Attached files
file | filename |
---|---|
EX-10.2 - EX-10.2 - Orbitz Worldwide, Inc. | c57803exv10w2.htm |
EX-10.3 - EX-10.3 - Orbitz Worldwide, Inc. | c57803exv10w3.htm |
EX-10.1 - EX-10.1 - Orbitz Worldwide, Inc. | c57803exv10w1.htm |
EX-31.2 - EX-31.2 - Orbitz Worldwide, Inc. | c57803exv31w2.htm |
EX-32.1 - EX-32.1 - Orbitz Worldwide, Inc. | c57803exv32w1.htm |
EX-31.1 - EX-31.1 - Orbitz Worldwide, Inc. | c57803exv31w1.htm |
EX-32.2 - EX-32.2 - Orbitz Worldwide, Inc. | c57803exv32w2.htm |
EX-10.4 - EX-10.4 - Orbitz Worldwide, Inc. | c57803exv10w4.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One) | ||
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended
March 31, 2010
|
||
or
|
||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period
from to
|
Commission File Number
001-33599
ORBITZ WORLDWIDE,
INC.
(Exact name of registrant as
specified in its charter)
Delaware
|
20-5337455 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
500 W. Madison Street
Suite 1000 |
60661 (Zip Code) |
|
Chicago, Illinois
|
||
(Address of principal executive
offices)
|
(312) 894-5000
(Registrants
telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act.
Large accelerated
filer o
|
Accelerated filer þ |
Non-accelerated
filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of May 3, 2010, 101,153,354 shares of Common Stock,
par value $0.01 per share, of Orbitz Worldwide, Inc. were
outstanding.
Table of
Contents
Page | ||||||||
3 | ||||||||
PART I | ||||||||
4 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
8 | ||||||||
9 | ||||||||
25 | ||||||||
40 | ||||||||
41 | ||||||||
PART II | ||||||||
41 | ||||||||
42 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
44 | ||||||||
EX-10.1 | ||||||||
EX-10.2 | ||||||||
EX-10.3 | ||||||||
EX-10.4 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
2
Table of Contents
Forward-Looking
Statements
This Quarterly Report on
Form 10-Q
and its exhibits contain forward-looking statements that are
subject to risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially
different than the results, performance or achievements
expressed or implied by the forward-looking statements.
Forward-looking statements include statements about our
expectations, beliefs, plans, objectives, intentions,
assumptions and other statements that are not historical facts.
Forward-looking statements can generally be identified by
phrases such as believes, expects,
potential, continues, may,
should, seeks, predicts,
anticipates, intends,
projects, estimates, plans,
could, designed, should be
and other similar expressions that denote expectations of future
or conditional events rather than statements of fact.
Forward-looking statements also may relate to our operations,
financial results, financial condition, business prospects,
growth strategy and liquidity. Our actual results could differ
materially from those anticipated in forward-looking statements
for many reasons, including the factors described in the
sections entitled Risk Factors in our 2009 Annual
Report on
Form 10-K
filed with the Securities and Exchange Commission
(SEC) on March 3, 2010 and
Managements Discussion and Analysis of Financial
Condition and Results of Operations in this Quarterly
Report on
Form 10-Q
and in our 2009 Annual Report on
Form 10-K.
Accordingly, you should not unduly rely on these forward-looking
statements. We undertake no obligation to update any
forward-looking statements in this Quarterly Report on
Form 10-Q.
The use of the words we, us,
our and the Company in this Quarterly
Report on
Form 10-Q
refers to Orbitz Worldwide, Inc. and its subsidiaries, except
where the context otherwise requires or indicates.
3
Table of Contents
PART I
FINANCIAL INFORMATION
Item 1. | Financial Statements. |
ORBITZ
WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended |
||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Net revenue
|
$ | 187,153 | $ | 188,393 | ||||
Cost and expenses
|
||||||||
Cost of revenue
|
38,250 | 35,356 | ||||||
Selling, general and administrative
|
63,790 | 66,428 | ||||||
Marketing
|
57,657 | 64,269 | ||||||
Depreciation and amortization
|
18,986 | 14,388 | ||||||
Impairment of other assets (see Note 9)
|
1,704 | | ||||||
Impairment of goodwill and intangible assets
|
| 331,527 | ||||||
Total operating expenses
|
180,387 | 511,968 | ||||||
Operating income (loss)
|
6,766 | (323,575 | ) | |||||
Other (expense)
|
||||||||
Net interest expense
|
(11,311 | ) | (14,513 | ) | ||||
Other expense
|
(399 | ) | (35 | ) | ||||
Total other (expense)
|
(11,710 | ) | (14,548 | ) | ||||
Loss before income taxes
|
(4,944 | ) | (338,123 | ) | ||||
Provision (benefit) for income taxes
|
317 | (1,967 | ) | |||||
Net loss
|
$ | (5,261 | ) | $ | (336,156 | ) | ||
Net loss per share basic and diluted:
|
||||||||
Net loss per share
|
$ | (0.05 | ) | $ | (4.02 | ) | ||
Weighted average shares outstanding
|
96,736,876 | 83,593,448 | ||||||
See Notes to Unaudited Condensed Consolidated Financial
Statements.
4
Table of Contents
ORBITZ
WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
March 31, |
December 31, |
|||||||
2010 | 2009 | |||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 161,930 | $ | 88,656 | ||||
Accounts receivable (net of allowance for doubtful accounts of
$1,156 and $935, respectively)
|
67,979 | 54,708 | ||||||
Prepaid expenses
|
17,841 | 17,399 | ||||||
Due from Travelport, net
|
13,540 | 3,188 | ||||||
Other current assets
|
4,072 | 5,702 | ||||||
Total current assets
|
265,362 | 169,653 | ||||||
Property and equipment, net
|
172,935 | 180,962 | ||||||
Goodwill
|
714,483 | 713,123 | ||||||
Trademarks and trade names
|
155,261 | 155,090 | ||||||
Other intangible assets, net
|
14,528 | 18,562 | ||||||
Deferred income taxes, non-current
|
9,057 | 9,954 | ||||||
Other non-current assets
|
55,745 | 46,898 | ||||||
Total Assets
|
$ | 1,387,371 | $ | 1,294,242 | ||||
Liabilities and Shareholders Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 30,606 | $ | 30,279 | ||||
Accrued merchant payable
|
310,493 | 219,073 | ||||||
Accrued expenses
|
111,058 | 112,771 | ||||||
Deferred income
|
45,233 | 30,924 | ||||||
Term loan, current
|
19,768 | 20,994 | ||||||
Other current liabilities
|
3,434 | 5,162 | ||||||
Total current liabilities
|
520,592 | 419,203 | ||||||
Term loan, non-current
|
486,250 | 555,582 | ||||||
Line of credit
|
| 42,221 | ||||||
Tax sharing liability
|
108,513 | 108,736 | ||||||
Unfavorable contracts
|
10,325 | 9,901 | ||||||
Other non-current liabilities
|
26,767 | 28,096 | ||||||
Total Liabilities
|
1,152,447 | 1,163,739 | ||||||
Commitments and contingencies (see Note 10)
|
||||||||
Shareholders Equity:
|
||||||||
Preferred stock, $0.01 par value, 100 shares
authorized, no shares issued or outstanding
|
| | ||||||
Common stock, $0.01 par value, 140,000,000 shares
authorized, 101,027,029 and 83,831,561 shares issued and
outstanding, respectively
|
1,010 | 838 | ||||||
Treasury stock, at cost, 24,913 and 24,521 shares held,
respectively
|
(50 | ) | (48 | ) | ||||
Additional paid in capital
|
1,022,509 | 921,425 | ||||||
Accumulated deficit
|
(790,633 | ) | (785,372 | ) | ||||
Accumulated other comprehensive income (loss) (net of
accumulated tax benefit of $2,558 and $2,558, respectively)
|
2,088 | (6,340 | ) | |||||
Total Shareholders Equity
|
234,924 | 130,503 | ||||||
Total Liabilities and Shareholders Equity
|
$ | 1,387,371 | $ | 1,294,242 | ||||
See Notes to Unaudited Condensed Consolidated Financial
Statements.
5
Table of Contents
ORBITZ
WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Three Months Ended |
||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Operating activities:
|
||||||||
Net loss
|
$ | (5,261 | ) | $ | (336,156 | ) | ||
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
||||||||
Loss on extinguishment of debt
|
389 | | ||||||
Depreciation and amortization
|
18,986 | 14,388 | ||||||
Impairment of other assets
|
1,704 | | ||||||
Impairment of goodwill and intangible assets
|
| 331,527 | ||||||
Amortization of unfavorable contract liability
|
(825 | ) | (825 | ) | ||||
Non-cash net interest expense
|
4,017 | 4,196 | ||||||
Deferred income taxes
|
291 | (3,787 | ) | |||||
Stock compensation
|
2,901 | 4,767 | ||||||
Provision for bad debts
|
141 | 255 | ||||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
(14,720 | ) | (4,796 | ) | ||||
Deferred income
|
14,477 | 16,818 | ||||||
Due to/from Travelport, net
|
(10,442 | ) | 8,567 | |||||
Accrued merchant payable
|
96,073 | 67,879 | ||||||
Accounts payable, accrued expenses and other current liabilities
|
(7,947 | ) | 10,803 | |||||
Other
|
(3,793 | ) | 3,076 | |||||
Net cash provided by operating activities
|
95,991 | 116,712 | ||||||
Investing activities:
|
||||||||
Property and equipment additions
|
(7,367 | ) | (11,757 | ) | ||||
Changes in restricted cash
|
(14 | ) | | |||||
Net cash (used in) investing activities
|
(7,381 | ) | (11,757 | ) | ||||
Financing activities:
|
||||||||
Proceeds from issuance of common stock, net of issuance costs
|
48,950 | | ||||||
Payment of fees to repurchase a portion of the term loan
|
(248 | ) | | |||||
Payments on the term loan
|
(20,994 | ) | (1,500 | ) | ||||
Payments to satisfy employee tax withholding obligations upon
vesting of equity-based awards
|
(60 | ) | (36 | ) | ||||
Proceeds from exercise of employee stock options
|
65 | | ||||||
Proceeds from line of credit
|
| 99,457 | ||||||
Payments on line of credit
|
(42,221 | ) | (59,823 | ) | ||||
Net cash (used in) provided by financing activities
|
(14,508 | ) | 38,098 | |||||
Effects of changes in exchange rates on cash and cash equivalents
|
(828 | ) | (1,328 | ) | ||||
Net increase in cash and cash equivalents
|
73,274 | 141,725 | ||||||
Cash and cash equivalents at beginning of period
|
88,656 | 31,193 | ||||||
Cash and cash equivalents at end of period
|
$ | 161,930 | $ | 172,918 | ||||
Supplemental disclosure of cash flow information:
|
||||||||
Income tax payments, net
|
$ | 1,072 | $ | 1,437 | ||||
Cash interest payments, net of capitalized interest of $10 and
$43, respectively
|
$ | 6,695 | $ | 10,506 | ||||
Non-cash financing activity:
|
||||||||
Repayment of term loan in connection with debt-equity exchange
|
$ | 49,564 | |
See Notes to Unaudited Condensed Consolidated Financial
Statements.
6
Table of Contents
ORBITZ
WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands)
Three Months Ended |
||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Net loss
|
$ | (5,261 | ) | $ | (336,156 | ) | ||
Other comprehensive income, net of income taxes
|
||||||||
Currency translation adjustment
|
8,147 | 23 | ||||||
Unrealized gains on floating to fixed interest rate swaps
|
281 | 1,867 | ||||||
Other comprehensive income
|
8,428 | 1,890 | ||||||
Comprehensive income (loss)
|
$ | 3,167 | $ | (334,266 | ) | |||
See Notes to Unaudited Condensed Consolidated Financial
Statements.
7
Table of Contents
ORBITZ
WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (UNAUDITED)
(in thousands, except share data)
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (UNAUDITED)
(in thousands, except share data)
Accumulated |
||||||||||||||||||||||||||||||||
Additional |
Other |
Total |
||||||||||||||||||||||||||||||
Common Stock | Treasury Stock |
Paid in |
Accumulated |
Comprehensive |
Shareholders |
|||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | (Loss) Income | Equity | |||||||||||||||||||||||||
Balance at December 31, 2009
|
83,831,561 | $ | 838 | 24,521 | $ | (48 | ) | $ | 921,425 | $ | (785,372 | ) | $ | (6,340 | ) | $ | 130,503 | |||||||||||||||
Net loss
|
| | | | | (5,261 | ) | | (5,261 | ) | ||||||||||||||||||||||
Amortization of equity-based compensation awards granted to
employees, net of shares withheld to satisfy employee tax
withholding obligations upon vesting
|
| | | | 2,843 | | | 2,843 | ||||||||||||||||||||||||
Common shares issued pursuant to Exchange Agreement and Stock
Purchase Agreement (see Note 7)
|
17,166,673 | 172 | | | 98,176 | | | 98,348 | ||||||||||||||||||||||||
Common shares issued upon vesting of restricted stock units
|
18,585 | | | | | | | | ||||||||||||||||||||||||
Common shares issued upon exercise of stock options
|
10,602 | | | | 65 | | | 65 | ||||||||||||||||||||||||
Common shares withheld to satisfy employee tax withholding
obligations upon vesting of restricted stock
|
(392 | ) | | 392 | (2 | ) | | | | (2 | ) | |||||||||||||||||||||
Other comprehensive income
|
| | | | | | 8,428 | 8,428 | ||||||||||||||||||||||||
Balance at March 31, 2010
|
101,027,029 | $ | 1,010 | 24,913 | $ | (50 | ) | $ | 1,022,509 | $ | (790,633 | ) | $ | 2,088 | $ | 234,924 | ||||||||||||||||
See Notes to Unaudited Condensed Consolidated Financial
Statements.
8
Table of Contents
ORBITZ
WORLDWIDE, INC.
(UNAUDITED)
1. | Basis of Presentation |
Description
of the Business
Orbitz, Inc. (Orbitz) was formed in early 2000 by
American Airlines, Inc., Continental Airlines, Inc., Delta Air
Lines, Inc., Northwest Airlines, Inc. and United Air Lines, Inc.
(the Founding Airlines). In November 2004, Orbitz
was acquired by Cendant Corporation (Cendant), whose
online travel distribution businesses included the HotelClub and
RatesToGo brands (collectively referred to as
HotelClub in this
Form 10-Q)
and the CheapTickets brand. In February 2005, Cendant acquired
ebookers Limited, an international online travel brand which
currently has operations in 12 countries throughout Europe
(ebookers).
On August 23, 2006, Travelport Limited
(Travelport), which consisted of Cendants
travel distribution services businesses, including the
businesses that currently comprise Orbitz Worldwide, Inc., was
acquired by affiliates of The Blackstone Group
(Blackstone) and Technology Crossover Ventures
(TCV). We refer to this acquisition as the
Blackstone Acquisition in this
Form 10-Q.
