83 | |||||||||||||||||||||
Purchase commitments(4) |
48 | 43 | 17 | | | | 108 | |||||||||||||||||||||
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Total |
$ | 358 | $ | 1,539 | $ | 655 | $ | 130 | $ | 1,559 | $ | 45 | $ | 4,286 | ||||||||||||||
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(1) | The term loans maturing in June 2019 and the revolver availability through June 2018 are subject to a reduction in maturity to November 2015, December 2015, June 2016 or September 2016 if the Company is unable to repay or refinance its outstanding debt under the Second Lien Credit Agreement or its unsecured |
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debt prior to their maturity dates. The above table excludes $23 million of debt discount on term loans under the Sixth Amendment and Restated Credit Agreement and Second Lien Credit Agreement (see Note 14 Subsequent Events, of the consolidated condensed financial statements). |
(2) | Interest on floating rate debt and euro denominated debt is based on the interest rate and foreign exchange rate as of June 30, 2014. Interest payments exclude the effects of mark-to-market adjustments on related hedging instruments. As of June 30, 2014, we have $67 million of accrued interest on our consolidated balance sheet of which $62 million will be paid within the next 12 months. The interest payments include (i) $5 million of payment-in-kind interest accrued as of June 30, 2014 and (ii) $51 million of payment-in-kind interest and $7 million of repayment fees that will be accrued over the term of the Tranche 2 Loans and Senior Notes. (see Note 14Subsequent Events, of the consolidated condensed financial statements). |
(3) | Primarily reflects non-cancellable operating leases on facilities and data processing equipment. |
(4) | Primarily reflects our agreement with a third party for data center services. |
Our obligations related to defined benefit and post-retirement plans are actuarially determined on an annual basis at our financial year end. As of June 30, 2014, plan contributions of $3 million are expected to be made in 2014. Funding projections beyond 2014 are not practical to estimate. Income tax liabilities for uncertain tax positions are excluded as we are not able to make a reasonably reliable estimate of the amount and period of related future payments. As of June 30, 2014 we had $25 million of gross unrecognized tax benefit for uncertain tax positions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We assess our market risk based on changes in interest rates and foreign currency exchange rates utilizing a sensitivity analysis that measures the potential impact on earnings, fair values, and cash flows based on a hypothetical 100 basis point change (increase and decrease) in interest rates and a 10% change (increase and decrease) in the exchange rates of underlying currencies being hedged, against the US dollar as of June 30, 2014. We assess our market risk based on changes in interest rates and foreign currency exchange rates utilizing a sensitivity analysis that measures that potential impact on earnings, fair values and cash flows. There are certain limitations inherent in this sensitivity analyses as our overall market risk is influenced by a wide variety of factors, including the volatility present within markets and the liquidity of markets. These shock tests are constrained by several factors, including the necessity to conduct analysis based on a single point in time and the inability to include complex market reactions normally arising from the market shifts modeled.
We assess our interest rate market risk utilizing a sensitivity analysis based on our interest rate derivatives and a hypothetical 100 basis point change (increase or decrease) in interest rates. We have determined, through such analysis, that the impact of a 100 basis point change in interest rates as of June 30, 2014 would not be material on our earnings. We have determined, through the sensitivity analysis, the impact of a 10% increase in foreign currency exchange rate with respect to the British Pound, Euro and Australian dollar would result in a charge of $6 million, while a 10% decrease in foreign currency exchange rate with respect to the same currencies would result in a benefit of $5 million to our consolidated condensed statements of operations.
The material changes in our exposure to market risks have been disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 10, 2014.
Item 4. Controls and Procedures
(a) | Disclosure Controls and Procedures. The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (the Act) is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. |
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Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Act) for the period ended June 30, 2014. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
(b) | Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting. |
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There are no material changes from the description of our legal proceedings disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the SEC on March 10, 2014 and May 9, 2014, respectively.
There are no material changes in the risk factors previously disclosed in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2013 and Part II, Item 1A, Risk Factors, of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the SEC on March 10, 2014 and May 9, 2014, respectively.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Mine Safety Disclosures.
Not Applicable.
Trade Sanctions Disclosure
The following activities are disclosed as required by Section 13(r)(1)(D)(iii) of the Exchange Act.
As part of our global business in the travel industry, we provide certain passenger travel-related GDS and Technology Services to Iran Air. We also provide certain Technology Services to Iran Air Tours. All of these services are either exempt from applicable sanctions prohibitions pursuant to a statutory exemption permitting transactions ordinarily incident to travel or, to the extent not otherwise exempt, specifically licensed by the U.S. Office of Foreign Assets Control. Subject to any changes in the exempt/licensed status of such activities, we intend to continue these business activities, which are directly related to and promote the arrangement of travel for individuals.
