QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-K


/X/

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required]

For the fiscal year ended December 31, 2002.

OR

/ /

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required]

Commission file number 1-12175

SABRE HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  75-2662240
(I.R.S. Employer Identification No.)

3150 Sabre Drive
Southlake, Texas

(Address of principal executive offices)

 

76092
(Zip Code)

Registrant's telephone number, including area code (682) 605-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Name of exchange on which registered
Class A common stock, par value $.01 per share   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

NONE
(Title of Class)

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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes /X/     No / /.

        The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 6, 2003 was approximately $2,269,751,962, based on the closing price per share of Class A common stock of $15.81 on such date. As of March 6, 2003, 143,564,324 shares of the registrant's Class A common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Part III of this Form 10-K incorporates by reference certain information from the Proxy Statement for the Annual Meeting of Stockholders to be held May 13, 2003.




PART I


        In this Annual Report on Form 10-K, the words "Sabre Holdings", "company", "we", "our", "ours" and "us" refer to Sabre Holdings Corporation and its consolidated subsidiaries unless otherwise stated or the context otherwise requires.


ITEM 1.    BUSINESS

        We are a world leader in travel commerce, providing distribution and retailing of travel products and technology solutions for the travel industry. We serve travel agents, individual travelers, companies managing business travelers and travel suppliers through our Sabre Travel Network™ (formerly Travel Marketing & Distribution), Travelocity™, GetThere™ and Sabre Airline Solutions™ (formerly Airline Solutions) business segments.

        Sabre Holdings Corporation is a Delaware holding company. Sabre Inc. is the principal operating subsidiary and sole direct subsidiary of Sabre Holdings Corporation. All of our businesses are conducted by Sabre Inc. or its direct or indirect subsidiaries.

        Three of our four business segments market and distribute travel-related services and products. Through our Sabre®1 global distribution system (the "Sabre system"), travel agencies, corporate travel departments and individual consumers ("subscribers") can access information about and can book reservations for airline trips, hotel stays, car rentals, cruises and tour packages, among other things. We principally market and distribute products and services for third party suppliers in exchange for a fee paid by the supplier. Increasingly, however, we acquire travel services and products on consignment from suppliers, which we then offer as the merchant to the travel purchaser—either on a standalone basis or as part of a travel package.


1
Sabre, Direct Connect, eVoya, Turbo Sabre, Travelocity, Travelocity.com, Travelocity.ca, and GetThere are registered trademarks, and Sabre Holdings, Sabre Travel Network, Sabre Airline Solutions, Basic Booking Request and eMergo are trademarks of an affiliate of Sabre Holdings Corporation. All other trademarks are the property of their respective owners. (c)2003 Sabre Holdings Corporation. All rights reserved.

        We are an industry leader in multiple travel distribution channels: the travel agency channel, the consumer-direct channel and the business-direct channel. We are a leading distributor of travel in each of those channels.

2


The Sabre Global Distribution System

        The Sabre system and other global distribution systems are a primary means of air travel distribution in the United States and in many international regions. During 2002, more airline bookings in North America, Latin America and Asia were made through the Sabre system than through any other global distribution system. The Sabre system, like other global distribution systems, creates an electronic marketplace where travel providers display information about their products and warehouse and manage inventory. Through the Sabre system, subscribers can access information about and book reservations with airlines and other providers of travel and travel-related products and services ("associates"). In 2002, over 950 associates displayed information about their products and services through the Sabre system. We estimate that more than $80 billion of travel-related products and services were sold through the Sabre system.

        The Sabre system reports transaction data about subscriber-generated reservations to travel providers, allowing vendors to better manage inventory and revenues. The Sabre system also allows travel agency subscribers and airline personnel to print airline tickets and itineraries. Additionally, the Sabre system provides subscribers with travel information on matters such as currency, medical and visa requirements, weather and sightseeing. The Sabre system provides subscribers a single rich source of travel information, allowing agents to search tens of thousands of itinerary and pricing options across multiple travel providers for consumers within seconds.

3



Associate Participation

        Airlines and other associates can display, warehouse, manage and sell their inventory in the Sabre system. Airlines are offered a wide range of participation levels. The lowest level of participation for airlines, Sabre® Basic Booking RequestSM participation level, provides schedules and electronic booking functionality only. Higher levels of participation for airlines, such as Sabre® Direct Connect® Availability ("DCA") participation level, provide enhanced levels of communication with the Sabre system, giving subscribers more detailed information and associates improved inventory management. In October 2002 we announced a new DCA 3-Year Pricing Option to airlines with United States points of sale. If they elect this option under their Sabre GDS participating carrier agreements, they will receive an approximate 10% to 12% discount from the standard DCA rates. For an associate selecting one of the higher levels of participation, the Sabre system provides subscribers with a direct connection to the associate's internal reservation system, allowing the Sabre system to provide real-time information and allowing the associate to optimize revenue for each flight. Car rental companies and hotel operators are provided with similar levels of participation from which to select. We also provide associates, upon request, marketing data (in the form of anonymous, aggregated data from which all personal information has been deleted) derived from the Sabre system bookings for fees that vary depending on the amount and type of information provided. Associates use this marketing information in yield optimization and other operational systems we sell to improve their revenue and profitability.

Subscriber Access

        Access to the Sabre system enables subscribers to electronically locate, price, compare and purchase travel products and services provided by associates. We tailor the interface and functionality of the Sabre system to the needs of our different types of subscribers. Marketing is targeted by channel to travel agencies, individual travelers, business users and travel suppliers.

Sabre Travel Network

        The Sabre® system and other global distribution systems are a primary means of air travel distribution in the United States and in many international regions. Through the Sabre system, subscribers can access information about and book reservations with airlines and other providers of travel and travel-related products and services ("associates"). As of December 31, 2002, travel agencies with approximately 56,000 locations in over 113 countries on 6 continents subscribed to the Sabre system, which enabled these subscribers to make reservations with approximately 423 airlines, 50 car rental companies, 232 tour operators, 9 cruise lines, 36 railroads and 234 hotel companies covering approximately 60,000 hotel properties worldwide.

        During 2002, more airline bookings in North America, Latin America and Asia were made through the Sabre system than through any other global distribution system. Approximately 76.5%, 78.0% and 82.9% of our revenue from continuing operations in 2002, 2001 and 2000, respectively, was generated by the marketing and distribution of travel, primarily through booking fees paid by associates.

        Travel agents may access the Sabre system on their own hardware over communications circuits contracted from telecommunications vendors or may contract with Sabre for the hardware, software, technical support and other services needed to use the Sabre system. Increasingly, travel agents are providing the majority of their own hardware. Fees for Sabre provided services are payable over the term of the travel agent's agreement with us, generally five years in the United States and Latin America, three years in Canada, and terminate after one year in Europe. In addition, Sabre pays incentives to many travel agencies based on their booking productivity.

4



        Because travel agencies have differing needs, we have modified the Sabre system interface to meet the specific needs of different categories of travel agents. The Sabre system interfaces are available in English, Spanish, Portuguese, French, German, Italian and Japanese. Turbo Sabre® software is an advanced point-of-sale interface and application development tool that enables advanced functionality such as customized screens, automated quality control and database integration, and eliminates complex commands, reducing keystrokes and training requirements. In addition, we offer Sabre eVoya® Webtop, a Web-based travel agency portal combining the breadth of the Internet with the power of Sabre. It provides access to Sabre's traditional format based booking tool, as well as Web-based booking tools for cruises, restaurants, ground transportation, theatre, local events and theme parks.

        We provide bookings solutions to serve the specific online needs of travel agencies and associate customers, including Website development, business logic middleware and backend processing. In addition, we offer travel agencies back-office accounting systems and further support to travel agencies by offering a simplified method to develop and place their own marketing presence on the Internet. The end consumer accesses the agency and associate-specific Websites via the Internet to locate, price, compare and purchase travel products and services. Travel agent and associate product offerings range from off-the-shelf applications to fully customized solutions. License, consulting and Web hosting fees are recovered from the subscribers and vary with the level of customization and volume generated by the site. We currently provide Web hosting services for over 1,000 sites.

Travelocity

        Travelocity is a leading provider of consumer direct travel services for the leisure traveler and the unmanaged business traveler. Travelocity is the exclusive provider of travel booking services for various America Online, Inc. services, including AOL, AOL.com, Netscape, CompuServe and Digital City in the United States and Canada. Travelocity is also an exclusive provider of some of the travel booking services on Websites operated by Yahoo!, Inc. in the United States and Canada. Through the Travelocity Websites and certain co-branded sites such as AOL and Yahoo!, individual leisure and business travelers can shop and compare prices and make travel reservations online with airlines, car rental agencies, hotel companies and cruise and vacation providers. In addition, we offer access to a database of information regarding specific destinations and other information of interest to travelers. During 2002, members purchased approximately $3.5 billion in travel services from associates through the Travelocity Websites.

        In addition to Travelocity's main U.S. Website, it operates multiple Websites tailored to customers outside the United States. In 2001, Travelocity and Otto Versand, a global leader in direct marketing and Europe's top direct marketing firm, consummated plans to launch Travelocity Europe, a new multi-channel travel company, making Travelocity Europe one of the leading European consumer direct agencies. Finally, Travelocity also operates Travelocity.ca® en francais for its Canadian customers, providing the most comprehensive French and English language online planning and buying choices across air, car, hotel, rail and vacation travel vendors.

        Travelocity receives fees from travel providers for purchases of their travel products and services pursuant to reservations made through its Websites. In addition, we receive advertising revenues from the delivery of advertising impressions on the Travelocity Websites. Travelocity's services are generally provided free of charge except for a $5 customer service fee charged for most air tickets, not including merchant transactions, that was instituted on January 16, 2003.

5



        Travelocity instituted a merchant business model through its own travel supplier agreements in 2001 for air travel and in 2002 for vacation packages and hotels whereby it has access to travel inventory at discounted wholesale prices from air carriers, hotels and car rental companies. These components are combined to create packages for sale to end consumers at a retail price which Travelocity determines for both traditional vacation destination packages and last-minute deals. Additionally, certain air tickets are sold on a standalone basis as merchant offerings, as are certain standalone hotel reservations. In October 2002, Travelocity launched its own merchant model hotel ("MMH") offering to complement the inventory from Hotels.com which provides certain merchant hotel inventory to Travelocity Websites. Approximately, 1,400 hotels currently participate in the MMH program and participants are being added regularly. Travelocity does not have purchase obligations for unsold inventory. Revenue from such transactions is recorded on a net basis, which is defined as the price to the consumer less the cost of the inventory obtained from the supplier, at the time the travel is sold to the consumer for air travel and at the date of check-out for vacation packages and hotel stays.

        In 2000, we merged our subsidiary, Travelocity, with Preview Travel, Inc. ("Preview"), an independent publicly-traded company engaged in consumer direct travel distribution over the Internet, retaining an approximate 70% ownership interest in the combined company. On April 8, 2002 we completed a $28 per share cash tender offer for all of the approximately 16.7 million outstanding publicly-held common shares of Travelocity that we did not previously own. Accordingly, Travelocity became our indirect 100% owned subsidiary on April 11, 2002. The Travelocity transaction supports our continuing strategy of delivering value to suppliers and travelers across multiple distribution channels. We believe it makes sense to combine the strengths of our businesses to pursue new revenue opportunities, while optimizing investment decisions across segments.

GetThere

        GetThere provides Web-based travel booking systems designed for managed business travelers, travel arrangers and travel managers. Through our GetThere system, companies provide their employees with a convenient way to make travel and meetings reservations via their company intranet. We believe that GetThere can significantly reduce costs to the employer as a result of lower service fees, better policy adherence, lower average ticket prices and real-time data on spending. Many companies save more than 20% on travel costs, often representing millions of dollars in bottom-line savings. Through major agency and supplier partners, GetThere is delivering sophisticated corporate travel features to small and medium-sized companies that make up a significant percentage of the industry's business travel expenditures. A significant portion of GetThere's transaction volume is from distributor agreements with leading travel agencies. As of December 31, 2002 more than 1,000 corporations, including over half of the Fortune 200, use GetThere technology.

        GetThere also provides a Web interface for reservation systems operated by airlines or other suppliers. Suppliers can also incorporate value-added services to promote loyalty, such as complete air, car and hotel reservations, awards programs and redemption, and flight status alerts and information. GetThere provides these Web-based booking systems to several major airlines including Air New Zealand, Alitalia, All Nippon Airways, Aloha Air, British Airways, Cathay Pacific Airways and United Airlines.

        We receive trip fees for transactions booked through GetThere's travel booking systems from company and airline customers and also recognize revenue for certain up-front fees, such as implementation, over the term of the related contract.

6



Sabre Airline Solutions

        Software Development and Licensing.    Sabre Airline Solutions' suite of software products provides industry-specific applications that help airlines and other travel providers increase their revenues, streamline their operations, improve workflow and raise productivity. Some of the most popular products support planning and scheduling, flight operations, pricing and revenue management, crew management, cargo revenue management, passenger systems and frequent flyer programs. We currently provide both custom and off-the-shelf software solutions to more than 200 airlines.

        We began expanding our existing software products and solutions in 2000 by launching Sabre®eMergo™ Web-enabled solutions, a new application service provider offering that simplifies delivery options and positions us for growth into new market segments. We are in the process of integrating over 23 products into the eMergo environment. The offering allows carriers access to our leading technological solutions that feature delivery through shorter implementations, 24-hour data center support, and fewer complications than running an internal system. Most products offered within eMergo are Web-enabled and provide users with secure access for a pre-defined, usage-based fee.

        Reservations Hosting.    Sabre Airline Solutions is a leading provider of airline reservations and departure control hosting services. We offer a fully integrated system that effectively manages reservations and airport functions for airlines of all sizes and in all stages of growth. These services support maintenance and storage of an airline's schedules, fares and inventory, as well as airport and customer relationship management functions such as check-in, ticketing, car and hotel reservations and frequent flyer programs. We currently provide reservations hosting services to over 70 airlines from 23 countries around the world, boarding over 300 million passengers annually. Our customers range in size from fewer than 25 thousand passengers boarded annually to over 80 million, and range in growth stage from low cost start-ups to full service airlines. Our reservations and departure control hosting services allow the airlines to easily integrate our leading software solutions to expand and complement their capabilities.

        Consulting Services.    Sabre Airline Solutions' consulting services provide solutions for customers in the travel and transportation industries, focusing on commercial, operations and management and strategic areas. As part of the Sabre Airline Solutions business, the consulting group helps clients during the implementation of Sabre's software products, transferring knowledge and improving work processes to derive direct value from products by working in partnership to solve business problems using Sabre's tools. In addition to assisting with product implementation, we offer consulting services in pricing and revenue management; airline planning (scheduling, route and profitability analysis, and fleet planning); sales (reservations, distribution, customer relationship management, sales and marketing); and data services. Consulting services offered in operations are crew planning and scheduling, maintenance and engineering, and safety and security. Consulting services in management and strategic areas include start-up assistance, alliance analysis, merger and acquisitions, privatization assistance, turnaround services and management consulting on business transformation. The client base for our consulting services are airlines, airports, manufacturers and governments, as well as individuals, travel agencies and members of the financial community.

Agreements with EDS

        We have an agreement with Electronic Data Systems Corporation ("EDS") through which EDS manages our information technology systems. Under the 10-year agreement, effective July 1, 2001, EDS provides us with information technology services, including data center management, applications hosting, applications development, data assurance and network management. Among the services provided is transaction processing for our travel marketing and distribution businesses, including operation of the Sabre system. The agreement was entered into as part of the 2001 sale to EDS of our infrastructure outsourcing business and information technology infrastructure assets and the associated real estate. See Note 3 to the Consolidated Financial Statements for more information related to the sale.

7



        In connection with the sale, we also entered into agreements with EDS to jointly market information technology services and software solutions to the travel and transportation industries.

International Marketing

        Sabre Travel Network is actively involved in marketing the Sabre system internationally either directly or through joint venture and distributorship arrangements. Our global marketing partners principally include foreign airlines that have strong relationships with travel agents in such airlines' primary markets and entities that operate smaller global distribution systems ("GDS") or other travel-related network services.

        Sabre Travel Network has long-term agreements with ABACUS International Holdings Ltd., which created ABACUS International Ltd, a Singapore-based joint venture company that manages travel distribution in the Asia Pacific region. We own 35% of the joint venture and provide it with transaction processing and product development services on the Sabre system. Sabre Travel Network also provides distribution products and services to Infini and Axess, Japan's two largest GDS travel agency marketing companies. Infini is owned 35% by ABACUS and 65% by All Nippon Airways. Axess is owned 25% by Sabre and 75% by Japan Airlines. Sabre Travel Network also provides travel marketing and distribution services through our 51% owned (48% voting rights) joint venture, Sabre Sociedad Technologica S.A. de C.V. in Mexico.

        Travelocity is marketed internationally either directly or through joint venture arrangements. In Europe, Travelocity has partnered with Otto Versand and established a joint venture company (Kommanditgesellschaft Travel Overland GmbH & Co.) which distributes Travelocity in the region. Travelocity owns 50% of this joint venture. In Japan, Travelocity and Tabini Holdings, whose primary shareholders include Japan Airlines and All Nippon Airways, launched the Tabini travel Website in 2002. Travelocity has approximately a 34% equity stake in this joint venture. In the rest of the Asia Pacific region, Travelocity is distributed through Zuji Enterprises Pte. Ltd., a joint venture with 16 airlines in the Asia Pacific region established in 2002, of which Travelocity has approximately a 13% equity stake. In Canada, Travelocity directly markets its Travelocity.ca site, which was launched in 1999.

        GetThere is marketed internationally directly in Europe and through ABACUS in the Asia Pacific region. GetThere pursues large corporate account opportunities in the major European countries and serves to facilitate the extension of GetThere's services to the region. We are actively involved in growing our direct presence in Europe and extending our distributor arrangements.

        Additionally, Sabre Airline Solutions distributes software solutions and consulting services through a sales and marketing organization that spans 4 continents, with primary sales offices in the Dallas/Ft. Worth area, London, Hong Kong and Sydney. Sabre Airline Solutions also maintains agency relationships to support sales efforts in key markets, including countries in Asia and the Middle East.

Competition

        The marketplace for travel distribution is large, multi-faceted and highly competitive. A significant channel for travel distribution continues to be through the global distribution systems such as the Sabre system. Although the traditional travel agency channel continues to be important to travel distribution, other rapidly-growing channels are allowing travel distribution directly to businesses and consumers, particularly via the Internet. Our product and service offerings are well positioned to compete in all channels of travel distribution. Those include our Travelocity business in the consumer-direct channel and our GetThere business in the business-direct channel. We also offer traditional travel agencies a wide array of tools that allow them to market their services over the Internet.

8



        Global competition to attract and retain travel agency subscribers is intense. Factors affecting competitive success include: depth and breadth of information, ease of use, reliability, service and incentives to travel agents and range of products available to travel providers, travel agents and consumers. Sabre Travel Network competes in the travel agency channel against other large and well-established traditional global distribution systems, such as Amadeus Global Travel Distribution S.A., Galileo International Inc. and Worldspan, L.P. Each of these competitors offers many products and services substantially similar to those offered by Sabre Travel Network. New competitors in this channel are emerging, however. For example, Orbitz.com has announced plans to offer Internet travel booking services to travel agents.

