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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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|
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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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Cash and cash equivalents at end of period |
| | $ | 40 | $ | 2 | $ | 75 | | $ | 117 | |||||||||||||||||
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Table of Contents
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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|
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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 | |||||||||
|
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|
|
|
|
|
|
|||||||||
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 | & |