Sabre Corp - FORM 10-Q

Sabre Corp - FORM 10-Q - May 2, 2017

Attached files

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 CERTIFICATION OF CFO PURSUANT TO SECTION 906 - Sabre Corp	sabrex322_cfo906certxq12017.htm
EX-32.1 - EXHIBIT 32.1 CERTIFICATION OF CEO PURSUANT TO SECTION 906 - Sabre Corp	sabrex321_ceo906certxq12017.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION OF CFO PURSUANT TO SECTION 302 - Sabre Corp	sabrex312_cfo302certxq12017.htm
EX-31.1 - EXHIBIT 31.1 CERTIFICATION OF CEO PURSUANT TO SECTION 302 - Sabre Corp	sabrex311_ceo302certxq12017.htm
EX-10.45 - EXHIBIT 10.45 NON-QUALIFIED STOCK OPTION GRANT AGREEMENT - Sabre Corp	exhibit1045nqsoformofagree.htm
EX-10.44 - EXHIBIT 10.44 RESTRICTED STOCK UNIT GRANT AGREEMENT - Sabre Corp	exhibit1044rsuformofagreem.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36422

Sabre Corporation

(Exact name of registrant as specified in its charter)



Delaware		20-8647322
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3150 Sabre Drive

Southlake, TX 76092

(Address, including zip code, of principal executive offices)

(682) 605-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 26, 2017, 278,091,066 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

SABRE CORPORATION

TABLE OF CONTENTS




PART I. FINANCIAL INFORMATION		Page No.
Item 1.	Financial Statements:
	Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016	1
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016	2
	Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	3
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 6.	Exhibits	53

PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

SABRE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Revenue	$	915,353		$	859,543
Cost of revenue	607,586			554,265
Selling, general and administrative	144,441			133,856
Operating income	163,326			171,422
Other income (expense):
Interest expense, net	(39,561		)	(41,202		)
Joint venture equity income	898			763
Other, net	(15,234		)	3,360
Total other expense, net	(53,897		)	(37,079		)
Income from continuing operations before income taxes	109,429			134,343
Provision for income taxes	31,707			41,424
Income from continuing operations	77,722			92,919
(Loss) income from discontinued operations, net of tax	(477		)	13,350
Net income	77,245			106,269
Net income attributable to noncontrolling interests	1,306			1,102
Net income attributable to common stockholders	$	75,939		$	105,167

Basic net income per share attributable to common stockholders:
Income from continuing operations	$	0.28		$	0.33
Income from discontinued operations	—			0.05
Net income per common share	$	0.28		$	0.38
Diluted net income per share attributable to common stockholders:
Income from continuing operations	$	0.27		$	0.33
Income from discontinued operations	—			0.05
Net income per common share	$	0.27		$	0.37
Weighted-average common shares outstanding:
Basic	277,353			275,568
Diluted	279,559			281,963

Dividends per common share	$	0.14		$	0.13

See Notes to Consolidated Financial Statements.

SABRE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Net income	$	77,245		$	106,269
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Foreign CTA (losses) gains	(814		)	(370		)
Reclassification adjustment for realized losses on foreign CTA	—			(198		)
Net change in foreign CTA losses	(814		)	(568		)
Retirement-related benefit plans:
Amortization of prior service credits	(358		)	(229		)
Amortization of actuarial losses	1,875			910
Total retirement-related benefit plans	1,517			681
Derivatives and available-for-sale securities:
Unrealized gains (losses), net of taxes of $(844) and $1,259	4,655			(492		)
Reclassification adjustment for realized losses, net of taxes of $(915) and $(285)	2,871			919
Net change in derivatives and available-for-sale securities, net of tax	7,526			427
Share of other comprehensive loss of joint venture	(68		)	—
Other comprehensive income	8,161			540
Comprehensive income	85,406			106,809
Less: Comprehensive income attributable to noncontrolling interests	(1,306		)	(1,102		)
Comprehensive income attributable to Sabre Corporation	$	84,100		$	105,707

See Notes to Consolidated Financial Statements.

SABRE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)



	March 31, 2017			December 31, 2016
Assets
Current assets
Cash and cash equivalents	$	287,639		$	364,114
Accounts receivable, net	512,340			400,667
Prepaid expenses and other current assets	110,449			88,600
Total current assets	910,428			853,381
Property and equipment, net of accumulated depreciation of $1,045,176 and $986,891	777,954			753,279
Investments in joint ventures	26,412			25,582
Goodwill	2,546,606			2,548,447
Acquired customer relationships, net of accumulated amortization of $668,091 and $646,850	365,398			387,632
Other intangible assets, net of accumulated amortization of $552,318 and $538,381	373,868			387,805
Deferred income taxes	81,216			95,285
Other assets, net	708,117			673,159
Total assets	$	5,789,999		$	5,724,570

Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	170,028		$	168,576
Accrued compensation and related benefits	66,565			102,037
Accrued subscriber incentives	266,944			216,011
Deferred revenues	225,058			187,108
Other accrued liabilities	241,073			222,879
Current portion of debt	60,246			169,246
Tax Receivable Agreement	74,977			100,501
Total current liabilities	1,104,891			1,166,358
Deferred income taxes	97,217			88,957
Other noncurrent liabilities	478,409			567,359
Long-term debt	3,438,758			3,276,281
Commitments and contingencies (Note 10)
Stockholders’ equity
Common Stock: $0.01 par value; 450,000,000 authorized shares; 287,946,603 and 285,461,125 shares issued, 278,445,924 and 276,949,802 shares outstanding at March 31, 2017 and December 31, 2016, respectively	2,879			2,854
Additional paid-in capital	2,126,013			2,105,843
Treasury Stock, at cost, 9,500,679 and 8,511,323 shares at March 31, 2017 and December 31, 2016, respectively	(243,346		)	(221,746		)
Retained deficit	(1,104,117		)	(1,141,116		)
Accumulated other comprehensive loss	(114,638		)	(122,799		)
Noncontrolling interest	3,933			2,579
Total stockholders’ equity	670,724			625,615
Total liabilities and stockholders’ equity	$	5,789,999		$	5,724,570

See Notes to Consolidated Financial Statements.

SABRE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Operating Activities
Net income	$	77,245		$	106,269
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	105,670			96,283
Amortization of upfront incentive consideration	16,132			12,337
Litigation-related credits	—			(23,001		)
Stock-based compensation expense	8,034			10,289
Allowance for doubtful accounts	2,476			3,972
Deferred income taxes	20,296			30,756
Joint venture equity income	(898		)	(763		)
Amortization of debt issuance costs	2,475			1,946
Loss on modification of debt	11,730			—
Other	848			(213		)
Income from discontinued operations	477			(13,350		)
Changes in operating assets and liabilities:
Accounts and other receivables	(119,056		)	(74,362		)
Prepaid expenses and other current assets	(15,701		)	(9,039		)
Capitalized implementation costs	(17,096		)	(19,957		)
Upfront incentive consideration	(25,534		)	(23,028		)
Other assets	(15,967		)	(7,615		)
Accrued compensation and related benefits	(35,646		)	(31,810		)
Accounts payable and other accrued liabilities	69,188			55,835
Deferred revenue including upfront solution fees	38,362			25,616
Cash provided by operating activities	123,035			140,165
Investing Activities
Additions to property and equipment	(88,318		)	(75,472		)
Acquisition, net of cash acquired	—			(158,668		)
Cash used in investing activities	(88,318		)	(234,140		)
Financing Activities
Proceeds of borrowings from lenders	1,897,625			161,000
Payments on borrowings from lenders	(1,844,553		)	(232,296		)
Payments on Tax Receivable Agreement	(99,241		)	—
Debt issuance and modification costs	(10,055		)	—
Net proceeds (payments) on the settlement of equity-based awards	2,111			(2,003		)
Cash dividends paid to common stockholders	(38,939		)	(35,956		)
Repurchase of common stock	(11,540		)	—
Other financing activities	(3,196		)	(1,647		)
Cash used in financing activities	(107,788		)	(110,902		)
Cash Flows from Discontinued Operations
Cash used in operating activities	(1,846		)	(3,880		)
Cash provided by investing activities	—			—
Cash used in discontinued operations	(1,846		)	(3,880		)
Effect of exchange rate changes on cash and cash equivalents	(1,558		)	(673		)
(Decrease) increase in cash and cash equivalents	(76,475		)	(209,430		)
Cash and cash equivalents at beginning of period	364,114			321,132
Cash and cash equivalents at end of period	$	287,639		$	111,702

See Notes to Consolidated Financial Statements.

SABRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. General Information

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 are a leading technology solutions provider to the global travel and tourism industry. We operate through two business segments: (i) Travel Network, our global travel marketplace for travel suppliers and travel buyers, and (ii) Airline and Hospitality Solutions, an extensive suite of travel industry leading software solutions primarily for airlines and hoteliers.

Basis of Presentation—The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Operating results for the three months ended March 31, 2017 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2017. The accompanying interim financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K filed with the SEC on February 17, 2017.

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.

Use of Estimates—The preparation of these interim 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 consist of significant estimates and assumptions, include, among other things, the 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 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 customer implementation costs, assumptions utilized to evaluate the recoverability of deferred customer advance and discounts, and estimation of uncertainties surrounding the calculation of our tax assets and liabilities. Our use of estimates and the related accounting policies are discussed in the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K filed with the SEC on February 17, 2017.

Stockholders’ Equity—During the three months ended March 31, 2017, we issued 2,485,478 shares of our common stock as a result of the exercise and settlement of employee equity-based awards. In addition, we received $12 million in proceeds from the exercise of employee stock-option awards and paid $10 million of income tax withholdings associated with the settlement of employee restricted-stock awards. We paid a quarterly cash dividend on our common stock of $0.14 per share, totaling $39 million, and $0.13 per share, totaling $36 million, during the three months ended March 31, 2017 and 2016, respectively.

