UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2017
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission File No. 001-36640
Travelport Worldwide Limited
(Exact name of registrant as specified in its charter)
98-0505105 | |||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
Axis One, Axis Park
Langley, Berkshire, SL3 8AG, United Kingdom
(Address of principal executive offices, including zip code)
+44-1753-288-000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 ☒x No ☐
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 ☒x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | ||||||||
(Do not check if a smaller reporting company) |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐¨ No ☒
As of May 8, 2017,2, 2018, there were 124,392,455126,032,141 shares of the Registrants’ common shares, par value $0.0025 per share, outstanding.
Table of Contents
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1 | ||||||||||
PART I. FINANCIAL INFORMATION | ||||||||||
Item 1 | ||||||||||
3 | ||||||||||
4 | ||||||||||
5 | ||||||||||
6 | ||||||||||
8 | ||||||||||
9 | ||||||||||
Item 2 | ||||||||||
Item 3 | ||||||||||
Item 4 | ||||||||||
PART II. OTHER INFORMATION | ||||||||||
Item 1 | ||||||||||
Item 2 | ||||||||||
Item 3 | ||||||||||
Item 4 | ||||||||||
Item 5 | ||||||||||
Item 6 | Exhibits | |||||||||
Signatures |
The forward-looking statements contained herein involve risks and uncertainties. Many of the statements appear, in particular, in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”Operations”. Forward-looking statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those in the forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “potential,” “should,” “will,”“will”, and “would” or other similar words. You should read statements that contain these words carefully because they discuss our future priorities, goals, strategies, actions to improve business performance, market growth assumptions and expectations, new products, product pricing, changes to our business processes, future business opportunities, capital expenditures, financing needs, financial position and other information that is not historical information. References within this Quarterly Report on Form 10-Q to “we,” “our,” “us” or “Travelport” refer to Travelport Worldwide Limited, a Bermuda company, and its consolidated subsidiaries.
The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results of continuing operations or those anticipated or predicted by these forward-looking statements:
We caution you that the foregoing list of important factors may not contain all of the factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur.
1 |
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The factors listed
Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
2 |
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in $ thousands, except share data) | | | Three Months Ended March 31, 2017 | | | Three Months Ended March 31, 2016 | | ||||||
Net revenue | | | | $ | 650,763 | | | | | $ | 609,263 | | |
Costs and expenses | | | | ||||||||||
Cost of revenue | | | | | 386,837 | | | | | | 362,677 | | |
Selling, general and administrative | | | | | 112,147 | | | | | | 114,477 | | |
Depreciation and amortization | | | | | 52,909 | | | | | | 52,241 | | |
Total costs and expenses | | | | | 551,893 | | | | | | 529,395 | | |
Operating income | | | | | 98,870 | | | | | | 79,868 | | |
Interest expense, net | | | | | (30,275) | | | | | | (54,895) | | |
Income before income taxes | | | | | 68,595 | | | | | | 24,973 | | |
Provision for income taxes | | | | | (12,732) | | | | | | (7,792) | | |
Net income | | | | | 55,863 | | | | | | 17,181 | | |
Net loss (income) attributable to non-controlling interest in subsidiaries | | | | | 243 | | | | | | (596) | | |
Net income attributable to the Company | | | | $ | 56,106 | | | | | $ | 16,585 | | |
Income per share – Basic: | | | | ||||||||||
Income per share | | | | $ | 0.45 | | | | | $ | 0.13 | | |
Weighted average common shares outstanding – Basic | | | | | 124,081,175 | | | | | | 123,718,311 | | |
Income per share – Diluted: | | | | ||||||||||
Income per share | | | | $ | 0.45 | | | | | $ | 0.13 | | |
Weighted average common shares outstanding – Diluted | | | | | 125,516,945 | | | | | | 123,778,407 | | |
Cash dividends declared per common share | | | | $ | 0.075 | | | | | $ | 0.075 | | |
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, | March 31, | |||||||
(in $ thousands, except share data) | 2018 | 2017 | ||||||
Net revenue | $ | 677,838 | $ | 650,763 | ||||
Costs and expenses | ||||||||
Cost of revenue | 426,397 | 386,837 | ||||||
Selling, general and administrative | 125,200 | 111,301 | ||||||
Depreciation and amortization | 48,577 | 52,909 | ||||||
Total costs and expenses | 600,174 | 551,047 | ||||||
Operating income | 77,664 | 99,716 | ||||||
Interest expense, net | (14,935 | ) | (30,275 | ) | ||||
Loss on early extinguishment of debt | (27,661 | ) | — | |||||
Other expense | (93 | ) | (846 | ) | ||||
Income before income taxes | 34,975 | 68,595 | ||||||
Provision for income taxes | (3,491 | ) | (12,732 | ) | ||||
Net income from continuing operations | 31,484 | 55,863 | ||||||
Income from discontinued operations, net of tax | 27,747 | — | ||||||
Net income | 59,231 | 55,863 | ||||||
Net (income) loss attributable to non-controlling interest in subsidiaries | (402 | ) | 243 | |||||
Net income attributable to the Company | $ | 58,829 | $ | 56,106 | ||||
Income per share – Basic: | ||||||||
Income per share – continuing operations | $ | 0.25 | $ | 0.45 | ||||
Income per share – discontinued operations | 0.22 | — | ||||||
Basic income per share | $ | 0.47 | $ | 0.45 | ||||
Weighted average common shares outstanding – Basic | 125,428,257 | 124,081,175 | ||||||
Income per share – Diluted: | ||||||||
Income per share – continuing operations | $ | 0.25 | $ | 0.45 | ||||
Income per share – discontinued operations | 0.22 | — | ||||||
Diluted income per share | $ | 0.47 | $ | 0.45 | ||||
Weighted average common shares outstanding – Diluted | 126,131,201 | 125,516,945 | ||||||
Cash dividends declared per common share | $ | 0.075 | $ | 0.075 |
See Notes to the Consolidated Condensed Financial Statements
3 |
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in $ thousands) | | | Three Months Ended March 31, 2017 | | | Three Months Ended March 31, 2016 | | ||||||
Net income | | | | $ | 55,863 | | | | | $ | 17,181 | | |
Other comprehensive income, net of tax | | | | ||||||||||
Currency translation adjustment, net of tax | | | | | 4,337 | | | | | | 7,459 | | |
Amortization of actuarial loss to net income, net of tax | | | | | 2,599 | | | | | | 2,251 | | |
Other comprehensive income, net of tax | | | | | 6,936 | | | | | | 9,710 | | |
Comprehensive income | | | | | 62,799 | | | | | | 26,891 | | |
Comprehensive loss (income) attributable to non-controlling interest in subsidiaries | | | | | 243 | | | | | | (596) | | |
Comprehensive income attributable to the Company | | | | $ | 63,042 | | | | | $ | 26,295 | | |
|
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, | March 31, | |||||||
(in $ thousands) | 2018 | 2017 | ||||||
Net income | $ | 59,231 | $ | 55,863 | ||||
Other comprehensive income, net of tax | ||||||||
Currency translation adjustment, net of tax | 4,270 | 4,337 | ||||||
Amortization of actuarial loss to net income, net of tax | 2,473 | 2,599 | ||||||
Other comprehensive income, net of tax | 6,743 | 6,936 | ||||||
Comprehensive income | 65,974 | 62,799 | ||||||
Comprehensive (income) loss attributable to non-controlling interest in subsidiaries | (402 | ) | 243 | |||||
Comprehensive income attributable to the Company | $ | 65,572 | $ | 63,042 |
See Notes to the Consolidated Condensed Financial Statements
4 |
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(in $ thousands, except share data) | | | March 31, 2017 | | | December 31, 2016 | | ||||||
Assets | | | | ||||||||||
Current assets: | | | | ||||||||||
Cash and cash equivalents | | | | $ | 187,407 | | | | | $ | 139,938 | | |
Accounts receivable (net of allowances for doubtful accounts of $12,720 and $13,430) | | | | | 267,785 | | | | | | 218,224 | | |
Other current assets | | | | | 99,286 | | | | | | 84,089 | | |
Total current assets | | | | | 554,478 | | | | | | 442,251 | | |
Property and equipment, net | | | | | 414,639 | | | | | | 431,046 | | |
Goodwill | | | | | 1,082,315 | | | | | | 1,079,951 | | |
Trademarks and tradenames | | | | | 313,097 | | | | | | 313,097 | | |
Other intangible assets, net | | | | | 510,750 | | | | | | 511,607 | | |
Deferred income taxes | | | | | 9,366 | | | | | | 9,213 | | |
Other non-current assets | | | | | 48,460 | | | | | | 46,764 | | |
Total assets | | | | $ | 2,933,105 | | | | | $ | 2,833,929 | | |
Liabilities and equity | | | | ||||||||||
Current liabilities: | | | | ||||||||||
Accounts payable | | | | $ | 62,347 | | | | | $ | 59,219 | | |
Accrued expenses and other current liabilities | | | | | 527,862 | | | | | | 478,560 | | |
Current portion of long-term debt | | | | | 62,441 | | | | | | 63,558 | | |
Total current liabilities | | | | | 652,650 | | | | | | 601,337 | | |
Long-term debt | | | | | 2,270,788 | | | | | | 2,281,210 | | |
Deferred income taxes | | | | | 59,433 | | | | | | 59,381 | | |
Other non-current liabilities | | | | | 225,049 | | | | | | 227,783 | | |
Total liabilities | | | | | 3,207,920 | | | | | | 3,169,711 | | |
Commitments and contingencies (Note 11) | | | | ||||||||||
Shareholders’ equity (deficit): | | | | ||||||||||
Preference shares ($0.0025 par value; 225,000,000 shares authorized; no shares issued and outstanding as of March 31, 2017 and December 31, 2016) | | | | | — | | | | | | — | | |
Common shares ($0.0025 par value; 560,000,000 shares authorized; 125,000,621 shares and 124,941,233 shares issued; 124,082,833 shares and 124,032,361 shares outstanding as of March 31, 2017 and December 31, 2016, respectively) | | | | | 312 | | | | | | 312 | | |
Additional paid in capital | | | | | 2,705,950 | | | | | | 2,708,836 | | |
Treasury shares, at cost (917,788 shares and 908,872 shares as of March 31, 2017 and December 31, 2016, respectively) | | | | | (14,294) | | | | | | (14,166) | | |
Accumulated deficit | | | | | (2,808,732) | | | | | | (2,864,838) | | |
Accumulated other comprehensive loss | | | | | (183,136) | | | | | | (190,072) | | |
Total shareholders’ equity (deficit) | | | | | (299,900) | | | | | | (359,928) | | |
Equity attributable to non-controlling interest in subsidiaries | | | | | 25,085 | | | | | | 24,146 | | |
Total equity (deficit) | | | | | (274,815) | | | | | | (335,782) | | |
Total liabilities and equity | | | | $ | 2,933,105 | | | | | $ | 2,833,929 | | |
|
March 31, | December 31, | |||||||
(in $ thousands, except share data) | 2018 | 2017 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 127,165 | $ | 122,039 | ||||
Accounts receivable (net of allowances for doubtful accounts of $9,566 and $10,245, respectively) | 270,663 | 206,524 | ||||||
Other current assets | 142,526 | 109,724 | ||||||
Total current assets | 540,354 | 438,287 | ||||||
Property and equipment, net | 435,354 | 431,741 | ||||||
Goodwill | 1,090,515 | 1,089,590 | ||||||
Trademarks and tradenames | 313,097 | 313,097 | ||||||
Other intangible assets, net | 509,700 | 496,180 | ||||||
Deferred income taxes | 22,864 | 12,796 | ||||||
Other non-current assets | 77,358 | 76,808 | ||||||
Total assets | $ | 2,989,242 | $ | 2,858,499 | ||||
Liabilities and equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 80,147 | $ | 73,278 | ||||
Accrued expenses and other current liabilities | 576,770 | 509,068 | ||||||
Current portion of long-term debt | 54,089 | 64,291 | ||||||
Total current liabilities | 711,006 | 646,637 | ||||||
Long-term debt | 2,169,035 | 2,165,722 | ||||||
Deferred income taxes | 35,307 | 34,899 | ||||||
Other non-current liabilities | 200,890 | 203,562 | ||||||
Total liabilities | 3,116,238 | 3,050,820 | ||||||
Commitments and contingencies (Note 13) | ||||||||
Shareholders’ equity (deficit): | ||||||||
Preference shares ($0.0025 par value; 225,000,000 shares authorized; no shares issued and outstanding as of March 31, 2018 and December 31, 2017) | — | — | ||||||
Common shares ($0.0025 par value; 560,000,000 shares authorized; 127,260,153 shares and 126,967,010 shares issued; 125,630,319 shares and 125,346,613 shares outstanding as of March 31, 2018 and December 31, 2017, respectively) | 318 | 317 | ||||||
Additional paid in capital | 2,695,766 | 2,700,133 | ||||||
Treasury shares, at cost 1,629,834 shares and 1,620,397 shares as of March 31, 2018 and December 31, 2017, respectively) | (24,867 | ) | (24,755 | ) | ||||
Accumulated deficit | (2,662,560 | ) | (2,722,375 | ) | ||||
Accumulated other comprehensive loss | (148,878 | ) | (155,621 | ) | ||||
Total shareholders’ equity (deficit) | (140,221 | ) | (202,301 | ) | ||||
Equity attributable to non-controlling interest in subsidiaries | 13,225 | 9,980 | ||||||
Total equity (deficit) | (126,996 | ) | (192,321 | ) | ||||
Total liabilities and equity | $ | 2,989,242 | $ | 2,858,499 |
See Notes to the Consolidated Condensed Financial Statements
5 |
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in $ thousands) | | | Three Months Ended March 31, 2017 | | | Three Months Ended March 31, 2016 | | ||||||
Operating activities | | | | ||||||||||
Net income | | | | $ | 55,863 | | | | | $ | 17,181 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | ||||||||||
Depreciation and amortization | | | | | 52,909 | | | | | | 52,241 | | |
Amortization of customer loyalty payments | | | | | 18,795 | | | | | | 16,574 | | |
Impairment of long-lived assets | | | | | 685 | | | | | | 461 | | |
Amortization of debt finance costs and debt discount | | | | | 2,673 | | | | | | 2,571 | | |
Gain on foreign exchange derivative instruments | | | | | (7,701) | | | | | | (11,074) | | |
(Gain) loss on interest rate derivative instruments | | | | | (226) | | | | | | 16,456 | | |
Equity-based compensation | | | | | 8,006 | | | | | | 9,117 | | |
Deferred income taxes | | | | | 152 | | | | | | (887) | | |
Customer loyalty payments | | | | | (16,755) | | | | | | (25,307) | | |
Pension liability contribution | | | | | (595) | | | | | | (1,118) | | |
Changes in assets and liabilities: | | | | ||||||||||
Accounts receivable | | | | | (49,198) | | | | | | (49,424) | | |
Other current assets | | | | | (4,075) | | | | | | (23,251) | | |
Accounts payable, accrued expenses and other current liabilities | | | | | 37,449 | | | | | | 27,232 | | |
Other | | | | | (2,960) | | | | | | (4,568) | | |
Net cash provided by operating activities | | | | $ | 95,022 | | | | | $ | 26,204 | | |
Investing activities | | | | ||||||||||
Property and equipment additions | | | | $ | (23,609) | | | | | $ | (22,521) | | |
Net cash used in investing activities | | | | $ | (23,609) | | | | | $ | (22,521) | | |
|
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, | March 31, | |||||||
(in $ thousands) | 2018 | 2017 | ||||||
Operating activities | ||||||||
Net income | $ | 59,231 | $ | 55,863 | ||||
Income from discontinued operations, net of tax | (27,747 | ) | — | |||||
Net income from continuing operations | 31,484 | 55,863 | ||||||
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 48,577 | 52,909 | ||||||
Amortization of customer loyalty payments | 22,343 | 18,795 | ||||||
Impairment of long-lived assets | 491 | 685 | ||||||
Amortization of debt finance costs and debt discount | 1,890 | 2,673 | ||||||
Loss on early extinguishment of debt | 27,661 | — | ||||||
Unrealized loss (gain) on foreign exchange derivative instruments | 242 | (7,701 | ) | |||||
Unrealized gain on interest rate derivative instruments | (10,430 | ) | (226 | ) | ||||
Equity-based compensation | 5,056 | 8,006 | ||||||
Deferred income taxes | (9,836 | ) | 152 | |||||
Customer loyalty payments | (27,366 | ) | (16,755 | ) | ||||
Pension liability contribution | (338 | ) | (595 | ) | ||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (62,768 | ) | (49,198 | ) | ||||
Other current assets | (8,057 | ) | (4,075 | ) | ||||
Accounts payable, accrued expenses and other current liabilities | 53,750 | 37,449 | ||||||
Other | 10,398 | (2,960 | ) | |||||
Net cash provided by operating activities of continuing operations | $ | 83,097 | $ | 95,022 | ||||
Investing activities | ||||||||
Property and equipment additions | $ | (36,663 | ) | $ | (23,609 | ) | ||
Net cash used in investing activities | $ | (36,663 | ) | $ | (23,609 | ) |
See Notes to the Consolidated Condensed Financial Statements
6 |
TRAVELPORT WORLDWIDE LIMITED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS—(Continued)
(unaudited)
(in $ thousands) | | | Three Months Ended March 31, 2017 | | | Three Months Ended March 31, 2016 | | ||||||
Financing activities | | | | ||||||||||
Repayment of term loans | | | | $ | (5,938) | | | | | $ | (9,405) | | |
Repayment of capital lease obligations and other indebtedness | | | | | (9,511) | | | | | | (12,079) | | |
Proceeds from revolver borrowings | | | | | — | | | | | | 10,000 | | |
Repayment of revolver borrowings | | | | | — | | | | | | (10,000) | | |
Dividend to shareholders | | | | | (9,306) | | | | | | (9,280) | | |
Proceeds from share issuance under employee share purchase plan | | | | | 632 | | | | | | — | | |
Treasury share purchase related to vesting of equity awards | | | | | (128) | | | | | | (275) | | |
Net cash used in financing activities | | | | $ | (24,251) | | | | | $ | (31,039) | | |
Effect of changes in exchange rates on cash and cash equivalents | | | | | 307 | | | | | | 508 | | |
Net increase (decrease) in cash and cash equivalents | | | | | 47,469 | | | | | | (26,848) | | |
Cash and cash equivalents at beginning of period | | | | | 139,938 | | | | | | 154,841 | | |
Cash and cash equivalents at end of period | | | | $ | 187,407 | | | | | $ | 127,993 | | |
Supplemental disclosures of cash flow information | | | | ||||||||||
Interest payments, net of capitalized interest | | | | $ | 30,126 | | | | | $ | 37,480 | | |
Income tax payments, net of refunds | | | | | 3,905 | | | | | | 4,549 | | |
Non-cash capital lease additions | | | | | 1,651 | | | | | | 6,779 | | |
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, | March 31, | |||||||
(in $ thousands) | 2018 | 2017 | ||||||
Financing activities | ||||||||
Proceeds from term loans | $ | 1,400,000 | $ | — | ||||
Proceeds from issuance of senior secured notes | 745,000 | — | ||||||
Repayment of term loans | (2,153,750 | ) | (5,938 | ) | ||||
Repayment of capital lease obligations and other indebtedness | (8,000 | ) | (9,511 | ) | ||||
Debt finance costs and lender fees | (17,381 | ) | — | |||||
Dividend to shareholders | (9,427 | ) | (9,306 | ) | ||||
Proceeds from share issuance under employee share purchase plan and stock options | 2,088 | 632 | ||||||
Treasury share purchase related to vesting of equity awards | (235 | ) | (128 | ) | ||||
Net cash used in financing activities | $ | (41,705 | ) | $ | (24,251 | ) | ||
Effect of changes in exchange rates on cash and cash equivalents | 397 | 307 | ||||||
Net increase in cash and cash equivalents | 5,126 | 47,469 | ||||||
Cash and cash equivalents at beginning of period | 122,039 | 139,938 | ||||||
Cash and cash equivalents at end of period | $ | 127,165 | $ | 187,407 | ||||
Supplemental disclosures of cash flow information | ||||||||
Interest payments, net of capitalized interest | $ | 31,530 | $ | 30,126 | ||||
Income tax payments, net of refunds | 11,902 | 3,905 | ||||||
Non-cash capital lease additions | 2,164 | 1,651 | ||||||
Non-cash purchase of property and equipment | 4,220 | — |
See Notes to the Consolidated Condensed Financial Statements
7 |
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN TOTAL EQUITY (DEFICIT)
(unaudited)
| | | Common Shares | | | Additional Paid in Capital | | | Treasury Shares | | | Accumulated Deficit | | | Accumulated Other Comprehensive Loss | | | Non- Controlling Interest in Subsidiaries | | | Total Equity (Deficit) | | |||||||||||||||||||||||||||||||||
(in $ thousands, except share data) | | | Number | | | Amount | | | Number | | | Amount | | ||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2016 | | | | | 124,941,233 | | | | | $ | 312 | | | | | $ | 2,708,836 | | | | | | 908,872 | | | | | $ | (14,166) | | | | | $ | (2,864,838) | | | | | $ | (190,072) | | | | | $ | 24,146 | | | | | $ | (335,782) | | |
Dividend to shareholders ($0.075 per common share) | | | | | — | | | | | | — | | | | | | (10,054) | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (10,054) | | |
Equity-based compensation | | | | | 59,388 | | | | | | — | | | | | | 7,168 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 1,182 | | | | | | 8,350 | | |
Treasury shares purchased in relation to vesting of equity awards | | | | | — | | | | | | — | | | | | | — | | | | | | 8,916 | | | | | | (128) | | | | | | — | | | | | | — | | | | | | — | | | | | | (128) | | |
Comprehensive income (loss), net of tax | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 56,106 | | | | | | 6,936 | | | | | | (243) | | | | | | 62,799 | | |
Balance as of March 31, 2017 | | | | | 125,000,621 | | | | | $ | 312 | | | | | $ | 2,705,950 | | | | | | 917,788 | | | | | $ | (14,294) | | | | | $ | (2,808,732) | | | | | $ | (183,136) | | | | | $ | 25,085 | | | | | $ | (274,815) | | |
|
| | | Common Shares | | | Additional Paid in Capital | | | Treasury Shares | | | Accumulated Deficit | | | Accumulated Other Comprehensive Loss | | | Non- Controlling Interest in Subsidiaries | | | Total Equity (Deficit) | | |||||||||||||||||||||||||||||||||
(in $ thousands, except share data) | | | Number | | | Amount | | | Number | | | Amount | | ||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2015 | | | | | 124,476,382 | | | | | $ | 311 | | | | | $ | 2,715,538 | | | | | | 844,908 | | | | | $ | (13,331) | | | | | $ | (2,881,658) | | | | | $ | (177,507) | | | | | $ | 33,789 | | | | | $ | (322,858) | | |
Dividend to shareholders ($0.075 per common share) | | | | | — | | | | | | — | | | | | | (9,458) | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (9,458) | | |
Equity-based compensation | | | | | 111,412 | | | | | | — | | | | | | 9,026 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 9,026 | | |
Treasury shares purchased in relation to vesting of equity awards | | | | | — | | | | | | — | | | | | | — | | | | | | 23,417 | | | | | | (275) | | | | | | — | | | | | | — | | | | | | — | | | | | | (275) | | |
Comprehensive income, net of tax | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 16,585 | | | | | | 9,710 | | | | | | 596 | | | | | | 26,891 | | |
