Orbitz 2009 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
¥ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
or
nTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33599
ORBITZ WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware 20-5337455
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
500 W. Madison Street
Suite 1000
Chicago, Illinois
60661
(Zip Code)
(Address of principal executive offices)
(312) 894-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes nNo ¥
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes nNo ¥
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 ¥No n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ¥
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.
(Check one):
Large accelerated filer nAccelerated filer ¥Non-accelerated filer n
(Do not check if a smaller
reporting company)
Smaller reporting company n
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes nNo ¥
The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2008 was approximately $187 million
based on the closing price of the registrant’s common stock as reported on the New York Stock Exchange for such date.
As of March 9, 2009, 83,366,216 shares of Common Stock, par value $0.01 per share, of Orbitz Worldwide, Inc. were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference certain information from the definitive proxy statement for the
registrant’s Annual Meeting of Shareholders to be held on or about June 2, 2009 (the “2009 Proxy Statement”). The registrant intends to file the
proxy statement with the Securities and Exchange Commission within 120 days of December 31, 2008.

Table of contents

  • Page 1
    ...by non-affiliates as of June 30, 2008 was approximately $187 million based on the closing price of the registrant's common stock as reported on the New York Stock Exchange for such date. As of March 9, 2009, 83,366,216 shares of Common Stock, par value $0.01 per share, of Orbitz Worldwide, Inc. were...

  • Page 2
    ...Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Item 13. Certain Relationships and Related Transactions, and Director Independence ...Item 14. Principal Accounting Fees and Services ...PART IV Item 15. Exhibits, Financial Statement Schedules...

  • Page 3
    ... globally. We provide customers with the ability to book a comprehensive set of travel products, from over 85,000 suppliers worldwide, including air travel, hotels, vacation packages, car rentals, cruises, travel insurance and destination services such as ground transportation, event tickets...

  • Page 4
    ...full-service online travel company that offers customers the ability to book an array of travel products and services from numerous suppliers on a stand-alone basis or as part of a dynamic vacation package. These travel products and services include airline tickets, hotel rooms, car rentals, cruises...

  • Page 5
    ...travel products and services on a stand-alone basis or as part of a dynamic vacation package, including airline tickets, hotel rooms, car rentals and travel insurance. In addition to the ebookers websites, customers may also book travel through our call centers. HotelClub and RatesToGo HotelClub.com...

  • Page 6
    .... Through 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. We also charge our customers a service fee for booking the travel reservation. Generally, our net revenue per transaction is...

  • Page 7
    ... cost-effective and flexible multi-leg itineraries. We also have the ability to connect to and book air travel directly on certain airlines' internal reservation systems through our supplier link technology. Our easy-to-use Matrix display allows customers to simultaneously view these various travel...

  • Page 8
    ... than booking each travel product separately. We are in the process of developing and implementing our new technology platform. Our new platform currently supports our brand portfolio in Europe. In 2007, we launched the new platform for our ebookers brand in the U.K. and Ireland, and in 2008, we...

  • Page 9
    ...for corporate travel; • portions of our white label dynamic packaging technology; and • our extranet supplier connectivity functionality currently being implemented as part of our new technology platform. The Master License Agreement granted us the right to use a corporate online booking product...

  • Page 10
    ..., Inc., American Express Travel Related Services Company, Inc., Thomas Cook and Tui Travel. • We compete with suppliers, such as airlines, hotel and rental car companies, many of which have their own branded websites and toll-free numbers through which they generate business. • We also compete...

  • Page 11
    ... our competitive success include price, availability of travel products, ability to package travel products across multiple suppliers, brand recognition, customer service and customer care, fees charged to travelers, ease of use, accessibility and reliability. Seasonality Our businesses experience...

  • Page 12
    ...://www.sec.gov. We also use our Investor Relations website (http://www.orbitz-ir.com) to make information available to our investors and the public. Investors and other interested persons can sign up to receive email alerts whenever we post new information to the website. Item 1A. Risk Factors. Our...

  • Page 13
    ... exchange, provide our customers the ability to book their travel reservation and access to various services, including our OrbitzTLC customer care platform and Orbitz Price Assurance. During 2008, certain online travel companies reduced or eliminated booking fees on retail airline tickets and hotel...

