2 014 Annual Report
TECHNOLOGY THAT MOVES
2014 PERFORMANCE HIGHLIGHTS
$2.6 BILLION
Sabre Revenue
$840 MILLION
Sabre Adjusted EBITDA
33% GROWTH
Airline & Hospitality Solutions
Adjusted EBITDA
17% GROWTH
Hospitality Solutions
Revenue
511 MILLION
Airline Passengers Boarded
48 MILLION
SynXis Hotel Room Nights
376 MILLION
Travel Bookings
173% GROWTH
Tripcase Trips Managed
23
New Products Introductions
99%
Customer Retention
Creativity and Innovation.
Sabre Values
Integrity.
Collaboration and Teamwork.
Ownership of Results.
External Focus.
“We are more focused, better positioned
and stronger than ever to grow as our customers’
first choice for technology solutions.” – Tom Klein
April 2015
To our stockholders:
I travel often, mostly for Sabre business and sometimes with my family for vacation.
After more than 20 years at Sabre, my perspective during trips has become quite different from most other travelers. For me,
every trip is an opportunity to see Sabre technology in action.
Sometimes it’s right in front of me at an airport kiosk, or when I’m interacting with a hotel front desk manager – or even as I
check TripCase to get my itinerary or a real-time flight update.
Other times, I can’t help but think about how Sabre is behind-the-scenes, creating the airline’s flight plan to minimize fuel
consumption, flying time and operational costs, all while getting us to our destination on time – or how the flight crew receives
their work schedule using a Sabre mobile app.
I even imagine how people might have booked their trips. A woman with a laptop bag may have scheduled her flight with one
of our corporate or travel company customers. That young family may have booked their flight with an online travel agent.
The guy with all the loyalty tags hanging from his carry-on bag may have booked a reservation directly with his favorite hotel –
using a website booking engine that Sabre provides.
In every case, Sabre technology – and Sabre people – helped make their journey happen.
In 2014, we made great strides to both broaden and deepen our footprint of solutions across the $7 trillion travel industry.
We executed a disciplined strategy to ensure that we were competing and investing in businesses where we have scale,
differentiated solutions and growth opportunities.
Our work in 2014 set us up well for the future, and Sabre is better positioned than ever for sustainable, long-term growth.
In each of our businesses – Sabre Travel Network, Sabre Airline Solutions and Sabre Hospitality Solutions – Sabre brings the
broadest and deepest portfolio of technology solutions to our customers, with transaction-based business models that seek
to deliver both stability and growth. Our mission-critical solutions support our customers’ growth, profitability and traveler
experience goals – helping to ensure that they can win in an increasingly dynamic and technology-dependent global travel
industry.
Thanks to the strong customer demand for our differentiated offerings, Sabre posted solid 2014 financial results, including:
•
Total consolidated revenue of $2.6 billion, an increase of 4.3%
• Adjusted EBITDA of $840 million, an increase of 7.9%
• Adjusted Free Cash Flow of $293 million, an increase of 61.4%
Operating highlights:
Sabre Airline Solutions recorded its strongest year ever for revenue, EBITDA and new customer sales. Our most
recent new product introductions – Sabre Intelligence Exchange, Customer Data Hub, Customer Experience Manager
and Dynamic Retailer – are great additions to our industry-leading SaaS portfolio to help airlines market, sell, serve and
operate.
During the year, we signed a new multi-year agreement with American Airlines, the world’s largest airline, to use
SabreSonic Customer Sales and Service (CSS) for their reservations and passenger services. Our international sales
were strong, including new agreements with Alitalia, airberlin and Copa Airlines, each signing on for a broad portfolio of
solutions. In 2014, airlines using SabreSonic CSS boarded 511 million passengers around the world. These recent wins
are in our implementation pipeline and mean that new airlines using SabreSonic CSS will board an additional 250 million
passengers per year once the work to implement them is completed.
Sabre Hospitality Solutions generated robust growth in 2014. During the year, we launched our new SynXis
Enterprise Platform – a fully integrated suite of technology solutions that enables hoteliers to build their business
operations around the guest experience. Major 2014 commercial wins included Wyndham Hotel Group, Four
Seasons Hotels and Resorts and China-based HNA Hotels and Resorts. Hospitality Solutions enters 2015 with a
highly-differentiated product offering and significant commercial momentum. We expect the strong growth we’ve
experienced in this business to continue.
Sabre Travel Network continues to provide the world’s best marketplace for travel buyers and sellers. Despite
headwinds that muted 2014 growth, we maintained our 36% global share position and are winning in key markets like
EMEA – where bookings increased nearly 10% year-over-year. Our 2014 strategic investments in this business will
ensure that our fare search, supplier analytics and travel agency tools will continue to be the best in the market – which
positions us well to capitalize on projected increases in global travel volume.
In addition, TripCase, our leading mobile and web service platform for travelers, continues to enjoy great success,
managing more than 30 million trips in 2014 – an increase of 173% over 2013. We believe that this scale and growth
momentum is the best in the industry.
Consistent with our strategy, in early 2015 we completed the process of exiting our online travel agency businesses. We
sold Travelocity to Expedia and lastminute.com to Bravofly Rumbo Group. In both cases, these transactions strengthened our
relationships with these important customers. In total, our disposition of all online travel agency operations has generated
more than $500 million in value for re-deployment to other higher priority investment oppportunities.
Another important 2014 milestone was our return to the public markets with the successful completion of our initial public
offering (IPO) in April and listing on the NASDAQ Stock Market.
At any given moment in time, there are hundreds of opportunities where our Sabre teams are delivering technology solutions
to make travel come to life. It’s not just simply “what we do” – it’s our passion, and we couldn’t be more proud of the vital
services we provide for the fabulous, complex and expanding global travel industry.
As we enter 2015, Sabre is more focused, better positioned and stronger than ever to grow as our customers’ first choice
for technology solutions – all of which will support our goal of becoming the most influential technology company in the
travel industry.
Tom Klein
President and Chief Executive Officer
Sabre Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-36422
Sabre Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
20-8647233
(I.R.S. Employer
Identification No.)
3150 Sabre Drive
Southlake, TX 76092
(Address, including zip code, of principal executive offices)
(682) 605-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
(Title of class)
The NASDAQ Stock Market LLC
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No
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 No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the registrant’s common stock held by non-affiliates, as of June 30, 2014, was $1,039,975,956. As of
February 26, 2015, there were 270,094,955 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to its 2015 annual meeting of stockholders to be held on May 28, 2015, are
incorporated by reference in Part III.
Table of Contents
PART I
Business ..............................................................................................................................................
Item 1.
Item 1A. Risk Factors ........................................................................................................................................
Item 1B. Unresolved Staff Comments ..............................................................................................................
Properties ............................................................................................................................................
Item 2.
Legal Proceedings ..............................................................................................................................
Item 3.
Mine Safety Disclosures .....................................................................................................................
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ............................................................................................................................
Selected Financial Data ......................................................................................................................
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .............
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................................................
Financial Statements and Supplementary Data ..................................................................................
Item 8.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ............
Item 9A. Controls and Procedures .....................................................................................................................
Item 9B. Other Information ...............................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance .................................................................
Item 11. Executive Compensation ....................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ...........................................................................................................................................
Item 13. Certain Relationships and Related Transactions, and Director Independence ...................................
Item 14. Principal Accounting Fees and Services ............................................................................................
Page
1
6
26
27
27
32
35
36
45
71
74
133
133
134
134
134
134
135
135
PART IV
Item 15. Exhibits, Financial Statement Schedules ............................................................................................
136
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the section “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Part II, Item 7, contains information that may constitute
forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans
and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts,
such as statements regarding our future financial condition or results of operations, our prospects and strategies for
future growth, the development and introduction of new products, and the implementation of our marketing and
branding strategies. In many cases, you can identify forward-looking statements by terms such as “may,” “will,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or the negative of
these terms or other comparable terminology. The forward-looking statements are based on our current
expectations and assumptions regarding our business, the economy and other future conditions and are subject to
risks, uncertainties and changes in circumstances that may cause events or our actual activities or results to differ
significantly from those expressed in any forward-looking statement. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions,
levels of activity, performance or achievements. You are cautioned not to place undue reliance on these forward-
looking statements. Unless required by law, we undertake no obligation to publicly update or revise any forward-
looking statements to reflect circumstances or events after the date they are made. A number of important factors
could cause actual results to differ materially from those indicated by the forward-looking statements, including, but
not limited to, those factors described in Part I, Item 1A, “Risk Factors” and elsewhere in this Annual Report.
In this Annual Report on Form 10-K, references to “Sabre,” the “Company,” “we,” “our,” “ours” and “us”
refer to Sabre Corporation and its consolidated subsidiaries unless otherwise stated or the context otherwise
requires.
ITEM 1.
BUSINESS
Overview
PART I
Sabre Corporation is a Delaware corporation formed in December 2006. On March 30, 2007, Sabre
Corporation acquired Sabre Holdings Corporation (“Sabre Holdings”), which is the sole subsidiary of Sabre
Corporation. Sabre GLBL Inc. is the principal operating subsidiary and sole direct subsidiary of Sabre Holdings.
Sabre GLBL Inc. or its direct or indirect subsidiaries conduct all of our businesses. Our principal executive offices
are located at 3150 Sabre Drive, Southlake, Texas 76092.
We are a leading technology solutions provider to the global travel and tourism industry. We span the breadth
of the global travel ecosystem, providing key software and services to a broad range of travel suppliers and travel
buyers. We connect the world’s leading travel suppliers, including airlines, hotels, car rental brands, rail carriers,
cruise lines and tour operators, with travel buyers in a comprehensive travel marketplace. We also offer travel
suppliers an extensive suite of leading software solutions, ranging from airline and hotel reservations systems to
high-value marketing and operations solutions, such as planning airline crew schedules, re-accommodating
passengers during irregular flight operations and managing day-to-day hotel operations. These solutions allow our
customers to market, distribute and sell their products more efficiently, manage their core operations, and deliver an
enhanced travel experience.
Recent Developments
Consistent with our strategy to focus on the growth opportunities in Airline and Hospitality Solutions and
Travel Network, we completed our exit of the online travel agency business in the first quarter of 2015. On January
23, 2015, we announced the sale of our Travelocity business in the United States and Canada (“Travelocity.com”) to
Expedia, Inc. (“Expedia”) for $280 million in cash consideration. Travel Network’s agreement with Expedia
regarding the use of our global distribution system (“GDS”) remains in place such that air travel booked through the
Travelocity-branded websites by Expedia are contractually required to be processed by Travel Network through the
beginning of 2019. Additionally, on December 16, 2014, we announced that we had received a binding offer from
1
Bravofly Rumbo Group to acquire lastminute.com, the European portion of our Travelocity business. The
lastmintue.com transaction closed on March 1, 2015 and resulted in the transfer of commercial liabilities to the
acquirer. We did not receive any cash proceeds or any other significant consideration in the transaction other than
payment for specific services to be provided to the acquirer under a transition services agreement during 2015. At
the time of sale, the acquirer of lastminute.com entered into a long-term agreement with Travel Network to continue
to utilize our GDS for bookings which will generate incentive consideration to be paid by us to the acquirer. We
have reclassified and reported all of the businesses associated with the Travelocity segment as discontinued
operations in this Annual Report on Form 10-K, as this segment was considered held for sale as of December 31,
2014. As a result, financial information included in filings made with the Securities and Exchange Commission (the
“SEC”) prior to this Annual Report on Form 10-K, including financial information in Quarterly Reports on
Form 10-Q and registration statements on Form S-1, may not be directly comparable to the financial information
contained in this report.
Business Segments
We operate through two business segments: Travel Network and Airline and Hospitality Solutions. Financial
information about our business segments and geographic areas is provided in Note 18, Segment Information, to our
consolidated financial statements in Part II, Item 8 in this Annual Report on Form 10-K.
Travel Network
Travel Network is our global business-to-business travel marketplace and consists primarily of our GDS and a
broad set of solutions that integrate with our GDS to add value for travel suppliers and travel buyers. Our GDS
facilitates travel by efficiently bringing together travel content such as inventory, prices, and availability from a
broad array of travel suppliers, including airlines, hotels, car rental brands, rail carriers, cruise lines and tour
operators, with a large network of travel buyers, including online and offline travel agencies (“OTAs”), travel
management companies (“TMCs”) and corporate travel departments.
Airlines and Hospitality Solutions
Our Airline and Hospitality Solutions business offers a broad portfolio of software technology products and
solutions, through software-as-a-service (“SaaS”) and hosted delivery model, to airlines, hotel properties and other
travel suppliers. Airline and Hospitality Solutions aggregates our Airline Solutions and Hospitality Solutions
operating segments.
Airline Solutions—Our Airline Solutions business provides industry-leading and comprehensive software
solutions that help our airline customers better market, sell, serve and operate. We offer airline software solutions in
three functional suites: our reservation system, SabreSonic Customer Sales & Service (“SabreSonic CSS”); and our
commercial and operations solutions, Sabre AirVision Marketing & Planning and Sabre AirCentre Enterprise
Operations. SabreSonic CSS provides comprehensive capabilities around managing sales and customer service
across an airline’s diverse touch points. Sabre AirVision Marketing & Planning is a set of strategic airline
commercial planning solutions that focuses on helping our customers improve profitability and develop their brand.
Sabre AirCentre Enterprise Operations is a set of strategic solutions that drive operational effectiveness through
holistic planning and management of airline, airport and customer operations.
Hospitality Solutions— Our Hospitality Solutions business provides software and solutions to approximately
20,000 hotel properties around the world. Our offerings include distribution through our SynXis central reservation
system (“CRS”), property management through Sabre Property Management System (“PMS”), marketing services
and consulting services that optimize distribution and marketing.
On September 11, 2014, we acquired the assets of Genares Worldwide Reservation Services, Ltd.
(“Genares”), a global, privately-held hospitality technology company. The acquisition added more than 2,300
independent and chain hotel properties to Hospitality Solutions’ portfolio.
2
Strategy
We are an innovative technology company that aims to lead the travel industry by helping our customers
succeed. The key elements of our strategy include:
Commitment to develop innovative technology products through investment of significant resources in
solutions that address key customer needs which include retailing solutions, mobile capabilities, data
analytics and business intelligence and workflow optimization.
Geographic expansion by seeking to deepen our presence in high-growth geographies in Europe,
including high-growth Eastern European markets, Asia Pacific (“APAC”) and Latin America.
Pursuit of new customers and marketplace content through seeking to actively add new travel supplier
content to Travel Network and continuing to pursue new customers for our Airlines Solutions business.
Strengthen relationships with existing customers, including promoting the adoption of our products
within and across our existing customers.
Customers
Travel Network customers consist of travel suppliers, including airlines, hotels, car rental brands, rail carriers,
cruise lines and tour operators; a large network of travel buyers, including OTAs, offline travel agencies, TMCs and
corporate travel departments; and travelers and other sellers of travel and consumers of travel information. Airline
Solutions serves airlines of all sizes and in every region of the world, including hybrid carriers and low-cost carriers
(collectively, “LCC/hybrids”), global network carriers and regional network carriers; and other customers such as
airports, corporate aviation fleets, governments and tourism boards. Hotel Solutions has a global customer base with
approximately 20,000 hotel properties of all sizes.
No individual customer accounted for more than 10% of our consolidated revenues for the year ended
December 31, 2014.
Sources of Revenue
Transactions—Bookings that generate fees directly to Travel Network (“Direct Billable Booking”) include
bookings made through our GDS (e.g., air, car and hotel bookings) and through our joint venture partners in cases
where we are paid directly by the travel supplier. A transaction occurs when a travel agency or corporate travel
department books, or reserves, a travel supplier’s product on our GDS, for which we receive a fee. Transaction fees
include, but are not limited to, transaction fees paid by travel suppliers for selling their inventory through our GDS
and transaction fees paid by travel agency subscribers related to their use of our GDS. We receive revenue from the
travel supplier and the travel agency according to the commercial arrangement with each.
SaaS and Hosted—Airlines and Hospitality Solutions generates revenue through upfront solution fees and
recurring usage-based fees for the use of our software solutions hosted on our own secure platforms or deployed
through our software-as-a-service (“SaaS”). SaaS and hosted software are maintained by us as well as the
infrastructure it employs. We collect the implementation fee and recurring usage-based fees pursuant to contracts
with terms that typically range between three and ten years and generally include minimum annual volume
requirements.
Consulting—Airline and Hospitality Solutions offerings that utilize the SaaS and hosted revenue model are
sometimes sold as part of multiple-element agreements for which we also provide professional services. Our
professional services consist primarily of consulting services focused on helping customers achieve better utilization of
and return on their software investment. Often, we provide consulting services during the implementation phase of our
SaaS solutions.
Software Licensing—Airline and Hospitality Solutions generates revenue by charging customers for the
installation and use of our software products. Some contracts under this model generate additional revenue for the
maintenance of the software product.
3
Media—Advertising revenue is generated by Travel Network from customers that advertise products on our
GDS. Advertisers use two types of advertising metrics: (i) display advertising and (ii) action advertising. In display
advertising, advertisers usually pay based on the number of customers who view the advertisement, and are charged
based on cost-per-thousand impressions. In action advertising, advertisers usually pay based on the number of
customers who perform a specific action, such as click on the advertisement, and are charged based on the cost per
action.
Competition
We compete in highly competitive markets. Travel Network competes with several other regional and global
travel marketplace providers, including other GDSs, local distribution systems and travel marketplace providers
primarily owned by airlines or government entities and direct distribution by travel suppliers. In addition to other
GDSs and direct distributors, there are a number of other competitors in the travel distribution marketplace,
including new entrants in the travel space that offer metasearch capabilities that direct shoppers to supplier websites
and/or OTAs, third party aggregators and peer-to-peer options for travel services. Airline Solutions operates in an
industry that is very competitive and highly fragmented, which includes other providers of reservations systems and
software applications solutions and airlines that develop their own software applications and reservations systems in
house. Primary competitors of Hospitality Solutions are in the hospitality CRS and PMS fields and hotels that
develop their own software applications and CRSs in house, including global hotel chains.
Technology and Operations
Our technology strategy is based on achieving company-wide stability and performance at the most efficient
price point. Significant investment has gone into building a commoditized, centralized and standardized middleware
environment with an emphasis on simplicity, security, and scalability. We invest heavily in software development,
delivery and operational support capabilities and strive for best in class products that we can provide for our
customers. We operate standardized infrastructure in our data center environments across hardware, operating
systems, databases, and other key enabling technologies to minimize costs on non-differentiators.
Our architecture has evolved from a mainframe centric transaction processing environment to a secure
processing platform that we believe is one of the world’s most heavily used and resilient service oriented
architecture (“SOA”) environments. A variety of products and services run on this technology infrastructure: high
volume air shopping systems; desktop access applications providing continuous, real time data access to travel
agents; airline operations and decision support systems; an array of customized applications available through the
Sabre Red App Centre; and web based services that provide an automated interface between us and our travel
suppliers and customers. The flexibility and scale of our standardized SOA based technology infrastructure allow us
to quickly deliver a broad variety of SaaS and hosted solutions.
Intellectual Property
Companies in the travel and travel technology industries increasingly rely on patents, copyrights, trademarks,
and trade secrets, as well as licenses of the foregoing. Such companies constantly develop new products and
innovations, and the travel and travel technology industries are subject to constant and rapid technological change.
We use software, business processes and proprietary information to carry out our business. These assets and
related intellectual property rights are significant assets of our business. We rely on a combination of patent,
copyright, trade secret and trademark laws, confidentiality procedures, and contractual provisions to protect these
assets and we license software and other intellectual property both to and from third parties. We may seek patent
protection on technology, software and business processes relating to our business, and our software and related
documentation may also be protected under trade secret and copyright laws where applicable. We may also benefit
from both statutory and common law protection of our trademarks. We do not believe that our business is dependent
on any single item of intellectual property, or that any single item of intellectual property is material to the operation
of our business. Rather, we believe that our intellectual property provides a competitive advantage, and from time to
time we have taken steps to enforce our intellectual property rights.
4
Although we rely heavily on our brands, associated trademarks, and domain names, we do not believe that our
business is dependent on any single item of intellectual property, or that any single item of intellectual property is
material to the operation of our business. However, since we consider trademarks to be a valuable asset of our
business, we maintain our trademark portfolio throughout the world by filing trademark applications with the
relevant trademark offices, renewing appropriate registrations and regularly monitoring potential infringement of our
trademarks in certain key markets.
Government Regulation
We are subject to or affected by international, federal, state and local laws, regulations and policies, which are
constantly subject to change. These laws, regulations and policies include GDS regulation in the European Union
(“EU”), Canada, the United States and other locations.
We are subject to the application of data protection and privacy regulations in many of the countries in which
we operate.
We are also subject to prohibitions administered by the Office of Foreign Assets Control (the “OFAC rules”),
which prohibit U.S. persons from engaging in financial transactions with or relating to the prohibited individual,
entity or country, require the blocking of assets in which the individual, entity or country has an interest, and
prohibit transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S.
persons) to such individual, entity or country.
Our businesses may also be subject to regulations affecting issues such as: trade sanctions, exports of
technology, telecommunications, and e commerce. Any such regulations may vary among jurisdictions.
See “Risk Factors—Any failure to comply with regulations or any changes in such regulations governing our
businesses could adversely affect us.”
Seasonality
The travel industry is seasonal in nature. Travel bookings for Travel Network, and the revenue we derive from
those bookings, decrease significantly each year in the fourth quarter, primarily in December. We recognize air-
related revenue at the date of booking and, because customers generally book their November and December
holiday leisure-related travel earlier in the year, and business-related travel declines during the holiday season,
revenue resulting from bookings is typically lower in the fourth quarter.
Employees
As of December 31, 2014, we employed approximately 8,000 people. We have not experienced any work
stoppages and consider our relations with our employees to be good.
Available Information
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, we file reports, proxy and information statements and other information with the SEC. Our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other
information to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available through the investor relations section of our website under the link investors.sabre.com/sec.cfm.
Reports are available free of charge as soon as reasonably practicable after we electronically file them with, or
furnish them to, the SEC. The information contained on our website is not incorporated by reference into this
Annual Report on Form 10-K.
5
In addition to our website, you may read and copy public reports we file with or furnish to the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
that contains our reports, proxy and information statements, and other information that we file electronically with
the SEC at www.sec.gov.
ITEM 1A. RISK FACTORS
The following risk factors may be important to understanding any statement in this Annual Report on Form
10-K or elsewhere. Our business, financial condition and operating results can be affected by a number of factors,
whether currently known or unknown, including but not limited to those described below. Any one or more of such
factors could directly or indirectly cause our actual results of operations and financial condition to vary materially
from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part,
could materially and adversely affect our business, financial condition, results of operations and stock price.
Our revenue is highly dependent on transaction volumes in the global travel industry, particularly air travel
transaction volumes.
Our Travel Network and Airline and Hospitality Solutions revenue is largely tied to travel suppliers’
transaction volumes rather than to their unit pricing for an airplane ticket, hotel room or other travel products. This
revenue is generally not contractually committed to recur annually under our agreements with our travel suppliers.
As a result, our revenue is highly dependent on the global travel industry, particularly air travel from which we
derive a substantial amount of our revenue, and directly correlates with global travel, tourism and transportation
transaction volumes. Our revenue is therefore highly susceptible to declines in or disruptions to leisure and business
travel that may be caused by factors entirely out of our control, and therefore may not recur if these declines or
disruptions occur.
Various factors may cause temporary or sustained disruption to leisure and business travel. The impact these
disruptions would have on our business depends on the magnitude and duration of such disruption. These factors
include, among others:
financial instability of travel suppliers and the impact of any fundamental corporate changes to such
travel suppliers, such as airline bankruptcies or consolidations, on the cost and availability of travel
content;
factors that affect demand for travel such as outbreaks of contagious diseases, including Ebola, increases
in fuel prices, changing attitudes towards the environmental costs of travel and safety concerns;
inclement weather, natural or man-made disasters or political events like acts or threats of terrorism,
hostilities and war;
factors that affect supply of travel such as changes to regulations governing airlines and the travel
industry, like government sanctions that do or would prohibit doing business with certain state-owned
travel suppliers, work stoppages or labor unrest at any of the major airlines, hotels or airports; and
general economic conditions.
Our Travel Network business and our Airline and Hospitality Solutions business depend on maintaining
and renewing contracts with their customers and other counterparties.
In our Travel Network business, we enter into participating carrier distribution and services agreements with
airlines. Our contracts with major carriers typically last for three to five year terms and are generally subject to
automatic renewal at the end of the term, unless terminated by either party with the required advance notice. Our
contracts with smaller airlines generally last for one year and are also subject to automatic renewal at the end of the
term, unless terminated by either party with the required advance notice. Airlines are not contractually obligated to
distribute exclusively through our GDS during the contract term and may terminate their agreements with us upon
providing the required advance notice after the expiration of the initial term. We cannot guarantee that we will be
able to renew our airline contracts in the future on favorable economic terms or at all.
6
We also enter into contracts with travel buyers. Although most of our travel buyer contracts have terms of one
to three years, we typically have non-exclusive, five to ten year contracts with our major travel agency customers.
We also typically have three- to five-year contracts with corporate travel departments, which generally renew
automatically unless terminated with the required advance notice. A meaningful portion of our travel buyer
agreements, typically representing approximately 15% to 20% of our bookings, are up for renewal in any given year.
We cannot guarantee that we will be able to renew our travel buyer agreements in the future on favorable economic
terms or at all.
Similarly, our Airline and Hospitality Solutions business is based on contracts with travel suppliers for a
typical duration of three to seven years for airlines and one to five years for hotels. We cannot guarantee that we will
be able to renew our solutions contracts in the future on favorable economic terms or at all.
Additionally, we use several third-party distributor partners and joint ventures to extend our GDS services in
Asia Pacific (“APAC”) and Europe, the Middle East and Africa (“EMEA”). The termination of our contractual
arrangements with any such third-party distributor partners and joint ventures could adversely impact our Travel
Network business in the relevant markets. See “—We rely on third-party distributor partners and joint ventures to
extend our GDS services to certain regions, which exposes us to risks associated with lack of direct management
control and potential conflicts of interest” for more information on our relationships with our third-party distributor
partners and joint ventures.”
Our failure to renew some or all of these agreements on economically favorable terms or at all, or the early
termination of these existing contracts, would adversely affect the value of our Travel Network business as a
marketplace due to our limited content and distribution reach, which could cause some of our subscribers to move to
a competing GDS or use other travel technology providers for the solutions we provide and would materially harm
our business, reputation and brand. Our business therefore relies on our ability to renew our agreements with our
travel buyers, travel suppliers, third-party distributor partners and joint ventures or developing relationships with
new travel buyers and travel suppliers to offset any customer losses.
We are subject to a certain degree of revenue concentration among a portion of our customer base. Because of
this concentration among a small number of customers, if an event were to adversely affect one of these customers,
it would have a material impact on our business.
Our Travel Network business is exposed to pricing pressure from travel suppliers.
Travel suppliers continue to look for ways to decrease their costs and to increase their control over
distribution. For example, the consolidation in the airline industry and the recent economic downturn, among other
factors, have driven some airlines to negotiate for lower fees during contract renegotiations, thereby exerting
increased pricing pressure on our Travel Network business, which, in turn, negatively affects our revenues and
margins. In addition, travel suppliers’ use of alternative distribution channels, such as direct distribution through
supplier-operated websites, may also adversely affect our contract renegotiations with these suppliers and negatively
impact our transaction fee revenue. For example, as we attempt to renegotiate new agreements with our travel
suppliers, they may withhold some or all of their content (fares and associated economic terms) for distribution
exclusively through their direct distribution channels (for example, the relevant airline’s website) or offer travelers
more attractive terms for content available through those direct channels after their contracts expire. As a result of
these sources of negotiating pressure, we may have to decrease our prices to retain their business. If we are unable to
renew our contracts with these travel suppliers on similar economic terms or at all, or if our ability to provide such
content is similarly impeded, this would also adversely affect the value of our Travel Network business as a
marketplace due to our more limited content. See “—Travel suppliers’ use of alternative distribution models, such as
direct distribution models, could adversely affect our Travel Network and Travelocity businesses.”
Our Travel Network business depends on relationships with travel buyers.
Our Travel Network business relies on relationships with several large travel buyers, including TMCs and
OTAs, to generate a large portion of its revenue through bookings made by these travel companies. Such revenue
concentration in a relatively small number of travel buyers makes us particularly dependent on factors affecting
those companies. For example, if demand for their services decreases, or if a key supplier pulls its content from us,
travel buyers may stop utilizing our services or move all or some of their business to competitors or competing
channels.
7
Although our contracts with larger travel agencies often increase the incentive consideration when the travel
agency processes a certain volume or percentage of its bookings through our GDS, travel buyers are not
contractually required to book exclusively through our GDS during the contract term. Travel buyers may shift
bookings to other distribution intermediaries for many reasons, including to avoid becoming overly dependent on a
single source of travel content or to increase their bargaining power with GDS providers. Additionally, some
regulations allow travel buyers to terminate their contracts earlier.
These risks are exacerbated by increased consolidation among travel agencies and TMCs, which may
ultimately reduce the pool of travel agencies that subscribe to GDSs. We must compete with other GDSs and other
competitors for their business by offering competitive upfront incentive consideration, which, due to the strong
bargaining power of these large travel buyers, tend to increase in each round of contract renewals. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting our
Results—Increasing travel agency incentive consideration” for more information about our incentive consideration.
However, any reduction in transaction fees from travel suppliers due to supplier consolidation or other market forces
could limit our ability to increase incentive consideration to travel agencies in a cost-effective manner or otherwise
affect our margins.
Our travel supplier customers may experience financial instability or consolidation, pursue cost reductions,
change their distribution model or undergo other changes.
We generate the majority of our revenue and accounts receivable from airlines. We also derive revenue from
hotels, car rental brands, rail carriers, cruise lines, tour operators and other suppliers in the travel and tourism
industries. Adverse changes in any of these relationships or the inability to enter into new relationships could
negatively impact the demand for and competitiveness of our travel products and services. For example, a lack of
liquidity in the capital markets or weak economic performance may cause our travel suppliers to increase the time
they take to pay or to default on their payment obligations, which could lead to a higher level of bad debt expense
and negatively affect our results. Any large-scale bankruptcy or other insolvency proceeding of an airline or
hospitality supplier could subject our agreements with that customer to rejection or early termination. Because we
generally do not require security or collateral from our customers as a condition of sale, our revenues may be subject
to credit risk more generally.
Furthermore, supplier consolidation, particularly in the airline industry, could harm our business. Our Travel
Network business depends on a relatively small number of U.S.-based airlines for a substantial portion of its
revenue, and all of our businesses are highly dependent on airline ticket volumes. Consolidation among airlines
could result in the loss of an existing customer and the related fee revenue, decreased airline ticket volumes due to
capacity restrictions implemented concurrently with the consolidation, and increased airline concentration and
bargaining power to negotiate lower transaction fees. In addition, consolidation among travel suppliers may result in
one or more suppliers refusing to provide certain content to Sabre but rather making it exclusively available on the
suppliers’ proprietary websites, hurting the competitive position of our GDS relative to those websites. See “—
Travel suppliers’ use of alternative distribution models, such as direct distribution models, could adversely affect our
Travel Network and Travelocity businesses.”
Our business could be harmed by adverse global and regional economic and political conditions.
Travel expenditures are sensitive to personal and business discretionary spending levels and grow more slowly
or decline during economic downturns. We derive the majority of our revenue from the United States and Europe.
Our geographic concentration in the United States and Europe makes our business particularly vulnerable to
economic and political conditions that adversely affect business and leisure travel originating in or traveling to these
countries.
Despite signs of gradual recovery, there is still weakness in parts of the global economy, including increased
unemployment, reduced financial capacity of both business and leisure travelers, diminished liquidity and credit
availability, declines in consumer confidence and discretionary income and general uncertainty about economic
stability. We cannot predict the magnitude, length or recurrence of recessionary economic patterns, which have
impacted, and may continue to impact, demand for travel and lead to reduced spending on the services we provide.
8
We derive the remainder of our revenues primarily from APAC, Latin America and MEA, where political
instability and regulatory uncertainty are significantly higher than in Europe and the United States. Any unfavorable
economic, political or regulatory developments in those regions could negatively affect our business, such as delays
in payment or non-payment of contracts, delays in contract implementation or signing, carrier control issues and
increased costs from regulatory changes particularly as parts of our growth strategy involve expanding our presence
in these emerging markets. For example, the Russian economy has recently been negatively impacted by economic
sanctions and the declining price of oil. These adverse economic conditions may negatively impact our business
results in that region.
As an additional example, Venezuela has imposed currency controls, including volume restrictions on the
conversion of bolivars to U.S. dollars, which impact the ability of certain of our airline customers operating in the
country to obtain U.S. dollars to make timely payments to us. Consequently, the collection of accounts receivable
due to us can be, and has been, delayed. Due to the nature of this delay, we have recorded specific reserves against
all outstanding balances due to us and are deferring the recognition of any future revenues effective January 1, 2014
until cash is collected in accordance with our policies. Accordingly, our accounts receivable are subject to a general
collection risk, as there can be no assurance that we will be paid from such customers in a timely manner, if at all. In
January 2014, Venezuela announced a dual-foreign exchange rate system, which has effectively devalued the local
currency and subjected airlines to an exchange rate for U.S. dollars available at auctions that has been significantly
higher than the official exchange rate. In conjunction with the political and economic uncertainty in Venezuela,
demand for travel by local consumers has declined. Certain airlines have scaled back operations in response to the
reduced demand as well as the currency controls which has impacted our airline customers in Venezuela.
Travel suppliers’ use of alternative distribution models, such as direct distribution models, could adversely
affect our Travel Network and Travelocity businesses.
Some travel suppliers that provide content to Travel Network, including some of Travel Network’s largest
airline customers, have sought to increase usage of direct distribution channels. For example, these travel suppliers
are trying to move more consumer traffic to their proprietary websites, and some travel suppliers have explored
direct connect initiatives linking their internal reservations systems directly with travel agencies or TMCs, thereby
bypassing the GDSs. This direct distribution trend enables them to apply pricing pressure on intermediaries and
negotiate travel distribution arrangements that are less favorable to intermediaries. With travel suppliers’ adoption of
certain technology solutions over the last decade, including those offered by our Airline and Hospitality Solutions
business, air travel suppliers have increased the proportion of direct bookings relative to indirect bookings. In the
future, airlines may increase their use of direct distribution, which may cause a material decrease in their use of our
GDS. Travel suppliers may also offer travelers advantages through their websites such as special fares and bonus
miles, which could make their offerings more attractive than those available through our GDS platform.
In addition, with respect to ancillary products, travel suppliers may choose not to comply with the technical
standards that would allow ancillary products to be immediately distributed via intermediaries, thus resulting in a
delay before these products become available through our GDS relative to availability through direct distribution. In
addition, if enough travel suppliers choose not to develop ancillary products in a standardized way with respect to
technical standards our investment in adapting our various systems to enable the sale of ancillary products may not
be successful.
Companies with close relationships with end consumers, like Facebook, as well as new entrants introducing
new paradigms into the travel industry, such as metasearch engines, may promote alternative distribution channels to
our GDS by diverting consumer traffic away from intermediaries, which may adversely affect our GDS business.
Additionally, technological advancements may allow airlines and hotels to facilitate broader connectivity to
and integration with large travel buyers, such that certain airline and hotel offerings could be made available directly
to such travel buyers without the involvement of intermediaries such as Travel Network and its competitors.
9
We rely on third-party distributor partners and joint ventures to extend our GDS services to certain regions,
which exposes us to risks associated with lack of direct management control and potential conflicts of
interest.
Our Travel Network business utilizes third-party distributor partners and joint ventures to extend our GDS
services in APAC and EMEA. We work with these partners to establish and maintain commercial and customer
service relationships with both travel suppliers and travel buyers. Since we do not exercise management control over
their day-to-day operations, the success of their marketing efforts and the quality of the services they provide are
beyond our control. If these partners do not meet our standards for distribution, our reputation may suffer materially,
and sales in those regions could decline significantly. Any interruption in these third-party services, deterioration in
their performance or termination of our contractual arrangements with them could negatively impact our ability to
extend our GDS services in the relevant markets.
In addition, our business may be harmed due to potential conflicts of interest with our joint venture partners.
Large regional airlines collectively control a majority of the outstanding equity interests in our Abacus joint venture,
a Singapore-based distribution provider that serves the APAC region. As travel suppliers, these airlines’ interests
differ from our Travel Network business’ interests as a distribution intermediary. For example, the airline owners
may not agree to provide incentive consideration to travel agencies at the same rate as our GDS competitors. Subject
to some exceptions, we are also prohibited from competing with Abacus by directly or indirectly engaging in the
GDS business in Asia, Australia, New Zealand and certain Pacific islands.
The travel distribution market is highly competitive, and we are subject to competition from other GDS
providers, direct distribution by travel suppliers and new entrants or technologies that may challenge the
GDS business model.
The evolution of the global travel and tourism industry, the introduction of new technologies and standards
and the expansion of existing technologies in key markets, among other factors, could contribute to an
intensification of competition in the business areas and regions in which we operate. Increased competition could
require us to increase spending on marketing activities or product development, to decrease our booking or
transaction fees and other charges (or defer planned increases in such fees and charges), to increase incentive
consideration or take other actions that could harm our business. A GDS has two broad categories of customers:
(i) travel suppliers, such as airlines, hotels, car rental brands, rail carriers, cruise lines and tour operators, and
(ii) travel buyers, such as online and offline travel agencies, TMCs and corporate travel departments. The
competitive positioning of a GDS depends on the success it achieves with both customer categories. Other factors
that may affect the competitive success of a GDS include the comprehensiveness, timeliness and accuracy of the
travel content offered, the reliability, ease of use and innovativeness of the technology, the incentive consideration
provided to travel agencies, the transaction fees charged to travel suppliers and the range of products and services
available to travel suppliers and travel buyers. Our GDS competitors could seek to capture market share by offering
more differentiated content, products or services, increasing the incentive consideration to travel agencies, or
decreasing the transaction fees charged to travel suppliers, which would harm our business to the extent they gain
market share from us or force us to respond by lowering our prices or increasing the incentive consideration we
provide.
We cannot guarantee that we will be able to compete successfully against our current and future competitors
in the travel distribution market, some of which may achieve greater brand recognition than us, have greater
financial, marketing, personnel and other resources or be able to secure services and products from travel suppliers
on more favorable terms. If we fail to overcome these competitive pressures, we may lose market share and our
business may otherwise be negatively affected.
10
Our ability to maintain and grow our Airline and Hospitality Solutions business may be negatively affected
by competition from other third-party solutions providers and new participants that seek to enter the
solutions market.
Our Airline and Hospitality Solutions business principally faces competition from existing third-party
solutions providers. We also compete with various point solutions providers on a more limited basis in several
discrete functional areas. For our Hospitality Solutions business, we face competition across many aspects of our
business but our primary competitors are in the hospitality CRS and PMS fields. Although new entrants specializing
in a particular type of software occasionally enter the solutions market, they typically focus on emerging or evolving
business problems, niche solutions or small regional customers.
Factors that may affect the competitive success of our Airline and Hospitality Solutions business include our
pricing structure, our ability to keep pace with technological developments, the effectiveness and reliability of our
implementation and system migration processes, our ability to meet a variety of customer specifications, the
effectiveness and reliability of our systems, the cost and efficiency of our system upgrades and our customer support
services. Our failure to compete effectively on these and other factors could decrease our market share and
negatively affect our Airline and Hospitality Solutions business.
Our success depends on maintaining the integrity of our systems and infrastructure, which may suffer from
failures, capacity constraints, business interruptions and forces outside of our control.
We may be unable to maintain and improve the efficiency, reliability and integrity of our systems. Unexpected
increases in the volume of our business could exceed system capacity, resulting in service interruptions, outages and
delays. Such constraints can also lead to the deterioration of our services or impair our ability to process
transactions. We occasionally experience system interruptions that make certain of our systems unavailable
including, but not limited to, our GDS and the services that our Airline and Hospitality Solutions business provides
to airlines and hotels. System interruptions may prevent us from efficiently providing services to customers or other
third parties, which could cause damage to our reputation and result in our losing customers and revenues or cause
us to incur litigation and liabilities. Although we have contractually limited our liability for damages caused by
outages of our GDS (other than damages caused by our gross negligence or willful misconduct), we cannot
guarantee that we will not be subject to lawsuits or other claims for compensation from our customers in connection
with such outages for which we may not be indemnified or compensated.
Our systems may also be susceptible to external damage or disruption. Much of the computer and
communications hardware upon which we depend is located across multiple data center facilities in a single
geographic region. Our systems could be damaged or disrupted by power, hardware, software or telecommunication
failures, human errors, natural events including floods, hurricanes, fires, winter storms, earthquakes and tornadoes,
terrorism, break-ins, hostilities, war or similar events. Computer viruses, denial of service attacks, physical or
electronic break-ins and similar disruptions affecting the Internet, telecommunication services or our systems could
cause service interruptions or the loss of critical data, and could prevent us from providing timely services. Failure
to efficiently provide services to customers or other third parties could cause damage to our reputation and result in
the loss of customers and revenues, significant recovery costs or litigation and liabilities. Moreover, such risks are
likely to increase as we expand our business and as the tools and techniques involved become more sophisticated.
Although we have implemented measures intended to protect certain systems and critical data and provide
comprehensive disaster recovery and contingency plans for certain customers that purchase this additional
protection, these protections and plans are not in place for all systems. Furthermore, several of our existing critical
backup systems are located in the same metropolitan area as our primary systems and we may not have sufficient
disaster recovery tools or resources available, depending on the type or size of the disruption. Disasters affecting our
facilities, systems or personnel might be expensive to remedy and could significantly diminish our reputation and
our brands, and we may not have adequate insurance to cover such costs.
Customers and other end-users who rely on our software products and services, including our SaaS and hosted
offerings, for applications that are integral to their businesses may have a greater sensitivity to product errors and
security vulnerabilities than customers for software products generally. Additionally, security breaches that affect
third parties upon which we rely, such as travel suppliers, may further expose us to negative publicity, possible
liability or regulatory penalties. Events outside our control could cause interruptions in our IT systems, which could
have a material adverse effect on our business operations and harm our reputation.
11
Security breaches could expose us to liability and damage our reputation and our business.
We process, store, and transmit large amounts of data, including personal information of our customers, and it
is critical to our business strategy that our facilities and infrastructure, including those provided by HP or other
vendors, remain secure and are perceived by the marketplace to be secure. Our infrastructure may be vulnerable to
physical break-ins, computer viruses, attacks by hackers or nefarious actors or similar disruptive problems. Any
physical or electronic break-in or other security breach or compromise of the information handled by us or our
service providers may jeopardize the security or integrity of information in our computer systems and networks or
those of our customers and cause significant interruptions in our and our customers’ operations.
Any systems and processes that we have developed that are designed to protect customer information and
prevent data loss and other security breaches cannot provide absolute security. In addition, we may not successfully
implement remediation plans to address all potential exposures. It is possible that we may have to expend additional
financial and other resources to address such problems. Failure to prevent or mitigate data loss or other security
breaches could expose us or our customers to a risk of loss or misuse of such information, cause customers to lose
confidence in our data protection measures, damage our reputation, adversely affect our operating results or result in
litigation or potential liability for us. While we maintain insurance coverage that may, subject to policy terms and
conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all our losses.
Implementation of software solutions often involves a significant commitment of resources, and any failure
to deliver as promised on a significant implementation could adversely affect our business.
In our Travel Network business and our Airline and Hospitality Solutions business, the implementation of
software solutions often involves a significant commitment of resources and is subject to a number of significant
risks over which we may or may not have control. These risks include:
the features of the implemented software may not meet the expectations or fit the business model of the
customer;
our limited pool of trained experts for implementations cannot quickly and easily be augmented for
complex implementation projects, such that resources issues, if not planned and managed effectively,
could lead to costly project delays;
customer-specific factors, such as the stability, functionality, interconnection and scalability of the
customer’s pre-existing
infrastructure, as well as financial or other
circumstances could destabilize, delay or prevent the completion of the implementation process, which,
for airline reservations systems, typically takes 12 to 18 months; and
information
technology
customers and their partners may not fully or timely perform the actions required to be performed by
them to ensure successful implementation, including measures we recommend to safeguard against
technical and business risks.
As a result of these and other risks, some of our customers may incur large, unplanned costs in connection
with the purchase and installation of our software products. Also, implementation projects could take longer than
planned or fail. We may not be able to reduce or eliminate protracted installation or significant additional costs.
Significant delays or unsuccessful customer implementation projects could result in claims from customers, harm
our reputation and negatively impact our operating results.
We rely on the availability and performance of information technology services provided by third parties,
including HP, which manages a significant portion of our systems.
Our businesses are largely dependent on the computer data centers and network systems operated for us by
HP. We also rely on other developers and service providers to maintain and support our global telecommunications
infrastructure, including to connect our computer data center and call centers to end-users.
12
Our success is dependent on our ability to maintain effective relationships with these third-party technology
and service providers. Some of our agreements with third-party technology and service providers are terminable for
cause on short notice and often provide limited recourse for service interruptions. For example, our agreement with
HP provides us with limited indemnification rights. We could face significant additional cost or business disruption
if:
Any such providers fail to enable us to provide our customers and suppliers with reliable, real-time
access to our systems. For example, in August 2013, we experienced a significant outage of the Sabre
platform due to a failure on the part of one of our service providers. This outage, which affected both
our Travel Network business and our Airline Solutions business, lasted several hours and caused
significant problems for our customers. Any such future outages could cause damage to our reputation,
customer loss and require us to pay compensation to affected customers for which we may not be
indemnified or compensated.
Our arrangements with such providers are terminated or impaired and we cannot find alternative sources
of technology or systems support on commercially reasonable terms or on a timely basis. For example,
our substantial dependence on HP for many of our systems makes it difficult for us to switch vendors
and makes us more sensitive to changes in HP’s pricing for its services.
Any inability or failure to adapt to technological developments or the evolving competitive landscape could
harm our business operations and competitiveness.
We depend upon the use of sophisticated information technology and systems. Our competitiveness and future
results depend on our ability to maintain and make timely and cost-effective enhancements, upgrades and additions
to our products, services, technologies and systems in response to new technological developments, industry
standards and trends and customer demands. For example, we currently utilize mainframe infrastructure technology
for certain of our enterprise applications and platforms due to its ability to provide the reliability and scalability we
require for our complex technological operations. Because the number of users and programmers able to service this
technology is decreasing, we may eventually have to migrate to another business environment, which could cause us
to incur substantial costs, result in instability and business interruptions and materially harm our business.
Adapting to new technological and marketplace developments, such as IATA’s proposed new distribution
capability (“NDC”), may require substantial expenditures and lead time and we cannot guarantee that projected
future increases in business volume will actually materialize. We may experience difficulties that could delay or
prevent the successful development, marketing and implementation of enhancements, upgrades and additions.
Moreover, we may fail to maintain, upgrade or introduce new products, services, technologies and systems as
quickly as our competitors or in a cost-effective manner. For example, we must constantly update our GDS with
new capabilities to adapt to the changing technological environment and customer needs. However, this process can
be costly and time-consuming, and our efforts may not be successful as compared to our competitors in the travel
distribution market. Those that we do develop may not achieve acceptance in the marketplace sufficient to generate
material revenue or may be rendered obsolete or non-competitive by our competitors’ offerings.
In addition, our competitors are constantly increasing their product and service offerings through organic
research and development or through strategic acquisitions. As a result, we must continue to invest significant
resources in research and development in order to continually improve the speed, accuracy and comprehensiveness
of our services and we may be required to make changes to our technology platforms or increase our investment in
technology, increase marketing, adjust prices or business models and take other actions, which could affect our
financial performance and liquidity.
13
We use open source software in our solutions that may subject our software solutions to general release or
require us to re-engineer our solutions.
We use open source software in our solutions and may use more open source software in the future. From time
to time, there have been claims by companies claiming ownership of software that was previously thought to be
open source and that was incorporated by other companies into their products. As a result, we could be subject to
suits by parties claiming ownership of what we believe to be open source software. Some open source licenses
contain requirements that we make available source code for modifications or derivative works we create based
upon the open source software and that we license such modifications or derivative works under the terms of a
particular open source license or other license granting third parties certain rights of further use. If we combine or, in
some cases, link our proprietary software solutions with or to open source software in a certain manner, we could,
under certain of the open source licenses, be required to release the source code of our proprietary software solutions
or license such proprietary solutions under the terms of a particular open source license or other license granting
third parties certain rights of further use. In addition to risks related to license requirements, usage of open source
software can lead to greater risks than use of third-party commercial software, as open source licensors generally do
not provide warranties or controls on origin of the software. In addition, open source license terms may be
ambiguous and many of the risks associated with usage of open source cannot be eliminated, and could, if not
properly addressed, negatively affect our business. If we were found to have inappropriately used open source
software, we may be required to seek licenses from third parties in order to continue offering our software, to re-
engineer our solutions, to discontinue the sale of our solutions in the event re-engineering cannot be accomplished
on a timely basis or take other remedial action that may divert resources away from our development efforts, any of
which could adversely affect our business, operating results and financial condition.
Our ability to recruit, train and retain technical employees is critical to our results of operations and future
growth.
Our continued ability to compete effectively depends on our ability to recruit new employees and retain and
motivate existing employees, particularly professionals with experience in our industry, information technology and
systems. The specialized skills we require can be difficult and time-consuming to acquire and are often in short
supply. There is high demand and competition for well-qualified employees, such as software engineers, developers
and other technology professionals with specialized knowledge in software development, especially expertise in
certain programming languages. This competition affects both our ability to retain key employees and to hire new
ones. Any of our employees may choose to terminate their employment with us at any time, and a lengthy period of
time is required to hire and train replacement employees when such skilled individuals leave the company. If we fail
to attract well-qualified employees or to retain or motivate existing employees, our business could be materially
hindered by, for example, a delay in our ability to deliver products and services under contract, bring new products
and services to market or respond swiftly to customer demands or new offerings from competitors. Even if we are
able to maintain our employee base, the resources needed to recruit and retain such employees may adversely affect
our business, financial condition and results of operations.
We operate a global business that exposes us to risks associated with international activities.
Our international operations involve risks that are not generally encountered when doing business in the
United States. These risks include, but are not limited to:
changes in foreign currency exchange rates and financial risk arising from transactions in multiple
currencies;
difficulty in developing, managing and staffing international operations because of distance, language
and cultural differences;
disruptions to or delays in the development of communication and transportation services and
infrastructure;
business, political and economic instability in foreign locations, including actual or threatened terrorist
activities, and military action;
14
adverse laws and regulatory requirements, including more comprehensive regulation in the European
Union (“EU”);
consumer attitudes, including the preference of customers for local providers;
increasing labor costs due to high wage inflation in foreign locations, differences in general employment
conditions and the degree of employee unionization and activism;
export or trade restrictions or currency controls;
more restrictive data privacy requirements;
governmental policies or actions, such as consumer, labor and trade protection measures;
taxes, restrictions on foreign investment and limits on the repatriation of funds;
diminished ability to legally enforce our contractual rights; and
decreased protection for intellectual property.
Any of the foregoing risks may adversely affect our ability to conduct and grow our business internationally.
We are exposed to risks associated with acquiring or divesting businesses or business operations.
We have acquired, and, as part of our growth strategy, may in the future acquire, businesses or business
operations. We may not be able to identify suitable candidates for additional business combinations and strategic
investments, obtain financing on acceptable terms for such transactions, obtain necessary regulatory approvals or
otherwise consummate such transactions on acceptable terms, or at all. Any acquisitions that we are able to identify
and complete may also involve a number of risks, including our inability to successfully or profitably integrate,
operate, maintain and manage our newly acquired operations or employees; the diversion of our management’s
attention from our existing business to integrate operations and personnel; possible material adverse effects on our
results of operations during the integration process; becoming subject to contingent or other liabilities, including
liabilities arising from events or conduct predating the acquisition that were not known to us at the time of the
acquisition; and our possible inability to achieve the intended objectives of the transaction, including the inability to
achieve cost savings and synergies. Acquisitions may also have unanticipated tax, regulatory and accounting
ramifications, including recording goodwill and nonamortizable intangible assets that are subject to impairment
testing on a regular basis and potential periodic impairment charges and incurring amortization expenses related to
certain intangible assets. To consummate any such transactions, we may need to raise external funds through the sale
of equity or debt in the capital markets or through private placements, which may affect our liquidity and may dilute
the value of our common stock.
We have also divested, and may in the future divest, businesses or business operations. Any divestitures may
involve a number of risks, including the diversion of management’s attention, significant costs and expenses, the
loss of customer relationships and cash flow, and the disruption of the affected business or business operations.
Failure to timely complete or to consummate a divestiture may negatively affect the valuation of the affected
business or business operations or result in restructuring charges.
We rely on the value of our brands, which may be damaged by a number of factors, some of which are out
of our control.
We believe that maintaining and expanding our portfolio of product and service brands are important aspects
of our efforts to attract and expand our customer base. Our brands may be negatively impacted by, among other
things, unreliable service levels from third-party providers, customers’ inability to properly interface their
applications with our technology, the loss or unauthorized disclosure of personal data or other bad publicity due to
litigation, regulatory concerns or otherwise relating to our business. Any inability to maintain or enhance awareness
of our brands among our existing and target customers could negatively affect our current and future business
prospects.
15
We are involved in various legal proceedings which may cause us to incur significant fees, costs and
expenses and may result in unfavorable outcomes.
We are involved in various legal proceedings that involve claims for substantial amounts of money or which
involve how we conduct our business. See “Legal Proceedings” in Part I, Item 3. For example, a number of state and
local governments have filed lawsuits against us pertaining to sales or occupancy taxes they claim are due on some
or all of our fees relating to hotel content distributed and sold via the merchant revenue model. Even if we are
successful in defending these types of lawsuits, state and local governments could adopt new ordinances directly
taxing hotel booking fees and we may not be able to successfully challenge such ordinances.
Additionally, we are involved in antitrust litigation with US Airways. If we cannot resolve this matter
favorably, we could be subject to (i) monetary damages, including treble damages under the antitrust laws and,
depending on the amount of any such judgment, if we do not have sufficient cash on hand, we may be required to
seek financing through the issuance of additional equity or from private or public financing or (ii) injunctive relief.
