Orbitz 2009 Annual Report Download - page 41

key words has intensified in the past year. Increasing competition from supplier websites and the growing
significance of search and meta-search sites has contributed to the increase in online marketing costs. If this
trend continues, these rising costs could result in lower margins or declining transaction growth rates for
OTCs. We are actively pursuing tactics to optimize the results of our online marketing efforts by increasing
the value from existing traffic and by acquiring additional traffic that is more targeted and cost effective. These
tactics include pay-per-click optimization and search optimization efforts, loyalty programs and email
marketing that target customers with offers that correspond to their particular interests.
RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be
read in conjunction with our accompanying consolidated financial statements and related notes. The following
discussion and analysis covers periods both prior to and subsequent to the Blackstone Acquisition. The results
for the years ended December 31, 2008 and December 31, 2007 and for the period from August 23, 2006
through December 31, 2006 are presented on a Successor basis (reflecting Travelport’s ownership of us). The
financial statements for the period from January 1, 2006 through August 22, 2006 are presented on a
Predecessor basis (reflecting Cendant’s ownership of us). The discussion and analysis of historical periods
prior to August 23, 2006 does not reflect the impact that the Blackstone Acquisition had on our results,
including the effect of purchase accounting adjustments. Therefore, the combined results of the Successor and
the Predecessor for the periods in 2006 are not necessarily comparable. The presentation of the results for the
year ended December 31, 2006 on a combined basis does not comply with GAAP; however, we believe that
this provides useful information to assess the relative performance of our businesses in the periods presented
in the financial statements on an ongoing basis. The captions included within our statements of operations that
are materially impacted by this change in basis of accounting primarily include net revenue, depreciation and
amortization and impairment of goodwill and intangible assets. In accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 141, “Business Combinations,” at the date of the Blackstone Acquisition,
the assets and liabilities were recorded at their estimated fair values to reflect our portion of the overall
Blackstone Acquisition purchase price. This resulted in an increase in the value of intangible assets and a
corresponding increase in amortization expense.
Key Operating Metrics
Our operating results are affected by certain key metrics that represent overall transaction activity. Gross
bookings and net revenue are two key metrics. Gross bookings is defined as the total amount paid by a
consumer for transactions booked under both the retail and merchant models. Net revenue is defined as
commissions earned from suppliers under our retail model, the difference between the total amount the
customer pays us for a travel product and the negotiated net rate plus estimated taxes that the supplier charges
us for that travel product under our merchant model, service fees earned from customers under both our retail
and merchant models, as well as advertising revenue and certain other fees and commissions.
Gross bookings provide insight into changes in overall travel activity levels, changes in industry-wide
online booking activity, and more specifically, changes in the number of bookings through our websites. We
follow net revenue trends for our various brands, geographies and product categories to gain insight into the
performance of our business across these categories. Both metrics are important in determining the ongoing
growth of our business.
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