2 017 Annual Report
UNITED STATTT ES
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, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Sabre Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
001-36422
(Commission File Number)
20-8647322
(I.R.S. Employer
Identification No.)
3150 Sabre Drive
Southlake, TX 76092
(Address, including zipii code, of principal executive offices)
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(682) 605-1000
(Registrant's telephone number,rr 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
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
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, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company,”
and "emerging growth 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
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the registrant’s common stock held by non-affiliates,
February 12, 2018, there were 274,446,142 shares of the registrant’s common stock outstanding.
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as of June 30, 2017, was $4,542,299,419. As of
Portions of the registrant’s definitive proxy statement relating to its 2018 annual meeting of stockholders to be held on May 23, 2018,
are incorporated by reference in Part III.
DOCUMENTS INCORPORATEDAA
BY REFERENCE
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Managements Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Page
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FORWARR
RD-LOOKING STATTT EMENTS
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-lookingii
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 “expects,” "outlook," “believes,” “may,”yy "intends," "provisional," "plans," “will,” “predicts,” “potential,” “anticipates,” “estimates,”
"should,” “plans” or the negative of these terms or other comparable terminology.yy 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,yy performance or achievements. You are
cautioned not to place undue reliance on these forward-looking statements. Unless required by law,ww 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,” in Part I, Item 7 “Management's Discussion and Analysis
of Financial Condition and Results of Operations—Factors Affecting Our Results” and elsewhere in this Annual Report.
In this Annual Report on Form 10-K, references to “Sabre,” the “Company,”yy “we,” “our,”rr
Corporation and its consolidated subsidiaries unless otherwise stated or the context otherwise requires.
“ours” and “us” refer to Sabre
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. (“Sabre GLBL”)
is the principal operating subsidiary and sole direct subsidiary of Sabre Holdings. Sabre GLBL or its direct or indirect subsidiaries
conduct all of our businesses. Our principal executive offices
are located at 3150 Sabre Drive, Southlake, Texas 76092.
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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 enhanced
travel experiences.
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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 16. Segment Information, to our consolidated financial
the first quarter of 2018, we plan to disaggregate the
statements in Part II, Item 8 in this Annual Report on Form 10-K. Effective
Airline and Hospitality Solutions reportable segment, such that our business will have three reportable segments comprised of: (i)
Travel Network, (ii) Airline Solutions and (iii) Hospitality Solutions. See Note 18. Subsequent Event, to our consolidated financial
statements for additional information.
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Travel
rr
Network
Travel Network is our global business-to-business travel marketplace and consists primarily of our global distribution system
(“GDS”) and a broad set of solutions that integrate with our GDS to add value for travel suppliers and travel buyers. Our GDS
bringing together travel content such as inventory, prices and availability from a broad array of travel
facilitates travel by efficiently
suppliers, including airlines, hotels, car rental brands, rail carriers, cruise lines and tour operators, with a large network of travel
buyers, including online travel agencies (“OTAs”),
travel agencies, travel management companies (“TMCs”) and corporate
travel departments.
offline
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1
During 2015, we expanded Travel Network's presence in the Asia Pacific (“APAC”)
region through the acquisition of the
remaining 65% interest in Abacus International Pte Ltd, which is now named Sabre Asia Pacific Pte Ltd ("SAPPL"). SAPPL is a
Prior to the acquisition, SAPPL was 65%
Singapore-based business-to-business travel e-commerce provider that serves APAC.PP
owned by a consortium of 11 airlines and the remaining 35% was owned by us.
PP
Airline 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, hoteliers and other travel suppliers. Airline and Hospitality
Solutions aggregates our Airline Solutions and Hospitality Solutions operating segments.
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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 offeff
r airline software solutions in three functional suites: our
reservation system, SabreSonic Customer Sales & Service (“SabreSonic”); our commercial solutions, Sabre AirVision Marketing
& Planning; and Sabre AirCentre Enterprise Operations. SabreSonic 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.
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Hospitality Solutions—Our
Hospitality Solutions business provides software and solutions to hoteliers around the world. Our
include distribution through our SynXis central reservation system (“CRS”), property management through SynXis Property
offerings
Manager Solution (“PMS”), marketing services and professional services that optimize distribution and marketing.
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In January 2016, we completed the acquisition of the Trust Group of Companies (“Trust Group”), a central reservation,
revenue management and hotel marketing provider with a significant presence in Europe, the Middle East and Africa (“EMEA”) and
in APAC.PP
Inclusive of this acquisition, we provide our software and solutions to over 38,000 hotel properties around the world.
Strategy
We connect people and places with technology that reimagines the business of travel. 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 beyond our traditional strengths by seeking to deepen our presence in high-growth geographies
in APAC,PP
Europe, including high-growth Eastern European markets, 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 Airline and Hospitality 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,
travel agencies, TMCs and corporate
tour operators, attractions and services; a large network of travel buyers, including OTAs,TT
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. Hospitality Solutions has a global customer base of over 38,000 hotel properties of all sizes.
offline
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No individual customer accounted for more than 10% of our consolidated revenues for the years ended December 31, 2017,
2016 and 2015.
2
Sources of Revenue
rr
—Booki
ss
Transactions
ngs 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 fees paid by travel agency subscribers related to their use of certain
solutions integrated with our GDS. We receive revenue from the travel supplier and the travel agency according to the commercial
arrangement with each.
dd
SaaS and Hosted—Airli
ne and Hospitality Solutions generates revenue through upfront solution fees and recurring usage-
based fees for the use of our software solutions hosted on secure platforms or deployed via SaaS. We maintain our SaaS and
hosted software and manage the related infrastructure. We collect the implementation fees 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.
Professional Service Fees—Airline
that utilize the SaaS and hosted revenue model are
sometimes sold as part of multiple-element agreements for which we also provide professional services, including consulting
services. Our professional services are primarily focused on helping customers achieve better utilization of and return on their
software investment. Often, we provide these services during the implementation phase of our SaaS solutions.
and Hospitality Solutions offerings
s
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Software Licensing—Airli
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ne and Hospitality Solutions generates revenue from fees for the installation and use of our software
products. Some contracts under this model generate additional revenue for the maintenance of the software product.
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 generally
pay based on the number of customers who view the advertisement, and are charged based on cost-per-thousand impressions.
In action advertising, advertisers generally 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 operate 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
ff metasearch capabilities
third party aggregators and peer-to-peer options for travel services. Airline
that direct shoppers to supplier websites and/or OTAs,TT
Solutions operates in an industry that is very competitive, 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
price
Our technology strategy is based on achieving company-wide stability, reliability and performance at the most efficient
point. Significant investment has gone into building a centralized middleware environment with an emphasis on simplicity, security
and scalability. We invest heavily in software development, delivery and operational support capabilities and strive to provide best
in class products for our customers. We operate standardized infrastructure in our data center environments across hardware,
We expect to continue
operating systems, databases, and other key enabling technologies to minimize costs on non-differentiators.
to make significant
in
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development and ongoing technology costs, further enhance the stability and security of our network, comply with data privacy
regulations, and accelerate our shift to open source and cloud-based solutions.
investments in our information technology infrastructure to modernize our architecture, drive efficiency
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Our architecture has evolved from a mainframe centric transaction processing environment to a secure processing platform
that 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.
3
Intellectual Property
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.
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
renewing appropriate registrations and
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throughout the world by filing trademark applications with the relevant trademark offices,
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 regulations applicable to the GDS in the European Union (“EU”),
Canada, the United States and other locations.
ff
We are subject to the application of data protection and privacy regulations in many of the countries in which we operate,
including the General Data Protection Regulation ("GDPR") in the EU, which will apply beginning in May 2018. See "Risk Factors
—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."
ff
We are also subject to prohibitions administered by the Officeff
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.
of Foreign Assets Control (the “OFACFF
Our businesses may also be subject to regulations affecting
ff
issues such as: trade sanctions, exports of technology,
telecommunications and e-commerce. These 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
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us.”
Seasonality
The travel industry is seasonal in nature. Travel bookings for Travel Network, and the revenue we derive from those bookings,
are typically seasonally strong in the first and third quarters, but decline 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, 2017, we employed approximately 9,000 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 (the “Exchange Act”),
and under these requirements, we file reports, proxy and information statements and other information with the Securities and
Exchange Commission (“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 Exchange Act are available
through the investor relations section of our website at investors.sabre.com. 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.
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.
4
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.
by a number of factors, whether currently known or unknown,
Our business, financial condition and operating results can be affected
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.
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Our revenue is highly dependent on transaction volumes in the global travel industry,yy 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:
•
•
•
•
•
•
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general and local economic conditions;
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 influenza, Zika, Ebola and the
MERS virus, increases in fuel prices, changing attitudes towards the environmental costs of travel and safety concerns;
political events like acts or threats of terrorism, hostilities, and war;
inclement weather, natural or man-made disasters; and
factors that affect
supply of travel such as travel restrictions or 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.
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Our success depends on maintaining the integrity of our systems and infrastructure, which may suffer
capacity constraints, business interruptions and forces outside of our control.
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from failures,
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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. These 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.
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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, malware,
denial of service attacks, attacks on hardware vulnerabilities, physical or electronic break-ins, cybersecurity incidents or other
security breaches, 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. See “-Security breaches could expose
us to liability and damage our reputation and our business.” 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.
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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
disaster recovery tools or resources available, depending on the type
area as our primary systems and we may not have sufficient
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.
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5
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
third parties upon which we rely, such as travel
customers for software products generally. Additionally, security breaches that affect
suppliers, may further expose us to negative publicity, possible liability or regulatory penalties. Events outside our control could
on our business operations and harm our reputation.
cause interruptions in our IT systems, which could have a material adverse effect
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We rely on the availability and performance of information technology services provided by third parties, including
DXC Technology ("DXC"), 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 DXC, and its
third-party providers, including AT&T,TT which DXC began outsourcing certain network services to in the fourth quarter of 2017. 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.
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 DXC provides us with limited indemnification
rights. We could face significant additional cost or business disruption if:
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•
•
Any of these providers fail to enable us to provide our customers and suppliers with reliable, real-time access to our
systems. For example, in 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 DXC for many of our systems makes it difficult
for us to switch vendors and makes us more sensitive to changes in
DXC's pricing for its services.
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In addition, DXC was formed in April 2017 from the spin-offff of HP Enterprises' Services segment business and merger with
CSC. There could be uncertainty, delays or disruptions in DXC's services as a result of these transactions, which could result in
additional costs or business disruptions for us.
Security breaches could expose us to liability and damage our reputation and our business.
We process, store, and transmit large amounts of data, including personally identifiable information ("PII") and payment card
industry data ("PCI") of our customers, and it is critical to our business strategy that our facilities and infrastructure, including those
provided by DXC (as defined below) or other vendors, remain secure and are perceived by the marketplace to be secure. Our
infrastructure may be vulnerable to physical or electronic break-ins, computer viruses, or similar disruptive problems.
6
In addition, we, like most technology companies, are the target of cybercriminals who attempt to compromise our systems.
We are subject to and experience threats and intrusions that have to be identified and remediated to protect sensitive information
along with our intellectual property and our overall business. To address these threats and intrusions, we have a team of experienced
security experts and support from firms that specialize in data security and cybersecurity. We are periodically subject to these threats
and intrusions, and sensitive or material information could be compromised as a result. The costs of any investigation of such
incidents, as well as any remediation related to these incidents, may be material. As previously disclosed, we became aware of an
incident involving unauthorized access to payment information contained in a subset of hotel reservations processed through the
Sabre Hospitality Solutions SynXis Central Reservation system (the “HS Central Reservation System”). Our investigation was
supported by third party experts, including a leading cybersecurity firm. Our investigation determined that an unauthorized party:
obtained access to account credentials that permitted access to a subset of hotel reservations processed through the HS Central
Reservation System; used the account credentials to view a credit card summary page on the HS Central Reservation System and
access payment card information (although we use encryption, this credential had the right to see unencrypted card data); and first
obtained access to payment card information and some other reservation information on August 10, 2016. The last access to
payment card information was on March 9, 2017. The unauthorized party was able to access information for certain hotel reservations,
including cardholder name; payment card number; card expiration date; and, for a subset of reservations, card security code. The
unauthorized party was also able, in some cases, to access certain information such as guest name(s), email, phone number,
address, and other information if provided to the HS Central Reservation System. Information such as Social Security, passport, or
driver’s license number was not accessed. The investigation did not uncover forensic evidence that the unauthorized party removed
any information from the system, but it is a possibility. We took successful measures to ensure this unauthorized access to the HS
Central Reservation System was stopped and is no longer possible. There is no indication that any of our systems beyond the HS
Central Reservation System, such as Sabre’s Airline Solutions and Travel Network platforms, were affected
or accessed by the
unauthorized party. We notified law enforcement and the payment card brands, who engaged a PCI forensic investigator to investigate
this incident. We have notified customers and other companies that use or interact with, directly or indirectly, the HS Central
Reservation System about the incident. We are also cooperating with various governmental authorities that are investigating this
incident. Separately, in November 2017, Sabre Hospitality Solutions observed a pattern of activity that, after further investigation,
led it to believe that an unauthorized party improperly obtained access to certain hotel user credentials for purposes of accessing
the HS Central Reservation System. We deactivated the compromised accounts and notified law enforcement of this activity. We
also notified the payment card brands, and at their request, we have engaged a PCI forensic investigator to investigate this incident.
We have not fof und any evidence of a breach of the network security of the HS Central Reservation System, and we believe that
the number of affected
reservations represents only a fraction of 1% of the bookings in the HS Central Reservation System. The
costs related to these incidents, including any associated penalties assessed by any governmental authority or payment card brand,
as well as any other impacts or remediation related to them, may be material. See Note 15. Commitments and Contingencies, to
our consolidated financial statements for a discussion of a lawsuit filed in connection with these incidents. As noted below, we
maintain insurance that covers certain aspects of cyber risks, and we continue to work with our insurance carriers in these matters.
ff
ff
Any computer viruses, malware, denial of service attacks, attacks on hardware vulnerabilities, physical or electronic break-
ins, cybersecurity incidents, such as the items described above, 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 these 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, this insurance coverage is subject to a retention
amount and may not be applicable to a particular incident or otherwise may be insufficient
to cover all our losses beyond any
retention. Similarly, we expect to continue to make significant investments in our information technology infrastructure. The
implementation of these investments may be more costly or take longer than we anticipate, or could otherwise adversely affect
our
business operations, which could negatively impact our financial position, results of operations or cash flows.
ff
ff
ff
7
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.
ff
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:
•
•
•
•
trained experts for implementations cannot quickly and easily be augmented for complex
, could lead to costly project
the features of the implemented software may not meet the expectations or fit the business model of the customer;
our limited pool of
implementation projects, such that resources issues, if not planned and managed effectively
delays;
customer-specific factors, such as the stability, functionality, interconnection and scalability of the customer’s pre-existing
information technology 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
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.
ff
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 cancellation or renegotiation of existing agreements, claims from customers, harm our
reputation and negatively impact our operating results.
rr
Our Travel
Network business is exposed to pricing pressure from travel suppliers.
ff
Travel suppliers continue to look for ways to decrease their costs and to increase their control over distribution. For example,
consolidation in the airline industry, the growth of LCC/hybrids and macroeconomic factors, among other things, have driven some
airlines to negotiate for lower fees during contract renegotiations, thereby exerting increased pricing pressure on our Travel Network
our revenues and margins. In addition, travel suppliers’ use of alternative distribution
business, which, in turn, negatively affects
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 this content is similarly impeded, this would also adversely
the value of our Travel Network business as a marketplace due to our more limited content. See “—Travel suppliers’ use of
affect
alternative distribution models, such as direct distribution models, could adversely affect
our Travel Network business.”
ff
ff
ff
ff
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.
ff
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. See "—Our Travel Network business
is exposed to pricing pressure from travel suppliers." 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 business.”
ff
8
suppliers’ use of alternative distribution models, such as direct distribution models, could adversely affect
ff
rr
Travel
rr
our Travel
Network business.
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
trafficff
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. Similarly, travel suppliers may also seek to encourage travelers’
and travel agencies’ usage of their proprietary booking platforms by selectively increasing the ticket price in our GDS, making our
GDS platform’s offerings
For example, we are currently engaged in litigation with
ff
the Lufthansa Group in connection with a surcharge that the Lufthansa Group has imposed on tickets purchased through three
selected GDSs, including Sabre. The Lufthansa Group is seeking declaratory judgment that this surcharge does not violate the
terms of its agreement with us, in addition to damages related to the allegations of breach of contract and tortious interference with
agency contracts. We deny the allegations and we have filed a counterclaim that asserts the Lufthansa Group’s surcharge is a
violation of its agreement and that seeks an order requiring the Lufthansa Group to specifically perform its obligations under the
agreement.
more expensive than some alternative offerings.
ff
ff
ff
ff
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, like Google, may promote alternative distribution channels to our GDS by
diverting consumer trafficff
away from intermediaries, which may adversely affect
our GDS business.
ff
Additionally, technological advancements may allow airlines and hotels to facilitate broader connectivity to and integration
could be made available directly to such travel buyers without
with large travel buyers, such that certain airline and hotel offerings
the involvement of intermediaries such as Travel Network and its competitors.
ff
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,
ff
services, technologies and systems in response to new technological developments, industry standards and trends and customer
demands. For example, IATAAA has promulgated its new distribution capability (“NDC”) standard. Depending on the level of adoption
of this standard, our failure to integrate NDC into our technology or anticipate the evolution of next generation retailing and distribution
our financial performance. As another example, migration of our enterprise applications and platforms to
could adversely affect
other hosting environments could cause us to incur substantial costs, as well as result in instability and business interruptions, which
could materially harm our business.
ff
ff
Adapting to new technological and marketplace developments, such as 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
may not be successful as compared to our competitors in the travel distribution market. Those that we do develop may not
efforts
achieve acceptance in the marketplace sufficient
to generate material revenue or may be rendered obsolete or non-competitive by
our competitors’ offerings.
ff
ff
ff
ff
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.
ff
ff
9
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.
ff
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.
Factors that may affect
ff
our ability to keep pace with technological developments, the effectiveness
processes, our ability to meet a variety of customer specifications, the effectiveness
efficiency
could decrease our market share, adversely impact our pricing or otherwise negatively affect
business.
the competitive success of our Airline and Hospitality Solutions business include our pricing structure,
and reliability of our implementation and system migration
and reliability of our systems, the cost and
ff
ff
on these and other factors
our Airline and Hospitality Solutions
of our system upgrades and our customer support services. Our failure to compete effectively
ff
ff
ff
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 agencies, TMCs and corporate travel departments. The competitive positioning of a
travel buyers, such as online and offline
GDS depends on the success it achieves with both customer categories. Other factors that may affect
the competitive success of
ff
the reliability, ease of use and
a GDS include the comprehensiveness, timeliness and accuracy of the travel content offered,
innovativeness of the technology, the perceived value proposition of our GDS by travel suppliers and travel buyers, 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.
ff
ff
ff
ff
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.
ff
rr
Our Travel
Network business depends on relationships with travel buyers.
yy
Our Travel Network business relies on relationships with several large travel buyers, including TMCs and OTAs,TT
to generate
a large portion of its revenue through bookings made by these travel companies. This 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.
ff
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.
ff
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" included in Part II, Item 7 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.
ff
ff
ff
10
Our Travel
rr
contracts with their customers and other counterparties.
Network business and our Airline and Hospitality Solutions business depend on maintaining and renewing
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. See “—Our Travel
Network business is exposed to pricing pressure from travel suppliers."
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 EMEA and APAC.PP
The termination of our contractual arrangements with any of these 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
the value of our Travel Network business as a marketplace due to our limited content
these existing contracts, would adversely affect
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.
ff
ff
We are subject to a certain degree of revenue concentration among a portion of our customer base. Because of this
one of these customers, it could have a
concentration among a small number of customers, if an event were to adversely affect
material impact on our business.
ff
Our ability to recruit, train and retain employees, including our key executive officers
critical to our results of operations and future growth.
ff
and technical employees, is
ff
ff
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, as well as our key
executive officers.
and time-consuming to acquire and are often in
short supply. There is high demand and competition for well-qualified employees on a global basis, such as software engineers,
developers and other technology professionals with specialized knowledge in software development, especially expertise in certain
both our ability to retain key employees and to hire new ones. Similarly, uncertainty
programming languages. This competition affects
in the global political environment may adversely affect
For example, the specialized skills we require can be difficult
our ability to hire and retain key employees.
ff
ff
ff
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. For example, Sean Menke was elected
of Sabre on December 31, 2016. Subsequent to his election, we have announced
as President and Chief Executive Officer
modifications to our business strategies and increased long-term investment in key areas, such as technology infrastructure, that
may continue to have a negative impact in the short term due to expected increases in operating expenses and capital expenditures.
ff
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
from competitors. Even if we are able to maintain our employee
market or respond swiftly to customer demands or new offerings
base, the resources needed to recruit and retain such employees may adversely affect
our business, financial condition and results
of operations.
ff
ff
11
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.
ff
We collect, process, store, use and transmit a large volume of personal data on a daily basis, including, for example, to
process travel transactions for our customers and to deliver other travel-related products and services. Personal data is increasingly
subject to legal and regulatory protections around the world, which vary widely in approach and which possibly conflict with one
another. In recent years, for example, U.S. legislators and regulatory agencies, such as the Federal Trade Commission, as well as
U.S. states, have increased their focus on protecting personal data by law and regulation, and have increased enforcement actions
for violations of privacy and data protection requirements. The European Commission also recently approved and adopted the
GDPR, a new data protection law, which will apply beginning in May 2018. These data protection laws and regulations are intended
to protect the privacy and security of personal data, including credit card information that is collected, processed and transmitted
in or from the relevant jurisdiction. Implementation of and compliance with these laws and regulations may be more costly or take
our business operations, which could negatively impact our financial
longer than we anticipate, or could otherwise adversely affect
position or cash flows. Additionally, media coverage of data breaches has escalated, in part because of the increased number of
enforcement actions, investigations and lawsuits. As this focus and attention on privacy and data protection increases, we also risk
liabilities and costs resulting from the compliance with, or any failure to comply with applicable legal
exposure to potential
requirements, conflicts among these legal requirements or differences
in approaches to privacy and security of travel data. Our
by our inability, or the inability of our vendors who receive personal data from us,
business could be materially adversely affected
to comply with legal obligations regarding the use of personal data, new data handling requirements that conflict with or negatively
impact our business practices. In addition, our agreements with customers may also require that we indemnify the customer for
liability arising from data breaches under the terms of our agreements with these customers. These indemnification obligations
could be significant and may exceed the limits of any applicable insurance policy we maintain. See “—Security breaches could
expose us to liability and damage our reputation and our business.”
ff
ff
ff
We arerr exposed
xx
to risks associated with PCI compliance.
The PCI Data Security Standard (“PCI DSS”) is a specific set of comprehensive security standards required by credit card
brands for enhancing payment account data security, including but not limited to requirements for security management, policies,
procedures, network architecture, and software design. PCI DSS compliance is required in order to maintain credit card processing
services. The cost of compliance with PCI DSS is significant and may increase as the requirements change. We are tested periodically
for assurance and successfully completed our last annual assessment in September 2017. Compliance does not guarantee a
completely secure environment and notwithstanding the results of this assessment there can be no assurance that payment card
brands will not request further compliance assessments or set forth additional requirements to maintain access to credit card
processing services. See “-Security breaches could expose us to liability and damage our reputation and our business.” Compliance
is an ongoing effort
and the requirements evolve as new threats are identified. In the event that we were to lose PCI DSS compliance
status (or fail to renew compliance under 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.
ff
ff
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, and we have expanded
Our geographic concentration in the United States and Europe, as well as our expanded focus
Travel Network's presence in APAC.PP
business and leisure
in APAC,PP
travel originating in or traveling to these regions.
makes our business potentially vulnerable to economic and political conditions that adversely affect
ff
Despite modest growth in the U.S. economy, there is still weakness in other 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. Furthermore, recent changes
in the U.S. political environment have resulted in additional uncertainties with respect to travel restrictions, and the regulatory, tax
and economic environment in the United States, which could adversely impact travel demand, our business operations or our
financial results. We cannot predict the magnitude, length or recurrence of recessionary or low-growth economic patterns, which
have impacted, and may continue to impact, demand for travel and lead to reduced spending on the services we provide.
We derive the remainder of our revenues from Latin America, the Middle East and Africa and APAC.PP
Any unfavorable economic,
political or regulatory developments in these 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, markets that
have traditionally had a high level of exports to China, or that have commodities-based economies, have continued to experience
slowing or deteriorating economic conditions. These adverse economic conditions may negatively impact our business results in
those regions.
ff
12
Similarly, in Venezuela, due to currency controls that impact the ability of certain of our airline customers operating in the
country to obtain U.S. dollars to make timely payments to us, the collection of accounts receivable due to us can be, and has been,
delayed. Due to the nature of this delay, we are deferring the recognition of any future revenues 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 response to the political and economic uncertainty in Venezuela,
certain airlines have scaled back operations in response to the reduced demand for travel by local consumers as well as the currency
controls which has impacted our airline customers in Venezuela.
ff
Voters in the U.K. have approved the exit of that country from the E.U. (“Brexit”), and the British government has provided
official
notification to the E.U. that it intends to withdraw from the E.U. The Brexit vote and related process have created significant
economic uncertainty in the U.K. and in EMEA, which may negatively impact our business results in those regions. In addition, the
terms of the U.K.’s withdrawal from the E.U., once negotiated, could potentially disrupt the markets we serve and the tax jurisdictions
in which we operate and adversely change tax benefits or liabilities in these or other jurisdictions, and may cause us to lose customers,
suppliers, and employees. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations
as the U.K. determines which E.U. laws to replace or replicate.
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:
business, political and economic instability in foreign locations, including actual or threatened terrorist activities, and
military action;
adverse laws and regulatory requirements, including more comprehensive regulation in the E.U. and the possible effects
of the Brexit vote;
changes in foreign currency exchange rates and financial risk arising from transactions in multiple currencies;
difficulty
differences;
disruptions to or delays in the development of communication and transportation services and infrastructure;
international operations because of distance, language and cultural
in developing, managing and staffingff
ff
ff
ff
•
• more restrictive data privacy requirements, including the GDPR;
•
•
consumer attitudes, including the preference of customers for local providers;
increasing labor costs due to high wage inflation in foreign locations, differences
regulations, and the degree of employee unionization and activism;
export or trade restrictions or currency controls;
governmental policies or actions, such as consumer, labor and trade protection measures and travel restrictions;
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.
ff
in general employment conditions and
•
•
•
•
•
•
•
•
•
Any of the foregoing risks may adversely affect
ff
our ability to conduct and grow our business internationally.
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, including PCI or PII, or other bad publicity due to litigation, regulatory concerns or otherwise relating
to our business. See “—Security breaches could expose us to liability and damage our reputation and our business.” Any inability
our current and
to maintain or enhance awareness of our brands among our existing and target customers could negatively affect
future business prospects.
ff
ff
13
ii
involved
We arerr
may result in unfavorable outcomes.
in various legal proceedings which may cause us to incur significant fees, costs and expenses and
We are involved in various legal proceedings that involve claims for substantial amounts of money or which involve how we
conduct our business. See Note 15. Commitments and Contingencies, to our consolidated financial statements. For example, the
court has entered a judgment against us as a result of the jury verdict we recently received in the antitrust litigation with US Airways,
and we have appealed this judgment. Other parties might likewise seek to benefit from any unfavorable outcome by threatening to
bring or actually bringing their own claims against us on the same or similar grounds or utilizing the litigation to seek more favorable
contract terms. We are also subject to a U.S. Department of Justice ("DOJ") antitrust investigation from 2011 relating to the pricing
and conduct of the airline distribution industry. We received a civil investigation 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. Depending on the outcome of any of these proceedings, and the scope
of the outcome, the manner in which our airline distribution business is operated could be affected
and could potentially force
changes to the existing airline distribution business model.
ff
The defense of these actions, as well as any of the other actions described under Note 15. Commitments and Contingencies,
to our consolidated financial statements or elsewhere in this Annual Report on Form 10-K, 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.
ff
Any failure to comply with regulations or any changes in such regulations governing our businesses could adversely
affect
us.
ff
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, these 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.
ff
ff
Further, the United States has imposed economic sanctions that affect
transactions with designated countries, including
Cuba, Iran, Crimea region, North Korea 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
OFACFF
from one
sanctions regime to another. Failure to comply with these regulations could subject us to legal and reputational consequences,
including civil and criminal penalties.
regulations. These regulations are extensive and complex, and they differ
and are typically known as the OFACFF
ff
ff
We have GDS contracts with carriers that fly to Cuba, Iran, Crimea region, North Korea 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, North
Korea and Syria we believe that our activities are designed to comply with certain information and travel-related exemptions. With
that customers outside the United States we display on the Sabre GDS flight information
respect to Cuba, we have advised OFACFF
service to Cuba. Based on advice of counsel, we
for, and support booking and ticketing of, services of non-Cuban airlines that offer
believe these activities to fall under an exemption from OFACFF
regulations applicable to the transmission of information and
informational materials and transactions related thereto.
ff
We believe that our activities with respect to these countries are known to OFAC.
FF We note, however, that OFACFF
and related interpretive guidance are complex and subject to varying interpretations. Due to this complexity, OFAC’
of its own regulations and guidance vary on a case to case basis. As a result, we cannot provide any guarantees that OFACFF
not challenge any of our activities in the future, which could have a material adverse effect
on our results of operations.
FF
ff
regulations
s interpretation
will
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,
products,
continued regulation of GDSs in the E.U. and elsewhere could also create the operational challenge of supporting different
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
ff
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.
ff
ff
ff
ff
14
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 EMEA
and APAC.PP We work with these partners to establish and maintain commercial and customer service relationships with both travel
suppliers and travel buyers. Since, in many cases, we do not exercise full management control over their day-to-day operations,
and the quality of the services they provide are beyond our control. If these partners do not
the success of their marketing efforts
ff materially, and sales in those regions could decline significantly. Any
meet our standards for distribution, our reputation may suffer
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.
ff
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 these 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
our business. If we were found to have inappropriately
cannot be eliminated, and could, if not properly addressed, negatively affect
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.
ff
ff
ff
ff
We arerr exposed
xx
to risks associated with acquiring or divesting businesses or business operations.
ff
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 the issuance of debt in the capital markets or through private placements, which
our liquidity and may dilute the value of our common stock. See "—We have a significant amount of indebtedness, which
may affect
our cash flow and our ability to operate our business and to fulfill our obligations under our indebtedness."
could adversely affect
ff
ff
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
business or business operations or result in restructuring charges.
the valuation of the affected
ff
ff
ff
15
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. These 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 these 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, these claims and counterclaims could become more common.
We cannot be certain that we do not or will not infringe third parties’ intellectual property rights.
ff
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.
ff
ff
ff
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.
ff
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 in the past sought or may in the future 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. 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.
ff
ff
We may not be able to protect our intellectual property effectively
products and services.
ff
,yy which may allow competitors to duplicate our
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.
ff
ff
ff
insufficient
There is no certainty that our intellectual property rights will provide us with substantial protection or commercial benefit.
to protect our intellectual property, some of our innovations may not be protectable, and our intellectual property
Despite our efforts
protection from competition or unauthorized use, lapse or expire, be challenged, narrowed, invalidated,
rights may offer
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.
ff
• 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.
•
ff
ff
16
•
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
and our efforts
may provide inadequate protection to prevent unauthorized use, misappropriation, or disclosure of our trade secrets,
know how, or other proprietary information.
to protect our trade secrets. However, protecting trade secrets can be difficult
ff
ff
ff
• 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.
ff
ff
We license software and other intellectual property from third parties. These 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,
basis could harm our business.
legal, and other issues. Any inability to adequately protect our intellectual property on a cost-effective
ff
ff
Defects in our products may subject us to significant warranty liabilities or product liability claims and we may have
ff
insufficient
product liability insurance to pay materiaii
l uninsured claims.
Our 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, property damage or other liabilities, and may result in warranty or product liability claims brought
against us, our travel supplier customers or third parties.
Under our customer 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. 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.
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
tax rate may change from year to year
be materially different
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
ff
would reduce our profitability.
from our historical income tax provisions and accruals. Our effective
ff
ff
ff
ff
17
We establish reserves for our potential liability for U.S. and non-U.S. taxes, including sales, occupancy and value-added
taxes (“VATVV ”), consistent with applicable accounting principles and in light of all current facts and circumstances. We also establish
reserves when required relating to the collection of refunds related to value-added taxes, which are subject to audit and collection
risks in various countries. Historically 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 investment in our foreign subsidiaries as of December 31, 2017 to be indefinitely reinvested and,
accordingly, no U.S. income taxes have been provided thereon.
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. 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. For example, on December 22, 2017, the Tax Cuts
and Jobs Act (the “TCJA”) was signed into law. The TCJA contains significant changes to the U.S. corporate income tax system,
including a reduction of the federal corporate income tax rate from 35% to 21%, a limitation of the tax deduction for interest expense
to 30% of adjusted taxable income (as defined in the TCJA), base erosion provisions related to intercompany foreign payments
and global low-taxed income, one-time taxation of offshore
earnings at reduced rates in connection with the transition of U.S.
international taxation from a worldwide tax system to a territorial tax system, elimination of U.S. tax on foreign earnings (subject to
certain important exceptions), and modifying or repealing many business deductions and credits. We continue to evaluate the
potential effects
that the TCJA may have on our operations, cash flows and results of operations. Notwithstanding the reduction in
the federal corporate income tax rate, the future impact of the TCJA, including on our global operations, is uncertain, and our
business and financial condition could be adversely affected.
ff
ff
ff
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, 2017 contained goodwill and intangible assets, net totaling $3.2 billion.
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.
We evaluate goodwill fof r 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.
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 $112 million as of December 31, 2017. With approximately
5,000 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
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.
, which may have a material adverse effect
ff
ff
18
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
ff
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.
As a result, we may be required to finance our cash needs through bank loans, additional debt financing, public or private
equity offerings
or otherwise. Our ability to arrange financing and the cost of such financing are dependent on numerous factors,
ff
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.
ff
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 business and to fulfill our obligations under our indebtedness.
ff
our cash flow and our ability to operate
We have a significant amount of indebtedness. As of December 31, 2017, we had $3.5 billion of indebtedness outstanding
in addition to $379 million of availability under our Revolver, after taking into account the availability reduction of $21 million for
letters of credit issued under our Revolver. Our substantial level of indebtedness increases 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:
•
•
•
•
•
•
ff
ff
mitigate the effects
of these increases;
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
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.
ff
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 our senior secured notes due in 2023
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 arerr exposed
xx
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
hedge our exposure, we could experience a material
movements of interest rates, if we choose not to hedge or fail to effectively
adverse effect
on our results of operations and financial condition.
ff
ff
19
We arerr exposed
xx
to exchange rate fluctuations.
We conduct various operations outside the United States, primarily in APAC,PP
Europe and Latin America. During the year
ended December 31, 2017, foreign currency operations included $256 million of revenue and $595 million of operating expenses,
representing approximately 7% and 20% of our total revenue and operating expenses, respectively. During the year ended
December 31, 2016, foreign currency operations included $211 million of revenue and $666 million of operating expenses,
representing approximately 6% and 23% of our total revenue and operating expenses, respectively. Our most significant foreign
currency operating expenses are in the Euro, representing approximately 8% and 7% of our operating expenses for the year ended
December 31, 2017 and 2016, 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
on our results of operations and financial condition.
ff
As we have seen in prior 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.
our exposure, we could experience a material adverse effect
ff
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 Singaporean Dollar, the British Pound Sterling,
the Polish Zloty, the Australian Dollar, the Indian Rupee, the Brazilian Real, and the Swedish Krona. Although we have increased
and may continue to increase the scope, complexity and duration of our foreign exchange risk management strategy, our current
or future hedging activities may not sufficiently
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,
significantly from actual
refunds, customer stay patterns and payments in foreign currencies. In the event those estimates differ
results, we could experience greater volatility as a result of our hedging activities.
protect us from the adverse effects
ff
ff
ff
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.
ff
ff
•
•
•
•
•
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.
ff
ff
Any failure to comply with the restrictions of our Amended and Restated Credit Agreement, the indentures governing our
senior secured notes due 2023 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.