  • Page 14
    ... the financial condition of suppliers, including the airline and hotel industry, and the impact of their financial condition on the cost and availability of air travel and hotel rooms; • changes to regulations governing the airline and travel industry; • fuel prices; • work stoppages or labor...

  • Page 15
    ... and adverse developments in our business. The credit agreement requires us to maintain a minimum fixed charge coverage ratio and to not exceed a maximum total leverage ratio, which declines over the term of the agreement. If we fail to comply with these covenants and we are unable to obtain...

  • Page 16
    ... employees in approximately 20 countries outside the U.S., we generated 21% of our net revenue for the year ended December 31, 2008 from our international operations. In order to achieve widespread acceptance in each country we enter, we must tailor our services to the unique customs and cultures...

  • Page 17
    ... service providers and software companies, including the electronic central reservation systems and GDSs of the airline, hotel and car rental industries. In particular, our businesses rely on third parties to: • conduct searches for airfares; • process hotel room transactions; • process credit...

  • Page 18
    ... net impact of future pricing options may adversely impact our revenue. In addition, suppliers are increasingly focused on driving online demand to their own websites. Suppliers typically do not charge a service fee for booking products on their own websites, and as a result, their travel offerings...

  • Page 19
    ...GDS service agreement may place us at a competitive disadvantage and could negatively impact our business and results of operations. Our business and financial performance could be negatively impacted by adverse tax events. New sales, use, occupancy or other tax laws, statutes, rules, regulations or...

  • Page 20
    ...issues in another. Our business is subject to laws and regulations relating to our revenue generating and marketing activities, including those prohibiting unfair and deceptive advertising or practices. Our travel services are subject to regulation and laws governing the offer of travel products and...

  • Page 21
    ... adversely affect customers' willingness to use our websites. A publicized breach of security, even if it only affects other companies conducting business over the Internet, could inhibit the growth of the Internet and, therefore, our services as a means of conducting commercial transactions. We...

  • Page 22
    ... to comply with these rules may lead investors to lose confidence in our financial information. As a relatively new independent public company, under the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, as well as the rules of the New York Stock Exchange, we continue to...

  • Page 23
    ... ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC would be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to...

  • Page 24
    ... may develop between our management and directors as well as the management and directors of Travelport. Jeff Clarke serves as Chairman of our Board of Directors, while retaining his role as President, Chief Executive Officer and Director of Travelport. The fact that Mr. Clarke holds positions with...

  • Page 25
    ... of ebookers' booking, search and dynamic packaging technologies; • certain of our products and online booking tools for corporate travel; • portions of our white label dynamic packaging technology; and • our extranet supplier connectivity functionality currently being implemented as part of...

  • Page 26
    ... provided for the benefit of, officers, directors, employees or consultants of Travelport, any of its direct or indirect parent companies or any of its restricted subsidiaries, including us; (3) any agreement as in effect on the date of the consummation of this offering; and (4) investments by...

  • Page 27
    ...who were assessed a "Taxes/Fees" charge when paying for a hotel, motel, or resort room through the defendants' websites. The complaint was brought against a number of Internet travel companies, including Trip Network, Inc. (d/b/a CheapTickets), Cendant Corporation, Orbitz, Inc., and Orbitz, LLC. The...

  • Page 28
    .../or disgorgement, attorneys' fees, costs, interest, and injunctive relief. On October 15, 2008, the plaintiffs filed a second amended complaint removing all other Internet travel companies except for Trip Network, Inc., Orbitz, Inc., and Orbitz, LLC and adding "Orbitz Worldwide." The second amended...

  • Page 29
    ... Government* County of Nassau, New York* Wake County, North Carolina City of Branson, Missouri Dare County, North Carolina August 28, 2006 September 21, 2006 October 24, 2006 November 3, 2006 December 18, 2006 January 26, 2007 Buncombe County, North Carolina February 1, 2007 Superior Court for...

  • Page 30
    ... defendant Internet travel companies are not subject to the local occupancy tax ordinance as a matter of law. In the following legal proceedings relating to hotel occupancy taxes, a previous dismissal was reversed or the case was re-filed or appealed since October 1, 2008: As previously reported, in...

  • Page 31
    ...court for further action. On January 12, 2009, the County of Monroe, Florida re-filed its purported class action complaint against Orbitz Worldwide, Inc., Travelport Americas, LLC, Trip Network, Inc. (d/b/a Cheaptickets) and Orbitz, LLC. We have also been contacted by several municipalities or other...