Balance as of March 31, 2016 | | | | | 124,587,794 | | | | | $ | 311 | | | | | $ | 2,715,106 | | | | | | 868,325 | | | | | $ | (13,606) | | | | | $ | (2,865,073) | | | | | $ | (167,797) | | | | | $ | 34,385 | | | | | $ | (296,674) | | |
|
Accumulated | Non- | |||||||||||||||||||||||||||||||||||
Additional | Other | Controlling | Total | |||||||||||||||||||||||||||||||||
Common Shares | Paid in | Treasury Shares | Accumulated | Comprehensive | Interest in | Equity | ||||||||||||||||||||||||||||||
(in $ thousands, except share data) | Number | Amount | Capital | Number | Amount | Deficit | Loss | Subsidiaries | (Deficit) | |||||||||||||||||||||||||||
Balance as of December 31, 2017 | 126,967,010 | $ | 317 | $ | 2,700,133 | 1,620,397 | $ | (24,755 | ) | $ | (2,722,375 | ) | $ | (155,621 | ) | $ | 9,980 | $ | (192,321 | ) | ||||||||||||||||
Change in accounting policy for revenue recognition (see Note 3) | — | — | — | — | — | 986 | — | — | 986 | |||||||||||||||||||||||||||
Dividend to shareholders ($0.075 per common share) | — | — | (9,699 | ) | — | — | — | — | — | (9,699 | ) | |||||||||||||||||||||||||
Equity-based compensation | 293,143 | 1 | 7,342 | — | — | — | — | 956 | 8,299 | |||||||||||||||||||||||||||
Purchase of a non-controlling interest in a subsidiary | — | — | (1,887 | ) | — | — | — | — | 1,887 | — | ||||||||||||||||||||||||||
Treasury shares purchased in relation to vesting of equity awards | — | — | — | 17,445 | (235 | ) | — | — | — | (235 | ) | |||||||||||||||||||||||||
Treasury shares issued in relation to vesting of equity awards | — | — | (123 | ) | (8,008 | ) | 123 | — | — | — | — | |||||||||||||||||||||||||
Comprehensive income, net of tax | — | — | — | — | — | 58,829 | 6,743 | 402 | 65,974 | |||||||||||||||||||||||||||
Balance as of March 31, 2018 | 127,260,153 | $ | 318 | $ | 2,695,766 | 1,629,834 | $ | (24,867 | ) | $ | (2,662,560 | ) | $ | (148,878 | ) | $ | 13,225 | $ | (126,996 | ) |
Accumulated | Non- | |||||||||||||||||||||||||||||||||||
Additional | Other | Controlling | Total | |||||||||||||||||||||||||||||||||
Common Shares | Paid in | Treasury Shares | Accumulated | Comprehensive | Interest in | Equity | ||||||||||||||||||||||||||||||
(in $ thousands, except share data) | Number | Amount | Capital | Number | Amount | Deficit | Loss | Subsidiaries | (Deficit) | |||||||||||||||||||||||||||
Balance as of December 31, 2016 | 124,941,233 | $ | 312 | $ | 2,708,836 | 908,872 | $ | (14,166 | ) | $ | (2,864,838 | ) | $ | (190,072 | ) | $ | 24,146 | $ | (335,782 | ) | ||||||||||||||||
Dividend to shareholders ($0.075 per common share) | — | — | (10,054 | ) | — | — | — | — | — | (10,054 | ) | |||||||||||||||||||||||||
Equity-based compensation | 59,388 | — | 7,168 | — | — | — | — | 1,182 | 8,350 | |||||||||||||||||||||||||||
Treasury shares purchased in relation to vesting of equity awards | — | — | — | 8,916 | (128 | ) | — | — | — | (128 | ) | |||||||||||||||||||||||||
Comprehensive income (loss), net of tax | — | — | — | — | — | 56,106 | 6,936 | (243 | ) | 62,799 | ||||||||||||||||||||||||||
Balance as of March 31, 2017 | 125,000,621 | $ | 312 | $ | 2,705,950 | 917,788 | $ | (14,294 | ) | $ | (2,808,732 | ) | $ | (183,136 | ) | $ | 25,085 | $ | (274,815 | ) |
See Notes to the Consolidated Condensed Financial Statements
8 |
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
Basis of Presentation
Travelport Worldwide Limited (the “Company” or “Travelport”) is a travel commerce platform providing distribution, technology, payment, mobile and other solutions for the global travel and tourism industry. With a presence in approximately 180 countries and territories, Travelport business is comprised of:
The Travel Commerce Platform, through which the Company facilitates travel commerce by connecting the world’s leading travel providers, such as airlines, and hotel chains and car rental companies, with online and offline travel buyers in the Company’s proprietary business-to-business (“B2B”) travel commerce platform. As travel industrycustomer needs and technologies evolve, Travelport is utilizingcontinues to invest in its Travel Commerce Platform to redefine thePlatform. Travelport has led innovation in electronic distribution and merchandising of airline core and ancillary products as well as extendingand extensively divested its reach into the growing world of travel commerce beyond air, includingofferings to hotel, car rental, rail, cruise-line and tour operators. In addition, Travelport has leveraged its domain expertise in the travel industry to design a pioneering B2B payment solution that addresses the need of travel agencies to efficiently and securely make payments to travel providers globally. The Company also provides travel companies withhas a strong focus on mobile travel platform and digital product setcommerce, providing a wide range of services that allows airlines, hotels, corporate travel management companies and travel agencies to engage with their customers through digital services, including apps, mobile webcorporate booking tools and mobile messaging. Travelport utilizes the extensive data managed by its platform to provide an array of additional services, such as advertising solutions, subscription services, business intelligence data services, and marketing-oriented analytical tools to travel agencies, travel providers and other travel data users.
The Company has two operating segments, Travelport and eNett; however, the Company reports them together as one reportable segment as eNett does not meet the thresholdscriteria for a separate reportable segment.
These consolidated condensed financial statements and other consolidated condensed financial information included in this Quarterly Report on Form 10-Q are unaudited, with the exception of the December 31, 20162017 consolidated condensed balance sheet, which was derived from audited consolidated financial statements. These consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting. Certain disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.
In presenting the consolidated condensed financial statements in accordance with U.S. GAAP, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgments and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the consolidated condensed financial statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These consolidated condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 20162017 filed with the SEC on February 21, 2017.20, 2018.
The Company has reclassified prior period information as a result of the Company's adoption of new guidance on pensions as further described in Note 2–Recently Issued Accounting Pronouncements.
9 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
2. Recently Issued Accounting Pronouncements
Accounting Pronouncements Adopted
Equity-Based Compensation—Modification Accounting
In MarchMay 2017, the Financial Accounting Standards Board (the “FASB”) issued guidance clarifying when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This guidance does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and will not be required if the changes are considered non-substantive. The Company adopted the provisions of this guidance prospectively effective January 1, 2018 as required under the guidance. The adoption of this guidance did not have an impact on the Company’s consolidated condensed financial statements.
Pension
In March 2017, the FASB issued guidance on the presentation of net periodic pension cost and post-retirement benefit cost (“net benefit cost”). The new
Goodwill Impairment
In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment. The guidance removes step two of the goodwill impairment test, which requires a hypothetical purchase price allocation. AUnder this guidance a goodwill impairment will beis the amount by which a reporting unit’s carrying value exceeds its fair value. The new guidance is applicable to the Company for interim and annual reporting periods beginning after December 15, 2019. Early adoption of the amendments in the guidance is permitted for any impairment tests performed after January 1, 2017 and requires its application using a prospective transition method. The Company doesearly adopted the provisions of this guidance effective January 1, 2018. The adoption of this guidance did not anticipate any significanthave an impact on the Company’s consolidated condensed financial statements resulting from the adoption of this guidance.
Restricted Cash
In November 2016, the FASB issued guidance that requires entities to include restricted cash as part of cash and cash equivalents in the statement of cash flows. It also requires a reconciliation betweenof cash, cash equivalents and restricted cash balances disclosed in the balance sheet andwith the corresponding amounts as shown in the statement of cash flows. The newCompany adopted the provisions of this guidance is applicable toeffective January 1, 2018 as required under the Company for interim and annual reporting periods beginning after December 15, 2017. Earlyguidance. The adoption of the amendments in thethis guidance is permitted and requires its application using a retrospective transition method. The Company doesdid not anticipate any significanthave an impact on the Company’s consolidated condensed financial statements resulting from the adoption of this guidance.
Statement of Cash Flows
In August 2016, the FASB issued guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The amendments provide specific guidance relating to the classification of certain items, including cash payments for debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, distributions received from equity method investments and cash flows classification based on its predominate source or use. The newCompany adopted the provisions of this guidance is applicable toeffective January 1, 2018 as required under the Company for interim and annual reporting periods beginning after December 15, 2017. Earlyguidance. The adoption of this guidance did not have an impact on the amendmentsCompany’s consolidated condensed financial statements.
10 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Financial Instruments
In January 2016, the FASB issued guidance that amends the current guidance on the classification and measurement of financial instruments. It significantly revises the accounting related to (i) the classification and measurement of investments in equity securities of unconsolidated subsidiaries (other than those accounted for using the equity method of accounting) and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with the fair value of financial instruments. The Company adopted the provisions of this guidance effective January 1, 2018 as required under the guidance. The adoption of this guidance did not have an impact on the Company’s consolidated condensed financial statements.
Revenue Recognition
In May 2014, the FASB issued guidance on revenue from contracts with customers that superseded most current revenue recognition guidance, including industry-specific guidance. The underlying principle of the guidance is permittedto recognize revenue to depict the transfer of goods or services to customers at an amount to which the company expects to be entitled in exchange for those goods or services. The new guidance requires an evaluation of revenue arrangements with customers following a five-step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the company satisfies each performance obligation. Revenues are recognized when control of the promised services are transferred to the customers in an amount that reflects the expected consideration in exchange for those services. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the services. Other major provisions of the guidance include capitalization of certain contract costs, consideration of the time value of money in the transaction price and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires its application using a retrospective transition method.enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company doesadopted the provisions of this guidance effective January 1, 2018 as required under the guidance. The adoption of this guidance did not anticipatehave any significantmaterial impact on the Company’s consolidated condensed financial statements resulting from the adoption of this guidance.
Accounting Pronouncements Not Yet Adopted
Financial Instruments—Credit Losses
In June 2016, the FASB issued guidance that amends the guidance on accounting for credit losses on financial instruments. The guidance adds an impairment model that is based on expected losses rather than incurred losses. Under this new guidance, an entity will recognize an allowance for credit losses will be recognized based on its
Leases
In February 2016, the FASB issued guidance on lease accounting that supersedes the current guidance on leases. The new guidance establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the income statement.statement of operations. The new guidance is applicable to the Company for interim and annual reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption of the amendments in the guidance is permitted. The Company is currently evaluating the impact of the guidance on the consolidated condensed financial statements. The Company’s minimum lease commitments for operating leases as of March 31, 20172018 was $100$98 million.
11 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
3. Revenue
On January 1, 2018, the Company adopted the new revenue recognition guidance permitsapplying the use of either a full or modified retrospective adoption approach.method to all contracts. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue recognition guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under previous revenue recognition guidance. The Company recorded a $1 million reduction to its accumulated deficit balance as of January 1, 2018, representing the cumulative impact of adopting the new revenue recognition guidance, which primarily relates to the timing of recognition of hotel reservations in the Company’s Beyond Air revenue. The impact to net revenue for the quarter ended March 31, 2018 was a decrease of less than $1 million as a result of applying the new revenue recognition guidance.
The Company operates a travel commerce platform providing distribution, technology, payment, mobile and other solutions for the global travel and tourism industry. Through its Travel Commerce Platform, the Company connects travel providers (“customers”), such as airlines, hotel chains and car rental companies with online and offline travel buyers, including travel agencies, travel management companies and corporations. The Company also provides critical information technology services to airlines, such as shopping, ticketing, departure control, business intelligence and other solutions.
The following table presents the Company’s net revenue disaggregated by its source. Sales and usage-based taxes are excluded from net revenue.
Three Months Ended | ||||
March 31, | ||||
(in $ thousands) | 2018 | |||
Air | $ | 472,935 | ||
Beyond Air | 179,751 | |||
Travel Commerce Platform(1) | 652,686 | |||
Technology Services | 25,152 | |||
Net revenue | $ | 677,838 |
(1) | Includes $18 million of Travel Commerce Platform revenue for the three months ended March 31, 2018 that does not represent revenue recognized from contracts with customers. |
Travel Commerce Platform Revenue
Travel Commerce Platform revenue primarily utilizes a transaction volume model to recognize revenue. The Company charges a fee per segment booked. The Company also receives a fee for cancellations of bookings previously made on the Company’s platform and a fee for tickets issued by the Company that were originally booked on an alternative system.
Revenue for air bookings is recognized at the time of reservation, net of estimated cancellations and anticipated incentives payable to customers. Cancellations prior to the date of departure are estimated based on the historical level of cancellations (net of cancellation fees).
The Company’s Beyond Air portfolio includes hospitality, payment solutions, digital services, advertising and other platform services. Revenue for hotel reservations is recognized upon check-in and revenue for car reservations is recognized upon pick-up, as such reservations can generally be cancelled without penalty. The Company’s payment solutions revenue is earned primarily as a percentage of total transaction value in the form of a share of interchange fees. Revenue is recognized at the point in time when the payment is processed.
The Company collects annual fees from travel agencies, internet sites and other subscribers to access the applications on its Travel Commerce Platform, including providing the ability to access schedule and fare information, book reservations and issue tickets. Where the contractual terms are on a subscription basis with fixed amounts of fees, revenue is recognized ratably over the contract period as the performance obligation is satisfied over time. Where the contractual terms are transaction-based with fees charged per transaction, revenue is recognized as the services are provided.
12 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
The table below sets forth Travel Commerce Platform revenue disaggregated by region:
Three Months Ended | ||||
March 31, | ||||
(in $ thousands) | 2018 | |||
Asia Pacific | 141,551 | |||
Europe | 244,442 | |||
Latin America and Canada | 29,859 | |||
Middle East and Africa | 79,106 | |||
International | 494,958 | |||
United States | 157,728 | |||
Travel Commerce Platform(1) | 652,686 |
(1) | Includes $18 million of Travel Commerce Platform revenue for the three months ended March 31, 2018 that does not represent revenue recognized from contracts with customers. |
Technology Services Revenue
The Company collects fees, generally on a monthly basis under long-term contracts, for providing hosting solutions and other services to airlines such as shopping, ticketing, departure control, business intelligence and other solutions. Where the contractual terms are on a subscription basis with fixed amounts of fees, revenue is recognized ratably over the contract period as the performance obligation is satisfied over time. Where the contractual terms are transaction-based with fees charged per transaction, revenue is recognized as the services are provided.
Contract Balances
Where a performance obligation has been satisfied but not yet invoiced at the reporting date, a contract asset is recognized on the balance sheet. Where a performance obligation has not yet been satisfied but an invoice has been raised at the reporting date, a contract liability is recognized on the balance sheet.
The opening and closing balances of the Company’s accounts receivables and contract liabilities (current and non-current) are as follows:
Contract Liabilities | ||||||||||||
(in $ thousands) | Accounts Receivable, net(1) | Deferred Revenue (current)(1) | Deferred Revenue (non-current) | |||||||||
Balance as of March 31, 2018 | $ | 231,336 | $ | 32,186 | $ | 6,367 | ||||||
Balance as of January 1, 2018 | 174,765 | 32,010 | 6,056 | |||||||||
Increase | $ | 56,571 | $ | 176 | $ | 311 |
(1) | Accounts receivables, net, and deferred revenue exclude balances not related to contracts with customers. |
The majority of the Company’s Air revenue within its Travel Commerce Platform is collected through the Airline Clearing House (“ACH”) and other similar clearing houses, whereby the payments are submitted monthly to the ACH and are settled (on a net basis) within approximately 30 days. Airlines that do not settle payment through the ACH and customers in Beyond Air and Technology Services are generally invoiced on a monthly basis, and the payments are generally received within approximately 30-60 days.
Deferred revenue is recorded when cash payments are received or due in advance of the Company’s performance, including amounts that are refundable. The cash payments received or due in advance of satisfying the Company’s performance obligations, was offset by $6 million of net revenue recognized that were included in the deferred revenue balance as of December 31, 2017.
13 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Remaining Performance Obligations
As of March 31, 2018, the aggregate amount of the transaction price allocated to the remaining performance obligations was approximately $57 million, of which the Company expects to adoptrecognize revenue of approximately 78% over the guidance usingnext 24 months, including 45% over the modified retrospective approach, undernext 12 months.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected term of one year or less and (ii) contracts for which the cumulative effectCompany recognizes revenue at the amounts to which it has the right to invoice for services performed.
4. Income Taxes
The Company’s tax provision differs significantly from the expected provision amount calculated at the U.S. federal statutory rate primarily as a result of initially applying(i) being subject to income tax in numerous non- U.S. jurisdictions with varying income tax rates, (ii) a valuation allowance maintained in various jurisdictions, including the guidanceU.S. and the U.K., due to historical losses in such jurisdictions, (iii) certain expenses that are not deductible for tax or do not secure an effective tax deduction under the relevant jurisdictions, (iv) certain income or gains that are not subject to tax, (v) the impact of the U.S. Tax Reforms (as defined below) and (vi) the impact of changes in the U.K. to the tax deductibility of interest.
As of December 31, 2017, the Company had U.S. federal net operating losses (“NOL”) carry forwards of approximately $400 million, which expire between 2032 and 2037, state NOL carry forwards, which expire between 2018 and 2037, and alternative minimum tax (“AMT”) and other tax credits carry forward of approximately $27 million. The Company had other non–U.S. NOL carry forwards of $345 million that expire between three years and indefinitely. The deferred tax asset in respect of these U.S. and non–U.S. NOL carry forwards and U.S. tax credits were $197 million. The Company believes it is more likely than not that the benefit from certain U.S. federal, U.S. state and non–U.S. NOL carry forwards and other deferred tax assets will not be recognizedrealized. Consequently, a valuation allowance of $187 million has been recorded against such deferred tax assets as of December 31, 2017.