20
We arerr updating our enterprise resource planning system, and problems with the design or implementation of this
system could interfere with our business and operations.
We are continuing to implement a project to consolidate our business technology infrastructure to a single global ERP system.
We expect to invest capital and human resources in the design and implementation of the ERP system, which may be disruptive
to our underlying business. Any disruptions, delays or deficiencies in the design and implementation of the ERP system, particularly
ones that impact our financial reporting and accounting systems, could adversely affect
our business. Even if we do not encounter
these adverse effects,
the design and implementation of the ERP system may be more costly than we anticipate, which could
negatively impact our financial position, results of operations and cash flows. In addition, the ERP system will be outsourced to a
third-party provider, and any disruption to those outsourced systems may negatively impact our business. See “-We rely on the
availability and performance of information technology services provided by third parties, including DXC, which manages a significant
portion of our systems.”
ff
ff
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.
ff
As a public company, we are subject to the reporting requirements of 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 Stock Market (“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.
ff
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,
that needs to be re-evaluated frequently.
as well as maintaining these controls and procedures, is a costly and time-consuming effort
Section 404 of the Sarbanes-Oxley Act (“Section 404”) requires that we annually evaluate our internal control over financial reporting
to enable management to report on, and our independent auditors to audit as of the end of each fiscal year the effectiveness
of
those controls. In connection with the Section 404 requirements, both we and our independent registered public accounting firm
test our internal controls and could, as part of that documentation and testing, identify material weaknesses, significant deficiencies
or other areas for further attention or improvement.
ff
ff
ff
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.
ff
ff
Various rules and regulations applicable to public companies make it more difficult
directors’ and officers’
to maintain coverage. If we are unable to maintain adequate directors’ and officers’
qualified officers
will be significantly curtailed.
and more expensive for us to maintain
liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs
liability insurance, our ability to recruit and retain
ff
and directors, especially those directors who may be deemed independent for purposes of the NASDAQ rules,
ff
ff
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 January 31, 2018, the Principal Stockholders (as defined below) own, in the aggregate, approximately 25% of our
outstanding common stock and, consequently, have significant influence over us.
21
We are a party to an amended and restated Stockholders’ Agreement (as further amended and restated, the “Stockholders’
Agreement”) with the Silver Lake Funds, the TPG Funds and the Sovereign Co-Invest II (each as defined below). Pursuant to the
Stockholders’ Agreement, each of the Silver Lake Funds and the TPG Funds currently has the right to designate for nomination two
directors. In addition, the Silver Lake Funds and the TPG Funds also jointly have the right to designate one additional director 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,
from those of our Principal
deter or prevent acts that would be favored by our other stockholders, who may have interests different
ff
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.
ff
“TPG” refers to TPG Global, LLC and its affiliates,
the “TPG Funds” refer to one or more of TPG Partners IV,V 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 II” refers to Sovereign Co-
Invest II, 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 II.
ff
ff
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.
ff
ff
ff
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.
ff
To the extent that any of us, our executive officers,
ff
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.ww
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, our senior secured
notes due in 2023, 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.
ff
ff
ITEM 1B.
UNRESOLVEDLL
STAFF
TT
COMMENTS
Not applicable.
22
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.
ff
Americas: Our corporate and business unit headquarters and domestic operations are located in a property which we own
located in Westlake, Texas. The Westlake leases expire in 2026 and include early
in Southlake, Texas, and in two leased offices
across North America and 11 offiff ces across Latin America that serve
termination options in 2022. There are 13 additional offices
in various sales, administration, software development and customer service capacities for all our business segments. All of these
additional offices
are leased.
ff
ff
ff
Europe: Travel Network has its European regional headquarters in London, United Kingdom, with a lease that expires in
across Europe that serve in various sales,
2027 and includes an early termination option in 2022. There are 24 additional offices
administration, software development and customer service capacities. All of these additional offices
are leased.
ff
ff
APACPP : Travel Network and Airline and Hospitality Solutions have their APACPP
regional operations headquarters in four offices
located in Singapore, with three leases that expire in 2019 and one lease that expires in 2022, with an early termination option in
2019. There are 38 additional offices
that serve in various sales, administration, software development and customer
service capacities. 37 of these additional offices
are leased and one property in Kuala Lumpur, Malaysia is owned.
across APACPP
ff
ff
ff
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.”
Antitrust Litigation and DOJ Investigation
US Airways Antitrust Litigation
In April 2011, US Airways filed suit against 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 fewer than 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, relating to our
contracts with US Airways, which US Airways claims contain anticompetitive provisions, and an alleged conspiracy with the other
GDSs, allegedly to maintain the industry structure and not to compete for content. We strongly deny all of the allegations made by
US Airways.
Sabre filed summary judgment motions in April 2014. In January 2015, the court issued an order granting Sabre's summary
judgment motions in part, eliminating a majority of US Airways' alleged damages and rejecting its request for injunctive relief by
which US Airways sought to bar Sabre from enforcing certain provisions in our contracts. In September 2015, the court also dismissed
US Airways' claim for declaratory relief. In February 2017, US Airways sought reconsideration of the court's opinion dismissing the
claim for declaratory relief, which the court denied in March 2017.
The trial on the remaining claims commenced in October 2016. In December 2016, the jury issued a verdict in favor of US
Airways with respect to its claim under Section 1 of the Sherman Act regarding Sabre's contract with US Airways and awarded it
$5 million in single damages. The jury rejected US Airways' claim alleging a conspiracy with the other GDSs. We continue to believe
that our business practices and contract terms are lawful. In January 2017, we filed a motion seeking judgment as a matter of law
in favor of Sabre on the one claim on which the jury found for US Airways, which the court denied in March 2017.
Based on the jury’s verdict, in March 2017 the court entered final judgment in favor of US Airways in the amount of $15
million, which is three times the jury’s award of $5 million as required by the Sherman Act.
In April 2017, we filed an appeal with the United States Court of Appeals for the Second Circuit seeking a reversal of the
judgment. US Airways also filed a counter-appeal challenging earlier court orders, including the above-referenced orders dismissing
and/or issuing summary judgment as to portions of its claims and damages. In connection with this appeal, we posted an appellate
bond equal to the aggregate amount of the $15 million judgment entered plus interest, which stayed the judgment pending the
appeal.
23
As a result of the jury's verdict, US Airways is also entitled to receive reasonable attorneys’ fees and costs under the Sherman
Act. As such, it filed a motion seeking approximately $125 million in attorneys’ fees and costs, the amount of which we strongly
dispute. In January 2018, the court denied US Airways' motion seeking attorneys' fees and costs, based on the fact that the appeal
of the underlying judgment remains pending, as discussed above. The court's denial of the motion was without prejudice, and US
Airways may refile the motion if it prevails on the appeal.
We have accrued a loss of $32 million, which represents the court's final judgment of $15 million, plus our estimate of $17
million for US Airways' reasonable attorneys’ fees, expenses and costs. We are unable to estimate the exact amount of the loss
associated with the verdict, but we estimate that there is a range of outcomes between $32 million and $65 million, inclusive of the
trebled damage award of approximately $15 million. No amount within the range is considered a better estimate than any other
amount within the range and therefore, the minimum within the range was recorded in selling, general and administrative expense
for the fourth quarter of 2016. As noted above, the amount of attorneys' fees and costs to be awarded is subject to conclusion of
the appellate process and, if US Airways ultimately prevails on the appeal, final decision by the trial court, which may itself be
appealed. The ultimate resolution of this matter may be greater or less than the amount recorded and, if greater, could adversely
our results of operations. We have and will incur significant fees, costs and expenses for as long as the lawsuit, including
affect
any appeal, 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, including any appeal or changes to our business that may be required as a result of
the litigation. Depending on the outcome of the litigation, any of these consequences could have a material adverse effect
on our
business, financial condition and results of operations.
ff
ff
ff
Putative Class Action Lawsuit on Antitrust Claims
In July 2015, a putative class action lawsuit was filed against us and two other GDSs, in the United States District Court for
the Southern District of New York. The plaintiffs,
ff who are asserting claims on behalf of a putative class of consumers in various
states, are generally alleging that the GDSs conspired to negotiate for full content from the airlines, resulting in higher ticket prices
for consumers, in violation of various federal and state laws. The plaintiffsff sought an unspecified amount of damages in connection
with their state law claims, and they requested injunctive relief in connection with their federal claim. In July 2016, the court granted,
state law claims are preempted by federal law, thereby precluding
in part, our motion to dismiss the lawsuit, finding that plaintiffs’
their claims for damages. The court declined to dismiss plaintiffs’
claim seeking an injunction under federal antitrust law. The plaintiffsff
may appeal the court’s dismissal of their state law claims upon a final judgment. We believe that the losses associated with this
case are neither probable nor estimable and therefore have not accrued any losses as of December 31, 2017. We may incur
significant fees, costs and expenses for as long as this litigation is ongoing. We intend to vigorously defend against the remaining
claims.
ff
ff
Putative Class Action Lawsuit on Cybersecurity Incident
In July 2017, a putative class action lawsuit was filed against us in the United States District Court for the Central District of
California. The plaintiffsff are asserting various claims under state law, including tort, contract and statutory claims, on behalf of a
putative class of individuals residing in the United States and whose personally identifiable information allegedly was disclosed, in
connection with the cybersecurity incident involving unauthorized access to payment information contained in a subset of hotel
reservations process through the HS Central Reservation System. The plaintiffsff are seeking equitable relief and an unspecified
amount of damages in connection with their claims. In December 2017, we filed a motion to dismiss the lawsuit with prejudice. On
January 25, 2018, the court granted our motion and dismissed the plaintiffs'
claims in their entirety, with prejudice. The plaintiffsff
may appeal the court's decision, but must file the appeal within 30 days of the ruling. We believe that the losses associated with
this case are neither probable nor estimable and therefore have not accrued any losses as of December 31, 2017. We may incur
significant fees, costs and expenses for as long as this litigation is ongoing. We intend to vigorously defend against this matter. See
Note 15. Commitments and Contingencies—Other, to our consolidated financial statements for additional information.
ff
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 for several years; however, we have not been notified that
this matter is closed.
ff
ff
24
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. The DIT has continued to issue further tax assessments on a similar basis for subsequent years; however,
the tax assessments for assessment years ending March 2007 and later are no longer material. We appealed the tax assessments
for assessment years ending March 1998 through March 2006 and the Indian Commissioner of Income Tax Appeals returned a
mixed verdict. We filed further appeals with the Income Tax Appellate Tribunal (“ITATTT ”). The ITATTT
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. The initial Supreme Court hearing has
now been scheduled. We have appealed the tax assessments for the assessment years ended March 2013 and March 2015 with
the ITATTT
and no trial date has been set for these subsequent years.
In addition, SAPPL is currently a defendant in similar income tax litigation brought by the DIT. The dispute arose when the
DIT asserted that SAPPL has a permanent establishment within the meaning of the Income Tax Treaty between Singapore and
India and accordingly issued tax assessments for assessment years ending March 2000 through March 2005. SAPPL appealed
the tax assessments, and the Indian Commissioner of Income Tax (Appeals) returned a mixed verdict. SAPPL filed further appeals
with the ITATTT . The ITATTT
ruled in SAPPL’s favor, finding that no income would be chargeable to tax for assessment years ending
March 2000 through March 2005. The DIT appealed those decisions to the Delhi High Court. No hearing date has been set. The
DIT also assessed taxes on a similar basis for assessment years ending March 2006 through March 2014 and appeals for assessment
years ending March 2006 through 2014 are pending before the ITATTT .
If the DIT were to fully prevail on every claim against us, including SAPPL, we could be subject to taxes, interest and penalties
of approximately $47 million as of December 31, 2017. We intend to continue to aggressively defend against each of the foregoing
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. We do not believe this outcome is more likely than not and therefore have not made
any provisions or recorded any liability for the potential resolution of any of these claims.
Indian Service Taxa Litigation
SAPPL's Indian subsidiary is also subject to litigation by the India Director General (Service Tax) ("DGST"), which has
assessed the subsidiary for multiple years related to its alleged failure to pay service tax on marketing fees and reimbursements
of expenses. Indian courts have returned verdicts favorable to the Indian subsidiary. The DGST has appealed the verdict to the
Indian Supreme Court. We do not believe that an adverse outcome is probable and therefore have not made any provisions or
recorded any liability for the potential resolution of any of these claims.
Litigation and Administrative Audit Proceedings Relating to Hotel Occupancy Taxes
On January 23, 2015, we sold Travelocity.com to Expedia. Pursuant to 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 our previous long-term strategic marketing agreement with Expedia (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 will be shared with Expedia in accordance with the terms set forth in the
Expedia SMA. We are jointly and severally liable for certain indemnification obligations under the Travelocity Purchase Agreement
for liabilities that may arise out of these litigation matters, which could adversely affect
our cash flow.
ff
pertaining primarily to whether our discontinued Travelocity segment and other OTAsTT
Beginning in 2004, various state and local governments in the United States have filed more than 80 lawsuits against us
and other OTAsTT
owe sales or occupancy
taxes on the revenues they earned from facilitating hotel reservations, where the customer paid us an amount at the time of booking
that included (i) service fees, which we collected and retained, and (ii) the price of the hotel room and amounts for occupancy or
other local taxes, which we passed 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. Several lawsuits also allege
that the OTAsTT
owe state or local taxes on their fees for facilitating car rental reservations. Courts have dismissed many 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 remaining lawsuits are in various stages of litigation. We have also settled some cases individually, most for amounts not
material to our results of operations, and with respect to these settlements, have generally reserved our rights to challenge any
ff
effort
by the applicable tax authority to impose occupancy taxes in the future.
25
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. As of December 31, 2017 and 2016, our reserve was not material
for the potential resolution of issues identified related to litigation involving hotel and car sales, occupancy or excise taxes. We did
not record material charges associated with these cases during the years ended December 31, 2017 and 2016. Because we do
not have a material reserve for these matters, and we have not recorded any material charges during the years ended December
31, 2017, 2016 and 2015, we did not consider these matters to be material as of December 31, 2017. 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.
ff
In addition to the actions by the tax authorities, two consumer class action lawsuits have been filed against us in which the
plaintiffsff
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 is pending in Texas state court, where the
court is currently considering the plaintiffs’
ff motion to certify a class action; and the other 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 and therefore have
not accrued any losses related to these cases.
Furthermore, 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.
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.
26
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of our executive officers
ff
as of February 16, 2018, together with certain biographical information, are
as follows:
Name
Sean Menke
Richard A. Simonson
Clinton Anderson
Rachel A. Gonzalez
Wade Jones
David Shirk
Age
49
59
47
48
51
51
ff
, President and Director, Sabre
Position
Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, Sabre and President, Hospitality Solutions
Executive Vice President and Chief Administrative Officer
Executive Vice President, Sabre and President, Travel Network
Executive Vice President, Sabre and President, Sabre Airline Solutions
, Sabre
, Sabre
ff
ff
ff
ff
Sean Menke was elected president and CEO effective
December 31, 2016. Prior to that, he served as executive vice
president and president of Travel Network. Before joining Sabre in October 2015, Mr. Menke served as executive vice president
and chief operating officer
of Hawaiian Airlines from October 2014 to October 2015. From 2013 to 2014, he was executive vice
president of resources at IHS Inc., a global information technology company. He served as managing partner of Vista Strategic
Group, LLC, a consulting firm, from 2012 to 2013 and from 2010 to 2011. From 2011 to 2012, he served as president and chief
executive officer
of Frontier Airlines. Frontier
Airlines and Pinnacle Airlines filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in 2008 and
2012, respectively. Mr. Menke earned an executive MBA from the University of Denver and dual bachelor of science degrees in
Economics and Aviation Management from Ohio State University.
of Pinnacle Airlines, and from 2007 to 2010 as president and chief executive officer
ff
ff
ff
Richard A. Simonson is executive vice president and chief financial officer
. He leads our global finance organization and
is responsible for the following functions - accounting, tax, financial planning and analysis, investor relations, treasury, procurement,
corporate development and mergers and acquisitions. He brings a combination of experiences across global finance, business
operations and capital markets focused on the technology, telecom and media sectors. Before joining Sabre in March 2013, Mr.
Simonson acted as an independent advisor to private equity and venture capital firms from May 2012 to March 2013 and from July
2010 to May 2011. He served as CFO and president for business operations at Rearden Commerce, a venture-backed e-commerce
company from March 2011 to May 2012. From September 2001 to July 2010 he was an executive at Nokia Corporation in several
global roles based in locations around the world - Helsinki, Zurich and New York - including more than five years as chief financial
officer
and executive vice president, followed by executive vice president and general manager of Nokia’s mobile phones unit and
head of strategic sourcing. He was a member of Nokia’s Group Executive Board from 2004-2010. 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 in the Global Corporate and Investment Banking group based out of San Francisco and Chicago, where
he held various finance and investment banking positions, culminating as managing director of Global Project Finance. Mr. Simonson
currently serves on the board of directors of Electronic Arts where he currently chairs the audit committee and additionally served
as lead director from 2009-2015. He graduated from the Colorado School of Mines with a B.S. in mining engineering and holds an
M.B.A. from Wharton School of Business at the University of Pennsylvania. Mr. Simonson is a trustee of the board of The Lyle
School of Engineering at Southern Methodist University.
ff
Clinton Anderson is executive vice president of Sabre and president of Sabre Hospitality Solutions. He joined Sabre in
2014 as the senior vice president of strategy and business development. In this role, Mr. Anderson was responsible for identifying
and evaluating growth opportunities, as well as leading the corporate strategy team. Prior to joining Sabre, from 2012 to 2014, Mr.
Anderson was with Emerson/Anderson, a private investment firm focused on small cap businesses, which he co-founded. From
1994 to 2012, he was a consultant at Bain and Company where he was a partner and served as a leader of consumer products
and performance improvement practices. Mr. Anderson holds an MBA from Harvard Business School and a Bachelor of Commerce
degree in Business Administration from the University of Alberta.
ff
ff
ff
corporate compliance, and government affairs.
Rachel A. Gonzalez is executive vice president and chief administrative officer
of Sabre, a position she assumed in May
2017. In this role, she leads a global team responsible for human resources, corporate communications, legal strategy, regulatory
affairs,
She previously served as executive vice president and general counsel from
September 2014 to May 2017. 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, and as executive vice president, general
counsel designate from November 2012 to March 2013. Ms. Gonzalez joined Dean Foods in 2008 as chief counsel, corporate and
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 and acquisitions, SEC compliance and corporate governance. Ms.
Gonzalez serves on the Board of Directors of Girl Scouts of Northeast Texas and their Executive, Finance and Board Development
Committees; she also serves as its Treasurer. Ms. Gonzalez is also a member of the board of directors of Dana Incorporated. Ms.
Gonzalez earned her J.D. from Boalt Hall School of Law at the University of California, Berkeley and her bachelor’s degree in
comparative literature from the University of California, Berkeley.
ff
27
ff
Wade Jones is executive vice president of Sabre and president of Travel Network. He joined Sabre in 2015 in the product,
marketing and strategy role for Travel Network globally. From April of 2012 to September of 2014 he was senior vice president and
general manager of Deem’s syndicated commerce business. From 2011 to 2012, Mr. Jones served as a founder and chief executive
officer
of Haystack Ventures, LLC, which filed for bankruptcy protection under Chapter 7 of the United States Bankruptcy Code in
2012. Prior to joining Sabre, Mr. Jones spent more than 10 years with Barclaycard, leading the company’s U.K partnership business
that provides, co-branded credit card, and loyalty programs for other companies across the travel, retail, financial services, and
other industries. He received his master’s degree in business administration from the Kellogg School of Management at Northwestern
University and his undergraduate degree from Texas Christian University.
David Shirk is executive vice president of Sabre and president of Sabre Airline Solutions. Prior to joining Sabre in June
2017, Mr. Shirk served as president at Kony, Inc., an industry leader in mobile application development platforms and cross industry
digital transformation solutions, from April 2014 to May 2017. From September 2012 to January 2014, he served as general manager
and vice president at Computer Services Corp. (CSC), where he led the company’s software, services, and business process
outsourcing division. Prior to joining CSC, Mr. Shirk was senior vice president of industry solutions and chief marketing officer
for
the Enterprise Business division of HP. He has also held senior executive positions at Siemens, UGS, Vignette, Novell and Oracle.
He holds a bachelor’s degree in business administration and management from The Ohio State University.
ff
28
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY,YY RELATEDAA
PURCHASES OF EQUITY SECURITIES
STOCKHOLDER MATTERS
AA
AND ISSUER
Our common stock is listed on the NASDAQ Global Select Market under the symbol “SABR.” 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:
Year Ended December 31, 2017:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ended December 31, 2016:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
Dividends
Declared
$
$
$
$
$
$
$
$
20.79
22.28
24.73
25.14
27.99
29.34
29.35
28.92
$
$
$
$
$
$
$
$
18.00
17.40
20.50
20.91
23.18
26.63
25.30
23.18
$
$
$
$
$
$
$
$
0.14
0.14
0.14
0.14
0.13
0.13
0.13
0.13
As of February 12, 2018, there were 130 stockholders of record of our common stock.
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. Our board of directors has declared a cash dividend of $0.14 per share of common stock which will be
paid on March 30, 2018 to stockholders of record as of March 21, 2018. See Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources—Dividends.”
The following table contains information for common shares repurchased during the fourth quarter of 2017:
Period 2017
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
Total Number
of Shares
Purchased
(1)
626,528
—
—
626,528
Average Price
Paid Per Share
18.24
$
—
—
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
(2)
626,528
—
—
626,528
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
$ 390,898,678
390,898,678
390,898,678
__
________________________
(1) Represents shares repurchased in open market transactions pursuant to the Share Repurchase Program (as defined below).
(2) Share repurchases were made pursuant to a multi-year share repurchase program (the "Share Repurchase Program")
authorized by our board of directors on February 6, 2017. This program was announced on February 7, 2017 and allows for
the purchase of up to $500 million of outstanding shares of our common stock in privately negotiated transactions or in the
open market, or otherwise.
29
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, 2017 of the cumulative total return for our common stock, the S&P 500 Index, S&P
Software and Services Select Index and the NASDAQ Composite. The comparison assumes $100 was invested on April 17, 2014
in our common stock and in each of the indices and assumes reinvestment of dividends.
$195
$185
$175
$165
$155
$145
$135
$125
$115
$105
$95
4/17/14
6/30/14
9/30/14
12/31/14
3/31/15
6/30/15
9/30/15
12/31/15
3/31/16
6/30/16
9/30/16
12/31/16
3/31/17
6/30/17
9/29/17
12/31/17
Sabre Corp.
S&P 500
S&P 500 Software & Services
NASDAQ Composite
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.
30
ITEM 6.
SELECTED FINANCIAL DATAAA
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, 2017, 2016 and 2015 and the consolidated balance sheet data as of December 31, 2017 and 2016 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, 2014 and 2013 and the consolidated balance sheet data as of December 31, 2015 and 2014 are derived from
audited consolidated financial statements not included in this Annual Report on Form 10-K. The consolidated balance sheet data
as of December 31, 2013 is 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. All
amounts presented below are in thousands, except per share amounts.
Consolidated Statements of Operations Data:
Revenue
Operating income
Income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income (loss) attributable to Sabre Corporation
Net income (loss) attributable to common stockholders
Net income (loss) per share attributable to common
stockholders:
Basic
Diluted
Weighted-average common shares outstanding:
2017
2016
2015
2014
2013
Year Ended December 31,
$ 3,598,484
493,440
249,576
(1,932)
242,531
242,531
$ 3,373,387
459,572
241,390
5,549
242,562
242,562
$ 2,960,896
459,769
234,555
314,408
545,482
545,482
$ 2,631,417
421,345
110,873
(38,918)
69,223
57,842
$ 2,523,546
380,930
52,066
(149,697)
(100,494)
(137,198)
$
$
0.87
0.87
$
$
0.87
0.86
$
$
2.00
1.95
$
$
0.24
0.23
$
$
(0.77)
(0.74)
Basic
Diluted
276,893
278,320
277,546
282,752
273,139
280,067
238,633
246,747
178,125
184,978
Consolidated Statements of Cash Flows Data:
Cash provided by operating activities
Cash used in investing activities
Cash provided by (used in) financing activities
Additions to property and equipment
Cash payments for interest
$ 678,033
(317,525)
(356,780)
316,436
149,572
$ 699,400
(445,808)
(190,025)
327,647
151,495
$ 529,207
(729,041)
93,144
286,697
154,307
$ 387,659
(258,791)
(71,945)
227,227
197,782
$ 228,232
(239,999)
262,172
209,523
255,620
Other Financial Data:
Adjusted Gross Profit
Adjusted Operating Income
Adjusted Net Income
Adjusted EBITDA
Adjusted Capital Expenditures
Free Cash Flow
Key Metrics:
Travel Network
$ 1,500,186
706,149
390,118
1,078,571
377,202
361,597
$ 1,460,675
720,361
370,937
1,046,646
411,052
371,753
$ 1,316,820
653,105
308,072
941,587
350,079
242,510
$ 1,146,792
601,219
232,477
840,028
265,038
160,432
$ 1,060,302
584,548
182,187
778,754
268,337
18,709
Direct Billable Bookings - Air
Direct Billable Bookings - Lodging, Ground and Sea
Total Direct Billable Bookings
Airline Solutions Passengers Boarded
462,381
62,443
524,824
772,149
445,050
60,421
505,471
789,260
384,309
58,414
442,723
584,876
321,962
54,122
376,084
510,713
314,275
53,503
367,778
478,088
31
2017
2016
2015
2014
2013
As of December 31,
Consolidated Balance Sheet Data:
Cash and cash equivalents
Total assets(1)
Long-term debt(1)
Working capital deficit(1)
Redeemable preferred stock
Noncontrolling interest
Total stockholders’ equity
________________________________
(1) In the fourth quarter of 2015, we adopted new accounting standards that changed the presentation of deferred tax assets and liabilities and
debt issuance costs. We applied the new guidance on a retrospective basis to the balance sheet data as of December 31, 2014. The balance
sheet data as of December 31, 2013 was not adjusted.
$ 155,679
4,643,073
3,040,009
(201,052)
—
621
84,383
$ 364,114
5,724,570
3,276,281
(312,977)
—
2,579
625,615
$ 321,132
5,393,627
3,169,344
(222,400)
—
1,438
484,140
$ 361,381
5,649,364
3,398,731
(11,455)
—
5,198
698,500
$ 308,236
4,755,708
3,643,548
(268,272)
634,843
508
(952,536)
Non-GAAP Financial Measures
The following table sets forth the reconciliation of net income (loss) attributable to common stockholders to Adjusted Net
Income, Adjusted EBITDA and Adjusted Operating Income (in thousands):
Net income (loss) attributable to common stockholders
Loss (income) from discontinued operations, net of tax
Net income attributable to noncontrolling interests(1)
Preferred stock dividends
Income from continuing operations
Adjustments:
Impairment and related charges(2)
Acquisition-related amortization(3a)
Loss on extinguishment of debt
Other, net(5)
Restructuring and other costs(6)
Acquisition-related costs(7)
Litigation (reimbursements) costs(8)
Stock-based compensation
Management fees(9)
Tax impact of net income (loss) adjustments(10), (11)
Adjusted Net Income from continuing operations
Adjusted Net Income from continuing operations per
share
Year Ended December 31,
2017
$ 242,531
1,932
2016
$ 242,562
(5,549)
2015
$ 545,482
(314,408)
$
5,113
—
249,576
4,377
—
241,390
3,481
—
234,555
2014
57,842
38,918
2,732
11,381
110,873
2013
$ (137,198)
149,697
2,863
36,704
52,066
81,112
95,860
1,012
(36,530)
23,975
—
(35,507)
44,689
—
(34,069)
$ 390,118
—
143,425
3,683
(27,617)
18,286
779
46,995
48,524
—
(104,528)
$ 370,937
—
108,121
38,783
(91,377)
9,256
14,437
16,709
29,971
—
(52,383)
$ 308,072
—
99,383
33,538
63,860
10,470
—
14,144
20,094
23,701
(143,586)
$ 232,477
—
132,685
12,181
305
27,921
—
18,514
3,387
8,761
(73,633)
$ 182,187
$
1.40
$
1.31
$
1.10
$
0.94
$
0.98
Diluted weighted-average common shares outstanding
278,320
282,752
280,067
246,747
184,978
Adjusted Net Income from continuing operations
Adjustments:
Depreciation and amortization of property and
equipment(3b)
Amortization of capitalized implementation costs(3c)
Amortization of upfront incentive consideration(4)
Interest expense, net
Remaining provision for income taxes
Adjusted EBITDA
Less:
390,118
370,937
308,072
232,477
182,187
264,880
40,131
67,411
153,925
162,106
1,078,571
233,303
37,258
55,724
158,251
191,173
1,046,646
213,520
31,441
43,521
173,298
171,735
941,587
157,592
35,859
45,358
218,877
149,865
840,028
123,414
34,143
36,649
274,689
127,672
778,754
Depreciation and amortization(3)
Amortization of upfront incentive consideration(4)
Acquisition related amortization(3a)
Adjusted Operating Income
400,871
67,411
(95,860)
$ 706,149
413,986
55,724
(143,425)
$ 720,361
351,480
43,521
(106,519)
$ 653,105
289,630
45,358
(96,179)
$ 601,219
287,038
36,649
(129,481)
$ 584,548
32
The following tables set forth the reconciliation of operating income (loss) in our statement of operations to Adjusted Gross
Profit, Adjusted EBITDA and Adjusted Operating Income (Loss) by business segment (in thousands):
Operating income (loss)
Add back:
Selling, general and administrative
Impairment and related charges(2)
Cost of revenue adjustments:
Depreciation and amortization(3)
Restructuring and other costs (6)
Amortization of upfront incentive consideration(4)
Stock-based compensation
Adjusted Gross Profit
Selling, general and administrative
Joint venture equity income
Selling, general and administrative adjustments:
Depreciation and amortization(3)
Restructuring and other costs (6)
Litigation reimbursements(8)
Stock-based compensation
Adjusted EBITDA
Less:
Year Ended December 31, 2017
Travel
Network
Airline and
Hospitality
Solutions
Corporate
$
848,336
$
246,833
$
(601,729) $
130,700
—
79,955
—
299,420
81,112
Total
493,440
510,075
81,112
317,812
12,604
67,411
17,732
1,500,186
(510,075)
2,580
83,059
11,371
(35,507)
26,957
1,078,571
71,481
12,604
—
17,732
(119,380)
(299,420)
—
74,329
11,371
(35,507)
26,957
(341,650)
80,780
—
67,411
—
1,127,227
(130,700)
2,580
5,305
—
—
—
1,004,412
165,551
—
—
—
492,339
(79,955)
—
3,425
—
—
—
415,809
168,976
—
—
246,833
Depreciation and amortization(3)
Amortization of upfront incentive consideration(4)
Acquisition-related amortization(3a)
Adjusted Operating Income (Loss)
86,085
67,411
—
850,916
$
$
145,810
—
(95,860)
(391,600) $
400,871
67,411
(95,860)
706,149
$
Operating income (loss)
Add back:
Selling, general and administrative
Cost of revenue adjustments:
Depreciation and amortization(3)
Restructuring and other costs (6)
Amortization of upfront incentive consideration(4)
Stock-based compensation
Adjusted Gross Profit
Selling, general and administrative
Joint venture equity income
Selling, general and administrative adjustments:
Depreciation and amortization(3)
Restructuring and other costs(6)
Acquisition-related costs(7)
Litigation costs(8)
Stock-based compensation
Adjusted EBITDA
Less:
Depreciation and amortization(3)
Amortization of upfront incentive consideration(4)
Acquisition-related amortization(3a)
Adjusted Operating Income (Loss)
Year Ended December 31, 2016
Travel
Network
Airline and
Hospitality
Solutions
Corporate
$
835,248
$
217,631
$
(593,307) $
Total
459,572
132,537
71,685
421,931
626,153
72,110
—
55,724
—
1,095,619
(132,537)
2,780
4,826
—
—
—
—
970,688
76,936
55,724
—
838,028
$
153,204
—
—
—
442,520
(71,685)
—
1,228
—
—
—
—
372,063
154,432
—
—
217,631
62,039
12,660
—
19,213
(77,464)
(421,931)
—
120,579
5,626
779
46,995
29,311
(296,105)
287,353
12,660
55,724
19,213
1,460,675
(626,153)
2,780
126,633
5,626
779
46,995
29,311
1,046,646
182,618
—
(143,425)
((335,298) $)
413,986
55,724
(143,425)
720,361
$
$
33
Operating income (loss)
Add back:
Selling, general and administrative
Cost of revenue adjustments:
Depreciation and amortization(3)
Amortization of upfront incentive consideration(4)
Stock-based compensation
Adjusted Gross Profit
Selling, general and administrative
Joint venture equity income
Joint venture intangible amortization(3a)
Selling, general and administrative adjustments:
Depreciation and amortization(3)
Restructuring and other costs(6)
Acquisition-related costs(7)
Litigation costs(8)
Stock-based compensation
Adjusted EBITDA
Less:
Depreciation and amortization(3)
Amortization of upfront incentive consideration(4)
Acquisition-related amortization(3a)
Adjusted Operating Income (Loss)
$
Year Ended December 31, 2015
Travel
Network
Airline and
Hospitality
Solutions
Corporate
$
751,546
$
180,448
$
(472,225) $
Total
459,769
116,511
62,247
378,319
557,077
62,337
43,521
—
973,915
(116,511)
14,842
1,602
3,428
—
—
—
—
877,276
65,765
43,521
1,602
766,388
$
142,109
—
—
384,804
(62,247)
—
—
904
—
—
—
—
323,461
143,013
—
—
180,448
40,089
—
11,918
(41,899)
(378,319)
—
—
102,613
9,256
14,437
16,709
18,053
(259,150)
244,535
43,521
11,918
1,316,820
(557,077)
14,842
1,602
106,945
9,256
14,437
16,709
18,053
941,587
142,702
—
(108,121)
((293,731) $)
351,480
43,521
(106,519)
653,105
$
Operating income (loss)
Add back:
Selling, general and administrative
Cost of revenue adjustments:
Depreciation and amortization(3)
Amortization of upfront incentive consideration(4)
Restructuring and other costs(6)
Stock-based compensation
Adjusted Gross Profit
Selling, general and administrative
Joint venture equity income
Joint venture intangible amortization(3a)
Selling, general and administrative adjustments:
Depreciation and amortization(3)
Restructuring and other costs (6)
Litigation costs(8)
Stock-based compensation
Management fees(9)
Adjusted EBITDA
Less:
Depreciation and amortization(3)
Amortization of upfront incentive consideration(4)
Acquisition-related amortization(3a)
Adjusted Operating Income (Loss)
Year Ended December 31, 2014
Travel
Network
Airline and
Hospitality
Solutions
Corporate
$
657,326
$
176,730
$
(412,711) $
Total
421,345
102,059
56,195
309,340
467,594
58,533
45,358
—
—
863,276
(102,059)
12,082
3,204
2,174
—
—
—
—
778,677
60,707
45,358
3,204
669,408
$
104,926
—
—
—
337,851
(56,195)
—
—
992
—
—
—
—
282,648
105,918
—
—
176,730
34,950
—
6,042
8,044
(54,335)
(309,340)
—
—
88,055
4,428
14,144
12,050
23,701
(221,297)
123,005
—
(99,383)
((244,919) $)
$
198,409
45,358
6,042
8,044
1,146,792
(467,594)
12,082
3,204
91,221
4,428
14,144
12,050
23,701
840,028
289,630
45,358
(96,179)
601,219
$
34
Operating income (loss)
Add back:
Selling, general and administrative
Cost of revenue adjustments:
Depreciation and amortization(3)
Amortization of upfront incentive consideration(4)
Restructuring and other costs(6)
Stock-based compensation
Adjusted Gross Profit
Selling, general and administrative
Joint venture equity income
Joint venture intangible amortization(3a)
Selling, general and administrative adjustments:
Depreciation and amortization(3)
Restructuring and other costs (6)
Litigation costs(8)
Stock-based compensation
Management fees(9)
Adjusted EBITDA
Less:
Depreciation and amortization(3)
Amortization of upfront incentive consideration(4)
Acquisition-related amortization(3a)
Adjusted Operating Income (Loss)
$
Year Ended December 31, 2013
Travel
Network
Airline and
Hospitality
Solutions
Corporate
$
667,498
$
135,755
$
(422,323) $
Total
380,930
106,392
51,538
279,523
437,453
50,254
36,649
—
—
860,793
(106,392)
12,350
3,204
2,253
—
—
—
—
772,208
52,507
36,649
3,204
679,848
$
75,093
—
—
—
262,386
(51,538)
—
—
2,227
—
—
—
—
213,075
77,320
—
—
135,755
67,076
—
11,491
1,356
(62,877)
(279,523)
—
—
90,135
16,430
18,514
2,031
8,761
(206,529)
192,423
36,649
11,491
1,356
1,060,302
(437,453)
12,350
3,204
94,615
16,430
18,514
2,031
8,761
778,754
157,211
—
(132,685)
((231,055) $)
287,038
36,649
(129,481)
584,548
$
The components of Adjusted Capital Expenditures are presented below (in thousands):
Additions to property and equipment
Capitalized implementation costs
Adjusted capital expenditures
Year Ended December 31,
2017
$ 316,436
60,766
$ 377,202
2016
$ 327,647
83,405
$ 411,052
2015
$ 286,697
63,382
$ 350,079
2014
$ 227,227
37,811
$ 265,038
2013
$ 209,523
58,814
$ 268,337
The following tables present information from our statements of cash flows and sets forth the reconciliation of Free Cash
Flow to cash provided by operating activities, the most directly comparable GAAP measure (in thousands):
Cash provided by operating activities
Cash used in investing activities
Cash provided by (used in) financing activities
Cash provided by operating activities
Additions to property and equipment
Free Cash Flow
___________________________
__
(1)
_____
__
Year Ended December 31,
2017
$ 678,033
(317,525)
(356,780)
2016
$ 699,400
(445,808)
(190,025)
2015
$ 529,207
(729,041)
93,144
2014
$ 387,659
(258,791)
(71,945)
2013
$ 228,232
(239,999)
262,172
Year Ended December 31,
2017
$ 678,033
(316,436)
$ 361,597
2016
$ 699,400
(327,647)
$ 371,753
2015
$ 529,207
(286,697)
$ 242,510
2014
$ 387,659
(227,227)
$ 160,432
2013
$ 228,232
(209,523)
18,709
$
Net income 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 Seyahat Dagitim Sistemleri
A.S. of 40% beginning in April 2014, (iii) Abacus International Lanka Pte Ltd of 40% beginning in July 2015, and (iv) Sabre
Bulgaria of 40% beginning in November 2017.
