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SABRE CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[August 07, 2014]

SABRE CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


(Edgar Glimpses Via Acquire Media NewsEdge) Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements about future trends, events, uncertainties and our plans and expectations of what may happen in the future. Any statements that are not historical or current facts are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "potential" or the negative of these terms or other comparable terminology. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Sabre Corporation's actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Certain of these risks and uncertainties are described in the "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" sections included in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended ("Securities Act"), on April 17, 2014. 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. Readers are cautioned not to place undue reliance on these forward-looking statements. Unless required by law, Sabre Corporation undertakes 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 prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on April 17, 2014.

Overview We are a leading technology solutions provider to the global travel and tourism industry. We span the breadth of a highly complex global travel ecosystem through three business segments: (i) Travel Network, our global B2B travel marketplace for travel suppliers and travel buyers, (ii) Airline and Hospitality Solutions, an extensive suite of leading software solutions primarily for airlines and hotel properties, and (iii) Travelocity, our portfolio of online consumer travel e-commerce businesses through which we provide travel content and booking functionality primarily for leisure travelers. 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 analysis.

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 global distribution system ("GDS"); for Airline and Hospitality Solutions, this fee is a recurring usage-based fee for the use of our software-as-a-service ("SaaS") and hosted systems, as well as implementation fees and consulting fees. Items that are not allocated to our business segments are identified as corporate and include primarily certain shared technology costs as well as stock-based compensation expense, litigation costs related to occupancy or other taxes and other items that are not identifiable with one of our segments.

Factors Affecting our Results and Comparability 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" in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on April 17, 2014.

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 our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on April 17, 2014. There have been no material changes to the Factors Affecting our Results previously disclosed in our prospectus.

Travelocity Restructuring-We initiated plans in the third quarter of 2013 to shift our Travelocity business in the United States and Canada away from a high fixed-cost model to a lower-cost, performance-based revenue structure. On August 22, 2013, Travelocity entered into an exclusive, long-term strategic marketing agreement with Expedia ("Expedia SMA"). Under the Expedia SMA, Expedia will power the technology platforms for Travelocity's existing U.S. and Canadian websites as well as provide Travelocity with access to Expedia's supply and customer service platforms. On March 6, 2014, we amended and restated the Expedia SMA to reflect changes in certain commercial terms and also agreed to a separate put/call agreement ("Put/Call Agreement") that supersedes the previous put/call arrangement. The Expedia SMA represents a strategic decision to reduce direct costs associated with Travelocity and to provide our customers with the benefit of Expedia's long-term investment in its technology platform as well as its supply and customer service platforms, which we expect to increase conversion and operational efficiency and allows us to shift our focus to Travelocity's marketing strengths. Both parties began development and implementation of this arrangement after signing the Expedia SMA. As of June 30, 2014, substantially all supplier offerings have been migrated to the Expedia platform.

27 -------------------------------------------------------------------------------- Under the terms of the Expedia SMA, Expedia pays us a performance-based marketing fee that varies based on the amount of travel booked through Travelocity-branded websites powered by Expedia. The marketing fee we receive is recorded as marketing fee revenue and the cost we incur to promote the Travelocity brand and for marketing is recorded as selling, general and administrative expense in our results of operations. As a result of transactions being processed through Expedia's platform instead of the Travelocity platform, the revenue we derive from the merchant, agency and media revenue models has declined. In connection with this migration, we are no longer considered the merchant of record for merchant transactions, and therefore we no longer collect cash from consumers, receive transaction fees and commissions directly from travel suppliers, receive service fees or insurance related revenue directly from customers or directly market or receive media revenue from advertisers on our websites. We instead collect the marketing fee revenue from Expedia, which is net of costs incurred by Expedia in connection with these activities.

Additionally, Travelocity no longer receives incentive consideration from Travel Network as intersegment revenue, and we do not expect that Expedia will use Travel Network for shopping and booking of a portion of non-air travel for Travelocity.com and Travelocity.ca after the launch of the Expedia SMA. In addition, Expedia may choose to use another intermediary for shopping and booking of a portion or all of the air travel booked through Travelocity.com and Travelocity.ca beginning in 2019, subject to earlier termination under certain circumstances.

In the fourth quarter of 2013, we also initiated a plan to restructure the European portion of the Travelocity business. This plan involves establishing Travelocity Europe as a stand-alone operation, separating processes from the North America operations, while adding efficiencies to streamline the European operations. Travelocity will continue to be managed as one reportable segment.

In February 2014, as a further step in our restructuring plans for Travelocity, we completed a sale of assets associated with Travelocity Partner Network ("TPN"), a business-to-business private white label website offering. In connection with the sale, Travelocity entered into a Transition Services Agreement ("TSA") with the acquirer to provide services to maintain the websites and certain technical and administrative functions for the acquirer until a complete transition occurs. The proceeds to be received under the sale agreement and the TSA were allocated across these multiple agreements based on a relative fair value allocation which resulted in no gain or loss on the sale.

As a result of the Expedia SMA and the sale of our TPN business, we expect the revenue contribution from the Travelocity segment to be in the range of 55% to 65% of 2013 levels after the Expedia SMA is fully implemented, which we expect to occur by the end of 2014. Due to the elimination of the intersegment revenue between Travelocity and Travel Network, we expect intersegment eliminations to substantially decrease in connection with the Expedia SMA. See "-Components of Revenues and Expenses-Intersegment Transactions." Correspondingly, we will wind down certain internal processes, including back office functions, associated with our Travelocity-branded technology platforms and TPN business, which we expect to complete by the end of 2014. Once completed, we expect our costs from the Travelocity segment to significantly decrease and to be in the range of 45% to 55% of 2013 levels. Ongoing costs in our Travelocity business in the United States and Canada will primarily consist of marketing the Travelocity website, marketing staff and support staff. Under the Expedia SMA, we have committed to continue investing in the marketing of the Travelocity-branded websites in a manner that is consistent with past practice.

As a result, we expect our plan to result in improved margins and profitability for our Travelocity segment.

Our success is dependent on many factors, including: - improved conversion through better site performance and user experience using the Expedia platform and technology; - improved cost structure by reducing operational complexity; and - profitable results from our marketing efforts.

We cannot be certain that this plan will be successful.

We did not record any material restructuring charges in our results of operations during the three and six months ended June 30, 2014 in connection with these transactions. We estimate that we will incur additional charges in 2014 of approximately $9 million consisting of $6 million in contract termination costs and $3 million of other related costs. Contract termination costs represent an estimate of costs we may incur as we negotiate with our vendors to terminate contracts and costs for contracts we are unable to renegotiate and receive no future benefit. The actual amount incurred may differ significantly from this estimate.

Pursuant to the Put/Call Agreement, Expedia may acquire, or we may sell to Expedia, assets relating to the Travelocity-branded portions of our Travelocity business, which primarily include the assets subject to the Expedia SMA. Our put right may be exercised during the first 24 months of the Expedia Put/Call only upon the occurrence of certain triggering events primarily relating to implementation, which are outside of our control. The occurrence of these events is not considered probable. During this period, the amount of the put right is fixed. After the initial 24 month period, the put right is only exercisable for a limited period of time in 2016 and 2017 at a discount to fair market value as defined in the Put/Call Agreement. The call right held by Expedia is exercisable at any time during the term of the Put/Call Agreement. If the call right is exercised, although we expect the amount paid will be fair value, 28 -------------------------------------------------------------------------------- the call right provides for a floor for a limited time that may be higher than fair value and a ceiling for the duration of the Put/Call Agreement that may be lower than fair value.

The term of the amended and restated Expedia SMA is nine years and automatically renews under certain conditions.

Disposition of Assets-On June 18, 2013, we completed the sale of certain assets of Travelocity ("TBiz") operations to a third-party, which reduced revenue and expenses for Travelocity for the three and six months ended June 30, 2014 compared to 2013. TBiz provided managed corporate travel services for corporate customers.

Revenue Models We employ several revenue models across our businesses with some revenue models employed in multiple businesses. Travel Network primarily employs the transaction revenue model. Airline and Hospitality Solutions primarily employs the SaaS and hosted and consulting revenue models, as well as the software licensing fee model to a lesser extent. Travelocity primarily employed two revenue models: (i) the merchant revenue model or our "Net Rate Program" (applicable to a majority of our hotel net rate revenues) and (ii) the agency revenue model (applicable to most of our airline, car and cruise commission revenues and a small portion of hotel commission revenues). In connection with the Expedia SMA, Travelocity has begun to employ the marketing fee revenue model (applicable to revenue generated through Travelocity-branded websites operated by Expedia). Travel Network and, historically, Travelocity employ the media revenue model (applicable to advertising revenues). We report revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions.

Transaction Revenue Model-This model accounts for substantially all of Travel Network's revenue. We define a "Direct Billable Booking" as any booking that generates a fee directly to Travel Network. These 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. Under this model, a transaction occurs when a travel agency or corporate travel department books, or reserves, a travel supplier's product on our GDS, for which we receive a fee. Transaction fees include, but are not limited to, transaction fees paid by travel suppliers for selling their inventory through our GDS and transaction fees paid by travel agency subscribers related to their use of our GDS. We receive revenue from the travel supplier and the travel agency according to the commercial arrangement with each.

Transaction revenue for airline travel reservations is recognized at the time of the booking of the reservation, net of transaction fee reserves for estimated future cancellations. Transaction revenue for car rental, hotel bookings and other travel services is recognized at the time the reservation is used by the customer.

SaaS and Hosted Revenue Model-The SaaS and hosted revenue model is the primary revenue model employed by Airline and Hospitality Solutions. This revenue model applies to situations where we host software solutions on our own secure platforms or deploy it through our SaaS solutions, and we maintain the software as well as the infrastructure it employs. Our customers pay us an implementation fee and a recurring usage-based fee for the use of such software pursuant to contracts with terms that typically range between three and ten years and generally include minimum annual volume requirements. This usage-based fee arrangement allows our customers to pay for software normally on a monthly basis to the extent that it is used. Similar contracts with the same customer which are entered into at or around the same period are analyzed for revenue recognition purposes on a combined basis. Revenue from implementation fees is generally recognized over the term of the agreement. The amount of periodic usage fees is typically based on a metric relevant to the software purchased. We recognize revenue from recurring usage-based fees in the period earned. Over the last several years, our customers have shifted toward the SaaS and hosted revenue model as license fee contracts expire, and we expect to continue to facilitate the shift from license fee contracts to the SaaS and hosted revenue model going forward.