The Company regularly assesses its ability to realize deferred tax assets. As of March 31, 2018, the Company’s estimated annual effective tax rate includes the impact of (i) releasing a portion of the valuation allowance associated with the U.S. NOL carry forwards due to an increase in taxable temporary differences that support deferred tax asset utilization and (ii) releasing a portion of the valuation allowance associated with the U.K. NOL carry forwards (see below). However, the Company has maintained a valuation allowance on the remaining deferred tax assets. Future realized earnings performance and changes in future earnings projections, among other factors, may cause an adjustment to the opening balance of retained earnings (or accumulated losses)conclusion as of January 1, 2018. The guidance also permitsto whether it is more likely than not that the applicationbenefit of the modified retrospective approach to either all contracts asdeferred tax assets will be realized. This would impact the income tax expense in the period for which it is determined that these factors have changed.
As a result of the date of initial application or only to contracts that are not completed as of this date. TheCompany’s debt restructuring in March 2018 (see Note 11–Long-Term Debt), the Company expects to apply the modified retrospective approach only to contracts that are not completed as of January 1, 2018.
The Company’s preliminary estimate of the impact of the new guidance oncomprehensive changes to the U.S. tax legislation that were enacted in December 2017 under the Tax Cuts and Jobs Act (the “U.S. Tax Reforms”) is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the U.S. Tax Reforms, the impact of state income taxes, administrative interpretations or court decisions interpreting the U.S. Tax Reforms that may require further adjustments and changes in the Company’s revenue contracts, comparing its current accounting policies and practicesestimates that could be beneficial or adverse. The Company continued to assess the requirementsimpact of the new guidance,U.S. Tax Reforms during the three months ended March 31, 2018 and identifying potential differences that would resultexpects to complete its assessment and resultant accounting, if any, by December 2018 (being the one–year measurement period from applying the new guidance to its contracts. The Company is also in the processdate of identifying and implementing changes to its business processes, systems and controls to support adoptionenactment of the new guidance in 2018. As of March 31, 2017, the expected impact on the consolidated condensed financial statements cannot be reasonably estimated.U.S. Tax Reforms).
14 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. Other Current Assets
Other current assets consisted of:
(in $ thousands) | | | March 31, 2017 | | | December 31, 2016 | | ||||||
Sales and use tax receivables | | | | $ | 26,216 | | | | | $ | 27,178 | | |
Prepaid expenses | | | | | 25,339 | | | | | | 26,289 | | |
Client funds | | | | | 19,265 | | | | | | 11,632 | | |
Prepaid incentives | | | | | 13,698 | | | | | | 9,492 | | |
Derivative assets | | | | | 2,325 | | | | | | 856 | | |
Other | | | | | 12,443 | | | | | | 8,642 | | |
| | | | $ | 99,286 | | | | | $ | 84,089 | | |
|
March 31, | December 31, | |||||||
(in $ thousands) | 2018 | 2017 | ||||||
Client funds | $ | 34,125 | $ | 15,774 | ||||
Sales and use tax receivables | 32,309 | 30,163 | ||||||
Prepaid expenses | 28,268 | 24,271 | ||||||
Prepaid incentives | 16,236 | 16,677 | ||||||
Derivative assets | 22,238 | 15,233 | ||||||
Other | 9,350 | 7,606 | ||||||
$ | 142,526 | $ | 109,724 |
Client funds represent cash held on behalf of clients for a short period of time before being transferred to travel industry partners. A compensating balance is held in accrued expenses and other current liabilities as customer prepayments.
6. Property and Equipment, Net
Property and equipment, net, consisted of:
| | | March 31, 2017 | | | December 31, 2016 | | ||||||||||||||||||||||||||||||
(in $ thousands) | | | Cost | | | Accumulated depreciation | | | Net | | | Cost | | | Accumulated depreciation | | | Net | | ||||||||||||||||||
Capitalized software | | | | $ | 965,418 | | | | | $ | (756,921) | | | | | $ | 208,497 | | | | | $ | 925,998 | | | | | $ | (736,573) | | | | | $ | 189,425 | | |
Computer equipment | | | | | 342,479 | | | | | | (207,804) | | | | | | 134,675 | | | | | | 344,112 | | | | | | (205,222) | | | | | | 138,890 | | |
Building and leasehold improvements | | | | | 26,670 | | | | | | (9,313) | | | | | | 17,357 | | | | | | 27,187 | | | | | | (9,622) | | | | | | 17,565 | | |
Construction in progress | | | | | 54,110 | | | | | | — | | | | | | 54,110 | | | | | | 85,166 | | | | | | — | | | | | | 85,166 | | |
| | | | $ | 1,388,677 | | | | | $ | (974,038) | | | | | $ | 414,639 | | | | | $ | 1,382,463 | | | | | $ | (951,417) | | | | | $ | 431,046 | | |
|
March 31, 2018 | December 31, 2017 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
(in $ thousands) | Cost | depreciation | Net | Cost | depreciation | Net | ||||||||||||||||||
Capitalized software | $ | 1,074,053 | $ | (850,777 | ) | $ | 223,276 | $ | 1,029,772 | $ | (829,416 | ) | $ | 200,356 | ||||||||||
Computer equipment | 346,769 | (217,089 | ) | 129,680 | 346,846 | (207,484 | ) | 139,362 | ||||||||||||||||
Building and leasehold improvements | 33,389 | (13,745 | ) | 19,644 | 32,834 | (12,972 | ) | 19,862 | ||||||||||||||||
Construction in progress | 62,754 | — | 62,754 | 72,161 | — | 72,161 | ||||||||||||||||||
$ | 1,516,965 | $ | (1,081,611 | ) | $ | 435,354 | $ | 1,481,613 | $ | (1,049,872 | ) | $ | 431,741 |
The Company recorded depreciation expense (including depreciation on assets under capital leases) of $43$38 million and $41$43 million during the three months ended March 31, 2018 and 2017, and 2016, respectively.
As of March 31, 20172018 and December 31, 2016,2017, the Company had capital lease assets of $192$210 million and $195$208 million, respectively, with accumulated depreciation of $100$116 million and $93$107 million, respectively, included within computer equipment.
15 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
7. Intangible Assets
The changes in the carrying amount of goodwill and intangible assets forof the Company between January 1, 2018 and March 31, 2018 are as follows:
January 1, | Foreign | March 31, | ||||||||||||||||||
(in $ thousands) | 2018 | Additions | Retirements | Exchange | 2018 | |||||||||||||||
Non-Amortizable Assets: | ||||||||||||||||||||
Goodwill | $ | 1,089,590 | $ | — | $ | — | $ | 925 | $ | 1,090,515 | ||||||||||
Trademarks and tradenames | 313,097 | — | — | — | 313,097 | |||||||||||||||
Other Intangible Assets: | ||||||||||||||||||||
Acquired intangible assets | 743,549 | — | — | 6 | 743,555 | |||||||||||||||
Accumulated amortization | (461,666 | ) | (10,166 | ) | — | (32 | ) | (471,864 | ) | |||||||||||
Acquired intangible assets, net | 281,883 | (10,166 | ) | — | (26 | ) | 271,691 | |||||||||||||
Customer loyalty payments | 380,841 | 45,126 | (10,551 | ) | 2,008 | 417,424 | ||||||||||||||
Accumulated amortization | (166,544 | ) | (22,343 | ) | 10,315 | (843 | ) | (179,415 | ) | |||||||||||
Customer loyalty payments, net | 214,297 | 22,783 | (236 | ) | 1,165 | 238,009 | ||||||||||||||
Other intangible assets, net | $ | 496,180 | $ | 12,617 | $ | (236 | ) | $ | 1,139 | $ | 509,700 |
The changes in the carrying amount of goodwill and intangible assets of the Company between January 1, 2017 and March 31, 2017 are as follows:
(in $ thousands) | | | January 1, 2017 | | | Additions | | | Retirements | | | Foreign Exchange | | | March 31, 2017 | | |||||||||||||||
Non-Amortizable Assets: | | | | | | | |||||||||||||||||||||||||
Goodwill | | | | $ | 1,079,951 | | | | | $ | — | | | | | $ | — | | | | | $ | 2,364 | | | | | $ | 1,082,315 | | |
Trademarks and tradenames | | | | | 313,097 | | | | | | — | | | | | | — | | | | | | — | | | | | | 313,097 | | |
Other Intangible Assets: | | | | | | | |||||||||||||||||||||||||
Acquired intangible assets | | | | | 1,127,059 | | | | | | — | | | | | | (368,715) | | | | | | 26 | | | | | | 758,370 | | |
Accumulated amortization | | | | | (804,089) | | | | | | (10,392) | | | | | | 368,715 | | | | | | (52) | | | | | | (445,818) | | |
Acquired intangible assets, net | | | | | 322,970 | | | | | | (10,392) | | | | | | — | | | | | | (26) | | | | | | 312,552 | | |
Customer loyalty payments | | | | | 358,259 | | | | | | 28,354 | | | | | | (12,908) | | | | | | 2,076 | | | | | | 375,781 | | |
Accumulated amortization | | | | | (169,622) | | | | | | (18,795) | | | | | | 12,908 | | | | | | (2,074) | | | | | | (177,583) | | |
Customer loyalty payments, net | | | | | 188,637 | | | | | | 9,559 | | | | | | — | | | | | | 2 | | | | | | 198,198 | | |
Other intangible assets, net | | | | $ | 511,607 | | | | | $ | (833) | | | | | $ | — | | | | | $ | (24) | | | | | $ | 510,750 | | |
|
(in $ thousands) | | | January 1, 2016 | | | Additions | | | Retirements | | | Foreign Exchange | | | March 31, 2016 | | |||||||||||||||
Non-Amortizable Assets: | | | | | | | |||||||||||||||||||||||||
Goodwill | | | | $ | 1,067,415 | | | | | $ | — | | | | | $ | — | | | | | $ | 4,660 | | | | | $ | 1,072,075 | | |
Trademarks and tradenames | | | | | 313,961 | | | | | | — | | | | | | — | | | | | | 52 | | | | | | 314,013 | | |
Other Intangible Assets: | | | | | | | |||||||||||||||||||||||||
Acquired intangible assets | | | | | 1,127,360 | | | | | | — | | | | | | — | | | | | | (26) | | | | | | 1,127,334 | | |
Accumulated amortization | | | | | (756,489) | | | | | | (11,139) | | | | | | — | | | | | | (552) | | | | | | (768,180) | | |
Acquired intangible assets, net | | | | | 370,871 | | | | | | (11,139) | | | | | | — | | | | | | (578) | | | | | | 359,154 | | |
Customer loyalty payments | | | | | 300,142 | | | | | | 32,050 | | | | | | (19,880) | | | | | | 4,124 | | | | | | 316,436 | | |
Accumulated amortization | | | | | (136,473) | | | | | | (16,574) | | | | | | 19,154 | | | | | | (1,556) | | | | | | (135,449) | | |
Customer loyalty payments, net | | | | | 163,669 | | | | | | 15,476 | | | | | | (726) | | | | | | 2,568 | | | | | | 180,987 | | |
Other intangible assets, net | | | | $ | 534,540 | | | | | $ | 4,337 | | | | | $ | (726) | | | | | $ | 1,990 | | | | | $ | 540,141 | | |
|
January 1, | Foreign | March 31, | ||||||||||||||||||
(in $ thousands) | 2017 | Additions | Retirements | Exchange | 2017 | |||||||||||||||
Non-Amortizable Assets: | ||||||||||||||||||||
Goodwill | $ | 1,079,951 | $ | — | $ | — | $ | 2,364 | $ | 1,082,315 | ||||||||||
Trademarks and tradenames | 313,097 | — | — | — | 313,097 | |||||||||||||||
Other Intangible Assets: | ||||||||||||||||||||
Acquired intangible assets | 1,127,059 | — | (368,715 | ) | 26 | 758,370 | ||||||||||||||
Accumulated amortization | (804,089 | ) | (10,392 | ) | 368,715 | (52 | ) | (445,818 | ) | |||||||||||
Acquired intangible assets, net | 322,970 | (10,392 | ) | — | (26 | ) | 312,552 | |||||||||||||
Customer loyalty payments | 358,259 | 28,354 | (12,908 | ) | 2,076 | 375,781 | ||||||||||||||
Accumulated amortization | (169,622 | ) | (18,795 | ) | 12,908 | (2,074 | ) | (177,583 | ) | |||||||||||
Customer loyalty payments, net | 188,637 | 9,559 | — | 2 | 198,198 | |||||||||||||||
Other intangible assets, net | $ | 511,607 | $ | (833 | ) | $ | — | $ | (24 | ) | $ | 510,750 |
The Company paid cash of $17$27 million and $25$17 million for customer loyalty payments during the three months ended March 31, 20172018 and 2016,2017, respectively. Further, as of March 31, 20172018 and December 31, 2016,2017, the Company had balances payable of $70$94 million and $60$77 million, respectively, for customer loyalty payments.
Amortization expense for acquired intangible assets was $10 million and $11 million for each of the three months ended March 31, 20172018 and 2016, respectively,2017 and is included as a component of depreciation and amortization in the Company’s consolidated condensed statements of operations.
Amortization expense for customer loyalty payments was $19$22 million and $17$19 million for the three months ended March 31, 20172018 and 2016,2017, respectively, and is included within cost of revenue or net revenue in the Company’s consolidated condensed statements of operations.
16 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
8. Other Non-Current Assets
Other non-current assets consisted of:
(in $ thousands) | | | March 31, 2017 | | | December 31, 2016 | | ||||||
Prepaid incentives | | | | $ | 26,415 | | | | | $ | 25,538 | | |
Deferred financing costs | | | | | 4,313 | | | | | | 4,752 | | |
Supplier prepayments | | | | | 3,630 | | | | | | 3,454 | | |
Derivative assets | | | | | 2,510 | | | | | | 1,719 | | |
Pension assets | | | | | 1,711 | | | | | | 989 | | |
Other | | | | | 9,881 | | | | | | 10,312 | | |
| | | | $ | 48,460 | | | | | $ | 46,764 | | |
|
March 31, | December 31, | |||||||
(in $ thousands) | 2018 | 2017 | ||||||
Prepaid incentives | $ | 35,349 | $ | 35,645 | ||||
Pension assets | 9,985 | 8,674 | ||||||
Supplier prepayments | 8,461 | 10,983 | ||||||
Derivative assets | 7,740 | 3,503 | ||||||
Deferred financing costs | 1,828 | 1,930 | ||||||
Other | 13,995 | 16,073 | ||||||
$ | 77,358 | $ | 76,808 |
9. Restructuring Charges
In November 2016, the Company committed to undertake a course of action (the “Program”) to enhance and optimize the Company’s operational and technological efficiency. The Program involves (i) consolidating the multiple technological vendors with which the Company currently works, (ii) establishing a new centralized quality assurance function and (iii) consolidating the Company’s three existing U.S. technology hubs in Atlanta, Denver and Kansas City into two centers in Atlanta and Denver. These actions are expected to contribute to the achievementThis program was substantially completed as of the Company’s long-term targets. The Program is expected to be completed by mid-2018.
(in $ thousands) | | | Severance and Employee-Related Obligations | | | Implementation Costs | | | Total | | |||||||||
Balance as of January 1, 2017 | | | | $ | 11,082 | | | | | $ | 1,686 | | | | | $ | 12,768 | | |
Restructuring charges recognized | | | | | 2,381 | | | | | | 1,037 | | | | | | 3,418 | | |
Cash payments made | | | | | (372) | | | | | | (2,558) | | | | | | (2,930) | | |
Balance as of March 31, 2017 | | | | $ | 13,091 | | | | | $ | 165 | | | | | $ | 13,256 | | |
|
Total restructuring charges recognized of $0 and $3 million for the three months ended March 31, 2018 and 2017, respectively, are included within selling, general and administrative expenses in the consolidated condensed statements of operations.
10. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of:
(in $ thousands) | | | March 31, 2017 | | | December 31, 2016 | | ||||||
Accrued commissions and incentives | | | | $ | 321,145 | | | | | $ | 267,488 | | |
Accrued payroll and related | | | | | 65,231 | | | | | | 83,783 | | |
Deferred revenue | | | | | 44,460 | | | | | | 42,233 | | |
Income tax payable | | | | | 25,956 | | | | | | 17,560 | | |
Customer prepayments | | | | | 19,265 | | | | | | 11,632 | | |
Derivative liabilities | | | | | 15,779 | | | | | | 21,771 | | |
Accrued interest expense | | | | | 13,125 | | | | | | 15,215 | | |
Pension and post-retirement benefit liabilities | | | | | 1,727 | | | | | | 1,655 | | |
Other | | | | | 21,174 | | | | | | 17,223 | | |
| | | | $ | 527,862 | | | | | $ | 478,560 | | |
|
March 31, | December 31, | |||||||
(in $ thousands) | 2018 | 2017 | ||||||
Accrued commissions and incentives | $ | 356,856 | $ | 282,954 | ||||
Accrued payroll and related | 61,631 | 70,234 | ||||||
Deferred revenue | 55,683 | 48,096 | ||||||
Income tax payable | 35,113 | 32,986 | ||||||
Customer prepayments | 34,125 | 15,774 | ||||||
Derivative liabilities | 1,397 | 292 | ||||||
Accrued interest expense | 4,131 | 12,010 | ||||||
Pension and post-retirement benefit liabilities | 1,699 | 1,628 | ||||||
Other | 26,135 | 45,094 | ||||||
$ | 576,770 | $ | 509,068 |
Included in accrued commissions and incentives are $70$94 million and $60$77 million of accrued customer loyalty payments as of March 31, 20172018 and December 31, 2016,2017, respectively.
17 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
11. Long-Term Debt
Long-term debt consisted of:
(in $ thousands) | | | Interest rate | | | Maturity | | | March 31, 2017 | | | December 31, 2016 | | |||||||||
Senior Secured Credit Agreement | | | | | | |||||||||||||||||
Term loans | | | | | | |||||||||||||||||
Dollar denominated(1)(2)(3) | | | | | L+3.25% | | | | September 2021 | | | | $ | 2,232,453 | | | | | $ | 2,236,157 | | |
Revolver borrowings | | | | | | |||||||||||||||||
Dollar denominated | | | | | L+5.00% | | | | September 2019 | | | | | — | | | | | | — | | |
Capital leases and other indebtedness | | | | | | | | | | | | | | 100,776 | | | | | | 108,611 | | |
Total debt | | | | | | | | | | | | | $ | 2,333,229 | | | | | $ | 2,344,768 | | |
Less: current portion | | | | | | | | | | | | | | 62,441 | | | | | | 63,558 | | |
Long-term debt | | | | | | | | | | | | | $ | 2,270,788 | | | | | $ | 2,281,210 | | |
|
Interest | March 31, | December 31, | ||||||||||
(in $ thousands) | rate | Maturity | 2018 | 2017 | ||||||||
Senior Secured Credit Agreement | ||||||||||||
Term loans – (2018 Credit Agreement)(1) | L+2.50% | March 2025 | $ | 1,385,934 | $ | — | ||||||
Term loans – (2014 Credit Agreement)(2) | L+2.75% | September 2021 | — | 2,124,439 | ||||||||
Revolver borrowings – (2018 Credit Agreement) | L+2.25% | September 2022 | — | — | ||||||||
Revolver borrowings – (2014 Credit Agreement) | L+2.50% | September 2022 | — | — | ||||||||
Senior Secured Notes | ||||||||||||
Senior secured notes(3) | 6.00% | March 2026 | 737,404 | — | ||||||||
Capital leases and other indebtedness | 99,786 | 105,574 | ||||||||||
Total debt | 2,223,124 | 2,230,013 | ||||||||||
Less: current portion | 54,089 | 64,291 | ||||||||||
Long-term debt | $ | 2,169,035 | $ | 2,165,722 |
(1) | As of March 31, 2018, the principal amount of terms loans under the 2018 Credit Agreement (as defined below) was $1,400 million, which is netted for unamortized debt discount of $7 million and unamortized debt finance costs of $7 million. |
(2) | As of December 31, 2017, the principal amount of terms loans under the 2014 Credit Agreement (as defined below) was $2,154 million, which is netted for unamortized debt finance costs of $13 million and unamortized debt discount of $17 million. |
(3) | As of March 31, 2018, the principal amount of senior secured notes was $745 million, which is netted for unamortized debt finance costs of $8 million. |
Senior Secured Credit Agreement
In March 2018, Travelport Finance (Luxembourg) S.à r.l. (the “Borrower”), a wholly-owned subsidiary of 1.00%
Under the 2018 Credit Agreement, the interest rate per annum applicable to (a) the term loans is based on, at the election of the Company, (i)Borrower, LIBOR plus 3.25%2.50% or base rate (as defined in the senior secured credit agreement) plus 1.50% and (b) the borrowings under revolving credit facility, at the election of the Borrower, LIBOR plus 2.25% or base rate (as defined in the agreement) plus 1.25%. The term loans are subject toLIBOR rates and base rates have a LIBOR floor of 1.00% and a base rate floor of 2.00%0.00%. The Company expects to pay interest based on LIBOR plus 3.25% for the term loans. DuringLIBOR.
