UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30, 2010
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
001-33599
ORBITZ WORLDWIDE,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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20-5337455
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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500 W. Madison Street
Suite 1000
Chicago, Illinois
(Address of principal executive
offices)
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60661
(Zip Code)
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(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.
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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Smaller reporting
company o
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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 August 2, 2010, 102,288,912 shares of Common
Stock, par value $0.01 per share, of Orbitz Worldwide, Inc.
were outstanding.
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
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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ORBITZ
WORLDWIDE, INC.
(in thousands, except share and per share data)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2010
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2009
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2010
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2009
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Net revenue
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$
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193,491
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$
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187,959
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$
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380,644
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$
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376,352
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Cost and expenses
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Cost of revenue
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37,349
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34,099
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75,599
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69,455
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Selling, general and administrative
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59,635
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59,496
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123,425
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125,924
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Marketing
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55,282
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53,558
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112,939
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117,827
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Depreciation and amortization
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19,683
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18,284
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38,669
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32,672
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Impairment of other assets (see Note 8)
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1,704
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Impairment of goodwill and intangible assets
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331,527
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Total operating expenses
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171,949
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165,437
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352,336
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677,405
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Operating income (loss)
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21,542
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22,522
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28,308
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(301,053
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)
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Other (expense) income
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Net interest expense
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(10,943
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)
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(14,598
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)
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(22,254
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)
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(29,111
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)
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Other income
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417
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2,148
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18
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2,113
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Total other (expense)
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(10,526
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)
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(12,450
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)
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(22,236
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)
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(26,998
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)
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Income (loss) before income taxes
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11,016
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10,072
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6,072
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(328,051
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)
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Provision (benefit) for income taxes
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1,283
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(204
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)
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1,600
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(2,171
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)
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Net income (loss)
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$
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9,733
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$
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10,276
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$
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4,472
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$
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(325,880
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)
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Net income (loss) per share basic:
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Net income (loss) per share
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$
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0.10
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$
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0.12
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$
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0.05
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$
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(3.89
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)
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Weighted average shares outstanding
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101,927,549
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83,873,230
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99,346,552
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83,734,112
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Net income (loss) per share diluted:
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Net income (loss) per share
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$
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0.09
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$
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0.12
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$
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0.04
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$
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(3.89
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)
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Weighted average shares outstanding
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105,671,169
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84,208,662
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103,244,429
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83,734,112
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See Notes to Unaudited Condensed Consolidated Financial
Statements.
4
ORBITZ
WORLDWIDE, INC.
(in thousands, except share data)
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June 30,
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December 31,
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2010
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2009
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Assets
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Current assets:
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Cash and cash equivalents
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$
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144,520
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$
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88,656
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Accounts receivable (net of allowance for doubtful accounts of
$686 and $935, respectively)
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62,420
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54,708
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Prepaid expenses
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16,917
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17,399
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Due from Travelport, net
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20,972
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3,188
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Other current assets
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5,341
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5,702
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Total current assets
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250,170
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169,653
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Property and equipment, net
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166,679
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180,962
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Goodwill
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709,131
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713,123
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Trademarks and trade names
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153,514
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155,090
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Other intangible assets, net
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10,271
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18,562
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Deferred income taxes, non-current
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9,101
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9,954
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Other non-current assets
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53,370
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46,898
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Total Assets
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$
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1,352,236
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$
|
1,294,242
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Liabilities and Shareholders Equity
|
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Current liabilities:
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Accounts payable
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$
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24,784
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$
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30,279
|
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Accrued merchant payable
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282,793
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219,073
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Accrued expenses
|
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119,482
|
|
|
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112,771
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Deferred income
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42,365
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30,924
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Term loan, current
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9,956
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20,994
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Other current liabilities
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5,719
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|
|
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5,162
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Total current liabilities
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485,099
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419,203
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Term loan, non-current
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482,065
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555,582
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Line of credit
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42,221
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Tax sharing liability
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103,257
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108,736
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Unfavorable contracts
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9,386
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9,901
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Other non-current liabilities
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23,174
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28,096
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Total Liabilities
|
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1,102,981
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1,163,739
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Commitments and contingencies (see Note 9)
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Shareholders Equity:
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Preferred stock, $0.01 par value, 100 shares
authorized, no shares issued or outstanding
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Common stock, $0.01 par value, 140,000,000 shares
authorized, 101,378,775 and 83,831,561 shares issued and
outstanding, respectively
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1,014
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|
838
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Treasury stock, at cost, 25,237 and 24,521 shares held,
respectively
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(52
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)
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(48
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)
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Additional paid in capital
|
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|
1,027,142
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|
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921,425
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Accumulated deficit
|
|
|
(780,900
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)
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|
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(785,372
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)
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Accumulated other comprehensive income (loss) (net of
accumulated tax benefit of $2,558 and $2,558, respectively)
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2,051
|
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(6,340
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)
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|
|
|
|
|
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|
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Total Shareholders Equity
|
|
|
249,255
|
|
|
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130,503
|
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|
|
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|
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Total Liabilities and Shareholders Equity
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|
$
|
1,352,236
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|
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$
|
1,294,242
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|
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See Notes to Unaudited Condensed Consolidated Financial
Statements.
5
ORBITZ
WORLDWIDE, INC.
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,472
|
|
|
$
|
(325,880
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
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Net gain on extinguishment of debt
|
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(57
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)
|
|
|
(2,172
|
)
|
Depreciation and amortization
|
|
|
38,669
|
|
|
|
32,672
|
|
Impairment of other assets
|
|
|
1,704
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
331,527
|
|
Amortization of unfavorable contract liability
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|
|
(1,764
|
)
|
|
|
(1,650
|
)
|
Non-cash net interest expense
|
|
|
7,984
|
|
|
|
8,128
|
|
Deferred income taxes
|
|
|
114
|
|
|
|
(4,218
|
)
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Stock compensation
|
|
|
8,575
|
|
|
|
8,289
|
|
Provision for bad debts
|
|
|
(289
|
)
|
|
|
230
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
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Accounts receivable
|
|
|
(9,456
|
)
|
|
|
(3,414
|
)
|
Deferred income
|
|
|
12,340
|
|
|
|
15,971
|
|
Due to/from Travelport, net
|
|
|
(17,962
|
)
|
|
|
9,543
|
|
Accrued merchant payable
|
|
|
75,306
|
|
|
|
52,638
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
(1,888
|
)
|
|
|
(9,296
|
)
|
Other
|
|
|
(3,088
|
)
|
|
|
(13,573
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
114,660
|
|
|
|
98,795
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Property and equipment additions
|
|
|
(17,099
|
)
|
|
|
(20,544
|
)
|
Changes in restricted cash
|
|
|
(914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(18,013
|
)
|
|
|
(20,544
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
48,930
|
|
|
|
|
|
Payment of fees to repurchase a portion of the term loan
|
|
|
(248
|
)
|
|
|
|
|
Payments on the term loan
|
|
|
(20,994
|
)
|
|
|
(2,975
|
)
|
Payments to extinguish debt
|
|
|
(13,488
|
)
|
|
|
(7,774
|
)
|
Payments to satisfy employee tax withholding obligations upon
vesting of equity-based awards
|
|
|
(1,099
|
)
|
|
|
(235
|
)
|
Proceeds from exercise of employee stock options
|
|
|
65
|
|
|
|
|
|
Payments on tax sharing liability
|
|
|
(10,239
|
)
|
|
|
(8,087
|
)
|
Proceeds from line of credit
|
|
|
|
|
|
|
99,457
|
|
Payments on line of credit
|
|
|
(42,221
|
)
|
|
|
(59,823
|
)
|
Proceeds from note payable
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(38,494
|
)
|
|
|
20,563
|
|
|
|
|
|
|
|
|
|
|
Effects of changes in exchange rates on cash and cash equivalents
|
|
|
(2,289
|
)
|
|
|
1,380
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
55,864
|
|
|
|
100,194
|
|
Cash and cash equivalents at beginning of period
|
|
|
88,656
|
|
|
|
31,193
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
144,520
|
|
|
$
|
131,387
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Income tax payments, net
|
|
$
|
1,902
|
|
|
$
|
2,065
|
|
Cash interest payments, net of capitalized interest of $18 and
$75, respectively
|
|
$
|
13,781
|
|
|
$
|
21,175
|
|
Non-cash investing activity:
|
|
|
|
|
|
|
|
|
Capital expenditures incurred not yet paid
|
|
$
|
613
|
|
|
$
|
2,300
|
|
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
ORBITZ
WORLDWIDE, INC.
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net income (loss)
|
|
$
|
9,733
|
|
|
$
|
10,276
|
|
|
$
|
4,472
|
|
|
$
|
(325,880
|
)
|
Other comprehensive (loss) income, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(656
|
)
|
|
|
(2,939
|
)
|
|
|
7,491
|
|
|
|
(2,916
|
)
|
Unrealized gains on floating to fixed interest rate swaps
|
|
|
619
|
|
|
|
2,371
|
|
|
|
900
|
|
|
|
4,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
(37
|
)
|
|
|
(568
|
)
|
|
|
8,391
|
|
|
|
1,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
9,696
|
|
|
$
|
9,708
|
|
|
$
|
12,863
|
|
|
$
|
(324,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements.
7
ORBITZ
WORLDWIDE, INC.
(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 income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,472
|
|
|
|
|
|
|
|
4,472
|
|
Amortization of equity-based compensation awards granted to
employees, net of shares withheld to satisfy employee tax
withholding obligations upon vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,480
|
|
|
|
|
|
|
|
|
|
|
|
7,480
|
|
Common shares issued pursuant to Exchange Agreement and Stock
Purchase Agreement (see Note 6)
|
|
|
17,166,673
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
98,176
|
|
|
|
|
|
|
|
|
|
|
|
98,348
|
|
Common shares issued upon vesting of restricted stock units
|
|
|
370,655
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(716
|
)
|
|
|
|
|
|
|
716
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,391
|
|
|
|
8,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
|
101,378,775
|
|
|
$
|
1,014
|
|
|
|
25,237
|
|
|
$
|
(52
|
)
|
|
$
|
1,027,142
|
|
|
$
|
(780,900
|
)
|
|
$
|
2,051
|
|
|
$
|
249,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements.
8
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 June 30, 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 wide array 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 SEC
filings for periods prior to the first quarter of 2010.
Beginning with our first quarter 2010
Form 10-Q,
our consolidated financial statements are 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
9
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets and liabilities, the disclosure of contingent assets and
liabilities as of the date of our condensed consolidated
financial statements and the reported amounts of revenue and
expense during the reporting periods. Actual results could
differ from our estimates.
