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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

COMMISSION FILE NUMBER 000-50515

ORBITZ, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

(312) 894-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý-Yes    o-No

        Indicate by check mark whether the registrant is an accelerated filer o Yes    ý No

        As of May 7, 2004 the registrant had outstanding 13,105,402 shares of Class A common stock, $0.001 par value, and 27,269,809 shares of Class B common stock, $0.001 par value.

ORBITZ, INC.
INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ORBITZ, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

See accompanying notes to condensed consolidated and combined financial statements.

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ORBITZ, INC. AND SUBSIDIARIES

Consolidated and Combined Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

See accompanying notes to condensed consolidated and combined financial statements.

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ORBITZ, INC. AND SUBSIDIARIES

Consolidated Statement of Equity

(In thousands, except share amounts)

See accompanying notes to condensed consolidated and combined financial statements.

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ORBITZ, INC. AND SUBSIDIARIES

Consolidated and Combined Statements of Cash Flows

(In thousands)

(Unaudited)

See accompanying notes to condensed consolidated and combined financial statements.

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ORBITZ, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated and Combined Financial Statements
(unaudited)

(1)   Description of Business and Organization

        Orbitz, Inc. and Subsidiaries (collectively referred to as Orbitz, the Company, we, us and our) is an online travel company that enables customers to search for and purchase a broad array of travel products, including airline tickets, lodging, car rentals, cruises and vacation packages through its website, orbitz.com. We sell these travel products both individually and as part of packaged trips to leisure and corporate customers located primarily in the United States. We also offer access to travel news and other information of interest to travelers on our website.

        We generate the majority of our revenues from payments from the travel suppliers whose services we sell, from the distribution and reservation services we utilize and from customers who purchase travel on our website. We also generate revenues from other sources, such as from companies that advertise and sell travel-related products on our website. Additionally, we license components of our technology to selected airlines as a platform for their websites and provide ongoing website hosting services to these airlines.

        Orbitz, LLC was formed on February 24, 2000 as a Delaware limited liability company. The original investors and founders of Orbitz, LLC were Continental Airlines, Delta Air Lines, Northwest Airlines, and United Air Lines. American Airlines joined as an investor of Orbitz, LLC on May 9, 2000. Collectively, these five investors are referred to as the "Founding Airlines."

        Orbitz, Inc. was incorporated in the state of Delaware on May 4, 2000 and was initially owned by the Founding Airlines. Orbitz, Inc. joined the Founding Airlines as a member of Orbitz, LLC.

        On December 18, 2003, we formed a wholly owned subsidiary, O Holdings Inc., a Delaware corporation, and contributed 3,700,000 Class C Units in Orbitz, LLC to O Holdings Inc. In addition, on December 19, 2003, immediately prior to the closing of our initial public offering ("IPO") pursuant to an agreement among us and each of the holders of Class B common stock, our Founding Airlines or their affiliates contributed all their membership interests in Orbitz, LLC to us in exchange for an aggregate of 8,180,000 shares of Class A common stock, an aggregate of 27,262,980 shares of Class B common stock and an aggregate of 434,782 shares of redeemable Series A non-voting convertible preferred stock. As a result of the foregoing transactions, Orbitz, LLC is 99% owned by us and 1% owned by our wholly owned subsidiary, O Holdings Inc. We act as the sole manager of Orbitz, LLC. This transaction is referred to as the "IPO Exchange." Additionally, concurrent with the IPO Exchange, all shares of Class C common stock were converted to shares of Class A common stock.

        On December 19, 2003, we consummated an IPO of our Class A common stock. We sold 4,000,000 shares of Class A common stock at an offering price of $26.00 per share and received net proceeds of $93.8 million. The Founding Airlines sold an aggregate of 8,180,000 shares in the IPO; however, we did not receive any proceeds from the sale of these shares.

(2)   General

(a) Basis of Presentation

        Our interim condensed consolidated and combined financial statements are unaudited and should be read in conjunction with the audited consolidated and combined financial statements for the year ended December 31, 2003 contained in our Annual Report on Form 10-K ("Annual Report"). In our opinion, all adjustments necessary for a fair presentation of such condensed consolidated and combined financial statements, consisting only of normal recurring items, have been included. Interim results are

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not necessarily indicative of results for a full year. The interim condensed consolidated and combined financial statements and related notes are presented as permitted by the Securities and Exchange Commission and do not contain certain information included in our audited consolidated and combined financial statements.

        The accompanying financial statements present the condensed consolidated financial position, results of operations and cash flows of Orbitz, Inc. and Subsidiaries and the combined financial results of Orbitz, Inc. and Orbitz, LLC as further discussed below. All intercompany transactions have been eliminated in all periods presented.