18 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Further, during the three months ended March 31, 2017, the average LIBOR rate applied to the term loans was 1.02%.
As discussed above, in March 2018, the Borrower entered into a new revolving credit facility under the 2018 Credit Agreement with a consortium of banks. The lenders, terms, credit facility amount and maturity date under the new revolving credit facility were substantially the same as under the 2014 Credit Agreement, except for the reduction in interest rates discussed above. Under the senior secured credit agreement,new terms, the CompanyBorrower has a $125$150 million revolving credit facility, with a consortium of banks, which contains a letter of credit sub-limit up to a maximum of $50$100 million. As of March 31, 2017, the Company had2018, there were no outstanding borrowings under itsthe revolving credit facility under the 2018 Credit Agreement, and utilized $8 million was utilized for the issuance of letters of credit, with a balance of $117$142 million remaining.
Senior Secured Notes
In March 2018, Travelport Corporate Finance PLC (the “Issuer”), a wholly-owned subsidiary of the Company, issued a principal amount of $745 million in senior secured notes due in March 2026 with a stated interest rate of 6.00% per annum. The proceeds were used to repay a portion of the term loans outstanding under the 2014 Credit Agreement. The interest on the senior secured notes is payable semi-annually in cash in arrears on March 15 and September 15 of each year, commencing September 15, 2018.
Debt Maturities
Aggregate maturities of debt as of March 31, 2018 are as follows:
Capital Leases | ||||||||||||
(in $ thousands) | Term | Senior Secured | and Other | |||||||||
Year ending March 31, | Loans | Notes | Indebtedness | |||||||||
2019 | $ | 10,500 | $ | — | $ | 43,589 | ||||||
2020 | 14,000 | — | 29,951 | |||||||||
2021 | 14,000 | — | 16,638 | |||||||||
2022 | 14,000 | — | 8,260 | |||||||||
2023 | 14,000 | — | 1,348 | |||||||||
Thereafter | 1,333,500 | 745,000 | — | |||||||||
1,400,000 | 745,000 | 99,786 | ||||||||||
Less: Unamortized debt finance cost | (7,110 | ) | (7,596 | ) | — | |||||||
Less: Unamortized debt discount | (6,956 | ) | — | — | ||||||||
Total debt | $ | 1,385,934 | $ | 737,404 | $ | 99,786 |
Debt Finance Costs
The Company had unamortized debt finance costs of (i) $7 million and $13 million as of March 31, 2018 and December 31, 2017, respectively, in relation to its term loans under the 2018 Credit Agreement and 2014 Credit Agreement, respectively, which are presented as a deduction from the principal amount of the term loans, (ii) $8 million as of March 31, 2018 in relation to its senior secured notes, which is presented as a deduction from the principal amount of senior secured notes, and (iii) $2 million as of both March 31, 2018 and December 31, 2017 in relation to its revolving credit facility, which are capitalized within other non-current assets on the consolidated condensed balance sheets. The debt finance costs are amortized over the term of the related debt into earnings as part of interest expense in the consolidated condensed statements of operations. The movements in total unamortized debt finance costs for the three months ended March 31, 2018 and 2017 are summarized below:
Three Months | Three Months | |||||||
Ended March 31, | Ended March 31, | |||||||
(in $ thousands) | 2018 | 2017 | ||||||
Balance as of January 1 | $ | 14,708 | $ | 22,855 | ||||
Capitalization of debt finance costs | 14,799 | — | ||||||
Amortization | (914 | ) | (1,417 | ) | ||||
Write-off on early extinguishment of debt | (12,059 | ) | — | |||||
Balance as of March 31 | $ | 16,534 | $ | 21,438 |
19 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Debt (Continued)
The 2018 Credit Agreement and the Indenture governing the senior secured notes contain financial and other covenants, including: limitations on the ability of Travelport Limited, a wholly-owned subsidiary of the Company and the Borrower’s and the Issuer’s immediate parent entity (the “Parent Guarantor”) and its restricted subsidiaries to incur debt or liens or make certain investments and acquisitions and restricted payments, limitations on transactions with affiliates and certain restrictions on the sale of assets. A violation of these covenants could result in the Parent Guarantor and its restricted subsidiaries being prohibited from making certain restricted payments, including dividends, or cause a default under the 2018 Credit Agreement or the Indenture, which would permit the participating lenders to restrict the Parent Guarantor’s and its restricted subsidiaries’ ability to access the revolving credit agreement also permitsfacility and require the issuanceimmediate repayment of certain cash collateralized lettersany outstanding advances made under the 2018 Credit Agreement or the Indenture. Solely in the case of the revolving credit in addition to those that can be issuedfacility under the 2018 Credit Agreement, if the amount outstanding under the revolving credit facility whereby 103%exceeds a certain threshold, there is a requirement to maintain a first lien leverage ratio.
The senior secured notes are guaranteed fully and unconditionally on a senior secured basis by the Parent Guarantor and certain of cash collateral is to be maintained for outstanding lettersits existing and future wholly-owned subsidiaries that also guarantee the facilities under the 2018 Credit Agreement. The senior secured notes and related guarantees are secured on a first-priority basis by security interests in all of credit.the Issuer’s and the guarantors’ assets that also secure the facilities under the 2018 Credit Agreement on a first-priority basis. As of March 31, 2017, there were no outstanding cash collateralized letters of credit.
12. Financial Instruments
The Company uses derivative financial instruments as part of its overall strategy to manage its exposure to market risks primarily associated with fluctuations in foreign currency exchange rates and interest rates. The Company does not use derivatives for trading or speculative purposes. During the three months ended March 31, 2017,2018, there was no material change in the Company’s foreign currency and interest rate risk management policies or in its fair value methodology. As of March 31, 2017,2018, the Company had a net liabilityasset position of $12$29 million related to its derivative financial instruments associated withinstruments.
Foreign Currency Risk
The Company’s primary foreign currency risk exposure as of March 31, 2018 was due to exchange rate fluctuations that arise from certain intercompany transactions and earnings denominated in non-U.S. dollar currencies and from non-functional currency denominated assets and liabilities.
The Company uses foreign currency derivative contracts (forward contracts) to manage its interest rate risk andexposure to changes in foreign currency exchange rate risk.
Interest Rate Risk
As of March 31, 2018, the Company’s primary interest rate risk exposure as of March 31, 2017 was to interest rate fluctuations in the United States, specifically the impact of LIBOR interest rates on the Company’s U.S. dollar denominated variable rate term loans. The term loans have a 1.00% LIBOR floor under the Company’s senior secured credit agreement. During the three months ended March 31, 2017,2018, the average LIBOR rates increased aboverate applied to the LIBOR floor of 1.00%term loans was 1.64%. In order to protect against potential higher interest costs resulting from increases in LIBOR, in October 2015,as of March 31, 2018, the Company transacted $1,400 million notional amount ofhad outstanding interest rate swap contracts covering a period from February 2017 to February 2019. Further, during the three months ended March 31, 2017, the Company transacted $1,200 million notional amount of interest rate swap contracts commencing February 2019 until February 2020. These swapsthat fix the LIBOR rate payable on approximately 60% of the Company’s floating rate debt during these periods at average rates of 1.4010% and 2.1906%, respectively.as follows:
Average | ||||||
Notional Amount | Interest | |||||
($ in thousands) | Period | Rate | ||||
1,400,000 | February 2017 to February 2019 | 1.4010% | ||||
1,200,000 | February 2019 to February 2020 | 2.1906% | ||||
400,000 | February 2020 to February 2021 | 2.1925% |
20 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Presented below is a summary of the gross fair value of the Company’s derivative contracts, which have not been designated as hedging instruments, recorded on the consolidated condensed balance sheets at fair value.
| | | | | | Fair Value Asset | | | | | | Fair Value (Liability) | | ||||||||||||||||||
(in $ thousands) | | | Balance Sheet Location | | | March 31, 2017 | | | December 31, 2016 | | | Balance Sheet Location | | | March 31, 2017 | | | December 31, 2016 | | ||||||||||||
Interest rate swap contracts | | | Other current assets | | | | $ | 1,035 | | | | | $ | 768 | | | | Accrued expenses and other current liabilities | | | | $ | — | | | | | $ | — | | |
Interest rate swap contracts | | | Other non-current assets | | | | | 2,510 | | | | | | 1,719 | | | | Other non-current liabilities | | | | | (832) | | | | | | — | | |
Foreign currency contracts | | | Other current assets | | | | | 1,290 | | | | | | 88 | | | | Accrued expenses and other current liabilities | | | | | (15,779) | | | | | | (21,771) | | |
Total fair value of derivative assets (liabilities) | | | | | | | $ | 4,835 | | | | | $ | 2,575 | | | | | | | | $ | (16,611) | | | | | $ | (21,771) | | |
|
Fair Value Asset | Fair Value (Liability) | |||||||||||||||||||
Balance Sheet | March 31, | December 31, | Balance Sheet | March 31, | December 31, | |||||||||||||||
(in $ thousands) | Location | 2018 | 2017 | Location | 2018 | 2017 | ||||||||||||||
Interest rate swap contracts | Other current assets | $ | 10,940 | $ | 4,799 | Accrued expenses and other current liabilities | $ | — | $ | — | ||||||||||
Interest rate swap contracts | Other non-current assets | 7,740 | 3,503 | Other non-current liabilities | — | (51 | ) | |||||||||||||
Foreign currency contracts | Other current assets | 11,298 | 10,434 | Accrued expenses and other current liabilities | (1,397 | ) | (292 | ) | ||||||||||||
Total fair value of derivative assets (liabilities) | $ | 29,978 | $ | 18,736 | $ | (1,397 | ) | $ | (343 | ) |
As of March 31, 2017,2018, the net notional amounts of foreign currency forwardthe Company’s derivative contracts was $292 million, and for interest rate swap contracts covering a period from February 2017 to February 2019 was $1,400 million and for contracts covering a period from February 2019 to February 2020 was $1,200 million.
March 31, | December 31, | |||||||
(in $ thousands) | 2018 | 2017 | ||||||
Interest rate swap contracts (varying contracts and periods as discussed above) | $ | 3,000,000 | $ | 3,000,000 | ||||
Foreign currency contracts (covering the period until March 2019) | 409,652 | 373,487 |
The following table provides a reconciliation of the movement in the net carrying amount of derivative financial instruments during the three months ended March 31, 20172018 and 2016.
(in $ thousands) | | | Three Months Ended March 31, 2017 | | | Three Months Ended March 31, 2016 | | ||||||
Net derivative liability opening balance | | | | $ | (19,196) | | | | | $ | (2,111) | | |
Total gain (loss) for the period included in net income | | | | | 2,284 | | | | | | (14,605) | | |
Payments on settlement of foreign currency derivative contracts | | | | | 5,136 | | | | | | 9,261 | | |
Net derivative liability closing balance | | | | $ | (11,776) | | | | | $ | (7,455) | | |
|
Three Months Ended | Three Months Ended | |||||||
(in $ thousands) | March 31, 2018 | March 31, 2017 | ||||||
Net derivative asset (liability) opening balance | $ | 18,393 | $ | (19,196 | ) | |||
Total gain for the period included in net income | 16,281 | 2,284 | ||||||
(Proceeds from) payments on settlement of derivative contracts | (6,093 | ) | 5,136 | |||||
Net derivative asset (liability) closing balance | $ | 28,581 | $ | (11,776 | ) |
The table below presents the impact of the changes in fair values of derivatives not designated as hedges on net income during the three months ended March 31, 20172018 and 2016:
| | | | | | Amount of Income (Loss) Recorded in Net Income | | |||||||||
(in $ thousands) | | | Statement of Operations location | | | Three Months Ended March 31, | | |||||||||
| | | | | | 2017 | | | 2016 | | ||||||
Interest rate swap contracts | | | Interest expense, net | | | | $ | 226 | | | | | $ | (16,456) | | |
Foreign currency contracts | | | Selling, general and administrative | | | | | 2,058 | | | | | | 1,851 | | |
| | | | | | | $ | 2,284 | | | | | $ | (14,605) | | |
|
Amount of Gain | ||||||||||
Recorded in Net Income | ||||||||||
Three Months Ended | ||||||||||
Location of Gain Recorded | March 31, | |||||||||
(in $ thousands) | in Statement of Operations | 2018 | 2017 | |||||||
Interest rate swap contracts | Interest expense, net | $ | 11,222 | $ | 226 | |||||
Foreign currency contracts | Selling, general and administrative | 5,059 | 2,058 | |||||||
$ | 16,281 | $ | 2,284 |
Fair Value Disclosures for All Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities.
21 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
The fair values of the Company’s other financial instruments are as follows:
| | | | | | March 31, 2017 | | | December 31, 2016 | | ||||||||||||||||||
(in $ thousands) | | | Fair Value Hierarchy | | | Carrying Amount | | | Fair Value | | | Carrying Amount | | | Fair Value | | ||||||||||||
Asset (liability) | | | | | | | ||||||||||||||||||||||
Derivative assets | | | Level 2 | | | | $ | 4,835 | | | | | $ | 4,835 | | | | | $ | 2,575 | | | | | $ | 2,575 | | |
Derivative liabilities | | | Level 2 | | | | | (16,611) | | | | | | (16,611) | | | | | | (21,771) | | | | | | (21,771) | | |
Total debt | | | Level 2 | | | | | (2,333,229) | | | | | | (2,387,968) | | | | | | (2,344,768) | | | | | | (2,402,783) | | |
March 31, 2018 | December 31, 2017 | |||||||||||||||||
(in $ thousands) | Fair Value Hierarchy | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
Asset (liability) | ||||||||||||||||||
Derivative assets | Level 2 | $ | 29,978 | $ | 29,978 | $ | 18,736 | $ | 18,736 | |||||||||
Derivative liabilities | Level 2 | (1,397 | ) | (1,397 | ) | (343 | ) | (343 | ) | |||||||||
Total debt | Level 2 | (2,223,124 | ) | (2,249,765 | ) | (2,230,013 | ) | (2,258,893 | ) |
The significant unobservable inputs used to fair value the Company’s derivative financial instruments are based on market quoted probability rates of default for each of the derivative assets and liabilities, resulting in a weighted average probability of default of approximately 4%less than 1% and a recovery rate of 75% for derivative assets and 65% for derivative liabilities. In accordance with the Company’s policy, asAs the credit valuation adjustment applied to arrive at the fair value of derivatives has not been greateris less than 15% of the unadjusted fair value of derivative instruments for two consecutive quarters, the Company has categorized derivative fair valuations at Level 2 of the fair value hierarchy. A 10% change in the significant unobservable inputs will not have a material impact on the fair value of the derivative financial instruments as of March 31, 2017.
The fair value of the Company’s total debt has been determined by calculating the fair value of its term loans and senior secured notes based on quoted prices obtained from independent brokers for identical debt instruments when traded as an asset and is categorized within Level 2 of the fair value hierarchy.
13. Commitments and Contingencies
Purchase Commitments
In the ordinary course of business, the Company makes various commitments to purchase goods and services from specific suppliers, including those related to capital expenditures. As of March 31, 2017,2018, the Company had approximately $93$80 million of outstanding purchase commitments, primarily relating to service contracts for information technology, of which $37$44 million relates to the twelve months ending March 31, 2018.2019. These purchase obligations extend through 2019.
Contingencies
Company Litigation
The Company is involved in various claims, legal proceedings and governmental inquiries related to contract disputes, business practices, intellectual property and other commercial, employment and tax matters. The Company believes it has adequately accrued for such matters as appropriate or, for matters not requiring accrual, believes they will not have a material adverse effect on its results of operations, financial position or cash flows based on information currently available. However, litigation is inherently unpredictable and although the Company believes its accruals are adequate and/or that it has valid defenses in these matters, unfavorable resolutions could occur, which could have a material effect on the Company’s results of operations or cash flows in a particular reporting period.
Standard Guarantees/Indemnification
In the ordinary course of business, the Company enters into numerous agreements that contain standard guarantees and indemnities whereby the Company indemnifies another party for breaches of representations and warranties. In addition, many of these parties are also indemnified against any
22 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
14. Equity
Dividends on Common Shares
The Company’s Board of Directors declared the following cash dividend during the three months ended March 31, 2017:
Declaration Date | | | Dividend Per Share | | | Record Date | | | Payment Date | | | Amount (in $ thousands) | | ||||||
February 13, 2017 | | | | $ | 0.075 | | | | March 2, 2017 | | | March 16, 2017 | | | | $ | 9,306 | | |
Dividend | Record | Payment | Amount | |||||||
Declaration Date | Per Share | Date | Date | (in $ thousands) | ||||||
February 16, 2018 | $0.075 | March 1, 2018 | March 15, 2018 | $9,406 |
On May 5, 2017,2, 2018, the Company’s Board of Directors declared a cash dividend of $0.075 per common share (see Note 15—18—Subsequent Events).
15. Equity-Based Compensation
Restricted Share Units (“RSUs”)
During the three months ended March 31, 2017,2018, as part of its annual grant program, the Company granted 691,502592,579 RSUs. TheThese RSUs vest one-fourth annually over a period of four years, if the employee continues to remain in employment during the vesting period. The Company further granted 202,100 RSUs to certain employees that cliff-vest in approximately two years from the grant date upon continued employment of the employee during the vesting period. RSUs accrue dividend equivalents associated with the underlying common shares as dividends are declared by the Company. Dividends will generally be paid to holders of RSUs in cash upon the vesting of the associated RSUs and will be forfeited should the RSUs not vest. The RSUs do not have an exercise price, and the fair value of the RSUs is considered to be the closing market price of the Company’s common shares at the date of grant. Certain of the Company’s outstanding RSUs may be settled by the issuance of common shares held as treasury shares. In line with the Company’s accounting policy, the compensation costs related to RSUs are expensed on a straight-line basis.
The table below presents the activity of the Company’s RSUs for the three months ended March 31, 2017:
(in dollars, except number of RSUs) | | | Number | | | Weighted Average Grant Date Fair Value | | ||||||
Balance as of January 1, 2017 | | | | | 1,395,307 | | | | | $ | 13.84 | | |
Granted at fair market value | | | | | 691,502 | | | | | $ | 12.23 | | |
Vested(1) | | | | | (18,968) | | | | | $ | 12.90 | | |
Forfeited | | | | | (29,267) | | | | | $ | 13.63 | | |
Balance as of March 31, 2017 | | | | | 2,038,574 | | | | | $ | 13.31 | | |
|
Weighted Average | ||||||||
Grant Date | ||||||||
(in dollars, except number of RSUs) | Number | Fair Value | ||||||
Balance as of January 1, 2018 | 1,526,280 | $ | 13.01 | |||||
Granted at fair market value | 794,679 | $ | 14.35 | |||||
Vested(1) | (36,259 | ) | $ | 13.07 | ||||
Forfeited | (129,551 | ) | $ | 12.96 | ||||
Balance as of March 31, 2018 | 2,155,149 | $ | 13.50 |
(1) | During the three months ended March 31, 2018, the Company completed net share settlements of 17,445 common shares in connection with employee taxable income created upon vesting of RSUs. The Company agreed to pay these taxes on behalf of the employees in return for the employees returning an equivalent value of common shares. These common shares were accounted for as treasury shares by the Company. |
23 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Performance Share Units (“PSUs”)
During the three months ended March 31, 2017, the Company completed net share settlements of 8,916 common shares in connection with employee taxable income created upon vesting of RSUs. The Company agreed to pay these taxes on behalf of the employees in return for the employees returning an equivalent value of common shares. These common shares were accounted for as treasury shares by the Company.
The table below presents the activity of the Company’s PSUs for the three months ended March 31, 2017:
(in dollars, except number of PSUs) | | | Number | | | Weighted Average Grant Date Fair Value | | ||||||
Balance as of January 1, 2017 | | | | | 2,641,227 | | | | | $ | 15.52 | | |
Granted at fair market value | | | | | 1,689,700 | | | | | $ | 12.95 | | |
Forfeited | | | | | (174,733) | | | | | $ | 13.40 | | |
Balance as of March 31, 2017(1) | | | | | 4,156,194 | | | | | $ | 14.58 | | |
|
Weighted Average | ||||||||
Grant Date | ||||||||
(in dollars, except number of PSUs) | Number | Fair Value | ||||||
Balance as of January 1, 2018 | 2,694,999 | $ | 13.10 | |||||
Granted at fair market value | 1,444,522 | $ | 16.33 | |||||
Forfeited | (351,937 | ) | $ | 12.94 | ||||
Balance as of March 31, 2018(1) | 3,787,584 | $ | 14.32 |
(1) | Total estimated awards that ultimately will vest based on the Company’s forecasted performance against the pre-defined targets and before considering any adjustments that may be necessary based on the ranking of the Company’s TSR compared to the TSR of the selected group is expected to be 4,350,925 PSUs. |
Stock Options
During the three months ended March 31, 2018, the Company did not grant any stock options.