        We face many new competitors as travel distribution channels emerge and mature, including the growing Internet-based business-direct and consumer-direct channels. Many of these channels continue to utilize services from a global distribution system such as the Sabre system. Our Sabre system provides transaction processing and other services to parties that compete with the Travelocity Website and GetThere.

        We market travel in the consumer-direct channel primarily through the Travelocity Websites. Competitors of the Travelocity Websites include Priceline.com, Expedia (controlled by USA Interactive, Inc.) and Hotwire.com (owned by a consortium of carriers). Many travel suppliers have developed their own Websites, some of which offer an array of products and services directly to consumers. Virtually all major airlines have their own Websites allowing direct bookings. Airline joint ventures, such as Orbitz (controlled by major U.S. airlines) and Opodo (controlled by large European carriers) provide booking services for airline travel, hotel accommodations and other travel services offered by multiple vendors. Five large U.S. hotel chains, along with a hotel technology provider, operate Travelweb.com, which provides booking services for hotel accommodations. Certain owners of these sites do (or appear to have the intention to) make certain discounted fares and prices available exclusively on their proprietary or multi-vendor Websites. See further discussion under Risk Factors.

        We market travel in the business-direct channel principally through GetThere. The corporate marketplace for Internet-based travel procurement and supply services is highly competitive and rapidly evolving. Travelocity's competitors in the business-direct channel include travel agencies such as Carlson Wagonlit Travel, global distribution systems such as Amadeus' E-Travel and Galileo's Highwire and more recently, leisure travel sites such as Orbitz.com and Expedia.com.

Merchant Model

        Independent travel distributors, including our travel marketing and distribution companies, are attempting to reduce their reliance on supplier-paid commissions and booking fees by increasingly promoting a merchant model of travel distribution. Under this model, the distributor recognizes as revenue the sale price to the traveler less the cost of the inventory, rather than a supplier-paid booking fee or commission. Merchant model content can include air, hotel and vacation offerings. However, other travel suppliers are starting to offer their content on a merchant basis as well through independent travel distributors. Merchant content is good for travelers because they can generally book their travel at a lower price than regularly published offerings. For us, the merchant business generally delivers higher revenue per transaction than comparable sales under the agency/booking fee model.

9



Computer Reservation System Industry Regulation

        Aspects of our travel marketing and distribution businesses are subject to the computer reservation systems ("CRS") regulations in the United States, the European Union, Canada and Peru. These regulations generally address the relationships among the CRS's, the airline suppliers and subscribers such as travel agencies. Generally, these regulations do not address our relationships with non-airline suppliers. The regulations in the European Union, however, do include rail suppliers in certain circumstances. In general, these regulations are directed at ensuring fair competition among air travel suppliers. Among the principles addressed in the current regulations are:

        The CRS regulations in the United States are currently under review. On November 12, 2002, the United States Department of Transportation ("DOT") issued a notice of proposed rule-making to revise the existing regulations governing air travel distribution through computer reservations systems. We believe that many of the facts and conclusions discussed in the notice of proposed rule-making are erroneous. The comment period for the proposed rules is scheduled to conclude on May 15, 2003. The DOT has proposed that the current rules be extended until January 31, 2004, to allow sufficient time for the DOT to review the comments filed by May 15, 2003. It is not clear when the DOT may issue final rules or what form they may take. See further discussion under Risk Factors.

        The European Commission also has begun the process of reviewing its CRS Code of Conduct for possible changes, including eliminating some or all of the Code. The Commission has not yet published any proposed rules, so it is not clear when the Commission may issue final rules or what form they may take. See further discussion under Risk Factors.

Other Regulation

        We may be impacted by regulations affecting issues such as: exports of technology, telecommunications, data privacy and electronic commerce. Any such regulations may vary among jurisdictions. We believe that we are capable of addressing these regulatory issues as they arise.

Seasonality

        The travel industry is seasonal in nature. Bookings, and thus fees charged for the use of the Sabre system, decrease significantly each year in the fourth quarter, primarily in December, due to early bookings by customers for travel during the holiday season and a decline in business travel during the holiday season. See the discussion on Seasonality in the Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information.

Research and Development Expenses

        Research and development costs in continuing operations approximated $40 million, $73 million and $57 million for 2002, 2001 and 2000, respectively.

Segment Information

        Financial information for our operating segments and geographical revenues and assets are included in Note 15 to the Consolidated Financial Statements.

10



Intellectual Property

        We use software, business processes and other proprietary information to carry out our business. These assets and related patents, copyrights, trade secrets, trademarks and intellectual property rights are significant assets of our business. We rely on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures and contractual provisions to protect these assets. We seek patent protection on key technology and business processes of our business. Our software and related documentation are also protected under trade secret and copyright laws where appropriate. We also seek statutory and common law protection of our trademarks where appropriate. The laws of some foreign jurisdictions may provide less protection than the laws of the United States for our proprietary rights. Unauthorized use of our intellectual property could have a material adverse effect on us and there can be no assurance that our legal remedies would adequately compensate us for the damages to our business caused by such use.

Employees

        As of December 31, 2002, we had approximately 6,300 employees. A central part of our philosophy is to attract and maintain a highly capable staff. We consider our current employee relations to be good. Our employees based in the United States are not represented by a labor union.

Website

        We offer access to our documents filed with, or furnished to, the United States Securities and Exchange Commission at no charge on the investor relations section of our Website at www.sabre.com. These documents are generally available as soon as reasonably practicable after they are filed with, or furnished to, the SEC.


ITEM 2.    PROPERTIES

        Our principal executive offices are located in Southlake, Texas and consist of three leased buildings. The initial term of the lease expires in 2004 with two one-year renewal periods thereafter, subject to certain lessor and lessee approvals. We also have an option to purchase these facilities prior to or upon expiration of the lease. Additionally, we lease office facilities in Westlake, Texas under leases expiring in 2008; office facilities in Fort Worth, Texas for Travelocity under a lease expiring in 2005 and office facilities in Irving, Texas for GetThere under a lease expiring in 2006. We also lease office facilities in approximately 90 other locations worldwide.

        In connection with the sale of our outsourcing assets to EDS effective July 1, 2001, we assigned nine facility leases to EDS. Four of the assigned facilities are located in Tulsa, Oklahoma and include our principal data center, a data tape archive facility, an operations center and a computer center. EDS also subleases a large office facility from us in Fort Worth, Texas, under a sublease that will expire in 2011. Additionally, in July 2002, we purchased a data center facility constructed on our behalf in Tulsa, Oklahoma from the lessor under the provisions of the lease agreement for approximately $92 million and immediately sold it to a third party. This sale of the data center was contemplated as part of the sale of the Outsourcing Business. We received proceeds of approximately $68 million in cash and realized a loss of approximately $24 million, which had been previously accrued in 2001 in connection with the EDS transaction. See Note 3 to the Consolidated Financial Statements. On January 31, 2002 we sold our previous headquarters office facility in Fort Worth, Texas to American Airlines for proceeds of approximately $80 million and recognized a pre-tax gain of approximately $18 million.

        We believe that our office facilities will be adequate for our immediate needs and could accommodate expansion.

11




ITEM 3.    LEGAL PROCEEDINGS

        Sabre Holdings Corporation, its subsidiary Travelocity.com Inc., and the directors of Travelocity.com Inc. are named as defendants in eleven separate lawsuits brought by twelve individual former shareholders of Travelocity.com Inc. ("Travelocity.com"). Nine of these lawsuits were filed in the Delaware Court of Chancery in and for New Castle County on February 19, 2002 and one lawsuit was filed in the District Court of Tarrant County, Texas on February 21, 2002 and a second suit filed in the same court on February 25, 2002. The plaintiffs generally allege that our tender offer for the publicly-held shares of Travelocity.com, which we announced on February 19, 2002, was unfair to Travelocity.com's former minority shareholders, that our tender offer price was inadequate, that we breached our fiduciary duties to Travelocity.com's minority shareholders and other related allegations. On March 20, 2002, Sabre Holdings Corporation and Travelocity.com signed a memorandum of understanding with the plaintiffs to settle all pending stockholder litigation relating to the tender offer. Under the terms of the memorandum, we stated our intention to agree to an offer price of no less than $28 per share and not to object to an award of attorneys' fees and costs to counsel to the putative plaintiff class in an amount not to exceed $1.9 million. Under the terms of the memorandum, the plaintiffs stated an intention to have all pending stockholder litigation settled and dismissed as to the plaintiffs and the putative plaintiff class. The settlement was approved by an order of the Delaware Court of Chancery, issued February 28, 2003. The Court, however, has not ruled on the amount of the attorneys' fees and costs to award plaintiffs' counsel, but that amount will not exceed $1.9 million in any event. We completed our tender offer for the publicly-held shares of Travelocity.com on April 8, 2002 and Travelocity.com became a 100% owned indirect subsidiary of Sabre Holdings Corporation on April 11, 2002.


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of our security holders during the fourth quarter of the fiscal year ended December 31, 2002.

12


PART II



ITEM 5.    MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        Our Class A common stock is traded on the New York Stock Exchange (symbol TSG). The approximate number of record holders of our Class A common stock at March 6, 2003 was 10,735.

        The range of the high and low sales prices for our Class A common stock on the New York Stock Exchange by quarter for the two most recent fiscal years was:

 
  High
  Low
Quarter Ended:            
  December 31, 2002   $ 22.25   $ 14.85
  September 30, 2002     35.80     18.42
  June 30, 2002     49.35     33.26
  March 31, 2002     49.98     36.85

Quarter Ended:

 

 

 

 

 

 
  December 31, 2001   $ 43.02   $ 25.70
  September 30, 2001     53.85     21.22
  June 30, 2001     54.98     43.34
  March 31, 2001     47.85     35.88

        We have paid a dividend only once in our history. A dividend of approximately $675 million, or $5.20 per share, was paid on February 18, 2000 in connection with our separation from AMR Corporation, which was our majority owner until March 2000. No dividends were paid during 2001 or 2002. Although we have traditionally retained our earnings to finance future growth, we may consider paying dividends in the future if we feel it is in the best interest of our shareholders. Any determination as to the future payment of dividends will depend upon the future results of operations, capital requirements and financial condition of Sabre Holdings Corporation and its subsidiaries and such other factors as our Board of Directors may consider, including any contractual or statutory restrictions on our ability to pay dividends. We may consider additional share repurchases, but such repurchases would require approval from our Board of Directors. The timing, volume and price of any repurchases would be made at the discretion of management and would depend on corporate considerations and market conditions.

13




ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

        The following table presents selected historical financial data for each of the five years in the period ended December 31, 2002. On April 8, 2002, we completed a $28 per share cash tender offer for all of the approximately 16.7 million outstanding publicly-held common shares of Travelocity.com that we did not own. Prior to the tender offer, we had an approximate 70% ownership stake in Travelocity.com. We consolidated Travelocity.com and accounted for the 30% outside ownership as minority interest. After the tender offer, we effected a short-form merger, on April 11,2002, whereby Travelocity.com became our indirect 100% owned subsidiary. Effective on July 1, 2001 we completed the sale of our information technology infrastructure outsourcing business ("Outsourcing Business") to Electronic Data Systems Corporation ("EDS"). The results of operations of the Outsourcing Business have been presented as a discontinued operation for the years ended December 31, 2001, 2000, 1999 and 1998. See Note 3 to the Consolidated Financial Statements. During 2002, we also completed the purchase of Site59, and during 2001 we completed the acquisition of Sabre Pacific. During 2000, we acquired Preview, Gradient Solutions Limited (now known as Sabre Ireland Online Limited), GetThere and a 51% ownership interest in Dillon Communication Systems GmbH ("Dillon"). These transactions affect the comparability of the data presented. See Management's Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements for further information regarding these transactions and their impact on our financial condition and results of operations. We have paid a dividend only once in our history. On February 7, 2000, we declared a cash dividend on all outstanding shares of our Class A common stock. A dividend of approximately $675 million, or $5.20 per share, was paid on February 18, 2000 in connection with our separation from AMR Corporation, which was our majority owner until March, 2000. In addition, effective January 1, 2002, we adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). Under the new rules, intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests annually or when changes in circumstances indicate that the carrying value may not be recoverable. See Note 2 to the Consolidated Financial Statements for further information regarding the impact of this change in accounting.


 
 
  Year Ended December 31,
 
 
  2002(4)
  2001(4)
  2000(2)
  1999(2)
  1998(2)
 
 
  (in millions, except per share data and
other data where indicated)

 
Income Statement Data (1) (2) (3):                                
Revenues   $ 2,056.5   $ 2,145.0   $ 1,955.5   $ 1,705.4   $ 1,560.9  
Operating expenses, excluding amortization of goodwill and intangible assets     1,685.6     1,876.2     1,673.3     1,399.9     1,264.7  
Amortization of goodwill and intangible assets     53.4     277.5     109.4          
   
 
 
 
 
 
Operating income (loss)     317.5     (8.7 )   172.8     305.5     296.2  
Other income (expense), net     21.4     20.2     (13.9 )   155.4     21.1  
Minority interests     .2     22.5     30.7          
   
 
 
 
 
 
Income from continuing operations before income taxes     339.1     34.0     189.6     460.9     317.3  
Income taxes     125.0     81.0     93.5     170.4     115.4  
   
 
 
 
 
 
Income (loss) from continuing operations     214.1     (47.0 )   96.1     290.5     201.9  
Income from discontinued operations, net (1) (5)         75.1     48.0     41.4     30.0  
Cumulative effect of accounting change, net (6)         3.1              
   
 
 
 
 
 
Net earnings   $ 214.1   $ 31.2   $ 144.1   $ 331.9   $ 231.9  
   
 
 
 
 
 
Earnings (loss) per common share—basic:                                
  Income (loss) from continuing operations (1)   $ 1.53   $ (.35 ) $ .74   $ 2.24   $ 1.55  
  Income from discontinued operations, net (1)         . 57     .37     .32     .23  
  Cumulative effect of accounting change, net (6)         .02              
   
 
 
 
 
 
Net earnings   $ 1.53   $ .24   $ 1.11   $ 2.56   $ 1.78  
   
 
 
 
 
 
Earnings (loss) per common share—diluted:                                
  Income (loss) from continuing operations (1)   $ 1.50   $ (.35 ) $ .74   $ 2.22   $ 1.55  
  Income from discontinued operations, net (1)         .57     .37     .32     .23  
  Cumulative effect of accounting change, net (6)         .02              
   
 
 
 
 
 
Net earnings   $ 1.50   $ .24   $ 1.11   $ 2.54   $ 1.78  
   
 
 
 
 
 

14


Balance Sheet Data (at end of period) (1):                                
Current assets   $ 1,311.6   $ 1,092.2   $ 693.0   $ 976.4   $ 944.4  
Goodwill and intangible assets, net   $ 855.7   $ 672.1   $ 891.5   $   $  
Total assets   $ 2,756.5   $ 2,376.0   $ 2,650.4   $ 1,951.2   $ 1,926.8  
Current liabilities   $ 499.9   $ 564.5   $ 1,266.4   $ 525.1   $ 400.8  
Long-term notes payable   $ 435.8   $ 400.4   $ 149.0   $   $ 317.9  
Minority interests   $ 10.3   $ 219.7   $ 239.5   $   $  
Stockholders' equity   $ 1,641.6   $ 1,041.8   $ 791.0   $ 1,262.0   $ 953.7  
 
  Year Ended December 31,
 

 

 

2002


 

2001


 

2000


 

1999


 

1998


 
 
  (in millions, except per share data and other data where indicated)

 
Other Data (1):                                
Direct reservations booked using the Sabre system (7)     340     372     394     370     358  
Total reservations processed using the Sabre system (8)     397     431     467     439     409  
Operating margin     15.4 %   (0.4 )%   8.8 %   17.9 %   19.0 %
EBITDA (9)   $ 434.7   $ 402.7   $ 475.5   $ 480.6   $ 455.5  
EBITDA margin (9)     21.1 %   18.8 %   24.3 %   28.2 %   29.2 %
Ratio of earnings to fixed charges (10)     11.69     0.97     4.75     29.44     15.41  
Cash flows from operating activities (1)   $ 299.4   $ 390.2   $ 310.8   $ 495.4   $ 450.8  
Capital expenditures (1)   $ 62.7   $ 158.4   $ 190.1   $ 168.0   $ 320.0  

 
(1)
Effective on July 1, 2001, we completed the sale of our Outsourcing Business and also entered into agreements with Electronic Data Systems Corporation ("EDS") for (i) EDS to manage our IT systems for 10 years and (ii) to jointly market certain IT services and software solutions to the travel and transportation industries. See Note 3 to the Consolidated Financial Statements. The results of operations of the Outsourcing Business have been reclassified and presented as income from discontinued operations, net, for 2001, 2000, 1999 and 1998. Balance sheet and cash flow data for periods prior to the sale have not been revised for the effects of our sale of the Outsourcing Business.

(2)
Prior to AMR's divestiture of its entire ownership interest in us in the first quarter of 2000, we had significant related party transactions with AMR and American Airlines. The terms of many of the agreements with AMR and its affiliates were revised in connection with the divestiture. See Note 8 to the Consolidated Financial Statements.

(3)
The results of operations in 2002, 2001 and 2000 were impacted by our merger and acquisition activities and the amortization expense related to the goodwill and intangible assets recorded in those transactions. Amortization of goodwill and certain indefinite lived intangible assets ceased on January 1, 2002 upon our adoption of SFAS No.142, resulting in approximately $212 million net of tax and minority interest, less amortization expense being recognized in 2002 compared with 2001. See Notes 2 and 5 to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding mergers and acquisitions, the change in accounting for goodwill and certain intangible assets and their impacts on our financial condition and results of operations.

(4)
On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scope involving the hijacking and destruction of multiple passenger aircraft operated by commercial air carriers. Since the September 11, 2001 attacks, our revenue continues to be adversely affected by the state of the United States economy, by the possibility of terrorist attacks, government hostilities and military action, by the financial instability of many air carriers and by delays resulting from added security measures at airports. Bookings have also decreased since September 11, 2001 due to some or all of these conditions. Bookings were down approximately 65% immediately after the September 11, 2001 attacks and were down approximately 15% at the end of 2001. Our results of operations for the year ended December 31, 2002 were negatively affected by this continued reduction in travel. Our total global bookings for 2002 were down 7.8% and total bookings for 2002 in the U.S. were down approximately 11.9% from the year ago period.

(5)
Income from discontinued operations for the year ended December 31, 2001 includes a gain of approximately $39 million, net of related income taxes of approximately $25 million, recognized upon completion of the sale of our Outsourcing Business to EDS effective July 1, 2001.

(6)
On January 1, 2001 we adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. See Note 7 to the Consolidated Financial Statements.

(7)
CRS reservations for which we collect a booking fee.

(8)
Includes direct reservations plus reservations processed by joint venture partners using the Sabre system.

