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Segment Information | 6 Months Ended
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Jun. 30, 2015
Segment Reporting [Abstract] |
Segment Information | Segment Information In the first quarter of 2015, we disposed of our Travelocity segment; therefore, the financial results of Travelocity are excluded from the segment information presented below and are included in net income (loss) from discontinued operations in our consolidated financial statements. Our reportable segments are based upon our internal organizational structure; the manner in which our operations are managed; the criteria used by our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), to evaluate segment performance; the availability of separate financial information; and overall materiality considerations. Our business has two reportable segments: (i) Travel Network and (ii) Airline and Hospitality Solutions, which aggregates the Airline Solutions and Hospitality Solutions operating segments as these operating segments have similar economic characteristics, generate revenues on transaction-based fees, incur the same types of expenses and use our software-as-a-service (“SaaS”) based and hosted applications and platforms to market to the travel industry. Our CODM utilizes Adjusted Gross Margin and Adjusted EBITDA as the measures of profitability to evaluate performance of our segments and allocate resources. Segment results do not include unallocated expenses or interest expenses which are centrally managed costs. Benefits expense, including pension expense, postretirement benefits, medical insurance and workers’ compensation are allocated to the segments based on headcount. Depreciation expense on the corporate headquarters building and related facilities costs are allocated to the segments through a facility fee based on headcount. Corporate includes certain shared expenses such as accounting, human resources, legal, corporate systems, and other shared technology costs. Corporate also includes all amortization of intangible assets and any related impairments that originate from purchase accounting, as well as stock based compensation expense, restructuring charges, legal reserves, occupancy taxes and other items not identifiable with one of our segments. We account for significant intersegment transactions as if the transactions were with third parties, that is, at estimated current market prices. The majority of the intersegment revenues and cost of revenues are fees charged by Travel Network to Airline and Hospitality Solutions for airline trips booked through our GDS. Our CODM does not review total assets by segment as operating evaluations and resource allocation decisions are not made on the basis of total assets by segment. Our CODM uses Adjusted Capital Expenditures in making product investment decisions and determining development resource requirements. The performance of our segments is evaluated primarily on Adjusted Gross Margin and Adjusted EBITDA which are not recognized terms under GAAP. Our uses of Adjusted Gross Margin and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. We define Adjusted Gross Margin as operating income adjusted for selling, general and administrative expenses, amortization of upfront incentive consideration, and the cost of revenue portion of depreciation and amortization, restructuring and other costs and stock-based compensation. We define Adjusted EBITDA as income from continuing operations adjusted for depreciation and amortization of property and equipment, amortization of capitalized implementation costs, acquisition-related amortization, amortization of upfront incentive consideration, interest expense, net, loss on extinguishment of debt, other, net, restructuring and other costs, acquisition-related costs, litigation costs, stock-based compensation, management fees and income taxes. We define Adjusted Capital Expenditures as additions to property and equipment and capitalized implementation costs during the periods presented. Segment information for the three and six months ended June 30, 2015 and 2014 is as follows (in thousands):
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2015 |  | 2014 |  | 2015 |  | 2014
Revenue |  |  |  |  |  |  |  |  |  |  |
Travel Network | $ | 494,515 |  |  | $ | 462,337 |  |  | $ | 1,002,445 |  |  | $ | 954,064 |
Airline and Hospitality Solutions | 216,632 |  |  | 186,573 |  |  | 421,532 |  |  | 363,290 |
Eliminations | (4,056 | ) |  | (2,530 | ) |  | (6,538 | ) |  | (4,559 | )
Total revenue | $ | 707,091 |  |  | $ | 646,380 |  |  | $ | 1,417,439 |  |  | $ | 1,312,795 |
Adjusted Gross Margin (a) |  |  |  |  |  |  |  |  |  |  |
Travel Network | $ | 225,927 |  |  | $ | 217,161 |  |  | $ | 470,046 |  |  | $ | 453,809 |
Airline and Hospitality Solutions | 95,782 |  |  | 75,259 |  |  | 184,981 |  |  | 140,799 |
Corporate | (8,885 | ) |  | (5,457 | ) |  | (21,481 | ) |  | (20,780 | )
Total | $ | 312,824 |  |  | $ | 286,963 |  |  | $ | 633,546 |  |  | $ | 573,828 |
Adjusted EBITDA (b) |  |  |  |  |  |  |  |  |  |  |
Travel Network | $ | 205,957 |  |  | $ | 197,971 |  |  | $ | 438,044 |  |  | $ | 412,814 |
Airline and Hospitality Solutions | 80,985 |  |  | 62,555 |  |  | 152,473 |  |  | 116,015 |
Total segments | 286,942 |  |  | 260,526 |  |  | 590,517 |  |  | 528,829 |
Corporate | (59,369 | ) |  | (45,978 | ) |  | (119,358 | ) |  | (103,018 | )
Total | $ | 227,573 |  |  | $ | 214,548 |  |  | $ | 471,159 |  |  | $ | 425,811 |
Depreciation and amortization |  |  |  |  |  |  |  |  |  |  |
Travel Network | $ | 15,280 |  |  | $ | 15,772 |  |  | $ | 29,624 |  |  | $ | 31,809 |
Airline and Hospitality Solutions | 31,910 |  |  | 26,700 |  |  | 74,907 |  |  | 53,698 |
Total segments | 47,190 |  |  | 42,472 |  |  | 104,531 |  |  | 85,507 |
Corporate | 29,366 |  |  | 28,231 |  |  | 62,086 |  |  | 66,830 |
Total | $ | 76,556 |  |  | $ | 70,703 |  |  | $ | 166,617 |  |  | $ | 152,337 |
