Segment Information (Tables)

9 Months Ended

Sep. 30, 2014

Segment information for the three and nine months ended September 30, 2014 and 2013 is as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Adjusted Revenue
Travel Network	$	466,278		$	449,562		$	1,420,341		$	1,381,105
Airline and Hospitality Solutions		208,685			182,505			571,975			522,794
Travelocity		88,853			160,811			268,848			457,518
Eliminations		(4,638	)		(17,055	)		(24,253	)		(58,018	)
Total Adjusted Revenue		759,178			775,823			2,236,911			2,303,399
Amortization of Expedia SMA incentive payments		(2,875	)		—			(7,625	)		—
Total revenue	$	756,303		$	775,823		$	2,229,286		$	2,303,399

Adjusted Gross Margin (a)
Travel Network	$	216,214		$	207,506		$	670,023		$	652,568
Airline and Hospitality Solutions		94,747			64,539			235,546			183,237
Travelocity		66,013			102,710			184,124			277,895
Eliminations		(41	)		(123	)		(7,498	)		(514	)
Corporate		(18,579	)		(5,578	)		(38,119	)		(28,651	)
Total	$	358,354		$	369,054		$	1,044,076		$	1,084,535

Adjusted EBITDA (b)
Travel Network	$	193,823		$	183,728		$	606,637		$	582,268
Airline and Hospitality Solutions		81,671			56,940			197,686			145,485
Travelocity		15,954			7,403			(18,116	)		7,528
Total segments		291,448			248,071			786,207			735,281
Corporate		(61,522	)		(46,722	)		(168,857	)		(151,318	)
Total	$	229,926		$	201,349		$	617,350		$	583,963

Depreciation and amortization
Travel Network	$	14,788		$	13,225		$	46,597		$	37,810
Airline and Hospitality Solutions		26,031			19,853			79,729			57,225
Travelocity		1,122			1,237			3,585			8,826
Total segments		41,941			34,315			129,911			103,861
Corporate		29,771			42,051			100,550			126,416
Total	$	71,712		$	76,366		$	230,461		$	230,277

Adjusted Capital Expenditures (c)
Travel Network	$	13,238		$	19,542		$	43,858		$	51,593
Airline and Hospitality Solutions		39,994			38,993			117,784			132,563
Travelocity		2,685			3,571			6,810			14,367
Total segments		55,917			62,106			168,452			198,523
Corporate		3,890			5,174			19,535			18,907
Total	$	59,807		$	67,280		$	187,987		$	217,430

Reconciliation of Adjusted Gross Margin to Operating Income And Adjusted EBITDA to Loss from Continuing Operations

(1)	The following tables set forth the reconciliation of Adjusted Gross Margin to operating income in our statement of operations (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Adjusted Gross Margin	$	358,354	$	369,054	$	1,044,076	$	1,084,535
Less adjustments:
Selling, general and administrative		169,183		208,033		575,413		620,226
Impairment		—		2,837		—		138,435
Restructuring charges		4,735		15,889		2,325		15,889
Cost of revenue adjustments:
Depreciation and amortization⁽¹⁾		47,252		49,421		157,146		150,441
Amortization of upfront incentive consideration⁽²⁾		10,388		9,385		33,177		28,736
Restructuring and other costs⁽⁴⁾		4,865		2,582		10,016		4,521
Litigation and taxes, including penalties⁽⁵⁾		188		5,389		1,127		19,864
Stock-based compensation		2,172		544		5,618		816
Amortization of Expedia SMA incentive payments		2,875		—		7,625		—
Operating income	$	116,696	$	74,974	$	251,629	$	105,607

(2)	The following tables set forth the reconciliation of Adjusted EBITDA to loss from continuing operations in our statement of operations (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014			2013
Adjusted EBITDA	$	229,926		$	201,349	$	617,350		$	583,963
Less adjustments:
Impairment		—			2,837		—			138,435
Depreciation and amortization of property and equipment^(1a)		39,524			32,936		122,409			97,687
Amortization of capitalized implementation costs^(1b)		9,084			8,437		27,111			27,038
Acquisition related amortization^(1c)		23,905			35,794		83,344			107,955
Amortization of upfront incentive consideration⁽²⁾		10,388			9,385		33,177			28,736
Interest expense, net		50,153			63,454		167,332			209,653
Loss on extinguishment of debt		—			—		33,538			12,181
Other, net ⁽³⁾		(565	)		2,429		(760	)		1,099
Restructuring and other costs⁽⁴⁾		14,482			21,754		24,056			26,296
Litigation and taxes, including penalties⁽⁵⁾		4,440			8,579		12,497			31,543
Stock-based compensation		5,472			2,686		22,434			5,446
Management fees⁽⁶⁾		193			2,126		23,701			7,347
Amortization of Expedia SMA incentive payments		2,875			—		7,625			—
Provision (benefit) for income taxes		30,956			7,861		27,878			(5,229	)
Income (loss) from continuing operations	$	39,019		$	3,071	$	33,008		$	(104,224	)

(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 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 represents charges associated with business restructuring and associated changes implemented which resulted in severance benefits related to employee terminations, integration and facility opening or closing costs and other business reorganization costs.

(5)	Litigation and taxes, including penalties represents charges or settlements associated with airline antitrust litigation as well as payments or reserves taken in relation to certain retroactive hotel occupancy and excise tax disputes (see Note 14, Contingencies).

(6)

We paid an annual management fee to TPG and Silver Lake in an amount between (i) $5 million and (ii) $7 million, the actual amount of which is calculated based upon 1% of Adjusted EBITDA, earned by the company in such fiscal year up to a maximum of $7 million. In addition, the MSA provided for reimbursement of certain costs incurred by TPG and Silver Lake, which are included in this line item. The MSA was terminated in connection with our initial public offering.

Reconciliation of Consolidated Adjusted Capital Expenditures

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Additions to property and equipment	$	49,802	$	57,257	$	160,385	$	168,744
Capitalized implementation costs		10,005		10,023		27,602		48,686
Adjusted Capital Expenditures	$	59,807	$	67,280	$	187,987	$	217,430

- Definition

Tabular disclosure of the profit or loss and total assets for each reportable segment. An entity discloses certain information on each reportable segment if the amounts (a) are included in the measure of segment profit or loss reviewed by the chief operating decision maker or (b) are otherwise regularly provided to the chief operating decision maker, even if not included in that measure of segment profit or loss.

+ References+ Details