During the first quarter of 2010, we had a change in estimate
related to the timing of our recognition of travel insurance
revenue. Prior to the first quarter of 2010, 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. Our travel insurance supplier
implemented more timely reporting, and as a result, beginning
with the first quarter of 2010, we were 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 our net revenue and net income for the six months
ended June 30, 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 was
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 15 Fair Value Measurements.
|
|
3.
|
Property
and Equipment, Net
|
Property and equipment, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(in thousands)
|
|
|
Capitalized software
|
|
$
|
234,104
|
|
|
$
|
221,261
|
|
Furniture, fixtures and equipment
|
|
|
69,719
|
|
|
|
68,896
|
|
Leasehold improvements
|
|
|
12,947
|
|
|
|
13,443
|
|
Construction in progress
|
|
|
13,296
|
|
|
|
13,482
|
|
|
|
|
|
|
|
|
|
|
Gross property and equipment
|
|
|
330,066
|
|
|
|
317,082
|
|
Less: accumulated depreciation and amortization
|
|
|
(163,387
|
)
|
|
|
(136,120
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
166,679
|
|
|
$
|
180,962
|
|
|
|
|
|
|
|
|
|
|
10
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We recorded depreciation and amortization expense related to
property and equipment in the amount of $15.7 million and
$14.0 million for the three months ended June 30, 2010
and June 30, 2009, respectively, and $30.6 million and
$24.1 million for the six months ended June 30, 2010
and June 30, 2009, respectively.
|
|
4.
|
Goodwill
and Intangible Assets
|
Goodwill and indefinite-lived intangible assets consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(in thousands)
|
|
|
Goodwill and Indefinite-Lived Intangible Assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
709,131
|
|
|
$
|
713,123
|
|
Trademarks and trade names
|
|
|
153,514
|
|
|
|
155,090
|
|
The changes in the carrying amount of goodwill during the six
months ended June 30, 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)
|
|
|
(3,992
|
)
|
|
|
|
|
|
Balance at June 30, 2010, net of accumulated impairment of
$459,199
|
|
$
|
709,131
|
|
|
|
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
$
|
65,519
|
|
|
$
|
(57,454
|
)
|
|
$
|
8,065
|
|
|
|
4
|
|
|
$
|
66,190
|
|
|
$
|
(50,329
|
)
|
|
$
|
15,861
|
|
|
|
4
|
|
Vendor relationships and other
|
|
|
4,764
|
|
|
|
(2,558
|
)
|
|
|
2,206
|
|
|
|
7
|
|
|
|
5,072
|
|
|
|
(2,371
|
)
|
|
|
2,701
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Finite-Lived Intangible Assets
|
|
$
|
70,283
|
|
|
$
|
(60,012
|
)
|
|
$
|
10,271
|
|
|
|
5
|
|
|
$
|
71,262
|
|
|
$
|
(52,700
|
)
|
|
$
|
18,562
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded amortization expense related to finite-lived
intangible assets in the amount of $4.0 million and
$4.3 million for the three months ended June 30, 2010
and June 30, 2009, respectively, and $8.1 million and
$8.6 million for the six months ended June 30, 2010
and June 30, 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 6 months)
|
|
$
|
3,021
|
|
2011
|
|
|
2,608
|
|
2012
|
|
|
2,341
|
|
2013
|
|
|
1,591
|
|
2014
|
|
|
710
|
|
|
|
|
|
|
Total
|
|
$
|
10,271
|
|
|
|
|
|
|
11
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(in thousands)
|
|
|
Advertising and marketing
|
|
$
|
29,658
|
|
|
$
|
17,897
|
|
Employee costs (a)
|
|
|
21,210
|
|
|
|
32,684
|
|
Tax sharing liability, current
|
|
|
19,726
|
|
|
|
17,390
|
|
Professional fees
|
|
|
6,626
|
|
|
|
4,414
|
|
Customer service costs
|
|
|
6,548
|
|
|
|
5,575
|
|
Contract exit costs
|
|
|
5,967
|
|
|
|
4,858
|
|
Rebates
|
|
|
5,889
|
|
|
|
5,928
|
|
Technology costs
|
|
|
4,200
|
|
|
|
4,413
|
|
Unfavorable contracts, current
|
|
|
3,755
|
|
|
|
3,300
|
|
Facilities costs
|
|
|
1,387
|
|
|
|
2,588
|
|
Other
|
|
|
14,516
|
|
|
|
13,724
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
119,482
|
|
|
$
|
112,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The change in employee costs from December 31, 2009 to
June 30, 2010 primarily represents the payment of employee
bonuses during the first quarter of 2010. |
|
|
|
At June 30, 2010 and December 31, 2009, the employee
costs line item included accrued severance costs of
$1.7 million and $3.2 million, respectively, of which
$0.8 million and $3.2 million, respectively, were
associated with actions taken in 2009. The majority of the costs
related to these 2009 actions 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.
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 scheduled
12
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 $10.0 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 June 30,
2010.
The changes in the Term Loan during the six months ended
June 30, 2010 were as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2009
|
|
$
|
576,576
|
|
Principal prepayments
|
|
|
(20,994
|
)
|
Repurchases (a)
|
|
|
(63,561
|
)
|
|
|
|
|
|
Balance at June 30, 2010
|
|
$
|
492,021
|
|
|
|
|
|
|
|
|
|
(a) |
|
On January 26, 2010, pursuant to an Exchange Agreement we
entered into with PAR Investment Partners, L.P.
(PAR), as amended, PAR exchanged $49.6 million
aggregate principal amount of the Term Loan for
8,141,402 shares of our common stock. We immediately
retired the portion of the Term Loan purchased from PAR in
accordance with the amendment (the Amendment) to the
Credit Agreement that we entered into in June 2009. The fair
value of our 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 this portion of the Term Loan, we recorded a
$0.4 million loss on extinguishment of this portion of the
Term Loan, which is included in other income in our condensed
consolidated statement of operations for the six months ended
June 30, 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 June 30, 2010. |
|
|
|
In May 2010, we used a portion of the cash proceeds received
from Travelports purchase of shares of our common stock in
January 2010 to purchase $14.0 million in principal amount
of the Term Loan. We immediately retired this portion of the
Term Loan in accordance with the Amendment. The principal amount
of the Term Loan purchased (net of associated unamortized debt
issuance costs of $0.1 million) exceeded the amount we paid
to purchase this portion of the Term Loan by $0.4 million.
Accordingly, we recorded a $0.4 million gain on
extinguishment of a portion of the Term Loan, which is included
in other income in our condensed consolidated statements of
operations for each of the three and six months ended
June 30, 2010. |
At June 30, 2010, we had interest rate swaps outstanding
that effectively converted $400.0 million of the Term Loan
to a fixed interest rate (see Note 12
Derivative Financial Instruments). As a result of these interest
rate swaps, at June 30, 2010, $100.0 million of the
Term Loan effectively had a fixed interest rate of 6.39%, an
additional $100.0 million of the Term Loan effectively had
a fixed interest rate of 5.98%, an additional
$100.0 million of the Term Loan effectively had a fixed
interest rate of 4.15% and an additional $100.0 million of
the Term Loan effectively had a fixed interest rate of 4.21%.
The remaining $92.0 million of the Term Loan had a variable
interest rate as of June 30, 2010. Of the remaining
$92.0 million, $33.3 million had an interest rate of
3.54%, which is based on the three-month LIBOR,
$32.3 million had an interest rate of 3.35%, which is based
on the one-month LIBOR, and $26.4 million had an interest
rate of 3.34%, which is based on the three-month LIBOR.
13
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 200 basis points or
an Alternative Base Rate plus a margin of 100 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 June 30, 2010, there were no outstanding borrowings
under the Revolver and the equivalent of $8.5 million of
outstanding letters of credit issued under the Revolver, which
were denominated in Pounds Sterling. At December 31, 2009,
there were $42.2 million of borrowings outstanding under
the Revolver, all of which were denominated in
U.S. dollars, and the equivalent of $4.5 million of
outstanding letters of credit issued under the Revolver, 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 $64.0 million and
$25.8 million of availability under the Revolver at
June 30, 2010 and December 31, 2009, respectively.
Commitment fees on unused amounts under the Revolver were
$0.1 million and $0 for the three months ended
June 30, 2010 and June 30, 2009, respectively, and
$0.2 million and $0.1 million for the six months ended
June 30, 2010 and June 30, 2009, respectively.
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 June 30, 2010.
|
|
|
|
|
Year
|
|
(in thousands)
|
|
|
2010 (remaining 6 months)
|
|
$
|
|
|
2011
|
|
|
9,956
|
|
2012
|
|
|
|
|
2013
|
|
|
|
|
2014
|
|
|
482,065
|
|
|
|
|
|
|
Total
|
|
$
|
492,021
|
|
|
|
|
|
|
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 June 30, 2010, the
estimated remaining payments that may be due under this
agreement were approximately $203.8 million. We estimated
that the net present value of our obligation to pay tax benefits
to the Founding Airlines was $123.0 million and
$126.1 million at June 30, 2010 and December 31,
2009, respectively. The table below shows the changes in the tax
sharing liability during the six months ended June 30, 2010:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2009
|
|
$
|
126,126
|
|
Accretion of interest expense (a)
|
|
|
7,096
|
|
Cash payments
|
|
|
(10,239
|
)
|
|
|
|
|
|
Balance at June 30, 2010
|
|
$
|
122,983
|
|
|
|
|
|
|
|
|
|
(a) |
|
We accreted interest expense related to the tax sharing
liability of $3.5 million and $3.4 million for the
three months ended June 30, 2010 and June 30, 2009,
respectively, and $7.1 million for each of the six months
ended June 30, 2010 and June 30, 2009. |
14
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Based upon the future payments we expect to make, the current
portion of the tax sharing liability of $19.7 million and
$17.4 million is included in accrued expenses in our
condensed consolidated balance sheets at June 30, 2010 and
December 31, 2009, respectively. The long-term portion of
the tax sharing liability of $103.3 million and
$108.7 million is reflected as the tax sharing liability in
our condensed consolidated balance sheets at June 30, 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 have recorded a receivable of $37.0 million for such
amounts, which is included in other non-current assets in our
condensed consolidated balance sheets at June 30, 2010 and
December 31, 2009.
The table below shows the estimated payments under the tax
sharing agreement over the next five years:
|
|
|
|
|
Year
|
|
(in thousands)
|
|
|
2010 (remaining 6 months)
|
|
$
|
10,326
|
|
2011
|
|
|
21,891
|
|
2012
|
|
|
16,824
|
|
2013
|
|
|
17,530
|
|
2014
|
|
|
18,098
|
|
Thereafter
|
|
|
119,112
|
|
|
|
|
|
|
Total
|
|
$
|
203,781
|
|
|
|
|
|
|
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
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below shows the changes in the unfavorable contracts
liability during the six months ended June 30, 2010:
|
|
|
|
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2009
|
|
$
|
13,201
|
|
Amortization (a)
|
|
|
(1,764
|
)
|
Impairment (b)
|
|
|
1,704
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
$
|
13,141
|
|
|
|
|
|
|
|
|
|
(a) |
|
We recognized net amortization for the unfavorable portion of
the Charter Associate Agreements in the amount of
$1.0 million ($2.2 million was recorded as an increase
to net revenue and $1.2 million was recorded as an increase
to marketing expense) for the three months ended June 30,
2010 and $0.9 million ($2.4 million was recorded as an
increase to net revenue and $1.5 million was recorded as an
increase to marketing expense) for the three months ended
June 30, 2009. We recognized net amortization for the
unfavorable portion of the Charter Associate Agreements in the
amount of $1.8 million ($4.5 million was recorded as
an increase to net revenue and $2.7 million was recorded as
an increase to marketing expense) for the six months ended
June 30, 2010 and $1.7 million ($4.7 million was
recorded as an increase to net revenue and $3.0 million was
recorded as an increase to marketing expense) for the six months
ended June 30, 2009. |
|
(b) |
|
During the first quarter of 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 was no longer 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 six months ended June 30,
2010. |
At June 30, 2010 and December 31, 2009, the net
unfavorable contract liability was $13.1 million and
$13.2 million, respectively. The current portion of the
liability of $3.7 million and $3.3 million is included
in accrued expenses in our condensed consolidated balance sheets
at June 30, 2010 and December 31, 2009, respectively.
The long term portion of the liability of $9.4 million and
$9.9 million is reflected as unfavorable contracts in our
condensed consolidated balance sheets at June 30, 2010 and
December 31, 2009, respectively.
|
|
9.
|
Commitments
and Contingencies
|
Our commitments as of June 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 months)
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
|
|
(in thousands)
|
|
Telecommunications service agreement (a)
|
|
$
|
454
|
|
|
$
|
2,500
|
|
|
$
|
2,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,454
|
|
|
|
|
(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 amount and timing of future payments in connection with
the tax sharing agreement with the Founding Airlines has changed
(see Note 7 Tax Sharing Liability). Also, in
January 2010 we repaid the $42.2 million of borrowings that
were outstanding under the Revolver as of December 31,
2009. There were no outstanding borrowings under the Revolver at
June 30, 2010.