The table below presents the activity of the Company’s stock options for the three months ended March 31, 2017:
| | | Number of Options | | | Weighted Average Exercise Price (in dollars) | | | Weighted Average Remaining Contractual Terms (in years) | | | Aggregate Intrinsic Value (in $ thousands) | | ||||||||||||
Balance as of January 1, 2017 | | | | | 2,720,514 | | | | | $ | 13.58 | | | | | ||||||||||
Forfeited | | | | | (12,836) | | | | | $ | 13.65 | | | | | ||||||||||
Balance as of March 31, 2017 | | | | | 2,707,678 | | | | | $ | 13.58 | | | | | | 7.66 | | | | | $ | 766 | | |
Exercisable as of March 31, 2017 | | | | | 755,986 | | | | | $ | 12.99 | | | | | | 4.92 | | | | | | 766 | | |
Expected to vest as of March 31, 2017 | | | | | 1,951,692 | | | | | $ | 13.81 | | | | | | 8.72 | | | | | | — | | |
|
Weighted Average | ||||||||||||||||
Weighted Average | Remaining | Aggregate | ||||||||||||||
Exercise Price | Contractual Terms | Intrinsic Value | ||||||||||||||
Number of Options | (in dollars) | (in years) | (in $ thousands) | |||||||||||||
Balance as of January 1, 2018 | 2,352,928 | $ | 13.51 | |||||||||||||
Forfeited | (107,410 | ) | $ | 13.55 | ||||||||||||
Exercised | (290,160 | ) | $ | 9.92 | ||||||||||||
Expired | (40,984 | ) | $ | 15.53 | ||||||||||||
Balance as of March 31, 2018 | 1,914,374 | $ | 14.01 | 7.24 | $ | 4,506 | ||||||||||
Exercisable as of March 31, 2018 | 841,211 | $ | 14.45 | 6.55 | $ | 1,618 | ||||||||||
Expected to vest as of March 31, 2018 | 1,073,163 | $ | 13.66 | 7.78 | $ | 2,888 |
Total equity-based compensation expense recognized in the Company’s consolidated condensed statements of operations for the three months ended March 31, 2018 and 2017 was $5 million and 2016 was $8 million and $9 million ($74 million and $8$7 million after tax), respectively. The total income tax benefit related to equity-based compensation expense was $1 million for each of the three months ended March 31, 20172018 and 2016.
The Company expects the future equity-based compensation expense in relation to awards recognized for accounting purposes as being granted as of March 31, 20172018 will be approximately $71$73 million.
24 |
TRAVELPORT WORLDWIDE LIMITED
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
16. Income Per Share
The following table reconciles the numerators and denominators used in the computation of basic and diluted income per share:
| | | Three Months Ended March 31, | | |||||||||
(in $ thousands, except for share data) | | | 2017 | | | 2016 | | ||||||
Numerator – Basic and Diluted Income per Share: | | | | ||||||||||
Net income attributable to the Company | | | | $ | 56,106 | | | | | $ | 16,585 | | |
Denominator – Basic Income per Share: | | | | ||||||||||
Weighted average common shares outstanding | | | | | 124,081,175 | | | | | | 123,718,311 | | |
Income per share – Basic | | | | $ | 0.45 | | | | | $ | 0.13 | | |
Denominator – Diluted Income per Share: | | | | ||||||||||
Number of common shares used for basic income per share | | | | | 124,081,175 | | | | | | 123,718,311 | | |
Weighted average effect of dilutive securities | | | | ||||||||||
RSUs / PSUs | | | | | 1,342,130 | | | | | | — | | |
Stock Options | | | | | 93,640 | | | | | | 60,096 | | |
Weighted average common shares outstanding | | | | | 125,516,945 | | | | | | 123,778,407 | | |
Income per share – Diluted | | | | $ | 0.45 | | | | | $ | 0.13 | | |
|
Three Months Ended March 31, | ||||||||
(in $ thousands, except for share data) | 2018 | 2017 | ||||||
Numerator – Basic and Diluted Income per Share: | ||||||||
Net income from continuing operations | $ | 31,484 | $ | 55,863 | ||||
Net (income) loss attributable to non-controlling interest in subsidiaries | (402 | ) | 243 | |||||
Net income from continuing operations attributable to the Company | $ | 31,082 | $ | 56,106 | ||||
Denominator – Basic Income per Share: | ||||||||
Weighted average common shares outstanding | 125,428,257 | 124,081,175 | ||||||
Income per share from continuing operations – Basic | $ | 0.25 | $ | 0.45 | ||||
Denominator – Diluted Income per Share: | ||||||||
Number of common shares used for basic income per share from continuing operations | 125,428,257 | 124,081,175 | ||||||
Weighted average effect of dilutive securities | ||||||||
RSUs / PSUs | 604,051 | 1,342,130 | ||||||
Stock options | 98,893 | 93,640 | ||||||
Weighted average common shares outstanding | 126,131,201 | 125,516,945 | ||||||
Income per share from continuing operations – Diluted | $ | 0.25 | $ | 0.45 |
Basic income per share is based on the weighted average number of common shares outstanding during each period. Diluted income per share is based on the weighted average number of common shares outstanding and the effect of all dilutive common share equivalents during each period.
For each of the three months ended March 31, 2018 and 2017, the Company had 2 million of weighted average common share equivalents, primarily associated with the Company’s stock options, that were excluded from the calculation of diluted income per share from continuing operations as their inclusion would have been antidilutive as the number of common shares repurchased from the total assumed proceeds applying the treasury stock method exceed the number of common shares that would have been issued.
17. Discontinued Operations
In connection with the sale of the Gullivers Travel Associates business to Kuoni in 2011, the Company agreed to indemnify Kuoni through January 2018 for certain potential liabilities relating to pre-sale events. As no further obligations arose under the indemnity, the Company released the remaining balance of the indemnity provision of $28 million during the three months ended March 31, 2018, which is included within income from discontinued operations, net of tax, in the consolidated condensed statements of operations.
18. Subsequent Events
On May 5, 2017,2, 2018, the Company’s Board of Directors declared a cash dividend of $0.075 per common share for the first quarter of 2017,2018, which is payable on June 15, 201721, 2018 to shareholders of record on June 1, 2017.
25 |
The following discussion and analysis of our results of operations and financial condition for the three months ended March 31, 20172018 should be read in conjunction with our consolidated condensed financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis includes forward-looking statements that reflect the current view of management and involve risks and uncertainties. Our actual results may differ materially from those contained in any forward-looking statements as a result of factors discussed below and elsewhere in this Quarterly Report, particularly under the headings “Risk Factors” and “Forward-Looking Statements.”
Overview
We are a leading travel commerce platform providing distribution, technology, payment, mobile and other solutions for the global travel and tourism industry. We facilitate travel commerce by connecting the world’s leading travel providers, such as airlines, and hotel chains and car rental companies, with online and offline travel agencies and other travel buyers in our proprietary business-to-business (“B2B”)B2B travel commerce platform (our Travel Commerce Platform).platform. In 2016,2017, we processed approximately $79$83 billion of travel spending. Since 2012, we haveWe continue to strategically investedinvest in products with a focus on redefining our Travel Commerce Platform to address the trends, inefficiencies and unmet needs of all components of the travel value chain.
We have one reporting segment, and we further classify revenue according to its source as either Travel Commerce Platform revenue (comprised of Air and Beyond Air) or Technology Services revenue. For the three months ended March 31, 2017,2018, Air, Beyond Air and Technology Services represented 73%approximately 70%, 23%26% and 4%, respectively, of our net revenue.
Travel Commerce Platform
Our Travel Commerce Platform combines state-of-the-art technology with features, functionality and innovative solutions to address the high-volume and growing transaction processing requirements for the evolving needs of the travel industry.
Air
We provide comprehensive real-time search, pricing, booking, change, payment and integrated itinerary creation for travelers who use the services of online and offline travel agencies for both leisure and business travel. We provide such services to approximately 400 airlines globally, including approximately 125 low cost carriers (“LCCs”). Our access to business travelers, merchandising capabilities and ability to process complex itineraries have attracted and allowed for the full integration of several fast-growing LCCs such as AirAsia, easyJet, IndiGo and Ryanair into our Travel Commerce Platform.
Beyond Air
We have expanded our Travel Commerce Platform with a fast growing portfolio of Beyond Air initiatives. Our Beyond Air portfolio includes hospitality, payment solutions, digital services, advertising and other platform services.
For the hospitality sector of the travel industry, we provide innovative distribution and merchandising solutions for hotel, car rental, rail, cruise-line and tour operators.
For payment solutions, eNett International (Jersey) Limited’s (“eNett”) core offering is a Virtual Account Number (“VAN”) that automatically generates unique Mastercard numbers used to process payments globally. eNett’s operations currently focus on Asia Pacific and Europe, and we believe the model is highly scalable. During the three months ended March 31, 2017,2018, eNett generated net revenue of $41$74 million, representing an approximately 22%81% increase compared to the three months ended March 31, 2016.
We also provide a mobile travel platform and digital product set that allows airlines, hotels, corporate travel management companies and travel agencies to engage with their customers through mobile services, including apps, mobile web and mobile messaging.
In addition to hospitality, payment solutions and digital services, we utilize the broad connections and extensive data managed by our Travel Commerce Platform to provide advertising solutions to over 3,000 advertisers that allow our travel providers to easily and cost-effectively promote upgrades, ancillary products or services, package deals and other offers. We also offer other platform services, including subscription services, processing services, business intelligence data services and marketing-oriented analytical tools, to travel agencies, travel providers and other travel data users.
26 |
Technology Services
We provide critical hosting solutionsservices to airlines, such as pricing, shopping, ticketing, ground handlingdeparture control, business intelligence and other services,solutions, enabling them to focus on their core business competencies and reduce costs. We also host reservations, inventory management and other related critical systems for Delta Air Lines Inc.
Management Performance Metrics
Our management team monitors the performance of our operations against our strategic objectives. We assess our performance using both financial and non-financial measures. As a Travel Commerce Platform, we measure performance primarily on the basis of changes in both Reported Segments and RevPas. Travel Commerce Platform RevPas is computed by dividing Travel Commerce Platform revenue by the total number of Reported Segments. Travel Commerce Platform revenue is generated from a wide portfolio of products and services, including traditional air bookings, ancillaries, hospitality, payment solutions, digital services, advertising and other platform services. Reported Segments is defined as travel provider revenue generating units (net of cancellations) sold by our travel agency network, geographically presented by region based upon the point of sale location. We also use other GAAP and non-GAAP measures as performance metrics.
The table below sets forth our performance metrics:
| | | Three Months Ended March 31, | | | Change | | ||||||||||||||||||
(in $ thousands, except share data, Reported Segments and RevPas) | | | 2017 | | | 2016 | | | | | | | | | % | | |||||||||
Net revenue | | | | $ | 650,763 | | | | | $ | 609,263 | | | | | $ | 41,500 | | | | | | 7 | | |
Operating income | | | | | 98,870 | | | | | | 79,868 | | | | | | 19,002 | | | | | | 24 | | |
Net income | | | | | 55,863 | | | | | | 17,181 | | | | | | 38,682 | | | | | | * | | |
Income per share – diluted (in $) | | | | | 0.45 | | | | | | 0.13 | | | | | | 0.32 | | | | | | * | | |
Adjusted EBITDA(1) | | | | | 168,553 | | | | | | 154,140 | | | | | | 14,413 | | | | | | 9 | | |
Adjusted Operating Income(2) | | | | | 107,241 | | | | | | 96,464 | | | | | | 10,777 | | | | | | 11 | | |
Adjusted Net Income(3) | | | | | 64,357 | | | | | | 50,955 | | | | | | 13,402 | | | | | | 26 | | |
Adjusted Income per Share – diluted(4) (in $) | | | | | 0.51 | | | | | | 0.41 | | | | | | 0.10 | | | | | | 24 | | |
Net cash provided by operating activities | | | | | 95,022 | | | | | | 26,204 | | | | | | 68,818 | | | | | | * | | |
Free Cash Flow(5) | | | | | 71,413 | | | | | | 3,683 | | | | | | 67,730 | | | | | | * | | |
Reported Segments (in thousands) | | | | | 93,197 | | | | | | 89,973 | | | | | | 3,224 | | | | | | 4 | | |
Travel Commerce Platform RevPas (in $) | | | | | 6.67 | | | | | | 6.43 | | | | | | 0.24 | | | | | | 4 | | |
Three Months | ||||||||||||||||
Ended March 31, | Change | |||||||||||||||
(in $ thousands, except share data, Reported Segments and RevPas) | 2018 | 2017 | $ | % | ||||||||||||
Net revenue | $ | 677,838 | $ | 650,763 | 27,075 | 4 | ||||||||||
Operating income | 77,664 | 99,716 | (22,052 | ) | (22 | ) | ||||||||||
Net income | 59,231 | 55,863 | 3,368 | 6 | ||||||||||||
Income per share – diluted (in $) | 0.47 | 0.45 | 0.02 | 4 | ||||||||||||
Adjusted EBITDA(1) | 154,177 | 168,553 | (14,376 | ) | (9 | ) | ||||||||||
Adjusted Operating Income(2) | 93,436 | 107,241 | (13,805 | ) | (13 | ) | ||||||||||
Adjusted Net Income(3) | 54,938 | 64,357 | (9,419 | ) | (15 | ) | ||||||||||
Adjusted Income per Share – diluted(4) (in $) | 0.44 | 0.51 | (0.07 | ) | (15 | ) | ||||||||||
Net cash provided by operating activities | 83,097 | 95,022 | (11,925 | ) | (13 | ) | ||||||||||
Free Cash Flow(5) | 46,434 | 71,413 | (24,979 | ) | (35 | ) | ||||||||||
Reported Segments (in thousands) | 92,321 | 93,197 | (876 | ) | (1 | ) | ||||||||||
Travel Commerce Platform RevPas (in $) | 7.07 | 6.67 | 0.40 | 6 |
* | Percentage calculated not meaningful |
(1) | Adjusted EBITDA is defined as Adjusted Net Income (Loss) excluding depreciation and amortization of property and equipment, amortization of customer loyalty payments, interest expense, net (excluding unrealized gains (losses) on interest rate derivative instruments) and related income taxes. |
(2) | Adjusted Operating Income (Loss) is defined as Adjusted EBITDA less depreciation and amortization of property and equipment, amortization of customer loyalty payments and components of net periodic pension and post-retirement benefit costs other than service cost. |
(3) | Adjusted Net Income (Loss) is defined as net income (loss) excluding amortization of acquired intangible assets, gain (loss) on early extinguishment of debt, and items that are excluded under our debt covenants, such as income (loss) from discontinued operations, non-cash equity-based compensation, certain corporate and restructuring costs, non-cash impairment of long-lived assets, certain litigation and related costs and other non-cash items such as unrealized foreign currency gains (losses) on earnings hedges, and unrealized gains (losses) on interest rate derivative instruments, along with any income tax related to these exclusions. Tax impacts not related to core operations have also been excluded (see Note 4—Income Taxes to our consolidated condensed financial statements included in this Quarterly Report on Form 10-Q). |
(4) | Adjusted Income (Loss) per Share—diluted is defined as Adjusted Net Income (Loss) for the period divided by the weighted average number of dilutive common shares. |
(5) | Free Cash Flow is defined as net cash provided by (used in) operating activities of continuing operations, less cash used for additions to property and equipment. |
27 |
We utilize non-GAAP (or adjusted) financial measures, including Adjusted EBITDA, Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share—diluted, to provide useful supplemental information to assist investors in understanding and assessing our performance and financial results on the same basis that management uses internally. These adjusted financial measures provide investors greater transparency with respect to key metrics used by management to evaluate our core operations, forecast future results, determine future capital investment allocations and understand business trends within the industry. TheseAdjusted Operating Income (Loss) and Adjusted Net Income (Loss) per Share—diluted metrics are also used by our Board of Directors to determine incentive compensation for future periods. Management believes the adjusted financial measures assist investors in the comparison of financial results between periods as such measures exclude certain items that management believes are not reflective of our core operating performance consistent with how management reviews the business.
Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Share—diluted, Adjusted Operating Income (Loss) and Adjusted EBITDA are supplemental measures of operating performance that do not represent, and should not be considered as, alternatives to net income (loss) or net income (loss) per share—diluted, as determined under U.S. GAAP. In addition, these measures may not be comparable to similarly named measures used by other companies. The presentation of these measures has limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP.
The following table provides a reconciliation of net income to Adjusted Net Income, to Adjusted Operating Income and to Adjusted EBITDA:
| | | Three Months Ended March 31, | | |||||||||
(in $ thousands) | | | 2017 | | | 2016 | | ||||||
Net income | | | | $ | 55,863 | | | | | $ | 17,181 | | |
Adjustments: | | | | ||||||||||
Amortization of intangible assets(1) | | | | | 10,392 | | | | | | 11,139 | | |
Equity-based compensation and related taxes | | | | | 7,786 | | | | | | 9,101 | | |
Corporate and restructuring costs(2) | | | | | 5,656 | | | | | | 7,409 | | |
Impairment of long-lived assets(3) | | | | | 685 | | | | | | 461 | | |
Other – non cash(4) | | | | | (16,374) | | | | | | 4,942 | | |
Tax impact of adjustments(5) | | | | | 349 | | | | | | 722 | | |
Adjusted Net Income | | | | | 64,357 | | | | | | 50,955 | | |
Adjustments: | | | | ||||||||||
Interest expense, net(6) | | | | | 30,501 | | | | | | 38,439 | | |
Remaining provision for income taxes | | | | | 12,383 | | | | | | 7,070 | | |
Adjusted Operating Income | | | | | 107,241 | | | | | | 96,464 | | |
Adjustments: | | | | ||||||||||
Depreciation and amortization of property and equipment | | | | | 42,517 | | | | | | 41,102 | | |
Amortization of customer loyalty payments | | | | | 18,795 | | | | | | 16,574 | | |
Adjusted EBITDA | | | | $ | 168,553 | | | | | $ | 154,140 | | |
|
Three Months Ended | ||||||||
March 31, | ||||||||
(in $ thousands) | 2018 | 2017 | ||||||
Net income | $ | 59,231 | $ | 55,863 | ||||
Adjustments: | ||||||||
Amortization of acquired intangible assets(1) | 10,166 | 10,392 | ||||||
Loss on early extinguishment of debt | 27,661 | — | ||||||
Equity-based compensation and related taxes | 4,833 | 7,786 | ||||||
Corporate and restructuring costs(2) | 1,215 | 5,656 | ||||||
Impairment of long-lived assets(3) | 491 | 685 | ||||||
Income from discontinued operations | (27,747 | ) | — | |||||
Other – non cash(4) | (11,363 | ) | (16,374 | ) | ||||
Tax adjustments(5) | (9,549 | ) | 349 | |||||
Adjusted Net Income | 54,938 | 64,357 | ||||||
Adjustments: | ||||||||
Interest expense, net(6) | 25,365 | 30,501 | ||||||
Other expense(7) | 93 | — | ||||||
Remaining provision for income taxes | 13,040 | 12,383 | ||||||
Adjusted Operating Income | 93,436 | 107,241 | ||||||
Adjustments: | ||||||||
Depreciation and amortization of property and equipment | 38,398 | 42,517 | ||||||
Amortization of customer loyalty payments | 22,343 | 18,795 | ||||||
Adjusted EBITDA | $ | 154,177 | $ | 168,553 |
(1) | Relates primarily to intangible assets acquired in the sale of Travelport to The Blackstone Group in 2006 and from the acquisition of Worldspan in 2007. |
(2) | Relates to costs associated with corporate development transactions and costs incurred to enhance our organization’s efficiency, including restructuring activity (see Note 9—Restructuring Charges to our consolidated condensed financial statements included in this Quarterly Report on Form 10-Q). |
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(3) | Relates to the impairment of property and equipment and customer loyalty payments. |
(4) | Includes (i) unrealized gains on foreign currency derivatives contracts of $1 million and $8 million for the three months ended March 31, 2018 and 2017, respectively, (ii) unrealized gains on interest rate derivative contracts of $10 million and less than $1 million for the three months ended March 31, 2018 and 2017, respectively, (iii) $8 million related to revenue deferred in previous years for the three months ended March 31, 2017 and (iv) other gains of $1 million for the three months ended March 31, 2017. |
(5) | Relates primarily to the tax impact of the loss on early extinguishment of debt, equity-based compensation, corporate and restructuring costs and unrealized gains and losses on foreign currency derivative contracts that are excluded from net income to determine Adjusted Net Income tax adjustments are calculated at the rate applicable for the jurisdiction in which the adjusting item arose. The adjustments also include the benefit realized following the release of a portion of the valuation allowance on deferred tax assets associated with U.K. net operating losses carry forwards (see Note 4—Income Taxes to our consolidated condensed financial statements included in this Quarterly Report on Form 10-Q). |
(6) | Excludes the impact of unrealized gains on interest rate derivative of $10 million and less than $1 million for the three months ended March 31, 2018 and 2017, respectively, which is included within “Other—non-cash.” |
(7) | Relates to interest costs, expected return on plan assets and amortization of actuarial gain or loss components of net periodic pension and post-retirement benefit costs, which we consider to be non-operating components, to be excluded from Adjusted Operating Income and Adjusted EBITDA starting January 1, 2018 on a prospective basis. |
The following table provides a reconciliation of income per share—diluted to Adjusted Income per Share—diluted:
| | | Three Months Ended March 31, | | |||||||||
| | | 2017 | | | 2016 | | ||||||
Income per share – diluted | | | | $ | 0.45 | | | | | $ | 0.13 | | |
Per share adjustments to net income to determine Adjusted Income per Share – diluted | | | | | 0.06 | | | | | | 0.28 | | |
Adjusted Income per Share – diluted | | | | $ | 0.51 | | | | | $ | 0.41 | | |
|
Three Months Ended | ||||||||
March 31, | ||||||||
(in $) | 2018 | 2017 | ||||||
Income per share – diluted | $ | 0.47 | $ | 0.45 | ||||
Per share adjustments to net income to determine Adjusted Income per Share – diluted | (0.03 | ) | 0.06 | |||||
Adjusted Income per Share – diluted | $ | 0.44 | $ | 0.51 |
We have included Adjusted Income (Loss) per Share—diluted as we believe it is a useful measure for our investors as it represents, on a per share basis, our consolidated results, taking into account depreciation and amortization on property and equipment and amortization of customer loyalty payments, as well as other items which are not allocated to the operating businesses such as interest expense (excluding unrealized gains (losses) on interest rate derivative instruments), certain components of net periodic pension and post-retirement benefit costs and related income taxes but excluding the effects of certain expenses not directly tied to the core operations of our businesses. Adjusted Income (Loss) per Share—diluted has similar limitations as Adjusted Net Income (Loss), Adjusted Operating Income (Loss) and Adjusted EBITDA and may not be comparable to similarly named measures used by other companies. In addition, Adjusted Net Income (Loss) does not include all items that affect our net income (loss) and net income (loss) per share for the period. Therefore, it is important to evaluate these measures along with our consolidated condensed statements of operations.
