NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Business and Significant Accounting Policies
Description of Business
Sabre Corporation is a Delaware corporation formed in December 2006. On March 30, 2007, Sabre Corporation acquired Sabre Holdings Corporation (“Sabre Holdings”). Sabre Holdings is the sole subsidiary of Sabre Corporation. Sabre GLBL Inc. (“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 three business segments: (i) Travel Network, our global travel marketplace for travel suppliers and travel buyers, (ii) Airline Solutions, a broad portfolio of software technology products and solutions for airlines and other travel suppliers, and (iii) Hospitality Solutions, an extensive suite of leading software solutions for 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, estimation of future cancellations of bookings processed through the Sabre global distribution system ("GDS"), revenue recognition for Software-as-a-Service ("SaaS") 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, the evaluation of the recoverability of capitalized implementation costs, assumptions utilized to evaluate the recoverability of deferred customer advance and discounts, estimation of loss contingencies, and evaluation of uncertainties surrounding the calculation of our tax assets and liabilities.
In the first quarter of 2018, we adopted the comprehensive update to revenue recognition guidance Revenue from Contracts with Customers ("ASC 606"), which replaced the previous standard ("ASC 605"), using the modified retrospective approach, applied to contracts that were not completed as of the adoption date. Our 2018 results are reported under ASC 606, while results prior to 2018 are reported under ASC 605. Under ASC 606, revenue is recognized when a company transfers the promised goods or services to customers in an amount that reflects the consideration that is expected to be received for those goods and services. See Note 2. Revenue from Contracts with Customers.
Revenue Recognition
Travel Network and Hospitality Solutions’ revenue recognition is primarily driven by GDS and central reservation system transactions, respectively. Airline Solutions’ revenue recognition is primarily driven by passengers boarded or other variable metrics relevant to the software service provided. Timing of revenue recognition is primarily based on the consistent provision of services in a stand-ready series SaaS environment and the amount of revenue recognized varies with the volume of transactions processed.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under ASC 606. The transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Most of our contracts in the Travel Network and Hospitality Solutions businesses have a single performance obligation. In the Airline Solutions business, many of our contracts may have multiple performance obligations, which generally include software and product solutions through SaaS and hosted delivery, and other service fees. In addition, at times 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 Airline Solutions' software solutions through SaaS and hosted delivery, resulting in multiple performance obligations within a combined agreement.
Our significant product and services and methods of recognition are as follows:
Stand-ready series revenue recognition
Travel Network—Travel Network's service offering is a GDS or GDS services linking and engaging transactions between travel agents (those that seek travel on behalf of travelers) and travel suppliers (such as airlines, hotels, car rental companies and cruise lines). Revenue is generated from contracts with the travel suppliers as each booking is made or transaction occurs and represents a stand-ready performance obligation where our systems perform the same service each day for the customer, based on the customer’s level of usage. Variability in the amounts billed to the customer and revenue recognized coincides with the customer’s level of usage or value received by the customer. Travel Network's revenue for air transactions is recognized at the time of booking of the reservation, net of estimated future cancellations. Travel Network's revenue for car rental, hotel transactions and other travel providers is recognized at the time the reservation is used by the customer.
Airline Solutions and Hospitality Solutions—Airline Solutions and Hospitality Solutions provide technology solutions and other professional services to airlines, hotels and other business consumers in the travel industry. The technology solutions are primarily provided in a SaaS or hosted environment. Customers are normally charged an upfront solutions fee and a recurring usage-based fee for the use of the software, which represents a stand-ready performance obligation where our systems perform the same service each day for the customer, based on the customer’s level of usage. Upfront solutions fees are recognized primarily on a straight-line basis over the relevant contract term, upon cut-over of the primary SaaS solution. Variability in the usage-based fee that does not align with the value provided to the customer can result in a difference between billings to the customer and the timing of contract performance and revenue recognition, which may result in the recognition of a contract asset. This can result in a requirement to forecast expected usage-based fees and volumes over the contract term in order to determine the rate for revenue recognition. This variable consideration is constrained if there is an inability to reliably forecast this revenue.
Contract Assets and Deferred Customer Advances and Discounts
Deferred customer advances and discounts are amortized against revenue in future periods as the related revenue is earned. Our contract assets include revenue recognized for services already transferred to a customer, for which the fulfillment of another contractual performance obligation is required, before we have the unconditional right to bill and collect based on contract terms. Contract assets are reviewed for recoverability on a periodic basis based on a review of impairment indicators. Deferred customer advances and discounts 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. For the year ended December 31, 2019, we did not impair any of these assets as a result of the related contract becoming uncollectable, modified or canceled. See Note 4. Impairment and Related Charges regarding 2017 impairments. 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.
Other revenue recognition patterns
Airline Solutions also provides other services including development labor or professional consulting. These services can be sold separately or with other products and services, and Airline Solutions may bundle multiple technology solutions in one arrangement with these other services. Revenue from other services consisting of development services that represent minor configuration or professional consulting is generally recognized over the period the services are performed or upon completed delivery.
Airline Solutions also directly licenses certain software to its customers where the customer obtains control of the license. Revenue from software license fees is recognized when the customer gains control of the software enabling them to directly use the software and obtain substantially all of the remaining benefits. Fees for ongoing software maintenance are recognized ratably over the life of the contract. Under these arrangements, often we are entitled to minimum fees which are collected over the term of the agreement, while the revenue from the license is recognized at the point when the customer gains control, which results in current and long-term unbilled receivables for these arrangements.
Variability in the amounts billed to the customer and revenue recognized coincides with the customer’s level of usage with the exception of upfront solution fees, non-usage based variable consideration, license and maintenance agreements and other services including development labor and professional consulting. 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 timing of revenue recognition.
For contracts with multiple performance obligations, we account for separate performance obligations on an individual basis with value assigned to each performance obligation based on our best estimate of relative standalone selling price ("SSP"). Judgment is required to determine the SSP for each distinct performance obligation. SSP is assessed annually using a historical analysis of contracts with customers executed in the most recently completed calendar year to determine the range of selling prices applicable to a distinct good or service. In making these judgments, we analyze various factors, including discounting practices, price lists, contract prices, value differentiators, customer segmentation and overall market and economic conditions. Based on these results, the estimated SSP is set for each distinct product or service delivered to customers. As our market strategies evolve, we may modify pricing practices in the future which could result in changes to SSP.
Revenue recognition from our Airline Solutions business requires significant judgments such as identifying distinct performance obligations including material rights within an agreement, estimating the total contract consideration and allocating amounts to each distinct performance obligation, determining whether variable pricing within a contract meets the allocation objective, and forecasting future volumes. For a small subset of our contracts, we are required to forecast volumes as a result of pricing variability within the contract in order to calculate the rate for revenue recognition. Any changes in these judgments and estimates could have an impact on the revenue recognized in future periods.
We evaluate whether it is appropriate to record the gross amount of our revenues and related costs by considering whether the entity is a principal (gross presentation) or an agent (net presentation) by evaluating the nature of our promise to the customer. We report revenue net of any revenue based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue producing transactions.
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.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs incurred by our continuing operations totaled $19 million, $19 million and $18 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Cash and Cash Equivalents and Restricted Cash
We classify all highly liquid instruments, including money market funds and money market securities with original maturities of three months or less, as cash equivalents.
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 $58 million and $45 million at December 31, 2019 and 2018, respectively. See “—Recent Accounting Pronouncements" below for information on recently issued accounting guidance regarding the allowance for doubtful accounts.
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. Our other accounts receivable are generally due from other participants in the travel and transportation industry. As of December 31, 2019 and 2018, approximately $375 million, or 82%, and $334 million, or 81%, respectively, of our trade accounts receivable were attributable to services provided to the commercial air travel industry and travel agency customers. 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.
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 and other similar clearing houses (“ACH”). As of December 31, 2019, approximately 59% of our air customers make payments through the ACH which accounts for approximately 89% 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 in earnings (a “cash flow hedge”). For derivative instruments not designated as hedging instruments, the gain or loss resulting from the change in fair value is recognized in current earnings during the period of change. No hedging ineffectiveness was recorded in earnings during the periods presented.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization, which is calculated on the straight-line basis. Our depreciation and amortization policies are as follows:
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Buildings
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Lesser of lease term or 35 years
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Leasehold improvements
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Lesser of lease term or useful life
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Furniture and fixtures
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5 to 15 years
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Equipment, general office and computer
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3 to 5 years
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Software developed for internal use
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3 to 5 years
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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 SaaS-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 $295 million, $288 million and $256 million for the years ended December 31, 2019, 2018 and 2017, respectively. Amortization of software developed for internal use, included in depreciation and amortization, totaled $241 million, $236 million and $203 million for the years ended December 31, 2019, 2018 and 2017, respectively. During the years ended December 31, 2019, 2018 and 2017, we capitalized $89 million, $252 million, and $251 million, respectively, related to software developed for internal use.
We also evaluate the useful lives of these assets on an annual basis and test 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, 2019, 2018 and 2017.
Leases
We lease certain facilities under long term operating leases. We determine if an arrangement is a lease at inception. Operating lease assets are included in operating lease right-of-use (“ROU”) assets within other noncurrent assets and operating lease liabilities are included in other current liabilities and other noncurrent liabilities in our consolidated balance sheets. Finance lease assets are included in property and equipment with associated liabilities included in current portion of debt and long-term debt in our consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our internal borrowing rate for leases with a lease term of less than or equal to five years. For leases with a lease term greater than five years, we use our incremental borrowing rate based on the estimated rate of interest for corporate bond borrowings over a similar term of the lease payments. 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.
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. We 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.
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 is 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, 2019, 2018 and 2017. 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, 2019, 2018 and 2017. See Note 5. Goodwill and Intangible Assets, for additional information.
Equity Method Investments
We utilize the equity method to account for our interests in joint ventures 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. We 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 equity method investments in joint ventures amounts to $24 million as of December 31, 2019 and 2018.
Contract Acquisition Costs and Capitalized Implementation Costs
We incur contract acquisition costs related to new contracts with our customers in the form of sales commissions based on estimated contract value for our Airline Solutions and Hospitality Solutions businesses. These costs are capitalized and reviewed for impairment on an annual basis. We generally amortize these costs, and those for renewals, over the average contract term for those businesses, excluding commissions on contracts with a term of one year or less, which are generally expensed in the period earned and recorded within selling, general and administrative expenses.
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 and Note 2. Revenue from Contracts with Customers, for amounts capitalized within other assets, net in our consolidated balance sheets. Amortization of capitalized implementation costs, included in depreciation and amortization, totaled $39 million, $38 million and $40 million for the years ended December 31, 2019, 2018 and 2017, respectively. See Note 4. Impairment and Related Charges.
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 enacted at the time of such determination. We regularly review our deferred tax assets for recoverability and a valuation allowance is provided when it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, we make estimates and assumptions regarding projected future taxable income, our ability to carry back operating losses to prior periods, the reversal of deferred tax liabilities and implementation of tax planning strategies. We reassess these assumptions regularly which could cause an increase or decrease to the valuation allowance, resulting in an increase or decrease in the effective tax rate, and could materially impact our results of operations.
We recognize liabilities when we believe that an uncertain tax position may not be fully sustained upon examination by the tax authorities. We use significant judgment in determining whether a tax position's technical merits are more likely than not to be sustained and in measuring the amount of tax benefit that qualifies for recognition. For matters that are determined will more likely than not be sustained, 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. As the matters challenged by the taxing authorities are typically complex and open to subjective interpretation, their ultimate outcome may differ from the amounts recognized.
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. GILTI 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.
Pension and Other Postretirement Benefits
We recognize the funded status of our defined benefit pension plans and other postretirement benefit plans in our consolidated balance sheets. The funded status is the difference between the fair value of plan assets and the benefit obligation as of the balance sheet date. The fair value of plan assets represents the cumulative contributions made to fund the pension and other postretirement benefit plans which are invested primarily in domestic and foreign equities and fixed income securities. The benefit obligation of our pension and other postretirement benefit plans are actuarially determined using certain assumptions approved by us. The benefit obligation is adjusted annually in the fourth quarter to reflect actuarial changes and may also be adjusted upon the adoption of plan amendments. These adjustments are initially recorded in accumulated other comprehensive income (loss) and are subsequently amortized over the life expectancy of the plan participants as a component of net periodic benefit costs.