Orbitz Worldwide, Inc. was incorporated in Delaware on
June 18, 2007 and was formed to be the parent company of
the
business-to-consumer
travel businesses of Travelport, including Orbitz, ebookers and
HotelClub and the related subsidiaries and affiliates of those
businesses. We are the registrant as a result of the completion
of the initial public offering (IPO) of
34,000,000 shares of our common stock on July 25,
2007. At March 31, 2010 and December 31, 2009,
Travelport and investment funds that own
and/or
control Travelports ultimate parent company beneficially
owned approximately 56% and 57% of our outstanding common stock,
respectively.
We are a leading global online travel company that uses
innovative technology to enable leisure and business travelers
to search for and book a broad range of travel products and
services. Our brand portfolio includes Orbitz, CheapTickets, The
Away Network and Orbitz for Business in the Americas; ebookers
in Europe; and HotelClub based in Sydney, Australia, which has
operations globally. We provide customers with the ability to
book a comprehensive set of travel products and services from
suppliers worldwide, including air travel, hotels, vacation
packages, car rentals, cruises, travel insurance and destination
services such as ground transportation, event tickets and tours.
Basis of
Presentation
The accompanying unaudited condensed consolidated financial
statements present the accounts of Orbitz, ebookers and
HotelClub and the related subsidiaries and affiliates of those
businesses, collectively doing business as Orbitz Worldwide,
Inc. We have prepared the accompanying unaudited condensed
consolidated financial statements in accordance with the rules
and regulations of the SEC. These condensed consolidated
financial statements include all adjustments that are, in the
opinion of management, necessary for a fair presentation of our
financial position and results of operations for the interim
periods presented. All such adjustments are of a normal and
recurring nature. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United
States of America (GAAP) have been condensed or
omitted pursuant to SEC rules and regulations for interim
reporting. These condensed consolidated financial statements
should be read in conjunction with the audited consolidated
financial statements and accompanying notes included in our 2009
Annual Report on
Form 10-K
filed with the SEC on March 3, 2010. Our consolidated
financial statements were presented in millions in our previous
SEC filings. Beginning with this
Form 10-Q,
our consolidated financial statements are now presented in
thousands.
The preparation of our condensed consolidated financial
statements in conformity with GAAP requires us to make certain
estimates and assumptions. Our estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities as of the date of our
condensed
9
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consolidated financial statements and the reported amounts of
revenue and expense during the reporting periods. Actual results
could differ from our estimates.
During the three months ended March 31, 2010, we had a
change in estimate related to the timing of our recognition of
travel insurance revenue. Historically, we recorded travel
insurance revenue one month in arrears, upon receipt of payment,
as we did not have sufficient reporting from our travel
insurance supplier to conclude that the price was fixed or
determinable prior to that time. In the first quarter of 2010,
our travel insurance supplier implemented more timely reporting,
and as a result, we are now able to recognize travel insurance
revenue on an accrual basis rather than one month in arrears.
This change in estimate resulted in a $3.4 million increase
in net revenue and net income for the three months ended
March 31, 2010.
2. | Recently Issued Accounting Pronouncements |
In September 2009, the Financial Accounting Standards Board
(FASB) issued guidance that allows companies to
allocate arrangement consideration in a multiple element
arrangement in a way that better reflects the transaction
economics. It provides another alternative for establishing fair
value for a deliverable when vendor specific objective evidence
or third party evidence for deliverables in an arrangement
cannot be determined. When this evidence cannot be determined,
companies will be required to develop a best estimate of the
selling price to separate deliverables and allocate arrangement
consideration using the relative selling price method. The
guidance also expands the disclosure requirements to require
that an entity provide both qualitative and quantitative
information about the significant judgments made in applying
this guidance. This guidance is effective on a prospective basis
for revenue arrangements entered into or materially modified on
or after January 1, 2011. We are currently assessing the
impact of this guidance on our financial position and results of
operations.
In January 2010, the FASB issued guidance that requires expanded
disclosures about fair value measurements. This guidance adds
new requirements for disclosures about transfers into and out of
Levels 1 and 2 and separate disclosures about purchases,
sales, issuances and settlements relating to Level 3
measurements. It also clarifies existing fair value disclosures
about the level of disaggregation and about inputs and valuation
techniques used to measure fair value. This guidance is
effective for the first reporting period beginning after
December 15, 2009, except for the requirement to provide
the Level 3 activity of purchases, sales, issuances and
settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010, and for interim
periods within those fiscal years. The adoption of this guidance
did not have an impact on our consolidated financial position or
results of operations. The applicable disclosures are included
in Note 16 Fair Value Measurements.
3. | Property and Equipment, Net |
Property and equipment, net, consisted of the following:
March 31, 2010 | December 31, 2009 | |||||||
(in thousands) | ||||||||
Capitalized software
|
$ | 226,337 | $ | 221,261 | ||||
Furniture, fixtures and equipment
|
69,145 | 68,896 | ||||||
Leasehold improvements
|
13,364 | 13,443 | ||||||
Construction in progress
|
14,026 | 13,482 | ||||||
Gross property and equipment
|
322,872 | 317,082 | ||||||
Less: accumulated depreciation and amortization
|
(149,937 | ) | (136,120 | ) | ||||
Property and equipment, net
|
$ | 172,935 | $ | 180,962 | ||||
We recorded depreciation and amortization expense related to
property and equipment in the amount of $14.9 million and
$10.1 million for the three months ended March 31,
2010 and March 31, 2009, respectively.
10
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
4. | Goodwill and Intangible Assets |
Goodwill and indefinite-lived intangible assets consisted of the
following:
March 31, 2010 | December 31, 2009 | |||||||
(in thousands) | ||||||||
Goodwill and Indefinite-Lived Intangible Assets:
|
||||||||
Goodwill
|
$ | 714,483 | $ | 713,123 | ||||
Trademarks and trade names
|
155,261 | 155,090 |
The changes in the carrying amount of goodwill during the three
months ended March 31, 2010 were as follows:
Amount | ||||
(in thousands) | ||||
Balance at December 31, 2009, net of accumulated impairment
of $459,199
|
$ | 713,123 | ||
Impact of foreign currency translation (a)
|
1,360 | |||
Balance at March 31, 2010, net of accumulated impairment of
$459,199
|
$ | 714,483 | ||
(a) | Goodwill is allocated among our subsidiaries, including certain international subsidiaries. As a result, the carrying amount of our goodwill is impacted by foreign currency translation each period. |
Finite-lived intangible assets consisted of the following:
March 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||
Gross |
Net |
Weighted |
Gross |
Net |
Weighted |
|||||||||||||||||||||||||||
Carrying |
Accumulated |
Carrying |
Average |
Carrying |
Accumulated |
Carrying |
Average |
|||||||||||||||||||||||||
Amount | Amortization | Amount | Useful Life | Amount | Amortization | Amount | Useful Life | |||||||||||||||||||||||||
(in thousands) | (in years) | (in thousands) | (in years) | |||||||||||||||||||||||||||||
Finite-Lived Intangible Assets:
|
||||||||||||||||||||||||||||||||
Customer relationships
|
$ | 65,936 | $ | (53,985 | ) | $ | 11,951 | 4 | $ | 66,190 | $ | (50,329 | ) | $ | 15,861 | 4 | ||||||||||||||||
Vendor relationships and other
|
5,177 | (2,600 | ) | 2,577 | 7 | 5,072 | (2,371 | ) | 2,701 | 7 | ||||||||||||||||||||||
Total Finite-Lived Intangible Assets
|
$ | 71,113 | $ | (56,585 | ) | $ | 14,528 | 5 | $ | 71,262 | $ | (52,700 | ) | $ | 18,562 | 5 | ||||||||||||||||
We recorded amortization expense related to finite-lived
intangible assets in the amount of $4.1 million and
$4.3 million for the three months ended March 31, 2010
and March 31, 2009, respectively. These amounts are
included in depreciation and amortization expense in our
condensed consolidated statements of operations.
The table below shows estimated amortization expense related to
our finite-lived intangible assets over the next five years:
Year
|
(in thousands) | |||
2010 (remaining 9 months)
|
$ | 7,116 | ||
2011
|
2,661 | |||
2012
|
2,392 | |||
2013
|
1,642 | |||
2014
|
717 | |||
Total
|
$ | 14,528 | ||
11
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
5. | Accrued Expenses |
Accrued expenses consisted of the following:
March 31, 2010 | December 31, 2009 | |||||||
(in thousands) | ||||||||
Advertising and marketing
|
$ | 23,551 | $ | 17,897 | ||||
Tax sharing liability, current
|
21,176 | 17,390 | ||||||
Employee costs (a)
|
18,802 | 32,684 | ||||||
Professional fees
|
6,227 | 4,414 | ||||||
Rebates
|
5,941 | 5,928 | ||||||
Customer service costs
|
5,577 | 5,575 | ||||||
Technology costs
|
5,250 | 4,413 | ||||||
Contract exit costs
|
4,906 | 4,858 | ||||||
Unfavorable contracts, current
|
3,755 | 3,300 | ||||||
Facilities costs
|
1,590 | 2,588 | ||||||
Other
|
14,283 | 13,724 | ||||||
Total accrued expenses
|
$ | 111,058 | $ | 112,771 | ||||
(a) | The change in the employee costs line item from December 31, 2009 to March 31, 2010 primarily represents the payment of employee bonuses during the first quarter of 2010. | |
The employee costs line item includes accrued severance associated with the resignation of our former President and Chief Executive Officer in January 2009 and work force reductions we undertook in the fourth quarter of 2009 to better align the staffing levels of ebookers with its business objectives. At March 31, 2010 and December 31, 2009, total accrued severance costs were $1.5 million and $3.2 million, respectively. The majority of these costs are expected to be paid during the remainder of 2010. |
6. | Term Loan and Revolving Credit Facility |
On July 25, 2007, concurrent with the IPO, we entered into
a $685.0 million senior secured credit agreement
(Credit Agreement) consisting of a seven-year
$600.0 million term loan facility (Term Loan)
and a six-year $85.0 million revolving credit facility,
which was effectively reduced to a $72.5 million revolving
credit facility following the bankruptcy of Lehman Commercial
Paper Inc. in October 2008 (Revolver).
Term
Loan
The Term Loan bears interest at a variable rate, at our option,
of LIBOR plus a margin of 300 basis points or an
alternative base rate plus a margin of 200 basis points.
The alternative base rate is equal to the higher of the Federal
Funds Rate plus one half of 1% and the prime rate
(Alternative Base Rate). The principal amount of the
Term Loan is payable in quarterly installments of
$1.3 million, with the final installment (equal to the
remaining outstanding balance) due upon maturity in July 2014.
In addition, we are required to make an annual prepayment on the
Term Loan in the first quarter of each fiscal year in an amount
up to 50% of the prior years excess cash flow, as defined
in the Credit Agreement. Based on our excess cash flow for the
year ended December 31, 2009, we made a $21.0 million
prepayment on the Term Loan in the first quarter of 2010 as
required. Prepayments from excess cash flow are applied, in
order of maturity, to the scheduled quarterly Term Loan
principal payments. As a result, we are not required to make any
other principal payments on the Term Loan during the remainder
of 2010. Based on our current financial projections for the year
ending December 31, 2010, we estimate that we will be
required to make a $19.8 million
12
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
prepayment on the Term Loan in the first quarter of 2011. The
amount of prepayment required is subject to change based on
actual results, which could differ materially from our financial
projections as of March 31, 2010.
The changes in the Term Loan during the three months ended
March 31, 2010 were as follows:
Amount | ||||
(in thousands) | ||||
Balance at December 31, 2009
|
$ | 576,576 | ||
Principal prepayments
|
(20,994 | ) | ||
Retirements (a)
|
(49,564 | ) | ||
Balance at March 31, 2010
|
$ | 506,018 | ||
(a) | On January 26, 2010, PAR Investment Partners, L.P. (PAR) exchanged $49.6 million aggregate principal amount of term loans outstanding under the Credit Agreement for 8,141,402 shares of our common stock (see Note 7 Exchange Agreement and Stock Purchase Agreement). We immediately retired the term loans received from PAR in accordance with the amendment to the Credit Agreement that we entered into with our lenders in June 2009. |
At March 31, 2010, we had interest rate swaps outstanding
that effectively converted $400.0 million of the Term Loan
to a fixed interest rate (see Note 13
Derivative Financial Instruments). As a result of these interest
rate swaps, at March 31, 2010, $100.0 million of the
Term Loan effectively bears interest at a fixed rate of 6.39%,
an additional $100.0 million of the Term Loan effectively
bears interest at a fixed rate of 5.98%, an additional
$100.0 million of the Term Loan effectively bears interest
at a fixed rate of 4.15% and an additional $100.0 million
of the Term Loan effectively bears interest at a fixed rate of
4.21%. The remaining $106.0 million of the Term Loan bears
interest at a variable rate of LIBOR plus 300 basis points,
or 3.25%, as of March 31, 2010.
Revolver
The Revolver provides for borrowings and letters of credit of up
to $72.5 million ($42.6 million in U.S. dollars
and the equivalent of $29.9 million denominated in Euros
and Pounds Sterling) and bears interest at a variable rate, at
our option, of LIBOR plus a margin of 250 basis points or
an Alternative Base Rate plus a margin of 150 basis points.
The margin is subject to change based on our total leverage
ratio, as defined in the Credit Agreement, with a maximum margin
of 250 basis points on LIBOR-based loans and 150 basis
points on Alternative Base Rate loans. We incur a commitment fee
of 50 basis points on any unused amounts on the Revolver.
The Revolver matures in July 2013.
At March 31, 2010, there were no outstanding borrowings
under the Revolver. At December 31, 2009,
$42.2 million of borrowings were outstanding under the
Revolver, all of which were denominated in U.S. dollars. In
addition, at March 31, 2010 and December 31, 2009,
there was the equivalent of $8.6 million and
$4.5 million of outstanding letters of credit issued under
the Revolver, respectively, which were denominated in Pounds
Sterling. The amount of letters of credit issued under the
Revolver reduces the amount available to us for borrowings. We
had $63.9 million and $25.8 million of availability
under the Revolver at March 31, 2010 and December 31,
2009, respectively. Commitment fees on unused amounts under the
Revolver were $0.1 million for each of the three months
ended March 31, 2010 and March 31, 2009.
13
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below shows the aggregate maturities of the Term Loan
over the next five years, excluding any mandatory prepayments
that could be required under the Term Loan beyond the first
quarter of 2011. The potential amount of prepayment from excess
cash flow that will be required beyond the first quarter of 2011
is not reasonably estimable as of March 31, 2010. There
were no amounts outstanding under the Revolver as of
March 31, 2010.