15


(9)
EBITDA (as used herein) is defined as net income (loss) from continuing operations before interest income and expense, income taxes, depreciation and amortization and other income (expense), net. We use both EBITDA, and EBITDA as a percentage of revenue (EBITDA margin), as a supplemental financial measurement in the evaluation of our business and interpret trends in EBITDA in a similar manner as trends in cash flows and liquidity. We believe that EBITDA and EBITDA margin may provide additional information with respect to our ability to meet our future debt service, capital expenditures and working capital requirements. EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss), cash flow provided by operating activities or other income or cash flow data prepared in accordance with accounting principles generally accepted in the United States. When evaluating EBITDA, investors should consider, among other factors, (i) increasing or decreasing trends in EBITDA, (ii) whether EBITDA has remained at positive levels historically and (iii) how EBITDA compares to levels of interest expense. Because EBITDA excludes some, but not all, items that affect net income and may vary among companies, the EBITDA presented above may not be comparable to similarly titled measures of other companies. While we believe that EBITDA may provide additional information with respect to our ability to meet our future debt service, capital expenditures and working capital requirements, functional or legal requirements of our business may require us to utilize our available funds for other purposes. EBITDA is comprised of the following components for each respective period presented:

 
  Year Ended December 31,
 
 
  2002
  2001
  2000
  1999
  1998
 
 
  (in thousands)

 
Income from continuing operations before provision for income taxes   $ 339.1   $ 34.0   $ 189.6   $ 460.9   $ 317.3  
Net interest (income) expense     (4.5 )   16.6     15.5     (17.7 )   (6.6 )
Other, net     (16.8 )   (36.8 )   (1.5 )   (137.8 )   (14.5 )
Depreciation and amortization from continuing operations     116.9     388.9     271.9     175.2     159.3  
(10)
For purposes of computing the ratio of earnings to fixed charges, earnings consist of the sum of income from continuing operations before income taxes and the cumulative effect of change in accounting method, interest expense and the portion of rent expense deemed to represent interest. Fixed charges consist of interest incurred, whether expensed or capitalized, including amortization of debt issuance costs, if applicable and the portion of rent expense deemed to represent interest. Earnings for the year ended December 31, 2001 were inadequate to cover fixed charges by $1.3 million.

16



ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Summary

        During 2002, we generated revenues by providing travel marketing and distribution services to travel agencies, corporate travel departments and travel suppliers using the Sabre system through our Sabre Travel Network business segment (formally Travel Marketing and Distribution); to consumers using the Travelocity Websites, to businesses using GetThere products and from the development and marketing of Sabre Airline Solutions products. Approximately 76.5% of our revenue was generated from Sabre Travel Network, approximately 11.1% from Travelocity, 2.4% from GetThere and 10.0% from Sabre Airline Solutions. Total revenues from continuing operations have grown at a compound annual growth rate of 6.4% for the three years ended December 31, 2002.

        Air travel in 2001 was trending lower than in 2000, initially because of the declining economic conditions in the United States, then due to the September 11, 2001 terrorist attacks. As further discussed in the Reduced Volume of Air Travel Section of Business Trends below, we have experienced significant decreases in bookings volumes due to reduced travel in the United States and, to a lesser degree, internationally following these attacks.

        For the three years ended December 31, 2002, operating expenses from continuing operations have increased at a compound annual rate of 7.5%. Amortization of goodwill and intangible assets resulting from acquisitions of GetThere, Preview, Gradient Solutions Limited (now known as Sabre Ireland Online Limited), Sabre Pacific, Dillon, Site 59 and the purchase of the remaining publicly-held common shares of Travelocity.com that we did not previously own was $53.4 million in 2002, $277.5 million in 2001 and $109.4 million in 2000. Amortization of goodwill and certain indefinite lived intangible assets ceased on January 1, 2002 upon our adoption of SFAS No.142 (Note 2 to the Consolidated Financial Statements), resulting in approximately $237 million less amortization expense during 2002 than in 2001. Absent the effect of the amortization of goodwill and intangible assets, operating expenses from continuing operations have grown at a compound annual growth rate of 6.4%. Our primary operating expenses consist of salaries, benefits, other employee-related costs, communication costs and customer incentives, representing approximately 61.0%, 54.8% and 58.8% of total operating expenses in 2002, 2001 and 2000, respectively. Those expenses increased at a compound annual rate of 7.1% for the three years ended December 31, 2002, primarily due to higher customer incentives expenses.

        As a result of lower than expected growth in travel bookings and revenues from the declining economy, the September 11, 2001 terrorist attacks, the possibility of terrorist attacks, hostilities and war, the financial instability of many of the air carriers, delays resulting from added security measures at airports and the shift to airline direct distribution, our 2002 revenues were only 5.2% higher than 2000 revenues. However, this growth in revenues, coupled with a 2.5% decrease in operating expenses during this same period, resulted in an increase in operating margin to 15.4% in 2002 from (0.4%) in 2001 and 8.8% in 2000. The 2001 margin was lower due to increased amortization of goodwill and intangible assets and higher operating expenses during 2001 than in either 2002 or 2000.

        Business Trends.    Our revenues are highly dependent on the travel and transportation industries, and particularly on United States airline travel bookings. We are experiencing significant decreases in bookings volumes due to reduced travel in the United States and, to a lesser degree, internationally and due to increased efforts by airlines to divert bookings to alternative distribution channels.

        Reduced Volume of Air Travel.    We attribute the lower travel activity principally to economic conditions in the United States and to ongoing travel security concerns. Air travel continues to be adversely affected by the state of the United States economy, by the possibility of terrorist attacks, hostilities and war, and by delays resulting from added security measures at airports. Travelers appear to be traveling less, remaining closer to home, deferring travel and substituting alternative methods of travel for air travel.

17



        Air travel in 2001 was trending lower than in 2000, initially because of the declining economic conditions in the United States. On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scope involving the hijacking and destruction of multiple passenger aircraft operated by commercial air carriers. Bookings were down approximately 65% immediately after the attacks. By the end of 2001, bookings volumes had partially recovered, to approximately 15% lower than the same period in 2000. Air travel bookings volumes recovered further during 2002, and by the end of 2002, air travel bookings were 16.1% below 2000 levels and 8.2% lower than 2001 because of the general economic decline that has occurred since September 11, 2001. Our results of operations for the year ended December 31, 2002 were negatively affected by this continued reduction in travel. Our total bookings for 2002 in the U.S. were approximately 11.9% lower than the year ago period. We are uncertain whether travel booking volumes will fully recover to historical levels, especially when compared to the year 2000, which was a year in which we experienced historically high levels of travel bookings. Travel demands have been trending lower than expected for the first quarter of 2003 because of global security concerns and possible military action, as well as economic and political issues in Latin America.

        Financial Condition of Airlines.    Our airline customers are negatively affected by the continuing lower levels of travel activity. Several major carriers are experiencing liquidity problems. Some airlines have sought bankruptcy protection and others may consider bankruptcy relief. The financial difficulties facing our airline customers increase the risk that they may not perform on our contracts with them, including the risk we may not be paid for services provided to them, although this risk may be mitigated by our participation in industry clearinghouses, which allow for centralized payment of service providers in the travel industry. Several air carriers have reduced the size of their fleets and the number of flights available or are implementing other cost saving measures. These conditions may result in the airlines buying less of our products or services or seeking to reduce costs through price negotiation or other means.

        Supplier Efforts to Control Travel Distribution.    The airline owners of Orbitz and Worldspan are aggressively working to divert travel bookings onto channels that they collectively control. Those airlines have withheld inventory from independent travel distributors, have greatly reduced commissions paid to online and traditional travel agencies and have conditioned independent distributors' access to inventory on their response to pricing offered by channels that those airlines control. Their collective efforts are resulting in travel bookings being diverted from traditional distribution channels toward airline-controlled channels, such as Orbitz, individual airline Websites and call centers. Additionally, several hotels have announced plans for similar multi-vendor Websites for booking hotels and other accommodations.

        Merchant Model.    Independent travel distributors, including our travel marketing and distribution companies, are attempting to reduce their reliance on supplier-paid commissions and booking fees by increasingly promoting a "merchant model" of travel distribution. Under this model, the distributor recognizes as revenue the sale price to the traveler less the cost of the inventory, rather than a supplier-paid booking fee or commission. Merchant model content can include air, hotel and vacation offerings. However, other travel suppliers are starting to offer their content on a merchant basis as well as through independent travel distributors. Merchant content is good for travelers because they can generally book their travel at a lower price than regularly published offerings. For us, the merchant business generally delivers higher revenue per transaction than comparable sales under the agency/booking fee model.

        The potential effects of these trends, events and uncertainties are discussed below under Risk Factors.

Critical Accounting Policies

        The preparation of our financial statements requires that we adopt and follow certain accounting policies. Certain amounts presented in the financial statements have been determined based upon estimates and assumptions. Although we believe that our estimates and assumptions are reasonable, actual results may differ.

18



        We have included below 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. We have discussed the development, selection and disclosure of these accounting policies with our audit committee. Although we believe these policies to be the most critical, other accounting policies also have a significant effect on our financial statements and certain of these policies also require the use of estimates and assumptions. Note 2 to the Consolidated Financial Statements discusses each of our significant accounting policies.

        Accounts Receivable:    We generate a significant portion of our revenues and corresponding accounts receivable from services provided to the commercial air travel industry. As of December 31, 2002, approximately 63% of our accounts receivable were attributable to these customers. Our other accounts receivable are generally due from other participants in the travel and transportation industry.

        We evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer's inability to meet its financial obligations to us (e.g., bankruptcy filings, failure to pay amounts due to us or others), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize reserves for bad debts based on past write-off history (average percentage of receivables written off historically) and the length of time the receivables are past due.

        During 2002 and 2001, the commercial air travel industry in particular, and the travel and transportation industry in general, was adversely affected by a decline in travel resulting from a softening economy. Our airline customers are negatively affected by the continuing lower levels of travel activity. Several major domestic air carriers are experiencing liquidity problems. Some airlines have sought bankruptcy protection, and others may consider bankruptcy relief. We believe that we have appropriately considered the effects of these factors, as well as any other known customer liquidity issues, on the ability of our customers to pay amounts owed to us. However, if demand for commercial air travel softens, due to prevailing economic conditions, terrorist acts, war or other incidents involving commercial air transport, or other factors, the financial condition of our customers may be adversely impacted. If we begin, or estimate that we will begin, to experience higher than expected defaults on amounts due us, our estimates of the amounts which we will ultimately collect could be reduced by a material amount. After nearly doubling our allowance for bad debts in 2001 to $41.3 million, we reduced this allowance by $6.8 million, or 17%, to $34.5 million at December 31, 2002. This reduction was driven primarily by a large payment from a customer in a bankruptcy dispute which resulted in a $5.5 million reduction of the allowance.

        Booking Fee Cancellation Reserve:    We record revenue for airline travel reservations processed through the Sabre system at the time of the booking of the reservation. However, if the booking is canceled in a later month, the booking fee must be refunded to the customer (less a small cancellation fee). Therefore we record revenue net of an estimated amount reserved to account for future cancellations. This reserve is calculated based on historical cancellation rates. In estimating the amount of future cancellations that will require us to refund a booking fee, we assume that a significant percentage of cancellations are followed by an immediate re-booking, without loss of revenue. This assumption is based on historical rates of cancellations/re-bookings and has a significant impact on the amount reserved. If circumstances change, such as higher than expected cancellation rates or changes in booking behavior, our estimates of future cancellations could be increased by a material amount, and our revenue decreased by a corresponding amount. At December 31, 2002 and 2001, our booking fee cancellation reserves were approximately $18.4 million and $21.0 million, respectively. In 2002, the cancellation reserve declined by $2.6 million due to declining booking levels. This reserve is sensitive to changes in booking levels. For example, if 2002 booking volumes had been 10% lower, the reserve balance would have been reduced by $1.8 million.

19



        Business Combinations:    During 2002, 2001 and 2000, we completed a number of acquisitions of other companies using the purchase method of accounting. The amounts assigned to the identifiable assets and liabilities acquired in connection with these acquisitions were based on estimated fair values as of the date of the acquisition, with the remainder recorded as goodwill. The fair values were determined by our management, generally based upon information supplied by the management of the acquired entities and valuations prepared by independent appraisal experts. The valuations have been based primarily upon future cash flow projections for the acquired assets, discounted to present value using a risk-adjusted discount rate. For certain classes of intangible assets, the valuations have been based upon estimated cost of replacement. In connection with these acquisitions, we have recorded a significant amount of intangible assets, including goodwill.

        Long-Lived Assets and Goodwill:    Prior to January 1, 2002, we reviewed all of our long-lived assets, including identifiable intangible assets, for impairment when changes in circumstances indicated that the carrying amount of an asset may not be recoverable. If we determined that such indicators were present, we prepared an undiscounted future net cash flow projection for the asset. In preparing this projection, we made a number of assumptions concerning such things as future booking volume levels, price levels, commission rates, rates of growth in our consumer and corporate direct booking businesses, rates of increase in operating expenses, etc. If our projection of undiscounted future net cash flows was in excess of the carrying value of the recorded asset, no impairment was recorded. If the carrying value of the asset exceeded the projected undiscounted net cash flows, an impairment was recorded. The amount of the impairment charge was determined by discounting the projected net cash flows. Intangible assets subject to amortization continue to be evaluated for impairment as discussed above.

        Through the end of 2001, we evaluated goodwill for impairment based on undiscounted projected future cash flows. If the carrying value of the goodwill was less than the undiscounted projected future cash flows, no impairment would be recognized. Upon adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142") on January 1, 2002, we began to evaluate our goodwill for impairment on an annual basis or whenever indicators of impairment exist. The evaluation is based upon a comparison of the estimated fair value of the unit of our business to which the goodwill has been assigned to the sum of the carrying value of the assets and liabilities of that unit. The fair values used in this evaluation are estimated based upon discounted future cash flow projections for the unit. These cash flow projections are based upon a number of assumptions, as discussed above. Under SFAS No. 142 intangible assets deemed to have indefinite lives are subject to impairment tests annually or when changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value of an indefinite lived intangible asset exceeds its fair value, as generally estimated using a discounted future net cash flow projection, the carrying value of the asset is reduced to its fair value.

        To date, we have not recorded a significant impairment of our goodwill or intangible assets. We believe that assumptions we have made in projecting future cash flows for the evaluations described above are reasonable. However, if future actual results do not meet our expectations, we may be required to record an impairment charge, the amount of which could be material to our results of operations. See Note 2 to the Consolidated Financial Statements for further discussion.

20



Off-Balance Sheet Arrangements

        Syndicated Lease Financing—As part of a syndicated lease arrangement, we are affiliated with a special purpose entity ("SPE"), which is also a variable interest entity as that term is defined in Financial Accounting Standards Board ("FASB") Interpretation No. 46, Consolidation of Variable Interest Entities, that currently qualifies for off-balance sheet treatment. In 1999, we arranged a syndicated lease financing facility of approximately $310 million through this entity for the use of land, an existing office building and the construction of a new corporate headquarters facility in Southlake, Texas, as well as the construction of a new data center in Tulsa, Oklahoma. The data center in Tulsa was sold during the third quarter of 2002 and the balance of the lease facility is now approximately $207 million. We currently account for the financing facility as an operating lease. As a result, neither the asset nor the related debt are recorded in our balance sheets at December 31, 2002 and 2001.

        In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements ("FIN 46"). FIN 46 will significantly change current practice by requiring the consolidation of entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other pecuniary interests in the entity. Currently entities are generally consolidated by an enterprise which has a controlling financial interest through ownership of a majority voting interest in the entity. This statement is to be applied to all new variable interest entities entered into after January 31, 2003. The statement will apply to all existing variable interest entities for periods beginning after June 15, 2003. As a result of the issuance of FIN 46, we will begin consolidating the SPE effective July 1, 2003.

        The SPE leases the properties to us under a master lease agreement. The initial lease term expires September 2004, with two one-year renewal periods thereafter, subject to specified lessor and lessee approvals. At any time during the lease term, including the renewal periods, we have the option to purchase or sell the properties. If the sell option is exercised, we have guaranteed to the lessor that proceeds on a sale will be at least 84% of the original fair value of the leased facilities and we are responsible for the first dollar loss on a devaluation of the property of up to 84% of the total funded value of the SPE. At December 31, 2002 (taking into consideration the sale of the data center), the total guarantee approximated $174 million. We periodically evaluate whether any liability exists related to this residual value guarantee. To date, we do not believe that any significant liability exists. If the sales proceeds exceed the original fair value of the leased facilities, we retain the excess.

        All capitalization of the SPE has been provided by a consortium of independent banking institutions. The banks have invested capital at risk exceeding 3.3% of the capital of the SPE. Therefore, we do not consolidate the SPE in our financial statements. If the invested capital at risk of the lenders declines below 3.3%, or if certain other criteria are not met, we would be required to consolidate the SPE prior to the effective date of FIN 46.

        Had we consolidated the SPE at December 31, 2002 (after taking into consideration the sale of the data center), our reported assets would have increased by approximately $192 million and reported liabilities would have increased approximately $201 million, net of deferred taxes. Additionally, instead of rent expense of $5 million and $3 million for the years ended December 31, 2002 and 2001, respectively, we would have recorded depreciation expense of $12 million and $3 million and interest expense of $5 million and $3 million, respectively.

21



Seasonality

        The travel industry is seasonal in nature. Bookings, and thus fees charged for the use of the Sabre system, decrease significantly each year in the fourth quarter, primarily in December, due to early bookings by customers for travel during the holiday season and a decline in business travel during the holiday season. Additionally, we had a $47 million gain in the third quarter of 2001 resulting from our sale of France Telecom shares. The third and fourth quarters of 2001 and all of the 2002 quarters were also negatively impacted by the significant decrease in air travel and booking activity after the September 11, 2001 terrorist attacks and the resulting decline in both the travel industry and the overall economic climate.

        The following table sets forth our quarterly financial data (in thousands, except per share data):

 
  First
Quarter

  Second
Quarter

  Third
Quarter

  Fourth
Quarter

 
2002                          
Revenues   $ 549,358   $ 536,748   $ 517,374   $ 452,986  
Operating income     119,994     104,304     87,474     5,728  
   
 
 
 
 
Net earnings   $ 87,387   $ 67,965   $ 57,921   $ 871  
   
 
 
 
 
Earnings per common share:                          
  Basic   $ .66   $ .48   $ .40   $ .01  
   
 
 
 
 
  Diluted   $ .64   $ .47   $ .40   $ .01  
   
 
 
 
 

 

 

First
Quarter


 

Second
Quarter


 

Third
Quarter


 

Fourth
Quarter


 
2001                          
Revenues   $ 583,581   $ 593,322   $ 535,453   $ 432,605  
Operating income (loss)     44,861     38,448     2,106     (94,124 )
Income (loss) from continuing operations     413     5,051     17,290     (69,707 )
Income from discontinued operations, net     13,632     22,673     38,772      
Cumulative effect of accounting change, net     3,103              
   
 
 
 
 
Net earnings (loss)   $ 17,148   $ 27,724   $ 56,062   $ (69,707 )
   
 
 
 
 
Earnings (loss) per common share—basic:                          
  Income (loss) from continuing operations   $   $ .04   $ .13   $ (.52 )
  Income from discontinued operations, net     .10     .17     .29      
  Cumulative effect of accounting change, net     .03              
   
 
 
 
 
  Net earnings (loss)   $ .13   $ .21   $ .42   $ (.52 )
   
 
 
 
 
Earnings (loss) per common share—diluted:                          
  Income (loss) from continuing operations   $   $ .04   $ .13   $ (.52 )
  Income from discontinued operations, net     .10     .16     .29      
  Cumulative effect of accounting change, net     .03              
   
 
 
 
 
  Net earnings (loss)   $ .13   $ .20   $ .42   $ (.52 )
   
 
 
 
 

22


Results of Operations

        Summary.    We generate revenues from continuing operations by providing travel marketing and distribution services to travel agencies, corporate travel departments and travel suppliers using the Sabre system, to individuals through the Travelocity Websites, to businesses using GetThere products, and from the development and marketing of Sabre Airline Solutions products and services. During the year ended December 31, 2002, we generated approximately 76.5% of our revenue from Sabre Travel Network services, approximately 11.1% from Travelocity, 2.4% from GetThere and 10.0% from Sabre Airline Solutions. Revenues by business unit are exclusive of intersegment activity. Our consolidated operating margins were 15.4% and (0.4%) for the years ended December 31, 2002 and 2001, respectively.