For a discussion of Free Cash Flow, please see “Liquidity and Capital Resources—Cash Flows.”
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Factors Affecting Results of Operations
Geographic Mix:
Our geographically dispersed footprint helps insulate us from a particular country or regional instability, allows for optimal information technology efficiency and enhances our value proposition to travel providers. We are well positioned to capture higher value business from travel providers operating in away markets, which results in higher per transaction revenue for both us and the travel providers we serve. The table below sets forth revenue by region percentages for our Travel Commerce Platform for the three months ended March 31, | | | Three Months Ended March 31, | | |||||||||
(in percentages) | | | 2017 | | | 2016 | | ||||||
Asia Pacific | | | | | 24 | | | | | | 22 | | |
Europe | | | | | 33 | | | | | | 33 | | |
Latin America and Canada | | | | | 5 | | | | | | 5 | | |
Middle East and Africa | | | | | 13 | | | | | | 13 | | |
International | | | | | 75 | | | | | | 73 | | |
United States | | | | | 25 | | | | | | 27 | | |
Travel Commerce Platform | | | | | 100 | | | | | | 100 | | |
|
Three Months Ended | ||||||||
March 31, | ||||||||
(in percentages) | 2018 | 2017 | ||||||
Asia Pacific | 22 | 24 | ||||||
Europe | 37 | 33 | ||||||
Latin America and Canada | 5 | 5 | ||||||
Middle East and Africa | 12 | 13 | ||||||
International | 76 | 75 | ||||||
United States | 24 | 25 | ||||||
Travel Commerce Platform | 100 | 100 |
We expect some of the regions in which we currently operate, such as Asia Pacific, the Middle East and Africa, to experience growth in travel that is greater than the global average due to factors such as economic growth and a growing middle class, while more mature regions, such as the United States, remain stable. As these emerging travel regions may grow at a higher rate than mature regions, the geographic distribution of our revenue may similarly shift.
Customer Mix:
We believe our customer mix is broadly diversified, supporting our stable and recurring business model with high revenue visibility. We provide air distribution services to approximately 400 airlines globally, including approximately 125 LCCs. In addition, we serve numerous Beyond Air travel providers, including approximately 650,000 hotel properties (of which over 500,000 are independent hotel properties), overSeasonality:
Our revenue can experience seasonal fluctuations, reflecting seasonal demand trends for the products and services we offer. These trends generally cause our revenue to be higher in the first and second quarters as compared to the third and fourth quarters of the calendar year. Revenue typically peaks during the first two quarters of the year as travelers plan and purchase their upcoming spring and summer travel.Foreign Exchange Fluctuations:
We are exposed to movements in currency exchange rates that impact our operating results. While substantially all of our revenue is denominated in U.S. dollars, a portion of our operating cost base, primarily commissions, is transacted in non-U.S. dollar currencies (principally, the British pound, Euro and Australian dollar).Litigation and Related Costs:
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 believe we have adequately accrued for such matters, and for costs of defending against such matters. However, litigation is inherently unpredictable and although we believe that our accruals are adequate and we have valid defenses in these matters, unfavorable resolutions could occur, which could have a material adverse effect on our results of operations or cash flows in a particular reporting period.30 |
Results of Operations
Three Months Ended March 31, 20172018 Compared to Three Months Ended March 31, 2016
| | | Three Months Ended March 31, | | | Change | | ||||||||||||||||||
(in $ thousands) | | | 2017 | | | 2016 | | | $ | | | % | | ||||||||||||
Net revenue | | | | $ | 650,763 | | | | | $ | 609,263 | | | | | $ | 41,500 | | | | | | 7 | | |
Costs and expenses | | | | | | ||||||||||||||||||||
Cost of revenue | | | | | 386,837 | | | | | | 362,677 | | | | | | 24,160 | | | | | | 7 | | |
Selling, general and administrative | | | | | 112,147 | | | | | | 114,477 | | | | | | (2,330) | | | | | | (2) | | |
Depreciation and amortization | | | | | 52,909 | | | | | | 52,241 | | | | | | 668 | | | | | | 1 | | |
Total costs and expenses | | | | | 551,893 | | | | | | 529,395 | | | | | | 22,498 | | | | | | 4 | | |
Operating income | | | | | 98,870 | | | | | | 79,868 | | | | | | 19,002 | | | | | | 24 | | |
Interest expense, net | | | | | (30,275) | | | | | | (54,895) | | | | | | 24,620 | | | | | | 45 | | |
Income before income taxes | | | | | 68,595 | | | | | | 24,973 | | | | | | 43,622 | | | | | | 175 | | |
Provision for income taxes | | | | | (12,732) | | | | | | (7,792) | | | | | | (4,940) | | | | | | (63) | | |
Net income | | | | $ | 55,863 | | | | | $ | 17,181 | | | | | $ | 38,682 | | | | | | * | | |
|
We have adopted new guidance on pension costs from January 1, 2018 (see Note 2—Recently Issued Accounting Pronouncements—Pension to our consolidated condensed financial statements included in this Quarterly Report on Form 10-Q). In accordance with the guidance, we have presented interest costs, expected return on plan assets and amortization of actuarial gain or loss components of net periodic pension and post-retirement benefit costs separately outside of operating income. For the three months ended March 31, 2017, we reclassified $1 million from selling, general and administrative expense to other expense within the consolidated condensed statement of operations.
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
(in $ thousands, except share data) | 2018 | 2017 | $ | % | ||||||||||||
Net revenue | $ | 677,838 | $ | 650,763 | $ | 27,075 | 4 | |||||||||
Costs and expenses | ||||||||||||||||
Cost of revenue | 426,397 | 386,837 | 39,560 | 10 | ||||||||||||
Selling, general and administrative | 125,200 | 111,301 | 13,899 | 12 | ||||||||||||
Depreciation and amortization | 48,577 | 52,909 | (4,332 | ) | (8 | ) | ||||||||||
Total costs and expenses | 600,174 | 551,047 | 49,127 | 9 | ||||||||||||
Operating income | 77,664 | 99,716 | (22,052 | ) | (22 | ) | ||||||||||
Interest expense, net | (14,935 | ) | (30,275 | ) | 15,340 | 51 | ||||||||||
Loss on early extinguishment of debt | (27,661 | ) | — | (27,661 | ) | * | ||||||||||
Other expense | (93 | ) | (846 | ) | 753 | 89 | ||||||||||
Income before income taxes | 34,975 | 68,595 | (33,620 | ) | (49 | ) | ||||||||||
Provision for income taxes | (3,491 | ) | (12,732 | ) | 9,241 | 73 | ||||||||||
Net income from continuing operations | 31,484 | 55,863 | (24,379 | ) | (44 | ) | ||||||||||
Income from discontinued operations, net of tax | 27,747 | — | 27,747 | * | ||||||||||||
Net income | $ | 59,231 | $ | 55,863 | $ | 3,368 | 6 |
* | Percentage calculated not meaningful |
Net Revenue
On January 1, 2018, we adopted new guidance on revenue recognition applying the modified retrospective method to all contracts. Results for the three months ended March 31, 2018 are presented under the new revenue recognition guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under previous revenue recognition guidance. We recorded a reduction of $1 million to our accumulated deficit balance as of January 1, 2018, representing the cumulative impact of adopting the new revenue recognition guidance, which primarily relates to the timing of recognition of hotel reservations in our Beyond Air revenue. The impact to net revenue for the quarter ended March 31, 2018 was a decrease of less than $1 million as a result of applying the new revenue recognition guidance (see Note 3–Revenue to our consolidated condensed financial statements included in this Quarterly Report on Form 10-Q).
Net revenue is comprised of:
| | | Three Months Ended March 31, | | | Change | | ||||||||||||||||||
(in $ thousands ) | | | 2017 | | | 2016 | | | $ | | | % | | ||||||||||||
Air | | | | $ | 474,475 | | | | | $ | 443,884 | | | | | $ | 30,591 | | | | | | 7 | | |
Beyond Air | | | | | 147,585 | | | | | | 135,002 | | | | | | 12,583 | | | | | | 9 | | |
Travel Commerce Platform | | | | | 622,060 | | | | | | 578,886 | | | | | | 43,174 | | | | | | 7 | | |
Technology Services | | | | | 28,703 | | | | | | 30,377 | | | | | | (1,674) | | | | | | (6) | | |
Net revenue | | | | $ | 650,763 | | | | | $ | 609,263 | | | | | $ | 41,500 | | | | | | 7 | | |
|
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
(in $ thousands) | 2018 | 2017 | $ | % | ||||||||||||
Air | $ | 472,935 | $ | 474,475 | $ | (1,540 | ) | — | ||||||||
Beyond Air | 179,751 | 147,585 | 32,166 | 22 | ||||||||||||
Travel Commerce Platform | 652,686 | 622,060 | 30,626 | 5 | ||||||||||||
Technology Services | 25,152 | 28,703 | (3,551 | ) | (12 | ) | ||||||||||
Net revenue | $ | 677,838 | $ | 650,763 | $ | 27,075 | 4 |
During the three months ended March 31, 2017,2018, net revenue increased by $42$27 million, or 7%4%, compared to the three months ended March 31, 2016.2017. This increase was primarily driven by an increase in Travel Commerce Platform revenue of $43$31 million, or 7%5%, offset by a decrease in Technology Services revenue of $4 million, or 12%.
31 |
Travel Commerce Platform
The table below sets forth Travel Commerce Platform RevPas and Reported Segments:
| | | Three Months Ended March 31, | | | Change | | ||||||||||||||||||
| | | 2017 | | | 2016 | | | $ | | | % | | ||||||||||||
Travel Commerce Platform RevPas (in $) | | | | $ | 6.67 | | | | | $ | 6.43 | | | | | $ | 0.24 | | | | | | 4 | | |
Reported Segments (in thousands) | | | | | 93,197 | | | | | | 89,973 | | | | | | 3,224 | | | | | | 4 | | |
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2018 | 2017 | % | ||||||||||||||
Travel Commerce Platform RevPas (in $) | $ | 7.07 | $ | 6.67 | $ | 0.40 | 6 | |||||||||
Reported Segments (in thousands) | 92,321 | 93,197 | (876 | ) | (1 | ) |
The increase in Travel Commerce Platform revenue of $43$31 million, or 7%5%, was due to a $31$32 million, or 7%, increase in Air revenue and a $13 million, or 9%22%, increase in Beyond Air revenue, offset by a $2 million decrease in Air revenue. Overall, there was a 4%6% increase in Travel Commerce Platform RevPas and a 4% increase1% decrease in Reported Segments.
Our Travel Commerce Platform continues to benefit from growth in Air revenue and Beyond Air revenue. The value of transactions processed on our Travel Commerce Platform increased to $23.3 billion for the three months ended March 31, 2018 from $20.6 billion for the three months ended March 31, 2017 from $20.1 billion for the three months ended March 31, 2016
The table below sets forth Travel Commerce Platform revenue by region:
| | | Three Months Ended March 31, | | | Change | | ||||||||||||||||||
(in $ thousands) | | | 2017 | | | 2016 | | | $ | | | % | | ||||||||||||
Asia Pacific | | | | $ | 151,015 | | | | | $ | 128,495 | | | | | $ | 22,520 | | | | | | 18 | | |
Europe | | | | | 202,416 | | | | | | 194,847 | | | | | | 7,569 | | | | | | 4 | | |
Latin America and Canada | | | | | 28,782 | | | | | | 28,036 | | | | | | 746 | | | | | | 3 | | |
Middle East and Africa | | | | | 83,553 | | | | | | 73,450 | | | | | | 10,103 | | | | | | 14 | | |
International | | | | | 465,766 | | | | | | 424,828 | | | | | | 40,938 | | | | | | 10 | | |
United States | | | | | 156,294 | | | | | | 154,058 | | | | | | 2,236 | | | | | | 1 | | |
Travel Commerce Platform | | | | $ | 622,060 | | | | | $ | 578,886 | | | | | $ | 43,174 | | | | | | 7 | | |
|
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
(in $ thousands) | 2018 | 2017 | $ | % | ||||||||||||
Asia Pacific | $ | 141,551 | $ | 151,015 | $ | (9,464 | ) | (6 | ) | |||||||
Europe | 244,442 | 202,416 | 42,026 | 21 | ||||||||||||
Latin America and Canada | 29,859 | 28,782 | 1,077 | 4 | ||||||||||||
Middle East and Africa | 79,106 | 83,553 | (4,447 | ) | (5 | ) | ||||||||||
International | 494,958 | 465,766 | 29,192 | 6 | ||||||||||||
United States | 157,728 | 156,294 | 1,434 | 1 | ||||||||||||
Travel Commerce Platform | $ | 652,686 | $ | 622,060 | $ | 30,626 | 5 |
The table below sets forth Reported Segments and RevPas by region:
| | | Segments (in thousands) | | | RevPas (in $) | | ||||||||||||||||||||||||||||||||||||||||||
| | | Three Months Ended March 31, | | | Change | | | Three Months Ended March 31, | | | Change | | ||||||||||||||||||||||||||||||||||||
| | | 2017 | | | 2016 | | | | | | | | | % | | | 2017 | | | 2016 | | | $ | | | % | | |||||||||||||||||||||
Asia Pacific | | | | | 19,208 | | | | | | 16,989 | | | | | | 2,219 | | | | | | 13 | | | | | $ | 7.86 | | | | | $ | 7.56 | | | | | $ | 0.30 | | | | | | 4 | | |
Europe | | | | | 23,497 | | | | | | 23,133 | | | | | | 364 | | | | | | 2 | | | | | $ | 8.61 | | | | | $ | 8.42 | | | | | $ | 0.19 | | | | | | 2 | | |
Latin America and Canada | | | | | 4,626 | | | | | | 4,550 | | | | | | 76 | | | | | | 2 | | | | | $ | 6.22 | | | | | $ | 6.16 | | | | | $ | 0.06 | | | | | | 1 | | |
Middle East and Africa | | | | | 9,476 | | | | | | 9,721 | | | | | | (245) | | | | | | (3) | | | | | $ | 8.82 | | | | | $ | 7.56 | | | | | $ | 1.26 | | | | | | 17 | | |
International | | | | | 56,807 | | | | | | 54,393 | | | | | | 2,414 | | | | | | 4 | | | | | $ | 8.20 | | | | | $ | 7.81 | | | | | $ | 0.39 | | | | | | 5 | | |
United States | | | | | 36,390 | | | | | | 35,580 | | | | | | 810 | | | | | | 2 | | | | | $ | 4.30 | | | | | $ | 4.33 | | | | | $ | (0.03) | | | | | | (1) | | |
Travel Commerce Platform | | | | | 93,197 | | | | | | 89,973 | | | | | | 3,224 | | | | | | 4 | | | | | $ | 6.67 | | | | | $ | 6.43 | | | | | $ | 0.24 | | | | | | 4 | | |
|
Segments(in thousands) | RevPas(in $) | |||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
March 31, | Change | March 31, | Change | |||||||||||||||||||||||||||||
2018 | 2017 | % | 2018 | 2017 | $ | % | ||||||||||||||||||||||||||
Asia Pacific | 16,168 | 19,208 | (3,040 | ) | (16 | ) | $ | 8.76 | $ | 7.86 | 0.90 | 11 | ||||||||||||||||||||
Europe | 25,647 | 23,497 | 2,150 | 9 | $ | 9.53 | $ | 8.61 | 0.92 | 11 | ||||||||||||||||||||||
Latin America and Canada | 4,710 | 4,626 | 84 | 2 | $ | 6.34 | $ | 6.22 | 0.12 | 2 | ||||||||||||||||||||||
Middle East and Africa | 9,628 | 9,476 | 152 | 2 | $ | 8.22 | $ | 8.82 | (0.60 | ) | (7 | ) | ||||||||||||||||||||
International | 56,153 | 56,807 | (654 | ) | (1 | ) | $ | 8.81 | $ | 8.20 | 0.61 | 8 | ||||||||||||||||||||
United States | 36,168 | 36,390 | (222 | ) | (1 | ) | $ | 4.36 | $ | 4.30 | 0.06 | 1 | ||||||||||||||||||||
Travel Commerce Platform | 92,321 | 93,197 | (876 | ) | (1 | ) | $ | 7.07 | $ | 6.67 | 0.40 | 6 |
32 |
International
Our International Travel Commerce Platform revenue increased $41by $29 million, or 10%6%, due to a 5%an 8% increase in RevPas andoffset by a 4% increase1% decrease in Reported Segments. The increase in RevPas was a result of growth in our Air andpayment solutions in Beyond Air, offerings.partially offset by a decrease in Air. The increasedecrease in Air was mainly due to improved pricing,the loss of a large travel agency in the Pacific region, mix and a $9 million recognition of revenue in 2017 in respect of revenue deferred in previous years. The increase in Beyond Air was primarily drivenyears, partially offset by growth in payment solutions and digital services.improved pricing. Our International Travel Commerce Platform revenue as a percentage of Travel Commerce Platform revenue was 76% for the three months ended March 31, 2018 compared to 75% for the three months ended March 31, 2017 compared to 73% for the three months ended March 31, 2016.
Asia Pacific
Revenue in Asia Pacific increased $23decreased $9 million, or 18%6%, mainly due to a 4%16% decrease in Reported Segments offset by an 11% increase in RevPas. Reported Segments decreased due to loss of a large travel agency in the Pacific region, partially offset by growth in India. RevPas increased due to growth in payment solutions in Beyond Air.
Europe
Revenue in Europe increased $42 million, or 21%, primarily due to an 11% increase in RevPas and a 13%9% increase in Reported Segments. RevPas increased due to revenue growth in Air and growth in payment solutions in Beyond Air. Reported Segments increased due to growth in Australia, India and Hong Kong.
Latin America and Canada
Revenue in Latin America and Canada increased marginally by $1 million, or 3%4%. The increase in net revenue in Latin America was partially offset by a decline in net revenue in Canada.
Middle East and Africa
Revenue in the Middle East and Africa increased $10decreased $4 million or 14%5%, due to a 17% increase7% decrease in RevPas offset by a 3% decrease2% increase in Reported Segments. The increasedecrease in RevPas was mainly due to a $9 million recognition in 2017 of revenue deferred in previous years.
United States
Revenue in the United States increased $2marginally by $1 million.
Technology Services
Technology Services revenue decreased $4 million, or 1%12%, primarily due to a 2% increasethe sale of IGT Solutions Private Ltd (“IGTS”) in Reported Segments, offset by a 1% decrease in RevPas.