Year
|
(in thousands) | |||
2010 (remaining 9 months)
|
$ | | ||
2011
|
19,768 | |||
2012
|
| |||
2013
|
| |||
2014
|
486,250 | |||
Total
|
$ | 506,018 | ||
7. | Exchange Agreement and Stock Purchase Agreement |
On January 26, 2010, PAR and Travelport each completed its
purchase of additional common shares of the Company. Pursuant to
an Exchange Agreement we entered into with PAR, as amended, PAR
exchanged $49.6 million aggregate principal amount of term
loans outstanding under the Credit Agreement for
8,141,402 shares of our common stock. We immediately
retired the term loans received from PAR in accordance with the
amendment to the Credit Agreement that we entered into with our
lenders in June 2009. The fair value of the common shares issued
in the exchange was $49.4 million. After taking into
account the write-off of unamortized debt issuance costs of
$0.4 million and $0.2 million of other miscellaneous
fees incurred to purchase the debt, we recorded a
$0.4 million loss on extinguishment, which is included in
other expense in our condensed consolidated statement of
operations for the three months ended March 31, 2010.
Concurrently, pursuant to a Stock Purchase Agreement we entered
into with Travelport, Travelport purchased 9,025,271 shares
of our common stock for $50.0 million in cash. We incurred
$1.1 million of issuance costs associated with these equity
investments by PAR and Travelport, which are included in
additional paid in capital in our condensed consolidated balance
sheet at March 31, 2010.
8. | Tax Sharing Liability |
We have a liability included in our condensed consolidated
balance sheets that relates to a tax sharing agreement between
Orbitz and the Founding Airlines. As of March 31, 2010, the
estimated remaining payments that may be due under this
agreement were approximately $213.9 million. We estimate
that the net present value of our obligation to pay tax benefits
to the Founding Airlines was $129.7 million and
$126.1 million at March 31, 2010 and December 31,
2009, respectively. The table below shows the changes in the tax
sharing liability during the three months ended March 31,
2010:
Amount | ||||
(in thousands) | ||||
Balance at December 31, 2009
|
$ | 126,126 | ||
Accretion of interest expense (a)
|
3,563 | |||
Balance at March 31, 2010
|
$ | 129,689 | ||
(a) | We accreted interest expense related to the tax sharing liability of $3.6 million and $3.7 million for the three months ended March 31, 2010 and March 31, 2009, respectively. |
Based upon the future payments we expect to make, the current
portion of the tax sharing liability of $21.2 million and
$17.4 million is included in accrued expenses in our
condensed consolidated balance sheets
14
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
at March 31, 2010 and December 31, 2009, respectively.
The long-term portion of the tax sharing liability of
$108.5 million and $108.7 million is reflected as the
tax sharing liability in our condensed consolidated balance
sheets at March 31, 2010 and December 31, 2009,
respectively. At the time of the Blackstone Acquisition, Cendant
(now Avis Budget Group, Inc.) indemnified Travelport and us for
a portion of the amounts due under the tax sharing agreement. As
a result, we recorded a receivable of $37.0 million which
is included in other non-current assets in our condensed
consolidated balance sheets at March 31, 2010 and
December 31, 2009.
The table below shows the estimated payments under our tax
sharing liability over the next five years:
Year
|
(in thousands) | |||
2010 (remaining 9 months)
|
$ | 22,049 | ||
2011
|
20,358 | |||
2012
|
16,817 | |||
2013
|
17,524 | |||
2014
|
18,092 | |||
Thereafter
|
119,095 | |||
Total
|
$ | 213,935 | ||
9. | Unfavorable Contracts |
In December 2003, we entered into amended and restated airline
charter associate agreements (Charter Associate
Agreements) with the Founding Airlines as well as US
Airways (Charter Associate Airlines). These
agreements pertain to our Orbitz business, which was owned by
the Founding Airlines at the time we entered into the
agreements. Under the Charter Associate Agreements, we must pay
a portion of the global distribution system (GDS)
incentive revenue we earn from Worldspan back to the Charter
Associate Airlines in the form of a rebate. The rebate payments
are required when airline tickets for travel on a Charter
Associate Airline are booked through the Orbitz.com website
utilizing Worldspan. We also receive in-kind marketing and
promotional support from the Charter Associate Airlines under
the Charter Associate Agreements. The rebate structure under the
Charter Associate Agreements was considered unfavorable when
compared with market conditions at the time of the Blackstone
Acquisition. As a result, a net unfavorable contract liability
was established on the acquisition date. The amount of this
liability was determined based on the discounted cash flows of
the expected future rebate payments we would be required to make
to the Charter Associate Airlines, net of the fair value of the
expected in-kind marketing and promotional support we would
receive from the Charter Associate Airlines. The portion of the
net unfavorable contract liability related to the expected
future rebate payments is amortized as an increase to net
revenue, whereas the partially offsetting asset for the expected
in-kind marketing and promotional support is amortized as an
increase to marketing expense in our condensed consolidated
statements of operations, both on a straight-line basis over the
remaining contractual term.
15
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below shows the changes in the unfavorable contracts
liability during the three months ended March 31, 2010:
Amount | ||||
(in thousands) | ||||
Balance at December 31, 2009
|
$ | 13,201 | ||
Amortization (a)
|
(825 | ) | ||
Impairment (b)
|
1,704 | |||
Balance at March 31, 2010
|
$ | 14,080 | ||
(a) | We recognized net amortization for the unfavorable portion of the Charter Associate Agreements in the amount of $0.8 million ($2.3 million was recorded as an increase to net revenue and $1.5 million was recorded as an increase to marketing expense) for each of the three months ended March 31, 2010 and March 31, 2009. | |
(b) | During the three months ended March 31, 2010, we recorded a non-cash charge to impair the portion of the asset related to the expected in-kind marketing and promotional support to be received from Northwest Airlines under our Charter Associate Agreement with that airline. As a result of the completion of the operational merger of Northwest Airlines and Delta Airlines into a single operating carrier, Northwest Airlines will no longer be obligated to provide us with in-kind marketing and promotional support after June 1, 2010. This impairment charge is reflected as impairment of other assets in our condensed consolidated statement of operations for the three months ended March 31, 2010. |
At March 31, 2010 and December 31, 2009, the net
unfavorable contract liability was $14.1 million and
$13.2 million, respectively. The current portion of the
liability of $3.8 million and $3.3 million was
included in accrued expenses in our condensed consolidated
balance sheets at March 31, 2010 and December 31,
2009, respectively. The long term portion of the liability of
$10.3 million and $9.9 million is reflected as
unfavorable contracts in our condensed consolidated balance
sheets at March 31, 2010 and December 31, 2009,
respectively.
10. | Commitments and Contingencies |
Our commitments as of March 31, 2010 did not materially
change from the amounts set forth in our 2009 Annual Report on
Form 10-K,
except for the following:
2010 (remaining |
||||||||||||||||||||||||||||
9 months) | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Telecommunications service agreement (a)
|
$ | 1,600 | $ | 2,500 | $ | 2,500 | $ | | $ | | $ | | $ | 6,600 |
(a) | In January 2010, we entered into a new three-year telecommunications service agreement, which requires a minimum annual commitment of $2.5 million. |
In addition to the commitment shown above, the amount and timing
of future principal payments on the Term Loan (see
Note 6 Term Loan and Revolving Credit Facility)
and the timing of future payments in connection with the tax
sharing agreement with the Founding Airlines has changed (see
Note 8 Tax Sharing Liability). Also, in January
2010 we repaid the $42.2 million of borrowings that were
outstanding on the Revolver as of December 31, 2009. There
were no outstanding borrowings under the Revolver at
March 31, 2010.
Company
Litigation
We are involved in various claims, legal proceedings and
governmental inquiries related to contract disputes, business
practices, intellectual property and other commercial,
employment and tax matters.
16
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We are party to various cases brought by consumers and
municipalities and other U.S. governmental entities
involving hotel occupancy taxes and our merchant hotel business
model. Some of the cases are purported class actions, and most
of the cases were brought simultaneously against other online
travel companies, including Expedia, Travelocity and Priceline.
The cases allege, among other things, that we violated the
jurisdictions hotel occupancy tax ordinance. While not
identical in their allegations, the cases generally assert
similar claims, including violations of local or state occupancy
tax ordinances, violations of consumer protection ordinances,
conversion, unjust enrichment, imposition of a constructive
trust, demand for a legal or equitable accounting, injunctive
relief, declaratory judgment, and in some cases, civil
conspiracy. The plaintiffs seek relief in a variety of forms,
including: declaratory judgment, full accounting of monies owed,
imposition of a constructive trust, compensatory and punitive
damages, disgorgement, restitution, interest, penalties and
costs, attorneys fees, and where a class action has been
claimed, an order certifying the action as a class action. An
adverse ruling in one or more of these cases could require us to
pay tax retroactively and prospectively and possibly pay
penalties, interest and fines. The proliferation of additional
cases could result in substantial additional defense costs.
We have also been contacted by several municipalities or other
taxing bodies concerning our possible obligations with respect
to state or local hotel occupancy or related taxes. The
following taxing bodies have issued notices to the Company: the
South Carolina Department of Revenue; the Colorado Department of
Revenue; the West Virginia Department of Revenue; the Hawaii
Department of Taxation; an entity representing 84 cities
and 14 counties in Alabama; 43 cities in California; the
cities of Phoenix, Arizona; North Little Rock and Pine Bluff,
Arkansas; Colorado Springs and Steamboat Springs, Colorado; and
the counties of Jefferson, Arkansas; Brunswick and Stanly, North
Carolina; Duval and Osceola, Florida; and Davis, Summit, Salt
Lake and Weber, Utah. These taxing authorities have not issued
assessments, but have requested information to conduct an audit
and/or have
requested that the Company register to pay local hotel occupancy
taxes. Additional taxing authorities have begun audit
proceedings and some have issued assessments against the
Company, individually ranging from almost nil to approximately
$3.2 million, and totaling approximately
$10.7 million. Assessments that are administratively final
and subject to judicial review have been issued by the cities of
Anaheim and San Francisco, California; the counties of
Miami-Dade and Broward, Florida; the Indiana Department of
Revenue and the Wisconsin Department of Revenue. In addition,
the following taxing authorities have issued assessments which
are subject to further review by the taxing authorities: the
cities of Los Angeles and San Diego, California; the city
of Philadelphia, Pennsylvania, the cities of Alpharetta,
Cartersville, Cedartown, College Park, Dalton, East Point,
Hartwell, Macon, Rockmart, Rome, Tybee Island and Warner Robins,
Georgia; and the counties of Augusta, Clayton, Cobb, DeKalb,
Fulton, Gwinnett, Hart and Richmond, Georgia. The Company
disputes that any hotel occupancy or related tax is owed under
these ordinances and is challenging the assessments made against
the Company. If the Company is found to be subject to the hotel
occupancy tax ordinance by a taxing authority and appeals the
decision in court, certain jurisdictions may attempt to require
us to provide financial security or pay the assessment to the
municipality in order to challenge the tax assessment in court.
We believe that we have meritorious defenses, and we are
vigorously defending against these claims, proceedings and
inquiries. We have established a nominal reserve relating to a
discovery sanction that is expected to be entered in a case
pending in Columbus, Georgia. This is the only reserve we have
established related to the hotel occupancy tax matters, and it
is unrelated to the merits of the case. Litigation is inherently
unpredictable and, although we believe we have valid defenses in
these matters based upon advice of counsel, unfavorable
resolutions could occur. While we cannot estimate our range of
loss and believe it is unlikely that an adverse outcome will
result from these proceedings, an adverse outcome could be
material to us with respect to earnings or cash flows in any
given reporting period.
We are currently seeking to recover insurance reimbursement for
costs incurred to defend the hotel occupancy tax cases. We
recorded a reduction to selling, general and administrative
expense in our condensed consolidated statements of operations
for reimbursements received of $1.3 million and
$1.5 million for the
17
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
three months ended March 31, 2010 and March 31, 2009,
respectively. The recovery of additional amounts, if any, by us
and the timing of receipt of these recoveries is unclear. As
such, as of March 31, 2010, we had not recognized a
reduction to selling, general and administrative expense in our
condensed consolidated statements of operations for the
outstanding contingent claims for which we have not received
reimbursement.
Surety
Bonds and Bank Guarantees
In the ordinary course of business, we obtain surety bonds and
bank guarantees, issued for the benefit of a third party, to
secure performance of certain of our obligations to third
parties. At March 31, 2010 and December 31, 2009,
there were $0.8 million of surety bonds outstanding. At
March 31, 2010 and December 31, 2009, there were
$2.2 million and $1.5 million of bank guarantees
outstanding, respectively.
Financing
Arrangements
We are required to issue letters of credit to certain suppliers
and
non-U.S. regulatory
and government agencies. The majority of these letters of credit
were issued by Travelport on our behalf under the terms of the
Separation Agreement, as amended, (the Separation
Agreement) entered into in connection with the IPO. The
letter of credit fees were $0.9 million and
$1.0 million for the three months ended March 31, 2010
and March 31, 2009, respectively. At March 31, 2010
and December 31, 2009, there were $68.7 million and
$59.3 million of outstanding letters of credit issued by
Travelport on our behalf, respectively (see
Note 15 Related Party Transactions). In
addition, at March 31, 2010 and December 31, 2009,
there was the equivalent of $8.6 million and
$4.5 million of outstanding letters of credit issued under
the Revolver, respectively, which were denominated in Pounds
Sterling.
11. | Income Taxes |
We have established a liability for unrecognized tax benefits
that management believes to be adequate. The table below shows
the changes in this liability during the three months ended
March 31, 2010:
Amount | ||||
(in thousands) | ||||
Balance at December 31, 2009
|
$ | 4,910 | ||
Decrease in unrecognized tax benefits as a result of tax
positions taken during the prior year |
(80 | ) | ||
Impact of foreign currency translation
|
(15 | ) | ||
Balance at March 31, 2010
|
$ | 4,815 | ||
The total amount of unrecognized tax benefits that, if
recognized, would affect our effective tax rate was
$1.1 million at March 31, 2010. We do not expect to
make any cash tax payments nor do we expect any statutes of
limitations to lapse related to our liability for unrecognized
tax benefits within the next twelve months.
We recognized interest and penalties of $0 during each of the
three months ended March 31, 2010 and March 31, 2009.
Accrued interest and penalties were $0.6 million at
March 31, 2010 and December 31, 2009.
In computing the tax provision for the three months ended
March 31, 2010, we recognized an income tax provision in
tax jurisdictions in which we had pre-tax income for the three
months ended March 31, 2010 and are expected to generate
pre-tax book income during the remainder of fiscal year 2010. We
recognized an income tax benefit in tax jurisdictions in which
we incurred pre-tax losses for the three months ended
March 31, 2010 and are expected to be able to realize the
benefits associated with these losses during the remainder of
fiscal year 2010 or are expected to recognize a deferred tax
asset related to such losses at December 31, 2010.