35
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
Impairment and related charges represents an $81 million charge in 2017 associated with net capitalized contract costs
related to an Airline Solutions' customer based on our analysis of the recoverability of such amounts. See Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Factors Affecting
our Results” for additional information.
Depreciation and amortization expenses:
ff
a. 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. Also includes amortization of the excess
basis in our underlying equity interest in SAPPL's net assets prior to our acquisition of SAPPL on July 1, 2015.
b. Depreciation and amortization of property and equipment includes software developed for internal use.
c. Amortization of capitalized implementation costs represents amortization of upfront costs to implement new customer
contracts under our SaaS and hosted revenue model.
ff
ff
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. This consideration is made with the objective of increasing
the number of clients or to ensure or improve customer loyalty. These 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. These 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 2017, Other, net includes a benefit of $60 million due to a reduction to our liability under the Tax Receivable Agreement
("TRA") primarily due to a provisional adjustment resulting from the enactment of TCJA which reduced the U.S. corporate
income tax rate (see Note 7. Income Taxes, to our consolidated financial statements), offset
by a loss of $15 million related
to debt modification costs associated with a debt refinancing. In 2016, we recognized a gain of $15 million from the sale
of our available-for-sale marketable securities, and $6 million gain associated with the receipt of an earn-out payment
related to the sale of a business in 2013. In 2015, we recognized a gain of $78 million associated with the remeasurement
of our previously-held 35% investment in SAPPL to its fair value and a gain of $12 million related to the settlement of pre-
existing agreements between us and SAPPL. In 2014, Other, net primarily includes a 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 addition, all
periods presented include 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—TaxTT Receivable Agreement” for additional information regarding the TRA.
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. We recorded $25 million and $20 million in charges associated
with announced actions to reduce our workforce in 2017 and 2016, respectively. These reductions aligned our operations
with business needs and implemented an ongoing cost and organizational structure consistent with our expected growth
needs and opportunities. In 2015, we recognized a restructuring charge of $9 million associated with the integration of
Abacus, and reduced that estimate by $4 million in 2016, as a result of the reevaluation of our plan derived from a shift in
timing and strategy of originally contemplated actions. As of December 31, 2017, our actions under this plan have been
substantially completed and payments under the plan have been made.
Acquisition-related costs represent fees and expenses incurred associated with the acquisition of Abacus, the Trust Group
and Airpas Aviation.
Litigation (reimbursements) costs, net represent charges and legal fee reimbursements associated with antitrust litigation.
In 2017, we recorded a $43 million reimbursement, net of accrued legal and related expenses, from a settlement with our
insurance carriers with respect to the American Airlines litigation. In 2016, we recorded an accrual of $32 million representing
the trebling of the jury award plus our estimate of attorneys’ fees, expenses and costs in the US Airways litigation. See
Item 3, "Legal Proceedings."
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, plus reimbursement of certain costs incurred by TPG and Silver
Lake, pursuant to the management services agreement (the “MSA”). In addition, we paid a $21 million fee, in the aggregate,
to TPG and Silver Lake in connection with our initial public offering
in 2014. The MSA was terminated in conjunction with
ff
our initial public offering.
In 2017, the tax impact on net income adjustments includes a provisional impact of $47 million recognized in the fourth
quarter of 2017 as a result of the enactment of the TCJA in December 2017. See Note 7. Income Taxes, to our consolidated
financial statements. 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.
In the first quarter of 2016, we adopted Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-
Based Payment Accounting. For the year ended December 31, 2016, we recognized $35 million in excess tax benefits
associated with employee equity-based awards, as a result of the adoption of this standard. There were no other material
impacts to our consolidated financial statements as a result of adopting this updated standard.
ff
36
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 Profit, Adjusted Operating Income (Loss), Adjusted Net Income from
continuing operations ("Adjusted Net Income"), Adjusted EBITDA, Adjusted Capital Expenditures, Free Cash Flow and ratios based
on these financial measures.
We define Adjusted Gross Profit as operating income (loss) adjusted for selling, general and administrative expenses,
impairment and related charges, amortization of upfront incentive consideration, the cost of revenue portion of depreciation and
amortization, restructuring and other costs, and stock-based compensation included in cost of revenue.
We define Adjusted Operating Income (Loss) as operating income (loss) adjusted for joint venture equity income, impairment
litigation
restructuring and other costs, acquisition-related costs,
and related charges, acquisition-related amortization,
(reimbursements) costs and stock-based compensation.
We define Adjusted Net Income as net income (loss) attributable to common stockholders adjusted for income (loss) from
discontinued operations, net of tax, net income attributable to noncontrolling interests, preferred stock dividends, impairment and
related charges, acquisition-related amortization, loss on extinguishment of debt, other, net, restructuring and other costs, acquisition-
related costs, litigation costs (reimbursements), net, 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 the
remaining provision for income taxes. This Adjusted EBITDA metric differs
from the Pre-VCP Adjusted EBITDA and Adjusted EBITDA
metrics referenced in the section entitled “Compensation Discussion and Analysis” in our 2017 Proxy Statement, which are calculated
for the purposes of our annual incentive compensation program and performance-based awards, respectively.
ff
We define Adjusted Capital Expenditures as additions to property and equipment and capitalized implementation costs.
We define Free Cash Flow as cash provided by operating activities less cash used in additions to property and equipment.
We define Adjusted Net Income from continuing operations per share as Adjusted Net Income divided by diluted weighted-
average common shares outstanding.
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 include 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 Profit, Adjusted Operating Income (Loss), Adjusted Net Income, Adjusted EBITDA
and Adjusted Capital Expenditures assist investors in company-to-company and period-to-period comparisons by excluding
differences
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.
caused by variations in capital structures (affecting
ff
ff
Adjusted Gross Profit, Adjusted Operating Income (Loss), Adjusted Net Income, Adjusted EBITDA, Adjusted Capital
Expenditures, 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 are unaudited and 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:
ff
•
•
•
these non-GAAP financial measures exclude certain recurring, non-cash charges such as stock-based compensation
expense and amortization of acquired intangible assets
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 Profit and Adjusted EBITDA do not reflect cash requirements for such
replacements;
Adjusted Operating Income (Loss), Adjusted Net Income and Adjusted EBITDA do not reflect changes in, or cash
requirements for, our working capital needs;
37
•
•
•
•
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 removes the impact of accrual-basis accounting on asset accounts and non-debt liability accounts, and
does not reflect the cash requirements necessary to service the principal payments on our indebtedness; and
other companies, including companies in our industry, may calculate Adjusted Gross Profit, Adjusted Operating Income
(Loss), Adjusted Net Income, Adjusted EBITDA, Adjusted Capital Expenditures or Free Cash Flow differently
, which
reduces their usefulness as comparative measures.
ff
38
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
AA
OPERATIONS
LL
OF FINANCIAL CONDITION AND RESULTSLL
OF
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 connect people and places with technology that reimagines the business of travel. We operate through two business
segments: (i) Travel Network, our global business-to-business 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 hoteliers. Collectively,
these offerings
enable travel suppliers to better serve their customers across the entire travel lifecycle, from route planning to post-
ff
trip business intelligence and analytics.
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 upfront fees and professional service fees. Items
that are not allocated to our business segments are identified as corporate and primarily include certain shared technology costs,
stock-based compensation expense, litigation costs, corporate headcount-related costs, and other items that are not identifiable
with either one of our segments.
In the first quarter of 2015, we completed our exit of the online travel agency business through the sale of Travelocity.com
and lastminute.com. Our Travelocity segment has no remaining operations as a result of these dispositions. The financial results
of our Travelocity segment are included in net income (loss) from discontinued operations in our consolidated statements of
operations for all periods presented. The discussion and analysis of our results of operations refers to continuing operations unless
otherwise indicated.
On July 1, 2015, we completed the acquisition of the remaining 65% interest in SAPPL, a Singapore-based business-to-
business travel e-commerce provider that serves the Asia-Pacific region. Prior to the acquisition, SAPPL was 65% owned by a
consortium of 11 airlines and the remaining 35% was owned by us. In the third and fourth quarters of 2015, SAPPL completed the
acquisition of the remaining interest in three national marketing companies, Abacus Distribution Systems (Hong Kong), Abacus
Travel Systems (Singapore) and Abacus Distribution Systems Sdn Bhd (Malaysia) (the “NMCs” and together with SAPPL, “Abacus”).
The net cash consideration for Abacus was $443 million. Abacus has been integrated and is managed as a region of our Travel
Network business. Separately, SAPPL has signed new long-term agreements with the consortium of 11 airlines to continue to utilize
the Abacus GDS.
In January 2016, we completed the acquisition of the Trust Group, a central reservation, revenue management and hotel
for net cash consideration of $156 million. The Trust Group has
marketing provider with a significant presence in EMEA and APAC,PP
been integrated and is managed as part of our Airline and Hospitality Solutions segment.
Recent Developments Affecting our Results of Operations
On December 22, 2017, the TCJA was signed into law. The TCJA contains significant changes to the U.S. corporate
income tax system, including a reduction of the federal corporate income tax rate from 35% to 21%, a limitation of the tax deduction
for interest expense to 30% of adjusted taxable income (as defined in the TCJA), base erosion provisions related to intercompany
foreign payments and global low-taxed income, one-time taxation of offshore
earnings at reduced rates in connection with the
transition of U.S. international taxation from a worldwide tax system to a territorial tax system, elimination of U.S. tax on foreign
earnings (subject to certain important exceptions), and modifying or repealing many business deductions and credits. We recorded
a provisional amount for our one-time transition tax liability resulting in an increase in income tax expense of $48 million in 2017
for previously untaxed earnings and profits of our foreign subsidiaries. Additionally, Other, net for the year ended December 31,
2017 includes a benefit of $58 million associated with a reduction to our TRA liability, due to a provisional adjustment resulting from
the reduced U.S. corporate income tax rate. The effects
of the TCJA are being evaluated with certain provisions having a positive
impact (for example, the reduction in the federal corporate income tax rate), with other provisions potentially having a negative
impact (including the limitation on interest deductibility, expanded limitations on executive compensation deduction, and base erosion
provisions) on our taxes. Notwithstanding the reduction in the federal corporate income tax rate, the future impact of the TCJA,
including on our global operations, is not yet certain.
ff
ff
The rate of growth of Airline Solutions revenue is impacted by the previously announced termination of an agreement with
Southwest Airlines related to services and processing for their legacy reservations system.
39
Factors Affecting our Results
The following is a discussion of trends that we believe are the most significant opportunities and challenges currently impacting
these trends have had and are
our business and industry. The discussion also includes management’s assessment of the effects
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 “Forward-
Looking Statements” included elsewhere in this Annual Report on Form 10-K.
ff
ff
Increasing technology infrastructure costs
ff
We expect to continue to make significant investments in our information technology infrastructure to modernize our
architecture, drive efficiency
in development and ongoing technology costs, further enhance the stability and security of our network,
comply with data privacy regulations, and accelerate our shift to open source and cloud-based solutions. We expect that the costs
associated with these investments will result in an increase in our product and technology operating expenses. We believe that
continued investment in our technology will help to provide us the necessary framework and infrastructure for a secure and stable
architecture for our customers and will help to improve sales of our software solutions. See "Liquidity and Capital Resources—
Capital Expenditures and Implementation Costs."
Shift to SaaS and hosted solutions by airlines and hotels to manage their daily operations
ff
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. The shift from a model
with initial license fees to one with recurring monthly fees associated with our SaaS and hosted solutions, has resulted in an ongoing
revenue stream based on the number of passengers boarded. However, under the SaaS and hosted solutions revenue model,
revenue recognition may be delayed due to longer implementation schedules for larger suppliers. For example, in the last part of
2016, implementation schedules for several airlines were delayed to future years. 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.
Recent insolvencies of certain Airline Solutions customers
In May 2017, given the substantial amount of uncertainty of reaching an agreement regarding the implementation of services
pursuant to their contract, we evaluated the recoverability of net capitalized contract costs related to Air Berlin Plc & Co Luftverkehrs
KG ("Air Berlin") and impacts from associated future contractual obligations and recorded a charge of $81 million during the year
ended December 31, 2017. In August 2017, Air Berlin filed for bankruptcy and ceased operations in the fourth quarter of 2017. The
impairment charge did not impact our cash flows from operations. This impairment charge resulted in a material impact on our
financial results, and related matters may adversely impact our future results of operations and cash flows. See Note 15.
Commitments and Contingencies—Other, to our consolidated financial statements for additional information.
In addition, future revenues may be negatively impacted by, among other things, reduced sales of our software solutions
and lower growth in Passengers Boarded due to delayed or uncertain implementations and the insolvency of an airline carrier,
Alitalia Compagnia Aerea Italiana S.p.A. operating as Alitalia (“Alitalia”), that implemented our services in the fourth quarter of 2016.
See “Risk Factors—Our travel supplier customers may experience financial instability or consolidation, pursue cost reductions,
change their distribution model or undergo other changes.”
Increasing importance of OTAsTT
rr
to Travel
Network
to our Travel Network business has increased in recent years and as a result, our earnings may
The significance of OTAsTT
be impacted by factors affecting
travel agencies
experience growth, we believe they shift bookings away from offline
OTAs.TT
and direct channels of travel suppliers. We expect to continue to benefit from this trend as we are a substantial GDS provider to
increase their bargaining power through growth by
the OTATT industry. However, we may face pricing pressure in the future as OTAsTT
consolidation.
As OTAsTT
ff
ff
40
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
. We
offer
technology solutions to all segments of the hospitality market. Our SynXis Enterprise Platform integrates critical hospitality
ff
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 and enterprise 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.
technology systems to distribute and market their products and operate efficiently
ff
ff
Geographic mix of Travel
rr
Network
ff
ff
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 OTATT customers and
expanding the travel content available on our GDS to target regional traveler preferences, we anticipate that we will maintain share
and Latin America. For the year ended December 31, 2017, we derived
in North America and grow share in Europe, APACPP
approximately 53% of our Direct Billable Bookings from North America, 19% from APAC,PP
18% from EMEA and 10% from Latin
America. For the year ended December 31, 2016, we derived approximately 54% of our Direct Billable Bookings from North America,
17% from EMEA and 10% from Latin America. During 2017, we established a regional operation company structure
19% from APAC,PP
to better align geographic revenue generation, supplier relationships, and intellectual property with our global footprint, which is
expected have a favorable impact on our consolidated results of operations over time.
Travel
rr
buyers can shift their bookings to or from our Travel
rr
Network business
Our Travel Network business relies on relationships with several large travel buyers, including TMCs and OTAs,TT
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, certain travel agencies have adopted a dual GDS provider strategy
and shifted a sizeable portion of its business from our GDS to a competitor GDS, while other agencies have shifted a larger portion
their business to our GDS partially offsetting
the declines.
ff
Increasing importance of LCC/hybrids in Travel
rr
Network
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.
ff
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 grew in the double
digits on a per booking basis in 2017 due to regional mix and new customer conversions, it has been relatively stable as a percentage
of Travel Network revenue over the last five years, partially due to our focus on managing incentive consideration. The incentive
by increased Travel Network revenue. To
rate increases may continue to impact margins, which we expect to be partially offset
address the trend towards increasing incentive consideration, we are seeking to offer
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.
ff
ff
41
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
ff 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, Norwegian and Interjet, have adopted
our GDS. Other carriers such as EVAVV Airways and Virgin Australia have further increased their participation in a GDS.
ff
These trends have impacted the revenue of Travel Network, which recognizes revenue for airline ticket sales based on
transaction volumes. 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.
Components of Revenues and Expenses
Revenues
Travel Network primarily generates revenues from Direct Billable Bookings processed on our GDS as well as the sale of
aggregated bookings data to carriers. Prior to our acquisition of the remaining interest in SAPPL on July 1, 2015, we generated
revenue from certain services we provided SAPPL. 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 secure platforms or deployed through
our SaaS. Airline and Hospitality Solutions also generates revenue through professional service fees and software licensing fees.
Certain professional service fees are discrete sales opportunities that may have a high degree of variability from period to period,
and we cannot guarantee that we will have such fees in the future consistent with prior periods.
In connection with the adoption of the new revenue recognition standard effective
January 1, 2018, based on preliminary
information, in the year of adoption and subsequent years, we currently expect a significant reduction in revenues for the Airline
Solutions business for existing open contracts as of that date, and before the impact of new sales. See "—Recent Accounting
Pronouncements."
ff
Cost of revenue
Cost of revenue incurred by Travel Network and Airline 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 accrue on a monthly basis.
Corporate cost of revenue includes expenses associated with our technology organization that provides development and
support activities to our segments. The costs associated with our technology organization that do not get allocated to the segments
based on the segments’ usage of resources primarily include shared technology infrastructure and labor costs. Corporate cost of
revenue also includes stock-based compensation expense, professional service fees and other items that are not directly identifiable
with our segments. Over time, we expect a substantial increase in stock-based compensation expense, as we have moved to
granting broad-based equity awards annually, rather than biennially, which began in March 2016 primarily in the form of restricted
stock units. These awards generally vest over a four-year period, with 25% vesting annually. Stock compensation expense is
based on the number of restricted stock units granted and the stock price on the date of grant, which is amortized over the four-
year vesting period.
Depreciation and amortization included in cost of revenue is associated with property and equipment, amortization of contract
implementation costs which relates to Airline and Hospitality Solutions, intangible assets for technology purchased through
acquisitions or established with our take-private transaction, and software developed for internal use that supports our revenue,
businesses and systems. 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.
42
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of personnel-related expenses, including stock-based compensation,
for employees that sell our services to new customers and administratively support the business, information technology and
communication costs, professional service fees, certain settlement charges or reimbursements, and costs to defend legal disputes,
bad debt expense, depreciation and amortization and other overhead costs. Over time, we expect a substantial increase in stock-
based compensation expense as described above.
Intersegment Transactions
rr
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 and hotel stays booked through our
GDS.
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, and Lodging, Ground and Sea ("LGS")) 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 these key metrics for the
periods indicated (in thousands):
Travel Network
Direct Billable Bookings - Air
Direct Billable Bookings - LGS
Total Direct Billable Bookings
Airline Solutions Passengers Boarded
Results of Operations
Year Ended December 31,
% Change
2017
2016
2015
2017 - 2016
2016 - 2015
462,381
62,443
524,824
772,149
445,050
60,421
505,471
789,260
384,309
58,414
442,723
584,876
3.9 %
3.3 %
3.8 %
(2.2)%
15.8%
3.4%
14.2%
34.9%
The following table sets forth our consolidated statement of operations data for each of the periods presented (in thousands):
Revenue
Cost of revenue
Selling, general and administrative
Impairment and related charges
Operating income
Interest expense, net
Loss on extinguishment of debt
Joint venture equity income
Other income, net
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Year Ended December 31,
2017
$ 3,598,484
2,513,857
510,075
81,112
493,440
(153,925)
(1,012)
2,580
36,530
377,613
128,037
249,576
$
2016
$ 3,373,387
2,287,662
626,153
—
459,572
(158,251)
(3,683)
2,780
27,617
328,035
86,645
241,390
$
2015
$ 2,960,896
1,944,050
557,077
—
459,769
(173,298)
(38,783)
14,842
91,377
353,907
119,352
234,555
$
43
Years Ended December 31, 2017 and 2016
Revenue
Travel Network
Airline and Hospitality Solutions
Total segment revenue
Eliminations
Total revenue
Year Ended December 31,
2017
2016
(Amounts in thousands)
Change
$ 2,550,470
1,074,360
3,624,830
(26,346)
$ 3,598,484
$ 2,374,849
1,019,306
3,394,155
(20,768)
$ 3,373,387
$
$
175,621
55,054
230,675
(5,578)
225,097
7%
5%
7%
27%
7%
rr
Travel
kk
Network—Re
venue increased $176 million, or 7%, for the year ended December 31, 2017 compared to the prior year.
The increase in revenue primarily resulted from a $178 million increase in transaction-based revenue to $2,377 million, mainly due
to an increase in Direct Billable Bookings of 4% to 525 million and growth in the average booking fee rate in the year ended
December 31, 2017.
Airline and Hospitality Solutions—Revenu
ss
e increased $55 million, or 5%, for the year ended December 31, 2017 compared
to the prior year. The increase in revenue primarily resulted from:
•
•
•
•
a $13 million increase in Airline Solutions’ SabreSonic revenue for the year ended December 31, 2017 compared
to the prior year, driven by passengers boarded growth of 6% on a consistent carrier basis and the cut-over of
Alitalia to SabreSonic CSS in the fourth quarter of 2016. Total passengers boarded decreased by 2% to 772
million for the year ended December 31, 2017, driven primarily by the termination of an agreement with Southwest
Airlines related to services and processing for their legacy air reservation system in the second quarter of 2017,
which was at a lower than average passengers boarded rate;
a $14 million increase in Airline Solutions’ commercial and operations solutions revenue driven by growth in
multiple products across our portfolio;
a $34 million increase in Hospitality Solutions revenue to $258 million for the year ended December 31, 2017
compared to the prior year, primarily driven by an increase in CRS transaction revenue from new and existing
customers; and
a $6 million decrease in discrete professional service fees revenue, as a result of reduced sales compared to
the prior period.
Cost of Revenue
Travel Network
Airline and Hospitality Solutions
Eliminations
Total segment cost of revenue
Corporate
Depreciation and amortization
Amortization of upfront incentive consideration
Total cost of revenue
Year Ended December 31,
2017
2016
(Amounts in thousands)
Change
$ 1,423,242
582,022
(26,346)
1,978,918
149,716
317,812
67,411
$ 2,513,857
$ 1,279,231
576,786
(20,371)
1,835,646
108,939
287,353
55,724
$ 2,287,662
$
$
144,011
5,236
(5,975)
143,272
40,777
30,459
11,687
226,195
11%
1%
29%
8%
37%
11%
21%
10%
rr
Travel
kk
Network—Cost
of revenue increased $144 million, or 11%, for the year ended December 31, 2017 compared to the
prior year, primarily as a result of an increase in incentive consideration of 4% due to growth in booking volumes driven by organic
growth and new customer conversions, and a higher incentive rate per booking in all regions, partially offset
by a decrease in the
region due to the renegotiation of an out of market agreement with a travel agency. See Note 2. Acquisitions, to our consolidated
APACPP
financial statements for additional information.
ff
Airline and Hospitality Solutions—Cost
of revenue increased $5 million, or 1%, for the year ended December 31, 2017
compared to the prior year, primarily due to an increase in transaction related costs to support the growth in the Hospitality Solutions
business, which was partially offset
by a reduction in headcount expenses.
ss
ff
44
Corporate—Cost of revenue associated with corporate costs increased $41 million, or 37%, for the year ended December 31,
2017 compared to the prior year, primarily due to higher shared technology infrastructure and labor costs.
Depreciation and amortization—Cost of revenue associated with depreciation and amortization increased $30 million, or
11%, for the year ended December 31, 2017 compared to the prior year primarily due to the completion and amortization of software
developed forff
internal use.
Amortization of upfront incentive consideration—Amortization of upfront incentive consideration increased $12 million, or
21%, for the year ended December 31, 2017 compared to the prior year primarily due to an increase in upfront consideration
provided to travel agencies.
Selling, General and Administrative Expenses
Year Ended December 31,
2017
2016
Change
Selling, general and administrative
$
(Amounts in thousands)
510,075
$
626,153
$ (116,078)
(19)%
Selling, general and administrative expenses (“SG&A”) decreased by $116 million, or 19%, for the year ended December 31,
2017 compared to the prior year due to a decrease in amortization expense of $45 million due to the completion in the first quarter
of 2017 of amortization of certain intangible assets from the take-private transaction in 2007 and a $43 million reimbursement, net
of accrued legal and related expenses, from a settlement in 2017 with our insurance carriers with respect to the American Airlines
litigation. Litigation costs also declined in 2017 compared to 2016 due to the accrual of $32 million in 2016 for the US Airways
litigation, which represents the trebling of the jury award plus our estimate of attorneys’ fees, expenses and costs (see Note 15.
Commitments and Contingencies, to our consolidated financial statements), offset
by $6 million of insurance reimbursements.
ff
Impairment and related charges
Impairment and related charges
Year Ended December 31,
2017
2016
(Amounts in thousands)
81,112
$
$
Change
— $
81,112
100%
During the year ended December 31, 2017, we recorded an impairment charge of $81 million associated with net capitalized
contract costs related to an Airline Solutions' customer, Air Berlin, based on our analysis of the recoverability of such amounts. See
Note 4. Impairment and Related Charges, to our consolidated financial statements for additional information.
Other income, net
Other income, net
Year Ended December 31,
2017
2016
(Amounts in thousands)
(36,530) $
(27,617) $
$
Change
(8,913)
(32)%
Other income, net increased $9 million, or 32%, for the year ended December 31, 2017 compared to the prior year. In 2017,
we recognized a benefit of $60 million associated with a reduction to our TRA liability, primarily due to a provisional adjustment
resulting from the enactment of TCJA, which reduced the U.S. corporate income tax rate. See Note 7. Income Taxes, to our
consolidated financial statements. This increase was offset
by a $15 million loss related to debt modification costs associated with
our debt refinancing in the first and third quarter of 2017 and realized and unrealized foreign currency exchange losses for the year
ended December 31, 2017. In 2016, we recognized a gain from sale of available-for-sale securities of $15 million, receipt of an
earn-out payment of $6 million associated with the sale of a business in 2013, and realized and unrealized foreign currency exchange
gains.
ff
45
Provision for Income Taxes
Year Ended December 31,
2017
2016
Change
Provision for income taxes
$
(Amounts in thousands)
128,037
$
86,645
$
41,392
48%
tax rates for the years ended December 31, 2017 and 2016 were 33.9% and 26.4%, respectively. The increase
Our effective
ff
in the effective
tax rate for the year ended December 31, 2017 as compared to the prior year is primarily due to the net tax effect
ff
of the enactment of the TCJA, and a reduction in excess tax benefits associated with employee equity-based awards, partially offset
by the tax on the gain from the 2016 sale of available-for-sale securities. See Note 1. Summary of Business and Significant Accounting
Policies, to our consolidated financial statements for additional information.
ff
ff
The differences
ff
between our effective
ff
tax rates and the U.S. federal statutory income tax rate primarily result from our
geographic mix of taxable income in various tax jurisdictions as well as the discrete tax items referenced above.
46
Years Ended December 31, 2016 and 2015
Revenue
Travel Network
Airline and Hospitality Solutions
Total segment revenue
Eliminations
Total revenue
Year Ended December 31,
2016
2015
(Amounts in thousands)
Change
$ 2,374,849
1,019,306
3,394,155
(20,768)
$ 3,373,387
$ 2,102,792
872,086
2,974,878
(13,982)
$ 2,960,896
$
$
272,057
147,220
419,277
(6,786)
412,491
13%
17%
14%
49%
14%
Travel
rr
kk
Network—Re
venue increased $272 million, or 13%, for the year ended December 31, 2016 compared to the prior
year. The increase in revenue primarily resulted from:
•
•
a $312 million increase in transaction-based revenue to $2,199 million due to growth in the business and the
impact of the acquisition of Abacus in 2015. Direct Billable Bookings increased by 14% to 505 million in the year
ended December 31, 2016. Excluding the impact of the acquisition of Abacus, Direct Billable Bookings increased
by 3%, which was driven by growth of 6% in EMEA, 3% in North America and 1% in Latin America;
a decrease of $40 million in other revenue resulting from a $51 million decrease in other revenue related to
services we provided to Abacus prior to the acquisition in July 2015, offset
by an increase of $11 million primarily
due to data analytic products revenue.
ff
Airline and Hospitality Solutions—Revenu
ss
e increased $147 million, or 17%, for the year ended December 31, 2016
compared to the prior year. The increase in revenue primarily resulted from:
•
•
•
•
a $66 million increase in Airline Solutions’ SabreSonic revenue for the year ended December 31, 2016 compared
to the prior year. Passengers boarded increased by 35% to 789 million for the year ended December 31, 2016,
driven primarily by the cutover to SabreSonic CSS for American Airlines Group and Alitalia in the fourth quarter
of 2015 and 2016, respectively, and by growth of existing customers. Revenue increased by $105 million primarily
as a result of growth in PBs for the year ended December 31, 2016. This increase was partially offset
by a $39
million decrease in non-PB revenue, primarily due to the expiration of a service contract in the fourth quarter of
2015 in conjunction with a litigation settlement agreement with that customer in 2012. In addition, in the last part
of 2016, implementation schedules for several airlines were delayed to future years;
ff
a $32 million increase in Airline Solutions’ commercial and operations solutions revenue driven by growth in
multiple products across our portfolio;
a $66 million increase in Hospitality Solutions revenue to $225 million for the year ended December 31, 2016
compared to the prior year, primarily driven by an increase in CRS transactions. The increase was mainly driven
by revenue growth of $26 million from new and existing customers and revenue growth of $40 million from the
acquisition of the Trust Group; and
a $17 million decrease in discrete professional service fees revenue, as a result of certain unrealized customer
contracts.
Cost of Revenue
Travel Network
Airline and Hospitality Solutions
Eliminations
Total segment cost of revenue
Corporate
Depreciation and amortization
Amortization of upfront incentive consideration
Total cost of revenue
Year Ended December 31,
2016
2015
(Amounts in thousands)
Change
$ 1,279,231
576,786
(20,371)
1,835,646
108,939
287,353
55,724
$ 2,287,662
$ 1,128,878
487,282
(13,653)
1,602,507
53,487
244,535
43,521
$ 1,944,050
$
$
150,353
89,504
(6,718)
233,139
55,452
42,818
12,203
343,612
13%
18%
49%
15%
104%
18%
28%
18%
47
rr
Travel
kk
Network—Cost
of revenue increased $150 million, or 13%, for the year ended December 31, 2016 compared to the
prior year. The increase was primarily the result of costs associated with Abacus' operations, an increase in incentive consideration
primarily in EMEA and North America, and a $7 million impairment of a prepaid incentive for a European travel agency due its
insolvency.
Airline and Hospitality Solutions—Cost
of revenue increased $90 million, or 18%, for the year ended December 31, 2016
compared to the prior year. The increase was primarily the result of higher transaction-related expenses, driven by growth in
transaction volumes and an increase in headcount-related costs, which included the impact the of the Trust Group acquisition.
ss
Corporate—Cost of revenue associated with corporate costs increased $55 million, or 104%, for the year ended December 31,
2016 compared to the prior year. The increase was primarily due to higher shared technology infrastructure and labor costs, stock-
based compensation expense, and other headcount-related costs, including a $12 million charge to implement a plan to restructure
a portion of our global workforce in support of funding our efforts
to modernize our technology infrastructure, as well as to align and
improve our operational efficiency
to reflect expected changes by customers on implementation schedules for certain of Airline
Solutions products. We expect that incremental costs will continue to rise as we increase investment in the modernization, stability
and security of our technology platforms, including accelerating the adoption of cloud and open architecture systems.
ff
ff
Depreciation and amortization—Cost of revenue associated with depreciation and amortization increased $43 million, or
18%, for the year ended December 31, 2016 compared to the prior year. The increase was primarily due to the completion and
amortization of software developed for internal use and additional amortization of capitalized implementation costs. We also incurred
an increase in amortization of definite-lived intangible assets associated with the acquisition of Abacus, the Trust Group and Airpas
Aviation.
Amortization of upfront incentive consideration—Amortization of upfront incentive consideration increased $12 million, or
28%, for the year ended December 31, 2016 compared to the prior year primarily due to an increase in upfront consideration
provided to travel agencies during 2016 and second half of 2015. This increase includes an impairment of $2 million of upfront
incentive consideration in 2016 provided to a European travel agency due to its insolvency.
Selling, General and Administrative Expenses
Year Ended December 31,
2016
2015
Change
Selling, general and administrative
$
(Amounts in thousands)
626,153
$
557,077
$
69,076
12%
to modernize our technology infrastructure, as well as to align and improve our operational efficiency
Selling, general and administrative expenses (“SG&A”) increased by $69 million, or 12%, for the year ended December 31,
2016 compared to the prior year. This increase is primarily due to a $40 million increase in headcount-related expenses driven by
the acquisitions of Abacus and the Trust Group, an increase in stock-based compensation of $11 million, and other headcount-
related costs, including a $8 million charge to implement a plan to restructure a portion of our global workforce in support of funding
our efforts
to reflect expected
ff
changes by customers on implementation schedules for certain of Airline Solutions products. Depreciation and amortization
expenses increased $18 million due to the amortization of intangible assets obtained in the acquisition of Abacus in 2015, and the
Trust Group and Airpas Aviation acquisitions earlier this year. Litigation costs increased primarily due to the accrual of $32 million
for the US Airways litigation, which represents the trebling of the jury award plus our estimate of attorneys’ fees, expenses and
costs (See Note 15. Commitments and Contingencies), offset
by $6 million of insurance reimbursements. Additionally, acquisition-
related costs decreased by $14 million due to the acquisition of Abacus in 2015.
ff
ff
Interest Expense, net
Year Ended December 31,
2016
2015
Change
Interest expense, net
$
(Amounts in thousands)
158,251
$
173,298
$
(15,047)
(9)%
Interest expense, net, decreased $15 million, or 9%, for the year ended December 31, 2016 compared to the prior year. The
interest rate from the extinguishment of our 8.5% senior secured notes due
decrease was primarily the result of a lower effective
2019 in April 2015 and the partial extinguishment of our 8.35% senior unsecured notes due 2016 in December 2015, funded by
the issuance of our 5.375% and 5.25% senior secured notes due 2023, respectively. Our senior unsecured notes due 2016 fully
matured in March 2016. The decrease in our effective
by an increase in average debt outstanding
compared to the same period in the prior year, the impacts of our interest rate swaps and an increase in amortization of debt
issuance costs.
interest rate was partially offset
ff
ff
ff
48
Loss on Extinguishment of Debt
Year Ended December 31,
2016
2015
(Amounts in thousands)
Change
Loss on extinguishment of debt
$
3,683
$
38,783
$
(35,100)
(91)%
Loss on extinguishment of debt decreased by $35 million, or 91%, for the year ended December 31, 2016 compared to
the same period in prior year. We recognized a loss on extinguishment of debt of $4 million due to the prepayment of a portion of
Term Loan B in July 2016. In 2015, as a result of the extinguishment of our senior secured notes due 2019 and the prepayment on
our senior unsecured notes due 2016, we recognized losses on extinguishment of debt of $33 million and $6 million, respectively.