16
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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 Montana Department of Revenue; the Hawaii
Department of Taxation; an entity representing 84 cities
and 14 counties in Alabama; 42 cities in California; the
cities of Phoenix, Arizona; North Little Rock and Pine Bluff,
Arkansas; Colorado Springs and Steamboat Springs, Colorado;
St. Louis, Missouri; 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
$10.0 million, and totaling approximately
$20.7 million. Assessments that are administratively final
and subject to judicial review have been issued by the cities of
Anaheim, San Francisco and San Diego, 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 West Virginia Department of Revenue; the cities
of Los Angeles and Santa Monica, California; the city of Denver,
Colorado; 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. As of June 30, 2010, we have established a
$1.3 million accrual related to various legal proceedings.
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
17
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 $2.0 million and
$1.6 million for the three months ended June 30, 2010
and June 30, 2009, respectively, and $3.3 million and
$3.1 million for the six months ended June 30, 2010
and June 30, 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 June 30, 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 June 30, 2010 and December 31, 2009, there
were $0.8 million of surety bonds outstanding. At
June 30, 2010 and December 31, 2009, there were
$2.1 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. At
June 30, 2010 and December 31, 2009, there were
$68.5 million and $59.3 million of outstanding letters
of credit issued by Travelport on our behalf, respectively (see
Note 14 Related Party Transactions). In
addition, at June 30, 2010 and December 31, 2009,
there were the equivalent of $8.5 million and
$4.5 million of outstanding letters of credit issued under
the Revolver, respectively, which were denominated in Pounds
Sterling. The total letter of credit fees were $0.9 million
for each of the three months ended June 30, 2010 and
June 30, 2009, and $1.8 million and $1.9 million
for the six months ended June 30, 2010 and June 30,
2009, respectively.
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 six months ended
June 30, 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
|
|
|
(60
|
)
|
|
|
|
|
|
Balance at June 30, 2010
|
|
$
|
4,770
|
|
|
|
|
|
|
The total amount of unrecognized tax benefits that, if
recognized, would affect our effective tax rate was
$1.0 million at June 30, 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 $0.1 million during
each of the three and six months ended June 30, 2010 and
June 30, 2009. Accrued interest and penalties were
$0.6 million at June 30, 2010 and December 31,
2009.
18
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In computing the tax provision for the six months ended
June 30, 2010, we recognized an income tax provision in tax
jurisdictions in which we had pre-tax income for the six months
ended June 30, 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 six months ended
June 30, 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.
|
|
11.
|
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. At our Annual Meeting of Shareholders
on June 2, 2010, our shareholders approved an amendment to
the Plan, increasing the number of shares of our common stock
available for issuance under the Plan from
15,100,000 shares to 18,100,000 shares, subject to
adjustment as provided by the Plan. As of June 30, 2010,
5,380,079 shares were available for future issuance under
the Plan.
Stock
Options
The table below summarizes the stock option activity under the
Plan during the six months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value
|
|
|
|
Shares
|
|
|
(per share)
|
|
|
(in years)
|
|
|
(in thousands)
|
|
|
Outstanding at December 31, 2009
|
|
|
4,236,083
|
|
|
$
|
9.46
|
|
|
|
6.5
|
|
|
$
|
4,737
|
|
Granted
|
|
|
850,000
|
|
|
$
|
4.90
|
|
|
|
6.9
|
|
|
|
|
|
Granted in connection with stock option exchange (a)
|
|
|
433,488
|
|
|
$
|
5.22
|
|
|
|
7.1
|
|
|
|
|
|
Exercised
|
|
|
(10,602
|
)
|
|
$
|
6.11
|
|
|
|
5.0
|
|
|
|
|
|
Forfeited
|
|
|
(530,535
|
)
|
|
$
|
13.95
|
|
|
|
6.8
|
|
|
|
|
|
Cancelled in connection with stock option exchange (a)
|
|
|
(1,260,598
|
)
|
|
$
|
15.00
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010
|
|
|
3,717,836
|
|
|
$
|
5.42
|
|
|
|
5.9
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010
|
|
|
1,333,178
|
|
|
$
|
5.85
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On May 3, 2010, we commenced an offer to eligible employees
to exchange certain
out-of-the-money
options to purchase our common stock for a lesser number of new
stock options with an exercise price equal to the fair market
value of our common stock at the completion of the exchange
offer. Stock options eligible for the exchange were those with
an exercise price per share of $15.00 that were granted at the
time of the IPO. The offering period closed on May 28,
2010. On that date, 1,260,598 stock options were tendered and
exchanged for 433,488 new stock options with an exercise price
of $5.22 per share. No incremental compensation expense was
recognized in connection with the exchange because the fair
value of the new stock options granted approximated the fair
value of the stock options exchanged. The vesting terms and
contractual expiration of the new stock options granted did not
change as a result of the exchange. However, the option holders
who elected to participate in the exchange are required to wait
until the six-month anniversary of the completion of the
exchange before exercising any of their new stock options,
including those new stock options that vest during that
six-month
period. |
19
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The exercise price of stock options granted under the Plan is
equal to the fair market value of the underlying stock on the
date of grant. Stock options generally expire seven to ten years
from the grant date. The stock options granted at the time of
the IPO as additional compensation to our employees who
previously held equity awards under Travelports long-term
incentive plan vested quarterly over a three-year period and
became fully vested in May 2010. All other stock options vest
annually over a four-year period, or vest over a four-year
period, with 25% of the awards vesting after one year and the
remaining awards vesting on a monthly basis thereafter. The fair
value of stock options on the date of grant is amortized on a
straight-line basis over the requisite service period.
The fair value of stock options granted under the Plan is
estimated on the date of grant using the Black-Scholes
option-pricing model. The weighted average assumptions for stock
options granted during the six months ended June 30, 2010,
excluding the stock options granted in connection with the stock
option exchange, are outlined in the following table. Expected
volatility is based on implied volatilities for publicly traded
options and historical volatility for comparable companies over
the estimated expected life of the stock options. The expected
life represents the period of time the stock options are
expected to be outstanding and is based on the simplified
method. We use the simplified method due to
the lack of sufficient historical exercise data to provide a
reasonable basis upon which to otherwise estimate the expected
life of the stock options. The risk-free interest rate is based
on yields on U.S. Treasury strips with a maturity similar
to the estimated expected life of the stock options. We use
historical turnover to estimate employee forfeitures.
|
|
|
|
|
Assumptions:
|
|
|
|
|
Dividend yield
|
|
|
|
|
Expected volatility
|
|
|
43
|
%
|
Expected life (in years)
|
|
|
4.68
|
|
Risk-free interest rate
|
|
|
2.17
|
%
|
Based on the above assumptions, the weighted average grant-date
fair value of stock options granted during the six months ended
June 30, 2010 was $1.90.
Restricted
Stock Units
The table below summarizes activity regarding unvested
restricted stock units under the Plan for the six months ended
June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
Stock Units
|
|
|
(per share)
|
|
|
Unvested at December 31, 2009
|
|
|
5,650,750
|
|
|
$
|
4.31
|
|
Granted
|
|
|
1,225,000
|
|
|
$
|
5.01
|
|
Vested (a)
|
|
|
(554,200
|
)
|
|
$
|
4.71
|
|
Forfeited
|
|
|
(308,058
|
)
|
|
$
|
6.21
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2010
|
|
|
6,013,492
|
|
|
$
|
4.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We issued 370,655 shares of common stock in connection with
the vesting of restricted stock units during the six months
ended June 30, 2010, which is net of the number of shares
retained (but not issued) by us in satisfaction of minimum tax
withholding obligations associated with the vesting. |
The restricted stock units granted at the time of the IPO upon
conversion of unvested equity-based awards previously held by
our employees under Travelports long-term incentive plan
vested quarterly over a three-year period and became fully
vested in May 2010. All other restricted stock units cliff vest
at the end of either
20
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
a two-year or three-year period, or vest annually over a
three-year or four-year period. The fair value of restricted
stock units on the date of grant is amortized on a straight-line
basis over the requisite service period.
The total number of restricted stock units that vested during
the six months ended June 30, 2010 and the total fair value
thereof was 554,200 restricted stock units and
$2.6 million, respectively.
Performance-Based
Restricted Stock Units
The table below summarizes activity regarding unvested
performance-based restricted stock units (PSUs)
under the Plan for the six months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Performance-Based
|
|
|
Grant Date
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
Stock Units
|
|
|
(per share)
|
|
|
Unvested at December 31, 2009
|
|
|
227,679
|
|
|
$
|
6.28
|
|
Granted (a)
|
|
|
387,000
|
|
|
$
|
4.90
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2010
|
|
|
614,679
|
|
|
$
|
5.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On June 2, 2010, the Compensation Committee approved a
grant of PSUs to certain of our executive officers. The PSUs
entitle the executives to receive one share of our common stock
for each PSU, subject to the satisfaction of a performance
condition. The performance condition requires that the
Companys adjusted EBITDA for fiscal year 2010 equal or
exceed a certain threshold, or each PSU will be forfeited. If
this performance condition is met, the PSUs will vest annually
over a four-year period. As of June 30, 2010, the Company
expects that the performance condition will be satisfied. |
Restricted
Stock
There was no significant activity related to restricted stock
during the six months ended June 30, 2010. As of
June 30, 2010, there was no restricted stock outstanding.
Non-Employee
Directors Deferred Compensation Plan
The table below summarizes the deferred stock unit activity
under the Plan for the six months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Deferred
|
|
|
Fair Value
|
|
|
|
Stock Units
|
|
|
(per share)
|
|
|
Outstanding at December 31, 2009
|
|
|
692,066
|
|
|
$
|
4.13
|
|
Granted
|
|
|
230,486
|
|
|
$
|
4.89
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010
|
|
|
922,552
|
|
|
$
|
4.32
|
|
|
|
|
|
|
|
|
|
|
The deferred stock units are issued as restricted stock units
under the Plan and are immediately vested and non-forfeitable.
The deferred stock units entitle the non-employee director to
receive one share of our common stock for each deferred stock
unit on the date that is 200 days immediately following the
non-employee
directors retirement or termination of service from the
board of directors, for any reason. The entire grant date fair
value of deferred stock units is expensed on the date of grant.
Compensation
Expense
We recognized total equity-based compensation expense of
$5.7 million and $3.5 million during the
three months ended June 30, 2010 and June 30,
2009, respectively, and $8.6 million and $8.3 million
during the six months ended June 30, 2010 and
June 30, 2009, respectively, none of which has provided us
a tax benefit.
21
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of June 30, 2010, a total of $17.1 million of
unrecognized compensation costs related to unvested stock
options, unvested restricted stock units and unvested PSUs are
expected to be recognized over the remaining weighted-average
period of 3 years.
|
|
12.
|
Derivative
Financial Instruments
|
Interest
Rate Hedges
At June 30, 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 June 30, 2010 and December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
Balance Sheet Location
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
|
|
(in thousands)
|
|
Liability Derivatives:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other current liabilities
|
|
$
|
3,150
|
|
|
$
|
1,899
|
|
Interest rate swaps
|
|
Other non-current liabilities
|
|
|
1,286
|
|
|
|
3,437
|
|
The following table shows the market adjustments recorded during
the three and six months ended June 30, 2010 and
June 30, 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 Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
619
|
|
|
$
|
2,371
|
|
|
$
|
(1,894
|
)
|
|
$
|
(3,253
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
|
(Loss) Reclassified
|
|
Recognized in
|
|
|
Gain in Other
|
|
from Accumulated
|
|
Income (Ineffective
|
|
|
Comprehensive
|
|
OCI into
|
|
Portion and the
|
|
|
Income
|
|
Interest Expense
|
|
Amount Excluded
|
|
|
(OCI)
|
|
(Effective Portion)
|
|
from Effectiveness
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
Testing)
|
|
|
June 30,
|
|
June 30,
|
|
Six Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(in thousands)
|
|
Interest rate swaps
|
|
$
|
900
|
|
|
$
|
4,238
|
|
|
$
|
(3,677
|
)
|
|
$
|
(6,140
|
)
|
|
$
|
|
|
|
$
|
|
|
22
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amount of loss recorded in accumulated other comprehensive
income at June 30, 2010 that is expected to be reclassified
to interest expense in the next twelve months if interest rates
remain unchanged is approximately $4.5 million after-tax.