        Before the IPO Exchange, the financial statements presented the combined financial position, results of operations and cash flows of Orbitz, Inc. and Orbitz, LLC. Subsequent to the IPO Exchange, the financial statements present the consolidated financial position, results of operations, and cash flows of Orbitz, Inc., O Holdings, Inc., and Orbitz, LLC.

(b) Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates, including those related to allowances for doubtful accounts, asset lives and reserves for credit card fraud losses, debit memos, net deferred tax assets and litigation based on currently available information. Changes in facts and circumstances may result in revised estimates and such revisions could be material.

(c) Significant Accounting Policies

        See Note 2 to the Consolidated and Combined Financial Statements in our Annual Report for a summary of all significant accounting policies. Other than our policy for accounting for investments discussed below, there have been no new policies or changes in our significant accounting policies during the three months ended March 31, 2004.

Investments

        We classify marketable debt securities included in short-term and long-term investments as available-for-sale. The securities consist of investment grade, interest bearing corporate and government securities and are stated at fair value, with net unrealized gains or losses on the securities recorded as accumulated other comprehensive income (loss) in shareholders' equity. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the securities. There were no realized gains or losses in the quarter ended March 31, 2004. We did not hold marketable securities during 2003.

(d) Stock-Based Compensation

        We have two stock-based compensation plans, which are more fully described in Note 10 to the Consolidated and Combined Financial Statements in our Annual Report. We account for these plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Under APB No. 25, compensation expense is based on the difference, if any, on the measurement date, between the estimated fair value of the Company's stock and the exercise price of options to purchase that stock. Stock-based compensation expense is recognized on a straight-line basis over the vesting period of the equity award.

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        A new measurement date for stock awards occurred as a result of the restructuring transaction discussed in Note 10 to the Consolidated and Combined Financial Statements in our Annual Report. Total compensation expense related to this new measurement date is approximately $33,502,000. We began to record this compensation expense for all vested awards on consummation of the IPO Exchange. We recognized $26,474,000 of this charge in the year ended December 31, 2003 and $1,453,000 in the three months ended March 31, 2004. We will recognize compensation on unvested stock awards of $5,575,000 on a go-forward basis over the remaining vesting periods. Stock-based compensation on unvested awards may be reduced by forfeitures of stock awards.

        Additionally, we recorded $133,000 of stock-based compensation expense in the three months ended March 31, 2004 related to issuances of stock options with an exercise price below fair market value on the measurement date and $169,000 and $499,000 related to issuances of restricted stock to certain executives for the three months ended March 31, 2004 and 2003, respectively.

        The following table illustrates the effect on net income (loss) if we had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock awards granted to employees (in thousands):

        The fair value of options granted was estimated as of the grant date, using the Black-Sholes method. The following assumptions were used to calculate the weighted average fair values for grants in the quarter ended March 31:

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(e) Recent Accounting Pronouncements

        FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued in May 2003. This Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Company, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of this Statement.

        Emerging Issues Task Force Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement 128," (EITF No. 03-6) clarifies what is meant by a "participating security" under SFAS 128, provides guidance on applying the two-class method for computing earnings per share and requires affected companies to retroactively restate earnings per share amounts presented. Companies that issue securities that are entitled to participate in dividends with common stocks will report lower earnings per share under EITF No. 03-6, which is effective for reporting periods beginning after March 31, 2004. We do not expect the adoption of EITF No. 03-6 to have a material impact on our earnings per share.

(3)   Commitments and Contingencies

        In November 2001, we entered into a 10-year computer reservation system and related services agreement with Worldspan that expires in October 2011. This agreement, as amended, requires that we guarantee certain levels of minimum net air and car segments to be booked each calendar quarter through Worldspan's computer reservation system. The agreement provides that these minimum levels will be waived if we cure any shortfall within the quarter or if we elect to book 100% of net air and car segments through Worldspan for that quarter. In the event that we fall short of the minimum net segments without curing the shortfall, we would be required to pay $1.78 for each segment below the specified minimum. To date, no such shortfall has occurred.

        On January 10, 2004, NCR Corporation ("NCR") filed a complaint in the United States District Court for the Western District of Pennsylvania, alleging that our commercial Internet operations infringe 13 patents, including business method patents, allegedly owned by NCR. We have filed both an answer and counterclaims against NCR. While we believe that this lawsuit is without merit, we are exploring settlement possibilities with NCR. If we are not able to resolve this matter by agreement with NCR, we will vigorously defend this action. As of March 31, 2004, we have recorded a reserve for our potential loss related to this matter within accrued expenses on the accompanying condensed consolidated balance sheet. We do not expect the ultimate outcome of this matter to have a material adverse effect on our financial position or results of operations.