Joint Venture Equity Income
Joint venture equity income
$
2,780
$
14,842
$
(12,062)
(81)%
On July 1, 2015, we acquired the remaining 65% of SAPPL, which represented the majority of our joint venture income
for the year ended December 31, 2015. We do not expect significant joint venture income subsequent to this acquisition.
Year Ended December 31,
2016
2015
(Amounts in thousands)
Change
Other Income, Net
Other income, net
Year Ended December 31,
2016
2015
(Amounts in thousands)
(27,617) $
(91,377) $
$
Change
63,760
(70)%
Other income, net decreased $64 million, or 70%, for the year ended December 31, 2016 compared to the prior year, primarily
due to the acquisition of Abacus. We recognized a gain from sale of available-for-sale securities of $15 million, receipt of an earn-
out payment of $6 million associated with the sale of a business in 2013, and realized and unrealized foreign currency exchange
gains for the year ended December 31, 2016. In 2015, we recognized a gain of $78 million as a result of the remeasurement of our
previously-held 35% equity interest in SAPPL to its fair value as of the acquisition date. In addition, we recognized a gain of $12 million
during the year ended December 31, 2015 associated with the settlement of a pre-existing agreement between us and SAPPL
related to data processing services.
Provision for income taxes
Year Ended December 31,
2016
2015
Change
Provision for income taxes
$
(Amounts in thousands)
86,645
$
119,352
$
(32,707)
(27)%
Our effective
ff
tax rates for the years ended December 31, 2016 and 2015 were 26.4% and 33.7%, respectively. The decrease
tax rate for the year ended December 31, 2016 as compared to the prior year is primarily due to the recognition of
ff
in the effective
excess tax benefits on employee equity-based awards not previously recognized, due to the adoption of the new accounting
standard, ASU 2016-09, offset
by tax on the gain from sale of available-for-sale securities. See Note 1. Summary of Business and
Significant Accounting Policies, to our consolidated financial statements for additional information.
ff
The differences
ff
between our effective
ff
tax rates and the U.S. federal statutory income tax rate primarily result from our
geographic mix of taxable income in various tax jurisdictions as well as the discrete tax items referenced above.
49
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 $400 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, 2017 and 2016, our cash and cash equivalents,
Revolver and outstanding letters of credit were as follows (in thousands):
Cash and cash equivalents
Available balance under the Revolver
Reductions to the Revolver:
Revolver outstanding balance
Outstanding letters of credit
As of December 31,
2017
2016
$
361,381
378,542
$
364,114
365,006
—
21,458
—
34,994
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, 2017
and 2016.
As a result of the enactment of the TCJA, we recorded a provisional one-time transition tax of $48 million on the undistributed
earnings of our foreign subsidiaries, and we do not consider these undistributed earnings to be indefinitely reinvested as of December
31, 2017. We consider the undistributed capital investments in our foreign subsidiaries to be indefinitely reinvested as of December
31, 2017, and therefore we have not recorded deferred tax related to those undistributed capital investments. Our cash, cash
equivalents and marketable securities held by our foreign subsidiaries are available to satisfy domestic liquidity needs arising in
the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.
Liquidity Outlook
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, share repurchases 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.”
We utilize cash and cash equivalents, supplemented by our Revolver, primarily to pay our operating expenses, make capital
pay quarterly dividends on our common stock, make payments under the TRA,
expenditures, invest in our products and offerings,
and service our debt and other long-term liabilities. Furthermore, on an ongoing basis, we will evaluate and consider strategic
acquisitions, divestitures, joint ventures, repurchasing shares of our common stock (including pursuant to the multi-year $500 million
Share Repurchase Program) or our outstanding debt obligations in open market or in privately negotiated transactions, as well as
other transactions we believe may create stockholder value or enhance financial performance. These transactions may require
cash expenditures or generate proceeds and, to the extent they require cash expenditures, may be funded through a combination
of cash on hand, debt or equity offerings,
or utilization of our Revolver.
ff
ff
We believe that cash flows from operations, cash and cash equivalents on hand and our Revolver provide adequate liquidity
for our operational and capital expenditures and other obligations over the next twelve months. We may supplement our current
liquidity through debt or equity offerings
to support future strategic investments, or to pay down debt. We are reviewing opportunities
to reprice the Term Loan A, Term Loan B, and Revolver, depending on market conditions. We funded TRA payments of $101 million,
including interest, due in January of 2017 with cash on hand. We expect to fund future TRA payments through a combination of
cash on hand, utilization of our Revolver or debt offerings.
ff
ff
50
Dividends
During the year ended December 31, 2017, we paid quarterly cash dividends on our common stock totaling $155 million
and expect to continue to pay quarterly cash dividends thereafter. Our board of directors has declared a cash dividend of $0.14 per
share of our common stock, which will be paid on March 30, 2018 to stockholders of record as of March 21, 2018. We funded the
2017 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
Term Facility Amendment and Swaps Designations
In August 2017, Sabre GLBL conducted the 2017 Refinancing to refinance and modify the terms of the 2017 Term Loan B,
the 2016 Term Loan A and the 2016 Revolver (as defined in "—Senior Secured Credit Facilities"), resulting in a reduction of the
applicable margins for each of these instruments and approximately a one-year extension of the maturity of the Term Loan A and
Revolver (as defined in "—Senior Secured Credit Facilities"). We incurred no additional indebtedness as a result of the 2017
Refinancing.
In February 2017, pursuant to the 2017 Term Facility Amendment (as defined in "—Senior Secured Credit Facilities"), we
replaced $1,753 million of outstanding debt principal as of December 31, 2016, with $1,900 million of new debt principal maturing
in February 2024. The proceeds of the new debt issuance were used to pay offff certain existing classes of outstanding term loan
facilities (other than the 2016 Term Loan A), pay associated financing fees, repay the outstanding mortgage on our corporate
headquarters and for other general corporate purposes. See "—Senior Secured Credit Facilities."
Since our periodic interest payments due on the expired and new debt described above are based on a variable interest
rate, we manage our exposure to the variability in our cash flows by entering into pay-fixed, receive-variable interest rate swap
convert our floating rate debt to
agreements (“swaps”) with counterparties. These swaps are derivative instruments that effectively
a fixed rate instrument. When we meet the relevant criteria, we apply hedge accounting to the swaps, which are recorded at fair
value on the balance sheet with the adjustments to fair value recorded in other comprehensive income. When we do not meet the
criteria to apply hedge accounting, the adjustments to fair value of the swaps are recorded directly in earnings each period.
ff
In connection with the 2017 Term Facility Amendment, we discontinued hedge accounting on existing swaps and applied
hedge accounting to new swaps entered into as a hedge of the variability of cash flows on the newly issued debt. In order to manage
our exposure to earnings volatility from the interest rate swaps for which we discontinued hedge accounting, we entered into
additional offsetting
pay-variable, receive-fixed swaps to which we also do not apply hedge accounting. See Note 9. Derivatives,
to our consolidated financial statements.
ff
Political and Economic Environment in Venezuela
ff
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.
Certain airlines have scaled back operations in response to the reduced demand for travel in conjunction with the political and
economic uncertainty as well as the currency controls which has impacted our airline customers in Venezuela. During the year
ended December 31, 2017, we collected $2 million from customers in Venezuela, all of which was outstanding as of December 31,
2016. Accounts receivable outstanding from customers in Venezuela totaled $25 million as of December 31, 2017. In 2017 and
early 2018, we discontinued services to certain carriers in Venezuela with outstanding receivable balances of $17 million as of
December 31, 2017. We do not believe that these amounts are collectible, and these amounts are fully reserved.
Share Repurchase Program
In February 2017, our Board approved a $500 million multi-year Share Repurchase Program. Repurchases under the program
may take place in the open market or privately negotiated transactions. For the year ended December 31, 2017, we repurchased
5,779,769 shares totaling $109 million pursuant to the Share Repurchase Program. See Item 5. "Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
51
Capital Expenditures
Capitalized costs associated with software developed for internal use represent a significant portion of our capital expenditures
and we expect such costs to increase as we continue to make significant investments in our information technology infrastructure
to modernize our architecture, drive efficiency
in development and ongoing technology costs, further enhance the stability and
security of our network, and comply with data privacy regulations. During the year ended December 31, 2017, we incurred $316
million of capital expenditures, which includes $251 million related to software developed for internal use. In 2018, we expect capital
expenditures to range from approximately $305 million to $325 million.
ff
Senior Secured Credit Facilities
In February 2013, Sabre GLBL entered into 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 “2013 Term Loan B”) and $425 million (the “2013 Term
Loan C”) and (ii) the existing revolving credit facility with a new revolving credit facility of $352 million (the “2013 Revolver”). In
September 2013, Sabre GLBL entered into an agreement to amend the Amended and Restated Credit Agreement to add a new
class of term loans in the amount of $350 million (the “2013 Incremental Term Loan Facility”).
In July 2016, Sabre GLBL entered into a series of amendments (the “Credit Agreement Amendments”) to our Amended and
Restated Credit Agreement to provide for an incremental term loan under a new class with an aggregate principal amount of $600
million (the “2016 Term Loan A”) and to replace the 2013 Revolver with a new revolving credit facility totaling $400 million (the “2016
Revolver”). The proceeds of $597 million, net of $3 million discount, from the 2016 Term Loan A were used to repay $350 million
of outstanding principal on our 2013 Term Loan B and 2013 Incremental Term Loan Facility, on a pro rata basis, repay the $120
million then-outstanding balance on the 2016 Revolver, and pay $11 million in associated financing fees. We recognized a $4 million
loss on extinguishment of debt during the year ended December 31, 2016 in connection with these transactions.
On February 22, 2017, Sabre GLBL entered into a Third Incremental Term Facility Amendment to our Amended and Restated
Credit Agreement (the “2017 Term Facility Amendment”). The new agreement replaced the 2013 Term Loan B, 2013 Incremental
Term Loan Facility and 2013 Term Loan C with a single class of term loan (the "2017 Term Loan B") with an aggregate principal
amount of $1,900 million maturing on February 22, 2024. The proceeds of $1,898 million, net of $2 million discount on the 2017
Term Loan B, were used to pay offff approximately $1,761 million of all existing classes of outstanding term loans (other than the
2016 Term Loan A), pay related accrued interest and pay $12 million in associated financing fees, which were recorded as debt
modification costs in Other, net in the consolidated statement of operations during the year ended December 31, 2017. The remaining
proceeds of the 2017 Term Loan B were used to pay offff approximately $80 million of Sabre’s outstanding mortgage on its corporate
headquarters on March 31, 2017 and for other general corporate purposes. Unamortized debt issuance costs and discount related
to existing classes of outstanding term loans prior to the 2017 Term Facility Amendment of $9 million and $3 million, respectively,
will continue to be amortized over the remaining term of the Term Loan B along with the Term Loan B discount of $2 million. See
Note 9. Derivatives, to our consolidated financial statements for information regarding the discontinuation of hedge accounting
related to our existing interest rate swaps as a result of the 2017 Term Facility Amendment.
On August 23, 2017, Sabre GLBL entered into a Fourth Incremental Term Facility Amendment to our Amended and Restated
Credit Agreement, Term Loan A Refinancing Amendment to the Credit Agreement, and Second Revolving Facility Refinancing
Amendment to the Credit Agreement to refinance and modify the terms of the 2017 Term Loan B, the 2016 Term Loan A, and the
2016 Revolver, resulting in a reduction of the applicable margins for each of these instruments and approximately a one-year
extension of the maturity of the 2016 Term Loan A and 2016 Revolver (the “2017 Refinancing”). We incurred no additional
indebtedness as a result of the 2017 Refinancing. The 2017 Refinancing included a $400 million revolving credit facility ("Revolver")
that replaced the 2016 Revolver, as well as the application of the proceeds of the approximately $1,891 million incremental Term
Loan B facility (“TermTT
Loan A”) to replace the 2017 Term Loan B and the 2016
Term Loan A. The maturity of the Revolver and the Term Loan A was extended from July 18, 2021 to July 1, 2022. The applicable
margins for the Term Loan B were reduced to 2.25% per annum for Eurocurrency rate loans and 1.25% per annum for base rate
loans. The applicable margins for the Term Loan A and the Revolver were reduced to (i) between 2.50% and 1.75% per annum for
Eurocurrency rate loans and (ii) between 1.50% and 0.75% per annum for base rate loans, in each case with the applicable margin
for any quarter reduced by 25 basis points (up to 75 basis points total) if the Senior Secured First-Lien Net Leverage Ratio (as
defined in the Amended and Restated Credit Agreement) is less than 3.75 to 1.0, 3.00 to 1.0, or 2.25 to 1.0, respectively. The
applicable interest rate margins opened at 2.25% per annum for Eurocurrency rate loans and 1.25% per annum for base rate loans
until November 2, 2017.
Loan B”) and $570 million Term Loan A facility (“TermTT
We had no balance outstanding under the Revolver as of December 31, 2017 and as of December 31, 2016. We had
outstanding letters of credit totaling $21 million and $35 million as of December 31, 2017 and December 31, 2016, respectively,
which reduced our overall credit capacity under the Revolver.
52
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 leverage ratio. Pursuant to Credit Agreement Amendments,
effective
July 18, 2016, the maximum leverage ratio has been adjusted to be based on the Total Net Leverage Ratio (as defined in
the Amended and Restated Credit Agreement) and we are required, at all times (no longer solely when a threshold amount of
revolving loans or letters of credit were outstanding), to maintain a Total Net Leverage Ratio of less than 4.5 to 1.0.
ff
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. This percentage requirement may decrease or be eliminated if certain leverage ratios
are achieved. Based on our results for the year ended December 31, 2017, we were not required to make an excess cash flow
payment in 2018. 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.
Tax Receivable Agreement
ff
Immediately prior to the closing of our initial public offering,
we entered into the TRA that provides the Pre-IPO Existing
Stockholders (as defined in Note 7. Income Taxes, to our consolidated financial statements) the right to receive future payments
from us. The future payments will equal 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 the Pre-IPO Tax Assets (as defined in Note 7. Income Taxes, to our consolidated
financial statements). 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 Pre-IPO Tax Assets will total
$170 million, excluding interest. This amount is included in other noncurrent liabilities in our consolidated balance sheet as of
December 31, 2017 and is expected to be paid over the next three years. In the fourth quarter of 2017, we recorded a reduction of
$60 million in the TRA liability primarily due to a provisional adjustment resulting from the enactment of the TCJA, which reduced
the U.S. corporate income tax rate. See “Recent Developments Affecting
our Results of Operations” for additional information on
of the enactment of the TCJA. The TRA payments accrue interest in accordance with the terms of the TRA
the expected effects
subsequent to the tax year in which the tax benefits are realized through the date of the benefit payment. No material payments
occurred in 2016 and we made payments of $60 million and $101 million, including interest, in January 2018 and 2017, respectively.
The estimate of future payments considers the impact of Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), which imposes an annual limit on the ability of a corporation that undergoes an ownership change to use its net operating
loss carryforwards ("NOLs") to reduce its liability. We do not anticipate any material limitations on our ability to utilize U.S. federal
NOLs under Section 382 of the Code.
ff
ff
ff
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 7. 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
of delaying, deferring or preventing certain mergers, asset sales, other forms of business
our liquidity and could have the effect
timing rules will apply to payments under the TRA to be made to holders that,
combinations or other changes of control. Different
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 (a) interest accrued on
these payments from the scheduled payment date to the distribution date, and (b) 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
are subject to vesting on the same schedule as such holder’s unvested stock
prior to the completion of the initial public offering
options.
ff
ff
ff
ff
ff
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.
53
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.
ff
Because Sabre Corporation, on an unconsolidated basis, is a holding company with no operations of its own, its ability to
make payments under the TRA is dependent on the ability of its subsidiaries to make distributions to Sabre Corporation. 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
our federal taxable income. As a result, stockholders who are not Pre-IPO Existing Stockholders will not be entitled to the
to offset
ff
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).
ff
Cash Flows
Operating Activities
Cash provided by operating activities for the year ended December 31, 2017 was $678 million and consisted of net income
from continuing operations of $250 million, adjustments for non-cash and other items of $626 million and a decrease in cash from
changes in operating assets and liabilities of $198 million. The adjustments for non-cash and other items consist primarily of $401
million of depreciation and amortization, $81 million of impairment and related charges, $67 million in amortization of upfront incentive
consideration, $45 million of stock-based compensation expense, $49 million of deferred income taxes and $15 million of debt
modification costs, partially offset
by $60 million reduction to our liability under the TRA primarily due to a provisional adjustment
resulting from the enactment of TCJA which reduced the U.S. corporate income tax rate in December 2017. The decrease in cash
from changes in operating assets and liabilities of $198 million was primarily the result of a $109 million increase in accounts
receivable partially due to a $29 million receivable related to an insurance settlement, $94 million used for upfront incentive
consideration, $61 million used for capitalized implementation costs, and a $21 million increase in other assets. These were partially
offset
by an increase of $67 million in accounts payable and accrued subscriber incentives, an increase of $14 million in deferred
revenue primarily due to upfront solution fees and an increase of $6 million in accrued compensation and related benefits.
ff
ff
Cash provided by operating activities for the year ended December 31, 2016 was $699 million and consisted of net income
from continuing operations of $241 million, adjustments for non-cash and other items of $557 million and a decrease in cash from
changes in operating assets and liabilities of $99 million. The adjustments for non-cash and other items consist primarily of $414
million of depreciation and amortization, $56 million in amortization of upfront incentive consideration, $49 million of stock-based
compensation expense, and $48 million of deferred income taxes, partially offset
by $26 million of litigation-related credits. The
decrease in cash from changes in operating assets and liabilities of $99 million was primarily the result of $83 million used for
capitalized implementation costs, $71 million used for upfront incentive consideration, a $13 million increase in accounts receivable,
and a $12 million increase in prepaid expenses and other assets. These decreases were partially offset
by an increase of $57
million in accounts payable and other accrued liabilities and an increase of $23 million in deferred revenue primarily due to upfront
solution fees.
ff
ff
Cash provided by operating activities for the year ended December 31, 2015 was $529 million and consisted of net income
from continuing operations of $235 million, adjustments for non-cash and other items of $455 million and a decrease in cash from
changes in operating assets and liabilities of $160 million. The adjustments for non-cash and other items consist primarily of $351
million of depreciation and amortization, $97 million of deferred taxes, $44 million in amortization of upfront incentive consideration,
$39 million loss on extinguishment of debt, $30 million of stock-based compensation and a $29 million dividend received from
SAPPL prior to the acquisition; partially offset
by the $78 million gain on the remeasurement of our previously-held interest in Abacus
and $61 million of litigation-related credits. The decrease in cash from changes in operating assets and liabilities was primarily the
result of a $67 million increase in other assets, mainly driven by deferred customer discounts, $64 million used for upfront incentive
consideration and $63 million used for capitalized implementation costs; partially offset
by an increase in accrued compensation
and related benefits of $18 million and a decrease in accounts and other receivables of $11 million.
ff
ff
Investing Activities
For the year ended December 31, 2017, we used cash of $316 million on capital expenditures, which includes $251 million
related to software developed forf
internal use.
For the year ended December 31, 2016, we used cash of $164 million for the acquisition of the Trust Group and Airpas
internal use. The
by proceeds received from the sale of our available-for-sale securities of $46 million.
Aviation and $328 million on capital expenditures, which includes $284 million related to software developed forff
use of cash from investing activities was offset
ff
54
For the year ended December 31, 2015, we used cash of $442 million to acquire Abacus and $287 million on capital
expenditures, which includes $233 million related to software developed for internal use.
Financing Activities
For the year ended December 31, 2017, we used $357 million for financing activities. Significant highlights of our financing
activities included:
•
•
•
•
•
•
•
receipt of proceeds totaling $1,898 million (net of $2 million discount) in February 2017 from the 2017 Term Loan B,
which were used to pay offff approximately $1,753 million of all existing classes of outstanding term loans (other than the
2016 Term Loan A) and $12 million in debt issuance costs. The remaining proceeds were used for purposes of repaying
approximately $80 million of Sabre's outstanding mortgage on its corporate headquarters, and for other general corporate
purposes;
payments totaling $48 million on the principal outstanding on our term loans;
pursuant to the 2017 Refinancing in August 2017, payment of $7 million in debt modification costs;
first annual payment in January 2017 on the TRA liability for $99 million, excluding interest;
payment of $155 million in dividends on our common stock; and
receipt of net proceeds totaling $13 million from the settlement of employee stock-option awards and payment of $11
million in income tax withholdings associated with the settlement of employee restricted-stock awards; and
repurchase of 5,779,769 shares of our common stock outstanding totaling $109 million.
For the year ended December 31, 2016, we used $190 million for financing activities. Significant highlights of our financing
activities included:
•
•
•
•
•
•
•
receipt of proceeds totaling $597 million (net of $3 million discount) from the 2016 Term Loan A and used a portion of
the proceeds to repay $350 million of outstanding principal on our 2013 Term Loan B and 2013 Incremental Term Loan
Facility;
payment of the remaining principal of $165 million on our senior secured notes due 2016, which matured in March 2016,
paid down $26 million of the term loan outstanding as part of quarterly principal repayments;
draws on our 2013 Revolver totaling $458 million and payments totaling $458 million resulting in no outstanding balance
as of December 31, 2016;
payment of $13 million for capital leases;
payment of $144 million in dividends on our common stock;
receipt of net proceeds of $27 million from the settlement of employee stock-option awards; and
repurchase of 3,980,672 shares of our common stock outstanding totaling $100 million.
For the year ended December 31, 2015, cash provided from financing activities totaled $93 million. Significant highlights of
our financing activities included:
•
•
•
•
•
in April 2015, issuance of $530 million of our 5.375% senior secured notes due in 2023 and use of the net proceeds of
$522 million to redeem all of the $480 million principal of our senior secured notes due 2019, pay a $31 million redemption
premium and $2 million make-whole premium;
in November 2015, issuance of $500 million of 5.25% senior secured notes due 2023 and use of the net proceeds of
$494 million to repay $235 million of the $400 million senior secured notes due 2016, pay a $5 million make-whole
premium and repurchase 3,400,000 shares of our common stock totaling $99 million;
payment of $21 million of the term loan outstanding as part of quarterly principal repayments;
payment of $99 million in dividends on our common stock; and
receipt of net proceeds of $47 million from the settlement of stock-based awards.
Discontinued Travelocity
rr
Business
Cash flows (used in) provided by discontinued operating activities was $(5) million, $(19) million, and less than $1 million
for the years ended December 31, 2017, 2016 and 2015, respectively. The cash flows used by discontinuing operations for the
year ended December 31, 2017 primarily resulted from expenses associated with legal contingencies related to hotel occupancy
taxes. See Note 15. Commitments and Contingencies, to our consolidated financial statements for additional information. The
increase in cash flows used by discontinued operating activities for the year ended December 31, 2016 compared to 2015 is primarily
due to a tax benefit associated with the resolution of uncertain tax positions. The cash flows provided by discontinued operating
activities in the year ended December 31, 2015 was primarily due to a $30 million refund received from the State of Hawaii associated
with a favorable ruling in hotel occupancy tax litigation, offset
by cash used to wind down the discontinued business.
ff
55
Cash flows provided by discontinued investing activities for the year ended December 31, 2015 totaled $279 million which
by $1 million in capital expenditures associated
consisted of $280 million in proceeds from the sale of Travelocity.com, partially offset
with lastminute.com prior to its sale.
ff
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 15. Commitments and Contingencies, to our consolidated financial statements,
regarding litigation and other contingencies associated with our discontinued Travelocity segment.
Contractual Obligations
As of December 31, 2017, our contractual obligations were as follows (in thousands):
Total debt(1)
Operating lease obligations(2)
IT outsourcing agreement(3)
Purchase orders(4)
Transition tax(5)
Letters of credit(6)
Unrecognized tax benefits(7)
Tax Receivable Agreement(8)
Total contractual cash obligations(9)
_______________________
__
Payments Due by Period
2018
$ 211,768
24,467
173,561
275,860
3,841
19,220
—
59,844
$ 768,561
2019
$ 214,957
20,872
144,108
6,413
3,841
2,083
—
—
$ 392,274
2020
$ 224,622
17,733
136,117
5,006
3,841
155
—
—
$ 387,474
2021
$ 216,701
14,189
122,365
402
3,841
—
—
—
$ 357,498
2022
$520,764
11,156
105,034
287
3,841
—
—
—
$641,082
Thereafter
$ 2,935,831
29,884
105,034
—
28,807
—
—
—
$ 3,099,556
Total
$ 4,324,643
118,301
786,219
287,968
48,012
21,458
92,508
234,059
$ 5,913,168
(1)
Includes all interest and principal of borrowings under our senior secured credit facilities, senior secured notes due 2023 and
capital lease obligations. 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 8. Debt, to our consolidated financial statements.
ff
(2) We lease approximately 1.5 million square feet of officeff
space in 117 locations in 54 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 in approximately 50 leases. We have no purchase options and no restrictions imposed by our leases
concerning dividends or additional debt.
(3) Represents minimum amounts due to DXC under the terms of an outsourcing agreement through which DXC manages a
significant portion of our information technology systems. Actual payments may vary significantly from the minimum amounts
presented.
(4) 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, 2017. 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.
(5) Represents the provisional amount payable on foreign earnings subject to U.S. income tax pursuant to the TCJA enacted on
December 22, 2017 (see Note 7. Income Taxes, to our consolidated financial statements). Amounts per year are estimates as
the Internal Revenue Service has not issued guidance on the timing of payments.
(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, 2017, 2016 and 2015.
(7) Unrecognized tax benefits include associated interest and penalties. The timing of related cash payments for substantially all
by factors which
of these liabilities is inherently uncertain because the ultimate amount and timing of such liabilities is affected
are variable and outside our control.
ff
(8) We paid $60 million, including interest, under our TRA in January 2018. See Note 7. Income Taxes, to our consolidated financial
statements and “—TaxTT Receivable Agreement.” The exact timing of future payments under the TRA is uncertain and dependent
on the timing of the realization of taxable income.
(9) Excludes pension obligations, see Note 14. Pension and Other Postretirement Benefit Plans, to our consolidated financial
statements.
Off Balance Sheet Arrangements
We had no offff balance sheet arrangements during the years ended December 31, 2017, 2016 and 2015.
56
Recent Accounting Pronouncements
ff
In August 2017, the Financial Accounting Standards Board ("FASB")
issued updated guidance to expand and simplify the
application of hedge accounting. The updated standard eliminates the requirement to separately measure and report hedge
ineffectiveness
and generally requires the entire change in the fair value of a hedging instrument to be presented in the same
income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and
modifies the accounting for components excluded from the assessment of hedge effectiveness.
The Accounting Standards Update
for annual periods beginning after December 15, 2018, with early adoption permitted. We do not expect that
("ASU") is effective
the adoption of this updated standard will have a material impact on our consolidated financial statements.
FF
ff
ff
In March 2017, the FASB issued updated guidance improving the presentation requirements related to reporting the service
cost component of net benefit costs to require that the service cost component be reported in the same line item or items as other
compensation costs arising from services rendered by the pertinent employees during the period, disaggregating the component
aspects of an employer's financial
from other net benefit costs. Net benefit cost is composed of several items, which reflect different
arrangements as well as the cost of benefits earned by employees. The updated guidance is effective
for fiscal years beginning
ff
after December 15, 2017, including interim periods within those annual periods for public business entities. We do not expect that
the adoption of this updated standard will have a material impact on our consolidated financial statements.
ff
In February 2016, the FASB issued updated guidance requiring organizations that lease assets—referred to as "lessees"—
to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases, when the lease
has a term of more than 12 months. The updated standard is effective
for public companies for fiscal years, and interim periods
ff
within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact of this standard on our
consolidated financial statements.
In January 2016, the FASB issued updated guidance on accounting for equity investments, financial liabilities under the fair
value option, and the presentation and disclosure for financial instruments. Under this updated standard, entities must measure
equity investments at fair value and recognize changes in fair value in net income. For equity investments without readily determinable
fair values, entities have the option to either measure these investments at fair value or at cost adjusted for changes in observable
prices less impairment. The updated guidance does not apply to equity method investments or investments in consolidated
subsidiaries. This new standard is effective
for public companies for annual periods, including interim periods, beginning after
December 15, 2017. We do not expect that the adoption of this updated standard will have a material impact on our consolidated
financial statements.
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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. In 2015, the FASB approved
to defer the effective
for annual and interim reporting periods beginning after
ff
December 15, 2017. We have adopted this new standard as of January 1, 2018 using the modified retrospective transition method
which will result in a cumulative adjustment as of the date of the adoption. We have substantially completed our evaluation of the
guidance and determined the key areas of impact on our financial results and are currently in the process of quantifying the impacts.
Our quantification of the impacts is ongoing and will not be finalized until the period of adoption. To date, our assessments have
identified the following anticipated impacts:
date of the new standard which is now effective
ff
• We do not expect significant changes to revenue recognition for our Travel Network and Hospitality Solutions businesses
• Our Airline Solutions business is expected to primarily be impacted by the new standard due to the following:
– Under current revenue recognition guidance, we recognize revenue related to license fee and maintenance
agreements ratably over the life of the contract. Under the new guidance, revenue for license fees will be recognized
upon delivery of the license and ongoing maintenance services will continue to be recognized ratably over the length
of the contract. For existing open agreements, this change will result in a beginning balance sheet adjustment and
reduced revenue in subsequent years from these agreements, and before the impact of new sales.
– Allocation of contract revenues among various products and solutions, and the timing of the recognition of those
revenues, will be impacted by agreements with tiered pricing or variable rate structures that do not correspond with
the goods or services delivered to the customer. For existing open agreements, this change will also result in a
beginning balance sheet adjustment and reduced revenue in subsequent years from these agreements.
– In the year of adoption, as a result of the new revenue recognition standard, the changes detailed above will result
in a significant beginning balance sheet adjustment and we preliminarily estimate our consolidated revenue could
be reduced by approximately $40 million to $50 million.
• Capitalization of incremental costs to obtain a contract (such as sales commissions), and recognition of these costs over
the contract period will result in the recognition of an asset on our balance sheet and will impact our Airline and Hospitality
Solutions segment. We currently expect that our results of operations will not be significantly impacted from the capitalization
of these incremental costs.
57
We anticipate that the impacts described above will result in a net reduction to our opening retained deficit as of January
1, 2018 of approximately $100 million to $130 million with a corresponding increase in current and long-term unbilled receivables,
contract assets and other assets. Implications to tax related accounts are not included in these estimated amounts.
Our assessment of each of the foregoing is ongoing and subject to finalization, such that the actual impact of the adoption
may differ
ff materially from the estimated ranges described above.
We are continuing to evaluate the impacts of the new guidance to our results of operations, current accounting policies,
processes, controls, systems and financial statement disclosures.
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
ff
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.
ff
ff
Our accounting policies that include significant estimates and assumptions include: (i) estimation for revenue recognition
and multiple-element arrangements, (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) the
evaluation of the recoverability of the carrying value of long-lived assets and goodwill, (vi) assumptions utilized to test recoverability
of capitalized implementation costs, (vii) amortization of deferred customer advances and discounts, and (vii) 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.
ff
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
the amounts presented in our financial statements. We have discussed the development,
estimates and assumptions would affect
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.
ff
ff
ff
Revenue Recognition and Multiple-Element Arrangements
Our agreements with customers of our Airline and Hospitality Solutions business may have multiple deliverables which
generally include software solutions through SaaS and hosted delivery, professional service fees and implementation services. In
addition, from time to time, we enter into agreements with customers to provide access to Travel Network’s GDS and, at or near
the same time, enter into a separate agreement to provide software solutions through SaaS and hosted delivery. Due to these
multiple-element arrangements, revenue recognition 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 professional and implementation services are generally performed in the early stages of the agreements. Access to our
GDS is provided over the full term of the contract. Software solutions through SaaS and hosted delivery are often not provided until
implementation services are completed. 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, access to our GDS and our professional service fees 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 a periodic basis to determine the range of selling prices for each product and
continuous
service. In making these judgments we analyze various factors, including competitive landscapes, value differentiators,
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. Revenue for professional service fees is generally recognized as the services are performed and revenue for
implementation services, access to our GDS and SaaS and hosted services is generally recognized on a transaction basis over
the term of the agreement.
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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-offff history
(average percentage of receivables written offff historically) and the length of time the receivables are past due.
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
cancellation 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.
ff
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.
ff
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,
contingent consideration, where applicable, and previously-held investment interests. 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, 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.
ff
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
earnings and could have a material effect
to the measurement period, changes in our estimates of such contingencies will affect
on our results of operations and financial position.
ff
ff
ff
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.
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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 quantitative assessment described below. If it is determined through the evaluation of events or circumstances that
the carrying value may not be recoverable, 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 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 by TPG and Silver Lake plus goodwill associated with acquisitions since that time. We have three reporting
units associated with our continuing operations: Travel Network, Airline Solutions and Hospitality Solutions.
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 years ended December 31, 2017 and 2016. Goodwill related to our reporting units totaled
$2.6 billion as of December 31, 2017. 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 forf
any of our reporting units.
Definite-lived intangible assets are assigned depreciable lives of two 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, 2017, 2016 and 2015.
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 10. Fair Value Measurements, to our consolidated financial statements.
Capitalized Implementation Costs
Capitalized implementation costs represents upfront costs to implement new customer contracts under our SaaS and hosted
revenue model. 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. We record an impairment charge for
the portion of the asset considered unrecoverable in the period identified, while considering the uncertainties associated with these
types of contracts and judgments made in estimating revenue and direct costs. During the year ended December 31, 2017, given
the substantial amount of uncertainty of reaching an agreement regarding the implementation of services pursuant to the contract
with a customer in our Airline Solutions business, we assessed recoverability of all balances with the customer which resulted in
an impairment charge totaling $81 million, which included related capitalized implementation costs. See Note 4. Impairment and
Related Charges, to our consolidated financial statements for additional information.
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Deferred Advances to Customers and 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 and estimated direct costs of the contract when a
significant event occurs that could impact the recoverability of the assets, such as a significant contract modification or early renewal
of contract terms. As noted above, we assessed recoverability of all balances with an Airline Solutions customer during the year
ended December 31, 2017, resulting in an impairment charge totaling $81 million, which included related deferred customer advances
and discounts. See Note 4. Impairment and Related Charges, to our consolidated financial statements for additional information.
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 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
and the implementation of tax planning strategies. A change in these assumptions could cause
of existing temporary differences
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.
ff
ff
ff
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 and other
non-US subsidiaries of $55 million and $72 million as of December 31, 2017 and 2016, respectively. Also it is more likely than not
that the benefit from certain U.S. state deferred tax assets will not be realized. As a result, we established and maintain a valuation
allowance on these U.S. state deferred tax assets of $4 million and $3 million as of December 31, 2017 and 2016, respectively.
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.