Foreign
Currency Hedges
We enter into foreign currency contracts to manage our 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 June 30, 2010, we had foreign currency
contracts outstanding with a total net notional amount of
$164.8 million, almost all of which matured in July 2010.
The foreign currency contracts do not qualify for hedge
accounting treatment. Accordingly, changes in the fair value of
the foreign currency contracts are recorded in net income
(loss), 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 June 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
Balance Sheet Location
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
|
|
(in thousands)
|
|
Liability Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedges
|
|
|
Other current liabilities
|
|
|
$
|
927
|
|
|
$
|
1,208
|
|
The following table shows the changes in the fair value of our
foreign currency contracts recorded in net income (loss) during
the three and six months ended June 30, 2010 and
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) in
|
|
|
Selling, General &
|
|
|
Administrative Expense
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(in thousands)
|
|
Foreign currency hedges (a)
|
|
$
|
1,994
|
|
|
$
|
(6,993
|
)
|
|
$
|
5,358
|
|
|
$
|
(7,073
|
)
|
|
|
|
(a) |
|
We recorded transaction (losses) gains associated with the
re-measurement of our foreign denominated assets and liabilities
of $(1.2) million and $8.9 million in the three months
ended June 30, 2010 and June 30, 2009, respectively,
and $(9.2) million and $7.1 million in the six months
ended June 30, 2010 and June 30, 2009, respectively.
Transaction (losses) gains are included in selling, general and
administrative expense in our condensed consolidated statements
of operations. The net impact of transaction (losses) gains
associated with the re-measurement of our foreign denominated
assets and liabilities and gains (losses) incurred on our
foreign currency hedges was a net gain of $0.8 million and
$1.9 million in the three months ended June 30, 2010
and June 30, 2009, respectively, and a net loss of
$(3.8) million in the six months ended June 30, 2010
and $0 in the six months ended June 30, 2009. |
23
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Net
Income (Loss) per Share
|
The following table presents the calculation of basic and
diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Net income (loss)
|
|
$
|
9,733
|
|
|
$
|
10,276
|
|
|
$
|
4,472
|
|
|
$
|
(325,880
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
0.12
|
|
|
$
|
0.05
|
|
|
$
|
(3.89
|
)
|
Diluted
|
|
$
|
0.09
|
|
|
$
|
0.12
|
|
|
$
|
0.04
|
|
|
$
|
(3.89
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
101,927,549
|
|
|
|
83,873,230
|
|
|
|
99,346,552
|
|
|
|
83,734,112
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
84,017
|
|
|
|
|
|
|
|
143,549
|
|
|
|
|
|
Restricted stock units
|
|
|
3,659,202
|
|
|
|
334,901
|
|
|
|
3,753,754
|
|
|
|
|
|
Restricted stock
|
|
|
401
|
|
|
|
531
|
|
|
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (a)
|
|
|
105,671,169
|
|
|
|
84,208,662
|
|
|
|
103,244,429
|
|
|
|
83,734,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Stock options, restricted stock, restricted stock units and PSUs
are not included in the calculation of diluted net loss per
share for the six months ended June 30, 2009 because we had
a net loss for the 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
income (loss) per share calculation above because they would
have had an antidilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
Antidilutive Equity Awards
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Stock options
|
|
|
2,655,638
|
|
|
|
4,430,466
|
|
|
|
2,655,638
|
|
|
|
4,430,466
|
|
Restricted stock units
|
|
|
334,963
|
|
|
|
2,079,308
|
|
|
|
388,535
|
|
|
|
2,977,671
|
|
Restricted stock
|
|
|
|
|
|
|
4,391
|
|
|
|
|
|
|
|
4,391
|
|
Performance-based restricted stock units
|
|
|
614,679
|
|
|
|
227,679
|
|
|
|
614,679
|
|
|
|
227,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,605,280
|
|
|
|
6,741,844
|
|
|
|
3,658,852
|
|
|
|
7,640,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
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 June 30, 2010 and
December 31, 2009, reflected in our condensed consolidated
balance sheets. We net settle amounts due to and from Travelport.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
(in thousands)
|
|
Due from Travelport, net
|
|
$
|
20,972
|
|
|
$
|
3,188
|
|
24
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 and six
months ended June 30, 2010 and June 30, 2009,
reflected in our condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net revenue (a)
|
|
$
|
31,738
|
|
|
$
|
33,432
|
|
|
$
|
63,675
|
|
|
$
|
63,031
|
|
Cost of revenue
|
|
|
114
|
|
|
|
243
|
|
|
|
261
|
|
|
|
243
|
|
Selling, general and administrative expense
|
|
|
140
|
|
|
|
250
|
|
|
|
163
|
|
|
|
724
|
|
Interest expense
|
|
|
841
|
|
|
|
870
|
|
|
|
1,786
|
|
|
|
1,856
|
|
|
|
|
(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, corporate travel agreement and
travel agent agreement.
Letters
of Credit
Travelport is 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 June 30, 2010 and
December 31, 2009, there were $68.5 million and
$59.3 million of outstanding letters of credit issued by
Travelport on our behalf, respectively (see
Note 9 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 6 Term Loan and Revolving
Credit Facility).
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. In addition, various Blackstone and TCV affiliates
utilize our partner marketing programs and corporate travel
services.
We have also entered into various outsourcing agreements with
Intelenet Global Services (Intelenet), an affiliate
of Blackstone, that provide us with call center and telesales,
back office administrative, information technology and financial
services. In April 2010, we entered into an agreement with
Intelenet pursuant to which Intelenet loaned us
$0.8 million to finance the cost of outsourcing customer
service functions for certain of our ebookers websites to
Intelenet. This loan is interest-free and is payable in equal
monthly installments beginning in October 2010 through its
maturity in March 2014.
25
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the related party balances with
affiliates of Blackstone and TCV as of June 30, 2010 and
December 31, 2009, reflected in our condensed consolidated
balance sheets:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
(in thousands)
|
|
Accounts receivable
|
|
$
|
47
|
|
|
$
|
62
|
|
Prepaid expenses
|
|
|
|
|
|
|
78
|
|
Accounts payable
|
|
|
6,208
|
|
|
|
5,432
|
|
Accrued expenses
|
|
|
2,254
|
|
|
|
2,461
|
|
Accrued merchant payable
|
|
|
7,866
|
|
|
|
6,131
|
|
Other current liabilities
|
|
|
171
|
|
|
|
|
|
Other non-current liabilities
|
|
|
629
|
|
|
|
|
|
The following table summarizes the related party transactions
with affiliates of Blackstone and TCV for the three and six
months ended June 30, 2010 and June 30, 2009,
reflected in our condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net revenue
|
|
$
|
5,872
|
|
|
$
|
4,933
|
|
|
$
|
10,541
|
|
|
$
|
7,661
|
|
Cost of revenue (a)
|
|
|
7,872
|
|
|
|
4,748
|
|
|
|
15,463
|
|
|
|
10,759
|
|
Selling, general and administrative expense (b)
|
|
|
738
|
|
|
|
864
|
|
|
|
1,430
|
|
|
|
1,862
|
|
|
|
|
(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 June 30,
2010 and June 30, 2009 and the six months ended
June 30, 2010 and June 30, 2009, $0.6 million,
$0.7 million, $1.2 million and $1.6 million,
respectively, represent costs incurred under our outsourcing
agreements with Intelenet for back office administrative,
information technology and financial services. |
26
ORBITZ
WORLDWIDE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
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 June 30, 2010 and
December 31, 2009, which are classified as 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
|
|
|
|
June 30, 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
|
|
|
|
June 30,
|
|
|
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 liabilities (see Note 12
Derivative Financial Instruments)
|
|
$
|
927
|
|
|
$
|
927
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,208
|
|
|
$
|
1,208
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap liabilities (see Note 12
Derivative Financial Instruments)
|
|
$
|
4,436
|
|
|
$
|
|
|
|
$
|
4,436
|
|
|
$
|
|
|
|
$
|
5,336
|
|
|
$
|
|
|
|
$
|
5,336
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We value our foreign currency hedges based on the difference
between the foreign currency contract rate and widely available
foreign currency rates as of the measurement date. Our foreign
currency hedges 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 first quarter of 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 was no longer obligated to provide us with
this in-kind marketing and promotional support after
June 1, 2010, we recorded a $1.7 million charge to
impair this asset (see Note 8 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 $492.0 million at
June 30, 2010, compared with a fair value of approximately
$461.1 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.
27
|
|
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 wide array 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 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. Under both the merchant and retail
business models, we may, depending upon the brand and the
product, earn revenue by charging customers a service fee for
booking their travel 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 display
advertising, performance-based advertising and other marketing
programs available on our websites. In addition, we generate
revenue from our private label business through revenue sharing
arrangements for travel booked on third-party websites. We also
have an airline hosting business which earns revenue through
licensing or fee arrangements.
Our strategic focus for 2010 is to drive global hotel
transaction growth, supporting our mission to become one of the
three primary hotel distribution platforms globally.
Specifically, we organize our hotel activities into three
categories: demand, supply and retailing.
Demand
We seek to generate demand through both
business-to-consumer
and
business-to-business
channels. In 2010, our goal is to further increase brand
awareness and loyalty so that consumers come directly to our
websites to book their travel. We are also focused on further
optimizing 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 work with our suppliers to provide our customers with a broad
range of highly competitive travel products and services on our
websites. In 2010, we are particularly focused on improving our
hotel infrastructure and supplier connectivity. We also intend
to expand our supply footprint in markets where online
penetration is low.
Retailing
We are focused on ways to improve our ability to convert website
visitors into customers. We are enhancing the customer shopping
experience on our websites by developing new tools and
technologies to
28
help users research options, by improving the quality of the
hotel content we make available (such as editorial descriptions,
photographs and user-generated reviews) and by developing
systems and technologies that will allow us to use historical
data to provide customers with more relevant search results. We
are also building upon our existing telesales capabilities to
drive incremental volume for higher margin travel products.
Industry
Trends
The recession significantly impacted the travel industry during
2009. Although the economy appeared to have stabilized or
slightly improved in the first half of 2010, there is still
uncertainty surrounding the timing and sustainability of a
recovery. As a result, we have limited visibility into when
travel industry fundamentals will fully recover.
In 2009, in response to lower demand for air travel, certain
domestic and international airlines reduced ticket prices to
drive volume and significantly reduced their capacity. In the
first half of 2010, airlines added back limited amounts of
capacity. There is uncertainty about when and to what extent
capacity will further increase. Consolidation in the airline
industry could put additional pressure on capacity.
Air fares increased significantly in the first half of 2010 in
response to improved demand for travel, particularly for
corporate travel. We expect air fares will remain above 2009
levels throughout the remainder of 2010. In general, OTCs
benefit from low air fares because low fares encourage leisure
travel, which represents the majority of our bookings, and our
air net revenue is primarily driven by the number of tickets we
sell rather than ticket prices.
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 has significantly reduced the net revenue that
OTCs generate from airline tickets. However, these fee cuts
resulted in a significant increase in airline tickets sold
through OTCs during the last three quarters of 2009 and the
first quarter of 2010. The anniversary of the air booking fee
removals on our websites was in early April 2010. As a result,
our air transaction growth rate slowed as we expected in the
second quarter of 2010.