Consulting Revenue Model-Airline and Hospitality Solutions offerings that utilize the SaaS and hosted revenue model are sometimes sold as part of multiple-element agreements for which we also provide professional services. Our professional services consist primarily of consulting services focused on helping customers achieve better utilization of and return on their software investment. Often, we provide consulting services during the implementation phase of our SaaS solutions. We account for consulting service revenue separately from implementation and recurring usage-based fees, with value assigned to each element based on its relative selling price to the total selling price. We perform a market analysis on a periodic basis to determine the range of selling prices for each product and service. The revenue for consulting services is generally recognized over the period the consulting services are performed.

Software Licensing Fee Revenue Model-The software licensing fee revenue model is also utilized by Airline and Hospitality Solutions. Under this model, we generate revenue by charging customers for the installation and use of our software products. Some contracts under this model generate additional revenue for the maintenance of the software product. When software is sold without associated customization or implementation services, revenue from software licensing fees is recognized when all of the following are met: (i) the software is delivered, (ii) fees are fixed or determinable, (iii) no undelivered elements are essential to the functionality of delivered software, and (iv) collection is probable. When software is sold with customization or implementation services, revenue from software licensing fees is recognized based on the percentage of completion of the customization and implementation services.

29 --------------------------------------------------------------------------------Fees for software maintenance are recognized ratably over the life of the contract. We are unable to determine vendor-specific objective evidence of fair value for software maintenance fees. Therefore, when fees for software maintenance are included in software license agreements, revenue from the software license, customization, implementation and the maintenance are recognized ratably over the related contract term.

Marketing Fee Revenue Model-With the implementation of Expedia's technology for our U.S. and Canadian websites beginning late in 2013, Expedia pays us a performance-based marketing fee that varies based on the amount of travel booked through Travelocity-branded websites powered by Expedia. The marketing fee we receive is recorded as revenue and the costs we incur for marketing and to promote the Travelocity brand is recorded as selling, general and administrative expense in our results of operations. See "Factors Affecting our Results and Comparability-Travelocity Restructuring." Merchant Revenue Model-The merchant revenue model or the "Net Rate Program" is utilized by Travelocity, except to the extent the marketing fee revenue model applies. We primarily use this model for revenue from hotel reservations and dynamically packaged combinations of travel components. Pursuant to this model, we are the merchant of record for credit card processing for travel accommodations. Even though we are the merchant of record for these transactions, we do not purchase and resell travel accommodations, and we do not have any obligations with respect to the travel accommodations we offer online that we do not sell. Instead, we act as an intermediary by entering into agreements with travel suppliers for the right to market their products, services and other offerings at pre-determined net rates. We market net rate offerings to travelers at prices that include an amount sufficient to pay the travel supplier for providing the travel accommodations and any occupancy and other local taxes, as well as additional amounts representing our service fees, which is how we generate revenue under this model. Under this revenue model, we require prepayment by the traveler at the time of booking.

Travelocity recognizes net rate revenue for stand-alone air travel at the time the travel is booked with a reserve for estimated future canceled bookings.

Revenues from vacation packages and car rentals as well as hotel net rate revenues are recognized at the time the reservation is used by the consumer.

For net rate and dynamically packaged combinations sold through Travelocity, we record net rate revenues based on the total amount paid by the customer for products and services, net of our payment to the travel supplier. At the time a customer makes and prepays a reservation, we accrue a supplier liability based on the amount we expect to be billed by our travel suppliers. In some cases, a portion of Travelocity's prepaid net rate and travel package transactions goes unused by the traveler. In these circumstances, Travelocity may not be billed the full amount of the accrued supplier liability. Therefore, we reduce the accrued supplier liability for amounts aged more than six months after the reservation goes unused and record the aged amount as revenue if certain conditions are met. Our process for determining when aged amounts may be recognized as revenue includes consideration of key factors such as the age of the supplier liability, historical billing and payment information, among others. See "Factors Affecting our Results and Comparability-Travelocity Restructuring." Agency Revenue Model-This model is employed by Travelocity, except to the extent the marketing fee revenue model applies, and applies to revenues generated via commissions from travel suppliers for reservations made by travelers through our websites. Under this model, we act as an agent in the transaction by passing reservations booked by travelers to the relevant airline, hotel, car rental company, cruise line or other travel supplier, while the travel supplier serves as merchant of record and processes the payment from the traveler.

Under the agency revenue model, Travelocity recognizes commission revenue for stand-alone air travel at the time the travel is booked with a reserve for estimated future canceled bookings. Commissions from car and hotel travel suppliers are recognized upon the scheduled date of travel consumption. We record car and hotel commission revenue net of an estimated reserve for cancellations, no-shows and uncollectable commissions.

See "Factors Affecting our Results and Comparability-Travelocity Restructuring." Media Revenue Model-The media revenue model is used to record advertising revenue from entities that advertise products on Travelocity's websites, except to the extent the marketing fee revenue model applies, and, to a lesser extent, on our GDS. Advertisers use two types of advertising metrics: (i) display advertising and (ii) action advertising. In display advertising, advertisers usually pay based on the number of customers who view the advertisement, and are charged based on cost per thousand impressions. In action advertising, advertisers usually pay based on the number of customers who perform a specific action, such as click on the advertisement, and are charged based on the cost per action. Advertising revenues are recognized in the period that the advertising impressions are delivered or the click-through or other specific action occurs.

See "Factors Affecting our Results and Comparability-Travelocity Restructuring." 30 --------------------------------------------------------------------------------Components of Revenues and Expenses Revenues Travel Network Travel Network primarily generates revenues from the transaction revenue model, as well as revenue from certain services we provide our joint ventures and the sale of aggregated bookings data to carriers. See "-Revenue Models." Airline and Hospitality Solutions Airline and Hospitality Solutions primarily generates revenue from the SaaS and hosted revenue model, the consulting revenue model, as well as the software licensing fee model to a lesser extent. Over the last several years, our customers have shifted toward the SaaS and hosted revenue model as license fee contracts expire, and we expect to continue to facilitate the shift from license fee contracts to the SaaS and hosted revenue model going forward. See "-Revenue Models." Travelocity Travelocity generates transaction revenue through the merchant revenue model and the agency revenue model, and non-transaction revenue, in each case, except to the extent the marketing fee model applies. See "Factors Affecting our Results and Comparability -Travelocity Restructuring." Transaction revenue is comprised of (i) stand-alone air transaction revenue (i.e., revenue from the sale of air travel without any other products) and (ii) other transaction revenue (i.e., revenue from hotel suppliers, packages which include multiple travel products, lifestyle products such as theatre tickets and services).

Except to the extent the marketing fee model applies, Travelocity also generates revenues from fees from offline (e.g., call center agent transacted) bookings for air and packages and insurance revenues from third-party insurance providers whose air, total trip and cruise insurance we offer on our websites.

Additionally, Travelocity generates intersegment transaction revenue from Travel Network, consisting of incentive consideration earned for Travelocity transactions processed through our GDS and fees paid by Travel Network and Airline and Hospitality Solutions for corporate trips booked through the Travelocity online booking technology. For the six months ended June 30, 2014, intersegment revenue has substantially decreased in connection with the Expedia SMA. Intersegment transaction revenue is eliminated in consolidation.

Non-transaction revenue consists of advertising revenue from the media revenue model, paper ticket fees and services, and change and reissue fees.

Cost of Revenue Travel Network Travel Network cost of revenues consists primarily of: - Incentive Consideration-payments or other consideration to travel agencies for reservations made on our GDS which have accrued on a monthly basis.

Incentive consideration, when provided on a periodic basis over the term of the contract, is recorded to cost of revenue. Travel Network provides incentive consideration to Travelocity for Travelocity transactions processed through our GDS, although we expect intersegment revenue to substantially decrease in connection with the Expedia SMA. Intersegment expense is eliminated in consolidation. See "-Components of Revenues and Expenses-Intersegment Transactions." - Technology Expenses-data processing, data center management, application hosting, applications development and maintenance and related charges.

- Labor Expenses-salaries and benefits paid to employees supporting the operations of the business.

- Other Expenses-includes services purchased, facilities and corporate overhead.

Airline and Hospitality Solutions Airline and Hospitality Solutions cost of revenues consists primarily of: - Labor Expenses-salaries and benefits paid to employees for the development, delivery and implementation of software.

- Technology Expenses-data processing, data center management, application hosting, applications development and maintenance and related charges resulting from the hosting of our solutions.

31 --------------------------------------------------------------------------------- Other Expenses-includes services purchased, facilities and other costs.

Travelocity Except as described below, Travelocity cost of revenue consists primarily of: - Volume Related Expenses-customer service costs; credit card fees and technology fees; charges related to fraudulent bookings and compensation to customers, i.e., for service related issues.

- Technology Expenses-data processing, data center management, applications development, maintenance and related charges.

- Labor Expenses-salaries and benefits paid to employees supporting the operations of the business.

- Other Expenses-includes services purchased, facilities and other costs.

In connection with the Expedia SMA, Travelocity will no longer incur significant cost of revenues with respect to Travelocity's existing websites in the United States and Canada.

Corporate Corporate cost of revenue includes certain shared technology costs as well as stock-based compensation expense, litigation expenses associated with occupancy or other taxes and other items that are not identifiable with one of our segments.

Depreciation and amortization Cost of revenue includes depreciation and amortization associated with property and equipment; software developed for internal use that supports our revenue, businesses and systems; amortization of contract implementation costs which relates to Airlines and Hospitality Solutions; and intangible assets for technology purchased through acquisitions or established with our take-private transaction.

Amortization of upfront incentive consideration We provide upfront payments or other consideration 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 for employees that sell our services to new customers and administratively support the business, commission payments made to travel agency and distribution partners of Travelocity, advertising and promotional costs primarily for Travelocity, certain settlement costs and costs to defend legal disputes, bad debt expense, depreciation and amortization and other costs. In connection with the Expedia SMA, Travelocity will no longer incur significant non-marketing related expenses; instead, the marketing fee we receive under the Expedia SMA is net of costs incurred by Expedia in connection with these activities. The marketing costs we incur to promote the Travelocity brand are recorded as selling, general and administrative expenses.