Share Repurchase Program

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. For the three months ended March 31, 2017, we repurchased 532,500 shares totaling $12 million pursuant to this share repurchase program.

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board ("FASB") issued updated guidance to state that registrants should consider additional qualitative disclosures if the impact of an issued but not yet adopted Accounting Standards Update ("ASU") is unknown or cannot be reasonably estimated and to include a description of the effect of the accounting policies that the registrant expects to apply, if determined. Transition guidance included in certain issued but not yet adopted ASUs was also updated to reflect this amendment. The updated guidance was effective upon issuance and the Company has adopted this standard and has made the required disclosures.

In January 2017, the FASB issued an updated guidance simplifying the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. The updated guidance is effective for public companies’ annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017. The Company expects to adopt this standard in 2017 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued updated guidance clarifying the definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted in any interim or annual period provided that the entire ASU is adopted. We early adopted this standard effective first quarter of 2017, which did not have a material impact on our consolidated financial statements.

In March 2017, the FASB issued updated guidance improving the presentation requirements related to reporting the service cost component of net benefit costs to require that the service cost component be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, disaggregating the component from other net benefit costs. Net benefit cost is composed of several items, which reflect different aspects of an employer's financial arrangements as well as the cost of benefits earned by employees. The updated guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods for public business entities. We do not expect that the adoption of this updated standard will have a material impact to our consolidated financial statements.

In October 2016, the FASB issued updated guidance which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The updated guidance will be effective in its first quarter of 2018 and early adoption is permitted. We early adopted this standard effective first quarter of 2017, which did not impact our consolidated financial statements.

In February 2016, 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. We are currently evaluating the impact of this standard on our consolidated financial statements.

In January 2016, the FASB issued updated guidance on accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure for financial instruments. Under this updated standard, entities must measure equity investments at fair value and recognize changes in fair value in net income. For equity investments without readily determinable fair values, entities have the option to either measure these investments at fair value or at cost adjust for changes in observable prices less impairment. The updated guidance does not apply to equity method investments or investments in consolidated subsidiaries. This new standard is effective for public companies for annual periods, including interim periods, beginning after December 15, 2017. We do not expect that the adoption of this updated standard will have a material impact to our consolidated financial statements.

In May 2014, the FASB issued a comprehensive update to revenue recognition guidance that will replace current standards. Under the updated standard, revenue is recognized when a company transfers promised goods or services to customers in an amount that reflects the consideration that is expected to be received for those goods and services. The updated standard also requires additional disclosures on the nature, timing, and uncertainty of revenue and related cash flows. On July 9, 2015, the FASB approved to defer the effective date of the new standard which is now effective for annual and interim reporting periods beginning after December 15, 2017. Based on our initial assessment, we expect to adopt this new standard using the modified retrospective transition method that will result in a cumulative adjustment as of the date of the adoption. Upon initial evaluation, we believe the allocation of contract revenues between various products and solutions, and the timing of when those revenues are recognized will be impacted primarily due to accounting for variable consideration within the standard and the acceleration of revenue recognition related to the transfer of software licenses. Additionally, the requirement to defer incremental costs to obtain a contract, and recognize them over the contract period or expected customer life will result in the recognition of a deferred charge on our balance sheet and will impact our Airline Solutions and Hospitality Solutions business. We are continuing to evaluate all of the provisions of each of these standards, and their impacts to our current accounting policies, processes, controls and systems.

2. Acquisitions

Airpas Aviation

In April 2016, we completed the acquisition of Airpas Aviation, a software provider and consultancy company which offers route profitability and cost management software solutions. We acquired all of the outstanding stock and ownership interest of Airpas Aviation for net cash consideration of $9 million. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The allocation of purchase price includes $12 million of assets acquired, primarily consisting of $5 million of goodwill, not deductible for tax purposes, and $5 million of intangible assets. The intangible assets consist mainly of $4 million of acquired customer relationships with a useful life of 10 years and $1 million of purchased technology with a useful life of 5 years. Airpas Aviation is integrated and managed as part of our Airline and Hospitality Solutions segment. The acquisition of Airpas Aviation did not have a material impact to our consolidated financial statements, and therefore pro forma information is not presented.

Trust Group

In January 2016, we completed the acquisition of the Trust Group, a central reservations, revenue management and hotel

marketing provider, expanding our presence in Europe, the Middle East, and Africa ("EMEA") and Asia Pacific ("APAC"). The net cash consideration for the Trust Group was $156 million. The acquisition was funded using proceeds from our 5.25% senior secured notes due in 2023 and cash on hand. The Trust Group is integrated and managed as part of our Airline and Hospitality Solutions segment.

Purchase Price Allocation

A summary of the acquisition price and estimated fair values of assets acquired and liabilities assumed as of the date of acquisition is as follows (in thousands):



Cash and cash equivalents	$	4,209
Accounts receivable	10,564
Other current assets	917
Goodwill	98,930
Intangible assets:
Customer relationships	52,292
Purchased technology	23,362
Trademarks and brand names	2,183
Property and equipment, net	1,556
Current liabilities	(11,091		)
Deferred income taxes	(22,548		)
Total acquisition price	$	160,374

The goodwill recognized reflects expected synergies from combined operations and also the acquired assembled workforce of the Trust Group in EMEA and APAC. The goodwill is assigned to our Airline and Hospitality Solutions segment, of which $10 million is deductible for tax purposes. The weighted-average useful lives of the intangible assets acquired are 13 years for customer relationships, 2 years for purchased technology and 2 years for trademarks and brand names.

The acquisition of the Trust Group did not have a material impact to our consolidated financial statements, and therefore pro forma information is not presented.

Abacus

On July 1, 2015, we completed the acquisition of the remaining 65% interest in Abacus International Pte Ltd, a Singapore-based business-to-business travel e-commerce provider that serves the Asia-Pacific region, which is now named Sabre Asia Pacific Pte Ltd ("SAPPL"). Prior to the acquisition, SAPPL was 65% owned by a consortium of 11 airlines and the remaining 35% was owned by us. Separately, SAPPL has signed new long-term agreements with the consortium of 11 airlines to continue to utilize the Abacus GDS. In the third and fourth quarters of 2015, SAPPL completed the acquisition of the remaining interest in three national marketing companies, Abacus Distribution Systems (Hong Kong), Abacus Travel Systems (Singapore) and Abacus Distribution Systems Sdn Bhd (Malaysia) (the “NMCs” and, together with SAPPL, “Abacus”). SAPPL previously owned noncontrolling interests in the NMCs. The net cash consideration for Abacus was $443 million, which includes the effect of net working capital adjustments. The acquisition was funded with a combination of cash on hand and a $70 million draw on our revolving credit facility, which has since been repaid.

Purchase Price Allocation

A summary of the acquisition price and estimated fair values of assets acquired and liabilities assumed as of the date of acquisition is as follows (in thousands), which includes estimates for contingent liabilities of $25 million related to tax uncertainties:



Cash and cash equivalents	$	65,641
Accounts receivable, net	49,099
Other current assets	12,522
Intangible assets:
Customer relationships	319,000
Reacquired rights⁽¹⁾	113,500
Purchased technology	14,000
Supplier agreements	13,000
Trademarks and brand names	4,000
Property and equipment, net	6,402
Other assets	66,423
Current liabilities	(123,307		)
Noncurrent liabilities	(44,245		)
Noncurrent deferred income taxes	(78,054		)
Goodwill	292,267
	710,248
Fair value of Sabre Corporation's previously held equity investment in AIPL	(200,000		)
Fair value of AIPL's previously held equity investment in NMCs	(1,880		)
Total acquisition price	$	508,368

______________________

⁽¹⁾ In connection with the acquisition of Abacus, we reacquired certain contractual rights that provided Abacus the exclusive right, within the Asia-Pacific region, to operate and profit from the Sabre GDS.

In connection with our acquisition of Abacus, we recognized a gain of $78 million for the year ended December 31, 2015, as a result of the remeasurement of our previously-held 35% equity interest in Abacus to its fair value as of the acquisition date. The fair value of the previously-held equity interest of $202 million in Abacus was estimated by applying a market approach and an income approach. The fair value measurement of the previously-held equity interest is based on significant inputs not observable in the market, and therefore represents Level 3 measurements (see Note 7, Fair Value, for a description of the fair value hierarchy). The fair value estimate for the previously-held equity interest is based on (i) a discount rate commensurate with the risks and inherent uncertainty in the business, (ii) an assumed long-term sustainable growth rate based on our most recent views of the long-term outlook, and (iii) assumed financial multiples of reporting entities deemed to be similar to Abacus. In addition, we recognized a gain of $12 million for year the ended December 31, 2015, associated with the settlement of a pre-existing agreement between us and SAPPL related to data processing services. The $78 million remeasurement gain and the $12 million settlement gain are reflected in other, net in our consolidated statements of operations in the year ended December 31, 2015. In the first quarter of 2017, we recognized a $16 million reversal of a liability resulting from renegotiation of an agreement with a travel agency in March 2017 that was considered to be out of market in our purchase accounting. The $16 million reversal is included as a reduction of cost of revenue in our consolidated statements of operations for the three months ended March 31, 2017.

The goodwill recognized reflects expected synergies from combined operations and also the acquired assembled workforce of Abacus. The goodwill recognized is assigned to our Travel Network business and is not deductible for tax purposes. The useful lives of the intangible assets acquired are 20 years for customer relationships, 7 years for reacquired rights, 3 years for purchased technology, 7 years for supplier agreements and 2 years for trademarks and brand names.

Abacus has been substantially integrated and is managed as part of our Travel Network segment. As part of the integration strategy for Abacus, management evaluated actions to optimize the investment’s potential, including the implementation of a restructuring plan to align the acquired business with Travel Network. This plan includes the elimination of redundant positions, centralization of key operations and termination of particular product offerings. Our restructuring accrual associated with this plan was $2 million as of March 31, 2017 and December 31, 2016. We made payments of $1 million per year in 2016 and 2015 and adjusted the balance by $4 million in 2016 as a result of the reevaluation of our plan derived from a shift in the timing and strategy of originally contemplated actions. The plan was substantially completed by the first quarter of 2017, and we do not expect to accrue any additional charges in connection with the plan.