18
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
12. | Equity-Based Compensation |
We currently issue share-based awards under the Orbitz
Worldwide, Inc. 2007 Equity and Incentive Plan, as amended (the
Plan). The Plan provides for the grant of
equity-based awards, including restricted stock, restricted
stock units, stock options, stock appreciation rights and other
equity-based awards to our directors, officers and other
employees, advisors and consultants who are selected by the
Compensation Committee of the Board of Directors for
participation in the Plan. We recognized total equity-based
compensation expense of $2.9 million and $4.8 million
during the three months ended March 31, 2010 and
March 31, 2009, respectively, none of which has provided us
a tax benefit.
There was no significant activity related to restricted stock,
restricted stock units, stock options, performance-based
restricted stock units (PSUs) or deferred stock
units during the three months ended March 31, 2010. As of
March 31, 2010, the Company expects that none of the PSUs
will vest.
13. | Derivative Financial Instruments |
Interest
Rate Hedges
At March 31, 2010, we had the following interest rate swaps
that effectively converted $400.0 million of the Term Loan
from a variable to a fixed interest rate. We pay a fixed
interest rate on the swaps and in exchange receive a variable
interest rate based on either the three-month or the one-month
LIBOR.
Fixed Interest |
Variable Interest |
|||||||||
Notional Amount
|
Effective Date
|
Maturity Date
|
Rate Paid |
Rate Received
|
||||||
$100.0 million
|
May 30, 2008 | May 31, 2011 | 3.39 | % | Three-month LIBOR | |||||
$100.0 million
|
September 30, 2008 | September 30, 2010 | 2.98 | % | One-month LIBOR | |||||
$100.0 million
|
January 29, 2010 | January 31, 2012 | 1.15 | % | One-month LIBOR | |||||
$100.0 million
|
January 29, 2010 | January 31, 2012 | 1.21 | % | Three-month LIBOR |
The objective of entering into our interest rate swaps is to
protect against volatility of future cash flows and effectively
hedge a portion of the variable interest payments on the Term
Loan. We determined that these designated hedging instruments
qualify for cash flow hedge accounting treatment. Our interest
rate swaps are the only derivative financial instruments that we
have designated as hedging instruments.
The interest rate swaps are reflected in our condensed
consolidated balance sheets at market value. The corresponding
market adjustment is recorded to accumulated other comprehensive
income (loss). The following table shows the fair value of our
interest rate swaps at March 31, 2010 and December 31,
2009:
Fair Value Measurements as of | ||||||||||
Balance Sheet Location
|
March 31, 2010 | December 31, 2009 | ||||||||
(in thousands) | ||||||||||
Liability Derivatives:
|
||||||||||
Interest rate swaps
|
Other current liabilities | $ | 1,337 | $ | 1,899 | |||||
Interest rate swaps
|
Other non-current liabilities | 3,718 | 3,437 |
19
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows the market adjustments recorded during
the three months ended March 31, 2010 and March 31,
2009:
Gain (Loss) |
||||||||||||||||||||||||
Recognized in |
||||||||||||||||||||||||
(Loss) Reclassified |
Income (Ineffective |
|||||||||||||||||||||||
Gain in Other |
From Accumulated |
Portion and the |
||||||||||||||||||||||
Comprehensive |
OCI into |
Amount Excluded |
||||||||||||||||||||||
Income |
Interest Expense |
from Effectiveness |
||||||||||||||||||||||
(OCI) | (Effective Portion) | Testing) | ||||||||||||||||||||||
Three Months |
Three Months |
Three Months |
||||||||||||||||||||||
Ended |
Ended |
Ended |
||||||||||||||||||||||
March 31, | March 31, | March 31, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Interest rate swaps
|
$ | 281 | $ | 1,867 | $ | (1,783 | ) | $ | (2,887 | ) | $ | | $ | |
The amount of loss recorded in accumulated other comprehensive
income at March 31, 2010 that is expected to be
reclassified to interest expense in the next twelve months if
interest rates remain unchanged is approximately
$5.7 million after-tax.
Foreign
Currency Hedges
We enter into foreign currency forward contracts (forward
contracts) to manage exposure to changes in the foreign
currency associated with foreign currency receivables, payables,
intercompany transactions and borrowings under the Revolver. We
primarily hedge our foreign currency exposure to the Pound
Sterling, Euro and Australian dollar. As of March 31, 2010,
we had forward contracts outstanding with a total net notional
amount of $156.1 million, which matured in April 2010. The
forward contracts do not qualify for hedge accounting treatment.
Accordingly, changes in the fair value of the forward contracts
are recorded in net income, as a component of selling, general
and administrative expense in our condensed consolidated
statements of operations.
The following table shows the fair value of our foreign currency
hedges at March 31, 2010 and December 31, 2009:
Fair Value Measurements as of | ||||||||||
Balance Sheet Location
|
March 31, 2010 | December 31, 2009 | ||||||||
(in thousands) | ||||||||||
Asset Derivatives:
|
||||||||||
Foreign currency hedges
|
Other current assets | $ | 166 | $ | | |||||
Liability Derivatives:
|
||||||||||
Foreign currency hedges
|
Other current liabilities | $ | 974 | $ | 1,208 |
The following table shows the changes in the fair value of our
forward contracts recorded in net income during the three months
ended March 31, 2010 and March 31, 2009:
Gain (Loss) in |
||||||||
Selling, General & |
||||||||
Administrative Expense | ||||||||
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Foreign currency hedges (a)
|
$ | 3,364 | $ | (80 | ) |
20
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(a) | We recorded transaction losses associated with the re-measurement of our foreign denominated assets and liabilities of $(8.0) million and $(1.8) million in the three months ended March 31, 2010 and March 31, 2009, respectively. Transaction losses are included in selling, general and administrative expense in our condensed consolidated statements of operations. The net impact of transaction losses associated with the re-measurement of our foreign denominated assets and liabilities and gains (losses) incurred on our foreign currency hedges was a net loss of $(4.6) million and $(1.9) million in the three months ended March 31, 2010 and March 31, 2009, respectively. |
14. | Net Loss per Share |
The following table presents the calculation of basic and
diluted net loss per share:
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
(in thousands, except share and per share data) | ||||||||
Net loss
|
$ | (5,261 | ) | $ | (336,156 | ) | ||
Net loss per share:
|
||||||||
Weighted average shares outstanding for basic and diluted net
loss per share (a)
|
96,736,876 | 83,593,448 | ||||||
Basic and Diluted
|
$ | (0.05 | ) | $ | (4.02 | ) | ||
(a) | Stock options, restricted stock, restricted stock units and PSUs are not included in the calculation of diluted net loss per share for the three months ended March 31, 2010 and March 31, 2009 because we had a net loss for each period. Accordingly, the inclusion of these equity awards would have had an antidilutive effect on diluted net loss per share. |
The following equity awards are not included in the diluted net
loss per share calculation above because they would have had an
antidilutive effect:
As of March 31, | ||||||||
Antidilutive Equity Awards
|
2010 | 2009 | ||||||
Stock options
|
4,181,812 | 5,076,084 | ||||||
Restricted stock units
|
5,572,023 | 2,602,316 | ||||||
Restricted stock
|
1,098 | 15,552 | ||||||
Performance-based restricted stock units
|
227,679 | 249,108 | ||||||
Total
|
9,982,612 | 7,943,060 | ||||||
15. | Related Party Transactions |
Related
Party Transactions with Travelport and its
Subsidiaries
The following table summarizes the related party balances with
Travelport and its subsidiaries as of March 31, 2010 and
December 31, 2009, reflected in our condensed consolidated
balance sheets. We net settle amounts due to and from Travelport.
March 31, 2010 | December 31, 2009 | |||||||
(in thousands) | ||||||||
Due from Travelport, net
|
$ | 13,540 | $ | 3,188 |
21
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the related party transactions
with Travelport and its subsidiaries for the three months ended
March 31, 2010 and March 31, 2009, reflected in our
condensed consolidated statements of operations:
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Net revenue (a)
|
$ | 31,937 | $ | 29,599 | ||||
Cost of revenue
|
147 | | ||||||
Selling, general and administrative expense
|
23 | 474 | ||||||
Interest expense
|
945 | 986 |
(a) | These amounts include net revenue related to our GDS services agreement and bookings sourced through Donvand Limited and OctopusTravel Group Limited (doing business as Gullivers Travel Associates, GTA) for the periods presented. |
The tables above reflect amounts resulting from agreements with
Travelport and its subsidiaries, including our transition
services agreement, master license agreement, equipment,
services and use agreements, GDS service agreement, hotel
sourcing and franchise agreement and corporate travel agreement.
Travelport is also obligated to issue letters of credit on our
behalf so long as Travelport and its affiliates (as defined in
the Separation Agreement) own at least 50% of our voting stock,
in an aggregate amount not to exceed $75.0 million
(denominated in U.S. dollars). At March 31, 2010 and
December 31, 2009, there were $68.7 million and
$59.3 million of outstanding letters of credit issued by
Travelport on our behalf, respectively (see
Note 10 Commitments and Contingencies).
Stock
Purchase Agreement
On January 26, 2010, Travelport purchased
9,025,271 shares of our common stock for $50.0 million
in cash (see Note 7 Exchange Agreement and
Stock Purchase Agreement).
Related
Party Transactions with Affiliates of Blackstone and
TCV
In the normal course of conducting business, we have entered
into various agreements with affiliates of Blackstone and TCV.
We believe that these agreements have been executed on terms
comparable to those of unrelated third parties. For example, we
have agreements with certain hotel management companies that are
affiliates of Blackstone and that provide us with access to
their inventory. We also purchase services from certain
Blackstone and TCV affiliates such as telecommunications and
advertising. We have also entered into various outsourcing
agreements with Intelenet, an affiliate of Blackstone, that
provide us with call center and telesales, back office
administrative, information technology and financial services.
In addition, various Blackstone and TCV affiliates utilize our
partner marketing programs and corporate travel services.
The following table summarizes the related party balances with
affiliates of Blackstone and TCV as of March 31, 2010 and
December 31, 2009, reflected in our condensed consolidated
balance sheets:
March 31, 2010 | December 31, 2009 | |||||||
(in thousands) | ||||||||
Accounts receivable
|
$ | 67 | $ | 62 | ||||
Prepaid expenses
|
20 | 78 | ||||||
Accounts payable
|
5,251 | 5,432 | ||||||
Accrued expenses
|
2,464 | 2,461 | ||||||
Accrued merchant payable
|
5,912 | 6,131 |
22
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the related party transactions
with affiliates of Blackstone and TCV for the three months ended
March 31, 2010 and March 31, 2009, reflected in our
condensed consolidated statements of operations:
Three Months Ended |
||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Net revenue
|
$ | 4,669 | $ | 2,728 | ||||
Cost of revenue (a)
|
7,591 | 6,011 | ||||||
Selling, general and administrative expense (b)
|
692 | 998 |
(a) | The amounts shown represent call center and telesales costs incurred under our outsourcing agreements with Intelenet. | |
(b) | Of the amounts shown for the three months ended March 31, 2010 and March 31, 2009, $0.6 million and $0.9 million, respectively, represent costs incurred under our outsourcing agreements with Intelenet for back office administrative, information technology and financial services. |
16. | Fair Value Measurements |
The following table shows the fair value of our financial assets
and financial liabilities that are required to be measured at
fair value on a recurring basis as of March 31, 2010 and
December 31, 2009, which are classified as other current
assets, other current liabilities and other non-current
liabilities in our condensed consolidated balance sheets. We
currently do not have non-financial assets and non-financial
liabilities that are required to be measured at fair value on a
recurring basis.
Fair Value Measurements as of | ||||||||||||||||||||||||||||||||
March 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||
Quoted |
Significant |
Quoted |
Significant |
|||||||||||||||||||||||||||||
prices in |
other |
Significant |
prices in |
other |
Significant |
|||||||||||||||||||||||||||
Balance at |
active |
observable |
unobservable |
Balance at |
active |
observable |
unobservable |
|||||||||||||||||||||||||
March 31, |
markets |
inputs |
inputs |
December 31, |
markets |
inputs |
inputs |
|||||||||||||||||||||||||
2010 | (Level 1) | (Level 2) | (Level 3) | 2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Foreign currency hedge asset (see Note 13
Derivative Financial Instruments)
|
$ | 166 | $ | 166 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
Foreign currency hedge liability (see Note 13
Derivative Financial Instruments)
|
$ | 974 | $ | 974 | $ | | $ | | $ | 1,208 | $ | 1,208 | $ | | $ | | ||||||||||||||||
Interest rate swap liabilities (see Note 13
Derivative Financial Instruments)
|
$ | 5,055 | $ | | $ | 5,055 | $ | | $ | 5,336 | $ | | $ | 5,336 | $ | | ||||||||||||||||
We value our foreign currency hedges based on the difference
between the foreign currency forward contract rate and widely
available foreign currency forward rates as of the measurement
date. Our foreign currency hedges consist of forward contracts
that are short-term in nature, generally maturing within
30 days.
We value our interest rate hedges using valuations that are
calibrated to the initial trade prices. Using a market-based
approach, subsequent valuations are based on observable inputs
to the valuation model including interest rates, credit spreads
and volatilities.
During the three months ended March 31, 2010, we were
required to measure the asset related to expected in-kind
marketing and promotional support to be received from Northwest
Airlines at fair value. As Northwest Airlines is no longer
obligated to provide us with this in-kind marketing and
promotional support
23
Table of Contents
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
after June 1, 2010, we recorded a $1.7 million charge
to impair this asset (see Note 9 Unfavorable
Contracts).
Fair
Value of Financial Instruments
For certain of our financial instruments, including cash and
cash equivalents, accounts receivable, accounts payable, accrued
merchant payable and accrued expenses, the carrying value
approximates or equals fair value due to their short-term nature.
The carrying value of the Term Loan was $506.0 million at
March 31, 2010, compared with a fair value of approximately
$487.4 million. At December 31, 2009, the carrying
value of the Term Loan was $576.6 million, compared with a
fair value of $537.9 million. The fair values were
determined based on quoted market ask prices.
17. | Subsequent Event |
On May 3, 2010, we commenced an offer to 19 eligible
employees to exchange certain out-of-the-money options to
purchase our common stock for a lesser number of new stock
options. As of that date, there were 1,291,040 outstanding stock
options eligible for exchange in the exchange offer. The fair
value of the new stock options granted in the exchange offer
will approximate the fair value of the old stock options and
will have an exercise price equal to the fair market value of a
share of our common stock at the completion of the exchange
offer. We are not able to predict how many or which eligible
employees will exchange their eligible stock options.
24
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion should be read in conjunction with
our condensed consolidated financial statements included
elsewhere in this report and our 2009 Annual Report on
Form 10-K
filed with the SEC on March 3, 2010.
OVERVIEW
We are a leading global online travel company that uses
innovative technology to enable leisure and business travelers
to search for and book a broad range of travel products and
services. Our brand portfolio includes Orbitz, CheapTickets, The
Away Network and Orbitz for Business in the Americas; ebookers
in Europe; and HotelClub based in Sydney, Australia, which has
operations globally. We provide customers with the ability to
book a comprehensive set of travel products and services from
suppliers worldwide, including air travel, hotels, vacation
packages, car rentals, cruises, travel insurance and destination
services such as ground transportation, event tickets and tours.