        EDS Transaction.    On July 2, 2001, we completed a transaction with EDS which provided for (i) the sale of our infrastructure outsourcing business and IT infrastructure assets and associated real estate to EDS, (ii) a 10-year contract with EDS to manage our IT systems, and (iii) agreements with EDS to jointly market IT services and software solutions to the travel and transportation industries. As a result of the EDS transaction, our financial statements have been reclassified to present the results of operations of the information technology infrastructure outsourcing business as discontinued operations for the years ended December 31, 2001 and 2000. See Note 3 to the Consolidated Financial Statements for additional information regarding this transaction.

2002 Compared to 2001

        Revenues.    Total revenues from continuing operations for the year ended December 31, 2002 decreased approximately $89 million or 4.1%, compared to the year ended December 31, 2001, from $2,145 million to $2,056 million.

        Sabre Travel Network—Revenues decreased $100 million or 6.0%, from $1,673 million in 2001 to $1,573 million in 2002. This decrease was primarily due to a $93 million decrease in booking and other fees from associates, a $3 million decrease in subscriber revenue and a $4 million decrease in other revenues. Total worldwide travel bookings processed through the Sabre system, which include direct connect bookings and joint venture bookings for which we or our distribution partners earn a booking fee, were 397 million for the year ended December 31, 2002, a decrease of 7.8% from 431 million bookings in 2001. Although bookings increased 1.2% in the fourth quarter of 2002 compared to the same period in 2001, bookings have not recovered to the levels experienced prior to 2001 due to economic conditions in the United States, the ongoing travel security concerns discussed above and the shift to airline direct distribution. The effect on revenues from the decreases in booking volumes were partially offset by a 4.3% increase in average price per booking charged to associates during 2002. The decrease in subscriber revenue was a result of a declining base in equipment leased to subscribers. Other revenues fell mainly due to decreased development revenue from our joint ventures.

23



        Travelocity—Revenues decreased approximately $6 million or 2.6%, from $234 million to $228 million. The decrease was primarily due to decreases in air revenues of $30 million, advertising revenues of $10 million and the recognition of losses from our equity investments in joint ventures of $5 million. Much like our Sabre Travel Network segment, we believe that the decreases in air revenues can primarily be attributed to economic conditions in the United States and travel security concerns. Even though Travelocity's gross travel bookings (the total purchase price of all travel booked through Travelocity's Websites) increased 11.8%, average revenues per transaction were lower than we expected primarily as a result of changes in the air commission structure driven by the need to compete with an airline-owned competitor's pricing scheme. Advertising revenues decreased due principally to the general softening of the online advertising market. The losses from joint ventures relate to our investments in joint ventures for the establishment of online travel reservation sites in the Far East and Europe. These joint ventures began operations during 2002 and losses were anticipated. These decreases were partially offset by a $26 million increase in non-air revenues and a $13 million increase in other revenue. The increase in non-air revenues can primarily be attributed to the launch, during 2002, of Travelocity's branded vacation and cruise programs and the acquisition of Site59, the last minute online travel leader. See Note 5 to the Consolidated Financial Statements regarding this acquisition. Other revenues increased primarily due to service charges for the handling and express delivery of certain paper tickets and the recognition of additional revenue related to warrants received from Hotels.com. See Note 7 to the Consolidated Financial Statements for additional information on these warrants.

        GetThere—Revenues increased approximately $8 million or 19.0%, from $42 million to $50 million. This increase was primarily the result of a $14 million increase in corporate and other revenues. Corporate and other revenues increased due to an increase in trip fees and revenues from partnerships with agencies such as American Express. Corporate adoption rates, as measured by the estimated percentage of a corporation's total corporate travel expenditures purchased through GetThere's online booking tools, have increased 48.8% in 2002. We believe that this indicates that, despite the reduction in business travel, GetThere's online booking tools are gaining widespread acceptance and use by the employees of its corporate customers. For the year ended December 31, 2002, GetThere's corporate business achieved bookings growth of 82.7% year over year. The increase in corporate and other revenues was partially offset by a $6 million decrease in supplier revenue, which consists of services provided to air travel providers, such as United Airlines, for hosting their consumer Websites. The decline reflects the decrease in travel as well as the loss of several customers.

        Sabre Airline Solutions—Revenues increased approximately $9 million or 4.6%, from $196 million to $205 million, due to an $8 million increase in revenues from applications development products and services provided to various travel providers coupled with a $1 million increase in airline reservation hosting revenue. The increase in products and services was due to acquisitions and various product sales in 2002. Airline reservation hosting revenue increased due to the signings of 11 new carriers coupled with an increase in access fees.

        Cost of Revenues.    Cost of revenues for the year ended December 31, 2002 decreased approximately $156 million or 11.7%, compared to the year ended December 31, 2001, from $1,336 million to $1,180 million.

24


        Sabre Travel Network—Cost of revenues decreased $148 million or 14.5%, from $1,018 million to $870 million. This decrease was primarily due to lower communications and data processing costs of $40 million resulting from lower transaction volumes and savings resulting from our IT infrastructure outsourcing services contract with EDS, which was effective July 1, 2001. The outsourcing agreement also resulted in lower depreciation and amortization of $37 million due to the sale of subscriber equipment to EDS in this transaction. Customer incentives decreased $34 million due to lower booking volumes. Salaries and benefits decreased $16 million due to December 2001 workforce reductions and lower incentive compensation expenses and all other operating expenses decreased $21 million.

        Travelocity—Cost of revenues increased $13 million or 12.6%, from $103 million to $116 million. This increase was primarily the result of increased data processing expenses of approximately $8 million consisting of higher Web hosting costs of $3 million, increased purchased services of $2 million and increased software costs of $3 million. Salaries and benefits increased $5 million due to increased headcount in 2002.

        GetThere—Cost of revenues decreased $18 million or 28.1%, from $64 million to $46 million. This improvement was primarily attributable to an $18 million decrease in salaries and benefits resulting from workforce reductions and cost cutting initiatives.

        Sabre Airline Solutions—Cost of revenues decreased approximately $3 million or 2.0%, from $151 million to $148 million. This decrease was the result of lower other operating expenses.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the year ended December 31, 2001 increased $169 million or 45.6%, compared to the year ended December 31, 2000 from $371 million to $540 million. Salaries and benefits increased $30 million to accommodate the growth in the business which occurred prior to the September 11, 2001 terrorist attacks. Facilities costs increased $11 million to accommodate growth and as a result of moving into our new headquarter facilities and consolidating Travelocity and GetThere facilities. Approximately $32 million of the increase in selling, general and administrative expenses relates to the Travelocity business and includes an $18 million increase in amortization of payments made to strategic distribution partners, an $8 million increase in advertising spending and a $6 million increase in salaries, benefits and employee-related costs and professional services as well as other administrative costs to support the business. Approximately $19 million of the increase relates to the GetThere business as a result of the purchase of GetThere in October 2000. Bad debt reserves increased $19 million as a result of the events of September 11, 2001. Depreciation increased $10 million, data processing expenses increased $5 million, communications expenses increased $4 million and maintenance and device support expenses increased $2 million in order to support the growth of the business. Other selling, general and administrative expenses increased to support our growth and as a result of costs which were historically allocated to the outsourcing business that are still being incurred as part of continuing operations.

25



        Amortization of Goodwill and Intangible Assets.    Amortization of goodwill and intangible assets decreased $225 million, or 80.9%, from $278 million for the year ended December 31, 2001 to $53 million for the year ended December 31, 2002. Goodwill and intangible assets of approximately $1 billion were recorded in connection with the merger of Travelocity.com and Preview Travel, the acquisitions of GetThere, Gradient Solutions Limited (now known as Sabre Ireland Online Limited) and a 51% interest in Dillon Communications Systems during 2000, as well as the acquisition of Sabre Pacific in March 2001. Acquired goodwill and intangible assets were being amortized over periods ranging from one to seven years. Amortization of this goodwill and certain indefinite lived intangible assets ceased on January 1, 2002 upon our adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). Our adoption of SFAS 142 resulted in approximately $237 million less of gross amortization expense related to these acquisitions during 2002 compared with 2001. This reduction was offset by an increase in amortization expense of $12 million for intangible assets still subject to amortization due to the acquisition of Site59.com, Inc., the acquisition of the Travelocity.com minority interest and the impact of having a full year of amortization for intangible assets related to the acquisition of Sabre Pacific. See the discussion in Note 2 of the Consolidated Financial Statements for additional information about the effect of adopting SFAS 142 on accounting for acquired goodwill and certain intangible assets.

        Operating Income.    Operating income for the year ended December 31, 2002 increased $327 million, as compared to the year ended December 31, 2001 from a $9 million operating loss to a $318 million operating income. Operating margins increased from (0.4)% in 2001 to 15.4% during 2002 due to a 19.3% decrease in operating expenses while revenues only declined 4.1%. This expense decrease was primarily due to reduced goodwill and certain indefinite lived intangible asset amortization resulting from our adoption of SFAS 142 effective January 1, 2002. Sabre Travel Network's operating income increased $73 million or 21.7%, due primarily to decreases in communications, data processing, depreciation and amortization, customer incentives and salaries and benefits during 2002 as compared to 2001 which more than offset the decline in revenue. Travelocity's operating loss decreased $23 million or 30.6%, due primarily to lower goodwill amortization charges. GetThere's operating loss decreased $187 million due primarily to lower goodwill amortization and lower salaries and benefits. Sabre Airline Solutions' operating income increased by $23 million due to increases in product and services revenues and decreased operating expenses. Further, although we cannot precisely quantify the effect, we believe that 2001 and 2002 operating incomes in all operating segments were negatively impacted by the events of September 11, 2001, the subsequent decline in the travel industry and the general economy both domestically and internationally.

        Interest Income.    Interest income increased by $3 million or 12.0%, from $25 million for the year ended December 31, 2001 to $28 million for the year ended December 31, 2002, due primarily to higher average balances maintained in our cash and marketable securities accounts, partially offset by lower average interest rates.

        Interest Expense.    Interest expense for the year ended December 31, 2002 decreased $18 million or 43.9%, from $41 million to $23 million. This decrease was primarily due to the retirement of $859 million of debt in July and August 2001, partially offset by interest on the $400 million in aggregate principal amount of Notes we issued August 2001.

        Other, net.    Other, net decreased $20 million or 54.1%, from $37 million to $17 million, from 2001 to 2002. Other, net during 2001 was due primarily to a $47 million gain from the sale of France Telecom shares, partially offset by writedowns of investments we had made in companies developing emerging travel technologies totaling $10 million. The $17 million in other, net during 2002 was primarily due to an $18 million gain from the sale of our former corporate headquarters building, a $7 million gain realized from the sale of France Telecom shares and other investment gains of $3 million, partially offset by $11 million in writedowns of investments in companies developing emerging travel technologies.

26



        Minority Interests.    Minority interests include minority owners' interests in our consolidated subsidiaries. As discussed in Note 5 to the Consolidated Financial Statements, in April 2002 we acquired the approximately 16.7 million publicly-held common shares of Travelocity.com which we did not previously own. Accordingly, minority interests during 2002 only reflect these interests in Travelocity.com for the period prior to acquisition. During 2001, the full year net loss of Travelocity.com resulted in minority interests of approximately $22 million.

        Income Taxes.    The provision for income taxes was $125 million and $81 million for 2002 and 2001, respectively. Our effective tax rate for 2002 was approximately 37% which varies from the statutory U.S. federal income tax rate of 35% due primarily to state income taxes. Our effective tax rate for 2001 was 238% primarily as a result of the effect of the recognition of non-deductible amortization expense for goodwill recorded in conjunction with the acquisitions of GetThere and Preview Travel in 2000. Excluding the effects of the goodwill amortization, our effective tax rate for 2001 was 34.7%. The tax provision was reduced in both years due to the recognition of research and experimentation credits of approximately $4.0 million. See Note 12 to the Consolidated Financial Statements for additional information regarding income taxes.

        Income from Continuing Operations.    Income from continuing operations increased $261 million from a loss of $47 million during 2001 to income of $214 million in 2002. This increase is primarily due to the $327 million increase in operating income, partially offset by a $22 million decrease in minority interests and a $44 million increase in income taxes.

        Income from Discontinued Operations.    As noted in Note 3 to the Consolidated Financial Statements, we sold our information technology infrastructure outsourcing business to EDS effective July 1, 2001 which resulted in net income from discontinued operations of $75 million. There were no discontinued operations during 2002.

        Cumulative Effect of Accounting Change.    We adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), effective January 1, 2001. We recognized a non-recurring cumulative gain in earnings for the year ended 2001 upon adoption of SFAS 133 of approximately $3 million, net of minority interests of approximately $2 million and deferred income taxes of approximately $2 million, relating to the Hotels.com warrants. See Note 7 to the Consolidated Financial Statements.

        Net Earnings.    Net earnings increased $183 million or 590.3%, from $31 million to $214 million, primarily due to decreases in operating expenses of 19.3%, which exceeded the 4.1% decrease in revenues between years.

Results of Operations

2001 Compared to 2000

        Revenues.    Total revenues from continuing operations for the year ended December 31, 2001 increased approximately $189 million or 9.7%, compared to the year ended December 31, 2000, from $1,956 million to $2,145 million.

        Sabre Travel Network—Revenues increased $51 million or 3.1%, from $1,622 million during 2000 to $1,673 million during 2001. This increase was primarily due to a $29 million increase from booking and other fees from associates which reflected a price increase of 8% over prior year offset by a decrease in direct booking volumes of 6% as a result of the decrease in travel due to the U.S. economic slowdown and the events of September 11, 2001. The remaining increase of $22 million was driven by an increase in leased subscriber equipment revenue.

27



        Travelocity—Revenues increased approximately $90 million or 62.5%, from $144 million to $234 million. This increase is due primarily to a $47 million increase in transaction revenue, a $16 million increase in advertising revenues and a $27 million increase in other revenues. The increase in transaction revenues was mainly due to a 33% increase in gross travel bookings. The growth in advertising revenues was primarily from the revenue sharing agreement with AOL, and growth in other revenues was primarily due to service charges for the handling and express delivery of certain paper tickets and the recognition of additional revenue related to warrants received from Hotels.com.

        GetThere—Revenues increased approximately $30 million or 250.0%, from $12 million to $42 million. This increase is primarily a result of an $18 million increase in corporate and other revenue and a $12 million increase in supplier revenue, which consists of services provided to air travel providers, such as United Airlines, for hosting their consumer Websites. These increases resulted primarily from the combination of GetThere with our existing Business Travel Solutions business in October 2000. Corporate and other revenue increased due to an increase in trip fees and revenues from partnerships with agencies such as American Express and other online customers.

        Sabre Airline Solutions—Revenues increased approximately $18 million or 10.1%, from $178 million to $196 million, due primarily to increases in applications development performed on behalf of various travel providers.

        Further, although we cannot precisely quantify the effect, we believe that revenue was negatively impacted by the events of September 11, 2001 in all operating segments.

        Cost of Revenues.    Cost of revenues for the year ended December 31, 2001 increased approximately $34 million or 2.6%, compared to the year ended December 31, 2000, from $1,302 million to $1,336 million.

        Sabre Travel Network—Cost of revenues decreased $53 million or 4.9%, from $1,071 million to $1,018 million, as the result of $52 million of depreciation savings resulting from the sale of subscriber equipment to EDS effective July 1, 2001 and a $1 million net decrease in all other operating expenses.

        Travelocity—Cost of revenues increased $27 million or 35.5%, from $76 million to $103 million, as the result of increased salaries and benefits due to the growth of the business in 2001.

        GetThere—Cost of revenues increased $41 million or 178.3%, from $23 million to $64 million, as the result of increases in salaries and benefits of $29 million, development labor of $3 million, depreciation of $3 million and other operating expenses of $6 million resulting from the growth of the business during 2001.

        Sabre Airline Solutions—Cost of revenues increased $19 million or 14.4%, from $132 million to $151 million, due primarily to increases in salaries and benefits of $8 million and other operating expenses of $11 million to support increased applications develpment workloads.

28



        Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the year ended December 31, 2001 increased $169 million or 45.6%, compared to the year ended December 31, 2000 from $371 million to $540 million. Approximately $32 million of the increase in selling, general and administrative expenses relates to the Travelocity business and includes an $18 million increase in amortization of payments made to strategic distribution partners, an $8 million increase in advertising spending and a $6 million increase in salaries, benefits, employee-related costs and professional services as well as other administrative costs to support the business. Approximately $19 million of the increase relates to the GetThere business as a result of the purchase of GetThere in October 2000. The remaining $118 million increase in selling, general and administrative expenses is due to increases in bad debt reserves of $19 million as a result of the events of September 11, 2001 and increases in advertising and promotion costs, distributor incentives and other selling, general and administrative expenses to support our growth, as well as costs historically allocated to the outsourcing business that are still being incurred as part of continuing operations.

        Amortization of Goodwill and Intangible Assets.    Amortization of goodwill and intangible assets increased $169 million or 155.0%, from $109 million for the year ended December 31, 2000 to $278 million for the year ended December 31, 2001. The increase is primarily due to the impact in 2001 of recognizing a full year of amortization of goodwill recorded in connection with the 2000 acquisitions of GetThere and Preview Travel. We recorded approximately $1 billion of goodwill and intangible assets associated with the merger of Preview and Travelocity.com and the acquisitions of GetThere, Gradient Solutions Limited (now known as Sabre Ireland Online Limited) and an interest in Dillon in 2000, as well as the purchase of Sabre Pacific and other immaterial acquisitions. The majority of goodwill and intangible assets resulting from acquisitions are being amortized over periods ranging from one to seven years. As of January 1, 2002, we no longer amortize goodwill and certain other intangible assets. See Note 2 to the Consolidated Financial Statements regarding this new accounting pronouncement.