Recently, fundamentals in the U.S. hotel industry have
begun to improve. In the first half of 2010, we saw a slight
year-over-year
increase in average daily rates (ADRs) for hotel
rooms booked on our websites. This is the first increase we have
seen in this metric since September 2008. Higher ADRs increase
the net revenue that OTCs earn on hotel bookings. Based on
recent trends, we expect ADRs will remain above 2009 levels for
the remainder of 2010. Fundamentals in the European and Asia
Pacific hotel markets have also modestly improved.
The recession also significantly impacted the car rental
industry last year. In 2009, car rental companies had limited
access to financing, which caused them to reduce their rental
car fleets. This reduction in rental car fleets resulted in a
significant increase in ADRs for domestic car rentals in 2009.
In the first half of 2010, fleet sizes remained fairly constant,
while ADRs declined year over year. There is uncertainty
surrounding rental car fleet sizes and the corresponding trends
in ADRs for car rentals for the remainder of 2010.
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 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. 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.
29
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
materially impacted our financial results for the second quarter
of 2010, it did result in lost revenue due to flight and hotel
cancellations, higher customer service costs and higher customer
refunds.
RESULTS
OF OPERATIONS
Key
Operating Metrics
Our operating results are driven by certain key metrics, which
include transaction growth, hotel room night growth, gross
bookings and net revenue. Transaction growth is defined as the
year-over-year
change in transactions booked on our websites. 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 gross bookings, net revenue,
transaction growth and hotel room night growth for the three and
six months ended June 30, 2010 and June 30, 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.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
$
|
|
|
%
|
|
|
June 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Gross bookings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
$
|
2,073,924
|
|
|
$
|
1,714,962
|
|
|
$
|
358,962
|
|
|
|
21
|
%
|
|
$
|
3,890,061
|
|
|
$
|
3,136,013
|
|
|
$
|
754,048
|
|
|
|
24
|
%
|
Non-air
|
|
|
584,194
|
|
|
|
553,532
|
|
|
|
30,662
|
|
|
|
6
|
%
|
|
|
1,205,454
|
|
|
|
1,147,560
|
|
|
|
57,894
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total domestic gross bookings
|
|
|
2,658,118
|
|
|
|
2,268,494
|
|
|
|
389,624
|
|
|
|
17
|
%
|
|
|
5,095,515
|
|
|
|
4,283,573
|
|
|
|
811,942
|
|
|
|
19
|
%
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
|
274,593
|
|
|
|
222,218
|
|
|
|
52,375
|
|
|
|
24
|
%
|
|
|
590,700
|
|
|
|
448,350
|
|
|
|
142,350
|
|
|
|
32
|
%
|
Non-air
|
|
|
144,928
|
|
|
|
129,252
|
|
|
|
15,676
|
|
|
|
12
|
%
|
|
|
321,667
|
|
|
|
253,413
|
|
|
|
68,254
|
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international gross bookings
|
|
|
419,521
|
|
|
|
351,470
|
|
|
|
68,051
|
|
|
|
19
|
%
|
|
|
912,367
|
|
|
|
701,763
|
|
|
|
210,604
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross bookings (a)
|
|
$
|
3,077,639
|
|
|
$
|
2,619,964
|
|
|
$
|
457,675
|
|
|
|
17
|
%
|
|
$
|
6,007,882
|
|
|
$
|
4,985,336
|
|
|
$
|
1,022,546
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
$
|
53,867
|
|
|
$
|
53,577
|
|
|
$
|
290
|
|
|
|
1
|
%
|
|
$
|
106,713
|
|
|
$
|
119,640
|
|
|
$
|
(12,927
|
)
|
|
|
(11
|
)%
|
Non-air
|
|
|
97,443
|
|
|
|
95,465
|
|
|
|
1,978
|
|
|
|
2
|
%
|
|
|
188,592
|
|
|
|
186,423
|
|
|
|
2,169
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total domestic net revenue
|
|
|
151,310
|
|
|
|
149,042
|
|
|
|
2,268
|
|
|
|
2
|
%
|
|
|
295,305
|
|
|
|
306,063
|
|
|
|
(10,758
|
)
|
|
|
(4
|
)%
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
|
16,996
|
|
|
|
15,389
|
|
|
|
1,607
|
|
|
|
10
|
%
|
|
|
35,775
|
|
|
|
30,654
|
|
|
|
5,121
|
|
|
|
17
|
%
|
Non-air
|
|
|
25,185
|
|
|
|
23,528
|
|
|
|
1,657
|
|
|
|
7
|
%
|
|
|
49,564
|
|
|
|
39,635
|
|
|
|
9,929
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international net revenue
|
|
|
42,181
|
|
|
|
38,917
|
|
|
|
3,264
|
|
|
|
8
|
%
|
|
|
85,339
|
|
|
|
70,289
|
|
|
|
15,050
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue (b)
|
|
$
|
193,491
|
|
|
$
|
187,959
|
|
|
$
|
5,532
|
|
|
|
3
|
%
|
|
$
|
380,644
|
|
|
$
|
376,352
|
|
|
$
|
4,292
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and hotel room night growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction growth (a)
|
|
|
5
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
Hotel room night growth
|
|
|
9
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In the second quarter of 2010, we revised our methodology for
calculating global gross bookings and transactions to reduce
these amounts for all cancellations made through our websites,
regardless of the cancellation date. Historically, we reported
these amounts net of
same-day
cancellations only. As a result, the prior period amounts in the
table above have been updated to reflect this new methodology,
which more closely corresponds with the way we report net
revenue and is consistent with how management now reviews global
gross bookings and transactions. |
|
(b) |
|
For the three months ended June 30, 2010 and June 30,
2009, $32.1 million and $31.6 million of our total net
revenue, respectively, was attributed to incentive payments
earned for air, car and hotel segments processed through GDSs.
For the six months ended June 30, 2010 and June 30,
2009, $65.2 million and $60.3 million of our total net
revenue, respectively, was attributed to incentive payments
earned for air, car and hotel segments processed through GDSs. |
Comparison
of the three months ended June 30, 2010 to the three months
ended June 30, 2009
Gross
Bookings
For our domestic business, which is comprised principally of
Orbitz, CheapTickets and Orbitz for Business, total gross
bookings increased $389.6 million, or 17%, for the three
months ended June 30, 2010 compared with the three months
ended June 30, 2009. Of the $389.6 million increase,
$359.0 million was due to an increase in domestic air gross
bookings, which was driven by a higher average price per airline
ticket and, to a much lesser extent, higher transaction volume.
The higher average price per airline ticket was primarily due to
higher average air fares.
31
Non-air gross bookings increased $30.6 million, or 6%, for
the three months ended June 30, 2010 compared with the
three months ended June 30, 2009. This increase was
primarily driven by higher gross bookings for hotels and car
rentals, partially offset by lower gross bookings for vacation
packages. Gross bookings for hotels increased primarily due to
higher transaction volume and, to a lesser extent, a higher
average price per transaction. The average price per transaction
increased due to an increase in ADRs, partially offset by a
significant reduction in hotel booking fees charged on our
websites and a lower average length of stay. Gross bookings for
car rentals increased due to higher transaction volume,
partially offset by a lower average price per transaction
primarily as a result of lower ADRs. Vacation package gross
bookings declined primarily due to lower volume, partially
offset by a higher average price per transaction as a result of
higher average air fares and hotel ADRs.
For our international business, which is comprised principally
of ebookers and HotelClub, total gross bookings increased
$68.1 million, or 19%, for the three months ended
June 30, 2010 compared with the three months ended
June 30, 2009. Foreign currency fluctuations decreased
international gross bookings by $1.2 million. Of the
remaining $69.3 million increase, $60.9 million was
due to an increase in air gross bookings and $8.4 million
was due to an 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 as a result of a shift towards short-haul flights and
markets where average booking values are lower.
The $8.4 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, improvements in our European
hotel supply offering and higher investments in online marketing.
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 two percentage points,
from 3%
year-over-year
growth in the three months ended June 30, 2009 to 5%
year-over-year
growth in the three months ended June 30, 2010. Our stayed
hotel room night growth rate accelerated seven percentage
points, from 2%
year-over-year
growth in the three months ended June 30, 2009 to 9%
year-over-year
growth in the three months ended June 30, 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 and our continued focus on
driving global hotel transaction growth. In April 2009, we
removed most air booking fees 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. At
ebookers, the strength of our new technology platform,
improvements in our European supply offering and higher
investments in online marketing have helped to accelerate our
transaction and stayed hotel room night growth rates. As we
passed the anniversary of the removal of most domestic air
booking fees in April 2010, our transaction growth rates have
slowed.
32
Comparison of the six months ended June 30, 2010 to the
six months ended June 30, 2009
Gross
Bookings
For our domestic business, total gross bookings increased
$811.9 million, or 19%, for the six months ended
June 30, 2010 compared with the six months ended
June 30, 2009. Of the $811.9 million increase,
$754.0 million was due to an increase in domestic air gross
bookings, which was driven by higher transaction volume and a
higher average price per airline ticket. Transaction volume
increased primarily due to the removal of most domestic air
booking fees in April 2009. The higher average price per airline
ticket was primarily due to higher average air fares.
Non-air gross bookings increased $57.9 million, or 5%, for
the six months ended June 30, 2010 compared with the six
months ended June 30, 2009. This increase was primarily
driven by higher gross bookings for hotels and car rentals,
partially offset by lower gross bookings for vacation packages.
Gross bookings for hotels increased primarily due to higher
transaction volume. Gross bookings for car rentals increased due
to higher transaction volume, partially offset by a lower
average price per transaction as a result of lower ADRs.
Vacation package gross bookings declined primarily due to lower
volume, partially offset by a higher average price per
transaction as a result of higher average air fares.
For our international business, total gross bookings increased
$210.6 million, or 30%, for the six months ended
June 30, 2010 compared with the six months ended
June 30, 2009. Of this increase, $41.8 million was due
to foreign currency fluctuations. The remaining
$168.8 million increase was due to a $134.3 million
increase in air gross bookings and a $34.5 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 as a result of a
shift towards short-haul flights and markets where average
booking values are lower.
The $34.5 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, improvements in our European
hotel supply offering and higher investments in online marketing.
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 16 percentage points,
from negative 4%
year-over-year
growth in the six months ended June 30, 2009 to positive
12%
year-over-year
growth in the six months ended June 30, 2010. Our stayed
hotel room night growth rate accelerated 11 percentage
points, from flat
year-over-year
growth in the six months ended June 30, 2009 to 11%
year-over-year
growth in the six months ended June 30, 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 and our continued focus on
driving global hotel transaction growth. In April 2009, we
removed most air booking fees 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. At
ebookers, the strength of our new technology platform,
improvements in our European supply offering and higher
investments in online marketing have helped to accelerate our
transaction and stayed hotel room night growth
33
rates. As we passed the anniversary of the removal of most
domestic air booking fees in April 2010, our transaction growth
rates have slowed.