We generate revenue primarily from the booking of travel
products and services on our websites. We provide customers the
ability to book travel products and services on both a
stand-alone basis and as part of a vacation package, primarily
through our merchant and retail business models. Under our
merchant model, we generate revenue for our services based on
the difference between the total amount the customer pays for
the travel product and the negotiated net rate plus estimated
taxes that the supplier charges us for that product. Under our
retail model, we earn commissions from suppliers for airline
tickets, hotel rooms, car rentals and other travel products and
services booked on our websites. In addition, under both the
merchant and retail business models, we may, depending upon the
brand and the travel product, earn revenue by charging customers
a service fee for booking their travel reservation on our
websites (see Industry Trends below). We also
receive incentive payments for air, car and hotel segments that
are processed through a GDS.
We also generate advertising revenue through our partner
marketing programs. These programs provide access to our
customers through a combination of display advertising,
performance-based advertising and other marketing programs. In
addition, we generate revenue from our private label and hosting
businesses. We earn revenue from our private label business
through revenue sharing arrangements for travel booked on
third-party websites. We earn revenue from our hosting business
through license or fee arrangements.
Our strategic focus for 2010 is on driving global hotel
transaction growth, supporting our mission to become one of the
three primary hotel distribution platforms globally.
Specifically, we think of our activities as they relate to
hotels as falling into three areas: demand, supply and retailing.
Demand
We are focused on generating demand through both
business-to-consumer
and
business-to-business
channels. In 2010, we intend to further increase brand awareness
and loyalty such that consumers come directly to our websites to
book their travel. We are also focused on continuing to optimize
our search engine marketing (SEM) spending to drive
consumers to our websites in a cost effective manner. We are
actively pursuing strategies to increase the amount of traffic
coming to our websites through search engine optimization
(SEO), customer relationship management
(CRM), our private label business and our corporate
travel business, Orbitz for Business.
Supply
We are focused on working with our suppliers to provide
customers the ability to book a broad range of highly
competitive travel products and services on our websites. We are
investing in enhanced hotel connectivity and infrastructure
solutions in 2010. We also intend to expand our supply footprint
in markets where online penetration is low.
25
Table of Contents
Retailing
We are focused on ways to improve our ability to convert website
visitors into customers. We plan to enhance the customer
shopping experience on our websites by developing new tools and
technologies to help users research options, improving the
quality of the hotel content we make available (such as
editorial descriptions, photographs and user-generated reviews)
and through the development of systems and technology that will
allow us to use historical data to provide customers with more
relevant search results. We also intend to build upon our
existing telesales capabilities to drive volume for higher
margin travel products.
Industry
Trends
The economic recession significantly impacted the travel
industry during 2009. Although economic conditions appear to
have stabilized or even improved in the first quarter of 2010,
there is still uncertainty surrounding the timing of an economic
recovery. As a result, we have limited visibility into when
travel industry fundamentals may fully recover.
In 2009, in response to lower demand for air travel, certain
domestic and international airlines reduced ticket prices to
drive volume and reduced their capacity to levels significantly
below 2008. There is uncertainty as to whether airline capacity
will remain constant or will increase in 2010. However,
consolidation in the airline industry could put additional
pressure on capacity. Air fares began to increase in the first
quarter of 2010 in response to improved demand for air travel.
We expect air fares to continue to rise above 2009 levels
throughout the remainder of 2010.
In 2009, certain OTCs who historically charged booking fees,
including us, eliminated booking fees on most, if not all,
flights and reduced booking fees on hotels. The elimination of
air booking fees on OTCs websites has significantly
reduced the net revenue that OTCs generate from airline tickets.
However, these fee cuts resulted in a significant increase in
air transactions for OTCs.
Fundamentals in the U.S. hotel industry also began to show
signs of improvement in the first quarter of 2010. In the first
quarter of 2010, we saw a slight
year-over-year
increase in average daily rates (ADRs) for hotel
rooms booked for the first time since September 2008. Higher
ADRs increase the net revenue that OTCs earn on hotel bookings.
Based on recent trends, our expectation is that ADRs will remain
above 2009 levels throughout 2010. Fundamentals in the European
and Asia Pacific hotel industries have also showed signs of
improvement.
The economic recession also significantly impacted the car
rental industry last year. In 2009, car rental companies had
limited access to financing, and as a result, reduced their
rental car fleets. The overall reduction in rental car fleets
resulted in a significant increase in ADRs for domestic car
rentals in 2009. In the first quarter of 2010, although fleet
sizes remained fairly constant, ADRs declined on a year over
year basis. There is uncertainty surrounding rental car fleet
sizes and the corresponding trends in ADRs for car rentals for
the remainder of 2010.
OTCs experienced growth as a result of fee removals and the
significant promotional environment associated with weak
economic conditions. Going forward, we believe that growth rates
in the domestic online travel market will be more closely
aligned with the growth rates of the overall travel industry.
Internationally, the online travel industry continues to benefit
from rapidly increasing internet usage and growing acceptance of
online booking. As a result, we expect that international growth
rates for the online travel industry will continue to outpace
growth rates for online travel domestically.
OTCs make significant investments in marketing through both
online and traditional offline channels. Key areas of online
marketing include SEM, travel research, display advertising,
affiliate programs and CRM.
26
Table of Contents
Online marketing costs have been rising in the U.S. over
time. We are actively pursuing strategies to improve the
efficiency of our marketing efforts. These strategies include
increasing the amount of non-paid traffic coming to our websites
through SEO and CRM and enhancing the profitability of our SEM
and travel research spending.
Recent
Developments
In April 2010, volcanic ash from an eruption in Iceland
significantly disrupted air travel to and from European
destinations. As a result of the volcanic ash, a significant
portion of European airspace was closed and several airports
halted flights. While we do not believe this travel disruption
will materially impact our financial results for the second
quarter of 2010, it has resulted in lost revenue due to flight
cancellations and concerns about the continuing effects the
volcano will have on travel, higher customer service costs and
higher customer refunds.
RESULTS
OF OPERATIONS
Key
Operating Metrics
Our operating results are driven by certain key metrics,
including transaction growth, hotel room night growth, gross
bookings and net revenue. Transaction growth is defined as the
year-over-year
change in booked transactions. Hotel room night growth
represents the
year-over-year
change in stayed hotel room nights and includes both stand-alone
hotel room nights and hotel room nights booked as part of a
vacation package. Gross bookings are defined as the total amount
paid by consumers for travel products booked on our websites.
Net revenue includes: commissions earned from suppliers under
our retail model; the difference between the total amount the
consumer pays us for travel and the negotiated net rate plus
estimated taxes that the supplier charges us for that travel
under our merchant model; service fees earned from consumers
under both our merchant and retail models; advertising revenue
and certain other fees and commissions.
Transactions, hotel room nights and gross bookings provide
insight into changes in overall travel demand, both
industry-wide and on our websites. We track net revenue trends
for our various brands, geographies and products to gain insight
into the performance of our business across these categories.
The table below shows our transaction growth, hotel room night
growth, gross bookings and net revenue for the three months
ended March 31, 2010 and March 31, 2009. Air gross
bookings are comprised of stand-alone air gross bookings, while
non-air gross bookings include gross bookings from hotels, car
rentals, vacation packages, cruises, destination services and
travel insurance. Air net revenue is comprised of net revenue
from stand-alone air bookings, while non-air net revenue
includes net revenue from hotel bookings, vacation packages,
advertising and media and other sources.
27
Table of Contents
Three Months Ended |
||||||||||||||||
March 31, |
$ |
% |
||||||||||||||
2010 | 2009 | Change | Change | |||||||||||||
(in thousands) | ||||||||||||||||
Gross bookings
|
||||||||||||||||
Domestic
|
||||||||||||||||
Air
|
$ | 1,845,225 | $ | 1,439,161 | $ | 406,064 | 28 | % | ||||||||
Non-air
|
661,406 | 630,362 | 31,044 | 5 | % | |||||||||||
Total domestic gross bookings
|
2,506,631 | 2,069,523 | 437,108 | 21 | % | |||||||||||
International
|
||||||||||||||||
Air
|
321,562 | 228,366 | 93,196 | 41 | % | |||||||||||
Non-air
|
183,432 | 130,798 | 52,634 | 40 | % | |||||||||||
Total international gross bookings
|
504,994 | 359,164 | 145,830 | 41 | % | |||||||||||
Total gross bookings (a)
|
$ | 3,011,625 | $ | 2,428,687 | $ | 582,938 | 24 | % | ||||||||
Net revenue
|
||||||||||||||||
Domestic
|
||||||||||||||||
Air
|
$ | 52,846 | $ | 66,063 | $ | (13,217 | ) | (20 | )% | |||||||
Non-air
|
91,149 | 90,958 | 191 | | ||||||||||||
Total domestic net revenue
|
143,995 | 157,021 | (13,026 | ) | (8 | )% | ||||||||||
International
|
||||||||||||||||
Air
|
18,779 | 15,265 | 3,514 | 23 | % | |||||||||||
Non-air
|
24,379 | 16,107 | 8,272 | 51 | % | |||||||||||
Total international net revenue
|
43,158 | 31,372 | 11,786 | 38 | % | |||||||||||
Total net revenue (b)
|
$ | 187,153 | $ | 188,393 | $ | (1,240 | ) | (1 | )% | |||||||
Transaction and hotel room night growth
|
||||||||||||||||
Transaction growth
|
20 | % | (12 | )% | ||||||||||||
Hotel room night growth
|
13 | % | (1 | )% |
(a) | In the first quarter of 2010, we revised our methodology for the calculation of gross bookings for our ebookers brand. As a result, the prior period amounts in the table above have been updated to reflect this new methodology, which is consistent with how we now review our global gross bookings. | |
(b) | For the three months ended March 31, 2010 and March 31, 2009, $33.1 million and $28.7 million of our total net revenue, respectively, was attributed to incentive payments earned for air, car and hotel segments processed through global distribution systems. |
Comparison
of the three months ended March 31, 2010 to the three
months ended March 31, 2009
Gross
Bookings
For our domestic business, which is comprised principally of
Orbitz, CheapTickets and Orbitz for Business, total gross
bookings increased $437.1 million, or 21%, for the three
months ended March 31, 2010 compared with the three months
ended March 31, 2009. Of the $437.1 million increase,
$406.1 million was due to an increase in domestic air gross
bookings, which was driven by higher transaction volume and, to
a lesser extent, a higher average price per airline ticket.
Transaction volume increased primarily due to the removal of
booking fees in April 2009 on most flights booked through our
Orbitz.com and CheapTickets.com websites. The higher average
price per airline ticket was primarily due to higher average air
fares.
Non-air gross bookings increased $31.0 million, or 5%, for
the three months ended March 31, 2010 compared with the
three months ended March 31, 2009. This increase was
primarily driven by higher gross
28
Table of Contents
bookings for hotels, car rentals and travel insurance, partially
offset by lower gross bookings for cruises and vacation
packages. Gross bookings for hotels increased primarily due to
higher transaction volume, partially offset by a lower average
price per transaction. The average price per transaction
decreased due to a significant reduction in hotel booking fees
charged on our websites, which was partially offset by a slight
increase in ADRs. Gross bookings for car rentals increased due
to higher transaction volume, partially offset by a lower
average price per transaction. The average price per transaction
decreased primarily due to lower ADRs. Gross bookings for travel
insurance increased primarily due to higher air transaction
volume. Gross bookings for cruises declined due to lower
transaction volume. Vacation packaging gross bookings declined
primarily due to lower volume resulting from a higher average
price per package. Lower vacation packaging volume was partially
offset by a higher average price per transaction due mainly to
the increase in average air fares.
For our international business, which is comprised principally
of ebookers and HotelClub, total gross bookings increased
$145.8 million, or 41%, for the three months ended
March 31, 2010 compared with the three months ended
March 31, 2009. Of this increase, $44.5 million was
due to foreign currency fluctuations. The remaining
$101.3 million increase was due to a $76.5 million
increase in air gross bookings and a $24.8 million increase
in non-air gross bookings. The increase in air gross bookings
was primarily due to higher transaction volume, partially offset
by a lower average price per airline ticket. The decrease in
average price per airline ticket is primarily due to a shift
towards short-haul flights.
The $24.8 million increase in non-air gross bookings was
primarily driven by higher gross bookings for vacation packages,
partially offset by lower gross bookings for hotels. Gross
bookings for vacation packages increased due to higher
transaction volume and, to a lesser extent, a higher average
price per transaction. A decline in hotel gross bookings for our
HotelClub brand, partially offset by an increase in hotel gross
bookings for our ebookers brand, drove the decrease in hotel
gross bookings. The decrease in hotel bookings for our HotelClub
brand was driven by a lower average price per transaction, due
to a shift in the geographic mix of bookings towards markets
where average booking values are lower, and lower volume in
European destinations. The increase in hotel gross bookings for
our ebookers brand was primarily due to the strength of our new
technology platform in Europe and improvements in our European
hotel supply offering.
Net Revenue See discussion of net revenue in
the Results of Operations section below.
Transaction
and Hotel Room Night Growth
Our transaction growth rate accelerated 32 percentage
points, from negative 12%
year-over-year
growth in the first quarter of 2009 to positive 20%
year-over-year
growth in the first quarter of 2010. Our stayed hotel room night
growth rate accelerated 14 percentage points, from negative
1%
year-over-year
growth in the first quarter of 2009 to positive 13%
year-over-year
growth in the first quarter of 2010.
The acceleration in our transaction and stayed hotel room night
growth rates is largely the result of improvements we made to
our customer value proposition throughout the course of 2009. In
April 2009 we removed air booking fees on most flights and
significantly reduced hotel booking fees on our Orbitz.com and
CheapTickets.com websites, and in September 2009 we eliminated
our hotel change and cancellation fees on these same websites.
In addition, we launched two industry-leading, hotel-focused
innovations, Orbitz Hotel Price Assurance and Total Price hotel
search results. Internationally, the strength of our new
technology platform at ebookers and improvements in our European
supply offering have helped to accelerate our transaction and
stayed hotel room night growth rates. As we reached the
anniversary of the removal of most domestic air booking fees in
April 2010, we expect that our transaction growth rates will
slow for the remainder of 2010.