Equity-Based Compensation
We account for our stock awards and options by recognizing compensation expense, measured at the grant date based on the fair value of the award, on a straight-line basis over the award vesting period, giving consideration as to whether the amount of compensation cost recognized at any date is equal to the portion of grant date value that is vested at that date. We 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 the historical volatility of our stock price. 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 2019.
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.
Adoption of New Accounting Standards
In July 2019, the Financial Accounting Standards Board ("FASB") issued updated guidance that clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations, thereby eliminating certain redundancies and allowing for easier application of the codification. This standard is effective upon issuance and did not have a material impact on our consolidated financial statements.
In October 2018, the FASB issued updated guidance that permits use of the Overnight Index Swap ("OIS") rate based on the Secured Overnight Financing Rate ("SOFR") as a U.S. benchmark interest rate for hedge accounting purposes in addition to the Direct Treasury obligations of the U.S. government, the London Interbank Offered Rate ("LIBOR") swap rate, the OIS rate based on the Federal Funds Effective Rate, and the Securities Industry and Financial Markets Association Municipal Swap Rate. We adopted this standard in the first quarter of 2019, which did not have a material impact on our consolidated financial statements.
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 within those fiscal years, beginning after December 15, 2018. In the first quarter of 2019, we adopted the new
standard using the modified retrospective approach and elected the package of practical expedients and the hindsight practical expedient. See Note 11. Leases for more information on the impacts from adoption and ongoing considerations.
Recent Accounting Pronouncements
In December 2019, the FASB issued updated guidance which simplifies the accounting for income taxes, eliminates certain exceptions within existing income tax guidance, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We do not expect the adoption of this standard will have a material impact to our consolidated financial statements.
In October 2018, the FASB issued updated guidance that eliminates the requirement that entities consider indirect interests held through related parties under common control in their entirety when assessing whether a decision-making fee is a variable interest and instead requires entities to consider these indirect interests on a proportional basis. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We do not expect the adoption of this standard will have a material impact to our consolidated financial statements.
In August 2018, the FASB issued updated guidance on customer's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. Under this updated standard, a customer in a cloud-computing arrangement that is a service contract is required to follow guidance on software developed for internal use to determine which implementation costs to capitalize as assets or expense as incurred. This standard aligns the accounting for implementation costs for hosting arrangements, regardless of whether they convey a license to the hosted software. The standard requires that capitalized implementation costs related to a hosting arrangement that is a service contract be amortized over the term of the hosting arrangement, beginning when the component of the hosting arrangement is ready for its intended use, similar to requirements in guidance on software developed for internal use. In addition, costs incurred during the preliminary project and post-implementation phases are expensed as they are incurred. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We do not expect the adoption of this standard will have a material impact to our consolidated financial statements.
In June 2016, the FASB issued updated guidance for the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Under this updated standard, the current "incurred loss" approach is replaced with an "expected loss" model for instruments measured at amortized cost. For available-for-sale debt securities, allowances for losses will now be required rather than reducing the instruments carrying value. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We anticipate that the impacts described above will result in a net increase of approximately $13 million to $23 million in our opening retained deficit as of January 1, 2020 with a corresponding decrease in accounts receivable, net and other in-scope assets. Implications to tax-related accounts are not included in these estimated amounts. Our assessment of the impact of this standard is ongoing and subject to finalization. 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. Revenue from Contracts with Customers
In the first quarter of 2018, we adopted the comprehensive update to revenue recognition guidance Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), which replaced the previous standard ("ASC 605"), using the modified retrospective approach, applied to contracts that were not completed as of the adoption date. Under ASC 606, revenue is recognized when a company transfers the 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 key areas of impact on our consolidated financial statements include:
•Revenue recognition for our Travel Network and Hospitality Solutions businesses did not change significantly. The definition of a performance obligation for Travel Network under the new guidance impacts the calculation for our booking fee cancellation reserve, which resulted in a beginning balance sheet adjustment.
•Our Airline Solutions business is primarily impacted by ASC 606 due to the following:
–Under ASC 605, we recognized revenue related to license fee and maintenance agreements ratably over the life of the contract. Under ASC 606, revenue for license fees is recognized upon delivery of the license and ongoing maintenance services are to be recognized ratably over the life of the contract. For existing open agreements, this change resulted in a beginning balance sheet adjustment and reduced revenue in subsequent years from these agreements.
–Allocation of contract revenues among various products and solutions, and the timing of the recognition of those revenues, are 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 resulted in a beginning balance sheet adjustment and reduced revenue in subsequent years from these agreements.
•Capitalization of incremental contract acquisition costs (such as sales commissions), and recognition of these costs over the customer benefit period resulted in the recognition of an asset on our balance sheet and impacted our Airline Solutions and Hospitality Solutions businesses.
Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with ASC 605. The impacts described above resulted in a net reduction to our opening retained deficit as of January 1, 2018 of approximately $102 million (net of tax, $78 million) with a corresponding increase primarily in current and long-term unbilled receivables, contract assets, other assets and other accrued liabilities.
Contract Balances
Revenue recognition for a significant portion of our revenue coincides with normal billing terms, including Travel Network's transactional revenues, and Airline Solutions' and Hospitality Solutions' SaaS and hosted revenues. Timing differences among revenue recognition, unconditional rights to bill, and receipt of contract consideration may result in contract assets or contract liabilities.
The following table presents our assets and liabilities with customers as of December 31, 2019 and December 31, 2018 (in thousands):
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Account
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Consolidated Balance Sheet Location
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December 31, 2019
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December 31, 2018
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Contract assets and customer advances and discounts(1)
|
|
Prepaid expenses and other current assets / other assets, net
|
|
$
|
105,499
|
|
|
|
$
|
79,268
|
|
Trade and unbilled receivables, net
|
|
Accounts receivable, net
|
|
539,806
|
|
|
|
501,467
|
|
Long-term trade unbilled receivables, net
|
|
Other assets, net
|
|
38,250
|
|
|
|
50,467
|
|
Contract liabilities
|
|
Deferred revenues / other noncurrent liabilities
|
|
167,832
|
|
|
|
165,858
|
|
_______________________________
(1) Includes contract assets of $6 million and $4 million for December 31, 2019 and December 31, 2018, respectively.
During the year ended December 31, 2019, we recognized revenue of approximately $61 million from contract liabilities that existed as of January 1, 2019. Our long-term trade unbilled receivables, net relate to license fees billed ratably over the contractual period and recognized when the customer gains control of the software. We evaluate collectability of our accounts receivable based on a combination of factors and record reserves as reflected in Note 1. Summary of Business and Significant Accounting Policies.
Revenue
The following table presents our revenues disaggregated by business (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Air
|
$
|
2,338,602
|
|
|
$
|
2,284,419
|
|
Lodging, Ground and Sea
|
370,652
|
|
|
350,152
|
|
Other
|
173,408
|
|
|
171,623
|
|
Total Travel Network
|
2,882,662
|
|
|
2,806,194
|
|
SabreSonic Passenger Reservation System
|
506,579
|
|
|
501,085
|
|
Commercial and Operations Solutions(1)
|
328,485
|
|
|
312,751
|
|
Other
|
5,274
|
|
|
8,911
|
|
Total Airline Solutions
|
840,338
|
|
|
822,747
|
|
SynXis Software and Services
|
257,612
|
|
|
240,583
|
|
Other
|
35,268
|
|
|
32,496
|
|
Total Hospitality Solutions
|
292,880
|
|
|
273,079
|
|
Eliminations
|
(40,892)
|
|
|
(35,064)
|
|
Total Sabre Revenue
|
$
|
3,974,988
|
|
|
$
|
3,866,956
|
|
|
|
|
|
_______________________________
(1) Includes license fee revenue recognized upon delivery to the customer of $34 million and $27 million for the years ended December 31, 2019 and December 31, 2018, respectively.
We may occasionally recognize revenue in the current period for performance obligations partially or fully satisfied in the previous periods resulting from changes in estimates for the transaction price, including any changes to our assessment of whether an estimate of variable consideration is constrained. For the year ended December 31, 2019, the impact on revenue recognized in the current period, from performance obligations partially or fully satisfied in the previous period, is immaterial.
We recognize revenue under long-term contracts that primarily includes variable consideration based on transactions processed. A majority of our consolidated revenue is recognized as a stand-ready performance obligation with the amount recognized based on the invoiced amounts for services performed, known as right to invoice revenue recognition. Certain of our contracts, primarily in the Airlines Solutions business, contain minimum transaction volumes, which in many instances are not considered substantive as the customer is expected to exceed the minimum in the contract. Unearned performance obligations primarily consist of deferred revenue for fixed implementation fees and future product implementations, which are included in deferred revenue and other noncurrent liabilities in our consolidated balance sheet. We have not disclosed the performance obligation related to contracts containing minimum transaction volume, as it represents a subset of our business, and therefore would not be meaningful in understanding the total future revenues expected to be earned from our long-term contracts. See Note 1. Summary of Business and Significant Accounting Policies regarding revenue recognition of our various revenue streams for more information.
Contract Acquisition Costs and Capitalized Implementation Costs
We incur contract costs in the form of acquisition costs and implementation costs. Contract acquisition costs are related to new contracts with our customers in the form of sales commissions based on the estimated contract value. We incur contract implementation costs to implement new customer contracts under our SaaS revenue model. We periodically assess contract costs for recoverability, and our assessment resulted in impairments of approximately $2 million and $4 million for the year ended December 31, 2019 and 2018, respectively. See Note 1. Summary of Business and Significant Accounting Policies for an overview of our policy for capitalization of acquisition and implementation costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Contract acquisition costs:
|
|
|
|
Beginning balance
|
$
|
21,298
|
|
|
$
|
19,353
|
|
Additions
|
9,378
|
|
|
7,924
|
|
Amortization
|
(7,081)
|
|
|
(6,404)
|
|
Other
|
—
|
|
|
425
|
|
Ending balance
|
$
|
23,595
|
|
|
$
|
21,298
|
|
|
|
|
|
Capitalized implementation costs:
|
|
|
|
Beginning balance
|
$
|
189,448
|
|
|
$
|
194,501
|
|
Additions
|
28,588
|
|
|
39,168
|
|
Amortization
|
(39,444)
|
|
|
(37,904)
|
|
Impairment
|
(2,405)
|
|
|
(4,013)
|
|
Other
|
(219)
|
|
|
(2,304)
|
|
Ending balance
|
$
|
175,968
|
|
|
$
|
189,448
|
|
3. Acquisitions
Farelogix
We announced on November 14, 2018 that we have entered into an agreement to acquire Farelogix, Inc. ("Farelogix"), a travel industry innovator in the airline information technology and distribution landscape. At closing, Sabre will purchase Farelogix for $360 million, funded by cash on hand and Revolver borrowing. We have agreed to advance certain attorneys' fees incurred by Farelogix in responding to certain governmental reviews of the acquisition and in defending against certain antitrust proceedings, which have totaled $20 million for the year ended December 31, 2019. These advances will be applied against the purchase price upon closing. On August 20, 2019, the U.S. Department of Justice ("DOJ") filed a complaint seeking a permanent injunction to prevent the acquisition. The trial concluded on February 6, 2020 and the trial court has not yet issued its decision. In addition, the U.K. Competitions and Market Authority ("CMA") has referred its review of the acquisition for a Phase 2 investigation and has published its provisional findings of competition concerns. There can be no assurance that the acquisition will occur on these terms or at all.
Radixx
In October 2019, we completed the acquisition of Radixx, a provider of retailing and customer service solutions to airlines in the low-cost carrier ("LCC") market, for $107 million, net of cash acquired and funded by cash on hand. Radixx is being integrated and is managed as a part of our Airline Solutions segment.
Purchase Price Allocation
The purchase price allocation presented below is preliminary and based on information available as of the filing date of this Annual Report on Form 10-K. Primarily, we consider the accounting related to intangible assets and the associated deferred taxes to be incomplete due to ongoing analysis. We expect to finalize the purchase price allocation in the first quarter of 2020. 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
|
$
|
3,348
|
|
Accounts receivable
|
2,587
|
|
Other current assets
|
244
|
|
Goodwill
|
82,402
|
|
Intangible assets:
|
|
|
Customer relationships
|
13,600
|
|
Developed technology
|
10,800
|
|
Trade name
|
1,400
|
|
Property and equipment, net
|
2,142
|
|
Deferred tax assets
|
2,968
|
|
Other long term assets, net
|
2,641
|
|
Current liabilities
|
(7,071)
|
|
Deferred tax liabilities
|
(1,583)
|
|
Other noncurrent liabilities
|
(2,668)
|
|
Total acquisition price
|
$
|
110,810
|
|
Under the purchase accounting method, the total purchase price was allocated to the net assets of Radixx based upon estimated fair values as of the acquisition date. The excess purchase price over the estimated fair value of the net tangible and intangible assets was recorded as goodwill, reflecting the growth potential of the business. The anticipated useful lives of the intangible assets acquired are 10 years for customer relationships, 5 years for developed technology and 18 years for the trade name.