  • Page 32
    .... The court's order requires the Company to display the plaintiff's brands, Alamo Rent a Car and National Car Rental, and all of their rental car offers on the initial first page matrix on both the orbitz.com and cheaptickets.com websites for all rental car searches on those websites, in a manner...

  • Page 33
    ... becoming Chief Operating Officer, Mr. Nelson was based in London where he was responsible for the Company's international businesses. Mr. Nelson joined the Company in 2001 and has held a variety of senior management positions in which he has had direct responsibility for supplier relations, revenue...

  • Page 34
    ... Information Our common stock trades on the NYSE under the symbol "OWW." Prior to our IPO, there was no public market for our common stock. The following table sets forth the high and low sales prices for our common stock for each of the periods presented: 2008 High Low High 2007 Low Fourth Quarter...

  • Page 35
    Performance Graph The following graph shows the total shareholder return through December 31, 2008 of an investment of $100 in cash on July 20, 2007 (which is the first date that our common stock began trading on the New York Stock Exchange) for our common stock and an investment of $100 in cash on ...

  • Page 36
    ...Purchases of Equity Securities The following table sets forth repurchases of our common stock during the fourth quarter of 2008: Total Number of Shares Purchased as Maximum Number of Shares That May Yet be Part of Publicly Purchased Under the Total Number of Average Price Announced Plans or Plans or...

  • Page 37
    ... 31, August 22, 2008 2007 2006 2006 2006(a) 2005 2004 Successor Successor Successor Predecessor Combined Predecessor Predecessor Statements of operations data: Net revenue ...$ 870 Cost and expenses Cost of revenue ...163 Selling, general and administrative . . 272 Marketing ...310 Depreciation and...

  • Page 38
    ... globally. We provide customers with the ability to book a comprehensive set of travel products, from over 85,000 suppliers worldwide, including air travel, hotels, vacation packages, car rentals, cruises, travel insurance and destination services such as ground transportation, event tickets...

  • Page 39
    ...of other travel products, such as hotels and car rentals. Potential bankruptcies and consolidation in the airline industry could also result in capacity reductions that could further increase ticket prices and reduce the number of seats available for booking on OTCs' websites. Globally, airlines are...

  • Page 40
    ...environment, Internet usage and online travel bookings continue to increase worldwide. Online travel booking rates are highest in the U.S. and have grown on a year-over-year basis. Suppliers, including airlines, hotels and car rental companies, have continued to focus their efforts on direct sale of...

  • Page 41
    ... 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...

  • Page 42
    ... earned for air, car and hotel segments processed through global distribution systems. Comparison of the year ended December 31, 2008 to the year ended December 31, 2007 Gross Bookings For our domestic business, which is comprised principally of Orbitz, CheapTickets and Orbitz for Business, total...

  • Page 43
    ... price per dynamic package. An increase in the average price per airline ticket included in a dynamic package primarily drove the higher average price per dynamic package. A decrease in gross bookings for car rentals and hotels partially offset this increase. Lower transaction volume, offset in part...

  • Page 44
    ... year ended December 31, 2008 to the year ended December 31, 2007 Year Ended December 31, 2008 2007 Successor Successor (in millions) $ Change % Change Net revenue Air ...Non-air ...Other ...Total net revenue ...Cost and expenses Cost of revenue ...Selling, general and administrative ...Marketing...

  • Page 45
    ... of travel products, such as air, hotel and car reservations), car bookings, cruise bookings and destination services. Net revenue from non-air bookings increased $20 million, or 5%, to $414 million for the year ended December 31, 2008 from $394 million for the year ended December 31, 2007. Of...

  • Page 46
    ...to seek out new opportunities to further monetize traffic on our websites. Cost of Revenue Our cost of revenue is primarily comprised of costs incurred to operate our customer service call centers, credit card processing fees incurred on our merchant bookings, ticketing and fulfillment costs, charge...

  • Page 47
    ... assets whose useful lives were shortened during the year ended December 31, 2008. Impairment of Goodwill and Intangible Assets During the year ended December 31, 2008, in connection with our annual planning process, we lowered our long-term earnings forecast in response to changes in the economic...