3. Discontinued Operations

In the first quarter of 2015, we completed the divestiture of our Travelocity business through the sale of Travelocity.com and lastminute.com. Our Travelocity business has no remaining operations subsequent to these dispositions. The financial results of our Travelocity business are included in net income from discontinued operations in our consolidated statements of operations for all periods presented. For the three months ended March 31, 2017 and 2016, discontinued operations for our Travelocity business did not have material pretax income or loss. Our provision for income tax, for the three months ended March 31, 2016, as it relates to our discontinued operations, included a $17 million tax benefit associated with the resolution of uncertain tax positions in our discontinued Travelocity business.

4. Income Taxes

Our effective tax rates for the three months ended March 31, 2017 and 2016 were 29% and 31%, respectively. The decrease in the effective tax rate for the three months ended March 31, 2017 as compared to the same period in 2016 was primarily driven by a relative increase in full year forecasted earnings in lower tax jurisdictions. The difference between our effective tax rates and the U.S. federal statutory income tax rate primarily results from our geographic mix of taxable income in various tax jurisdictions.

We recognize liabilities when we believe that an uncertain tax position may not be fully sustained upon examination by the tax authorities. This requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. When facts and circumstances change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate. In the first quarter of 2017, we recognized a tax expense of $1 million associated with the accrual of income tax reserves across our jurisdictions. Our net unrecognized tax benefits, excluding interest and penalties, included in our consolidated balance sheets, were $53 million and $49 million as of March 31, 2017 and December 31, 2016, respectively.

Tax Receivable Agreement

Immediately prior to the closing of our initial public offering in April 2014, we entered into a tax receivable agreement (“TRA”) that provides the right to receive future payments from us to stockholders and equity award holders that were our stockholders and equity award holders, respectively, immediately prior to the closing of our initial public offering (collectively, the “Pre-IPO Existing Stockholders”). The future payments will equal 85% of the amount of cash savings, if any, in U.S. federal income tax that we and our subsidiaries realize as a result of the utilization of certain tax assets attributable to periods prior to our initial public offering, including federal net operating losses (“NOLs”), capital losses and the ability to realize tax amortization of certain intangible assets (collectively, the “Pre-IPO Tax Assets”). Consequently, stockholders who are not Pre-IPO Existing Stockholders will only be entitled to the economic benefit of the Pre-IPO Tax Assets to the extent of our continuing 15% interest in those assets. These payment obligations are our obligations and not obligations of any of our subsidiaries. The actual utilization of the Pre-IPO Tax Assets, as well as the timing of any payments under the TRA, will vary depending upon a number of factors, including the amount, character and timing of our and our subsidiaries’ taxable income in the future.

Based on current tax laws and assuming that we and our subsidiaries earn sufficient taxable income to realize the full tax benefits subject to the TRA, we estimate that payments under the TRA relating to the Pre-IPO Tax Assets to total $387 million, excluding interest. The TRA payments accrue interest at a rate of LIBOR plus 1.00% beginning on the due date for filing the corporate tax return subsequent to the tax year in which the tax benefits are realized through the date of the benefit payment. The estimate of future payments considers the impact of Section 382 of the Code, which imposes an annual limit on the ability of a corporation that undergoes an ownership change to use its net operating loss carryforwards to reduce its liability. We do not anticipate any material limitations on our ability to utilize NOLs under Section 382 of the Code. We expect a majority of the future payments under the TRA to be made over the next five years. We made our first annual payment on the TRA liability in the first quarter of 2017 for $101 million, which included accrued interest of approximately $1 million. As of March 31, 2017, the current portion of our Tax Receivable Agreement liability totaled $75 million, which includes a negligible amount of accrued interest. The remaining portion of $213 million is included in other noncurrent liabilities in our consolidated balance sheet as of March 31, 2017. Payments under the TRA are not conditioned upon the parties’ continuing ownership of the company. Changes in the utility of the Pre-IPO Tax Assets will impact the amount of the liability recorded in respect of the TRA. Changes in the utility of these Pre-IPO Tax Assets are recorded in income tax expense and any changes in the obligation under the TRA are recorded in other expense.

5. Debt

As of March 31, 2017 and December 31, 2016, our outstanding debt included in our consolidated balance sheets totaled $3,499 million and $3,446 million, respectively, which are net of debt issuance costs of $26 million and $27 million, respectively, and unamortized discounts of $8 million and $6 million, respectively. The following table sets forth the face values of our outstanding debt as of March 31, 2017 and December 31, 2016 (in thousands):



	Rate	Maturity	March 31, 2017			December 31, 2016
Senior secured credit facilities:
Term Loan A	L + 2.50%	July 2021	$	577,500		$	585,000
New Term Loan B	L + 2.75%	February 2024	1,895,250			—
Prior Term Loan B⁽¹⁾	L + 3.00%	February 2019	—			1,420,896
Incremental Term Loan Facility⁽¹⁾	L + 3.50%	February 2019	—			282,354
Term Loan C⁽¹⁾	L + 3.00%	December 2017	—			49,313
Revolver, $400 million	L + 2.50%	July 2021	—			—
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
Mortgage facility⁽²⁾	5.80%	April 2017	—			79,741
Capital lease obligations			29,973			31,190
Face value of total debt outstanding			3,532,723			3,478,494
Less current portion of debt outstanding			(60,246		)	(169,246		)
Face value of long-term debt outstanding			$	3,472,477		$	3,309,248

______________________________


(1)	Refinanced on February 22, 2017 by the New Term Loan B.


(2)	Paid on March 31, 2017 using proceeds from the New Term Loan B.

Senior Secured Credit Facilities

On February 22, 2017, Sabre GLBL entered into a Third Incremental Term Facility Amendment to our Amended and Restated Credit Agreement (the “Term Facility Amendment”). The new agreement replaced the Prior Term Loan B, Incremental Term Loan Facility and Term Loan C (each as defined below) with a single class of the "New Term Loan B" with an aggregate principal amount of $1,900 million maturing on February 22, 2024. Principal payments on the New Term Loan B are due on a quarterly basis equal to 0.25% of the aggregate amount outstanding with the remaining amount outstanding due at maturity. The applicable margins for the New Term Loan B are 2.75% for Eurocurrency borrowings and 1.75% for base rate borrowings, with a step down to 2.50% for Eurocurrency borrowings and 1.50% for base rate borrowings if the Senior Secured Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is less than or equal to 2.50 to 1.00.

The proceeds of $1,898 million, net of $2 million discount on the New Term Loan B, were used to pay off approximately $1,761 million of all existing classes of outstanding term loans (other than the Term Loan A) and related accrued interest incurred prior to February 22, 2017 and $12 million in associated financing fees, which were recorded as debt modification costs in Other, net in the consolidated statement of operations. The remaining proceeds were used for purposes of repaying 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 Term Facility Amendment of $9 million and $3 million, respectively, will continue to be amortized over the remaining term of the New Term Loan B along with the New Term Loan B discount of $2 million.

See Note 6, Derivatives for information regarding the discontinuation of hedge accounting related to our existing interest rate swaps as a result of the Term Facility Amendment.

On February 19, 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 “Prior Term Loan B”) and $425 million (the “Term Loan C”) and (ii) the existing revolving credit facility with a new revolving credit facility of $352 million, which we now refer to as the Prior Revolver. On September 30, 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 “Incremental Term Loan Facility”). On July 18, 2016, Sabre GLBL entered into a series of amendments to our Amended and Restated Credit Agreement (the “Credit Agreement Amendments”) to provide for an incremental term loan under a new class with an aggregate principal amount of $600 million (the “Term Loan A”) and to replace the Prior Revolver with a new revolving credit facility totaling $400 million (the “Revolver”), both of which mature in July 2021. 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. The applicable margins for the Term Loan A and the Revolver are 2.50% for Eurocurrency borrowings and 1.50% for base rate borrowings, with a step down to 2.25% for Eurocurrency borrowings and 1.25% for base rate borrowings if the Senior Secured Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is less than 2.50 to 1.00. The Term Loan A and the Revolver included an accelerated maturity of November 19, 2018, if on November 19, 2018 the Prior Term Loan B and Incremental Term Loan Facility had not been repaid in full or refinanced with a maturity date subsequent to July 18, 2021. As a result of the Term Facility Amendment, this refinancing has occurred. The amount of the Revolver commitments available as a letter of credit subfacility was set at $150 million.

The proceeds of $597 million, net of $3 million discount on Term Loan A, were used to repay $350 million of outstanding principal on our Prior Term Loan B and Incremental Term Loan Facility, on a pro rata basis, repay the $120 million outstanding balance on our Prior Revolver immediately prior to the execution of the Credit Agreement Amendments, and to pay $11 million in associated financing fees. We intend to use the remaining proceeds for general corporate purposes. We recognized a $4 million loss on extinguishment of debt in connection with these transactions.

We had no balance outstanding under the Revolver as of March 31, 2017 and as of December 31, 2016. We had outstanding letters of credit totaling $33 million and $35 million as of March 31, 2017 and December 31, 2016, respectively, which reduced our overall credit capacity under the Revolver.

6. Derivatives

Hedging Objectives—We are exposed to certain risks relating to ongoing business operations. The primary risks managed by using derivative instruments are foreign currency exchange rate risk and interest rate risk. Forward contracts on various foreign currencies are entered into to manage the foreign currency exchange rate risk on operational exposure denominated in foreign currencies. Interest rate swaps are entered into to manage interest rate risk associated with our floating-rate borrowings.