Adjusted Capital Expenditures (c) |  |  |  |  |  |  |  |  |  |  |
Travel Network | $ | 14,473 |  |  | $ | 15,307 |  |  | $ | 27,558 |  |  | $ | 30,620 |
Airline and Hospitality Solutions | 52,542 |  |  | 39,390 |  |  | 106,979 |  |  | 77,790 |
Total segments | 67,015 |  |  | 54,697 |  |  | 134,537 |  |  | 108,410 |
Corporate | 14,270 |  |  | 12,059 |  |  | 22,987 |  |  | 15,657 |
Total | $ | 81,285 |  |  | $ | 66,756 |  |  | $ | 157,524 |  |  | $ | 124,067 |
______________________________
(a) | The following table sets forth the reconciliation of Adjusted Gross Margin to operating income in our statement of operations (in thousands):
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2015 |  | 2014 |  | 2015 |  | 2014
Adjusted Gross Margin | $ | 312,824 |  |  | $ | 286,963 |  |  | $ | 633,546 |  |  | $ | 573,828 |
Less adjustments: |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative | 123,360 |  |  | 127,651 |  |  | 245,718 |  |  | 238,389 |
Cost of revenue adjustments: |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization (1) | 53,079 |  |  | 48,115 |  |  | 117,746 |  |  | 106,924 |
Amortization of upfront incentive consideration (2) | 10,878 |  |  | 11,742 |  |  | 22,050 |  |  | 22,789 |
Restructuring and other costs (4) | — |  |  | 1,401 |  |  | — |  |  | 2,579 |
Stock-based compensation | 2,902 |  |  | 1,972 |  |  | 6,435 |  |  | 3,358 |
Operating income | $ | 122,605 |  |  | $ | 96,082 |  |  | $ | 241,597 |  |  | $ | 199,789 |
(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 June 30, |  | Six Months Ended June 30,
| 2015 |  | 2014 |  | 2015 |  | 2014
Adjusted EBITDA | $ | 227,573 |  |  | $ | 214,548 |  |  | $ | 471,159 |  |  | $ | 425,811 |
Less adjustments: |  |  |  |  |  |  |
Depreciation and amortization of property and equipment (1a) | 46,244 |  |  | 40,661 |  |  | 107,907 |  |  | 81,110 |
Amortization of capitalized implementation costs (1b) | 7,902 |  |  | 8,890 |  |  | 15,426 |  |  | 17,987 |
Acquisition-related amortization (1c) | 23,211 |  |  | 21,953 |  |  | 44,886 |  |  | 54,842 |
Amortization of upfront incentive consideration (2) | 10,878 |  |  | 11,742 |  |  | 22,050 |  |  | 22,789 |
Interest expense, net | 42,609 |  |  | 53,235 |  |  | 89,062 |  |  | 117,179 |
Loss on extinguishment of debt | 33,235 |  |  | 30,558 |  |  | 33,235 |  |  | 33,538 |
Other, net (3) | (197 | ) |  | (391 | ) |  | 4,248 |  |  | 1,963 |
Restructuring and other costs (4) | — |  |  | 2,128 |  |  | — |  |  | 3,684 |
Acquisition-related costs (5) | 2,053 |  |  | — |  |  | 3,864 |  |  | — |
Litigation costs (6) | 2,043 |  |  | 2,572 |  |  | 5,479 |  |  | 7,118 |
Stock-based compensation | 7,330 |  |  | 4,885 |  |  | 16,124 |  |  | 8,484 |
Management fees (7) | — |  |  | 21,576 |  |  | — |  |  | 23,508 |
Provision for income taxes | 19,676 |  |  | 10,284 |  |  | 46,959 |  |  | 25,195 |
Income from continuing operations | $ | 32,589 |  |  | $ | 6,455 |  |  | $ | 81,919 |  |  | $ | 28,414 |
______________
(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) | Other, net primarily represents foreign exchange gains and losses related to the remeasurement of foreign currency denominated balances included in our consolidated balance sheets into the relevant functional currency.
(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 Abacus (see Note 12, Subsequent Events).
(6) | Litigation costs represent charges or settlements associated with airline antitrust litigation (see Note 10, Contingencies).
(7) | We paid an annual management fee, pursuant to a Management Services Agreement (“MSA”), to TPG Global, LLC (“TPG”) and Silver Lake Management Company (“Silver Lake”) in an amount between (i) $5 million and (ii) $7 million, the actual amount of which is calculated based upon 1% of Adjusted EBITDA, earned by the company in such fiscal year up to a maximum of $7 million. In addition, we paid a $21 million fee, in the aggregate, to TPG and Silver Lake at the closing of our initial public offering in April of 2014. The MSA was terminated thereafter.
(c) | Includes capital expenditures and capitalized implementation costs as summarized below (in thousands):
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2015 |  | 2014 |  | 2015 |  | 2014
Additions to property and equipment | $ | 66,051 |  |  | $ | 56,812 |  |  | $ | 127,963 |  |  | $ | 106,470 |
Capitalized implementation costs | 15,234 |  |  | 9,944 |  |  | 29,561 |  |  | 17,597 |
Adjusted Capital Expenditures | $ | 81,285 |  |  | $ | 66,756 |  |  | $ | 157,524 |  |  | $ | 124,067 |

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 34 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8981-108599 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 41 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e9038-108599 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 33 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8971-108599 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 12 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8595-108599 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8380-108599 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8933-108599 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 26 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8844-108599 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8984-108599 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 40 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e9031-108599 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 42 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e9054-108599 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8538-108599 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 29 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8864-108599 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 31 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8924-108599 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8906-108599 + Details
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