  • Page 48
    ...internal software development projects also partially offset the decrease in interest expense. During the year ended December 31, 2008 and December 31, 2007, $18 million and $15 million of the total interest expense recorded was noncash, respectively. (Benefit) Provision for Income Taxes We recorded...

  • Page 49
    ... year ended December 31, 2007 to the year ended December 31, 2006 Year Ended December 31, 2007 2006 Successor Combined (in millions) $ Change % Change Net revenue Air...Non-air ...Other ...Total net revenue ...Cost and expenses Cost of revenue ...Selling, general and administrative ...Marketing...

  • Page 50
    ... 2007 as compared to a full year in 2006. Non-air. Non-air net revenue is comprised of net revenue from hotel bookings, dynamic packaging (which may include a combination of travel products, such as air, hotel and car reservations), car bookings, cruise bookings and destination services. Net revenue...

  • Page 51
    ... travel subsidiary in July 2007 due to the inclusion of seven months of net revenue from that business in 2007 as compared to a full year in 2006. Cost of Revenue Our cost of revenue is primarily comprised of costs incurred to operate our customer service call centers, credit card processing fees...

  • Page 52
    ... the first and second calendar quarters 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...

  • Page 53
    ... 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...

  • Page 54
    ...Lehman Commercial Paper Inc. ("LCPI"), which filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code on October 5, 2008, holds a $12.5 million commitment, or 14.7% percent, of the $85 million available under our revolving credit facility. As a result, total availability...

  • Page 55
    ... 2008 to the year ended December 31, 2007 Operating Activities Cash provided by operating activities consists of net loss, adjusted for non-cash items such as depreciation, amortization, impairment of goodwill and intangible assets, and stock based compensation and changes in various working capital...

  • Page 56
    ... sharing agreement with the Founding Airlines, a $5 million increase in principal payments made on the $600 million term loan facility and $1 million of payments made to satisfy employee minimum tax withholding obligations upon vesting of equity-based awards during the year ended December 31, 2008...

  • Page 57
    ... certain of its affiliates. The amount of the net cash proceeds received from this equity issuance would then be applied to increase consolidated EBITDA, as defined in the Credit Agreement and on which the covenant calculations are based, for the applicable quarter. As of December 31, 2008, we were...

  • Page 58
    ... 31, 2008: 2009 2010 2011 2012 2013 (in millions) Thereafter Total Term Loan (a) ...Revolver (a) ...Interest (b)...Contract exit costs (c) ...Operating leases ...Travelport GDS contract (d) ...Tax sharing liability (e) ...Telecommunications service agreement...Software license agreement ...Total...

  • Page 59
    ...as of December 31, 2008 and fixed interest payments under interest rate swaps. (c) Represents costs due to the early termination of an agreement. (d) The Travelport GDS service agreement is structured such that we earn incentive revenue for each segment that is processed through Galileo or Worldspan...

  • Page 60
    ... 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent." We offer customers the ability to book airline, hotel, car rental and other travel reservations through our various brands, including Orbitz, CheapTickets, ebookers, HotelClub and RatesToGo. These products and services are made...

  • Page 61
    ... net revenue for the entire package when customers use the reservation, which generally occurs on the same day for each travel product included in the dynamic vacation package. Under both the retail and merchant models, we recognize revenue for service fees charged to customers for booking travel...

  • Page 62
    ...flows. These cash flows are then discounted to their present value equivalents using a rate of return that accounts for the relative risk of not realizing the estimated annual cash flows and for the time value of money. Variations of the income approach are used to estimate certain of the intangible...

  • Page 63
    ... balance sheets that relates to a tax sharing agreement between Orbitz and the Founding Airlines. The agreement governs the allocation of tax benefits resulting from a taxable exchange that took place in connection with the Orbitz initial public offering in December 2003 ("Orbitz IPO"). As a result...

  • Page 64
    ... assumptions as to our future operating performance and taxable income, the tax rate, the timing of tax payments, current and projected market conditions, and the applicable discount rate. The discount rate assumption is based on our weighted average cost of capital at the time of the Blackstone...

  • Page 65
    ... 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 December 31, 2008 market rates to perform...

  • Page 66
    ...in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2009 expressed an unqualified opinion on the Company's internal control over financial reporting. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois March...