The acquisition of Radixx did not have a material impact to our consolidated financial statements, and therefore pro forma information is not presented.
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, 2019. 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 16. 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, 2019 and 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel Network
|
|
Airline Solutions
|
|
Hospitality
Solutions
|
|
Total
Goodwill
|
Balance as of December 31, 2017
|
$
|
2,104,822
|
|
|
$
|
290,985
|
|
|
$
|
159,180
|
|
|
$
|
2,554,987
|
|
|
|
|
|
|
|
|
|
Adjustments(1)
|
(33)
|
|
|
378
|
|
|
(2,963)
|
|
|
(2,618)
|
|
Balance as of December 31, 2018
|
2,104,789
|
|
|
291,363
|
|
|
156,217
|
|
|
2,552,369
|
|
Acquired
|
—
|
|
|
82,402
|
|
|
—
|
|
|
82,402
|
|
Adjustments(1)
|
(7)
|
|
|
(107)
|
|
|
(1,406)
|
|
|
(1,520)
|
|
Balance as of December 31, 2019
|
$
|
2,104,782
|
|
|
$
|
373,658
|
|
|
$
|
154,811
|
|
|
$
|
2,633,251
|
|
________________________
(1)Includes net foreign currency effects during the year.
The following table presents our intangible assets as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Acquired customer relationships
|
$
|
1,046,382
|
|
|
$
|
(735,367)
|
|
|
$
|
311,015
|
|
|
$
|
1,033,555
|
|
|
$
|
(709,824)
|
|
|
$
|
323,731
|
|
Trademarks and brand names
|
333,638
|
|
|
(147,735)
|
|
|
185,903
|
|
|
332,239
|
|
|
(137,009)
|
|
|
195,230
|
|
Reacquired rights
|
113,500
|
|
|
(73,124)
|
|
|
40,376
|
|
|
113,500
|
|
|
(56,910)
|
|
|
56,590
|
|
Purchased technology
|
437,288
|
|
|
(409,204)
|
|
|
28,084
|
|
|
426,488
|
|
|
(400,750)
|
|
|
25,738
|
|
Acquired contracts, supplier and distributor agreements
|
37,599
|
|
|
(29,324)
|
|
|
8,275
|
|
|
37,600
|
|
|
(25,867)
|
|
|
11,733
|
|
Non-compete agreements
|
14,686
|
|
|
(14,686)
|
|
|
—
|
|
|
14,686
|
|
|
(14,460)
|
|
|
226
|
|
Total intangible assets
|
$
|
1,983,093
|
|
|
$
|
(1,409,440)
|
|
|
$
|
573,653
|
|
|
$
|
1,958,068
|
|
|
$
|
(1,344,820)
|
|
|
$
|
613,248
|
|
Amortization expense relating to intangible assets subject to amortization totaled $65 million, $68 million and $96 million for the years ended December 31, 2019, 2018 and 2017, 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):
|
|
|
|
|
|
2020
|
$
|
65,915
|
|
2021
|
64,337
|
|
2022
|
50,736
|
|
2023
|
37,030
|
|
2024
|
58,395
|
|
2025 and thereafter
|
297,240
|
|
Total
|
$
|
573,653
|
|
6. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Prepaid Expenses
|
$
|
77,326
|
|
|
$
|
80,049
|
|
Value added tax receivable
|
39,381
|
|
|
57,486
|
|
Other
|
22,504
|
|
|
32,708
|
|
Prepaid expenses and other current assets
|
$
|
139,211
|
|
|
$
|
170,243
|
|
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Buildings and leasehold improvements
|
$
|
163,881
|
|
|
$
|
156,357
|
|
Furniture, fixtures and equipment
|
38,878
|
|
|
38,049
|
|
Computer equipment
|
397,454
|
|
|
349,454
|
|
Software developed for internal use
|
1,857,353
|
|
|
1,771,306
|
|
Property and equipment
|
2,457,566
|
|
|
2,315,166
|
|
Accumulated depreciation and amortization
|
(1,815,844)
|
|
|
(1,524,794)
|
|
Property and equipment, net
|
$
|
641,722
|
|
|
$
|
790,372
|
|
Other Assets, Net
Other assets, net consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Capitalized implementation costs, net
|
$
|
175,966
|
|
|
$
|
189,447
|
|
Deferred upfront incentive consideration
|
151,606
|
|
|
162,893
|
|
Long-term contract assets and customer advances and discounts(1)
|
105,461
|
|
|
60,075
|
|
Right-of-Use asset(2)
|
64,191
|
|
|
—
|
|
Long-term trade unbilled receivables(1)
|
38,250
|
|
|
50,467
|
|
Other
|
134,631
|
|
|
147,789
|
|
Other assets, net
|
$
|
670,105
|
|
|
$
|
610,671
|
|
________________________________
(1) Refer to Note 2. Revenue from Contracts with Customers for additional information.
(2) In the first quarter of 2019, we adopted new lease accounting guidance on a modified retrospective basis in accordance with ASC 842, Leases. See Note 11. Leases, for additional information.
Other Noncurrent Liabilities
Other noncurrent liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
|
|
|
Pension and other postretirement benefits
|
$
|
127,837
|
|
|
$
|
118,919
|
|
Deferred revenue
|
74,646
|
|
|
75,685
|
|
Lease liabilities(1)
|
49,970
|
|
|
—
|
|
Tax receivable agreement
|
—
|
|
|
72,939
|
|
Other
|
95,069
|
|
|
72,952
|
|
Other noncurrent liabilities
|
$
|
347,522
|
|
|
$
|
340,495
|
|
___________________________
(1) In the first quarter of 2019, we adopted new lease accounting guidance on a modified retrospective basis in accordance with ASC 842, Leases. See Note 11. Leases, for additional information.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Defined benefit pension and other postretirement benefit plans
|
$
|
(143,389)
|
|
|
$
|
(139,430)
|
|
Unrealized foreign currency translation gain
|
4,289
|
|
|
7,201
|
|
Unrealized loss on foreign currency forward contracts, interest rate swaps and available-for-sale securities
|
(10,206)
|
|
|
(495)
|
|
|
|
|
|
Total accumulated other comprehensive loss, net of tax
|
$
|
(149,306)
|
|
|
$
|
(132,724)
|
|
The amortization of actuarial losses and periodic service credits associated with our retirement-related benefit plans is included in Other, net. See Note 9. Derivatives, for information on the income statement line items affected as the result of reclassification adjustments associated with derivatives.
In 2018, we adopted an updated accounting standard and elected to reclassify the stranded income tax effects related to the enactment of the TCJA to retained earnings resulting in a decrease in our retained deficit of $22 million with a corresponding increase to accumulated other comprehensive income.
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 and anti-avoidance tax (“BEAT”), foreign-derived intangible income (“FDII”) and global intangible low-taxed income (“GILTI”), 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 (“transition tax”), and elimination of U.S. tax on dividends from foreign subsidiaries (subject to certain important exceptions).
At December 31, 2017, we recorded a provisional net discrete tax cost associated with the TCJA of $47 million. The provisional amounts recorded in 2017 related primarily to the transition tax and were partially offset by the remeasurement of deferred taxes. Upon further analysis of certain aspects of the TCJA and subsequently published administrative guidance, and refinement of our calculations, during the year ended December 31, 2018, we reduced the provisional amount by $27 million.
The Tax Receivable Agreement ("TRA") provides for future payments to Pre-IPO Existing Stockholders (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. Primarily as a result of the reduction in the U.S. corporate income tax rate, we recorded a $58 million provisional reduction to the liability at December 31, 2017. In 2018, we finalized the 2017 U.S. federal income tax return and utilized additional Pre-IPO Tax Assets in the return, primarily as a result of electing to utilize our NOLs against our one-time transition tax income. As a result of the change in estimated NOL utilization at the higher corporate income tax rate in 2017 we recorded an increase to our liability of $5 million related to the TRA, which is reflected in our 2018 income from continuing operations before taxes. During 2019, we decreased the TRA liability by $3 million as a result of certain audit and transfer pricing adjustments recorded during the period, which is reflected in our 2019 income from continuing operations before taxes.
The components of pretax income from continuing operations, generally based on the jurisdiction of the legal entity, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Components of pre-tax income:
|
|
|
|
|
|
Domestic
|
$
|
30,960
|
|
|
$
|
190,291
|
|
|
$
|
199,685
|
|
Foreign
|
168,678
|
|
|
208,122
|
|
|
177,928
|
|
|
$
|
199,638
|
|
|
$
|
398,413
|
|
|
$
|
377,613
|
|
The provision for income taxes relating to continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Current portion:
|
|
|
|
|
|
Federal
|
$
|
4,488
|
|
|
$
|
(49,518)
|
|
|
$
|
50,829
|
|
State and Local
|
3,781
|
|
|
4,168
|
|
|
2,388
|
|
Non U.S.
|
49,982
|
|
|
59,743
|
|
|
26,060
|
|
Total current
|
58,251
|
|
|
14,393
|
|
|
79,277
|
|
Deferred portion:
|
|
|
|
|
|
Federal
|
(14,215)
|
|
|
55,502
|
|
|
47,372
|
|
State and Local
|
(1,692)
|
|
|
(4,812)
|
|
|
(6,178)
|
|
Non U.S.
|
(7,018)
|
|
|
(7,591)
|
|
|
7,566
|
|
Total deferred
|
(22,925)
|
|
|
43,099
|
|
|
48,760
|
|
Total provision for income taxes
|
$
|
35,326
|
|
|
$
|
57,492
|
|
|
$
|
128,037
|
|
The provision for income taxes relating to continuing operations differs from amounts computed at the statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Income tax provision at statutory federal income tax rate
|
$
|
41,924
|
|
|
$
|
83,667
|
|
|
$
|
132,165
|
|
State income taxes, net of federal benefit
|
2,223
|
|
|
(42)
|
|
|
(1,727)
|
|
Impact of non U.S. taxing jurisdictions, net
|
14,078
|
|
|
5,591
|
|
|
(13,492)
|
|
|
|
|
|
|
|
Impact of U.S. TCJA(1)
|
—
|
|
|
(26,730)
|
|
|
46,563
|
|
Employee stock based compensation
|
8,380
|
|
|
3,884
|
|
|
(2,849)
|
|
Research tax credit
|
(28,593)
|
|
|
(9,818)
|
|
|
(8,777)
|
|
Tax receivable agreement (TRA)(2)
|
(536)
|
|
|
1,019
|
|
|
(20,861)
|
|
Other, net
|
(2,150)
|
|
|
(79)
|
|
|
(2,985)
|
|
Total provision for income taxes
|
$
|
35,326
|
|
|
$
|
57,492
|
|
|
$
|
128,037
|
|
___________________________
(1)In 2018, amount includes SAB 118 adjustments for deferred taxes and foreign tax effects. In 2017, amount includes $48 million of transition tax expense, and the remainder is the net benefit on cumulative deferred taxes.
(2)Amount includes adjustments to the TRA, which are not taxable.
The components of our deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Accrued expenses
|
$
|
7,547
|
|
|
$
|
8,638
|
|
Employee benefits other than pension
|
23,272
|
|
|
34,147
|
|
Lease liabilities
|
9,415
|
|
|
—
|
|
Deferred revenue
|
30,715
|
|
|
22,351
|
|
Pension obligations
|
27,407
|
|
|
26,821
|
|
Tax loss carryforwards
|
54,556
|
|
|
70,340
|
|
Incentive consideration
|
6,722
|
|
|
9,456
|
|
Tax credit carryforwards
|
16,136
|
|
|
31,467
|
|
Suspended loss
|
14,635
|
|
|
14,474
|
|
Other
|
5,916
|
|
|
8,008
|
|
Total deferred tax assets
|
196,321
|
|
|
225,702
|
|
Deferred tax liabilities:
|
|
|
|
Right of use assets
|
(9,261)
|
|
|
—
|
|
Depreciation and amortization
|
(7,059)
|
|
|
(13,298)
|
|
Software developed for internal use
|
(66,918)
|
|
|
(103,631)
|
|
Intangible assets
|
(120,528)
|
|
|
(122,921)
|
|
Unrealized gains and losses
|
(18,778)
|
|
|
(21,840)
|
|
Non U.S. operations
|
(13,789)
|
|
|
(9,355)
|
|
Investment in partnership
|
(7,306)
|
|
|
(6,794)
|
|
Total deferred tax liabilities
|
(243,639)
|
|
|
(277,839)
|
|
Valuation allowance
|
(38,272)
|
|
|
(59,294)
|
|
Net deferred tax (liability)
|
$
|
(85,590)
|
|
|
$
|
(111,431)
|
|
In the first quarter of 2018, we adopted ASC 606, which replaced ASC 605, using the modified retrospective approach. As a result of the adoption of ASC 606, we recorded a cumulative effect adjustment as of January 1, 2018 to decrease our opening retained deficit as of January 1, 2018 by approximately $102 million with a corresponding increase to deferred tax liabilities of $24 million to recognize the increase to income taxes payable in the future related to revenue recognition.