32 --------------------------------------------------------------------------------Intersegment Transactions 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 between Travelocity and Travel Network, consisting mainly of accruals for incentive consideration, net of data processing fees incurred, by Travel Network to Travelocity for transactions processed through our GDS, transaction fees paid by Travelocity to Travel Network for transactions facilitated through our GDS in which the travel supplier pays Travelocity directly, and fees paid by Travel Network to Travelocity for corporate trips booked through the Travelocity online booking technology. During the second quarter of 2014, Travel Network charged Travelocity a fee of approximately $7 million for not meeting certain minimum booking level requirements. This fee was recorded as revenue on Travel Network and expensed on Travelocity in our segment results and is eliminated in consolidation. In addition, Airline and Hospitality Solutions pays fees to Travel Network for airline trips booked through our GDS. Due to the elimination of the intersegment revenue between Travelocity and Travel Network with the Expedia SMA, intersegment eliminations have substantially decreased for the three and six months ended June 30, 2014 compared to the prior year. See Note 14, Segment Information, to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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 our key metrics (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 % Change Travel Network Direct Billable Bookings - Air 81,053 80,708 0.4% 170,098 165,954 2.5% Direct Billable Bookings - Non-Air 13,861 13,986 (0.9)% 27,460 27,033 1.6% Total Direct Billable Bookings 94,914 94,694 0.2% 197,558 192,987 2.4% Airline Solutions Passengers Boarded 131,450 124,359 5.7% 249,066 231,884 7.4% 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 Revenue, Adjusted Gross Margin, Adjusted Net Income, Adjusted EBITDA, Adjusted Capital Expenditures, Free Cash Flow, Adjusted Free Cash Flow and ratios based on these financial measures.

We define Adjusted Revenue as revenue adjusted for the amortization of Expedia SMA incentive payments, which are recorded as a reduction to revenue and are being amortized over the non-cancellable term of the Expedia SMA contract (see Note 3, Restructuring Charges, to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

We define Adjusted Gross Margin as operating income (loss) adjusted for selling, general and administrative expenses, impairments, depreciation and amortization, amortization of upfront incentive consideration, restructuring and other costs, litigation and taxes, including penalties, stock-based compensation and amortization of Expedia SMA incentive payments. The definition of Adjusted Gross Margin was revised in the first quarter of 2014 to adjust for restructuring and other costs, litigation and taxes, including penalties and stock-based compensation included in cost of revenue which differs from Adjusted Gross Margin presented in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on April 17, 2014.

We define Adjusted Net Income as income (loss) from continuing operations adjusted for impairment, acquisition related amortization expense, loss on extinguishment of debt, other, net, restructuring and other costs, litigation and taxes, including penalties, stock-based compensation, management fees, amortization of Expedia SMA incentive payments and tax impact of net income adjustments.

We define Adjusted EBITDA as Adjusted Net Income adjusted for depreciation and amortization of property and equipment, amortization of capitalized implementation costs, amortization of upfront incentive consideration, interest expense, and remaining (benefit) provision 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 EBITDA and EBITDA metrics referenced in the section entitled "Compensation Discussion and Analysis" in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on April 17, 2014, which are calculated for the purposes of our annual incentive compensation program and performance-based awards, respectively.

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

We define Free Cash Flow as cash provided by operating activities less cash used in additions to property and equipment. We define Adjusted Free Cash Flow as Free Cash Flow plus the cash flow effect of restructuring and other costs, litigation settlement and tax payments for certain items, other litigation costs, management fees and the working capital impact from the Expedia SMA and the sale of TPN (see "Factors Affecting our Results and Comparability -Travelocity Restructuring").

Adjusted Gross Margin and Adjusted EBITDA 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. Adjusted Capital Expenditures includes 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 believe that Adjusted Revenue, Adjusted Gross Margin, Adjusted Net Income, Adjusted EBITDA, Adjusted Capital Expenditures, Free Cash Flow and Adjusted Free Cash Flow 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. We also believe that Adjusted Gross Margin, 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 Revenue, Adjusted Gross Margin, Adjusted Net Income, Adjusted EBITDA, Adjusted Capital Expenditures, Free Cash Flow, Adjusted 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: - 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 Margin 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 and Adjusted Free Cash Flow do not reflect the cash requirements necessary to service the principal payments on our indebtedness; - Free Cash Flow and Adjusted Free Cash Flow do not reflect payments related to restructuring, litigation, management fees and Travelocity working capital which reduced the cash available to us; - Free Cash Flow and Adjusted Free Cash Flow remove the impact of accrual-basis accounting on asset accounts and non-debt liability accounts; and - other companies, including companies in our industry, may calculate Adjusted Revenue, Adjusted Net Income, Adjusted EBITDA, Free Cash Flow or Adjusted Free Cash Flow differently, which reduces their usefulness as comparative measures.