  • Page 67
    ... millions, except share and per share data) Year Ended December 31, 2008 Successor Year Ended December 31, 2007 Successor Period from August 23, 2006 to December 31, 2006 Successor Period from January 1, 2006 to August 22, 2006 Predecessor Net revenue ...Cost and expenses Cost of revenue ...Selling...

  • Page 68
    ... loan, non-current ...Line of credit ...Tax sharing liability ...Unfavorable contracts ...Other non-current liabilities ...Total Liabilities ...Commitments and contingencies (see Note 11) Shareholders' Equity: Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding...

  • Page 69
    ......Payment to satisfy employee tax withholding obligations upon vesting of equity-based awards ...Payments on tax sharing liability ...Proceeds from line of credit ...Payments on line of credit ...Net cash (used in) provided by financing activities ...Effects of changes in exchange rates on cash and...

  • Page 70
    ORBITZ WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in millions) Year Ended December 31, 2008 Successor Year Ended December 31, 2007 Successor Period from August 23, 2006 to December 31, 2006 Successor Period from January 1, 2006 to August 22, 2006 Predecessor Net loss ...Other ...

  • Page 71
    ..., net of offering costs ...Dividend paid to Travelport ...Contributions from Travelport ...Amortization of equity-based compensation awards granted to employees, net of payments to satisfy employee tax withholding obligations upon vesting ...Net loss from January 1, 2007 through July 17, 2007 ...Net...

  • Page 72
    ... globally. We provide customers with the ability to book a comprehensive set of travel products from over 85,000 suppliers worldwide, including air travel, hotels, vacation packages, car rentals, cruises, travel insurance and destination services such as ground transportation, event tickets...

  • Page 73
    ... administrative expenses, including those related to executive management, information technology, tax, insurance, accounting, legal, treasury services and certain employee benefits, were allocated to us by Travelport and Cendant based on forecasted revenue or directly billed based on actual usage...

  • Page 74
    ... 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent." We offer customers the ability to book airline, hotel, car rental and other travel reservations through our various brands, including Orbitz, CheapTickets, ebookers, HotelClub and RatesToGo. These products and services are made...

  • Page 75
    ... net revenue for the entire package when customers use the reservation, which generally occurs on the same day for each travel product included in the dynamic vacation package. Under both the retail and merchant models, we recognize revenue for service fees charged to customers for booking travel...

  • Page 76
    ...U.S. federal and state income tax returns for the year ended December 31, 2007 for Orbitz Worldwide, Inc. and its subsidiaries. However, the provision for income taxes was computed as if we filed our U.S. federal, state and foreign income tax returns on a Separate Company basis without the inclusion...

  • Page 77
    ...the change in the fair value of the derivative instrument will be included in earnings. Additionally, any derivative instrument used for risk management that becomes ineffective is marked-to-market each period. We believe that our credit risk has been mitigated by entering into these agreements with...

  • Page 78
    ... for Website Development Costs." Capitalization commences when the preliminary project stage of the application has been completed and it is probable that the project will be completed and used to perform the function intended. Amortization commences when the software is placed into service. We...

  • Page 79
    ...We use a market or income valuation approach, as described above, to estimate fair values of the relevant trademarks and trade names. Tax Sharing Liability We have a liability included in our consolidated balance sheets that relates to a tax sharing agreement between Orbitz and the Founding Airlines...

  • Page 80
    ... grant. The fair value of stock options is determined on the date of grant using the Black-Scholes valuation model. The amount of equity-based compensation expense recorded each period is net of estimated forfeitures. We estimate forfeitures based on historical employee turnover rates, the terms of...

  • Page 81
    ... Travelport, which consisted of Cendant's travel distribution services businesses, for $4.1 billion in cash. The assets acquired and liabilities assumed in connection with the Blackstone Acquisition were recorded at their relative fair values on the acquisition date. This allocation was based on...

  • Page 82
    ... on the fair value and estimated useful lives assigned to tangible and intangible assets at the time of the Blackstone Acquisition. This amount also includes adjustments recorded to deferred revenue as well as the amortization of certain below market contracts with suppliers recorded as a result of...

  • Page 83
    ... the year ended December 31, 2008, in connection with our annual planning process, we lowered our long-term earnings forecast in response to changes in the economic environment, including the potential future impact of airline capacity reductions, increased fuel prices and a weakening global economy...