29
Table of Contents
Results
of Operations
Comparison
of the three months ended March 31, 2010 to the three
months ended March 31, 2009
Three Months Ended |
||||||||||||||||
March 31, |
$ |
% |
||||||||||||||
2010 | 2009 | Change | Change | |||||||||||||
(in thousands) | ||||||||||||||||
Net revenue
|
||||||||||||||||
Air
|
$ | 71,625 | $ | 81,328 | $ | (9,703 | ) | (12 | )% | |||||||
Hotel
|
43,468 | 39,441 | 4,027 | 10 | % | |||||||||||
Vacation packaging
|
27,853 | 28,905 | (1,052 | ) | (4 | )% | ||||||||||
Advertising and media
|
12,218 | 14,006 | (1,788 | ) | (13 | )% | ||||||||||
Other
|
31,989 | 24,713 | 7,276 | 29 | % | |||||||||||
Total net revenue
|
187,153 | 188,393 | (1,240 | ) | (1 | )% | ||||||||||
Cost and expenses
|
||||||||||||||||
Cost of revenue
|
38,250 | 35,356 | 2,894 | 8 | % | |||||||||||
Selling, general and administrative
|
63,790 | 66,428 | (2,638 | ) | (4 | )% | ||||||||||
Marketing
|
57,657 | 64,269 | (6,612 | ) | (10 | )% | ||||||||||
Depreciation and amortization
|
18,986 | 14,388 | 4,598 | 32 | % | |||||||||||
Impairment of other assets
|
1,704 | | 1,704 | ** | ||||||||||||
Impairment of goodwill and intangible assets
|
| 331,527 | (331,527 | ) | (100 | )% | ||||||||||
Total operating expenses
|
180,387 | 511,968 | (331,581 | ) | (65 | )% | ||||||||||
Operating income (loss)
|
6,766 | (323,575 | ) | 330,341 | ** | |||||||||||
Other (expense)
|
||||||||||||||||
Net interest expense
|
(11,311 | ) | (14,513 | ) | 3,202 | (22 | )% | |||||||||
Other expense
|
(399 | ) | (35 | ) | (364 | ) | ** | |||||||||
Total other (expense)
|
(11,710 | ) | (14,548 | ) | 2,838 | (20 | )% | |||||||||
Loss before income taxes
|
(4,944 | ) | (338,123 | ) | 333,179 | (99 | )% | |||||||||
Provision (benefit) for income taxes
|
317 | (1,967 | ) | 2,284 | ** | |||||||||||
Net loss
|
$ | (5,261 | ) | $ | (336,156 | ) | $ | 330,895 | (98 | )% | ||||||
As a percent of net revenue
|
||||||||||||||||
Cost of revenue
|
20 | % | 19 | % | ||||||||||||
Selling, general and administrative expense
|
34 | % | 35 | % | ||||||||||||
Marketing expense
|
31 | % | 34 | % |
** | Not meaningful. |
Net
Revenue
Net revenue decreased $1.2 million, or 1%, for the three
months ended March 31, 2010 compared with the three months
ended March 31, 2009.
Air. Net revenue from air bookings decreased
$9.7 million, or 12%, for the three months ended
March 31, 2010 compared with the three months ended
March 31, 2009. Foreign currency fluctuations increased air
net revenue by $1.2 million. The decrease in net revenue
from air bookings, excluding the impact of foreign currency
fluctuations, was $10.9 million.
Domestic air net revenue declined $26.4 million due to
lower average net revenue per airline ticket. Net revenue per
airline ticket declined primarily due to the elimination of
booking fees in April 2009 on most flights booked through our
Orbitz.com and CheapTickets.com websites. This decline was
partially offset by a
30
Table of Contents
$13.2 million increase in domestic air net revenue due to
higher transaction volume, which resulted primarily from the
removal of booking fees.
International air net revenue increased $2.3 million
(excluding the impact of foreign currency fluctuations)
primarily due to higher transaction volume, offset by lower net
revenue per airline ticket. Lower net revenue per airline ticket
was primarily driven by lower air override revenue and a shift
towards short-haul flights.
Hotel. Net revenue from hotel bookings
increased $4.0 million, or 10%, for the three months ended
March 31, 2010 compared with the three months ended
March 31, 2009. Foreign currency fluctuations drove
$3.2 million of this increase. The increase in net revenue
from hotel bookings, excluding the impact of foreign currency
fluctuations, was $0.8 million.
Lower average net revenue per hotel transaction resulted in a
$5.6 million decrease in domestic hotel net revenue.
Average net revenue per transaction declined primarily due to a
significant reduction in hotel booking fees charged on our
domestic websites and a reduction in hotel breakage revenue. The
decrease in average net revenue per transaction was largely
offset by a $5.4 million increase in domestic hotel net
revenue due to higher transaction volume, which resulted
primarily from improvements to our overall customer value
proposition, including the launch of industry-leading
innovations such as Hotel Price Assurance and Total Price search
results and the significant reduction in hotel booking fees.
The increase in international hotel net revenue of
$1.0 million (excluding the impact of foreign currency
fluctuations) was primarily due to higher volume and higher
average net revenue per hotel transaction for our ebookers
brand. Higher volume was driven by improved functionality as a
result of our new technology platform in Europe and improvements
to our European hotel supply offering. Higher net revenue per
transaction primarily resulted from a shift in the mix of
bookings from retail hotels towards merchant hotels, for which
we earn higher margins. The increase in hotel net revenue for
our ebookers brand was partially offset by a decline in hotel
net revenue for our HotelClub brand due to lower volume in
European destinations and lower average net revenue per hotel
transaction. The lower net revenue per transaction at HotelClub
was primarily driven by a shift in the geographic mix of its
bookings towards markets where average booking values are lower
and where we earn lower margins.
Vacation packaging. Net revenue from vacation
packaging bookings decreased $1.1 million, or 4%, for the
three months ended March 31, 2010 compared with the three
months ended March 31, 2009. Foreign currency fluctuations
increased vacation packaging net revenue by $0.1 million.
The decrease in net revenue from vacation packaging bookings,
excluding the impact of foreign currency fluctuations, was
$1.2 million.
Lower transaction volume drove a $1.5 million decrease in
domestic net revenue from vacation packaging. Volume for
vacation packaging decreased due to a higher average price per
package in the first quarter of 2010 compared with the first
quarter of 2009. Lower average net revenue per transaction drove
an additional $1.0 million decline in domestic net revenue
from vacation packaging. Net revenue per transaction decreased
mainly due to a reduction in hotel breakage revenue, partially
offset by higher average air fares.
International net revenue from vacation packaging (excluding the
impact of foreign currency fluctuations) increased
$1.3 million primarily due to higher transaction volume.
Advertising and media. Advertising and media
net revenue decreased $1.8 million, or 13%, for the three
months ended March 31, 2010 compared with the three months
ended March 31, 2009. This decrease is primarily due to a
decline in net revenue from third party referral programs,
specifically membership discount programs. Effective
March 31, 2010, we ended the third party membership
discount program previously offered on our domestic websites and
terminated our relationship with our supplier for these
programs. As a result, we do not expect to generate any material
revenue from third party membership discount programs on our
websites in the future. During the year ended December 31,
2009, revenue from third party referral programs offered on our
domestic websites was $14.4 million.
31
Table of Contents
Other. Other net revenue is comprised
primarily of net revenue from car bookings, cruise bookings,
destination services, travel insurance and our hosting business.
Other net revenue increased $7.3 million, or 29%, for the
three months ended March 31, 2010 compared with the three
months ended March 31, 2009. Foreign currency fluctuations
increased other net revenue by $0.4 million. The increase
in other net revenue, excluding the impact of foreign currency
fluctuations, was $6.9 million.
An increase in global travel insurance revenue, domestic car net
revenue and revenue from fees on credit card transactions in
Europe drove the increase in other net revenue. The increase in
travel insurance revenue was primarily due to a change in
estimate related to the timing of our recognition of this
revenue. Historically, we recorded travel insurance revenue one
month in arrears, upon receipt of payment, as we did not have
sufficient reporting from our travel insurance supplier to
conclude that the price was fixed or determinable prior to that
time. However, in the first quarter of 2010, our travel
insurance supplier implemented more timely reporting, and as a
result, we are now able to recognize travel insurance revenue on
an accrual basis rather than one month in arrears. Travel
insurance revenue further increased due to higher air
transaction volume, higher attachment and higher air fares. The
increase in domestic car net revenue was driven by higher
volume, partially offset by lower net revenue per car
transaction due to lower ADRs.
Cost of
Revenue
Our cost of revenue is primarily comprised of costs to operate
our customer service call centers, credit card processing fees
and other costs such as ticketing and fulfillment, customer
refunds and charge-backs, affiliate commissions and connectivity
and other processing costs.
Three Months Ended |
||||||||||||||||
March 31, |
$ |
% |
||||||||||||||
2010 | 2009 | Change | Change | |||||||||||||
(in thousands) | ||||||||||||||||
Cost of revenue
|
||||||||||||||||
Customer service costs
|
$ | 14,413 | $ | 12,570 | $ | 1,843 | 15 | % | ||||||||
Credit card processing fees
|
11,726 | 10,674 | 1,052 | 10 | % | |||||||||||
Other
|
12,111 | 12,112 | (1 | ) | | |||||||||||
Total cost of revenue
|
$ | 38,250 | $ | 35,356 | $ | 2,894 | 8 | % | ||||||||
The increase in cost of revenue was primarily driven by a
$1.8 million increase in customer service costs, a
$1.1 million increase in credit card processing costs and a
$1.2 million increase in customer refunds and charge-backs,
partially offset by a $1.3 million decrease in connectivity
and processing costs.
Customer service costs increased primarily due to higher
customer service staffing levels to support the increased volume
of air transactions since our elimination of booking fees in
April 2009 on most flights booked through our Orbitz.com and
CheapTickets.com websites. The increase in credit card
processing costs and customer refunds and charge-backs was
primarily due to an increase in our merchant gross bookings
during the first quarter of 2010.
Connectivity and processing costs decreased primarily due to
more favorable terms with one of our GDS providers. In addition,
during the first quarter of 2009, our volume of domestic
passenger itineraries fell below the contractual minimum for one
of our search providers, and as a result, our effective cost per
itinerary for search-related costs was higher in the first
quarter of 2009 than it was in the first quarter of 2010.
32
Table of Contents
Selling,
General and Administrative
Our selling, general and administrative expense is primarily
comprised of wages and benefits, contract labor costs and
network communications, systems maintenance and equipment costs.
Three Months Ended |
||||||||||||||||
March 31, |
$ |
% |
||||||||||||||
2010 | 2009 | Change | Change | |||||||||||||
(in thousands) | ||||||||||||||||
Selling, general and administrative
|
||||||||||||||||
Wages and benefits (a)
|
$ | 36,802 | $ | 40,620 | $ | (3,818 | ) | (9 | )% | |||||||
Contract labor (a)
|
4,637 | 5,243 | (606 | ) | (12 | )% | ||||||||||
Network communications, systems maintenance and equipment
|
6,530 | 7,212 | (682 | ) | (9 | )% | ||||||||||
Other
|
15,821 | 13,353 | 2,468 | 18 | % | |||||||||||
Total selling, general and administrative
|
$ | 63,790 | $ | 66,428 | $ | (2,638 | ) | (4 | )% | |||||||
(a) | The amounts presented above for wages and benefits and contract labor are net of amounts capitalized. |
The decrease in selling, general and administrative expense was
primarily driven by a $3.8 million decrease in wages and
benefits expense, a $0.6 million decrease in contract labor
costs and a $0.7 million decrease in network
communications, systems maintenance and equipment costs,
partially offset by a $2.7 million increase in foreign
currency losses and hedging costs.
Wages and benefits decreased as a result of the global work
force reductions that we undertook during 2009 and due to lower
severance and equity-based compensation expense. The decrease in
wages and benefits expense was partially offset by a decrease in
capitalized wages. Contract labor and network communications,
systems maintenance and equipment costs declined due to cost
cutting efforts undertaken by us.
Marketing
Our marketing expense is primarily comprised of online marketing
costs, such as search and banner advertising, and offline
marketing costs, such as television, radio and print
advertising. Our investment in online marketing is significantly
greater than our investment in offline marketing. Marketing
expense decreased $6.6 million, or 10%, for the three
months ended March 31, 2010 compared with the three months
ended March 31, 2009.
Marketing expense for our domestic brands decreased
$9.6 million for the three months ended March 31, 2010
compared with the three months ended March 31, 2009, while
marketing expense for our international brands increased
$3.0 million during this same period. The decrease in
marketing expense for our domestic brands was due to lower
online and offline marketing costs. The decrease in online
marketing costs was primarily driven by a change in our approach
to online marketing, placing greater emphasis on attracting more
traffic to our websites through SEO and CRM and improving the
efficiency of our SEM and travel research spending. The decrease
in offline marketing costs was mainly due to a quarterly shift
in timing of marketing spending in 2010 relative to 2009. The
increase in marketing costs for our international brands was
primarily due to higher online marketing costs driven by higher
transaction volume, partially offset by lower cost per
transaction as a result of improvements in our marketing
efficiency.
Depreciation
and Amortization
Depreciation and amortization increased $4.6 million, or
32%, for the three months ended March 31, 2010 compared
with the three months ended March 31, 2009. The increase in
depreciation and amortization was due in part to additional
assets placed in service.
Impairment
of Other Assets
During the three months ended March 31, 2010, we recorded a
non-cash charge of $1.7 million to impair an asset related
to in-kind marketing and promotional support we expected to
receive from Northwest Airlines
33
Table of Contents
under our Charter Associate Agreement with them. As a result of
the completion of the operational merger of Northwest Airlines
and Delta Airlines into a single operating carrier, Northwest
Airlines will no longer be obligated to provide us with in-kind
marketing and promotional support after June 1, 2010 (see
Note 9 Unfavorable Contracts of the Notes to
Condensed Consolidated Financial Statements).
Impairment
of Goodwill and Intangible Assets
During the three months ended March 31, 2009, we
experienced a significant decline in our stock price, and
economic and industry conditions continued to weaken. These
factors, coupled with an increase in competitive pressures,
indicated potential impairment of our goodwill and trademarks
and trade names. As a result, in connection with the preparation
of our condensed consolidated financial statements for the first
quarter of 2009, we recorded a non-cash impairment charge of
$331.5 million, of which $249.4 million related to
goodwill and $82.1 million related to trademarks and trade
names. Due to the current economic uncertainty and other
factors, we cannot assure that goodwill, indefinite-lived
intangible assets and finite-lived intangible assets will not be
further impaired in future periods.
Net
Interest Expense
Net interest expense decreased by $3.2 million, or 22%, for
the three months ended March 31, 2010 compared with the
three months ended March 31, 2009. The decrease in net
interest expense was primarily due to lower interest expense
incurred on the Term Loan, which was primarily driven by lower
interest rates and a reduction in the amount outstanding. During
the three months ended March 31, 2010 and March 31,
2009, $4.0 million and $4.2 million of the total net
interest expense recorded was non-cash, respectively.
Provision
(benefit) for Income Taxes
We recorded a tax provision of $0.3 million for the three
months ended March 31, 2010 and a tax benefit of
$2.0 million for the three months ended March 31,
2009. The provision for income taxes for the three months ended
March 31, 2010 was primarily due to the tax effect of the
income of certain international subsidiaries that have not
established valuation allowances.