The following table sets forth the reconciliation of Adjusted Revenue to revenue (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Revenue $ 717,573 $ 768,232 $ 1,472,983 $ 1,527,576 Amortization of Expedia SMA incentive payments 2,875 - 4,750 - Adjusted Revenue $ 720,448 $ 768,232 $ 1,477,733 $ 1,527,576 34 -------------------------------------------------------------------------------- The following table sets forth the reconciliation of net loss attributable to common shareholders to Adjusted Net Income and Adjusted EBITDA (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Net loss attributable to common shareholders $ (13,132 ) $ (125,867 ) $ (25,121 ) $ (150,603 ) Net loss from discontinued operations, net of tax 5,183 12,893 6,281 23,910 Net income attributable to noncontrolling interests(1) 702 837 1,448 1,421 Preferred stock dividends 2,235 9,005 11,381 17,977 Loss from continuing operations (5,012 ) (103,132 ) (6,011 ) (107,295 ) Adjustments: Impairment - 135,598 - 135,598 Acquisition related amortization(2a) 23,961 36,209 59,439 72,160 Loss on extinguishment of debt 30,558 - 33,538 12,181 Other, net (4) (1,082 ) 3,796 (195 ) (1,330 ) Restructuring and other costs (5) 6,867 2,376 9,574 4,542 Litigation and taxes, including penalties(6) 2,904 8,326 8,057 22,966 Stock-based compensation 11,383 36 16,962 2,760 Management fees(7) 21,576 2,499 23,508 5,221 Amortization of Expedia SMA incentive payments 2,875 - 4,750 - Tax impact of net income adjustments (38,649 ) (33,703 ) (60,720 ) (50,842 ) Adjusted Net Income from continuing operations $ 55,381 $ 52,005 $ 88,902 $ 95,961 Adjusted Net Income from continuing operations per share $ 0.22 $ 0.28 $ 0.40 $ 0.52 Weighted-average shares outstanding adjusted for assumed inclusion of common stock equivalents 252,336 184,849 219,969 184,298 Adjusted Net Income from continuing operations $ 55,381 $ 52,005 $ 88,902 $ 95,961 Adjustments: Depreciation and amortization of property and equipment(2b) 41,304 31,404 82,884 64,751 Amortization of capitalized implementation costs(2c) 8,891 7,720 18,027 18,601 Amortization of upfront incentive consideration(3) 11,742 9,752 22,789 19,351 Interest expense, net 53,235 63,669 117,179 146,199 Remaining provision (benefit) for income taxes 33,154 25,561 57,642 37,752 Adjusted EBITDA $ 203,707 $ 190,111 $ 387,423 $ 382,615 As we recorded GAAP net losses for each period presented, all common stock equivalents were excluded from the calculation of GAAP diluted earnings per share as its inclusion would have been antidilutive. The following table sets forth the reconciliation of GAAP basic and diluted weighted-average common shares outstanding to the adjusted weighted-average shares outstanding for the assumed inclusion of common stock equivalents (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 GAAP basic and diluted weighted-average common shares outstanding 243,801 178,060 211,431 178,007 Dilutive effect of stock-options and restricted stock awards 8,535 6,789 8,538 6,291 Weighted-average common shares outstanding adjusted for assumed inclusion of common stock equivalents 252,336 184,849 219,969 184,298 35 -------------------------------------------------------------------------------- The following tables set forth the reconciliation of Adjusted Gross Margin and Adjusted EBITDA by business segment to operating income (loss) in our statement of operations (in thousands): Three Months Ended June 30, 2014 Airline and Travel Hospitality Network Solutions Travelocity Eliminations Corporate Total Operating income (loss) $ 165,597 $ 35,855 $ (12,721 ) $ - $ (120,586 ) $ 68,145 Add back: Selling, general and administrative 24,555 12,924 71,796 (7,348 ) 103,225 205,152 Cost of revenue adjustments: Depreciation and amortization(2) 15,267 26,480 971 - 6,369 49,087 Amortization of upfront incentive consideration(3) 11,742 - - - - 11,742 Restructuring and other costs (5) - - - - 3,726 3,726 Litigation and taxes, including penalties(6) - - - - 333 333 Stock-based compensation - - - - 1,940 1,940 Amortization of Expedia SMA incentive payments - - 2,875 - - 2,875 Adjusted Gross Margin 217,161 75,259 62,921 (7,348 ) (4,993 ) 343,000 Selling, general and administrative (24,555 ) (12,924 ) (71,796 ) 7,348 (103,225 ) (205,152 ) Joint venture equity income 4,059 - - - - 4,059 Joint venture intangible amortization(2a) 801 - - - - 801 Selling, general and administrative adjustments: Depreciation and amortization(2) 505 219 - - 23,544 24,268 Restructuring and other costs (5) - - - - 3,141 3,141 Litigation and taxes, including penalties(6) - - - - 2,571 2,571 Stock-based compensation - - - - 9,443 9,443 Management fees(7) - - - - 21,576 21,576 Adjusted EBITDA $ 197,971 $ 62,554 $ (8,875 ) $ - $ (47,943 ) $ 203,707 Three Months Ended June 30, 2013 Airline and Travel Hospitality Network Solutions Travelocity Eliminations Corporate Total Operating income (loss) $ 162,071 $ 28,518 8,449 $ - $ (246,133 ) $ (47,095 ) Add back: Selling, general and administrative 30,830 16,301 88,335 (178 ) 77,076 212,364 Impairment - - - - 135,598 135,598 Cost of revenue adjustments: Depreciation and amortization(2) 11,752 18,925 565 - 17,270 48,512 Amortization of upfront incentive consideration(3) 9,752 - - - - 9,752 Restructuring and other costs (5) - - - - 1,348 1,348 Litigation and taxes, including penalties(6) - - - - 2,627 2,627 Stock-based compensation - - - - (186 ) (186 ) Adjusted gross margin 214,405 63,744 97,349 (178 ) (12,400 ) 362,920 Selling, general and administrative (30,830 ) (16,301 ) (88,335 ) 178 (77,076 ) (212,364 ) Joint venture equity income 3,286 - - - - 3,286 Joint venture intangible amortization(2a) 801 - - - - 801 Selling, general and administrative adjustments: Depreciation and amortization(2) 575 232 56 - 25,157 26,020 Restructuring and other costs (5) - - - - 1,028 1,028 Litigation and taxes, including penalties(6) - - - - 5,699 5,699 Stock-based compensation - - - - 222 222 Management fees(7) - - - - 2,499 2,499 Adjusted EBITDA $ 188,237 $ 47,675 $ 9,070 $ - $ (54,871 ) $ 190,111 36 -------------------------------------------------------------------------------- Six Months Ended June 30, 2014 Airline and Travel Hospitality Network Solutions Travelocity Eliminations Corporate Total Operating income (loss) $ 350,114 $ 62,317 $ (41,283 ) $ - $ (236,215 ) $ 134,933 Add back: Selling, general and administrative 50,227 25,319 152,181 (7,457 ) 183,759 404,029 Cost of revenue adjustments: Depreciation and amortization(2) 30,679 53,163 2,463 - 23,589 109,894 Amortization of upfront incentive consideration(3) 22,789 - - - - 22,789 Restructuring and other costs (5) - - - - 4,942 4,942 Litigation and taxes, including penalties(6) - - - - 939 939 Stock-based compensation - - - - 3,446 3,446 Amortization of Expedia SMA incentive payments - - 4,750 - - 4,750 Adjusted Gross Margin 453,809 140,799 118,111 (7,457 ) (19,540 ) 685,722 Selling, general and administrative (50,227 ) (25,319 ) (152,181 ) 7,457 (183,759 ) (404,029 ) Joint venture equity income 6,500 - - - - 6,500 Joint venture intangible amortization(2a) 1,602 - - - - 1,602 Selling, general and administrative adjustments: Depreciation and amortization(2) 1,130 535 - - 47,189 48,854 Restructuring and other costs (5) - - - - 4,632 4,632 Litigation and taxes, including penalties(6) - - - - 7,118 7,118 Stock-based compensation - - - - 13,516 13,516 Management fees(7) - - - - 23,508 23,508 Adjusted EBITDA $ 412,814 $ 116,015 $ (34,070 ) $ - $ (107,336 ) $ 387,423 Six Months Ended June 30, 2013 Airline and Travel Hospitality Network Solutions Travelocity Eliminations Corporate Total Operating income (loss) $ 346,970 $ 51,173 $ (7,464 ) $ - $ (360,046 ) $ 30,633 Add back: Selling, general and administrative 55,180 30,631 176,427 (391 ) 150,346 412,193 Impairment - - - - 135,598 135,598 Cost of revenue adjustments: Depreciation and amortization(2) 23,561 36,894 6,222 - 34,343 101,020 Amortization of upfront incentive consideration(3) 19,351 - - - - 19,351 Restructuring and other costs (5) - - - - 1,939 1,939 Litigation and taxes, including penalties(6) - - - - 14,475 14,475 Stock-based compensation - - - - 272 272 Adjusted gross margin 445,062 118,698 175,185 (391 ) (23,073 ) 715,481 Selling, general and administrative (55,180 ) (30,631 ) (176,427 ) 391 (150,346 ) (412,193 ) Joint venture equity income 6,032 - - - - 6,032 Joint venture intangible amortization(2a) 1,602 - - - - 1,602 Selling, general and administrative adjustments: Depreciation and amortization(2) 1,024 478 1,367 50,021 52,890 Restructuring and other costs (5) - - - - 2,603 2,603 Litigation and taxes, including penalties(6) - - - - 8,491 8,491 Stock-based compensation - - - - 2,488 2,488 Management fees(7) - - - - 5,221 5,221 Adjusted EBITDA $ 398,540 $ 88,545 $ 125 $ - $ (104,595 ) $ 382,615 37 -------------------------------------------------------------------------------- The components of Adjusted Capital Expenditures are presented below (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Additions to property and equipment $ 58,944 $ 58,786 $ 110,583 $ 111,487 Capitalized implementation costs 9,944 16,634 17,597 38,663 Adjusted Capital Expenditures $ 68,888 $ 75,420 $ 128,180 $ 150,150 The following tables present information from our statements of cash flows and sets forth the reconciliation of Free Cash Flow and Adjusted Free Cash Flow to cash provided by operating activities, the most directly comparable GAAP measure (in thousands): Six Months Ended June 30, 2014 2013 Cash provided by operating activities $ 77,508 $ 171,056 Cash used in investing activities (110,348 ) (104,962 ) Cash used in financing activities (3,581 ) (50,167 ) Six Months Ended June 30, 2014 2013 Cash provided by operating activities $ 77,508 $ 171,056 Additions to property and equipment (110,583 ) (111,487 ) Free Cash Flow (33,075 ) 59,569 Adjustments: Restructuring and other costs(5) (9) 26,426 4,542 Litigation settlement and tax payments for certain items(6) (10) 11,744 30,215 Other litigation costs(6) (9) 6,934 7,740 Management fees(7) (9) 23,508 5,221 Travelocity working capital as impacted by the Expedia SMA and TPN(8) 95,635 - Adjusted Free Cash Flow $ 131,172 $ 107,287 (1) Net income attributable to non-controlling interests represents an adjustment to include earnings allocated to non-controlling interests held in Sabre Travel Network Middle East of 40% for all periods presented and in Sabre Seyahat Dagitim Sistemleri A.S. of 40% beginning in April 2014 for the three and six months ended June 30, 2014.

(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) 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.

(5) 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.

(6) 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.

(7) We have been paying an annual management fee to TPG Global, LLC ("TPG") and Silver Lake Management Company ("Silver Lake") in an amount between (i) $5 million and (ii) $7 million, the actual amount of which is calculated based upon 1% of Adjusted EBITDA, as defined in the management services agreement (the "MSA"), earned by the company in such fiscal year up to a maximum of $7 million. In addition, the MSA provides for the 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.

(8) Represents the impact of the Expedia SMA and TPN on working capital for the six months ended June 30, 2014, which is primarily attributable to the migration of bookings from our technology platform to Expedia's platform and wind down activities associated with TPN (see "Factors Affecting our Results and Comparability-Travelocity Restructuring").

38 --------------------------------------------------------------------------------(9) The adjustments to reconcile cash provided by operating activities to Adjusted Free Cash Flow reflect the amounts expensed in our statements of operations in the respective periods adjusted for cash and non-cash portions in instances where material.

(10) Includes payment credits used by American Airlines to pay for purchases of our technology services during the six months ended June 30, 2014 and 2013.

The payment credits were provided by us as part of our litigation settlement with American Airlines.

Results of Operations The following table sets forth our consolidated statement of operations data for each of the periods presented: Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (Amounts in thousands) Revenue $ 717,573 $ 768,232 $ 1,472,983 $ 1,527,576 Cost of revenue 444,276 467,365 934,021 949,152 Selling, general and administrative 205,152 212,364 404,029 412,193 Impairment - 135,598 - 135,598 Operating income (loss) 68,145 (47,095 ) 134,933 30,633 Interest expense, net (53,235 ) (63,669 ) (117,179 ) (146,199 ) Loss on extinguishment of debt (30,558 ) - (33,538 ) (12,181 ) Joint venture equity income 4,059 3,286 6,500 6,032 Other, net 1,082 (3,796 ) 195 1,330Loss from continuing operations before income taxes (10,507 ) (111,274 ) (9,089 ) (120,385 ) Benefit for income taxes (5,495 ) (8,142 ) (3,078 ) (13,090 ) Loss from continuing operations $ (5,012 ) $ (103,132 ) $ (6,011 ) $ (107,295 ) Three Months Ended June 30, 2014 and 2013 Revenue Three Months Ended June 30, 2014 2013 Change (Amounts in thousands) Revenue by Segment Travel Network $ 462,337 $ 456,238 $ 6,099 1 % Airline and Hospitality Solutions 186,573 177,841 8,732 5 % Travelocity 83,893 153,936 (70,043 ) (46 )% Eliminations (12,355 ) (19,783 ) 7,428 38 % Total Adjusted Revenue 720,448 768,232 (47,784 ) (6 )% Amortization of Expedia SMA incentive payments (2,875 ) - (2,875 ) ** % Total revenue $ 717,573 $ 768,232 $ (50,659 ) (7 )% ** not meaningful Revenue decreased $51 million, or 7%, for the three months ended June 30, 2014 compared to the same period in the prior year.

Travel Network-Revenue increased $6 million, or 1%, for the three months ended June 30, 2014 compared to the same period in the prior year.

The $6 million increase in revenue primarily resulted from: - a $4 million decrease in transaction-based revenue to $397 million as a result of a 1% decrease in the average booking fee, primarily due to the impact on our average booking fee from the US Airways merger with American Airlines and the unfavorable political and economic environment in Venezuela.

See "Liquidity and Capital Resources-Political and Economic Environment in Venezuela" for a description of the impact of the environment in Venezuela to our business. The decrease in the average booking fee was partially offset by a slight increase of less than 1% of Direct Billable Bookings to 95 million in the three months ended June 30, 2014; 39 -------------------------------------------------------------------------------- - a $3 million increase in other revenue related to media and marketing services and also certain services we provide to our joint ventures; and - a $7 million increase due to an intersegment fee charged by Travel Network to Travelocity for not meeting certain minimum booking levels, which is a customary fee charged to travel agencies that process bookings through our GDS as a result of not meeting contractual minimum booking levels. This fee, which we do not expect to reoccur in subsequent periods, was recorded as revenue on Travel Network and expensed on Travelocity in our segment results and is eliminated in consolidation.

Airline and Hospitality Solutions-Revenue increased $9 million, or 5%, for the three months ended June 30, 2014 compared to the same period in the prior year.