Other airlines might likewise seek to benefit from any unfavorable outcome by bringing their own claims against us
on the same or similar grounds. We are also subject to a U.S. Department of Justice (“DOJ”) antitrust investigation
relating to the pricing and conduct of the airline distribution industry. We received a civil investigative demand
(“CID”) from the DOJ and we are fully cooperating. The DOJ has also sent CIDs to other companies in the travel
industry. Based on its findings in the investigation, the DOJ may (i) close the file, (ii) seek a consent decree to
remedy issues it believes violate the antitrust laws, or (iii) file suit against us for violating the antitrust laws, seeking
injunctive relief. With respect to both the US Airways and DOJ proceedings, if injunctive relief were to be granted,
depending on its scope, it could affect the manner in which our airline distribution business is operated and
potentially force changes to the existing airline distribution business model.
The defense of these actions, as well as any of the other actions described under “Legal Proceedings” in Part I,
Item 3 and any other actions brought against us in the future, is time consuming and diverts management’s attention.
Even if we are ultimately successful in defending ourselves in such matters, we are likely to incur significant fees,
costs and expenses as long as they are ongoing. Any of these consequences could have a material adverse effect on
our business, financial condition and results of operations.
Intellectual property infringement actions against us could be costly and time consuming to defend and
may result in business harm if we are unsuccessful in our defense.
Third parties may assert, including by means of counterclaims against us as a result of the assertion of our
intellectual property rights, that our products, services or technology, or the operation of our business, violate their
intellectual property rights. We are currently subject to such assertions, including patent infringement claims, and
may be subject to such assertions in the future. Such assertions may also be made against our customers who may
seek indemnification from us. In the ordinary course of business, we enter into agreements that contain indemnity
obligations whereby we are required to indemnify our customers against such assertions arising from our customers’
usage of our products, services or technology. As the competition in our industry increases and the functionality of
technology offerings further overlaps, such claims and counterclaims could become more common. We cannot be
certain that we do not or will not infringe third parties’ intellectual property rights.
Legal proceedings involving intellectual property rights are highly uncertain, and can involve complex legal
and scientific questions. Any intellectual property claim against us, regardless of its merit, could result in significant
liabilities to our business, and can be expensive and time consuming to defend. Depending on the nature of such
claims, our businesses may be disrupted, our management’s attention and other company resources may be diverted
and we may be required to redesign, reengineer or rebrand our products and services, if feasible, to stop offering
certain products and services or to enter into royalty or licensing agreements in order to obtain the rights to use
necessary technologies, which may not be available on terms acceptable to us, if at all, and may result in a decrease
of our competitive advantage. Our failure to prevail in such matters could result in loss of intellectual property
rights, judgments awarding substantial damages, including possible treble damages and attorneys’ fees, and
injunctive or other equitable relief against us. If we are held liable, we may be unable to exploit some or all of our
intellectual property rights or technology. Even if we are not held liable, we may choose to settle claims by making a
monetary payment or by granting a license to intellectual property rights that we otherwise would not license.
Further, judgments may result in loss of reputation, may force us to take costly remediation actions, delay selling our
products and offering our services, reduce features or functionality in our services or products, or cease such
activities altogether. Insurance may not cover or be insufficient for any such claim.
16
We may not have sufficient insurance to cover our liability in pending litigation claims and future claims
either due to coverage limits or as a result of insurance carriers seeking to deny coverage of such claims,
which in either case could expose us to significant liabilities.
We maintain third-party insurance coverage against various liability risks, including securities, stockholders,
derivative, ERISA, and product liability claims, as well as other claims that form the basis of litigation matters
pending against us. We believe these insurance programs are an effective way to protect our assets against liability
risks. However, the potential liabilities associated with litigation matters pending against us, or that could arise in
the future, could exceed the coverage provided by such programs. In addition, our insurance carriers have sought or
may seek to rescind or deny coverage with respect to pending claims or lawsuits, completed investigations or
pending or future investigations and other legal actions against us. See “Legal Proceedings—Insurance Carriers” in
Part I, Item 3 for more information on our current litigation with our insurance carriers. If we do not have sufficient
coverage under our policies, or if the insurance companies are successful in rescinding or denying coverage, we may
be required to make material payments in connection with third-party claims.
We may not be able to protect our intellectual property effectively, which may allow competitors to
duplicate our products and services.
Our success and competitiveness depend, in part, upon our technologies and other intellectual property,
including our brands. Among our significant assets are our proprietary and licensed software and other proprietary
information and intellectual property rights. We rely on a combination of copyright, trademark and patent laws, laws
protecting trade secrets, confidentiality procedures and contractual provisions to protect these assets both in the
United States and in foreign countries. The laws of some jurisdictions may provide less protection for our
technologies and other intellectual property assets than the laws of the United States.
There is no certainty that our intellectual property rights will provide us with substantial protection or
commercial benefit. Despite our efforts to protect our intellectual property, some of our innovations may not be
protectable, and our intellectual property rights may offer insufficient protection from competition or unauthorized
use, lapse or expire, be challenged, narrowed, invalidated, or misappropriated by third parties, or be deemed
unenforceable or abandoned, which could have a material adverse effect on our business, financial condition and
results of operations and the legal remedies available to us may not adequately compensate us. We cannot be certain
that others will not independently develop, design around, or otherwise acquire equivalent or superior technology or
intellectual property rights.
While we take reasonable steps to protect our brands and trademarks, we may not be successful in
maintaining or defending our brands or preventing third parties from adopting similar brands. If our
competitors infringe our principal trademarks, our brands may become diluted or if our competitors
introduce brands or products that cause confusion with our brands or products in the marketplace, the
value that our consumers associate with our brands may become diminished, which could negatively
impact revenue.
Our patent applications may not be granted, and the patents we own could be challenged, invalidated,
narrowed or circumvented by others and may not be of sufficient scope or strength to provide us with
any meaningful protection or commercial advantage. Once our patents expire, or if they are invalidated,
narrowed or circumvented, our competitors may be able to utilize the technology protected by our
patents which may adversely affect our business.
Although we rely on copyright laws to protect the works of authorship created by us, we do not
generally register the copyrights in our copyrightable works where such registration is permitted.
Copyrights of U.S. origin must be registered before the copyright owner may bring an infringement suit
in the United States. Accordingly, if one of our unregistered copyrights of U.S. origin is infringed by a
third party, we will need to register the copyright before we can file an infringement suit in the United
States, and our remedies in any such infringement suit may be limited.
We use reasonable efforts to protect our trade secrets. However, protecting trade secrets can be difficult
and our efforts may provide inadequate protection to prevent unauthorized use, misappropriation, or
disclosure of our trade secrets, know how, or other proprietary information.
17
We also rely on our domain names to conduct our online businesses. While we use reasonable efforts to
protect and maintain our domain names, if we fail to do so the domain names may become available to
others. Further, the regulatory bodies that oversee domain name registration may change their
regulations in a way that adversely affects our ability to register and use certain domain names.
We license software and other intellectual property from third parties. Such licensors may breach or otherwise
fail to perform their obligations, or claim that we have breached or otherwise attempt to terminate their license
agreements with us. We also rely on license agreements to allow third parties to use our intellectual property rights,
including our software, but there is no guarantee that our licensees will abide by the terms of our license agreements
or that the terms of our agreements will always be enforceable.
In addition, policing unauthorized use of and enforcing intellectual property can be difficult and expensive.
The fact that we have intellectual property rights, including registered intellectual property rights, may not guarantee
success in our attempts to enforce these rights against third parties. Besides general litigation risks, changes in, or
interpretations of, intellectual property laws may compromise our ability to enforce our rights. We may not be aware
of infringement or misappropriation, or elect not to seek to prevent it. Our decisions may be based on a variety of
factors, such as costs and benefits of taking action, and contextual business, legal, and other issues. Any inability to
adequately protect our intellectual property on a cost-effective basis could harm our business.
Defects in our products may subject us to significant warranty liabilities or product liability claims and we
may have insufficient product liability insurance to pay material uninsured claims.
Our Airline and Hospitality Solutions business exposes us to the risk of product liability claims that are
inherent in software development. We may inadvertently create defective software, or supply our customers with
defective software or software components that we acquire from third parties, which could result in personal injury
or property damage, and may result in warranty or product liability claims brought against us, our travel supplier
customers or third parties.
Under our Airline and Hospitality Solutions business’ agreements, we generally must indemnify our
customers for liability arising from intellectual property infringement claims with respect to our software. These
indemnification obligations could be significant and we may not have adequate insurance coverage to protect us
against all claims. We currently rely on a combination of self-insurance and third-party insurance to cover potential
product liability exposure. The combination of our insurance coverage, cash flows and reserves may not be adequate
to satisfy product liabilities we may incur in the future. Even meritless claims could subject us to adverse publicity,
hinder us from securing insurance coverage in the future, require us to incur significant legal fees, decrease demand
for any products that we successfully develop, divert management’s attention, and force us to limit or forgo further
development and commercialization of these products. The cost of any product liability litigation or other
proceedings, even if resolved in our favor, could be substantial.
Any failure to comply with regulations or any changes in such regulations governing our businesses could
adversely affect us.
Parts of our business operate in regulated industries and could be adversely affected by unfavorable changes in
or the enactment of new laws, rules or regulations applicable to us, which could decrease demand for our products
and services, increase costs or subject us to additional liabilities. Moreover, regulatory authorities have relatively
broad discretion to grant, renew and revoke licenses and approvals and to implement or interpret regulations.
Accordingly, such regulatory authorities could prevent or temporarily suspend us from carrying on some or all of
our activities or otherwise penalize us if our practices were found not to comply with the applicable regulatory or
licensing requirements or any interpretation of such requirements by the regulatory authority. Our failure to comply
with any of these requirements or interpretations could have a material adverse effect on our operations. In
particular, after a voluntary disclosure, we received a warning letter from the Bureau of Industry and Security
regarding our failure to comply fully with the Export Administration Regulations as to software updates for a few
travel agency customers located outside the United States. Although the Bureau of Industry and Security declined to
prosecute or sanction us, if we were to violate the Export Administration Regulations again, the matter could be
reopened or taken into consideration when investigating future matters and we may be subject to criminal
prosecution or administrative sanctions.
18
Further, the United States has imposed economic sanctions that affect transactions with designated foreign
countries, including Cuba, Iran, Sudan and Syria, and nationals and others of those countries, and certain specifically
targeted individuals and entities engaged in conduct detrimental to U.S. national security interests. These sanctions
are administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and are
typically known as the OFAC regulations. Failure to comply with such regulations could subject us to legal and
reputational consequences, including civil and criminal penalties.
We have GDS contracts with carriers that fly to Cuba, Iran, Sudan and Syria but are based outside of those
countries and are not owned by those governments or nationals of those governments. With respect to Iran, Sudan
and Syria we believe that our activities comply with certain travel-related exemptions. With respect to Cuba, for
customers outside the United States we display on the Sabre GDS flight information for, and support booking and
ticketing of, services of non-Cuban airlines that offer service to Cuba. Based on advice of counsel, we believe these
activities to fall under an exemption from OFAC regulations applicable to the transmission of information and
informational materials and transactions related thereto.
We believe that our activities with respect to these countries are known to OFAC. We note, however, that
OFAC regulations and related interpretive guidance are complex and subject to varying interpretations. Due to this
complexity, OFAC’s interpretation of its own regulations and guidance vary on a case to case basis. As a result, we
cannot provide any guarantees that OFAC will not challenge any of our activities in the future, which could have a
material adverse effect on our results of operations.
In Europe, GDS regulations or interpretations thereof may increase our cost of doing business or lower our
revenues, limit our ability to sell marketing data, impact relationships with travel buyers, airlines, rail carriers or
others, impair the enforceability of existing agreements with travel buyers and other users of our system, prohibit or
limit us from offering services or products, or limit our ability to establish or change fees. Although regulations
specifically governing GDSs have been lifted in the United States, they remain subject to general regulation
regarding unfair trade practices by the U.S. Department of Transportation (“DOT”). In addition, continued
regulation of GDSs in the EU and elsewhere could also create the operational challenge of supporting different
products, services and business practices to conform to the different regulatory regimes. We do not currently
maintain a central database of all regulatory requirements affecting our worldwide operations and, as a result, the
risk of non-compliance with the laws and regulations described above is heightened. Our failure to comply with
these laws and regulations may subject us to fines, penalties and potential criminal violations. Any changes to these
laws or regulations or any new laws or regulations may make it more difficult for us to operate our business.
Our collection, processing, storage, use and transmission of personal data could give rise to liabilities as a
result of governmental regulation, conflicting legal requirements, differing views on data privacy or
security breaches.
In our processing of travel transactions, we collect, process, store, use and transmit large amounts of sensitive
personal data. This information is increasingly subject to legal restrictions around the world, which may result in
conflicting legal requirements in the United States and other jurisdictions. For example, the U.S. Congress and
federal agencies, including the Federal Trade Commission, have started to take a more aggressive stance in drafting
and enforcing privacy and data protection laws. The EU is also in the process of proposing reforms to its existing
data protection legal framework. These legal restrictions are generally intended to protect the privacy and security of
personal information, including credit card information that is collected, processed and transmitted in or from the
governing jurisdiction. Companies that handle this type of data have also been subject to investigations, lawsuits and
adverse publicity due to allegedly improper disclosure or use of sensitive personal information. As privacy and data
protection becomes an increasingly politicized issue, we may also become exposed to potential liabilities as a result
of conflicting legal requirements, differing views on the privacy of travel data or failure to comply with applicable
requirements. Our business could be materially adversely affected if we are unable or unwilling to comply with legal
restrictions on the use of sensitive personal information or if such restrictions are expanded to require changes in our
current business practices or are interpreted in ways that conflict with or negatively impact our present or future
business practices. Additionally, we are required to indemnify some of our customers for liability arising from data
breaches under the terms of our agreements with such customers. These indemnification obligations could be
significant and we may not have adequate insurance coverage to protect us against all claims.
19
We may have higher than anticipated tax liabilities.
We are subject to a variety of taxes in many jurisdictions globally, including income taxes in the United States
at the federal, state and local levels, and in many other countries. Significant judgment is required in determining our
worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and
calculations where the ultimate tax determination is uncertain. We operate in numerous countries where our income
tax returns are subject to audit and adjustment by local tax authorities. Because we operate globally, the nature of the
uncertain tax positions is often very complex and subject to change, and the amounts at issue can be substantial. It is
inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various
possible outcomes. We re-evaluate uncertain tax positions on a quarterly basis. This evaluation is based on factors
including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under
audit and new audit activity. Although we believe our tax estimates are reasonable, the final determination of tax
audits could be materially different from our historical income tax provisions and accruals. Our effective tax rate
may change from year to year based on changes in the mix of activities and income allocated or earned among
various jurisdictions, tax laws in these jurisdictions, tax treaties between countries, our eligibility for benefits under
those tax treaties, and the estimated values of deferred tax assets and liabilities. Such changes could result in an
increase in the effective tax rate applicable to all or a portion of our income which would reduce our profitability.
We establish reserves for our potential liability for U.S. and non-U.S. taxes, including sales, occupancy and
value-added taxes (“VAT”), consistent with applicable accounting principles and in light of all current facts and
circumstances. We have also established reserves relating to the collection of refunds related to value-added taxes,
which are subject to audit and collection risks in various regions of Europe. Recently our right to recover certain
value-added tax receivables associated with our European businesses has been questioned by tax authorities. These
reserves represent our best estimate of our contingent liability for taxes. The interpretation of tax laws and the
determination of any potential liability under those laws are complex, and the amount of our liability may exceed
our established reserves.
We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2014 to be indefinitely
reinvested and, accordingly, no U.S. income taxes have been provided thereon. If such cash, cash equivalents and
marketable securities are needed for our operations in the United States, we would be required to accrue and pay
taxes to repatriate all such cash, cash equivalents and marketable securities. We have not, nor do we anticipate the
need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of
business, including liquidity needs associated with our domestic debt service requirements.
New tax laws, statutes, rules, regulations or ordinances could be enacted at any time and existing tax laws,
statutes, rules, regulations and ordinances could be interpreted, changed, modified or applied adversely to us. These
events could require us to pay additional tax amounts on a prospective or retroactive basis, as well as require us to
pay fees, penalties or interest for past amounts deemed to be due. For example, there have been proposals to amend
U.S. tax laws that would significantly impact how U.S. companies are taxed on foreign earnings. New, changed,
modified or newly interpreted or applied laws could also increase our compliance, operating and other costs, as well
as the costs of our products and services.
We may recognize impairments on long-lived assets, including goodwill and other intangible assets, or
recognize impairments on our equity method investments.
Our consolidated balance sheet at December 31, 2014 contained intangible assets, net, including goodwill, of
approximately $2,633 million. Our investments in joint ventures on the consolidated balance sheet as of
December 31, 2014 includes $89 million of excess basis over our underlying equity in joint ventures. This
differential represents goodwill in addition to identifiable intangible assets which are being amortized to joint
venture intangible amortization over their estimated lives. Future acquisitions that result in the recognition of
additional goodwill and intangible assets would cause an increase in these types of assets. We do not amortize
goodwill and intangible assets that are determined to have indefinite useful lives, but we amortize definite-lived
intangible assets on a straight-line basis over their useful economic lives, which range from four to thirty years,
depending on classification.
20
We evaluate goodwill for impairment on an annual basis or earlier if impairment indicators exist and we
evaluate definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of definite-lived intangible assets used in combination to generate cash flows largely
independent of other assets may not be recoverable. We record an impairment charge whenever the estimated fair
value of our reporting units or of such intangible assets is less than its carrying value. We have also recognized a
share of impairment charges recorded by one of our equity method investments, Abacus. As of June 30, 2013, our
Travelocity reporting unit had no remaining goodwill.
The fair values used in our impairment evaluation are estimated using a combined approach based upon
discounted future cash flow projections and observed market multiples for comparable businesses. Changes in
estimates based on changes in risk-adjusted discount rates, future booking and transaction volume levels, future
price levels, rates of growth in our consumer and corporate direct booking businesses, rates of increase in operating
expenses, cost of revenue and taxes could result in material impairment charges.
Our pension plan obligations are currently unfunded, and we may have to make significant cash
contributions to our plans, which could reduce the cash available for our business.
Our pension plans in the aggregate are estimated to be unfunded by $89 million as of December 31, 2014.
With approximately 5,300 participants in our pension plans, we incur substantial costs relating to pension benefits,
which can vary substantially as a result of changes in healthcare laws and costs, volatility in investment returns on
pension plan assets and changes in discount rates used to calculate related liabilities. Our estimates of liabilities and
expenses for pensions and other post-retirement healthcare benefits require the use of assumptions, including
assumptions relating to the rate used to discount the future estimated liability, the rate of return on plan assets,
inflation and several assumptions relating to the employee workforce (medical costs, retirement age and mortality).
Actual results may differ, which may have a material adverse effect on our business, prospects, financial condition
or results of operations. Future volatility and disruption in the stock markets could cause a decline in the asset values
of our pension plans. In addition, a decrease in the discount rate used to determine minimum funding requirements
could result in increased future contributions. If either occurs, we may need to make additional pension
contributions above what is currently estimated, which could reduce the cash available for our businesses.
We are exposed to risks associated with payment card industry (“PCI”) compliance.
The PCI Data Security Standard (“PCI DSS”) is a set of comprehensive requirements endorsed by credit card
issuers for enhancing payment account data security that includes requirements for security management, policies,
procedures, network architecture, software design and other critical protective measures. PCI DSS compliance is
required in order to maintain credit card processing facilities. The cost of compliance with the PCI DSS is
significant and may increase as the requirements change. We are tested periodically for compliance with the current
version and our last assessment completed in June 2014. We were found to be compliant in that assessment and our
2015 assessment is scheduled to be completed in June 2015. Compliance does not guarantee a completely secure
environment. Moreover, compliance is an ongoing activity and the formal requirements likely will evolve as new
threats and protective measures are identified. In the event that we were to lose PCI DSS compliance (or fail to
achieve compliance with a future version of the PCI DSS), we could be exposed to increased operating costs, fines
and penalties and, in extreme circumstances, may have our credit card processing privileges revoked, which would
have a material adverse effect on our business.
We may require more cash than we generate in our operating activities, and additional funding on
reasonable terms or at all may not be available.
We cannot guarantee that our business will generate sufficient cash flow from operations to fund our capital
investment requirements or other liquidity needs. Moreover, because we are a holding company with no material
direct operations, we depend on loans, dividends and other payments from our subsidiaries to generate the funds
necessary to meet our financial obligations. Our subsidiaries are legally distinct from us and may be prohibited or
restricted from paying dividends or otherwise making funds available to us under certain conditions.
21
As a result, we may be required to finance our cash needs through public or private equity offerings, bank
loans, additional debt financing or otherwise. Our ability to arrange financing and the cost of such financing are
dependent on numerous factors, including but not limited to:
general economic and capital market conditions;
the availability of credit from banks or other lenders;
investor confidence in us; and
our results of operations.
There can be no assurance that financing will be available on terms favorable to us or at all, which could force
us to delay, reduce or abandon our growth strategy, increase our financing costs, or both. Additional funding from
debt financings may make it more difficult for us to operate our business because a portion of our cash generated
from internal operations would be used to make principal and interest payments on the indebtedness and we may be
obligated to abide by restrictive covenants contained in the debt financing agreements, which may, among other
things, limit our ability to make business decisions and further limit our ability to pay dividends.
In addition, any downgrade of our debt ratings by Standard & Poor’s, Moody’s Investor Service or similar
ratings agencies, increases in general interest rate levels and credit spreads or overall weakening in the credit
markets could increase our cost of capital. Furthermore, raising capital through public or private sales of equity to
finance acquisitions or expansion could cause earnings or ownership dilution to your shareholding interests in our
company.
We have a significant amount of indebtedness, which could adversely affect our cash flow and our ability to
operate our business and to fulfill our obligations under our indebtedness.
We have a significant amount of indebtedness. As of December 31, 2014, we had $3,097 million of
indebtedness outstanding in addition to $345 million of availability under the revolving portion of our Amended and
Restated Credit Agreement (as defined in Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Liquidity and Capital Resources), after taking into account the availability reduction of
$60 million for letters of credit issued under the revolving portion. Of this indebtedness, none will be due on or
before the end of 2015. Our substantial level of indebtedness will increase the possibility that we may not generate
enough cash flow from operations to pay, when due, the principal of, interest on or other amounts due in respect of,
these obligations. Other risks relating to our long-term indebtedness include:
increased vulnerability to general adverse economic and industry conditions;
higher interest expense if interest rates increase on our floating rate borrowings and our hedging
strategies do not effectively mitigate the effects of these increases;
need to divert a significant portion of our cash flow from operations to payments on our indebtedness,
thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions,
investments and other general corporate purposes;
limited ability to obtain additional financing, on terms we find acceptable, if needed, for working
capital, capital expenditures, expansion plans and other investments, which may adversely affect our
ability to implement our business strategy;
limited flexibility in planning for, or reacting to, changes in our businesses and the markets in which we
operate or to take advantage of market opportunities; and
a competitive disadvantage compared to our competitors that have less debt.
22
In addition, it is possible that we may need to incur additional indebtedness in the future in the ordinary course
of business. The terms of our Amended and Restated Credit Agreement and the indentures governing the 2016
Notes and the 2019 Notes (each as defined in Note 9, Debt, to our consolidated financial statements) allow us to
incur additional debt subject to certain limitations. If new debt is added to current debt levels, the risks described
above could intensify. In addition, our inability to maintain certain leverage ratios could result in acceleration of a
portion of our debt obligations and could cause us to be in default if we are unable to repay the accelerated
obligations.
We are exposed to interest rate fluctuations.
Our floating rate indebtedness exposes us to fluctuations in prevailing interest rates. To reduce the impact of
large fluctuations in interest rates, we typically hedge a portion of our interest rate risk by entering into derivative
agreements with financial institutions. Our exposure to interest rates relates primarily to our borrowings under the
Amended and Restated Credit Agreement.
The derivative agreements that we use to manage the risk associated with fluctuations in interest rates may not
be able to eliminate the exposure to these changes. Interest rates are sensitive to numerous factors outside of our
control, such as government and central bank monetary policy in the jurisdictions in which we operate. Depending
on the size of the exposures and the relative movements of interest rates, if we choose not to hedge or fail to
effectively hedge our exposure, we could experience a material adverse effect on our results of operations and
financial condition.
We are exposed to exchange rate fluctuations.
We conduct various operations outside the United States, primarily in Canada, South America, Europe,
Australia and Asia. For the years ended December 31, 2014 and 2013, we incurred $419 million and $413 million in
foreign currency operating expenses, representing approximately 20% and 20% of our total operating expenses,
respectively. Our most significant foreign currency operating expenses are in the Euro, representing approximately
6% and 5% of our operating expenses for the years ended December 31, 2014 and December 31, 2013, respectively.
As a result, we face exposure to movements in currency exchange rates. These exposures include but are not limited
to:
re-measurement gains and losses from changes in the value of foreign denominated assets and liabilities;
translation gains and losses on foreign subsidiary financial results that are translated into U.S. dollars,
our functional currency, upon consolidation;
planning risk related to changes in exchange rates between the time we prepare our annual and quarterly
forecasts and when actual results occur; and
the impact of relative exchange rate movements on cross-border travel, principally travel between
Europe and the United States.
Depending on the size of the exposures and the relative movements of exchange rates, if we choose not to
hedge or fail to hedge effectively our exposure, we could experience a material adverse effect on our results of
operations and financial condition. As we have seen in some recent periods, in the event of severe volatility in
exchange rates, these exposures can increase, and the impact on our results of operations and financial condition can
be more pronounced. In addition, the current environment and the increasingly global nature of our business have
made hedging these exposures more complex and costly.
To reduce the impact of this earnings volatility, we hedge our foreign currency exposure by entering into
foreign currency forward contracts on several of our largest foreign currency exposures, including the Euro, the
British Pound Sterling, the Polish Zloty and the Indian Rupee. Such derivative instruments are short-term in nature
and not designed to hedge against currency fluctuation that could impact our foreign currency denominated revenue
or cost of revenue. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk” and Note 10, Derivatives, to
our consolidated financial statements. Although we have increased and may continue to increase the scope,
23
complexity and duration of our foreign exchange risk management strategy, our current or future hedging activities
may not sufficiently protect us from the adverse effects of currency exchange rate movements. Moreover, we make a
number of estimates in conducting hedging activities, including in some cases the level of future bookings,
cancellations, refunds, customer stay patterns and payments in foreign currencies. In the event those estimates differ
significantly from actual results, we could experience greater volatility as a result of our hedging activities.
The terms of our debt covenants could limit our discretion in operating our business and any failure to
comply with such covenants could result in the default of all of our debt.
The agreements governing our indebtedness contain and the agreements governing our future indebtedness
will likely contain various covenants, including those that restrict our or our subsidiaries’ ability to, among other
things:
incur liens on our property, assets and revenue;
borrow money, and guarantee or provide other support for the indebtedness of third parties;
pay dividends or make other distributions on, redeem or repurchase our capital stock;
prepay, redeem or repurchase certain of our indebtedness;
enter into certain change of control transactions;
make investments in entities that we do not control, including joint ventures;
enter into certain asset sale transactions, including divestiture of certain company assets and divestiture
of capital stock of wholly-owned subsidiaries;
enter into certain transactions with affiliates;
enter into secured financing arrangements;
enter into sale and leaseback transactions;
change our fiscal year; and
enter into substantially different lines of business.
These covenants may limit our ability to effectively operate our businesses or maximize stockholder value. In
addition, our Amended and Restated Credit Agreement requires that we meet certain financial tests, including the
maintenance of a leverage ratio and a minimum net worth. Our ability to satisfy these tests may be affected by
factors and events beyond our control, and we may be unable to meet such tests in the future.
Any failure to comply with the restrictions of our Amended and Restated Credit Agreement, the indentures
governing the 2016 Notes and the 2019 Notes or any agreement governing our other indebtedness may result in an
event of default under those agreements. Such default may allow the creditors to accelerate the related debt, which
may trigger cross-acceleration or cross-default provisions in other debt. In addition, lenders may be able to terminate
any commitments they had made to supply us with further funds.
Maintaining and improving our financial controls and the requirements of being a public company may
strain our resources, divert management’s attention and affect our ability to attract and retain qualified
board members.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934 (the
“Exchange Act”), the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the NASDAQ rules. The requirements of these
rules and regulations have increased and will continue to significantly increase our legal and financial compliance
costs, including costs associated with the hiring of additional personnel, making some activities more difficult, time-
consuming or costly, and may also place undue strain on our personnel, systems and resources. The Exchange Act
requires, among other things, that we file annual, quarterly and current reports with respect to our business and
financial condition.
24
The Sarbanes-Oxley Act requires, among other things, that we maintain disclosure controls and procedures
and internal control over financial reporting. Ensuring that we have adequate internal financial and accounting
controls and procedures in place is a costly and time-consuming effort that needs to be re-evaluated frequently. We
have documented our internal controls and are in the process of testing these controls in order to comply with the
requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”). Section 404 will require that we evaluate
our internal control over financial reporting to enable management to report on, and our independent auditors to
audit as of the end of our fiscal year ended December 31, 2015, the effectiveness of those controls. Both we and our
independent registered public accounting firm will be testing our internal controls in connection with the
Section 404 requirements and could, as part of that documentation and testing, identify material weaknesses,
significant deficiencies or other areas for further attention or improvement.
Implementing any appropriate changes to our internal controls may require specific compliance training for
our directors, officers and employees, require the hiring of additional finance, accounting and other personnel, entail
substantial costs to modify our existing accounting systems, and take a significant period of time to complete. These
changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to
maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could
increase our operating costs and could materially impair our ability to operate our business. Moreover, adequate
internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. As
a result, our failure to satisfy the requirements of Section 404 on a timely basis could result in the loss of investor
confidence in the reliability of our financial statements, which in turn could cause the market value of our common
stock to decline.
Various rules and regulations applicable to public companies make it more difficult and more expensive for us
to maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur
substantially higher costs to maintain coverage. If we are unable to maintain adequate directors’ and officers’
liability insurance, our ability to recruit and retain qualified officers and directors, especially those directors who
may be deemed independent for purposes of the NASDAQ rules, will be significantly curtailed.
Concentration of ownership among our Principal Stockholders may prevent new investors from
influencing significant corporate decisions and may result in conflicts of interest.
As of February 26, 2015, the Principal Stockholders (as defined below) own, in the aggregate, approximately
69% of our outstanding common stock. We are a party to an amended and restated Stockholders’ Agreement (the
“Stockholders’ Agreement”) with the Silver Lake Funds, the TPG Funds and the Sovereign Co-Invest (each as
defined below). Pursuant to the Stockholders’ Agreement the Silver Lake Funds and the TPG Funds currently have
the right to designate for nomination two directors and three directors, respectively, which collectively will represent
a majority of the members of our board of directors. In addition, the Silver Lake Funds and the TPG Funds also
jointly have the right to designate for nomination in the future, in connection with the expansion of our board of
directors by one member, one additional director, defined herein as the Joint Designee, who must qualify as
independent under the NASDAQ rules and must meet the independence requirements of Rule 10A-3 of the
Exchange Act so long as they collectively own at least 10% of their collective Closing Date Shares (as defined in the
Stockholders’ Agreement). As a result, the Principal Stockholders are able to exercise significant influence over all
matters requiring stockholder approval, including: the election of directors; approval of mergers or a sale of all or
substantially all of our assets and other significant corporate transactions; and the amendment of our Certificate of
Incorporation and our Bylaws. This concentration of influence may delay, deter or prevent acts that would be
favored by our other stockholders, who may have interests different from those of our Principal Stockholders. In
addition, this significant concentration of share ownership may adversely affect the trading price of our common
stock because investors often perceive disadvantages in owning common stock in companies with Principal
Stockholders.
25
“TPG” refers to TPG Global, LLC and its affiliates, the “TPG Funds” refer to one or more of TPG Partners
IV, L.P. (“TPG Partners IV”), TPG Partners V, L.P. (“TPG Partners V”), TPG FOF V-A, L.P. (“TPG FOF V-A”)
and TPG FOF V-B, L.P. (“TPG FOF V-B”), “Silver Lake” refers to Silver Lake Management Company, L.L.C. and
its affiliates and “Silver Lake Funds” refer to either or both of Silver Lake Partners II, L.P. and Silver Lake
Technology Investors II, L.P. “Sovereign Co-Invest” refers to Sovereign Co-Invest, LLC, an entity co-managed by
TPG and Silver Lake. “Principal Stockholders” refer to the TPG Funds, the Silver Lake Funds and Sovereign Co-
Invest.
The market price of our common stock could decline due to the large number of outstanding shares of our
common stock eligible for future sale.
Sales of substantial amounts of our common stock in the public market in future offerings, or the perception
that these sales could occur, could cause the market price of our common stock to decline. These sales could also
make it more difficult for us to sell equity or equity-related securities in the future, at a time and price that we deem
appropriate. In addition, the additional sale of our common stock by our officers, directors and Principal
Stockholders in the public market, or the perception that these sales may occur, could cause the market price of our
common stock to decline.
We may issue shares of our common stock or other securities from time to time as consideration for, or to
finance, future acquisitions and investments or for other capital needs. We cannot predict the size of future issuances
of our shares or the effect, if any, that future sales and issuances of shares would have on the market price of our
common stock. If any such acquisition or investment is significant, the number of shares of common stock or the
number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be
substantial and may result in additional dilution to our stockholders. We may also grant registration rights covering
shares of our common stock or other securities that we may issue in connection with any such acquisitions and
investments.
To the extent that any of us, our executive officers, directors or the Principal Stockholders sell, or indicate an
intent to sell, substantial amounts of our common stock in the public market, the trading price of our common stock
could decline significantly.
Our ability to pay regular dividends to our stockholders is subject to the discretion of our board of directors
and may be limited by our holding company structure and applicable provisions of Delaware law.
We intend to continue to pay quarterly cash dividends on our common stock. However, our board of directors
may, in its sole discretion, change the amount or frequency of dividends or discontinue the payment of dividends
entirely. In addition, because we are a holding company with no material direct operations, we are dependent on
loans, dividends and other payments from our operating subsidiaries to generate the funds necessary to pay
dividends on our common stock. We expect to cause our subsidiaries to make distributions to us in an amount
sufficient for us to pay dividends. However, their ability to make such distributions will be subject to their operating
results, cash requirements and financial condition, the applicable provisions of Delaware law that may limit the
amount of funds available for distribution and our ability to pay cash dividends, compliance with covenants and
financial ratios related to existing or future indebtedness, including under our Amended and Restated Credit
Agreement and the 2019 Notes, and other agreements with third parties. In addition, each of the companies in our
corporate chain must manage its assets, liabilities and working capital in order to meet all of its cash obligations,
including the payment of dividends or distributions. As a consequence of these various limitations and restrictions,
we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our common stock.
Any change in the level of our dividends or the suspension of the payment thereof could adversely affect the market
price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
26
ITEM 2.
PROPERTIES
As a company with global operations, we operate in many countries with a variety of sales, administrative,
product development, and customer service roles provided in these offices.
Americas: Our corporate and business unit headquarters and domestic operations are located in a property
which we own in Southlake, Texas. There are 13 additional offices across North America and 13 offices across
Latin America that serve in various sales, administration, software development and customer service capacities for
all our business segments. All of these additional offices are leased.
Europe: Travel Network has its European regional headquarters in London, United Kingdom, with a lease that
expires in 2022. There are 26 additional offices across Europe that serve in various sales, administration, software
development and customer service capacities. All of these additional offices are leased.
APAC: Travel Network and Airline and Hospitality Solutions share the APAC regional operations office
located in Singapore under a lease that expires in 2017. There are 8 additional offices across APAC that serve in
various sales, administrative, software development and customer service capacities. All of these additional offices
are leased.
ITEM 3.
LEGAL PROCEEDINGS
While certain legal proceedings and related indemnification obligations to which we are a party specify the
amounts claimed, these claims may not represent reasonably possible losses. Given the inherent uncertainties of
litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss
or range of loss, if any, be reasonably estimated, except in circumstances where an aggregate litigation accrual has
been recorded for probable and reasonably estimable loss contingencies. A determination of the amount of accrual
required, if any, for these contingencies is made after careful analysis of each matter. The required accrual may
change in the future due to new information or developments in each matter or changes in approach such as a
change in settlement strategy in dealing with these matters. See “Risk Factors—We are involved in various legal
proceedings which may cause us to incur significant fees, costs and expenses and may result in unfavorable
outcomes.”
On December 16, 2014, we announced that we had received a binding offer from Bravofly Rumbo Group to
acquire lastminute.com, which closed on March 1, 2015. In connection with this sale, we retained certain liabilities.
Furthermore, on January 23, 2015, we sold Travelocity.com to Expedia. Pursuant to the Asset Purchase
Agreement entered into with Expedia (the “Travelocity Purchase Agreement”), we will continue to be liable for pre-
closing liabilities of Travelocity, including fees, charges, costs and settlements relating to litigation arising from
hotels booked on the Travelocity platform prior to the strategic marketing agreement that we entered into with
Expedia (the “Expedia SMA”) in August 2013. Fees, charges, costs and settlements relating to litigation from hotels
booked on Travelocity.com subsequent to the Expedia SMA and prior to the date of the sale of Travelocity.com to
Expedia will be shared with Expedia in accordance with the terms that were in the Expedia SMA. We are jointly and
severally liable for Travelocity’s indemnification obligations under the Travelocity Purchase Agreement for
liabilities that may arise out of these litigation matters, which could adversely affect our cash flow.
Litigation and Administrative Audit Proceedings Relating to Hotel Occupancy Taxes
Over the past ten years, various state and local governments in the United States have filed approximately 70
lawsuits against us and other OTAs pertaining primarily to whether our discontinued Travelocity segment and other
OTAs owe sales or occupancy taxes on the revenues they earn from facilitating hotel reservations using the
merchant revenue model. In the merchant revenue model, the customer pays us an amount at the time of booking
that includes (i) service fees, which we collect and retain, and (ii) the price of the hotel room and amounts for
occupancy or other local taxes, which we pass along to the hotel supplier. The complaints generally allege, among
other things, that the defendants failed to pay to the relevant taxing authority hotel occupancy taxes on the service
fees. Courts have dismissed approximately 35 of these lawsuits, some for failure to exhaust administrative remedies
and some on the basis that we are not subject to sales or occupancy tax. The Fourth, Sixth and Eleventh Circuits of
the United States Courts of Appeals each have ruled in our favor on the merits, as have state appellate courts in
27
Missouri, Alabama, Texas, California, Kentucky, Florida, Colorado and Pennsylvania, and a number of state and
federal trial courts. The remaining lawsuits are in various stages of litigation. We have also settled some cases
individually, most for nuisance value, and with respect to these settlements, have generally reserved our rights to
challenge any effort by the applicable tax authority to impose occupancy taxes in the future.
We have received recent favorable decisions pertaining to cases in North Carolina, California, Montana,
Arizona and Colorado. On August 19, 2014, the North Carolina Court of Appeals affirmed a judgment in favor of
Travelocity and other OTAs after concluding they are not operators of hotels, motel or similar-type businesses and
therefore are not subject to hotel occupancy tax. On May 28, 2014, an administrative hearing officer in Arizona
ruled that Travelocity is not responsible for collecting or remitting local hotel taxes and set aside assessments made
by twelve municipalities, including Phoenix, Scottsdale, Tempe, and Tucson. Those municipalities have appealed
the decision to state court. On March 27, 2014, a California court of appeals upheld a trial court ruling that OTAs,
including Travelocity, are not subject to the City of San Diego’s transient occupancy tax because they are not hotel
operators or managing agents. That case is now pending before the Supreme Court of California. The California
court of appeals’ decision marked the third time that a California appellate court has ruled in favor of Travelocity on
the question of whether OTAs are subject to transient occupancy taxes in California, the prior two cases being
brought by the City of Anaheim and City of Santa Monica. Travelocity also has prevailed at the trial court level in
cases brought by San Francisco and Los Angeles, both of which are being appealed by the cities. On March 6, 2014,
a Montana trial court ruled by summary judgment that Travelocity and other OTAs are not subject to the State of
Montana’s lodging facility use tax or its sales tax on accommodations and vehicles. The lawsuit had been brought by
the Montana Department of Revenue, which has appealed the decision. On July 3, 2014, the Colorado Court of
Appeals entered judgment that Travelocity and OTAs are not liable for lodging taxes as claimed by the City of
Denver. The City of Denver has petitioned the Supreme Court of Colorado to review the decision. In Florida,
Travelocity has been named as a defendant in several proceedings and lawsuits brought by cities and counties in
Florida, including the Counties of Leon, Broward, Osceola, and Volusia; and the City of Miami. The suits brought
by Leon County and Broward County have been decided on the merits and both were decided in favor of
Travelocity and other OTAs. On February 28, 2013 and February 12, 2014, respectively, those decisions were
affirmed by the intermediate court of appeals. The Supreme Court of Florida has granted review of the Leon County
decision and heard oral arguments on April 30, 2014. A decision is expected in 2015.
Although we have prevailed in the majority of these lawsuits and proceedings, there have been several adverse
judgments or decisions on the merits, some of which are subject to appeal. On April 3, 2014, the Supreme Court of
Wyoming affirmed a decision by the Wyoming State Board of Equalization that Travelocity and other OTAs are
subject to sales tax on lodging. Similarly, on March 4, 2014, a trial court in Washington D.C. entered final judgment
in favor of the District of Columbia on its claim that Travelocity and other OTAs are subject to the District’s hotel
occupancy tax. Travelocity has appealed the trial court’s decision. We did not record material charges associated
with these cases during the years ended December 31, 2014, 2013 and 2012. As of December 31, 2014, our reserve
for these cases totaled $6 million and is included in other accrued liabilities in our consolidated balance sheets.
In late 2012, the Tax Appeal Court of the State of Hawaii granted summary judgment in favor of Travelocity
and other OTAs on the issue of whether Hawaii’s transient accommodation tax applies to the merchant revenue
model. However, in January 2013, the same court granted summary judgment in favor of the State of Hawaii and
against Travelocity and other OTAs on the issue of whether the state’s general excise tax, which is assessed on all
business activity in the state, applies to the merchant revenue model for the period from 2002 to 2011.
We recorded charges of $2 million, $17 million and $25 million for the years ended December 31, 2014, 2013
and 2012, respectively, which represents the amount we would owe to the State of Hawaii, prior to appealing the
Tax Appeal Court’s ruling, in back excise taxes, penalties and interest based on the court’s interpretation of the
statute. These charges are included in net (loss) income from discontinued operations. As of December 31, 2014, we
maintained an accrued liability of $9 million included in other accrued liabilities for this case and have not made
material payments in the year ended December 31, 2014. Payment of any such amount is not an admission that we
are subject to the taxes in question.
28
The State of Hawaii has appealed the Tax Appeal Court’s decision that Travelocity is not subject to transient
accommodation tax, and Travelocity has likewise appealed the Tax Appeal Court’s determination that we are
subject to general excise tax, as we believe the decision is incorrect and inconsistent with the same court’s prior
rulings. If any excise tax is in fact owed (which we dispute), we believe the correct amount should be under $10
million. The ultimate resolution of these contingencies may differ from the liabilities recorded. To the extent our
appeal is successful in reducing or eliminating the assessed excise tax amounts, the State of Hawaii would be
required to refund such amounts, plus interest. On May 20, 2013, the State of Hawaii issued additional assessments
of general excise tax and hotel occupancy tax for the calendar year 2012. Travelocity has appealed these
assessments to the Tax Appeal Court, and these assessments have been stayed pending a final appellate decision on
the original assessments.
On December 9, 2013, the State of Hawaii also issued assessments of general excise tax for merchant rental
car bookings facilitated by Travelocity and other OTAs for the period 2001 to 2012 for which we recorded a $2
million reserve in the fourth quarter of 2013. Travelocity has appealed the assessment to the Tax Appeal Court,
which ordered a stay of the assessment pending a final appellate decision on the original assessments.
On July 18, 2014, the State of Hawaii also issued additional assessments of general excise tax and hotel
occupancy tax for the calendar year 2013. Travelocity appealed those assessments to the Tax Appeal Court, which
has stayed the assessments pending a final appellate decision on the original assessments.
On November 21, 2013, the New York State Court of Appeals ruled against Travelocity and other OTAs,
holding that New York City’s hotel occupancy tax, which was amended in 2009 to capture revenue from fees
charged to customers by third-party travel companies, is constitutional because such fees constitute rent as they are a
condition of occupancy. Travelocity had been collecting and remitting taxes under the amended statute, so the ruling
did not impact its financial results in that regard.
On June 21, 2013, a state trial court in Cook County, Illinois granted summary judgment in favor of the City
of Chicago and against Travelocity and other OTAs, ruling that Chicago’s hotel tax applies to the fees retained by
the OTAs because, according to the trial court, OTAs act as hotel “managers” when facilitating hotel reservations.
Travelocity subsequently settled the lawsuit prior to the entry of final judgment or any ruling on damages for an
amount not material to our results of operations.
On April 4, 2013, the United States District Court for the Western District of Texas (“W.D.T.”) entered a final
judgment against Travelocity and other OTAs in a class action lawsuit filed by the City of San Antonio. The final
judgment was based on a jury verdict from October 30, 2009 that the OTAs “control” hotels for purposes of city
hotel occupancy taxes. Following that jury verdict, on July 1, 2011, the W.D.T. concluded that fees charged by the
OTAs are subject to hotel occupancy taxes and that the OTAs have a duty to collect and remit these taxes. We
disagree with the jury’s finding and with the W.D.T.’s conclusions based on the jury finding, and intend to appeal
the final judgment to the United States Court of Appeals for the Fifth Circuit. The verdict against us, including
penalties and interest, is $4 million which we do not believe we will ultimately pay and therefore have not accrued
any loss related to this case.
We believe the Fifth Circuit’s resolution of the San Antonio appeal may be affected by a separate Texas state
appellate court decision in our favor. On October 26, 2011, the Fourteenth Court of Appeals of Texas affirmed a
trial court’s summary judgment ruling in favor of the OTAs in a case brought by the City of Houston and the Harris
County-Houston Sports Authority on a similarly worded tax ordinance as the one at issue in the San Antonio case.
The Texas Supreme Court denied the City of Houston’s petition to review the case. We believe this decision should
provide persuasive authority to the Fifth Circuit in its review of the San Antonio case.
As of December 31, 2014, we have a reserve of $18 million, included in other accrued liabilities in the
consolidated balance sheet, for the potential resolution of issues identified related to litigation involving hotel sales,
occupancy or excise taxes, which includes the $11 million liability for the remaining payments to the State of
Hawaii. As of December 31, 2013, the reserve for litigation involving hotel sales, occupancy or excise taxes was
$18 million. Our estimated liability is based on our current best estimate but the ultimate resolution of these issues
may be greater or less than the amount recorded and, if greater, could adversely affect our results of operations.
29
In addition to the actions by the tax authorities, four consumer class action lawsuits have been filed against us
in which the plaintiffs allege that we made misrepresentations concerning the description of the fees received in
relation to facilitating hotel reservations. Generally, the consumer claims relate to whether Travelocity provided
adequate notice to consumers regarding the nature of our fees and the amount of taxes charged or collected. One of
these lawsuits was dismissed by the trial court and this dismissal was subsequently affirmed by the Texas Supreme
Court; one was voluntarily dismissed by the plaintiffs; one is pending in Texas state court, where the court is
currently considering the plaintiffs’ motion to certify a class action; and the last is pending in federal court, but has
been stayed pending the outcome of the Texas state court action. We believe the notice we provided was appropriate.
In addition to the lawsuits, a number of state and local governments have initiated inquiries, audits and other
administrative proceedings that could result in an assessment of sales or occupancy taxes on fees. If we do not
prevail at the administrative level, those cases could lead to formal litigation proceedings.
US Airways Antitrust Litigation and DOJ Investigation
US Airways Antitrust Litigation
In April 2011, US Airways sued us in federal court in the Southern District of New York, alleging violations
of the Sherman Act Section 1 (anticompetitive agreements) and Section 2 (monopolization). The complaint was
filed two months after we entered into a new distribution agreement with US Airways. In September 2011, the court
dismissed all claims relating to Section 2. The claims that were not dismissed are claims brought under Section 1 of
the Sherman Act that relate to our contracts with airlines, especially US Airways itself, which US Airways says
contain anticompetitive content-related provisions, and an alleged conspiracy with the other GDSs, allegedly to
maintain the industry structure and not to implement US Airways’ preferred system of distributing its Choice Seats
product. We strongly deny all of the allegations made by US Airways. US Airways initially quantified its damages
at either $317 million or $482 million (before trebling), depending on certain assumptions. We believe both
estimates are based on faulty assumptions and analysis and therefore are highly overstated. In the event US Airways
were to prevail on the merits of its claim, we believe any monetary damages awarded (before trebling) would be
significantly less than either of US Airways’ proposed damage amounts.
Document, fact and expert witness discovery are complete. Summary judgment motions were filed in April
2014 and in January 2015, the court issued a summary judgment opinion, which has not yet been published in full in
order to preserve some of the confidential information of the parties and other parties. Based on the ruling, the judge
eliminated the claims related to a majority of the alleged damages as well as rejected a request that would require us
to modify language in our customer contracts. Based on the ruling, the potential remaining range of single damages
has been significantly reduced. In respect of all of the remaining claims, US Airways claims damages (before
trebling) of either $45 million or $73 million. US Airways has filed a motion for reconsideration on two issues
decided in our favor. If the motion for reconsideration is granted in full, US Airways’ damages claim would, per US
Airways’ calculations, be either $184 million or $274 million. With respect to all of the remaining claims in this
case, we believe that our business practices and contract terms are lawful and fair, and we will continue to
vigorously defend against the remaining claims. The claims that have been dismissed to date are subject to appeal.
We have and will incur significant fees, costs and expenses for as long as the litigation is ongoing. In addition,
litigation by its nature is highly uncertain and fraught with risk, and it is therefore difficult to predict the outcome of
any particular matter. If favorable resolution of the matter is not reached, any monetary damages are subject to
trebling under the antitrust laws and US Airways would be eligible to be reimbursed by us for its costs and attorneys’
fees. Depending on the amount of any such judgment, if we do not have sufficient cash on hand, we may be required
to seek financing through the issuance of additional equity or from private or public financing. As noted, US
Airways had sought injunctive relief, which the Court in its recent summary judgment ruling dismissed. US Airways
has not sought reconsideration of this aspect of the Court’s ruling. If injunctive relief were granted, depending on its
scope, it could affect the manner in which our airline distribution business is operated and potentially force changes
to the existing airline distribution business model. Any of these consequences could have a material adverse effect
on our business, financial condition and results of operations.
30
Department of Justice Investigation
On May 19, 2011, we received a civil investigative demand (“CID”) from the U.S. Department of Justice
(“DOJ”) investigating alleged anticompetitive acts related to the airline distribution component of our business. We
are fully cooperating with the DOJ investigation and are unable to make any prediction regarding its outcome. The
DOJ is also investigating other companies that own GDSs, and has sent CIDs to other companies in the travel
industry. Based on its findings in the investigation, the DOJ may (i) close the file, (ii) seek a consent decree to
remedy issues it believes violate the antitrust laws, or (iii) file suit against us for violating the antitrust laws, seeking
injunctive relief. If injunctive relief were granted, depending on its scope, it could affect the manner in which our
airline distribution business is operated and potentially force changes to the existing airline distribution business
model. Any of these consequences would have a material adverse effect on our business, financial condition and
results of operations. We have not received any communications from the DOJ regarding this matter in over two
years; however, we have not been notified that this matter is closed.
Indian Income Tax Litigation
We are currently a defendant in income tax litigation brought by the Indian Director of Income Tax (“DIT”) in
the Supreme Court of India. The dispute arose in 1999 when the DIT asserted that we have a permanent
establishment within the meaning of the Income Tax Treaty between the United States and the Republic of India and
accordingly issued tax assessments for assessment years ending March 1998 and March 1999, and later issued
further tax assessments for assessment years ending March 2000 through March 2006. We appealed the tax
assessments and the Indian Commissioner of Income Tax Appeals returned a mixed verdict. We filed further appeals
with the Income Tax Appellate Tribunal, or the ITAT. The ITAT ruled in our favor on June 19, 2009 and July 10,
2009, stating that no income would be chargeable to tax for assessment years ending March 1998 and March 1999,
and from March 2000 through March 2006. The DIT appealed those decisions to the Delhi High Court, which found
in our favor on July 19, 2010. The DIT has appealed the decision to the Supreme Court of India and no hearing date
has been set.
We intend to continue to aggressively defend against these claims. Although we do not believe that the
outcome of the proceedings will result in a material impact on our business or financial condition, litigation is by its
nature uncertain. If the DIT were to fully prevail on every claim, we could be subject to taxes, interest and penalties
of approximately $26 million as of December 31, 2014, which could have a material adverse effect on our business,
financial condition and results of operations. We do not believe this outcome is probable and therefore have not
made any provisions or recorded any liability for the potential resolution of this matter.
Litigation Relating to Patent Infringement
In April 2010, CEATS, Inc. (“CEATS”) filed a patent infringement lawsuit against several ticketing
companies and airlines, including JetBlue, in the Eastern District of Texas. CEATS alleged that the mouse-over seat
map that appears on the defendants’ websites infringes certain of its patents. JetBlue’s website is provided by our
Airline Solutions business under the SabreSonic Web service. On June 11, 2010, JetBlue requested that we
indemnify and defend it for and against the CEATS lawsuit based on the indemnification provision in our agreement
with JetBlue, and we agreed to a conditional indemnification. CEATS claimed damages of $0.30 per segment sold
on JetBlue’s website during the relevant time period which totaled $10 million. A jury trial began on March 12,
2012, which resulted in a jury verdict invalidating the CEATS’ patents. Final judgment was entered and the plaintiff
appealed. The Federal Circuit affirmed the jury’s decision in our favor on April 26, 2013. CEATS did not appeal the
Federal Circuit’s decision, and its deadline to do so has passed. On June 28, 2013, the Eastern District denied
CEATS’ previously filed motion to vacate the judgment based on an alleged conflict of interest with a mediator.