In accordance with authoritative guidance on accounting for derivatives and hedging, we designate foreign currency forward contracts as cash flow hedges on operational exposure and certain 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 of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) ("OCI") and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (ineffective portion), and hedge components excluded from the assessment of effectiveness, are recognized in the Other, net in the consolidated statements of operations during the current period. Derivatives not designated as hedging instruments are carried at fair value with changes in fair value reflected in Other, net in the consolidated statement of operations.

Forward Contracts—In order to hedge our operational exposure to foreign currency movements, we are a party to certain foreign currency forward contracts that extend until March 2018. We have designated these instruments as cash flow hedges. No hedging ineffectiveness was recorded in earnings relating to the forward contracts during the three months ended March 31, 2017 and 2016. As of March 31, 2017, we estimate that $1 million in gains will be reclassified from other comprehensive income (loss) to earnings over the next 12 months.

As of March 31, 2017 and December 31, 2016, we had the following unsettled purchased foreign currency forward contracts that were entered into to hedge our operational exposure to foreign currency movements (in thousands, except for average contract rates):



Outstanding Notional Amounts as of March 31, 2017
Buy Currency	Sell Currency	Foreign Amount	USD Amount	Average Contract Rate
Australian Dollar	US Dollar	23,500	17,582	0.7482
British Pound Sterling	US Dollar	22,050	28,356	1.2860
Indian Rupee	US Dollar	1,392,000	20,280	0.0146
Polish Zloty	US Dollar	243,500	60,949	0.2503
Singapore Dollar	US Dollar	60,500	43,546	0.7198



Outstanding Notional Amounts as of December 31, 2016
Buy Currency	Sell Currency	Foreign Amount	USD Amount	Average Contract Rate
Australian Dollar	US Dollar	17,000	12,574	0.7396
Euro	US Dollar	1,800	2,031	1.1283
British Pound Sterling	US Dollar	17,750	23,691	1.3347
Indian Rupee	US Dollar	1,174,500	16,786	0.0143
Polish Zloty	US Dollar	258,250	64,778	0.2508
Singapore Dollar	US Dollar	47,700	34,383	0.7208

Interest Rate Swap Contracts—Interest rate swaps outstanding during the three months ended March 31, 2017 and 2016 are as follows:



Notional Amount	Interest Rate Received	Interest Rate Paid	Effective Date	Maturity Date
Designated as Hedging Instrument
$750 million	1 month LIBOR⁽¹⁾	1.48%	December 31, 2015	December 30, 2016
$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
$750 million	1 month LIBOR⁽²⁾	2.08%	December 31, 2018	December 31, 2019

Not Designated as Hedging Instrument
$750 million	1 month LIBOR⁽¹⁾	2.19%	December 30, 2016	December 29, 2017
$750 million	1.18%	1 month LIBOR⁽¹⁾	March 31, 2017	December 31, 2017
$750 million	1 month LIBOR⁽¹⁾	2.61%	December 29, 2017	December 31, 2018
$750 million	1.67%	1 month LIBOR⁽¹⁾	December 29, 2017	December 31, 2018

______________________


(1)	Subject to a 1% floor.


(2)	Subject to a 0% floor.

As a result of the Term Facility Amendment, we discontinued hedge accounting for our existing swap agreements as of February 22, 2017. Accumulated losses of $14 million in other comprehensive income as of the date hedge accounting was discontinued will be amortized into interest expense through the maturity date of the respective swap agreements, and future interest rate swap payments made will be recorded in Other, net. Losses reclassified from other comprehensive income to interest expense related to the derivatives that no longer qualified for hedge accounting were immaterial for the three months ended March 31, 2017. We also entered into new interest rate swaps with offsetting terms that are not designated as hedging instruments. Adjustments to the fair value of interest rate swaps not designated as hedging instruments resulted in a gain of $2 million and was recorded in earnings in Other, net for the three months ended March 31, 2017. We had no undesignated derivatives as of December 31, 2016.

In connection with the Term Facility Amendment, we entered into new forward starting interest rate swaps to hedge the interest payments associated with $750 million of the floating-rate New Term Loan B. We have designated these swaps as cash flow hedges, which are effective March 31, 2017. The total notional amount outstanding is $750 million in each of the remaining nine months in 2017 and the full years 2018 and 2019. The effective portion of changes in the fair value of the interest rate swaps is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.

The estimated fair values of our derivatives designated as hedging instruments and those not designated as hedging instruments as of March 31, 2017 and December 31, 2016 are as follows (in thousands):



	Derivative Assets (Liabilities)
		Fair Value as of
Derivatives Designated as Hedging Instruments	Consolidated Balance Sheet Location	March 31, 2017			December 31, 2016
Foreign exchange contracts	Other accrued liabilities	$	(202	)	$	(7,360	)
Foreign exchange contracts	Prepaid expenses and other	1,179			—
Interest rate swaps	Other accrued liabilities	(315		)	(8,345		)
Interest rate swaps	Other noncurrent liabilities	(687		)	(7,339		)
		$	(25	)	$	(23,044	)



	Derivative Assets (Liabilities)
		Fair Value as of
Derivatives Not Designated as Hedging Instruments	Consolidated Balance Sheet Location	March 31, 2017			December 31, 2016
Interest rate swaps	Prepaid expenses and other	$	328		$	—
Interest rate swaps	Other accrued liabilities	(7,756		)	—
Interest rate swaps	Other noncurrent liabilities	(5,340		)	—
		$	(12,768	)	$	—

The effects of derivative instruments, net of taxes, on OCI for the three months ended March 31, 2017 and 2016 are as follows (in thousands):



	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
	Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationships	2017			2016
Foreign exchange contracts	$	5,121		$	3,041
Interest rate swaps	(665		)	(3,953		)
Total	$	4,456		$	(912	)



		Amount of Losses Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	Income Statement Location	Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationships	Income Statement Location	2017		2016
Foreign exchange contracts	Cost of revenue	$	1,519	$	919
Interest rate swaps	Interest Expense	1,352		582
Total		$	2,871	$	1,501

7. 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 is 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 is 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.

The following tables present our assets (liabilities) that are required to be measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 (in thousands):



				Fair Value at Reporting Date Using
	March 31, 2017			Level 1		Level 2			Level 3
Derivatives
Foreign currency forward contracts	$	977		$	—	$	977		$	—
Interest rate swap contracts	(13,770		)	—		(13,770		)	—
Total	$	(12,793	)	$	—	$	(12,793	)	$	—



				Fair Value at Reporting Date Using
	December 31, 2016			Level 1		Level 2			Level 3
Derivatives
Foreign currency forward contracts	$	(7,360	)	$	—	$	(7,360	)	$	—
Interest rate swap contracts	(15,684		)	—		(15,684		)	—
Total	$	(23,044	)	$	—	$	(23,044	)	$	—

There were no transfers between Levels 1 and 2 within the fair value hierarchy for the three months ended March 31, 2017.

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 the similar liability when traded as an asset in an active market, a Level 2 input. The outstanding principal balance of our mortgage facility approximated its fair value as of December 31, 2016. The fair value of the mortgage facility was determined based on estimates of current interest rates for similar debt, a Level 2 input.

The following table presents the fair value and carrying value of our senior notes and borrowings under our senior secured credit facilities as of March 31, 2017 and December 31, 2016, (in thousands):



	Fair Value at				Carrying Value at ⁽²⁾
Financial Instrument	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016
Term Loan A	$	576,417	$	583,538	$	575,353	$	582,595
New Term Loan B	1,910,649		—		1,889,842		—
Prior Term Loan B⁽¹⁾	—		1,435,993		—		1,417,616
Incremental Term Loan Facility⁽¹⁾	—		283,413		—		282,354
Term Loan C⁽¹⁾	—		49,436		—		49,237
Revolver, $400 million	—		—		—		—
5.375% Senior secured notes due 2023	543,581		542,919		530,000		530,000
5.25% Senior secured notes due 2023	509,375		515,000		500,000		500,000

______________________________


(1)	Refinanced on February 22, 2017 by the New Term Loan B.


(2)	Excludes net unamortized debt issuance costs.

8. Accumulated Other Comprehensive Income (Loss)

As of March 31, 2017 and December 31, 2016, the components of accumulated other comprehensive income (loss), net of related deferred income taxes, are as follows (in thousands):



	March 31, 2017			December 31, 2016
Defined benefit pension and other post retirement benefit plans	$	(103,520	)	$	(105,036	)
Unrealized loss on foreign currency forward contracts, interest rate swaps, and available-for-sale securities	(7,973		)	(15,499		)
Unrealized foreign currency translation gain	(3,145		)	(2,264		)
Total accumulated other comprehensive loss, net of tax	$	(114,638	)	$	(122,799	)

The amortization of actuarial losses and periodic service credits associated with our retirement-related benefit plans is included in selling, general and administrative expenses. See Note 6, Derivatives, for information on the income statement line items affected as the result of reclassification adjustments associated with derivatives.

9. 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, except per share data):



	Three Months Ended March 31,
	2017		2016
Numerator:
Income from continuing operations	$	77,722	$	92,919
Less: Net income attributable to noncontrolling interests	1,306		1,102
Net income from continuing operations available to common stockholders, basic and diluted	$	76,416	$	91,817
Denominator:
Basic weighted-average common shares outstanding	277,353		275,568
Add: Dilutive effect of stock options and restricted stock awards	2,206		6,395
Diluted weighted-average common shares outstanding	279,559		281,963
Earning per share from continuing operations:
Basic	$	0.28	$	0.33
Diluted	$	0.27	$	0.33

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 and 1 million of anti-dilutive common stock equivalents for each of the three months ended March 31, 2017 and 2016, respectively.

10. Contingencies

Legal Proceedings

While certain legal proceedings and related indemnification obligations to which we are a party specify the amounts claimed, these claims may not represent reasonably possible losses. Given the inherent uncertainties of litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any, be reasonably estimated, except in circumstances where an aggregate litigation accrual has been recorded for probable and reasonably estimable loss contingencies. A determination of the amount of accrual required, if any, for these contingencies is made after careful analysis of each matter. The required accrual may change in the future due to new information or developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.