As a result of the enactment of the TCJA, we recorded a one-time transition tax on the undistributed earnings of our foreign subsidiaries. We do not consider undistributed foreign earnings to be indefinitely reinvested as of December 31, 2019, with certain limited exceptions and have recorded corresponding deferred taxes. We consider the undistributed capital investments in our foreign subsidiaries to be indefinitely reinvested as of December 31, 2019, and have not provided deferred taxes on any outside basis differences. Determination of the amount of unrecognized deferred tax liability, if any, related to indefinitely reinvested capital investments is not practicable.
As of December 31, 2019, we have U.S. federal net operating loss carryforwards ("NOLs") of approximately $32 million, primarily related to the acquisition of Radixx, which will expire between 2022 and 2039. As a result of the acquisition of Radixx and other prior business combinations, all of the U.S. federal NOLs are subject to the annual limit on the ability of a corporation to use certain tax attributes (as defined in Section 382 of the Code). However, we expect that Section 382 will not limit our ability to fully realize the tax benefits. We have state NOLs of $7 million which will expire between 2020 and 2038 and state research tax credit carryforwards of $18 million which will expire between 2023 and 2039. We have $165 million of 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 NOLs 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 $5 million and $4 million as of December 31, 2019 and 2018, respectively. For non-U.S. deferred tax assets of lastminute.com and other subsidiaries, we maintained a valuation allowance of $33 million and $55 million as of December 31, 2019 and 2018, 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.
It is our policy to recognize penalties and interest accrued related to income taxes as a component of the provision for income taxes from continuing operations. During the years ended December 31, 2019, 2018 and 2017, we recognized a benefit of $7 million, expense of $1 million and expense of $1 million, respectively. As of December 31, 2019 and 2018, we had a liability, including interest and penalty, of $81 million and $93 million, respectively, for unrecognized tax benefits, including cumulative accrued interest and penalties of approximately $16 million and $23 million, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
70,327
|
|
|
$
|
74,388
|
|
|
$
|
49,331
|
|
Additions for tax positions taken in the current year
|
5,149
|
|
|
4,450
|
|
|
5,279
|
|
Additions for tax positions of prior years
|
12,679
|
|
|
2,612
|
|
|
21,669
|
|
Additions for tax positions from acquisitions
|
1,294
|
|
|
—
|
|
|
—
|
|
Reductions for tax positions of prior years
|
(19,611)
|
|
|
(5,831)
|
|
|
—
|
|
Reductions for tax positions of expired statute of limitations
|
(1,192)
|
|
|
(3,143)
|
|
|
(1,891)
|
|
Settlements
|
(4,001)
|
|
|
(2,149)
|
|
|
—
|
|
Balance at end of year
|
$
|
64,645
|
|
|
$
|
70,327
|
|
|
$
|
74,388
|
|
We present unrecognized tax benefits as a reduction to deferred tax assets for NOLs, similar tax loss or a tax credit carryforward that is available to settle additional income taxes that would result from the disallowance of a tax position, presuming disallowance at the reporting date. The amount of unrecognized tax benefits that were offset against deferred tax assets was $48 million, $55 million and $53 million as of December 31, 2019, 2018, and 2017 respectively.
As of December 31, 2019, 2018, and 2017, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $48 million, $51 million and $70 million, respectively. We believe that it is reasonably possible that $15 million in unrecognized tax benefits may be resolved in the next twelve months.
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 to Examination
|
United Kingdom
|
2013 - forward
|
Singapore
|
2015 - forward
|
Texas
|
2015 - forward
|
Uruguay
|
2014 - forward
|
U.S. Federal
|
2014 - forward
|
We currently have ongoing audits in India (2003-2016) and various other jurisdictions. We do not expect that the results of these examinations will have a material effect on our financial condition or results of operations. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2009.
Tax Receivable Agreement
Immediately prior to the closing of our initial public offering, we entered into the TRA that provides the 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 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 certain tax assets attributable to periods prior to our initial public offerings, including NOLs, capital losses and the ability to realize tax amortization of certain intangible assets (collectively, the "Pre-IPO Tax Assets"). Primarily due to the enactment of the Tax Cuts and Jobs Act (the "TCJA"), which reduced the U.S. corporate income tax rate, we recorded a total net reduction in the TRA liability of $55 million across the years ended December 31, 2018 and 2017. Additionally, there was another reduction of $3 million related to certain audit and transfer pricing adjustments recorded in 2019. The TRA payments accrue interest in accordance with the terms of the TRA subsequent to the tax year in which the tax benefits are realized through the date of the benefit payment. We made payments, including interest, of $72 million in January 2020, $30 million in April 2019, and $74 million, $60 million and $101 million in January 2019, 2018 and 2017, respectively. In December 2019, we exercised our right under the terms of the TRA to accelerate our remaining payments under the TRA and make an early termination payment of $1 million to the Pre-IPO Existing Shareholders, which was included in the January 2020 payment of $72 million described above. As a result, no future payments are required to be made to the Pre-IPO Existing Stockholders under the TRA.
8. Debt
As of December 31, 2019 and 2018, our outstanding debt included in our consolidated balance sheets totaled $3,343 million and $3,406 million, respectively, which are net of debt issuance costs of $15 million and $18 million, respectively, and unamortized discounts of $6 million and $7 million, respectively. The following table sets forth the face values of our outstanding debt as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Rate
|
|
Maturity
|
|
2019
|
|
2018
|
Senior secured credit facilities:
|
|
|
|
|
|
|
|
Term Loan A
|
L + 2.25%
|
|
July 2022
|
|
$
|
484,500
|
|
|
$
|
527,250
|
|
Term Loan B
|
L + 2.00%
|
|
February 2024
|
|
1,843,427
|
|
|
1,862,237
|
|
Revolver, $400 million
|
L + 2.00%
|
|
July 2022
|
|
—
|
|
|
—
|
|
5.375% senior secured notes due 2023
|
5.375%
|
|
|
April 2023
|
|
530,000
|
|
|
530,000
|
|
5.25% senior secured notes due 2023
|
5.25%
|
|
|
November 2023
|
|
500,000
|
|
|
500,000
|
|
Finance lease obligations
|
|
|
|
|
5,882
|
|
|
12,368
|
|
Face value of total debt outstanding
|
|
|
|
|
3,363,809
|
|
|
3,431,855
|
|
Less current portion of debt outstanding
|
|
|
|
|
(81,614)
|
|
|
(68,435)
|
|
Face value of long-term debt outstanding
|
|
|
|
|
$
|
3,282,195
|
|
|
$
|
3,363,420
|
|
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 off 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 three months ended March 31, 2017. The remaining proceeds of the 2017 Term Loan B were used to pay off 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 2017 Term Loan B along with the Term Loan B discount of $2 million.
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 (“Term Loan B”) and $570 million Term Loan A facility (“Term 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.
On March 2, 2018, Sabre GLBL entered into a Fifth Incremental Term Facility Amendment to our Amended and Restated Credit Agreement to refinance and modify the terms of the Term Loan B, resulting in a reduction of the applicable margins for the Term Loan B to 2.00% per annum for Eurocurrency rate loans and 1.00% per annum for base rate loans. We incurred no additional indebtedness as a result of this transaction and incurred $2 million in financing fees recorded within Other, net and a $1 million loss on extinguishment of debt, in our consolidated results of operations year ended December 31, 2018.
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. As of December 31, 2019 we are in compliance with all covenants under the Amended and Restated Credit Agreement.
We had no balance outstanding under the Revolver as of December 31, 2019 and as of December 31, 2018. We had outstanding letters of credit totaling $12 million and $15 million as of December 31, 2019 and 2018, 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, 2019, we made $62 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, 2018, we were not required to make an excess cash flow payment in 2019, and no excess cash flow payment was required in 2020 with respect to our results for the year ended December 31, 2019. 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).
|
|
|
|
|
|
|
|
|
|
|
|
|
Eurocurrency borrowings
|
|
Base rate borrowings
|
|
Applicable Margin(1)(2)
|
|
Applicable Margin
|
Term Loan A
|
2.25%
|
|
|
1.00%
|
|
Term Loan B
|
2.00%
|
|
|
1.00%
|
|
Revolver, $400 million
|
2.00%
|
|
|
1.00%
|
|
_____________________________
(1)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.
(2)Term Loan A, Term Loan B, and Revolver, $400 million, are subject to a 0% floor.
Applicable margins for the Term Loan B are 2.00% per annum for Eurocurrency rate loans and 1.00% 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. 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.
Our effective interest rates on borrowings under the Amended and Restated Credit Agreement for the years ended December 31, 2019, 2018 and 2017, inclusive of amounts charged to interest expense, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Including the impact of interest rate swaps
|
4.64
|
%
|
|
4.57
|
%
|
|
4.35
|
%
|
Excluding the impact of interest rate swaps
|
4.63
|
%
|
|
4.36
|
%
|
|
4.03
|
%
|
Senior Secured Notes due 2023
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.
In November 2015, we issued $500 million senior secured notes due in November 2023 with a stated interest rate of 5.25% and received net proceeds of $494 million, net of underwriting fees and commissions.
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.
Aggregate Maturities
As of December 31, 2019, aggregate maturities of our long-term debt were as follows (in thousands):
|
|
|
|
|
|
|
Amount
|
Years Ending December 31,
|
|
2020
|
$
|
81,614
|
|
2021
|
75,870
|
|
2022
|
389,323
|
|
2023
|
1,048,817
|
|
2024
|
1,768,185
|
|
Thereafter
|
—
|
|
Total
|
$
|
3,363,809
|
|
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 interest rate swaps as cash flow hedges of floating-rate borrowings.
Cash Flow Hedging Strategy-To protect against the reduction in value of forecasted foreign currency cash flows, we hedge portions of our revenues and expenses denominated in foreign currencies with forward contracts. For example, when the dollar strengthens significantly against the foreign currencies, the decline in present value of future foreign currency expense is offset by 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.
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 and ineffective portions of the gain or loss on the derivative instruments, and the hedge components excluded from the assessment of effectiveness, are reported as a component of other comprehensive income (“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 transaction affects earnings. 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.
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 2020. 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, 2019, 2018 and 2017. As of December 31, 2019, we estimate that $2 million in gains will be reclassified from other comprehensive income (loss) to earnings over the next 12 months.