CEATS appealed that decision and the Federal Circuit heard the appeal on May 5, 2014, and subsequently denied
the appeal. On July 22, 2014, CEATS filed a motion for rehearing en banc before the Federal Circuit which was
denied on September 5, 2014. On December 4, 2014, CEATS filed a petition seeking a review with the Supreme
Court. Defendants filed their response to the opposing review on February 5, 2015.
31
Insurance Carriers
We have disputes against some of our insurance carriers for failing to reimburse defense costs incurred in our
American Airlines antitrust litigation, which we settled in October 2012. For a description of the American Airlines
antitrust litigation, see Note 17, Commitments and Contingencies—Legal Proceedings—Airline Antitrust Litigation,
US Airways Antitrust Litigation, and DOJ Investigation to our consolidated financial statements. Both carriers
admitted there is coverage, but reserved their rights not to pay should we be found liable for certain of American
Airlines’ allegations. Despite their admission of coverage, the insurers have only reimbursed us for a small portion
of our significant defense costs. We filed suit against the entities in New York state court alleging breach of contract
and a statutory cause of action for failure to promptly pay claims. If we prevail, we may recover some or all amounts
already tendered to the insurance companies for payment within the limits of the policies and may be entitled to 18%
interest on such amounts. To date, settlement discussions have been unsuccessful. We are currently in the discovery
process. The court has not yet scheduled a trial date though we anticipate trial to begin in the second half of 2015.
Hotel Related Antitrust Proceedings
On August 20, 2012, two individuals alleging to represent a putative class of bookers of online hotel
reservations filed a complaint against Sabre Holdings, Travelocity.com LP, and several other online travel
companies and hotel chains in the U.S. District Court for the Northern District of California, alleging federal and
state antitrust and related claims. The complaint alleged generally that the defendants conspired to enter into illegal
agreements relating to the price of hotel rooms. Over 30 copycat suits were filed in various courts in the United
States. In December 2012, the Judicial Panel on Multi-District Litigation centralized these cases in the U.S. District
Court in the Northern District of Texas, which subsequently consolidated them. The proposed class period was
January 1, 2003 through May 1, 2013. Together with the other defendants, Travelocity and Sabre filed a motion to
dismiss. On February 18, 2014, the court granted the motion and dismissed the plaintiff’s claims without prejudice.
The plaintiffs had moved for leave to file an amended complaint but the judge denied the motion on October 27,
2014 and dismissed the claims with prejudice. The plaintiffs did not appeal and their opportunity to appeal has
expired. The Court closed the case on January 17, 2015 and we regard this matter as fully and finally resolved.
Litigation Relating to Routine Proceedings
We are also engaged from time to time in other routine legal and tax proceedings incidental to our business.
We do not believe that any of these routine proceedings will have a material impact on the business or our financial
condition.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
32
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of our executive officers as of February 26, 2015, together with certain biographical
information, are as follows:
Name
Thomas Klein
Richard A. Simonson
Alexander S. Alt
Rachel A. Gonzalez
Hugh W. Jones
Deborah Kerr
William G. Robinson
Gregory T. Webb
Age Position
52 Chief Executive Officer, President and Director, Sabre
56 Executive Vice President and Chief Financial Officer, Sabre
40 President and General Manager, Sabre Hospitality Solutions
45 Executive Vice President and General Counsel, Sabre
Executive Vice President, Sabre and President, Sabre Airline
Solutions
Executive Vice President and Chief Product and Technology Officer,
Sabre
51
43
50 Executive Vice President and Chief Human Resources Officer, Sabre
48 Executive Vice President, Sabre and President, Travel Network
Thomas Klein is CEO and president of Sabre and has more than 17 years of experience managing large scale,
international technology businesses. Before being named CEO in August 2013, Mr. Klein served as company
president since January 2010. His role prior to that was executive vice president, Sabre, and group president of Sabre
Travel Network and Sabre Airline Solutions businesses. Earlier roles included various senior leadership positions
within Sabre, both in the United States and in Latin America, and he served as the first director general of Sabre
Sociedad Tecnológica, a Mexico based joint venture company owned by Sabre, Aeromexico and Mexicana. Prior to
joining Sabre in 1994, he held a variety of sales, marketing and operations positions at American Airlines and
Consolidated Freightways, Inc. Mr. Klein serves on the Board of Directors and chairs the compensation committee
for Cedar Fair Entertainment. In 2010, he was appointed to the Board of Directors for Brand USA by the U.S.
Secretary of Commerce and now serves as vice chairman. He also serves on the executive committee of the World
Travel and Tourism Council and the Dean’s Board of the Villanova School of Business. Mr. Klein holds a
bachelor’s degree in business administration from Villanova University. Mr. Klein’s long service at our company,
travel technology industry experience and his leadership experience make him a valuable asset to our management
and our board of directors.
Richard A. Simonson is executive vice president and chief financial officer. He leads the company’s global
finance organization and is responsible for all finance and controls, reporting, investor relations and corporate
development activities. He brings a combination of experiences with global finance, operations and capital markets
focused on technology sectors. Before joining Sabre in March 2013, Mr. Simonson most recently served as CFO and
president for business operations at Rearden Commerce, an e-commerce company from March 2011 to May 2012
and as an independent advisor to companies in the telecom, media and technology industry from May 2012 to March
2013 and from July 2010 to May 2011. From September 2001 to July 2010 he worked at Nokia Corporation in
several global roles based in locations around the world—in Helsinki, Zurich and New York—including executive
vice president and general manager of Nokia’s mobile phones unit and more than five years as executive vice
president and CFO. Mr. Simonson’s career includes time with Barclays Capital as managing director in the telecom
and media investment banking group. He also spent 16 years with Bank of America Securities, where he held
various finance and investment banking positions in San Francisco and Chicago. Mr. Simonson currently serves on
the board of directors of Electronic Arts, where he is lead Director and chairs the audit committee, and Silver Spring
Networks, where he chairs the audit committee. He graduated from the Colorado School of Mines and holds an
M.B.A. from Wharton School of Business at the University of Pennsylvania.
Alexander S. Alt is president and general manager of Sabre Hospitality Solutions, and oversees one of
Sabre’s two SaaS businesses. Prior to being named president, Mr. Alt served in an expanded chief operating officer
role at Sabre Hospitality Solutions, where he oversaw customer care, data services, implementations, call center and
similar services. As part of the Sabre Hospitality Solutions management team, he also helped drive overall business
strategy. Before joining Sabre in 2012, Mr. Alt served as senior vice president of global development and strategy at
Rosewood Hotels & Resorts, where he played a key role in the global growth and expansion of the business. Prior to
joining Rosewood Hotels in 2006, he was a senior engagement manager at McKinsey & Company. Earlier in his
career, he worked in the finance department of Sabre as a manager and senior analyst in the financial planning and
analysis group. Mr. Alt is a member of the Dallas Development Board of The Nature Conservancy and is on the
Advisory Board of the School of Undergraduate Studies at the University of Texas in Austin. He graduated from the
University of Texas in Austin and received his M.B.A. from Harvard University.
33
Rachel A. Gonzalez is executive vice president and general counsel of Sabre, a position she assumed in
September 2014. She manages the global legal department responsible for legal strategy, regulatory affairs,
corporate compliance and government affairs. Prior to joining Sabre, Ms. Gonzalez served as executive vice
president, general counsel and corporate secretary with Dean Foods in Dallas, Texas from March 2013 to September
2014, as executive vice president, general counsel designate from November 2012 to March 2013. Ms. Gonzalez
joined Dean Foods in 2008 as chief counsel, corporate & securities and served as the deputy general counsel prior to
her promotion in November 2012. Previously, Ms. Gonzalez was senior vice president and group counsel with
Affiliated Computer Services. Ms. Gonzalez was a partner with the law firm of Morgan, Lewis & Bockius, where
she focused on corporate finance, mergers & acquisitions, SEC compliance and corporate governance. Ms. Gonzalez
serves on the Board of Directors of Girl Scouts of Northeast Texas and their Audit and Board Development
Committees. Ms. Gonzalez earned her J.D. degree from Boalt Hall School of Law the University of California,
Berkeley and her bachelor’s degree in comparative literature from the University of California, Berkeley.
Hugh W. Jones is executive vice president and president of Sabre Airline Solutions and is a 26 year veteran
of the travel industry. Immediately prior to being named to his current role in April 2011, Mr. Jones served as
Travelocity’s president and CEO beginning in February 2009 and before that, he held a number of executive roles at
Sabre including senior vice president and chief operating officer for our Travel Network and Airline and Hospitality
Solutions businesses, where he oversaw airline supplier initiatives and global customer support. He also led Travel
Network in North America and served as senior vice president and controller for Sabre. Mr. Jones began his career
with American Airlines in 1988 and held a variety of finance positions including financial controller for the airline’s
European and Pacific airport, sales and reservations operations. He earned a master’s degree in business
administration from Southern Methodist University and a bachelor’s degree in geology and geophysics from the
University of Wisconsin.
Deborah Kerr is executive vice president and chief product and technology officer at Sabre, and is
responsible for leading the global product and technology organization. Prior to her appointment at Sabre in March
2013, she served as executive vice president, chief product and technology officer at FICO from 2009 to April 2012,
a leader in predictive analytics and decision management technology. Prior experience includes senior leadership
roles with HP, Peregrine Systems and NASA’s Jet Propulsion Laboratory. Ms. Kerr is a director of the Davis and
Henderson Corporation and EXLService Holdings, Inc. She was previously a director of Mitchell International from
January 2010 until October 2013. Ms. Kerr holds a master’s degree in Computer Science and a bachelor’s degree in
Psychology.
William G. Robinson is executive vice president and chief human resources officer. He is responsible for
leading Sabre’s global human resources organization, including talent management, organizational leadership and
culture. Prior to joining Sabre in December 2013, Mr. Robinson served as the senior vice president and chief human
resources officer at Coventry Health Care, a diversified managed health care company with 14,000 employees, from
2012 to 2013. From 2010 to 2011, Mr. Robinson served as senior vice president for human resources at Outcomes
Health Information Solutions, a healthcare analytics and information company specializing in the optimization and
acquisition of medical records. Prior to that, from 1990 to 2010, he worked for General Electric, where he held
several human resources leadership roles in diverse industries including information technology, healthcare, energy
and industrial. Most recently, he was the human resources leader within the GE Enterprise Solutions division where
he led a global team in an organization of 20,000 employees in 200 locations worldwide. He holds a M.A. in Human
Resources Development from Bowie State University and a B.S. in Communications from Wake Forest University.
Gregory T. Webb is executive vice president and president of Travel Network, and before being named to his
current role, gained experience with all aspects of the business, from leading the marketing organization to
managing our supplier relationships, Travel Network business in Asia and Hospitality Solutions business. Since
joining Sabre in 1995, Mr. Webb has held several senior leadership positions including chief marketing officer for
both our Travel Network and Airline and Hospitality Solutions businesses and senior vice president of global
product marketing for Sabre. Early in his career, he served as director of project consulting and risk assessment for
American Airlines and Sabre. Prior to joining the company, Mr. Webb was vice president and chief information
officer for BellSouth Telecommunications and also served as a senior consultant at Andersen Consulting. Mr. Webb
earned a master’s degree in business administration with an emphasis in marketing from Louisiana Tech University
and a bachelor’s degree in advertising from Southern Methodist University. He serves on the board of directors for
Abacus.
34
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the NASDAQ Global Select Market under the symbol “SABR.” On April 17,
2014, we completed our initial public offering; prior to that date, there was no public trading market for our common
stock. The following table sets forth, for the quarterly period indicated, the high and low market prices per share for
our common stock, as reported on the NASDAQ Global Select Market:
Quarter ended June 30, 2014 (from April 17, 2014) ............................ $
Quarter ended September 30, 2014 ...................................................... $
Quarter ended December 31, 2014 ....................................................... $
High
Low
20.91
20.26
20.57
$
$
$
15.00
17.65
14.86
As of February 26, 2015, there were 276 stockholders of record.
During the third and fourth quarters of 2014, we paid a quarterly cash dividend of $0.09 per share of our
common stock totaling $48 million. No dividends were declared or paid in the six months ended June 30, 2014 or in
the year ended December 31, 2013. We expect to continue to pay quarterly cash dividends on our common stock,
subject to declaration of our board of directors. The amount of future cash dividends, if any, will depend upon,
among other things, our future operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions, number of shares of common stock outstanding and other factors the board of
directors may deem relevant. The timing and amount of future dividend payments will be at the discretion of our
board of directors. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Dividends.”
Stock Performance Graph
The following graph shows a comparison from April 17, 2014, the date our common stock commenced
trading on the NASDAQ Global Select Market, through December 31, 2014 of the cumulative total return for our
common stock, the S&P 500 Index and the NASDAQ Composite. The comparison assumes $100 was invested on
April 17, 2014 in our common stock and in each of the two indices and assumes reinvestment of dividends.
The stock price performance depicted in the above graph is not necessarily indicative of future price
performance. The stock performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC,
nor shall such information be incorporated by reference into any future filing by us under the Securities Act or the
Exchange Act, except to the extent that we specifically incorporate the graph by reference in such filing.
35
ITEM 6.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and notes
thereto contained in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.
The consolidated statements of operations data and consolidated statements of cash flows data for the years
ended December 31, 2014, 2013 and 2012 and the consolidated balance sheet data as of December 31, 2014 and
2013 are derived from our audited consolidated financial statements contained in Item 8, “Financial Statements and
Supplementary Data,” of this Annual Report on Form 10-K. The consolidated statements of operations data and
consolidated statements of cash flows data for the years ended December 31, 2011 and 2010 and the consolidated
balance sheet data as of December 31, 2012, 2011 and 2010 are derived from unaudited consolidated financial
statements not included in this Annual Report on Form 10-K. The unaudited consolidated financial statements have
been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management,
reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of this data. Our
historical results are not necessarily indicative of the results to be expected in the future.
2014
Year Ended December 31,
2012
2011
2013
2010
Consolidated Statements of Operations Data:
Revenue .................................................................. $2,631,417 $2,523,546 $2,382,148 $ 2,252,446 $2,105,814
340,037
Operating income (loss) ..........................................
81,901
Income (loss) from continuing operations ..............
Loss from discontinued operations, net of tax ........
(365,962)
Net income (loss) attributable to Sabre
(6,586 ) 331,112
(215,427 ) 113,477
(394,410 ) (193,873 )
380,930
52,066
(149,697)
421,345
110,873
(38,918)
Corporation ........................................................
69,223
(100,494)
(611,356 )
(66,074 )
(268,852)
Net income (loss) attributable to common
shareholders .......................................................
57,842
(137,198)
(645,939 )
(98,653 )
(299,649)
Net income (loss) per share attributable to
common shareholders:
Basic ..................................................................... $
Diluted ................................................................. $
0.24 $
0.23 $
(0.77) $
(0.74) $
(3.65 ) $
(3.65 ) $
(0.56 ) $
(0.56 ) $
(1.71)
(1.71)
Weighted-average common shares outstanding:
Basic .....................................................................
Diluted .................................................................
238,633
246,747
178,125
184,978
177,206 176,703
177,206 176,703
175,655
175,655
Consolidated Statements of Cash Flows Data:
Cash provided by operating activities ..................... $ 387,659 $ 228,232 $ 308,164 $ 265,854 $ 215,260
(139,502)
Cash used in investing activities .............................
(48,500)
Cash (used in) provided by financing activities ......
(84,742)
Additions to property and equipment .....................
195,550
Cash payments for interest ......................................
(209,815 ) (139,861 )
(25,120 ) (271,540 )
(167,043 ) (128,239 )
264,990 184,449
(239,999)
262,172
(209,523)
255,620
(258,791)
(71,945)
(227,227)
197,782
Other Financial Data:
Adjusted Gross Margin ........................................... $1,146,792 $1,060,302 $ 998,607 $ 886,018 $ 815,899
170,081
Adjusted Net Income ..............................................
603,461
Adjusted EBITDA ..................................................
118,408
Adjusted Capital Expenditures ...............................
140,118
Adjusted Free Cash Flow ........................................
147,734 217,482
731,412 649,285
245,586 187,348
305,662 170,985
182,187
778,754
268,337
181,715
232,477
840,028
265,038
293,375
36
2014
2013
As of December 31,
2012
2011
2010
Consolidated Balance Sheet Data:
58,350 $ 176,521
Cash and cash equivalents ...................................... $ 155,679 $ 308,236 $ 126,695 $
Total assets ............................................................. 4,718,004 4,755,708 4,711,245 5,252,780 5,524,279
Long-term debt ...................................................... 3,061,400 3,643,548 3,420,927 3,307,905 3,350,860
(491,864)
Working capital deficit ...........................................
530,975
Redeemable preferred stock ....................................
19,831
Noncontrolling interest ...........................................
(34,738)
Total stockholders’ equity (deficit) .........................
(428,569 ) (411,482 )
598,139 563,557
(18,693 )
(876,875 ) (196,919 )
(268,272)
634,843
508
(952,536)
(18,775)
—
621
84,383
88
Key Metrics:
Travel Network
2014
Year Ended December 31,
2012
2011
2013
2010
Direct Billable Bookings - Air .......................... 321,962 314,275 326,175 328,200 325,370
49,229
54,122
Direct Billable Bookings - Non-Air ..................
Total Direct Billable Bookings .......................... 376,084 367,778 379,844 381,883 374,599
Airline Solutions Passengers Boarded .................... 510,713 478,088 405,420 364,420 313,959
53,669 53,683
53,503
37
Non-GAAP Financial Measures
The following table sets forth the reconciliation of net income (loss) attributable to common shareholders to
Adjusted Net Income and Adjusted EBITDA (in thousands):
Net income (loss) attributable to common
2014
Year Ended December 31,
2012
2011
2013
2010
shareholders ....................................................... $ 57,842 $ (137,198) $ (645,939 ) $ (98,653 ) $ (299,649 )
Net loss from discontinued operations, net of
38,918
149,697
394,410
193,873
365,962
tax .................................................................
Net income (loss) attributable to noncontrolling
interests(1) ......................................................
Preferred stock dividends ..................................
11,381
Income (loss) from continuing operations .............. 110,873
Adjustments:
2,732
2,863
1,519 (14,322 )
(15,209 )
34,583 32,579
36,704
52,066 (215,427 ) 113,477
30,797
81,901
—
—
Impairment(2) .....................................................
Acquisition related amortization(3a) ...................
—
Gain on sale of business and assets ...................
33,538
Loss on extinguishment of debt .........................
Other, net (5) .......................................................
63,860
Restructuring and other costs (6) .........................
10,470
Litigation and taxes, including penalties(7) ........
14,144
20,094
Stock-based compensation .................................
Management fees(8) ............................................
23,701
Tax impact of net income adjustments(9) ........... (143,586)
—
44,054
99,383 132,685 129,869 129,235 127,581
—
—
(25,850 )
—
—
—
—
12,181
(1,873 )
(65 )
6,635
305
2,870
4,578
5,408
27,921
—
18,514 396,412 21,601
3,344
4,088
4,365
3,387
6,730
7,191
7,769
8,761
(50,472 )
(73,633) (205,501 ) (62,623 )
—
Adjusted Net Income from continuing
operations ........................................................... $ 232,477 $ 182,187 $ 147,734 $ 217,482 $ 170,081
Adjusted Net Income from continuing
operations per share ............................................ $
0.94 $
0.98 $
0.81 $
1.20 $
0.96
Weighted-average shares outstanding adjusted for
assumed inclusion of common stock
equivalents ......................................................... 246,747 184,978 182,830 181,889 177,370
Adjusted Net Income from continuing
operations ........................................................... 232,477 182,187 147,734 217,482 170,081
Adjustments:
Depreciation and amortization of property
and equipment(3b) .......................................... 157,592 123,414
96,668 78,867
70,296
Amortization of capitalized
implementation costs(3c) ................................
Amortization of upfront
incentive consideration(4) ..............................
35,859
34,143
19,439 11,365
8,162
45,358
36,649
37,748
36,527
26,572
Interest expense, net .......................................... 218,877 274,689 232,450 174,390 203,226
Remaining provision (benefit) for income
149,865 127,672 198,594 129,433 125,124
taxes ..............................................................
Adjusted EBITDA................................................... $ 840,028 $ 778,754 $ 731,412 $ 649,285 $ 603,461
38
The following table sets forth the reconciliation of basic weighted-average common shares outstanding,
calculated in accordance with accounting principles generally accepted in the United States (“GAAP”), to the
adjusted weighted-average shares outstanding for the assumed inclusion of common stock equivalents (in
thousands):
GAAP basic weighted-average common
2014
Year Ended December 31,
2012
2011
2013
2010
shares outstanding .............................................. 238,633
178,125
177,206
176,703
175,655
Dilutive effect of stock options and restricted
stock awards .......................................................
8,114
6,853
5,624
5,186
1,715
Weighted-average common shares outstanding
adjusted for assumed inclusion of common
stock equivalents ................................................ 246,747 184,978 182,830 181,889 177,370
The following tables set forth the reconciliation of operating income (loss) in our statement of operations, the
most comparable GAAP measure, to Adjusted Gross Margin and Adjusted EBITDA by business segment (in
thousands):
Fiscal Year Ended December 31, 2014
Travel
Network
Airline and
Hospitality
Solutions Eliminations Corporate
Total
Operating income (loss) .......................................... $ 657,326 $ 176,730 $
Add back:
— $ (412,711 ) $ 421,345
Selling, general and administrative ................... 102,059
—
Restructuring charges ........................................
Cost of revenue adjustments:
56,195
—
(17) 309,915 468,152
(558)
(558 )
—
58,533 104,926
— 34,950 198,409
45,358
—
—
6,042
6,042
—
—
8,044
8,044
(17) (54,318 ) 1,146,792
17 (309,915 ) (468,152)
12,082
—
—
3,204
—
—
91,221
— 88,055
4,986
—
4,986
14,144
— 14,144
12,050
— 12,050
23,701
— 23,701
— $ (221,297 ) $ 840,028
Depreciation and amortization(3) ..................
Amortization of upfront incentive
45,358
consideration(4) ........................................
Restructuring and other costs (6) ...................
Stock-based compensation ...........................
—
—
—
Adjusted Gross Margin ........................................... 863,276 337,851
(56,195)
Selling, general and administrative ......................... (102,059)
—
12,082
Joint venture equity income ....................................
Joint venture intangible amortization(3a) .................
—
3,204
Selling, general and administrative adjustments:
—
—
Depreciation and amortization(3) .......................
Restructuring and other costs (6) .........................
Litigation and taxes, including penalties(7) ........
Stock-based compensation ................................
Management fees(8) ............................................
992
—
—
—
—
Adjusted EBITDA .................................................. $ 778,677 $ 282,648 $
2,174
—
—
—
—
39
Fiscal Year Ended December 31, 2013
Travel
Network
Airline and
Hospitality
Solutions Eliminations Corporate
Total
Operating income (loss) .......................................... $ 667,498 $ 135,755 $
Add back:
— $ (422,323 ) $ 380,930
Selling, general and administrative ................... 106,392
—
Restructuring charges ........................................
Cost of revenue adjustments:
51,538
—
(140) 271,500 429,290
8,163
8,163
—
50,254
75,093
— 67,076 192,423
Depreciation and amortization(3) ..................
Amortization of upfront incentive
36,649
consideration(4) ........................................
Restructuring and other costs (6) ...................
Stock-based compensation ...........................
—
—
—
Adjusted Gross Margin ........................................... 860,793 262,386
(51,538)
Selling, general and administrative ......................... (106,392)
—
12,350
Joint venture equity income ....................................
Joint venture intangible amortization(3a) .................
—
3,204
Selling, general and administrative adjustments:
—
—
Depreciation and amortization(3) .......................
Restructuring and other costs (6) .........................
Litigation and taxes, including penalties(7) ........
Stock-based compensation ................................
Management fees(8) ............................................
2,227
—
—
—
—
Adjusted EBITDA .................................................. $ 772,208 $ 213,075 $
2,253
—
—
—
—
36,649
—
—
11,491
— 11,491
1,356
1,356
—
(140) (62,737 ) 1,060,302
140 (271,500 ) (429,290)
12,350
—
3,204
—
—
—
94,615
— 90,135
8,267
8,267
—
18,514
— 18,514
2,031
2,031
—
—
8,761
8,761
— $ (206,529 ) $ 778,754
Operating income (loss) .......................................... $ 670,778 $ 114,272 $
Add back:
Travel
Network
Fiscal Year Ended December 31, 2012
Airline and
Hospitality
Solutions Eliminations Corporate
— $ (791,636 ) $
Total
(6,586)
Selling, general and administrative ................... 101,934
Impairment(2) .....................................................
—
Cost of revenue adjustments:
52,754
—
(411) 639,017 793,294
20,254
— 20,254
34,624
51,395
— 63,456 149,475
Depreciation and amortization(3) ..................
Amortization of upfront incentive
36,527
consideration(4) ........................................
Restructuring and other costs (6) ...................
Litigation and taxes, including penalties(7) ...
Stock-based compensation ...........................
—
—
—
—
Adjusted Gross Margin ........................................... 843,863 218,421
(52,754)
Selling, general and administrative ......................... (101,934)
—
21,287
Joint venture equity income ....................................
Joint venture intangible amortization(3a) .................
—
3,200
Selling, general and administrative adjustments:
—
—
—
—
—
—
—
36,527
—
4,283
4,283
(23)
(23 )
1,383
1,383
(411) (63,266 ) 998,607
411 (639,017 ) (793,294)
21,287
—
3,200
—
—
—
Depreciation and amortization(3) .......................
Restructuring and other costs (6) .........................
Litigation and taxes, including penalties(7) ........
Stock-based compensation ................................
Management fees(8) ............................................
615
—
—
—
—
Adjusted EBITDA .................................................. $ 768,452 $ 166,282 $
2,036
—
—
—
—
93,301
— 90,650
—
1,125
1,125
— 396,435 396,435
2,982
2,982
—
—
7,769
7,769
— $ (203,322 ) $ 731,412
40
Fiscal Year Ended December 31, 2011
Travel
Network
Airline and
Hospitality
Solutions Eliminations Corporate
Total
Operating income (loss) .......................................... $ 594,418 $ 103,254 $
Add back:
— $ (366,560 ) $ 331,112
Selling, general and administrative ................... 111,003
Cost of revenue adjustments:
50,306
(476) 231,475 392,308
29,584
31,587
— 59,384 120,555
Depreciation and amortization(3) ..................
Amortization of upfront incentive
37,748
consideration(4) ........................................
Restructuring and other costs (6) ...................
Stock-based compensation ...........................
—
—
—
Adjusted Gross Margin ........................................... 772,753 185,147
(50,306)
Selling, general and administrative ......................... (111,003)
—
23,501
Joint venture equity income ....................................
Joint venture intangible amortization(3a) .................
—
3,200
Selling, general and administrative adjustments:
—
—
—
—
—
—
37,748
3,038
3,038
1,257
1,257
(476) (71,406 ) 886,018
476 (231,475 ) (392,308)
23,501
—
3,200
—
—
—
Depreciation and amortization(3) .......................
Restructuring and other costs (6) .........................
Litigation and taxes, including penalties(7) ........
Stock-based compensation ................................
Management fees(8) ............................................
343
—
—
—
—
Adjusted EBITDA .................................................. $ 692,571 $ 135,184 $
4,120
—
—
—
—
95,711
— 91,248
1,540
—
1,540
21,601
— 21,601
2,831
2,831
—
—
7,191
7,191
— $ (178,470 ) $ 649,285
Fiscal Year Ended December 31, 2010
Travel
Network
Airline and
Hospitality
Solutions Eliminations Corporate
Total
Operating income (loss) .......................................... $ 545,762 $ 127,103 $
Add back:
— $ (78,622 ) $ 340,037
Selling, general and administrative ...................
Cost of revenue adjustments:
71,495
39,417
(487) 227,866 338,291
32,349
19,663
— 95,583 108,269
Depreciation and amortization(3) ..................
Amortization of upfront incentive
26,572
consideration(4) ........................................
Restructuring and other costs (6) ...................
Stock-based compensation ...........................
—
—
—
Adjusted Gross Margin ........................................... 676,178 186,183
Selling, general and administrative .........................
(39,417)
Joint venture equity income ....................................
Joint venture intangible amortization(3a) .................
Selling, general and administrative adjustments:
(71,495)
17,871
3,200
—
—
—
—
—
—
26,572
1,736
1,736
994
994
(487) 247,557 815,899
487 (227,866 ) (338,291)
17,871
3,200
—
—
Depreciation and amortization(3) .......................
Restructuring and other costs (6) .........................
Stock-based compensation ................................
Management fees(8) ............................................
450
—
—
—
Adjusted EBITDA .................................................. $ 629,926 $ 147,216 $
4,172
—
—
—
94,568
— 90,846
1,134
1,134
—
2,350
2,350
—
—
6,730
6,730
— $ 120,751 $ 603,461
41
The components of Adjusted Capital Expenditures are presented below (in thousands):
2010
84,742
Additions to property and equipment ..................... $ 227,227 $ 209,523 $ 167,043 $ 128,239 $
Capitalized implementation costs ...........................
33,666
78,543 59,109
Adjusted capital expenditures ................................. $ 265,038 $ 268,337 $ 245,586 $ 187,348 $ 118,408
58,814
37,811
2011
2014
2013
Year Ended December 31,
2012
The following tables present information from our statements of cash flows and sets forth the reconciliation of
cash provided by operating activities, the most comparable GAAP measure, to Free Cash Flow and Adjusted Free
Cash Flow (in thousands):
2014
Cash provided by operating activities ..................... $ 387,659 $ 228,232 $ 308,164 $ 265,854 $ 215,260
Cash used in investing activities ............................. (258,791) (239,999) (209,815) (139,861 ) (139,502)
(48,500)
Cash (used in) provided by financing activities ......
(25,120) (271,540 )
(71,945) 262,172
2011
2013
2010
Year Ended December 31,
2012
2014
Cash provided by operating activities ..................... $ 387,659 $ 228,232 $ 308,164 $ 265,854 $ 215,260
(84,742)
Additions to property and equipment ..................... (227,227) (209,523) (167,043) (128,239 )
Free Cash Flow ....................................................... 160,432
18,709 141,121 137,615 130,518
Adjustments:
2011
2013
2010
Year Ended December 31,
2012
18,353
19,758
5,408
4,578
2,870
Restructuring and other costs (6)(10) ....................
Litigation settlement and tax payments
for certain items (7)(11)....................................
Other litigation costs (7)(10) .................................
Management fees (8)(10) ......................................
—
—
6,730
Adjusted Free Cash Flow ........................................ $ 293,375 $ 181,715 $ 305,662 $ 170,985 $ 140,118
76,745 115,973 100,000
18,514
14,144
8,761
23,701
—
51,364 21,601
7,191
7,769
(1) Net income (loss) attributable to non-controlling interests represents an adjustment to include earnings allocated to non-
controlling interest held in (i) Sabre Travel Network Middle East of 40% for all periods presented, (ii) Sabre Australia
Technologies I Pty Ltd (“Sabre Pacific”) of 49% through February 24, 2012, the date we sold this business, (iii)
Travelocity.com LLC of approximately 9.5% through December 31, 2012, the date we merged this minority interest back
into our capital structure and (iv) Sabre Seyahat Dagitim Sistemleri A.S. of 40% beginning in April 2014. See Note 1,
Summary of Business and Significant Accounting Policies, to our audited consolidated financial statements.
(2) Represents asset impairment charges as well as $24 million in 2012 of our share of impairment charges recorded by one of
our equity method investments, Abacus.
(3) Depreciation and amortization expenses:
a.
b.
c.
Acquisition related amortization represents amortization of intangible assets from the take-private transaction in
2007 as well as intangibles associated with acquisitions since that date and amortization of the excess basis in our
underlying equity in joint ventures.
Depreciation and amortization of property and equipment includes software developed for internal use.
Amortization of capitalized implementation costs represents amortization of upfront costs to implement new
customer contracts under our SaaS and hosted revenue model.
(4) Our Travel Network business at times provides upfront incentive consideration to travel agency subscribers at the
inception or modification of a service contract, which are capitalized and amortized to cost of revenue over an average
expected life of the service contract, generally over three to five years. Such consideration is made with the objective of
increasing the number of clients or to ensure or improve customer loyalty. Such service contract terms are established such
that the supplier and other fees generated over the life of the contract will exceed the cost of the incentive consideration
provided upfront. Such service contracts with travel agency subscribers require that the customer commit to achieving
certain economic objectives and generally have terms requiring repayment of the upfront incentive consideration if those
objectives are not met.
In 2014, other, net primarily includes a fourth quarter charge of $66 million as a result of an increase to our tax receivable
agreement (“TRA”) liability. The increase in our TRA liability is due to a reduction in a valuation allowance maintained
against our deferred tax assets. This charge is fully offset by an income tax benefit recognized in the fourth quarter of 2014
from the reduction in the valuation allowance which is included in tax impacts of net income adjustments. In 2013, 2012,
(5)
42
2011, and 2010, other, net primarily represents foreign exchange gains and losses related to the remeasurement of foreign
currency denominated balances included in our consolidated balance sheets into the relevant functional currency. See Item
7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources—Recent Events Impacting Our Liquidity and Capital Resources—Tax Receivable Agreement” for additional
information regarding the TRA.
(6) Restructuring and other costs represents charges associated with business restructuring and associated changes
implemented which resulted in severance benefits related to employee terminations, integration and facility opening or
closing costs and other business reorganization costs.
Litigation settlement and tax payments for certain items represent charges or settlements associated with airline antitrust
litigation.
(7)
(8) We paid an annual management fee to TPG Global, LLC (“TPG”) and Silver Lake Management Company (“Silver Lake”)
in an amount between (i) $5 million and (ii) $7 million, the actual amount of which is calculated based upon 1% of
Adjusted EBITDA, as defined in the management services agreement (the “MSA”), earned by the company in such fiscal
year up to a maximum of $7 million. In addition, the MSA provided for the reimbursement of certain costs incurred by
TPG and Silver Lake, which are included in this line item. The MSA was terminated in connection with our initial public
offering.
In 2014, the tax impact on net income adjustments includes a $66 million benefit recognized in the fourth quarter of 2014
from the reduction in a valuation allowance maintained against our deferred tax assets.
(9)
(11)
(10) The adjustments to reconcile cash provided by operating activities to Adjusted Free Cash Flow reflect the amounts
expensed in our statements of operations in the respective periods adjusted for cash and non-cash portions in instances
where material.
Includes payment credits used by American Airlines to pay for purchases of our technology services during the years
ended December 31, 2014 and 2013. The payment credits were provided by us as part of our litigation settlement with
American Airlines. Also includes a $50 million payment to American Airlines made in the third quarter of 2014 in
conjunction with the new Airline Solutions contract, which will be amortized as a reduction to revenue over the contract
term. This payment reduces payment credits originally offered to American Airlines as a part of the litigation settlement in
2012, contingent upon the signature of a new reservation agreement, which were extended to include the combined
American Airlines and US Airways reservation contract. The payment credits would have been utilized for future billings
under the new agreement.
Definitions of Non-GAAP Financial Measures
We have included both financial measures compiled in accordance with GAAP and certain non-GAAP
financial measures in this Annual Report on Form 10-K, including Adjusted Gross Margin, Adjusted Net Income,
Adjusted EBITDA, Adjusted Capital Expenditures, Free Cash Flow, Adjusted Free Cash Flow and ratios based on
these financial measures.
We define Adjusted Gross Margin as operating income (loss) adjusted for selling, general and administrative
expenses, impairment, depreciation and amortization, amortization of upfront incentive consideration, restructuring
and other costs, litigation and taxes, including penalties, and stock-based compensation included in cost of revenue.
We previously defined Adjusted Gross Margin as operating income (loss) adjusted for selling, general and
administrative expenses, impairment, depreciation and amortization, amortization of upfront incentive consideration,
restructuring and other costs, litigation and taxes, including penalties and stock-based compensation as presented in
our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on April 17, 2014. Adjusted
Gross Margin for the prior periods has been recast to conform to our revised definition.
We define Adjusted Net Income as income (loss) from continuing operations adjusted for impairment,
acquisition related amortization, loss on extinguishment of debt, other, net, restructuring and other costs, litigation
and taxes, including penalties, stock-based compensation, management fees, and tax impact of net income
adjustments.
We define Adjusted EBITDA as Adjusted Net Income adjusted for depreciation and amortization of property
and equipment, amortization of capitalized implementation costs, amortization of upfront incentive consideration,
interest expense, net, and remaining provision (benefit) for income taxes.
We define Adjusted Capital Expenditures as additions to property and equipment and capitalized
implementation costs during the periods presented.
43
We define Free Cash Flow as cash provided by operating activities less cash used in additions to property and
equipment. We define Adjusted Free Cash Flow as Free Cash Flow plus the cash flow effect of restructuring and
other costs, litigation settlement and tax payments for certain items, other litigation costs and management fees.
These non-GAAP financial measures are key metrics used by management and our board of directors to
monitor our ongoing core operations because historical results have been significantly impacted by events that are
unrelated to our core operations as a result of changes to our business and the regulatory environment. We believe
that these non-GAAP financial measures are used by investors, analysts and other interested parties as measures of
financial performance and to evaluate our ability to service debt obligations, fund capital expenditures and meet
working capital requirements. Adjusted Capital Expenditures includes cash flows used in investing activities, for
property and equipment, and cash flows used in operating activities, for capitalized implementation costs. Our
management uses this combined metric in making product investment decisions and determining development
resource requirements. We also believe that Adjusted Gross Margin, Adjusted Net Income, Adjusted EBITDA and
Adjusted Capital Expenditures assist investors in company-to-company and period-to-period comparisons by
excluding differences caused by variations in capital structures (affecting interest expense), tax positions and the
impact of depreciation and amortization expense. In addition, amounts derived from Adjusted EBITDA are a
primary component of certain covenants under our senior secured credit facilities.
Adjusted Gross Margin, Adjusted Net Income, Adjusted EBITDA, Adjusted Capital Expenditures, Free Cash
Flow, Adjusted Free Cash Flow and ratios based on these financial measures are not recognized terms under GAAP.
These non-GAAP financial measures and ratios based on them have important limitations as analytical tools, and
should not be viewed in isolation and do not purport to be alternatives to net income as indicators of operating
performance or cash flows from operating activities as measures of liquidity. These non-GAAP financial measures
and ratios based on them exclude some, but not all, items that affect net income or cash flows from operating
activities and these measures may vary among companies. Our use of these measures has limitations as an analytical
tool, and you should not consider them in isolation or as substitutes for analysis of our results as reported under
GAAP. Some of these limitations are:
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized
may have to be replaced in the future, and Adjusted Gross Margin and Adjusted EBITDA do not reflect
cash requirements for such replacements;
Adjusted Net Income and Adjusted EBITDA do not reflect changes in, or cash requirements for, our
working capital needs;
Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service
interest or principal payments on our indebtedness;
Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
Free Cash Flow and Adjusted Free Cash Flow do not reflect the cash requirements necessary to service
the principal payments on our indebtedness;
Free Cash Flow and Adjusted Free Cash Flow do not reflect payments related to restructuring, litigation,
management fees and Travelocity working capital which reduced the cash available to us;
Free Cash Flow and Adjusted Free Cash Flow remove the impact of accrual-basis accounting on asset
accounts and non-debt liability accounts; and
other companies, including companies in our industry, may calculate Adjusted Gross Margin, Adjusted
Net Income, Adjusted EBITDA, Adjusted Capital Expenditures, Free Cash Flow or Adjusted Free Cash
Flow differently, which reduces their usefulness as comparative measures.
44
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial
statements and related notes included in Item 8 of this Annual Report on Form 10-K.
Overview
We are a leading technology solutions provider to the global travel and tourism industry. We operate through
two business segments: (i) Travel Network, our global B2B travel marketplace for travel suppliers and travel buyers
and (ii) Airline and Hospitality Solutions, an extensive suite of leading software solutions primarily for airlines and
hotel properties. Collectively, these offerings enable travel suppliers to better serve their customers across the entire
travel lifecycle, from route planning to post-trip business intelligence and analysis.
In the fourth quarter of 2014, we committed to a plan to divest of our Travelocity segment, our global online
travel business. On January 23, 2015, we announced the sale of Travelocity.com. In addition, on December 16,
2014, we announced that we received a binding offer to sell lastminute.com, the European portion of our Travelocity
business, which closed on March 1, 2015. Our Travelocity segment has no remaining operations subsequent to these
dispositions. The financial results of our Travelocity segment are included in net (loss) income from discontinued
operations in our consolidated statements of operations for all periods presented. The assets and liabilities of
Travelocity.com and lastminute.com to be disposed of as of December 31, 2014 and 2013 are classified as assets
held for sale and liabilities held for sale in our consolidated balance sheets. The discussion and analysis of our
results of operations refers to continuing operations unless otherwise indicated.
A significant portion of our revenue is generated through transaction based fees that we charge to our
customers. For Travel Network, this fee is in the form of a transaction fee for bookings on our GDS; for Airline and
Hospitality Solutions, this fee is a recurring usage-based fee for the use of our SaaS and hosted systems, as well as
implementation fees and consulting fees. Items that are not allocated to our business segments are identified as
corporate and include primarily certain shared technology costs as well as stock-based compensation expense,
litigation costs related to occupancy or other taxes and other items that are not identifiable with one of our segments.
Factors Affecting our Results
The following is a discussion of trends that we believe are the most significant opportunities and challenges
currently impacting our business and industry. The discussion also includes management’s assessment of the effects
these trends have had and are expected to have on our results of continuing operations. This information is not an
exhaustive list of all of the factors that could affect our results and should be read in conjunction with the factors
referred to in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward Looking Statements”
included elsewhere in this Annual Report on Form 10-K.
Shift to SaaS and hosted solutions by airlines and hotels to manage their daily operations
Initially, large travel suppliers built custom in house software and applications for their business process
needs. In response to a desire for more flexible systems given increasingly complex and constantly changing
technological requirements, reduced IT budgets and increased focus on cost efficiency, many travel suppliers turned
to third party solutions providers for many of their key technologies and began to license software from software
providers. We believe that significant revenue opportunity remains in this outsourcing trend, as legacy in house
systems continue to migrate and upgrade to third party systems. By moving away from one time license fees to
recurring monthly fees associated with our SaaS and hosted solutions, our revenue stream has become more
predictable and sustainable. The SaaS and hosted models’ centralized deployment also allows us to save time and
money by reducing maintenance and implementation tasks and lowering operating costs.
45
Geographic mix
There are structural differences between the geographies in which we operate. Due to our geographic
concentration, our results of operations are particularly sensitive to factors affecting North America. For example,
booking fees per transaction in North America have traditionally been lower than those in Europe. By growing
internationally with our TMC and OTA customers and expanding the travel content available on our GDS to target
regional traveler preferences, we anticipate that we will maintain share in North America and grow share in Europe,
APAC and Latin America. For the year ended December 31, 2014, we derived approximately 68% of our Direct
Billable Bookings from North America, 19% from EMEA and 13% from the rest of the world. For the year ended
December 31, 2013, we derived approximately 69% of our Direct Billable Bookings from North America, 17% from
EMEA and 14% from the rest of the world.
Continued focus by travel suppliers on cost cutting and exerting influence over distribution
Travel suppliers continue to look for ways to decrease their costs and to increase their control over
distribution. Airline consolidations, pricing pressure during contract renegotiations and the use of direct distribution
may continue to subject our business to challenges. The shift from indirect distribution channels, such as our GDS,
to direct distribution channels, may result from increased content availability on supplier operated websites or from
increased participation of meta search engines, such as Kayak and Google, which direct consumers to supplier
operated websites. This trend may adversely affect our Travel Network contract renegotiations with suppliers that
use alternative distribution channels. For example, airlines may withhold part of their content for distribution
exclusively through their own direct distribution channels or offer more attractive terms for content available
through those direct channels. However, since 2010, we believe the rate at which bookings are shifting from indirect
to direct distribution channels has slowed for a number of reasons, including the increased participation of
LCC/hybrids in indirect channels. Over the last several years, notable carriers that previously only distributed
directly, including JetBlue and Norwegian, have adopted our GDS. Other carriers such as EVA Airways and Virgin
Australia have further increased their participation in a GDS.
These trends have impacted the revenue of Travel Network, which recognizes revenue for airline ticket sales
based on transaction volumes, and the revenue of Airline and Hospitality Solutions, which recognizes a portion of its
revenue based on the number of PBs, depending upon the applicable revenue model. Simultaneously, this focus on
cost cutting and direct distribution has also presented opportunities for Airline and Hospitality Solutions. Many
airlines have turned to outside providers for key systems, process and industry expertise and other products that
assist in their cost cutting initiatives in order to focus on their primary revenue generating activities.
Increasing importance of LCC/hybrids in Travel Network and Airline and Hospitality Solutions
Hybrid and LCCs have become a significant segment of the air travel market, stimulating demand for air
travel through low fares. LCC/hybrids have traditionally relied on direct distribution for the majority of their
bookings. However, as these LCC/hybrids are evolving, many are increasing their distribution through indirect
channels to expand their offering into higher yield markets and to higher yield customers, such as business and
international travelers. Other LCC/hybrids, especially start up carriers, may choose not to distribute through the
GDS until wider distribution is desired.
Travel buyers can shift their bookings to or from our Travel Network business
Our Travel Network business relies on relationships with several large travel buyers, including TMCs and
OTAs, to drive a large portion of its revenue. Although our contracts with larger travel agencies often increase the
amount of the incentive consideration when the travel agency processes a certain volume or percentage of its
bookings through our GDS, travel buyers are not contractually required to book exclusively through our GDS during
the contract term. Travel buyers may shift bookings to other distribution intermediaries for many reasons, including
to avoid becoming overly dependent on a single source of travel content and increase their bargaining power with
the GDS providers. For example, in late 2012, Expedia adopted a dual GDS provider strategy and shifted a sizeable
portion of its business from our GDS to a competitor GDS, resulting in a year over year decline in our transaction
volumes in 2013. Conversely, certain European OTAs including Unister, eTravel and Bravofly that did not
previously use our GDS shifted a portion of their business to our GDS.
46
Increasing travel agency incentive consideration
Travel agency incentive consideration is a large portion of Travel Network expenses. The vast majority of
incentive consideration is tied to absolute booking volumes based on transactions such as flight segments booked.
Incentive consideration, which often increases once a certain volume or percentage of bookings is met, is provided
in two ways, according to the terms of the agreement: (i) on a periodic basis over the term of the contract and (ii) in
some instances, up front at the inception or modification of contracts, which is capitalized and amortized over the
expected life of the contract. Although this consideration has been increasing in real terms, it has been relatively
stable as a percentage of Travel Network revenue over the last four years, partially due to our focus on managing
incentive consideration. We believe we have been effective in mitigating the trend towards increasing incentive
consideration by offering value added products and content, such as Sabre Red Workspace, a SaaS product available
to our travel buyers that provides an easy to use interface along with many travel agency workflow and productivity
tools.
Growing demand for continued technology improvements in the fragmented hotel market
Most of the hotel market is highly fragmented. Independent hotels and small to medium sized chains (groups
of less than 300 properties) comprise a majority of hotel properties and available hotel rooms, with global and
regional chains comprising the balance. Hotels use a number of different technology systems to distribute and
market their products and operate efficiently. We offer technology solutions to all segments of the hospitality
market, particularly independent hotels and small to medium sized chains. Our SynXis Enterprise Platform
integrates critical hospitality systems to optimize distribution, operations, retailing and guest experience via one
scalable, flexible and intelligent platform. As these markets continue to grow, we believe independent hotel owners
and operators will continue to seek increased connectivity and integrated solutions to ensure access to global
travelers. We anticipate that this will contribute to the continued growth of Airline and Hospitality Solutions, which
is ultimately dependent upon these hoteliers accepting and utilizing our products and services.
Components of Revenues and Expenses
Revenues
Travel Network primarily generates revenues from Direct Billable Bookings processed on our GDS, as well as
revenue from certain services we provide our joint ventures and the sale of aggregated bookings data to carriers.
Airline and Hospitality Solutions primarily generates revenue through upfront solution fees and recurring usage-
based fees for the use of our software solutions hosted on our own secure platforms or deployed through our SaaS.
Airlines and Hospitality Solutions also generates revenue through consulting services and software licensing fees.
Cost of revenue
Cost of revenue incurred by Travel Network and Airlines and Hospitality Solutions consists of expenses
related to our technology infrastructure that hosts our GDS and software solutions, salaries and benefits, and
allocated overhead such as facilities and other support costs. Cost of revenue for Travel Network also includes
incentive consideration expense representing payments or other consideration to travel agencies for reservations
made on our GDS which have accrued on a monthly basis.
Corporate cost of revenue includes certain shared technology costs as well as stock-based compensation
expense, litigation expenses and other items that are not identifiable with our segments.
Depreciation and amortization included in cost of revenue is associated with property and equipment; software
developed for internal use that supports our revenue, businesses and systems; amortization of contract
implementation costs which relates to Airlines and Hospitality Solutions; and intangible assets for technology
purchased through acquisitions or established with our take-private transaction. Cost of revenue also includes
amortization of upfront incentive consideration representing upfront payments or other consideration provided to
travel agencies for reservations made on our GDS which are capitalized and amortized over the expected life of the
contract.
47
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of personnel-related expenses for employees that sell our
services to new customers and administratively support the business, information technology and communication
costs, professional services fees, certain settlement charges and costs to defend legal disputes, bad debt expense,
depreciation and amortization and other overhead costs.
Intersegment Transactions
We account for significant intersegment transactions as if the transactions were with third parties, that is, at
estimated current market prices. Airline and Hospitality Solutions pays fees to Travel Network for airline trips
booked through our GDS. In addition, Travel Network historically recognized intersegment incentive consideration
expense for bookings generated by our discontinued Travelocity business. Such costs are representative of costs
incurred on a consolidated basis relating to Travel Network’s revenue from airlines for bookings transacted through
our GDS. See Note 3, Discontinued Operations and Dispositions, and Note 18, Segment Information, to our
consolidated financial statements.
Key Metrics
“Direct Billable Bookings” and “Passengers boarded” are the primary metrics utilized by Travel Network and
Airline Solutions, respectively, to measure operating performance. Travel Network generates fees for each Direct
Billable Booking which include bookings made through our GDS (e.g., air, car and hotel bookings) and through our
joint venture partners in cases where we are paid directly by the travel supplier. Passengers boarded (“PBs”) is the
primary metric used by Airline Solutions to recognize SaaS and Hosted revenue from recurring usage-based fees.
The following table sets forth our key metrics (in thousands):
Year Ended December 31,
% Change
2014
2013
2012
2014 - 2013
2013 - 2012
Key Metrics:
Travel Network
Direct Billable Bookings - Air .......................... 321,962 314,275 326,175
Direct Billable Bookings - Non-Air .................. 54,122 53,503
53,669
Total Direct Billable Bookings .......................... 376,084 367,778 379,844
Airline Solutions Passengers Boarded .................... 510,713 478,088 405,420
2.4 %
1.2 %
2.3 %
6.8 %
(3.6)%
(0.3)%
(3.2)%
17.9%
Matters Affecting Comparability
Mergers and Acquisitions
In the third quarter of 2014, we acquired the assets of Genares Worldwide Reservation Services, Ltd.
(“Genares”), a global, privately-held hospitality technology company, to further strengthen our position as a leading
technology partner to hoteliers worldwide. The acquisition added more than 2,300 independent and chain hotel
properties to our existing Hospitality Solutions portfolio. The acquisition of Genares did not have a material impact
on our results of operations.
In the third quarter of 2012, we acquired all of the outstanding stock and ownership interests of PRISM, a
leading provider of end to end airline contract business intelligence and decision support software. The acquisition,
which adds to our portfolio of products within the Airline and Hospitality Solutions, allows for new relationships
with airlines and adds to our existing business intelligence capabilities. See “—Results of Operations.”
Dispositions Impacting Results from Continuing Operations
On February 24, 2012, we completed the sale of our 51% stake in Sabre Pacific, an entity jointly owned by a
subsidiary of Sabre (51%) and Abacus (49%), to Abacus for $46 million of proceeds, which resulted in reduced
revenue and expense for Travel Network in 2013 compared to 2012, and to a greater extent, in 2012 compared to
2011. Of the proceeds received, $9 million was for the sale of stock, $18 million represented the repayment of an
48
intercompany note receivable from Sabre Pacific, which was entered into when the joint venture was originally
established, and the remaining $19 million represented the settlement of operational intercompany receivable
balances with Sabre Pacific and associated amounts we owed to Abacus. We recorded $25 million as gain on sale of
business in our consolidated statements of operations. We have also entered into a license and distribution
agreement with Sabre Pacific, under which it will market, sub license, distribute, provide access to and support for
our GDS in Australia, New Zealand and surrounding territories. Sabre Pacific is required to pay us an ongoing
transaction fee based on booking volumes under this agreement. For the year ended December 31, 2012, joint
venture equity income included a $24 million impairment of goodwill recorded by Abacus associated with its
acquisition of Sabre Pacific.
Results of Operations
The following table sets forth our consolidated statement of operations data for each of the periods presented:
2014
Year Ended December 31,
2013
(Amounts in thousands)
2012
Revenue ...................................................................... $2,631,417 $2,523,546 $ 2,382,148
Cost of revenue .......................................................... 1,742,478 1,705,163 1,575,186
793,294
Selling, general and administrative ............................
20,254
Impairment .................................................................
—
Restructuring (adjustments) charges ..........................
Operating income (loss) ........................................
(6,586 )
(232,450 )
Interest expense, net ...................................................
—
Loss on extinguishment of debt .................................
25,850
Gain on sale of business .............................................
(2,513 )
Joint venture equity income .......................................
Other, net ....................................................................
(6,635 )
Income (loss) from continuing operations before
429,290
—
8,163
380,930
(274,689 )
(12,181 )
—
12,350
(305 )
468,152
—
(558)
421,345
(218,877)
(33,538)
—
12,082
(63,860)
income taxes ....................................................
Provision (benefit) for income taxes ..........................
117,152
6,279
Income (loss) from continuing operations ............ $ 110,873 $
106,105
(222,334 )
54,039
(6,907 )
52,066 $ (215,427 )
Years Ended December 31, 2014 and 2013
Revenue
Year Ended December 31,
2013
2014
(Amounts in thousands)
Change
Travel Network ......................................................... $ 1,854,785 $ 1,821,498 $ 33,287
74,733
Airline and Hospitality Solutions .............................