Results
of Operations
Comparison
of the three months ended June 30, 2010 to the three months
ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
$
|
70,863
|
|
|
$
|
68,966
|
|
|
$
|
1,897
|
|
|
|
3
|
%
|
Hotel
|
|
|
52,105
|
|
|
|
46,074
|
|
|
|
6,031
|
|
|
|
13
|
%
|
Vacation package
|
|
|
31,161
|
|
|
|
31,492
|
|
|
|
(331
|
)
|
|
|
(1
|
)%
|
Advertising and media
|
|
|
12,420
|
|
|
|
14,289
|
|
|
|
(1,869
|
)
|
|
|
(13
|
)%
|
Other
|
|
|
26,942
|
|
|
|
27,138
|
|
|
|
(196
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
193,491
|
|
|
|
187,959
|
|
|
|
5,532
|
|
|
|
3
|
%
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
37,349
|
|
|
|
34,099
|
|
|
|
3,250
|
|
|
|
10
|
%
|
Selling, general and administrative
|
|
|
59,635
|
|
|
|
59,496
|
|
|
|
139
|
|
|
|
|
|
Marketing
|
|
|
55,282
|
|
|
|
53,558
|
|
|
|
1,724
|
|
|
|
3
|
%
|
Depreciation and amortization
|
|
|
19,683
|
|
|
|
18,284
|
|
|
|
1,399
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
171,949
|
|
|
|
165,437
|
|
|
|
6,512
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
21,542
|
|
|
|
22,522
|
|
|
|
(980
|
)
|
|
|
(4
|
)%
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(10,943
|
)
|
|
|
(14,598
|
)
|
|
|
3,655
|
|
|
|
(25
|
)%
|
Other income
|
|
|
417
|
|
|
|
2,148
|
|
|
|
(1,731
|
)
|
|
|
(81
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense)
|
|
|
(10,526
|
)
|
|
|
(12,450
|
)
|
|
|
1,924
|
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11,016
|
|
|
|
10,072
|
|
|
|
944
|
|
|
|
9
|
%
|
Provision (benefit) for income taxes
|
|
|
1,283
|
|
|
|
(204
|
)
|
|
|
1,487
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,733
|
|
|
$
|
10,276
|
|
|
$
|
(543
|
)
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
19
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
31
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
Marketing expense
|
|
|
29
|
%
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue increased $5.5 million, or 3%, for the three
months ended June 30, 2010 compared with the three months
ended June 30, 2009.
Air. Net revenue from air bookings increased
$1.9 million, or 3%, for the three months ended
June 30, 2010 compared with the three months ended
June 30, 2009. Foreign currency fluctuations decreased air
net revenue by $0.5 million. The increase in net revenue
from air bookings, excluding the impact of foreign currency
fluctuations, was $2.4 million.
Domestic air net revenue increased $0.2 million due to
higher transaction volume and $0.1 million due to higher
average net revenue per airline ticket.
34
International air net revenue increased $2.1 million
(excluding the impact of foreign currency fluctuations)
primarily due to higher transaction volume, offset by lower
average net revenue per airline ticket. Lower average net
revenue per airline ticket was primarily driven by a shift in
air bookings towards markets where average booking values are
lower and where we earn lower margins, and lower air override
revenue. Air override revenue represents additional commission
received from suppliers when certain volume levels are achieved.
Hotel. Net revenue from hotel bookings
increased $6.0 million, or 13%, for the three months ended
June 30, 2010 compared with the three months ended
June 30, 2009. Foreign currency fluctuations drove
$1.7 million of this increase. The increase in net revenue
from hotel bookings, excluding the impact of foreign currency
fluctuations, was $4.3 million.
Higher transaction volume, primarily due to improvements to our
overall customer value proposition and our continued focus on
driving global hotel transaction growth, resulted in a
$4.9 million increase in domestic hotel net revenue. Higher
average net revenue per transaction increased domestic hotel net
revenue by $0.1 million.
The decrease in international hotel net revenue of
$0.7 million (excluding the impact of foreign currency
fluctuations) was primarily due to 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. Higher volume and higher
average net revenue per hotel transaction for our ebookers brand
partially offset the decrease. Higher volume was driven by
improved functionality as a result of our new technology
platform in Europe, improvements to our European hotel supply
offering and higher investments in online marketing.
Vacation package. Net revenue from vacation
package bookings decreased $0.3 million, or 1%, for the
three months ended June 30, 2010 compared with the three
months ended June 30, 2009. Foreign currency fluctuations
decreased vacation package net revenue by $0.1 million. The
decrease in net revenue from vacation package bookings,
excluding the impact of foreign currency fluctuations, was
$0.2 million.
Lower transaction volume drove a $4.2 million decrease in
domestic net revenue from vacation packages. Volume for vacation
packages decreased primarily due to a higher average price per
package year-over-year in the second quarter of 2010. This
decline was partially offset by a $1.8 million increase in
domestic net revenue from vacation packages due to higher
average net revenue per transaction, which resulted from higher
average air fares and higher ADRs, partially offset by lower
hotel breakage revenue.
International net revenue from vacation packages (excluding the
impact of foreign currency fluctuations) increased
$2.2 million primarily due to higher average net revenue
per transaction and, to a lesser extent, higher transaction
volume.
Advertising and media. Advertising and media
net revenue decreased $1.9 million, or 13%, for the three
months ended June 30, 2010 compared with the three months
ended June 30, 2009. This decrease is primarily due to a
decline in net revenue from membership discount programs which
we discontinued on our domestic websites effective
March 31, 2010. We do not expect to generate any material
revenue from third party membership discount programs on our
websites in the future. During the three months ended
June 30, 2009, revenue from third party membership discount
programs we offered on our domestic websites was
$3.9 million.
Other. Other net revenue is comprised
primarily of net revenue from car bookings, cruise bookings,
destination services, travel insurance and our airline hosting
business. Other net revenue decreased $0.2 million, or 1%,
for the three months ended June 30, 2010 compared with the
three months ended June 30, 2009. Foreign currency
fluctuations decreased other net revenue by $0.2 million.
Excluding the impact of foreign currency fluctuations, other net
revenue was flat year-over-year.
35
Global travel insurance revenue increased due to a higher
attachment rate and higher average air fares. This increase was
offset by a decline in net revenue from our airline hosting
business due to the termination of one of our hosting agreements
in 2010.
Cost of
Revenue
Our cost of revenue is primarily comprised of costs to operate
our customer service call centers, credit card processing fees,
customer refunds and charge-backs, affiliate commissions and
connectivity and other processing costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer service costs
|
|
$
|
14,463
|
|
|
$
|
13,209
|
|
|
$
|
1,254
|
|
|
|
9
|
%
|
Credit card processing fees
|
|
|
10,917
|
|
|
|
9,652
|
|
|
|
1,265
|
|
|
|
13
|
%
|
Other
|
|
|
11,969
|
|
|
|
11,238
|
|
|
|
731
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
37,349
|
|
|
$
|
34,099
|
|
|
$
|
3,250
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in cost of revenue was primarily driven by a
$1.3 million increase in customer service costs, a
$1.3 million increase in credit card processing costs and a
$0.4 million increase in customer refunds and charge-backs.
Customer service costs increased primarily due to higher
customer service staffing levels required to support the higher
volume of air transactions since we eliminated most air booking
fees on our domestic websites in April 2009. Our customer
service staffing levels were lower in the second quarter of 2009
compared with the second quarter of 2010, as it took us several
months to increase staffing levels at our call centers to
support the sharply higher transaction volumes we experienced
following these fee removals. Customer service costs also
increased due to higher call volumes as a result of the travel
disruptions caused by the volcano eruption in Iceland in April
2010. The increase in credit card processing costs was primarily
driven by an increase in our merchant hotel gross bookings
during the second quarter of 2010. Customer refunds increased
primarily as a result of the volcano eruption.
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
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages and benefits (a)
|
|
$
|
40,305
|
|
|
$
|
39,798
|
|
|
$
|
507
|
|
|
|
1
|
%
|
Contract labor (a)
|
|
|
4,576
|
|
|
|
5,672
|
|
|
|
(1,096
|
)
|
|
|
(19
|
)%
|
Network communications, systems maintenance and equipment
|
|
|
6,152
|
|
|
|
6,731
|
|
|
|
(579
|
)
|
|
|
(9
|
)%
|
Other
|
|
|
8,602
|
|
|
|
7,295
|
|
|
|
1,307
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative
|
|
$
|
59,635
|
|
|
$
|
59,496
|
|
|
$
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts presented above for wages and benefits and contract
labor are net of amounts capitalized. |
36
The increase in selling, general and administrative expense was
primarily driven by a $1.1 million decrease in net foreign
currency gains, a $0.6 million increase in travel expenses
and a $0.5 million increase in wages and benefits expense,
partially offset by a $1.1 million decrease in contract
labor costs, a $0.6 million decrease in network
communications, systems maintenance and equipment costs and a
$0.6 million decrease in audit fees.
Wages and benefits increased as a result of additional
equity-based compensation expense incurred due to the
acceleration of expense for certain equity-based awards during
the second quarter of 2010. The increase in wages and benefits
was partially offset by lower severance expense and a decrease
in employee incentive compensation expense. 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 increased $1.7 million, or 3%, for the three months
ended June 30, 2010 compared with the three months ended
June 30, 2009. The increase in marketing expense was
primarily due to a more aggressive online marketing strategy for
our ebookers brand, which resulted in higher transactions and a
higher cost per transaction. Offline marketing costs were
relatively flat year-over-year.
Depreciation
and Amortization
Depreciation and amortization increased $1.4 million, or
8%, for the three months ended June 30, 2010 compared with
the three months ended June 30, 2009. The increase in
depreciation and amortization was primarily due to the
acceleration of depreciation on certain assets whose useful
lives were shortened during the three months ended June 30,
2010, and to a lesser extent, due to additional assets placed in
service during the period.
Net
Interest Expense
Net interest expense decreased by $3.7 million, or 25%, for
the three months ended June 30, 2010 compared with the
three months ended June 30, 2009. The decrease in net
interest expense was primarily due to lower interest expense
incurred on the Term Loan, which was primarily driven by both
lower interest rates and lower amounts outstanding. During the
three months ended June 30, 2010 and June 30, 2009,
$4.0 million and $3.9 million of the total net
interest expense recorded was non-cash, respectively.
Other
Income
Other income decreased by $1.7 million, or 81%, for the
three months ended June 30, 2010 compared with the three
months ended June 30, 2009 due to a decrease in the net
gain on Term Loan repurchases. During the three months ended
June 30, 2010, we recorded a $0.4 million gain on
extinguishment of a portion of the Term Loan compared with a
$2.2 million gain on extinguishment of a portion of the
Term Loan during the three months ended June 30, 2009 (see
Note 6 Term Loan and Revolving Credit Facility
of the Notes to Condensed Consolidated Financial Statements).
Provision
(Benefit) for Income Taxes
We recorded a tax provision of $1.3 million for the three
months ended June 30, 2010 and a tax benefit of
$0.2 million for the three months ended June 30, 2009,
respectively. The provision for income taxes for the three
months ended June 30, 2010 was primarily due to the state
income tax and the U.S. federal alternative minimum tax
effects on the income of our domestic operations. The benefit
for income taxes for the three months ended June 30, 2009
includes the tax effect of the net income or net loss of those
subsidiaries that had not established valuation allowances.
37
Comparison
of the six months ended June 30, 2010 to the six months
ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
|
|
$
|
142,488
|
|
|
$
|
150,294
|
|
|
$
|
(7,806
|
)
|
|
|
(5
|
)%
|
Hotel
|
|
|
95,573
|
|
|
|
85,515
|
|
|
|
10,058
|
|
|
|
12
|
%
|
Vacation package
|
|
|
59,014
|
|
|
|
60,397
|
|
|
|
(1,383
|
)
|
|
|
(2
|
)%
|
Advertising and media
|
|
|
24,638
|
|
|
|
28,295
|
|
|
|
(3,657
|
)
|
|
|
(13
|
)%
|
Other
|
|
|
58,931
|
|
|
|
51,851
|
|
|
|
7,080
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
380,644
|
|
|
|
376,352
|
|
|
|
4,292
|
|
|
|
1
|
%
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
75,599
|
|
|
|
69,455
|
|
|
|
6,144
|
|
|
|
9
|
%
|
Selling, general and administrative
|
|
|
123,425
|
|
|
|
125,924
|
|
|
|
(2,499
|
)
|
|
|
(2
|
)%
|
Marketing
|
|
|
112,939
|
|
|
|
117,827
|
|
|
|
(4,888
|
)
|
|
|
(4
|
)%
|
Depreciation and amortization
|
|
|
38,669
|
|
|
|
32,672
|
|
|
|
5,997
|
|
|
|
18
|
%
|
Impairment of other assets
|
|
|
1,704
|
|
|
|
|
|
|
|
1,704
|
|
|
|
**
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
331,527
|
|
|
|
(331,527
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
352,336
|
|
|
|
677,405
|
|
|
|
(325,069
|
)
|
|
|
(48
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
28,308
|
|
|
|
(301,053
|
)
|
|
|
329,361
|
|
|
|
**
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(22,254
|
)
|
|
|
(29,111
|
)
|
|
|
6,857
|
|
|
|
(24
|
)%
|
Other income
|
|
|
18
|
|
|
|
2,113
|
|
|
|
(2,095
|
)
|
|
|
(99
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense)
|
|
|
(22,236
|
)
|
|
|
(26,998
|
)
|
|
|
4,762
|
|
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
6,072
|
|
|
|
(328,051
|
)
|
|
|
334,123
|
|
|
|
**
|
|
Provision (benefit) for income taxes
|
|
|
1,600
|
|
|
|
(2,171
|
)
|
|
|
3,771
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,472
|
|
|
$
|
(325,880
|
)
|
|
$
|
330,352
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
20
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
32
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
Marketing expense
|
|
|
30
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
38
Net
Revenue
Net revenue increased $4.3 million, or 1%, for the six
months ended June 30, 2010 compared with the six months
ended June 30, 2009.