29



        Operating Income.    Operating income for the year ended December 31, 2001 decreased $182 million or 105.2%, as compared to the year ended December 31, 2000 from $173 million to ($9) million. Operating margins decreased from 8.8% in 2000 to (0.4)% in 2001, due to an increase in operating expenses of 20.8% partially offset by a 9.7% increase in revenues. Sabre Travel Network's operating income decreased $71 million or 17.5%, due to increases in selling, general and administrative expenses, partially offset by decreases in depreciation and amortization. Travelocity's operating loss decreased $38 million due to increases in transaction services revenues from associates and increases in advertising revenues, slightly offset by increased goodwill amortization and higher selling, general and administrative expenses. GetThere's operating loss increased $165 million due primarily to higher goodwill amortization. Sabre Airline Solutions' operating loss decreased by $25 million due to increases in product and services revenues that were slightly offset by increased operating expenses. We believe that the events of September 11, 2001 had a negative impact on operating income in all operating segments, although we cannot precisely quantify this effect.

        Interest Income.    Interest income increased by $9 million or 56.3%, from $16 million for the year ended December 31, 2000 to $25 million for the year ended December 31, 2001, due primarily to higher average balances maintained in our cash and marketable securities accounts, partially offset by lower average interest rates.

        Interest Expense.    Interest expense for the year ended December 31, 2001 increased $9 million or 28.1%, from $32 million to $41 million as a result of interest expense related to the $710 million of borrowings to finance the purchase of GetThere and interest expense on the $400 million in unsecured notes which we issued on August 7, 2001.

        Other, net.    Other, net increased $36 million, from $1 million to $37 million primarily due to a $47 million gain from the sale of France Telecom shares, partially offset by a $10 million writedown of investments we had made in companies developing emerging travel technologies.

        Minority Interests.    Minority interests include minority owners' interests in our consolidated subsidiaries, primarily Travelocity.com. The decrease in losses attributable to minority interest is due primarily to a decrease in the net loss of Travelocity.com.

        Income Taxes.    The provision for income taxes was $81 million and $93 million for 2001 and 2000, respectively. Our effective tax rates for 2001 and 2000 were approximately 238% and 49%, respectively, primarily as a result of the effect of the recognition of non-deductible amortization expense for goodwill recorded in conjunction with the acquisitions of GetThere and Preview Travel in 2000. Excluding the effects of the goodwill amortization, our effective tax rates for 2001 and 2000 were 34.7% and 35.4%, respectively. Both years benefited from the recognition of a research and experimentation credit of approximately $4.0 million. See Note 12 to the Consolidated Financial Statements for additional information regarding income taxes.

        Income from Continuing Operations.    Income from continuing operations decreased $143 million or 149.0%, from $96 million in 2000 to ($47) million in 2001 due to an increase in revenues of only 9.7% as a result of the negative effect of the events of September 11, 2001 which was more than offset by an increase of operating expenses of 20.8%.

29



        Income from Discontinued Operations.    Income from discontinued operations increased $27 million or 56.3%, from $48 million to $75 million for 2000 and 2001, respectively. Income from discontinued operations in 2001 includes a gain of approximately $39 million, net of related income taxes, resulting from the disposition of the Outsourcing Business and related assets to EDS in July of 2001. See Note 3 to the Consolidated Financial Statements for additional information regarding this transaction. Discontinued operations have been fully allocated with selling, general and administrative expenses to be representative of the business as it operated during the relevant periods. Some of the selling, general and administrative expenses historically allocated to the information technology Outsourcing Business will still be incurred as part of continuing operations in the future.

        Cumulative Effect of Accounting Change.    We adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), effective January 1, 2001. We recognized a cumulative gain in earnings for the year ended 2001 upon adoption of SFAS 133 of approximately $3 million, net of minority interests of approximately $2 million and deferred income taxes of approximately $2 million, relating to the Hotels.com warrants. See Note 7 to the Consolidated Financial Statements.

        Net Earnings.    Net earnings decreased $113 million or 78.5%, from $144 million to $31 million, primarily due to decreases in operating income and increases in interest expense in 2001 compared to 2000.

Liquidity and Capital Resources

        At December 31, 2002, we had approximately $912 million in cash and marketable securities and working capital of $812 million compared to $667 million in cash and marketable securities and working capital of $528 million at December 31, 2001. We invest cash in highly liquid instruments, including high credit quality money market mutual funds, certificates of deposit, bankers' acceptances, commercial paper, mortgage-backed and receivables-backed securities and corporate and government notes.

        Historically, we have funded our operations through internally generated cash. We generated cash from operating activities of $299 million, $390 million and $311 million for 2002, 2001 and 2000, respectively. The decrease in cash provided by operating activities from 2001 to 2002 primarily resulted from the significant reduction in accounts receivable during 2001 due to the collection of accounts receivable from our Outsourcing Business customers outstanding at December 31, 2000 with no corresponding billings and collections in 2002, due to the sale of the Outsourcing Business to EDS. The increase in cash provided by operating activities from 2000 to 2001 primarily resulted from the non-recurrence of an $81 million payment made to US Airways in 2000 in connection with an outsourcing contract sold to EDS on July 1, 2001 and positive working capital variances as described above, net of certain gains recognized during 2001.

30



        We used cash for investing activities of approximately $677 million, $18 million and $473 million in 2002, 2001 and 2000, respectively. The increase in cash used for investing activities during 2002 as compared to 2001 primarily results from the cash tender offer for the outstanding publicly-held common shares of Travelocity.com for $456 million, the acquisition of Site59 for $40 million net of cash received of $4 million and the purchase of the data center facility from the lessor, netted against the proceeds of selling the same data center to EDS, of $24 million. We estimate that $18 million remains to be paid for the Travelocity.com acquisition. These increases in cash used during 2002 were partially offset by $80 million of cash received from the sale of our former headquarters building. The decrease in cash used for investing activities during 2001 as compared to 2000 primarily results from proceeds realized from the sale of our Outsourcing Business to EDS for approximately $661 million, proceeds of approximately $47 million from the sale of France Telecom depository certificates which we held, as further described in Note 6 to the Consolidated Financial Statements, and $39 million from the exercise of warrants and disposal of stock of Hotels.com. See Note 7 to the Consolidated Financial Statements for more information on these warrants.

        Cash expended for business acquisitions was $499 million, $55 million and $711 million, net of cash acquired, in 2002, 2001 and 2000, respectively. The increase during 2002 was due to the cash tender offer for the outstanding publicly-held common shares of Travelocity.com for $456 million and the acquisition of Site59 for approximately $40 million, net of $4 million cash acquired. The large expenditure during 2000 primarily resulted from the acquisition of GetThere.

        We invested excess cash of approximately $242 million and $506 million in marketable securities, net of marketable securities sold, during 2002 and 2001, respectively. During 2000, we used cash from the sale of marketable securities of approximately $444 million, net of marketable securities purchased, to help finance the payment of a $675 million dividend in February 2000. We try to invest all excess cash in marketable securities. Therefore, our annual investments will fluctuate depending on the levels of cash provided or used by all of our other investing, operating and financing activities.

        Capital investments for the years ended December 31, 2002, 2001 and 2000 were $63 million, $158 million and $190 million, respectively. The reduction in capital expenditures from 2000 to 2001 and 2002 is due to reduced acquisitions of IT assets resulting from our IT infrastructure outsourcing services contract with EDS. We believe that future capital expenditures will be slightly higher than 2002 due to purchases of equipment. However, we do expect capital expenditures to remain significantly lower than 2001.

        During the third quarter of 2001, we made an unsecured $30 million loan to a customer in the travel industry, which was repaid in March 2002.

        We provided $380 million and used $361 million in cash for financing activities during 2002 and 2001, respectively. During 2000, we provided approximately $163 million through financing activities. During 2000, we borrowed approximately $859 million, primarily to finance the acquisition of GetThere. We repaid these borrowings during 2001 primarily using proceeds from the sale of our Outsourcing Business and the issuance in August of 2001 by Sabre Holdings Corporation of $400 million in unsecured notes ("Notes"), bearing interest at 7.35% and maturing August 1, 2011, in an underwritten public offering resulting in net cash proceeds to us of approximately $397 million. See Note 9 to the Consolidated Financial Statements for further discussion of debt transactions. Sabre Inc., a 100% owned subsidiary of Sabre Holdings Corporation, unconditionally guarantees all debt obligations of Sabre Holdings Corporation as detailed in Note 17 to the Consolidated Financial Statements. In conjunction with these Notes, we have entered into two interest rate swaps through 2011 for a total of $300 million, which pay us 7.35% and on which we will pay a variable rate based on a six-month London Interbank Offered Rate ("LIBOR") plus 231 basis points. See Note 7 to the Consolidated Financial Statements for more information on these swaps.

31



        In February 2000, we entered into a $300 million senior unsecured revolving credit agreement which expires on September 14, 2004. Interest on this agreement is variable, based upon the LIBOR, the prime rate or the federal funds rate plus a margin, at our option. At December 31, 2002 and 2001, we did not have any outstanding borrowings under this agreement and the entire $300 million is available for us to draw upon if necessary. We are currently in compliance with all debt covenant requirements under this agreement.

        In April 2002, we completed an underwritten public offering of 9.43 million shares of Class A common stock at $44.50 per share, which resulted in net proceeds to us of approximately $400 million, net of transaction fees. We are using the proceeds from the offering for general corporate purposes.

        During 2002, we generated $37 million in cash through financing activities pursuant to stock options, restricted stock incentives and stock purchase plans. This compares to $109 million and $18 million that was raised in 2001 and 2000, respectively.

        We had not paid any dividends on our common stock before the one-time cash dividend of $675 million was paid in February 2000 in connection with our separation from AMR, nor have we paid any since. Although we have traditionally retained our earnings to finance future growth, we may consider paying dividends in the future if we feel it is in the best interest of our shareholders. Any determination as to the future payment of dividends will depend upon our future results of operations, capital requirements and financial condition and such other factors as our Board of Directors may consider, including any contractual or statutory restrictions on our ability to pay dividends.

        During 2002, we repurchased 2.2 million of our shares at a total cost of $57 million. This completed our remaining authorization to repurchase our shares. We repurchased 0.4 million of our shares at a total cost of $9 million in 2001 and spent approximately $34 million buying shares of our own stock in 2000. We may consider additional share repurchases, but such repurchases would require approval from our Board of Directors. The timing, volume and price of any authorized future repurchases would be made at the discretion of management and would depend on corporate considerations and market conditions.

        In 1999, we entered into an agreement with AOL that provides, among other things, that the Travelocity Websites will be the exclusive reservations engine for AOL's Internet properties. Travelocity is obligated for payments of up to $200 million, subject to AOL meeting certain revenue targets, a percentage of which are shared with us over the five-year term of the agreement. AOL and Travelocity will share advertising revenues and commissions over the five-year term of the agreement. As of December 31, 2002, Travelocity is obligated for future payments of up to $80 million, as we have paid approximately $40 million per year in 2002, 2001 and 2000. Under certain circumstances, Travelocity may elect to alter the terms of this agreement such that guaranteed payments to AOL would no longer be required.

        During the second quarter of 2002, we entered into an agreement with Yahoo! whereby Travelocity will be the exclusive air, car and hotel booking engine on Yahoo! Travel. Under the terms of the agreement, we are obligated to purchase certain levels of advertising, corporate services and enterprise solutions from Yahoo! The companies also plan to jointly develop travel solutions for the millions of individuals, travel agents and travel suppliers that rely on the firms' extensive networks. Minimum payments due to Yahoo! under the terms of the agreement were $14 million during 2002, $28 million during 2003 and $29 million per year in both 2004 and 2005. The agreement also contains a productivity component, where Yahoo! is paid a percentage of the transactions services revenue generated through the Yahoo! network. As of December 31, 2002, we are obligated for total future payments of $86 million, as we paid approximately $14 million during 2002. The agreement is effective July 1, 2002 and expires December 31, 2005. The agreement can be extended for up to two years at Yahoo!'s option. See Note 10 to the Consolidated Financial Statements for additional discussion of this agreement.

32



Contractual Cash Obligations

        Our future minimum noncancelable contractual obligations as of December 31, 2002 are as follows (in thousands of dollars):

 
  Payments Due by Period
for the Years Ended December 31,

 
Contractual Obligations

 
  2003
  2004
  2005
  2006
  2007
  Thereafter
 
Notes payable (1)   $   $   $   $   $   $ 400,000  
Lease obligations     28,241     21,956     11,712     7,092     5,554     12,042  
Amounts receivable under non-cancelable subleases     (5,880 )   (5,880 )   (5,880 )   (5,880 )   (5,880 )   (20,580 )
Other long-term obligations (2)     242,289     205,092     142,967     125,804     44,836     117,600  
   
 
 
 
 
 
 
Total contractual cash obligations   $ 264,650   $ 221,168   $ 148,799   $ 127,016   $ 44,510   $ 509,062  
   
 
 
 
 
 
 

(1)
See Note 9 to the Consolidated Financial Statements.

(2)
Primarily composed of obligations under (i) our agreement with AOL for Travelocity to be the exclusive reservations engine for AOL's Internet properties, (ii) our agreement with Yahoo! for Travelocity to be the exclusive air, car and hotel booking engine on Yahoo! Travel and (iii) minimum amounts due to EDS under the terms of the IT Outsourcing Agreement.

        We believe available balances of cash and short-term investments, cash flows from operations and funds available under our revolving credit facility will be sufficient to meet our cash requirements for the foreseeable future. We continually evaluate opportunities to sell additional equity or debt securities, obtain credit facilities from lenders, or restructure our long-term debt for strategic reasons or to further strengthen our financial position. If market conditions warrant, we may engage in additional financing transactions. In addition, to the extent we consider additional acquisitions of or investments in complementary businesses, products, services and technologies, such additional activities might affect our liquidity requirements or cause us to issue additional equity or debt securities. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

Recent Accounting Pronouncements

        In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"). This statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. This statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of this standard is not expected to have a significant effect on our financial position or results of operations.

Mergers and Acquisitions

        During 2002 we completed the tender offer for the outstanding publicly-held shares of Travelocity.com common stock that we did not previously own, completed the acquisition of Site 59.com, Inc. and completed other immaterial acquisitions. During 2001, we completed the acquisitions of Sabre Pacific and other immaterial acquisitions. During 2000, we completed the merger of Travelocity.com and Preview, as well as the acquisitions of Gradient Solutions Limited (now known as Sabre Ireland Online Limited), GetThere and a 51% ownership interest in Dillon. For further information regarding the material merger and acquisition transactions, see Note 5 to the Consolidated Financial Statements.

33



Inflation

        We believe that inflation has not had a material effect on our results of operations.

SABRE HOLDINGS CORPORATION CAUTIONARY STATEMENT

        Statements in this report which are not purely historical facts, including statements regarding our anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.

RISK FACTORS

General

        Risks associated with an investment in our securities, and with achieving the forward-looking statements in this report, our news releases, our Websites, public filings, investor and analyst conferences and elsewhere, include, but are not limited to, the risk factors described below. Any of the risk factors described below could have a material adverse effect on our business, financial condition or results of operations. We may not succeed in addressing these challenges and risks.

OUR REVENUES ARE HIGHLY DEPENDENT ON THE TRAVEL AND TRANSPORTATION INDUSTRIES, AND PARTICULARLY ON THE AIRLINES, AND A PROLONGED SUBSTANTIAL DECREASE IN TRAVEL BOOKINGS VOLUMES COULD ADVERSELY AFFECT US.

        Most of our revenue is derived from airlines, hotel operators, car rental companies and other suppliers in the travel and transportation industries. Our revenue increases and decreases with the level of travel and transportation activity and is therefore highly subject to declines in or disruptions to travel and transportation. The travel industry is seasonal and our revenue varies significantly from quarter to quarter. Factors that may adversely affect travel and transportation activity include:

34


The September 11, 2001 terrorist attacks on New York and Washington, and the economic downturn that preceded and was worsened by the attacks, may continue to adversely affect us and the travel industry. Additionally, the possibility of terrorist attacks, hostilities and war, the financial instability of many of the air carriers, and delays resulting from added security measures at airports may continue to adversely affect the travel industry. Airlines may reduce the number of their flights, making less inventory available to us. Several major airlines are experiencing liquidity problems and some have sought bankruptcy protection. Travelers' perceptions of passenger security or airlines' financial stability may have an adverse effect on demand. A prolonged substantial decrease in travel bookings volumes could have an adverse impact on our financial performance, operations, liquidity, or capital resources and could impair our ability to recover the carrying value of certain of our assets, including capitalized software, other intangible assets and goodwill.

WE FACE COMPETITION FROM ESTABLISHED AND EMERGING TRAVEL DISTRIBUTION CHANNELS, WHICH COULD DIVERT CUSTOMERS TO OUR COMPETITORS AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

        Our business includes channels of distribution that target the travel agency, corporate-direct and consumer-direct segments of the global travel distribution market. In all of these distribution channels, we face significant competitors, many of whom are aggressively seeking to divert our customers away from traditional distribution methods. In the travel agency channel, our Sabre global distribution system competes primarily against other large and well-established global distribution systems, including those operated by Amadeus, Gailileo and Worldspan. In addition, we face competition in the travel agency channel from travel suppliers that distribute directly to travel agencies and from other companies. In the corporate-direct channel, our GetThere business competes against similar products offered by Amadeus, Galileo, Worldspan and travel agencies. Some competitors market business travel systems that are bundled with financial and other non-travel software systems that we do not offer. As a result, our customers may choose to use our competitors' bundled products and services, which would reduce the revenue we otherwise would have earned from these customers. In the consumer-direct channel, our Travelocity product competes not only against similar products offered by affiliates of Amadeus, Galileo and Worldspan, but also with a large number of travel Websites, including those operated by travel suppliers and by Expedia, Hotwire and Orbitz. Consolidation among travel suppliers, including airline mergers, may increase competition from distribution channels related to those suppliers and place more negotiating leverage in the hands of those suppliers. If we are unable to compete effectively, competitors could divert our customers away from our travel distribution channels and, unless we substitute alternative revenue streams, it could adversely affect our results of operations.

SOME TRAVEL SUPPLIERS ARE AGGRESSIVELY SEEKING TO BYPASS OUR TRAVEL DISTRIBUTION CHANNELS, WHICH MAY HAVE THE EFFECT OF ADVERSELY AFFECTING OUR RESULTS OF OPERATIONS.

        Some travel suppliers are aggressively seeking to decrease their reliance on global distribution systems such as our Sabre system. Airlines and other travel suppliers have significant ownership stakes in some of our global distribution system competitors, such as Amadeus, Galileo and Worldspan. Various airlines and hotels have established their own travel distribution Websites. Several airlines and hotels have formed joint ventures that offer multi-supplier travel distribution Websites (such as Orbitz in the United States and Opodo in Europe). Many of these travel suppliers offer discounted prices when their products and services are purchased from these supplier-related Websites. Many of these discounted prices have not been made available to us. These pricing differences may have the effect of diverting customers from our distribution system to supplier-related Websites.

35



CONSOLIDATION IN THE TRAVEL AGENCY INDUSTRY AND INCREASED COMPETITION FOR TRAVEL AGENCY SUBSCRIBERS MAY RESULT IN INCREASED EXPENSES, LOST BOOKINGS AND REDUCED REVENUE.