Total segment revenue ........................................ 2,641,263 2,533,243 108,020
(149 )
Total revenue ...................................................... $ 2,631,417 $ 2,523,546 $ 107,871
Eliminations..............................................................
786,478
711,745
(9,846)
(9,697)
2%
10%
4%
2%
4%
49
Travel Network—Revenue increased $33 million, or 2%, for the year ended December 31, 2014 compared to
the prior year. The increase in revenue primarily resulted from:
a $26 million increase in transaction-based revenue to $1,615 million as a result of an 8 million
increase in Direct Billable Bookings, or 2%, to 376 million for the year ended December 31, 2014.
The increase in bookings was partially offset by a decrease of less than 1% in the average booking
fee primarily due to the impact on our average booking fee from US Airways merger with
American Airlines, the unfavorable political and economic environment in Venezuela and the
resolution of a billing dispute with US Airways. See “Liquidity and Capital Resources—Recent
Events Impacting Our Liquidity—Political and Economic Environment in Venezuela” for a
description of the impact of the environment in Venezuela on our business; and
a $7 million increase in other revenue including media and marketing services.
Airline and Hospitality Solutions—Revenue increased $75 million, or 10%, for the year ended December 31,
2014 compared to the prior year. The increase in revenue primarily resulted from:
a $36 million increase in Airline Solutions’ SabreSonic CSS revenue for the year ended December
31, 2014 compared to the prior year. PBs increased 33 million, or 7%, to 511 million for the year
ended December 31, 2014 which was driven by growth from existing customers and resulted in an
increase in revenue of $18 million. In addition, we recognized $19 million in revenue during the
year ended December 31, 2014 associated with the extension of a services contract with a
significant customer. This contract was extended in conjunction with a litigation settlement
agreement with that customer in 2012. These increases were partially offset by a decrease in
revenue from professional services;
a $20 million increase in Airline Solutions’ commercial and operations solutions; and
a $19 million increase in Hospitality Solutions revenue to $132 million for the year ended
December 31, 2014 compared to $113 million in the prior year, primarily driven by an increase in
CRS transactions.
Cost of revenue
Year Ended December 31,
2014
2013
(Amounts in thousands)
Change
Travel Network ......................................................... $ 991,509 $ 960,705 $ 30,804
(732 )
Airline and Hospitality Solutions .............................
(1,017 )
Eliminations..............................................................
29,055
(6,435 )
5,986
8,709
Total cost of revenue ........................................... $1,742,478 $1,705,163 $ 37,315
449,359
(8,813)
Total segment cost of revenue ............................. 1,430,306 1,401,251
74,840
192,423
36,649
Corporate ..................................................................
Depreciation and amortization ..................................
Amortization of upfront incentive consideration ......
68,405
198,409
45,358
448,627
(9,830)
3%
(0)%
12%
2%
(9)%
3%
24%
2%
Travel Network—Cost of revenue increased $31 million, or 3%, for the year ended December 31, 2014
compared to the prior year. The increase primarily resulted from a $37 million increase in incentive consideration,
partially offset by decreases in labor and other costs.
Airline and Hospitality Solutions—Cost of revenue decreased $1 million, or less than 1%, for the year ended
December 31, 2014 compared to the prior year. The decrease is primarily the result of a $13 million decrease in
labor costs, partially offset by a $12 million increase in technology and transaction-related expenses driven by
higher transaction volumes.
50
Corporate—Cost of revenue associated with corporate unallocated costs decreased $6 million, or 9%, for the
year ended December 31, 2014 compared to the prior year. The decrease is primarily due to a $7 million decrease in
unallocated labor costs, a $4 million decrease in professional fees and a $2 million decrease in data processing costs.
These decreases were partially offset by an increase in cost of revenue from a $7 million contractual settlement
received from a service provider in 2013 which did not reoccur in 2014.
Depreciation and amortization—Cost of revenue increased $6 million, or 3%, for the year ended December
31, 2014 compared to the prior year. The increase is primarily due to the completion and amortization of software
developed for internal use, partially offset by a decrease in amortization of intangible assets.
Amortization of upfront incentive consideration—Amortization of upfront incentive consideration increased
by $9 million, or 24%, for the year ended December 31, 2014 compared to the prior year. The increase is primarily
due to an increase in upfront consideration provided to travel agencies in the year ended December 31, 2014
compared to the prior year.
Selling, general and administrative expenses
Year Ended December 31,
2014
2013
(Amounts in thousands)
Change
Selling, general and administrative .......................... $ 468,152 $ 429,290 $ 38,862
9%
Selling, general and administrative expenses increased by $39 million, or 9%, for the year ended December
31, 2014 compared to the prior year. The increase was due to an increase of $15 million in management fees paid to
TPG and Silver Lake related to our initial public offering, a $10 million increase in professional fees primarily
related to the implementation of certain public company requirements and strategic transactions, a $9 million
increase in labor costs to support the growth of the business and a $5 million increase in bad debt expenses. These
increases were partially offset by lower information technology and communication costs and depreciation and
amortization.
Interest expense, net
Year Ended December 31,
2014
2013
(Amounts in thousands)
Change
Interest expense, net ................................................. $ 218,877 $ 274,689 $ (55,812 )
(20)%
Interest expense, net, decreased $56 million, or 20%, for the year ended December 31, 2014 compared to the
prior year. The decrease is primarily due to the prepayments on our 2019 Notes and Term Loan C (see “—Senior
Secured Credit Facilities”) and a lower effective interest rate as a result of our repricing amendments completed in
February 2014. In addition, interest expense decreased due to lower modification expenses and lower imputed
interest expense related to payments made in the fourth quarter of 2013 for our litigation settlement payable to
American Airlines.
Loss on extinguishment of debt
Loss on extinguishment of debt ................................ $
33,538 $
12,181 $ 21,357
175%
Year Ended December 31,
2014
2013
(Amounts in thousands)
Change
51
During the year ended December 31, 2014, we recognized losses on extinguishment of debt of $31 million in
connection with the prepayments on our 2019 Notes and Term Loan C and $3 million related to the repricing of our
Term Loan B completed in February 2014. During the year ended December 31, 2013, we recognized a loss on
extinguishment of debt of $12 million as a result of our Amended and Restated Credit Agreement (see “Liquidity
and Capital Resources—Senior Secured Credit Facilities”).
Other expense, net
Year Ended December 31,
2014
2013
(Amounts in thousands)
Change
Other expenses, net ................................................... $
63,860 $
305 $ 63,555
**%
** not meaningful
In the fourth quarter of 2014, we recognized a charge of $66 million in other expenses, net as a result of an
increase to our TRA liability. The increase in our TRA liability is due to a reduction in a valuation allowance
maintained against our deferred tax assets. This charge is fully offset by an income tax benefit recognized in the
fourth quarter of 2014 from the reduction in the valuation allowance. This increase was partially offset by foreign
exchange gains related to the remeasurement of foreign currency denominated balances included in our consolidated
balance sheets into the relevant functional currency.
Provision for income taxes
Year Ended December 31,
2014
2013
(Amounts in thousands)
Change
Provision for income taxes ....................................... $
6,279 $
54,039 $ (47,760 )
(88)%
Our effective tax rates for the years ended December 31, 2014 and 2013 were 5.4% and 50.9%, respectively.
The decrease in the effective tax rate for the year ended December 31, 2014 as compared to the prior year was
primarily due to the reduction in the valuation allowance related to certain U.S. deferred tax assets and the
settlement of a state income tax contingency in our favor. These reductions were partially offset by a non-deductible
increase in our TRA liability and changes in the geographic mix of our taxable income.
Years Ended December 31, 2013 and 2012
Revenue
Year Ended December 31,
2013
2012
(Amounts in thousands)
Change
Travel Network ......................................................... $1,821,498 $1,795,127 $ 26,371
597,649 114,096
Airline and Hospitality Solutions .............................
Total segment revenue ........................................ 2,533,243 2,392,776 140,467
931
Total revenue ...................................................... $2,523,546 $2,382,148 $ 141,398
Eliminations..............................................................
711,745
(10,628)
(9,697)
1%
19%
6%
(9)%
6%
Travel Network—Revenue increased $26 million, or 1%, for the year ended December 31, 2013 compared to
the prior year. The increase was driven by a $25 million increase in other revenue primarily from payments in
connection with certain services provided to our joint ventures. Transaction-based revenue was flat at $1,590 million
for the year ended December 31, 2013 compared to the prior year. We processed 368 million Direct Billable
Bookings in 2013, representing a decrease of 12 million Direct Billable Bookings, or 3%, compared to 2012. The
decrease in bookings was offset by a 3% increase in the average booking fee.
52
Airline and Hospitality Solutions—Revenue increased $114 million, or 19%, for the year ended December 31,
2013 compared to the prior year. This $114 million increase in revenue primarily resulted from:
a $48 million increase in Airline Solutions' SabreSonic CSS revenue for the year ended December 31,
2013 compared to the prior year. The increase in revenue was due to an increase of 73 million, or 18%,
in PBs to 478 million in 2013. The increase in PBs was primarily due to new customers;
a $54 million increase in Airline Solutions' commercial and operations solutions revenue primarily the
result of $25 million generated from our 2012 acquisition of PRISM and a $29 million increase in other
airline software solutions, consulting and professional services; and
a $12 million increase in Hospitality Solutions revenue to $113 million for the year ended December 31,
2013 compared to $101 million in the prior year, primarily due to an increase in CRS transactions.
Cost of revenue
Year Ended December 31,
2013
2012
(Amounts in thousands)
Change
Travel Network ......................................................... $ 960,705 $ 951,264 $
379,228
Airline and Hospitality Solutions .............................
(6,365)
Eliminations..............................................................
Total segment cost of revenue ............................. 1,401,251 1,324,127
65,058
149,474
36,527
9,441
70,131
(2,448 )
77,124
9,782
42,949
122
Total cost of revenue ........................................... $ 1,705,163 $ 1,575,186 $ 129,977
Corporate ..................................................................
Depreciation and amortization ..................................
Amortization of upfront incentive consideration ......
74,840
192,423
36,649
449,359
(8,813)
1%
18%
38%
6%
15%
29%
0%
8%
Travel Network—Cost of revenue increased $9 million, or 1%, for the year ended December 31, 2013
compared with the year ended December 31, 2012. The increase primarily resulted from a $18 million increase in
incentive consideration, in line with higher Direct Billable Transactions in regions with favorable booking fee rates,
partially offset by a $5 million decrease in other operating expenses primarily related to the disposition of Sabre
Pacific in February of 2012 and a $2 million decrease in labor costs.
Airline and Hospitality Solutions—Cost of revenue increased $70 million, or 18%, for the year ended
December 31, 2013 compared with the year ended December 31, 2012. The increase primarily resulted from a $48
million increase in labor costs and a $12 million increase in technology-related expenses, driven by higher
transaction volumes. The increase in labor costs was due to increased headcount to support 2013 implementations,
increased customer support and maintenance, additional headcount associated with the acquisition of PRISM in
August of 2012 and minor enhancements to our SaaS and hosted systems.
Corporate—Cost of revenue associated with corporate unallocated costs increased $10 million, or 15%, for
the year ended December 31, 2013 compared to the prior year. The increase is primarily related to an increase of $8
million in unallocated labor costs.
Depreciation and amortization—Cost of revenue increased $43 million, or 29%, for the year ended December
31, 2013 compared with the year ended December 31, 2012. The increase is primarily due to a $40 million increase
in depreciation and amortization associated with the completion and amortization of software developed for internal
use as well as capitalized implementation costs and a $3 million increase in amortization of intangible assets related
to the PRISM acquisition in August 2012.
Amortization of upfront incentive consideration—Amortization of upfront incentive consideration of $37
million for the year ended December 31, 2013 was flat compared to the prior year
53
Selling, general and administrative expenses
Year Ended December 31,
2013
2012
(Amounts in thousands)
Change
Selling, general and administrative .......................... $ 429,290 $ 793,294 $(364,004 )
(46)%
Selling, general and administrative expenses decreased $364 million, or 46%, for the year ended December
31, 2013 compared with the year ended December 31, 2012. This decrease in selling, general and administrative
expenses was primarily driven by a $347 million litigation charge recorded during the year ended December 31,
2012 for the settlement of the state and federal cases with American Airlines, which did not reoccur in the year
ended December 31, 2013. Additionally, professional services decreased $33 million driven by lower legal fees as a
result of the settlement of our dispute with American Airlines in 2012. These declines are partially offset by
increases in labor costs of $19 million primarily due to increased corporate headcount to support the growth of the
business in addition to an increase in variable compensation as a result of improved overall performance.
Impairment
Impairment ............................................................... $
2013
2012
Change
(Amounts in thousands)
— $
20,254 $ (20,254 )
(100)%
Year Ended December 31,
During the year ended December 31, 2012, we recognized impairment charges associated with an abandoned
corporate facility. No impairment charges were recognized in continuing operations for the year ended December
31, 2013.
Interest expense, net
Year Ended December 31,
2013
2012
(Amounts in thousands)
Change
Interest expense, net ................................................. $ 274,689 $ 232,450 $ 42,239
18%
Interest expense, net, increased $42 million, or 18%, for year ended December 31, 2013 compared with the
year ended December 31, 2012. We entered into multiple debt transactions during 2012 and 2013 that increased our
overall effective interest rate and increased our debt levels which resulted in additional interest expense of $40
million during the year ended December 31, 2013. See Note 11, Debt—Senior Secured Credit Facility, to our
audited consolidated financial statements. Additionally, debt modification expenses and original issue discount
amortization increased by $8 million during the year ended December 31, 2013 compared to the prior year. We also
incurred $17 million of imputed interest related to a litigation settlement payable during the year ended December
31, 2013. Offsetting these increases was a $16 million reduction associated with accelerating the amortization of our
debt issuance cost in 2012 as well as a $9 million increase in interest savings as a result of the maturity of certain of
our interest rates swaps in 2012. See Note 10, Derivatives, to our consolidated financial statements.
Loss on extinguishment of debt
Loss on extinguishment of debt ................................. $
12,181 $
— $
12,181
**%
Year Ended December 31,
2013
2012
(Amounts in thousands)
Change
** not meaningful
54
Loss on extinguishment of debt was $12 million for the year ended December 31, 2013 as a result of our debt
restructuring transaction in the first quarter of 2013.
Gain on Sale of Business
Gain on sale of business ........................................... $
2013
2012
Change
(Amounts in thousands)
— $
(25,850) $ 25,850
(100)%
Year Ended December 31,
Gain on sale of business for the year ended December 31, 2012 primarily related to the sale of our 51% stake
in Sabre Pacific to Abacus for $46 million of proceeds. See “—Matters Affecting Comparability.”
Joint venture equity income
Year Ended December 31,
2012
2013
(Amounts in thousands)
Change
Joint venture equity income (loss) ............................ $
12,350 $
(2,513) $ 14,863
**%
** not meaningful
Joint venture equity income increased $15 million for the year ended December 31, 2013 compared with the
year ended December 31, 2012. This change was driven by a $24 million impairment of goodwill recognized in the
year ended December 31, 2012, partially offset by decreased performance of our joint ventures in 2013 compared
with the year ended December 31, 2012.
Other expense, net
Year Ended December 31,
2013
2012
(Amounts in thousands)
Change
Other expenses, net ................................................... $
305 $
6,635 $
(6,330 )
(95)%
Other expenses, net, decreased $6 million for the year ended December 31, 2013 compared with the year
ended December 31, 2012. The decrease was driven primarily by a decrease in realized and unrealized foreign
currency exchange losses.
Provision for income taxes
Year Ended December 31,
2013
2012
(Amounts in thousands)
Change
Provision (benefit) for income taxes ........................ $
54,039 $
(6,907) $ 60,946
**%
** not meaningful
We recognized a provision for income taxes of $54 million for the year ended December 31, 2013 compared
to a benefit of $7 million for the year ended December 31, 2012. The decrease in the tax benefit in the year ended
December 31, 2013 was primarily the result of the decrease in pre-tax loss from continuing operations and the
impact of sales of business and assets partially offset by changes in valuation allowances.
55
Liquidity and Capital Resources
Our principal sources of liquidity are: (i) cash flows from operations, (ii) cash and cash equivalents and (iii)
borrowings under our $405 million Revolver (see “—Senior Secured Credit Facilities”). Borrowing availability
under our Revolver is reduced by our outstanding letters of credit and restricted cash collateral. As of December 31,
2014 and 2013, our cash and cash equivalents, Revolver, and outstanding letters of credit were as follows (in
thousands):
Cash and cash equivalents ........................................... $ 155,679 $
—
Revolver outstanding balance ......................................
358,619
Available balance under the Revolver .........................
(46,545)
Outstanding letters of credit .........................................
As of December 31,
2013
2014
308,236
—
285,671
(67,949 )
We consider cash equivalents to be highly liquid investments that are readily convertible into cash. Securities
with contractual maturities of three months or less, when purchased, are considered cash equivalents. We record
changes in a book overdraft position, in which our bank account is not overdrawn but recently issued and
outstanding checks result in a negative general ledger balance, as cash flows from financing activities. We invest in
a money market fund which is classified as cash and cash equivalents in our consolidated balance sheets and
statements of cash flows. We held no short-term investments as of December 31, 2014 and 2013.
We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2014 to be indefinitely
reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of December 31, 2014, the
amount of indefinitely reinvested foreign earnings was approximately $177 million. As of December 31, 2014, $84
million of cash, cash equivalents, and marketable securities were held by our foreign subsidiaries. If such cash, cash
equivalents and marketable securities are needed for our operations in the United States, we would be required to
accrue and pay taxes on up to $55 million of these funds to repatriate all such cash, cash equivalents and marketable
securities. We have not, nor do we anticipate the need to, repatriate funds from our controlled foreign corporations
to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity
needs associated with our domestic debt service requirements.
We utilize cash and cash equivalents primarily to pay our operating expenses, make capital expenditures,
invest in our products and offerings, pay quarterly dividends on our common stock and service our debt and other
long-term liabilities
Ability to Generate Cash in the Future
Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt
service obligations could harm our business, financial condition and results of operations. Our ability to make
payments on and to refinance our indebtedness, and to fund working capital needs, planned capital expenditures and
dividends will depend on our ability to generate cash in the future, which is subject to general economic, financial,
competitive, business, legislative, regulatory and other factors that are beyond our control. See “Risk Factors—We
may require more cash than we generate in our operating activities, and additional funding on reasonable terms or at
all may not be available.”
56
Liquidity Outlook
We believe that cash flows from operations, cash and cash equivalents on hand and the Revolver provide
adequate liquidity for our operational and capital expenditures and other obligations over the next twelve months.
From time to time, we may supplement our current liquidity through debt or equity offerings to support future
strategic investments or to pay down our $400 million of senior unsecured notes due in 2016, if we decide not to
refinance this indebtedness. See “Risk Factors—We may require more cash than we generate in our operating
activities, and additional funding on reasonable terms or at all may not be available.” Future strategic investments
could include a possible acquisition within the Travel Network business segment that, if it occurs, would require
approximately $500 million in funds including advisory and financing costs, which would be funded through some
combination of cash on hand, revolver draw and debt financing.
Dividends
We paid cash dividends on our common stock in the third and fourth quarter of 2014 and expect to continue to
pay quarterly cash dividends thereafter. Our board of directors declared cash dividends of $0.09 per share of our
common stock, which were paid on September 16, 2014 to stockholders of record as of September 1, 2014, and on
December 30, 2014 to stockholders of record as of December 15, 2014. In addition, our board of directors declared
cash dividends of $0.09 per share of our common stock on February 6, 2015, to be paid on March 30, 2015 to
stockholders of record as of March 16, 2015. We funded the 2014 dividends, and intend to fund any future
dividends, from cash generated from our operations. Future cash dividends, if any, will be at the discretion of our
board of directors and the amount of cash dividends per share will depend upon, among other things, our future
operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions,
number of shares of common stock outstanding and other factors the board of directors may deem relevant. The
timing and amount of future dividend payments will be at the discretion of our board of directors. See “Risk
Factors—Our ability to pay regular dividends to our stockholders is subject to the discretion of our board of
directors and may be limited by our holding company structure and applicable provisions of Delaware law.”
Recent Events Impacting Our Liquidity and Capital Resources
Litigation Settlement Agreement
As a result of our litigation settlement agreement with American Airlines in 2012, we have accrued a
settlement liability which consists of several elements, including cash to be paid directly to American Airlines,
payment credits to pay for future technology services that we provide, as defined in the settlement agreements, and
the estimated fair value of other service agreements entered into concurrently with the settlement agreement. As of
December 31, 2014, our remaining settlement liability under the settlement agreement was $96 million, of which the
current portion of $73 million is recorded in litigation settlement liability and related deferred revenue and the
noncurrent portion of $23 million is recorded in other noncurrent liabilities in our consolidated balance sheets. In
accordance with the settlement agreement, we paid $100 million during the fourth quarter of 2013 and $100 million
during the fourth quarter of 2012. We expect to realize cash tax benefits over the next one-to-four years and
payment credits are expected to be fully used by 2017, depending on the level of services we provide to American
Airlines. In the year ended December 31, 2012, we recorded settlement charges of $347 million, or $222 million, net
of tax, in our results of operations. See Note 17, Commitments and Contingencies, to our consolidated financial
statements.
In the third quarter of 2014, we made a $50 million payment to American Airlines in conjunction with their
new Airline Solutions contract, which will be amortized against revenue over the contract term. This payment
reduces non-cash payment credits originally offered to American Airlines as a part of the litigation settlement, a
portion of which were contingent upon the execution of a new reservation agreement. The contingent portion of
non-cash credits was incorporated in the combined American Airlines and US Airways reservation contract. The
non-cash payment credits would have been utilized for future billings under the new agreement.
57
Initial Public Offering and Redemption of Preferred Stock
On April 23, 2014, we closed our initial public offering of our common stock in which we sold 39,200,000
shares, and on April 25, 2014, the underwriters exercised in full their overallotment option which resulted in the sale
of an additional 5,880,000 shares of our common stock. Our shares of common stock were sold at an initial public
offering price of $16.00 per share, which generated $672 million of net proceeds from the offering after deducting
underwriting discounts and commissions and offering expenses.
We used the net proceeds from our initial public offering to repay (i) $296 million aggregate principal amount
of our Term Loan C (see “—Senior Secured Credit Facilities”) and (ii) $320 million aggregate principal amount of
our senior secured notes due 2019 at a redemption price of 108.5% of the principal amount. We also used the net
proceeds from our offering to pay the $27 million redemption premium and $13 million in accrued but unpaid
interest on the 2019 Notes. We used the remaining portion of the net proceeds from our offering to pay a $21 million
fee, in the aggregate, to TPG and Silver Lake pursuant to the MSA, which was thereafter terminated.
Prior to the closing of our initial public offering, we amended our Certificate of Incorporation and exercised
our right to redeem all of our Series A Cumulative Preferred Stock. The amendment to our Certificate of
Incorporation modified the redemption feature of the Series A Cumulative Preferred Stock to allow for settlement
using cash, shares of our common stock or a mix of cash and shares of our common stock. On April 23, 2014, we
redeemed all of our outstanding shares of Series A Cumulative Preferred Stock in exchange for 40,343,529 shares of
our common stock, which was delivered pro rata to the holders thereof concurrently with the closing of our initial
public offering.
Tax Receivable Agreement
Immediately prior to the closing of our initial public offering, we entered into the TRA that provides the right
to receive future payments by us to stockholders and equity award holders that were our stockholders and equity
award holders, respectively, immediately prior to the closing of our initial public offering (collectively, the “Pre-IPO
Existing Stockholders”) of 85% of the amount of cash savings, if any, in U.S. federal income tax that we and our
subsidiaries realize as a result of the utilization of certain tax assets attributable to periods prior to our initial public
offering, including federal net operating losses (“NOLs”), capital losses and the ability to realize tax amortization of
certain intangible assets (collectively, the “Pre-IPO Tax Assets”). Based on current tax laws and assuming that we
and our subsidiaries earn sufficient taxable income to realize the full tax benefits subject to the TRA, (i) we estimate
that future payments under the TRA relating to Pre-IPO Tax Assets will total $387 million (assuming no changes to
current limitations on our ability to utilize our NOLs under Section 382 of the Code), of which we expect
approximately 85% to 95% of the total payments to be made over the next six years and (ii) we do not expect
material payments to occur before 2016.
These payment obligations are our obligations and not obligations of any of our subsidiaries. The actual
utilization of the Pre-IPO Tax Assets, as well as the timing of any payments under the TRA, will vary depending
upon a number of factors, including the amount, character and timing of our and our subsidiaries’ taxable income in
the future. See Note 8, Income Taxes, to our consolidated financial statements for additional information regarding
income taxes and the TRA.
In addition, the TRA provides that upon certain mergers, stock and asset sales, other forms of business
combinations or other changes of control, the TRA will terminate and we will be required to make a payment
intended to equal to the present value of future payments under the TRA, which payment would be based on certain
assumptions, including those relating to our and our subsidiaries’ future taxable income. In these situations, our
obligations under the TRA could have a substantial negative impact on our liquidity and could have the effect of
delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes
of control. Different timing rules will apply to payments under the TRA to be made to holders that, prior to the
completion of the initial public offering, held stock options and restricted stock units (collectively, the “Pre-IPO
Award Holders”). These payments will generally be deemed invested in a notional account rather than made on the
scheduled payment dates, and the account will be distributed on the fifth anniversary of the initial public offering,
together with an amount equal to the net present value of the Award Holder’s future expected payments, if any,
under the TRA. Moreover, payments to holders of stock options that were unvested prior to the completion of the
initial public offering are subject to vesting on the same schedule as such holder’s unvested stock options.
58
The TRA contains a Change of Control definition that includes, among other things, a change of a majority of
the Board of Directors without approval of a majority of the then existing Board members (the “Continuing
Directors Provision”). Recent Delaware case law has stressed that such Continuing Directors Provisions could have
a potential adverse impact on stockholders’ right to elect a company’s directors. In this regard, decisions of the
Delaware Chancery Court (not involving us or our securities) have considered change of control provisions and
noted that a board of directors may “approve” a dissident stockholders’ nominees solely to avoid triggering the
change of control provisions, without supporting their election, if the board determines in good faith that the election
of the dissident nominees would not be materially adverse to the interests of the corporation or its stockholders.
Further, according to these decisions, the directors’ duty of loyalty to stockholders under Delaware law may, in
certain circumstances, require them to give such approval.
Our counterparties under the TRA will not reimburse us for any payments previously made under the TRA if
such benefits are subsequently disallowed (although future payments would be adjusted to the extent possible to
reflect the result of such disallowance). As a result, in certain circumstances, payments could be made under the
TRA in excess of our cash tax savings. Certain transactions by the company could cause it to recognize taxable
income (possibly material amounts of income) without a current receipt of cash. Payments under the TRA with
respect to such taxable income would cause a net reduction in our available cash. For example, transactions giving
rise to cancellation of debt income, the accrual of income from original issue discount or deferred payments, a
“triggering event” requiring the recapture of dual consolidated losses, or “Subpart F” income would each produce
income with no corresponding increase in cash. In these cases, we may use some of the Pre-IPO Tax Assets to offset
income from these transactions and, under the TRA, would be required to make a payment to our Pre-IPO Existing
Stockholders even though we receive no cash from such income.
Because we are a holding company with no operations of our own, our ability to make payments under the
TRA is dependent on the ability of our subsidiaries to make distributions to us. To the extent that we are unable to
make payments under the TRA for specified reasons, such payments will be deferred and will accrue interest at a
rate of the London Interbank Offered Rate (“LIBOR”) plus 1.00% per annum until paid. The TRA is designed with
the objective of causing our annual cash costs attributable to federal income taxes (without regard to our continuing
15% interest in the Pre-IPO Tax Assets) to be the same as we would have paid had we not had the Pre-IPO Tax
Assets available to offset our federal taxable income. As a result, stockholders who are not Pre-IPO Existing
Stockholders will not be entitled to the economic benefit of the Pre-IPO Tax Assets that would have been available
if the TRA were not in effect (except to the extent of our continuing 15% interest in the Pre-IPO Tax Assets).
Political and Economic Environment in Venezuela
Venezuela has imposed currency controls, including volume restrictions on the conversion of bolivars to U.S.
dollars, which impact the ability of certain of our airline customers operating in the country to obtain U.S. dollars to
make timely payments to us. Consequently, the collection of accounts receivable due to us can be, and has been,
delayed. Due to the nature of this delay, we have recorded specific reserves against all outstanding balances due to
us and are deferring the recognition of any future revenues effective January 1, 2014 until cash is collected in
accordance with our policies. Accordingly, our accounts receivable are subject to a general collection risk, as there
can be no assurance that we will be paid from such customers in a timely manner, if at all. In January 2014,
Venezuela announced a dual-foreign exchange rate system, which has effectively devalued the local currency and
subjected airlines to an exchange rate for U.S. dollars available at auctions that has been significantly higher than the
official exchange rate. In conjunction with the political and economic uncertainty in Venezuela, demand for travel
by local consumers has declined. Certain airlines have scaled back operations in response to the reduced demand as
well as the currency controls which has impacted our airline customers in Venezuela. During the year ended
December 31, 2014, we collected $21 million from customers in Venezuela of which $4 million was outstanding as
of December 31, 2013. Accounts receivable outstanding from customers in Venezuela totaled $6 million as of
December 31, 2014.
59
Acquisitions
In August 2012, we acquired all of the outstanding stock and ownership interests of PRISM Group Inc. and
PRISM Technologies LLC, a leading provider of end to end airline contract business intelligence and decision
support software. The purchase price was $116 million of which $54 million was contingent consideration paid in
two annual installments. The first $27 million installment was paid in August 2013 and second $27 million
installment was paid in August 2014.
In September 2014, we paid $32 million to acquire certain assets and liabilities of Genares Worldwide
Reservation Services, Ltd., a provider of central reservation systems, revenue management and marketing solutions
to more than 2,300 independent and chain hotel properties worldwide.
Discontinued Travelocity Business
In the third quarter of 2013, we initiated plans to shift our Travelocity business in the United States and
Canada away from a high fixed-cost model to a lower-cost, performance-based revenue structure. In August 2013,
Travelocity entered into the Expedia SMA, pursuant to which Expedia powered the technology platforms for
Travelocity’s existing U.S. and Canadian websites as well as provided Travelocity with access to Expedia’s supply
and customer service platforms. In February 2014, as a further step in our restructuring plans for Travelocity, we
completed a sale of assets associated with Travelocity Partner Network (“TPN”), a business-to-business private
white label website offering.
Travelocity’s working capital was impacted by the Expedia SMA and the sale of TPN. As of December 31,
2013, we had approximately $214 million in total travel supplier liabilities of which $129 million represented the
liability to travel suppliers in connection with Travelocity.com and TPN. The $129 million liability was
extinguished during the year ended December 31, 2014 as a result of the Expedia SMA and the sale of TPN as we
no longer received cash directly from consumers and did not incur a payable to travel suppliers for new bookings.
Subsequent to the Expedia SMA and the sale of TPN, our Travelocity-related working capital primarily consisted of
amounts attributable to lastminute.com as well as amounts due from Expedia offset by payables for marketing and
labor related costs, and we continued to pay travel suppliers for travel consumed that originated on our technology
platforms. In connection with the divestiture of lastminute.com, the remaining amount of the travel supplier
liabilities was transferred to Bravofly Rumbo Group as of the date of the sale.
Cash flows used by discontinued operating activities totaled $206 million, $85 million and $2 million for the
years ended December 31, 2014, 2013 and 2012, respectively. The increase in cash flows used by discontinued
operating activities in the year ended December 31, 2014 compared to 2013 was primarily due to the decrease in
operating liabilities, mainly associated with travel supplier liabilities as described above, partially offset by a
decrease in accounts receivable. The increase in cash flows used by discontinued operating activities in the year
ended December 31, 2013 compared to 2012 was driven by higher operating losses and a $24 million decrease in
travel supplier liabilities and accounts payable due to impact of the Expedia SMA on Travelocity’s working capital.
As a result of our completed divestiture of the Travelocity segment, we do not expect our discontinued
operations to have material ongoing liquidity requirements. See Note 17, Commitments and Contingencies,
regarding litigation and other contingencies associated with our discontinued Travelocity segment.
Subsequent Events Impacting Our Liquidity and Capital Resources
Sale of Travelocity.com and lastminute.com
On January 23, 2015, we announced the sale of Travelocity.com to Expedia, pursuant to the terms of the
Travelocity Purchase Agreement, dated January 23, 2015, by and among Sabre GLBL Inc. and Travelocity.com LP,
and Expedia. The signing and closing of the Travelocity Purchase Agreement occurred contemporaneously. Expedia
purchased Travelocity.com pursuant to the Travelocity Purchase Agreement for cash consideration of $280 million.
Travel Network’s agreement with Expedia regarding the use of our GDS remains in place such that air travel booked
through the Travelocity-branded websites by Expedia are contractually required to be processed by Travel Network
through the beginning of 2019.
60
On December 16, 2014, we announced that we had received a binding offer from Bravofly Rumbo Group to
acquire lastminute.com which subsequently closed on March 1, 2015. The transaction was completed through the
transfer of net liabilities to the acquirer as of the date of sale consisting primarily of a working capital deficit.
Additionally, at the time of sale, the acquirer entered into a long-term agreement with Travel Network to continue to
utilize our GDS for bookings which will generate incentive consideration to be paid by us to the acquirer. We did
not receive any cash proceeds or any other significant consideration in the transaction other than payment for
specific services to be provided to the acquirer under a transition services agreement during 2015.
Secondary Public Offering
On February 10, 2015, we closed a secondary public offering of our common stock in which certain of our
stockholders sold 23,800,000 shares, and the underwriters exercised in full their overallotment option which resulted
in the sale of an additional 3,570,000 shares of our common stock. We did not receive any proceeds from the
secondary public offering or from the exercise of the underwriters’ overallotment option.
Capital Expenditures and Implementation Costs
Capitalized costs associated with software developed for internal use represent a significant portion of our
capital expenditures as we continue to develop and enhance our GDS and our SaaS and hosted systems. Capitalized
implementation costs are upfront costs we incur related to the implementation of new customer contracts associated
with our SaaS and hosted products. Implementation costs are sometimes partially offset by upfront solution fees that
we charge and collect, depending on the customer contracts. During the year ended December 31, 2014, we incurred
$227 million of capital expenditures, including $171 million related to software developed for internal use, and we
incurred $38 million of capitalized implementation costs. In 2015, we expect capital expenditures to increase to
approximately $250 million and capitalized implementation costs to increase to approximately $75 million. We
expect the capitalized implementation costs to be substantially offset by upfront solution fees paid to us by our
customers.
Senior Secured Credit Facilities
On February 19, 2013, Sabre GLBL Inc. entered into an agreement that amended and restated its senior
secured credit facilities (the “Amended and Restated Credit Agreement”). The agreement replaced (i) the existing
term loans with new classes of term loans of $1,775 million (the “Term Loan B”) and $425 million (the “Term Loan
C”) and (ii) the existing revolving credit facility with a new revolving credit facility of $352 million (the
“Revolver”). Term Loan B matures on February 19, 2019 and amortizes in equal quarterly installments of 0.25%.
Term Loan C matures on December 31, 2017. As a result of the April 2014 prepayment, quarterly principal
payments on Term Loan C are no longer required. We are obligated to pay $17 million on September 30, 2017 and
the remaining balance on December 31, 2017. A portion of the Revolver matures on February 19, 2018. On
September 30, 2013, Sabre GLBL Inc. entered into an agreement to amend its amended and restated credit
agreement to add a new class of term loans in the amount of $350 million (the “Incremental Term Loan Facility”).
Sabre GLBL Inc. has used a portion, and intends to use the remainder, of the proceeds of the Incremental Term Loan
Facility for working capital and one-time costs associated with the Expedia SMA and sale of TPN, including the
payment of travel suppliers for travel consumed that originated on our technology platforms and for general
corporate purposes. The Incremental Term Loan Facility matures on February 19, 2019 and amortizes in equal
quarterly installments of 0.25% commencing with the last business day of December 2013. We are scheduled to
make $22 million in principal payments on our senior secured credit facilities over the next twelve months. On
February 20, 2014, we entered into a series of amendments to our Amended and Restated Credit Agreement
(“Repricing Amendments”) to, among other things, (i) reduce the interest rate margin applicable to the Term Loan B
to (x) between 3.00% to 3.25% per annum for Eurocurrency rate loans and (y) between 2.00% to 2.25% per annum
for base rate loans and (ii) reduce the Eurocurrency rate floor to 1.00% and the base rate floor to 2.00%. In addition,
the Repricing Amendments extended the maturity date of $317 million of the Revolver to February 19, 2019 and (ii)
provided for a revolving commitment increase of $53 million under the extended portion of the Revolver, increasing
total commitments under the Revolver to $405 million. The extended portion of the Revolver includes an
accelerated maturity of November 19, 2018 if on November 19, 2018, the Term Loan B (or permitted refinancings
thereof) remains outstanding with a maturity date occurring less than one year after the maturity date of the extended
portion of the Revolver.
61
In April 2014, we made partial prepayments totaling $296 million of our outstanding indebtedness under the
Term Loan C portion of our senior secured credit facilities using proceeds from our initial public offering.
Under the Amended and Restated Credit Agreement, the loan parties are subject to certain customary non-
financial covenants, including certain restrictions on incurring certain types of indebtedness, creation of liens on
certain assets, making of certain investments, and payment of dividends, as well as a maximum senior secured
leverage ratio, which applies if our revolver utilization exceeds certain thresholds. This ratio is calculated as senior
secured debt (net of cash) to EBITDA, as defined by the credit agreement. This ratio was 5.0 to 1.0 for 2014 and is
4.5 to 1.0 for 2015. The definition of EBITDA is based on a trailing twelve months EBITDA adjusted for certain
items including non-recurring expenses and the pro forma impact of cost saving initiatives. This EBITDA is
calculated for the purposes of compliance with our debt covenants and differs from the Adjusted EBITDA metric
used elsewhere in this Annual Report on Form 10-K. See Note 9, Debt, to our consolidated financial statements.
We are also required to pay down the term loans by an amount equal to 50% of annual excess cash flow, as
defined in the Amended and Restated Credit Agreement. No excess cash flow payment is required in 2015 with
respect to our results for the year ended December 31, 2014. This percentage requirement may decrease or be
eliminated if certain leverage ratios are achieved. We are further required to pay down the term loan with proceeds
from certain asset sales or borrowings as defined in the Amended and Restated Credit Agreement.
Cash Flows
Operating Activities
Cash provided by operating activities for the year ended December 31, 2014 was $388 million and consisted of
net income from continuing operations of $111 million, adjustments for non-cash and other items of $359 million and a
decrease in cash from changes in operating assets and liabilities of $82 million. The adjustments for non-cash and other
items consist primarily of $290 million of depreciation and amortization, $45 million in amortization of upfront
incentive consideration, $34 million loss on extinguishment of debt and $20 million of stock-based compensation
expense, partially offset by $42 million of litigation related credits and $12 million of joint venture equity income. The
decrease in cash from changes in operating assets and liabilities was primarily the result of a $79 million increase in
other assets primarily due to a $50 million payment made to American Airlines in conjunction with the new Airlines
Solutions contract, $51 million used for upfront incentive consideration, and a $38 million used for capitalized
implementation costs, partially offset by a $56 million increase in accounts payable and other accrued liabilities and
a $39 million increase in deferred revenue.
Cash provided by operating activities for the year ended December 31, 2013 was $228 million and consisted
of net income from continuing operations of $52 million, adjustments for non-cash and other items of $381 million
and a decrease in cash from changes in operating assets and liabilities of $205 million. The adjustments for non-cash
and other items consist primarily of $287 million of depreciation and amortization, $37 million in amortization of
upfront incentive consideration, $26 million loss on extinguishment of debt and debt modification costs, and $14
million of deferred taxes, partially offset by $12 million of joint venture equity income. The decrease in cash from
changes in operating assets and liabilities was primarily the result of $59 million used for capitalized
implementation costs, a $57 million increase in other assets, $49 million used for upfront incentive consideration,
$23 million increase in accounts receivable, a $15 million decrease in accounts payable and accrued liabilities due to
a $100 million litigation settlement payment which was partially offset by an increase in other accrued liabilities.
Cash provided by operating activities for the year ended December 31, 2012 was $308 million and consisted
of net loss from continuing operations of $215 million, adjustments for non-cash and other items of $643 million
and a decrease in cash of $120 million from changes in operating assets and liabilities. The adjustments for non-cash
and other items consist primarily of $345 million of litigation charges, $243 million of depreciation and
amortization, and $37 million in amortization of upfront incentive consideration, partially offset by $33 million of
deferred taxes. The decrease in cash from changes in operating assets and liabilities was primarily the result of $79
million used for capitalized implementation costs, a $135 million decrease in accounts payable and other accrued
liabilities, $35 million used for upfront incentive consideration and $20 million used for pension and other
postretirement benefits. These decreases were partially offset by an increase of $97 million in deferred revenue, an
increase of $37 million in accrued compensation and related benefits and a $17 million decrease in accounts
receivable.
62
Investing Activities
For the year ended December 31, 2014, we used cash of $259 million for investing activities. Significant
highlights of our investing activities included:
we spent $227 million on capital expenditures, including $171 million related to software developed for
internal use, $9 million related to software developed for sale and $47 million related to purchases of
property, plant and equipment; and
we spent $32 million related to the Genares acquisition.
For the year ended December 31, 2013, we used cash of $240 million for investing activities. Significant
highlights of our investing activities included:
we spent $210 million on capital expenditures, including $178 million related to software developed for
internal use and $32 million related to purchases of property, plant and equipment; and
we spent $27 million on holdback payments related to the 2012 PRISM acquisition.
For the year ended December 31, 2012, we used cash of $210 million for investing activities. Significant
highlights of our investing activities included:
we spent $167 million on capital expenditures, including $133 million related to software developed for
internal use and $34 million related to purchases of property, plant and equipment;
we spent $66 million, net of cash acquired, to acquire PRISM for Airline and Hospitality Solutions; and
we received $27 million in proceeds on the sale of Sabre Pacific.
Financing Activities
For the year ended December 31, 2014, we used $72 million for financing activities. Significant highlights of
our financing activities included:
we entered into the Repricing Amendments which resulted in proceeds of $148 million from new
lenders which were utilized to repay prior lenders. There was no net change in our outstanding
indebtedness as a result of the Repricing Amendments;
we raised $672 million net proceeds from our initial public offering and utilized the net proceeds to
repay $296 million aggregate principal amount of our Term Loan C and $320 million aggregate
principal amount of our 2019 Notes;
we paid down $37 million of the term loan outstanding as part of quarterly principal repayments;
we paid $30 million in debt-related costs including a $27 million prepayment fee on our 2019 Notes;
we paid $27 million in contingent consideration associated with our acquisition of PRISM in 2012; and
we paid $48 million in dividends on our common stock.
For the year ended December 31, 2013, we had a $262 million cash inflow from financing activities.
Significant highlights of our financing activities included:
we raised $2,190 million through the issuance of the Term B Facility and Term C Facility loans;
we raised $350 million through the issuance of the Incremental Term Facility;
we utilized $2,178 million of the Term B Facility and Term C Facility proceeds to pay down the initial,
extended and incremental term loans;
we incurred $19 million in debt issuance and third-party debt modification costs; and
we paid down $82 million of the term loan outstanding as part of quarterly mandatory prepayments.
63
For the year ended December 31, 2012, we used $25 million for financing activities. Significant highlights of
our financing activities included:
on a net basis, we repaid $82 million under the Revolving Facility;
we raised $400 million through the issuance of 8.5% senior secured notes due in 2019 and utilized $272
million of the proceeds to pay down a portion of the extended term loan;
we paid off $15 million of the term loan outstanding as part of quarterly mandatory prepayments over
the first half of 2012;
we paid down $773 million of our Initial Term Loan maturing 2014 through the issuance of $375
million Incremental Term Loan maturing 2017 and $400 million of 8.5% senior secured notes due 2019;
we paid $43 million for debt modification costs; and
we made a $6 million payment on outstanding term loans.
Contractual Obligations
As of December 31, 2014, our contractual obligations were as follows (in thousands):
2015
2016
Payments Due by Period
2019
2018
2017
Thereafter
Total
Total debt(1) ............................................. $ 181,751 $573,704 $221,806 $175,917 $2,514,948 $
— $3,668,126
Headquarters mortgage(2) ........................
—
5,984 80,895
5,984
92,863
—
Operating lease obligations(3) .................. 27,304 24,547 17,037
102,511
5,930 18,273
IT outsourcing agreement(4) .................... 156,492 135,307 99,305
391,104
—
Purchase orders(5) .................................... 133,326
2,188
139,262
—
Letters of credit(6) .................................... 45,837
162
46,545
—
Other purchase obligations(7) .................. 19,564
—
19,564
—
Unrecognized tax benefits(8) ...................
—
—
—
61,095
Tax Receivable Agreement(9) ..................
387,342
—
—
—
Total contractual cash obligations(10) ...... $ 570,258 $743,836 $421,393 $185,337 $2,520,878 $ 18,273 $4,908,412
(1)
Includes all interest and principal related to the 2016 Notes and 2019 Notes. Also included all interest and principal related
to borrowings under the term loan facility, the Term Loan C portion of which will mature in 2018 and the Term Loan B
portion of which will mature in 2019 and Incremental Term Facility, a portion of which will mature in 2019. Under certain
circumstances, we are required to pay a percentage of the excess cash flow, if any, generated each year to our lenders
which obligation is not reflected in the table above. Interest on the term loan is based on the LIBOR rate plus a base
margin and includes the effect of interest rate swaps. For purposes of this table, we have used projected LIBOR rates for
all future periods. See Note 9, Debt, to our consolidated financial statements.
Includes all interest and principal related to our $85 million Mortgage Facility, which matures on March 1, 2017. See
Note 9, Debt, to our consolidated financial statements.
—
9,420
—
—
—
—
—
—
3,748
546
—
—
—
—
—
—
—
—
—
(2)
(3) We lease approximately two million square feet of office space in 79 locations in 45 countries. Lease payment escalations
are based on fixed annual increases, local consumer price index changes or market rental reviews. We have renewal
options of various term lengths at 48 locations, and we have no purchase options and no restrictions imposed by our leases
concerning dividends or additional debt.
(4) Represents minimum amounts due to HP under the terms of an outsourcing agreement through which HP manages a
(5)
significant portion of our information technology systems.
Purchase obligations represent an estimate of all open purchase orders and contractual obligations in the ordinary course of
business for which we have not received the goods or services as of December 31, 2014. Although open purchase orders
are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule and adjust our
requirements based on our business needs prior to the delivery of goods or performance of services.
(6) Our letters of credit consist of stand-by letters of credit, underwritten by a group of lenders, which we primarily issue for
certain regulatory purposes as well as to certain hotel properties to secure our payment for hotel room transactions. The
contractual expiration dates of these letters of credit are shown in the table above. There were no claims made against any
stand-by letters of credit during the years ended December 31, 2014, 2013 and 2012.
(7) Consist primarily of minimum payments due under various marketing agreements, management services monitoring fees
and media strategy, planning and placement agreements.
64
(8) Unrecognized tax benefits include associated interest and penalties. The timing of related cash payments for substantially
all of these liabilities is inherently uncertain because the ultimate amount and timing of such liabilities is affected by
factors which are variable and outside our control.
The timing of future payments under the TRA is uncertain and dependent on the timing of the realization of taxable
income. We expect to make 85% to 95% of the total required payments over the next six years with no material payments
to be made in 2015. See Note 8, Income Taxes, to our consolidated financial statements and “—Recent Events Impacting
Our Liquidity and Capital Resources—Tax Receivable Agreement.”
(9)
(10) Excludes pension obligations, see Note 15, Pension and Other Postretirement Benefit Plans, to our consolidated financial
statements.
Off Balance Sheet Arrangements
We had no off balance sheet arrangements during the years ended December 31, 2014, 2013 and 2012.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on management’s
responsibility in the evaluation and disclosures of going-concern uncertainties in the financial statements. The new
standard requires management to perform interim and annual assessments of the company’s ability to continue as a
going concern within one year of the date the financial statements are issued. If substantial doubt exists in the
company’s ability to continue as a going concern, certain disclosures are required to be provided. The standard is
effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption
permitted. We do not believe that the adoption will have a material impact on our consolidated financial statements.
In June 2014, the FASB issued final guidance that a performance target in a share-based payment that affects
vesting and that could be achieved after the requisite service period should be accounted for as a performance
condition. The guidance was issued to resolve diversity in practice. The standard is effective for annual and interim
reporting periods beginning after December 15, 2015. We do not believe that the adoption will have a material
impact on our consolidated financial statements.
In May 2014, the FASB issued a comprehensive update to revenue recognition guidance that will replace
current standards. Under the updated standard, revenue is recognized when a company transfers promised goods or
services to customers in an amount that reflects the consideration that is expected to be received for those goods and
services. The updated standard also requires additional disclosures on the nature, timing, and uncertainty of revenue
and related cash flows. The standard is effective for annual and interim reporting periods beginning after December
15, 2016. We are currently evaluating the impact this standard will have on our consolidated financial statements.
In April 2014, the FASB issued updated guidance that raises the threshold for disposals to qualify as
discontinued operations and allows companies to have significant continuing involvement and continuing cash flows
with the discontinued operations. The standard also requires additional disclosures for discontinued operations and
new disclosures for individually material disposal transactions that do not meet the definition of a discontinued
operation. The standard is effective for annual and interim reporting periods beginning in 2015. Early adoption is
permitted in certain circumstances. We adopted this guidance in the fourth quarter of 2014.
Critical Accounting Estimates
This discussion and analysis of our financial condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance with GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and
expenses and other financial information. Actual results may differ significantly from these estimates, and our
reported financial condition and results of operations could vary under different assumptions and conditions. In
addition, our reported financial condition and results of operations could vary due to a change in the application of a
particular accounting standard.
65
Our accounting policies that include significant estimates and assumptions include: (i) estimation of the
revenue recognition for software development, (ii) collectability of accounts receivable, (iii) amounts for future
cancellations of bookings processed through our GDS, (iv) determination of the fair value of assets and liabilities
acquired in a business combination, (v) determination of the fair value of derivatives, (vi) the evaluation of the
recoverability of the carrying value of intangible assets and goodwill, (vii) assumptions utilized in the determination
of pension and other postretirement benefit liabilities, and (viii) the evaluation of uncertainties surrounding the
calculation of our tax assets and liabilities. We regard an accounting estimate underlying our financial statements as
a “critical accounting estimate” if the accounting estimate requires us to make assumptions about matters that are
uncertain at the time of estimation and if changes in the estimate are reasonably likely to occur and could have a
material effect on the presentation of financial condition, changes in financial condition, or results of operations.
We have included below a discussion of the accounting policies involving material estimates and assumptions
that we believe are most critical to the preparation of our financial statements, how we apply such policies and how
results differing from our estimates and assumptions would affect the amounts presented in our financial statements.
We have discussed the development, selection and disclosure of these accounting policies with our audit committee.
Although we believe these policies to be the most critical, other accounting policies also have a significant effect on
our financial statements and certain of these policies also require the use of estimates and assumptions. For further
information about our significant accounting policies, see Note 1, Summary of Business and Significant Accounting
Policies, to our consolidated financial statements.
SaaS and Hosted Revenue
Our revenue recognition for Airline and Hospitality Solutions includes SaaS and hosted transactions which are
sometimes sold as part of agreements which also require us to provide consulting and implementation services. Due
to the multiple element arrangement, revenue recognition sometimes involves judgment, including estimates of the
selling prices of goods and services, assessments of the likelihood of nonpayment and estimates of total costs and
costs to complete a project.
The consulting and implementation services are generally performed in the early stages of the agreements. We
evaluate revenue recognition for agreements with customers which generally are represented by individual contracts
but could include groups of contracts if the contracts are executed at or near the same time. Typically, our consulting
services are separated from the implementation and software hosting services. We account for separable elements on
an individual basis with value assigned to each element based on its relative selling price. A comprehensive market
analysis is performed on an annual basis to determine the range of selling prices for each product and service. In
making these judgments we analyze various factors, including competitive landscapes, value differentiators,
continuous monitoring of market prices, customer segmentation and overall market and economic conditions. Based
on these results, estimated selling prices are set for each product and service delivered to customers. Changes in
judgments related to these items, or deterioration in industry or general economic conditions, could materially
impact the timing and amount of revenue and costs recognized. The revenue for consulting services is generally
recognized as the services are performed, and the revenue for the implementation and the SaaS and hosted services
is recognized ratably over the term of the agreement.
Accounts Receivable and Air Booking Cancellation Reserve
We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances
where we are aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankruptcy filings,
failure to pay amounts due to us or others), we record a specific reserve for bad debts against amounts due to reduce
the net recorded receivable to the amount we reasonably believe will be collected. For all other customers, we record
reserves for bad debts based on past write-off history (average percentage of receivables written off historically) and
the length of time the receivables are past due.
66
Transaction revenue for airline travel reservations is recognized by Travel Network at the time of the booking
of the reservation, net of estimated future cancellations. Cancellations prior to the day of departure are estimated
based on the historical level of cancellations rates, adjusted to take into account any recent factors which could cause
a change in those rates. In circumstances where expected cancellation rates or booking behavior changes, our
estimates are revised, and in these circumstances, future cancellation rates could vary materially, with a
corresponding variation in revenue net of estimated future cancellations. Factors that could have a significant effect
on our estimates include global security issues, epidemics or pandemics, natural disasters, general economic
conditions, the financial condition of travel suppliers, and travel related accidents.
Business Combinations
Authoritative guidance for business combinations requires us to recognize separately from goodwill the assets
acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is
measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets
acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets
acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our
estimates are inherently uncertain and, as a result, actual results may differ from estimates.
Accounting for business combinations requires our management to make significant estimates and
assumptions, especially at the acquisition date including our estimates for intangible assets, contractual obligations
assumed, pre-acquisition contingencies and contingent consideration, where applicable. Although we believe the
assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on
historical experience and information obtained from the management of the acquired companies and are inherently
uncertain.
Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not
limited to: future expected cash flows from software sales through the SaaS model, support agreements, consulting
contracts, other customer contracts, acquired developed technologies and patents; the acquired company’s brand and
competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in
the combined company’s product portfolio; and discount rates. Unanticipated events and circumstances may occur
that may affect the accuracy or validity of such assumptions, estimates or actual results.
For a given acquisition, we may identify certain pre-acquisition contingencies as of the acquisition date and
may extend our review and evaluation of these pre-acquisition contingencies throughout the measurement period in
order to obtain sufficient information to assess whether we include these contingencies as a part of the fair value
estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts. If we cannot
reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the
measurement period, which is generally the case given the nature of such matters, we will recognize an asset or a
liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been incurred
at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Subsequent to the
measurement period, changes in our estimates of such contingencies will affect earnings and could have a material
effect on our results of operations and financial position.
Depending on the circumstances, the fair value of contingent consideration is determined based on
management’s best estimate of fair value given the specific facts and circumstances of the contractual arrangement,
considering the likelihood of payment, payment terms and management’s best estimates of future performance
results on the acquisition date, if applicable.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business
combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and
circumstances that existed as of the acquisition date with any adjustments to our preliminary estimates being recorded
to goodwill if identified within the measurement period. Subsequent to the measurement period or our final
determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these
uncertain tax positions and tax-related valuation allowances will affect our provision for income taxes in our
consolidated statement of operations and could have a material impact on our results of operations and financial
position.
67
Goodwill and Long-Lived Assets
We evaluate goodwill for impairment on an annual basis or when impairment indicators exist. We begin our
evaluation with a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less
than its carrying value before applying the two-step goodwill impairment model described below. If it is determined
through the qualitative assessment that a reporting unit’s fair value is more likely than not greater than its carrying
value, the remaining impairment steps are unnecessary. Otherwise, we perform a comparison of the estimated fair
value of the reporting unit to which the goodwill has been assigned to the sum of the carrying value of the assets and
liabilities of that unit. If the sum of the carrying value of the assets and liabilities of a reporting unit exceeds the
estimated fair value of that reporting unit, the carrying value of the reporting unit’s goodwill is reduced to its
implied fair value through an adjustment to the goodwill balance, resulting in an impairment charge. Goodwill was
assigned to each reporting unit based on that reporting unit’s percentage of enterprise value as of the date of the
acquisition of Sabre Corporation (formerly known as Sovereign Holdings, Inc.) by TPG and Silver Lake plus
goodwill associated with acquisitions since that time. We have identified six reporting units which include
Travelocity—North America, Travelocity—Europe, Travelocity—Asia Pacific, Travel Network, Airline Solutions
and Hospitality Solutions. The Travelocity—Asia Pacific reporting unit was sold in 2012.
The fair values used in our evaluation are estimated using a combined approach based upon discounted future
cash flow projections and observed market multiples for comparable businesses. The cash flow projections are based
upon a number of assumptions, including risk-adjusted discount rates, future booking and transaction volume levels,
future price levels, rates of growth in our consumer and corporate direct booking businesses and rates of increase in
operating expenses, cost of revenue and taxes. Additionally, in accordance with authoritative guidance on fair value
measurements, we made a number of assumptions, including assumptions related to market participants, the
principal markets and highest and best use of the reporting units. We did not record any goodwill impairment
charges for the year ended December 31, 2014. We recorded $136 million and $129 million in impairment charges
related to our discontinued Travelocity segment for the years ended December 31, 2013 and 2012, respectively,
which are included in net (loss) income from discontinued operations in our consolidated statements of operations.
Goodwill related to our other reporting units totaled $2,153 million as of December 31, 2014. Changes in the
assumptions used in our impairment testing may result in future impairment losses which could have a material
impact on our results of operations. A change of 10% in the future cash flow projections, risk-adjusted discount
rates, and rates of growth used in our fair value calculations would not result in impairment of the remaining
goodwill for any of our reporting units.
Definite-lived intangible assets are assigned depreciable lives of four to thirty years, depending on
classification, and are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying amount of definite-lived intangible assets used in combination to generate cash flows largely independent
of other assets may not be recoverable. If impairment indicators exist for definite-lived intangible assets, the
undiscounted future cash flows associated with the expected service potential of the assets are compared to the
carrying value of the assets. If our projection of undiscounted future cash flows is in excess of the carrying value of
the intangible assets, no impairment charge is recorded. If our projection of undiscounted cash flows is less than the
carrying value, the intangible assets are then measured at fair value and an impairment charge is recorded based on
the excess of the carrying value of the assets over its fair value. We also evaluate the need for additional impairment
disclosures based on our Level 3 inputs. For fair value measurements categorized within Level 3 of the fair value
hierarchy, we disclose the valuation processes used by the reporting entity. We did not record material intangible
asset impairment charges for the years ended December 31, 2014 and 2013. We recorded $377 million in intangible
asset impairment charges related to our discontinued Travelocity segment for the year ended December 31, 2012
which are included in net (loss) income from discontinued operations in our consolidated statements of operations.
The most significant assumptions used in the discounted cash flows calculation to determine the fair value of
our reporting units in connection with impairment testing include: (i) the discount rate, (ii) the expected long-term
growth rate and (iii) annual cash flow projections. See Note 11, Fair Value Measurements, to our consolidated
financial statements.
68
Pension and Other Postretirement Benefits
We sponsor the Sabre Inc. Legacy Pension Plan (“LPP”), which is a tax-qualified defined benefit pension plan
for employees meeting certain eligibility requirements. The LPP was amended to freeze pension benefit accruals as
of December 31, 2005, so that no additional pension benefits are accrued after that date. We also sponsor a defined
benefit pension plan for certain employees in Canada. Pension and other postretirement benefits for defined benefit
plans are actuarially determined and affected by assumptions which include, among other factors, the discount rate
and the estimated future return on plan assets. In conjunction with outside actuaries, we evaluate the assumptions on
a periodic basis and make adjustments as necessary.
The discount rate used in the measurement of our benefit obligations as of December 31, 2014 and December
31, 2013 is as follows:
Pension Benefits
December 31,
Other Benefits
December 31,
2014
2013
2014
2013
Weighted-average discount rate ...............................
4.36%
5.10%
0.69 %
0.55%
The LPP plan is valued annually as of the beginning of each fiscal year. The principal assumptions used in the
measurement of our net benefit costs for the three years ended December 31, 2014, 2013 and 2012 are as follows:
Discount rate ...................................................
Expected return on plan assets ........................
5.10%
7.50%
4.19%
7.75%
5.32%
7.75%
0.55 %
0.00 %
1.16 %
0.00 %
2.32%
0.00%
Pension Benefits
2013
2014
2012
2014
2013
2012
Other Benefits
Our discount rate is determined based upon the review of year-end high quality corporate bond rates.
Lowering the discount rate by 50 bps as of December 31, 2014 would increase our pension and postretirement
benefits obligations by approximately $26 million and would not materially impact our 2015 pension and
postretirement benefits expenses.
The expected return on plan assets is based upon an evaluation of our historical trends and experience taking
into account current and expected market conditions and our target asset allocation of 38% global equities, 58% long
duration fixed income, and 4% real estate. The expected return on plan assets component of our net periodic benefit
cost is calculated based on the fair value of plan assets and our target asset allocation. We monitor our actual asset
allocation and believe that our long-term asset allocation will continue to approximate the target allocation.
Lowering the expected long-term rate of return on plan assets by 50 bps as of December 31, 2014 would increase
2015 pension expense by approximately $2 million.
Derivative Instruments
We use derivative instruments as part of our overall strategy to manage our exposure to market risks primarily
associated with fluctuations in foreign currency and interest rates. As a matter of policy, we do not use derivatives
for trading or speculative purposes. We determine the fair value of our derivative instruments using pricing models
that use inputs from actively quoted markets for similar instruments and other inputs which require judgment. These
amounts include fair value adjustments related to our own credit risk and counterparty credit risk. Subsequent to
initial recognition, we adjust the initial fair value position of the derivative instruments for the creditworthiness of
the banking counterparty (if the derivative is an asset) or for our own creditworthiness (if the derivative is a
liability). This adjustment is calculated based on the default probability of the banking counterparty and on our
default probability, as applicable, and is obtained from active credit default swap markets and is then applied to the
projected cash flows.
69
Income and Non-Income Taxes
We recognize deferred tax assets and liabilities based on the temporary differences between the financial
statement carrying amounts and the tax bases of assets and liabilities. We regularly review deferred tax assets by
jurisdiction to assess their potential realization and establish a valuation allowance for portions of such assets that
we believe will not be ultimately realized. In performing this review, we make estimates and assumptions regarding
projected future taxable income, the expected timing of the reversals of existing temporary differences and the
implementation of tax planning strategies. A change in these assumptions could cause an increase or decrease to the
valuation allowance resulting in an increase or decrease in the effective tax rate, which could materially impact our
results of operations. At year end, we had a valuation allowance on certain loss carryforwards based on our
assessment that it is more likely than not that the deferred tax asset will not be realized. We believe that our
estimates for the valuation allowances against deferred tax assets are appropriate based on current facts and
circumstances.
We believe that it is more likely than not that the benefit from certain non-U.S. deferred tax assets will not be
realized. As a result, we established and maintain a valuation allowance on the non-U.S. deferred tax assets of our
lastminute.com subsidiaries of $160 million and $163 million as of December 31, 2014 and 2013, respectively. At
December 31, 2014, as a result of the sale of our Travelocity business and the forecast of income from continuing
operations, we determined it was more likely than not that future earnings will be sufficient to utilize certain U.S.
deferred tax assets. Accordingly, we reversed the U.S. valuation allowance resulting in a non-cash income tax
benefit of $82 million. We reassess these assumptions regularly, which could cause an increase or decrease to the
valuation allowance resulting in an increase or decrease in the effective tax rate, and could materially impact our
results of operations.
As of December 31, 2014, we had approximately $843 million of NOLs and capital losses for U.S. federal
income tax purposes, approximately $22 million of which are subject to an annual limitation on their ability to be
utilized under Section 382 of the Code. Approximately $708 million of these NOLs and capital losses are tax
benefits subject to the TRA, which provides for the payment by us of 85% of the amount of cash savings, if any, in
U.S. federal income tax that we and our subsidiaries are deemed to realize as a result of the utilization of tax
benefits.
We operate in numerous countries where our income tax returns are subject to audit and adjustment by local
tax authorities. Because we operate globally, the nature of the uncertain tax positions is often very complex and
subject to change, and the amounts at issue can be substantial. It is inherently difficult and subjective to estimate
such amounts, as we have to determine the probability of various possible outcomes. We re-evaluate uncertain tax
positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. At December 31,
2014 and December 31, 2013, we had a liability, including interest and penalty, of $61 million and $67 million,
respectively, for unrecognized tax benefits, which would affect our effective tax rate if recognized. Such a change in
recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax
provision.
With respect to value-added taxes, we have established reserves regarding the collection of refunds which are
subject to audit and collection risks in various regions of Europe. Our reserves are based on factors including, but
not limited to, changes in facts or circumstances, changes in law, effectively settled issues under audit, and new
audit activity. Changes in any of these factors could significantly impact our reserves and materially impact our
results of operations. At December 31, 2014 and December 31, 2013, we carried reserves of approximately $7
million and $4 million, respectively, associated with these risks.
Occupancy Taxes
Over the past ten years, various state and local governments in the United States have filed approximately 70
lawsuits against us pertaining primarily to whether Travelocity (and other OTAs) owes sales or occupancy taxes on
some or all of the revenues it earns from facilitating hotel reservations using the merchant revenue model. In
addition to the lawsuits, there are a number of administrative proceedings pending against us which could result in
an assessment of sales or occupancy taxes on fees. Pursuant to the Travelocity Purchase Agreement, we will
70
continue to be liable for pre-closing liabilities of Travelocity, including fees, charges, costs and settlements relating
to litigation arising from hotels booked on the Travelocity platform prior to the Expedia SMA. Fees, charges, costs
and settlements relating to litigation from hotels booked on Travelocity.com subsequent to the Expedia SMA and
prior to the date of the sale of Travelocity.com to Expedia will be shared with Expedia in accordance with the terms
that were in the Expedia SMA. We are jointly and severally liable for Travelocity’s indemnification obligations
under the Travelocity Purchase Agreement for liabilities that may arise out of these litigation matters, which could
adversely affect our cash flow. See Part I, Item 3 “Legal Proceedings—Litigation and Administrative Audit
Proceedings Relating to Hotel Occupancy Taxes.”
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Management
Market risk is the potential loss from adverse changes in: (i) prevailing interest rates, (ii) foreign exchange
rates, (iii) credit risk and (iv) inflation. Our exposure to market risk relates to interest payments due on our long-term
debt, revolving credit facility, derivative instruments, income on cash and cash equivalents, accounts receivable and
payable and travel supplier liabilities and related deferred revenue. We manage our exposure to these risks through
established policies and procedures. We do not engage in trading, market making or other speculative activities in
the derivatives markets. Our objective is to mitigate potential income statement, cash flow and fair value exposures
resulting from possible future adverse fluctuations in interest and foreign exchange rates.
Interest Rate Risk
As of December 31, 2014, our exposure to interest rates relates primarily to our interest rate swaps, our senior
secured debt and our borrowings on the revolving credit agreement. Offsetting some of this exposure is interest
income received from our money market funds. The objectives of our investment in money market funds are (i)
preservation of principal, (ii) liquidity and (iii) yield. If future short-term interest rates averaged 10% lower than
they were during the year ended December 31, 2014, the impact to our interest income from money market funds
would not be material. This amount was determined by applying the hypothetical interest rate change to our average
money market funds invested.
We have entered into interest rate swaps that effectively convert $750 million of floating interest rate senior
secured debt into a fixed rate obligation. The terms of the outstanding and matured interest rate swaps relevant to the
years ended December 31, 2014 and 2013 were as follows:
Outstanding:
Notional Amount
$750 million
$750 million
$750 million
Interest Rate
Received
1 month LIBOR
1 month LIBOR
1 month LIBOR
Interest Rate Paid
1.48%
2.19%
2.61%
Effective Date
Maturity Date
December 31, 2015
December 30, 2016
December 29, 2017
December 30, 2016
December 29, 2017
December 31, 2018
Matured:
$400 million
$350 million
$800 million
1 month LIBOR
1 month LIBOR
3 month LIBOR
2.03%
2.51%
5.04%
July 29, 2011
April 30, 2012
April 30, 2007
September 30, 2014
September 30, 2014
April 30, 2012
Since outstanding balances under our senior secured credit facilities incur interest at rates based on LIBOR,
subject to a 1.00% floor, increases in short-term interest rates would not impact our interest expense until LIBOR
exceeded 1.00%. If our mix of interest rate-sensitive assets and liabilities changes significantly, we may enter into
additional derivative transactions to manage our net interest rate exposure.
71
Foreign Currency Risk
We conduct various operations outside the United States, primarily in Canada, South America, Europe,
Australia and Asia. Our foreign currency risk is primarily associated with operating expenses. During the years
ended December 31, 2014 and 2013, we incurred $419 million and $413 million in foreign currency operating
expenses, representing approximately 20% and 20% of our total operating expenses, respectively. During the year
ended December 31, 2014, we earned $163 million in foreign currency revenue, representing 6% of our total
revenue.
The principal foreign currencies involved include the Euro, the British Pound Sterling, the Polish Zloty, the
Canadian Dollar, the Indian Rupee, and the Australian Dollar. Our most significant foreign currency denominated
operating expenses is in the Euro, which comprised approximately 6% and 5% of our operating expenses for the
years ended December 31, 2014 and 2013, respectively. In recent years, exchange rates between these currencies
and the U.S. dollar have fluctuated significantly and may continue to do so in the future. During times of volatile
currency movements, this risk can impact our earnings. To reduce the impact of this earnings volatility, we hedge
our foreign currency exposure in our operating expenses by entering into foreign currency forward contracts on
several of our largest exposures, including the Euro, the British Pound Sterling, the Polish Zloty and the Indian
Rupee. In 2014, we hedged approximately 37% of our exposure in operating expenses. In addition, approximately
39% of our exposure in operating expenses is naturally hedged by foreign currency cash receipts associated with
foreign currency revenue. The notional amounts of our forward contracts totaled $154 million at December 31,
2014. The forward contracts represent obligations to purchase foreign currencies at a predetermined exchange rate to
fund a portion of our expenses that are denominated in foreign currencies. The fair value of these forward contracts
recognized in our consolidated balance sheets was an $8 million liability and a $5 million asset as of December 31,
2014 and December 31, 2013, respectively.
We are also exposed to foreign currency fluctuations through the translation of the financial condition and
results of operations of our foreign operations into U.S. dollars in consolidation. Such gains and losses are
recognized as a component of accumulated other comprehensive income (loss) and is included in stockholders’
equity (deficit). Translation gains (losses) recognized as other comprehensive income (loss) were $8 million, $13
million and $(2) million for the years ended December 31, 2014, 2013 and 2012, respectively.
Credit Risk
Our customers are primarily located in the United States, Canada, Europe, Latin America and Asia, and are
concentrated in the travel industry.
We generate a significant portion of our revenues and corresponding accounts receivable from services
provided to the commercial air travel industry. As of December 31, 2014, and 2013, approximately $204 million or
67% and $178 million or 67%, respectively, of our trade accounts receivable were attributable to commercial air
travel industry customers. Our other accounts receivable are generally due from other participants in the travel and
transportation industry. We generally do not require security or collateral from our customers as a condition of sale.
See “Risk Factors—Our travel supplier customers may experience financial instability or consolidation, pursue cost
reductions, change their distribution model or undergo other changes.”
We regularly monitor the financial condition of the air transportation industry and have noted the financial
difficulties faced by several air carriers. We believe the credit risk related to the air carriers’ difficulties is mitigated
somewhat by the fact that we collect a significant portion of the receivables from these carriers through the ACH
and other similar clearing houses.
As of December 31, 2014, 2013 and 2012, approximately 58%, 57%, and 55%, respectively, of our air
customers make payments through the ACH which accounts for approximately 95%, 94% and 95%, respectively, of
our air billings. ACH requires participants to deposit certain balances into their demand deposit accounts by certain
deadlines, which facilitates a timely settlement process. For these carriers, we believe the use of ACH mitigates our
credit risk with respect to airline bankruptcies. For those carriers from whom we do not collect payments through the
ACH or other similar clearing houses, our credit risk is higher. However, we monitor these carriers and account for
the related credit risk through our normal reserve policies.
72
Inflation
Competitive market conditions and the general economic environment have minimized inflation’s impact on
our results of operations in recent periods. There can be no assurance, however, that our operating results will not be
affected by inflation in the future.
73
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Supplementary Data
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm ..................................................................................
Consolidated Statements of Operations for the Years Ended December 31, 2014 and 2013, and 2012 ...............
Consolidated Statements of Other Comprehensive Income (Loss) for the Years Ended December 31, 2014,
2013 and 2012 ..................................................................................................................................................
Consolidated Balance Sheets as of December 31, 2014 and 2013 .....................................................................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014 and 2013, and 2012 ..............
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2014, 2013
and 2012 ....................................................................................................................................................
Notes to Consolidated Financial Statements ..........................................................................................................
75
76
77
78
79
80
81
Financial Statement Schedules:
Schedule II — Valuation and Qualifying Accounts as of December 31, 2014, 2013 and 2012 ....................
146
74
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Sabre Corporation:
We have audited the accompanying consolidated balance sheets of Sabre Corporation as of December 31, 2014 and
2013, and the related consolidated statements of operations, comprehensive income (loss), temporary equity and
stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2014.
Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements
and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the
Company’s internal control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Sabre Corporation at December 31, 2014 and 2013, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with
U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Dallas, Texas
March 2, 2015
75
SABRE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
2013
2012
2014
Revenue .................................................................................................. $ 2,631,417 $ 2,523,546 $ 2,382,148
Cost of revenue (1) (2) ............................................................................... 1,742,478
1,705,163 1,575,186
Selling, general and administrative (2) .....................................................
793,294
468,152
20,254
—
Impairment ..............................................................................................
—
Restructuring (adjustments) charges .......................................................
(558)
(6,586)
Operating income .........................................................................
429,290
—
8,163
380,930
421,345
Other income (expense):
Interest expense, net ..........................................................................
Loss on extinguishment of debt .........................................................
Gain on sale of business ....................................................................
Joint venture equity income ..............................................................
Other, net ...........................................................................................
Total other expense, net ..........................................................................
Income (loss) from continuing operations before income taxes .............
Provision (benefit) for income taxes .......................................................
Income (loss) from continuing operations ..............................................
Loss from discontinued operations, net of tax ........................................
Net income (loss) ....................................................................................
Net income attributable to noncontrolling interests ................................
Net income (loss) attributable to Sabre Corporation ...............................
Preferred stock dividends ........................................................................
Net income (loss) attributable to common shareholders ......................... $
(218,877)
(33,538)
—
12,082
(63,860)
(304,193)
117,152
6,279
110,873
(38,918)
71,955
2,732
69,223
11,381
57,842 $
(274,689 )
(12,181 )
—
12,350
(305 )
(274,825 )
106,105
54,039
52,066
(149,697 )
(97,631 )
2,863
(100,494 )
36,704
(137,198 ) $
(232,450)
—
25,850
(2,513)
(6,635)
(215,748)
(222,334)
(6,907)
(215,427)
(394,410)
(609,837)
1,519
(611,356)
34,583
(645,939)
Basic net income (loss) per share attributable to common shareholders:
Income (loss) from continuing operations ......................................... $
(Loss) income from discontinued operations ....................................
Net income (loss) per common share ................................................ $
Diluted net income (loss) per share attributable to common
shareholders:
Income (loss) from continuing operations ......................................... $
(Loss) income from discontinued operations ....................................
Net income (loss) per common share ................................................ $
Weighted-average common shares outstanding:
0.41 $
(0.16)
0.24 $
0.07 $
(0.84 )
(0.77 ) $
0.39 $
(0.16)
0.23 $
0.07 $
(0.81 )
(0.74 ) $
(1.42)
(2.23)
(3.65)
(1.42)
(2.23)
(3.65)
Basic ..................................................................................................
Diluted ...............................................................................................
238,633
246,747
178,125
184,978
177,206
177,206
Dividend per common share ................................................................... $
0.18 $
— $
—
(1) Includes amortization of upfront incentive consideration ................. $
45,358 $
36,649 $
36,527
(2) Includes stock-based compensation as follows:
Cost of revenue ............................................................................ $
Selling, general and administrative ..............................................
8,044 $
12,050
1,356 $
2,031
1,383
2,982
See Notes to Consolidated Financial Statements.
76
SABRE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income (loss) ............................................................................................ $
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments (“CTA”):
Year Ended December 31,
2013
(97,631 ) $ (609,837)
2014
71,955 $
2012
Foreign CTA gains (losses), net of tax .................................................
Reclassification adjustment for realized losses on foreign CTA,
net of tax .........................................................................................
Net change in foreign CTA gains (losses), net of tax ..........................
7,794
4,954
(3,013)
—
7,794
8,162
13,116
888
(2,125)
Retirement-related benefit plans:
Net actuarial (loss) gain, net of taxes of $16,296, $(16,309)
and $15,215 .....................................................................................
(28,554)
28,869
(27,095)
Amortization of prior service credits, net of taxes
of $516, $5,144 and $4,968 .............................................................
(916)
(8,636 )
(7,861)
Amortization of actuarial losses, net of taxes
of $(1,730), $(1,288) and $(905) .....................................................
Total retirement-related benefit plans ..................................................
3,058
(26,412)
2,163
22,396
1,435
(33,521)
Derivatives:
Unrealized gains (losses), net of taxes of $2,604, $(529)
and $1,093 .......................................................................................
(8,797)
3,000
669
Reclassification adjustment for realized losses, net of taxes
of $(2,913), $(5,351) and $(9,941) ..................................................
Net change in unrealized (losses) gains on derivatives, net of tax .......
Share of other comprehensive income of joint venture .............................
Other comprehensive (loss) income ................................................................
Comprehensive income (loss) .........................................................................
Less: Comprehensive income attributable to noncontrolling interests ...........
Comprehensive income (loss) attributable to Sabre Corporation ................... $
4,086
(4,711)
3,421
(19,908)
52,047
(2,732)
49,315 $
8,538
11,538
(1,415 )
45,635
(51,996 )
(2,863 )
18,796
19,465
(2,794)
(18,975)
(628,812)
(1,519)
(54,859 ) $ (630,331)
See Notes to Consolidated Financial Statements.
77
SABRE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
Assets
Current assets
Cash and cash equivalents ........................................................................................ $
Restricted cash .........................................................................................................
Accounts receivable, net ..........................................................................................
Prepaid expenses and other current assets ................................................................
Current deferred income taxes .................................................................................
Other receivables, net ...............................................................................................
Assets held for sale ..................................................................................................
Total current assets ............................................................................................
Property and equipment, net ..........................................................................................
Investments in joint ventures .........................................................................................
Goodwill ........................................................................................................................
Trademarks and brandnames, net ...................................................................................
Other intangible assets, net ............................................................................................
Other assets, net .............................................................................................................
Noncurrent assets held for sale ......................................................................................
Total assets ......................................................................................................... $
Liabilities, temporary equity and stockholders’ equity (deficit)
Current liabilities
Accounts payable ..................................................................................................... $
Travel supplier liabilities and related deferred revenue ...........................................
Accrued compensation and related benefits .............................................................
Accrued subscriber incentives ..................................................................................
Deferred revenues ....................................................................................................
Litigation settlement liability and related deferred revenue .....................................
Other accrued liabilities ...........................................................................................
Current portion of debt .............................................................................................
Liabilities held for sale .............................................................................................
Total current liabilities .......................................................................................
Deferred income taxes ...................................................................................................
Other noncurrent liabilities ............................................................................................
Long-term debt ..............................................................................................................
Commitments and contingencies (Note 17)
Temporary equity
Series A Redeemable Preferred Stock: $0.01 par value; 225,000,000 authorized
shares; no shares issued and outstanding at December 31, 2014; 87,229,703
shares issued and 87,184,179 outstanding at
December 31, 2013 .............................................................................................
Stockholders’ equity (deficit)
Common Stock: $0.01 par value; 450,000,000 authorized shares; 268,237,547
and 178,633,409 shares issued, 267,800,161 and 178,491,568 outstanding at
December 31, 2014 and 2013,
respectively .........................................................................................................
Additional paid-in capital .........................................................................................
Treasury Stock, at cost, 437,386 shares at December 31, 2014 ...............................
Retained deficit ........................................................................................................
Accumulated other comprehensive loss ...................................................................
Noncontrolling interest ............................................................................................
Total stockholders’ equity (deficit) ....................................................................
Total liabilities, temporary equity and stockholders’ equity (deficit)................. $
See Notes to Consolidated Financial Statements.
December 31,
2014
2013
155,679 $
720
362,911
34,121
182,277
29,893
112,558
878,159
551,276
145,320
2,153,499
238,500
241,486
509,764
—
4,718,004 $
114,301 $
3,554
83,828
145,581
167,827
73,252
189,612
22,435
96,544
896,934
61,577
613,710
3,061,400
308,236
2,359
400,912
49,269
41,431
35,157
43,005
880,369
496,200
132,137
2,138,175
249,288
311,522
470,529
77,488
4,755,708
107,623
152,891
109,621
142,767
136,218
38,920
264,231
86,117
110,253
1,148,641
10,253
270,959
3,643,548
—
634,843
2,682
1,931,796
(5,297 )
(1,775,616 )
(69,803 )
621
84,383
4,718,004 $
1,786
880,619
—
(1,785,554)
(49,895)
508
(952,536)
4,755,708
78
SABRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating Activities
Net income (loss) ............................................................................................... $
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Year Ended December 31,
2014
2013
2012
71,955
$
(97,631) $
(609,837)
Depreciation and amortization ...............................................................
Impairment ............................................................................................
Gain on sale of business ........................................................................
Amortization of upfront incentive consideration ...................................
Litigation related (credits) charges ........................................................
Stock-based compensation expense .......................................................
Provision for doubtful accounts .............................................................
Deferred income taxes ...........................................................................
Joint venture equity income ...................................................................
Dividends received from joint venture investments...............................
Amortization of debt issuance costs ......................................................
Debt modification costs .........................................................................
Loss on extinguishment of debt .............................................................
Other ......................................................................................................
Loss from discontinued operations ........................................................
Changes in operating assets and liabilities:
Accounts and other receivables .......................................................
Prepaid expenses and other current assets .......................................
Capitalized implementation costs ....................................................
Upfront incentive consideration ......................................................
Other assets .....................................................................................
Accrued compensation and related benefits ....................................
Accounts payable and other accrued liabilities................................
Deferred revenue including upfront solution fees ...........................
Pension and other postretirement benefits.......................................
Cash provided by operating activities ....................................................
Investing Activities
Additions to property and equipment ...........................................................
Acquisition, net of cash acquired .................................................................
Proceeds from sale of business ....................................................................
Other investing activities .............................................................................
Cash used in investing activities ............................................................
Financing Activities
Proceeds of borrowings from lenders...........................................................
Payments on borrowings from lenders .........................................................
Proceeds from borrowings on revolving credit facility ................................
Payments on borrowings under revolving credit facility..............................
Proceeds of borrowings under secured notes ...............................................
Proceeds from issuance of common stock in initial public offering, net......
Prepayment fee and debt modification and issuance costs ...........................
Acquisition-related contingent consideration paid .......................................
Cash dividends paid to common shareholders .............................................
Other financing activities .............................................................................
Cash (used in) provided by financing activities.....................................
Cash Flows from Discontinued Operations
Net cash used in operating activities ............................................................
Net cash (used in) provided by investing activities......................................
Net cash used by discontinued operations .............................................
Effect of exchange rate changes on cash and cash equivalents ....................
(Decrease) increase in cash and cash equivalents ...............................................
Cash and cash equivalents at beginning of period ..............................................
Cash and cash equivalents at end of period ........................................................ $
Cash payments for income taxes ........................................................................ $
Cash payments for interest ................................................................................. $
Capitalized interest ............................................................................................. $
Preferred shares dividend ................................................................................... $
See Notes to Consolidated Financial Statements.
289,630
—
—
45,358
(41,672)
20,094
10,356
(3,829)
(12,082)
2,261
6,316
3,290
33,538
6,023
38,918
(7,295)
6,948
(37,811)
(50,936)
(78,873)
(5,301)
56,328
38,643
(4,200)
387,659
(227,227)
(31,799)
—
235
(258,791)
148,307
(802,664)
—
—
—
672,137
(30,490)
(27,000)
(47,904)
15,669
(71,945)
(205,988)
(1,965)
(207,953)
(1,527)
(152,557)
308,236
155,679
47,545
197,782
13,412
11,381
$
$
$
$
$
287,038
—
—
36,649
8,156
3,387
5,178
13,941
(12,350)
10,560
7,104
14,003
12,181
(4,653)
149,697
(23,169)
(3,649)
(58,814)
(48,569)
(56,663)
9,372
(15,275)
(5,682)
(2,579)
228,232
(209,523)
(30,200)
—
(276)
(239,999)
2,540,063
(2,261,061)
—
—
—
—
(19,116)
—
—
2,286
262,172
(85,140)
13,993
(71,147)
2,283
181,541
126,695
308,236 $
4,224 $
255,620 $
10,966 $
36,704 $
242,776
20,254
(25,850)
36,527
345,048
4,365
1,916
(32,904)
2,513
21,076
23,265
7,600
—
(2,955)
394,410
16,532
(3,325)
(78,543)
(34,516)
1,502
36,883
(135,489)
97,152
(20,236)
308,164
(167,043)
(72,441)
27,915
1,754
(209,815)
2,225,082
(2,924,745)
518,200
(600,200)
801,500
—
(43,275)
—
—
(1,682)
(25,120)
(2,410)
(6,792)
(9,202)
4,318
68,345
58,350
126,695
20,177
264,990
8,705
34,583
79
SABRE CORPORATION
CONSOLIDATED STATEMENTS OF TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
Temporary Equity
Series A
Redeemable
Preferred Stock
Shares
Amount
Shares
Shares
Amount
Income (Loss)
Interest
Common Stock
Additional
Paid in
Amount Capital
Treasury Stock
$ 563,556 176,888,820 $
—
—
1,769 $ 898,977
—
—
— $
—
Retained
Earnings
(Deficit)
— $ (1,002,417 ) $
(611,356 )
—
Accumulated
Other
Comprehensive Noncontrolling
Total
Stockholders'
Equity
(Deficit)
(76,555 ) $
(18,975 )
(18,693) $ (196,919 )
(689,648 )
(59,317)
Stockholders’ Equity (Deficit)
Balance at December 31, 2011 ..... 87,229,703
Comprehensive loss ...........................
—
Issuances pursuant to:
Settlement of stock-based
awards.....................................
Reacquisition of non-
controlling interest .................
Accrued preferred shares dividend ....
Amortization of stock-
based compensation....................
Dividends paid to non-controlling
interest on subsidiary
common stock ............................
—
—
—
—
—
828,311
—
34,583
194,791
8
2
2,688
(41,941)
—
—
—
6,859
—
—
—
—
Sale of controlling interest
in Sabre Pacific ...........................
—
Other ..................................................
—
Balance at December 31, 2012 ..... 87,229,703
Comprehensive loss ...........................
—
Issuances pursuant to
—
—
—
—
598,139 177,911,922
—
—
—
—
1,779
—
—
(1,439)
865,144
—
settlement of stock-based
awards .........................................
Accrued preferred shares dividend ....
Amortization of
stock-based compensation ..........
Dividends paid to non-controlling
—
—
36,704
721,487
7
7,911
—
—
—
—
7,564
interest on subsidiary
common stock ............................
—
Balance at December 31, 2013 ..... 87,229,703
—
Comprehensive income .....................
Dividends declared ............................
—
Issuances pursuant to:
—
—
634,843 178,633,409
—
—
—
—
—
1,786
—
—
—
880,619
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,696
—
(34,583 )
—
40,203
(1,736 )
(34,583 )
—
—
—
6,859
—
—
(2,214)
(2,214 )
—
—
(1,648,356 )
(100,494 )
—
—
(95,530 )
45,635
40,109
—
88
2,863
40,109
(1,439 )
(876,875 )
(51,996 )
—
(36,704 )
—
—
7,918
(36,704 )
—
—
—
7,564
—
—
—
—
—
(1,785,554 )
69,223
(47,904 )
—
(49,895 )
(19,908 )
—
(2,443)
508
2,732
—
(2,443 )
(952,536 )
52,047
(47,904 )
Initial public offering, net
of offering costs......................
Conversion of redeemable
—
— 45,080,000
451
671,686
—
preferred stock to common
stock ....................................... (87,229,703 ) (646,224 ) 40,343,529
403
645,821
—
—
—
Settlement of stock-based
awards.....................................
—
— 4,180,609
Accrued preferred shares
dividend ......................................
—
11,381
—
—
—
—
—
—
—
19,584 437,386
(5,297 )
42
—
—
—
29,217
—
(321,377)
—
6,246
—
—
—
—
—
—
—
—
Amortization of
stock-based compensation ..........
Initial recognition of tax
receivable agreement liability ....
Tax effect of initial public
offering related costs ..................
Dividends paid to non-controlling
interest on subsidiary
common stock ............................
Acquisition of minority interest ........
Balance at December 31, 2014 .....
—
—
—
—
—
—
—
—
—
672,137
—
—
(11,381 )
—
—
—
—
—
—
—
—
—
—
646,224
—
14,329
—
(11,381 )
—
29,217
—
(321,377 )
—
6,246
—
—
— 268,237,547 $
—
—
$
—
—
—
—
—
—
2,682 $ 1,931,796 437,386 $ (5,297 ) $ (1,775,616 ) $
—
—
—
—
—
—
(69,803 ) $
(2,844)
225
621 $
(2,844 )
225
84,383
See Notes to Consolidated Financial Statements
80
SABRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Business and Significant Accounting Policies
Description of Business
Sabre Corporation is a Delaware corporation formed in December 2006. On March 30, 2007, Sabre
Corporation acquired Sabre Holdings Corporation (“Sabre Holdings”). Sabre Holdings is the sole subsidiary of
Sabre Corporation. Sabre GLBL Inc. is the principal operating subsidiary and sole direct subsidiary of Sabre
Holdings. Sabre GLBL Inc. or its direct or indirect subsidiaries conduct all of our businesses. In these consolidated
financial statements, references to “Sabre,” the “Company,” “we,” “our,” “ours,” and “us” refer to Sabre
Corporation and its consolidated subsidiaries unless otherwise stated or the context otherwise requires.
We are a leading technology solutions provider to the global travel and tourism industry. We operate through
two business segments: (i) Travel Network, our global travel marketplace for travel suppliers and travel buyers, and
(ii) Airline and Hospitality Solutions, an extensive suite of travel industry leading software solutions primarily for
airlines and hotel properties.
In the fourth quarter of 2014, we committed to a plan to divest of our Travelocity segment, our global online
travel business. On January 23, 2015, we announced the sale of Travelocity.com. In addition, on December 16,
2014, we announced that we received a binding offer to sell lastminute.com, the European portion of our Travelocity
business, which closed on March 1, 2015. Our Travelocity segment has no remaining operations following these
dispositions. The financial results of our Travelocity segment are included in net (loss) income from discontinued
operations in our consolidated statements of operations for all periods presented. The assets and liabilities of
Travelocity.com and lastminute.com to be disposed of as of December 31, 2014 and 2013 are classified as held for
sale in our consolidated balance sheets.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”). We consolidate all of our majority owned subsidiaries and companies over
which we exercise control through majority voting rights. No entities are consolidated due to control through
operating agreements, financing agreements, or as the primary beneficiary of a variable interest entity. The
consolidated financial statements include our accounts after elimination of all significant intercompany balances and
transactions. All dollar amounts in the financial statements and the tables in the notes, except per share amounts, are
stated in thousands of U.S. dollars unless otherwise indicated. All amounts in the notes reference results from
continuing operations unless otherwise indicated.
The preparation of these annual financial statements in conformity with GAAP requires that certain amounts
be recorded based on estimates and assumptions made by management. Actual results could differ from these
estimates and assumptions. Our accounting policies, which include significant estimates and assumptions, include,
among other things, estimation of the collectability of accounts receivable, amounts for future cancellations of
bookings processed through the Sabre GDS, revenue recognition for software arrangements, determination of the
fair value of assets and liabilities acquired in a business combination, determination of the fair value of derivatives,
the evaluation of the recoverability of the carrying value of intangible assets and goodwill, assumptions utilized in
the determination of pension and other postretirement benefit liabilities, assumptions made in the calculation of
restructuring liabilities and the evaluation of uncertainties surrounding the calculation of our tax assets and liabilities.
81
Discontinued Operations
In April 2014, the FASB issued updated guidance that raised the threshold for disposals to qualify as
discontinued operations and allows companies to have significant continuing involvement and continuing cash flows
with the discontinued operations. The raised threshold pertains to the significance of the disposed business or asset
group relative to the consolidated entity. Existing guidance associated with the criteria of the classification of assets
and liabilities as held for sale was not impacted by the updated standard. We early adopted the guidance in the fourth
quarter of 2014 and, as a result, we reclassified our Travelocity business to discontinued operations in accordance
with the updated standard for all periods presented in our consolidated statements of operations.
Reclassifications
We reclassified amounts previously reported in assets of discontinued operations and liabilities of
discontinued operations in our consolidated balance sheets to the line items that the amounts represent. The
reclassifications were made in order to conform to our current period presentation.
Revenue Recognition
We employ a number of revenue models across our businesses, depending on the dynamics of the industry
segment and the technology on which the revenue is based. Some revenue models are used in multiple businesses.
Travel Network primarily employs the transaction revenue model. Airline and Hospitality Solutions primarily
employs the SaaS and hosted and consulting revenue models, as well as the software licensing fee model to a lesser
extent. Contracts with the same customer which are entered into at or around the same period are analyzed for
revenue recognition purposes on a combined basis across our businesses which can impact our revenue recognized.
Our discontinued Travelocity segment, which is included in discontinued operations in our consolidated
statements of operations, primarily employed the merchant, agency, marketing fee and media revenue models.
We report revenue net of any revenue based taxes assessed by governmental authorities that are imposed on
and concurrent with specific revenue producing transactions.
Transaction Revenue Model—This model accounts for substantially all of Travel Network’s revenues. We
define a direct billable booking as any booking that generates a fee directly to Travel Network. Transaction fees
include, but are not limited to, transaction fees paid by travel suppliers for selling their inventory through the Sabre
GDS and transaction fees paid by travel agency subscribers related to their use of the Sabre GDS. Pursuant to this
model, a transaction occurs when a travel agency or corporate travel department books, or reserves, a travel
supplier’s product on the Sabre GDS. We receive revenue from a travel supplier, travel agency, or corporate travel
department depending upon the commercial arrangement represented in each of their contracts. Transaction revenue
for airline travel reservations is recognized at the time of the booking of the reservation, net of estimated future
cancellations. Our transaction fee cancellation reserve was $9 million and $8 million at December 31, 2014 and
2013, respectively. Transaction revenue for car rental, hotel bookings and other travel providers is recognized at the
time the reservation is used by the customer. We evaluate whether it is appropriate to record the gross amount of our
revenues and related costs by considering a number of factors, including, among other things, whether we are the
primary obligor under the arrangement, change the product or perform part of the service and have latitude in
establishing prices.
82
Software-as-a-Service and Hosted Revenue Model—SaaS and hosted is the primary revenue model employed
by Airline and Hospitality Solutions. In this revenue model, we host software solutions on our own secure platforms,
or deploy it through our SaaS solutions and we maintain the software as well as the infrastructure it employs. Our
customers, which include airlines, airports and hotel companies, pay us an upfront solutions fee and a recurring
usage-based fee for the use of the software pursuant to contracts with terms that typically range between three and
ten years and generally include minimum annual volume requirements. This usage-based fee arrangement allows our
customers to pay for software normally on a monthly basis, to the extent that it is used. Contracts with the same
customer which are entered into at or around the same period are analyzed for revenue recognition purposes on a
combined basis. Revenue from upfront solution fees is generally recognized over the term of the agreement. The
amount of periodic usage fees is typically based on a metric relevant to the software’s purpose. We recognize
revenue from recurring usage based fees in the period earned, which typically fluctuates based on a real time metric,
such as the actual number of passengers boarded or the actual number of hotel bookings made in a given month.
Consulting Revenue Model—Our SaaS and hosted offerings can be sold as part of multiple element
agreements for which we also provide consulting services. Our consulting services are primarily focused on helping
customers achieve better utilization of and return on their software investment. Often we provide consulting services
during the implementation phase of our SaaS solutions. In such cases, we account for consulting service revenue
separately from upfront solution fees and recurring usage-based fees, with value assigned to each element based on
its relative selling price to the total selling price. We perform a market analysis on a periodic basis to determine the
range of selling prices for each product and service. Estimated selling prices are set for each product and service
delivered to customers. The revenue for consulting services is generally recognized over the period the services are
performed.
Software Licensing Fee Revenue Model—The software licensing fee revenue model is utilized by Airline and
Hospitality Solutions. Under this model, we generate revenue by charging customers for the installation and use of
our software products. Some contracts under this model generate additional revenue for the maintenance of the
software product. When software is sold without associated customization or implementation services, revenue from
software licensing fees is recognized when all of the following are met: (i) the software is delivered, (ii) fees are
fixed or determinable, (iii) no undelivered elements are essential to the functionality of delivered software, and (iv)
collection is probable. When software is sold with customization or implementation services, revenue from software
licensing fees is recognized based on the percentage of completion of the customization and implementation services.
Fees for software maintenance are recognized ratably over the life of the contract. We are unable to determine
vendor specific objective evidence of fair value for software maintenance fees. Therefore, when fees for software
maintenance are included in software license agreements, revenue from the software license, customization,
implementation and the maintenance are recognized ratably over the related contract term.
The remaining revenue models that follow are primarily applicable to our discontinued operations.
Marketing Fee Revenue Model—In the third quarter of 2013, we initiated plans to shift Travelocity in the U.S.
and Canada away from a fixed cost model to a lower cost, performance based shared revenue structure. We entered
into an exclusive, long term strategic marketing agreement with Expedia Inc., in which Expedia powered the
technology for Travelocity’s existing U.S. and Canadian websites, as well as provide Travelocity with access to
Expedia’s supply and customer service platforms. As part of the agreement, Expedia is required to pay us a
performance based marketing fee that will vary based on the amount of travel booked through Travelocity branded
websites powered by Expedia. The marketing fees we received were recorded as revenue and the costs we incurred
for marketing and that are to promote the Travelocity brand are recorded as selling, general and administrative. See
Note 3, Discontinued Operations and Dispositions, for the financial results of our discontinued operations.
83
Merchant Revenue Model—Referred to as our “Net Rate Program,” we were the merchant of record for credit
card processing for travel accommodations. We primarily used this model for revenue from hotel reservations and
dynamically packaged combinations. We were the merchant of record for these transactions, but we did not purchase
and resell travel accommodations and did not have any obligations with respect to travel accommodations offered
online that we did not sell. Instead, we acted as an intermediary by entering into agreements with travel suppliers for
the right to market their products, services and other content offerings at predetermined net rates. We marketed net rate
offerings to travelers at prices that include an amount sufficient to pay the travel supplier for providing the travel
accommodations and any occupancy and other local taxes, as well as additional amounts representing our service fees.
Under this revenue model, we required prepayment by the traveler at the time of booking.
Travelocity recognized net rate revenue for stand-alone air travel at the time the travel was booked with a
reserve for estimated future canceled bookings. Vacation packages, car rentals and hotel net rate revenues were
recognized at the date of consumption.
For Travelocity’s net rate and dynamically packaged combinations, we recorded net rate revenues based on
the total amount paid by the customer for products and services, minus our payment to the travel supplier. At the
time a customer made and prepaid a reservation, we accrued a supplier liability based on the amount we expected to
be billed by our travel suppliers. In some cases, a portion of Travelocity’s prepaid net rate and travel package
transactions went unused by the traveler. In those circumstances, Travelocity may not have been billed the full
amount of the accrued supplier liability. We reduced the accrued supplier liability for amounts aged more than six
months and recorded it as revenue if certain conditions were met. Our process for determining when aged amounts
may be recognized as revenue included consideration of key factors such as the age of the supplier liability,
historical billing and payment information, among others.
Agency Revenue Model—This model generated revenues via transaction fees and commissions from travel
suppliers for reservations made by travelers. Under this model, we acted as an agent in the transaction by passing
reservations booked by travelers to the relevant airline, hotel, car rental company, cruise line or other travel supplier,
while the travel supplier served as merchant of record and processed the payment from the traveler. We recognized
commission revenue for stand-alone air travel at the time the travel was booked with a reserve for estimated future
canceled bookings. Commissions from car and hotel travel suppliers were recognized upon the scheduled date of
travel consumption. We recorded car and hotel commission revenue net of an estimated reserve for cancellations, no
shows, and uncollectable commissions. As of December 31, 2014, we no longer maintained a commission reserve
due to the implementation of the marketing fee revenue model described above. As of December 31, 2013, our
reserve was $2 million and included in other accrued liabilities in our consolidated balance sheets.
Travelocity also generated revenue from the sale of third-party trip insurance and miscellaneous transaction
fees, such as cancellation and change fees. This revenue was recognized at the time the travel was booked, canceled
or changed.
Media Revenue Model—Advertising revenue was generated from travel suppliers and other entities that
advertise their products to travelers on Travelocity’s websites. To a lesser extent, Travel Network continues to
generate advertising revenue through our GDS. Advertisers use two types of advertising metrics: display advertising
and action advertising. In display advertising, advertisers usually pay based on the number of customers who view
the advertisement, and are charged based on cost per thousand impressions. In action advertising, advertisers usually
pay based on the number of customers who perform a specific action, such as click on the advertisement, or other
meaningful variable, and are charged based on the cost per action. Advertising revenues are recognized in the period
that the advertising impressions are delivered or the click through or other specific action occurs.
Incentive Consideration
Certain service contracts with significant travel agency customers contain booking productivity clauses and
other provisions that allow travel agency customers to receive cash payments or other consideration. We establish
liabilities for these commitments and recognize the related expense as these travel agencies earn incentive
consideration based on the applicable contractual terms. Periodically, we make cash payments to these travel
agencies at inception or modification of a service contract which are capitalized and amortized to cost of revenue
over the expected life of the service contract, which is generally three to five years. Deferred charges related to such
84
contracts are recorded in other assets, net on the consolidated balance sheets. The service contracts are priced so that
the additional airline and other booking fees generated over the life of the contract will exceed the cost of the
incentive consideration provided. Incentive consideration paid to the travel agency represents a commission paid to
the travel agency for booking travel on our GDS and the amounts paid to travel agencies represent fair value for the
services provided.
Restructuring Charges
Restructuring charges are typically comprised of employee severance costs, costs of consolidating duplicate
facilities and contract termination costs. A liability for costs associated with an exit or disposal activity is recognized
and measured at its fair value in our consolidated statement of operations in the period in which the liability is
incurred. Severance costs are recognized at the time employees are notified, unless future service by the employee is
required in which case the costs are recognized ratably over the future service period. Measuring restructuring
charges at fair value requires us to make estimates and assumptions which can differ from actual results. We may
revise our initial estimates which can affect our results of operations and financial position in the period the revision
is made.
Advertising Costs
The majority of our historical advertising expense related to our discontinued Travelocity segment.
Advertising costs are expensed as incurred. Advertising costs incurred by our discontinued Travelocity segment
totaled $141 million, $142 million and $166 million for the years ended December 31, 2014, 2013 and 2012,
respectively, which are included in net (loss) income from discontinued operations. Advertising costs incurred by
our continuing operations totaled $17 million, $16 million and $17 million for the years ended December 31, 2014,
2013 and 2012, respectively.
Cash and Cash Equivalents and Restricted Cash
We classify all highly liquid instruments, including money market funds and money market securities with
original maturities of three months or less, as cash equivalents. Restricted cash balances relate to security provided
for certain bank guarantees and banking services for specific subsidiaries in Europe related to our discontinued
Travelocity segment.
Allowance for Doubtful Accounts and Concentration of Credit Risk
We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances
where we are aware of a specific customer’s inability to meet its financial obligations to us, such as bankruptcy
filings or failure to pay amounts due to us or others, we record a specific reserve for bad debts against amounts due
to reduce the recorded receivable to the amount we reasonably believe will be collected. For all other customers, we
record reserves for bad debts based on historical experience and the length of time the receivables are past due. We
maintained an allowance for doubtful accounts of approximately $26 million and $24 million at December 31, 2014
and 2013, respectively.
Our customers are primarily located in the United States, Canada, Europe, Latin America and Asia, and are
concentrated in the travel industry. We generate a significant portion of our revenues and corresponding accounts
receivable from services provided to the commercial air travel industry. As of December 31, 2014 and 2013,
approximately $204 million, or 67%, and $178 million, or 67%, respectively, of our trade accounts receivable was
attributable to these customers, in each case excluding balances associated with our discontinued Travelocity
segment. Our other accounts receivable are generally due from other participants in the travel and transportation
industry. Substantially all of our accounts receivable, net represents trade balances. We generally do not require
security or collateral from our customers as a condition of sale.
85
We regularly monitor the financial condition of the air transportation industry. We believe the credit risk
related to the air carriers’ difficulties is mitigated by the fact that we collect a significant portion of the receivables
from these carriers through the Airline Clearing House (“ACH”) and other similar clearing houses. As of December
31, 2014, approximately 58% of our air customers make payments through the ACH which accounts for
approximately 95% of our air revenue. For these carriers, we believe the use of ACH mitigates our credit risk with
respect to airline bankruptcies. For those carriers from which we do not collect payments through the ACH or other
similar clearing houses, our credit risk is higher. We monitor these carriers and account for the related credit risk
through our normal reserve policies.
Derivative Financial Instruments
We recognize all derivatives, including embedded derivatives, on the consolidated balance sheets at fair value.
If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives are offset against the change in fair value of the hedged item through earnings (a “fair value hedge”) or
recognized in other comprehensive income until the hedged item is recognized in earnings (a “cash flow hedge”).
The ineffective portion of the change in fair value of a derivative designated as a hedge is immediately recognized in
earnings. For derivative instruments not designated as hedging instruments, the gain or loss resulting from the
change in fair value is recognized in current earnings during the period of change. No hedging ineffectiveness was
recorded in earnings during the periods presented.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization, which is calculated
on the straight line basis. Our depreciation and amortization policies are as follows:
Buildings
Leasehold improvements
Furniture and fixtures
Equipment, general office and
computer
Software developed for internal use
Lesser of lease term or 35 years
Lesser of lease term or useful life
5 to 15 years
3 to 5 years
3 to 5 years
We capitalize certain costs related to applications, infrastructure and graphics development for the Sabre
System and our websites under authoritative guidance on software developed for internal use. Capitalizable costs
consist of (a) certain external direct costs of materials and services incurred in developing or obtaining internal use
computer software and (b) payroll and payroll related costs for employees who are directly associated with and who
devote time to the Sabre System and web related development projects. Costs incurred during the preliminary
project stage or costs incurred for data conversion activities and training, maintenance and general and
administrative or overhead costs are expensed as incurred. Costs that cannot be separated between maintenance of,
and relatively minor upgrades and enhancements to, internal use software are also expensed as incurred. See Note 7,
Balance Sheet Components, for amounts capitalized as property and equipment in our consolidated balance sheets.
Depreciation and amortization of property and equipment totaled $157 million, $123 million and $97 million for the
years ended December 31, 2014, 2013 and 2012, respectively.
Property and equipment is evaluated for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets used in combination to generate cash flows largely independent of other assets
may not be recoverable. For the year ended December 31, 2012, we recognized property and equipment impairment
charges of $58 million associated with our discontinued Travelocity segment due to continued weakness in its
operating performance. This impairment charge is included in net (loss) income from discontinued operations. In
addition, we recognized a $20 million impairment charge on assets associated with an abandoned corporate facility
during the year ended December 31, 2012.