        In addition to the matters discussed above, we have certain contingencies resulting from litigation, government regulation and claims, some of which are incidental to the ordinary course of business. Management believes, after considering a number of factors, including (but not limited to) the views of legal counsel and the nature of the contingencies to which the Company is subject, that the ultimate disposition of these contingencies either cannot be determined at the present time or will not materially affect our results of operations or financial position.

(4)   Related Party Transactions

        We derive revenue from our Founding Airlines from ticket distribution and customer support services. Additionally, we provide Booking Engine Services and other services to certain of our

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Founding Airlines. For the three months ended March 31, 2004 and 2003, the Company received total revenues from its Founding Airlines of approximately $13,648,000 and $12,748,000, respectively. Receivables outstanding from the Founding Airlines were approximately $3,460,000 and $3,232,000 at March 31, 2004 and December 31, 2003, respectively.

        As discussed in Note 3, we have an agreement with Worldspan, which was previously owned by Delta Air Lines, Northwest Airlines, and American Airlines, or their respective affiliates. On July 1, 2003, these airlines sold their interest in Worldspan and therefore, it ceased to be a related party. Worldspan pays us incentives for air and car bookings made on our website through the Worldspan reservation system. We recognized revenues from Worldspan for the three months ended March 31, 2003 in the amount of $8,342,000. Worldspan was not a related party in 2004.

        The Founding Airlines provide Orbitz with access to the fares and rates generally available to the public and also provide certain in-kind marketing support to the Company. In return, we rebate to the Founding Airlines a portion of the booking incentives received from the reservation system provider. Such rebates amounted to $3,130,000 and $2,799,000 for the three months ended March 31, 2004 and 2003, respectively, and are included as a component of cost of revenue in the accompanying consolidated and combined statements of operations. The related payables outstanding to the Founding Airlines totaled approximately $3,130,000 and $2,810,000 at March 31, 2004 and December 31, 2003, respectively.

        On August 1, 2001, we entered into an alliance agreement with Hotwire, which was previously owned by our Founding Airlines or their respective affiliates, among others, to offer reciprocal co-marketing links between our website and Hotwire's website. On November 5, 2003, the Founding Airlines sold their interests in Hotwire and therefore, Hotwire ceased to be a related party. For the three months ended March 31, 2003, we recognized other revenues of $1,536,000 from Hotwire, primarily for advertising on our website. Additionally, we recorded sales and marketing expense related to our alliance agreement with Hotwire of $168,000 for the three months ended March 31, 2003. Hotwire was not a related party in 2004.

        We have an outstanding loan to the Chairman, President and Chief Executive Officer of the Company, evidenced by a promissory note and stock pledge agreement executed in 2001. The loan is secured by a pledge of 83,333 shares of common stock of Orbitz. The note accrues interest at a rate equal to the applicable Federal Rate, and is adjusted and compounded semi-annually. As of March 31, 2004 and December 31, 2003, the amount outstanding, including accrued interest, was $269,000, and is included in other long-term assets on the accompanying condensed consolidated balance sheets.

(5)   Earnings Per Share and Pro Forma Net Loss Per Share

        Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur based on the effect of unvested restricted Class A common stock and the exercise of stock options with an exercise price of less than the average market price of our common stock.

        Before the December 2003 IPO Exchange, ownership in the enterprise was reflected primarily through membership in Orbitz, LLC, with only a small number of outstanding shares in Orbitz, Inc. The financial statements of Orbitz, Inc. and Orbitz, LLC were presented on a combined basis; accordingly, there was no single capital structure upon which to calculate historical earnings per share information. In addition, management has determined that presentation of actual earnings per share of Orbitz, Inc. for 2003 and prior periods is not meaningful and therefore, has elected to present only pro forma net loss per share for those periods.

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        Pro forma net loss per share is calculated based on the weighted average number of shares outstanding assuming that all units held by members in Orbitz, LLC had been converted to shares in Orbitz, Inc. as of the date such units were issued and the automatic conversion of Class C common stock to Class A common stock that occurred immediately prior to the IPO. Pro forma net loss to common shareholders reflects charges for dividends and accretion on the preferred stock as if it had been outstanding at the beginning of each period presented.

        Actual earnings per share and pro forma net loss per share is calculated as follows for the three months ended March 31 (in thousands, except per share amounts):