The $9 million increase in revenue primarily resulted from: - a $2 million increase in Airline Solutions' SabreSonic Customer Sales and Service ("SabreSonic CSS") revenue for the three months ended June 30, 2014 compared to the same period in the prior year. The increase in revenue was due to an increase of 7 million, or 6%, in processed reservations for PBs to 131 million for the three months ended June 30, 2014 which was driven by growth from existing customers. The increase was partially offset by a decrease in revenue from professional services provided to SabreSonic CSS customers; - a $3 million increase in Airline Solutions' commercial and operations solutions revenue primarily the result of higher revenue from professional services; and - a $4 million increase in Hospitality Solutions revenue for the three months ended June 30, 2014 compared to the same period in the prior year driven by an increase in Central Reservation System ("CRS") transactions.

Travelocity-Revenue decreased $70 million, or 46%, for the three months ended June 30, 2014 compared to the same period in the prior year. The decrease in revenue was primarily due to a $36 million decrease as a result of the restructuring of our Travelocity business in the U.S. and Canada where we shifted from the merchant revenue model to the marketing fee revenue model in connection with the Expedia SMA. In addition, revenue decreased $34 million due to the sale of both Travelocity's TPN business in February 2014 and TBiz in June 2013.

Eliminations-Intersegment eliminations decreased $7 million, or 38%, for the three months ended June 30, 2014 compared to the prior year due to a reduction in the amount of incentive consideration payable to Travelocity from Travel Network as a result of the transition of Travelocity-branded websites to Expedia's platform under the Expedia SMA. Air travel booked through our Travelocity-branded websites powered by Expedia is contractually required to be processed by Travel Network through the beginning of 2019. The reduction in incentive consideration payable was partially offset by the $7 million fee Travel Network charged to Travelocity discussed above.

Cost of revenue Three Months Ended June 30, 2014 2013 Change (Amounts in thousands) Cost of revenue Travel Network $ 245,176 $ 241,790 $ 3,386 1 % Airline and Hospitality Solutions 111,315 114,096 (2,781 ) (2 )% Travelocity 20,971 56,587 (35,616 ) (63 )% Eliminations (5,007 ) (19,606 ) 14,599 74 % Total segment cost of revenue 372,455 392,867 (20,412 ) (5 )% Corporate 10,992 16,235 (5,243 ) (32 )% Depreciation and amortization 49,087 48,511 576 1 % Amortization of upfront incentive consideration 11,742 9,752 1,990 20 % Total cost of revenue $ 444,276 $ 467,365 $ (23,089 ) (5 )% Cost of revenue decreased by $23 million, or 5%, for the three months ended June 30, 2014 compared to the same period in the prior year.

Travel Network-Cost of revenue increased $3 million, or 1%, for the three months ended June 30, 2014 compared to the same period in the prior year. The increase primarily resulted from a $7 million increase in incentive consideration, partially offset by a decrease in technology-related and other expenses.

40 -------------------------------------------------------------------------------- Airline and Hospitality Solutions-Cost of revenue decreased $3 million, or 2%, for the three months ended June 30, 2014 compared to the same period in the prior year. The decrease is the result of a $6 million decrease in labor costs, partially offset by a $3 million increase in other costs primarily associated with technology and transaction-related expenses driven by higher transaction volumes.

Travelocity-Cost of revenue decreased $36 million, or 63%, for the three months ended June 30, 2014 compared to the same period in the prior year primarily due to the impact of the Expedia SMA and the sale of our TPN and TBiz businesses.

The decrease in cost of revenue is primarily driven by reduced labor and call center costs, lower transaction-related expenses including credit card fees and lower data processing costs.

Eliminations-Intersegment eliminations decreased $15 million, or 74%, for the three months ended June 30, 2014 compared to the prior year due to a reduction in the amount of incentive consideration payable to Travelocity from Travel Network as a result of the transition of Travelocity-branded websites to Expedia's platform under the Expedia SMA. Air travel booked through our Travelocity-branded websites powered by Expedia is contractually required to be processed by Travel Network through the beginning of 2019.

Corporate-Cost of revenue associated with corporate unallocated costs decreased $5 million, or 32%, for the three months ended June 30, 2014 compared to the same period in the prior year. The decrease is primarily due to a $5 million decrease in unallocated labor costs.

Depreciation and amortization-Depreciation and amortization increased $1 million, or 1%, for the three months ended June 30, 2014 compared to the same period in the prior year. The increase is primarily due to the completion and amortization of software developed for internal use, partially offset by a decrease in amortization of intangible assets.

Amortization of upfront incentive consideration-Amortization of upfront incentive consideration increased $2 million, or 20%, for the three months ended June 30, 2014 compared to the same period in the prior year. The increase is primarily due to an increase in upfront consideration provided to travel agencies in the three months ended June 30, 2014 compared to the prior year.

Selling, general and administrative expenses Three Months Ended June 30, 2014 2013 Change (Amounts in thousands) Personnel $ 65,320 $ 71,412 $ (6,092 ) (9 )% Advertising and promotion 48,511 41,743 6,768 16 % Commission payments to affiliates 5,292 20,344 (15,052 ) (74 )% Bad debt 1,994 5,153 (3,159 ) (61 )% Management fees 21,576 2,499 19,077 763 % Other 45,431 45,193 238 1 % Depreciation and amortization 24,268 26,020 (1,752 ) (7 )% Eliminations (7,240 ) - (7,240 ) ** % Total selling, general and administrative $ 205,152 $ 212,364 $ (7,212 ) (3 )% ** not meaningful Selling, general and administrative expenses decreased by $7 million, or 3%, for the three months ended June 30, 2014 compared to the same period in the prior year. The decrease was primarily due to a decrease of $15 million in commission payments to affiliates mainly as a result of the sale of our TPN business in February 2014, a decrease of $6 million of other expenses associated with litigation and hotel occupancy and excise tax disputes, a decrease of $6 million in personnel costs primarily in Travelocity due to our restructuring activities and a $3 million decrease in bad debt expenses. These decreases were partially offset by a $19 million increase in management fees paid to TPG and Silver Lake related to our initial public offering, a $7 million increase in advertising and promotion primarily in our Travelocity business in the U.S. and Canada in conjunction with the Expedia SMA and a $7 million increase in other expenses due to the intersegment fee Travel Network charged to Travelocity discussed above, which is eliminated in consolidation.

41 -------------------------------------------------------------------------------- Impairment Three Months Ended June 30, 2014 2013 Change (Amounts in thousands) Impairment $ - $ 135,598 $ (135,598 ) ** % ** not meaningful In connection with the disposals of TBiz and Holiday Autos in the second quarter of 2013, we initiated an impairment analysis of goodwill in the Travelocity segment which resulted in impairment charges of $96 million associated with Travelocity-North America and $40 million associated with Travelocity-Europe. As a result of the impairment charges, the Travelocity segment had no remaining goodwill.

Interest expense, net Three Months Ended June 30, 2014 2013 Change (Amounts in thousands) Interest expense, net $ 53,235 $ 63,669 $ (10,434 ) (16 )% Interest expense, net, decreased $10 million, or 16%, for the three months ended June 30, 2014 compared to the same period in the prior year. The decrease is primarily the result of the prepayments on our 2019 Notes and Term Loan C and a lower effective interest rate as a result of the Repricing Amendments completed in February 2014.

Loss on extinguishment of debt Three Months Ended June 30, 2014 2013 Change (Amounts in thousands) Loss on extinguishment of debt $ 30,558 $ - $ 30,558 ** % ** not meaningful We recognized a loss on extinguishment of debt of $31 million for the three months ended June 30, 2014 as a result of prepayments on our Term Loan C and 2019 Notes, which included a $27 million prepayment fee on the 2019 Notes.

Joint venture equity income Three Months Ended June 30, 2014 2013 Change (Amounts in thousands) Joint venture equity income $ 4,059 $ 3,286 $773 24 % Joint venture equity income increased by $1 million for the three months ended June 30, 2014 compared to the same period in the prior year.

42 -------------------------------------------------------------------------------- Other (income) expenses, net Three Months Ended June 30, 2014 2013 Change (Amounts in thousands) Other (income) expenses, net $ (1,082 ) $ 3,796 $ (4,878 ) ** % ** not meaningful Other (income) expenses, net, increased $5 million for the three months ended June 30, 2014 compared to the prior year. The increase was driven primarily by realized and unrealized foreign currency exchange gains.

Benefit for income taxes Three Months Ended June 30, 2014 2013 Change (Amounts in thousands) Benefit for income taxes $ 5,495 $ 8,142 $ (2,647 ) ** % ** not meaningful Our effective tax rates for the three months ended June 30, 2014 and 2013 were 52% and 7%, respectively. The increase in the effective tax rate is primarily due to the impairment of nondeductible goodwill in the prior year, the amount of current year losses for which no tax benefit can be recognized relative to the amount of pre-tax income, the reduction of a portion of our valuation allowances in the current year and the impact of other discrete items.

The differences between our effective tax rates and the U.S. federal statutory income tax rate primarily result from our geographic mix of taxable income in various tax jurisdictions as well as the discrete tax items referenced above.

Six Months Ended June 30, 2014 and 2013 Revenue Six Months Ended June 30, 2014 2013 Change (Amounts in thousands) Revenue by Segment Travel Network $ 954,064 $ 931,544 $ 22,520 2 % Airline and Hospitality Solutions 363,290 340,288 23,002 7 % Travelocity 179,994 296,707 (116,713 ) (39 )% Eliminations (19,615 ) (40,963 ) 21,348 52 % Total Adjusted Revenue 1,477,733 1,527,576 (49,843 ) (3 )% Amortization of Expedia SMA incentive payments (4,750 ) - (4,750 ) ** % Total revenue $ 1,472,983 $ 1,527,576 $ (54,593 ) (4 )% ** not meaningful Revenue decreased $55 million, or 4%, for the six months ended June 30, 2014 compared to the same period in the prior year.

Travel Network-Revenue increased $23 million, or 2%, for the six months ended June 30, 2014 compared to the same period in the prior year.

The $23 million increase in revenue primarily resulted from: - a $10 million increase in transaction-based revenue to $836 million as a result of a 5 million increase in Direct Billable Bookings, or 2%, to 198 million for the six months ended June 30, 2014. This increase was offset by a 1% decrease in the average booking fee primarily due to the resolution of a billing dispute with US Airways, the impact on our average booking fee from US Airways merger with American Airlines and the unfavorable political and economic environment in Venezuela. See "Liquidity and Capital Resources-Political and Economic Environment in Venezuela" for a description of the impact of the environment in Venezuela to our business; 43 -------------------------------------------------------------------------------- - a $5 million increase in other revenue related to media and marketing services and also certain services we provide to our joint ventures; and - a $7 million increase due to an intersegment fee charged by Travel Network to Travelocity for not meeting certain minimum booking levels, which is a customary fee charged to travel agencies that process bookings through our GDS as a result of not meeting contractual minimum booking levels. This fee, which we do not expect to reoccur in subsequent periods, was recorded as revenue on Travel Network and expensed on Travelocity in our segment results and is eliminated in consolidation.