Air. Net revenue from air bookings decreased
$7.8 million, or 5%, for the six months ended June 30,
2010 compared with the six months ended June 30, 2009.
Foreign currency fluctuations increased air net revenue by
$0.8 million. The decrease in net revenue from air
bookings, excluding the impact of foreign currency fluctuations,
was $8.6 million.
Domestic air net revenue declined $23.9 million due to
lower average net revenue per airline ticket, driven primarily
by the elimination of most air booking fees on our domestic
websites in April 2009. This was partially offset by higher net
revenue per ticket from merchant air transactions and higher
commissions from those airlines with variable commission
structures, both of which resulted from higher average air
fares. This decline was partially offset by an
$11.0 million increase in domestic air net revenue due to
higher transaction volume, which was primarily driven by the
removal of booking fees.
International air net revenue increased $4.3 million
(excluding the impact of foreign currency fluctuations)
primarily due to higher transaction volume, offset by lower
average net revenue per airline ticket. Lower average net
revenue per airline ticket was primarily driven by lower air
override revenue and a shift in air bookings towards markets
where average booking values are lower and where we earn lower
margins.
Hotel. Net revenue from hotel bookings
increased $10.1 million, or 12%, for the six months ended
June 30, 2010 compared with the six months ended
June 30, 2009. Foreign currency fluctuations drove
$4.9 million of this increase. The increase in net revenue
from hotel bookings, excluding the impact of foreign currency
fluctuations, was $5.2 million.
Higher transaction volume, primarily due to improvements to our
overall customer value proposition and our continued focus on
driving global hotel transaction growth, resulted in a
$10.1 million increase in domestic hotel net revenue. The
increase in domestic hotel net revenue was partially offset by a
$5.2 million decrease due to lower average net revenue per
hotel transaction driven by a significant reduction in hotel
booking fees charged on our domestic websites and lower hotel
breakage revenue, partially offset by a reduction in promotional
activity and more timely receipt of customer refund
reimbursements from hotels.
The increase in international hotel net revenue of
$0.3 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 higher hotel breakage
revenue. 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 package. Net revenue from vacation
package bookings decreased $1.4 million, or 2%, for the six
months ended June 30, 2010 compared with the six months
ended June 30, 2009. Foreign currency fluctuations
increased vacation package net revenue by $0.1 million. The
decrease in net revenue from vacation package bookings,
excluding the impact of foreign currency fluctuations, was
$1.5 million.
Lower transaction volume drove a $6.0 million decrease in
domestic net revenue from vacation packages. Volume for vacation
packages decreased due in part to a higher average price per
package
year-over-year
in the first half of 2010. This decline was partially offset by
a $1.1 million increase in domestic vacation package net
revenue due to higher average net revenue per transaction, which
resulted primarily from higher average air fares and higher
ADRs, partially offset by lower hotel breakage revenue.
39
International net revenue from vacation packages (excluding the
impact of foreign currency fluctuations) increased
$3.4 million due to higher transaction volume and higher
average net revenue per transaction.
Advertising and media. Advertising and media
net revenue decreased $3.7 million, or 13%, for the six
months ended June 30, 2010 compared with the six months
ended June 30, 2009. This decrease is primarily due to a
decline in net revenue from membership discount programs which
we discontinued on our domestic websites effective
March 31, 2010. We do not expect to generate any material
revenue from third party membership discount programs on our
websites in the future. During the six months ended
June 30, 2009, revenue from third party membership discount
programs we offered on our domestic websites was
$7.2 million.
Other. Other net revenue increased
$7.1 million, or 14%, for the six months ended
June 30, 2010 compared with the six months ended
June 30, 2009. Foreign currency fluctuations increased
other net revenue by $0.2 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 and domestic car
net revenue 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, a higher attachment rate and higher average
air fares. The increase in domestic car net revenue was
primarily driven by higher volume. These increases were offset
by a decline in net revenue from our airline hosting business
due to the termination of one of our hosting agreements in 2010.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer service costs
|
|
$
|
28,876
|
|
|
$
|
25,779
|
|
|
$
|
3,097
|
|
|
|
12
|
%
|
Credit card processing fees
|
|
|
22,643
|
|
|
|
20,326
|
|
|
|
2,317
|
|
|
|
11
|
%
|
Other
|
|
|
24,080
|
|
|
|
23,350
|
|
|
|
730
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
75,599
|
|
|
$
|
69,455
|
|
|
$
|
6,144
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in cost of revenue was primarily driven by a
$3.1 million increase in customer service costs, a
$2.3 million increase in credit card processing costs and a
$1.6 million increase in customer refunds and charge-backs,
partially offset by a $1.1 million decrease in connectivity
and processing costs.
Customer service costs increased primarily due to higher
customer service staffing levels required to support the higher
volume of air transactions since we eliminated most air booking
fees on our domestic websites in April 2009. Our customer
service staffing levels were also lower in the first half of
2009 compared with the first half of 2010, as it took us several
months to increase staffing levels at our call centers to
support the sharply higher transaction volumes we experienced
following these fee removals. Customer service costs also
increased due to higher call volumes as a result of the travel
disruptions caused by the volcano eruption in Iceland in April
2010. The increase in credit card processing costs and customer
refunds and charge-backs was primarily due to higher merchant
hotel gross bookings in the first half of 2010. Customer refunds
also increased as a result of the volcano eruption. Connectivity
and processing costs decreased primarily due to more favorable
pricing terms with one of our GDS providers.
40
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages and benefits (a)
|
|
$
|
77,107
|
|
|
$
|
80,418
|
|
|
$
|
(3,311
|
)
|
|
|
(4
|
)%
|
Contract labor (a)
|
|
|
9,213
|
|
|
|
10,915
|
|
|
|
(1,702
|
)
|
|
|
(16
|
)%
|
Network communications, systems maintenance and equipment
|
|
|
12,682
|
|
|
|
13,943
|
|
|
|
(1,261
|
)
|
|
|
(9
|
)%
|
Other
|
|
|
24,423
|
|
|
|
20,648
|
|
|
|
3,775
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative
|
|
$
|
123,425
|
|
|
$
|
125,924
|
|
|
$
|
(2,499
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $3.3 million decrease in wages and
benefits expense, a $1.7 million decrease in contract labor
costs, a $1.3 million decrease in network communications,
systems maintenance and equipment costs and a $0.6 million
decrease in bad debt expense, partially offset by a
$3.8 million increase in foreign currency losses and
hedging costs and a $1.0 million increase in legal expenses.
Wages and benefits decreased due to lower severance and lower
employee incentive compensation expense. Contract labor and
network communications, systems maintenance and equipment costs
declined due to cost cutting efforts undertaken by us. Legal
expenses increased primarily due to accruals established related
to certain legal proceedings.
Marketing
Marketing expense decreased $4.9 million, or 4%, for the
six months ended June 30, 2010 compared with the six months
ended June 30, 2009. The decrease in marketing expense 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 shift in the timing of our marketing spending in 2010
relative to 2009.
Depreciation
and Amortization
Depreciation and amortization increased $6.0 million, or
18%, for the six months ended June 30, 2010 compared with
the six months ended June 30, 2009. The increase in
depreciation and amortization was due in part to additional
assets placed in service and the acceleration of depreciation on
certain assets whose useful lives were shortened during the six
months ended June 30, 2010.
41
Impairment
of Other Assets
During the six months ended June 30, 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 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 was no longer
obligated to provide us with in-kind marketing and promotional
support after June 1, 2010 (see Note 8
Unfavorable Contracts of the Notes to Condensed Consolidated
Financial Statements). There was no similar impairment charge
recorded during the six months ended June 30, 2009.
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.
There was no similar impairment charge recorded during the six
months ended June 30, 2010. Due to the current economic
uncertainty and other factors, particularly if the performance
of HotelClub deteriorates, we cannot assure that goodwill,
indefinite-lived intangible assets and finite-lived intangible
assets will not be impaired in future periods.
Net
Interest Expense
Net interest expense decreased by $6.9 million, or 24%, for
the six months ended June 30, 2010 compared with the six
months ended June 30, 2009. The decrease in net interest
expense was primarily due to lower interest expense incurred on
the Term Loan, which was primarily driven by both lower interest
rates and lower amounts outstanding. During the six months ended
June 30, 2010 and June 30, 2009, $8.0 million and
$8.1 million of the total net interest expense recorded was
non-cash, respectively.
Other
Income
Other income decreased by $2.1 million, or 99%, for the six
months ended June 30, 2010 compared with the six months
ended June 30, 2009 due to a decrease in the net gain on
Term Loan repurchases. During the six months ended June 30,
2010, we recorded a net gain of $0 on the extinguishment of a
portion of the Term Loan compared with a $2.2 million gain
on extinguishment of a portion of the Term Loan during the six
months ended June 30, 2009 (see Note 6
Term Loan and Revolving Credit Facility of the Notes to
Condensed Consolidated Financial Statements).
Provision
(Benefit) for Income Taxes
We recorded a tax provision of $1.6 million during the six
months ended June 30, 2010 compared with a tax benefit of
$2.2 million for the six months ended June 30, 2009.
The provision for income taxes for the six months ended
June 30, 2010 was primarily due to the state income tax and
the U.S. federal alternative minimum tax effects on the
income of our domestic operations.
The tax benefit recorded for the six months ended June 30,
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. The benefit for income taxes for the six
months ended June 30, 2009 only includes the tax effect of
the net income or net loss of those subsidiaries that had not
established valuation allowances.
42
Related
Party Transactions
For a discussion of certain relationships and related party
transactions, see Note 14 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.
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 June 30, 2010 and December 31, 2009, our
cash and cash equivalents balances were $144.5 million and
$88.7 million, respectively. We had $64.0 million and
$25.8 million of availability under the Revolver at
June 30, 2010 and December 31, 2009, respectively.
Total available liquidity from cash and cash equivalents and the
Revolver was $208.5 million and $114.5 million at
June 30, 2010 and December 31, 2009, respectively.
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 June 30, 2010 and
December 31, 2009, there were $68.5 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 June 30, 2010 and
December 31, 2009, there were the equivalent of
$8.5 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. If we are unable to
effectively continue to offset the impact of these 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
43
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 the Term Loan for 8,141,402 shares of
our common stock. We immediately retired the portion of the Term
Loan purchased from PAR in accordance with the Amendment to the
Credit Agreement that we entered into in June 2009.
Concurrently, Travelport purchased 9,025,271 shares of our
common stock for $50.0 million in cash (see
Note 6 Term Loan and Revolving Credit Facility
of the Notes to Condensed Consolidated Financial Statements). We
used a portion of the proceeds from Travelports stock
purchase to purchase an additional $14.0 million aggregate
principal amount of the Term Loan in May 2010. We intend to use
the remaining proceeds from Travelports stock purchase for
general corporate purposes.