As of December 31, 2019 and 2018, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Notional Amounts as of December 31, 2019
|
|
|
|
|
|
|
|
|
Buy Currency
|
|
Sell Currency
|
|
Foreign Amount
|
|
USD Amount
|
|
Average Contract
Rate
|
Polish Zloty
|
|
US Dollar
|
|
265,000
|
|
|
68,971
|
|
|
0.2603
|
|
Indian Rupee
|
|
US Dollar
|
|
4,485,000
|
|
|
61,708
|
|
|
0.0138
|
|
Singapore Dollar
|
|
US Dollar
|
|
63,500
|
|
|
46,759
|
|
|
0.7364
|
|
British Pound Sterling
|
|
US Dollar
|
|
18,400
|
|
|
24,109
|
|
|
1.3103
|
|
Australian Dollar
|
|
US Dollar
|
|
16,500
|
|
|
11,521
|
|
|
0.6982
|
|
Swedish Krona
|
|
US Dollar
|
|
38,100
|
|
|
4,106
|
|
|
0.1075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Notional Amount as of December 31, 2018
|
|
|
|
|
|
|
|
|
Buy Currency
|
|
Sell Currency
|
|
Foreign Amount
|
|
USD Amount
|
|
Average Contract
Rate
|
Polish Zloty
|
|
US Dollar
|
|
232,500
|
|
|
64,281
|
|
|
0.2765
|
|
Singapore Dollar
|
|
US Dollar
|
|
59,800
|
|
|
44,504
|
|
|
0.7442
|
|
Indian Rupee
|
|
US Dollar
|
|
2,880,000
|
|
|
39,956
|
|
|
0.0139
|
|
British Pound Sterling
|
|
US Dollar
|
|
19,600
|
|
|
26,525
|
|
|
1.3533
|
|
Australian Dollar
|
|
US Dollar
|
|
23,950
|
|
|
17,674
|
|
|
0.7379
|
|
Swedish Krona
|
|
US Dollar
|
|
48,250
|
|
|
5,678
|
|
|
0.1177
|
|
Brazilian Real
|
|
US Dollar
|
|
14,300
|
|
|
3,753
|
|
|
0.2615
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Contracts—Interest rate swaps outstanding at December 31, 2019 and matured during the years ended December 31, 2019, 2018 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Interest Rate
Received
|
|
Interest Rate Paid
|
|
Effective Date
|
|
Maturity Date
|
Designated as Hedging Instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$750 million
|
|
|
1 month LIBOR(2)
|
|
1.15%
|
|
|
March 31, 2017
|
|
December 31, 2017
|
$750 million
|
|
|
1 month LIBOR(2)
|
|
1.65%
|
|
|
December 29, 2017
|
|
December 31, 2018
|
$1,350 million
|
|
|
1 month LIBOR(2)
|
|
2.27%
|
|
|
December 31, 2018
|
|
December 31, 2019
|
$1,200 million
|
|
|
1 month LIBOR(2)
|
|
2.19%
|
|
|
December 31, 2019
|
|
December 31, 2020
|
$600 million
|
|
|
1 month LIBOR(2)
|
|
2.81%
|
|
|
December 31, 2020
|
|
December 31, 2021
|
|
|
|
|
|
|
|
|
|
Not Designated as Hedging Instrument(1)
|
|
|
|
|
|
|
|
|
$750 million
|
|
|
1 month LIBOR(3)
|
|
2.19%
|
|
|
December 30, 2016
|
|
December 29, 2017
|
$750 million
|
|
|
1.18%
|
|
|
1 month LIBOR
|
|
March 31, 2017
|
|
December 31, 2017
|
$750 million
|
|
|
1 month LIBOR(3)
|
|
2.61%
|
|
|
December 29, 2017
|
|
December 31, 2018
|
$750 million
|
|
|
1.67%
|
|
|
1 month LIBOR
|
|
December 29, 2017
|
|
December 31, 2018
|
_____________________
(1) Subject to a 1% floor.
(2) Subject to a 0% floor.
(3) As of February 22, 2017.
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 outstanding of $750 million became effective December 31, 2019 and extends through the full year 2020. In April 2018, we entered into new forward starting interest rate swaps to hedge the interest payments associated with $600 million, $300 million and $450 million of the floating-rate Term Loan B related to full year 2019, 2020 and 2021, respectively. In December 2018, we entered into new forward starting interest rate swaps to hedge the interest payments associated with $150 million of the floating-rate Term Loan B for the full years 2020 and 2021. We have designated these swaps as cash flow hedges.
The estimated fair values of our derivatives designated as hedging instruments as of December 31, 2019 and 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets (Liabilities)
|
|
|
|
|
|
|
|
|
Fair Value as of December 31,
|
|
|
Derivatives Designated as Hedging Instruments
|
|
Consolidated Balance Sheet Location
|
|
2019
|
|
2018
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
1,953
|
|
|
$
|
—
|
|
Foreign exchange contracts
|
|
Other accrued liabilities
|
|
—
|
|
|
(4,285)
|
|
Interest rate swaps
|
|
Prepaid expenses and other current assets
|
|
—
|
|
|
3,674
|
|
Interest rate swaps
|
|
Other assets, net
|
|
—
|
|
|
295
|
|
Interest rate swaps
|
|
Other accrued liabilities
|
|
(7,020)
|
|
|
—
|
|
Interest rate swaps
|
|
Other noncurrent liabilities
|
|
(7,918)
|
|
|
—
|
|
Total
|
|
|
|
$
|
(12,985)
|
|
|
$
|
(316)
|
|
The effects of derivative instruments, net of taxes, on OCI for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Loss) Gain
Recognized in OCI on Derivative, Effective Portion
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
2019
|
|
2018
|
|
2017
|
Foreign exchange contracts
|
|
$
|
(360)
|
|
|
$
|
(8,250)
|
|
|
$
|
13,205
|
|
Interest rate swaps
|
|
(14,857)
|
|
|
1,907
|
|
|
2,583
|
|
Total
|
|
$
|
(15,217)
|
|
|
$
|
(6,343)
|
|
|
$
|
15,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss (Gain) Reclassified from Accumulated
OCI into Income, Effective Portion
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Income Statement Location
|
|
2019
|
|
2018
|
|
2017
|
Foreign exchange contracts
|
|
Cost of revenue
|
|
$
|
5,351
|
|
|
$
|
(322)
|
|
|
$
|
(3,001)
|
|
Interest rate swaps
|
|
Interest Expense, net
|
|
156
|
|
|
3,999
|
|
|
5,083
|
|
Total
|
|
|
|
$
|
5,507
|
|
|
$
|
3,677
|
|
|
$
|
2,082
|
|
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.
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 Note 15. Pension and Other Postretirement Benefit Plans, for fair value information on our pension plan assets.
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, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Reporting Date Using
|
|
|
|
|
|
December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivatives:
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
$
|
1,953
|
|
|
$
|
—
|
|
|
$
|
1,953
|
|
|
$
|
—
|
|
Interest rate swap contracts
|
(14,938)
|
|
|
—
|
|
|
(14,938)
|
|
|
—
|
|
Total
|
$
|
(12,985)
|
|
|
$
|
—
|
|
|
$
|
(12,985)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Reporting Date Using
|
|
|
|
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivatives:
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
$
|
(4,285)
|
|
|
$
|
—
|
|
|
$
|
(4,285)
|
|
|
$
|
—
|
|
Interest rate swap contracts
|
3,969
|
|
|
—
|
|
|
3,969
|
|
|
—
|
|
Total
|
$
|
(316)
|
|
|
$
|
—
|
|
|
$
|
(316)
|
|
|
$
|
—
|
|
There were no transfers between Levels 1 and 2 within the fair value hierarchy for the years ended December 31, 2019 and 2018.
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.
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 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, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31,
|
|
|
|
Carrying Value(1) at December 31,
|
|
|
Financial Instrument
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Term Loan A
|
|
$
|
485,106
|
|
|
$
|
520,000
|
|
|
$
|
483,317
|
|
|
$
|
525,514
|
|
Term Loan B
|
|
1,856,100
|
|
|
1,798,223
|
|
|
1,838,741
|
|
|
1,856,496
|
|
|
|
|
|
|
|
|
|
|
5.375 % Senior Secured Notes Due 2023
|
|
543,536
|
|
|
529,799
|
|
|
530,000
|
|
|
530,000
|
|
5.25% Senior Secured Notes Due 2023
|
|
514,670
|
|
|
495,248
|
|
|
500,000
|
|
|
500,000
|
|
_____________________
(1)Excludes net unamortized debt issuance costs.
11. Leases
In the first quarter of 2019, we adopted Accounting Standards Codification ("ASC") 842, Leases, which replaced the previous accounting standard. The new lease standard is a right-of-use model, requiring most lessee agreements to be recorded on the balance sheet. The intent of the standard is to provide greater transparency about lessee obligations and activities. The primary impact to our financial statements is that most operating leases are recorded on our consolidated balance sheet and enhanced disclosures are required for both operating and finance leases. As permitted by ASC 842, our accounting policy is to evaluate lessee agreements with a minimum term greater than one year for recording on the balance sheet.
We adopted the standard using the modified retrospective approach, as of January 1, 2019. Prior year's financial results were not restated. On the adoption date, we recorded a right-of-use asset for $72 million in other assets, net, with a corresponding offset to other accrued liabilities and other noncurrent liabilities for $25 million and $47 million, respectively. There was no impact to retained deficit from adoption of the new standard.
The following table presents the components of lease expense (in thousands):
|
|
|
|
|
|
|
Year Ended
December 31, 2019
|
Operating lease cost
|
$
|
27,035
|
|
Finance lease cost:
|
|
|
Amortization of right-of-use assets
|
$
|
7,073
|
|
Interest on lease liabilities
|
453
|
|
Total finance lease cost
|
$
|
7,526
|
|
The following table presents supplemental cash flow information related to leases (in thousands):
|
|
|
|
|
|
|
Year Ended
December 31, 2019
|
Supplemental Cash Flow Information
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows used in operating leases
|
$
|
28,374
|
|
Operating cash flows used in finance leases
|
453
|
|
Financing cash flows used in finance leases
|
6,731
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
Operating leases
|
$
|
27,116
|
|
Finance leases
|
397
|
|
The following table presents supplemental balance sheet information related to leases (in thousands):
|
|
|
|
|
|
|
Year Ended 12/31/2019
|
Operating Leases
|
|
Operating lease right-of-use assets
|
$
|
64,191
|
|
Other accrued liabilities
|
21,932
|
|
Other noncurrent liabilities
|
49,970
|
|
Total operating lease liabilities
|
$
|
71,902
|
|
Finance Leases
|
|
Property and equipment
|
35,349
|
|
Accumulated depreciation
|
(27,163)
|
|
Property and equipment, net
|
$
|
8,186
|
|
Other accrued liabilities
|
5,804
|
|
Other noncurrent liabilities
|
78
|
|
Total finance lease liabilities
|
$
|
5,882
|
|
The following table presents other supplemental information related to leases:
|
|
|
|
|
|
|
December 31, 2019
|
Weighted Average Remaining Lease Term (in years)
|
|
Operating leases
|
4.9
|
Finance leases
|
1.2
|
Weighted Average Discount Rate
|
|
Operating leases
|
5.4
|
%
|
Finance leases
|
4.9
|
%
|
Lease Commitments
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 1.6 million square feet of office space in 93 locations in 48 countries. For the years ended December 31, 2019, 2018 and 2017, we recognized rent expense of $29 million, $30 million and $32 million, respectively.
Our leases have remaining minimum terms that range between one and nine years. Some of our leases include options to extend for up to five additional years; others include options to terminate the agreement within three years. Future minimum lease payments under non-cancellable leases as of December 31, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Operating Leases
|
|
Finance Leases
|
2020
|
|
$
|
22,461
|
|
|
|
$
|
5,896
|
|
2021
|
|
16,679
|
|
|
|
108
|
|
2022
|
|
13,319
|
|
|
|
12
|
|
2023
|
|
9,992
|
|
|
|
6
|
|
2024
|
|
8,569
|
|
|
|
—
|
|
Thereafter
|
|
11,899
|
|
|
|
—
|
|
Total
|
|
82,919
|
|
|
|
6,022
|
|
Imputed Interest
|
|
(11,017)
|
|
|
|
(140)
|
|
Total
|
|
$
|
71,902
|
|
|
|
$
|
5,882
|
|
In addition to the above, as of December 31, 2019, we have entered into an additional operating lease with future lease payments of $39 million that will commence in 2020 with a lease term of 10 years.
12. Stock and Stockholders’ Equity
Secondary Public Offerings and Share Repurchases
During the year ended December 31, 2018, certain of our stockholders sold an aggregate of 69,304,636 shares of our common stock through secondary public offerings. We did not offer any shares or receive any proceeds from these secondary public offerings. Following the secondary public offering of approximately 23,304,636 shares of common stock during the fourth quarter of 2018, existing stockholders affiliated with TPG and Silver Lake no longer held any shares of our common stock.
In February 2017, we announced the approval of a multi-year share repurchase program to purchase up to $500 million of Sabre's common stock outstanding. Repurchases under the program may take place in the open market or privately negotiated transactions. We repurchased 3,673,768 shares totaling $78 million, 1,075,255 shares totaling $26 million, and 5,779,769 shares totaling $109 million of our common stock during the years ended December 31, 2019, 2018, and 2017, respectively.
Common Stock Dividends
We paid a quarterly cash dividend on our common stock of $0.14 per share, totaling $154 million, $0.14 per share, totaling $154 million, and $0.14 per share, totaling $155 million, during the years ended December 31, 2019, 2018 and 2017, 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, 2020 to stockholders of record as of March 20, 2020.