  • Page 84
    ORBITZ WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) need for an assessment prior to our annual testing date. As a result of this testing, we recorded a non-cash impairment charge of $122 million during the period from January 1, 2006 to August 22, 2006, of which $115 ...

  • Page 85
    ... related to the refinement of certain estimates, including the applicable tax rate and period of payment, previously used to determine the net present value of the tax sharing liability as of the date of the Blackstone Acquisition (see Note 9 - Tax Sharing Liability). We finalized the purchase price...

  • Page 86
    ... December 31, 2008 December 31, 2007 (in millions) Advertising and marketing ...Tax sharing liability, current ...Employee costs ...Technology costs ...Rebates ...Customer service costs ...Facilities costs ...Professional fees...Contract exit costs (a) ...Unfavorable contracts, current ...Other...

  • Page 87
    .... 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 also incur a commitment fee of 50 basis points on any unused amounts on the...

  • Page 88
    ... 6 27 563 Total ...9. Tax Sharing Liability $614 We have a liability included in our consolidated balance sheets that relates to a tax sharing agreement between Orbitz and the Founding Airlines. The agreement governs the allocation of tax benefits resulting from a taxable exchange that took place...

  • Page 89
    ... net present value of our obligation to pay tax benefits to the Founding Airlines was $124 million and $141 million at December 31, 2008 and December 31, 2007, respectively. This estimate is based upon certain assumptions, including our future operating performance and taxable income, the tax rate...

  • Page 90
    ... website branded and operated by the airline and any of its alliance partners or to the airline's internal reservation system. The agreement also provides Orbitz with nondiscriminatory access to seat availability for published fares, as well as marketing and promotional support. Under each agreement...

  • Page 91
    ORBITZ WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) determined using the discounted cash flows of the expected rebates, net of the expected fair value of in-kind marketing support. At December 31, 2008 and December 31, 2007, the net present value of the unfavorable ...

  • Page 92
    ... and other U.S. governmental entities involving hotel occupancy taxes and our merchant hotel business. Some of the cases are purported class actions and most of the cases were brought simultaneously against other Internet travel companies, including Expedia, Travelocity and Priceline. The cases...

  • Page 93
    ... by Travelport on our behalf under the terms of the Separation Agreement entered into in connection with the IPO. The letter of credit fees were $3 million, $2 million, almost nil and almost nil for the years ended December 31, 2008 and December 31, 2007 and for the periods from August 23, 2006 to...

  • Page 94
    ...federal and state income tax returns for the year ended December 31, 2007 filed by Orbitz Worldwide, Inc. and its subsidiaries. However, the provision for income taxes was computed as if we filed our U.S. federal, state and foreign income tax returns on a Separate Company basis without the inclusion...

  • Page 95
    ...operations at differing rates...Taxes on other repatriated foreign income, net of tax credits ...Change in valuation allowance ...Goodwill impairment ...Foreign deemed dividends ...Non deductible public offering costs ...Reserve for uncertain tax positions ...Other...Effective income tax rate ... 35...

  • Page 96
    ... 31, 2008 2007 (in millions) Current deferred income tax assets (liabilities): Accrued liabilities and deferred income ...Provision for bad debts...Prepaid expenses ...Tax sharing liability ...Change in reserve accounts ...Other ...Valuation allowance ...Current net deferred income tax assets...

  • Page 97
    ORBITZ WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) During the year ended December 31, 2007, we recorded a full valuation allowance against $30 million of foreign deferred tax assets related to portions of our U.K.-based business in accordance with SFAS No. 109. SFAS No. ...

  • Page 98
    ... nil as of December 31, 2008 and December 31, 2007. We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. A number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is audited and finally resolved...

  • Page 99
    ... agreement by which Travelport (which, at the time, included the Company) was acquired from Cendant Corporation. 13. Equity-Based Compensation Our employees participated in three equity based compensation plans during the years ended December 31, 2008, 2007 and 2006: the Orbitz Worldwide, Inc. 2007...

  • Page 100
    ...The fair value of stock options granted under the Plan is estimated on the date of grant using the BlackScholes option-pricing model. The weighted average assumptions for stock options granted during the year ended December 31, 2008 and the period from July 18, 2007 to December 31, 2007 are outlined...