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As of December 31, 2017, we had approximately $548 million of NOLs for U.S. federal income tax purposes. As a result of
an ownership change during 2007 and 2015 (as defined in Section 382 of the Code which imposes an annual limit on the ability of
a corporation to use certain tax attributes), all of the U.S. tax NOLs and credit carryforwards are subject to an annual limitation on
their ability to be utilized. However, we expect that Section 382 will not limit our ability to fully realize the tax benefits. Approximately
$487 million of these NOLs 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, 2017 and 2016, we had a liability, including interest and penalty, of $97 million and $71 million,
respectively, for unrecognized tax benefits, of which $93 million and $71 million, respectively, would affect
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.
ff
our effective
ff
ff
ff
Loss Contingencies
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, 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. Changes in these factors could materially impact our results of
operations.
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ITEM 7A.
QUANTITATTT IVE AND QUALITATTT IVE 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, Revolver, 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, 2017, our exposure to interest rates relates primarily to our interest rate swaps, our senior secured debt
and our borrowings on our Revolver. 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, 2017, 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.
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In the fourth quarter of 2014, we entered into interest rate swaps that effectively
converted $750 million of floating interest
rate senior secured debt into a fixed rate obligation for 2016, 2017 and 2018. As a result of the 2017 Term Facility Amendment in
the first quarter of 2017, we discontinued hedge accounting for our existing swap agreements as of February 22, 2017 and entered
interest rate swaps that are not designated as hedging instruments. Additionally, in connection with the 2017 Term
into offsetting
ff
Facility Amendment, we entered into new forward starting interest rate swaps effective
March 31, 2017 through December 31, 2019
to hedge the interest payments associated with $750 million of the floating-rate 2017 Term Loan B. In September 2017, we entered
into new forward starting interest rate swaps to hedge the interest payments associated with $750 million of the floating-rate Term
Loan B for the full year 2020. The terms of the outstanding and matured interest rate swaps relevant to the years ended December 31,
2017 to December 31, 2020 are as follows:
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ff
Notional Amount
Interest Rate
Received
Designated as Hedging Instrument
$750 million
$750 million
$750 million
$750 million
$750 million
1 month LIBOR(1)
1 month LIBOR(2)
1 month LIBOR(2)
1 month LIBOR(2)
1 month LIBOR(2)
Not Designated as Hedging Instrument(1)
Interest Rate Paid
Effective Date
Maturity Date
1.48%
1.15%
1.65%
2.08%
1.86%
December 31, 2015
March 31, 2017
December 29, 2017
December 31, 2018
December 31, 2019
December 30, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
$750 million
$750 million
$750 million
$750 million
(1) Subject to a 1% floor.
(2) Subject to a 0% floor.
(3) As of February 22, 2017.
1 month LIBOR(3)
1.18%
1 month LIBOR(3)
1.67%
2.19%
1 month LIBOR
2.61%
1 month LIBOR
December 30, 2016
March 31, 2017
December 29, 2017
December 29, 2017
December 29, 2017
December 31, 2017
December 31, 2018
December 31, 2018
Since outstanding balances under our senior secured credit facilities incur interest at rates based on LIBOR, subject to a
0% floor, increases in short-term interest rates would impact our interest expense. 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. The
fair value of these interest rate swaps was a liability of $3 million and $16 million at December 31, 2017 and 2016, respectively.
Foreign Currency Risk
We conduct various operations outside the United States, primarily in Asia Pacific, Europe and Latin America. Our foreign
currency risk is primarily associated with operating expenses. During the year ended December 31, 2017, foreign currency operations
included $256 million of revenue and $595 million of operating expenses, representing approximately 7% and 20% of our total
revenue and operating expenses, respectively. During the year ended December 31, 2016, foreign currency operations included
$211 million of revenue and $666 million of operating expenses, representing approximately 6% and 23% of our total revenue and
operating expenses, respectively.
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The principal foreign currencies involved include the Euro, the Singapore Dollar, the British Pound Sterling, the Polish Zloty,
the Indian Rupee and the Australian Dollar. Our most significant foreign currency denominated operating expenses is in the Euro,
which comprised approximately 8% and 7% of our operating expenses for each of the years ended December 31, 2017 and 2016,
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 a portion of 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, the
2017, we also began hedging our foreign currency exposure
Indian Rupee, the Singapore Dollar and the Australian Dollar. Effective
in operating expenses denominated in Swedish Krona and Brazilian Real. In 2017, we hedged approximately 20% of our exposure
in foreign currency operating expenses. In addition, approximately 42% of our exposure in foreign currency operating expenses is
naturally hedged by foreign currency cash receipts associated with foreign currency revenue.
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The notional amounts of our forward contracts totaled $200 million at December 31, 2017. 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 is $6 million included in prepaid expenses and other current assets
and $7 million in other accrued liabilities as of December 31, 2017 and December 31, 2016, respectively, in our consolidated balance
sheets.
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. These gains and losses are recognized as a component of accumulated
other comprehensive income (loss) and is included in stockholders’ equity. Net translation gains (losses) recognized as other
comprehensive income (loss) were $13 million, $(1) million and $(4) million for the years ended December 31, 2017, 2016 and
2015, 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, 2017 and 2016, approximately $357 million, or 77%, and $274 million, or 74%,
respectively, of our trade accounts receivable were 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 represents trade balances. 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. We believe the credit risk related to the air
is significantly mitigated by the fact that we collect a significant portion of the receivables from these carriers
carriers’ difficulties
through the Airline Clearing House (“ACH”) and other similar clearing houses.
ff
As of December 31, 2017, 2016 and 2015, approximately 81%, 69%, and 57%, respectively, of our air customers make
payments through the ACH which accounts for approximately 95%, 95% and 89%, 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 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.
Inflation
Competitive market conditions and the general economic environment have minimized inflation’s impact on our results of
by inflation in the
operations in recent periods. There can be no assurance, however, that our operating results will not be affected
future.
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ITEM 8.
FINANCIAL STATTT EMENTS AND SUPPLEMENTARYRR DATAAA
Index to Financial Statements and Supplementary Data
Consolidated Financial Statements:
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Other Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts as of December 31, 2017, 2016 and 2015
65
67
68
69
70
71
72
122
64
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Sabre Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sabre Corporation (the Company) as of December 31, 2017
and 2016, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the
Index at Item 15 (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated February 16, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 1993.
Dallas, Texas
February 16, 2018
/s/ Ernst & Young LLP
65
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Sabre Corporation
Opinion on Internal Control over Financial Reporting
We have audited Sabre Corporation's internal control over financial reporting as of December 31, 2017, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, Sabre Corporation (the Company) maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
ff
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements
of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended
December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15, and our report dated
February 16, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
ff
internal control over financial reporting and for its assessment
The Company’s management is responsible for maintaining effective
of the effectiveness
of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
ff
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects.
ff
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
ff
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect
on the financial statements.
ff
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ff
Dallas, Texas
February 16, 2018
/s/ Ernst & Young LLP
66
SABRE CORPORATION
AA
CONSOLIDATEDAA
STATTT EMENTS OF OPERATIONS
AA
(In thousands, except per share amounts)
Revenue
Cost of revenue
Selling, general and administrative
Impairment and related charges
Operating income
Other (expense) income:
Interest expense, net
Loss on extinguishment of debt
Joint venture equity income
Other, net
Total other expense, net
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Net income attributable to noncontrolling interests
Net income attributable to common stockholders
Basic net income per share attributable to common stockholders:
Income from continuing operations
(Loss) income from discontinued operations
Net income per common share
Diluted net income per share attributable to common stockholders:
Income from continuing operations
(Loss) income from discontinued operations
Net income per common share
Weighted-average common shares outstanding:
Basic
Diluted
Dividend per common share
See Notes to Consolidated Financial Statements.
Year Ended December 31,
2017
$ 3,598,484
2,513,857
510,075
81,112
493,440
2016
$ 3,373,387
2,287,662
626,153
—
459,572
2015
$ 2,960,896
1,944,050
557,077
—
459,769
(153,925)
(1,012)
2,580
36,530
(115,827)
377,613
128,037
249,576
(1,932)
247,644
5,113
242,531
0.88
(0.01)
0.87
0.88
(0.01)
0.87
$
$
$
$
$
(158,251)
(3,683)
2,780
27,617
(131,537)
328,035
86,645
241,390
5,549
246,939
4,377
242,562
0.85
0.02
0.87
0.84
0.02
0.86
$
$
$
$
$
(173,298)
(38,783)
14,842
91,377
(105,862)
353,907
119,352
234,555
314,408
548,963
3,481
545,482
0.85
1.15
2.00
0.83
1.12
1.95
276,893
278,320
277,546
282,752
273,139
280,067
0.56
$
0.52
$
0.36
$
$
$
$
$
$
67
CONSOLIDATEDAA
STATTT EMENTS OF COMPREHENSIVE INCOME
SABRE CORPORATION
AA
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (“CTA”):
TT
Foreign CTATT gains (losses), net of tax
Reclassification adjustment for realized losses on foreign CTA,TT net of taxes of
$0, $107 and $12,152
Net change in foreign CTATT gains (losses), net of tax
Retirement-related benefit plans:
Net actuarial loss, net of taxes of $386, $9,701 and $2,273
Amortization of prior service credits, net of taxes of $517, $518 and $516
Amortization of actuarial losses, net of taxes of $(2,336), $(2,123) and
$(2,545)
Net change in retirement-related benefit plans, net of tax
Derivatives and available-for-sale securities:
Unrealized gains (losses), net of taxes of $(5,989), $2,214 and $5,753
Reclassification adjustment for realized gains (losses), net of taxes of
$(1,005), $1,170 and $(3,312)
Net change in derivatives and available-for-sale securities, net of tax
Share of other comprehensive income (loss) of joint venture
Other comprehensive income (loss)
Comprehensive income
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Sabre Corporation
See Notes to Consolidated Financial Statements.
Year Ended December 31,
2017
247,644
$
2016
246,939
$
2015
548,963
$
13,136
—
13,136
(852)
(915)
4,181
2,414
(1,265)
(4,382)
(198)
(1,463)
(18,558)
(22,940)
(17,223)
(914)
3,748
(14,389)
(4,060)
(915)
4,500
(475)
16,068
4,307
(9,642)
2,082
18,150
615
34,315
281,959
(5,113)
276,846
$
(13,422)
(9,115)
(697)
(25,664)
221,275
(4,377)
216,898
$
10,646
1,004
(4,921)
(27,332)
521,631
(3,481)
518,150
$
68
SABRE CORPORATION
AA
CONSOLIDATEDAA
BALANCE SHEETS
(In thousands, except share amounts)
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Investments in joint ventures
Goodwill
Acquired customer relationships, net
Other intangible assets, net
Deferred income taxes
Other assets, net
Total assets
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
Accrued compensation and related benefits
Accrued subscriber incentives
Deferred revenues
Other accrued liabilities
Current portion of debt
Tax Receivable Agreement
Total current liabilities
Deferred income taxes
Other noncurrent liabilities
Long-term debt
Commitments and contingencies (Note 15)
Stockholders’ equity
Common stock: $0.01 par value; 450,000,000 authorized shares; 289,137,901 and
285,461,125 shares issued, 274,342,175 and 276,949,802 shares outstanding at
December 31, 2017 and 2016, respectively
Additional paid-in capital
Treasury stock, at cost, 14,795,726 and 8,511,323 shares at December 31, 2017 and 2016
respectively
Retained deficit
Accumulated other comprehensive loss
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to Consolidated Financial Statements.
69
December 31,
2017
2016
$
361,381
490,558
108,753
960,692
799,194
27,527
2,554,987
351,034
332,171
31,817
591,942
$ 5,649,364
$
364,114
400,667
88,600
853,381
753,279
25,582
2,548,447
387,632
387,805
95,285
673,159
$ 5,724,570
$
162,755
112,343
271,200
110,532
198,353
57,138
59,826
972,147
99,801
480,185
3,398,731
$
168,576
102,037
216,011
187,108
222,879
169,246
100,501
1,166,358
88,957
567,359
3,276,281
2,891
2,174,187
2,854
2,105,843
(341,846)
(1,053,446)
(88,484)
5,198
698,500
$ 5,649,364
(221,746)
(1,141,116)
(122,799)
2,579
625,615
$ 5,724,570
SABRE CORPORATION
AA
CONSOLIDATEDAA
STATTT EMENTS OF CASH FLOWS
(In thousands)
Operating Activities
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Year Ended December 31,
2017
2016
2015
$
247,644
$
246,939
$
548,963
Depreciation and amortization
Impairment and related charges
Amortization of upfront incentive consideration
Tax Receivable Agreement
Deferred income taxes
Stock-based compensation expense
Debt modification costs
Allowance for doubtful accounts
Amortization of debt issuance costs
Joint venture equity income
Loss (income) from discontinued operations
Dividends received from joint venture investments
Loss on extinguishment of debt
Litigation-related credits
Gain on remeasurement of previously-held joint venture interest
Other
Changes in operating assets and liabilities:
Accounts and other receivables
Upfront incentive consideration
Capitalized implementation costs
Prepaid expenses and other current assets
Other assets
Accounts payable and other accrued liabilities
Deferred revenue including upfront solution fees
Accrued compensation and related benefits
Cash provided by operating activities
Investing Activities
Additions to property and equipment
Acquisitions, net of cash acquired
Proceeds from sale of marketable securities
Other investing activities
Cash used in investing activities
Financing Activities
Proceeds of borrowings from lenders
Payments on borrowings from lenders
Cash dividends paid to common stockholders
Repurchase of common stock
Payments on Tax Receivable Agreement
Debt prepayment fees and issuance costs
Net proceeds on the settlement of equity-based awards
Other financing activities
Cash (used in) provided by financing activities
Cash Flows from Discontinued Operations
Cash (used in) provided by operating activities
Cash provided by investing activities
Cash (used in) provided by discontinued operations
of exchange rate changes on cash and cash equivalents
Effect
ff
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
CCash and cash equivalents at end fof period
Cash payments for income taxes
CCash payments ffor interest
Capitalized interest
See Notes to Consolidated Financial Statements.
70
400,871
81,112
67,411
(59,603)
48,760
44,689
14,758
9,459
5,923
(2,580)
1,932
1,088
1,012
—
—
13,284
(108,596)
(94,296)
(60,766)
109
(21,111)
67,034
13,861
6,038
678,033
(316,436)
—
—
)
)
(
(1,089
(317,525)
1,897,625
(1,880,506)
(154,861)
(109,100)
(99,241)
(19,052)
12,647
(4,292
)
)
(
(356,780)
413,986
—
55,724
—
48,454
48,524
—
10,567
9,611
(2,780)
(5,549)
640
3,683
(25,527)
—
(5,426)
(12,949)
(70,702)
(83,405)
(11,809)
(2,799)
56,787
22,663
2,768
699,400
(327,647)
(164,120)
45,959
—
(445,808)
1,055,000
(999,868)
(144,355)
(100,000)
—
(11,377)
27,344
)
(16,769)
(
(190,025)
(4,848)
—
(4,848)
(1,613)
(2,733)
364,114
361,381
40,211
149,572
11,142
$
$
$
$
(19,478)
—
(19,478)
(1,107)
42,982
321,132
364,114
39,032
151,495
13,887
$
$
$
$
$
$
$
$
351,480
—
43,521
—
97,225
29,971
—
8,558
6,759
(14,842)
(314,408)
28,700
38,783
(60,998)
(78,082)
3,556
10,662
(63,510)
(63,382)
(13,255)
(66,873)
8,721
9,390
18,268
529,207
(286,697)
(442,344)
—
—
(729,041)
1,252,000
(960,807)
(98,596)
(98,770)
—
(52,674)
47,414
,577
93,144
4
236
278,834
279,070
(6,927)
165,453
155,679
321,132
27,816
154,307
11,981
SABRE CORPORATION
AA
CONSOLIDATEDAA
STATTT EMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
Common Stock
Shares
Amount
Additional
Paid in
Capital
Treasury Stock
Shares
Amount
Retained
Earnings
(Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interest
Total
Stockholders'
Equity
Stockholders’ Equity (Deficit)
Balance at December 31, 2014
268,237,547
$
2,682
$ 1,931,796
437,386
$ (5,297)
$ (1,775,616)
$
(69,803)
$
621
$
84,383
Comprehensive income
Common stock dividends
Repurchase of common stock
—
—
—
Settlement of stock-based awards
10,844,926
Stock-based compensation expense
Dividends paid to non-controlling interest
on subsidiary common stock
—
—
—
—
—
108
—
—
—
—
—
54,425
30,104
—
—
—
—
—
545,482
(98,596)
3,400,000
(98,770)
289,257
(6,481)
—
—
—
—
—
—
—
—
(27,332)
3,481
521,631
—
—
—
—
—
—
—
—
—
(98,596)
(98,770)
48,052
30,104
(2,664)
(2,664)
(97,135)
(25,664)
1,438
4,377
Balance at December 31, 2015
279,082,473
2,790
2,016,325
4,126,643
(110,548)
(1,328,730)
Comprehensive income
Common stock dividends
Repurchase of common stock
—
—
—
Settlement of stock-based awards
6,378,652
Stock-based compensation expense
Dividends paid to non-controlling interest
on subsidiary common stock
Adoption of New Accounting Standard
—
—
—
—
—
—
64
—
—
—
—
—
—
38,602
48,524
—
2,392
—
—
—
—
242,562
(144,307)
3,980,672
(100,000)
404,008
(11,198)
—
—
—
—
—
—
—
—
—
—
89,359
—
—
—
—
—
—
Balance at December 31, 2016
285,461,125
2,854
2,105,843
8,511,323
(221,746)
(1,141,116)
(122,799)
Comprehensive income
Common stock dividends
Repurchase of common stock
—
—
—
Settlement of stock-based awards
3,676,776
Stock-based compensation expense
Dividends paid to non-controlling interest
on subsidiary common stock
—
—
—
—
—
37
—
—
—
—
—
23,655
44,689
—
—
—
—
—
5,779,769
(109,100)
504,634
(11,000)
—
—
—
—
242,531
34,315
(154,861)
—
—
—
—
—
—
—
—
—
484,140
221,275
(144,307)
(100,000)
27,468
48,524
—
—
—
—
(3,236)
(3,236)
—
2,579
5,113
—
—
—
—
91,751
625,615
281,959
(154,861)
(109,100)
12,692
44,689
(2,494)
(2,494)
Balance at December 31, 2017
289,137,901
$
2,891
$ 2,174,187
14,795,726
$(341,846)
$ (1,053,446)
$
(88,484)
$
5,198
$
698,500
See Notes to Consolidated Financial Statements.
71
NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
SABRE CORPORATION
AA
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.
(“Sabre GLBL”) is the principal operating subsidiary and sole direct subsidiary of Sabre Holdings. Sabre GLBL 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 connect people and places with technology that reimagines the business of travel. 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 hoteliers.
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 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, estimation of loss
contingencies, and evaluation of uncertainties surrounding the calculation of our tax assets and liabilities.
ff
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 professional
service fees 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.
We report revenue net of any revenue based taxes assessed by governmental authorities that are imposed on and concurrent
with specific revenue producing transactions.
ll
rr
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 global distribution system (“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, calculated based on our historical experience, was
$16 million and $14 million at December 31, 2017 and 2016, 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.
72
ll
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 secure platforms, or deploy it through our SaaS
solutions, we maintain the software and manage the related infrastructure. 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 beginning when the
solution is implemented. 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 and may differ
from contractual minimums, if applicable.
ff
ll
Professional Service Fees Revenue Model—Our
can be sold as part of multiple element
agreements for which we also provide professional services. Our professional services are primarily focused on helping customers
achieve better utilization of and return on their software investment. Often we provide these services during the implementation
phase of our SaaS solutions. In such cases, we account for professional 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 professional services is generally
recognized over the period the services are performed, once any acceptance criteria is met.
SaaS and hosted offerings
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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.
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 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.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs incurred by our continuing operations totaled $18 million, $24
million and $19 million for the years ended December 31, 2017, 2016 and 2015, respectively. We did not have any advertising costs
incurred by our discontinued Travelocity segment in 2017 and 2016 and these costs totaled $10 million for the year ended December
31, 2015, which are included in net (loss) income from discontinued operations.
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.
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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 $43 million
and $37 million at December 31, 2017 and 2016, respectively.
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Effective
January 1, 2014, we have recorded specific reserves against all accounts receivable outstanding due to us from
all airlines in Venezuela and are deferring the recognition of any future revenues until cash is collected. Accounts receivable
outstanding from customers in Venezuela totaled $25 million and $19 million as of December 31, 2017 and 2016, which will be
recognized as revenue when cash is received. In 2017 and early 2018, we discontinued services to certain carriers in Venezuela
with outstanding receivable balances of $17 million as of December 31, 2017. We do not believe that these amounts are collectible,
and these amounts are fully reserved. Effective
January 1, 2018, the new revenue recognition standard described below will result
in a change to the ongoing accounting treatment for customers accounted for on a cash basis. We do not anticipate this change
will result in a material impact to our consolidated financial statements.
ff
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, 2017 and 2016, approximately $357 million, or 77%, and $274
million, or 74%, respectively, of our trade accounts receivable were 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 represents trade balances. We generally do not
require security or collateral from our customers as a condition of sale.
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We regularly monitor the financial condition of the air transportation industry. We believe the credit risk related to the air
carriers’ difficulties
is significantly 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, 2017, approximately 81% 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 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
portion of the change in fair value of a derivative designated as a hedge is
in earnings (a “cash flow hedge”). The ineffective
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.
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ff
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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 officeff
Software developed for internal use
and computer
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
74
We capitalize certain costs related to our infrastructure, software applications and reservation systems 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 our GDS 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 6. Balance Sheet Components, for amounts
capitalized as property and equipment in our consolidated balance sheets. Depreciation and amortization of property and equipment
totaled $256 million, $226 million and $214 million for the years ended December 31, 2017, 2016 and 2015, respectively. Amortization
of software developed for internal use, included in depreciation and amortization, totaled $203 million, $176 million and $170 million
for the years ended December 31, 2017, 2016 and 2015, respectively.
Property and equipment are 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. We
did not record any property and equipment impairment charges for the years ended December 31, 2017, 2016 and 2015.
Business Combinations
Business combinations are accounted for under the acquisition method of accounting. Under this method, the assets acquired
and liabilities assumed are recognized at their respective fair values as of the date of acquisition. The excess, if any, of the acquisition
price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. For significant acquisitions, we
utilize third-party appraisal firms to assist us in determining the fair values for certain assets acquired and liabilities assumed. The
measurement of these fair values requires us to make significant estimates and assumptions which are inherently uncertain.
Adjustments to the fair values of assets acquired and liabilities assumed are made until we obtain all relevant information
regarding the facts and circumstances that existed as of the acquisition date (the “measurement period”), not to exceed one year
from the date of the acquisition. In the third quarter of 2015, we adopted ASU 2015-16, Simplifying the Accounting for Measurement-
Period Adjustments, which requires us to recognize measurement-period adjustments in the period in which we determine the
amounts, including the effect
on earnings of any amounts we would have recorded in previous periods if the accounting had been
completed at the acquisition date.
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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 is 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 two 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 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 quantitative assessment described below. If it is determined through the evaluation of events or circumstances that
the carrying value may not be recoverable, 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 fair value through an adjustment to the goodwill balance, resulting in an impairment charge. We
have three reporting units associated with our continuing operations: Travel Network, Airline Solutions and Hospitality Solutions.
We did not record any goodwill impairment charges for the years ended December 31, 2017 and 2016. See Note 5. 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, 2017, 2016 and 2015. See Note 5. Goodwill and Intangible
Assets, for additional information.
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Equity Method Investments
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. We periodically evaluate equity and debt investments in entities
accounted for 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. On July 1, 2015, we completed the acquisition of the remaining 65% interest in Abacus International Pte Ltd, now named
Sabre Asia Pacific Pte Ltd (“SAPPL”), a former joint venture, which we previously accounted for under the equity method. In addition
to the acquisition in SAPPL, we also own voting interests in various national marketing companies ranging from 20% to 49% , a
voting interest of 40% in ESS Elektroniczne Systemy Spzedazy Sp. zo.o, and a voting interest of 20% in Asiana Sabre, Inc. The
carrying value of these investments in joint venture amounts to $24 million and $22 million as of December 31, 2017 and 2016.
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. See Note 6. Balance Sheet Components, for amounts
capitalized within other assets, net in our consolidated balance sheets. Amortization of capitalized implementation costs, included
in depreciation and amortization, totaled $40 million, $37 million and $31 million for the years ended December 31, 2017, 2016 and
2015, respectively.
Deferred Customer Advances and 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 and estimated direct costs of the contract. 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.
ff
ff
ff
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 for income taxes.
The Tax Cuts and Jobs Act (the “TCJA”), which was enacted on December 22, 2017, imposes a tax on global low-taxed
intangible income (“GILTI”)
in tax years beginning after December 31, 2017. GILTILL provisions are applicable to certain profits of a
controlled foreign corporation that exceed the U.S. stockholder's deemed “routine” investment return under the TCJA and results
in income includable in the return of U.S. shareholders. We recognize liabilities, if any, related to this provision of the TCJA in the
year in which the liability arises and not as a deferred tax liability.
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Pension and Other Postretirement Benefits
We recognize the funded status of our defined benefit pension plans and other postretirement benefit plans in our consolidated
between the fair value of plan assets and the benefit obligation as of the balance
balance sheets. The funded status is the difference
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 (loss) and are
subsequently amortized over the life expectancy of the plan participants as a component of net periodic benefit costs.
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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. With the adoption
of ASU 2016-09, we recognize equity-based compensation expense net of any actual forfeitures.
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 based on both the historical volatility
of our stock price as well as implied volatilities from exchange traded options on our stock. 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 $0.56 per share for awards granted in 2017.
ff
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.
Adoption of New Accounting Standards
In May 2017, the Financial Accounting Standards Board ("FASB")
issued updated guidance regarding changes to the terms
FF
or conditions of a share-based payment award which requires an entity to apply modification accounting under the current standard
on stock compensation. Under this updated standard, a new fair value measurement is assessed on the modified award, with any
incremental fair value of the new award recognized as additional compensation cost. The Accounting Standard Update ("ASU") is
effective
for annual periods beginning after December 15, 2017, with early adoption permitted. We adopted this standard in the
third quarter of 2017, which did not have a material impact on our consolidated financial statements.
ff
In January 2017, the FASB issued updated guidance to state that registrants should consider additional qualitative disclosures
if the impact of an issued but not yet adopted ASU is unknown or cannot be reasonably estimated and to include a description of
of the accounting policies that the registrant expects to apply, if determined. Transition guidance included in certain issued
the effect
ff
but not yet adopted ASUs was also updated to reflect this amendment. The updated guidance was effective
upon issuance and we
have adopted this standard and have made the required disclosures.
ff
In January 2017, the FASB issued an updated guidance simplifying the subsequent measurement of goodwill by eliminating
“Step 2” from the goodwill impairment test. The updated guidance is effective
for public companies’ annual or interim goodwill
impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual or interim goodwill
impairment tests performed on testing dates after January 1, 2017. We early adopted this standard in the fourth quarter of 2017,
which did not have a material impact on our consolidated financial statements.
ff
In January 2017, the FASB issued updated guidance clarifying the definition of a business to help companies evaluate
whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this update
for public companies for annual periods beginning after December 15, 2017, including interim periods within those
ff
are effective
periods. Early adoption is permitted in any interim or annual period provided that the entire ASU is adopted. We early adopted this
standard effective
first quarter of 2017, which did not have a material impact on our consolidated financial statements.
ff
77
In October 2016, the FASB issued updated guidance which requires the recognition of the income tax consequences of an
in the first
first quarter of 2017, which did not impact
intra-entity transfer of an asset, other than inventory, when the transfer occurs. The updated guidance will be effective
quarter of 2018 and early adoption is permitted. We early adopted this standard effective
our consolidated financial statements.
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ff
In August 2016, the FASB issued an updated guidance on how companies present and classify certain cash receipts and
cash payments in the statement of cash flows. The updated guidance is effective
for fiscal years beginning after December 15,
2017, and interim periods within those fiscal years for public business entities. Early adoption is permitted in any interim or annual
period provided that the entire ASU is adopted. We early adopted this standard effective
fourth quarter of 2016, which did not have
a material impact on our consolidated financial statements.
ff
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In the first quarter of 2016, we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This
guidance was issued by the FASB under their initiative to reduce complexity in financial reporting. The amendments of the updated
standard include, among other things, the requirement to recognize excess tax benefits (or deficiencies) through earnings, the
election of a policy to either estimate forfeitures when determining periodic expense or recognize actual forfeitures when they occur,
and an increase in the allowable income tax withholding from the minimum to the maximum statutory rate. In recent years, we have
realized significant excess tax benefits associated with settled equity-based awards that have not been recognized due to certain
accounting policy elections we made under the previous accounting standard, combined with the significant amount of our net
operating loss carryforwards. As a result of the adoption of ASU 2016-09, we recorded a cumulative effect
adjustment as of January
1, 2016 to increase retained earnings by $92 million with a corresponding increase to deferred tax assets in order to recognize
excess tax benefits that can be used to reduce income taxes payable in the future. Effective
January 1, 2016, excess tax benefits
or deficiencies are recognized in our results of operations and are included in cash flows from operating activities in our statement
of cash flows. In accordance with the updated standard, we elected to recognize actual forfeitures of equity-based awards as they
occur. As we previously estimated forfeitures to determine stock-based compensation expense, this change resulted in a cumulative
effect
adjustment as of January 1, 2016 to reduce retained earnings by $2 million, net of tax. For the years ended December 31,
2017 and 2016, we recognized $5 million and $35 million, respectively, in excess tax benefits associated with employee equity-
based awards, as a result of the adoption of this standard. There were no other material impacts to our consolidated financial
statements as a result of adopting this updated standard.
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Recent Accounting Pronouncements
In August 2017, the FASB issued updated guidance to expand and simplify the application of hedge accounting. The updated
standard eliminates the requirement to separately measure and report hedge ineffectiveness
and generally requires the entire
change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The
guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded
from the assessment of hedge effectiveness.
for annual periods beginning after December 15, 2018, with early
adoption permitted. We do not expect that the adoption of this updated standard will have a material impact on our consolidated
financial statements.
The ASU is effective
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In March 2017, the FASB issued updated guidance improving the presentation requirements related to reporting the service
cost component of net benefit costs to require that the service cost component be reported in the same line item or items as other
compensation costs arising from services rendered by the pertinent employees during the period, disaggregating the component
aspects of an employer's financial
from other net benefit costs. Net benefit cost is composed of several items, which reflect different
arrangements as well as the cost of benefits earned by employees. The updated guidance is effective
for fiscal years beginning
ff
after December 15, 2017, including interim periods within those annual periods for public business entities. We do not expect that
the adoption of this updated standard will have a material impact on our consolidated financial statements.
ff
In February 2016, the FASB issued updated guidance requiring organizations that lease assets—referred to as "lessees"—
to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases, when the lease
has a term of more than 12 months. The updated standard is effective
for public companies for fiscal years, and interim periods
ff
within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact of this standard on our
consolidated financial statements.
In January 2016, the FASB issued updated guidance on accounting for equity investments, financial liabilities under the fair
value option, and the presentation and disclosure for financial instruments. Under this updated standard, entities must measure
equity investments at fair value and recognize changes in fair value in net income. For equity investments without readily determinable
fair values, entities have the option to either measure these investments at fair value or at cost adjusted for changes in observable
prices less impairment. The updated guidance does not apply to equity method investments or investments in consolidated
subsidiaries. This new standard is effective
for public companies for annual periods, including interim periods, beginning after
December 15, 2017. We do not expect that the adoption of this updated standard will have a material impact on our consolidated
financial statements.
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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. On July 9, 2015, the FASB
approved to defer the effective
for annual and interim reporting periods beginning
after December 15, 2017. We have adopted this new standard as of January 1, 2018 using the modified retrospective transition
method which will result in a cumulative adjustment as of the date of the adoption. We have substantially completed our evaluation
of the guidance and determined the key areas of impact on our financial results and are currently in the process of quantifying the
impacts. Our quantification of the impacts is ongoing and will not be finalized until the period of adoption. To date, our assessments
have identified the following anticipated impacts:
date of the new standard which is now effective
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ff
• We do not expect significant changes to revenue recognition for our Travel Network and Hospitality Solutions businesses
• Our Airline Solutions business is expected to primarily be impacted by the new standard due to the following:
– Under current revenue recognition guidance, we recognize revenue related to license fee and maintenance
agreements ratably over the life of the contract. Under the new guidance, revenue for license fees will be recognized
upon delivery of the license and ongoing maintenance services will continue to be recognized ratably over the length
of the contract. For existing open agreements, this change will result in a beginning balance sheet adjustment and
reduced revenue in subsequent years from these agreements, and before the impact of new sales.
– Allocation of contract revenues among various products and solutions, and the timing of the recognition of those
revenues, will be impacted by agreements with tiered pricing or variable rate structures that do not correspond with
the goods or services delivered to the customer. For existing open agreements, this change will also result in a
beginning balance sheet adjustment and reduced revenue in subsequent years from these agreements.
– In the year of adoption, as a result of the new revenue recognition standard, the changes detailed above will result
in a significant beginning balance sheet adjustment and we preliminarily estimate our consolidated revenue could
be reduced by approximately $40 million to $50 million.
• Capitalization of incremental costs to obtain a contract (such as sales commissions), and recognition of these costs over
the contract period will result in the recognition of an asset on our balance sheet and will impact our Airline and Hospitality
Solutions segment. We currently expect that our results of operations will not be significantly impacted from the capitalization
of these incremental costs.
We anticipate that the impacts described above will result in a net reduction to our opening retained deficit as of January
1, 2018 of approximately $100 million to $130 million with a corresponding increase in current and long-term unbilled receivables,
contract assets and other assets. Implications to tax related accounts are not included in these estimated amounts.
Our assessment of each of the foregoing is ongoing and subject to finalization, such that the actual impact of the adoption
may differ
ff materially from the estimated ranges described above.
We are continuing to evaluate the impacts of the new guidance to our results of operations, current accounting policies,
processes, controls, systems and financial statement disclosures.
2. Acquisitions
Airpas Aviation
In April 2016, we completed the acquisition of Airpas Aviation, a software provider and consultancy company which offers
route profitability and cost management software solutions. We acquired all of the outstanding stock and ownership interest of
Airpas Aviation for net cash consideration of $9 million. Assets acquired and liabilities assumed were recorded at their estimated
fair values as of the acquisition date. The allocation of purchase price includes $12 million of assets acquired, primarily consisting
of $5 million of goodwill, not deductible for tax purposes, and $5 million of intangible assets. The intangible assets consist mainly
of $4 million of acquired customer relationships with a useful life of 10 years and $1 million of purchased technology with a useful
life of 5 years. Airpas Aviation is integrated and managed as part of our Airline and Hospitality Solutions segment. The acquisition
of Airpas Aviation did not have a material impact to our consolidated financial statements, and therefore pro forma information is
not presented.
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rr
Trust
Group
In January 2016, we completed the acquisition of the Trust Group, a central reservations, revenue management and hotel
marketing provider, expanding our presence in Europe, the Middle East, and Africa ("EMEA") and Asia Pacific ("APAC").
The net
cash consideration for the Trust Group was $156 million. The acquisition was funded using proceeds from our 5.25% senior secured
notes due in 2023 and cash on hand. The Trust Group has been integrated and is managed as part of our Airline and Hospitality
Solutions segment.
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79
Purchase Price Allocation
A summary of the acquisition price and estimated fair values of assets acquired and liabilities assumed as of the date of
acquisition is as follows (in thousands):
Cash and cash equivalents
Accounts receivable
Other current assets
Goodwill
Intangible assets:
Customer relationships
Purchased technology
Trademarks and brand names
Property and equipment, net
Current liabilities
Deferred income taxes
Total acquisition price
$
$
4,209
10,564
917
98,930
52,292
23,362
2,183
1,556
(11,091)
(22,548)
160,374
The goodwill recognized reflects expected synergies from combined operations and also the acquired assembled workforce
of the Trust Group in EMEA and APAC.PP
The goodwill recognized is assigned to our Airline and Hospitality Solutions segment and
is not deductible for tax purposes. The weighted-average useful lives of the intangible assets acquired are 13 years for customer
relationships, 2 years for purchased technology and 2 years for trademarks and brand names.