Airline and Hospitality Solutions-Revenue increased $23 million, or 7%, for the six months ended June 30, 2014 compared to the same period in the prior year.

The $23 million increase in revenue primarily resulted from: - a $7 million increase in Airline Solutions' SabreSonic CSS revenue for the six months ended June 30, 2014 compared to the same period in the prior year.

The increase in revenue was due to an increase of 17 million, or 7%, in processed reservations for PBs to 249 million for the six months ended June 30, 2014 which was driven by growth from existing customers. The increase was partially offset by a decrease in revenue from professional services; - a $9 million increase in Airline Solutions' commercial and operations solutions revenue primarily the result of higher revenue from professional services combined with growth in operations solutions; and - a $7 million increase in Hospitality Solutions revenue for the six months ended June 30, 2014 compared to the same period in the prior year driven by an increase in CRS transactions.

Travelocity-Revenue decreased $117 million, or 39%, for the six months ended June 30, 2014 compared to the same period in the prior year. The decrease in revenue was primarily due to a $65 million decrease as a result of the restructuring of our Travelocity business discussed above, as well as a decrease of $51 million due to the sale of both Travelocity's TPN business in February of 2014 and TBiz in June of 2013.

Eliminations-Intersegment eliminations decreased $21 million, or 52%, for the six months ended June 30, 2014 compared to the prior year due to a reduction in the amount of incentive consideration payable to Travelocity from Travel Network as a result of the transition of Travelocity-branded websites to Expedia's platform under the Expedia SMA. Air travel booked through our Travelocity-branded websites powered by Expedia is contractually required to be processed by Travel Network through the beginning of 2019. The reduction in incentive consideration payable was partially offset by the $7 million fee Travel Network charged to Travelocity discussed above.

Cost of revenue Six Months Ended June 30, 2014 2013 Change (Amounts in thousands) Cost of revenue Travel Network $ 500,254 $ 486,440 $ 13,814 3 % Airline and Hospitality Solutions 222,492 221,587 905 0 % Travelocity 61,556 121,522 (59,966 ) (49 )% Eliminations (12,248 ) (40,572 ) 28,324 70 % Total segment cost of revenue 772,054 788,977 (16,923 ) (2 )% Corporate 29,284 39,804 (10,520 ) (26 )% Depreciation and amortization 109,894 101,020 8,874 9 % Amortization of upfront incentive consideration 22,789 19,351 3,438 18 % Total cost of revenue $ 934,021 $ 949,152 $ (15,131 ) (2 )% Cost of revenue decreased by $15 million, or 2%, for the six months ended June 30, 2014 compared to the same period in the prior year.

Travel Network-Cost of revenue increased $14 million, or 3%, for the six months ended June 30, 2014 compared to the same period in the prior year. The increase primarily resulted from an $18 million increase in incentive consideration, partially offset by a decrease in labor and other costs.

44 -------------------------------------------------------------------------------- Airline and Hospitality Solutions-Cost of revenue increased $1 million, or less than 1%, for the six months ended June 30, 2014 compared to the same period in the prior year. The increase is the result of $7 million in higher costs primarily associated with technology and transaction-related expenses driven by increased transaction volumes, partially offset by a decrease in labor costs.

Travelocity-Cost of revenue decreased $60 million, or 49%, for the six months ended June 30, 2014 compared to the same period in the prior year primarily due to the impact of the Expedia SMA and the sale of our TPN and TBiz businesses.

The decrease in cost of revenue is primarily driven by reduced labor and call center costs, lower transaction-related expenses including credit card fees and lower data processing costs.

Eliminations-Intersegment eliminations decreased $28 million, or 70%, for the six months ended June 30, 2014 compared to the prior year due to a reduction in the amount of incentive consideration payable to Travelocity from Travel Network as a result of the transition of Travelocity-branded websites to Expedia's platform under the Expedia SMA. Air travel booked through our Travelocity-branded websites powered by Expedia is contractually required to be processed by Travel Network through the beginning of 2019.

Corporate-Cost of revenue associated with corporate unallocated costs decreased $11 million, or 26%, for the six months ended June 30, 2014 compared to the same period in the prior year. The decrease is primarily due to a $13 million decrease in expenses associated with the general excise tax litigation with the State of Hawaii.

Depreciation and amortization-Depreciation and amortization increased $9 million, or 9%, for the six months ended June 30, 2014 compared to the same period in the prior year. The increase is primarily due to the completion and amortization of software developed for internal use, partially offset by a decrease in amortization of intangible assets.

Amortization of upfront incentive consideration-Amortization of upfront incentive consideration increased $3 million, or 18%, for the six months ended June 30, 2014 compared to the same period in the prior year. The increase is primarily due to an increase in upfront consideration provided to travel agencies in the six months ended June 30, 2014 compared to the prior year.

Selling, general and administrative expenses Six Months Ended June 30, 2014 2013 Change (Amounts in thousands) Personnel $ 129,513 $ 142,075 $ (12,562 ) (9 )% Advertising and promotion 98,961 86,831 12,130 14 % Commission payments to affiliates 17,291 36,479 (19,188 ) (53 )% Bad debt 3,644 7,255 (3,611 ) (50 )% Management fees 23,508 5,221 18,287 350 % Other 89,498 81,442 8,056 10 % Depreciation and amortization 48,854 52,890 (4,036 ) (8 )% Eliminations (7,240 ) - (7,240 ) ** % Total selling, general and administrative $ 404,029 $ 412,193 $ (8,164 ) (2 )% ** not meaningful Selling, general and administrative expenses decreased by $8 million, or 2%, for the six months ended June 30, 2014 compared to the same period in the prior year. The decrease is primarily due to a decrease of $19 million in commission payments to affiliates mainly as a result of the sale of our TPN business in February 2014, a decrease of $13 million in personnel costs primarily in Travelocity due to our restructuring activities, a $4 million decrease in depreciation and amortization and a $4 million decrease in bad debt expense.

These decreases were partially offset by an $18 million increase in management fees paid to TPG and Silver Lake related to our initial public offering, a $12 million increase in advertising and promotion primarily in our Travelocity business in the U.S. and Canada in conjunction with the Expedia SMA and a $7 million increase in other expenses due to the intersegment fee Travel Network charged to Travelocity discussed above, which is eliminated in consolidation.

45 -------------------------------------------------------------------------------- Impairment Six Months Ended June 30, 2014 2013 Change (Amounts in thousands) Impairment $ - $ 135,598 $ (135,598 ) ** % ** not meaningful In connection with the disposals of TBiz and Holiday Autos in the second quarter of 2013, we initiated an impairment analysis of goodwill in the Travelocity segment which resulted in impairment charges of $96 million associated with Travelocity-North America and $40 million associated with Travelocity-Europe. As a result of the impairment charges, the Travelocity segment had no remaining goodwill.

Interest expense, net Six Months Ended June 30, 2014 2013 Change (Amounts in thousands) Interest expense, net $ 117,179 $ 146,199 $ (29,020 ) (20 )% Interest expense, net, decreased $29 million, or 20%, for the six months ended June 30, 2014 compared to the same period in the prior year. The decrease is primarily due to the prepayments on our 2019 Notes and Term Loan C and a lower effective interest rate as a result of our repricing amendments completed in February 2014. In addition, interest expense decreased by $11 million due to lower modification expenses and $4 million as a result of lower imputed interest expense related to payments made in the fourth quarter of 2013 for our litigation settlement payable to American Airlines.

Loss on extinguishment of debt Six Months Ended June 30, 2014 2013 Change (Amounts in thousands) Loss on extinguishment of debt $ 33,538 $ 12,181 $ 21,357 ** % ** not meaningful During the six months ended June 30, 2014, we recognized losses on extinguishment of debt of $31 million in connection with the prepayments on our 2019 Notes and Term Loan C and $3 million related to the repricing of our Term Loan B completed in February 2014. During the six months ended June 30, 2013, we recognized a loss on extinguishment of debt of $12 million as a result of our Amended and Restated Credit Agreement (see "Liquidity and Capital Resources-Senior Secured Credit Facilities").

Joint venture equity income Six Months Ended June 30, 2014 2013 Change (Amounts in thousands) Joint venture equity income $ 6,500 $ 6,032 $ 468 8 % Joint venture equity income increased by less than $1 million for the six months ended June 30, 2014 compared to the same period in the prior year.

46 -------------------------------------------------------------------------------- Other income, net Six Months Ended June 30, 2014 2013 Change (Amounts in thousands) Other income, net $ 195 $ 1,330 $ (1,135 ) ** % ** not meaningful Other income, net, decreased $1 million for the six months ended June 30, 2014 compared to the prior year. The decrease was driven primarily by unrealized foreign currency exchange losses.

Benefit for income taxes Six Months Ended June 30, 2014 2013 Change (Amounts in thousands) Benefit for income taxes $ 3,078 $ 13,090 $ (10,012 ) ** % ** not meaningful Our effective tax rates for the six months ended June 30, 2014 and 2013 were 34% and 11%, respectively. The increase in the effective tax rate for the six months ended June 30, 2014 as compared to the same period in 2013 was primarily due to the impairment of nondeductible goodwill in the prior year, the amount of current year losses for which no tax benefit can be recognized relative to the amount of pre-tax income, the reduction of a portion of our valuation allowances in the current year and the impact of other discrete items.

The differences between our effective tax rates and the U.S. federal statutory income tax rate primarily result from our geographic mix of taxable income in various tax jurisdictions as well as the discrete tax items referenced above.

Liquidity and Capital Resources On April 23, 2014, we closed our initial public offering of our common stock in which we sold 39,200,000 shares, and on April 25, 2014, the underwriters exercised in full their overallotment option which resulted in the sale of an additional 5,880,000 shares of our common stock. Our shares of common stock were sold at an initial public offering price of $16.00 per share, which generated $673 million of net proceeds from the offering after deducting underwriting discounts and commissions and offering expenses.