  • Page 101
    ... value of restricted stock on the date of grant is amortized on a straight-line basis over the requisite service period. The total number of shares of restricted stock that vested during the year ended December 31, 2008 and the period from July 18, 2007 to December 31, 2007 and the total fair value...

  • Page 102
    ... officers during the year ended December 31, 2008 totaled 249,108 shares and had a grant date fair value of $6.28 per share. As of December 31, 2008, the Company expects that none of the PSUs will vest. Non-Employee Directors Deferred Compensation Plan The table below summarizes the deferred stock...

  • Page 103
    ... events. On July 18, 2007, the unvested restricted equity units and Class B partnership interests held by our employees were converted to restricted stock units and restricted shares in Orbitz Worldwide under its 2007 Equity and Incentive Plan. This conversion affected 14 employees of Orbitz...

  • Page 104
    ... Travelport Plan during 2007, immediately prior to the conversion date, and the year ended December 31, 2006: Restricted Equity Units Class A-2 Weighted Average Grant Date Number Fair Value of (per share) Shares Class B Weighted Average Grant Date Number Fair Value of (per share) Shares Partnership...

  • Page 105
    ...2006 to August 22, 2006 Weighted Average Number of Grant Date Restricted Fair Value Stock Units (per share) Balance at beginning of period ...Vested/exercised ...Forfeited/cancelled ...Vested/converted as a result of the Blackstone Acquisition ...Balance at end of period ... 1,570,957 (69,732) (180...

  • Page 106
    ... on September 30, 2010. We pay a fixed rate of 2.98% on the swap and in exchange receive a variable rate based on the one-month LIBOR. The objective of entering into our interest rate swaps is to protect against volatility of future cash flows and effectively hedge the variable interest payments on...

  • Page 107
    ... domestic and international employees, primarily in response to weakening demand in the travel industry and deteriorating economic conditions. In connection with this workforce reduction, we incurred total expenses of $3 million in the year ended December 31, 2008 related to severance benefits and...

  • Page 108
    ...22, 2006 Predecessor Net revenue (a) ...Cost of revenue ...Selling, general and administrative expense ...Interest expense ... $149 - $126 - $29 1 $65 - 3 3 11 48 4 4 - - (a) These amounts include net revenue related to our GDS services agreement and bookings sourced through Donvand Limited...

  • Page 109
    ... forecasted revenue. Direct billed expenses were based upon actual utilization of the services. Cost subject to the overhead allocations and direct billings included executive management, tax, insurance, accounting, legal, treasury, information technology, telecommunications, call center support and...

  • Page 110
    ...pays us fees for related maintenance and support services. The licenses include our supplier link technology; portions of ebookers' booking, search and dynamic packaging technologies; certain of our products and online booking tools for corporate travel; portions of our white label dynamic packaging...

  • Page 111
    ... 31, 2007, when our new Master Supply and Services Agreement (the "GTA Agreement") became effective. Under the GTA Agreement, we pay GTA a contract rate for hotel and destination services inventory it makes available to us for booking on our websites. The contract rate exceeds the prices at which...

  • Page 112
    ... Net revenue ...Cost of revenue ...Selling, general and administrative expense ...Marketing expense ...Service Agreements $14 30 5 - $12 - 1 1 $ 5 - - - We have entered into various service agreements with an affiliate of Blackstone that provide us with call center and telesales, back office...

  • Page 113
    ... services agreement, MSD pays us fees based on services used plus a share of revenue from reservations of select hotels. Media Services Avis Budget Group provided us with media planning and advertising buying services until December 31, 2006. We paid advertising costs directly to the third-party...

  • Page 114
    ... with corporate travel management services. The agreements have an initial term of three years, unless terminated earlier by either party in accordance with the terms of the agreement. Vendor, Partner Marketing and White Label and Hosting Agreements In the normal course of conducting business, we...

  • Page 115
    ... international territories. The table below presents net revenue by geographic area: the U.S. and all other countries. We allocate net revenue based on where the booking originated. Year Ended December 31, 2008 Successor Period from August 23, 2006 to Year Ended December 31, 2006 December 31, 2007...

  • Page 116
    ... below does not present earnings (loss) per share information for periods prior to the Reorganization. Three Months Ended June 30, 2008 December 31, 2008 September 30, 2008 Successor Successor Successor (in millions, except per share data) March 31, 2008 Successor Net revenue ...Cost and expenses...