Antitrust Litigation and DOJ Investigation

US Airways Antitrust Litigation

In April 2011, US Airways filed suit against us in federal court in the Southern District of New York, alleging violations of the Sherman Act Section 1 (anticompetitive agreements) and Section 2 (monopolization). The complaint was filed fewer than two months after we entered into a new distribution agreement with US Airways. In September 2011, the court dismissed all claims relating to Section 2. The claims that were not dismissed are claims brought under Section 1 of the Sherman Act, relating to our contracts with

US Airways, which US Airways claims contain anticompetitive provisions, and an alleged conspiracy with the other GDSs, allegedly to maintain the industry structure and not to compete for content. We strongly deny all of the allegations made by US Airways.

Sabre filed summary judgment motions in April 2014. In January 2015, the court issued an order granting Sabre's summary judgment motions in part, eliminating a majority of US Airways' alleged damages and rejecting its request for injunctive relief by which US Airways sought to bar Sabre from enforcing certain provisions in our contracts. In September 2015, the court also dismissed US Airways' claim for declaratory relief. In February 2017, US Airways sought reconsideration of the court's opinion dismissing the claim for declaratory relief, which the court denied in March 2017.

The trial on the remaining claims commenced in October 2016. In December 2016, the jury issued a verdict in favor of US Airways with respect to its claim under Section 1 of the Sherman Act regarding Sabre's contract with US Airways and awarded it $5 million in single damages. The jury rejected US Airways' claim alleging a conspiracy with the other GDSs. We continue to believe that our business practices and contract terms are lawful. In January 2017, we filed a motion seeking judgment as a matter of law in favor of Sabre on the one claim on which the jury found for US Airways, which the court denied in March 2017.

Based on the jury’s verdict, in March 2017 the court entered final judgment in favor of US Airways in the amount of $15 million, which is three times the jury’s award of $5 million as required by the Sherman Act. US Airways is also entitled to receive reasonable attorneys’ fees and costs under the Sherman Act. As such, it filed a motion seeking approximately $125 million in attorneys’ fees and costs, the amount of which we strongly dispute. To date, the court has not ruled on US Airways’ motion seeking attorneys’ fees 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. If we also choose to appeal any judgment awarding attorneys’ fees and costs to US Airways, we may be required to file another appellate bond equal to the amount awarded by the court, plus interest, which, to the extent required by the issuer of the bond, we expect to fund with cash on hand or letters of credit issued under our Revolver.

We have accrued a loss of $32 million, which represents the court's final judgment of $15 million, plus our estimate of $17 million for US Airways' reasonable attorneys’ fees, expenses and costs. We are unable to estimate the exact amount of the loss associated with the verdict, but we estimate that there is a range of outcomes between $32 million and $65 million, inclusive of the trebled damage award of approximately $15 million. No amount within the range is considered a better estimate than any other amount within the range and therefore, the minimum within the range was recorded in selling, general and administrative expense for the fourth quarter of 2016. As noted above, the amount of attorneys' fees and costs to be awarded is subject to final decision by the court. The ultimate resolution of this matter may be greater or less than the amount recorded and, if greater, could adversely affect our results of operations. We have and will incur significant fees, costs and expenses for as long as the lawsuit, including any appeal, is ongoing. In addition, litigation by its nature is highly uncertain and fraught with risk, and it is therefore difficult to predict the outcome of any particular matter, including any appeal or changes to our business that may be required as a result of the litigation. Depending on the outcome of the litigation, any of these consequences could have a material adverse effect on our business, financial condition and results of operations.

Putative Class Action Lawsuit

In July 2015, a putative class action lawsuit was filed against us and two other GDSs, in the United States District Court for the Southern District of New York. The plaintiffs, who are asserting claims on behalf of a putative class of consumers in various states, are generally alleging that the GDSs conspired to negotiate for full content from the airlines, resulting in higher ticket prices for consumers, in violation of various federal and state laws. The plaintiffs sought an unspecified amount of damages in connection with their state law claims, and they requested injunctive relief in connection with their federal claim. In July 2016, the court granted, in part, our motion to dismiss the lawsuit, finding that plaintiffs’ state law claims are preempted by federal law, thereby precluding their claims for damages. The court declined to dismiss plaintiffs’ claim seeking an injunction under federal antitrust law. The plaintiffs may appeal the court’s dismissal of their state law claims upon a final judgment. We believe that the claims associated with this case are neither probable nor estimable and therefore have not accrued any losses as of March 31, 2017. We may incur significant fees, costs and expenses for as long as this litigation is ongoing. We intend to vigorously defend against the remaining claims.

Department of Justice Investigation

On May 19, 2011, we received a civil investigative demand (“CID”) from the U.S. Department of Justice (“DOJ”) investigating alleged anticompetitive acts related to the airline distribution component of our business. We are fully cooperating with the DOJ investigation and are unable to make any prediction regarding its outcome. The DOJ is also investigating other companies that own GDSs, and has sent CIDs to other companies in the travel industry. Based on its findings in the investigation, the DOJ may (i) close the file, (ii) seek a consent decree to remedy issues it believes violate the antitrust laws, or (iii) file suit against us for violating the antitrust laws, seeking injunctive relief. If injunctive relief were granted, depending on its scope, it could affect the manner in which our airline distribution business is operated and potentially force changes to the existing airline distribution business model. Any of

these consequences would have a material adverse effect on our business, financial condition and results of operations. We have not received any communications from the DOJ regarding this matter for several years; however, we have not been notified that this matter is closed.

Insurance Carriers

We have disputes against some of our insurance carriers for failing to reimburse defense costs incurred in our previous litigation with American Airlines, which we settled in October 2012. Both insurance carriers admitted there is coverage and agreed to defend us, but reserved their rights not to pay should we be found liable for certain of American Airlines’ allegations. Despite their admission of coverage, the insurers only reimbursed us for a small portion of our significant defense costs. We filed suit against the entities in New York state court alleging breach of contract and a statutory cause of action for failure to promptly pay claims. Although the carriers never withdrew their agreement to defend us, they recently have taken the position in the lawsuit that they had no duty to defend or indemnify us. If we prevail, we may recover some or all amounts previously tendered to the insurance companies for payment within the limits of the policies and may be entitled to 18% interest on such amounts, all of which will be recorded in the period cash is received. In December 2016, the judge issued an order on the parties’ competing motions for summary judgment. The judge partially granted Sabre’s motion, concluding the carriers had a duty to defend Sabre in the underlying American Airlines litigation and that their conflict of interest precluded the carriers from controlling the defense of the litigation. The judge denied the carriers’ motion seeking summary judgment and dismissal of Sabre’s complaint, and the carriers' subsequent appeal of this ruling has been denied. To date, settlement discussions have been unsuccessful. Discovery is closed, and a trial date has been set for October 2017.

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 and no trial date has been set. We have appealed the tax assessment for the assessment year ended March 2013 with the ITAT and no trial date has been set.

In addition, SAPPL is currently a defendant in similar income tax litigation brought by the DIT. The dispute arose when the DIT asserted that SAPPL has a permanent establishment within the meaning of the Income Tax Treaty between Singapore and India and accordingly issued tax assessments for assessment years ending March 2000 through March 2005. SAPPL appealed the tax assessments, and the Indian Commissioner of Income Tax (Appeals) returned a mixed verdict. SAPPL filed further appeals with the 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 2013 and appeals for assessment years ending March 2006 through 2013 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 March 31, 2017. We intend to continue to aggressively defend against each of the foregoing claims. Although we do not believe that the outcome of the proceedings will result in a material impact on our business or financial condition, litigation is by its nature uncertain. We do not believe this outcome is more likely than not and therefore have not made any provisions or recorded any liability for the potential resolution of any of these claims.

Indian Service 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 and Administrative Audit Proceedings Relating to Hotel Occupancy Taxes

On January 23, 2015, we sold Travelocity.com to Expedia. Pursuant to the Travelocity Purchase Agreement, we will continue to be liable for pre-closing liabilities of Travelocity, including fees, charges, costs and settlements relating to litigation arising from hotels booked on the Travelocity platform prior to our previous long-term strategic marketing agreement with Expedia (the “Expedia

SMA”). Fees, charges, costs and settlements relating to litigation from hotels booked on Travelocity.com subsequent to the Expedia SMA and prior to the date of the sale of Travelocity.com will be shared with Expedia in accordance with the terms set forth in the Expedia SMA. We are jointly and severally liable for certain indemnification obligations under the Travelocity Purchase Agreement for liabilities that may arise out of these litigation matters, which could adversely affect our cash flow.

Beginning in 2004, various state and local governments in the United States have filed more than 80 lawsuits against us and other OTAs pertaining primarily to whether our discontinued Travelocity segment and other OTAs owe sales or occupancy taxes on the revenues they earned from facilitating hotel reservations, where the customer paid us an amount at the time of booking that included (i) service fees, which we collected and retained, and (ii) the price of the hotel room and amounts for occupancy or other local taxes, which we passed along to the hotel supplier. The complaints generally allege, among other things, that the defendants failed to pay to the relevant taxing authority hotel occupancy taxes on the service fees. Several lawsuits also allege that the OTAs owe state or local taxes on their fees for facilitating car rental reservations. Courts have dismissed many of these lawsuits, some for failure to exhaust administrative remedies and some on the basis that we are not subject to sales or occupancy tax. The remaining lawsuits are in various stages of litigation. We have also settled some cases individually, most for amounts not material to our results of operations, and with respect to these settlements, have generally reserved our rights to challenge any effort by the applicable tax authority to impose occupancy taxes in the future.