We used the net proceeds from this offering to repay (i) $296 million aggregate principal amount of our Term Loan C (see "-Senior Secured Credit Facilities") and (ii) $320 million aggregate principal amount of our senior secured notes due 2019 at a redemption price of 108.5% of the principal amount. We also used the net proceeds from our offering to pay the $27 million redemption premium and $13 million in accrued but unpaid interest on the 2019 Notes. We used the remaining portion of the net proceeds from our offering to pay a $21 million fee, in the aggregate, to TPG and Silver Lake pursuant to a management services agreement, which was thereafter terminated.

Our principal sources of liquidity are: (i) cash flows from operations, (ii) cash and cash equivalents and (iii) borrowings under our $405 million Revolver (see "-Senior Secured Credit Facilities"). Borrowing availability under our Revolver is reduced by our outstanding letters of credit and restricted cash collateral. As of June 30, 2014 and December 31, 2013, our cash and cash equivalents, Revolver, and outstanding letters of credit were as follows (in thousands): June 30, 2014 December 31, 2013 Cash and cash equivalents $ 252,380 $ 308,236 Revolver outstanding balance - - Available balance under the Revolver 340,589 285,671 Outstanding letters of credit (64,574 ) (67,949 ) We consider cash equivalents to be highly liquid investments that are readily convertible into cash. Securities with contractual maturities of three months or less, when purchased, are considered cash equivalents. We record changes in a book overdraft position, in which our bank account is not overdrawn but recently issued and outstanding checks result in a negative general ledger balance, as cash flows from financing activities.

47 --------------------------------------------------------------------------------We invest in a money market fund which is classified as cash and cash equivalents in our consolidated balance sheets and statements of cash flows.

We held no short-term investments as of June 30, 2014 and December 31, 2013.

Utilization We utilize cash and cash equivalents primarily to pay our operating expenses, make capital expenditures, invest in our products and offerings, and service our debt and other long-term liabilities. We will pay a cash dividend on our common stock in the third quarter of 2014 (see "-Dividends"). For the year ended December 31, 2013, we used a portion of our cash and cash equivalents to make a $100 million litigation settlement payment to American Airlines in the fourth quarter of 2013. In the third quarter of 2014, we made a $50 million payment to American Airlines in conjunction with the new Airline Solutions contract, which will be amortized against revenue over the contract term. This payment reduces non-cash payment credits originally offered to American Airlines as a part of the litigation settlement in 2012, contingent upon the signature of a new reservation agreement, which were extended to include the combined American Airlines and US Airways reservation contract. The non-cash payment credits would have been utilized for future billings under the new agreement. For the six months ended June 30, 2014, we have used $96 million of our cash and cash equivalents to wind down working capital in Travelocity impacted by the Expedia SMA and the sale of TPN as described under "Factors Affecting our Results and Comparability-Travelocity Restructuring." In addition, in August 2014, we paid $30 million of contingent consideration related to the acquisition of PRISM.

Ability to Generate Cash in the Future Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations. Our ability to make payments on and to refinance our indebtedness, and to fund working capital needs, planned capital expenditures and dividends will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.

Senior Secured Credit Facilities On February 19, 2013, Sabre GLBL Inc. entered into an agreement that amended and restated its senior secured credit facilities (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 "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 (the "Revolver"). Term Loan B matures on February 19, 2019 and amortizes in equal quarterly installments of 0.25%. Term Loan C matures on December 31, 2017. As a result of the April 2014 prepayment, quarterly principal payments on Term Loan C are no longer required. We are obligated to pay $17 million on September 30, 2017 and the remaining balance on December 31, 2017. A portion of the Revolver matures on February 19, 2018. On September 30, 2013, Sabre GLBL Inc. entered into an agreement to amend its amended and restated credit agreement to add a new class of term loans in the amount of $350 million (the "Incremental Term Loan Facility"). Sabre GLBL Inc.

has used a portion, and intends to use the remainder, of the proceeds of the Incremental Term Loan Facility for working capital and one-time costs associated with the Expedia SMA and sale of TPN, including the payment of travel suppliers for travel consumed that originated on our technology platforms and for general corporate purposes. The Incremental Term Loan Facility matures on February 19, 2019 and amortizes in equal quarterly installments of 0.25% commencing with the last business day of December 2013. We are scheduled to make $21 million in principal payments on our senior secured credit facilities over the next twelve months. On February 20, 2014, we entered into a series of amendments to our Amended and Restated Credit Agreement ("Repricing Amendments") to, among other things, (i) reduce the interest rate margin applicable to the Term Loan B to (x) between 3.00% to 3.25% per annum for Eurocurrency rate loans and (y) between 2.00% to 2.25% per annum for base rate loans and (ii) reduce the Eurocurrency rate floor to 1.00% and the base rate floor to 2.00%. In addition, the Repricing Amendments extended the maturity date of $317 million of the Revolver to February 19, 2019 and (ii) provided for a revolving commitment increase of $53 million under the extended portion of the Revolver, increasing total commitments under the Revolver to $405 million. The extended portion of the Revolver includes an accelerated maturity of November 19, 2018 if on November 19, 2018, the Term Loan B (or permitted refinancings thereof) remains outstanding with a maturity date occurring less than one year after the maturity date of the extended portion of the Revolver.

In April 2014, we made partial prepayments totaling $296 million of our outstanding indebtedness under the Term Loan C portion of our senior secured credit facilities using proceeds from our initial public offering.

Under the Amended and Restated Credit Agreement, the loan parties are subject to certain customary non-financial covenants, including certain restrictions on incurring certain types of indebtedness, creation of liens on certain assets, making of certain investments, and payment of dividends, as well as a maximum senior secured leverage ratio, which applies if our revolver utilization exceeds certain thresholds. This ratio is calculated as senior secured debt (net of cash) to EBITDA, as defined by the credit agreement.

48 -------------------------------------------------------------------------------- This ratio was 5.5 to 1.0 for 2013 and is 5.0 to 1.0 for 2014. The definition of EBITDA is based on a trailing twelve months EBITDA adjusted for certain items including non-recurring expenses and the pro forma impact of cost saving initiatives.

We are also required to pay down the term loans by an amount equal to 50% of annual excess cash flow, as defined in the Amended and Restated Credit Agreement. No excess cash flow payment is required in 2014 with respect to our results for the year ended December 31, 2013. This percentage requirement may decrease or be eliminated if certain leverage ratios are achieved. We are further required to pay down the term loan with proceeds from certain asset sales or borrowings as defined in the Amended and Restated Credit Agreement.

Liquidity Outlook We believe that cash flows from operations, cash and cash equivalents on hand and the Revolver provide adequate liquidity for our operational and capital expenditures and other obligations over the next twelve months. From a long-term perspective, we may need to supplement our current liquidity through debt or equity offerings to support future strategic investments or to pay down our $400 million of senior unsecured notes due in 2016, if we decide not to refinance this indebtedness.

Contingent Consideration on PRISM Acquisition On August 1, 2012, we acquired PRISM for a purchase price of approximately $116 million. Included in the purchase price are future payments totaling $60 million, due 12 and 24 months following the acquisition date. The first installment of $30 million was paid in August 2013 and the second installment of $30 million was paid in August 2014.

Dividends We will pay a cash dividend on our common stock in the third quarter of 2014 and expect to pay quarterly cash dividends thereafter. Our board of directors has declared an initial cash dividend of $0.09 per share of our common stock, payable on September 16, 2014, to shareholders of record as of September 1, 2014. We intend to fund this dividend, as well as any future dividends, from cash generated from our operations. Future cash dividends, if any, will be at the discretion of our board of directors and the amount of cash dividends per share will depend upon, among other things, our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, number of shares of common stock outstanding and other factors the board of directors may deem relevant. The timing and amount of future dividend payments will be at the discretion of our board of directors.

Redemption of Preferred Stock Prior to the closing of our initial public offering, we amended our Certificate of Incorporation and exercised our right to redeem all of our Series A Cumulative Preferred Stock. The amendment to our Certificate of Incorporation modified the redemption feature of the Series A Cumulative Preferred Stock to allow for settlement using cash, shares of our common stock or a mix of cash and shares of our common stock. On April 23, 2014, we redeemed all of our outstanding shares of Series A Cumulative Preferred Stock in exchange for 40,343,529 shares of our common stock, which was delivered pro rata to the holders thereof concurrently with the closing of our initial public offering.

Tax Receivable Agreement Immediately prior to the closing of our initial public offering, we entered into an income tax receivable agreement ("TRA"). 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, (i) we expect that future payments under the TRA could aggregate to between $330 million and $380 million over the next six years (assuming no changes to current limitations on our ability to utilize our NOLs under Section 382 of the Internal Revenue Code), which we estimate will represent approximately 85% to 95% of the total payments we will be required to make under the TRA and (ii) we do not expect material payments to occur before 2017. Payments to the recipients under the TRA are not conditioned upon the recipient continuing to be an equity holder in the Company.

Political and Economic Environment in Venezuela Venezuela has imposed currency controls, including volume restrictions on the conversion of bolivars to U.S. dollars, which impact the ability of certain of our airline customers operating in the country to obtain U.S. dollars to make timely payments to us. Consequently, the collection of accounts receivable due to us can be, and has been, delayed. Due to the nature of this delay, we have recorded specific reserves against all outstanding balances due to us and are deferring the recognition of any future revenues effective January 1, 2014 until cash is collected in accordance with our policies. Accordingly, our accounts receivable are subject to a general collection risk, as there can be no assurance that we will be paid from such customers in a timely manner, if at all. We collected approximately $3 million and $6 million of accounts receivable due to us during the three and six months ended June 30, 2014, 49 -------------------------------------------------------------------------------- respectively, and have $10 million of accounts receivable outstanding as of June 30, 2014, which will be recognized as revenue when cash is received. We collected an additional $6 million of accounts receivable due to us during July 2014. In January 2014, Venezuela announced a dual-foreign exchange rate system, which has effectively devalued the local currency and subjected airlines to an exchange rate for U.S. dollars available at auctions that has been significantly higher than the official exchange rate. In conjunction with the political and economic uncertainty in Venezuela, demand for travel by local consumers has declined. Certain airlines have scaled back operations in response to the reduced demand as well as the currency controls which has impacted our airline customers in Venezuela. As a result, we expect our revenues derived from our Venezuelan operations in 2014 to be reduced as compared to our revenues for 2013. During the year ended December 31, 2013, we derived 1% of our total revenue from our airline customers operating in Venezuela.