The acquisition of the Trust Group did not have a material impact to our consolidated financial statements, and therefore
pro forma information is not presented.
Abacus
On July 1, 2015, we completed the acquisition of the remaining 65% interest in Abacus International Pte Ltd, a Singapore-
based business-to-business travel e-commerce provider that serves the Asia-Pacific region, which is now named SAPPL. Prior to
the acquisition, SAPPL was 65% owned by a consortium of 11 airlines and the remaining 35% was owned by us. Separately, SAPPL
has signed new long-term agreements with the consortium of 11 airlines to continue to utilize the GDS. In the third and fourth
quarters of 2015, SAPPL completed the acquisition of the remaining interest in three national marketing companies, Abacus
Distribution Systems (Hong Kong), Abacus Travel Systems (Singapore) and Abacus Distribution Systems Sdn Bhd (Malaysia) (the
“NMCs” and, together with SAPPL, “Abacus”). SAPPL previously owned noncontrolling interests in the NMCs. The net cash
consideration for Abacus was $443 million, which includes the effect
of the net working capital adjustments. The acquisition was
ff
funded with a combination of cash on hand and a $70 million draw on our revolving credit facility, which has since been repaid.
80
Purchase Price Allocation
A summary of the acquisition price and estimated fair values of assets acquired and liabilities assumed as of the date of
acquisition is as follows (in thousands), which includes estimates for contingent liabilities of $25 million related to tax uncertainties:
Cash and cash equivalents
Accounts receivable, net
Other current assets
Intangible assets:
Customer relationships
Reacquired rights(1)
Purchased technology
Supplier agreements
Trademarks and brand names
Property and equipment, net
Other assets
Current liabilities
Noncurrent liabilities
Noncurrent deferred income taxes
Goodwill
Fair value of Sabre Corporation's previously held equity investment in SAPPL
Fair value of SAPPL's previously held equity investment in national marketing companies
$
65,641
49,099
12,522
319,000
113,500
14,000
13,000
4,000
6,402
66,423
(123,307)
(44,245)
(78,054)
292,267
710,248
(200,000)
(1,880)
508,368
Total acquisition price
______________________
(1) In connection with the acquisition of Abacus, we reacquired certain contractual rights that provided Abacus the exclusive
$
__
right, within the Asia-Pacific region, to operate and profit from the Sabre GDS.
In connection with our acquisition of Abacus, we recognized a gain of $78 million for the year ended December 31, 2015,
as a result of the remeasurement of our previously-held 35% equity interest in Abacus to its fair value as of the acquisition date.
The fair value of the previously-held equity interest of $202 million in Abacus was estimated by applying a market approach and
an income approach. The fair value measurement of the previously-held equity interest is based on significant inputs not observable
in the market, and therefore represents Level 3 measurements (see Note 10. Fair Value Measurements, for a description of the fair
value hierarchy). The fair value estimate for the previously-held equity interest is based on (i) a discount rate commensurate with
the risks and inherent uncertainty in the business, (ii) an assumed long-term sustainable growth rate based on our most recent
views of the long-term outlook, and (iii) assumed financial multiples of reporting entities deemed to be similar to Abacus. In addition,
we recognized a gain of $12 million for year the ended December 31, 2015, associated with the settlement of a pre-existing agreement
between us and SAPPL related to data processing services. The $78 million remeasurement gain and the $12 million settlement
gain are reflected in other, net in our consolidated statements of operations. In the first quarter of 2017, we recognized a $16 million
reversal of a liability resulting from renegotiation of an agreement with a travel agency in March 2017 that was considered to be
out of market in our purchasing accounting. The $16 million reversal is included as a reduction of cost of revenue in our consolidated
statement of operations for the year ended December 31, 2017.
The goodwill recognized reflects expected synergies from combined operations and also the acquired assembled workforce
of Abacus. The goodwill recognized is assigned to our Travel Network business and is not deductible for tax purposes. The useful
lives of the intangible assets acquired are 20 years for customer relationships, 7 years for reacquired rights, 3 years for purchased
technology, 7 years for supplier agreements and 2 years for trademarks and brand names.
Unaudited Pro Forma Financial Information
The following unaudited pro forma results of operations information give effect
to the acquisitions of Abacus as if it occurred
on January 1, 2014. The unaudited pro forma results of operations information include adjustments to: (i) eliminate historical revenue
and cost of revenue between us, SAPPL and the NMCs; (ii) remove historical amortization recognized by SAPPL associated with
its upfront incentive consideration and software developed for internal use, which are replaced by acquired intangible assets; and
(iii) add amortization expense associated with acquired intangible assets.
ff
81
The following unaudited pro forma results of operations information is presented in thousands:
Revenue
Income from continuing operations
Net income attributable to common stockholders
$
2015
3,109,310
165,006
475,933
Year Ended December 31,
The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of what our
financial performance would have been had the acquisition been completed on the date assumed nor is such unaudited pro forma
combined financial information necessarily indicative of the results to be expected in any future period.
3. Discontinued Operations
rr
ty.comyy
Traveloci
—On January 23, 2015, we sold Travelocity.com to Expedia Inc. ("Expedia"), pursuant to the terms of an
Asset Purchase Agreement (the “Travelocity Purchase Agreement”), dated January 23, 2015, by and among Sabre GLBL and
Travelocity.com LP,P 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
net assets of Travelocity.com disposed of primarily included a trade name with a carrying value of $55 million. We recognized a
gain on sale of $143 million, net of tax, in the first quarter of 2015.
ff
lastminute.com—On March 1, 2015, we sold lastminute.com to Bravofly Rumbo Group. The transaction was completed
through the transfer of net liabilities as of the date of sale consisting primarily of a working capital deficit of $70 million, partially
offset
by assets sold including intangible assets of $27 million. We did not receive any cash proceeds or any other significant
consideration in the transaction other than payments for specific services to be provided to the acquirer under a transition services
agreement which concluded on March 31, 2016. Additionally, at the time of sale, the acquirer entered into a long-term agreement
with us to continue to utilize our GDS for bookings, which generates incentive consideration paid by us to the acquirer. We recognized
a gain on sale of $24 million, net of tax, in the first quarter of 2015.
Financial Information of Discontinued Operations
The results of our discontinued operations are as follows (in thousands):
Revenue
Cost of revenue
Selling, general and administrative(3)
Operating (loss) income
Other income (expense):
Gain on sale of businesses(1)
Other, net
Total other income (expense), net
(Loss) income from discontinuing operations before income taxes
(Benefit) provision for income taxes(2)
Net (loss) income from discontinued operations
Year Ended December 31,
2017
2016
2015
— $
—
4,456
(4,456)
—
2,094
2,094
(2,362)
(430)
(1,932) $
— $
—
11,619
(11,619)
305
(1,025)
(720)
(12,339)
(17,888)
5,549
$
24,815
21,520
(23,077)
26,372
294,276
4,640
298,916
325,288
10,880
314,408
$
$
__
__
_______________________
(1) The year ended December 31, 2015 includes $31 million of reclassified cumulative translation gains associated with our lastminute.com
_______________
subsidiaries. See “Divestiture of lastminute.com—Cumulative Translation Adjustments” for additional information.
(2) The year ended December 31, 2016 includes a $17 million tax benefit associated with the resolution of uncertain tax positions. The year
ended December 31, 2015 includes a U.S. tax benefit of $93 million; see “Divestiture of lastminute.com—U.S. Tax Benefit” for additional
information.
(3) For the year ended December 31, 2015, selling, general and administrative includes a gain of $40 million as a result of the favorable final
ruling from the Supreme Court of Hawaii and receipt of a cash refund related to our litigation of hotel occupancy taxes. See Note 15.
Commitments and Contingencies, for additional information.
Our Travelocity business has no remaining operations subsequent to these dispositions. The financial results of our Travelocity
business are included in net income from discontinued operations in our consolidated statements of operations for all periods
presented. For the year ended December 31, 2017, discontinued operations for our Travelocity business primarily incurred expenses
associated with legal contingencies related to hotel occupancy taxes. See Note 15. Commitments and Contingencies, for additional
information.
82
Divestiture of lastminute.com
Cumulative Translation
rr
Adjustments
Cumulative translation adjustment (“CTA”)TT
gains or losses of foreign subsidiaries related to divested businesses are
reclassified into earnings once the liquidation of the respective foreign subsidiaries is substantially complete. During the year ended
December 31, 2015, we substantially completed the liquidation of our lastminute.com subsidiaries and, therefore, reclassified $19
million, net of tax, of CTATT gains from accumulated comprehensive income (loss) to our results of discontinued operations.
U.S. Tax Benefit
We wrote offff the remaining U.S. tax basis in goodwill and intangible assets during the fourth quarter of 2015, the period in
which we completed the wind down of lastminute.com activities. As a result, we recognized a U.S. tax benefit of $93 million in our
results of discontinued operations.
4. Impairment and Related Charges
Capitalized implementation costs and deferred customer advances and discounts are reviewed for impairment if events
and circumstances indicate that their carrying amounts may not be recoverable. See Note 1. Summary of Business and Significant
Accounting Policies for more information. Given the substantial amount of uncertainty of reaching an agreement regarding the
implementation of services pursuant to the contract with an Airline Solutions' customer, we evaluated the recoverability of net
capitalized contract costs related to the customer and recorded a charge of $81 million during the year ended December 31, 2017.
This charge was estimated based on a review of all balances with the customer including capitalized implementation costs, deferred
customer advances and discounts, deferred revenue, contract liabilities, and other deferred charges. We will continue to monitor
our position through the insolvency proceedings; however, there is no further exposure to our consolidated balance sheet as of
December 31, 2017. Given the uncertainty associated with the ultimate resolution of this dispute, there could be further impacts to
our consolidated statement of operations. This impairment charge was primarily non-cash and was recorded to Impairment and
related charges in our consolidated statement of operations for the year ended December 31, 2017. See Note 15. Commitments
and Contingencies--Other for additional information.
5. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill during the years ended December 31, 2017 and 2016 are as follows (in
thousands):
Balance as of December 31, 2015
Acquired
Adjustments(1)
Balance as of December 31, 2016
Acquired
Adjustments(1)
Balance as of December 31, 2017
Travel Network
$ 2,099,580
4,894
68
2,104,542
439
(159)
$ 2,104,822
$
$
Airline and
Hospitality
Solutions
340,851
105,990
(2,936)
443,905
—
6,260
450,165
Total
Goodwill
$ 2,440,431
110,884
(2,868)
2,548,447
439
6,101
$ 2,554,987
_______________________
(1)
Includes net foreign currency effects
___
__
ff
during the year.
The following table presents our intangible assets as of December 31, 2017 and 2016 (in thousands):
Acquired customer relationships
Trademarks and brand names
Reacquired rights
Purchased technology
Acquired contracts, supplier and
distributor agreements
Non-compete agreements
Total intangible assets
December 31, 2017
December 31, 2016
Gross
Carrying
Amount
$ 1,038,106
332,238
113,500
427,823
Accumulated
Amortization
$
(687,072) $
(126,312)
(40,695)
(390,139)
Net
Carrying
Amount
351,034
205,926
72,805
37,684
Gross
Carrying
Amount
$ 1,034,483
332,238
113,500
427,823
Accumulated
Amortization
$
(646,851) $
(114,430)
(24,481)
(366,456)
37,600
15,025
$ 1,964,292
(22,410)
(14,459)
$ (1,281,087) $
15,190
566
683,205
37,600
15,025
$ 1,960,669
(18,953)
(14,061)
$ (1,185,232) $
Net
Carrying
Amount
387,632
217,808
89,019
61,367
18,647
964
775,437
83
Amortization expense relating to intangible assets subject to amortization totaled $96 million, $143 million and $107 million
for the years ended December 31, 2017, 2016 and 2015, 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):
2018
2019
2020
2021
2022
2023 and thereafter
Total
$
$
67,983
63,866
62,256
60,743
56,179
372,178
683,205
6. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
Prepaid Expenses
Value added tax receivable, net
Other
Prepaid expenses and other current assets
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
Buildings and leasehold improvements
Furniture, fixtures and equipment
Computer equipment
Software developed for internal use
Accumulated depreciation and amortization
Property and equipment, net
Other Assets, Net
Other assets, net consist of the following (in thousands):
Capitalized implementation costs, net
Deferred customer discounts
Deferred upfront incentive consideration
Other
Other assets, net
84
December 31,
2017
2016
69,650
35,556
3,547
108,753
$
$
61,539
26,244
817
88,600
December 31,
2017
151,843
38,155
323,818
1,521,901
2,035,717
(1,236,523)
799,194
$
$
2016
144,604
35,525
288,982
1,271,059
1,740,170
(986,891)
753,279
December 31,
2017
2016
208,415
92,373
151,693
139,461
591,942
$
$
249,317
212,065
125,289
86,488
673,159
$
$
$
$
$
$
Other Noncurrent Liabilities
Other noncurrent liabilities consist of the following (in thousands):
Tax receivable agreement
Pension and other postretirement benefits
Deferred revenue
Other
Other noncurrent liabilities
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of the following (in thousands):
Defined benefit pension and other postretirement benefit plans
Unrealized foreign currency translation gain (loss)
Unrealized gain (loss) on foreign currency forward contracts, interest rate swaps and
available-for-sale securities
Total accumulated other comprehensive loss, net of tax
December 31,
2017
2016
170,067
115,114
99,044
95,960
480,185
$
$
288,146
123,002
77,260
78,951
567,359
December 31,
2017
(102,623) $
11,488
2016
(105,036)
(2,264)
2,651
(88,484) $
(15,499)
(122,799)
$
$
$
$
The amortization of actuarial losses and periodic service credits associated with our retirement-related benefit plans is
included in selling, general and administrative expenses. See Note 9. Derivatives, for information on the income statement line
ff
items affected
as the result of reclassification adjustments associated with derivatives.
7. Income Taxes
On December 22, 2017, the TCJA was signed into law. The TCJA contains significant changes to the U.S. corporate income
tax system, including a reduction of the federal corporate income tax rate from 35% to 21%, a limitation of the tax deduction for
interest expense to 30% of adjusted taxable income (as defined in the TCJA), base erosion provisions related to intercompany
foreign payments and global low-taxed income, one-time taxation of offshore
earnings at reduced rates in connection with the
transition of U.S. international taxation from a worldwide tax system to a territorial tax system, elimination of U.S. tax on foreign
earnings (subject to certain important exceptions), and modifying or repealing many business deductions and credits.
ff
As of December 31, 2017, we have not completed our accounting for the tax effects
of the enactment of the TCJA due to
complexities of the TCJA, pending clarifications, and additional information needed to finalize certain calculations; however, we
of
have made a reasonable estimate of the effects
ff
the TCJA on our liability related to the tax receivable agreement ("TRA"). We expect to finalize the accounting for the effects
of the
TCJA no later than the fourth quarter of 2018, in accordance with Securities and Exchange Commission Staffff Accounting Bulletin
No. 118. Future adjustments made to the provisional effects
will be reported as a component of income tax expense from continuing
operations in the reporting period in which any such adjustments are determined.
on our existing deferred tax balances, the one-time transition tax and the effect
ff
ff
ff
ff
Provisional amounts
Tax Receivable Agreement: The TRA provides for future payments to Pre-IPO Existing Shareholders (as defined below) for
cash savings for U.S. federal income tax realized as a result of the utilization of Pre-IPO Tax assets (as defined below). These cash
savings would be realized at the enacted statutory tax rate effective
in the year of utilization. As a result of the reduction in the U.S.
corporate income tax rate, we recorded a provisional reduction to the liability for future payments of $58 million, which is reflected
in our income from continuing operations before taxes.
ff
85
ff
Foreign tax effects:
The one-time transition tax is based on our total post-1986 Earnings and Profits ("E&P") of our foreign
subsidiaries for which we have previously deferred U.S. income taxation and have not accrued U.S. deferred taxes based on
application of the indefinite reinvestment criteria. We recorded a provisional amount for our one-time transition tax liability for the
previously untaxed E&P of our foreign subsidiaries, resulting in an increase in income tax expense of $48 million. The accounting
for the transition tax is not complete because we have not yet completed our calculation of the E&P for these foreign subsidiaries,
nor have we concluded whether the November 2 or December 31 E&P measurement date should apply. Further, the transition tax
is based in part on the amount of those earnings held in cash and other specified assets at the applicable E&P measurement date.
This amount may change when we determine the appropriate E&P measurement date, finalize the calculation of E&P for which we
have previously deferred U.S. federal taxation and finalize the amounts held in cash or other specified assets. Additional withholding
taxes were previously provided to the extent they would apply when foreign earnings are distributed. No additional income taxes
have been provided for any remaining outside basis difference
inherent in these entities as these amounts continue to be indefinitely
reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any outside basis difference
in these entities (i.e., basis difference
in excess of that subject to the one time transition tax) is not practicable.
ff
ff
ff
Deferred tax assets and liabilities: We remeasured certain deferred tax assets and liabilities based on the rates at which
they are expected to reverse in the future, which is generally 21%. We also adjusted the deferred tax asset for stock based
compensation to account for changes to the anticipated future deductibility of our executive compensation. However, we are still
analyzing certain aspects of the TCJA and refining our calculations, which could potentially affect
the measurement of these balances
or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of our deferred
tax balance was not material to the overall income tax expense from continuing operations.
ff
The components of pretax income from continuing operations, generally based on the jurisdiction of the legal entity, were
as follows:
Components of pre-tax income:
Domestic
Foreign
Year Ended December 31,
2017
2016
2015
$
$
199,685
177,928
377,613
$
$
206,182
121,853
328,035
$
$
262,682
91,225
353,907
The provision for income taxes relating to continuing operations consists of the following:
Current portion:
Federal
State and Local
Non U.S.
Total current
Deferred portion:
Federal
State and Local
Non U.S.
Total deferred
Total provision for income taxes
Year Ended December 31,
2017
2016
2015
$
$
50,829
2,388
26,060
79,277
47,372
(6,178)
7,566
48,760
128,037
$
$
8,357
1,346
28,488
38,191
60,372
(4,352)
(7,566)
48,454
86,645
$
$
1,730
(6,249)
26,646
22,127
89,682
5,715
1,828
97,225
119,352
86
The provision for income taxes relating to continuing operations differs
ff
from amounts computed at the statutory federal
income tax rate as follows:
Income tax provision at statutory federal income tax rate
State income taxes, net of federal benefit
Impact of non U.S. taxing jurisdictions, net
Non-taxable gain on remeasurement of previously-held investment in Abacus
Impact of U.S. TCJA(1)
Employee stock based compensation
Research tax credit
Tax receivable agreement (TRA)(2)
Valuation allowance
Other, net
Total provision for income taxes
Year Ended December 31,
2017
132,165
(1,727)
(13,492)
—
46,563
(4,977)
(8,777)
(20,861)
—
(857)
128,037
$
$
2016
114,812
(1,964)
11,482
—
—
(34,789)
(9,817)
—
8
6,913
86,645
$
$
$
$
2015
123,867
(1,263)
13,966
(27,279)
—
—
(3,857)
—
3,010
10,908
119,352
(1) This amount includes $48 million of transition tax expense, and the remainder is the net benefit on cumulative deferred taxes.
(2) This amount includes a $20 million adjustment to the TRA, which is not taxable.
The components of our deferred tax assets and liabilities are as follows:
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
Suspended loss
Other
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Software developed for internal use
Intangible assets
Unrealized gains and losses
Investment in partnership
Total deferred tax liabilities
Valuation allowance
Net deferred tax (liability) asset
As of December 31,
2017
2016
$
13,716
22,829
51,151
24,989
156,327
14,565
5,381
58,848
14,478
243
362,527
(21,317)
(180,108)
(134,484)
(29,669)
(5,932)
(371,510)
(59,001)
(67,984) $
30,953
43,197
75,727
43,145
312,073
(760)
12,586
58,357
23,702
(562)
598,418
(42,238)
(286,653)
(173,838)
(5,050)
(9,788)
(517,567)
(74,523)
6,328
$
$
In the first quarter of 2016, we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. In
recent years, we have incurred significant excess tax benefits associated with settled equity-based awards that have not been
recognized due to certain accounting policy elections we made under the previous accounting standard, combined with the significant
amount of our net operating loss carryforwards. As a result of the adoption of ASU 2016-09, we recorded a cumulative effect
adjustment as of January 1, 2016 to increase retained earnings by $92 million with a corresponding increase to deferred tax assets
in order to recognize excess tax benefits that can be used to reduce income taxes payable in the future. Effective
January 1, 2016,
excess tax benefits or deficiencies are recognized in our results of operations and are included in cash flows from operating activities
in our statement of cash flows. For the years ended December 31, 2017 and 2016, we recognized $5 million and $35 million,
respectively, in excess tax benefits associated with employee equity-based awards, as a result of the adoption of this standard.
There were no other material impacts to our consolidated financial statements as a result of adopting this updated standard.
ff
ff
87
As a result of the enactment of the TCJA, we recorded a one-time transition tax on the undistributed earnings of our foreign
subsidiaries, and do not consider these undistributed earnings to be indefinitely reinvested as of December 31, 2017. We consider
the undistributed capital investments in our foreign subsidiaries to be indefinitely reinvested as of December 31, 2017. No provision
has been made for the United States federal and state income taxes on any related outside basis differences.
It is not practicable
to estimate the unrecognized deferred tax liability for these outside basis differences.
ff
ff
As of December 31, 2017, we have U.S. federal net operating loss carryforwards ("NOLs") of approximately $548 million,
which will expire between 2022 and 2035. Additionally, we have research tax credit carryforwards of approximately $44 million,
which will expire between 2019 and 2037 and $14 million Alternative Minimum Tax (“AMT”) credit carry forward that does not
expire. The TCJA eliminates the AMT for corporate taxpayers in the case of taxable years of a corporation beginning in January 1,
2018, 2019, 2020, and 2021, and provides for refunds of AMT credit carryforwards not otherwise used against federal tax liability
over these years. We reclassed $14 million of AMT credit carryforwards from deferred tax asset to tax receivable, based on our
provisional estimate of AMT refunds we expect to receive. As a result of an ownership change during 2007 and 2015 (as defined
in Section 382 of the Code, which imposes an annual limit on the ability of a corporation to use certain tax attributes), all of the U.S.
tax NOLs and credit carryforwards are subject to an annual limitation on their ability to be utilized. However, we expect that Section
382 will not limit our ability to fully realize the tax benefits. We have state NOLs of $12 million which will expire between 2020 and
2036 and state research tax credit carryforwards of $13 million which will expire between 2023 and 2037. We have $282 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 realizability 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 net operating losses to prior periods, the reversal of deferred tax liabilities, tax planning strategies and projected future
taxable income. We maintained a state NOL valuation allowance of $4 million and $3 million as of December 31, 2017 and 2016,
respectively. For non-U.S. deferred tax assets of our lastminute.com and other subsidiaries, we maintained a valuation allowance
of $55 million and $72 million as of December 31, 2017 and 2016, respectively. We reassess these assumptions regularly which
could cause an increase or decrease to the valuation allowance. This assessment could result in an increase or decrease in the
effective
tax rate which could materially impact our results of operations.
ff
ff
It is our policy to recognize penalties and interest accrued related to income taxes as a component of the provision for income
taxes. During the years ended December 31, 2017, 2016 and 2015, we recognized expense of $1 million, $5 million and $3 million,
respectively. As of December 31, 2017 and 2016, we had cumulative accrued interest and penalties of approximately $22 million.
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
Additions for tax positions from acquisitions
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,
2017
2016
2015
$
$
49,331
5,279
21,669
—
—
(1,891)
—
74,388
$
$
68,746
538
2,096
—
(17,706)
(3,743)
(600)
49,331
$
$
58,616
8,252
(786)
11,343
(4,599)
(3,456)
(624)
68,746
We present unrecognized tax benefits as a reduction to deferred tax assets for net operating losses, 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,
against deferred tax assets
presuming disallowance at the reporting date. The amount of unrecognized tax benefits that were offset
was $53 million, $32 million and $46 million as of December 31, 2017, 2016, and 2015 respectively.
ff
As of December 31, 2017, 2016, and 2015, the amount of unrecognized tax benefits that, if recognized, would impact the
tax rate was $70 million, $49 million and $69 million, respectively. We believe that it is reasonably possible that $4 million
ff
effective
in unrecognized tax benefits may be resolved in the next twelve months.
88
In the normal course of business, we are subject to examination by taxing authorities throughout the world. The following
table summarizes, by major tax jurisdiction, our tax years that remain subject to examination by taxing authorities:
Tax Jurisdiction
Years Subject
j
to Examination
United Kingdom
Singapore
Texas
Uruguay
U.S. Federal
2013 - forward
2013 - forward
2013 - forward
2013 - forward
2007 - forward
We currently have ongoing audits in the United States (2011-2013), India (2003-2016) and Germany (2008-2012). We do
on our financial condition or results of operations. With
not expect that the results of these examinations will have a material effect
a few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2007.
ff
Tax Receivable Agreement
ff
Immediately prior to the closing of our initial public offering
in April 2014, we entered into a 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”). The
future payments will equal 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 NOLs,
losses and the ability to realize tax amortization of certain intangible assets (collectively, the “Pre-IPO Tax Assets”).
capital
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.
ff
ff
ff
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 aggregate payments under the TRA relating to the Pre-IPO Tax Assets total $328
million, excluding interest. This includes a provisional reduction recorded in the fourth quarter of 2017 of $60 million in the TRA
liability primarily resulting from the enactment of TCJA which reduced the U.S. corporate income tax rate. The TRA payments accrue
interest in accordance with the terms of the TRA. The estimate of future payments considers the impact of Section 382 of the Code,
which imposes an annual limit on the ability of a corporation that undergoes an ownership change to use its net operating loss
carryforwards to reduce its liability. We do not anticipate any material limitations on our ability to utilize NOLs under Section 382 of
the Code. We expect a majority of the future payments under the TRA to be made over the next three years. No payments occurred
in years 2014 to 2016. We made payments of $60 million and $101 million, including accrued interest of approximately $1 million
each year in January 2018 and 2017, respectively. The remaining portion of $170 million is included in other noncurrent liabilities
in our consolidated balance sheet as of December 31, 2017. Payments under the TRAare not conditioned upon the parties’ continuing
ownership of the company. 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 and any changes in the obligation
under the TRA are recorded in other expense.
89
8. Debt
As of December 31, 2017 and 2016, our outstanding debt included in our consolidated balance sheets totaled $3,456 million
and $3,446 million, respectively, net of debt issuance costs of $23 million and $27 million, respectively, and unamortized discounts
of $9 million and $6 million, respectively. The following table sets forth the face values of our outstanding debt as of December 31,
2017 and 2016 (in thousands):
Senior secured credit facilities:
Term Loan A
Term Loan B
2016 Term Loan A(1)
2013 Term Loan B(2)
2013 Incremental term loan facility(2)
2013 Term Loan C(2)
Revolver, $400 million(3)
5.375% senior secured notes due 2023
5.25% senior secured notes due 2023
Mortgage facility(4)
Capital lease obligations
Face value of total debt outstanding
Less current portion of debt outstanding
Face value of long-term debt outstanding
______________________________
Rate
Maturity
2017
2016
December 31,
L + 2.00%
L + 2.25%
L + 2.50%
L + 3.00%
L + 3.50%
L + 3.00%
L + 2.00%
5.375%
5.25%
5.80%
July 2022
February 2024
July 2021
February 2019
February 2019
December 2017
July 2022
April 2023
November 2023
April 2017
$
555,750
1,881,048
—
—
—
—
—
530,000
500,000
—
21,235
3,488,033
(57,138)
$ 3,430,895
$
—
—
585,000
1,420,896
282,354
49,313
—
530,000
500,000
79,741
31,190
3,478,494
(169,246)
$ 3,309,248
(1) Refinanced on August 23, 2017 by Term Loan A.
(2) Refinanced on February 22, 2017 by the 2017 Term Loan B.
(3)
Pursuant to the August 23, 2017 refinancing, the interest rate on the Revolver was reduced from L+2.50% to L+2.25% and the maturity was extended from July
2021 to July 2022.
Extinguished on March 31, 2017 using proceeds from the 2017 Term Loan B.
(4)
Senior Secured Credit Facilities
In February 2013, Sabre GLBL entered into 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 “2013 Term Loan B”) and $425 million (the “2013 Term
Loan C”) and (ii) the existing revolving credit facility with a new revolving credit facility of $352 million (the “2013 Revolver”). In
September 2013, Sabre GLBL entered into an agreement to amend the Amended and Restated Credit Agreement to add a new
class of term loans in the amount of $350 million (the “2013 Incremental Term Loan Facility”).
In July 2016, Sabre GLBL entered into a series of amendments (the “Credit Agreement Amendments”) to our Amended and
Restated Credit Agreement to provide for an incremental term loan under a new class with an aggregate principal amount of $600
million (the “2016 Term Loan A”) and to replace the 2013 Revolver with a new revolving credit facility totaling $400 million (the “2016
Revolver”). The proceeds of $597 million, net of $3 million discount, from the 2016 Term Loan A were used to repay $350 million
of outstanding principal on our 2013 Term Loan B and 2013 Incremental Term Loan Facility, on a pro rata basis, repay the $120
million then-outstanding balance on the 2016 Revolver, and pay $11 million in associated financing fees. We recognized a $4 million
loss on extinguishment of debt in connection with these transactions during the year ended December 31, 2016.
On February 22, 2017, Sabre GLBL entered into a Third Incremental Term Facility Amendment to our Amended and Restated
Credit Agreement (the “2017 Term Facility Amendment”). The new agreement replaced the 2013 Term Loan B, 2013 Incremental
Term Loan Facility and 2013 Term Loan C with a single class of term loan (the "2017 Term Loan B") with an aggregate principal
amount of $1,900 million maturing on February 22, 2024. The proceeds of $1,898 million, net of $2 million discount on the 2017
Term Loan B, were used to pay offff approximately $1,761 million of all existing classes of outstanding term loans (other than the
2016 Term Loan A), pay related accrued interest and pay $12 million in associated financing fees, which were recorded as debt
modification costs in Other, net in the consolidated statement of operations during the year ended December 31, 2017. The remaining
proceeds of the 2017 Term Loan B were used to pay offff approximately $80 million of Sabre’s outstanding mortgage on its corporate
headquarters on March 31, 2017 and for other general corporate purposes. Unamortized debt issuance costs and discount related
to existing classes of outstanding term loans prior to the 2017 Term Facility Amendment of $9 million and $3 million, respectively,
will continue to be amortized over the remaining term of the Term Loan B along with the Term Loan B discount of $2 million. See
Note 9. Derivatives for information regarding the discontinuation of hedge accounting related to our existing interest rate swaps as
a result of the 2017 Term Facility Amendment.
90
On August 23, 2017, Sabre GLBL entered into a Fourth Incremental Term Facility Amendment to our Amended and Restated
Credit Agreement, Term Loan A Refinancing Amendment to the Credit Agreement, and Second Revolving Facility Refinancing
Amendment to the Credit Agreement to refinance and modify the terms of the 2017 Term Loan B, the 2016 Term Loan A, and the
2016 Revolver, resulting in a reduction of the applicable margins for each of these instruments and approximately a one-year
extension of the maturity of the 2016 Term Loan A and 2016 Revolver (the “2017 Refinancing”). We incurred no additional
indebtedness as a result of the 2017 Refinancing. The 2017 Refinancing included a $400 million revolving credit facility ("Revolver")
that replaced the 2016 Revolver, as well as the application of the proceeds of the approximately $1,891 million incremental Term
Loan A”) to replace the 2017 Term Loan B and the 2016
Loan B facility (“TermTT
Term Loan A. The maturity of the Revolver and the Term Loan A was extended from July 18, 2021 to July 1, 2022. The applicable
margins for the Term Loan B were reduced to 2.25% per annum for Eurocurrency rate loans and 1.25% per annum for base rate
loans. The applicable margins for the Term Loan A and the Revolver were reduced to (i) between 2.50% and 1.75% per annum for
Eurocurrency rate loans and (ii) between 1.50% and 0.75% per annum for base rate loans, in each case with the applicable margin
for any quarter reduced by 25 basis points (up to 75 basis points total) if the Senior Secured First-Lien Net Leverage Ratio (as
defined in the Amended and Restated Credit Agreement) is less than 3.75 to 1.0, 3.00 to 1.0, or 2.25 to 1.0, respectively. The
applicable interest rate margins opened at 2.25% per annum for Eurocurrency rate loans and 1.25% per annum for base rate loans
until November 2, 2017.
Loan B”) and $570 million Term Loan A facility (“TermTT
We had no balance outstanding under the Revolver as of December 31, 2017 or under the 2016 Revolver as of December 31,
2016. We had outstanding letters of credit totaling $21 million and $35 million as of December 31, 2017 and 2016, respectively,
which reduced our overall credit capacity under the Revolver and 2016 Revolver.
Principal Payments
Principal payments on the Term Loan A are due on a quarterly basis equal to 1.25% of its initial aggregate principal amount
during the first two years of its term and 2.50% of its initial aggregate principal amount during the next three years of its term. Term
Loan B matures on February 22, 2024, and required principal payments in equal quarterly installments of 0.25% through to the
maturity date of which the remaining balance is due. For the year ended December 31, 2017, we made $48 million of scheduled
principal payments.
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. Based on our results for the year ended December 31, 2016, we were not required to make an excess cash flow
payment in 2017, and no excess cash flow payment is required in 2018 with respect to our results for the year ended December
31, 2017. 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.
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. We have elected the one-month LIBOR as the floating interest rate on all of our outstanding term loans. Interest
payments are due on the last day of each month as a result of electing one-month LIBOR. Interest on a portion of the outstanding
loan is hedged with interest rate swaps (see Note 9. Derivatives).
ff
Term Loan A
Term Loan B
Revolver, $400 million
______________________________
Eurocurrency borrowings
Applicable Margin(1)
2.00%
2.25%
2.00%
Base rate borrowings
Applicable Margin
1.00%
1.25%
1.00%
(1)
(2)
Applicable margins do not reflect potential step ups and downs of Term Loan A and Revolver, $400 million, which are determined by the Senior Secured Leverage
Ratio. See below for additional information.
Term Loan A, Term Loan B, and Revolver, $400 million, are subject to a 0% floor.
Applicable margins for the Term Loan B are 2.25% per annum for Eurocurrency rate loans and 1.25% per annum for base
rate loans over the life of the loan and are not dependent on the Senior Secured Leverage Ratio. Applicable margins for the Term
Loan A and the Revolver step up by 25 basis points for any quarter if the Senior Secured Leverage Ratio is greater than or equal
to 3.00 to 1.0. Applicable margins for the Term Loan A and the Revolver under the Amended and Restated Credit Agreement step
down 25 basis points for any quarter if the Senior Secured Leverage Ratio is less than 2.25 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 prior to August 22,
2018. In addition, we are required to pay a quarterly commitment fee of 0.250% per annum for unused Revolver commitments. The
commitment fee may increase to 0.375% per annum if the Senior Secured Leverage Ratio is greater than or equal to 3.00 to 1.0.
ff
91
ff
Our effective
interest rates on borrowings under the Amended and Restated Credit Agreement for the years ended
December 31, 2017, 2016 and 2015, inclusive of amounts charged to interest expense, are as follows:
Including the impact of interest rate swaps
Excluding the impact of interest rate swaps
Senior Secured Notes due 2023
Year Ended December 31,
2017
2016
2015
4.35%
4.03%
4.72%
4.55%
4.48%
4.48%
In April 2015, we issued $530 million senior secured notes due in April 2023 with a stated interest rate of 5.375% and received
proceeds of $522 million, net of underwriting fees and commissions. We used the proceeds to redeem all of the $480 million principal
of the senior secured notes due 2019, pay the 6.375% redemption premium of $31 million and a make whole premium of $2 million,
resulting in an extinguishment loss of $33 million during the year ended December 31, 2015. The remaining proceeds, combined
with cash on hand, were used to pay accrued but unpaid interest of $19 million.