The tax benefit recorded for the three months ended
March 31, 2009 was disproportionate to the amount of
pre-tax net loss incurred during that period primarily because
we were not able to realize any tax benefits on the goodwill
impairment charge and only a limited amount of tax benefit on
the trademarks and trade names impairment charge, which were
recorded during the first quarter of 2009.
Related
Party Transactions
For a discussion of certain relationships and related party
transactions, see Note 15 Related Party
Transactions of the Notes to Condensed Consolidated Financial
Statements.
Seasonality
Our businesses experience seasonal fluctuations in the demand
for the products and services we offer. The majority of our
customers book leisure travel rather than business travel. Gross
bookings for leisure travel are generally highest in the first
half of the year as customers plan and book their spring and
summer vacations. However, net revenue generated under the
merchant model is generally recognized when the travel takes
place and typically lags bookings by several weeks or longer. As
a result, our cash receipts are generally highest in the first
half of the year and our net revenue is typically highest in the
second and third calendar quarters. Our seasonality may also be
affected by fluctuations in the travel products our suppliers
make available to us for booking, the growth of our
international operations or a change in our product mix.
34
Table of Contents
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Our principal sources of liquidity are our cash flows from
operations, cash and cash equivalents, and borrowings under the
Revolver. At March 31, 2010 and December 31, 2009, our
cash and cash equivalents balances were $161.9 million and
$88.7 million, respectively. We had $63.9 million and
$25.8 million of availability under the Revolver at
March 31, 2010 and December 31, 2009, respectively.
Total available liquidity from cash and cash equivalents and the
Revolver was $225.8 million and $114.5 million at
March 31, 2010 and December 31, 2009, respectively.
The March 31, 2010 cash and cash equivalents balance
includes $50.0 million of proceeds from the sale of our
common stock to Travelport in January 2010.
We require letters of credit to support certain commercial
agreements, leases and certain regulatory agreements. The
majority of these letters of credit have been issued by
Travelport on our behalf. At March 31, 2010 and
December 31, 2009, there were $68.7 million and
$59.3 million of outstanding letters of credit issued by
Travelport on our behalf, respectively, pursuant to the
Separation Agreement. In addition, at March 31, 2010 and
December 31, 2009, there was the equivalent of
$8.6 million and $4.5 million of outstanding letters
of credit issued under the Revolver, respectively, which were
denominated in Pounds Sterling. The amount of letters of credit
issued under the Revolver reduces the amount available to us for
borrowings.
Under our merchant model, customers generally pay us for
reservations at the time of booking, and we pay our suppliers at
a later date, which is generally after the customer uses the
reservation. Initially, we record these customer receipts as
accrued merchant payables and either deferred income or net
revenue, depending on the travel product. We generally recognize
net revenue when the customer uses the reservation, and we pay
our suppliers once we have received an invoice, which typically
ranges from one to sixty days after the customer uses the
reservation. The timing difference between when cash is
collected from our customers and when payments are made to our
suppliers improves our operating cash flow and represents a
source of liquidity for us. If our merchant model gross bookings
increase, we would expect our operating cash flow to increase.
Conversely, if our merchant model gross bookings decline or
there are changes to the model which reduce the time between the
receipt of cash from our customers and payments to suppliers, we
would expect our operating cash flow to decline.
Historically, under both our merchant and retail models, we
charged customers a service fee for booking airline tickets,
hotel stays and certain other travel products on our websites,
and cash generated by these booking fees represented a
significant portion of our operating cash flow and a source of
liquidity for us. In April 2009, we removed booking fees on most
flights booked through Orbitz.com and CheapTickets.com, and we
significantly reduced booking fees on all hotel stays booked
through Orbitz.com and CheapTickets.com. The combination of our
cost reductions, our improved marketing efficiency and the
increase in air transactions we have experienced since removing
fees enabled us to offset some of the decrease in our operating
cash flow in the first quarter of 2010 due to lower booking
fees. If we are unable to effectively continue to offset the
impact of the booking fee reductions, our cash flow and
liquidity could be materially reduced.
Seasonal fluctuations in our business also affect the timing of
our cash flows. Gross bookings are generally highest in the
first half of the year as customers plan and purchase their
spring and summer vacations. As a result, our cash receipts are
generally highest in the first half of the year. We generally
have net cash outflows during the second half of the year since
cash payments to suppliers typically exceed the cash inflows
from new merchant booking reservations. While we expect this
seasonal cash flow pattern to continue, changes in our business
model could affect the seasonal nature of our cash flows.
On January 26, 2010, we completed two transactions that
improved our overall liquidity and financial position. In the
first transaction, PAR exchanged $49.6 million aggregate
principal amount of term loans outstanding under the Credit
Agreement for 8,141,402 shares of our common stock. We
immediately retired the term loans received from PAR in
accordance with the amendment to the credit agreement that we
entered into with our lenders in June 2009. Concurrently,
Travelport purchased 9,025,271 shares of our common stock
for $50.0 million in cash (see Note 7
Exchange Agreement and Stock Purchase Agreement of the Notes to
35
Table of Contents
Condensed Consolidated Financial Statements). We intend to use
the proceeds from the stock purchase for general corporate
purposes, which could include additional capital investments
and/or
further debt reduction.
As of March 31, 2010, we had a working capital deficit of
$255.2 million as compared with a deficit of
$249.6 million as of December 31, 2009. Over time, we
expect to continue to decrease this deficit through growth in
our business and generating positive cash flow from operations,
which we expect to achieve by increasing our global hotel
transactions, continuing to offer new and innovative
functionality on our websites, improving our operating
efficiency and simplifying the way we do business.
We generated positive cash flow from operations for the years
ended December 31, 2007 through 2009 and the three months
ended March 31, 2010, despite experiencing net losses, and
we expect annual cash flow from operations to remain positive in
the foreseeable future. We generally use this cash flow to fund
our operations, make principal and interest payments on our
debt, finance capital expenditures and meet our other cash
operating needs. For the year ended December 31, 2010, we
expect our capital expenditures to be between $40.0 million
and $45.0 million, most of which is discretionary in
nature. We do not intend to declare or pay any cash dividends on
our common stock in the foreseeable future.
We currently believe that cash flow generated from operations,
cash on hand and cash available under the Revolver will provide
sufficient liquidity to fund our operating activities, capital
expenditures and other obligations over at least the next twelve
months. However, in the future, our liquidity could be reduced
as a result of changes in our business model, including changes
to payment terms or other requirements imposed by suppliers or
regulatory agencies, lower than anticipated operating cash flows
or other unanticipated events, such as unfavorable outcomes in
our legal proceedings, including in the case of hotel occupancy
proceedings, certain jurisdictions requirements that we
provide financial security or pay an assessment to the
municipality in order to challenge the assessment in court. The
liquidity provided by cash flows from our merchant model gross
bookings could be negatively impacted if our merchant model
gross bookings decline as a result of economic conditions or
other factors or if suppliers or regulatory agencies impose
other requirements on us, such as requiring us to provide
letters of credit or to establish cash reserves. If as a result
of these requirements, we require letters of credit which exceed
the availability under the facility provided by Travelport, or
if the Travelport facility is no longer available to us, we
would be required to issue these letters of credit under the
Revolver or to establish cash reserves which would reduce our
available liquidity.
In regards to our long-term liquidity needs, we believe that
cash flow generated from operations, cash on hand and cash
available under the Revolver through its maturity in July 2013
will provide sufficient liquidity to fund our operating
activities and capital expenditures. However, unless we
re-finance the Term Loan before the July 2014 maturity date, we
will be required to pay the final installment (equal to the
remaining outstanding balance) on the Term Loan, and our cash
flow generated from operations and cash on hand may not be
adequate to fund this payment in full. As a result, we may need
to raise additional funds through debt or equity offerings. We
also may be required to raise additional capital if we require
more liquidity in the future than is available under the
Revolver.
36
Table of Contents
Cash
Flows
Our net cash flows from operating, investing and financing
activities for the periods indicated in the tables below were as
follows:
Three Months Ended |
||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Beginning cash and cash equivalents
|
$ | 88,656 | $ | 31,193 | ||||
Cash provided by (used in):
|
||||||||
Operating activities
|
95,991 | 116,712 | ||||||
Investing activities
|
(7,381 | ) | (11,757 | ) | ||||
Financing activities
|
(14,508 | ) | 38,098 | |||||
Effect of changes in exchange rates on cash and cash equivalents
|
(828 | ) | (1,328 | ) | ||||
Net increase in cash and cash equivalents
|
73,274 | 141,725 | ||||||
Ending cash and cash equivalents
|
$ | 161,930 | $ | 172,918 | ||||
Operating
Activities
Cash provided by operating activities consists of our net loss,
adjusted for non-cash items such as depreciation, amortization,
impairment of goodwill and intangible assets, and stock based
compensation and changes in various working capital items,
principally accounts receivable, accrued expenses, accrued
merchant payables, deferred income and accounts payable.
We generated cash flow from operations of $96.0 million for
the three months ended March 31, 2010 compared with
$116.7 million for the three months ended March 31,
2009. The changes in our working capital accounts, which are
partially due to the changes in the timing of payments received
from certain vendors, contributed to the decrease in our
operating cash flow. During the first quarter of 2010, we also
made payments related to employee incentive compensation costs
accrued in 2009. There were no such payments in the first
quarter of 2009. The decrease in operating cash flow was also
due to the elimination of most air booking fees and the
significant reduction of hotel booking fees in April 2009.
The decreases in operating cash flow above were partially offset
by increases in operating cash flow due to higher merchant hotel
gross bookings in the first quarter of 2010 compared with the
first quarter of 2009, improvements in our overall marketing
efficiency and a decrease in cash interest payments.
Investing
Activities
Cash flow used in investing activities decreased
$4.4 million, to $7.4 million for the three months
ended March 31, 2010 from $11.8 million for the three
months ended March 31, 2009 due to lower capital spending.
Financing
Activities
Cash flow used in financing activities was $14.5 million
for the three months ended March 31, 2010 compared with
cash flow provided by financing activities of $38.1 million
for the three months ended March 31, 2009. This change was
primarily due to a decrease in net borrowings made under the
Revolver and an increase in principal payments made on the Term
Loan due to our requirement to make a prepayment from excess
cash flow in March 2010 (see Note 6 Term Loan
and Revolving Credit Facility of the Notes to Condensed
Consolidated Financial Statements). The increase in cash flow
used in financing activities was partially offset by cash
received, net of issuance costs, from the additional equity
investments made by PAR and Travelport in January 2010 (see
Note 7 Exchange Agreement and Stock Purchase
Agreement of the Notes to Condensed Consolidated Financial
Statements).
37
Table of Contents
Financing
Arrangements
On July 25, 2007, concurrent with the IPO, we entered into
the Credit Agreement consisting of the Term Loan and the
Revolver. The Term Loan and the Revolver bear interest at
variable rates, at our option, of LIBOR or an alternative base
rate plus a margin. At March 31, 2010 and December 31,
2009, $506.0 million and $576.6 million was
outstanding on the Term Loan, respectively. At March 31,
2010, there were no outstanding borrowings under the Revolver.
At December 31, 2009, $42.2 million of borrowings were
outstanding under the Revolver, all of which were denominated in
U.S. dollars.
In addition, at March 31, 2010 and December 31, 2009,
there was the equivalent of $8.6 million and
$4.5 million of outstanding letters of credit issued under
the Revolver, respectively, which were denominated in Pounds
Sterling. The amount of letters of credit issued under the
Revolver reduces the amount available to us for borrowings.
On June 2, 2009, we entered into an amendment (the
Amendment) to the Credit Agreement, which permits us
to purchase portions of the outstanding Term Loan on a non-pro
rata basis using cash up to $10.0 million and future cash
proceeds from equity issuances and in exchange for equity
interests on or prior to June 2, 2010. Any portion of the
Term Loan purchased by us will be retired pursuant to the terms
of the Amendment. On January 26, 2010, we completed the
purchase of $49.6 million aggregate principal amount of the
Term Loan (see Note 6 Term Loan and Revolving
Credit Facility of the Notes to Condensed Consolidated Financial
Statements).
The Credit Agreement requires us to maintain a minimum fixed
charge coverage ratio and not to exceed a maximum total leverage
ratio, each as defined in the Credit Agreement. The minimum
fixed charge coverage ratio that we are required to maintain for
the remaining term of the Credit Agreement is 1 to 1. The
maximum total leverage ratio that we are required not to exceed
is 3.5 to 1 and declines to 3 to 1 effective March 31,
2011. As of March 31, 2010, we were in compliance with all
covenants and conditions of the Credit Agreement.
In addition, we are required to make an annual prepayment on the
Term Loan in the first quarter of each fiscal year in an amount
up to 50% of the prior years excess cash flow, as defined
in the Credit Agreement. Based on our excess cash flow for the
year ended December 31, 2009, we made a $21.0 million
prepayment on the Term Loan in the first quarter of 2010.
Prepayments from excess cash flow are applied, in order of
maturity, to the scheduled quarterly Term Loan principal
payments. As a result, we are not required to make any other
principal payments on the Term Loan during the remainder of
2010. Based on our current financial projections for the year
ending December 31, 2010, we estimate that we will be
required to make a $19.8 million prepayment on the Term
Loan in the first quarter of 2011. The amount of prepayment
required is subject to change based on actual results, which
could differ materially from our financial projections as of
March 31, 2010. The potential amount of prepayment from
excess cash flow that will be required beyond the first quarter
of 2011 is not reasonably estimable as of March 31, 2010.
When we were a wholly owned subsidiary of Travelport, Travelport
provided guarantees, letters of credit and surety bonds on our
behalf under our commercial agreements and leases and for the
benefit of regulatory agencies. Under the Separation Agreement,
we are required to use commercially reasonable efforts to have
Travelport released from any then outstanding guarantees and
surety bonds. Travelport no longer provides surety bonds on our
behalf or guarantees in connection with commercial agreements or
leases entered into or replaced by us subsequent to the IPO. At
March 31, 2010 and December 31, 2009, there were
$68.7 million and $59.3 million of outstanding letters
of credit issued by Travelport on our behalf, respectively.
Under the Separation Agreement, Travelport has agreed to issue
U.S. dollar denominated letters of credit on our behalf in
an aggregate amount not to exceed $75.0 million so long as
Travelport and its affiliates (as defined in the Separation
Agreement) own at least 50% of our voting stock.
38
Table of Contents
Financial
Obligations
Commitments
and Contingencies
We and certain of our affiliates are parties to cases brought by
consumers and municipalities and other U.S. governmental
entities involving hotel occupancy taxes. We believe that we
have meritorious defenses, and we are vigorously defending
against these claims, proceedings and inquiries (see
Note 10 Commitments and Contingencies of the
Notes to Condensed Consolidated Financial Statements).