86
Goodwill and Intangible Assets
Goodwill is the excess of the purchase price over the fair value of identifiable tangible and intangible assets
acquired in business combinations. Goodwill and indefinite-lived intangible assets are not amortized but are
reviewed for impairment on an annual basis or more frequently if events and circumstances indicate the carrying
amount may not be recoverable. Definite-lived intangible assets are amortized on a straight-line basis and assigned
useful economic lives of four to thirty years, depending on classification. The useful economic lives are evaluated on
an annual basis.
We perform our annual assessment of possible impairment of goodwill and indefinite-lived intangible assets
as of October 1 of each year. We begin with the qualitative assessment of whether it is more likely than not that a
reporting unit’s fair value is less than its carrying value before applying the two step goodwill impairment model
described below. If it is determined through the qualitative assessment that a reporting unit’s fair value is more
likely than not greater than its carrying value, the remaining impairment steps are unnecessary. Otherwise, we
perform a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned to the
sum of the carrying value of the assets and liabilities of that unit. If the sum of the carrying value of the assets and
liabilities of a reporting unit exceeds the estimated fair value of that reporting unit, the carrying value of the
reporting unit’s goodwill is reduced to its implied fair value through an adjustment to the goodwill balance, resulting
in an impairment charge. We have identified six reporting units, three of which relate to our discontinued
Travelocity segment. The reporting units are Travel Network, Airline Solutions, Hospitality Solutions,
Travelocity—North America, Travelocity—Europe and Travelocity—Asia Pacific. Based on our qualitative
assessment, we did not record any goodwill impairment charges for the year ended December 31, 2014. We
recorded $136 million and $129 million in impairment charges related to our discontinued Travelocity segment for
the years ended December 31, 2013 and 2012, respectively, which are included in net (loss) income from
discontinued operations. See Note 6, Goodwill and Intangible Assets, for additional information.
Definite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount of definite lived intangible assets used in combination to generate cash flows
largely independent of other assets may not be recoverable. If impairment indicators exist for definite lived
intangible assets, the undiscounted future cash flows associated with the expected service potential of the assets are
compared to the carrying value of the assets. If our projection of undiscounted future cash flows is in excess of the
carrying value of the intangible assets, no impairment charge is recorded. If our projection of undiscounted cash
flows is less than the carrying value, the intangible assets are measured at fair value and an impairment charge is
recorded based on the excess of the carrying value of the assets to its fair value. We did not record material
intangible asset impairment charges for the years ended December 31, 2014 and 2013. We recorded $377 million in
intangible asset impairment charges related to our discontinued Travelocity segment for the year ended December
31, 2012 which are included in net (loss) income from discontinued operations. See Note 6, Goodwill and Intangible
Assets, for additional information.
Investment in Joint Ventures
We utilize the equity method to account for our interests in joint ventures and investments in stock of other
companies that we do not control but over which we exert significant influence. Investments in the common stock of
other companies over which we do not exert significant influence are accounted for at cost. We periodically evaluate
equity and debt investments in entities accounted for at cost or under the equity method for impairment by reviewing
updated financial information provided by the investee, including valuation information from new financing
transactions by the investee and information relating to competitors of investees when available. If we determine
that a cost method investment is other than temporarily impaired, the carrying value of the investment is reduced to
its estimated fair value through earnings. For the year ended December 31, 2012, joint venture equity income
included a $24 million impairment of goodwill recorded by one of our investees. For the years ended December 31,
2014, 2013 and 2012, impairments of investments carried at cost were not material to our results of operations.
87
The following table displays the name of each of those investees that we do not control but over which we
exert significant influence, and our voting interest in their stock held at December 31, 2014:
Joint Venture
ESS Elektroniczne Systemy Spzedazy
Sp. zo.o ...............................................
ABACUS International PTE Ltd .............
Sabre Bulgaria AD ..................................
Voting Interest
40%
35%
20%
Our investments in joint ventures on the consolidated balance sheets include $89 million and $93 million, as
of December 31, 2014 and 2013, respectively, of excess basis over our underlying equity in joint ventures. This
differential represents goodwill in addition to identifiable intangible assets which are being amortized to joint
venture equity income over their estimated lives.
Capitalized Implementation Costs
We incur upfront costs to implement new customer contracts under our SaaS revenue model. We capitalize
these costs, including (a) certain external direct costs of materials and services incurred to implement a customer
contract and (b) payroll and payroll related costs for employees who are directly associated with and devote time to
implementation activities. Capitalized implementation costs are amortized on a straight-line basis over the related
contract term, ranging from three to ten years, as they are recoverable through deferred or future revenues associated
with the relevant contract. These assets are reviewed for recoverability on a periodic basis or when an event occurs
that could impact the recoverability of the assets, such as a significant contract modification or early renewal of
contract terms. Recoverability is measured based on the future estimated revenue and direct costs of the contract
compared to the capitalized implementation costs, net of any deferred revenue associated with the customer.
Deferred Customer Discounts
Deferred advances to customers and customer discounts are amortized in future periods as the related revenue
is earned. The assets are reviewed for recoverability based on future contracted revenues. Contracts are priced to
generate total revenues over the life of the contract that exceed any discounts or advances provided and any upfront
costs incurred to implement the customer contract.
Income Taxes
Deferred income tax assets and liabilities are determined based on differences between financial reporting and
income tax basis of assets and liabilities and are measured using the tax rates and laws in effect at the time of such
determination. We regularly review our deferred tax assets for recoverability and a valuation allowance is provided
when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In assessing the
need for a valuation allowance, we make estimates and assumptions regarding projected future taxable income, our
ability to carry back operating losses to prior periods, the reversal of deferred tax liabilities and implementation of
tax planning strategies. We reassess these assumptions regularly which could cause an increase or decrease to the
valuation allowance resulting in an increase or decrease in the effective tax rate, and could materially impact our
results of operations.
We recognize liabilities when we believe that an uncertain tax position may not be fully sustained upon
examination by the tax authorities. Liabilities are recognized for uncertain tax positions that do not pass a two-step
approach for recognition and measurement. First, we evaluate the tax position for recognition by determining if
based solely on its technical merits, it is more likely than not to be sustained upon examination. Secondly, for
positions that pass the first step, we measure the tax benefit as the largest amount which is more than 50% likely of
being realized upon ultimate settlement. We recognize penalties and interest accrued related to income taxes as a
component of the provision (benefit) for income taxes.
88
Travel Supplier Liabilities and Related Deferred Revenue
Our discontinued Travelocity segment recorded amounts due to travel suppliers and our service fees as liabilities
and deferred revenue until these amounts were paid to the suppliers or recognized as revenue upon consumption of the
travel. See “—Merchant Revenue Model” for additional information. As of December 31, 2014, travel supplier
liabilities and related deferred revenue are primarily in liabilities held for sale in the consolidated balance sheets.
Pension and Other Postretirement Benefits
We recognize the funded status of our defined benefit pension plans and other postretirement benefit plans in
our consolidated balance sheets. The funded status is the difference between the fair value of plan assets and the
benefit obligation as of the balance sheet date. The fair value of plan assets represents the cumulative contributions
made to fund the pension and other postretirement benefit plans which are invested primarily in domestic and
foreign equities and fixed income securities. The benefit obligation of our pension and other postretirement benefit
plans are actuarially determined using certain assumptions approved by us. The benefit obligation is adjusted
annually in the fourth quarter to reflect actuarial changes and may also be adjusted upon the adoption of plan
amendments. These adjustments are initially recorded in accumulated other comprehensive income and are
subsequently amortized over the life expectancy of the plan participants as a component of net periodic benefit costs.
Equity-Based Compensation
We account for our stock awards and options by recognizing compensation expense, measured at the grant
date based on the fair value of the award, on a straight-line basis over the award vesting period, giving consideration
as to whether the amount of compensation cost recognized at any date is equal to the portion of grant date value that
is vested at that date. We account for our liability awards by remeasuring the fair value of our awards at each
reporting date. Changes in fair value of our liability awards are recognized in earnings. We recognize equity-based
compensation expense net of an estimated forfeiture rate which is based on our historical experience of granted
awards that are cancelled prior to vesting.
We measure the grant date fair value of stock option awards as calculated by the Black-Scholes option-pricing
model which requires certain subjective assumptions, including the expected term of the option, the expected
volatility of our common stock, risk-free interest rates and expected dividend yield. The expected term is estimated
by using the “simplified method” which is based on the midpoint between the vesting date and the expiration of the
contractual term. We utilized the simplified method due to the lack of sufficient historical experience under our
current grant terms. The expected volatility is estimated by using the average of the median historic price volatility
and the median implied volatility of common stock of industry peers due to the lack of sufficient historical volatility
of our common stock. Our industry peers consist of several public companies in the technology industry that are
similar in size, stage of life cycle and financial leverage. The expected risk-free interest rates are based on the yields
of U.S. Treasury securities with maturities appropriate for the expected term of the stock options. The expected
dividend yield was based on the calculated yield on our common stock at the time of grant assuming annual
dividends totaling $0.36 per share.
Foreign Currency
We remeasure foreign currency transactions into the relevant functional currency and record the foreign
currency transaction gains or losses as a component of other, net in our consolidated statements of operations. We
translate the financial statements of our non-U.S. dollar functional currency foreign subsidiaries into U.S. dollars in
consolidation and record the translation gains or losses as a component of other comprehensive income (loss).
Translation gains or losses of foreign subsidiaries related to divested businesses are reclassified into earnings as a
component of other, net in our consolidated statements of operations once the liquidation of the respective foreign
subsidiaries is substantially complete. The majority of our foreign subsidiaries related to divested businesses are
classified as discontinued operations in our consolidated statements of operations.
89
2. Acquisitions
Genares—In September 2014, we acquired certain assets and liabilities of Genares Worldwide Reservation
Services, Ltd. (“Genares”), a provider of central reservation systems, revenue management and marketing solutions
to more than 2,300 independent and chain hotel properties worldwide. Under the transaction, we acquired the net
assets of Genares for cash consideration of $32 million. The operating results of Genares have been included in our
consolidated statement of operations and results of operations of our Airline and Hospitality Solutions segment from
the date of the acquisition. Assets acquired and liabilities assumed were recorded at their estimated fair values using
management’s best estimates, based in part on an independent valuation of the net assets acquired. The allocation of
the purchase price includes $16 million of goodwill, which is deductible for tax purposes, $16 million of other
intangible assets and $1 million of other net assets acquired. The other intangible assets consist primarily of $13
million of acquired customer relationships with a useful life of ten years and $2 million of non-compete agreements
with a useful life of five years.
The acquisition of Genares did not have a material impact to our consolidated financial statements, and
therefore pro forma information is not presented.
PRISM—In August 2012, we acquired all of the outstanding stock and ownership interests of PRISM Group
Inc. and PRISM Technologies LLC (collectively “PRISM”), a leading provider of end to end airline contract
business intelligence and decision support software. The acquisition added to our portfolio of products within
Airline and Hospitality Solutions, allows for new relationships with airlines and added to our existing business
intelligence capabilities. The purchase price was $116 million, of which $66 million was paid in August 2012 and
$50 million, on a discounted basis, was contingent consideration paid in two annual installments. The first $27
million installment was paid in August 2013 and represented a holdback payment primarily for indemnification
purposes. The second $27 million installment was paid in August 2014 and represented contingent consideration
based on performance measures which were met. In addition, we paid a total of $6 million of contingent
compensation to key employees in two installments of $3 million each in August of 2013 and 2014. The contingent
compensation was not considered part of the purchase price consideration.
The results of operations of PRISM are included in our consolidated statements of operations and the results
of operations of Airline and Hospitality Solutions from the date of acquisition. The acquisition of PRISM did not
have a material impact to our consolidated financial statements.
3. Discontinued Operations and Dispositions
Discontinued Operations
Over the past several years, we have disposed of non-core operations of our Travelocity business and, in the
fourth quarter of 2014, we committed to a plan to completely divest of our Travelocity business which we completed
in the first quarter of 2015. On January 23, 2015, we announced the sale of our Travelocity business in the United
States and Canada (“Travelocity.com”). In addition, on December 16, 2014, we announced that we received a
binding offer to sell lastminute.com, the European portion of our Travelocity business, which closed on March 1,
2015. Our Travelocity segment has no remaining operations subsequent to these dispositions. The financial results
of our Travelocity business are included in net (loss) income from discontinued operations in our consolidated
statements of operations for all periods presented. The assets and liabilities of Travelocity.com and lastminute.com
to be disposed of are classified as held for sale in our consolidated balance sheets as of December 31, 2014 and
2013.
Travelocity.com—On January 23, 2015, we announced the sale of our global online travel business operated
under the Travelocity brand to Expedia, pursuant to the terms of an Asset Purchase Agreement (the “Travelocity
Purchase Agreement”), dated January 23, 2015, by and among Sabre GLBL Inc. and Travelocity.com LP, and
Expedia. The signing and closing of the Travelocity Purchase Agreement occurred contemporaneously. Expedia
purchased Travelocity.com pursuant to the Travelocity Purchase Agreement for cash consideration of $280 million.
The Travelocity Purchase Agreement contains customary representations and warranties, covenants and indemnities
for a transaction of this nature. The net assets of Travelocity.com disposed of primarily included a trade name with a
carrying value of $55 million as of December 31, 2014. We expect to recognize a gain on sale of approximately
$141 million, net of tax, in the first quarter of 2015.
90
As a result of the sale of Travelocity.com pursuant to the Travelocity Purchase Agreement, the strategic
marketing agreement described in Note 4, Restructuring Charges, pursuant to which Expedia powered the
technology platforms of Travelocity’s existing U.S. and Canadian websites, and the related put/call arrangement,
have been terminated.
lastminute.com—On December 16, 2014, we announced that we had received a binding offer from Bravofly
Rumbo Group to acquire lastminute.com which subsequently closed on March 1, 2015. The transaction was
completed through the transfer of net liabilities as of the date of sale consisting primarily of a working capital deficit.
We did not receive any cash proceeds or any other significant consideration in the transaction other than payment
for specific services to be provided to the acquirer under a transition services agreement during 2015. Additionally,
at the time of sale, the acquirer entered into a long-term agreement with Travel Network to continue to utilize our
GDS for bookings which will generate incentive consideration to be paid by us to the acquirer. We expect to
recognize a gain on sale in the first quarter of 2015 which we are currently in the process of estimating.
Travel Partner Network—In February 2014, we completed a sale of assets associated with Travelocity Partner
Network (“TPN”), a business-to-business private white label website offering, for $10 million in proceeds. Pursuant
to the sale agreement, we were to receive two annual earn-out payments, totaling up to $10 million, if the purchaser
exceeded certain revenue thresholds during the calendar years ending December 31, 2014 and 2015. The revenue
threshold was not met for the year ended December 31, 2014 and we do not expect that the revenue threshold for the
year ended December 31, 2015 will be met. In connection with the sale, Travelocity entered into a Transition
Services Agreement (“TSA”) with the acquirer to provide services to maintain the websites and certain technical and
administrative functions for the acquirer until a complete transition occurs or the TSA terminates. Consideration
received under both agreements has been allocated to the disposition and the services provided under the TSA;
therefore, a significant portion of the upfront proceeds were deferred, based on fair value of the TSA services, and
recognized as an offset to operating expense within discontinued operations as the services were provided during
2014. We recognized a $3 million loss on disposition which is included in restructuring charges for the year ended
December 31, 2014 in our results of discontinued operations.
Holiday Autos—On June 25, 2013, we sold certain assets of our Holiday Autos operations to a third party and,
in November 2013, completed the closing of the remainder of the Holiday Autos operations such that it represented
a discontinued operation. Holiday Autos was a leisure car hire broker that offered pre-paid, low-cost car rentals in
various markets, largely in Europe. In the second quarter of 2013, we recognized an $11 million loss, net of tax, on
the sale of Holiday Autos. The loss includes the write-off of $39 million of goodwill and intangible assets attributed
to Holiday Autos, with the goodwill portion determined based on Holiday Autos’ relative fair value to the
Travelocity Europe reporting unit. The sale provided for us to receive two earn-out payments measured during the
12 month periods ending September 30, 2014 and 2015, totaling up to $12 million, based upon the purchaser
exceeding certain booking thresholds as defined in the sale agreement. At the time of sale, we recognized a total of
$6 million relative to these earn-out provisions. In the fourth quarter of 2014, we received $6 million from the first
earn-out payment. The amount received from the second earn-out payment, if any, will be recorded as a gain in the
period received.
TBiz—On June 18, 2013, we completed the sale of certain assets of Travelocity (“TBiz”) operations to a third
party for proceeds of $10 million. TBiz provided managed travel services for corporate customers. In the second
quarter of 2013, we recognized a pre-tax gain on the sale of TBiz of $1 million which included the write-off of $9
million of goodwill attributed to TBiz based on the relative fair value to the Travelocity North America reporting
unit. On an after tax basis, we recognized a loss of $3 million on the sale of TBiz.
Travelocity Asia Pacific—In July 2012, we completed the sale of two of our subsidiaries in India (collectively
“TravelGuru”). These businesses offered a wide array of travel related services and operated a hotel reservations
system. We recorded a gain on the sale of approximately $11 million, net of tax, in the third quarter of 2012.
Zuji—In December 2012, we entered into an agreement to sell our shares of Zuji Properties A.V.V. and Zuji
Pte Ltd along with its operating subsidiaries (collectively “Zuji”), a Travelocity Asia Pacific-based Online Travel
Agency (“OTA”). At that time, the assets were recorded at the lower of the carrying amount or fair value less cost to
sell. We recorded an estimated loss on the sale of approximately $14 million, net of tax, during 2012. We sold Zuji
in March 2013 and recorded an additional $11 million loss on sale, net of tax, in the first quarter of 2013. We had
91
continuing cash flows from Zuji due to reciprocal agreements between us and Zuji to provide hotel reservations
services over a three year period. The agreements included commissions paid to the respective party based on
qualifying bookings. Due to the restructuring activities associated with our discontinued Travelocity segment in the
fourth quarter of 2013, there were no continuing cash flows under these agreements during the year ended December
31, 2014. The continuing cash flows associated with Zuji were not material to our results of operations for the year
ended December 31, 2013.
Travelocity Nordics—In December 2012, we sold certain assets of Travelocity’s Nordics business to a third
party. The Nordics business is comprised of an online travel agency and event and ticket sales in Sweden, Norway
and Denmark.
Financial Information of Discontinued Operations
The results of our discontinued operations are as follows (in thousands):
Year Ended December 31,
2013
2014
635,570 $
258,409
389,356
138,947
28,387
(179,529 )
2012
766,661
340,203
504,971
564,176
—
(642,689)
(1,217 )
(27,709 )
(4,430 )
(33,356 )
(8,898)
(8,266)
2,644
(14,520)
(212,885 )
(63,188 )
(149,697 )
—
(149,697 ) $
(657,209)
(201,963)
(455,246)
(60,836)
(394,410)
Revenue ............................................................................ $
Cost of revenue .................................................................
Selling, general and administrative ...................................
Impairment ........................................................................
Restructuring charges ........................................................
Operating loss ........................................................
Other income (expense):
Interest expense, net ....................................................
Loss on sale of businesses, net ....................................
Other, net .....................................................................
Total other expense, net ....................................................
Loss from discontinuing operations before income
taxes .............................................................................
Benefit for income taxes ...................................................
Net loss .............................................................................
Net loss attributable to noncontrolling interests ................
Net loss from discontinued operations .............................. $
328,835 $
113,092
273,195
—
1,785
(59,237)
—
—
(10,545)
(10,545)
(69,782)
(30,864)
(38,918)
—
(38,918) $
92
The major classes of assets and liabilities held for sale associated with Travelocity.com and lastminute.com
are as follows (in thousands):
Assets
Accounts receivable, net .................................................... $
Prepaid expenses and other current assets ..........................
Property and equipment, net ..............................................
Intangible assets, net ..........................................................
Other assets, net .................................................................
Total assets held for sale ............................................... $
Liabilities
Accounts payable ............................................................... $
Travel supplier liabilities and related deferred revenue .....
Accrued compensation and related benefits .......................
Deferred revenues ..............................................................
Other accrued liabilities .....................................................
Total liabilities held for sale ......................................... $
As of December 31,
2014
2013
27,129 $
3,943
15,597
64,194
1,695
112,558 $
3,344 $
70,858
2,237
1,519
18,586
96,544 $
38,251
4,754
1,939
73,748
1,801
120,493
4,921
72,498
8,586
162
24,086
110,253
Continuing Cash Flows Associated with Travelocity.com and lastminute.com
Our Travel Network business earns revenue from airlines for bookings transacted through our GDS.
Historically, Travel Network recognized intersegment incentive consideration expense for bookings generated by
our Travelocity business. Such costs are representative of costs incurred on a consolidated basis relating to Travel
Network’s revenue from airlines for bookings transacted through our GDS. The acquirer of Travelocity.com
maintained and the acquirer of lastminute.com signed a long-term agreement with our Travel Network business to
continue to utilize our GDS for bookings which will generate incentive consideration to be paid by us to the
acquirers. Incentive consideration expense presented as cost of revenue in our results of continuing operations
totaled $10 million, $46 million and $49 million for the years ended December 31, 2014, 2013 and 2012,
respectively.
Other Dispositions
Sabre Pacific—On February 24, 2012, we completed the sale of our 51% stake in Sabre Australia
Technologies I Pty Ltd (“Sabre Pacific”), an entity jointly owned by a subsidiary of Sabre (51%) and ABACUS
International PTE Ltd (“Abacus”) (49%), to Abacus for $46 million of proceeds. Of the proceeds received, $9
million was for the sale of stock, $18 million represented the repayment of an intercompany note receivable from
Sabre Pacific, which was entered into when the joint venture was originally established, and the remaining $19
million represented the settlement of operational intercompany receivable balances with Sabre Pacific and
associated amounts we owed to Abacus. We recorded a pre-tax gain on sale of business of $25 million in our
consolidated statements of operations for the year ended December 31, 2012. We have also entered into a license
and distribution agreement with Sabre Pacific under which it will market, sublicense, distribute, and provide access
to and support for the Sabre GDS in Australia, New Zealand and surrounding territories. Sabre Pacific pays us an
ongoing transaction fee based on booking volumes under this agreement.
93
4. Restructuring Charges
Travelocity Restructuring—In the third quarter of 2013, we initiated plans to restructure our discontinued
Travelocity segment, shifting Travelocity.com away from a fixed-cost model to a lower-cost, performance-based
shared revenue structure. On August 22, 2013 we entered into an exclusive, long-term strategic marketing
agreement with Expedia (“Expedia SMA”), in which Expedia powered the technology platforms for Travelocity’s
existing U.S. and Canadian websites, as well as provided Travelocity with access to Expedia’s supply and customer
service platforms. In connection with the Expedia SMA, we also entered into a put/call agreement with Expedia (the
“Put/Call Agreement”). Pursuant to the Put/Call Agreement, Expedia had the option to acquire assets relating to the
Travelocity-branded portions of our Travelocity business. In the fourth quarter of 2013, we also initiated a plan to
restructure lastminute.com which involved establishing it as a stand-alone operation, separating processes from the
North America operations, while adding efficiencies to streamline the European operations.
On January 23, 2015, we sold Travelocity.com and on December 16, 2014, we announced that we received a
binding offer to sell lastminute.com, which closed on March 1, 2015. See Note 3, Discontinued Operations and
Dispositions, for additional information.
The restructuring charges associated with our discontinued Travelocity segment are included in net (loss)
income from discontinued operations. As a result of the Travelocity restructuring actions initiated in 2013, we
recorded charges of $28 million during the year ended December 31, 2013 which included $4 million of asset
impairments, $18 million of employee termination benefits and $6 million of other related costs. During the year
ended December 31, 2014, we recorded a net charge of $2 million which included a $3 million loss on the sale of
TPN, $3 million in additional severance costs and $2 million in other costs, net of adjustments to our original
estimates of employee termination benefits of $6 million. The adjustments to our original estimates are primarily the
result of certain employees that transferred and are expected to transfer to the acquirers of the TPN business and
lastminute.com, respectively, without a required severance payment.
Technology Restructuring—Our corporate expenses include a technology organization that provides
development and support activities to our business segments. Costs associated with our technology organization are
charged to the business segments primarily based on its usage of development resources. For the year ended
December 31, 2013, the majority of costs associated with the technology organization were incurred by Travel
Network and Airline and Hospitality Solutions. In the fourth quarter of 2013, we initiated a restructuring plan to
simplify our technology organization, better align costs with our current business, reduce our spending on third-
party resources, increase focus on product development and reduce our employee base by approximately 350
employees. The majority of this plan was completed in the first half of 2014 and we did not record material charges
in 2014 related to this action.
The change in our restructuring accruals, included in other current liabilities, is as follows (in thousands):
Employee Termination Benefits
Travelocity
(Discontinued
Operations)
Technology
Organization
Balance as of December 31, 2013 .............................. $
Charges .................................................................
Adjustments ..........................................................
Payments ...............................................................
Balance as of December 31, 2014 .............................. $
17,731 $
2,696
(6,059)
(10,991)
3,377 $
8,163 $
—
(860 )
(7,023 )
280 $
Total
25,894
2,696
(6,919)
(18,014)
3,657
The charges included in our restructuring accruals do not include items charged directly to expense (e.g., asset
impairments) and other periodic costs recognized as incurred, as those items are not reflected in the restructuring
reserve in our consolidated balance sheet. Restructuring charges are not allocated to the segments for segment
reporting purposes (see Note 18, Segment Information).
94
5. Equity Method Investments
We have an investment in Abacus International Pte Ltd (“Abacus”) and have entered into a service agreement
with Abacus related to data processing services, development labor and other services as requested. The primary
revenue generated from Abacus is data processing fees associated with bookings on the Sabre GDS. Development
labor and ancillary services are provided upon request. Additionally, in accordance with an agreement with Abacus,
we collect booking fees on behalf of Abacus and record a payable, or economic benefit transfer, to Abacus for
amounts collected but unremitted at any period end, net of any associated costs we incur.
During the year ended December 31, 2012, Abacus recorded an impairment of goodwill associated with its
acquisition of Sabre Pacific, of which our share was $24 million.
Summarized financial information of Abacus is as follows:
Year Ended December 31,
2013
2014
2012
Results of operations data:
Revenue ................................................................... $
Cost of revenue ........................................................
Operating income ....................................................
Net income (loss) .....................................................
Net income (loss) attributable to Abacus.................
357,711 $ 335,255 $ 320,069
205,505 200,212
225,269
56,703
45,271
(20,366 )
59,430
(20,496 )
59,390
49,287
42,368
42,443
As of December 31,
2013
2014
Balance sheet data:
Current assets ......................................................... $
Noncurrent assets ...................................................
Current liabilities ....................................................
Noncurrent liabilities ..............................................
Noncontrolling interest ...........................................
202,916 $ 212,889
76,319
123,217
170,780
140,272
7,474
9,245
215
254
Financial information of our related party transactions with Abacus is as follows:
Revenue earned from Abacus .................................... $
Year Ended December 31,
2014
91,324 $
2013
91,998 $
2012
71,957
Receivable from Abacus .............................................. $
Payable to Abacus for Economic Benefit Transfer ......
Current deferred revenue related to Abacus data
As of December 31,
2014
2013
21,458 $
(9,217)
29,377
(8,648 )
processing ...............................................................
(2,571)
(2,571 )
Long-term deferred revenue related to Abacus data
processing ...............................................................
Related party (payable) receivable, net ........................ $
(10,286)
(616) $
(12,857 )
5,301
95
6. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill during the year ended December 31, 2014 and December 31,
2013 are as follows (in thousands):
Travel
Network
Acquired ........................................................................
Adjustments (1) ..............................................................
Impairment ....................................................................
Disposals .......................................................................
Balance as of December 31, 2012 ...................................... $ 1,812,484 $
399
(197)
—
—
Balance as of December 31, 2013 ...................................... $ 1,812,686 $
—
(186)
Balance as of December 31, 2014 ...................................... $ 1,812,500 $
Acquired ........................................................................
Adjustments (1) ..............................................................
Airline and
Hospitality
Solutions
Total
Goodwill
Travelocity
(Discontinued
Operations)
325,489 $ 192,855 $ 2,330,828
399
(197)
(135,598)
(57,257)
— $ 2,138,175
15,510
—
—
(186)
— $ 2,153,499
—
—
—
—
325,489 $
15,510
—
340,999 $
—
—
(135,598 )
(57,257 )
___________________________________________o_____________
(1)
Includes net foreign currency effects during the year.
The following table presents our intangible assets as of December 31, 2014 and 2013 (in thousands):
December 31, 2014
December 31, 2013
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Trademarks and brandnames .............. $ 326,054 $
Acquired customer relationships ......... 705,963
Purchased technology ......................... 469,599
Non-compete agreements ...................
15,025
Acquired contracts, supplier and
(87,554) $ 238,500 $ 325,954 $
(535,334) 170,629
57,485
(412,114)
1,772
(13,253)
(76,666) $249,288
692,863 (471,597) 221,266
468,639 (392,014) 76,625
431
(12,894)
13,325
(13,400) 13,200
distributor agreements ....................
Total intangible assets ................... $ 1,543,241 $ (1,063,255) $ 479,986 $1,527,381 $ (966,571) $560,810
(15,000)
26,600
26,600
11,600
In 2013, in conjunction with the disposal of TBiz (part of our Travelocity North America reporting unit) and
Holidays Autos (part of our Travelocity Europe reporting unit), we initiated an impairment analysis on the
remainder of the goodwill and long-lived assets associated with these reporting units. Further declines in our
projections of the discounted future cash flows of these reporting units and current market participant considerations
resulted in a $96 million goodwill impairment charge in Travelocity—North America and a $40 million goodwill
impairment charge in Travelocity—Europe, which are included in net (loss) income from discontinued operations.
As a result of these impairments, the Travelocity segment had no remaining goodwill.
In 2012, as a result of continued weakness in the Travelocity segment’s operating performance and certain
changes in its business, we recognized $58 million and $70 million of goodwill impairment charges, respectively,
associated with Travelocity—North America and Travelocity—Europe. In addition, we recognized $238 million and
$139 million of intangible asset impairment charges primarily associated with the trade names of Travelocity—
North America and Travelocity—Europe, respectively, which are included in net (loss) income from discontinued
operations.
Accumulated goodwill impairment charges totaled $1,383 million as of December 31, 2014 and 2013. All
accumulated goodwill impairment charges are associated with our discontinued Travelocity segment.
96
Amortization expense relating to intangible assets subject to amortization totaled $96 million, $129 million
and $127 million for the year ended December 31, 2014, 2013, and 2012, respectively. Estimated amortization
expense related to intangible assets subject to amortization for each of the five succeeding years and beyond is as
follows (in thousands):
2015 .................................................................................. $
2016 ..................................................................................
2017 ..................................................................................
2018 ..................................................................................
2019 ..................................................................................
2020 and thereafter ...........................................................
86,247
85,054
40,035
24,936
24,706
219,008
Total ............................................................................ $ 479,986
7. Balance Sheet Components
Other Receivables, Net
Other receivables, net consist of the following (in thousands):
Value added tax receivable, net ................................... $
Federal income tax receivable .....................................
Other ............................................................................
Other receivables, net ............................................. $
December 31,
2014
24,940 $
2,256
2,697
29,893 $
2013
28,882
2,024
4,251
35,157
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
December 31,
Buildings & leasehold improvements .......................... $ 150,842 $
23,823
Furniture, fixtures & equipment...................................
305,877
Computer equipment ....................................................
862,895
Software developed for internal use .............................
Accumulated depreciation and amortization ................
(792,161)
Property and equipment, net ................................... $ 551,276 $
2014
2013
153,656
23,730
259,535
713,952
1,343,437 1,150,873
(654,673 )
496,200
Other Assets, Net
Other assets, net consist of the following (in thousands):
December 31,
2014
Capitalized implementation costs, net ......................... $ 176,677 $
3,234
Long-term deferred income taxes ................................
144,382
Deferred customer discounts ........................................
89,953
Deferred upfront incentive consideration.....................
95,518
Other ............................................................................
Other assets, net ...................................................... $ 509,764 $
2013
175,886
34,794
89,822
81,580
88,447
470,529
97
Other Noncurrent Liabilities
Other noncurrent liabilities consist of the following (in thousands):
December 31,
2014
2013
Litigation settlement liability and related deferred
revenue .................................................................... $
Deferred revenue ..........................................................
Pension and other postretirement benefits ...................
Tax receivable agreement ............................................
Other ............................................................................
22,960
$
59,287
90,656
387,342
53,465
Other noncurrent liabilities ..................................... $ 613,710 $
98,311
50,577
55,032
—
67,039
270,959
Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of the following (in thousands):
December 31,
2014
2013
Defined benefit pension & other postretirement
benefit plans ............................................................ $
(90,172) $
(63,762 )
Unrealized loss on foreign currency forward
contracts and interest rate swaps .............................
Unrealized foreign currency translation gain ...............
Other (1) ........................................................................
Total accumulated other comprehensive loss,
(7,395)
22,843
4,921
(2,684 )
15,050
1,501
net of tax ............................................................ $
(69,803) $
(49,895 )
____________________________________________________________
(1)
Primarily relates to our share of Abacus’ accumulated other comprehensive income. See Note 5,
Equity Method Investments.
During the year ended December 31, 2013, we reclassified $8 million, net of tax, of foreign currency
translation losses from accumulated other comprehensive income into loss from discontinued operations as a result
of the disposition of Zuji (see Note 3, Discontinued Operations and Dispositions). The amortization of actuarial
losses and periodic service credits associated with our retirement-related benefit plans are included in selling,
general and administrative expenses. See Note 10, Derivatives, for information on the income statement line items
affected as the result of reclassification adjustments associated with derivatives.
98
8. Income Taxes
The components of pretax income from continuing operations, generally based on the jurisdiction of the legal
entity, were as follows:
Year Ended December 31,
2013
2012
2014
Components of pre-tax income:
Domestic ............................................................... $ 109,481 $
7,671
Foreign ..................................................................
86,908 $ (276,332 )
53,998
19,197
$ 117,152 $ 106,105 $ (222,334 )
The Company’s domestic pretax loss of $276 million in 2012 was due to the pretax impact of the litigation
settlement with AMR (see Note 17, Commitments and Contingencies).
The provision for income taxes relating to continuing operations consists of the following:
Year Ended December 31,
2013
2012
2014
Current portion:
Federal .................................................................. $
State and Local .....................................................
Non U.S. ...............................................................
Total current ....................................................
— $
(10,099)
20,207
10,108
Deferred portion:
Federal ..................................................................
State and Local .....................................................
Non U.S. ...............................................................
Total deferred ..................................................
Total provision (benefits) for income taxes .......... $
(10,852)
3,381
3,642
(3,829)
6,279 $
16,476 $
10,817
12,805
40,098
13,239
71
631
13,941
54,039 $
7,383
6,757
11,857
25,997
(31,595 )
(3,824 )
2,515
(32,904 )
(6,907 )
The provision for income taxes relating to continuing operations differs from amounts computed at the
statutory federal income tax rate as follows:
Year Ended December 31,
2013
2012
2014
Income tax provision at statutory federal income
tax rate ................................................................... $
State income taxes, net of federal benefit ...................
Impact of non U.S. taxing jurisdictions, net ...............
Goodwill impairment .................................................
Impact of sale of business ..........................................
Research tax credit .....................................................
Tax receivable agreement...........................................
Valuation allowance ...................................................
Other, net ....................................................................
Total provision (benefit) for income taxes ............ $
41,003
$
(3,224)
30,476
—
—
(3,101)
22,982
(82,116)
259
6,279 $
37,137
$
7,036
13,153
—
—
(3,076 )
—
—
(211 )
54,039 $
(77,817 )
568
5,516
8,330
(15,209 )
—
—
72,261
(556 )
(6,907 )
99
The components of our deferred tax assets and liabilities are as follows:
As of December 31,
2013
2014
Deferred tax assets:
Accrued expenses ................................................... $
Employee benefits other than pension ....................
Deferred revenue ....................................................
Pension obligations .................................................
Tax loss carryforwards ...........................................
Non U.S. operations ...............................................
Incentive consideration ...........................................
Tax credit carryforwards ........................................
TVL Common suspended loss ................................
Other .......................................................................
Total deferred tax assets ....................................
48,491 $
22,969
58,779
33,281
420,765
3,048
3,073
32,879
24,046
11,177
658,508
34,686
23,932
67,601
18,613
376,427
33,315
(1,101 )
29,312
24,718
14,531
622,034
Deferred tax liabilities:
Depreciation and amortization ................................
Software developed for internal use .......................
Intangible assets .....................................................
Write off of Intercompany Debt .............................
Unrealized gains and losses ....................................
Currency translation adjustment .............................
Total deferred tax liabilities ..............................
Valuation allowance ..........................................
(9,381)
(210,736)
(85,374)
(36,043)
(20,759)
(12,189)
(374,482)
(160,092)
Net deferred tax asset ............................................. $ 123,934 $
(7,844 )
(190,362 )
(89,895 )
—
(6,794 )
(8,085 )
(302,980 )
(253,082 )
65,972
We pay United States (“U.S.”) income taxes on the earnings of non U.S. subsidiaries unless the subsidiaries’
earnings are considered permanently reinvested outside the United States. To the extent that the non U.S. earnings
previously treated as permanently reinvested are repatriated, the related U.S. tax liability may be reduced by any non
U.S. income taxes paid on these earnings. As of December 31, 2014, no provision has been made for the United
States federal and state income taxes on certain outside basis differences, which primarily relate to accumulated
unrepatriated foreign earnings of approximately $177 million. It is not practicable to estimate the unrecognized
deferred tax liability for these earnings, as this liability is dependent upon future tax planning strategies.
As of December 31, 2014, we had U.S. federal net operating loss carryforwards (“NOLs”) of approximately
$824 million, which will expire between 2020 and 2034. Approximately $47 million of the total net operating loss
carryforwards is attributable to excess tax deductions related to employee stock awards, the benefit from which will
be credited to additional paid-in capital when subsequently utilized in future years. Additionally, we have research
tax credit carryforwards of approximately $20 million, which will expire between 2019 and 2034 and a $21 million
Alternative Minimum Tax (“AMT”) credit carry forward that does not expire. Approximately $22 million of NOLs
and $1 million of research tax credit carryforwards are subject to an annual limitation on their ability to be utilized
under Section 382 of the Code. We fully expect that Section 382 will not limit our ability to fully realize the benefit.
We had $163 million of deferred tax assets for NOL carryforwards related to certain non U.S. taxing jurisdictions
that are primarily from countries with indefinite carryforward periods.
We regularly review our deferred tax assets for recoverability and a valuation allowance is provided when it is
more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of
deferred tax assets is dependent upon future taxable income during the periods in which those temporary differences
become deductible. In assessing the need for a valuation allowance for our deferred tax assets, we considered all
available positive and negative evidence, including our ability to carry back operating losses to prior periods, the
reversal of deferred tax liabilities, tax planning strategies and projected future taxable income. In assessing the need
for a valuation allowance against our U.S. deferred tax assets, we also gave specific consideration to goodwill and
intangible impairment charges recorded in the last three years (see Note 6, Goodwill and Intangible Assets) and the
100
charges for the settlement of the litigation with AMR (see Note 17, Commitments and Contingencies). Considering
these factors, we established and maintained a valuation allowance against our U.S. deferred tax assets which totaled
$86 million as of December 31, 2013. At December 31, 2014, as a result of the sale of our Travelocity business and
the forecast of income from continuing operations, we determined it was more likely than not that future earnings
will be sufficient to utilize certain U.S. deferred tax assets. Accordingly, we reversed the U.S. valuation allowance
resulting in a non-cash income tax benefit of $82 million. For non-U.S. deferred tax assets of our lastminute.com
subsidiaries, we maintained a valuation allowance of $160 million and $163 million as of December 31, 2014 and
2013, respectively. We reassess these assumptions regularly which could cause an increase or decrease to the
valuation allowance. This could result in an increase or decrease in the effective tax rate which could materially
impact our results of operations.
It is our policy to recognize penalties and interest accrued related to income taxes as a component of the
provision (benefit) for income taxes. During the year ended December 31, 2014, we recognized a benefit of $3
million. During the year ended December 31, 2013, we recognized an expense of $1 million. During the year ended
December 31, 2012, amounts recognized for penalties and interest were not material to our results of operations. As
of December 31, 2014 and 2013, we had cumulative accrued interest and penalties of approximately $2 million and
$5 million, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and
penalties, is as follows:
Balance at beginning of year ...................................................... $
Additions for tax positions taken in the current year ............
Additions for tax positions of prior years .............................
Reductions for tax positions of prior years ...........................
Reductions for tax positions of expired statute of
limitations ........................................................................
Settlements ...........................................................................
Balance at end of year ................................................................ $
Year Ended December 31,
2013
54,016 $
10,874
5,572
(196 )
2014
61,241 $
4,565
2,259
(43)
(2,439)
(6,967)
58,616 $
(3,573 )
(5,452 )
61,241 $
2012
39,080
16,367
3,584
(3,113)
(1,902)
—
54,016
In 2013, we adopted Accounting Standards Update (ASU) 2013-11, “Income Taxes—Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, Or a Tax Credit
Carryforward Exists.” This ASU generally requires that unrecognized tax benefits be presented as a reduction to a
deferred tax asset for a net operating loss, similar tax loss or a tax credit carryforward that is available to settle
additional income taxes that would result from the disallowance of a tax position, presuming disallowance at the
reporting date. The amount of unrecognized tax benefits that were offset against deferred tax assets was $40 million
and $38 million as of December 31, 2014 and 2013, respectively.
As of December 31, 2014, 2013 and 2012, the amount of unrecognized tax benefits that, if recognized, would
impact the effective tax rate was $56 million, $58 million and $54 million, respectively.
We are subject to U.S. federal income tax as well as income tax of multiple state, local, and non U.S.
jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the
world. In 2014, the Internal Revenue Service commenced the examination of our federal income tax returns for the
2011 and 2013 tax years. We do not expect that the results of this examination will have a material effect on our
financial condition or results of operations. The U.S. federal statute of limitations is closed for years prior to 2007.
With few exceptions, we are no longer subject to state, local, or non U.S. tax examinations by tax authorities for
years prior to 2008.
We believe that it is reasonably possible that $4 million in unrecognized tax benefits may be resolved in the
next twelve months.
101
Tax Receivable Agreement
Immediately prior to the closing of our initial public offering, we entered into a tax receivable agreement
(“TRA”) that provides the right to receive future payments by us to stockholders and equity award holders that were
our stockholders and equity award holders, respectively, immediately prior to the closing of our initial public
offering (collectively, the “Pre-IPO Existing Stockholders”) of 85% of the amount of cash savings, if any, in U.S.
federal income tax that we and our subsidiaries realize as a result of the utilization of certain tax assets attributable
to periods prior to our initial public offering, including federal net operating losses (“NOLs”), capital losses and the
ability to realize tax amortization of certain intangible assets (collectively, the “Pre-IPO Tax Assets”). Consequently,
stockholders who are not Pre-IPO Existing Stockholders will only be entitled to the economic benefit of the Pre-IPO
Tax Assets to the extent of our continuing 15% interest in those assets.
These payment obligations are our obligations and not obligations of any of our subsidiaries. The actual
utilization of the Pre-IPO Tax Assets, as well as the timing of any payments under the TRA, will vary depending
upon a number of factors, including the amount, character and timing of our and our subsidiaries’ taxable income in
the future.
Based on current tax laws and assuming that we and our subsidiaries earn sufficient taxable income to realize
the full tax benefits subject to the TRA, we estimate that future payments under the TRA relating to the Pre-IPO Tax
Assets to total $387 million and expect that 85% to 95% of the total payments will be made over the next six years
(assuming no changes to current limitations on our ability to utilize our NOLs under Section 382 of the Internal
Revenue Code (the “Code”)). Payments under the TRA are not conditioned upon the parties’ continuing ownership
of the company. The TRA liability of $387 million as of December 31, 2014 is included in other noncurrent
liabilities in our consolidated balance sheet.
We recognized an initial liability in respect of the TRA of $321 million after considering the valuation
allowance of $66 million recorded against the Pre-IPO Tax Assets for the payments to be made under the TRA. The
TRA liability was recorded as a reduction to additional paid-in capital and an increase to other noncurrent liabilities.
No payments have been made under the TRA during the year ended December 31, 2014 and we do not expect
material payments to occur prior to 2016. Any payments made under the TRA will be classified as a financing
activity in our statement of cash flows. Changes in the utility of the Pre-IPO Tax Assets will impact the amount of
the liability recorded in respect of the TRA. Changes in the utility of these Pre-IPO Tax Assets are recorded in
income tax expense (benefit) and any changes in the obligation under the TRA are recorded in other expense. In
connection with the change in our valuation allowance and corresponding increase in our TRA liability to $387
million, we recognized a $66 million charge in other, net in the fourth quarter of 2014.
9. Debt
In April 2014, we completed an initial public offering of our common stock and utilized the net proceeds to
repay (i) $296 million aggregate principal amount of our Term Loan C (as defined below) and (ii) $320 million
aggregate principal amount of our 2019 Notes (as defined below) at a redemption price of 108.5% of the principal
amount, which represents the maximum amount of the contingent call option exercisable in the event of an equity
offering. As a result of the prepayments on Term Loan C and the 2019 Notes, we recorded an extinguishment loss of
$31 million which includes a $27 million redemption premium on the 2019 Notes.
102
As of December 31, 2014 and 2013, our outstanding debt included in our consolidated balance sheets totaled
$3,084 million and $3,730 million, respectively, net of unamortized discounts of $13 million and $20 million,
respectively. The following table sets forth the face values of our outstanding debt as of December 31, 2014 and
2013 (in thousands):
Senior secured credit facilities:
Rate
Maturity
2014
2013
December 31,
Incremental term loan facility ........... L + 3.50% February 2019
Term Loan C .......................................... L + 3.00% December 2017
Revolver, $370 million .......................... L + 2.75% February 2019
Revolver, $35 million ............................ L + 3.75% February 2018
Term Loan B .......................................... L + 3.00% February 2019 $ 1,739,500 $ 1,757,250
349,125
361,250
—
—
400,000
800,000
83,286
3,096,606 3,750,911
(86,117)
Senior unsecured notes due 2016 ................
Senior secured notes due 2019 ....................
Mortgage facility .........................................
Face value of total debt outstanding .......
Less current portion of debt outstanding .....
345,625
49,313
—
—
400,000
480,000
82,168
March 2016
May 2019
March 2017
8.35%
8.50%
5.80%
(22,435 )
Face value of long-term debt
outstanding ........................................
$ 3,074,171 $ 3,664,794
Senior Secured Credit Facilities
On February 19, 2013, Sabre GLBL Inc. entered into an agreement that amended and restated its existing
senior secured credit facilities (the “Amended and Restated Credit Agreement”). The new agreement replaced (i) the
existing initial term loans with new classes of term loans of $1,775 million (the “Term Loan B”) and $425 million
(the “Term Loan C”) and (ii) the existing revolver with a new revolver of $352 million (the “Revolver”).
On September 30, 2013, we entered into an agreement for an incremental term loan facility to Term Loan B
(the “Incremental Term Loan Facility”), having a face value of $350 million and providing total net proceeds of
$350 million. We have used a portion, and intend to use the remainder of the proceeds of the Incremental Term
Loan Facility, for working capital, general corporate purposes and strategic actions related to Travelocity. The
Incremental Term Loan Facility matures on February 19, 2019 and initially bore interest at a rate equal to the
LIBOR rate, subject to a 1.00% floor, plus 3.50% per annum. It includes a provision for increases in interest rates to
maintain a difference of not more than 50 basis points relative to future term loan extensions or refinancing of
amounts under the Amended and Restated Credit Agreement.
On February 20, 2014, we entered into a series of amendments to our Amended and Restated Credit
Agreement (the “Repricing Amendments”) the first of which reduced the Term Loan B’s applicable margin for
Eurocurrency and Base rate borrowings to 3.25% and 2.25%, respectively, with a step down to 3.00% and 2.00%,
respectively, if the Senior Secured Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is
less than or equal to 3.25 to 1.00. It also reduced the Eurocurrency rate floor to 1.00% and the Base rate floor to
2.00%.
The Repricing Amendments extended the maturity date of $317 million of the $352 million Revolver to
February 19, 2019. The Repricing Amendments also provided for an incremental revolving commitment due
February 19, 2019 of $53 million, increasing the Revolver from $352 million to $405 million. The extended and
incremental revolving commitments, totaling $370 million (the “Extended Revolver”), reduced the applicable
margins to 3.00% for Eurocurrency and 2.00% for Base rate borrowings, with a step down to 2.75% and 1.75%,
respectively, if the Senior Secured Leverage Ratio is less than or equal to 3.25 to 1.00. There were no changes in the
maturity date and applicable margins of the unextended revolving commitments of $35 million (“Unextended
Revolver”). The Extended Revolver also includes an accelerated maturity date of November 19, 2018 if, as of that
date, borrowings under the Term Loan B (or permitted refinancing thereof) remain outstanding and mature before
February 18, 2020.
103
Sabre GLBL Inc.’s obligations under the Amended and Restated Credit Agreement are guaranteed by Sabre
Holdings and each of Sabre GLBL Inc.’s wholly-owned material domestic subsidiaries, except unrestricted
subsidiaries. We refer to these guarantors together with Sabre GLBL Inc., as the Loan Parties. The Amended and
Restated Credit Agreement is secured by (i) a first priority security interest on the equity interests in Sabre GLBL
Inc. and each other Loan Party that is a direct subsidiary of Sabre GLBL Inc. or another Loan Party, (ii) 65% of the
issued and outstanding voting (and 100% of the non-voting) equity interests of each wholly-owned material foreign
subsidiary of Sabre GLBL Inc. that is a direct subsidiary of Sabre GLBL Inc. or another Loan Party, and (iii) a
blanket lien on substantially all of the tangible and intangible assets of the Loan Parties.
Under the Amended and Restated Credit Agreement, the Loan Parties are subject to certain customary non-
financial covenants, as well as a maximum Senior Secured Leverage Ratio, which applies if our Revolver utilization
exceeds certain thresholds and is calculated as Senior Secured Debt (net of cash) to EBITDA, as defined by the
agreement. This ratio was 5.0 to 1.0 for 2014 and is 4.5 to 1.0 for 2015. The definition of EBITDA is based on a
trailing twelve months EBITDA adjusted for certain items including non-recurring expenses and the pro forma
impact of cost saving initiatives. As of December 31, 2014, we are in compliance with all covenants under the
Amended and Restated Credit Agreement.
As of December 31, 2014 and 2013, we had no outstanding balance under the Extended and Unextended
Revolver. As of December 31, 2014, we had outstanding letters of credit totaling $47 million, which reduces our
overall credit capacity under the Revolver. As of December 31, 2013, we had outstanding letters of credit totaling
$67 million, of which $66 million reduced our overall credit capacity under the Revolver and $1 million was
collateralized with restricted cash.
Principal Payments
Term Loan B and the Incremental Term Loan Facility mature on February 19, 2019, and require principal
payments in equal quarterly installments of 0.25%. Term Loan C matures on December 31, 2017. As a result of the
April 2014 prepayment, quarterly principal payments on Term Loan C are no longer required. We are obligated to
pay $17 million on September 30, 2017 and the remaining balance on December 31, 2017. The Extended Revolver
matures on February 19, 2019 and the Unextended Revolver matures on February 19, 2018. For the year ended
December 31, 2014, we made $333 million of principal payments of which $296 million was the prepayment on
Term Loan C. We are scheduled to make $22 million in principal payments over the next twelve months.
We are also required to pay down the term loans by an amount equal to 50% of annual excess cash flow, as
defined in our Amended and Restated Credit Agreement. This percentage requirement may decrease or be
eliminated if certain leverage ratios are achieved. As a result of the Amended and Restated Credit Agreement, no
excess cash flow payment was required in 2014 with respect to our results for the year ended December 31, 2013.
Additionally, based on our results for the year ended December 31, 2014, we are not required to make an excess
cash flow payment in 2015. In the event of certain asset sales or borrowings, the Amended and Restated Credit
Agreement requires that we pay down the term loans with the resulting proceeds. Subject to the repricing premium
discussed above, we may repay the indebtedness at any time prior to the maturity dates without penalty.
104
Interest
Borrowings under the Amended and Restated Credit Agreement bear interest at a rate equal to either, at our
option: (i) the Eurocurrency rate plus an applicable margin for Eurocurrency borrowings as set forth below, or (ii) a
base rate determined by the highest of (1) the prime rate of Bank of America, (2) the federal funds effective rate plus
1/2% or (3) LIBOR plus 1.00%, plus an applicable margin for base rate borrowings as set forth below. The
Eurocurrency rate is based on LIBOR for all U.S. dollar borrowings and has a floor.
Eurocurrency borrowings
Base rate borrowings
Applicable Margin(1)
Floor
Applicable Margin
Floor
Term Loan B, prior to Repricing
Amendments .................................................
4.00%
1.25%
3.00%
2.25%
Term Loan B, subsequent to
Repricing Amendments .................................
Incremental term loan facility ............................
Term Loan C ......................................................
Revolver, $370 million ......................................
Revolver, $35 million ........................................
____________________________________________________________
3.25%
3.50%
3.00%
3.00%
3.75%
1.00%
1.00%
1.00%
N/A
N/A
2.25%
2.50%
2.00%
2.00%
2.75%
2.00%
2.00%
2.00%
N/A
N/A
(1) Applicable margins do not reflect potential step downs which are determined by the Senior Secured Leverage Ratio.
See below for additional information.
Applicable margins for Term Loan B and the Extended Revolver step down 25 basis points for any quarter if
the Senior Secured Leverage Ratio is less than or equal to 3.25 to 1.00. Applicable margins for all other borrowings
under the Amended and Restated Credit Agreement step down by 50 basis points for any quarter if the Senior
Secured Leverage Ratio is less than or equal to 3.0 to 1.0. Applicable margins increase to maintain a difference of
not more than 50 basis points relative to future term loan extensions or refinancings. In addition, we are required to
pay a quarterly commitment fee of 0.375% per annum for unused revolving commitments. The commitment fee may
increase to 0.5% per annum if the Senior Secured Leverage Ratio is greater than 4.0 to 1.0.