In November 2015, we issued $500 million senior secured notes due in 2023 with a stated interest rate of 5.25%. The net
proceeds of $494 million, net of underwriting fees and commissions, were used to repay $235 million of the $400 million 2016 Notes
(as defined below), pay a $5 million make-whole premium on the 2016 Notes and pay $5 million of accrued but unpaid interest. In
addition, we used the net proceeds to repurchase 3,400,000 shares of our common stock totaling $99 million. The excess net
proceeds, together with cash on hand, were applied to fund the acquisition of the Trust Group, which was completed in January
2016. As a result of the prepayment on the 2016 Notes, we recorded an extinguishment loss of $6 million, which includes $1 million
of unamortized discount and the make-whole premium during the year ended December 31, 2015.
The senior secured notes due 2023 were issued by Sabre GLBL and are guaranteed by Sabre Holdings and each of Sabre
GLBL’s existing and subsequently acquired or organized subsidiaries that are borrowers under or guarantors of our senior secured
credit facilities. The senior secured notes due 2023 are secured by a first priority security interest in substantially all present and
after acquired property and assets of Sabre GLBL and the guarantors of the notes, which also constitutes collateral securing
indebtedness under our senior secured facilities on a first priority basis.
Senior Unsecured Notes Due 2016
In March 2016, the remaining principal balance of $165 million of our senior unsecured notes matured. We repaid this
remaining balance on the senior unsecured notes with a draw on our 2016 Revolver and cash on hand.
Aggregate Maturities
As of December 31, 2017, aggregate maturities of our long-term debt were as follows (in thousands):
Years Ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total
Amount
57,138
68,495
80,273
75,905
389,405
2,816,817
3,488,033
$
$
9. 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 expenditures' 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 certain interest rate swaps as cash flow hedges of floating-rate
borrowings.
92
Cash Flow Hedging Strategy-Tyy oTT protect against the reduction in value of forecasted foreign currency cash flows, we hedge
portions of our revenues and expenses denominated in foreign currencies with forward contracts. For example, when the dollar
by
strengthens significantly against the foreign currencies, the decline in present value of future foreign currency expense is offset
losses 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 expense is offset
by gains in the fair value of the forward contracts.
ff
ff
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) (“OCI”) 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
earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the
transaction affects
present value of future cash flows of the hedged item, if any (ineffective
portion), and hedge components excluded from the
are recognized in Other, net in the consolidated statements of operations during the current period.
assessment of effectiveness,
Derivatives not designated as hedging instruments are carried at fair value with changes in fair value reflected in Other, net in the
consolidated statement of operations.
ff
ff
ff
ff
Forward Contracts- In order to hedge our operational expenditures' exposure to foreign currency movements, we are a
party to certain foreign currency forward contracts that extend until December 2018. 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, 2017, 2016 and 2015. As of December 31, 2017, we estimate that $6 million in gains will be reclassified from other
comprehensive income (loss) to earnings over the next 12 months.
ff
As of December 31, 2017 and 2016, 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):
Buy Currency
Polish Zloty
Singapore Dollar
British Pound Sterling
Indian Rupee
Australian Dollar
Swedish Krona
Brazilian Real
Buy Currency
Polish Zloty
Singapore Dollar
British Pound Sterling
Indian Rupee
Australian Dollar
Euro
December 31, 2017 Outstanding Notional Amount
Sell Currency
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
Foreign Amount
USD Amount
Average Contract
Rate
225,000
70,750
25,900
1,720,000
20,750
44,100
16,800
61,016
52,065
34,307
25,939
15,932
5,353
4,976
0.2712
0.7359
1.3246
0.0151
0.7678
0.1214
0.2962
December 31, 2016 Outstanding Notional Amount
Sell Currency
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
Foreign Amount
USD Amount
Average Contract
Rate
258,250
47,700
17,750
1,174,500
17,000
1,800
64,778
34,383
23,691
16,786
12,574
2,031
0.2508
0.7208
1.3347
0.0143
0.7396
1.1283
93
Interest Rate Swap Contracts—Interest
ended December 31, 2017, 2016 and 2015 are as follows:
ss
rate swaps outstanding at December 31, 2017 and matured during the years
Notional Amount
Interest Rate
Received
Designated as Hedging Instrument
$750 million
$750 million
$750 million
$750 million
$750 million
1 month LIBOR(1)
1 month LIBOR(2)
1 month LIBOR(2)
1 month LIBOR(2)
1 month LIBOR(2)
Not Designated as Hedging Instrument(1)
$750 million
$750 million
$750 million
$750 million
1 month LIBOR(3)
1.18%
1 month LIBOR(3)
1.67%
(1) Subject to a 1% floor.
(2) Subject to a 0% floor.
(3) As of February 22, 2017.
Interest Rate Paid
Effective Date
Maturity Date
1.48%
1.15%
1.65%
2.08%
1.86%
December 31, 2015
March 31, 2017
December 29, 2017
December 31, 2018
December 31, 2019
December 30, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
2.19%
1 month LIBOR
2.61%
1 month LIBOR
December 30, 2016
March 31, 2017
December 29, 2017
December 29, 2017
December 29, 2017
December 31, 2017
December 31, 2018
December 31, 2018
As a result of the 2017 Term Facility Amendment in the first quarter of 2017, we discontinued hedge accounting for our
existing swap agreements as of February 22, 2017. Accumulated losses of $14 million in other comprehensive income as of the
date hedge accounting was discontinued is amortized into interest expense through the maturity date of the respective swap
agreements, and interest rate swap payments made thereafter will be recorded in Other, net in the consolidated statement of
operations. Losses reclassified from other comprehensive income to interest expense related to the derivatives that no longer
qualified for hedge accounting were $7 million for the year ended December 31, 2017. We also entered into new interest rate swaps
with offsetting
terms that are not designated as hedging instruments, which did not have a material impact to our consolidated
ff
results of operations. We had no undesignated derivatives as of December 31, 2016 and 2015.
In connection with the 2017 Term Facility Amendment, we entered into new forward starting interest rate swaps effective
March 31, 2017 to hedge the interest payments associated with $750 million of the floating-rate 2017 Term Loan B. The total notional
amount outstanding is $750 million for the full years 2018 and 2019. In September 2017, we entered into new forward starting
interest rate swaps to hedge the interest payments associated with $750 million of the floating-rate Term Loan B. The total notional
December 31, 2019 and extends through the full year 2020. We have designated
outstanding of $750 million becomes effective
these swaps as cash flow hedges. 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.
ff
ff
ff
ff
The estimated fair values of our derivatives designated as hedging instruments as of December 31, 2017 and 2016 are as
follows (in thousands):
Derivative Assets (Liabilities)
Derivatives Designated as Hedging Instruments
Foreign exchange contracts
Foreign exchange contracts
Interest rate swaps
Interest rate swaps
Interest rate swaps
Interest rate swaps
Total
Consolidated Balance Sheet Location
Prepaid expenses and other current assets
Other accrued liabilities
Prepaid expenses and other current assets
Other assets, net
Other accrued liabilities
Other noncurrent liabilities
Fair Value as of December 31,
2017
2016
$
$
6,213
—
856
3,093
—
—
10,162
$
$
—
(7,360)
—
—
(8,345)
(7,339)
(23,044)
Derivatives Not Designated as Hedging Instruments
Interest rate swaps
Total
Consolidated Balance Sheet Location
Other accrued liabilities
Fair Value as of December 31,
2017
2016
$
$
$
((7,119) $)
) $) $
,
(7,119
(
—
—
Derivative Assets (Liabilities)
94
ff
The effects
of derivative instruments, net of taxes, on OCI for the years ended December 31, 2017, 2016 and 2015 are as
follows (in thousands):
Derivatives in Cash Flow Hedging Relationships
Foreign exchange contracts
Interest rate swaps
Total
Derivatives in Cash Flow Hedging Relationships
Foreign exchange contracts
Interest rate swaps
Total
Income Statement Location
Cost of revenue
Interest Expense, net
Amount of (Loss) Gain
Recognized in OCI on Derivative, Effective Portion
Year Ended December 31,
2017
2016
2015
$
$
13,205
2,583
15,788
$
$
(6,413) $
(3,446)
(9,859) $
(5,505)
(7,939)
(13,444)
Amount of Loss (Gain) Reclassified from Accumulated
OCI into Income, Effective Portion
Year Ended December 31,
2017
2016
2015
$
$
(3,001) $
5,083
2,082
$
1,991
2,336
4,327
$
$
10,646
—
10,646
10. 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.
The classification of a financial asset or liability 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.
ss
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.
Pension Plan Assets—See
ss
Note 14. Pension and Other Postretirement Benefit Plans, for fair value information on our pension
plan assets.
95
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, 2017 and 2016 (in thousands):
Derivatives:
Foreign currency forward contracts
Interest rate swap contracts
Total
Derivatives:
Foreign currency forward contracts
Interest rate swap contracts
Total
December 31, 2017
Level 1
Level 2
Level 3
Fair Value at Reporting Date Using
$
$
6,213
(3,170)
3,043
$
$
— $
—
— $
6,213
(3,170)
3,043
$
$
December 31, 2016
Level 1
Level 2
Level 3
Fair Value at Reporting Date Using
(7,360)
(15,684)
((23,044) $)
$
—
—
— $
(7,360)
(15,684)
(
(23,044
) $)
—
—
—
—
—
—
There were no transfers between Levels 1 and 2 within the fair value hierarchy for the years ended December 31, 2017
and 2016.
Assets that are Measured at Fair Value on a Nonrecurring Basis
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.
We perform our annual assessment of possible impairment of goodwill 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 quantitative goodwill impairment model. If it is determined through the evaluation of events or circumstances that a
reporting unit’s fair value is more likely than not greater than its carrying value, the remaining impairment steps are unnecessary.
If it is determined that a reporting unit’s fair value is less than its carrying value, 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 increase in operating expenses, cost of revenue
and taxes. Additionally, in accordance with authoritative guidance on fair value measurements, we make a number of assumptions,
including market participants, the principal markets and highest and best use of the reporting units.
Other Financial Instruments
The carrying value of our financial instruments including cash and cash equivalents, and accounts receivable approximates
their fair values. The fair values of our senior secured notes due 2023 and term loans under our Amended and Restated Credit
Agreement are determined based on quoted market prices for a similar liability when traded as an asset in an active market, a Level
2 input. The outstanding principal balance of $80 million on our mortgage facility was paid on March 31, 2017 and approximated
its fair value as of December 31, 2016. The fair values of the mortgage facility were determined based on estimates of current
interest rates for similar debt, a Level 2 input.
96
The following table presents the fair value and carrying value of all our notes and term loans under our Amended and Restated
Credit Agreement as of December 31, 2017 and 2016 (in thousands):
Financial Instrument
Term Loan A
Term Loan B
2016 Term Loan A(1)
2013 Term Loan B(2)
2013 Incremental Term Loan Facility(2)
2013 Term Loan C(2)
Revolver, $400 million(3)
5.375 % Senior Secured Notes Due 2023
5.25% Senior Secured Notes Due 2023
(1) Refinanced on August 23, 2017 by the Term Loan A.
(2) Refinanced on February 22, 2017 by the 2017 Term Loan B.
(3)
Fair Value at December 31,
Carrying Value(4) at December 31,
2017
$
559,223
$ 1,890,453
—
—
—
—
—
546,563
512,500
$
2016
— $
—
583,538
1,435,993
283,413
49,436
—
542,919
515,000
2017
553,444
1,873,993
—
—
—
—
—
530,000
500,000
$
2016
—
—
582,595
1,417,616
282,354
49,237
—
530,000
500,000
Pursuant to the August 23, 2017 refinancing, the interest rate on the Revolver was reduced from L+2.50% to L+2.25% and the maturity was extended from July
2021 to July 2022.
Excludes net unamortized debt issuance costs.
(4)
11. Stock and Stockholders’ Equity
Initial and Secondary Public Offerings
ff
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.
ff
ff
ff
ff
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
to pay the $27 million redemption premium and $13 million in accrued
amount. We also used the net proceeds from our offering
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.
ff
ff
ff
During the years ended December 31, 2016 and 2015, certain of our stockholders sold an aggregate of 20,000,000 and
In connection with one of these offerings,
during the year ended December 31,
103,970,000 shares, respectively, of our common stock through secondary public offerings.
we repurchased 3,400,000 shares totaling $99 million from the underwriter of the offering
2015. We did not receive any proceeds from the secondary public offerings.
ff
ff
ff
ff
We repurchased 5,779,769 shares, totaling $109 million, and 3,980,672 shares, totaling $100 million, of our common stock
during the years ended December 31, 2017 and 2016, respectively.
Common Stock Dividends
We paid a quarterly cash dividend on our common stock of $0.14 per share, totaling $155 million, $0.13 per share, totaling
$144 million, and $0.09 per share, totaling $99 million, during the years ended December 31, 2017, 2016 and 2015, respectively.
Our board of directors has declared a cash dividend of $0.14 per share of our common stock, which will be paid on March
30, 2018 to stockholders of record as of March 21, 2018.
12. Equity-Based Awards
As of December 31, 2017, 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”), the Sabre Corporation 2014 Omnibus Incentive Compensation Plan (the “2014 Omnibus
Plan”), and the Sabre Corporation 2016 Omnibus Incentive Compensation Plan (the “2016 Omnibus Plan”). Our 2016 Omnibus
Plan serves as successor to the 2014 Omnibus Plan, the Sovereign MEIP and Sovereign 2012 MEIP and provide for the issuance
of stock options, restricted shares, restricted stock units (“RSUs”), performance-based RSU awards (“PSUs”), cash incentive
compensation and other stock-based awards. Outstanding awards under the 2014 Omnibus Plan, the Sovereign MEIP and
Sovereign 2012 MEIP continue to be subject to the terms and conditions of their respective plan.
97
We initially reserved 10,000,000 shares and 13,500,000 shares of our common stock for issuance under our 2016 and 2014
Omnibus Plans, respectively. In addition, we added 2,956,465 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 16,456,465 authorized shares of common stock
for issuance. Time-based options granted under the 2016 and 2014 Omnibus Plans 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. PSUs generally vest over a four year period with 25% vesting annually dependent upon the achievement of certain
company-based performance measures. Each reporting period, we assess the probability of achieving the performance measure
of the adjustment in the current reporting period. Options granted are
and, if there is an adjustment, record the cumulative effect
exercisable for up to 10 years. Stock-based compensation expense totaled $45 million, $49 million and $30 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
ff
Long-term cash incentive compensation is provided through the Long-TermTT
which was initially
adopted under the 2014 Omnibus Plan, for certain senior executives and key employees. The LTSP provides for cash incentive
compensation if certain company-based performance measures are achieved over the three-year period ending December 31,
2017. If these performance measures had been achieved, the cash incentive to be received by the participants would have been
determined in part by the average closing price of our common stock in January 2018. As of December 31, 2017, the performance
measures were not achieved and no amounts were payable under the LTSP.
Stretch Program (“LTSP”),
LL
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
Year Ended December 31,
2017
2016
2015
$
21.33
$
27.12
$
2.10%
6.11
22.02%
2.64%
1.81%
6.11
23.44%
1.92%
22.64
1.75%
6.11
27.29%
1.60%
The following table summarizes the stock option award activities under our outstanding equity based compensation plans
and agreements for the year ended December 31, 2017.
Outstanding at December 31, 2016
Granted
Exercised
Cancelled
Outstanding at December 31, 2017
Vested and exercisable at December 31, 2017
______________________
(1) Aggregate intrinsic value is calculated as the difference
__
ff
Weighted-Average
AA
Quantity
Exercise Price
5,815,879
1,721,767
(1,945,187)
(1,460,624)
4,131,835
1,995,650
$
$
$
17.18
21.33
12.44
22.64
19.50
16.18
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
(in thousands) (1)
7.3
$
45,199
7.6
6.1
$
$
4,136
8,616
between the exercise price of the underlying stock options awards and the closing
price of our common stock of $20.50 on December 31, 2017.
For the years ended December 31, 2017, 2016 and 2015, the total intrinsic value of stock options exercised totaled $19
million, $97 million and $199 million, respectively. The weighted-average fair values of options granted were $3.67, $5.45, and
$5.50 during the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, $8 million in unrecognized
compensation expense associated with stock options will be recognized over a weighted-average period of 2.6 years.
The following table summarizes the activities for our RSUs for the year ended December 31, 2017.
Unvested at December 31, 2016
Granted
Vested
Cancelled
Unvested at December 31, 2017
98
Quantity
3,846,331
2,729,412
(1,085,948)
(780,010)
4,709,785
$
$
AA
Weighted-Average
Grant Date
Fair Value
25.05
19.35
23.50
24.33
23.77
The total fair value of RSUs vested, as of their respective vesting dates, was $23 million, $17 million, and $10 million during
the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, approximately $82 million in
unrecognized compensation expense associated with RSUs will be recognized over a weighted average period of 2.6 years.
The following table summarizes the activities for our PSUs for the year ended December 31, 2017.
Unvested at December 31, 2016
Granted
Vested
Cancelled
Unvested at December 31, 2017
Quantity
2,092,155
1,230,357
(646,208)
(1,262,083)
1,414,221
$
$
AA
Weighted-Average
Grant Date
Fair Value
21.94
21.99
18.71
22.39
23.06
The total fair value of PSUs vested, as of their respective vesting dates, was $14 million, $20 million and $11 million during
the years ended December 31, 2017, 2016 and 2015, respectively. The recognition of compensation expense associated with PSUs
is contingent upon the achievement of annual company-based performance measures. As of December 31, 2017, unrecognized
compensation expense associated with PSUs totaled $10 million, $8 million and $5 million for the annual measurement periods
ending December 31, 2018, 2019 and 2020, respectively.
13. 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):
Numerator:
Income from continuing operations
Net income attributable to noncontrolling interests
Net income from continuing operations available to common stockholders,
basic and diluted
Denominator:
Basic weighted-average common shares outstanding
Dilutive effect
Diluted weighted-average common shares outstanding
of stock options and restricted stock awards
ff
Basic earnings per share
Diluted earnings per share
Year Ended December 31,
2017
2016
2015
$
$
$
$
249,576
5,113
$
241,390
4,377
$
234,555
3,481
244,463
$
237,013
$
231,074
276,893
1,427
278,320
277,546
5,206
282,752
0.88
0.88
$
$
0.85
0.84
$
$
273,139
6,928
280,067
0.85
0.83
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 5 million
of anti-dilutive common stock equivalents for the year ended December 31, 2017 and 1 million for the years ended December 31,
2016 and 2015.
ff
14. 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 $25 million, $23 million and $20 million for the years ended December 31, 2017, 2016 and 2015, respectively.
99
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 postretirement benefit
plans for certain employees in Canada and Hong Kong.
ff
The following tables provide a reconciliation of the changes in the LPP’s benefit obligations and fair value of assets during
the years ended December 31, 2017 and 2016, and the unfunded status as of December 31, 2017 and 2016 (in thousands):
Change in benefit obligation:
Benefit obligation at January 1
Service cost
Interest cost
Actuarial losses, net
Benefits paid
Benefit obligation at December 31
Change in plan assets:
Fair value of assets at January 1
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of assets at December 31
Unfunded status at December 31
Year Ended December 31,
2017
2016
(444,662) $
—
(18,731)
(26,169)
30,123
(459,439) $
324,471
46,425
7,000
(30,123)
347,773
$
$
(420,516)
—
(20,041)
(28,350)
24,245
(444,662)
326,586
22,130
—
(24,245)
324,471
(111,666) $
(120,191)
$
$
$
$
$
The net benefit obligation of $112 million and $120 million as of December 31, 2017 and 2016, respectively, is included in
other noncurrent liabilities in our consolidated balance sheets.
The amounts recognized in accumulated other comprehensive income (loss), net of deferred taxes, associated with the LPP
as of December 31, 2017 and 2016 are as follows (in thousands):
Net actuarial loss
Prior service credit
Accumulated other comprehensive loss
December 31,
2017
(115,701) $
12,433
2016
(118,739)
13,348
(103,268) $
(105,391)
$
$
The following table provides the components of net periodic benefit costs associated with the LPP and the principal
assumptions used in the measurement of the LPP benefit obligations and net benefit costs for the three years ended December 31,
2017, 2016 and 2015 (in thousands):
Interest cost
Expected return on plan assets
Amortization of prior service credit
Amortization of actuarial loss
Net cost
Weighted-average discount rate used to measure benefit
obligations
Weighted average assumptions used to determine net
benefit cost:
Year Ended December 31,
2017
$ 18,731
(20,934)
(1,432)
6,517
2,882
$
2016
$ 20,041
(20,803)
(1,432)
5,871
3,677
$
2015
$ 19,097
(21,117)
(1,432)
7,045
3,593
$
3.81%
4.36%
4.86%
Discount rate
Expected return on plan assets
4.36%
6.50%
4.86%
6.50%
4.36%
6.50%
100
The following table provides the pre-tax amounts recognized in OCI, including the amortization of the actuarial loss and
prior service credit, associated with the LPP for the years ended December 31, 2017, 2016 and 2015 (in thousands):
Obligations Recognized in
Other Comprehensive Income
Net actuarial loss
Amortization of actuarial loss
Amortization of prior service credit
Total (income) loss recognized in other comprehensive income
Total recognized in net periodic benefit cost and other comprehensive
income
Year Ended December 31,
2017
2016
2015
$
$
$
$
679
(6,517)
1,432
(4,406) $
27,023
(5,871)
1,432
22,584
(1,524) $
26,261
$
$
$
6,472
(7,045)
1,432
859
4,452
For the LPP,P we estimate that $6 million of actuarial loss, net of amortization of prior service credit, will be amortized from
accumulated other comprehensive income (loss) into net periodic benefit cost in 2018.
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:
ff
Mutual Fund—The
dd
fair value of our mutual funds are estimated by using market quotes as of the last day of the period.
s
Common Collective Trusts
rr —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.
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
on the achievement of its goal. As defined in Note 10. Fair Value Measurements,
management of the LPP assets has a direct effect
the following tables present the fair value of the LPP assets as of December 31, 2017, and 2016:
ff
Common collective trusts:
Fixed income securities
Global equity securities
Money market mutual fund
Real estate
Total assets at fair value
Common collective trusts:
Fixed income securities
Global equity securities
Money market mutual fund
Real estate
Total assets at fair value
Fair Value Measurements at December 31, 2017
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
— $
—
2,815
—
2,815
$
191,125
134,378
—
—
325,503
$
$
— $
—
—
19,455
19,455
$
Fair Value Measurements at December 31, 2016
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
— $
—
3,732
—
3,732
$
174,899
127,321
—
—
302,220
$
$
— $
—
—
18,519
18,519
$
Total
191,125
134,378
2,815
19,455
347,773
Total
174,899
127,321
3,732
18,519
324,471
101
The following table provides a rollforward of plan assets valued using significant unobservable inputs (level 3), in
thousands:
Ending balance at December 31, 2015
Contributions
Net distributions
Advisory fee
Net investment income
Unrealized gain
Net realized loss
Ending balance at December 31, 2016
Contributions
Net distributions
Advisory fee
Net investment income
Unrealized gain
Net realized gain
Ending balance at December 31, 2017
Real Estate
17,308
246
(246)
(194)
813
593
(1)
18,519
279
(279)
(200)
820
253
63
19,455
$
$
We contributed $7 million to fund the LPP during the year ended December 31, 2017. No contributions were made during
the years ended December 31, 2016 and 2015. Annual contributions to our defined benefit pension plans in the United States,
Canada and Hong Kong 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 expect to contribute $10 million to our defined benefit pension plans in 2018.
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 2018.
We expect the LPP to make the following estimated future benefit payments (in thousands):
2018
2019
2020
2021
2022
2023-2027
15. Commitments and Contingencies
Lease Commitments
$
Amount
33,559
32,589
31,963
30,080
31,151
155,024
We lease certain facilities under long term operating leases. Certain of our lease agreements contain renewal options,
early termination options and/or payment escalations based on fixed annual increases, local consumer price index changes or
market rental reviews. We recognize rent expense with fixed rate increases and/or fixed rent reductions on a straight line basis
over the term of the lease. We lease approximately 1.5 million square feet of officeff
space in 117 locations in 54 countries. For the
years ended December 31, 2017, 2016 and 2015, we recognized rent expense of $32 million, $26 million and $28 million, respectively.
Future minimum lease payments under non-cancelable operating leases are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
Amount
24,467
20,872
17,733
14,189
11,156
29,884
118,301
$
$
102
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.
Antitrust Litigation and DOJ Investigation
US Airways Antitrust Litigation
In April 2011, US Airways filed suit against 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 fewer than 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, relating to our
contracts with US Airways, which US Airways claims contain anticompetitive provisions, and an alleged conspiracy with the other
GDSs, allegedly to maintain the industry structure and not to compete for content. We strongly deny all of the allegations made by
US Airways.
Sabre filed summary judgment motions in April 2014. In January 2015, the court issued an order granting Sabre's summary
judgment motions in part, eliminating a majority of US Airways' alleged damages and rejecting its request for injunctive relief by
which US Airways sought to bar Sabre from enforcing certain provisions in our contracts. In September 2015, the court also dismissed
US Airways' claim for declaratory relief. In February 2017, US Airways sought reconsideration of the court's opinion dismissing the
claim for declaratory relief, which the court denied in March 2017.
The trial on the remaining claims commenced in October 2016. In December 2016, the jury issued a verdict in favor of US
Airways with respect to its claim under Section 1 of the Sherman Act regarding Sabre's contract with US Airways and awarded it
$5 million in single damages. The jury rejected US Airways' claim alleging a conspiracy with the other GDSs. We continue to believe
that our business practices and contract terms are lawful. In January 2017, we filed a motion seeking judgment as a matter of law
in favor of Sabre on the one claim on which the jury found for US Airways, which the court denied in March 2017.
Based on the jury’s verdict, in March 2017 the court entered final judgment in favor of US Airways in the amount of $15
million, which is three times the jury’s award of $5 million as required by the Sherman Act.
In April 2017, we filed an appeal with the United States Court of Appeals for the Second Circuit seeking a reversal of the
judgment. US Airways also filed a counter-appeal challenging earlier court orders, including the above-referenced orders dismissing
and/or issuing summary judgment as to portions of its claims and damages. In connection with this appeal, we posted an appellate
bond equal to the aggregate amount of the $15 million judgment entered plus interest, which stayed the judgment pending the
appeal.
As a result of the jury's verdict, US Airways is also entitled to receive reasonable attorneys’ fees and costs under the Sherman
Act. As such, it filed a motion seeking approximately $125 million in attorneys’ fees and costs, the amount of which we strongly
dispute. In January 2018, the court denied US Airways' motion seeking attorneys' fees and costs, based on the fact that the appeal
of the underlying judgment remains pending, as discussed above. The court's denial of the motion was without prejudice, and US
Airways may refile the motion if it prevails on the appeal.
We have accrued a loss of $32 million, which represents the court's final judgment of $15 million, plus our estimate of $17
million for US Airways' reasonable attorneys’ fees, expenses and costs. We are unable to estimate the exact amount of the loss
associated with the verdict, but we estimate that there is a range of outcomes between $32 million and $65 million, inclusive of the
trebled damage award of approximately $15 million. No amount within the range is considered a better estimate than any other
amount within the range and therefore, the minimum within the range was recorded in selling, general and administrative expense
for the fourth quarter of 2016. As noted above, the amount of attorneys' fees and costs to be awarded is subject to conclusion of
the appellate process and, if US Airways ultimately prevails on the appeal, final decision by the trial court, which may itself be
appealed. The ultimate resolution of this matter may be greater or less than the amount recorded and, if greater, could adversely
our results of operations. We have and will incur significant fees, costs and expenses for as long as the lawsuit, including
affect
to
any appeal, is ongoing. In addition, litigation by its nature is highly uncertain and fraught with risk, and it is therefore difficult
predict the outcome of any particular matter, including any appeal or changes to our business that may be required as a result of
the litigation. Depending on the outcome of the litigation, any of these consequences could have a material adverse effect
on our
business, financial condition and results of operations.
ff
ff
ff
103
Putative Class Action Lawsuit on Antitrust Claims
In July 2015, a putative class action lawsuit was filed against us and two other GDSs, in the United States District Court for
ff who are asserting claims on behalf of a putative class of consumers in various
the Southern District of New York. The plaintiffs,
states, are generally alleging that the GDSs conspired to negotiate for full content from the airlines, resulting in higher ticket prices
for consumers, in violation of various federal and state laws. The plaintiffsff sought an unspecified amount of damages in connection
with their state law claims, and they requested injunctive relief in connection with their federal claim. In July 2016, the court granted,
state law claims are preempted by federal law, thereby precluding
in part, our motion to dismiss the lawsuit, finding that plaintiffs’
their claims for damages. The court declined to dismiss plaintiffs’
claim seeking an injunction under federal antitrust law. The plaintiffsff
may appeal the court’s dismissal of their state law claims upon a final judgment. We believe that the losses associated with this
case are neither probable nor estimable and therefore have not accrued any losses as of December 31, 2017. We may incur
significant fees, costs and expenses for as long as this litigation is ongoing. We intend to vigorously defend against the remaining
claims.
ff
ff
Putative Class Action Lawsuit on Cybersecurity Incident
In July 2017, a putative class action lawsuit was filed against us in the United States District Court for the Central District of
California. The plaintiffsff are asserting various claims under state law, including tort, contract and statutory claims, on behalf of a
putative class of individuals residing in the United States and whose personally identifiable information allegedly was disclosed, in
connection with the cybersecurity incident involving unauthorized access to payment information contained in a subset of hotel
reservations process through the HS Central Reservation System. The plaintiffsff are seeking equitable relief and an unspecified
amount of damages in connection with their claims. In December 2017, we filed a motion to dismiss the lawsuit with prejudice. On
January 25, 2018, the court granted our motion and dismissed the plaintiffs'
claims in their entirety, with prejudice. The plaintiffsff
may appeal with court's decision, but must file the appeal within 30 days of the ruling. We believe that the losses associated with
this case are neither probable nor estimable and therefore have not accrued any losses as of December 31, 2017. We may incur
significant fees, costs and expenses for as long as this litigation is ongoing. We intend to vigorously defend against this matter. See
“—Other” below forf more information.
ff
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 for several years; however, we have not been notified that
this matter is closed.
ff
ff
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. The DIT has continued to issue further tax assessments on a similar basis for subsequent years; however,
the tax assessments for assessment years ending March 2007 and later are no longer material. We appealed the tax assessments
for assessment years ending March 1998 through March 2006 and the Indian Commissioner of Income Tax Appeals returned a
mixed verdict. We filed further appeals with the Income Tax Appellate Tribunal (“ITATTT ”). The ITATTT
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. The initial Supreme Court hearing has
now been scheduled. We have appealed the tax assessments for the assessment years ended March 2013 and March 2015 with
the ITATTT
and no trial date has been set for these subsequent years.
104
In addition, SAPPL is currently a defendant in similar income tax litigation brought by the DIT. The dispute arose when the
DIT asserted that SAPPL has a permanent establishment within the meaning of the Income Tax Treaty between Singapore and
India and accordingly issued tax assessments for assessment years ending March 2000 through March 2005. SAPPL appealed
the tax assessments, and the Indian Commissioner of Income Tax (Appeals) returned a mixed verdict. SAPPL filed further appeals
with the ITATTT . The ITATTT
ruled in SAPPL’s favor, finding that no income would be chargeable to tax for assessment years ending
March 2000 through March 2005. The DIT appealed those decisions to the Delhi High Court. No hearing date has been set. The
DIT also assessed taxes on a similar basis for assessment years ending March 2006 through March 2014 and appeals for assessment
years ending March 2006 through 2014 are pending before the ITATTT .
If the DIT were to fully prevail on every claim against us, including SAPPL, we could be subject to taxes, interest and penalties
of approximately $47 million as of December 31, 2017. We intend to continue to aggressively defend against each of the foregoing
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. We do not believe this outcome is more likely than not and therefore have not made
any provisions or recorded any liability for the potential resolution of any of these claims.
Indian Service Taxa Litigation
SAPPL's Indian subsidiary is also subject to litigation by the India Director General (Service Tax) ("DGST"), which has
assessed the subsidiary for multiple years related to its alleged failure to pay service tax on marketing fees and reimbursements
of expenses. Indian courts have returned verdicts favorable to the Indian subsidiary. The DGST has appealed the verdict to the
Indian Supreme Court. We do not believe that an adverse outcome is probable and therefore have not made any provisions or
recorded any liability for the potential resolution of any of these claims.
Litigation and Administrative Audit Proceedings Relating to Hotel Occupancy Taxes
On January 23, 2015, we sold Travelocity.com to Expedia. Pursuant to 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 our previous long-term strategic marketing agreement with Expedia (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 will be shared with Expedia in accordance with the terms set forth in the
Expedia SMA. We are jointly and severally liable for certain indemnification obligations under the Travelocity Purchase Agreement
for liabilities that may arise out of these litigation matters, which could adversely affect
our cash flow.
ff
pertaining primarily to whether our discontinued Travelocity segment and other OTAsTT
Beginning in 2004, various state and local governments in the United States have filed more than 80 lawsuits against us
owe sales or occupancy
and other OTAsTT
taxes on the revenues they earned from facilitating hotel reservations, where the customer paid us an amount at the time of booking
that included (i) service fees, which we collected and retained, and (ii) the price of the hotel room and amounts for occupancy or
other local taxes, which we passed 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. Several lawsuits also allege
owe state or local taxes on their fees for facilitating car rental reservations. Courts have dismissed many of these
that the OTAsTT
lawsuits, some for failure to exhaust administrative remedies and some on the basis that we are not subject to sales or occupancy
tax. The remaining lawsuits are in various stages of litigation. We have also settled some cases individually, most for amounts not
material to our results of operations, and with respect to these settlements, have generally reserved our rights to challenge any
ff
effort
by the applicable tax authority to impose occupancy taxes in the future.
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. As of December 31, 2017 and 2016, our reserve was not material
for the potential resolution of issues identified related to litigation involving hotel and car sales, occupancy or excise taxes. We did
not record material charges associated with these cases during the years ended December 31, 2017 and 2016. Because we do
not have a material reserve for these matters, and we have not recorded any material charges during the years ended December
31, 2017 and 2016, we did not consider these matters to be material as of December 31, 2017. 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.
ff
In addition to the actions by the tax authorities, two consumer class action lawsuits have been filed against us in which the
plaintiffsff
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 is pending in Texas state court, where the
court is currently considering the plaintiffs’
ff motion to certify a class action; and the other 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 and therefore have
not accrued any losses related to these cases.
105
Furthermore, 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.
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.