Although we have prevailed in the majority of these lawsuits and proceedings, there have been several adverse judgments or decisions on the merits, some of which are subject to appeal. As of March 31, 2017 and 2016, our reserve was not material for the potential resolution of issues identified related to litigation involving hotel and car sales, occupancy or excise taxes. We did not record material charges associated with these cases during the three months ended March 31, 2017 and 2016. Our estimated liability is based on our current best estimate but the ultimate resolution of these issues may be greater or less than the amount recorded and, if greater, could adversely affect our results of operations.

In addition to the actions by the tax authorities, two consumer class action lawsuits have been filed against us in which the plaintiffs allege that we made misrepresentations concerning the description of the fees received in relation to facilitating hotel reservations. Generally, the consumer claims relate to whether Travelocity provided adequate notice to consumers regarding the nature of our fees and the amount of taxes charged or collected. One of these lawsuits is pending in Texas state court, where the court is currently considering the plaintiffs’ motion to certify a class action; and the other is pending in federal court, but has been stayed pending the outcome of the Texas state court action. We believe the notice we provided was appropriate and therefore have not accrued any losses related to these cases.

Furthermore, a number of state and local governments have initiated inquiries, audits and other administrative proceedings that could result in an assessment of sales or occupancy taxes on fees. If we do not prevail at the administrative level, those cases could lead to formal litigation proceedings.

Litigation Relating to Routine Proceedings

We are also engaged from time to time in other routine legal and tax proceedings incidental to our business. We do not believe that any of these routine proceedings will have a material impact on the business or our financial condition.

Other

We are investigating 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 unauthorized access has been shut off, and there is no evidence of continued unauthorized activity at this time. We have retained expert third-party advisors to assist in the investigation and are working with law enforcement. There is a risk that this investigation may reveal that PII, PCI (each as defined below), or other information may have been compromised. 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 this incident. We maintain insurance that covers certain aspects of our cyber risks, and we are working with our insurance carriers in this matter.

11. 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.

Our business has two reportable segments: (i) Travel Network and (ii) Airline and Hospitality Solutions, which aggregates the Airline Solutions and Hospitality Solutions operating segments as these operating segments have similar economic characteristics, generate revenues on transaction-based fees, incur the same types of expenses and use our software-as-a-service (“SaaS”) based and hosted applications and platforms to market to the travel industry.

In January 2016 and April 2016, we completed the acquisitions of the Trust Group and Airpas Aviation, respectively, which are integrated and managed as part of our Airline and Hospitality Solutions segment.

Our CODM utilizes Adjusted Gross Profit and Adjusted EBITDA as the measures of profitability to evaluate performance of our segments and allocate resources. Corporate includes a technology organization that provides development and support activities to our segments. The majority of costs associated with our technology organization are allocated to the segments primarily based on the segments' usage of resources. Benefit expenses, facility costs and depreciation expense on the corporate headquarters building are allocated to the segments based on headcount. Unallocated corporate costs include certain shared expenses such as accounting, human resources, legal, corporate systems, and other shared technology costs, as well as all amortization of intangible assets and any related impairments that originate from purchase accounting, stock-based compensation, restructuring charges, legal reserves, and other items not identifiable with one of our segments.

We account for significant intersegment transactions as if the transactions were with third parties, that is, at estimated current market prices. The majority of the intersegment revenues and cost of revenues are fees charged by Travel Network to Airline and Hospitality Solutions for airline trips booked through our GDS.

Our CODM does not review total assets by segment as operating evaluations and resource allocation decisions are not made on the basis of total assets by segment. Our CODM uses Adjusted Capital Expenditures in making product investment decisions and determining development resource requirements.

The performance of our segments is evaluated primarily on Adjusted Gross Profit and Adjusted EBITDA which are not recognized terms under GAAP. Our uses of Adjusted Gross Profit 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 (loss) adjusted for selling, general and administrative expenses, impairment, amortization of upfront incentive consideration, and the cost of revenue portion of depreciation and amortization, restructuring and other costs, litigation costs, and stock-based compensation included in cost of revenue.

We define Adjusted EBITDA as income (loss) from continuing operations adjusted for depreciation and amortization of property and equipment, amortization of capitalized implementation costs, acquisition-related amortization, amortization of upfront incentive consideration, interest expense, net, other, net, restructuring and other costs, acquisition-related costs, litigation costs (reimbursements), net, stock-based compensation, and income taxes.

We define Adjusted Capital Expenditures as additions to property and equipment and capitalized implementation costs during the periods presented.

Segment information for the three months ended March 31, 2017 and 2016 is as follows (in thousands):



	Three Months Ended March 31,
	2017			2016
Revenue
Travel Network	$	663,477		$	625,476
Airline and Hospitality Solutions	257,976			238,380
Eliminations	(6,100		)	(4,313		)
Total revenue	$	915,353		$	859,543

Adjusted Gross Profit ^(a)
Travel Network	$	319,018		$	304,914
Airline and Hospitality Solutions	105,348			100,876
Corporate	(23,589		)	(17,594		)
Total	$	400,777		$	388,196

Adjusted EBITDA ^(b)
Travel Network	$	290,222		$	273,174
Airline and Hospitality Solutions	85,517			82,938
Total segments	375,739			356,112
Corporate	(78,178		)	(68,632		)
Total	$	297,561		$	287,480

Depreciation and amortization
Travel Network	$	20,468		$	18,530
Airline and Hospitality Solutions	38,777			35,793
Total segments	59,245			54,323
Corporate	46,425			41,960
Total	$	105,670		$	96,283

Adjusted Capital Expenditures ^(c)
Travel Network	$	26,273		$	22,970
Airline and Hospitality Solutions	62,162			60,420
Total segments	88,435			83,390
Corporate	16,979			12,039
Total	$	105,414		$	95,429

______________________________


(a)	The following table sets forth the reconciliation of Adjusted Gross Profit to operating income in our statement of operations (in thousands):



	Three Months Ended March 31,
	2017		2016
Adjusted Gross Profit	$	400,777	$	388,196
Less adjustments:
Selling, general and administrative	144,441		133,856
Cost of revenue adjustments:
Depreciation and amortization ⁽¹⁾	73,697		66,507
Amortization of upfront incentive consideration ⁽²⁾	16,132		12,337
Stock-based compensation	3,181		4,074
Operating income	$	163,326	$	171,422


(b)	The following table sets forth the reconciliation of Adjusted EBITDA to income from continuing operations in our statement of operations (in thousands):



	Three Months Ended March 31,
	2017		2016
Adjusted EBITDA	$	297,561	$	287,480
Less adjustments:
Depreciation and amortization of property and equipment ^(1a)	61,300		53,665
Amortization of capitalized implementation costs ^(1b)	9,189		8,488
Acquisition-related amortization ^(1c)	35,181		34,130
Amortization of upfront incentive consideration ⁽²⁾	16,132		12,337
Interest expense, net	39,561		41,202
Other, net ⁽³⁾	15,234		(3,360		)
Restructuring and other costs ⁽⁴⁾	—		124
Acquisition-related costs ⁽⁵⁾	—		108
Litigation costs, net ⁽⁶⁾	3,501		(3,846		)
Stock-based compensation	8,034		10,289
Provision for income taxes	31,707		41,424
Income from continuing operations	$	77,722	$	92,919

______________________________________________________


(1)	Depreciation and amortization expenses:


a.	Depreciation and amortization of property and equipment includes software developed for internal use.


b.	Amortization of capitalized implementation costs represents amortization of upfront costs to implement new customer contracts under our SaaS and hosted revenue model.


c.	Acquisition-related amortization represents amortization of intangible assets from the take-private transaction in 2007 as well as intangibles associated with acquisitions since that date and amortization of the excess basis in our underlying equity in joint ventures.

(2)

Our Travel Network business at times makes upfront cash payments or other consideration to travel agency subscribers at the inception or modification of a service contract, which are capitalized and amortized over an average expected life of the service contract, generally over three years to five years. Such consideration is made with the objective of increasing the number of clients or to ensure or improve customer loyalty. Such service contract terms are established such that the supplier and other fees generated over the life of the contract will exceed the cost of the incentive consideration provided up front. Such service contracts with travel agency subscribers require that the customer commit to achieving certain economic objectives and generally have terms requiring repayment of the upfront incentive consideration if those objectives are not met.

(3)

In the first quarter of 2017, we recognized a $12 million loss related to debt modification costs associated with our debt refinancing. In the first quarter of 2016, we recognized a gain of $6 million associated with the receipt of an earn-out payment from the sale of a business in 2013. In addition, other, net 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.


(4)	Restructuring and other costs represent 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.


(5)	Acquisition-related costs represent fees and expenses incurred associated with the acquisition of the Trust Group and Airpas Aviation (see Note 2, Acquisitions).


(6)	Litigation costs, net represent charges and legal fee reimbursements associated with antitrust litigation (see Note 10, Contingencies).


(c)	Includes capital expenditures and capitalized implementation costs as summarized below (in thousands):



	Three Months Ended March 31,
	2017		2016
Additions to property and equipment	$	88,318	$	75,472
Capitalized implementation costs	17,096		19,957
Adjusted Capital Expenditures	$	105,414	$	95,429


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains information that may constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as "expects," "potential," "will," "estimates," "outlook," "should," "may," "intend," "believes," "anticipates," "predicts," "plans," or the negative of these terms or other comparable terminology. The forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions and are subject to risks, uncertainties and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Certain of these risks, uncertainties, and changes in circumstances are described in the "Risk Factors" section of this Quarterly Report on Form 10-Q and in the “Risk Factors” and “Forward-Looking Statements” sections included in our Annual Report on Form 10-K filed with the SEC on February 17, 2017. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. You are cautioned not to place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events after the date they are made.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on February 17, 2017.

Overview

We are a leading technology solutions provider to the global travel and tourism industry. We operate through two business segments: (i) Travel Network, our global business-to-business travel marketplace for travel suppliers and travel buyers, and (ii) Airline and Hospitality Solutions, an extensive suite of leading software solutions primarily for airlines and hoteliers. Collectively, these offerings enable travel suppliers to better serve their customers across the entire travel lifecycle, from route planning to post-trip business intelligence and analytics.