Financing Arrangements Our financing arrangements include our senior secured credit facilities, senior secured notes due 2019, senior unsecured notes due 2016 and a mortgage facility.

As of June 30, 2014 and December 31, 2013, our outstanding debt included in our consolidated balance sheets totaled $3,092 million and $3,730 million, respectively, net of unamortized discounts of $16 million and $20 million, respectively. The following table sets forth the face values of our outstanding debt as of June 30, 2014 and December 31, 2013 (in thousands): December 31, Rate Maturity June 30, 2014 2013 Senior secured credit facilities: Term Loan B L + 3.25% February 2019 $ 1,748,375 $ 1,757,250 Incremental term loan facility L + 3.50% February 2019 347,375 349,125 Term Loan C L + 3.00% December 2017 49,313 361,250 Revolver, $370 million L + 3.00% February 2019 - - Revolver, $35 million L + 3.75% February 2018 - - Senior unsecured notes due 2016 8.35% March 2016 400,000 400,000 Senior secured notes due 2019 8.50% May 2019 480,000 800,000 Mortgage facility 5.80% March 2017 82,729 83,286 Face value of total debt outstanding 3,107,792 3,750,911 Less current portion of debt outstanding (22,401 ) (86,117 ) Face value of long-term debt outstanding $ 3,085,391 $ 3,664,794 * "L" refers to LIBOR.

Future Minimum Contractual Obligations On February 20, 2014, we entered into the Repricing Amendments, one of which reduced the Term Loan B's applicable margin for Eurocurrency and Base rate borrowings to 3.25% and 2.25%, respectively, with a step down to 3.00% and 2.00%, respectively, if the Senior Secured Leverage Ratio is less than or equal to 3.25 to 1.00. It also reduced the Eurocurrency rate floor to 1.00% and the Base rate floor to 2.00%. As of June 30, 2014, future minimum payments required under our senior secured credit facilities, senior unsecured notes due 2016 and senior secured notes due 2019 were as follows (in thousands): Total Debt Payments (1) Six months ending December 31, 2014 $ 98,654 2015 187,826 2016 578,604 2017 225,890 2018 182,792 Thereafter 2,516,816 Total $ 3,790,582 (1) Excludes all interest and principal related to our mortgage facility.

Includes all interest and principal related to the senior unsecured notes due 2016 and the senior secured notes due 2019. Also includes all interest and principal related to borrowings under the senior secured credit facility, the Term Loan C portion of which will mature in 2018, the Term Loan B portion of which will mature in 2019 and the Incremental Term Loan Facility portion of which will mature in 2019. Under certain circumstances, we may be required to pay a percentage of the excess cash flow, if any, generated each year to our lenders which obligation is not reflected in the table above. Interest on the term loan is based on LIBOR plus an applicable margin and includes the effect of interest rate swaps.

For purposes of this table, we have used projected LIBOR rates for all future periods. See Note 7, Debt, to our consolidated financial statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q.

50 -------------------------------------------------------------------------------- Immediately prior to the closing of our initial public offering, we entered into an income tax receivable agreement ("TRA"). 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, (i) we expect that future payments under the TRA could aggregate to between $330 million and $380 million over the next six years (assuming no changes to current limitations on our ability to utilize our NOLs under Section 382 of the Code), which we estimate will represent approximately 85% to 95% of the total payments we will be required to make under the TRA and (ii) we do not expect material payments to occur before 2017. Payments to the recipients under the TRA are not conditioned upon the recipient continuing to be an equity holder in the Company.

As of June 30, 2014, purchase orders for the next twelve months totaled $187 million and were not material in the years thereafter. There were no other material changes to our future minimum contractual obligations as of December 31, 2013 as previously disclosed in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on April 17, 2014.

Cash Flows Six Months Ended June 30, 2014 2013 (Amounts in thousands) Cash provided by operating activities $ 77,508 $ 171,056 Cash used in investing activities (110,348 ) (104,962 ) Cash used in financing activities (3,581 ) (50,167 ) Cash (used in) provided by discontinued operations (20,600 ) 44,797 Effect of exchange rate changes on cash and cash equivalents 1,165 (1,407 ) (Decrease) increase in cash and cash equivalents $ (55,856 ) $ 59,317 Operating Activities Cash provided by operating activities for the six months ended June 30, 2014 was $78 million and consisted of net loss of $12 million, adjustments for non-cash and other items of $233 million and a decrease in cash from changes in operating assets and liabilities of $143 million. The adjustments for non-cash and other items consist primarily of $159 million of depreciation and amortization, $34 million loss on extinguishment of debt, $23 million in amortization of upfront incentive consideration and $17 million stock-based compensation expense, partially offset by $18 million of deferred income taxes and $7 million of joint venture equity income. The decrease in cash from changes in operating assets and liabilities of $143 million was primarily the result of a $45 million decrease in accrued compensation and related benefits, a $36 million increase in accounts receivable due to seasonality, $26 million used for upfront incentive consideration, $18 million used for capitalized implementation costs, a $13 million increase in other assets due to increases in deferred customer discounts and a $5 million decrease in accounts payable and other accrued liabilities. The decrease in accounts payable and other accrued liabilities was due to the payment of travel supplier liabilities for Travelocity North America of $94 million which was partially offset by an increase in travel supplier liabilities for Travelocity Europe.

Cash provided by operating activities for the six months ended June 30, 2013 was $171 million and consisted of net loss of $131 million, adjustments for non-cash and other items of $346 million and a decrease in cash of $44 million from changes in operating assets and liabilities. The adjustments for non-cash and other items consist primarily of $154 million of depreciation and amortization, $136 million of goodwill impairment charges, $19 million in amortization of upfront incentive consideration, $14 million of debt modification costs, $12 million of loss on extinguishment of debt and $24 million of losses from discontinued operations, partially offset by $20 million of deferred taxes. The decrease in cash of $44 million from changes in operating assets and liabilities was primarily the result of a decrease of $77 million associated with an increase in accounts receivables in all of our segments due to seasonality, $39 million used for capitalized implementation costs, $28 million used for accrued compensation and related benefits and $19 million used for upfront incentive consideration. These decreases were partially offset by an increase of $132 million in accounts payable and accrued liabilities primarily due to seasonality for Travelocity.

Investing Activities For the six months ended June 30, 2014, we used cash of $111 million on capital expenditures, including $96 million related to software developed for internal use and $15 million related to purchases of property, plant and equipment.

For the six months ended June 30, 2013, we used cash of $111 million on capital expenditures, including $95 million related to software developed for internal use and $16 million related to purchases of property, plant and equipment. In addition, we received $10 million in proceeds from the sale of TBiz.

51 --------------------------------------------------------------------------------Financing Activities For the six months ended June 30, 2014, we used $4 million for financing activities. Significant highlights of our financing activities include: - we entered into the Repricing Amendments which resulted in proceeds of $148 million from new lenders which were utilized to repay prior lenders. There was no net change in our outstanding indebtedness as a result of the Repricing Amendments; - we raised $673 million net proceeds from our initial public offering and utilized the net proceeds to repay $296 million aggregate principal amount of our Term Loan C and $320 million aggregate principal amount of our 2019 Notes; - we paid down $27 million of the term loan outstanding as part of quarterly principal repayments; and - we paid $30 million in debt-related costs including a $27 million prepayment fee on our 2019 Notes.

For the six months ended June 30, 2013, we used $50 million for financing activities. Significant highlights of our investing activities included: - we raised $2,190 million through the issuance of the Term Loan B and Term Loan C; - we utilized $2,178 million of the Term Loan B and Term Loan C proceeds to pay down term loans under our prior senior credit facility; - we incurred $17 million in debt issuance and third-party debt modification costs; and - we paid down $41 million of the term loan outstanding as part of quarterly principal repayments.

Off Balance Sheet Arrangements We had no off balance sheet arrangements during the six months ended June 30, 2014 and year ended December 31, 2013.

Recent Accounting Pronouncements In June 2014, the Financial Accounting Standards Board ("FASB") issued final guidance that a performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition. The guidance was issued to resolve diversity in practice. The standard is effective for annual and interim reporting periods beginning after December 15, 2015. We do not believe that the adoption will have a material impact on 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. The standard is effective for annual and interim reporting periods beginning after December 15, 2016. We are currently evaluating the impact this standard will have on our consolidated financial statements.

In April 2014, the FASB issued updated guidance that raises the threshold for disposals to qualify as discontinued operations and allows companies to have significant continuing involvement and continuing cash flows with the discontinued operations. The standard also requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. The standard is effective for annual and interim reporting periods beginning in 2015. We do not believe that the adoption will have a material impact on our consolidated financial statements.

In February 2013, the FASB issued guidance regarding the reporting of amounts reclassified out of accumulated other comprehensive income ("OCI") to net income. The standard requires companies to disclose the individual income statement line items in which the accumulated other comprehensive income amounts have been reclassified. Additionally, a tabular reconciliation of amounts recorded to other comprehensive income for the period is required. We have incorporated the new disclosure guidance on the reclassification of accumulated other comprehensive income into the footnotes to our consolidated financial statements.

In January 2013, the FASB issued updated guidance on when it is appropriate to reclassify currency translation adjustments ("CTA") into earnings. This guidance is intended to reduce the diversity in practice in accounting for CTA when an entity ceases to have a controlling interest in a subsidiary group or group of assets that is a business within a foreign entity and when there is a loss of a controlling financial interest in a foreign entity or a step acquisition. The standard is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

52 --------------------------------------------------------------------------------Critical Accounting Policies This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses and other financial information. Actual results may differ significantly from these estimates, and our reported financial condition and results of operations could vary under different assumptions and conditions. In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard.

We regard an accounting estimate underlying our financial statements as a "critical accounting estimate" if the accounting estimate requires us to make assumptions about matters that are uncertain at the time of estimation and if changes in the estimate are reasonably likely to occur and could have a material effect on the presentation of financial condition, changes in financial condition, or results of operations. For a discussion of the accounting policies involving material estimates and assumptions that we believe are most critical to the preparation of our financial statements, how we apply such policies and how results differing from our estimates and assumptions would affect the amounts presented in our financial statements, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" included in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on April 17, 2014.

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