Orbitz 2009 Annual Report Download - page 53

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 continued 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 our $85 million revolving credit facility. At December 31, 2008 and December 31, 2007,
our cash and cash equivalents balances were $31 million and $25 million, respectively. We had $52 million
and $84 million of availability under our revolving credit facility at December 31, 2008 (reflective of the
effective reduction in total availability under our revolving credit facility in September 2008 as described
below) and December 31, 2007, respectively, reflecting total available liquidity from cash and cash equivalents
and our revolving credit facility of $83 million and $109 million at December 31, 2008 and 2007, respectively.
Prior to our IPO, our financing needs were supported by Travelport. We also require letters of credit to support
certain commercial agreements, leases and certain regulatory agreements. As of December 31, 2008,
substantially all of these letters of credit were issued by Travelport on our behalf under the terms of the
Separation Agreement we entered into with Travelport in connection with the IPO, which has since been
amended (the “Separation Agreement”). At December 31, 2008 and December 31, 2007, there were $67 million
and $74 million of outstanding letters of credit issued by Travelport on our behalf, respectively.
Under our merchant model, customers generally pay us for reservations at the time of booking, which is
in advance of their travel. We pay our suppliers at some later date, which is generally after the customer uses
the reservation. Initially, we record these customer receipts as deferred income and accrued merchant payables.
We recognize net revenue when customers use the reservation, and we pay our suppliers once we have
received an invoice, which generally ranges from one to sixty days after customers use the reservation. The
timing difference between the cash collected from our customers and payments to our suppliers impacts our
operating cash flows and represents a source of liquidity for us. If our merchant model bookings grow, we
expect to experience this positive impact on our operating cash flows. Conversely, if our merchant model
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, these benefits would be reduced. Due to various factors, including a
decline in our merchant bookings, the liquidity provided by cash flows from our merchant model bookings
decreased in the fourth quarter of 2008 as compared to the fourth quarter of 2007.
The seasonal fluctuations in our business also affect the timing of our cash flows. Gross bookings are
generally highest in the first and second calendar quarters as customers plan and purchase their spring and
summer vacations. As a result, our cash receipts are generally highest in the first and second calendar quarters,
and we generally use cash during the third and fourth calendar quarters to pay our suppliers. We expect this
seasonal cash flow pattern to continue. However, changes in our business model could either increase or
decrease the seasonal nature of our cash flows.
As of December 31, 2008, we had a working capital deficit of $258 million as compared to a deficit of
$301 million as of December 31, 2007. Prior to our IPO, we operated with a working capital deficit primarily
as a result of the cash management system used by Travelport to pool cash from all of its subsidiaries,
including us, as well as the fact that certain operating cash flows generated by us were used to fund certain of
our financing and investing activities, such as capital expenditures incurred for the development and
implementation of our new technology platform.
The net proceeds we received from the initial public offering of our common stock and the $600 million
term loan did not decrease this working capital deficit because those proceeds were used to repay $860 million
of intercompany notes payable to affiliates of Travelport, to pay a $109 million dividend to an affiliate of
Travelport and to settle other intercompany balances between us and Travelport that were generated prior to
the IPO.
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