A significant portion of our revenue is generated through transaction based fees that we charge to our customers. For Travel Network, this fee is in the form of a transaction fee for bookings on our GDS; for Airline and Hospitality Solutions, this fee is a recurring usage-based fee for the use of our SaaS and hosted systems, as well as upfront fees and professional service fees. Items that are not allocated to our business segments are identified as corporate and primarily include certain shared technology costs, stock-based compensation expense, litigation costs, corporate headcount-related costs, and other items that are not identifiable with either one of our segments.

In January 2016, we completed the acquisition of the Trust Group, a central reservations, revenue management and hotel marketing provider, expanding our presence in EMEA and APAC, for net cash consideration of $156 million. The Trust Group is integrated and managed as part of our Airline and Hospitality Solutions segment.

Factors Affecting our Results

A discussion of trends that we believe are the most significant opportunities and challenges currently impacting our business and industry is included the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting our Results” included in our Annual Report on Form 10-K filed with the SEC on February 17, 2017. The discussion also includes management’s assessment of the effects these trends have had and are expected to have on our results of continuing operations. The information is not an exhaustive list of all of the factors that could affect our results and should be read in conjunction with the factors referred to in the section entitled “Risk Factors” included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on February 17, 2017.

Components of Revenues and Expenses

Revenues

Travel Network primarily generates revenues from Direct Billable Bookings processed on our GDS as well as the sale of aggregated bookings data to carriers. Airline and Hospitality Solutions primarily generates revenue through upfront solution fees and recurring usage-based fees for the use of our software solutions hosted on secure platforms or deployed through our SaaS platform. Airline and Hospitality Solutions also generates revenue through professional service fees and software licensing fees. Certain professional service fees are discrete sales opportunities that may have a high degree of variability from period to period, and we cannot guarantee that we will have such fees in the future consistent with prior periods.

Cost of Revenue

Cost of revenue incurred by Travel Network and Airline and Hospitality Solutions consists of expenses related to our technology infrastructure that hosts our GDS and software solutions, salaries and benefits, and allocated overhead such as facilities and other support costs. Cost of revenue for Travel Network also includes incentive consideration expense representing payments or other consideration to travel agencies for reservations made on our GDS which accrue on a monthly basis.

Corporate cost of revenue includes expenses associated with our technology organization that provides development and support activities to our segments. The costs associated with our technology organization that do not get allocated to the segments based on the segments’ usage of resources primarily include shared technology infrastructure and labor costs. Corporate cost of revenue also includes stock-based compensation expense, professional service fees and other items that are not directly identifiable with our segments. Over time, we expect a substantial increase in stock-based compensation expense, as we have moved to granting broad-based equity awards annually, rather than biennially, beginning in March 2016 primarily in the form of restricted stock units. These awards generally vest over a four-year period, with 25% vesting annually. Stock compensation expense is based on the number of restricted stock units granted and the stock price on the date of grant, which is amortized over the four-year vesting period.

Depreciation and amortization included in cost of revenue is associated with property and equipment, amortization of contract implementation costs which relates to Airline and Hospitality Solutions, intangible assets for technology purchased through acquisitions or established with our take-private transaction, and software developed for internal use that supports our revenue, businesses and systems. Cost of revenue also includes amortization of upfront incentive consideration representing upfront payments or other consideration provided to travel agencies for reservations made on our GDS which are capitalized and amortized over the expected life of the contract.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of personnel-related expenses, including stock-based compensation, for employees that sell our services to new customers and administratively support the business, information technology and communication costs, professional service fees, certain settlement charges and costs to defend legal disputes, bad debt expense, depreciation and amortization and other overhead costs. Over time, we expect a substantial increase in stock-based compensation expense as described above.

Intersegment Transactions

We account for significant intersegment transactions as if the transactions were with third parties, that is, at estimated current market prices. Airline and Hospitality Solutions pays fees to Travel Network for airline trips and hotel stays booked through our GDS.

Key Metrics

“Direct Billable Bookings” and “Passengers Boarded” are the primary metrics utilized by Travel Network and Airline Solutions, respectively, to measure operating performance. Travel Network generates fees for each Direct Billable Booking which include bookings made through our GDS (e.g., air, car and hotel bookings) and through our joint venture partners in cases where we are paid directly by the travel supplier. Passengers Boarded (“PBs”) is the primary metric used by Airline Solutions to recognize SaaS and Hosted revenue from recurring usage-based fees. The following table sets forth these key metrics for the periods indicated (in thousands):



	Three Months Ended March 31,
	2017	2016	% Change
Travel Network
Direct Billable Bookings - Air	127,364	119,866	6.3%
Direct Billable Bookings - Non-Air	15,338	15,021	2.1%
Total Direct Billable Bookings	142,702	134,887	5.8%
Airline Solutions Passengers Boarded	196,343	183,392	7.1%

Non-GAAP Financial Measures

We have included both financial measures compiled in accordance with GAAP and certain non-GAAP financial measures in this Quarterly Report on Form 10-Q, including Adjusted Gross Profit, Adjusted Net Income, Adjusted EBITDA, Adjusted Capital Expenditures, Free Cash Flow, and ratios based on these financial measures.

We define Adjusted Net Income as net income attributable to common stockholders adjusted for income (loss) from discontinued operations, net of tax, net income attributable to noncontrolling interests, acquisition-related amortization, loss on extinguishment of debt, other, net, restructuring and other costs, acquisition-related costs, litigation costs (reimbursements), net, stock-based compensation, and the tax impact of net income adjustments.

We define Adjusted EBITDA as Adjusted Net Income adjusted for depreciation and amortization of property and equipment, amortization of capitalized implementation costs, amortization of upfront incentive consideration, interest expense, net and the remaining provision (benefit) for income taxes. This Adjusted EBITDA metric differs from (i) the EBITDA metric referenced in the section entitled “—Liquidity and Capital Resources—Senior Secured Credit Facilities,” which is calculated for the purposes of compliance with our debt covenants, and (ii) the Pre-VCP/EIP Adjusted EBITDA metric referenced in the section entitled “Compensation Discussion and Analysis” in our 2017 Proxy Statement, which are calculated for the purposes of our annual incentive compensation program and performance-based awards, respectively.

We define Adjusted Net Income from continuing operations per share as Adjusted Net Income divided by the applicable share count.

We define Adjusted Capital Expenditures as additions to property and equipment and capitalized implementation costs.

We define Free Cash Flow as cash provided by operating activities less cash used in additions to property and equipment.

These non-GAAP financial measures are key metrics used by management and our board of directors to monitor our ongoing core operations because historical results have been significantly impacted by events that are unrelated to our core operations as a result of changes to our business and the regulatory environment. We believe that these non-GAAP financial measures are used by investors, analysts and other interested parties as measures of financial performance and to evaluate our ability to service debt obligations, fund capital expenditures and meet working capital requirements. Adjusted Capital Expenditures include cash flows used in investing activities, for property and equipment, and cash flows used in operating activities, for capitalized implementation costs. Our management uses this combined metric in making product investment decisions and determining development resource requirements. We also believe that Adjusted Gross Profit, Adjusted Net Income, Adjusted EBITDA and Adjusted Capital Expenditures assist investors in company-to-company and period-to-period comparisons by excluding differences caused by variations in capital structures (affecting interest expense), tax positions and the impact of depreciation and amortization expense. In addition, amounts derived from Adjusted EBITDA are a primary component of certain covenants under our senior secured credit facilities.

Adjusted Gross Profit, Adjusted Net Income, Adjusted EBITDA, Adjusted Capital Expenditures, Free Cash Flow, and ratios based on these financial measures are not recognized terms under GAAP. These non-GAAP financial measures and ratios based on them have important limitations as analytical tools, and should not be viewed in isolation and do not purport to be alternatives to net income as indicators of operating performance or cash flows from operating activities as measures of liquidity. These non-GAAP financial measures and ratios based on them exclude some, but not all, items that affect net income or cash flows from

operating activities and these measures may vary among companies. Our use of these measures has limitations as an analytical tool, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are:


•	these non-GAAP financial measures exclude certain recurring, non-cash charges such as stock-based compensation expense and amortization of acquired intangible assets;


•	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted Gross Profit and Adjusted EBITDA do not reflect cash requirements for such replacements;


•	Adjusted Net Income and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;


•	Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;


•	Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;


•	Free Cash Flow removes the impact of accrual-basis accounting on asset accounts and non-debt liability accounts, and does not reflect the cash requirements necessary to service the principal payments on our indebtedness; and


•	other companies, including companies in our industry, may calculate Adjusted Gross Profit, Adjusted Net Income, Adjusted EBITDA, Adjusted Capital Expenditures, or Free Cash Flow differently, which reduces their usefulness as comparative measures.