Litigation is inherently unpredictable and, although we believe
we have valid defenses in these matters based upon advice of
counsel, unfavorable resolutions could occur. While we cannot
estimate our range of loss and believe it is unlikely that an
adverse outcome will result from these proceedings, an adverse
outcome could be material to us with respect to earnings or cash
flows in any given reporting period.
We are currently seeking to recover insurance reimbursement for
costs incurred to defend the hotel occupancy tax cases. We
recorded a reduction to selling, general and administrative
expense in our condensed consolidated statements of operations
for reimbursements received of $1.3 million and
$1.5 million for the three months ended March 31, 2010
and March 31, 2009, respectively. The recovery of
additional amounts, if any, by us and the timing of receipt of
these recoveries is unclear. As a result, as of March 31,
2010, we have not recognized a reduction to selling, general and
administrative expense in our condensed consolidated statements
of operations for the outstanding contingent claims for which we
have not received reimbursement.
Contractual
Obligations
Our contractual obligations as of March 31, 2010 did not
materially change from the amounts set forth in our 2009 Annual
Report on
Form 10-K,
except for the following:
2010 |
||||||||||||||||||||||||||||
(remaining |
||||||||||||||||||||||||||||
9 months) | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Term Loan (a)
|
$ | | $ | 19,768 | $ | | $ | | $ | 486,250 | $ | | $ | 506,018 | ||||||||||||||
Interest (b)
|
17,441 | 19,125 | 15,951 | 15,793 | 8,969 | | 77,279 | |||||||||||||||||||||
Tax sharing liability (c)
|
22,049 | 20,358 | 16,817 | 17,524 | 18,092 | 119,095 | 213,935 | |||||||||||||||||||||
Telecommunications service agreement (d)
|
1,600 | 2,500 | 2,500 | | | | 6,600 | |||||||||||||||||||||
Total contractual obligations
|
$ | 41,090 | $ | 61,751 | $ | 35,268 | $ | 33,317 | $ | 513,311 | $ | 119,095 | $ | 803,832 | ||||||||||||||
(a) | We are required to make an annual prepayment on the Term Loan in the first quarter of each fiscal year in an amount up to 50% of the prior years excess cash flow, as defined in the Credit Agreement. The potential amount of prepayments from excess cash flow that will be required beyond the first quarter of 2011 is not reasonably estimable as of March 31, 2010. As a result, the table above excludes prepayments that could be required from excess cash flow beyond the first quarter of 2011, and the timing of future payments shown in the table above could change. | |
(b) | Represents estimated interest payments on the variable portion of the Term Loan based on the one-month LIBOR as of March 31, 2010 and fixed interest payments under interest rate swaps. | |
(c) | We expect to make approximately $213.9 million of payments in connection with the tax sharing agreement with the Founding Airlines (see Note 8 Tax Sharing Liability of the Notes to Condensed Consolidated Financial Statements). | |
(d) | In January 2010, we entered into a new three-year telecommunications service agreement, which requires a minimum annual commitment of $2.5 million. |
In addition, in January 2010 we repaid the $42.2 million of
borrowings that were outstanding on the Revolver as of
December 31, 2009. There were no outstanding borrowings
under the Revolver at March 31, 2010.
39
Table of Contents
Other
Commercial Commitments and Off-Balance Sheet
Arrangements
In the ordinary course of business, we obtain surety bonds and
bank guarantees, issued for the benefit of a third party, to
secure performance of certain of our obligations to third
parties (see Note 10 Commitments and
Contingencies of the Notes to Condensed Consolidated Financial
Statements).
We are also required to issue letters of credit to certain
suppliers and
non-U.S. regulatory
and government agencies. See Financing Arrangements
above for further discussion of our outstanding letters of
credit.
CRITICAL
ACCOUNTING POLICIES
The preparation of our condensed consolidated financial
statements and related notes in conformity with generally
accepted accounting principles requires us to make judgments,
estimates and assumptions that affect the amounts reported
therein. See Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Critical Accounting Policies in our
2009 Annual Report on
Form 10-K
for a discussion of these judgments, estimates and assumptions.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Foreign
Currency Risk
Our international operations are subject to risks typical of
international operations, including, but not limited to,
differing economic conditions, changes in political climate,
differing tax structures and foreign exchange rate volatility.
Accordingly, our future results could be materially adversely
impacted by changes in these or other factors.
Transaction
Exposure
We use foreign currency forward contracts to manage our exposure
to changes in foreign currency exchange rates associated with
our foreign currency denominated receivables, payables,
intercompany transactions and borrowings under our revolving
credit facility. We primarily hedge our foreign currency
exposure to the Pound Sterling, Euro and Australian dollar. We
do not engage in trading, market making or speculative
activities in the derivatives markets. The forward contracts
utilized by us do not qualify for hedge accounting treatment,
and as a result, any fluctuations in the value of these forward
contracts are recognized in selling, general and administrative
expense in our condensed consolidated statements of operations
as incurred. The fluctuations in the value of these forward
contracts do, however, largely offset the impact of changes in
the value of the underlying risk that they are intended to
economically hedge. As of March 31, 2010 and
December 31, 2009, we had outstanding foreign currency
forward contracts with net notional values equivalent to
approximately $156.1 million and $130.4 million,
respectively.
Translation
Exposure
Foreign exchange rate fluctuations may adversely impact our
financial position as the assets and liabilities of our foreign
operations are translated into U.S. dollars in preparing
our condensed consolidated balance sheets. The effect of foreign
exchange rate fluctuations on our condensed consolidated balance
sheets at March 31, 2010 and December 31, 2009 was a
net translation gain of $4.6 million and a net translation
loss of $(3.6) million, respectively. This gain or loss is
recognized as an adjustment to shareholders equity through
accumulated other comprehensive income (loss).
Interest
Rate Risk
The Term Loan and the Revolver bear interest at a variable rate
based on LIBOR or an alternative base rate. We limit interest
rate risk associated with the Term Loan using interest rate
swaps with a combined notional amount of $400.0 million as
of March 31, 2010 to hedge fluctuations in LIBOR (see
Note 13 Derivative Financial Instruments of the
Notes to Condensed Consolidated Financial Statements). We do not
engage in trading, market making or speculative activities in
the derivatives markets.
40
Table of Contents
Sensitivity
Analysis
We assess our market risk based on changes in foreign currency
exchange rates and interest rates utilizing a sensitivity
analysis that measures the potential impact on earnings, fair
values and cash flows based on a hypothetical 10% change
(increase and decrease) in foreign currency rates and interest
rates. We used March 31, 2010 market rates to perform a
sensitivity analysis separately for each of our market risk
exposures. The estimates assume instantaneous, parallel shifts
in interest rate yield curves and exchange rates. We determined,
through this analysis, that the potential decrease in net
current assets from a hypothetical 10% adverse change in quoted
foreign currency exchange rates would be $11.8 million at
March 31, 2010 compared with $8.5 million at
December 31, 2009. There are inherent limitations in the
sensitivity analysis, primarily due to assumptions that foreign
exchange rate movements are linear and instantaneous. The effect
of a hypothetical 10% change in market rates of interest on
interest expense would be $0 and $0.1 million at
March 31, 2010 and December 31, 2009, respectively,
which represents the effect on interest expense related to the
unhedged portion of the Term Loan. The hedged portion of the
Term Loan is not affected by changes in market rates of interest
as it has effectively been converted to a fixed interest rate
through interest rate swaps.
Item 4. | Controls and Procedures. |
Evaluation
of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such
term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of March 31, 2010. Based on
such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, our
disclosure controls and procedures were effective.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting (as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the fiscal quarter ended
March 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
PART II
OTHER INFORMATION
Item 1. | Legal Proceedings |
During the three months ended March 31, 2010, there were no
new material pending legal proceedings, other than routine
litigation arising in the ordinary course of business, to which
we are a party or of which our property is subject, and no
material developments in the legal proceedings previously
reported in our 2009 Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009, except as
described below.
In re
Orbitz Taxes and Fees Litigation
This case was a purported national class action brought by
persons who paid a fee in connection with paying for a hotel
room through the Orbitz website from March 19, 2003 to the
present. On January 27, 2010, the Illinois Supreme Court
denied the plaintiffs Petition for Leave to File an
Appeal, concluding this matter.
Litigation
Relating to Hotel Occupancy Taxes
Jefferson County, Arkansas On
February 19, 2010, the Circuit Court of Jefferson County,
Arkansas, Fifth Division, set aside its January 20, 2010 order
dismissing the Pine Bluff Advertising and Promotion
Commissions and Jefferson County, Arkansas complaint
following the plaintiffs filing of a motion to reconsider.
The basis of the plaintiffs motion for reconsideration was
that the plaintiff had failed to inform the Court that the
parties had previously agreed to an extension to file the
plaintiffs response to the defendant
41
Table of Contents
Internet travel companies motion to dismiss. The
defendants motion to dismiss is currently pending before
the Court.
Brevard County, Florida On February 24,
2010, the District Court for the Middle District of Florida
granted in part and denied in part the defendant Internet travel
companies motion to dismiss. The Court dismissed
Count II (unjust enrichment), Count III (conversion)
and Count IV (permanent injunction) of the complaint.
City of Gallup, New Mexico On March 1,
2010, the District Court for the District of New Mexico denied
the City of Gallups Amended Motion for Partial Summary
Judgment on Liability and Governing Statute of Limitations and
Request for Imposition of Constructive Trust. The Court found
that the hotel occupancy taxes are owed only on amounts
paid to vendors, not on the defendant Internet
travel companies total charges. In addition, the Court
found that the City failed to show that the defendant Internet
travel companies are trustees of any unpaid taxes or that they
intentionally misrepresented or concealed information.
Village of Rosemont, Illinois On
March 10, 2010, the Circuit Court of Cook County, Illinois
granted Orbitz, LLCs and Trip Network, Inc.s (d/b/a
Cheaptickets.com) motion to dismiss the plaintiffs
statutory claims in Count II (unjust enrichment) and
Count III (conversion) of the complaint.
Monroe County, Florida On March 15,
2010, the United States District Court for the Southern District
of Florida granted the plaintiffs motion for class
certification.
Columbus, Georgia On March 24, 2010, the
Superior Court of Muscogee County held a hearing related to the
plaintiffs motion for discovery sanctions.
Lake County Convention and Visitor Bureau and Marshall
County, Indiana On March 30, 2010, the
United States District Court for the Northern District of
Indiana granted the defendant Internet travel companies
Motion for Summary Judgment finding that the Court lacked
subject matter jurisdiction over the plaintiffs claims and
dismissed the complaint.
City of Houston, Texas On April 1, 2010,
the District Court of Harris County, Texas denied the City of
Houston, Texas motion for reconsideration of the
Courts January 19, 2010 Order granting the defendant
Internet travel companies motion for summary judgment.
Birmingham, Alabama On April 1, 2010,
the Circuit Court of Jefferson County, Alabama denied without
prejudice the defendant Internet travel companies motion
to dismiss the plaintiffs complaint.
City of Anaheim, California On April 7,
2010, the Superior Court for the County of Los Angeles,
California denied the City of Anaheims motion for
reconsideration of the Courts February 1, 2010 Order
which granted a writ of mandate finding that the City of
Anaheims ordinance does not impose transient occupancy tax
on the service provided by OTCs, including Orbitz, LLC, Trip
Network, Inc. (d/b/a Cheaptickets.com) and Internetwork
Publishing Corp. (d/b/a Lodging.com).
City of Bowling Green, Kentucky On
April 8, 2010, the Circuit Court of Warren County, Kentucky
granted the defendant Internet travel companies motion to
dismiss finding that the City of Bowling Greens ordinance
does not apply to the defendants facilitation of hotel
reservations.
City of Goodlettsville, Tennessee On
April 20, 2010, the United States District Court for the
Middle District of Tennessee granted the plaintiffs motion
for class certification.
Item 1A. | Risk Factors. |
There have been no material changes from the risk factors
previously disclosed in our 2009 Annual Report on
Form 10-K.
42
Table of Contents
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
The following table sets forth repurchases of our common stock
during the first quarter of 2010:
Total Number of |
||||||||||||||||
Shares Purchased as |
Maximum Number of |
|||||||||||||||
Part of Publicly |
Shares That May Yet be |
|||||||||||||||
Total Number of |
Average Price |
Announced Plans or |
Purchased Under the |
|||||||||||||
Period
|
Shares Purchased(a) | Paid per Share | Programs (b) | Plans or Programs (b) | ||||||||||||
January 1, 2010 to January 31, 2010
|
| | | | ||||||||||||
February 1, 2010 to February 28, 2010
|
392 | $ | 6.01 | | | |||||||||||
March 1, 2010 to March 31, 2010
|
| | | | ||||||||||||
Total
|
392 | $ | 6.01 | | | |||||||||||
(a) | Represents shares of our common stock transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock during the period. These shares are held by us in treasury. | |
(b) | During the first quarter of 2010, we did not have a publicly announced plan or program for the repurchase of our common stock. |
Item 3. | Defaults Upon Senior Securities. |
Not applicable.
Item 4. | Reserved. |
Item 5. | Other Information. |
Not applicable.
Item 6. | Exhibits. |
EXHIBIT INDEX
Exhibit No.
|
Description | |||
10 | .1 | Sixth Amendment, dated as of February 18, 2010, to Subscriber Services Agreement, dated as of July 23, 2007, between Travelport, LP (f/k/a Travelport International, L.L.C.), Travelport Global Distribution System B.V. (f/k/a Galileo Nederland B.V.) and Orbitz Worldwide, LLC. | ||
10 | .2 | Seventh Amendment, dated as of April 1, 2010, to Subscriber Services Agreement, dated as of July 23, 2007, between Travelport, LP (f/k/a Travelport International, L.L.C.), Travelport Global Distribution System B.V. (f/k/a Galileo Nederland B.V.) and Orbitz Worldwide, LLC. | ||
10 | .3 | Amendment to the Global Agreement, effective as of July 1, 2008, between Amadeus IT Group, S.A. and ebookers Limited. | ||
10 | .4 | Amendment to the Global Agreement, effective as of March 8, 2010, between Amadeus IT Group, S.A. and ebookers Limited. | ||
31 | .1 | Certification of Chief Executive Officer of Orbitz Worldwide, Inc. pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. | ||
31 | .2 | Certification of Chief Financial Officer of Orbitz Worldwide, Inc. pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. | ||
32 | .1 | Certification of Chief Executive Officer of Orbitz Worldwide, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32 | .2 | Certification of Chief Financial Officer of Orbitz Worldwide, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed separately with the SEC. |
43
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ORBITZ WORLDWIDE, INC | ||
Date: May 6, 2010
|
By:
/s/ Barney
Harford Barney
Harford
President, Chief Executive Officer and Director (Principal Executive Officer) |
|
Date: May 6, 2010
|
By:
/s/ Marsha
C. Williams Marsha
C. Williams
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
|
Date: May 6, 2010
|
By:
/s/ John
W. Bosshart John
W. Bosshart
Vice President of Global Accounting (Principal Accounting Officer) |
44