Other
In November 2017, in connection with Air Berlin’s insolvency proceedings, we requested that Air Berlin make an election
under the German Insolvency Act on whether to perform or terminate its contract with us. In January 2018, Air Berlin notified us by
letter that it was exercising its right under the German Insolvency Act to terminate its contract with us. In addition, Air Berlin’s letter
alleged various breaches by us of the contract and asserted that it had suffered
a significant amount of damages associated with
its claims. Air Berlin has not commenced any formal action with respect to its claims. We believe that losses associated with these
claims are neither probable nor estimable and therefore have not accrued any losses as of December 31, 2017. We may incur
significant fees, costs and expenses for as long as this matter is ongoing. We intend to vigorously defend against these claims.
ff
As previously disclosed, we became aware of an incident involving unauthorized access to payment information contained
in a subset of hotel reservations processed through the HS Central Reservation System. Our investigation was supported by third
party experts, including a leading cybersecurity firm. Our investigation determined that an unauthorized party: obtained access to
account credentials that permitted access to a subset of hotel reservations processed through the HS Central Reservation System;
used the account credentials to view a credit card summary page on the HS Central Reservation System and access payment card
information (although we use encryption, this credential had the right to see unencrypted card data); and first obtained access to
payment card information and some other reservation information on August 10, 2016. The last access to payment card information
was on March 9, 2017. The unauthorized party was able to access information for certain hotel reservations, including cardholder
name; payment card number; card expiration date; and, for a subset of reservations, card security code. The unauthorized party
was also able, in some cases, to access certain information such as guest name(s), email, phone number, address, and other
information if provided to the HS Central Reservation System. Information such as Social Security, passport, or driver’s license
number was not accessed. The investigation did not uncover forensic evidence that the unauthorized party removed any information
from the system, but it is a possibility. We took successful measures to ensure this unauthorized access to the HS Central Reservation
System was stopped and is no longer possible. There is no indication that any of our systems beyond the HS Central Reservation
System, such as Sabre’s Airline Solutions and Travel Network platforms, were affected
or accessed by the unauthorized party. We
notified law enforcement and the payment card brands, who engaged a PCI forensic investigator to investigate this incident. We
have notified customers and other companies that use or interact with, directly or indirectly, the HS Central Reservation System
about the incident. We are also cooperating with various governmental authorities that are investigating this incident. See “—Putative
Class Action Lawsuit on Cybersecurity Incident” above for a discussion of a lawsuit filed in connection with this incident. Separately,
in November 2017, Sabre Hospitality Solutions observed a pattern of activity that, after further investigation, led it to believe that
an unauthorized party improperly obtained access to certain hotel user credentials for purposes of accessing the HS Central
Reservation System. We deactivated the compromised accounts and notified law enforcement of this activity. We also notified the
payment card brands, and at their request, we have engaged a PCI forensic investigator to investigate this incident. We have not
found any evidence of a breach of the network security of the HS Central Reservation System, and we believe that the number of
affected
reservations represents only a fraction of 1% of the bookings in the HS Central Reservation System. Although the costs
related to these incidents, including any associated penalties assessed by any governmental authority or payment card brand, as
well as any other impacts or remediation related to this incident, may be material, it is not possible at this time to determine whether we
will incur, or to reasonably estimate the amount of, any liabilities in connection with them. We maintain insurance that covers certain
aspects of cyber risks, and we continue to work with our insurance carriers in these matters.
ff
ff
16. Segment Information
Our reportable segments are based upon our internal organizational structure; the manner in which our operations are
, who is our Chief Operating Decision Maker ("CODM"), to evaluate
managed; the criteria used by our Chief Executive Officer
ff
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 software-as-a-service
(“SaaS”) based and hosted applications and platforms to market to the travel industry. Beginning the first quarter of 2018, we plan
to change our reporting segments and report our results as three segments: (i) Travel Network, (ii) Airline Solutions and (iii) Hospitality
Solutions. See Note 18. Subsequent Event for additional information.
In January 2016 and April 2016, we completed the acquisitions of the Trust Group and Airpas Aviation, respectively, which
are integrated and managed as part of our Airline and Hospitality Solutions segment. In July 2015, we acquired Abacus, which is
managed as the APACPP
region of our Travel Network segment.
106
Our CODM utilizes Adjusted Gross Profit, Adjusted Operating Income and Adjusted EBITDA as the measures of profitability
to evaluate performance of our segments and allocate resources. Corporate includes a technology organization that provides
development and support activities to our segments. The majority of costs associated with our technology organization are allocated
to the segments primarily based on the segments' usage of resources. Benefit expenses, facility costs and depreciation expense
on the corporate headquarters building are allocated to the segments based on headcount. Unallocated corporate costs include
certain shared expenses such as accounting, human resources, legal, corporate systems, other shared technology costs,
amortization of intangible assets, impairment and related charges, stock-based compensation, restructuring charges, legal reserves,
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 Profit, Adjusted Operating Income and Adjusted
EBITDA which are not recognized terms under GAAP. Our uses of Adjusted Gross Profit, Adjusted Operating Income 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.
We define Adjusted Gross Profit as operating income adjusted for selling, general and administrative expenses, impairment
and related charges, amortization of upfront incentive consideration, the cost of revenue portion of depreciation and amortization,
restructuring and other costs, and stock-based compensation included in cost of revenue.
We define Adjusted Operating Income as operating income adjusted for joint venture equity income, impairment and related
charges, acquisition-related amortization, restructuring and other costs, acquisition-related costs, litigation (reimbursements) costs
and stock-based compensation.
We define Adjusted EBITDA as income from continuing operations adjusted for depreciation and amortization of property
and equipment, amortization of capitalized implementation costs, acquisition-related amortization, amortization of upfront incentive
consideration, impairment and related charges, interest expense, net, other, net, restructuring and other costs, acquisition-related
costs, litigation costs (reimbursements), net, stock-based compensation, loss on extinguishment of debt and provision for income
taxes.
We define Adjusted Capital Expenditures as additions to property and equipment and capitalized implementation costs during
the periods presented.
107
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, 2017, 2016 and 2015 is as follows (in thousands):
Revenue
Travel Network
Airline and Hospitality Solutions
Eliminations
Total revenue
Adjusted Gross Profit (a)
Travel Network
Airline and Hospitality Solutions
Corporate
Total
Adjusted Operating Income (b)
Travel Network
Airline and Hospitality Solutions
Corporate
Total
Adjusted EBITDA (c)
Travel Network
Airline and Hospitality Solutions
Total segments
Corporate
Total
Depreciation and amortization
Travel Network
Airline and Hospitality Solutions
Total segments
Corporate
Total
Adjusted Capital Expenditures (d)
Travel Network
Airline and Hospitality Solutions
Total segments
Corporate
Total
Year Ended December 31,
2017
2016
2015
$ 2,550,470
1,074,360
(26,346)
$ 3,598,484
$ 2,374,849
1,019,306
(20,768)
$ 3,373,387
$ 2,102,792
872,086
(13,982)
$ 2,960,896
$ 1,127,227
492,339
(119,380)
$ 1,500,186
$ 1,095,619
442,520
(77,464)
$ 1,460,675
$
973,915
384,804
(41,899)
$ 1,316,820
$
$
850,916
246,833
(391,600)
706,149
$
$
838,028
217,631
(335,298)
720,361
$ 1,004,412
415,809
1,420,221
(341,650)
$ 1,078,571
$
970,688
372,063
1,342,751
(296,105)
$ 1,046,646
$
$
$
$
86,085
168,976
255,061
145,810
400,871
90,881
221,156
312,037
65,165
377,202
$
$
$
$
76,936
154,432
231,368
182,618
413,986
97,798
252,367
350,165
60,887
411,052
$
$
$
$
$
$
$
$
766,388
180,448
(293,731)
653,105
877,276
323,461
1,200,737
(259,150)
941,587
65,765
143,013
208,778
142,702
351,480
73,469
226,260
299,729
50,350
350,079
108
(a) The following table sets forth the reconciliation of Adjusted Gross Profit to operating income in our statement of operations
(in thousands):
Adjusted Gross Profit
Less adjustments:
Selling, general and administrative
Impairment and related charges(7)
Cost of revenue adjustments:
Depreciation and amortization (1)
Amortization of upfront incentive consideration (2)
Restructuring and other costs (4)
Stock-based compensation
Operating income
Year Ended December 31,
2017
$ 1,500,186
2016
$ 1,460,675
2015
$ 1,316,820
510,075
81,112
317,812
67,411
12,604
17,732
493,440
$
626,153
—
287,353
55,724
12,660
19,213
459,572
$
557,077
—
244,535
43,521
—
11,918
459,769
$
(b) The following table sets forth the reconciliation of Adjusted Operating Income to operating income in our statement of operations
(in thousands):
Adjusted Operating income
Less adjustments:
Joint venture equity income
Impairment and related charges(7)
Acquisition-related amortization(1c)
Restructuring and other costs (4)
Acquisition-related costs(5)
Litigation (reimbursements) costs(6)
Stock-based compensation
Operating income
Year Ended December 31,
2017
706,149
$
2016
720,361
$
2015
653,105
$
2,580
81,112
95,860
23,975
—
(35,507)
44,689
493,440
$
2,780
—
143,425
18,286
779
46,995
48,524
459,572
$
14,842
—
108,121
9,256
14,437
16,709
29,971
459,769
$
(c) The following table sets forth the reconciliation of Adjusted EBITDA to income from continuing operations in our statement of
operations (in thousands):
Adjusted EBITDA
Less adjustments:
Impairment and related charges(7)
Depreciation and amortization of property and equipment(1a)
Amortization of capitalized implementation costs(1b)
Acquisition-related amortization(1c)
Amortization of upfront incentive consideration(2)
Interest expense, net
Loss on extinguishment of debt
Other, net(3)
Restructuring and other costs(4)
Acquisition-related costs(5)
Litigation (reimbursements) costs(6)
Stock-based compensation
Provision for income taxes(8)
Income from continuing operations
________________________
__
109
Year Ended December 31,
2017
$ 1,078,571
2016
$ 1,046,646
$
2015
941,587
81,112
264,880
40,131
95,860
67,411
153,925
1,012
(36,530)
23,975
—
(35,507)
44,689
128,037
249,576
$
—
233,303
37,258
143,425
55,724
158,251
3,683
(27,617)
18,286
779
46,995
48,524
86,645
241,390
$
—
213,520
31,441
108,121
43,521
173,298
38,783
(91,377)
9,256
14,437
16,709
29,971
119,352
234,555
$
(1) Depreciation and amortization expenses (see Note 1. Summary of Business and Significant Accounting Policies for associated asset
lives):
a. Depreciation and amortization of property and equipment includes software developed for internal use.
b.
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. Also includes amortization of the excess basis in our
underlying equity interest in SAPPL's net assets prior to our acquisition of SAPPL on July 1, 2015.
c.
(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. This consideration is made with the objective of increasing the number of clients or to
ensure or improve customer loyalty. These 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. These 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 2017, Other, net includes a benefit of $60 million due to a reduction to our liability under the TRA primarily due to a provisional
adjustment resulting from the enactment of TCJA in December 2017 which reduced the U.S. corporate income tax rate (see Note
7. Income Taxes), offset
by a loss of $15 million related to debt modification costs associated with debt refinancing. In 2016, we
recognized a gain of $15 million from the sale of our available-for-sale marketable securities, and a $6 million gain associated with
the receipt of an earn-out payment from the sale of a business in 2013. Additionally, in 2015, we recognized a gain of $78 million
associated with the remeasurement of our previously-held 35% investment in SAPPL to its fair value and a gain of $12 million related
to the settlement of pre-existing agreements between us and SAPPL.
(3)
ff
(4) 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. We recorded $25 million and $20 million in charges associated with an announced action to reduce
our workforce in 2017 and 2016, respectively. These reductions aligned our operations with business needs and implemented an
ongoing cost and organizational structure consistent with our expected growth needs and opportunities. In 2015, we recognized a
restructuring charge of $9 million associated with the integration of Abacus, and reduced that estimate by $4 million in 2016, as a
result of the reevaluation of our plan derived from a shift in timing and strategy of originally contemplated actions. As of December
31, 2017, our actions under this plan have been substantially completed and payments under the plan have been made.
(5) Acquisition-related costs represent fees and expenses incurred associated with the acquisition of Abacus, the Trust Group and
Airpas Aviation. See Note 2. Acquisitions.
(6) Litigation (reimbursements) costs, net represent charges and legal fee reimbursements associated with antitrust litigation. In 2017,
we recorded a $43 million reimbursement, net of accrued legal and related expenses, from a settlement with our insurance carriers
with respect to the American Airlines litigation. In 2016, we recorded an accrual of $32 million representing the trebling of the jury
award plus our estimate of attorneys’ fees, expenses and costs in the US Airways litigation. See Note 15. Commitments and
Contingencies.
Impairment and related charges represents an $81 million impairment charge recorded in 2017 associated with net capitalized
contract costs related to an Airline Solutions' customer based on our analysis of the recoverability of such amounts. See Note 4.
Impairment and Related Charges for additional information.
In 2017, provision for income taxes includes a provisional impact of $47 million recognized in the fourth quarter of 2017 as a result
of the enactment of the TCJA in December 2017. See Note 7. Income Taxes.
(7)
(8)
(d) Includes capital expenditures and capitalized implementation costs as summarized below (in thousands):
Additions to property and equipment
Capitalized implementation costs
Adjusted Capital Expenditures
Year Ended December 31,
2017
316,436
60,766
377,202
$
$
2016
327,647
83,405
411,052
$
$
2015
286,697
63,382
350,079
$
$
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 professional service
fees. Transaction-based revenue accounted for approximately 95%, 95% and 92% of our Travel Network revenue for the years
ended December 31, 2017, 2016 and 2015, respectively. Transaction-based revenue accounted for approximately 72%, 73% and
70% for the years ended December 31, 2017, 2016 and 2015, respectively, of our Airline and Hospitality Solutions revenue.
All joint venture equity income relates to Travel Network.
110
Our revenues and long-lived assets, excluding goodwill and intangible assets, by geographic region are summarized below.
Revenue of our Travel Network business is attributed to countries based on the location of the travel supplier. For Airline and
Hospitality Solutions, revenue is attributed to countries based on the location of the customer.
Revenue:
United States
Europe
APAC
All other
Total
Long-lived assets
United States
APAC
Europe
All other
Total
Year Ended December 31,
2017
2016
2015
$ 1,340,893
777,406
715,740
764,445
$ 3,598,484
$ 1,257,685
699,168
657,465
759,069
$ 3,373,387
$ 1,182,056
581,762
497,518
699,560
$ 2,960,896
As of December 31,
2017
2016
$
$
776,102
11,468
3,939
7,685
799,194
$
$
726,021
13,330
5,922
8,006
753,279
17. Quarterly Financial Information (Unaudited)
A summary of our quarterly financial results for the years ended December 31, 2017 and 2016 is presented below (in
thousands):
Revenue
Operating income
Income (loss) from continuing operations
(Loss) income from discontinued operations, net of tax
Net income (loss)
Net income (loss) attributable to common stockholders
Net income (loss) per share attributable to common
stockholders:
Basic
Diluted
Revenue
Operating income
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Net income attributable to common stockholders
Net income per share attributable to common stockholders:
Basic
Diluted
$
$
Year Ended December 31, 2017
First Quarter
915,353
163,326
77,722
(477)
77,245
75,939
$
Second Quarter
900,663
$
18,718
(4,152)
(1,222)
(5,374)
(6,487)
Third Quarter
900,606
176,796
92,825
(529)
92,296
90,989
Fourth Quarter
881,862
$
134,600
83,181
296
83,477
82,090
0.28
0.27
(0.02)
(0.02)
0.33
0.33
0.30
0.30
Year Ended December 31, 2016
First Quarter
859,543
171,422
134,343
13,350
106,269
105,167
0.38
0.37
$
Second Quarter
845,242
$
142,039
106,468
(2,098)
73,097
72,019
0.26
0.25
Third Quarter
838,982
90,150
49,464
(394)
41,862
40,815
0.15
0.14
Fourth Quarter
829,620
$
55,961
31,020
(5,309)
25,711
24,561
0.09
0.09
111
18. Subsequent Event
ff
Effective
the first quarter of 2018, we plan to disaggregate the Airline and Hospitality Solutions reportable segment, such
that our business will have three reportable segments comprised of: (i) Travel Network, (ii) Airline Solutions and (iii) Hospitality
Solutions. In conjunction with this change, we plan to modify the methodology we have historically used to allocate shared corporate
technology costs. Each segment will reflect a portion of our shared corporate costs that historically were not allocated to a business
unit, based on relative consumption of shared technology infrastructure costs and defined revenue metrics. These changes will
have no impact on our consolidated results of operations, but will result in a decrease of segment profitability only, which will align
with information that our CODM plans to utilize beginning in 2018 to evaluate segment performance and allocate resources.
112
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
DISCLOSURE
TT
ON ACCOUNTING AND FINANCIAL
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
ff
Under the supervision and with the participation of our management, including the Chief Executive Officer
, we have evaluated the effectiveness
and Chief Financial
Officer
of the design and operation of our disclosure controls and procedures (as defined in
Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive
have concluded that, as of the end of the period covered by this report, our disclosure controls
ff
Officer
and procedures are effective.
and Chief Financial Officer
ff
ff
ff
ff
Management’s’ Report on Internal Control Over Financial Reporting
ff
and Chief Financial Officer
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Exchange Act Rule 13a-15(f)). Under the supervision and with the participation of our management, including the Chief Executive
Officer
of our internal control over financial
reporting based on criteria established in the framework in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation, we concluded that our internal
control over financial reporting is effective
, we have conducted an evaluation of the effectiveness
as of December 31, 2017.
ff
ff
ff
Our independent registered public accounting firm, Ernst & Young LLP,P has issued an attestation report on the effectiveness
of our internal control over financial reporting as of December 31, 2017, which is included in Item 8 of this Annual Report on Form
10-K.
ff
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
to future periods are subject to the risk that controls may become inadequate because
projections of any evaluation of effectiveness
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ff
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as this term is defined in Exchange Act Rule
our
or are reasonably likely to materially affect,
13a-15(f)) during the year ended December 31, 2017 that have materially affected,
internal control over financial reporting.
ff
ff
During 2017, we completed the implementation of SAP S/4 HANA, our cloud-based enterprise resource planning ("ERP")
system, which is a key system within our internal control over financial reporting. A key component of our ERP implementation
project was to ensure appropriate internal controls over financial reporting is maintained. While we expect to make changes to our
ERP system from time to time in the future, any such changes are currently not expected to be reasonably likely to materially affect
our internal control over financial reporting.
ff
ITEM 9B.
OTHER INFORMATION
AA
Not applicable.
113
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEAA GOVERNANCE
The information set forth under the following headings of our definitive Proxy Statement for our 2018 annual meeting of
stockholders (the “2018 Proxy Statement”) is incorporated 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.”
Other Information—“Section 16(a) Beneficial Ownership Reporting Compliance.”
“Corporate Governance—Other Corporate Governance Practices and Policies—Code of Business Ethics,” which
describes our Code of Business Ethics.
“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
Annual Report on Form 10-K.
ff
is reported under the caption “Executive Officers
ff
of the Registrant” in Part I of this
ITEM 11.
EXECUTIVE COMPENSATION
AA
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 2018 Proxy Statement is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAINTT
AA
STOCKHOLDER MATTERS
BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDAA
The information set forth under the headings “Security Ownership of Certain Beneficial Owners and Management” of the
2018 Proxy Statement is incorporated herein by reference.
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, 2017.
Number of securities
to be issued upon
exercise of
outstanding options
(a)
—
10,255,841
Weighted average
exercise price of
outstanding options
(b)
$
$
—
19.50
Number of securities
remaining available for
future issuance under
equity compensation
plans
—
13,914,640
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
________________________
(a)
Includes shares of common stock to be issued upon the exercise of outstanding options under our 2016 Omnibus Plan, 2014
Omnibus Plan, the Sovereign 2012 MEIP and the Sovereign MEIP. Also includes 6,124,006 restricted share units under our
2016 Omnibus Plan and 2014 Omnibus Plan (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).
(b) Excludes restricted share units which do not have an exercise price.
Sabre Corporation 2016 Omnibus Incentive Compensation Plan. The 2016 Omnibus Plan serves as a successor to the 2014
Omnibus Plan and provides for the issuance of stock options, restricted shares, restricted stock units ("RSUs") performance-based
RSU awards ("PSUs"), cash incentive compensation and other stock-based awards.
Sabre Corporation 2014 Omnibus Incentive Compensation Plan. The 2014 Omnibus Plan serves as successor to the
Sovereign MEIP and Sovereign 2012 MEIP and provides for the issuance of stock options, restricted shares, RSUs, PSUs, cash
incentive compensation and other stock-based awards. All shares available for future grants, along with shares that were covered
by prior awards of stock options granted under the 2014 Omnibus Plan that were forfeited or otherwise expire unexercised or without
issuance of Sabre Corporation common stock, have been transferred to the 2016 Omnibus Plan. Therefore, as of December 31,
2017, no shares remained available for future grants under the 2014 Omnibus Plan.
114
Sovereign Holdings, Inc. Management Equity Incentive Plan. Under the Sovereign MEIP,P key employees and, in certain
circumstances, the directors, service providers and consultants, of Sabre and its affiliates
may be granted stock options. All shares
available for future grants, along with shares that were covered by prior awards of stock options granted under the Sovereign MEIP
that were forfeited or otherwise expire unexercised or without the issuance of shares of Sabre Corporation common stock, have
been transferred to the Sovereign 2012 MEIP,P which have subsequently been transferred to the 2014 Omnibus Plan and then to
the 2016 Omnibus Plan. Therefore, as of December 31, 2017, no shares remained available for future grants under the Sovereign
MEIP.
ff
Sovereign Holdings, Inc. 2012 Management Equity Incentive Plan. Under the Sovereign 2012 MEIP,P key employees and, in
certain circumstances, the directors, service providers and consultants, of Sabre and its affiliates
may be granted stock options,
restricted shares, RSUs, PSUs and other stock-based awards. All shares available for future grants, along with shares that were
covered by prior awards of stock options granted under the Sovereign MEIP that were forfeited or otherwise expire unexercised or
without the issuance of shares of Sabre Corporation common stock, have been transferred to the 2014 Omnibus Plan and then to
the 2016 Omnibus Plan. Therefore, as of December 31, 2017, no shares remained available for future grants under the Sovereign
2012 MEIP.
ff
ITEM 13.
CERTAINTT
RELATIONSHIPS
AA
AND RELATEDAA
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 2018 Proxy Statement is incorporated herein by reference.
ITEM 14.
PRINCIPALPP
ACCOUNTANT
TT
FEES AND SERVICES
RR
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 2018 Proxy Statement is incorporated herein
by reference.
115
ITEM 15.
EXHIBITS AND FINANCIAL STATTT EMENT SCHEDULES
The following documents are filed as part of this report.
PART IV
1. Financial statements. The financial statements are set forth under Item 8 of this Annual Report on Form 10-K.
2. Financial statement schedules. Schedule II Valuation and Qualifyiff ng 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
have been
regulations of the SEC are not required under the related instruction, are not material or are not applicable and, therefrr ore,
omitted.
ff
3. Exhibits.t
Exhibit
Number
Description of Exhibits
2.1
2.2
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
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 Corporations Current Report on Form 8-K filed with the Securities and Exchange Commission
on January 26, 2015).
Share Purchase Agreement, dated as of May 14, 2015 by and between Abacus International Holdings Ltd and
Sabre Technology Enterprises II Ltd. (incorporated by reference to Exhibit 2.1 of Sabres Corporation Current
Report on Form 8-K filed with the Securities and Exchange Commission on May 14, 2015).
Third Amended and Restated Certificate of Incorporation of Sabre Corporation (incorporated by reference to Exhibit
3.1 of Sabres Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on April
22, 2014).
Certificate of Amendment to 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 May
25, 2017).
Third Amended and Restated Bylaws of Sabre Corporation (incorporated by reference to Exhibit 3.2 of Sabres
Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on May 25, 2017).
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 Sabres Corporation
Current Report on Form 8-K filed with the Securities and Exchange Commission on April 23, 2014).
Indenture, dated as of April 14, 2015, among Sabre GLBL Inc., each of the guarantors party thereto and Wells
Fargo Bank, National Association, as trustee and collateral agent. (incorporated by reference to Exhibit 4.1 of
Sabres Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on April 15,
2015).
Form of 5.375% Senior Secured Notes due 2023 (included in Exhibit 4.2).
Indenture, dated as of November 9, 2015, among Sabre GLBL Inc., each of the guarantors party thereto and Wells
Fargo Bank, National Association, as trustee and collateral agent. (incorporated by reference to Exhibit 4.1 of
Sabres Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on November
9 2015).
Form of 5.250% Senior Secured Notes due 2023 (included in Exhibit 4.4).
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 Corporations 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 Corporations Amendment No. 1 to the Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on March 10, 2014).
in
Amended and Restated Guaranty, dated as of February 19, 2013, among Sabre Holdings Corporation, certarr
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 Corporations Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on January 21, 2014).
116
Exhibit
Number
10.4
10.5
10.6
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15
10.16
10.17
10.18
10.19
Description of Exhibits
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
Corporations 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 Corporations
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 21, 2014).
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 Corporations 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 Corporations 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
Corporations 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 Corporations 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 Corporations Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on January 21, 2014).
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 Corporations 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 Corporations
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 Corporations
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 Corporations 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 Corporations Amendment No. 1
to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 10, 2014).
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
Corporations 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 Partirr es, Bank of
America, N.A., as administrative agent and the Revolving Credit Lenders thereto (incorporated by reference to
Exhibit 10.40 of Sabre Corporations Amendment No. 1 to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on March 10, 2014).
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 Sabres 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 Sabres Corporation Current Report on
Form 8-K filed with the Securities and Exchange Commission on April 23, 2014).
117
Exhibit
Number
10.20*+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+
10.27
10.28+
10.29+
10.30
10.31+
10.32
10.33
10.34+
10.35
10.36+
10.37+
10.38+
10.39+
Description of Exhibits
Form of Director and Officff er Indemnification Agreement
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 Corporations Amendment No.
3 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 26,
2014).
Sabre Corporation 2014 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.48 of
Sabre Corporations 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 Grant Agreement under the Sabre Corporation 2014 Omnibus Incentive
Compensation Plan (incorporated by reference to Exhibit 10.49 of Sabre Corporations Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on May 5, 2015).
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 Corporations Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on May 5, 2015).
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 Corporations
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 Corporations
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
Corporations Amendment No. 4 to the Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on March 31, 2014).
Employment Agreement by and between Sabre Corporation and Rachel Gonzalez dated September 2, 2014
(incorporated by reference to Exhibit 10.55+ of Sabres Corporation Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 12, 2014).
Sabre Corporation Non-Employee Directors Compensation Deferral Plan dated October 29, 2014 (incorporated by
reference to Exhibit 10.57+ of Sabre Corporations Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on January 26, 2015).
Second Amended and Restated Stockholders Agreement dated as of February 6, 2015 by and among Sabre
Corporation and the stockholders party thereto (incorporated by reference to Exhibit 10.58 of Sabre Corporation's
Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 3, 2015).
Form of Award Agreement for Long-Term Stretch Program (incorporated by reference to Exhibit 10.1 of Sabres
Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 13, 2015).
Pledge and Security Agreement, dated as of April 14, 2015, among Sabre GLBL Inc., Sabre Holdings Corporation,
the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as collateral agent
(incorporated by reference to Exhibit 10.1 of Sabre Corporations Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 15, 2015).
Pledge and Security Agreement, dated as of November 9, 2015, among Sabre GLBL Inc., Sabre Holdings
Corporation, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as collateral agent
(incorporated by reference to Exhibit 10.1 of Sabre Corporations Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 9, 2015).
Sabre Corporation Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 of Sabre
Corporations Current Report on Form 8-K filed with the Securities and Exchange Commission on November 16,
2015).
Master Services Agreement dated as of November 1, 2015, between Sabre GLBL, Inc. and HP Enterprise Services,
LLC, as provider (incorporated by reference to Exhibit 10.65 of Sabre Corporations Annual Report on Form 10-K
filed with the Securities and Exchange Commission on February 19, 2016).
Sabre Corporation 2016 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 of Sabre
Corporations Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2016).
Form of Restricted Stock Unit Grant Agreement under the Sabre Corporation 2016 Omnibus Incentive
Compensation Plan (incorporated by reference to Exhibit 10.44 of Sabre Corporations Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on May 2, 2017).
Form of Non-Qualified Stock Option Grant Agreement under the Sabre Corporation 2016 Omnibus Incentive
Compensation Plan (incorporated by reference to Exhibit 10.45 of Sabre Corporations Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on May 2, 2017).
Joinder Agreement to Second Amended and Restated Stockholders' Agreement, dated January 5, 2016, by
Sovereign Co-Invest II, LLC (incorporated by reference to Exhibit 10.66 of Sabre Corporations Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on April 28, 2016).
118
Exhibit
Number
10.40+
10.41
10.42
10.43
10.44+
10.45+
10.46
10.47
10.48+
10.49+
10.50
10.51
10.52
10.53
10.54+
10.55+
Description of Exhibits
Joinder Agreement to Amended and Restated Registration Rights Agreement, dated Januaryrr 5, 2016, by Sovereign
Co-Invest II, LLC (incorporated by reference to Exhibit 10.67 of Sabre Corporations Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on April 28, 2016).
Revolving Facility Refinancing Amendment to Amended and Restated Credit Agreement, dated July 18, 2016,
among Sabre GLBL Inc., Sabre Holdings Corporation, each of the other Loan Parties party thereto, Bank of
it Lenders party thereto (incorporated by reference to
America, N.A., as Administrative Agent and the Revolving Credrr
Exhibit 10.1 of Sabre Corporations Current Report on Form 8-K filed with the Securities and Exchange Commission
on July 19, 2016).
Amendment No. 2 to Amended and Restated Credit Agreement, dated July 18, 2016, among Sabre GLBL Inc.,
Sabre Holdings Corporation, each of the other Loan Parties party thereto, Bank of America, N.A., as Administrative
Agent and the Lenders party thereto (incorporated by reference to Exhibit 10.2 of Sabre Corporations Current
Report on Form 8-K filed with the Securities and Exchange Commission on July 19, 2016).
Second Incremental Term Facility Amendment to Amended and Restated Credit Agreement, dated July 18, 2016,
among Sabre GLBL Inc., Sabre Holdings Corporation, each of the other Loan Parties party thereto, Bank of
America, N.A., as Administrative Agent and the Incremental Term A Lenders party thereto (incorporated by
reference to Exhibit 10.3 of Sabre Corporations Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 19, 2016).
Employment Agreement by and between Sabre Corporation and Sean Menke, dated December 15, 2016
(incorporated by reference to Exhibit 10.1 of Sabre Corporations Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 16, 2016).
Letter Agreement by and between Sabre Corporation and Lawrence W. Kellner, dated December 15, 2016
(incorporated by reference to Exhibit 10.2 of Sabre Corporations Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 16, 2016).
Amendment dated December 22, 2016, to that certain Master Services Agreement dated as of November 1, 2015
by and between HP Enterprise Servir ces, LLC and Sabre GLBL Inc. (incorporated by reference to Exhibit 10.56 of
Sabre Corporation's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February
17, 2017).
Third Incremental Term Facility Amendment to Amended and Restated Credit Agreement, dated February 22, 2017,
among Sabre GLBL Inc., Sabre Holdings Corporation, each of the other Loan Parties party thereto, Bank of
America, N.A., as Administrative Agent, the 2017 Incremental Term Lenders party thereto and each other Lender
party thereto (incorporated by reference to Exhibit 10.1 of Sabre Corporations Current Report on Form 8-K filed
with the Securities and Exchange Commission on February 24, 2017).
Letter Agreement by and betwett
en Sabre Corporation and David Shirk, dated April 5, 2017 (incorporated by
reference to Exhibit 10.60 of Sabre Corporations Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 1, 2017).
Letter Agreement by and between Sabre Corporation and Wade Jones, dated April 24, 2017 (incorporated by
reference to Exhibit 10.61 of Sabre Corporations Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 1, 2017).
Amendment Number Two, dated May 1, 2017, to that certain Master Services Agreement dated as of November 1,
2015 by and between Enterprises Services, LLC (f/k/a HP Enterprise Servir ces, LLC) and Sabre GLBL Inc.
(incorporated by reference to Exhibit 10.62 of Sabre Corporations Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on August 1, 2017).
Fourth Incremental Term Facility Amendment to Amended and Restated Credit Agreement, dated August 23, 2017,
among Sabre GLBL Inc., Sabre Holdings Corporation, each of the other Loan Parties party thereto, Bank of
America, N.A., as Administrative Agent and the 2017 B-1 Incremental Term Lenders party thereto (incorporated by
reference to Exhibit 10.1 of Sabre Corporation's Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 23, 2017).
Term Loan A Refinancing Amendment to Amended and Restated Credit Agreement, dated August 23, 2017, among
Sabre GLBL Inc., Sabre Holdings Corporation, each of the other Loan Parties party thereto, Bank of America, N.A.,
as Administrative Agent and the 2017 Other Term A Lenders party thereto (incorporated by reference to Exhibit 10.2
of Sabre Corporation's Current Report on Form 8-K filed with the Securities and Exchange Commission on August
23, 2017).
Second Revolving Facility Refinancing Amendment to Amended and Restated Credit Agreement, dated August 23,
2017, among Sabre GLBL Inc., Sabre Holdings Corporation, each of the other Loan Parties party thereto, Bank of
America, N.A., as Administrative Agent and Lenders party thereto (incorporated by reference to Exhibit 10.3 of
Sabre Corporation's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 23,
2017).
Letter Agreement by and between Sabre Corporation and Clinton Anderson, dated July 25, 2017 (incorporated by
reference to Exhibit 10.66 of Sabre Corporations Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on October 31, 2017).
Sabre Corporation Executive Severance Plan (incorporated by reference to Exhibit 10.1 of Sabre Corporations
Current Report on Form 8-K filed with the Securities and Exchange Commission on November 8, 2017).
119
Exhibit
Number
21.1*
23.1*
24.1*
31.1*
31.2*
32.1*
32.2*
Description of Exhibits
List of Subsidiaries
Consent of Ernst & Young
YY
LLP
Powers of Attorney (included on signature page)
Certification of Chief Executive Officer pur
ff
suant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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 TaxTT onomy Extension Calculation Linkbase
101.DEF*
XBRL Taxonomy Extension Definition Linkbase
101.LAB*
XBRL Taxonomy Extension Label 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.
ITEM 16.
FORM 10-K SUMMARY
Not applicable.
120
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.
AA
SIGNATURES
Date: February 16, 2018
SABRE CORPORATION
AA
By:
/s/ Richard A. Simonson
Richard A. Simonson
Executive Vice President and
Chief Financial Officer
ff
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints
Sean Menke, 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.
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/ Sean Menke
Sean Menke
/s/ Richard A. Simonson
Richard A. Simonson
/s/ Jami B. Kindle
Jami B. Kindle
/s/ Lawrence W. Kellner
Lawrence W. Kellner
/s/ George Bravante, Jr.
George Bravante, Jr.
/s/ Hervé Couturier
Hervé Couturier
/s/ Renée James
Renée James
/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
/s/ Zane Rowe
Zane Rowe
President and Chief Executive Officer
(Principal Executive Officer)
ff
ff
and Director
February 16, 2018
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
ff
ff
Vice President and Corporate Controller
(Principal Accounting Officer)
ff
February 16, 2018
February 16, 2018
Chairman of the Board and Director
February 16, 2018
Director
Director
Director
Director
Director
Director
Director
Director
Director
121
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
SCHEDULE II — VALUATION
AA
AND QUALIFYING ACCOUNTS
SABRE CORPORATION
AA
DECEMBER 31, 2017, 2016 AND 2015
(In millions)
Allowance for Doubtful Accounts
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
Valuation Allowance for Deferred Tax Assets
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
Reserve for Value-Added Tax Receivables
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
Balance at
Beginning
Charged to
Expense or
Other Accounts
Write-offs and
Other Adjustments
Balance at
End of Period
$
$
$
$
$
$
$
$
$
37.1
32.3
27.5
74.5
80.7
160.0
0.3
1.8
6.9
$
$
$
$
$
$
$
$
$
9.5
10.6
8.6
$
$
$
(8.8) $
$
1.1
(69.8) $
— $
(1.6) $
(3.1) $
(3.6) $
(5.8) $
(3.8) $
(6.7) $
(7.3) $
(9.5) $
(0.3) $
0.1
$
(2.0) $
43.0
37.1
32.3
59.0
74.5
80.7
—
0.3
1.8
122
Co-founder, Bravante-Curci Investors, LP,
Owner, Bravante Produce and
CEO, Pacific Agricultural Realty, LP
Hervé Couturier
President, Kerney Partners
Renée James
Former President, Intel Corporation
Chairman of the Board, Sabre
Gary Kusin
Private Investor,
Business Advisor and Entrepreneur
Sean Menke
Sean Menke
Clinton Anderson
Executive Vice President, Sabre
and President, Hospitality Solutions
Wade Jones
Executive Vice President, Sabre
and President, Travel Network
David Shirk
Executive Vice President, Sabre
and President, Airline Solutions
Senior Partner, TPG and Managing Partner,
TPG Pace Group
Zane Rowe
Chief Financial Officer, VMware, Inc.
Wednesday, May 23, 2018 at 9:30 a.m. (local time)