The following table sets forth the reconciliation of net income attributable to common stockholders to Adjusted Net Income and Adjusted EBITDA (in thousands):



	Three Months Ended March 31,
	2017			2016
Net income attributable to common stockholders	$	75,939		$	105,167
Loss (income) from discontinued operations, net of tax	477			(13,350		)
Net income attributable to noncontrolling interests⁽¹⁾	1,306			1,102
Income from continuing operations	77,722			92,919
Adjustments:
Acquisition-related amortization^(2a)	35,181			34,130
Other, net ⁽⁴⁾	15,234			(3,360		)
Restructuring and other costs ⁽⁵⁾	—			124
Acquisition-related costs⁽⁶⁾	—			108
Litigation costs (reimbursements), net ⁽⁷⁾	3,501			(3,846		)
Stock-based compensation	8,034			10,289
Tax impact of net income adjustments	(21,568		)	(15,716		)
Adjusted Net Income from continuing operations	$	118,104		$	114,648
Adjusted Net Income from continuing operations per share	$	0.42		$	0.41
Diluted weighted-average common shares outstanding	279,559			281,963

Adjusted Net Income from continuing operations	$	118,104		$	114,648
Adjustments:
Depreciation and amortization of property and equipment^(2b)	61,300			53,665
Amortization of capitalized implementation costs^(2c)	9,189			8,488
Amortization of upfront incentive consideration⁽³⁾	16,132			12,337
Interest expense, net	39,561			41,202
Remaining provision for income taxes	53,275			57,140
Adjusted EBITDA	$	297,561		$	287,480

The following tables set forth the reconciliation of operating income (loss) in our statement of operations to Adjusted Gross Profit and Adjusted EBITDA by business segment (in thousands):



	Three Months Ended March 31, 2017
	Travel Network			Airline and Hospitality Solutions			Corporate			Total
Operating income (loss)	$	252,724		$	46,740		$	(136,138	)	$	163,326
Add back:
Selling, general and administrative	31,083			20,584			92,774			144,441
Cost of revenue adjustments:
Depreciation and amortization⁽²⁾	19,079			38,024			16,594			73,697
Amortization of upfront incentive consideration⁽³⁾	16,132			—			—			16,132
Stock-based compensation	—			—			3,181			3,181
Adjusted Gross Profit	319,018			105,348			(23,589		)	400,777
Selling, general and administrative	(31,083		)	(20,584		)	(92,774		)	(144,441		)
Joint venture equity income	898			—			—			898
Selling, general and administrative adjustments:
Depreciation and amortization⁽²⁾	1,389			753			29,831			31,973
Litigation costs⁽⁷⁾	—			—			3,501			3,501
Stock-based compensation	—			—			4,853			4,853
Adjusted EBITDA	$	290,222		$	85,517		$	(78,178	)	$	297,561



	Three Months Ended March 31, 2016
	Travel Network			Airline and Hospitality Solutions			Corporate			Total
Operating income (loss)	$	241,544		$	47,145		$	(117,267	)	$	171,422
Add back:
Selling, general and administrative	33,373			18,241			82,242			133,856
Cost of revenue adjustments:
Depreciation and amortization⁽²⁾	17,660			35,490			13,357			66,507
Amortization of upfront incentive consideration⁽³⁾	12,337			—			—			12,337
Stock-based compensation	—			—			4,074			4,074
Adjusted Gross Profit	304,914			100,876			(17,594		)	388,196
Selling, general and administrative	(33,373		)	(18,241		)	(82,242		)	(133,856		)
Joint venture equity income	763			—			—			763
Selling, general and administrative adjustments:
Depreciation and amortization⁽²⁾	870			303			28,603			29,776
Restructuring and other costs⁽⁵⁾	—			—			124			124
Acquisition-related costs⁽⁶⁾	—			—			108			108
Litigation reimbursements, net⁽⁷⁾	—			—			(3,846		)	(3,846		)
Stock-based compensation	—			—			6,215			6,215
Adjusted EBITDA	$	273,174		$	82,938		$	(68,632	)	$	287,480

The components of Adjusted Capital Expenditures are presented below (in thousands):



	Three Months Ended March 31,
	2017		2016
Additions to property and equipment	$	88,318	$	75,472
Capitalized implementation costs	17,096		19,957
Adjusted Capital Expenditures	$	105,414	$	95,429

The following tables present information from our statements of cash flows and sets forth the reconciliation of Free Cash Flow to cash provided by operating activities, the most directly comparable GAAP measure (in thousands):



	Three Months Ended March 31,
	2017			2016
Cash provided by operating activities	$	123,035		$	140,165
Cash used in investing activities	(88,318		)	(234,140		)
Cash used in financing activities	(107,788		)	(110,902		)



	Three Months Ended March 31,
	2017			2016
Cash provided by operating activities	$	123,035		$	140,165
Additions to property and equipment	(88,318		)	(75,472		)
Free Cash Flow	$	34,717		$	64,693

______________________________


(1)	Net income attributable to noncontrolling interests represents an adjustment to include earnings allocated to noncontrolling interests held in (i) Sabre Travel Network Middle East of 40%, (ii) Sabre Seyahat Dagitim Sistemleri A.S. of 40%, and (iii) Abacus International Lanka Pte Ltd of 40%.


(2)	Depreciation and amortization expenses:


a.	Acquisition-related amortization represents amortization of intangible assets from the take-private transaction in 2007 as well as intangibles associated with acquisitions since that date and amortization of the excess basis in our underlying equity in joint ventures.


b.	Depreciation and amortization of property and equipment includes software developed for internal use.


c.	Amortization of capitalized implementation costs represents amortization of upfront costs to implement new customer contracts under our SaaS and hosted revenue model.

(3)

Our Travel Network business at times provides upfront incentive consideration to travel agency subscribers at the inception or modification of a service contract, which are capitalized and amortized to cost of revenue over an average expected life of the service contract, generally over three to five years. Such consideration is made with the objective of increasing the number of clients or to ensure or improve customer loyalty. Such service contract terms are established such that the supplier and other fees generated over the life of the contract will exceed the cost of the incentive consideration provided upfront. Such service contracts with travel agency subscribers require that the customer commit to achieving certain economic objectives and generally have terms requiring repayment of the upfront incentive consideration if those objectives are not met.

(4)


(5)	Restructuring and other costs represent 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.


(6)	Acquisition-related costs represent fees and expenses incurred associated with the acquisition of the Trust Group and Airpas Aviation.


(7)	Litigation costs (reimbursements), net represent charges and legal fee reimbursements associated with antitrust litigation.

Results of Operations

The following table sets forth our consolidated statement of operations data for each of the periods presented:



	Three Months Ended March 31,
	2017			2016
	(Amounts in thousands)
Revenue	$	915,353		$	859,543
Cost of revenue	607,586			554,265
Selling, general and administrative	144,441			133,856
Operating income	163,326			171,422
Interest expense, net	(39,561		)	(41,202		)
Joint venture equity income	898			763
Other income (expense), net	(15,234		)	3,360
Income from continuing operations before income taxes	109,429			134,343
Provision for income taxes	31,707			41,424
Income from continuing operations	$	77,722		$	92,919

Three Months Ended March 31, 2017 and 2016

Revenue



	Three Months Ended March 31,
	2017			2016			Change
	(Amounts in thousands)
Travel Network	$	663,477		$	625,476		$	38,001		6	%
Airline and Hospitality Solutions	257,976			238,380			19,596			8	%
Total segment revenue	921,453			863,856			57,597			7	%
Eliminations	(6,100		)	(4,313		)	(1,787		)	(41	)%
Total revenue	$	915,353		$	859,543		$	55,810		6	%

Travel Network—Revenue increased $38 million, or 6%, for the three months ended March 31, 2017 compared to the same period in the prior year, primarily due an increase in transaction-based revenue of $38 million to $620 million. This increase is a result of a 6% increase in Direct Billable Bookings to 143 million in the three months ended March 31, 2017.

Airline and Hospitality Solutions—Revenue increased $20 million, or 8%, for the three months ended March 31, 2017 compared to the same period in the prior year. The $20 million increase in revenue primarily resulted from:


•	a $4 million increase in Airline Solutions’ SabreSonic Customer Sales and Service (“SabreSonic CSS”) revenue for the three months ended March 31, 2017 compared to the same period in the prior year. Passengers Boarded increased by 7% to 196 million for the three months ended March 31, 2017 which was partially offset by a 3% decrease in the PB rate;


•	a $3 million increase in Airline Solutions’ commercial and operations solutions revenue driven by growth in multiple products across our portfolio; and


•	a $13 million increase in Hospitality Solutions revenue for the three months ended March 31, 2017 compared to the same period in the prior year, driven primarily by an increase in Central Reservation System (“CRS”) revenue from new and existing customers.

Cost of Revenue



	Three Months Ended March 31,
	2017			2016			Change
	(Amounts in thousands)
Travel Network	$	344,459		$	320,562		$	23,897		7	%
Airline and Hospitality Solutions	152,628			137,504			15,124			11	%
Eliminations	(6,080		)	(4,226		)	(1,854		)	(44	)%
Total segment cost of revenue	491,007			453,840			37,167			8	%
Corporate	26,750			21,581			5,169			24	%
Depreciation and amortization	73,697			66,507			7,190			11	%
Amortization of upfront incentive consideration	16,132			12,337			3,795			31	%
Total cost of revenue	$	607,586		$	554,265		$	53,321		10	%

Travel Network—Cost of revenue increased $24 million, or 7%, for the three months ended March 31, 2017 compared to the same period in the prior year, mainly as a result of an increase in incentive consideration primarily in North America and EMEA regions offset by a $12 million decrease in the APAC region, driven primarily by renegotiation of an out of market agreement with a travel agency. See Note 2—Acquisitions.

Airline and Hospitality Solutions—Cost of revenue increased $15 million, or 11%, for the three months ended March 31, 2017 compared to the same period in the prior year. The increase was primarily the result of higher transaction-related expenses driven by growth in transaction volumes, increase in the headcount-related costs, and an increase in the fees paid to third-party providers to support the growth in the Hospitality Solutions business.

Corporate—Cost of revenue associated with corporate costs increased $5 million, or 24%, for the three months ended March 31, 2017 compared to the same period in the prior year. This increase was primarily due to higher shared technology infrastructure and labor costs.

Depreciation and amortization—Depreciation and amortization increased $7 million, or 11%, for the three months ended March 31, 2017 compared to the same period in the prior year. The increase was primarily due to the completion and amortization of software developed for internal use and additional amortization of capitalized labor related to customer implementations.

Amortization of upfront incentive consideration—Amortization of upfront incentive consideration increased $4 million, or 31%, for the three months ended March 31, 2017 compared to the same period in the prior year primarily due to an increase in upfront consideration provided to travel agencies.

Selling, General and Administrative Expenses



Three Months Ended March 31,
2017	2016	Change

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Accelerated filer

Non-accelerated filer

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Smaller reporting company

Emerging growth company