As of June 30, 2010, we had a working capital deficit of
$234.9 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 six months
ended June 30, 2010, despite experiencing net losses in
some of these periods, 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 $36.0 million and
$42.0 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.
44
Cash
Flows
Our net cash flows from operating, investing and financing
activities for the periods indicated in the tables below were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Beginning cash and cash equivalents
|
|
$
|
88,656
|
|
|
$
|
31,193
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
114,660
|
|
|
|
98,795
|
|
Investing activities
|
|
|
(18,013
|
)
|
|
|
(20,544
|
)
|
Financing activities
|
|
|
(38,494
|
)
|
|
|
20,563
|
|
Effect of changes in exchange rates on cash and cash equivalents
|
|
|
(2,289
|
)
|
|
|
1,380
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
55,864
|
|
|
|
100,194
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
144,520
|
|
|
$
|
131,387
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Cash provided by operating activities consists of our net income
(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 $114.7 million
for the six months ended June 30, 2010 compared with
$98.8 million for the six months ended June 30, 2009.
The increase in operating cash flow was mainly due to higher
merchant gross bookings in the first half of 2010 compared with
the first half of 2009, improvements in our overall marketing
efficiency and a decrease in cash interest payments. This
increase was partially offset by the elimination of most air
booking fees and the significant reduction of hotel booking fees
in April 2009 as well as changes in the timing of payments
received from vendors. In addition, during the first half of
2010, we made payments related to employee incentive
compensation costs accrued in 2009. There were no such payments
made in the first half of 2009.
Investing
Activities
Cash flow used in investing activities decreased
$2.5 million, to $18.0 million for the six months
ended June 30, 2010 from $20.5 million for the six
months ended June 30, 2009 due to lower capital spending.
Financing
Activities
Cash flow used in financing activities was $38.5 million
for the six months ended June 30, 2010 compared with cash
flow provided by financing activities of $20.6 million for
the six months ended June 30, 2009. This change was
primarily due to a decrease in net borrowings made under the
Revolver, 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 and an increase in cash used to
repurchase portions of the Term Loan (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 proceeds received, net of issuance
costs, from the stock purchase by Travelport in January 2010
(see Note 6 Term Loan and Revolving Credit
Facility of the Notes to Condensed Consolidated Financial
Statements).
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
45
LIBOR or an alternative base rate plus a margin. At
June 30, 2010 and December 31, 2009,
$492.0 million and $576.6 million was outstanding on
the Term Loan, respectively. At June 30, 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 June 30, 2010 and December 31, 2009,
there were the equivalent of $8.5 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 the Amendment to the
Credit Agreement, which permitted us to purchase portions of the
outstanding Term Loan on a non-pro rata basis using cash up to
$10.0 million and 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 was retired
pursuant to the terms of the Amendment. During the six months
ended June 30, 2010, we purchased $63.6 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 June 30, 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 scheduled
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 $10.0 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 June 30,
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 June 30, 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
June 30, 2010 and December 31, 2009, there were
$68.5 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.
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 and our merchant hotel
business model. We believe that we have meritorious defenses,
and we are vigorously defending against these claims,
proceedings and inquiries (see Note 9
Commitments and Contingencies of the Notes to Condensed
Consolidated Financial Statements).
46
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 $2.0 million and
$1.6 million for the three months ended June 30, 2010
and June 30, 2009, respectively, and $3.3 million and
$3.1 million for the six months ended June 30, 2010
and June 30, 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 June 30, 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.
Contractual
Obligations
Our contractual obligations as of June 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 months)
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Term Loan (a)
|
|
$
|
|
|
|
$
|
9,956
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
482,065
|
|
|
$
|
|
|
|
$
|
492,021
|
|
Interest (b)
|
|
|
11,243
|
|
|
|
19,150
|
|
|
|
16,277
|
|
|
|
16,136
|
|
|
|
9,164
|
|
|
|
|
|
|
|
71,970
|
|
Tax sharing liability (c)
|
|
|
10,326
|
|
|
|
21,891
|
|
|
|
16,824
|
|
|
|
17,530
|
|
|
|
18,098
|
|
|
|
119,112
|
|
|
|
203,781
|
|
Telecommunications service agreement (d)
|
|
|
454
|
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
22,023
|
|
|
$
|
53,497
|
|
|
$
|
35,601
|
|
|
$
|
33,666
|
|
|
$
|
509,327
|
|
|
$
|
119,112
|
|
|
$
|
773,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 June 30, 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
June 30, 2010 and fixed interest payments under interest
rate swaps. |
|
(c) |
|
We expect to make approximately $203.8 million of payments
in connection with the tax sharing agreement with the Founding
Airlines (see Note 7 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 under the Revolver as of
December 31, 2009. There were no outstanding borrowings
under the Revolver at June 30, 2010.
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 9 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.
47
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 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 the Revolver. 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
foreign currency contracts utilized by us do not qualify for
hedge accounting treatment, and as a result, any fluctuations in
the value of these foreign currency 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 foreign currency 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 June 30, 2010 and December 31, 2009, we
had outstanding foreign currency contracts with net notional
values equivalent to $164.8 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 June 30, 2010 and December 31, 2009 was a
net translation gain of $3.9 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 June 30, 2010 to hedge fluctuations in LIBOR (see
Note 12 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.
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 June 30, 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
48
in quoted foreign currency exchange rates would be
$11.2 million at June 30, 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 June 30, 2010 and December 31,
2009, respectively, which represents the effect on annual
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 June 30, 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
June 30, 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 June 30, 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 or in our
Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2010, except as
described below.
Litigation
Relating to Hotel Occupancy Taxes
Hilton Head, South Carolina On April 2,
2010, the Town of Hilton Head Island, South Carolina filed a
complaint against Orbitz Worldwide, Orbitz.com, Orbitz, LLC,
Trip Network, Inc. (d/b/a Cheaptickets.com), Internetwork
Publishing Corp. (d/b/a Lodging.com), Travelport, Inc. (d/b/a
Cendant Travel Distribution Services Group, Inc.), The
Blackstone Group, Cendant Corporation and various other OTCs
asserting violations of the Beach Preservation Fee Ordinance,
the Local Accommodations Tax Ordinance, the Unfair Trade
Practices Act and equitable claims of conversion, imposition of
trust or constructive trust, unjust enrichment, demand for legal
accounting and civil conspiracy.
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.
City of Houston, Texas On April 21,
2010, the City of Houston, Texas filed its notice of appeal of
the District Court of Harris County, Texas order granting
the defendant Internet travel companies motion for summary
judgment with the Texas Court of Appeals.
City of Bowling Green, Kentucky On
April 30, 2010, the City of Bowling Green, Kentucky filed
its notice of appeal of the Circuit Court of Warren
Countys final order sustaining the defendant Internet
travel companies motion to dismiss with the Kentucky Court
of Appeals.
49
Baltimore County, Maryland On May 3,
2010, Baltimore County, Maryland filed a complaint against
Travelport Inc. (f/k/a Cendant Travel Distribution Services
Group, Inc.), Trip Network, Inc. (d/b/a Cheaptickets.com),
Cheaptickets, Inc., Orbitz, Inc. and Orbitz, LLC and various
other OTCs asserting violations of Baltimore Countys
Transient Occupancy Tax Code and equitable claims of conversion,
imposition of constructive trust, unjust enrichment/assumpsit,
declaratory judgment and injunctive relief.
City of Anaheim, California On May 7,
2010, the defendant Internet travel companies filed a motion for
judgment on the pleadings seeking a declaration that they are
not liable for transient occupancy taxes and a demurrer on the
City of Anaheims first amended cross-complaint.
City and County of San Francisco,
California On May 14, 2010, Orbitz, LLC,
Trip Network, Inc.
(d/b/a
Cheaptickets.com) and Internetwork Publishing Corp. (d/b/a
Lodging.com) along with the other defendant Internet travel
companies filed a Complaint for Tax Refund and Declaratory
Relief against the City and County of San Francisco.
Michigan Tax Cases On May 14, 2010, the
defendant Internet travel companies filed a Notice of
Plaintiffs Failure to Timely File Motion for
Class Certification.
City of San Diego, California On
May 28, 2010, the Hearing Officer issued his ruling on the
OTCs administrative appeal from the imposition of the
Transient Occupancy Tax assessed by the City of San Diego
finding that the OTCs are subject to the Transient Occupancy Tax.
Columbus, Georgia On June 8, 2010, the
parties reached a preliminary settlement agreement.
Worcester County, Maryland On June 25,
2010, the United States District Court for the District of
Maryland, following notice by the parties of the settlement of
the case, dismissed the case.
Monroe County, Florida On July 3, 2010,
following notice by the parties of a preliminary settlement
agreement, the United States District Court for the Southern
District of Florida removed the case from the trial calendar and
ordered that a proposed settlement agreement be provided to the
Court within 30 days.
South Carolina Consolidated Cases On
July 7, 2010, the defendant Internet travel companies
reached a preliminary settlement agreement with the plaintiffs
(the cities of Charleston, Mt. Pleasant and North Myrtle Beach,
South Carolina).
There have been no material changes from the risk factors
previously disclosed in our 2009 Annual Report on
Form 10-K.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
The following table sets forth repurchases of our common stock
during the second 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)
|
|
|
April 1, 2010 to April 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2010 to May 31, 2010
|
|
|
324
|
|
|
$
|
5.02
|
|
|
|
|
|
|
|
|
|
June 1, 2010 to June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
324
|
|
|
$
|
5.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 second quarter of 2010, we did not have a publicly
announced plan or program for the repurchase of our common stock. |
50
|
|
Item 3.
|
Defaults
Upon Senior Securities.
|
Not applicable.
|
|
Item 5.
|
Other
Information.
|
Not applicable.
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.1
|
|
Orbitz Worldwide, Inc. 2007 Equity and Incentive Plan, as
amended and restated, effective June 2, 2010 (incorporated
by reference to Exhibit 10.1 to the Orbitz Worldwide, Inc.
Current Report on
Form 8-K
filed on June 8, 2010).
|
|
10
|
.2
|
|
Form of Performance-Based Restricted Stock Unit Award Agreement
(Chief Executive Officer) (incorporated by reference to
Exhibit 10.2 to the Orbitz Worldwide, Inc. Current Report
on
Form 8-K
filed on June 8, 2010).
|
|
10
|
.3
|
|
Form of Performance-Based Restricted Stock Unit Award Agreement
(Executive Officers) (incorporated by reference to
Exhibit 10.3 to the Orbitz Worldwide, Inc. Current Report
on
Form 8-K
filed on June 8, 2010).
|
|
10
|
.4
|
|
Transition and Retirement Agreement and General Release, dated
as of June 8, 2010, between Orbitz Worldwide, Inc. and
Marsha Williams (incorporated by reference to Exhibit 10.1
to the Orbitz Worldwide, Inc. Current Report on
Form 8-K
filed on June 9, 2010).
|
|
10
|
.5
|
|
First Amended UltraDirect Services Schedule to the Master
Services Agreement, effective as of August 8, 2007, between
Pegasus Solutions, Inc. (Pegasus) and Orbitz
Worldwide, LLC.
|
|
10
|
.6
|
|
First Amended Pricing Schedule to the Master Services Agreement,
effective as of August 8, 2007, between Pegasus and Orbitz
Worldwide, LLC.
|
|
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. |
51
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: August 6, 2010
|
|
By:
/s/ Barney
Harford
Barney
Harford
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
Date: August 6, 2010
|
|
By:
/s/ Marsha
C. Williams
Marsha
C. Williams
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
Date: August 6, 2010
|
|
By:
/s/ John
W. Bosshart
John
W. Bosshart
Vice President of Global Accounting
(Principal Accounting Officer)
|
52