        The absolute and relative size of our travel agency subscriber base is important to our success. Some travel suppliers have reduced or eliminated commissions paid to travel agencies (including consumer direct travel sites like Travelocity). The loss of commissions causes travel agencies to become more dependent on other sources of revenues, such as traveler-paid services fees and GDS-paid incentives. The reduction or elimination of supplier-paid commissions has forced some smaller travel agencies to close or to combine with larger travel agencies. Although we have a leading share of large travel agencies, competition is particularly intense among global distribution systems for larger travel agency subscribers. Consolidation of travel agencies may result in increased competition for these subscribers. Some of our competitors aggressively pay economic incentives to travel agencies to obtain business. In order to compete effectively, we may need to increase incentives, pre-pay incentives, increase spending on marketing or product development, or make significant investments to purchase strategic assets. If we do not retain subscribers representing a significant percentage of historic bookings through our global distribution system, our booking fee revenues would decrease.

AIRLINES THAT ARE DIVESTING THEIR OWNERSHIP OF GLOBAL DISTRIBUTION SYSTEMS MIGHT LIMIT THEIR PARTICIPATION IN OUR GLOBAL DISTRIBUTION SYSTEM SERVICES, WHICH WOULD ADVERSELY AFFECT OUR BOOKING FEE REVENUE AND OUR RESULTS OF OPERATIONS.

        Rules in the U.S., Canada, the European Union and Peru govern computer reservation systems such as our Sabre global distribution system. Airlines (such as British Airways, United Airlines, US Airways and Continental Airlines) that divest their ownership of global distribution systems may not be subject to these rules, which would otherwise require them to make their inventory available in our global distribution system in a non-discriminatory manner. We could be adversely affected by a decision by one or more large airlines to discontinue or limit their distribution of inventory through global distribution systems. Losing access to their inventory would make our global distribution system less attractive to travel agencies and travel purchasers, which could reduce our booking fee revenue. In order to gain access to inventory, it might become necessary for us to reduce the fees charged to suppliers, which could reduce our booking fee revenue.

SOME OF OUR COMPETITORS IN THE BUSINESS ARE WELL FUNDED, WHICH MAY GIVE THESE COMPETITORS A COMPETITIVE ADVANTAGE THAT COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

        Some of our competitors are owned by companies that are larger than us, and that may have better access to capital than we do. This may afford them the ability to take advantage of more business opportunities, including acquisitions, business combinations and strategic alliances. They may have greater resources to enable them to finance strategic transactions and research and development in the business. These competitive advantages could allow our competitors to offer products and services for less than we can, which could reduce demand for our products and services and adversely affect our results of operations.

36



WE MAY BE UNSUCCESSFUL IN PURSUING AND INTEGRATING BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES, WHICH COULD RESULT IN INCREASED EXPENDITURES OR CAUSE US TO FAIL TO ACHIEVE ANTICIPATED COST SAVINGS OR REVENUE GROWTH.

        We plan to continue to examine possible business combinations, investments, joint ventures or other strategic alliances with other companies in order to maintain and grow revenue and market presence. There are risks inherent in these types of transactions such as: difficulty in assimilating the operations, technology and personnel of the combined companies; disruption of our ongoing business, including loss of management focus on existing businesses and other market developments; problems retaining key technical and managerial personnel; expenses associated with amortization of identifiable intangible assets; additional operating losses and expenses of acquired businesses; impairment of relationships with existing employees, customers and business partners; and fluctuations in value and losses that may arise from equity investments. In addition, we may not be able to: identify suitable candidates for business combinations and strategic investments; obtain financing or acceptable terms for such business combinations and strategic investments; or otherwise make such business combinations and strategic investments on acceptable terms.

RAPID TECHNOLOGICAL CHANGES AND NEW DISTRIBUTION CHANNELS OR UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY MAY RENDER OUR TECHNOLOGY OBSOLETE OR ADVERSELY AFFECT THE VALUE OF OUR CURRENT OR FUTURE TECHNOLOGIES TO US AND OUR CUSTOMERS, WHICH COULD CAUSE US TO INCREASE EXPENDITURES TO UPGRADE OUR TECHNOLOGY OR DEVELOP COMPETING PRODUCTS IN NEW DISTRIBUTION CHANNELS AND TO PROTECT THEM.

        New distribution channels and technology in our industry are evolving rapidly. Our ability to compete and our future results depend in part on our ability to make timely and cost-effective enhancements and additions to our technology to introduce new products and services that meet customer demands and rapid advancements in technology, and to protect our technology. Unauthorized use of our intellectual property could have a material adverse effect on us, and our legal remedies may not adequately compensate us for the damages to our business caused by such use. Maintaining flexibility to respond to technological and market dynamics may require substantial expenditures and lead-time. We cannot assure you that we will successfully identify and develop new products or services in a timely manner, that products, technologies or services developed by others will not render our offerings obsolete or noncompetitive, or that the technologies in which we focus our research and development investments will achieve acceptance in the marketplace.

OUR SYSTEMS MAY SUFFER FAILURES, CAPACITY CONSTRAINTS AND BUSINESS INTERRUPTIONS, WHICH COULD INCREASE OUR OPERATING COSTS AND CAUSE US TO LOSE CUSTOMERS.

        Our businesses are largely dependent on the computer data centers and network systems operated by EDS. We rely on several communications service suppliers and on the global Internet to provide network access between our computer data center and end-users of our services. We occasionally experience system interruptions that make our global distribution system or other data processing services unavailable. Much of our computer and communications hardware is located in a single facility. Our systems might be damaged or interrupted by fire, flood, power loss, telecommunications failure, break-ins, earthquakes, terrorist attacks, hostilities or war or similar events. Computer viruses, physical or electronic break-ins and similar disruptions affecting the global Internet or our systems might cause service interruptions, delays and loss of critical data. Problems affecting our systems could significantly diminish our reputation and brand name and prevent us from providing services. Although we believe we have taken adequate steps to address these risks, we could be harmed by outages in, or unreliability of, the data center or network systems.

37



REGULATORY DEVELOPMENTS COULD LIMIT OUR ABILITY TO COMPETE BY RESTRICTING OUR FLEXIBILITY TO RESPOND TO COMPETITIVE CONDITIONS, WHICH COULD CAUSE OUR CUSTOMERS TO BE DIVERTED TO OUR COMPETITORS AND ADVERSELY AFFECT OUR REVENUE AND RESULTS OF OPERATION.

        The U.S. Department of Transportation ("DOT") released its notice of proposed rule making ("NPRM") on November 12, 2002 as part of its comprehensive review of its rules governing computer reservation systems ("CRS") such as our Sabre global distribution system. If those rules were to become final in their current form, we would be adversely affected. In particular, the rules could facilitate efforts by the airline owners of Orbitz and Worldspan to divert travel bookings to distribution channels that they own and control. Carriers that own CRS systems would no longer be required to participate in competing systems. The proposed rules would also reduce the value of marketing information sold by Sabre to airline associates. Furthermore, the proposed rules would apply to traditional CRS systems but not to travel distribution Websites, even if they have the same functionality as a traditional CRS system and even if accessed by travel agents. The NPRM is not the final rule. There will an opportunity for interested parties to make their concerns known to the DOT. We intend to seek changes to eliminate aspects of the regulations that negatively impact our business. The proposed rules may be implemented with few changes, may be implemented with major changes or we may see CRS systems become completely de-regulated. We do not know when the proposed regulations might become final or whether our changes will be accepted. We expect that our business will likely be adversely affected under any of the possible scenarios.

        The Commission of the European Union (the "Commission") is also engaged in a comprehensive review of its rules governing CRS systems. It is unclear at this time when the Commission will complete its review and what changes, if any, will be made to the E.U. rules. We could be unfairly and adversely affected if the E.U. rules are retained as to traditional global distribution systems used by travel agencies but are not applied to travel distribution Websites owned by more than one airline. We could also be adversely affected if changes to any of the foregoing CRS rules increased our cost of doing business, weakened the non-discriminatory participation rules to allow one or more large airlines to discontinue or to lower its level of participation in our global distribution system, or caused us to be subject to rules that do not apply to our global distribution competitors.

WE FACE TRADE BARRIERS OUTSIDE OF NORTH AMERICA THAT LIMIT OUR ABILITY TO COMPETE, WHICH COULD REQUIRE US TO INCREASE INCENTIVES, REDUCE PRICES, INCREASE SPENDING ON MARKETING OR PRODUCT DEVELOPMENT, OR OTHERWISE TO TAKE ACTIONS THAT COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

        Trade barriers erected by non-U.S. travel suppliers, who are historically often government-owned, have on occasion prevented us from offering our products and services in their markets or have denied us content or features that they give to our competitors. Those trade barriers make our products and services less attractive to travel agencies in those countries than products and services offered by other global distribution systems that have such capability. The potential for us to add new travel agency subscribers exists primarily outside of North America. Those trade barriers have restricted our ability to gain market share outside of the U.S. Competition in those countries could require us to increase incentives, reduce prices, increase spending on marketing or product development, or otherwise to take actions that could adversely affect our results of operations.

OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO OTHER RISKS, WHICH MAY IMPEDE OUR ABILITY TO GROW INTERNATIONALLY AND ADVERSELY AFFECT OUR OVERALL RESULTS OF OPERATIONS.

        We face risks inherent in international operations, such as risks of:

38


These risks may adversely affect our ability to conduct and grow business internationally, which could cause us to increase expenditures and costs, decrease our revenue growth or both.


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

        At December 31, 2002, our exposure to interest rates relates primarily to our marketable securities portfolio. Largely offsetting this exposure are our notes payable, as hedged with fixed to floating interest rate swaps. The objectives of our marketable securities are safety of principal, liquidity maintenance, yield maximization and full investment of all available funds. As such, our investment portfolio consists primarily of high credit quality certificates of deposit, bankers' acceptances, commercial paper, mortgage-backed and receivables-backed securities and corporate and government notes. If short-term interest rates average 10% lower in 2003 than they were during 2002, our interest income from marketable securities would decrease by approximately $2.9 million. In comparison, at December 31, 2001, we estimated that if short-term interest rates averaged 10% lower in 2002 than they were during 2001, our interest income from marketable securities would have decreased by approximately $2.2 million. These amounts were determined by applying the hypothetical interest rate change to our marketable securities balances, including marketable securities held by Travelocity, as of December 31, 2002 and 2001.

        In addition, we had fixed rate notes of $400 million ("Notes") at December 31, 2002. We entered into fixed to floating interest rate swaps related to $300 million of the outstanding Notes, effectively converting $300 million of the $400 million fixed rate Notes into floating rate obligations. If short-term interest rates average 10% higher in 2003 than they were in 2002, our interest expense would increase by approximately $0.6 million. This amount was determined by applying the hypothetical interest rate change to our floating rate borrowings balance at December 31, 2002.

39



        In addition, we had floating rate exposure on the approximately $207 million funded under our syndicated lease facility at December 31, 2002. If short-term interest rates average 10% higher in 2003 than they were in 2002, our lease expense would increase by approximately $0.6 million. This amount was determined by applying the hypothetical interest rate change to our average syndicated lease balance at December 31, 2002.

        If our mix of interest rate-sensitive assets and liabilities changes significantly, we may enter into additional derivative transactions to manage our net interest exposure.

Foreign Currency Risk

        We have various foreign operations, primarily in North America, South America, Europe, Australia and Asia. As a result of these business activities, we are exposed to foreign currency risk. However, these exposures have historically related to a small portion of our overall operations as a substantial majority of our business is transacted in the United States dollar. We were a party to certain foreign currency derivative contracts at December 31, 2002 and 2001. These contracts were not material to our financial position or results of operations as of or for the year ending December 31, 2002 or 2001.

40




ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 
  Page
Report of Ernst & Young LLP, Independent Auditors   42

Consolidated Balance Sheets

 

43

Consolidated Statements of Income

 

44

Consolidated Statements of Cash Flows

 

45

Consolidated Statements of Stockholders' Equity

 

46

Notes to Consolidated Financial Statements

 

47

41



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Sabre Holdings Corporation

        We have audited the accompanying consolidated balance sheets of Sabre Holdings Corporation and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed under Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sabre Holdings Corporation and subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

        As discussed in Note 2 to the consolidated financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

Dallas, Texas
January 13, 2003

42


SABRE HOLDINGS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands)


 
  December 31,
 
 
  2002
  2001
 
Assets              
Current assets              
  Cash   $ 21,176   $ 18,855  
  Marketable securities     890,584     648,032  
  Accounts receivable, net     298,498     327,816  
  Prepaid expenses     85,657     51,565  
  Deferred income taxes     15,728     45,970  
   
 
 
    Total current assets     1,311,643     1,092,238  

Property and equipment

 

 

 

 

 

 

 
  Buildings and leasehold improvements     156,034     254,487  
  Furniture, fixtures and equipment     43,578     49,845  
  Computer equipment and software     236,639     189,298  
   
 
 
      436,251     493,630  
  Less accumulated depreciation and amortization     (196,179 )   (205,181 )
   
 
 
    Total property and equipment     240,072     288,449  

Deferred income taxes

 

 


 

 

19,611

 
Investments in joint ventures     196,725     169,949  
Goodwill and intangible assets, net     855,683     672,145  
Other assets, net     152,408     133,625  
   
 
 
    Total assets   $ 2,756,531   $ 2,376,017  
   
 
 
Liabilities and stockholders' equity              
Current liabilities              
  Accounts payable   $ 181,934   $ 158,839  
  Accrued compensation and related benefits     54,770     73,274  
  Accrued subscriber incentives     69,132     89,337  
  Deferred revenues     46,252     42,389  
  Other accrued liabilities     147,826     200,617  
   
 
 
    Total current liabilities     499,914     564,456  

Deferred income taxes

 

 

13,755

 

 


 
Pensions and other postretirement benefits     116,305     88,756  
Other liabilities     38,914     60,938  
Minority interests     10,300     219,716  
Notes payable     435,765     400,375  

Commitments and contingencies

 

 


 

 


 

Stockholders' equity

 

 

 

 

 

 

 
  Preferred stock: $0.01 par value; 20,000 shares authorized; no shares issued          
  Common stock: Class A: $0.01 par value; 250,000 shares authorized; 145,164 and 133,527 shares issued at December 31, 2002 and 2001, respectively     1,451     1,351  
  Additional paid-in capital     1,276,662     818,742  
  Retained earnings     442,130     227,986  
  Accumulated other comprehensive income (loss)     (16,024 )   3,176  
  Less treasury stock at cost; 2,480 and 384 shares, respectively     (62,641 )   (9,479 )
   
 
 
    Total stockholders' equity     1,641,578     1,041,776  
   
 
 
    Total liabilities and stockholders' equity   $ 2,756,531   $ 2,376,017  
   
 
 

The accompanying notes are an integral part of these financial statements.

43


SABRE HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)


 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Revenues   $ 2,056,466   $ 2,144,961   $ 1,955,510  
Operating expenses                    
  Cost of revenues     1,180,168     1,335,831     1,301,869  
  Selling, general and administrative     505,374     540,317     371,440  
  Amortization of goodwill and intangible assets     53,424     277,522     109,419  
   
 
 
 
    Total operating expenses     1,738,966     2,153,670     1,782,728  
   
 
 
 
Operating income (loss)     317,500     (8,709 )   172,782  

Other income (expense)

 

 

 

 

 

 

 

 

 

 
  Interest income     27,903     24,659     16,248  
  Interest expense     (23,350 )   (41,165 )   (31,686 )
  Other, net     16,801     36,756     1,490  
   
 
 
 
    Total other income (expense)     21,354     20,250     (13,948 )
   
 
 
 
Minority interests     214     22,469     30,754  
   
 
 
 
Income from continuing operations before provision for income taxes     339,068     34,010     189,588  
Provision for income taxes     124,924     80,963     93,483  
   
 
 
 
Income (loss) from continuing operations     214,144     (46,953 )   96,105  
Income from discontinued operations, net         36,305     47,947  
Gain on sale of discontinued operations, net         38,772      
   
 
 
 
Income before cumulative effect of accounting change     214,144     28,124     144,052  
Cumulative effect of accounting change, net         3,103      
   
 
 
 
Net earnings   $ 214,144   $ 31,227   $ 144,052  
   
 
 
 
Earnings (loss) per common share—basic                    
  Income (loss) from continuing operations   $ 1.53   $ (.35 ) $ .74  
  Income from discontinued operations, net         .57     .37  
  Cumulative effect of accounting change, net         .02      
   
 
 
 
  Net earnings   $ 1.53   $ .24   $ 1.11  
   
 
 
 
Earnings (loss) per common share—diluted                    
  Income (loss) from continuing operations   $ 1.50   $ (.35 ) $ .74  
  Income from discontinued operations, net         .57     .37  
  Cumulative effect of accounting change, net         .02      
   
 
 
 
  Net earnings   $ 1.50   $ .24   $ 1.11  
   
 
 
 

The accompanying notes are an integral part of these financial statements.

44


SABRE HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Operating activities                    
Net earnings   $ 214,144   $ 31,227   $ 144,052  
Adjustments to reconcile net earnings to cash provided by operating activities:                    
  Depreciation and amortization     116,948     437,647     345,794  
  Stock compensation     31,142     7,624      
  Deferred income taxes     53,204     (87,409 )   22,334  
  Tax benefit from exercise of stock options     9,687     31,126     3,125  
  Minority interests     (214 )   (22,469 )   (30,754 )
  Gain on sale of former headquarters building     (18,308 )        
  Gain on sale of discontinued operations, net         (38,772 )    
  Gain on sale of France Telecom shares         (47,303 )    
  Cumulative effect of accounting change, net of tax         (3,103 )    
  Loss on disposal of equipment         8,347      
  Other     (22,330 )   2,536     16,210  
  Changes in operating assets and liabilities:                    
    Accounts receivable     175     159,794     (125,038 )
    Prepaid expenses     (29,101 )   (2,601 )   (88,861 )
    Other assets     33,371     (24,623 )   (20,582 )
    Accrued compensation and related benefits     (18,505 )   (18,702 )   7,042  
    Accounts payable and other accrued liabilities     (26,456 )   (723 )   125,355  
    Receivable from and payable to related parties             29,100  
    Pensions and other postretirement benefits     (7,493 )   (21,133 )   (9,798 )
    Payment to US Airways             (81,469 )
    Other liabilities     (36,869 )   (21,226 )   (25,738 )
   
 
 
 
  Cash provided by operating activities     299,395     390,237     310,772  
Investing activities                    
Additions to property and equipment     (62,650 )   (158,407 )   (190,126 )
Business combinations, net of cash acquired     (498,508 )   (55,343 )   (711,383 )
Proceeds from exercise of Travelocity.com stock options     33,658     13,145     3,786  
Proceeds from sale of former headquarters building     80,000          
Purchase of data center facility from lessor     (92,092 )        
Proceeds from sale of data center facility     68,464          
Proceeds from sale of minority interest in Sabre Pacific     23,466          
Proceeds from sale of discontinued operations         660,763      
Purchases of marketable securities     (4,695,307 )   (3,340,225 )   (9,987,302 )
Sales of marketable securities     4,453,062     2,833,914     10,431,229  
Proceeds from sales of investments     8,807     86,253      
Purchases of Travelocity.com common stock         (17,908 )    
Other investing activities, net     4,354     (39,942 )   (19,183 )
   
 
 
 
  Cash used for investing activities     (676,746 )   (17,750 )   (472,979 )
Financing activities                    
Proceeds from public offering of common stock     399,763          
Proceeds from exercise of stock options and issuance of stock under employee stock purchase plan     36,609     109,262     18,198  
Purchase of treasury stock     (56,610 )   (9,064 )   (34,472 )
Dividends paid             (675,000 )
Issuance of notes payable         397,392     859,000  
Repayment of notes payable         (859,000 )    
Other financing activities, net     (90 )       (4,369 )
   
 
 
 
  Cash provided by (used for) financing activities     379,672     (361,410 )   163,357  
Increase in cash     2,321     11,077     1,150  
Cash at beginning of the period     18,855     7,778     6,628  
   
 
 
 
Cash at end of the period   $ 21,176   $ 18,855   $ 7,778  
   
 
 
 
 
Cash payments for income taxes

 

$

44,069

 

$

177,415

 

$

117,131

 
   
 
 
 
  Cash payments for interest   $ 22,412   $ 32,612   $ 27,638  
   
 
 
 

The accompanying notes are an integral part of these financial statements.