The gross revenue and net profit attributable to these activities in the quarter ended June 30, 2014 were approximately $161,000 and $117,000, respectively.
2014 Equity Plan
On August 7, 2014, the Board of Directors of Travelport Worldwide Limited (Travelport Worldwide), our indirect parent company, approved the Travelport Worldwide Limited 2014 Omnibus Incentive Plan (the 2014 Equity Plan), under which 75,000,000 common shares of Travelport Worldwide have been reserved for the future award to eligible employees, non-employees, Board members and consultants of the Company and its affiliates. The 2014 Equity Plan provides authorization for grants of stock options, stock appreciation rights, restricted stock, performance awards, other stock-based awards and other cash-based awards. The form of the 2014 Equity Plan will be filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter ending September 30, 2014.
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Indemnification Agreements
On August 7, 2014, our and Travelport Worldwides Boards of Directors approved the Company and Travelport Worldwide entering into indemnification agreements with each of the members of their Boards, each of our named executive officers and certain other members of management.
The forms of indemnification agreements to be entered into with each director and certain officers of the Company and Travelport Worldwide will be filed as exhibits to our Quarterly Report on Form 10-Q for the quarter ending September 30, 2014.
Transition and Separation Agreement
In anticipation of our currently expected transition of our corporate headquarters to the United Kingdom in the third quarter of 2014, on August 7, 2014, Travelport Worldwide Limited and Travelport Limited (together, Travelport) entered into a transition and separation agreement with Eric J. Bock, our Executive Vice President, Chief Administrative Officer and Chief Legal Officer (the Transition Agreement), which provides for (i) the terms of Mr. Bocks continued employment with Travelport through October 1, 2014 (the Transition Date), (ii) Mr. Bocks role in the transition of the Chief Legal Officer position to the United Kingdom so as to be co-located with our Chief Executive Officer and Chief Financial Officer, (iii) the transition of other Chief Administrative Officer responsibilities, and (iv) certain transition benefits.
As a general matter, Mr. Bocks employment will continue through the Transition Date under the terms of his employment agreement. Following the Transition Date, Mr. Bock will continue to comply with his post-employment restrictive covenants and shall receive (i) full vesting of certain time-based restricted stock units (TRSUs) upon an initial public offering of Travelport Worldwide Limited (IPO) if such IPO occurs on or before May 31, 2015; (ii) (x) vesting on October 15, 2014 and April 15, 2015 of the TRSUs that would otherwise vest on such respective dates if he remained employed with Travelport (provided that no IPO has occurred prior to the respective date), (y) vesting as of April 15, 2015 of 75% of certain performance-based restricted stock units (PRSUs) that would otherwise vest on April 15, 2015 if he remained employed with Travelport (based on Travelports actual performance through the applicable performance period), and vesting as of December 31, 2015 of the remaining 25% of such PRSUs that would otherwise vest on April 15, 2015 (based on Travelports actual performance through the applicable performance period); (iii) a pro rata portion of his 2014 annual bonus, based on Travelports actual performance (and paid when 2014 bonuses are paid generally in 2015); and (iv) 36 months continued health and welfare coverage for Mr. Bock and his dependents, though such coverage shall cease if he obtains similar coverage with a new employer.
The Transition Agreement will be filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ending September 30, 2014.
See Exhibit Index.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TRAVELPORT LIMITED | ||||
Date: August 7, 2014 | By: | /s/ Philip Emery | ||
Philip Emery | ||||
Executive Vice President and Chief Financial Officer | ||||
Date: August 7, 2014 | By: | /s/ Antonios Basoukeas | ||
Antonios Basoukeas | ||||
Group Vice President and Group Financial Controller |
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EXHIBIT INDEX
Exhibit |
Description | |
3.1 | Certificate of Incorporation of Travelport Limited (f/k/a TDS Investor (Bermuda) Ltd.) (Incorporated by reference to Exhibit 3.3 to the Registration Statement on Form S-4 of Travelport Limited (333-141714) filed on March 30, 2007). | |
3.2 | Memorandum of Association of Travelport Limited (f/k/a TDS Investor (Bermuda) Ltd.) (Incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4 of Travelport Limited (333-141714) filed on March 30, 2007). | |
10.1 | First Amendment to the Subscriber Services Agreement, dated as of February 4, 2014, by and among Orbitz Worldwide, LLC, Travelport, LP and Travelport Global Distribution System B.V.* | |
31.1 | Certification of Chief Executive Officer Pursuant to Rules 13(a)-14(a) and 15(d)-14(a) Promulgated Under the Securities Exchange Act of 1934, as amended. | |
31.2 | Certification of Chief Financial Officer Pursuant to Rules 13(a)-14(a) and 15(d)-14(a) Promulgated Under the Securities Exchange Act of 1934, as amended. | |
32 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
* | Portions of this document have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2. |
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