13. Equity-Based Awards
As of December 31, 2019, 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”), the Sabre Corporation 2016 Omnibus Incentive Compensation Plan (the “2016 Omnibus Plan”), the Sabre Corporation 2019 Omnibus Incentive Compensation Plan ("the 2019 Omnibus Plan"), and the 2019 Director Equity Compensation Plan ("2019 Director Plan"). Our 2019 Omnibus Plan serves as a successor to the 2016 Omnibus Plan, the 2014 Omnibus Plan, the Sovereign MEIP and Sovereign 2012 MEIP 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. Our 2019 Director Plan provides for the issuance of RSUs, Deferred Stock Units ("DSUs"), and stock options to non-employee Directors. Outstanding awards under the 2016 Omnibus Plan, the 2014 Omnibus Plan, the Sovereign MEIP and Sovereign 2012 MEIP continue to be subject to the terms and conditions of their respective plan.
We initially reserved 12,500,000 shares of our common stock for issuance under our 2019 Omnibus Plan and 500,000 shares of our common stock for issuance under our 2019 Director Plan. We added 6,720,911 shares that were reserved but not issued under the Sovereign MEIP, Sovereign 2012 MEIP, 2014 Omnibus, and 2016 Omnibus Plans to the 2019 Omnibus Plan reserves, for a total of 19,220,911 authorized shares of common stock for issuance. Time-based options granted under the 2019, 2016, and 2014 Omnibus Plans generally vest over a four year period with 25% vesting at the end of year one and the remaining vesting 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 and, if there is an adjustment, record the cumulative effect of the adjustment in the current reporting period. Options granted are exercisable for up to 10 years. Stock-based compensation expense totaled $67 million, $57 million and $45 million for the years ended December 31, 2019, 2018 and 2017, respectively.
The fair value of the stock options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Exercise price
|
$
|
21.37
|
|
|
$
|
22.89
|
|
|
$
|
21.33
|
|
Average risk-free interest rate
|
2.40
|
%
|
|
2.72
|
%
|
|
2.10
|
%
|
Expected life (in years)
|
6.11
|
|
6.11
|
|
6.11
|
Implied volatility
|
26.32
|
%
|
|
23.17
|
%
|
|
22.02
|
%
|
Dividend yield
|
2.62
|
%
|
|
2.46
|
%
|
|
2.64
|
%
|
The following table summarizes the stock option award activities under our outstanding equity based compensation plans and agreements for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Quantity
|
|
|
Exercise Price
|
|
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic Value
(in thousands) (1)
|
Outstanding at December 31, 2018
|
4,197,243
|
|
|
|
$
|
20.80
|
|
|
7.6
|
|
$
|
9,257
|
|
Granted
|
1,288,430
|
|
|
|
21.37
|
|
|
|
|
|
Exercised
|
(492,061)
|
|
|
|
15.14
|
|
|
|
|
|
Cancelled
|
(515,246)
|
|
|
|
21.87
|
|
|
|
|
|
Outstanding at December 31, 2019
|
4,478,366
|
|
|
|
$
|
21.46
|
|
|
7.4
|
|
$
|
8,000
|
|
Vested and exercisable at December 31, 2019
|
2,201,768
|
|
|
|
$
|
21.05
|
|
|
6.1
|
|
$
|
5,832
|
|
______________________
(1)Aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options awards and the closing price of our common stock of $22.44 on December 31, 2019.
For the years ended December 31, 2019, 2018 and 2017, the total intrinsic value of stock options exercised totaled $4 million, $6 million and $19 million, respectively. The weighted-average fair values of options granted were $4.55, $4.58, and $3.67 during the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, $9 million in unrecognized compensation expense associated with stock options will be recognized over a weighted-average period of 2.7 years.
The following table summarizes the activities for our RSUs for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity
|
|
Weighted-Average
Grant Date
Fair Value
|
Unvested at December 31, 2018
|
5,612,887
|
|
|
$
|
23.11
|
|
Granted
|
3,426,800
|
|
|
21.49
|
|
Vested
|
(1,948,707)
|
|
|
24.06
|
|
Cancelled
|
(725,400)
|
|
|
21.76
|
|
Unvested at December 31, 2019
|
6,365,580
|
|
|
$
|
22.06
|
|
The total fair value of RSUs vested, as of their respective vesting dates, was $47 million, $30 million, and $23 million during the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, approximately $101 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, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity
|
|
Weighted-Average
Grant Date
Fair Value
|
Unvested at December 31, 2018
|
1,718,770
|
|
|
$
|
22.60
|
|
Granted
|
1,210,331
|
|
|
21.36
|
|
Vested
|
(508,168)
|
|
|
22.69
|
|
Cancelled
|
(331,428)
|
|
|
22.25
|
|
Unvested at December 31, 2019
|
2,089,505
|
|
|
$
|
21.99
|
|
The total fair value of PSUs vested, as of their respective vesting dates, was $11 million, $9 million and $14 million during the years ended December 31, 2019, 2018 and 2017, respectively. The recognition of compensation expense associated with PSUs is contingent upon the achievement of annual company-based performance measures. As of December 31, 2019, unrecognized compensation expense associated with PSUs totaled $14 million, $12 million and $6 million for the annual measurement periods ending December 31, 2020, 2021 and 2022, respectively.
14. Earnings Per Share
The following table reconciles the numerators and denominators used in the computations of basic and diluted earnings per share from continuing operations (in thousands, expect per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
Income from continuing operations
|
$
|
164,312
|
|
|
$
|
340,921
|
|
|
$
|
249,576
|
|
Less: Net income attributable to noncontrolling interests
|
3,954
|
|
|
5,129
|
|
|
5,113
|
|
|
|
|
|
|
|
Net income from continuing operations available to common stockholders, basic and diluted
|
$
|
160,358
|
|
|
$
|
335,792
|
|
|
$
|
244,463
|
|
Denominator:
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
274,168
|
|
|
275,235
|
|
|
276,893
|
|
Add: Dilutive effect of stock options and restricted stock awards
|
2,049
|
|
|
2,283
|
|
|
1,427
|
|
Diluted weighted-average common shares outstanding
|
276,217
|
|
|
277,518
|
|
|
278,320
|
|
Earnings per share from continuing operations:
|
|
|
|
|
|
Basic
|
$
|
0.58
|
|
|
$
|
1.22
|
|
|
$
|
0.88
|
|
Diluted
|
$
|
0.58
|
|
|
$
|
1.21
|
|
|
$
|
0.88
|
|
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 3 million, 3 million and 5 million of anti-dilutive common stock equivalents for the years ended December 31, 2019, 2018 and 2017, respectively.
15. Pension and Other Postretirement Benefit Plans
We sponsor the Sabre Inc. 401(k) Savings Plan (“401(k) Plan”), which is a tax qualified defined contribution plan that allows tax deferred savings by eligible employees to provide funds for their retirement. We make a matching contribution equal to 100% of each pre-tax dollar contributed by the participant on the first 6% of eligible compensation. We recognized expenses related to the 401(k) Plan of approximately $23 million, $22 million and $25 million for the years ended December 31, 2019, 2018 and 2017, respectively.
We sponsor the Sabre Inc. Legacy Pension Plan (“LPP”), which is a tax qualified defined benefit pension plan for employees meeting certain eligibility requirements. The LPP was amended to freeze pension benefit accruals as of December 31, 2005, and as a result, no additional pension benefits have been accrued since that date. In April 2008, we amended the LPP to add a lump sum optional form of payment which participants may elect when their plan benefits commence. The effect of the amendment was to decrease the projected benefit obligation by $34 million, which is being amortized over 23.5 years, representing the weighted average of the lump sum benefit period and the life expectancy of all plan participants. We also sponsor postretirement benefit plans for certain employees in Canada and other jurisdictions.
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, 2019 and 2018, and the unfunded status as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
Change in benefit obligation:
|
|
|
|
Benefit obligation at January 1
|
$
|
(428,216)
|
|
|
$
|
(459,439)
|
|
|
|
|
|
Interest cost
|
(18,324)
|
|
|
(17,090)
|
|
Actuarial (loss) gain, net
|
(47,632)
|
|
|
18,529
|
|
Benefits paid
|
30,736
|
|
|
29,784
|
|
Benefit obligation at December 31
|
$
|
(463,436)
|
|
|
$
|
(428,216)
|
|
Change in plan assets:
|
|
|
|
Fair value of assets at January 1
|
$
|
312,455
|
|
|
$
|
347,773
|
|
Actual return on plan assets
|
54,945
|
|
|
(25,333)
|
|
Employer contributions
|
1,600
|
|
|
19,800
|
|
Benefits paid
|
(30,736)
|
|
|
(29,785)
|
|
Fair value of assets at December 31
|
$
|
338,264
|
|
|
$
|
312,455
|
|
Unfunded status at December 31
|
$
|
(125,172)
|
|
|
$
|
(115,761)
|
|
The actuarial loss, net of $48 million for the year ended December 31, 2019 is attributable to a decrease in the discount rate. The actuarial gain, net of $19 million for the year ended December 31, 2018, is attributable to an increase in the discount rate.
The net benefit obligation of $125 million and $116 million as of December 31, 2019 and 2018, respectively, is included in other noncurrent liabilities in our consolidated balance sheets.
The amounts recognized in accumulated other comprehensive income (loss) associated with the LPP, net of deferred taxes of $42 million and $40 million as of December 31, 2019 and 2018, respectively, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Net actuarial loss
|
$
|
(154,608)
|
|
|
$
|
(151,444)
|
|
Prior service credit
|
10,210
|
|
|
11,322
|
|
Accumulated other comprehensive loss
|
$
|
(144,398)
|
|
|
$
|
(140,122)
|
|
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, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Interest cost
|
$
|
18,324
|
|
|
$
|
17,090
|
|
|
$
|
18,731
|
|
Expected return on plan assets
|
(18,510)
|
|
|
(18,790)
|
|
|
(20,934)
|
|
Amortization of prior service credit
|
(1,432)
|
|
|
(1,432)
|
|
|
(1,432)
|
|
Amortization of actuarial loss
|
6,516
|
|
|
7,362
|
|
|
6,517
|
|
Net cost
|
$
|
4,898
|
|
|
$
|
4,230
|
|
|
$
|
2,882
|
|
Weighted-average discount rate used to measure benefit obligations
|
3.53
|
%
|
|
4.41
|
%
|
|
3.81
|
%
|
Weighted average assumptions used to determine net benefit cost:
|
|
|
|
|
|
Discount rate
|
4.41
|
%
|
|
3.81
|
%
|
|
4.36
|
%
|
Expected return on plan assets
|
5.75
|
%
|
|
5.75
|
%
|
|
6.50
|
%
|
The following table provides the pre-tax amounts recognized in other comprehensive income (loss), including the amortization of the actuarial loss and prior service credit, associated with the LPP for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations Recognized in
|
Year Ended December 31,
|
|
|
|
|
Other Comprehensive Income
|
2019
|
|
2018
|
|
2017
|
Net actuarial loss
|
$
|
11,196
|
|
|
$
|
25,595
|
|
|
$
|
679
|
|
Amortization of actuarial loss
|
(6,516)
|
|
|
(7,362)
|
|
|
(6,517)
|
|
Amortization of prior service credit
|
1,432
|
|
|
1,432
|
|
|
1,432
|
|
Total loss (income) recognized in other comprehensive income
|
$
|
6,112
|
|
|
$
|
19,665
|
|
|
$
|
(4,406)
|
|
Total recognized in net periodic benefit cost and other comprehensive income
|
$
|
11,010
|
|
|
$
|
23,895
|
|
|
$
|
(1,524)
|
|
Our overall investment strategy for the LPP is to provide and maintain sufficient assets to meet pension obligations both as an ongoing business, as well as in the event of termination, at the lowest cost consistent with prudent investment management, actuarial circumstances and economic risk, while minimizing the earnings impact. Diversification is provided by using an asset allocation primarily between equity and debt securities in proportions expected to provide opportunities for reasonable long term returns with acceptable levels of investment risk. Fair values of the applicable assets are determined as follows:
Mutual Fund—The fair value of our mutual funds are estimated by using market quotes as of the last day of the period.
Common Collective Trusts—The fair value of our common collective trusts are estimated by using market quotes as of the last day of the period, quoted prices for similar securities and quoted prices in non-active markets.
Real Estate—The fair value of our real estate funds are derived from the fair value of the underlying real estate assets held by the funds. These assets are initially valued at cost and are reviewed periodically utilizing available market data to determine if the assets held should be adjusted.