  • Page 117
    ... President and Chief Executive Officer of the Company. In connection with his resignation and pursuant to the terms of his employment agreement with the Company, we will incur total expenses of $2 million in the first quarter of 2009 relating to severance benefits and other termination-related costs...

  • Page 118
    ... the valuation allowance related to the tax sharing agreement with the Founding Airlines. (c) Represents the expiration of a U.S. federal income tax capital loss carryforward. (d) Represents reductions related to a corresponding reduction in deferred tax assets not recorded through our consolidated...

  • Page 119
    ... 31, 2008. 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. Management's Report on Internal Control over Financial Reporting Our management is responsible for...

  • Page 120
    ... 31, 2008 and our report dated March 9, 2009 expressed an unqualified opinion on those financial statements and financial statement schedule. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois March 9, 2009 Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers and Corporate...

  • Page 121
    ... addition, we have adopted a Code of Ethics for our chief executive officer and senior financial officers. The Code of Business Conduct and the Code of Ethics are available on the corporate governance page of our Investor Relations website at http://www.orbitz-ir.com. Amendments to, or waivers from...

  • Page 122
    ...Report of Independent Registered Public Accounting Firm ...Consolidated Statements of Operations for the years ended December 31, 2008 and December 31, 2007...Consolidated Statements of Invested Equity/Shareholders' Equity for the years ended December 31, 2008 and December 31, 2007, the period from ...

  • Page 123
    ...2008). Amendment, effective February 1, 2008, between Amadeus IT Group, S.A. and ebookers Limited (incorporated by reference to Exhibit 10.1 to the Orbitz Worldwide, Inc. Form 10-Q for the Quarterly Period Ended September 30, 2008). Credit Agreement, dated as of July 25, 2007, among Orbitz Worldwide...

  • Page 124
    ..., LLC, ebookers Limited, Donvand Limited, Travelport for Business, Inc., Orbitz Development, LLC and Neat Group Corporation (incorporated by reference to Exhibit 10.5 to the Orbitz Worldwide, Inc. Current Report on Form 8-K/A filed on February 27, 2008). Master Supply and Services Agreement, dated...

  • Page 125
    ... to the Orbitz Worldwide, Inc. Quarterly Report on 10-Q for the Quarterly Period ended September 30, 2007). Form of Stock Option Award Agreement (Executive Officers) - 2008 Equity Grants (incorporated by reference to Exhibit 10.1 to the Orbitz Worldwide, Inc. Current Report on Form 8-K filed on June...

  • Page 126
    ... 10.1 to the Orbitz Worldwide, Inc. Current Report on Form 8-K filed on December 18, 2007). List of Subsidiaries. Consent of Deloitte & Touche LLP, independent registered public accounting firm. Certification of Chief Executive Officer of Orbitz Worldwide, Inc. pursuant to Rule 13a-14(a)/15d14...

  • Page 127
    ... Chief Financial Officer (Principal Financial Officer) Date: March 11, 2009 By: /s/ JOHN W. BOSSHART John W. Bosshart Vice President of Global Accounting and External Reporting (Principal Accounting Officer) Date: March 11, 2009 By: /s/ JEFF CLARKE Jeff Clarke Chairman of the Board of Directors...

  • Page 128
    ... C. COBB William C. Cobb Director Date: March 11, 2009 By: /s/ RICHARD P. FOX Richard P. Fox Director Date: March 11, 2009 By: /s/ JILL A. GREENTHAL Jill A. Greenthal Director Date: March 11, 2009 By: /s/ WILLIAM J.G. GRIFFITH William J.G. Griffith Director Date: March 11, 2009 By: /s/ PAUL...

  • Page 129
    ...'s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process...

  • Page 130
    ...record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. /s/ MARSHA C. W ILLIAMS Marsha C. Williams Senior Vice President...

  • Page 131
    ... In connection with the Annual Report of Orbitz Worldwide, Inc. (the "Company") on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Barney Harford, Chief Executive Officer of the Company, certify, pursuant to 18...

  • Page 132
    ...In connection with the Annual Report of Orbitz Worldwide, Inc. (the "Company") on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Marsha C. Williams, Chief Financial Officer of the Company, certify, pursuant to...