Cost of Revenue
Cost of revenue is comprised of:
| | | Three Months Ended March 31, | | | Change | | ||||||||||||||||||
(in $ thousands) | | | 2017 | | | 2016 | | | $ | | | % | | ||||||||||||
Commissions | | | | $ | 302,789 | | | | | $ | 282,042 | | | | | $ | 20,747 | | | | | | 7 | | |
Technology costs | | | | | 84,048 | | | | | | 80,635 | | | | | | 3,413 | | | | | | 4 | | |
Cost of revenue | | | | $ | 386,837 | | | | | $ | 362,677 | | | | | $ | 24,160 | | | | | | 7 | | |
|
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
(in $ thousands) | 2018 | 2017 | $ | % | ||||||||||||
Commissions | $ | 349,951 | $ | 302,789 | $ | 47,162 | 16 | |||||||||
Technology costs | 76,446 | 84,048 | (7,602 | ) | (9 | ) | ||||||||||
Cost of revenue | $ | 426,397 | $ | 386,837 | $ | 39,560 | 10 |
Cost of revenue increased by $24$40 million, or 7%10%, as a result of a $21$47 million, or 7%16%, increase in commission costs and a $3an $8 million, or 4%9%, increasedecrease in technology costs. Commissions increased primarily due to a 2% increase in travel distribution costs per segment, primarily driven by mix and pricing and incremental commission costs from our payment solutions business and a 4%an 8% increase in Reported Segments. This increase was partially offsettravel distribution costs per segment driven by a reduction in commissions resulting from our acquisition of our distributor in Japanpricing, mix and favorableunfavorable foreign currency exchange movement.movements. Commissions include amortization of customer loyalty payments of $20 million and $17 million for each of the three months ended March 31, 2018 and 2017, and 2016.respectively. Technology costs across the shared infrastructure that runs our Travel Commerce Platform and Technology Services increaseddecreased by $8 million, or 9%, due to continued expansionreduced costs resulting from the sale of our operations through acquisitionsIGTS in April 2017 and further investments in technology.higher capitalization of technology investments.
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Selling, General and Administrative (SG&A)
SG&A is comprised of:
| | | Three Months Ended March 31, | | | Change | | ||||||||||||||||||
(in $ thousands) | | | 2017 | | | 2016 | | | $ | | | % | | ||||||||||||
Workforce | | | | $ | 85,375 | | | | | $ | 84,571 | | | | | $ | 804 | | | | | | 1 | | |
Non-workforce | | | | | 21,182 | | | | | | 24,449 | | | | | | (3,267) | | | | | | (13) | | |
Sub-total | | | | | 106,557 | | | | | | 109,020 | | | | | | (2,463) | | | | | | (2) | | |
Non-core corporate costs | | | | | 5,590 | | | | | | 5,457 | | | | | | 133 | | | | | | 2 | | |
SG&A | | | | $ | 112,147 | | | | | $ | 114,477 | | | | | $ | (2,330) | | | | | | (2) | | |
|
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
(in $ thousands) | 2018 | 2017 | $ | % | ||||||||||||
Workforce | $ | 103,333 | $ | 84,529 | $ | 18,804 | 22 | |||||||||
Non-workforce | 16,510 | 21,182 | (4,672 | ) | (22 | ) | ||||||||||
Sub-total | 119,843 | 105,711 | 14,132 | 13 | ||||||||||||
Non-core corporate costs | 5,357 | 5,590 | (233 | ) | (4 | ) | ||||||||||
SG&A | $ | 125,200 | $ | 111,301 | $ | 13,899 | 12 |
SG&A expenses decreasedincreased by $2$14 million, or 2%12%, during the three months ended March 31, 20172018 compared to March 31, 2016.2017. SG&A expenses include $6$5 million and $5$6 million of charges for the three months ended March 31, 20172018 and 2016,2017, respectively, for non-core corporate costs that are removed from Adjusted EBITDA. Excluding these items, the increase in our SG&A expenses for the three months ended March 31, 20172018 compared to the three months ended March 31, 2016 decreased by $2 million, or 2%.2017 remained $14 million. Workforce expenses, which include the wages and benefits of our selling, marketing, advertising, finance and legal personnel, increased marginally by $1$19 million, or 1%.22%, primarily due to merit, headcount and other employee-related incentives and unfavorable foreign exchange movements. Non-workforce expenses, which include the costs of finance and legal professional fees, communications and marketing and foreign exchange related costs, decreased by $3$5 million, or 13%22%, primarily due to lower realized foreign exchange losses.
Non-core corporate costs of $6$5 million and $5$6 million for the three months ended March 31, 20172018 and 2016,2017, respectively, represent costs related to strategic transactions and restructurings, equity-based compensation, impairment of long livedlong-lived assets, certain legal and related costs and unrealized foreign currency gains and losses related to derivatives. TheseThe decrease of $4 million of corporate and restructuring costs remained stable duringand $3 million in equity-based compensation and related taxes was offset by $6 million of unfavorable movements in the three months ended March 31, 2017 compared to March 31, 2016.
Depreciation and Amortization
Depreciation and amortization is comprised of:
| | | Three Months Ended March 31, | | | Change | | ||||||||||||||||||
(in $ thousands) | | | 2017 | | | 2016 | | | $ | | | % | | ||||||||||||
Depreciation on property and equipment | | | | $ | 42,517 | | | | | $ | 41,102 | | | | | $ | 1,415 | | | | | | 3 | | |
Amortization of acquired intangible assets | | | | | 10,392 | | | | | | 11,139 | | | | | | (747) | | | | | | (7) | | |
Total depreciation and amortization | | | | $ | 52,909 | | | | | $ | 52,241 | | | | | $ | 668 | | | | | | 1 | | |
|
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
(in $ thousands) | 2018 | 2017 | $ | % | ||||||||||||
Depreciation on property and equipment | $ | 38,411 | $ | 42,517 | $ | (4,106 | ) | (10 | ) | |||||||
Amortization of acquired intangible assets | 10,166 | 10,392 | (226 | ) | (2 | ) | ||||||||||
Total depreciation and amortization | $ | 48,577 | $ | 52,909 | $ | (4,332 | ) | (8 | ) |
Total depreciation and amortization increased marginallydecreased by $1$4 million, or 1%8%.
Interest Expense, Net
Interest expense, net, decreased $25by $15 million, or 45%51%, primarily due to (i) a $17$10 million unrealized favorable impact of fair value changes on our interest rate swaps,swap derivative contracts and an $8(ii) a $4 million decrease duerelated to the lower outstandingreduced balance ofon the term loans outstanding under our senior secured credit agreement and lower interest rates.
Loss on Early Extinguishment of Debt
In March 2018, we issued senior secured notes and entered into a decreasenew senior secured credit agreement (the “2018 Credit Agreement”). The proceeds from the issuance of the senior secured notes and term loan borrowings under the 2018 Credit Agreement, along with cash on our balance sheet, were used to fully repay our borrowings under the previous senior secured credit agreement (the “2014 Credit Agreement”). This transaction was accounted for as the issuance of new debt and an extinguishment of existing debt resulting in the interest ratea loss on such term loans.early extinguishment of $28 million.
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Provision for Income Taxes
Our tax provision differs significantly from the expected provision amount calculated at the U.S. Federalfederal statutory rate primarily as a result of a number of items such as (i) being subject to income tax in numerous non-U.S. jurisdictions with varying income tax rates, (ii) a valuation allowance continued to be maintained in various jurisdictions, including the U.S. and the U.K., due to the historical losses in such jurisdictions, (iii) certain expenses that are not deductible for tax or do not secure an effective tax deduction under the relevant jurisdictions, and (iv) certain income or gains whichthat are not subject to tax.
As of December 31, 2017, our deferred tax asset in respect of U.S. and non–U.S. NOL carry forwards and U.S. tax credits were $197 million. We believe it is more likely than not that the benefit from such deferred tax assets will not be realized. Consequently, we have recorded a valuation allowance of $187 million against such deferred tax assets as of December 31, 2017.
We regularly assess our ability to realize deferred tax assets. As of March 31, 2018, our estimate of our annual effective tax rate includes the impact of releasing a portion of the valuation allowance associated with both the U.S. and U.K. NOL carry forwards (see below). However, we have maintained a valuation allowance on the remaining deferred tax assets. Future realized earnings performance and changes in future earnings projections, among other factors, may cause an adjustment to the conclusion as to whether it is more likely than not that the benefit of the deferred tax assets will be realized. This would impact the income tax expense in the period for which it is determined that these factors have changed.
As a result of our debt restructuring in March 2018 (see Note 11–Long-term Debt to our consolidated condensed financial statements included in this Quarterly Report on Form 10-Q), we expect that there will be future taxable income in the U.K. other than the reversal of deferred tax liabilities. Consequently, we have realized a benefit of $10 million following the release of the valuation allowance on deferred tax assets associated with our U.K. NOL carry forwards (see Note 4–Income Taxes to our consolidated condensed financial statements included in this Quarterly Report on Form 10-Q).
Liquidity and Capital Resources
Our principal sources of liquidity are (i) cash and cash equivalents, (ii) cash flows generated from operations and (iii) borrowings under our revolving credit facility. As of March 31, 2017,2018, our cash and cash equivalents and revolving credit facility availability were as follows:
(in $ thousands) | | | March 31, 2017 | | |||
Cash and cash equivalents | | | | $ | 187,407 | | |
Revolving credit facility availability | | | | | 116,690 | | |
March 31, | ||||
(in $ thousands) | 2018 | |||
Cash and cash equivalents | $ | 127,165 | ||
Revolving credit facility availability | 141,658 |
With the cash and cash equivalents on our consolidated condensed balance sheet, our ability to generate cash from operations and access to our revolving credit facility and other lending sources, we believe we have sufficient liquidity to meet our ongoing needs for at least the next 12 months.
Working Capital
Our cash flows from operations are significantly impacted by revenue derived from, and commissions paid to, travel providers and travel agencies and consistsconsist of accounts receivables and deferred revenue from travel providers and travel agencies, current prepaid travel agency incentive payments and accrued liabilities for commissions. The movement within these account balances are included within working capital.
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The table below sets out our working capital as of March 31, 20172018 and December 31, 2016,2017, as monitored by management, which is then reconciled to our working capital as presented in our consolidated condensed balance sheets:
| | | Asset (Liability) | | | ||||||||||||||
(in $ thousands) | | | March 31, 2017 | | | December 31, 2016 | | | Change | | |||||||||
Accounts receivable, net | | | | $ | 267,785 | | | | | $ | 218,224 | | | | | $ | 49,561 | | |
Accrued commissions and incentives | | | | | (321,145) | | | | | | (267,488) | | | | | | (53,657) | | |
Deferred revenue and prepaid incentives, net | | | | | (30,762) | | | | | | (32,741) | | | | | | 1,979 | | |
Cash and cash equivalents | | | | | 187,407 | | | | | | 139,938 | | | | | | 47,469 | | |
Accounts payable and employee related | | | | | (129,305) | | | | | | (144,657) | | | | | | 15,352 | | |
Accrued interest | | | | | (13,125) | | | | | | (15,215) | | | | | | 2,090 | | |
Current portion of long-term debt | | | | | (62,441) | | | | | | (63,558) | | | | | | 1,117 | | |
Taxes | | | | | 260 | | | | | | 9,618 | | | | | | (9,358) | | |
Other assets (liabilities), net | | | | | 3,154 | | | | | | (3,207) | | | | | | 6,361 | | |
Working Capital | | | | $ | (98,172) | | | | | $ | (159,086) | | | | | $ | 60,914 | | |
Consolidated Condensed Balance Sheets: | | | | | |||||||||||||||
Total current assets | | | | $ | 554,478 | | | | | $ | 442,251 | | | | | $ | 112,227 | | |
Total current liabilities | | | | | (652,650) | | | | | | (601,337) | | | | | | (51,313) | | |
Working Capital | | | | $ | (98,172) | | | | | $ | (159,086) | | | | | $ | 60,914 | | |
|
Asset (Liability) | ||||||||||||
March 31, | December 31, | |||||||||||
(in $ thousands) | 2018 | 2017 | Change | |||||||||
Accounts receivable, net | $ | 270,663 | $ | 206,524 | $ | 64,139 | ||||||
Accrued commissions and incentives | (356,856 | ) | (282,954 | ) | (73,902 | ) | ||||||
Deferred revenue and prepaid incentives, net | (39,447 | ) | (31,419 | ) | (8,028 | ) | ||||||
Cash and cash equivalents | 127,165 | 122,039 | 5,126 | |||||||||
Accounts payable and employee related | (143,477 | ) | (145,140 | ) | 1,663 | |||||||
Accrued interest | (4,131 | ) | (12,010 | ) | 7,879 | |||||||
Current portion of long-term debt | (54,089 | ) | (64,291 | ) | 10,202 | |||||||
Taxes | (2,804 | ) | (2,823 | ) | 19 | |||||||
Other assets, net | 32,324 | 1,724 | 30,600 | |||||||||
Working Capital | $ | (170,652 | ) | $ | (208,350 | ) | $ | 37,698 | ||||
Consolidated Condensed Balance Sheets: | ||||||||||||
Total current assets | $ | 540,354 | $ | 438,287 | $ | 102,067 | ||||||
Total current liabilities | (711,006 | ) | (646,637 | ) | (64,369 | ) | ||||||
Working Capital | $ | (170,652 | ) | $ | (208,350 | ) | $ | 37,698 |
As of March 31, 2017,2018, we had a working capital net liability of $98$171 million compared to $159$208 million as of December 31, 2016, a2017. The decrease of $61$38 million which is primarily due to a $50$64 million increase in accounts receivable, net, a $47$31 million increase in other assets, net, a $10 million decrease in the current portion of long-term debt, an $8 million decrease in accrued interest and a $5 million increase in cash and cash equivalents as discussed in “—Cash Flows”“Cash flows” below, a $15 million decrease in accounts payable and employee related liabilities and a $6 million increase in other assets (liabilities),net, partially offset by a $54$74 million increase in accrued commissionscommission and incentives, and a $9an $8 million decreaseincrease in taxes.
The table below sets out information on our accounts receivable:
| | | March 31, 2017 | | | December 31, 2016 | | | Change | | |||||||||
Accounts receivable, net (in $ thousands) | | | | $ | 267,785 | | | | | $ | 218,224 | | | | | $ | 49,561 | | |
Accounts receivable, net – Days Sales Outstanding (“DSO”) | | | | | 36 | | | | | | 39 | | | | | | (3) | | |
March 31, | December 31, | |||||||||||
2018 | 2017 | Change | ||||||||||
Accounts receivable, net(in $ thousands) | $ | 270,663 | $ | 206,524 | $ | 64,139 | ||||||
Accounts receivable, net – Days Sales Outstanding (“DSO”) | 38 | 37 | 1 |
Substantially all of our Air revenue within our Travel Commerce Platform is collected through the Airline Clearing House (“ACH”) and other similar clearing houses. ACH requires participants to deposit certain balances into their demand deposit accounts by certain deadlines, which facilitates a timely settlement process. For the three months ended March 31, 2017,2018, Air revenue accounted for approximately 73%70% of our revenue; however, only 51%50% of our outstanding receivables related to customers using ACH as of March 31, 2017.2018. The ACH receivables are collected on average in 3031 days. Beyond Air revenue is generally not collected through the ACH process and takes longer to collect. Our average net collection period for total accounts receivable, net, was 3638 DSO as of March 31, 2017,2018, as compared to 3937 DSO as of December 31, 2016.2017. The growth in Air revenue in the month of March 20172018 compared to December 2016,2017 contributed to the increase in our accounts receivables, net, balance.
Our revenue can experience seasonal fluctuations, reflecting seasonal trends for the products and services we offer. Our accounts receivable balance increased by $50$64 million from December 31, 20162017 to March 31, 2017,2018, and our accrued commissions and incentives increased by $54$74 million from December 31, 20162017 to March 31, 2017,2018, reflecting the seasonality in our business. Seasonality trends generally cause our revenue to be higher in the first and second quarters as compared to the third and fourth quarters of the calendar year. Revenue and related cost of revenue typically peaks during the first half of the year as travelers plan and book their upcoming spring and summer travel.
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Cash Flows
The following table summarizes the changes to our cash flows provided by (used in) operating, investing and financing activities for the three months ended March 31, 2018 and 2017:
Three Months Ended | ||||||||||||
March 31, | Change | |||||||||||
(in $ thousands) | 2018 | 2017 | $ | |||||||||
Cash provided by (used in): | ||||||||||||
Operating activities of continuing operations | $ | 83,097 | $ | 95,022 | $ | (11,925 | ) | |||||
Investing activities | (36,663 | ) | (23,609 | ) | (13,054 | ) | ||||||
Financing activities | (41,705 | ) | (24,251 | ) | (17,454 | ) | ||||||
Effect of exchange rate changes | 397 | 307 | 90 | |||||||||
Net increase in cash and cash equivalents | $ | 5,126 | $ | 47,469 | $ | (42,343 | ) |
As of March 31, 2018, we had $127 million of cash and cash equivalents, an increase of $5 million compared to December 31, 2017. The following discussion summarizes the changes to our cash flows from operating, investing and financing activities for the three months ended March 31, 2018 compared to the three months ended March 31, 2017.
Operating activities. For the three months ended March 31, 2018, cash provided by operating activities was $83 million compared to $95 million for the three months ended March 31, 2017. The decrease of $12 million is primarily a result of lower operating income, higher income tax payments and higher customer loyalty payments.
Investing activities. The cash used in investing activities was $37 million for the three months ended March 31, 2018 and $24 million for the three months ended March 31, 2017, which was for the purchase of property and 2016:
| | | Three Months Ended March 31, | | | Change | | ||||||||||||
(in $ thousands) | | | 2017 | | | 2016 | | | $ | | |||||||||
Cash provided by (used in): | | | | | |||||||||||||||
Operating activities | | | | $ | 95,022 | | | | | $ | 26,204 | | | | | $ | 68,818 | | |
Investing activities | | | | | (23,609) | | | | | | (22,521) | | | | | | (1,088) | | |
Financing activities | | | | | (24,251) | | | | | | (31,039) | | | | | | 6,788 | | |
Effect of exchange rate changes | | | | | 307 | | | | | | 508 | | | | | | (201) | | |
Net increase (decrease) in cash and cash equivalents | | | | $ | 47,469 | | | | | $ | (26,848) | | | | | $ | 74,317 | | |
|
Our investing activities for the three months ended March 2018 and 2017 include:
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
(in $ thousands) | 2018 | 2017 | Change | |||||||||
Cash additions to software developed for internal use | $ | 31,352 | $ | 17,882 | $ | 13,470 | ||||||
Cash additions to computer equipment and other | 5,311 | 5,727 | 416 | |||||||||
Property and equipment additions | $ | 36,663 | $ | 23,609 | $ | 13,054 |
Our Capital Expenditures, substantially all of which relate to our Travel Commerce Platform, include cash additions for software developed for internal use and computer equipment, as well as cash used for the repayment of capital lease and other indebtedness obligations. For the three months ended March 31, 2018 and 2017, we repaid capital lease and other indebtedness obligations of $8 million and $10 million, respectively, which are primarily related to assets within our data center. Our total Capital Expenditures were $45 million and $33 million for the three months ended March 31, 2018 and 2017, respectively.
Cash additions to software developed for internal use represent the continuing development of our systems to enhance our Travel Commerce Platform. Our expenditures have been focused on key areas, including investing in our data center, enhancing our search technology and capabilities, developing mobile customer engagement solutions, the development of content for hotels and car rental providers, further development of Smartpoint, our innovative booking solution delivering multisource content and pricing and the development of our Travelport Merchandising Platform to allow airlines to showcase their content in travel agency workflows.
Financing activities. Cash used in financing activities for the three months ended March 31, 2018 was $42 million, which primarily consisted of (i) $1,400 million of gross proceeds from term loans borrowed under the 2018 Credit Agreement, (ii) $745 million of gross proceeds from the issuance of senior secured notes, offset by (iii) $2,154 million of repayments of term loans under the 2014 Credit Agreement, (iv) $17 million of payments towards debt finance costs and lender fees, (v) $9 million of dividend payments to our shareholders and (vi) $8 million of capital lease and other indebtedness repayments. The cash used in financing activities for the three months ended March 31, 2017 was $24 million, which primarily consisted of (i) $6 million of term loans repayments, (ii) $10 million of capital lease and other indebtedness repayments and (iii) $9 million of dividend payments to our shareholders.
We believe our important measure of liquidity is Free Cash Flow. This measure is a useful indicator of our ability to generate cash to meet our liquidity demands. We use this measure to conduct and evaluate our operating liquidity. We believe it typically presents an alternate measure of cash flows since purchases of property and equipment are a necessary component of our ongoing operations and provides useful information regarding how cash provided by operating activities compares to the property and equipment investments required to maintain and grow our platform. We believe it provides investors with an understanding of how assets are performing and measures management’s effectiveness in managing cash.
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Free Cash Flow is a non-GAAP measure and may not be comparable to similarly named measures used by other companies. This measure has limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent cash flow for discretionary expenditures. This measure should not be considered as a measure of liquidity or cash flows from operations as determined under U.S. GAAP. This measure is not measurement of our financial performance under U.S. GAAP and should not be considered in isolation or as alternative to net income (loss) or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flows from operating activities as a measure of liquidity.