We have elected the three-month LIBOR as the floating interest rate on all $2,134 million of our outstanding
term loans. As of December 31, 2014, the interest rate, including applicable margin, is 4.0% for the Term Loan B of
$1,740 million; 4.5% for the Incremental Term Loan Facility of $346 million; and 4.0% for the Term Loan C of
$49 million. Interest payments are due on the last day of each quarter. Interest on a portion of the outstanding loan is
hedged with interest rate swaps (see Note 10, Derivatives).
105
During the year ended December 31, 2014, we recognized losses on extinguishment of debt of $1 million and
$3 million in connection with the prepayment on Term Loan C and the Repricing Amendments, respectively. In
addition, we incurred costs totaling $3 million as a result of the Repricing Amendments which were recorded as
interest expense. In 2013, we incurred costs totaling $19 million associated with the Amended and Restated Credit
Agreement and the Incremental Term Loan Facility of which $14 million was charged to interest expense during the
year ended December 31, 2013, and $5 million was capitalized as debt issuance costs. We also recognized a loss on
extinguishment of debt of $12 million as a result of the Amended and Restated Credit Agreement. In 2012, we
incurred costs totaling $38 million associated with the amendment and extension of certain facilities under our
previous credit agreement of which $8 million was charged to interest expense during the year ended December 31,
2012 and $30 million was capitalized as debt issuance costs. In addition, as a result of prepayments under our
previous credit agreement, we recognized a charge of $10 million to interest expense related to accelerated
amortization of debt issuance costs during the year ended December 31, 2012. As of December 31, 2014, we had
$25 million of unamortized debt issuance costs included in other assets in our consolidated balance sheets associated
with all debt transactions under the Amended and Restated Credit Agreement and the previous senior secured credit
agreement. These costs are being amortized to interest expense over the maturity period of the Amended and
Restated Credit Agreement. Our effective interest rates for the years ended December 31, 2014, 2013 and 2012,
inclusive of amounts charged to interest expense as described above, are as follows:
Including the impact of interest rate
swaps ........................................................
Excluding the impact of interest rate
swaps ........................................................
Year Ended December 31,
2013
2012
2014
5.43%
4.89%
6.86%
6.21%
6.53 %
5.65 %
Senior Unsecured Notes
As of December 31, 2014, we have, at face value, $400 million in senior unsecured notes currently bearing
interest at a rate of 8.35% and maturing on March 15, 2016 (“2016 Notes”). The 2016 Notes include certain non-
financial covenants, including restrictions on incurring certain types of debt, entering into certain sale and leaseback
transactions. We issued the 2016 Notes in March 2006 and used all of the net proceeds plus available cash and cash
equivalents and marketable securities to prepay $400 million of a bridge facility used to finance the acquisition of
lastminute.com. As of December 31, 2014, we are in compliance with all covenants under the indenture for the 2016
Notes.
Senior Secured Notes
We have, at face value, $480 million in senior secured notes bearing interest at a rate of 8.50% and maturing
on May 15, 2019 (“2019 Notes”). The 2019 Notes include certain non-financial covenants, including certain
restrictions on incurring certain types of indebtedness, creation of liens on certain assets, making of certain
investments, and payment of dividends. These covenants are similar in nature to those existing in the Amended and
Restated Credit Agreement. We issued the 2019 Notes in 2012 and used the net proceeds to pay off certain lenders
under our previous senior secured credit facilities, and retained the remainder for general corporate purposes. A
portion of the retained funds was subsequently used for funding the acquisition of PRISM (See Note 2,
Acquisitions). As of December 31, 2014, we are in compliance with all covenants under the 2019 Notes.
The indenture to the 2019 Notes allowed us, at our option, to redeem up to 40% of the principal amount of the
notes outstanding in the event of an equity offering, such as an initial public offering, until May 15, 2015. The
contingent call option was at a price of 108.50%, plus accrued and unpaid interest, if any, to the date of redemption.
The change in fair value of the contingent call option, which met the definition of an embedded derivative, resulted
in a gain of $2 million during the year ended December 31, 2013, and was not material for the year ended December
31, 2012. In May 2014, we exercised our contingent call option and prepaid $320 million, or 40%, of the
outstanding principal on the 2019 Notes at the redemption price of 108.5% of the principal amount. As a result of
the prepayment, we recognized a loss on extinguishment of $30 million, which included the $27 million redemption
premium.
106
Mortgage Facility
We have $82 million outstanding under a mortgage facility for the buildings, land and furniture and fixtures
located at our headquarters facilities in Southlake, Texas. The mortgage facility bears interest at a rate of
5.7985% per annum and matures on April 1, 2017. The mortgage facility includes certain customary non-financial
covenants, including restrictions on incurring liens other than permitted liens, dissolving the borrower or changing
our business, forgiving debt, changing our principal place of business and transferring the property. As of December
31, 2014, we are in compliance with all covenants under the mortgage facility.
Aggregate Maturities
As of December 31, 2014, aggregate maturities of our long-term debt were as follows (in thousands):
Amount
Years Ending December 31,
22,435
2015 ................................................................................. $
422,493
2016 .................................................................................
150,303
2017 .................................................................................
2018 .................................................................................
21,250
2019 ................................................................................. 2,480,125
Total ........................................................................... $ 3,096,606
10. Derivatives
Hedging Objectives—We are exposed to certain risks relating to ongoing business operations. The primary
risks managed by using derivative instruments are foreign currency exchange rate risk and interest rate risk. Forward
contracts on various foreign currencies are entered into to manage the foreign currency exchange rate risk on
operational exposure denominated in foreign currencies. Interest rate swaps are entered into to manage interest rate
risk associated with our floating-rate borrowings. In accordance with authoritative guidance on accounting for
derivatives and hedging, we designate foreign currency forward contracts as cash flow hedges on operational
exposure and interest rate swaps as cash flow hedges of floating-rate borrowings.
Cash Flow Hedging Strategy—To protect against the reduction in value of forecasted foreign currency cash
flows, we have instituted a foreign currency cash flow hedging program. We hedge portions of our expenses
denominated in foreign currencies with forward contracts. When the dollar strengthens significantly against the foreign
currencies, the decline in present value of future foreign currency revenue is offset by gains in the fair value of the
forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the present value of
future foreign currency cash flows is offset by losses in the fair value of the forward contracts.
We enter into interest rate swap agreements to manage interest rate risk exposure. The interest rate swap
agreements modify our exposure to interest rate risk by converting floating-rate debt to a fixed rate basis, thus
reducing the impact of interest rate changes on future interest expense and net earnings. These agreements involve
the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements
without an exchange of the underlying principal amount.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the
gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and
reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or
periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative
instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any
(ineffective portion), and hedge components excluded from the assessment of effectiveness, are recognized in the
consolidated statements of operations during the current period. Derivatives not designated as hedging instruments
are carried at fair value with changes in fair value reflected in the consolidated statement of operations.
107
Forward Contracts—In order to hedge our operational exposure to foreign currency movements, we are a
party to certain foreign currency forward contracts that extend until December 2015. We have designated these
instruments as cash flow hedges. No hedging ineffectiveness was recorded in earnings relating to the forward
contracts during the years ended December 31, 2014, 2013 and 2012. As the outstanding contracts settle, it is
estimated that $8 million in losses will be reclassified from other comprehensive income (loss) to earnings.
As of December 31, 2014 and 2013, we had the following unsettled purchased foreign currency forward
contracts that were entered into to hedge our operational exposure to foreign currency movements (in thousands,
except for average contract rates):
December 31, 2014 Outstanding Notional Amount
Buy Currency
US Dollar
Euro
British Pound Sterling
Indian Rupee
Polish Zloty
Sell Currency
Australian Dollar
US Dollar
US Dollar
US Dollar
US Dollar
Foreign Amount
USD Amount
Average Contract
Rate
6,750 $
30,200
22,950
1,205,000
171,000
5,838
38,777
37,343
18,748
52,821
0.8649
1.2840
1.6271
0.0156
0.3089
December 31, 2013 Outstanding Notional Amount
Buy Currency
US Dollar
Australian Dollar
Euro
British Pound Sterling
Indian Rupee
Polish Zloty
Sell Currency
Australian Dollar
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
Foreign Amount
USD Amount
Average Contract
Rate
5,625 $
975
12,800
18,450
1,174,000
170,400
5,041
996
16,624
28,908
18,593
52,748
0.8962
1.0215
1.2988
1.5668
0.0158
0.3096
Interest Rate Swap Contracts—Interest rate swaps outstanding and matured during the years ended December
31, 2014, 2013 and 2012 are as follows:
Outstanding:
Notional Amount
$750 million
$750 million
$750 million
Interest Rate
Received
1 month LIBOR
1 month LIBOR
1 month LIBOR
Interest Rate Paid
1.48%
2.19%
2.61%
Effective Date
Maturity Date
December 31, 2015 December 30, 2016
December 30, 2016 December 29, 2017
December 29, 2017 December 31, 2018
Matured:
$400 million
$350 million
$800 million
1 month LIBOR
1 month LIBOR
3 month LIBOR
2.03%
2.51%
5.04%
July 29, 2011
April 30, 2012
April 30, 2007
September 30, 2014
September 30, 2014
April 30, 2012
In December 2014, we entered into eight forward starting interest rate swaps to hedge interest payments
associated with $750 million of floating-rate liabilities on the notional amounts of a portion of our senior secured
debt. We have designated these interest rate swaps as cash flow hedges. The total notional amount outstanding is
$750 million in each of 2015, 2016 and 2017. There was no material hedge ineffectiveness for the year ended
December 31, 2014. The effective portion of changes in the fair value of the interest rate swaps is reported as a
component of other comprehensive income (loss) and reclassified into earnings in the same line item associated with
the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.
The fair value of these interest rate swaps is a $1 million liability at December 31, 2014 and is included in other
noncurrent liabilities in our consolidated balance sheet.
108
In January 2013, our then outstanding swaps were not designated in a cash flow hedging relationship because
we no longer qualified for hedge accounting treatment following the amendment and restatement of our senior
secured credit facility in February 2013 (see Note 9, Debt). Derivatives not designated as hedging instruments are
carried at fair value with changes in fair value recognized in the consolidated statements of operations. The
adjustments to fair value of our matured interest rate swaps for the years ended December 31, 2014 and 2013 were
not material to our results of operations. As of December 31, 2013, the fair value of the matured interest rate swap
agreements was a $12 million liability and included in other accrued liabilities in our consolidated balance sheet. For
the years ended December 31, 2014 and 2013, we reclassified losses of $11 million ($7 million, net of tax) and $15
million ($9 million, net of tax), respectively, from OCI to interest expense related to the derivatives that no longer
qualified for hedge accounting.
The estimated fair values of our derivatives designated as hedging instruments as of December 31, 2014 and
2013 are as follows (in thousands):
Derivative Assets (Liabilities)
Derivatives Designated as Hedging
Instruments
Foreign exchange contracts ............. Prepaid expenses
Consolidated Balance Sheet
Location
Other accrued liabilities
Interest rate swaps ........................... Other noncurrent liabilities
Fair Value as of
December 31,
2014
2013
$
$
— $
(8,475 )
(1,401 )
(9,876 ) $
5,374
—
—
5,374
The effects of derivative instruments, net of taxes, on other comprehensive income (loss) (“OCI”) for the
years ended December 31, 2014 and 2013 are as follows (in thousands):
Derivatives in Cash Flow Hedging Relationships
Foreign exchange contracts ........................................ $
Interest rate swaps ......................................................
Total ........................................................................... $
2014
(7,836) $
(961)
(8,797) $
2,999 $
—
2,999 $
4,593
(3,924 )
669
Amount of Gain (Loss)
Recognized in OCI on
Derivative (Effective Portion)
Year Ended December 31,
2013
2012
Derivatives in Cash Flow Hedging
Relationships
Foreign exchange contracts .................. Cost of revenue $
Interest rate swaps ................................
Total .....................................................
Interest expense
$
Income
Statement
Location
Amount of Gain (Loss)
Reclassified from Accumulated OCI into
Income (Effective Portion)
Year Ended December 31,
2013
2012
2014
2,902 $
—
2,902 $
915 $
—
915 $
(2,890)
(15,906)
(18,796)
Embedded Derivative Related to Senior Secured Notes—The 2019 Notes included a contingent call option to
redeem up to 40% of the notes in the event of an equity offering at a rate of 108.50%, until May 15, 2015. This
contingent call option was not clearly and closely related to the hybrid indenture and therefore required separate
accounting. In May 2014, we exercised our contingent call option and prepaid 40%, or $320 million, of our 2019
Notes. In conjunction with the prepayment, the fair value of the contingent call option of $2 million was charged to
loss on debt extinguishment for the year ended December 31, 2014.
109
11. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date in the principal or most advantageous
market for that asset or liability. Guidance on fair value measurements and disclosures establishes a valuation
hierarchy for disclosure of inputs used in measuring fair value defined as follows:
Level 1—Inputs are unadjusted quoted prices that are available in active markets for identical assets or
liabilities.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets and quoted prices in
non-active markets, inputs other than quoted prices that are observable, and inputs that are not directly
observable, but are corroborated by observable market data.
Level 3—Inputs that are unobservable and are supported by little or no market activity and reflect the use of
significant management judgment.
A financial asset’s or liability’s classification within the hierarchy is determined based on the least reliable
level of input that is significant to the fair value measurement. In determining fair value, we utilize valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent
possible. We also consider the counterparty and our own non-performance risk in our assessment of fair value.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Foreign Currency Forward Contracts—The fair value of the foreign currency forward contracts was
estimated based upon pricing models that utilize Level 2 inputs derived from or corroborated by observable market
data such as currency spot and forward rates.
Interest Rate Swaps—The fair value of our interest rate swaps are estimated using a combined income and
market-based valuation methodology based upon Level 2 inputs including credit ratings and forward interest rate
yield curves obtained from independent pricing services reflecting broker market quotes.
Contingent Consideration—On August 1, 2012, we acquired all of the outstanding stock and ownership
interest of PRISM. Included in the purchase price is contingent consideration, based on management’s best estimate
of fair value and future performance results on the acquisition date and is to be paid in 24 months following the
acquisition date. Fair value of this payment was estimated considering the timing of the payments and discounted at
4.75%, representing our short-term borrowing rate based on our revolving credit facility at the time of the
acquisition, a Level 3 input. In August 2014, we paid the remaining contingent consideration and contingent
employment payments associated with our acquisition of PRISM which totaled $30 million. The expense included
in earnings related to the change in fair value of the contingent consideration was not material during the years
ended December 31, 2014, 2013 and 2012.
Embedded Derivative—As part of the 2019 Notes, we acquired a contingent call option to redeem a portion of
the 2019 Notes in the event of an equity offering. We determined the fair value of this call option by evaluating the
difference in fair value of the hybrid instrument with and without the call option requiring separate accounting. We
calculated the fair value using Level 3 unobservable inputs such as management’s estimate of the probability of an
equity offering, credit spreads and the expected future volatility of interest rates based on historical trends. In May
2014, we exercised our contingent call option and prepaid 40%, or $320 million, of our 2019 Notes.
Pension Plan Assets—See Note 15, Pension and Other Postretirement Benefit Plans, for fair value information
on our pension plan assets.
110
The following tables present the fair value of our assets (liabilities) that are required to be measured at fair
value on a recurring basis as of December 31, 2014 and 2013 (in thousands):
December 31, 2014
Level 1
Level 2
Level 3
Fair Value at Reporting Date Using
Derivatives:
Foreign currency forward contracts (see
Note 10).......................................................... $
Interest rate swap contracts (see Note 10) ...........
Total ......................................................................... $
(8,475) $
(1,401)
(9,876) $
— $
—
— $
(8,475 ) $
(1,401 )
(9,876 ) $
—
—
—
Fair Value at Reporting Date Using
December 31, 2013
Level 1
(26,303) $
— $
Level 2
Level 3
— $ (26,303)
Contingent consideration .......................................... $
Derivatives:
Foreign currency forward contracts (see Note
10) ..................................................................
Interest rate swap contracts (see Note 10) ...........
Contingent call option, 2019 Notes
(see Note 9) ....................................................
Total derivatives ............................................
Total ......................................................................... $
5,374
(11,533)
1,657
(4,502)
(30,805) $
—
—
5,374
(11,533 )
—
—
—
—
— $
1,657
—
1,657
(6,159 )
(6,159 ) $ (24,646)
There were no transfers between Levels 1 and 2 within the fair value hierarchy for the years ended December
31, 2014 and 2013.
Assets that are Measured at Fair Value on a Nonrecurring Basis
Goodwill and Long-Lived Assets—As described in Note 1, Summary of Business and Significant Accounting
Policies, our impairment review of goodwill is performed annually, as of October 1 of each year. In addition,
goodwill, property and equipment and intangible assets are reviewed for impairment if events and circumstances
indicate that their carrying amounts may not be recoverable.
The fair values used in our goodwill impairment analysis are estimated using a combined approach based
upon discounted future cash flow projections and observed market multiples for comparable businesses. The cash
flow projections are based upon Level 3 inputs, including risk adjusted discount rates, future booking and
transaction volume levels, future price levels, rates of growth in our consumer and corporate direct booking
businesses, rates of increase in operating expenses, cost of revenue and taxes. Additionally, in accordance with
authoritative guidance on fair value measurements, we made a number of assumptions including market participants,
the principal markets and highest and best use of the reporting units. In 2013 and 2012, goodwill associated our
discontinued Travelocity segment was impaired to a fair value of zero and $181 million, respectively. See Note 6,
Goodwill and Intangible Assets, for impairment charges recognized in the years ended December 31, 2013 and 2012,
and a discussion of circumstance which led to the impairments.
If impairment indicators exist for property and equipment and definite-lived intangible assets, the
undiscounted future cash flows associated with the expected service potential of the assets are compared to the
carrying value of the assets. If our projection of undiscounted cash flows is less than the carrying value of the assets,
an impairment charge is recorded to reduce the long-lived assets to fair value. The fair value of long-lived assets are
determined based on discounted cash flow projections using Level 3 inputs which include risk-adjusted discount
rates and highest and best use of the assets, among others. In 2012, definite-lived intangible assets and property and
equipment associated with our discontinued Travelocity segment were impaired to a fair value of $103 million. See
Note 6, Goodwill and Intangible Assets, for impairment charges recognized in the year ended December 31, 2012,
and a discussion of circumstance which led to the impairments. In addition, we recognized a $20 million impairment
charge on assets associated with a corporate facility with a fair value of zero during the year ended December 31,
2012.
111
Other Financial Instruments
The carrying value of our financial instruments including cash and cash equivalents, and accounts receivable
approximate their fair values. The fair values of our 2016 Notes, 2019 Notes and term loans under our Amended and
Restated Credit Agreement are determined based on quoted market prices for the identical liability when traded as
an asset in an active market, a Level 1 input. The outstanding principal balance of our mortgage facility
approximated its fair value as of December 31, 2014 and 2013. The fair values of the mortgage facility were
determined based on estimates of current interest rates for similar debt, a Level 2 input.
The following table presents the fair value and carrying value of our 2016 Notes, 2019 Notes and term loans
under our Amended and Restated Credit Agreement as of December 31, 2014 and 2013 (in thousands):
Fair Value at December 31, Carrying Value at December 31,
Financial Instrument
Term Loan B ........................................................... $1,718,843 $1,777,107 $ 1,732,101 $ 1,747,378
349,125
Incremental term loan facility ..................................
360,477
Term Loan C ...........................................................
389,321
Senior unsecured notes due 2016 ............................
799,823
Senior secured notes due 2019 ................................
345,625
49,080
393,973
480,741
341,737
48,758
426,250
516,300
349,334
363,056
448,320
886,000
2014
2014
2013
2013
12. Redeemable Preferred Stock and Stockholders’ Equity (Deficit)
Initial and Secondary Public Offering
On April 23, 2014, we closed our initial public offering of our common stock in which we sold 39,200,000
shares, and on April 25, 2014, the underwriters exercised in full their overallotment option which resulted in the sale
of an additional 5,880,000 shares of our common stock. Our shares of common stock were sold at an initial public
offering price of $16.00 per share, which generated $672 million of net proceeds from the offering after deducting
underwriting discounts and commissions and offering expenses.
We used the net proceeds from this offering to repay (i) $296 million aggregate principal amount of our term
loans and (ii) $320 million aggregate principal amount of our senior secured notes due in 2019 at a redemption price
of 108.5% of the principal amount. We also used the net proceeds from our offering to pay the $27 million
redemption premium and $13 million in accrued but unpaid interest on the senior secured notes due in 2019. We
used the remaining portion of the net proceeds from our offering to pay a $21 million fee, in the aggregate, to TPG
Global, LLC (“TPG”) and Silver Lake Management Company (“Silver Lake”) pursuant to a management services
agreement (the “MSA”), which was thereafter terminated.
On February 10, 2015, we closed a secondary public offering of our common stock in which certain of our
stockholders sold 23,800,000 shares, and the underwriters exercised in full their overallotment option which resulted
in the sale of an additional 3,570,000 shares of our common stock. We did not receive any proceeds from the
secondary public offering or from the exercise of the underwriters’ overallotment option.
Redeemable Preferred Stock
Prior to the closing of our initial public offering, we amended our Certificate of Incorporation and exercised
our right to redeem all of our Series A Cumulative Preferred Stock. The amendment to our Certificate of
Incorporation modified the redemption feature of the Series A Cumulative Preferred Stock to allow for settlement
using cash, shares of our common stock or a mix of cash and shares of our common stock. Upon the closing of our
initial public offering, we redeemed all of our outstanding shares of Series A Cumulative Preferred Stock, including
accumulated but unpaid dividends, in exchange for 40,343,529 shares of our common stock, which were delivered
pro rata to the holders thereof.
112
Each share of Series A Preferred Stock accumulated dividends at an annual rate of 6%. Accumulated but
unpaid dividends totaled $134 million at December 31, 2013. The Series A Preferred Shares were recorded at fair
value at the date of issuance and were adjusted each period to the redemption value which included accumulated but
unpaid dividends. No cash dividends were paid since the inception of the Series A Preferred Shares.
Common Stock Dividends
In the third and fourth quarters of 2014, we paid a quarterly cash dividend of $0.09 per share of our common
stock totaling $48 million. No dividends were declared or paid in the six months ended June 30, 2014 or in the years
ended December 31, 2013 and 2012.
13. Equity-Based Awards
As of December 31, 2014, our outstanding equity-based compensation plans and agreements include the
Sovereign Holdings, Inc. Management Equity Incentive Plan (“Sovereign MEIP”), the Sovereign Holdings, Inc.
2012 Management Equity Incentive Plan (“Sovereign 2012 MEIP”) and the Sabre Corporation 2014 Omnibus
Incentive Compensation Plan (the “2014 Omnibus Plan”). Our 2014 Omnibus Plan serves as successor to the
Sovereign MEIP and Sovereign 2012 MEIP plans and provides for the issuance of stock options, restricted shares,
restricted stock units (“RSUs”), performance-based RSU awards (“PSUs”), and other stock-based awards.
Outstanding awards under the Sovereign MEIP and Sovereign 2012 MEIP plans continue to be subject to the terms
and conditions of their respective plan.
We initially reserved 13,500,000 shares of our common stock for issuance under our 2014 Omnibus Plan. In
addition, we added 2,838,566 shares that were reserved but not issued under the Sovereign MEIP and Sovereign
2012 MEIP plans to the 2014 Omnibus Plan reserves, for a total of 16,338,566 authorized shares of common stock
for issuance. Time-based options granted under the 2014 Omnibus plan generally vest over a four year period with
25% vesting at the end of year one and the remaining vest quarterly thereafter. RSUs generally vest over a four year
period with 25% vesting annually. Performance-based RSUs generally vest over a four year period with 25% vesting
annually dependent upon certain company-based performance measures being achieved. Each reporting period, we
re-assess the probability assumption and, if there is an adjustment, record the cumulative effect of the adjustment in
the current reporting period. Options granted are exercisable up to 10 years. Stock-based compensation expense
totaled $20 million, $3 million and $4 million for the years ended December 31, 2014, 2013 and 2012, respectively.
The fair value of the stock options granted was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions:
Exercise price ...................................................................... $
Average risk-free interest rate .............................................
Expected life (in years) ........................................................
Implied volatility .................................................................
Dividend yield .....................................................................
16.82 $
1.96%
6.11
33.28%
2.14%
11.91 $
1.53 %
6.11
30.75 %
—
9.35
1.12%
6.44
33.04%
—
Year Ended December 31,
2013
2012
2014
113
The following table summarizes the stock option award activities under our outstanding equity based
compensation plans and agreements for the year ended December 31, 2014.
Weighted-Average
Quantity
Exercise
Price
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value (in
thousands)
(1)
Outstanding at December 31, 2013(2) ........................ 20,689,452 $
Granted ................................................................... 2,228,755
Exercised ................................................................ (3,453,509)
(558,224)
Cancelled ................................................................
Outstanding at December 31, 2014(2) ........................ 18,906,474 $
Vested and exercisable at December 31, 2014 .......... 13,420,667 $
6.15
16.82
4.82
10.48
7.53
5.57
5.6 $ 292,059
5.1 $ 240,947
4.1 $ 197,346
(1) Aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options
(2)
awards and the closing price of our common stock of $20.27 on December 31, 2014.
Includes performance-based stock options granted in 2008 under the Sovereign MEIP. In the first quarter of 2015,
these options vested and became exercisable as a result of the occurrence of a liquidity event. Because the
performance condition was contingent on a liquidity event, no expense was recognized in connection with these
options until the liquidity event occurred. As of December 31, 2014, there was approximately $2 million
unrecognized compensation expense.
For the years ended December 31, 2014, 2013 and 2012, the total intrinsic value of stock options exercised
totaled $53 million, $9 million and $12 million, respectively. The weighted-average fair values of options grants
were $4.65, $3.89, and $3.24 during fiscal years 2014, 2013 and 2012, respectively. The fair value of options that
vested during years ended December 31, 2014, 2013 and 2012 totaled $7 million, $5 million, and $5 million,
respectively. As of December 31, 2014, we have approximately $35 million in unrecognized time-based
compensation expense that will be recognized over a weighted-average period of 2.9 years.
The following table summarizes the activities for our RSUs for the year ended December 31, 2014.
Weighted-
Average
Grant Date Fair
Value
Quantity
Unvested, beginning of year ...................................................................
Granted ................................................................................................
Vested ..................................................................................................
Cancelled .............................................................................................
Unvested at December 31, 2014 .............................................................
268,064 $
1,712,833
(164,058 )
(85,977 )
1,730,862 $
11.13
16.81
9.93
16.79
16.58
The following table summarizes the activities for our PSUs for the year ended December 31, 2014.
Weighted-
Average
Grant Date Fair
Value
11.05
16.68
11.07
13.35
13.65
Quantity
1,304,063 $
825,089
(320,437 )
(111,808 )
1,696,907 $
Unvested, beginning of year ...................................................................
Granted ................................................................................................
Vested ..................................................................................................
Cancelled .............................................................................................
Unvested at December 31, 2014 .............................................................
114
Equity-based Liability Awards—In November 2012, the Board approved a grant of time-based RSUs with an
aggregate fixed value of $3 million that, due to the nature of these RSUs, were accounted for as liability awards.
These RSUs were able to be settled at the Board’s discretion in shares of our common stock or in cash. Expense
associated with this grant of RSUs was recognized over the associated vesting period as stock compensation expense.
As of December 31, 2014, we have fully expensed these awards.
Cancelled Travelocity Plans—During the years 2010 through 2012, we adopted various equity-based
compensation plans associated with the equity of Travelocity.com LLC, a subsidiary related to our discontinued
Travelocity segment. Under these plans, time-based stock options and stock appreciation rights (“SARs”) were
granted to certain key employees of the discontinued Travelocity segment. There were 1,484,530 and 18,119,884 of
time-based stock options and SARs, respectively, outstanding under these plans as of December 31, 2013, all of
which were cancelled in the second quarter of 2014. We recognized $7 million of expense at the cancellation date,
representing the remaining unrecognized compensation expense of the awards, which is included in net (loss)
income from discontinued operations. During both the years ended December 31, 2013 and 2012, we recognized $4
million of expense associated with these plans. The expense recognized in 2012 includes $1 million associated with
the modification of certain SARs for one employee.
14. Earnings Per Share
The following table reconciles the numerators and denominators used in the computations of basic and diluted
earnings per share from continuing operations (in thousands, expect per share data):
Year Ended December 31,
2014
2013
2012
Numerator:
Income (loss) from continuing operations ............ $ 110,873 $
Net income attributable to
52,066 $ (215,427 )
noncontrolling interests ....................................
Preferred stock dividends......................................
Net income (loss) from continuing operations
available to common shareholders,
basic and diluted .............................................. $
Denominator:
Basic weighted-average common shares
2,732
11,381
2,863
36,704
1,519
34,583
96,760 $
12,499 $ (251,529 )
outstanding .......................................................
238,633
178,125
177,206
Dilutive effect of stock options and
restricted stock awards .....................................
8,114
6,853
—
Diluted weighted-average common
shares outstanding ............................................
Basic earnings per share ............................................ $
Diluted earnings per share ......................................... $
246,747
0.41 $
0.39 $
184,978
0.07 $
0.07 $
177,206
(1.42 )
(1.42 )
Basic earnings per share are based on the weighted-average number of common shares outstanding during
each period. Diluted earnings per share are based on the weighted-average number of common shares outstanding
plus the effect of all dilutive common stock equivalents during each period. The calculation of diluted weighted-
average shares excludes the impact of 1 million and 20 million common stock equivalents for the years ended
December 31, 2014 and 2012, respectively. As we recorded net losses from continuing operations available to
common shareholders for the year ended December 31, 2012, all common stock equivalents were excluded from the
calculation of diluted earnings per share as its inclusion would have been antidilutive.
115
15. Pension and Other Postretirement Benefit Plans
We sponsor the Sabre Inc. 401(k) Savings Plan (“401(k) Plan”), which is a tax qualified defined contribution
plan that allows tax deferred savings by eligible employees to provide funds for their retirement. We make a
matching contribution equal to 100% of each pre-tax dollar contributed by the participant on the first 6% of eligible
compensation. We recognized expenses related to the 401(k) Plan of $18 million, $18 million and $17 million for
the years ended December 31, 2014, 2013 and 2012, respectively.
We sponsor the Sabre Inc. Legacy Pension Plan (“LPP”), which is a tax qualified defined benefit pension plan
for employees meeting certain eligibility requirements. The LPP was amended to freeze pension benefit accruals as
of December 31, 2005, and as a result, no additional pension benefits have been accrued since that date. In April
2008, we amended the LPP to add a lump sum optional form of payment which participants may elect when their
plan benefits commence. The effect of the amendment was to decrease the projected benefit obligation by $34
million, which is being amortized over 23.5 years, representing the weighted average of the lump sum benefit period
and the life expectancy of all plan participants. We also sponsor a defined benefit pension plan for certain employees
in Canada.
We provide retiree life insurance benefits to certain employees who retired prior to January 1, 2001, and we
subsidize a portion of the cost of retiree medical benefits for certain retirees and eligible employees hired prior to
October 1, 2000. In February 2009, we amended our retiree medical plan to reduce the subsidies received by
participants by 20% per year over the next 5 years, with no further subsidies beginning January 1, 2014. This
amendment resulted in $57 million of negative prior service cost recorded in other comprehensive income that was
amortized to operating expense over the remaining term which concluded in December 2013.
Pursuant to a Travel Privileges Agreement with American Airlines Group (“AAG”), formerly AMR
Corporation, we are entitled to purchase personal travel for certain retirees. Eligible employees were required to
retire from the Company on or before June 30, 2008 to receive this benefit, unless they met the requirements to dual
retire from AAG and Sabre Holdings. These dual retirees will receive these benefits upon retiring. To pay for the
provision of flight privileges for eligible retired employees, we make a lump sum payment to AAG in the year the
employees retire.
The following tables provide a reconciliation of the changes in the plans’ benefit obligations, fair value of
assets and the funded status as of December 31, 2014 and December 31, 2013:
Change in benefit obligation:
Pension Benefits
2014
2013
Other Benefits
2014
2013
Benefit obligation at January 1 ........................... $ (396,461) $ (440,752) $
Service cost .........................................................
Interest cost .........................................................
Actuarial gains (losses), net ................................
Benefits paid .......................................................
Benefit obligation at December 31 ..................... $ (448,577) $ (396,461) $
—
(19,582)
(56,369)
23,835
—
(17,930)
37,416
24,805
Change in plan assets:
Fair value of assets at January 1 .......................... $ 342,482 $ 334,701 $
Actual return on plan assets ................................
Employer contributions .......................................
Benefits paid .......................................................
Fair value of assets at December 31 .................... $ 359,099 $ 342,482 $
(53,979) $
36,252
4,200
(23,835)
30,007
2,579
(24,805)
Funded status at December 31 .................................. $
(89,478) $
(814 ) $
—
(2 )
(2 )
212
(606 ) $
— $
—
212
(212 )
— $
(606 ) $
(3,045)
—
(42)
607
1,666
(814)
—
—
1,666
(1,666)
—
(814)
116
The cumulative amounts recognized in the consolidated balance sheets as of December 31, 2014 and
December 31, 2013, consist of:
Pension Benefits
2013
2014
Other Benefits
Total
2014
2013
2014
2013
Current liabilities ............................................. $
Noncurrent liabilities ....................................... (89,478) (53,979)
Total ................................................................. $ (89,478) $ (53,979) $
— $
— $
— $
(606)
(606) $
(743 ) $ — $
(743)
(71 ) (90,084 ) (54,050)
(814 ) $ (90,084 ) $ (54,793)
The current and noncurrent liabilities are presented in other accrued liabilities and other noncurrent liabilities,
respectively, in the consolidated balance sheets.
The amounts recognized in accumulated other comprehensive income (loss), net of deferred taxes, as of
December 31, 2014 and December 31, 2013 consists of:
Net actuarial gain (loss) ................................... $(105,224) $(79,959) $
Prior service credit ...........................................
Accumulated other comprehensive income
15,178 16,092
Pension Benefits
2014
2013
Other Benefits
Total
2014
2013
2014
2013
(182) $
56
50 $ (105,406 ) $(79,909)
55 15,234 16,147
(loss) ........................................................... $ (90,046) $(63,867) $
(126) $
105
$ (90,172 ) $(63,762)
The discount rate used in the measurement of our benefit obligations as of December 31, 2014 and December
31, 2013 is as follows:
Pension Benefits
December 31,
Other Benefits
December 31,
2014
2013
2014
2013
Weighted-average discount rate ...............................
4.36%
5.10%
0.69 %
0.55%
Due to the freeze of pension benefit accruals under the LPP as of December 31, 2005, no assumption for
future rate of compensation increase is necessary.
The following table provides the components of net periodic benefit costs associated with our pension and
other postretirement benefit plans for the years ended December 31, 2014, 2013 and 2012:
Year Ended December 31,
2014
2013
2012
Pension Benefits:
Interest cost .......................................................... $
Expected return on plan assets .............................
Amortization of prior service credit .....................
Amortization of actuarial loss ..............................
Net benefit ...................................................... $
19,582 $
(23,945)
(1,432)
4,920
(875) $
17,930
(23,635)
(1,432)
7,383
246
$
$
19,744
(24,323 )
(1,432 )
4,269
(1,742 )
Year Ended December 31,
2014
2013
2012
Other Benefits:
Interest cost .......................................................... $
Amortization of prior service credit .....................
Amortization of actuarial gain .............................
Net benefit ...................................................... $
42
2 $
(12,348)
—
(132)
(3,932)
(130) $ (16,238)
$
$
91
(11,397 )
(1,929 )
(13,235 )
117
Obligations Recognized in
Other Comprehensive Income
Net actuarial (gain) loss ............................................ $
Amortization of actuarial gain (loss) ........................
Amortization of prior service credit .........................
Pension Benefits
Other Benefits
Year Ended December 31, Year Ended December 31,
2014
44,062 $
(4,920)
1,432
2013
(43,787) $
(7,383)
1,432
2014
2013
(42)
2 $
132
3,932
— 12,348
Total recognized in other
comprehensive income ................................... $
40,574 $
(49,738) $
134 $ 16,238
Total recognized in net periodic benefit cost
and other comprehensive income ........................ $
39,699
$
(49,492)
$
4
$
—
We estimate that $6 million of prior service credit and actuarial loss for the defined benefit pension plans will
be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2015.
Income related to pensions and other postretirement benefits totaled $1 million, $16 million and $15 million
for the years ended December 31, 2014, 2013 and 2012, respectively.
The principal assumptions used in the measurement of our net benefit costs for the three years ended
December 31, 2014, 2013 and 2012 are as follows:
Discount rate ...................................................
Expected return on plan assets ........................
5.10%
7.50%
4.19%
7.75%
5.32%
7.75%
0.55 %
0.00 %
1.16 %
0.00 %
2.32%
0.00%
Pension Benefits
2013
2014
2012
2014
2013
2012
Other Benefits
Due to a cap on our retiree medical plan cost, a one percentage point change in the assumed health care cost
trend rates would not have a significant impact on service and interest cost or on our postretirement benefit
obligation as of December 31, 2014 and 2013.
Our overall investment strategy for the LPP is to provide and maintain sufficient assets to meet pension
obligations both as an ongoing business, as well as in the event of termination, at the lowest cost consistent with
prudent investment management, actuarial circumstances, and economic risk, while minimizing the earnings impact.
Diversification is provided by using an asset allocation primarily between equity and debt securities in proportions
expected to provide opportunities for reasonable long term returns with acceptable levels of investment risk. Fair
values of the applicable assets are determined as follows:
Mutual Fund—The fair value of our mutual funds are estimated by using market quotes as of the last day of
the period.
Common Collective Trusts—The fair value of our common collective trusts are estimated by using market
quotes as of the last day of the period, quoted prices for similar securities and quoted prices in non-active markets.
Real Estate—The fair value of our real estate funds are derived from the fair value of the underlying real
estate assets held by the funds. These assets are initially valued at cost and are reviewed periodically utilizing
available market data to determine if the assets held should be adjusted.
118
The basis for the selected target asset allocation included consideration of the demographic profile of plan
participants, expected future benefit obligations and payments, projected funded status of the plan and other factors.
The target allocations for LPP assets are 38% global equities, 58% long duration fixed income, and 4% real estate. It
is recognized that the investment management of the LPP assets has a direct effect on the achievement of its goal. In
2014, all equity mutual funds were liquidated and reinvested in equity securities held in common collective trusts.
As defined in Note 11, Fair Value Measurements, the following tables present the fair value of the LPP assets as of
December 31, 2014 and 2013:
Fair Value Measurements at December 31, 2014
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Common collective trusts:
Fixed income securities .......................... $
Global equity securities ..........................
Money market mutual fund .........................
Real estate....................................................
Total assets at fair value ................... $
— $
—
4,709
—
4,709 $
199,683 $
139,493
—
—
339,176 $
— $ 199,683
139,493
—
4,709
—
15,214
15,214
15,214 $ 359,099
Fair Value Measurements at December 31, 2013
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Mutual funds:
Foreign large value................................. $
Large blend ............................................
Large growth ..........................................
Money market ........................................
Common collective trusts:
Fixed income securities ..........................
Foreign equity securities ........................
U.S. equity securities .............................
Real estate....................................................
Total assets at fair value ................... $
42,635 $
43,222
21,433
6,437
—
—
—
—
113,727 $
— $
—
—
—
142,289
43,107
21,645
—
207,041 $
— $
—
—
—
42,635
43,222
21,433
6,437
—
142,289
—
43,107
—
21,645
—
21,714
21,714
21,714 $ 342,482
119
The following table provides a rollforward of plan assets valued using significant unobservable inputs (level
3), in thousands:
Ending balance at December 31, 2012 ........................... $
Contributions .............................................................
Net distributions ........................................................
Advisory fee ..............................................................
Net investment income ..............................................
Unrealized gain .........................................................
Net realized gain .......................................................
Ending balance at December 31, 2013 ...........................
Contributions .............................................................
Net distributions ........................................................
Advisory fee ..............................................................
Net investment income ..............................................
Unrealized gain .........................................................
Net realized gain .......................................................
Ending balance at December 31, 2014 ........................... $
Real Estate
19,488
282
(282 )
(220 )
1,045
1,382
19
21,714
300
(8,712 )
(245 )
989
1,159
9
15,214
We contributed $4 million, $3 million and $20 million to fund the LPP during the years ended December 31,
2014, 2013 and 2012, respectively. Annual contributions to our defined benefit pension plans in the United States
and Canada are based on several factors that may vary from year to year. Our funding practice with respect to the
LPP is to contribute the minimum required contribution as defined by law while also maintaining an 80% funded
status as defined by the Pension Protection Act of 2006. Thus, past contributions are not always indicative of future
contributions. Based on current assumptions, we do not expect to make any contributions to our defined benefit
pension plans in 2015.
The expected long term rate of return on plan assets for each measurement date was selected after giving
consideration to historical returns on plan assets, assessments of expected long term inflation and market returns for
each asset class and the target asset allocation strategy. We do not anticipate the return of any plan assets to us in
2015.
We expect to make the following estimated future benefit payments under the plans as follows (in thousands):
2015 .............................................................................. $
2016 ..............................................................................
2017 ..............................................................................
2018 ..............................................................................
2019 ..............................................................................
2020-2024 .....................................................................
Pension
Other Benefits
1,000
—
—
—
—
—
25,000 $
28,000
28,000
27,000
29,000
148,000
16. Related Party Transactions
On March 30, 2007, we entered into a Management Services Agreement (the “MSA”) with affiliates of TPG
and Silver Lake to provide us with management services. The MSA was terminated in conjunction with our initial
public offering completed in April 2014. Pursuant to the MSA, we were required to pay monitoring fees of between
$5 million and $7 million each year which were dependent on our consolidated earnings before interest, taxes,
depreciation and amortization for these services. In conjunction with our initial public offering, we paid TPG and
Silver Lake, in the aggregate, a $21 million fee pursuant to the MSA. We recognized expenses of $2 million, $7
million and $7 million related to the annual monitoring fee for each of the years ended December 31, 2014, 2013
and 2012, respectively. We also reimburse TPG and Silver Lake for out of pocket expenses incurred by them or their
affiliates in connection with services provided pursuant to the MSA. For the year ended December 31, 2014, these
expenses were not material for the years ended December 31, 2014, 2013 and 2012.
120
For related party transactions with Abacus, an equity method investment, refer to Note 5, Equity Method
Investments.
17. Commitments and Contingencies
Lease Commitments
We lease certain facilities under long term, non-cancelable operating leases. Certain of our lease agreements
contain renewal options and/or payment escalations based on fixed annual increases, local consumer price index
changes or market rental reviews. We recognize rent expense on a straight-line basis over the term of the lease. We
lease approximately two million square feet of office space in 79 locations in 45 countries. For the years ended
December 31, 2014, 2013, and 2012, we recognized rent expense of $31 million, $33 million and $28 million,
respectively. Future minimum lease payments under non-cancelable operating leases are as follows (in thousands):
Years Ending December 31,
2015 .............................................................................................................................. $
2016 ..............................................................................................................................
2017 ..............................................................................................................................
2018 ..............................................................................................................................
2019 ..............................................................................................................................
Thereafter .....................................................................................................................
Total ........................................................................................................................ $
Amount
27,304
24,547
17,037
9,420
5,930
18,273
102,511
Value Added Tax Receivable Contingencies
We generate Value Added Tax (“VAT”) refund claims, recorded as receivables, in multiple jurisdictions
through the normal course of our business. Audits related to these claims are in various stages of investigation. If the
results of the audit or litigation were to become unfavorable, the uncollectible amounts could be material to our
results of operations. In previous years, the right to recover certain VAT receivables associated with European
businesses has been questioned by tax authorities. We believe that our claims are valid under applicable law and as
such we will continue to pursue collection, possibly through litigation. We assess VAT receivables for collectability
and may be required to record reserves in the future. Our VAT receivables totaled $25 million and $29 million as of
December 31, 2014 and 2013, respectively, and are included in other receivables in our consolidated balance sheets.
Litigation and Risks Relating to Value Added Taxes
Holiday Autos, a discontinued operation (see Note 3, Discontinued Operations and Dispositions), conducted a
cross border car rental brokering business that involved substantial sums of VAT receivables and payable from the
period 2007 to 2009. Certain of the VAT receivables were challenged by tax authorities and successfully defended.
In France, however, the Court of Appeal ruled against us on June 18, 2013 in respect of outstanding VAT refund
claims of $3 million made for the periods 2007 through 2009. We believe our claims are valid and have appealed the
decision to the Supreme Court in France. Due to litigation, significant delays and other factors impacting our
settlement of these claims, we have recorded an allowance for losses relating to such events in assets of discontinued
operations in our consolidated balance sheets. The allowances recorded as of December 31, 2014 in respect of the
French claims subject to litigation, were $3 million. Our VAT receivables, net of reserves, associated with Holiday
Autos totaled $1 million and $6 million as of December 31, 2014 and 2013, respectively, and are included in other
receivables, net in our consolidated balance sheets.
As we dissolve subsidiaries associated with discontinued operations, tax authorities may or have initiated
audits that could result in challenges to our refund claims and assessments of additional taxes. We believe the merits
of our claims are valid and will aggressively defend any denial of our claims.
121
In the United Kingdom, the Commissioners for Her Majesty’s Revenue & Customs (“HMRC”) had asserted
that our subsidiary, Secret Hotels2 Limited (formerly Med Hotels Limited), failed to account for United Kingdom
VAT on margins relating to hotels located within the European Union (“EU”). This business was sold in February
2009 to a third-party and we account for it as a discontinued operation. Because the sale was structured as an asset
sale, we retained the potential tax liabilities of Secret Hotels2 Limited. HMRC issued assessments of tax totaling
approximately $11 million. We appealed the assessments and as a result of an unfavorable ruling against us in the
penultimate appeal court, we accrued $17 million of expense included in discontinued operations in the fourth
quarter of 2012. On March 5, 2014 judgment was given in favor of Secret Hotels2 Limited. This judgment cannot be
further appealed. We therefore reversed our reserve in 2013 in net (loss) income from discontinued operations.
HMRC had started a review of other parts of our lastminute.com business in the United Kingdom. Following
the favorable judgment in March 2014 associated with Secret Hotels2 Limited, HMRC ceased its review activity and
withdrew its VAT claims against lastminute.com.
Legal Proceedings
While certain legal proceedings and related indemnification obligations to which we are a party specify the
amounts claimed, these claims may not represent reasonably possible losses. Given the inherent uncertainties of
litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss
or range of loss, if any, be reasonably estimated, except in circumstances where an aggregate litigation accrual has
been recorded for probable and reasonably estimable loss contingencies. A determination of the amount of accrual
required, if any, for these contingencies is made after careful analysis of each matter. The required accrual may
change in the future due to new information or developments in each matter or changes in approach such as a
change in settlement strategy in dealing with these matters.
Litigation and Administrative Audit Proceedings Relating to Hotel Occupancy Taxes
On January 23, 2015, we announced the sale of Travelocity.com to Expedia. Pursuant to the Travelocity
Purchase Agreement entered into with Expedia, we will continue to be liable for pre-closing liabilities of
Travelocity, including fees, charges, costs and settlements relating to litigation arising from hotels booked on the
Travelocity platform prior to the Expedia SMA. Fees, charges, costs and settlements relating to litigation from hotels
booked on Travelocity.com subsequent to the Expedia SMA and prior to the date of the sale of Travelocity.com to
Expedia will be shared with Expedia in accordance with the terms that were in the Expedia SMA. We are jointly and
severally liable for Travelocity’s indemnification obligations under the Travelocity Purchase Agreement for
liabilities that may arise out of these litigation matters, which could adversely affect our cash flow.
Over the past ten years, various state and local governments in the United States have filed approximately 70
lawsuits against us and other OTAs pertaining primarily to whether our discontinued Travelocity segment and other
OTAs owe sales or occupancy taxes on the revenues they earn from facilitating hotel reservations using the
merchant revenue model. In the merchant revenue model, the customer pays us an amount at the time of booking
that includes (i) service fees, which we collect and retain, and (ii) the price of the hotel room and amounts for
occupancy or other local taxes, which we pass along to the hotel supplier. The complaints generally allege, among
other things, that the defendants failed to pay to the relevant taxing authority hotel occupancy taxes on the service
fees. Courts have dismissed approximately 30 of these lawsuits, some for failure to exhaust administrative remedies
and some on the basis that we are not subject to sales or occupancy tax. The Fourth, Sixth and Eleventh Circuits of
the United States Courts of Appeals each have ruled in our favor on the merits, as have state appellate courts in
Missouri, Alabama, Texas, California, Kentucky, Florida, Colorado and Pennsylvania, and a number of state and
federal trial courts. The remaining lawsuits are in various stages of litigation. We have also settled some cases
individually, most for nuisance value, and with respect to these settlements, have generally reserved our rights to
challenge any effort by the applicable tax authority to impose occupancy taxes in the future.
We have received recent favorable decisions pertaining to cases in North Carolina, California, Montana,
Arizona and Colorado. On August 19, 2014, the North Carolina Court of Appeals affirmed a judgment in favor of
Travelocity and other OTAs after concluding they are not operators of hotels, motel or similar-type businesses and
therefore are not subject to hotel occupancy tax. On May 28, 2014, an administrative hearing officer in Arizona
ruled that Travelocity is not responsible for collecting or remitting local hotel taxes and set aside assessments made
122
by twelve municipalities, including Phoenix, Scottsdale, Tempe, and Tucson. Those municipalities have appealed
the decision to state court. On March 27, 2014, a California court of appeals upheld a trial court ruling that OTAs,
including Travelocity, are not subject to the City of San Diego’s transient occupancy tax because they are not hotel
operators or managing agents. That case is now pending before the Supreme Court of California. The California
court of appeals’ decision marked the third time that a California appellate court has ruled in favor of Travelocity on
the question of whether OTAs are subject to transient occupancy taxes in California, the prior two cases being
brought by the City of Anaheim and City of Santa Monica. Travelocity also has prevailed at the trial court level in
cases brought by San Francisco and Los Angeles, both of which are being appealed by the cities. On March 6, 2014,
a Montana trial court ruled by summary judgment that Travelocity and other OTAs are not subject to the State of
Montana’s lodging facility use tax or its sales tax on accommodations and vehicles. The lawsuit had been brought by
the Montana Department of Revenue, which has appealed the decision. On July 3, 2014, the Colorado Court of
Appeals entered judgment that Travelocity and OTAs are not liable for lodging taxes as claimed by the City of
Denver. The City of Denver has petitioned the Supreme Court of Colorado to review the decision. In Florida,
Travelocity has been named as a defendant in several proceedings and lawsuits brought by cities and counties in
Florida, including the Counties of Leon, Broward, Osceola, and Volusia; and the City of Miami. The suits brought
by Leon County and Broward County have been decided on the merits and both were decided in favor of
Travelocity and other OTAs. On February 28, 2013 and February 12, 2014, respectively, those decisions were
affirmed by the intermediate court of appeals. The Supreme Court of Florida has granted review of the Leon County
decision and heard oral arguments on April 30, 2014. A decision is expected in 2015.
Although we have prevailed in the majority of these lawsuits and proceedings, there have been several adverse
judgments or decisions on the merits, some of which are subject to appeal. On April 3, 2014, the Supreme Court of
Wyoming affirmed a decision by the Wyoming State Board of Equalization that Travelocity and other OTAs are
subject to sales tax on lodging. Similarly, on March 4, 2014, a trial court in Washington D.C. entered final judgment
in favor of the District of Columbia on its claim that Travelocity and other OTAs are subject to the District’s hotel
occupancy tax. Travelocity has appealed the trial court’s decision. We did not record material charges associated
with these cases during the years ended December 31, 2014, 2013 and 2012. As of December 31, 2014, our reserve
for these cases totaled $6 million and is included in other accrued liabilities in our consolidated balance sheets.
On November 21, 2013, the New York State Court of Appeals ruled against Travelocity and other OTAs,
holding that New York City’s hotel occupancy tax, which was amended in 2009 to capture revenue from fees
charged to customers by third-party travel companies, is constitutional because such fees constitute rent as they are a
condition of occupancy. Travelocity had been collecting and remitting taxes under the amended statute, so the ruling
did not impact its financial results in that regard.
On June 21, 2013, a state trial court in Cook County, Illinois granted summary judgment in favor of the City
of Chicago and against Travelocity and other OTAs, ruling that Chicago’s hotel tax applies to the fees retained by
the OTAs because, according to the trial court, OTAs act as hotel “managers” when facilitating hotel reservations.
Travelocity subsequently settled the lawsuit prior to the entry of final judgment or any ruling on damages, for an
amount not material to our results of operations.
On April 4, 2013, the United States District Court for the Western District of Texas (“W.D.T.”) entered a final
judgment against Travelocity and other OTAs in a class action lawsuit filed by the City of San Antonio. The final
judgment was based on a jury verdict from October 30, 2009 that the OTAs “control” hotels for purposes of city
hotel occupancy taxes. Following that jury verdict, on July 1, 2011, the W.D.T. concluded that fees charged by the
OTAs are subject to hotel occupancy taxes and that the OTAs have a duty to collect and remit these taxes. We
disagree with the jury’s finding and with the W.D.T.’s conclusions based on the jury finding, and intend to appeal
the final judgment to the United States Court of Appeals for the Fifth Circuit. The verdict against us, including
penalties and interest, is $4 million which we do not believe we will ultimately pay and therefore have not accrued
any loss related to this case.
123
We believe the Fifth Circuit’s resolution of the San Antonio appeal may be affected by a separate Texas state
appellate court decision in our favor. On October 26, 2011, the Fourteenth Court of Appeals of Texas affirmed a
trial court’s summary judgment ruling in favor of the OTAs in a case brought by the City of Houston and the Harris
County-Houston Sports Authority on a similarly worded tax ordinance as the one at issue in the San Antonio case.
The Texas Supreme Court denied the City of Houston’s petition to review the case. We believe this decision should
provide persuasive authority to the Fifth Circuit in its review of the San Antonio case.
In late 2012, the Tax Appeal Court of the State of Hawaii granted summary judgment in favor of Travelocity
and other OTAs on the issue of whether Hawaii’s transient accommodation tax applies to the merchant revenue
model. However, in January 2013, the same court granted summary judgment in favor of the State of Hawaii and
against Travelocity and other OTAs on the issue of whether the state’s general excise tax, which is assessed on all
business activity in the state, applies to merchant model hotel bookings for the period from 2002 to 2011.