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 40% global equities, 15% real estate assets, 15% diversified credit and 30% liability hedging fixed income. It is recognized that the investment management of the LPP assets has a direct effect on the achievement of its goal. As defined in Note 10. Fair Value Measurements, the following tables present the fair value of the LPP assets as of December 31, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Common collective trusts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global equity securities
|
$
|
—
|
|
|
$
|
323,810
|
|
|
$
|
—
|
|
|
$
|
323,810
|
|
Money market mutual fund
|
4,506
|
|
|
—
|
|
|
—
|
|
|
4,506
|
|
Real estate
|
—
|
|
|
—
|
|
|
9,948
|
|
|
9,948
|
|
Total assets at fair value
|
$
|
4,506
|
|
|
$
|
323,810
|
|
|
$
|
9,948
|
|
|
$
|
338,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Common collective trusts:
|
|
|
|
|
|
|
|
Fixed income securities
|
$
|
—
|
|
|
$
|
181,156
|
|
|
$
|
—
|
|
|
$
|
181,156
|
|
Global equity securities
|
—
|
|
|
108,152
|
|
|
—
|
|
|
108,152
|
|
Money market mutual fund
|
2,311
|
|
|
—
|
|
|
—
|
|
|
2,311
|
|
Real estate
|
—
|
|
|
—
|
|
|
20,836
|
|
|
20,836
|
|
Total assets at fair value
|
$
|
2,311
|
|
|
$
|
289,308
|
|
|
$
|
20,836
|
|
|
$
|
312,455
|
|
The following table provides a rollforward of plan assets valued using significant unobservable inputs (level 3), in thousands:
|
|
|
|
|
|
|
Real Estate
|
Ending balance at December 31, 2017
|
$
|
19,455
|
|
Contributions
|
307
|
|
Net distributions
|
(307)
|
|
Advisory fee
|
(198)
|
|
Net investment income
|
845
|
|
Unrealized gain
|
717
|
|
Net realized gain
|
17
|
|
Ending balance at December 31, 2018
|
20,836
|
|
Contributions
|
331
|
|
Net distributions
|
(11,235)
|
|
Advisory fee
|
(205)
|
|
Net investment income
|
771
|
|
Unrealized loss
|
(541)
|
|
Net realized loss
|
(9)
|
|
Ending balance at December 31, 2019
|
$
|
9,948
|
|
We contributed $2 million and $20 million to fund our defined benefit pension plans during the years ended December 31, 2019 and 2018, respectively. Annual contributions to our defined benefit pension plans in the United States, Canada, and other jurisdictions are based on several factors that may vary from year to year. Our funding practice 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 make $17 million in contributions to our defined benefit pension plans in 2020.
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 2020.
We expect the LPP to make the following estimated future benefit payments (in thousands):
|
|
|
|
|
|
|
Amount
|
2020
|
$
|
30,729
|
|
2021
|
31,864
|
|
2022
|
32,304
|
|
2023
|
31,067
|
|
2024
|
35,036
|
|
2025-2029
|
170,880
|
|
16. Commitments and Contingencies
Purchase Commitments
In the ordinary course of business, we make various commitments in connection with the purchase of goods and services from specific suppliers. We have outstanding commitments of approximately $2.6 billion, which includes commitments outstanding as of December 31, 2019 and a commitment entered into in January 2020. These purchase commitments extend through 2030.
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 Investigations
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.
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. As a result of the jury's verdict, US Airways was 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, without prejudice.
In the fourth quarter of 2016, we accrued a loss of $32 million, which represented the court's final judgment of $15 million, plus our estimate of $17 million for US Airways' reasonable attorneys’ fees, expenses and costs.
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. The Second Circuit heard oral arguments on this matter in December 2018.
In September 2019, the Second Circuit issued its Order and Opinion. The Second Circuit vacated the judgment with respect to US Airways’ claim under Section 1, reversed the trial court’s dismissal of US Airways’ claims relating to Section 2, and remanded the case to district court for a new trial. In addition, the Second Circuit affirmed the trial court’s ruling limiting US Airways’ damages. The judgment in our favor on US Airways' conspiracy claim remains intact. The lawsuit has been remanded to federal court in the Southern District of New York for further proceedings. Currently, no trial date has been set.
As a result of the Second Circuit’s opinion, we believe that the claims associated with this case are not probable; therefore, in the third quarter of 2019, we reversed our previously accrued loss of $32 million and do not have any losses accrued for this matter as of December 31, 2019.
We have and will incur significant fees, costs and expenses for as long as the litigation is ongoing. In addition, litigation by its nature is highly uncertain and fraught with risk, and it is therefore difficult to predict the outcome of any particular matter, including any changes to our business that may be required as a result of the litigation. If favorable resolution of the matter is not reached upon remand, any monetary damages are subject to trebling under the antitrust laws and US Airways would be eligible to be reimbursed by us for its reasonable costs and attorneys’ fees. Depending on the amount of any such judgment, if we do not have sufficient cash on hand, we may be required to seek private or public financing. 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.
Department of Justice Lawsuit on Farelogix Acquisition
On August 20, 2019, the DOJ filed a complaint in federal court in the District of Delaware, seeking a permanent injunction to prevent Sabre from acquiring Farelogix, Inc. ("Farelogix"), alleging that the proposed acquisition is likely to substantially lessen competition in violation of federal antitrust law. Sabre disputes the government's allegations and believes the acquisition is pro-competitive and ultimately will be completed. The trial concluded on February 6, 2020 and the trial court has not yet issued its decision. Sabre and Farelogix have extended the termination date of their acquisition agreement to April 30, 2020, allowing time to resolve the challenge by the DOJ. In addition, the CMA has referred its review of the acquisition for a Phase 2 investigation and has published its provisional findings of competition concerns. Under the acquisition agreement, as amended, we have agreed to advance certain attorneys’ fees incurred by Farelogix in responding to certain governmental reviews of the acquisition and in defending against certain antitrust proceedings, which have totaled $20 million for the year ended December 31, 2019. These advances will be applied against the purchase price upon closing. The acquisition agreement, as amended, contains certain customary termination rights, including the right of either party to terminate the acquisition agreement if the acquisition
has not occurred by April 30, 2020. We could be obligated to pay Farelogix up to an additional $25 million, either in the form of additional advances or in the form of a termination fee depending on the circumstances.
European Commission’s Directorate-General for Competition ("EC") Investigation
On November 23, 2018, the EC announced that it has opened an investigation of us and another GDS to assess whether our respective agreements with airlines and travel agents may restrict competition in breach of European Union antitrust rules. We are fully cooperating with the EC’s investigation and are unable to make any prediction regarding its outcome at this time. There is no legal deadline for the EC to bring an antitrust investigation to an end, and the duration of the investigation is uncertain. Depending on the findings of the EC, the outcome of the investigation could have a material adverse effect on our business, financial condition and results of operations. We may incur significant fees, costs and expenses for as long as this investigation is ongoing. We intend to vigorously defend against any allegations of anticompetitive activity by the EC.
Department of Justice Investigation
On May 19, 2011, we received a civil investigative demand ("CID") from the 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.
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 (“ITAT”). The ITAT ruled in our favor on June 19, 2009 and July 10, 2009, stating that no income would be chargeable to tax for assessment years ending March 1998 and March 1999, and from March 2000 through March 2006. The DIT appealed those decisions to the Delhi High Court, which found in our favor on July 19, 2010. The DIT has appealed the decision to the Supreme Court of India. Our case has been listed for hearing with the Supreme Court, and it has not yet been presented. We have appealed the tax assessments for the assessment years ended March 2013 to March 2016 with the ITAT and no trial date has been set for these subsequent years.
In addition, Sabre Asia Pacific Pte Ltd ("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 ITAT. The ITAT 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 2016 and appeals for assessment years ending March 2006 through 2016 are pending before the ITAT.
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 $45 million as of December 31, 2019. 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 Tax 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 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
Air Berlin
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, 2019. We may incur significant fees, costs and expenses for as long as this matter is ongoing. We intend to vigorously defend against these claims.
SynXis Central Reservation System
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 and engaged a payment card industry data ("PCI") forensic investigator to investigate this incident at the payment card brands' request. 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 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 or indemnification obligations to our customers, 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.
Other Tax Matters
We operate in numerous jurisdictions in which taxing authorities may challenge our position with respect to income and non-income based taxes. We routinely receive inquiries and may also from time to time receive challenges or assessments from these taxing authorities. With respect to non-income based taxes, we recognize liabilities when we believe it is probable that amounts will be owed to the taxing authorities and such amounts are estimable. For example, in most countries we pay and collect Value Added Tax (“VAT”) when procuring goods and services, or providing services, within the normal course of business. VAT receivables are established in jurisdictions where VAT paid exceeds VAT collected and are recoverable through the filing of refund claims. These receivables have inherent audit and collection risks unique to the specific jurisdictions that evaluate our refund claims. Our most significant VAT receivable is in Greece. As of December 31, 2019, we have approximately $22 million in VAT receivables for which refund claims have been filed with the Greek government. Although we have paid these amounts and believe we are entitled to a refund, the Greek tax authorities have challenged our position. In Greece, as in other jurisdictions, we intend to vigorously defend our positions against any claims that are not insignificant, including through litigation when necessary. As of December 31, 2019, we do not believe that an adverse outcome is probable with respect to the claims of the Greek tax authorities or any other jurisdiction; as a result, we have not accrued any material amounts for exposure related to such contingencies or adverse decisions. Nevertheless, we may incur expenses in future periods related to such matters, including litigation costs and possible pre-payment of a portion of any assessed tax amount to defend our position, and if our positions are ultimately rejected, it could have a material impact to our results of operations.
17. Segment Information
Our reportable segments are based upon our internal organizational structure; the manner in which our operations are managed; the criteria used by our Chief Executive Officer, who is our Chief Operating Decision Maker ("CODM"), to evaluate segment performance; the availability of separate financial information; and overall materiality considerations. Effective the first quarter of 2018, our business has three reportable segments: (i) Travel Network, (ii) Airline Solutions and (iii) Hospitality Solutions. In conjunction with this change, we have modified the methodology we have historically used to allocate shared corporate technology costs. Each segment now reflects 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 have no impact on our consolidated results of operations, but result in a decrease of individual segment profitability only.
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, finance, human resources, legal, corporate systems, amortization of acquired 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 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.
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, the cost of revenue portion of depreciation and amortization, restructuring and other costs, amortization of upfront incentive compensation, 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 costs, net, and stock-based compensation.
We define Adjusted EBITDA as income from continuing operations adjusted for impairment and related charges, depreciation and amortization of property and equipment, amortization of capitalized implementation costs, acquisition-related amortization, amortization of upfront incentive consideration, interest expense, net, loss on extinguishment of debt, other, net, restructuring and other costs, acquisition-related costs, litigation costs, net, stock-based compensation and provision for income taxes.