We use Capital Expenditures to determine our total cash spent on acquisition of property and equipment and cash repayment of capital lease obligation and other indebtedness. We believe this measure provides management and investors an understanding of total capital invested in the development of our platform. Capital Expenditures is a non-GAAP measure and may not be comparable to similarly named measures used by other entities. This measure has limitation in that it aggregates cash flows from investing and financing activities as determined under U.S. GAAP.
The following table provides a reconciliation of net cash provided by operating activities to Free Cash Flow. We have also supplementally provided as part of this reconciliation a reconciliation of Adjusted EBITDA, our primary key performance measure, to net cash provided by operating activities:
| | | Three Months Ended March 31, | | |||||||||
(in $ thousands) | | | 2017 | | | 2016 | | ||||||
Adjusted EBITDA | | | | $ | 168,553 | | | | | $ | 154,140 | | |
Interest payments | | | | | (30,126) | | | | | | (37,480) | | |
Tax payments | | | | | (3,905) | | | | | | (4,549) | | |
Customer loyalty payments | | | | | (16,755) | | | | | | (25,307) | | |
Changes in working capital | | | | | (13,588) | | | | | | (49,048) | | |
Pensions liability contribution | | | | | (595) | | | | | | (1,118) | | |
Changes in other assets and liabilities | | | | | (2,779) | | | | | | (7,108) | | |
Other adjusting items(1) | | | | | (5,783) | | | | | | (3,326) | | |
Net cash provided by operating activities | | | | | 95,022 | | | | | | 26,204 | | |
Less: capital expenditures on property and equipment additions | | | | | (23,609) | | | | | | (22,521) | | |
Free Cash Flow | | | | $ | 71,413 | | | | | $ | 3,683 | | |
|
Three Months Ended | ||||||||
March 31, | ||||||||
(in $ thousands) | 2018 | 2017 | ||||||
Net cash provided by operating activities | $ | 83,097 | $ | 95,022 | ||||
Property and equipment additions | (36,663 | ) | (23,609 | ) | ||||
Free Cash Flow | $ | 46,434 | $ | 71,413 |
Financing Arrangements
As of March 31, 2017, we had $187 million of cash and cash equivalents, an increase of $47 million compared to December 31, 2016. The following discussion summarizes changes to our cash flows from operating, investing and financing activities for the three months ended March 31, 2017 compared to the three months ended March 31, 2016.
| | | Three Months Ended March 31, | | |||||||||
(in $ thousands) | | | 2017 | | | 2016 | | ||||||
Cash additions to software developed for internal use | | | | $ | 14,074 | | | | | $ | 18,558 | | |
Cash additions to computer equipment | | | | | 9,535 | | | | | | 3,963 | | |
Total | | | | $ | 23,609 | | | | | $ | 22,521 | | |
|
(in $ thousands) | | | Interest rate | | | Maturity | | | March 31, 2017 | | | December 31, 2016 | | ||||||
Senior Secured Credit Agreement | | | | | | ||||||||||||||
Term loans | | | | | | ||||||||||||||
Dollar denominated(1)(2)(3) | | | L+3.25% | | | September 2021 | | | | $ | 2,232,453 | | | | | $ | 2,236,157 | | |
Revolver borrowings | | | | | | ||||||||||||||
Dollar denominated | | | L+5.00% | | | September 2019 | | | | | — | | | | | | — | | |
Capital leases and other indebtedness | | | | | | | | | | | 100,776 | | | | | | 108,611 | | |
Total debt | | | | | | | | | | | 2,333,229 | | | | | | 2,344,768 | | |
Less: cash and cash equivalents | | | | | | | | | | | (187,407) | | | | | | (139,938) | | |
Net Debt(4) | | | | | | | | | | $ | 2,145,822 | | | | | $ | 2,204,830 | | |
|
Interest | March 31, | December 31, | ||||||||||
(in $ thousands) | rate | Maturity | 2018 | 2017 | ||||||||
Senior Secured Credit Agreement | ||||||||||||
Term loans – (2018 Credit Agreement)(1) | L+2.50% | March 2025 | $ | 1,385,934 | $ | — | ||||||
Term loans – (2014 Credit Agreement)(2) | L+2.75% | September 2021 | — | 2,124,439 | ||||||||
Revolver borrowings – (2018 Credit Agreement) | L+2.25% | September 2022 | — | — | ||||||||
Revolver borrowings – (2014 Credit Agreement) | L+2.50% | September 2022 | — | — | ||||||||
Senior Secured Notes | ||||||||||||
Senior Secured Notes (3) | 6.00% | March 2026 | 737,404 | — | ||||||||
Capital leases and other indebtedness | 99,786 | 105,574 | ||||||||||
Total debt | 2,223,124 | 2,230,013 | ||||||||||
Less: cash and cash equivalents | (127,165 | ) | (122,039 | ) | ||||||||
Net Debt(4) | $ | 2,095,959 | $ | 2,107,974 |
(1) | As of March 31, 2018, the principal amount of terms loans under the 2018 Credit Agreement was $1,400 million, which is netted for unamortized debt discount of $7 million and unamortized debt finance costs of $7 million. |
(2) | As of December 31, 2017, the principal amount of terms loans under the 2014 Credit Agreement was $2,154 million, which is netted for unamortized debt finance costs of $13 million and unamortized debt discount of $17 million. |
(3) | As of March 31, 2018, the principal amount of senior secured notes was $745 million, which is netted for unamortized debt finance costs of $8 million. |
(4) | Net Debt is defined as total debt comprised of current and non-current portion of long-term debt minus cash and cash equivalents. Net Debt is not a measurement of our indebtedness under U.S. GAAP and should not be considered in isolation or as alternative to assess our total debt or any other measures derived in accordance with U.S. GAAP. The management uses Net Debt to review our overall liquidity, financial flexibility, capital structure and leverage. Further, we believe, certain debt rating agencies, creditors and credit analysts monitor our Net Debt as part of their assessment of our business. |
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Senior Secured Credit Agreement
In March 2018, Travelport Finance (Luxembourg) S.à r.l. (the “Borrower”), our wholly-owned subsidiary, entered into the 2018 Credit Agreement under which, the lenders agreed to extend credit to the Borrower in the form of 1.00%
Under the 2018 Credit Agreement, the interest rate per annum applicable to (a) the term loans is based on, at ourthe election (i)of the Borrower, LIBOR plus 3.25%2.50% or base rate (as defined in the senior secured
Further, during the three months ended March 31, 2017, the average LIBOR rate applied to the term loans was 1.02%.
As discussed above, in March 2018, the Borrower entered into a new revolving credit facility under the 2018 Credit Agreement with a consortium of banks. The lenders, terms, credit facility amount and maturity date under the new revolving credit facility were substantially the same as under the 2014 Credit Agreement, except for the reduction in interest rates discussed above. Under our senior secured credit agreement, we havethe new terms, the Borrower has a $125$150 million revolving credit facility, with a consortium of banks, which contains a letter of credit sub-limit up to a maximum of $50$100 million. As of March 31, 2017, we had2018, there were no outstanding borrowings under ourthe revolving credit facility under the 2018 Credit Agreement, and utilized $8 million was utilized for the issuance of letters of credit, with a balance of $117$142 million remaining.
Senior Secured Notes
In March 2018, Travelport Corporate Finance PLC (the “Issuer”), our wholly-owned subsidiary, issued a principal amount of $745 million in senior secured credit agreement also permits the issuancenotes due in March 2026 with a stated interest rate of certain cash collateralized letters6.00% per annum. The proceeds were used to repay a portion of credit in addition to those that can be issuedour term loans outstanding under the revolving credit facility, whereby 103%2014 Credit Agreement. The interest on the senior secured notes is payable semi-annually in cash in arrears on March 15 and September 15 of cash collateral has to be maintained for outstanding letters of credit. As of March 31, 2017, there were no outstanding cash collateralized letters of credit.
Travelport Finance (Luxembourg) S.a.r.l., our indirect 100% owned subsidiary, is the obligor (the “Obligor”) under our senior secured credit agreement. All obligations under our senior secured credit agreement are unconditionally guaranteed by certain of our wholly owned foreign subsidiaries, and, subject to certain exceptions, each of our existing and future domestic wholly owned subsidiaries. All obligations under our secured debt, and the guarantees of those obligations, are secured by substantially all the following assets of the Obligor and each guarantor, subject to certain exceptions: (i) a pledge of 100% of the capital stock and intercompany indebtedness of the Obligor and each guarantor; (ii) a pledge of 100% of the capital stock and intercompany indebtedness of certain other subsidiaries directly owned by the Obligor or any other guarantor subject to certain exceptions and limitations; and (iii) a security interest in, and mortgages on, substantially all tangible and intangible assets of the Obligor and each U.S. guarantor subject to additional collateral and guarantee obligations.
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Borrowings under our senior secured credit agreementthe 2018 Credit Agreement are subject to amortization and prepayment requirements,requirements. In addition, the 2018 Credit Agreement and ourthe Indenture governing the senior secured credit agreement containsnotes contain various covenants, including a leverage ratio, events of default and other provisions.
Our 2018 Credit Agreement and Indenture governing the senior secured credit agreement limitsnotes limit certain of our subsidiaries’ ability to:
As of March 31, 2017,2018, our consolidated first lien net leverage ratio, as determined under our senior secured credit agreement,the 2018 Credit Agreement, was 3.83 compared to the maximum allowable of 6.00, and6.00. In addition, we were in compliance with suchthe other covenants under our senior secured credit agreement.
We re-evaluate our capital structure from time to time including, but not limited to, refinancing our current indebtedness with other indebtedness which may have different interest rates, maturities and covenants.
Interest Rate Risk
We are exposed to interest rate risk relating to our floating rate debt.debt under the 2018 Credit Agreement. We use derivative financial instruments as part of our overall strategy to manage our exposure to interest rate risk. We do not use derivatives for trading or speculative purposes.
Our primary interest rate exposure as of March 31, 20172018 was to interest rate fluctuations in the United States, specifically the impact of LIBOR interest rates on our dollar denominated floating rate debt. Interest on our $2,232the $1,400 million principal amount of term loans under the 2018 Credit Agreement is currently charged at LIBOR plus 3.25%, subject to a LIBOR floor of 1.00% under our senior secured credit agreement. During the three months ended March 31, 2017, LIBOR rates increased above LIBOR floor of 1.00%2.50%. In order to protect against potential higher interest costs resulting from increases in LIBOR, in October 2015,as of March 31, 2018, we transacted $1,400 million notional amount ofhave outstanding interest rate swap contracts covering a period from February 2017 to February 2019. Further, during the three months ended March 31, 2017, we transacted $1,200 million notional amount of interest rate swap contracts commencing February 2019 until February 2020. These swapsthat fix the LIBOR rate payable on approximately 60% of our floating rate debt during these periods at average rates of 1.4010% and 2.1906%, respectively.
Average | ||||||
Notional Amount | Interest | |||||
($ in thousands) | Period | Rate | ||||
1,400,000 | February 2017 to February 2019 | 1.4010% | ||||
1,200,000 | February 2019 to February 2020 | 2.1906% | ||||
400,000 | February 2020 to February 2021 | 2.1925% |
During the three months ended March 31, 2017,2018, none of the derivative financial instruments used to manage our interest rate exposure were designated as accounting hedges. The fluctuations in the fair value of interest rate derivative financial instruments not designated as hedges for accounting purposes are recorded as a component of interest expense, net, in our consolidated condensed statements of operations. (Gains) lossesGains on these interest rate derivative financial instruments were $11 million and less than $(1) million and 16$1 million for the three months ended March 31, 2018 and 2017, and 2016, respectively.
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Foreign Currency Risk
We are exposed to foreign currency exchange rate risk that arises from certain intercompany transactions, earnings denominated in non-U.S. dollar currencies and from non-functional currency denominated assets and liabilities and earnings denominated in non-U.S. dollar currencies.
We use derivative financial instruments as part of our overall strategy to manage our exposure to foreign currency exchange rate risk. We do not use derivatives for trading or speculative purposes.
During 2017,2018, we used foreign currency derivative contracts (i.e. forward contracts) to manage our exposure to foreign currency exchange rate risk. As of March 31, 2017,2018, we had $292$410 million net notional amount of foreign currency forward contracts.
During the three months ended March 31, 20172018 and 2016,2017, none of the derivative financial instruments used to manage our foreign currency exposures were designated as accounting hedges. The fluctuations in the fair value of foreign currency derivative financial instruments not designated as hedges for accounting purposes are recorded as a component of selling, general and administrative expenses in our consolidated condensed statements of operations. Gains on these foreign currency derivative financial instruments amounted to $5 million and $2 million for both of the three months ended March 31, 2018 and 2017, and 2016.respectively. The fluctuations in the fair values of our foreign currency derivative financial instruments partially offset the impact of the changes in the value of the underlying risks they are intended to economically hedge.
As of March 31, 2017,2018, our derivative contracts whichthat hedge our interest rate and foreign currency exposure had a net liabilityasset position of $12$29 million and cover transactions for a period that does not exceed three years.
Contractual Obligations
Following our debt restructuring in March 2018, our contractual obligations related to the terms loans have changed since December 31, 2017, we amendedand our contractual obligations also include obligations related to the senior secured credit agreement under whichnotes we reducedissued in March 2018. The following table summarizes our future contractual obligations related to our long-term debt as of March 31, 2018:
Year Ending March 31, | ||||||||||||||||||||||||||||
(in $ thousands) | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | |||||||||||||||||||||
Term loans | $ | 10,500 | $ | 14,000 | $ | 14,000 | $ | 14,000 | $ | 14,000 | $ | 1,333,500 | $ | 1,400,000 | ||||||||||||||
Senior secured notes | — | — | — | — | — | 745,000 | 745,000 | |||||||||||||||||||||
Capital leases and other indebtedness | 43,589 | 29,951 | 16,638 | 8,260 | 1,348 | — | 99,786 | |||||||||||||||||||||
Interest payments(1) | 74,179 | 107,233 | 106,943 | 105,621 | 104,857 | 254,770 | 753,603 | |||||||||||||||||||||
Total | $ | 128,268 | $ | 151,184 | $ | 137,581 | $ | 127,881 | $ | 120,205 | $ | 2,333,270 | $ | 2,998,389 |
(1) Interest payments include interest on the applicable rate on our term loans from 4.00% to 3.25%. This repricingunder the 2018 Credit Agreement, the senior secured notes and our capital leases and other indebtedness. Interest on the term loans is expected to lower our annualized interest expense by approximately $17 million based on the principal balance outstandinginterest rate as of March 31, 2018 of LIBOR plus 2.50%, and interest on the datesenior secured notes is based on its stated rate of the repricing.
Other than as set forth above, as of March 31, 2017,2018, our future contractual obligations have not changed significantly from the amounts included within our Annual Report on Form 10-K for the year ended December 31, 20162017 filed with the SEC on February 21, 2017.
Other Off-Balance Sheet Arrangements
We had no other off balanceoff-balance sheet arrangements during the three months ended March 31, 2017.2018.
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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We assess our market risk based on changes in interest rates and foreign currency exchange rates utilizing a sensitivity analysis that measures the potential impact on earnings, fair values and cash flows based on a hypothetical 100 basis point change (increase and decrease) in interest rates and a 10% change (increase and decrease) in the exchange rates against the U.S. dollar as of March 31, 2017.2018. There are certain limitations inherent in these sensitivity analyses as our overall market risk is influenced by a wide variety of factors, including the volatility present within markets and the liquidity of markets. These “shock tests” are constrained by several factors, including the necessity to conduct analysis based on a single point in time and the inability to include complex market reactions normally arising from the market shifts modelled.
Interest Rate Risk
We assess our interest rate market risk utilizing a sensitivity analysis based on a hypothetical 100 basis point change (increase or decrease) in interest rates. WeAs of March 31, 2018, we have determined, through such analysis, that a 100 basis point increase or decrease in interest rates, as of March 31, 2017, based on the outstanding floating rate debt balance, would increase or decrease our annualized interest charge by $23$14 million, excluding the effect of fair value changes on our interest rate swaps. Due to the 1.00% LIBOR floor on our term loans, a 100 basis point decrease in interest rates as of March 31, 2017 would decrease our annualized interest charge by $3 million.
In 2015, in order to protect against potential higher interest costs resulting from increases in LIBOR, interest rates, we transacted $1,400 million notional amount ofhave entered into several interest rate swap contracts for a period from February 2017 to February 2019. Additionally, during the three months ended March 31, 2017, we transacted $1,200 million notional amount of interest rate swap contracts commencing February 2019 until February 2020. These swaps fix the LIBOR rate payable on approximately 60% of our floating rate debt during these future period at 1.4010% and 2.1906%, respectively.derivative contracts. We have not hedge accounted for these swaps. Mark to market fair value changes on these swaps, which represent the net present value of future cash flows on the swaps, are accounted for within interest expense, net, in our consolidated condensed statement of operations. As of March 31, 2017,2018, a 100 basis point increase or decrease in interest rates would result in a credit or debit, respectively, to our interest expense of $40$30 million due to changes in the fair value of these swaps.
Foreign Currency Risk
We have foreign currency exposure to exchange rate fluctuations, particularly with respect to the British pound, Euro and Australian dollar. We anticipate such foreign currency exchange rate risk will remain a market risk exposure for the foreseeable future. We assess our foreign currency market risk utilizing a sensitivity analysis based upon a hypothetical 10% change (increase or decrease) in exchange rate against the U.S. dollar on the value of our foreign currency derivative instruments as of March 31, 2017.2018. We have determined, through the sensitivity analysis, that the impact of a 10% strengthening or weakening in the U.S. dollar exchange rate with respect to the British pound, Euro and Australian dollar would result in a chargedebit or a credit, respectively, of approximately $26$39 million and $41 million, respectively, on our consolidated condensed statements of operations, while a 10% weakening in the U.S. dollar exchange rate with respect to the same currencies would result in a credit of $28 million on our consolidated condensed statements of operations.
There were no material changes to our market risks as previously disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosure About Market Risks” included withinin our Annual Report on Form 10-K for the year ended December 31, 20162017 filed with the SEC on February 21, 2017.
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(a) | Disclosure Controls and Procedures.The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Act”) is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. |
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 Act) as of March 31, 2017.2018. 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.
(b) | Changes in Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the Company’s fiscal quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |
(c) | Limitations on Controls. Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. |
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Consumer Antitrust Class Action
On July 14, 2015 and July 17, 2015, approximately 24 plaintiffs filed purported class action lawsuits against us, Amadeus and Sabre in the United States District Court for the Southern District of New York (Gordon et al. v. Amadeus IT Group, S.A et al.). A consolidated, amended complaint was filed on October 2, 2015 (the “Amended Complaint”). The Amended Complaint alleged violations of the Sherman Act, state antitrust laws and state consumer protection laws by defendants beginning in 2006. In particular, the plaintiffs claimed there was a conspiracy among us and the other defendants to impose contract terms on airlines, which the plaintiffs allege had the effect of maintaining higher fees and restricting competition. On November 7, 2017, we entered into a settlement agreement with the plaintiffs, which received final approval by the court on April 23, 2018. The settlement resolved all pending claims against us in connection with the case, and the court dismissed the Amended Complaint in full, with prejudice, on April 23, 2018 and closed the case as of that date.
Other than as set forth above, there are no material changes from the description of our legal proceedings disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016,2017, filed with the SEC on February 21, 2017.
There have been no material changes in the risk factors previously disclosed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016,2017, filed with the SEC on February 21, 2017.
Not Applicable.
Not Applicable.
Not Applicable.
Trade Sanctions Disclosure
The following activities are disclosed as required by Section 13(r)(1)(D)(iii) of the Exchange Act.
As part of our global business in the travel industry, we provide certain passenger travel related Travel Commerce Platform and Technology Services to Iran Air. We also provide certain Technology Services to Iran Air Tours. All of these services are either exempt from applicable sanctions prohibitions pursuant to a statutory exemption permitting transactions ordinarily incident to travel or, to the extent not otherwise exempt, specifically licensed by the U.S. Office of Foreign Assets Control. Subject to any changes in the exempt/licensed status of such activities, we intend to continue these business activities, which are directly related to and promote the arrangement of travel for individuals.
The gross revenue and net profit attributable to these activities in the quarter ended March 31, 20172018 were approximately $137,000$121,000 and $96,000$94,000 respectively.
See Exhibit Index.
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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.
TRAVELPORT WORLDWIDE LIMITED | ||||||
Date: May | / / Bernard Bot | |||||
Bernard Bot | ||||||
Executive Vice President and Chief Financial Officer | ||||||
Date: May | /s/ Antonios Basoukeas | |||||
Antonios Basoukeas | ||||||
Chief Accounting Officer |
EXHIBIT INDEX
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