45


SABRE HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)


 
  Class A
Common
Stock

  Class B
Common
Stock

  Additional
Paid-in
Capital

  Retained
Earnings

  Accumulated
Other
Comprehensive
Income
(Loss)

  Treasury Stock
  Total
 
Balance at December 31, 1999   $ 240   $ 1,074   $ 607,285   $ 727,707   $ (657 ) $ (73,604 ) $ 1,262,045  
Net earnings                 144,052             144,052  
Exchange of Class B common stock for Class A common stock     1,074     (1,074 )                    
Dividends paid                 (675,000 )           (675,000 )
Repurchase of Company stock                         (34,472 )   (34,472 )
Issuance of 720 shares of Class A common stock pursuant to stock option, restricted stock incentive and stock purchase plans     7         (24,583 )           40,510     15,934  
Tax benefit from exercise of employee stock options             3,125                 3,125  
Options issued in connection with business combinations, net of unearned deferred compensation of $46,855             75,271                 75,271  
Unrealized gain on investment                     768         768  
Other             (706 )               (706 )
   
 
 
 
 
 
 
 
Balance at December 31, 2000     1,321         660,392     196,759     111     (67,566 )   791,017  
Issuance of 3,063 shares of Class A common stock pursuant to stock option, restricted stock incentive and stock purchase plans     30         42,081             67,151     109,262  
Tax benefit from exercise of employee stock options             31,126                 31,126  
Purchase of treasury stock                         (9,064 )   (9,064 )
Reclassification of US Airways options to equity instruments             100,447                 100,447  
Change in fair value of contingent warrants to be issued to customer             (10,977 )               (10,977 )
Comprehensive income: Net earnings                 31,227             31,227  
Unrealized gain on foreign currency forward contracts, net of deferred income taxes                     802         802  
Unrealized gain on investments, net of deferred income taxes                     2,372         2,372  
Unrealized foreign currency translation loss                     (109 )       (109 )
                                       
 
Total comprehensive income                                         34,292  
                                       
 
Other             (4,327 )               (4,327 )
   
 
 
 
 
 
 
 
Balance at December 31, 2001     1,351         818,742     227,986     3,176     (9,479 )   1,041,776  
Issuance of 1,615 shares of Class A common stock pursuant to stock option, restricted stock incentive and stock purchase plans     16         33,145             3,448     36,609  
Issuance of 9,430 shares of Class A common stock pursuant to equity offering     94         399,669                 399,763  
Settlement of warrants issued in connection with business combination             (15,972 )               (15,972 )
Conversion of vested stock options pursuant to the acquisition of Travelocity.com minority interest             14,209                 14,209  
Tax benefit from exercise of employee stock options             9,687                 9,687  
Purchases of treasury stock                         (56,610 )   (56,610 )
Stock based compensation for employees and consultants             16,933                 16,933  
Comprehensive income: Net earnings                 214,144             214,144  
Minimum pension liability adjustment, net of deferred income taxes                     (21,638 )       (21,638 )
Unrealized gain on foreign currency forward contracts, net of deferred income taxes                     4,174         4,174  
Unrealized loss on investments, net of deferred income taxes                     (1,867 )       (1,867 )
Unrealized foreign currency translation gain                     131         131  
                                       
 
Total comprehensive income                                         194,944  
                                       
 
Other     (10 )       249                 239  
   
 
 
 
 
 
 
 
Balance at December 31, 2002   $ 1,451   $   $ 1,276,662   $ 442,130   $ (16,024 ) $ (62,641 ) $ 1,641,578  
   
 
 
 
 
 
 
 

The accompanying notes are an integral part of these financial statements.

46


SABRE HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    General Information

2.    Summary of Significant Accounting Policies

47


Property and equipment:    
  Buildings   30 years
  Furniture and fixtures   5 to 15 years
  Leasehold improvements   Lesser of lease term or useful life
  Computer/service contract equipment   3 to 5 years
  Computer software   3 to 7 years
Other assets:    
  Capitalized software development costs   3 to 7 years
  Intangible assets   1 to 20 years
  Goodwill (prior to January 1, 2002)   3 to 20 years

48


49


50


51


52


 
  Year Ended
December 31,

 
  2002
  2001
  2000
Reported income (loss) from continuing operations   $ 214,144   $ (46,953 ) $ 96,105
Goodwill and indefinite lived intangible assets amortization, net of income taxes and minority interests         211,998     82,001
   
 
 
Adjusted income from continuing operations   $ 214,144   $ 165,045   $ 178,106
   
 
 
Reported net earnings   $ 214,144   $ 31,227   $ 144,052
Goodwill and indefinite lived intangible assets amortization, net of income taxes and minority interests         211,998     82,001
   
 
 
Adjusted net earnings   $ 214,144   $ 243,225   $ 226,053
   
 
 

53


Earnings per share                  

Basic:

 

 

 

 

 

 

 

 

 
Reported income (loss) from continuing operations   $ 1.53   $ (.35 ) $ .74
Goodwill and indefinite lived intangible assets amortization, net of income taxes and minority interest         1.60     .63
   
 
 
Adjusted income from continuing operations   $ 1.53   $ 1.25   $ 1.37
   
 
 

Reported net earnings

 

$

1.53

 

$

..24

 

$

1.11
Goodwill and indefinite lived intangible assets amortization, net of income taxes and minority interest         1.60     .63
   
 
 
Adjusted net earnings   $ 1.53   $ 1.84   $ 1.74
   
 
 
Diluted:                  
Reported income (loss) from continuing operations   $ 1.50   $ (.35 ) $ .74
Goodwill and indefinite lived intangible assets amortization, net of income taxes and minority interest         1.60     .63
   
 
 
Adjusted income from continuing operations   $ 1.50   $ 1.25   $ 1.37
   
 
 

Reported net earnings

 

$

1.50

 

$

..24

 

$

1.11
Goodwill and indefinite lived intangible assets amortization, net of income taxes and minority interests         1.60     .63
   
 
 
Adjusted net earnings   $ 1.50   $ 1.84   $ 1.74
   
 
 

54


 
   
  December 31, 2002
  December 31, 2001
 
 
  Weighted
Average
Useful Lives

  Gross Carrying
Amount, at Cost

  Accumulated
Amortization

  Gross Carrying
Amount, at Cost

  Accumulated
Amortization

 
Not subject to amortization:                              
  Goodwill       $ 819,856   $   $ 626,785   $  
  Tradenames, trademarks and domain names         21,980         7,682      
       
 
 
 
 
          841,836         634,467      
Subject to amortization:                              
  Purchased technology   4 years     129,766     (68,961 )   125,146     (36,592 )
  Acquired customer relationships and database   7 years     36,687     (10,834 )   32,820     (4,950 )
  Non-compete agreements   4 years     17,059     (11,634 )   17,059     (4,971 )
  Acquired contracts, supplier and distributor agreements   3 years     29,369     (13,526 )   8,261     (5,018 )
       
 
 
 
 
          212,881     (104,955 )   183,286     (51,531 )
       
 
 
 
 
Total       $ 1,054,717   $ (104,955 ) $ 817,753   $ (51,531 )
       
 
 
 
 

 

 

 

 
2003   $ 47,913
2004     40,676
2005     10,614
2006     4,382
2007     4,341

55


 
  Sabre Travel
Network

  Travelocity
  GetThere
  Sabre Airline
Solutions

  Total
 
Balance at December 31, 2000   $ 129,684   $ 176,524   $ 545,941   $   $ 852,149  
Goodwill acquired     6,400             3,724     10,124  
Goodwill adjustments     (205 )   1,312     527         1,634  
Goodwill amortization     (12,160 )   (80,234 )   (144,728 )       (237,122 )
   
 
 
 
 
 
Balance at December 31, 2001     123,719     97,602     401,740     3,724     626,785  
Goodwill acquired         198,341         1,457     199,798  
Goodwill adjustments             (6,811 )   84     (6,727 )
   
 
 
 
 
 
Balance at December 31, 2002   $ 123,719   $ 295,943   $ 394,929   $ 5,265   $ 819,856  
   
 
 
 
 
 

56


57


 
  Year Ended December 31,
 
  2002
  2001
  2000
Denominator for basic earnings per common share—
weighted-average shares
  140,337   132,317   129,198
Dilutive effect of stock awards and options   2,222     643
   
 
 
Denominator for diluted earnings per common share—
adjusted weighted-average shares
  142,559   132,317   129,841
   
 
 

58


 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Net earnings as reported   $ 214,144   $ 31,227   $ 144,052  
  Add stock compensation expense, net of income taxes determined under intrinsic value method     19,794     15,934     7,080  
  Less total stock-based employee compensation expense determined under fair value based method for all awards, net of income taxes     (41,008 )   (44,636 )   (32,698 )
   
 
 
 
  Pro forma net earnings   $ 192,930   $ 2,525   $ 118,434  
   
 
 
 
Net earnings per common share, as reported:                    
  Basic   $ 1.53   $ .24   $ 1.11  
   
 
 
 
  Diluted   $ 1.50   $ .24   $ 1.11  
   
 
 
 
Net earnings per common share, pro forma:                    
  Basic   $ 1.37   $ .02   $ .92  
   
 
 
 
  Diluted   $ 1.35   $ .02   $ .91  
   
 
 
 

59


SABRE HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


2.    Summary of Significant Accounting Policies (Continued)

 
  Minimum Pension Liability Adjustment
  Unrealized Gains (Losses) on Investments
  Unrealized Gains on Foreign Currency Forward Contracts
  Unrealized Foreign Currency Translation Gains (Losses)
  Total Accumulated Other Comprehensive Income (Loss)
 
Beginning balance, December 31, 2001   $   $ 2,483   $ 802   $ (109 ) $ 3,176  
2002 other comprehensive income, net of income taxes     (21,638 )   (1,867 )   4,174     131     (19,200 )
   
 
 
 
 
 
Ending balance, December 31, 2002   $ (21,638 ) $ 616   $ 4,976   $ 22   $ (16,024 )
   
 
 
 
 
 

60


3.    EDS Transaction

61


 
  Year Ended December 31,
 
  2001
  2000
Revenues   $ 370,007   $ 676,640
   
 
Income before provision for income taxes   $ 59,060   $ 77,680
Provision for income taxes     22,755     29,733
   
 
Income from discontinued operations, net   $ 36,305   $ 47,947
   
 

62


4.    Marketable Securities

        Marketable securities consist of (in thousands):

 
  December 31,
 
  2002
  2001
Corporate notes   $ 465,624   $ 237,616
U.S. Government agency and treasury notes     185,602    
Mortgages     158,146     75,052
Overnight investments and time deposits     58,495     205,558
Asset-backed securities     22,717     129,806
   
 
  Total   $ 890,584   $ 648,032
   
 
 
  December 31,
 
  2002
  2001
Due in one year or less   $ 145,709   $ 226,842
Due after one year through three years     512,872     308,709
Due after three years     232,003     112,481
   
 
  Total   $ 890,584   $ 648,032
   
 

5.    Mergers and Acquisitions

63


Minority interest assumed   $ 252,597
Deferred income tax asset, net     21,665
Distributor agreements (weighted average life of 3 years)     18,016
Supplier agreements (weighted average life of 3 years)     2,192
Proprietary software (weighted average life of 3 years)     2,256
Customer database (weighted average life of 7 years)     3,739
Tradenames, trademarks and domain names (indefinite life)     13,698
Goodwill     160,146
   
Total purchase price   $ 474,309
   

64


Working capital acquired   $ 1,770  
Property and equipment and other non-current assets     824  
Software     1,352  
Non-current liabilities     (75 )
Supplier agreements (weighted average life of 1.5 years)     900  
Tradenames, trademarks and domain names (indefinite life)     600  
Goodwill     38,195  
   
 
Total purchase price   $ 43,566  
   
 

65


 
  Year Ended December 31
 
 
  2002
  2001
 
 
  (unaudited)
 
Revenues   $ 2,056,466   $ 2,144,961  
   
 
 
Income (loss) from continuing operations   $ 220,777   $ (80,233 )
   
 
 
Income (loss) before cumulative effect of change in accounting method   $ 220,777   $ (5,156 )
   
 
 
Net earnings (loss)   $ 220,777   $ (2,053 )
   
 
 
Earnings (loss) from continuing operations per common share              
  Basic   $ 1.57   $ (.61 )
   
 
 
  Diluted   $ 1.55   $ (.61 )
   
 
 
Net earnings (loss) per common share              
  Basic   $ 1.57   $ (.02 )
   
 
 
  Diluted   $ 1.55   $ (.02 )
   
 
 

66


  Working capital acquired   $ 745
  Long term assets and liabilities     1,049
  Non-compete agreements (weighted average life of 4 years)     13,200
  Customer relationships (weighted average life of 7 years)     24,800
  Goodwill     6,594
   
  Total purchase price   $ 46,388
   

67


68


69


 
  Year Ended
December 31, 2000

 
 
  (unaudited)

 
  Revenues   $ 2,028,412  
   
 
  Loss from continuing operations   $ (64,305 )
   
 
  Net loss   $ (16,358 )
   
 
  Loss per common share from continuing operations:        
    Basic   $ (.50 )
   
 
    Diluted   $ (.50 )
   
 
  Net loss per common share:        
    Basic   $ (.13 )
   
 
    Diluted   $ (.13 )
   
 

6.    Significant Events and Transactions

70


71


 
  Severance
  Facilities
  Total
 
Estimated cost of 2001 workforce reduction   $ 19,945   $ 8,245   $ 28,190  
Amounts paid in 2001     (3,055 )   (513 )   (3,568 )
   
 
 
 
Remaining liability at December 31, 2001     16,890     7,732     24,622  
Estimated cost of 2002 workforce reduction     15,791         15,791  
Amounts paid in 2002     (17,520 )   (2,672 )   (20,192 )
Revisions of estimated cost of 2001 workforce reduction     (2,365 )   (3,889 )   (6,254 )
   
 
 
 
Remaining liability at December 31, 2002   $ 12,796   $ 1,171   $ 13,967  
   
 
 
 

72


7.    Derivatives

73


74


SABRE HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


7.    Derivatives (Continued)

 
  December 31,
 
  2002
  2001
  Foreign currency forwards   $ 7,019   $ 356
  Hotels.com warrants     2,213     1,669
  Interest rate swaps     21,397     2,874
   
 
    Total   $ 30,629   $ 4,899
   
 

8.    Certain Transactions with AMR and American

75


76


9.    Debt

10.  Commitments and Contingencies

77


78


2003   $ 28,000
2004     29,000
2005     29,000
   
    $ 86,000
   
 
  Payments Due by Period
For the Years Ended December 31,

 
Contractual
Obligations

 
  2003
  2004
  2005
  2006
  2007
  Thereafter
 
Notes payable (Note 9)   $   $   $   $   $   $ 400,000  
Lease obligations     28,241     21,956     11,712     7,092     5,554     12,042  
Amounts receivable under non-cancelable subleases     (5,880 )   (5,880 )   (5,880 )   (5,880 )   (5,880 )   (20,580 )
Other long-term obligations(1)     242,289     205,092     142,967     125,804     44,836     117,600  
   
 
 
 
 
 
 
Total contractual cash obligations   $ 264,650   $ 221,168   $ 148,799   $ 127,016   $ 44,510   $ 509,062  
   
 
 
 
 
 
 

79


11.  Employee Benefit Plans

80


 
  Pension Benefits
  Other Benefits
 
 
  2002
  2001
  2002
  2001
 
Change in benefit obligation:                          
  Benefit obligation at January 1   $ (243,020 ) $ (256,955 ) $ (77,150 ) $ (73,315 )
  Service cost     (7,052 )   (9,891 )   (3,213 )   (4,047 )
  Interest cost     (19,219 )   (18,372 )   (5,671 )   (5,457 )
  Actuarial losses     (46,088 )   (18,464 )   (14,667 )   (4,137 )
  Transfers     (4,166 )       (171 )    
  Divestitures         4,025          
  Curtailments         54,440         7,192  
  Benefits paid     4,495     2,197     2,906     2,614  
   
 
 
 
 
  Benefit obligation at December 31   $ (315,050 ) $ (243,020 ) $ (97,966 ) $ (77,150 )
   
 
 
 
 
Change in plan assets:                          
  Fair value at January 1   $ 186,245   $ 152,665   $ 10,949   $ 10,966  
  Actual return on plan assets     (14,257 )   3,350         982  
  Transfers     3,481              
  Divestitures         (2,601 )        
  Employer contributions (distributions)     30,804     35,028     (10,949 )   1,615  
  Benefits paid     (4,495 )   (2,197 )       (2,614 )
   
 
 
 
 
  Fair value at December 31   $ 201,778   $ 186,245   $   $ 10,949  
   
 
 
 
 
 
Funded status of the plan (underfunded)

 

$

(111,884

)

$

(56,775

)

$

(97,759

)

$

(66,202

)
  Transfers     (1,719 )       (46 )    
  Unrecognized net loss     110,713     28,874     16,037     1,570  
  Unrecognized prior service cost     652     713     2,743     3,064  
  Minimum pension liability     (35,042 )            
   
 
 
 
 
  Accrued benefit cost   $ (37,280 ) $ (27,188 ) $ (79,025 ) $ (61,568 )
   
 
 
 
 
 
  Pension Benefits
  Other Benefits
 
 
  2002
  2001
  2002
  2001
 
Weighted-average assumptions:                  
  Discount rate   6.75 % 7.25 % 6.75 % 7.25 %
  Expected return on plan assets   9.00 % 9.50 % N/A   9.50 %
  Rate of compensation increase   5.25 % 5.25 %    

81


 
  Pension Benefits
  Other Benefits
 
 
  2002
  2001
  2000
  2002
  2001
  2000
 
Service cost   $ 7,052   $ 9,891   $ 10,836   $ 3,213   $ 4,047   $ 4,369  
Interest cost     19,219     18,372     16,974     5,670     5,457     4,764  
Expected return on plan assets     (20,848 )   (16,376 )   (13,025 )       (1,003 )   (1,093 )
Amortization of transition asset     (24 )   7     9     18          
Amortization of prior service cost     61     57     53     321     410     248  
Amortization of net loss (gain)     332     1,045     74     206     156     (475 )
   
 
 
 
 
 
 