We recorded charges of $2 million, $17 million and $25 million for the years ended December 31, 2014, 2013
and 2012, respectively, which represents the amount we would owe to the State of Hawaii, prior to appealing the
Tax Appeal Court’s ruling, in back excise taxes, penalties and interest based on the court’s interpretation of the
statute. These charges are included in net (loss) income from discontinued operations. As of December 31, 2014, we
maintained an accrued liability of $9 million included in other accrued liabilities for this case and have not made
material payments in the year ended December 31, 2014. Payment of any such amount is not an admission that we
are subject to the taxes in question.
The State of Hawaii has appealed the Tax Appeal Court’s decision that Travelocity is not subject to transient
accommodation tax, and Travelocity has likewise appealed the Tax Appeal Court’s determination that we are
subject to general excise tax, as we believe the decision is incorrect and inconsistent with the same court’s prior
rulings. If any excise tax is in fact owed (which we dispute), we believe the correct amount should be under $10
million. The ultimate resolution of these contingencies may differ from the liabilities recorded. To the extent our
appeal is successful in reducing or eliminating the assessed excise tax amounts, the State of Hawaii would be
required to refund such amounts, plus interest.
On May 20, 2013, the State of Hawaii issued additional assessments of general excise tax and transient
accommodation tax for merchant model hotel bookings in calendar year 2012. Travelocity appealed these
assessments to the Tax Appeal Court, which has stayed the assessments pending a final appellate decision on the
original assessments.
On December 9, 2013, the State of Hawaii also issued assessments of general excise tax for merchant model
rental car bookings for the period 2001 to 2012 for which we recorded a $2 million reserve in the fourth quarter of
2013. Travelocity appealed the assessment to the Tax Appeal Court, which has stayed the assessment pending a final
appellate decision on the original assessments.
On July 18, 2014, the State of Hawaii also issued additional assessments of general excise tax and transient
accommodation tax for merchant model hotel and rental car bookings in calendar year 2013. Travelocity appealed
those assessments to the Tax Appeal Court, which has stayed the assessments pending a final appellate decision on
the original assessments.
As of December 31, 2014, we have a reserve of $18 million, included in other accrued liabilities in the
consolidated balance sheet, for the potential resolution of issues identified related to litigation involving hotel sales,
occupancy or excise taxes, which includes the $11 million liability for the remaining payments to the State of
Hawaii. As of December 31, 2013, the reserve for litigation involving hotel sales, occupancy or excise taxes was
$18 million. Our estimated liability is based on our current best estimate but the ultimate resolution of these issues
may be greater or less than the amount recorded and, if greater, could adversely affect our results of operations.
In addition to the actions by the tax authorities, four consumer class action lawsuits have been filed against us
in which the plaintiffs allege that we made misrepresentations concerning the description of the fees received in
relation to facilitating hotel reservations. Generally, the consumer claims relate to whether Travelocity provided
adequate notice to consumers regarding the nature of our fees and the amount of taxes charged or collected. One of
these lawsuits was dismissed by the trial court and this dismissal was subsequently affirmed by the Texas Supreme
124
Court; one was voluntarily dismissed by the plaintiffs; one is pending in Texas state court, where the court is
currently considering the plaintiffs’ motion to certify a class action; and the last is pending in federal court, but has
been stayed pending the outcome of the Texas state court action. We believe the notice we provided was
appropriate.
In addition to the lawsuits, a number of state and local governments have initiated inquiries, audits and other
administrative proceedings that could result in an assessment of sales or occupancy taxes on fees. If we do not
prevail at the administrative level, those cases could lead to formal litigation proceedings.
Airlines Antitrust Litigation, US Airways Antitrust Litigation and DOJ Investigation
American Airlines Litigation (state and federal court claims)—In October 2012 we settled two outstanding
state and federal lawsuits with American Airlines (“American”) relating to American’s participation in the Sabre
GDS. The litigation, primarily involving breach of contract and antitrust claims, arose in January 2011 after
American undertook certain marketing activities relating to its “Direct Connect” program (a method of providing its
information and booking services directly to travel agents without using a GDS), and we de-preferenced American’s
flight information on the GDS and modified certain fees for booking American flights in a manner we believe was
permitted under the terms of our distribution and services agreement with American.
American alleged that we had taken anticompetitive actions and claimed over $1 billion in actual damages and
injunctive relief against us. We denied American’s allegations and aggressively defended against these claims and
pursued our own legal rights as warranted.
On October 30, 2012, we agreed to settlement terms in the state and federal lawsuits with American and, as a
result of the terms of the settlement, renewed our distribution agreement with American for several years. We also
entered into renewal agreements with American for Travelocity. Terms of the settlement and distribution agreements
were approved by the court presiding over the restructuring procedures for AMR, American’s parent company,
pursuant to an order made final on December 20, 2012. The settlement agreement contains mutual releases of all
claims by each party and neither party admits any wrong doing on their part. In January 2014, we reached a long-
term agreement with American to be the provider of the reservation system for the post-merged American and US
Airways.
We determined that the settlement agreement constitutes a multiple-element arrangement and recognized a
settlement charge of $222 million, net of tax, into our results of operations, representing the estimate of the fair
value of the settlement components. This included $64 million on an after tax basis for a $100 million payment
made to AMR on December 21, 2012, and a $60 million on an after tax basis that represented the fair value of a
second $100 million payment made to AMR in December 2013. The current portion of the settlement liability is
reflected in litigation settlement payable and the non-current portion is included in other noncurrent liabilities in the
consolidated balance sheets. Fair value of these fixed payment settlement components were estimated using our best
estimates of the timing with the resulting values discounted using a discount rate ranging from 6% to 11.5%,
depending on the timing of the payment and considering an adjustment for nonperformance risk that represents our
own credit risk. The fair value of the settlement amounts associated with the new commercial agreements entered
into with American was estimated using the differential cash flow method, by comparing the pricing under the new
contracts with American to similar contracts with other customers to determine a differential. This pricing
differential was applied to future estimated volumes and discounted using a discount rate of 11.5%. We believe that
the timing, discount rates and probabilities used in these estimates reflect appropriate market participant
assumptions.
Because the settlement liability is considered a multiple-element arrangement and recorded at fair value, the
net charge recorded in 2012 consisted of several elements, including cash and future cash to be paid directly to
American, payment credits to pay for future technology services that we provided as defined in the agreements and
an estimate of the fair value of other agreements entered into concurrently with the settlement agreement.
Amounts shown are net of tax utilizing our combined federal and state marginal tax rate of approximately
36%. The associated tax benefits are expected to be realized over the next one to four years and payment credits are
expected to be used by American from 2014 through 2017, depending on the level of services we provide.
125
US Airways Antitrust Litigation
In April 2011, US Airways sued us in federal court in the Southern District of New York, alleging violations
of the Sherman Act Section 1 (anticompetitive agreements) and Section 2 (monopolization). The complaint was
filed two months after we entered into a new distribution agreement with US Airways. In September 2011, the court
dismissed all claims relating to Section 2. The claims that were not dismissed are claims brought under Section 1 of
the Sherman Act that relate to our contracts with airlines, especially US Airways itself, which US Airways says
contain anticompetitive content-related provisions, and an alleged conspiracy with the other GDSs, allegedly to
maintain the industry structure and not to implement US Airways’ preferred system of distributing its Choice Seats
product. We strongly deny all of the allegations made by US Airways. US Airways initially quantified its damages
at either $317 million or $482 million (before trebling), depending on certain assumptions. We believe both
estimates are based on faulty assumptions and analysis and therefore are highly overstated. In the event US Airways
were to prevail on the merits of its claim, we believe any monetary damages awarded (before trebling) would be
significantly less than either of US Airways’ proposed damage amounts.
Document, fact and expert witness discovery are complete. Summary judgment motions were filed in April
2014 and in January 2015, the court issued a summary judgment opinion, which has not yet been published in full in
order to preserve some of the confidential information of the parties and other parties. Based on the ruling, the judge
eliminated the claims related to a majority of the alleged damages as well as rejected a request that would require us
to modify language in our customer contracts. Based on the ruling, the potential remaining range of single damages
has been significantly reduced. In respect of all of the remaining claims, US Airways claims damages (before
trebling) of either $45 million or $73 million. US Airways has filed a motion for reconsideration on two issues
decided in our favor. If the motion for reconsideration is granted in full, US Airways’ damages claim would, per US
Airways’ calculations, be either $184 million or $274 million. With respect to all of the remaining claims in this
case, we believe that our business practices and contract terms are lawful and fair, and we will continue to
vigorously defend against the remaining claims. The claims that have been dismissed to date are subject to appeal.
We have and will incur significant fees, costs and expenses for as long as the litigation is ongoing. In addition,
litigation by its nature is highly uncertain and fraught with risk, and it is therefore difficult to predict the outcome of
any particular matter. If favorable resolution of the matter is not reached, any monetary damages are subject to
trebling under the antitrust laws and US Airways would be eligible to be reimbursed by us for its costs and attorneys’
fees. Depending on the amount of any such judgment, if we do not have sufficient cash on hand, we may be required
to seek financing through the issuance of additional equity or from private or public financing. As noted, US
Airways had sought injunctive relief which the Court in its recent summary judgment ruling dismissed. US Airways
has not sought reconsideration of this aspect of the Court’s ruling. If injunctive relief were granted, depending on its
scope, it could affect the manner in which our airline distribution business is operated and potentially force changes
to the existing airline distribution business model. Any of these consequences could have a material adverse effect
on our business, financial condition and results of operations.
Department of Justice Investigation
On May 19, 2011, we received a civil investigative demand (“CID”) from the U.S. Department of Justice
(“DOJ”) investigating alleged anticompetitive acts related to the airline distribution component of our business. We
are fully cooperating with the DOJ investigation and are unable to make any prediction regarding its outcome. The
DOJ is also investigating other companies that own GDSs, and has sent CIDs to other companies in the travel
industry. Based on its findings in the investigation, the DOJ may (i) close the file, (ii) seek a consent decree to
remedy issues it believes violate the antitrust laws, or (iii) file suit against us for violating the antitrust laws, seeking
injunctive relief. If injunctive relief were granted, depending on its scope, it could affect the manner in which our
airline distribution business is operated and potentially force changes to the existing airline distribution business
model. Any of these consequences would have a material adverse effect on our business, financial condition and
results of operations. We have not received any communications from the DOJ regarding this matter in over two
years; however, we have not been notified that this matter is closed.
126
Insurance Carriers
We have disputes against some of our insurance carriers for failing to reimburse defense costs incurred in the
American Airlines antitrust litigation, which we settled in October 2012. Both carriers admitted there is coverage,
but reserved their rights not to pay should we be found liable for certain of American Airlines’ allegations. Despite
their admission of coverage, the insurers have only reimbursed us for a small portion of our significant defense
costs. We filed suit against the entities in New York state court alleging breach of contract and a statutory cause of
action for failure to promptly pay claims. If we prevail, we may recover some or all amounts already tendered to the
insurance companies for payment within the limits of the policies and may be entitled to 18% interest on such
amounts. To date, settlement discussions have been unsuccessful. We are currently in the discovery process. The
court has not yet scheduled a trial date though we anticipate trial to begin in the second half of 2015.
Hotel Related Antitrust Proceedings
On August 20, 2012, two individuals alleging to represent a putative class of bookers of online hotel
reservations filed a complaint against Sabre Holdings, Travelocity.com LP, and several other online travel
companies and hotel chains in the U.S. District Court for the Northern District of California, alleging federal and
state antitrust and related claims. The complaint alleged generally that the defendants conspired to enter into illegal
agreements relating to the price of hotel rooms. Over 30 copycat suits were filed in various courts in the United
States. In December 2012, the Judicial Panel on Multi-District Litigation centralized these cases in the U.S. District
Court in the Northern District of Texas, which subsequently consolidated them. The proposed class period was
January 1, 2003 through May 1, 2013. Together with the other defendants, Travelocity and Sabre filed a motion to
dismiss. On February 18, 2014, the court granted the motion and dismissed the plaintiff’s claims without prejudice.
The plaintiffs had moved for leave to file an amended complaint but the judge denied the motion on October 27,
2014 and dismissed the claims with prejudice. The plaintiffs did not appeal and their opportunity to appeal has
expired. The Court closed the case on January 17, 2015 and we regard this matter as fully and finally resolved.
Litigation Relating to Patent Infringement
In April 2010, CEATS, Inc. (“CEATS”) filed a patent infringement lawsuit against several ticketing
companies and airlines, including JetBlue, in the Eastern District of Texas. CEATS alleged that the mouse-over seat
map that appears on the defendants’ websites infringes certain of its patents. JetBlue’s website is provided by our
Airline Solutions business under the SabreSonic Web service. On June 11, 2010, JetBlue requested that we
indemnify and defend it for and against the CEATS lawsuit based on the indemnification provision in our agreement
with JetBlue, and we agreed to a conditional indemnification. CEATS claimed damages of $0.30 per segment sold
on JetBlue’s website during the relevant time period which totaled $10 million. A jury trial began on March 12,
2012, which resulted in a jury verdict invalidating the CEATS’ patents. Final judgment was entered and the plaintiff
appealed. The Federal Circuit affirmed the jury’s decision in our favor on April 26, 2013. CEATS did not appeal the
Federal Circuit’s decision, and its deadline to do so has passed. On June 28, 2013, the Eastern District denied
CEATS’ previously filed motion to vacate the judgment based on an alleged conflict of interest with a mediator.
CEATS appealed that decision and the Federal Circuit heard the appeal on May 5, 2014, and subsequently denied
the appeal. On July 22, 2014, CEATs filed a motion for rehearing en banc before the Federal Circuit which was
denied on September 5, 2014. On December 4, 2014, CEATS filed a petition seeking review with the Supreme
Court. Defendants filed their response to the opposing review on February 5, 2015.
Indian Income Tax Litigation
We are currently a defendant in income tax litigation brought by the Indian Director of Income Tax (“DIT”) in
the Supreme Court of India. The dispute arose in 1999 when the DIT asserted that we have a permanent
establishment within the meaning of the Income Tax Treaty between the United States and the Republic of India and
accordingly issued tax assessments for assessment years ending March 1998 and March 1999, and later issued
further tax assessments for assessment years ending March 2000 through March 2006. We appealed the tax
assessments and the Indian Commissioner of Income Tax Appeals returned a mixed verdict. We filed further appeals
with the Income Tax Appellate Tribunal, or the ITAT. The ITAT ruled in our favor on June 19, 2009 and July 10,
2009, stating that no income would be chargeable to tax for assessment years ending March 1998 and March 1999,
and from March 2000 through March 2006. The DIT appealed those decisions to the Delhi High Court, which found
in our favor on July 19, 2010. The DIT has appealed the decision to the Supreme Court of India and no trial date has
been set.
127
We intend to continue to aggressively defend against these claims. Although we do not believe that the
outcome of the proceedings will result in a material impact on our business or financial condition, litigation is by its
nature uncertain. If the DIT were to fully prevail on every claim, we could be subject to taxes, interest and penalties
of approximately $26 million as of December 31, 2014, which could have a material adverse effect on our business,
financial condition and results of operations. We do not believe this outcome is probable and therefore have not
made any provisions or recorded any liability for the potential resolution of this matter.
Litigation Relating to Routine Proceedings
We are also engaged from time to time in other routine legal and tax proceedings incidental to our business.
We do not believe that any of these routine proceedings will have a material impact on the business or our financial
condition.
18. Segment Information
In the fourth quarter of 2014, we committed to a plan to divest in Travelocity; therefore, the financial results
of Travelocity are excluded from the segment information presented below and are included in net (loss) income
from discontinued operations in our consolidated financial statements.
Our reportable segments are based upon: our internal organizational structure; the manner in which our
operations are managed; the criteria used by our Chief Executive Officer, who is our Chief Operating Decision
Maker (“CODM”), to evaluate segment performance; the availability of separate financial information; and overall
materiality considerations.
Our business has two reportable segments: (i) Travel Network and (ii) Airline and Hospitality Solutions,
which aggregates the Airline Solutions and Hospitality Solutions operating segments as these operating segments
have similar economic characteristics, generate revenues on transaction-based fees, incur the same types of expenses
and use our SaaS based and hosted applications and platforms to market to the travel industry.
Our CODM utilizes Adjusted Gross Margin and Adjusted EBITDA as the measures of profitability to evaluate
performance of our segments and allocate resources. Segment results do not include unallocated expenses or interest
expenses which are centrally managed costs. Benefits expense, including pension expense, postretirement benefits,
medical insurance and workers’ compensation are allocated to the segments based on headcount. Depreciation
expense on the corporate headquarters building and related facilities costs are allocated to the segments through a
facility fee based on headcount. Corporate includes certain shared expenses such as accounting, human resources,
legal, corporate systems, and other shared technology costs. Corporate also includes all amortization of intangible
assets and any related impairments that originate from purchase accounting, as well as stock based compensation
expense, restructuring charges, legal reserves, occupancy taxes and other items not identifiable with one of our
segments.
We account for significant intersegment transactions as if the transactions were with third parties, that is, at
estimated current market prices. The majority of the intersegment revenues and cost of revenues are fees charged by
Travel Network to Airline and Hospitality Solutions for airline trips booked through our GDS.
Our CODM does not review total assets by segment as operating evaluations and resource allocation decisions
are not made on the basis of total assets by segment. Our CODM uses Adjusted Capital Expenditures in making
product investment decisions and determining development resource requirements.
The performance of our segments is evaluated primarily on Adjusted Gross Margin and Adjusted EBITDA
which are not recognized terms under GAAP. Our uses of Adjusted Gross Margin and Adjusted EBITDA have
limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results
as reported under GAAP.
128
We define Adjusted Gross Margin as operating income (loss) adjusted for selling, general and administrative
expenses, impairments, depreciation and amortization, amortization of upfront incentive consideration, restructuring
and other costs, litigation and taxes, including penalties, and stock-based compensation. In 2014, we revised the
definition of Adjusted Gross Margin to adjust for restructuring and other costs, litigation and taxes, including
penalties and stock-based compensation included in cost of revenue which differs from Adjusted Gross Margin as
previously defined and presented in our consolidated financial statements included in the prospectus filed with the
SEC pursuant to Rule 424(b) under the Securities Act on April 17, 2014. Adjusted Gross Margin for the prior
periods presented has been recast to the revised definition.
We define Adjusted EBITDA as income (loss) from continuing operations adjusted for impairment,
depreciation and amortization of property and equipment, amortization of capitalized implementation costs,
acquisition related amortization, amortization of upfront incentive consideration, interest expense, net, loss on
extinguishment of debt, other, net, restructuring and other costs, litigation and taxes including penalties, stock-based
compensation, management fees and income taxes. We define Adjusted Capital Expenditures as additions to
property and equipment and capitalized implementation costs during the periods presented.
Segment information for the years ended December 31, 2014, 2013 and 2012 is as follows (in thousands):
Year Ended December 31,
2013
2012
2014
Revenue
Travel Network ....................................................................... $1,854,785 $1,821,498 $ 1,795,127
711,745 597,649
Airline and Hospitality Solutions ............................................
(10,628)
Eliminations ............................................................................
Total revenue ..................................................................... $2,631,417 $2,523,546 $ 2,382,148
786,478
(9,846)
(9,697)
Adjusted Gross Margin (a)
Travel Network ....................................................................... $ 863,276 $ 860,793 $ 843,863
262,386 218,421
Airline and Hospitality Solutions ............................................
(411)
Eliminations ............................................................................
(63,266)
Corporate .................................................................................
Total ................................................................................... $1,146,792 $1,060,302 $ 998,607
337,851
(17)
(54,318)
(140)
(62,737)
Adjusted EBITDA (b)
Travel Network ....................................................................... $ 778,677 $ 772,208 $ 768,452
213,075 166,282
Airline and Hospitality Solutions ............................................
985,283 934,734
Total segments ...................................................................
(206,529) (203,322)
Corporate .................................................................................
Total ................................................................................... $ 840,028 $ 778,754 $ 731,412
282,648
1,061,325
(221,297)
Depreciation and amortization
Travel Network ....................................................................... $
Airline and Hospitality Solutions ............................................
Total segments ...................................................................
Corporate .................................................................................
36,853
52,524 $
52,091
77,351
129,875
88,944
157,163 153,832
Total ................................................................................... $ 289,630 $ 287,038 $ 242,776
106,415
167,121
122,509
60,706 $
Adjusted Capital Expenditures (c)
Travel Network ....................................................................... $
Airline and Hospitality Solutions ............................................
Total segments ...................................................................
Corporate .................................................................................
44,876
171,270 163,621
240,627 208,497
37,089
Total ................................................................................... $ 265,038 $ 268,337 $ 245,586
161,425
217,516
47,522
69,357 $
56,091 $
27,710
129
(a) The following table sets forth the reconciliation of Adjusted Gross Margin to operating income (loss) in
our statement of operations:
Adjusted Gross Margin .............................................. $1,146,792 $1,060,302 $ 998,607
Less adjustments:
Year Ended December 31,
2014
2013
2012
Selling, general and administrative .......................
Impairment(3) .........................................................
Restructuring charges ...........................................
Cost of revenue adjustments:
Depreciation and amortization(1) .....................
Amortization of upfront incentive
468,152
—
(558)
429,290
—
8,163
793,294
20,254
—
198,409
192,423
149,475
consideration(2) ...........................................
Restructuring and other costs (5) .......................
Litigation and taxes, including penalties(6) ......
Stock-based compensation ..............................
36,649
11,491
—
1,356
Operating income ....................................................... $ 421,345 $ 380,930 $
45,358
6,042
—
8,044
36,527
4,283
(23 )
1,383
(6,586 )
(b) The following tables set forth the reconciliation of Adjusted EBITDA to loss from continuing operations
in our statement of operations:
Adjusted EBITDA ...................................................... $ 840,028 $ 778,754 $ 731,412
Less adjustments:
Year Ended December 31,
2014
2013
2012
Impairment(3) .........................................................
Depreciation and amortization of property
and equipment(1a) ..............................................
Amortization of capitalized
implementation costs(1b) ...................................
Acquisition related amortization(1c) .......................
Gain on sale of business .......................................
Amortization of upfront
—
—
44,054
157,592
123,414
96,668
35,859
99,383
—
34,143
132,685
—
19,439
129,869
(25,850 )
incentive consideration(2) .................................
Interest expense, net ..............................................
Loss on extinguishment of debt ............................
Other, net (4) ..........................................................
Restructuring and other costs (5) ............................
Litigation and taxes, including penalties(6) ...........
Stock-based compensation ....................................
Management fees(7) ...............................................
Provision (benefit) for income taxes .....................
45,358
218,877
33,538
63,860
10,470
14,144
20,094
23,701
6,279
Income (loss) from continuing operations .................. $ 110,873 $
36,527
36,649
232,450
274,689
—
12,181
6,635
305
5,408
27,921
396,412
18,514
4,365
3,387
7,769
8,761
54,039
(6,907 )
52,066 $ (215,427 )
(1) Depreciation and amortization expenses (see Note 1, Summary of Business and Significant Accounting
Policies for associated asset lives):
a.
b.
Depreciation and amortization of property and equipment includes software developed for internal use.
Amortization of capitalized implementation costs represents amortization of upfront costs to
implement new customer contracts under our SaaS and hosted revenue model.
Acquisition related amortization represents amortization of intangible assets from the take-private
transaction in 2007 as well as intangibles associated with acquisitions since that date and amortization
of the excess basis in our underlying equity in joint ventures.
c.
130
(2) Our Travel Network business at times makes upfront cash payments or other consideration to travel agency
subscribers at the inception or modification of a service contract, which are capitalized and amortized over
an average expected life of the service contract, generally over three to five years. Such consideration is
made with the objective of increasing the number of clients or to ensure or improve customer loyalty. Such
service contract terms are established such that the supplier and other fees generated over the life of the
contract will exceed the cost of the incentive consideration provided up front. Such service contracts with
travel agency subscribers require that the customer commit to achieving certain economic objectives and
generally have terms requiring repayment of the upfront incentive consideration if those objectives are not
met.
(4)
(3) Represents impairment charges to assets (see Note 6, Goodwill and Intangible Assets) as well as $24 million
in 2012, representing our share of impairment charges recorded by one of our equity method investments,
Abacus.
In 2014, other, net primarily includes a fourth quarter charge of $66 million as a result of an increase to our
TRA liability. The increase in our TRA liability is due to a reduction in a valuation allowance maintained
against our deferred tax assets. This charge is fully offset by an income tax benefit recognized in the fourth
quarter of 2014 from the reduction in the valuation allowance which is included in tax impacts of net income
adjustments. In 2013 and 2012, other, net primarily represents foreign exchange gains and losses related to
the remeasurement of foreign currency denominated balances included in our consolidated balance sheets
into the relevant functional currency.
(5) Restructuring and other costs represents charges associated with business restructuring and associated
changes implemented which resulted in severance benefits related to employee terminations, integration and
facility opening or closing costs and other business reorganization costs.
Litigation and taxes, including penalties represents charges or settlements associated with airline antitrust
litigation as well as payments or reserves taken in relation to certain retroactive hotel occupancy and excise
tax disputes (see Note 17, Commitments and Contingencies).
(6)
(7) We paid an annual management fee to TPG and Silver Lake in an amount between (i) $5 million and (ii) $7
million, the actual amount of which is calculated based upon 1% of Adjusted EBITDA, earned by the
company in such fiscal year up to a maximum of $7 million. In addition, the MSA provided for
reimbursement of certain costs incurred by TPG and Silver Lake, which are included in this line item. The
MSA was terminated in connection with our initial public offering.
(c)
Includes capital expenditures and capitalized implementation costs as summarized below:
Year Ended December 31,
2014
2013
2012
Additions to property and equipment ......................... $ 227,227 $ 209,523 $ 167,043
78,543
Capitalized implementation costs ...............................
Adjusted Capital Expenditures ............................. $ 265,038 $ 268,337 $ 245,586
58,814
37,811
Transaction based revenue accounted for approximately 90%, 89% and 90% of our Travel Network revenue
for the years ended December 31, 2014, 2013 and 2012, respectively. Transaction based revenue accounted for
approximately 70%, 70% and 67% of our Airline and Hospitality Solutions revenue for the years ended December
31, 2014, 2013 and 2012, respectively.
All joint venture equity income and expenses relate to Travel Network.
131
Our revenues and long-lived assets, excluding goodwill and intangible assets, by geographic region are
summarized below. For all periods presented, revenues of our Travel Network business are attributed to countries
based on the location of the travel supplier, which differs from the presentation in our prior year consolidated
financial statements in which we attributed revenues of Travel Network to countries based on the location of the
travel agencies. For Airlines and Hospitality Solutions, revenues are attributed to countries based on the location of
the customer.
Year Ended December 31,
2013
2012
2014
Revenue:
United States ......................................................... $1,146,800 $1,041,934 $ 1,058,021
446,695
Europe ..................................................................
877,432
All other ................................................................
Total ................................................................ $2,631,417 $2,523,546 $ 2,382,148
483,504
998,108
525,694
958,923
As of December 31,
2014
2013
Long-lived assets
United States............................................................ $ 519,762 $
23,480
Europe .....................................................................
8,034
All other ...................................................................
Total ................................................................... $ 551,276 $
471,194
15,144
9,862
496,200
19. Subsequent Events
Divestiture of Travelocity Segment
On January 23, 2015, we sold Travelocity.com, and on March 1, 2015, we sold lastminute.com. Our
Travelocity segment has no remaining operations subsequent to these dispositions. See Note 3, Discontinued
Operations and Dispositions, for additional information.
132
20. Quarterly Financial Information (Unaudited)
A summary of our quarterly financial results for the years ended December 31, 2014 and 2013 is presented
below (in thousands). Revenue, operating income, income from continuing operations, and (loss) income from
discontinued operations, net of tax differ from amounts reported in our Quarterly Reports on Form 10-Q as filed
with the SEC as a result of the reclassification of our Travelocity segment to discontinued operations.
Revenue ............................................................. $
Operating income ..............................................
Income from continuing operations ...................
(Loss) income from discontinued
Year Ended December 31, 2014
First Quarter Second Quarter Third Quarter Fourth Quarter
646,142
103,709
41,230
672,480 $
117,847
41,229
666,415 $
103,707
21,959
646,380 $
96,082
6,455
operations, net of tax ....................................
Net (loss) income ...............................................
Net (loss) income attributable to
(24,056)
(2,097)
(16,650)
(10,195)
(3,946 )
37,283
5,734
46,964
Sabre Corporation .........................................
(2,843)
(10,897)
36,563
46,400
Net (loss) income attributable to
common shareholders ...................................
(11,989)
(13,132)
36,563
46,400
Net (loss) income per share attributable to
common shareholders:
Basic ............................................................... $
Diluted ............................................................ $
(0.07) $
(0.07) $
(0.05) $
(0.05) $
0.14 $
0.13 $
0.17
0.17
Revenue ........................................................... $
Operating income ............................................
Income from continuing operations .................
(Loss) income from discontinued
Year Ended December 31, 2013
First Quarter Second Quarter Third Quarter Fourth Quarter
626,921
77,413
(8,550)
629,984 $
100,315
18,102
631,339 $
91,026
22,047
635,302 $
112,176
20,467
operations, net of tax ..................................
Net (loss) income .............................................
Net (loss) income attributable to
(35,647)
(15,180)
(138,072)
(116,025)
(12,016 )
6,086
36,038
27,488
Sabre Corporation .......................................
(15,764)
(116,862)
5,372
26,760
Net (loss) income attributable to
common shareholders .................................
(24,736)
(125,867)
(3,870 )
17,275
Net (loss) income per share attributable
to common shareholders:
Basic ............................................................. $
Diluted .......................................................... $
(0.14) $
(0.14) $
(0.71) $
(0.71) $
(0.02 ) $
(0.02 ) $
0.10
0.09
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer
and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this
report, our disclosure controls and procedures are effective.
133
Management’s Annual Report on Internal Control Over Financial Reporting and Attestation Report of
Independent Registered Public Accounting Firm
This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal
control over financial reporting or an attestation report of our independent registered public accounting firm due to a
transition period established by rules of the Securities and Exchange Commission for newly public companies.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended
December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information set forth under the following headings of our definitive Proxy Statement for our 2015 annual
meeting of stockholders (the “2015 Proxy Statement”) is incorporated herein by reference:
“Certain Information Regarding Nominees for Director” under “Proposal 1. Election of Directors,”
which identifies our directors and nominees for our Board of Directors, and “Stockholders’ Agreement”
under “Corporate Governance.”
“Section 16(a) Beneficial Ownership Reporting Compliance.”
“Corporate Governance—Other Corporate Governance Matters—Business Ethics Policy and Code of
Conduct,” which describes our Code of Conduct.
“Corporate Governance—Stockholder Nominations for Directors,” which describes the procedures by
which stockholders may nominate candidates for election to our Board of Directors.
“Corporate Governance—Board Committees—Audit Committee," which identifies members of the
Audit Committee of our Board of Directors and audit committee financial experts.
Information regarding our executive officers is reported under the caption “Executive Officers of the Registrant” in
Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the headings “Compensation Discussion and Analysis,” “Executive
Compensation,” “Proposal 1. Election of Directors—Director Compensation Program” and “Corporate
Governance—Compensation Committee Interlocks and Insider Participation” of the 2015 Proxy Statement is
incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information set forth under the headings “Security Ownership of Certain Beneficial Owners and
Management” of the 2015 Proxy Statement is incorporated herein by reference.
134
Equity Compensation Plan Information
The following table gives information about our common stock that may be issued upon the exercise of
options, warrants and rights under all of our equity compensation plans as of December 31, 2014.
Number of securities to
be issued upon exercise
of outstanding options
(a)
Weighted
average exercise
price of
outstanding
options (b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
Equity compensation plans approved by
stockholders ...............................................................
22,334,243
$
7.53
11,873,890
(a)
(b)
Includes shares of common stock to be issued upon the exercise of outstanding options under our 2014 Omnibus Plan, the
Sovereign 2012 MEIP and the Sovereign MEIP. Also includes 3,427,769 restricted share units under our 2014 Omnibus
Plan and Sovereign 2012 MEIP (including shares that may be issued pursuant to outstanding performance-based restricted
share units, assuming the target award is met; actual shares may vary, depending on actual performance).
Excludes restricted share units which do not have an exercise price.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information set forth under the headings “Certain Relationships and Related Party Transactions” and
“Corporate Governance—Board Composition and Director Independence” of the 2015 Proxy Statement is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the headings “Principal Accounting Firm Fees” and “Audit Committee
Approval of Audit and Non-Audit Services” under “Proposal 2. Ratification of Independent Auditors” of the 2015
Proxy Statement is incorporated herein by reference.
135
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report.
PART IV
1.
2.
Financial statements. The financial statements are set forth under Item 8 of this Annual Report on Form
10-K.
Financial statement schedules. Schedule II Valuation and Qualifying Accounts is filed as part of this
Annual Report on Form 10-K and should be read in conjunction with the financial statements and notes
thereto contained in Item 8.
All other financial statements and financial statement schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the related instruction, are not material or are not
applicable and, therefore, have been omitted.
3.
Exhibits.
Exhibit
Number
2.1†
2.2
3.1
3.2
4.1
4.2
4.3
Description of Exhibits
Put-Call Acquisition Agreement, dated as of March 6, 2014 by and among Expedia, Inc., and
Travelocity.com LP and Sabre GLBL Inc. (incorporated by reference to Exhibit 2.1 of Sabre
Corporation’s Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on March 10, 2014).
Asset Purchase Agreement, dated as of January 23, 2015 by and among Expedia Inc., Sabre GLBL Inc.,
Travelocity.com LP and certain affiliates of Sabre GLBL Inc. and Travelocity.com LP (incorporated by
reference to Exhibit 2.1 of Sabre Corporation’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 26, 2015).
Third Amended and Restated Certificate of Incorporation of Sabre Corporation (incorporated by
reference to Exhibit 3.1 of Sabre’s Corporation Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 22, 2014).
Second Amended and Restated Bylaws of Sabre Corporation (incorporated by reference to Exhibit 3.2 of
Sabre’s Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on
April 22, 2014).
Amended and Restated Registration Rights Agreement, dated as of April 23, 2014 by and among Sabre
Corporation and the stockholders party thereto (incorporated by reference to Exhibit 4.1 of Sabre’s
Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on April
23, 2014).
Indenture, dated as of August 7, 2001, between Sabre Holdings Corporation and SunTrust Bank, as
Trustee (incorporated by reference to Exhibit 4.2 of Sabre Corporation’s Amendment No. 1 to the
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 10,
2014).
Second Supplemental Indenture, dated as of March 13, 2006, between Sabre Holdings Corporation and
SunTrust Bank, as Trustee (incorporated by reference to Exhibit 4.3 of Sabre Corporation’s Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
4.4
Form of Senior Note due 2016 of Sabre Holdings Corporation (included in Exhibit 4.3).
136
Exhibit
Number
Description of Exhibits
4.5
4.6
4.7
10.1
10.2
10.3
10.4
10.5
10.6
Indenture, dated as of May 9, 2012, among Sabre Inc., Sabre Holdings Corporation, the subsidiary
guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent with
respect to the 8.500% Senior Secured Notes due 2019 (incorporated by reference to Exhibit 4.5 of Sabre
Corporation’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission
on January 21, 2014).
Form of 8.500% Senior Secured Note due 2019 of Sabre Inc. (included in Exhibit 4.5).
First Supplemental Indenture, dated as of December 31, 2012, among Sabre Inc., TVL Common, Inc., as
subsidiary guarantor, the subsidiary guarantors party thereto and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.7 of Sabre Corporation’s Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Loan Agreement, dated March 29, 2007, between Sabre Headquarters, LLC, as borrower, and JPMorgan
Chase Bank, N.A., as lender (incorporated by reference to Exhibit 10.1 of Sabre Corporation’s
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 21,
2014).
Amendment and Restatement Agreement, dated as of February 19, 2013, among Sabre Inc., Sabre
Holdings Corporation, the subsidiary guarantors party thereto, the lenders party thereto, Deutsche Bank
AG New York Branch, as administrative agent and Bank of America, N.A. as successor administrative
agent (incorporated by reference to Exhibit 10.2 of Sabre Corporation’s Amendment No. 1 to the
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 10,
2014).
Amended and Restated Guaranty, dated as of February 19, 2013, among Sabre Holdings Corporation,
certain subsidiaries of Sabre Inc. from time to time party thereto and Bank of America, N.A., as
administrative agent (incorporated by reference to Exhibit 10.3 of Sabre Corporation’s Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Amended and Restated Pledge and Security Agreement, dated as of February 19, 2013, among Sabre
Holdings Corporation, Sabre Inc., certain subsidiaries of Sabre Inc. from time to time party thereto and
Bank of America, N.A., as administrative agent for the secured parties (incorporated by reference to
Exhibit 10.4 of Sabre Corporation’s Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on January 21, 2014).
First-Lien Intercreditor Agreement, dated as of May 9, 2012, among Sabre Inc., Sabre Holdings
Corporation, the other grantors party thereto, Deutsche Bank AG New York Branch, as administrative
agent and authorized representative for the Credit Agreement secured parties, Wells Fargo Bank,
National Association, as the Initial First-Lien Collateral Agent and initial additional authorized
representative, each Additional First-Lien Collateral Agent and each additional Authorized
Representative (incorporated by reference to Exhibit 10.5 of Sabre Corporation’s Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Pledge and Security Agreement, dated as of May 9, 2012, among Sabre Inc., Sabre Holdings
Corporation, the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, as
collateral agent (incorporated by reference to Exhibit 10.6 of Sabre Corporation’s Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
137
Exhibit
Number
10.7
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
Description of Exhibits
First Incremental Term Facility Amendment to Amended and Restated Credit Agreement, dated as of
September 30, 2013, among Sabre Inc., Sabre Holdings Corporation, the subsidiary guarantors party
thereto, and Bank of America, N.A., as incremental term lender and administrative agent (incorporated
by reference to Exhibit 10.7 of Sabre Corporation’s Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on January 21, 2014).
Sovereign Holdings, Inc. Management Equity Incentive Plan adopted June 11, 2007, as amended
April 22, 2010 (incorporated by reference to Exhibit 10.8 of Sabre Corporation’s Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Form of Non-Qualified Stock Option Grant Agreement under Sovereign Holdings, Inc. Management
Equity Incentive Plan adopted June 11, 2007, as amended April 22, 2010 (incorporated by reference to
Exhibit 10.9 of Sabre Corporation’s Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on January 21, 2014).
Form of Travelocity.com LLC Stock Option Grant Agreement (incorporated by reference to Exhibit
10.10 of Sabre Corporation’s Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on January 21, 2014).
Restricted Stock Grant Agreement, dated April 25, 2011, between Sovereign Holdings, Inc. and Carl
Sparks (incorporated by reference to Exhibit 10.11 of Sabre Corporation’s Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Sovereign Holdings, Inc. Stock Incentive Plan Stock-Settled SARs with Respect to Travelocity Equity,
adopted April 5, 2012 (incorporated by reference to Exhibit 10.12 of Sabre Corporation’s Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Form of Stock Appreciation Rights Grant Agreement under the Sovereign Holdings, Inc. Stock Incentive
Plan Stock-Settled SARs with Respect to Travelocity Equity (incorporated by reference to Exhibit 10.13
of Sabre Corporation’s Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on January 21, 2014).
Amended and Restated Sovereign Holdings, Inc. Stock Incentive Plan for Travelocity’s CEO
Stock-Settled SARs with Respect to Travelocity Equity, adopted March 15, 2011, as amended and
restated May 3, 2012 (incorporated by reference to Exhibit 10.14 of Sabre Corporation’s Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Amended and Restated Stock Appreciation Rights Grant Agreement, dated May 15, 2012 between
Sovereign Holdings, Inc. and Carl Sparks under the Amended and Restated Sovereign Holdings, Inc.
Stock Incentive Plan for Travelocity’s CEO Stock-Settled SARs with Respect to Travelocity Equity
(incorporated by reference to Exhibit 10.15 of Sabre Corporation’s Registration Statement on Form S-1
filed with the Securities and Exchange Commission on January 21, 2014).
Sovereign Holdings, Inc. 2012 Management Equity Incentive Plan adopted September 14, 2012
(incorporated by reference to Exhibit 10.16 of Sabre Corporation’s Registration Statement on Form S-1
filed with the Securities and Exchange Commission on January 21, 2014).
Form of Non-Qualified Stock Option Grant Agreement under the Sovereign Holdings, Inc. 2012
Management Equity Incentive Plan (incorporated by reference to Exhibit 10.17 of Sabre Corporation’s
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 21,
2014).
138
Exhibit
Number
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+
10.27+
10.28+
Description of Exhibits
Form of Restricted Stock Unit Grant Agreement under the Sovereign Holdings, Inc. 2012 Management
Equity Incentive Plan (incorporated by reference to Exhibit 10.18 of Sabre Corporation’s Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Restricted Stock Unit Grant Agreement, dated November 1, 2012, between Sovereign Holdings, Inc. and
Carl Sparks (incorporated by reference to Exhibit 10.19 of Sabre Corporation’s Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Form of Restricted Stock Unit Grant Agreement for Non-Employee Directors under the Sovereign
Holdings, Inc. 2012 Management Equity Incentive Plan (incorporated by reference to Exhibit 10.20 of
Sabre Corporation’s Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on January 21, 2014).
Form of Non-Qualified Stock Option Grant Agreement for Non-Employee Directors under the
Sovereign Holdings, Inc. 2012 Management Equity Incentive Plan (incorporated by reference to Exhibit
10.21 of Sabre Corporation’s Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on January 21, 2014).
Employment Agreement by and among Sabre Holdings Corporation, Sabre Inc., Sovereign Holdings,
Inc. and Thomas Klein, dated August 14, 2013(incorporated by reference to Exhibit 10.22 of Sabre
Corporation’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission
on January 21, 2014).
Employment Agreement by and among Sovereign Holdings, Inc., Travelocity.com, L.P. and Carl
Sparks, dated March 22, 2011 (incorporated by reference to Exhibit 10.23 of Sabre Corporation’s
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 21,
2014).
Employment Agreement by and between Sovereign Holdings, Inc. and William Robinson, dated
December 5, 2013 (incorporated by reference to Exhibit 10.24 of Sabre Corporation’s Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Employment Agreement by and between Sovereign Holdings, Inc. and Michael S. Gilliland, dated
June 11, 2007 (incorporated by reference to Exhibit 10.24 of Sabre Corporation’s Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Amendment No. 1 to Employment Agreement by and between Sovereign Holdings, Inc. and Michael S.
Gilliland, dated December 31, 2008 (incorporated by reference to Exhibit 10.26 of Sabre Corporation’s
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 21,
2014).
Amendment No. 2 to Employment Agreement by and between Sovereign Holdings, Inc. and Michael S.
Gilliland, dated June 26, 2009 (incorporated by reference to Exhibit 10.27 of Sabre Corporation’s
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 21,
2014).
Amendment No. 3 to Employment Agreement by and between Sovereign Holdings, Inc. and Michael S.
Gilliland, dated June 30, 2012 (incorporated by reference to Exhibit 10.28 of Sabre Corporation’s
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 21,
2014).
139
Exhibit
Number
10.29+
10.30+
10.31+
10.32+
10.33+
10.34+
10.35+
10.36+
10.37+
10.38
Description of Exhibits
Revision to Amendment No. 3 to Employment Agreement by and between Sovereign Holdings, Inc. and
Michael S. Gilliland, dated January 9, 2013 (incorporated by reference to Exhibit 10.29 of Sabre
Corporation’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission
on January 21, 2014).
Employment Agreement by and between Sovereign Holdings, Inc. and Mark Miller, dated July 31, 2009
(incorporated by reference to Exhibit 10.30 of Sabre Corporation’s Registration Statement on Form S-1
filed with the Securities and Exchange Commission on January 21, 2014).
Letter Agreement by and among Sovereign Holdings, Inc., TVL Common, Inc. and Mark Miller, dated
April 12, 2013 (incorporated by reference to Exhibit 10.31 of Sabre Corporation’s Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Employment Agreement by and between Sovereign Holdings, Inc. and Deborah Kerr, dated March 7,
2013 (incorporated by reference to Exhibit 10.32 of Sabre Corporation’s Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Employment Agreement by and between Sovereign Holdings, Inc. and Rick Simonson, dated March 5,
2013 (incorporated by reference to Exhibit 10.33 of Sabre Corporation’s Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Letter Agreement by and between Sovereign Holdings, Inc., and Michael Gilliland, dated September 18,
2013 (incorporated by reference to Exhibit 10.34 of Sabre Corporation’s Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Employment Agreement by and between Sovereign Holdings, Inc. and Sterling Miller, dated July 31,
2009 (incorporated by reference to Exhibit 10.35 of Sabre Corporation’s Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Employment Agreement by and between Sovereign Holdings, Inc. and Hugh Jones, dated July 29, 2009
(incorporated by reference to Exhibit 10.36 of Sabre Corporation’s Registration Statement on Form S-1
filed with the Securities and Exchange Commission on January 21, 2014).
Employment Agreement by and between Sovereign Holdings, Inc. and Greg Webb, dated February 2,
2011 (incorporated by reference to Exhibit 10.37 of Sabre Corporation’s Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on January 21, 2014).
Amendment No. 1 to Amended and Restated Credit Agreement, dated as of February 20, 2014, among
Sabre GLBL Inc., Sabre Holdings Corporation, each of the other Loan Parties, Bank of America, N.A.,
as administrative agent and the Lenders thereto (incorporated by reference to Exhibit 10.38 of Sabre
Corporation’s Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on March 10, 2014).
140
Exhibit
Number
10.39
10.40
10.41†
10.42†
Description of Exhibits
First Revolver Extension Amendment to Amended and Restated Credit Agreement, dated as of
February 20, 2014, among Sabre GLBL Inc., Sabre Holdings Corporation, each of the other Loan
Parties, Bank of America, N.A., as administrative agent and the Revolving Credit Lenders thereto
(incorporated by reference to Exhibit 10.39 of Sabre Corporation’s Amendment No. 1 to the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on March 10, 2014).
First Incremental Revolving Credit Facility Amendment to Amended and Restated Credit Agreement,
dated as of February 20, 2014, among Sabre GLBL Inc., Sabre Holdings Corporation, each of the other
Loan Parties, Bank of America, N.A., as administrative agent and the Revolving Credit Lenders thereto
(incorporated by reference to Exhibit 10.40 of Sabre Corporation’s Amendment No. 1 to the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on March 10, 2014).
Second Amended and Restated Information Technology Services Agreement, dated as of January 31,
2012, between HP Enterprise Services, LLC, as provider, and Sabre Inc. (incorporated by reference to
Exhibit 10.41 of Sabre Corporation’s Amendment No. 1 to the Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on March 10, 2014).
Amendment Number One to Second Amended and Restated Information Technology Services
Agreement, dated as of September 14, 2012, between HP Enterprise Services, LLC, as provider, and
Sabre Inc. (incorporated by reference to Exhibit 10.42 of Sabre Corporation’s Amendment No. 1 to the
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 10,
2014).
10.43†
Amendment Number Two to Second Amended and Restated Information Technology Services
Agreement, dated as of July 15, 2013, between HP Enterprise Services, LLC, as provider, and Sabre Inc.
(incorporated by reference to Exhibit 10.43 of Sabre Corporation’s Amendment No. 1 to the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on March 10, 2014).
10.44
10.45
10.46+
10.47+
Income Tax Receivable Agreement dated as of April 23, 2014 between Sabre Corporation and
Sovereign Manager Co-Invest, LLC (incorporated by reference to Exhibit 10.1 of Sabre’s Corporation
Current Report on Form 8-K filed with the Securities and Exchange Commission on April 23, 2014).
Amended and Restated Stockholders’ Agreement dated as of April 23, 2014 by and among Sabre
Corporation and the stockholders party thereto (incorporated by reference to Exhibit 10.2 of Sabre’s
Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on April
23, 2014).
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.46 of
Sabre Corporation’s Amendment No. 6 to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on April 4, 2014).
Letter by and between Sovereign Holdings, Inc., Sabre Holdings Corporation and Sabre Inc. and
Lawrence W. Kellner, dated August 30, 2013 (incorporated by reference to Exhibit 10.47 of Sabre
Corporation’s Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on March 26, 2014).
10.48+
Sabre Corporation 2014 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit
10.48 of Sabre Corporation’s Amendment No. 3 to the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on March 26, 2014).
141
Exhibit
Number
10.49+
10.50+
10.51+
10.52+
10.53
10.54+
10.55+
10.56+
10.57+
Description of Exhibits
Form of Restricted Stock Unit Grant Agreement under the Sabre Corporation 2014 Omnibus Incentive
Compensation Plan (incorporated by reference to Exhibit 10.49 of Sabre Corporation’s Amendment No.
3 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on
March 26, 2014).
Form of Non-Qualified Stock Option Grant Agreement under the Sabre Corporation 2014 Omnibus
Incentive Compensation Plan (incorporated by reference to Exhibit 10.50 of Sabre Corporation’s
Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on March 26, 2014).
Form of Restricted Stock Unit Annual Grant Agreement for Non-Employee Directors under the Sabre
Corporation 2014 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.51 of
Sabre Corporation’s Amendment No. 3 to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on March 26, 2014).
Form of Restricted Stock Unit Initial Grant Agreement for Non-Employee Directors under the Sabre
Corporation 2014 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.52 of
Sabre Corporation’s Amendment No. 3 to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on March 26, 2014).
Supplement No. 1, dated as of December 31, 2012, to the Pledge and Security Agreement dated as of
May 9, 2012, among Sabre Holdings Corporation, Sabre Inc., the subsidiary guarantors and Wells Fargo
Bank, National Association, as collateral agent for the secured parties (incorporated by reference to
Exhibit 10.53 of Sabre Corporation’s Amendment No. 4 to the Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on March 31, 2014).
Letter Agreement by and between Sabre and Carl Sparks dated April 21, 2014 (incorporated by
reference to Exhibit 10.54+ of Sabre’s Corporation Current Report on Form 10-Q filed with the
Securities and Exchange Commission on November 12, 2014).
Employment Agreement by and between Sabre Corporation and Rachel Gonzalez dated September 2,
2014 (incorporated by reference to Exhibit 10.55+ of Sabre’s Corporation Current Report on Form 10-Q
filed with the Securities and Exchange Commission on November 12, 2014).
Letter Agreement by and between Sabre Corporation and Sterling Miller dated October 20, 2014
(incorporated by reference to Exhibit 10.56+ of Sabre Corporation’s Registration Statement on Form S-1
filed with the Securities and Exchange Commission on January 26, 2015).
Sabre Corporation Non-Employee Directors Compensation Deferral Plan dated October 29, 2014
(incorporated by reference to Exhibit 10.57+ of Sabre Corporation’s Registration Statement on Form S-1
filed with the Securities and Exchange Commission on January 26, 2015).
10.58*
Second Amended and Restated Stockholders’ Agreement dated as of February 6, 2015 by and among
Sabre Corporation and the stockholders party thereto.
21.1*
List of Subsidiaries
23.1*
Consent of Ernst & Young LLP
24.1*
Powers of Attorney (included on signature page)
31.1*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
142
Exhibit
Number
Description of Exhibits
32.1*
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema
101.CAL* XBRL Taxonomy Extension Calculation Linkbase
101.DEF* XBRL Taxonomy Extension Definition Linkbase
101.LAB* XBRL Taxonomy Extension Label Linkbase
101.PRE* XBRL Taxonomy Extension Presentation Linkbase
______________________________________
+
†
*
Indicates management contract or compensatory plan or arrangement.
Confidential treatment has been granted to portions of this exhibit by the Securities and Exchange
Commission.
Filed herewith.
143
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: March 2, 2015
SABRE CORPORATION
By: /s/ Richard A. Simonson
Richard A. Simonson
Executive Vice President and
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes
and appoints Thomas Klein, Richard A. Simonson, Rachel A. Gonzalez and Chris Nester, and each of them, his or
her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name,
place and stead, in any and all capacities, to execute any or all amendments to this Annual Report on Form 10-K and
to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
144
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Thomas Klein
Thomas Klein
President and Chief Executive Officer and Director March 2, 2015
(Principal Executive Officer)
/s/ Richard A. Simonson
Richard A. Simonson
Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)
/s/ Jami B. Kindle
Jami B. Kindle
Vice President of Global Accounting
(Principal Accounting Officer)
/s/ George Bravante, Jr.
George Bravante, Jr.
/s/ Lawrence W. Kellner
Lawrence W. Kellner
/s/ Gary Kusin
Gary Kusin
/s/ Greg Mondre
Greg Mondre
/s/ Judy Odom
Judy Odom
/s/ Joseph Osnoss
Joseph Osnoss
/s/ Karl Peterson
Karl Peterson
Director
Director
Director
Director
Director
Director
Director
March 2, 2015
March 2, 2015
March 2, 2015
March 2, 2015
March 2, 2015
March 2, 2015
March 2, 2015
March 2, 2015
March 2, 2015
145
SABRE CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2014, 2013 AND 2012
(In millions)
Balance at
Beginning
Charged to
Expense or
Other Accounts
Write-offs and
Other Adjustments
Balance at
End of Period
Allowance for Doubtful Accounts
Year ended December 31, 2014 ..................... $
Year ended December 31, 2013 ..................... $
Year ended December 31, 2012 ..................... $
25.9 $
31.4 $
36.5 $
Valuation Allowance for Deferred Tax Assets
Year ended December 31, 2014 ..................... $ 253.1 $
Year ended December 31, 2013 ..................... $ 282.1 $
Year ended December 31, 2012 ..................... $ 227.4 $
Reserve for Value-Added Tax Receivables
Year ended December 31, 2014 ..................... $
Year ended December 31, 2013 ..................... $
Year ended December 31, 2012 ..................... $
3.9 $
36.7 $
40.4 $
10.4 $
7.1 $
4.8 $
(79.3) $
(32.6) $
65.1 $
4.0 $
(32.6) $
(3.3) $
(8.8 ) $
(12.6 ) $
(9.9 ) $
27.5
25.9
31.4
(13.8 ) $
3.6 $
(10.4 ) $
160.0
253.1
282.1
(1.0 ) $
(0.2 ) $
(0.4 ) $
6.9
3.9
36.7
146