Segment information for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Revenue
|
|
|
|
|
|
Travel Network
|
$
|
2,882,662
|
|
|
$
|
2,806,194
|
|
|
$
|
2,550,470
|
|
Airline Solutions
|
840,338
|
|
|
822,747
|
|
|
816,008
|
|
Hospitality Solutions
|
292,880
|
|
|
273,079
|
|
|
258,352
|
|
Eliminations
|
(40,892)
|
|
|
(35,064)
|
|
|
(26,346)
|
|
Total revenue
|
$
|
3,974,988
|
|
|
$
|
3,866,956
|
|
|
$
|
3,598,484
|
|
Adjusted Gross Profit (Loss)(a)
|
|
|
|
|
|
Travel Network
|
$
|
1,016,695
|
|
|
$
|
1,098,052
|
|
|
$
|
1,071,249
|
|
Airline Solutions
|
326,610
|
|
|
355,079
|
|
|
366,255
|
|
Hospitality Solutions
|
64,842
|
|
|
83,333
|
|
|
88,477
|
|
Corporate
|
(16,341)
|
|
|
(15,056)
|
|
|
(25,795)
|
|
Total
|
$
|
1,391,806
|
|
|
$
|
1,521,408
|
|
|
$
|
1,500,186
|
|
Adjusted Operating Income (Loss) (b)
|
|
|
|
|
|
Travel Network
|
$
|
648,838
|
|
|
$
|
755,811
|
|
|
$
|
746,625
|
|
Airline Solutions
|
80,428
|
|
|
111,146
|
|
|
137,932
|
|
Hospitality Solutions
|
(21,632)
|
|
|
12,881
|
|
|
9,670
|
|
Corporate
|
(194,226)
|
|
|
(178,406)
|
|
|
(188,078)
|
|
Total
|
$
|
513,408
|
|
|
$
|
701,432
|
|
|
$
|
706,149
|
|
Adjusted EBITDA(c)
|
|
|
|
|
|
Travel Network
|
$
|
852,856
|
|
|
$
|
951,709
|
|
|
$
|
923,615
|
|
Airline Solutions
|
251,442
|
|
|
293,577
|
|
|
296,437
|
|
Hospitality Solutions
|
31,466
|
|
|
52,824
|
|
|
42,784
|
|
Total segments
|
1,135,764
|
|
|
1,298,110
|
|
|
1,262,836
|
|
Corporate
|
(189,404)
|
|
|
(173,720)
|
|
|
(184,265)
|
|
Total
|
$
|
946,360
|
|
|
$
|
1,124,390
|
|
|
$
|
1,078,571
|
|
Depreciation and amortization
|
|
|
|
|
|
Travel Network
|
$
|
121,083
|
|
|
$
|
118,276
|
|
|
$
|
109,579
|
|
Airline Solutions
|
171,014
|
|
|
182,431
|
|
|
158,505
|
|
Hospitality Solutions
|
53,098
|
|
|
39,943
|
|
|
33,114
|
|
Total segments
|
345,195
|
|
|
340,650
|
|
|
301,198
|
|
Corporate
|
69,426
|
|
|
72,694
|
|
|
99,673
|
|
Total
|
$
|
414,621
|
|
|
$
|
413,344
|
|
|
$
|
400,871
|
|
Capital Expenditures
|
|
|
|
|
|
Travel Network
|
$
|
15,580
|
|
|
$
|
64,943
|
|
|
$
|
90,881
|
|
Airline Solutions
|
37,062
|
|
|
98,374
|
|
|
116,948
|
|
Hospitality Solutions
|
11,324
|
|
|
39,160
|
|
|
43,443
|
|
Total segments
|
63,966
|
|
|
202,477
|
|
|
251,272
|
|
Corporate
|
51,200
|
|
|
81,463
|
|
|
65,165
|
|
Total
|
$
|
115,166
|
|
|
$
|
283,940
|
|
|
$
|
316,437
|
|
(a)The following table sets forth the reconciliation of Adjusted Gross Profit to operating income in our statement of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Adjusted Gross Profit
|
$
|
1,391,806
|
|
|
$
|
1,521,408
|
|
|
$
|
1,500,186
|
|
Less adjustments:
|
|
|
|
|
|
Selling, general and administrative
|
576,568
|
|
|
513,526
|
|
|
510,075
|
|
Impairment and related charges(7)
|
—
|
|
|
—
|
|
|
81,112
|
|
Cost of revenue adjustments:
|
|
|
|
|
|
Depreciation and amortization(1)
|
340,889
|
|
|
341,653
|
|
|
317,812
|
|
Amortization of upfront incentive consideration(2)
|
82,935
|
|
|
77,622
|
|
|
67,411
|
|
Restructuring and other costs(4)
|
—
|
|
|
—
|
|
|
12,604
|
|
Stock-based compensation
|
27,997
|
|
|
26,591
|
|
|
17,732
|
|
Operating income
|
$
|
363,417
|
|
|
$
|
562,016
|
|
|
$
|
493,440
|
|
(b)The following table sets forth the reconciliation of Adjusted Operating Income to operating income in our statement of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Adjusted Operating income
|
$
|
513,408
|
|
|
$
|
701,432
|
|
|
$
|
706,149
|
|
Less adjustments:
|
|
|
|
|
|
Joint venture equity income
|
2,044
|
|
|
2,556
|
|
|
2,580
|
|
Impairment and related charges(7)
|
—
|
|
|
—
|
|
|
81,112
|
|
Acquisition-related amortization(1c)
|
64,604
|
|
|
68,008
|
|
|
95,860
|
|
Restructuring and other costs(4)
|
—
|
|
|
—
|
|
|
23,975
|
|
Acquisition-related costs(5)
|
41,037
|
|
|
3,266
|
|
|
—
|
|
Litigation costs, net(6)
|
(24,579)
|
|
|
8,323
|
|
|
(35,507)
|
|
Stock-based compensation
|
66,885
|
|
|
57,263
|
|
|
44,689
|
|
Operating income
|
$
|
363,417
|
|
|
$
|
562,016
|
|
|
$
|
493,440
|
|
(c)The following table sets forth the reconciliation of Adjusted EBITDA to income from continuing operations in our statement of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Adjusted EBITDA
|
$
|
946,360
|
|
|
$
|
1,124,390
|
|
|
$
|
1,078,571
|
|
Less adjustments:
|
|
|
|
|
|
Impairment and related charges(7)
|
—
|
|
|
—
|
|
|
81,112
|
|
Depreciation and amortization of property and equipment(1a)
|
310,573
|
|
|
303,612
|
|
|
264,880
|
|
Amortization of capitalized implementation costs(1b)
|
39,444
|
|
|
41,724
|
|
|
40,131
|
|
Acquisition-related amortization(1c)
|
64,604
|
|
|
68,008
|
|
|
95,860
|
|
Amortization of upfront incentive consideration(2)
|
82,935
|
|
|
77,622
|
|
|
67,411
|
|
Interest expense, net
|
156,391
|
|
|
157,017
|
|
|
153,925
|
|
Loss on extinguishment of debt
|
—
|
|
|
633
|
|
|
1,012
|
|
Other, net(3)
|
9,432
|
|
|
8,509
|
|
|
(36,530)
|
|
Restructuring and other costs(4)
|
—
|
|
|
—
|
|
|
23,975
|
|
Acquisition-related costs(5)
|
41,037
|
|
|
3,266
|
|
|
—
|
|
Litigation costs, net(6)
|
(24,579)
|
|
|
8,323
|
|
|
(35,507)
|
|
Stock-based compensation
|
66,885
|
|
|
57,263
|
|
|
44,689
|
|
|
|
|
|
|
|
Provision for income taxes(8)
|
35,326
|
|
|
57,492
|
|
|
128,037
|
|
Income from continuing operations
|
$
|
164,312
|
|
|
$
|
340,921
|
|
|
$
|
249,576
|
|
________________________
(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 as well as amortization of contract acquisition costs.
(b)Amortization of capitalized implementation costs represents amortization of upfront costs to implement new customer contracts under our SaaS and hosted revenue model.
(c)Acquisition-related amortization represents amortization of intangible assets from the take-private transaction in 2007 as well as intangibles associated with acquisitions since that date.
(2)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 ten 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.
(3)In 2019, Other, net primarily includes 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. In 2018, we recognized an expense of $5 million related to our liability under the TRA offset by a gain of $8 million on the sale of an investment. In 2017, we recognized 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 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 a debt refinancing. 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.
(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 in charges associated with an announced action to reduce our workforce in 2017. These reductions aligned our operations with business needs and implemented an ongoing cost and organizational structure consistent with our expected growth needs and opportunities.
(5)Acquisition-related costs represent fees and expenses incurred associated with the 2019 acquisition of Radixx and the 2018 agreement to acquire Farelogix, which is anticipated to close in 2020. See Note 3. Acquisitions.
(6)Litigation costs, net represent charges associated with antitrust and other foreign non-income tax contingency matters. In 2019, we recognized the reversal of our previously accrued loss related to US Airways legal matter for $32 million. In 2018, we recorded non-income tax expense of $5 million for tax, penalties and interest associated with certain non-income tax claims for historical periods regarding permanent establishment in a foreign jurisdiction. 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. See Note 16. Commitments and Contingencies.
(7)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.
(8)In 2018, the provision for income taxes includes a benefit of $27 million related to the enactment of the TCJA for deferred taxes and foreign tax effects. In 2017, provision for income taxes includes a provisional impact of $47 million recognized as a result of the enactment of the TCJA in December 2017. See Note 7. Income Taxes.
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 Solutions 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 94%, 95% and 95% of our Travel Network revenue for each of the years ended December 31, 2019, 2018 and 2017. Transaction-based revenue accounted for approximately 80%, 81% and 74% for the years ended December 31, 2019, 2018 and 2017, respectively, of our Airline Solutions revenue. Transaction-based revenue accounted for approximately 80%, 81% and 83% for the years ended December 31, 2019, 2018 and 2017, respectively, of our Hospitality Solutions revenue. All joint venture equity income relates to Travel Network.
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 Solutions and Hospitality Solutions, revenue is attributed to countries based on the location of the customer. The majority of our revenues and long-lived assets are derived from the United States, Europe, and Asia-Pacific ("APAC") as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Revenue:
|
|
|
|
|
|
United States (1)
|
$
|
1,306,450
|
|
|
$
|
1,346,895
|
|
|
$
|
1,340,893
|
|
Europe
|
913,245
|
|
|
928,533
|
|
|
777,406
|
|
APAC
|
822,679
|
|
|
820,711
|
|
|
715,740
|
|
All Other
|
932,614
|
|
|
770,817
|
|
|
764,445
|
|
Total
|
$
|
3,974,988
|
|
|
$
|
3,866,956
|
|
|
$
|
3,598,484
|
|
________________________
(1)United States includes revenue related to Canada and Mexico in 2018 and 2017 that is reflected in 'All Other' in 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2019
|
|
2018
|
Long-lived assets
|
|
|
|
United States (1)
|
$
|
622,034
|
|
|
$
|
773,739
|
|
Europe
|
1,594
|
|
|
3,735
|
|
APAC
|
11,521
|
|
|
7,254
|
|
All Other
|
6,573
|
|
|
5,644
|
|
Total
|
$
|
641,722
|
|
|
$
|
790,372
|
|
________________________
(1)United States includes long-lived assets related to Canada and Mexico in 2018 and 2017 that is reflected in 'All Other' in 2019.
18. Quarterly Financial Information (Unaudited)
A summary of our quarterly financial results for the years ended December 31, 2019 and 2018 is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenue
|
$
|
1,049,361
|
|
|
$
|
1,000,006
|
|
|
$
|
984,199
|
|
|
$
|
941,422
|
|
Operating income
|
110,407
|
|
|
81,913
|
|
|
113,460
|
|
|
57,637
|
|
Income from continuing operations
|
59,214
|
|
|
28,094
|
|
|
65,180
|
|
|
11,824
|
|
(Loss) income from discontinued operations, net of tax
|
(1,452)
|
|
|
1,350
|
|
|
(596)
|
|
|
(1,068)
|
|
Net income
|
57,762
|
|
|
29,444
|
|
|
64,584
|
|
|
10,756
|
|
Net income attributable to common stockholders
|
56,850
|
|
|
27,838
|
|
|
63,813
|
|
|
10,091
|
|
Net income per share attributable to common stockholders:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.20
|
|
|
$
|
0.10
|
|
|
$
|
0.24
|
|
|
$
|
0.04
|
|
Diluted
|
$
|
0.20
|
|
|
$
|
0.10
|
|
|
$
|
0.23
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenue
|
$
|
988,369
|
|
|
$
|
984,376
|
|
|
$
|
970,283
|
|
|
$
|
923,928
|
|
Operating income
|
165,401
|
|
|
138,833
|
|
|
136,763
|
|
|
121,019
|
|
Income from continuing operations
|
90,449
|
|
|
92,565
|
|
|
70,879
|
|
|
87,028
|
|
(Loss) income from discontinued operations, net of tax
|
(1,207)
|
|
|
760
|
|
|
3,664
|
|
|
(1,478)
|
|
Net income
|
89,242
|
|
|
93,325
|
|
|
74,543
|
|
|
85,550
|
|
Net income attributable to common stockholders
|
87,880
|
|
|
92,246
|
|
|
73,005
|
|
|
84,400
|
|
Net income per share attributable to common stockholders:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.32
|
|
|
$
|
0.33
|
|
|
$
|
0.26
|
|
|
$
|
0.31
|
|
Diluted
|
$
|
0.32
|
|
|
$
|
0.33
|
|
|
$
|
0.26
|
|
|
$
|
0.30
|
|
19. Subsequent Events
The travel industry continues to be adversely affected by the global health crisis due to the outbreak of the coronavirus (COVID-19) in January 2020, especially as it relates to air travel to and from Asia. We expect a material impact to our consolidated financial results in the first quarter of 2020. Given the uncertainties surrounding the duration of the outbreak and its impact on global travel, we cannot reasonably estimate the related financial impact to our full-year 2020 financial results; however, we expect the impact will be material.