Net periodic benefit cost     5,792     12,996     14,921     9,428     9,067     7,813  
Settlement gain                         (1,945 )
Curtailment gains         (69 )           (5,491 )    
   
 
 
 
 
 
 
  Total net periodic benefit cost   $ 5,792   $ 12,927   $ 14,921   $ 9,428   $ 3,576   $ 5,868  
   
 
 
 
 
 
 

82


SABRE HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


12.    Income Taxes

        The provision (benefit) for income taxes from continuing operations is as follows (in thousands):

 
  Year Ended December 31,
 
  2002
  2001
  2000
Current portion:                  
  Federal   $ 56,045   $ 66,547   $ 63,966
  State     2,072     3,306     1,041
  Foreign     13,603     8,984     10,611
   
 
 
    Total current     71,720     78,837     75,618
Deferred portion:                  
  Federal     42,579     720     9,198
  State     10,625     1,406     8,667
   
 
 
    Total deferred     53,204     2,126     17,865
   
 
 
    Total provision for income taxes   $ 124,924   $ 80,963   $ 93,483
   
 
 
 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Income tax provision at statutory federal income tax rate   $ 118,674   $ 11,718   $ 66,352  
State income taxes, net of federal tax benefit     8,253     3,063     4,194  
Non-deductible goodwill amortization         69,970     28,278  
Other, net     (2,003 )   (3,788 )   (5,341 )
   
 
 
 
  Total provision for income taxes   $ 124,924   $ 80,963   $ 93,483  
   
 
 
 

83


 
  December 31,
 
 
  2002
  2001
 
Deferred tax assets:              
  Accrued expenses   $ 50,982   $ 79,321  
  Employee benefits other than pensions     30,825     25,295  
  Deferred revenue     2,139     3,007  
  Pension obligations     7,139     9,974  
  Net operating loss carryforwards     35,426     60,488  
  US Airways options     40,770     64,689  
   
 
 
    Total deferred tax assets     167,281     242,774  
Deferred tax liabilities:              
  Foreign operations     (4,471 )   (2,065 )
  Depreciation and amortization     (28,981 )   (26,929 )
  Amortization of computer software and intangible assets     (73,005 )   (58,675 )
  Other     (58,851 )   (41,737 )
   
 
 
    Total deferred tax liabilities     (165,308 )   (129,406 )

Valuation allowance

 

 


 

 

(47,787

)
   
 
 
Net deferred tax asset   $ 1,973   $ 65,581  
   
 
 

Current deferred income tax asset

 

$

15,728

 

$

45,970

 
Noncurrent deferred income tax asset (liability)     (13,755 )   19,611  
   
 
 
Net deferred tax asset   $ 1,973   $ 65,581  
   
 
 

84


13.    Capital Stock

85


14.    Options and Other Stock-Based Awards

 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Outstanding at January 1   447,246   841,219   192,410  
Granted   25,000   13,000   715,957  
Issued   (118,423 ) (342,785 ) (67,148 )
Canceled   (11,604 ) (64,188 )  
   
 
 
 
Outstanding at December 31   342,219   447,246   841,219  
   
 
 
 

86


 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
  Outstanding at January 1   292,509   466,147   479,069  
  Granted       282,361  
  Awards settled in cash   (133,201 ) (153,405 ) (194,957 )
  Canceled   (14,184 ) (20,233 ) (100,326 )
   
 
 
 
  Outstanding at December 31   145,124   292,509   466,147  
   
 
 
 
 
  Year Ended December 31,
 
  2002
  2001
  2000
 
  Options
  Weighted-
Average
Exercise
Price

  Options
  Weighted-
Average
Exercise
Price

  Options
  Weighted-
Average
Exercise
Price

Outstanding at January 1   9,693,103   $ 34.89   15,743,504   $ 32.53   4,672,970   $ 38.20
Granted   4,180,904   $ 36.84   498,217   $ 41.39   13,551,898   $ 30.89
Exercised   (1,332,330 ) $ 38.64   (3,183,392 ) $ 21.51   (779,866 ) $ 27.07
Canceled   (1,787,717 ) $ 42.99   (3,365,226 ) $ 37.47   (1,701,498 ) $ 37.54
Converted Travelocity.com options   3,645,221   $ 40.67            
   
       
       
     
Outstanding at December 31   14,399,181   $ 37.06   9,693,103   $ 34.89   15,743,504   $ 32.53
   
       
       
     
Exercisable options outstanding at December 31   5,094,143   $ 35.31   3,268,815   $ 30.56   3,305,349   $ 21.61
   
       
       
     

87


 
  Options Outstanding
  Options Exercisable
Range of Exercise Prices

  Shares
  Weighted-Average Remaining Life (Years)
  Weighted-Average Exercise Price
  Shares
  Weighted-Average Exercise Price
$  0.16 - $  15.99   241,572   6.69   $ 10.89   225,399   $ 10.62
$16.00 - $  25.99   1,592,610   6.96   $ 22.14   970,032   $ 21.82
$26.00 - $  35.99   2,042,440   6.92   $ 31.30   998,934   $ 31.87
$36.00 - $  48.99   8,831,724   8.37   $ 38.55   2,356,468   $ 39.01
$49.00 - $  60.99   1,448,283   7.26   $ 50.08   356,682   $ 50.99
$61.00 - $105.06   242,552   7.00   $ 77.52   186,628   $ 76.97
   
           
     
Total   14,399,181   7.85   $ 37.06   5,094,143   $ 35.31
   
           
     

88


15.    Segment Reporting

89


90


 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Revenues from external customers:                    
  Sabre Travel Network   $ 1,555,354   $ 1,655,155   $ 1,600,538  
  Travelocity     233,236     233,611     144,261  
  GetThere     49,611     42,337     11,991  
  Sabre Airline Solutions     205,289     195,817     177,871  
   
 
 
 
    Total external revenues   $ 2,043,490   $ 2,126,920   $ 1,934,661  
   
 
 
 
Intersegment revenues:                    
  Sabre Travel Network   $ 26,508   $ 24,811   $ 16,249  
  Travelocity     80,051     68,159     48,409  
  GetThere     1,224     154      
  Sabre Airline Solutions         2,852     3,046  
   
 
 
 
    Total intersegment revenues   $ 107,783   $ 95,976   $ 67,704  
   
 
 
 
Equity in net income of equity method investees:                    
  Sabre Travel Network   $ 17,943   $ 18,041   $ 20,849  
  Travelocity     (4,967 )        
   
 
 
 
    Total equity in net income of equity method investees   $ 12,976   $ 18,041   $ 20,849  
   
 
 
 
Total consolidated revenues:                    
  Sabre Travel Network   $ 1,599,805   $ 1,698,007   $ 1,637,636  
  Travelocity     308,320     301,770     192,670  
  GetThere     50,835     42,491     11,991  
  Sabre Airline Solutions     205,289     198,669     180,917  
  Elimination of intersegment revenues     (107,783 )   (95,976 )   (67,704 )
   
 
 
 
    Total consolidated revenues   $ 2,056,466   $ 2,144,961   $ 1,955,510  
   
 
 
 
Segment operating income (loss) from continuing operations, excluding special items:                    
  Sabre Travel Network   $ 428,822   $ 374,051   $ 416,236  
  Travelocity     (11,821 )   10,618     (43,502 )
  GetThere     (25,636 )   (53,593 )   (36,705 )
  Sabre Airline Solutions     20,924     (1,145 )   (25,918 )
  Net corporate allocations     1,785     (15,974 )   (1,894 )
   
 
 
 
    Total segment operating income from continuing operations, excluding special items   $ 414,074   $ 313,957   $ 308,217  
   
 
 
 

91


 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Sabre Travel Network:                    
  Goodwill and other intangibles amortization   $ 15,852   $ 19,136   $ 4,207  
  Write-off of software which will not be utilized         5,975      
  Stock compensation     414     1,272     527  
  Severance expense     3,771     11,613     4,055  
   
 
 
 
    Total Sabre Travel Network     20,037     37,996     8,789  
   
 
 
 
Travelocity:                    
  Goodwill and other intangibles amortization     9,823     85,060     67,996  
  Stock compensation     23,725     1,662     2,556  
  Severance expenses     313          
  Tender offer expenses     7,111          
   
 
 
 
    Total Travelocity     40,972     86,722     70,552  
   
 
 
 
GetThere:                    
  Goodwill and other intangibles amortization     26,011     173,326     37,216  
  Stock compensation     2,750     6,660     1,665  
  Severance and integration expense     (396 )   7,347     549  
   
 
 
 
    Total GetThere     28,365     187,333     39,430  
   
 
 
 
Sabre Airline Solutions:                    
  Severance expenses     2,196     2,725      
  Write-off of software which will not be utilized             3,153  
   
 
 
 
    Total Sabre Airline Solutions     2,196     2,725     3,153  
   
 
 
 
Corporate:                    
  Litigation insurance     1,350          
  Expenses related to Spin-off from AMR             12,548  
  Severance expenses     3,654     7,890     963  
   
 
 
 
    Total Corporate     5,004     7,890     13,511  
   
 
 
 
    Total special items   $ 96,574   $ 322,666   $ 135,435  
   
 
 
 

92


Operating income (loss) from continuing operations including special items:                    
  Sabre Travel Network   $ 408,785   $ 336,055   $ 407,447  
  Travelocity     (52,793 )   (76,104 )   (114,054 )
  GetThere     (54,001 )   (240,926 )   (76,135 )
  Sabre Airline Solutions     18,728     (3,870 )   (29,071 )
  Unallocated corporate expenses     (3,219 )   (23,864 )   (15,405 )
   
 
 
 
    Total consolidated operating income (loss) from continuing operations   $ 317,500   $ (8,709 ) $ 172,782  
   
 
 
 
 
  December 31,
 
  2002
  2001
  2000
Depreciation and amortization included in income from continuing operations (in thousands):                  
  Sabre Travel Network   $ 46,429   $ 79,202   $ 110,699
  Travelocity     23,835     94,002     82,348
  GetThere     33,015     176,990     38,758
  Sabre Airline Solutions     8,970     32,318     22,826
  Unallocated depreciation and amortization     4,699     6,426     17,296
   
 
 
    Total consolidated depreciation and amortization included in income from continuing operations   $ 116,948   $ 388,938   $ 271,927
   
 
 
Amortization of goodwill and intangible assets included in income from continuing operations, including special items (in thousands):                  
  Sabre Travel Network   $ 15,852   $ 19,136   $ 4,207
  Travelocity     9,861     85,060     67,996
  GetThere     26,011     173,326     37,216
  Sabre Airline Solutions     1,700        
   
 
 
    Total amortization of goodwill and intangible assets included in income from continuing operations   $ 53,424   $ 277,522   $ 109,419
   
 
 

93


 
  December 31,
 
  2002
  2001
  2000
Segment assets (in thousands):                  
  Sabre Travel Network   $ 713,905   $ 523,954   $ 459,483
  Travelocity     490,677     373,024     370,205
  GetThere     412,289     452,417     684,810
  Sabre Airline Solutions     311,255     327,484     543,907
  Unallocated cash, investments, corporate headquarters and other     828,405     699,138     591,949
   
 
 
    Total consolidated assets   $ 2,756,531   $ 2,376,017   $ 2,650,354
   
 
 
 
  Year Ended December 31,
 
  2002
  2001
  2000
Capital expenditures for segment assets:                  
  Sabre Travel Network   $ 23,392   $ 62,348   $ 78,567
  Travelocity     12,029     11,572     11,755
  GetThere     6,025     7,985     1,341
  Sabre Airline Solutions     16,139     70,949     81,876
  Unallocated capital expenditures     5,065     5,553     16,587
   
 
 
    Total capital expenditures   $ 62,650   $ 158,407   $ 190,126
   
 
 
 
  Year Ended December 31,
 
  2002
  2001
  2000
Revenues from continuing operations:                
  United States   $ 1,248,314   1,459,075   $ 1,328,708
  Foreign     808,152   685,886     626,802
   
 
 
    Total   $ 2,056,466   2,144,961   $ 1,955,510
   
 
 

94


 
  December 31,
 
  2002
  2001
  2000
United States   $ 1,186,873   $ 1,025,923   $ 1,681,641
Singapore (primarily investment in joint venture)     151,399     152,733     145,606
Other foreign     106,616     105,123     130,139
   
 
 
  Total   $ 1,444,888   $ 1,283,779   $ 1,957,386
   
 
 

16.    Quarterly Financial Information (Unaudited)

 
  First
Quarter

  Second
Quarter

  Third
Quarter

  Fourth
Quarter

2002                        
Revenues   $ 549,358   $ 536,748   $ 517,374   $ 452,986
Operating income   $ 119,994   $ 104,304   $ 87,474   $ 5,728
Net earnings   $ 87,387   $ 67,965   $ 57,921   $ 871
Earnings per common share:                        
  Basic   $ .66   $ .48   $ .40   $ .01
  Diluted   $ .64   $ .47   $ .40   $ .01
 
  First
Quarter

  Second
Quarter

  Third
Quarter

  Fourth
Quarter

 
2001                          
Revenues   $ 583,581   $ 593,322   $ 535,453   $ 432,605  
Operating income (loss)   $ 44,861   $ 38,448   $ 2,106   $ (94,124 )

Income (loss) from continuing operations

 

$

413

 

$

5,051

 

$

17,290

 

$

(69,707

)
Income from discontinued operations, net     13,632     22,673     38,772      
Cumulative effect of accounting change, net     3,103              
   
 
 
 
 
Net earnings (loss)   $ 17,148   $ 27,724   $ 56,062   $ (69,707 )
   
 
 
 
 
Earnings (loss) per common share—basic:                          
  Income (loss) from continuing operations   $   $ .04   $ .13   $ (.52 )
  Income from discontinued operations, net     .10     .17     .29      
  Cumulative effect of accounting change, net     .03              
   
 
 
 
 
  Net earnings (loss)   $ .13   $ .21   $ .42   $ (.52 )
   
 
 
 
 

95


Earnings (loss) per common share—diluted:                          
  Income (loss) from continuing operations   $   $ .04   $ .13   $ (.52 )
  Income from discontinued operations, net     .10     .16     .29      
  Cumulative effect of accounting change, net     .03              
   
 
 
 
 
  Net earnings (loss)   $ .13   $ .20   $ .42   $ (.52 )
   
 
 
 
 

17.    Supplemental Guarantor/Non-Guarantor Financial Information

96


97


SABRE HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


17.    Supplemental Guarantor/Non-Guarantor Financial Information (Continued)


CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2002
(in thousands)

 
  Sabre Holdings
  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

  Assets                              
  Current assets                              
    Cash and marketable securities   $   $ 898,958   $ 12,802   $   $ 911,760
    Accounts receivable—trade, net         223,216     75,282         298,498
    Intercompany accounts receivable (payable)     1,532,426     (2,094,913 )   562,487        
    Prepaid expenses         38,994     46,663         85,657
    Deferred income taxes         15,678     50         15,728
   
 
 
 
 
      Total current assets     1,532,426     (918,067 )   697,284         1,311,643
 
Property and equipment, net

 

 


 

 

187,783

 

 

52,289

 

 


 

 

240,072
 
Investments in joint ventures

 

 


 

 

11,892

 

 

184,833

 

 


 

 

196,725
  Deferred income taxes         (38,267 )   38,267        
  Goodwill and intangible assets, net         10,605     845,078         855,683
  Investments in subsidiaries     529,892     1,675,167         (2,205,059 )  
  Other assets, net     24,058     89,060     39,290         152,408
   
 
 
 
 
  Total assets   $ 2,086,376   $ 1,018,173   $ 1,857,041   $ (2,205,059 ) $ 2,756,531
   
 
 
 
 
 
Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Current liabilities                              
    Accounts payable   $ 88   $ 163,071   $ 18,775   $   $ 181,934
    Accrued compensation and related benefits         44,752     10,018         54,770
    Other accrued liabilities     8,381     169,783     85,046         263,210
   
 
 
 
 
      Total current liabilities     8,469     377,606     113,839         499,914
   
Deferred income taxes

 

 


 

 

(13,404

)

 

27,159

 

 


 

 

13,755
    Pensions and other postretirement benefits         115,400     905         116,305
    Other liabilities     564     8,679     29,671         38,914
    Minority interests             10,300         10,300
    Notes payable     435,765                 435,765
 
Stockholders' equity

 

 

1,641,578

 

 

529,892

 

 

1,675,167

 

 

(2,205,059

)

 

1,641,578
   
 
 
 
 
      Total liabilities and stockholders' equity   $ 2,086,376   $ 1,018,173   $ 1,857,041   $ (2,205,059 ) $ 2,756,531
   
 
 
 
 

98



CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2001
(in thousands)

 
  Sabre Holdings
  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

  Assets                              
  Current assets                              
    Cash and marketable securities   $   $ 543,196   $ 123,691   $   $ 666,887
    Accounts receivable—trade, net         238,747     89,069         327,816
    Intercompany accounts receivable (payable)     1,074,130     (1,406,885 )   332,755        
    Prepaid expenses         18,120     33,445         51,565
    Deferred income taxes         45,740     230         45,970
   
 
 
 
 
      Total current assets     1,074,130     (561,082 )   579,190         1,092,238
 
Property and equipment, net

 

 


 

 

232,434

 

 

56,015

 

 


 

 

288,449
 
Investments in joint ventures

 

 


 

 

12,353

 

 

157,596

 

 


 

 

169,949
  Goodwill and intangible assets, net         9,626     662,519         672,145
  Investments in subsidiaries     372,556     1,132,522         (1,505,078 )  
  Other assets, net     5,845     76,545     70,846         153,236
   
 
 
 
 
      Total assets   $ 1,452,531   $ 902,398   $ 1,526,166   $ (1,505,078 ) $ 2,376,017
   
 
 
 
 
 
Liabilities and stockholders' equity Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Accounts payable   $   $ 136,608   $ 22,231   $   $ 158,839
    Accrued compensation and related benefits         59,184     14,090         73,274
    Other accrued liabilities     9,347     219,651     103,345         332,343
   
 
 
 
 
      Total current liabilities     9,347     415,443     139,666         564,456
   
Pensions and other postretirement benefits

 

 


 

 

88,362

 

 

394

 

 


 

 

88,756
    Other liabilities     1,033     26,037     33,868         60,938
    Minority interests             219,716         219,716
    Notes payable     400,375                 400,375
 
Stockholders' equity

 

 

1,041,776

 

 

372,556

 

 

1,132,522

 

 

(1,505,078

)

 

1,041,776
   
 
 
 
 
      Total liabilities and stockholders' equity   $ 1,452,531   $ 902,398   $ 1,526,166   $ (1,505,078 ) $ 2,376,017
   
 
 
 
 

99


SABRE HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


17.    Supplemental Guarantor/Non-Guarantor Financial Information (Continued)


CONDENSED CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2002
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Revenues   $   $ 1,577,252   $ 943,305   $ (464,091 ) $ 2,056,466  
Operating expenses     1,389     1,361,926     839,742     (464,091 )   1,738,966  
   
 
 
 
 
 
Operating income (loss)     (1,389 )   215,326     103,563         317,500  
Other income (expense)                                
  Interest income     90,440     22,064     22,219     (106,820 )   27,903  
  Interest expense     (19,047 )   (108,449 )   (2,674 )   106,820     (23,350 )
  Income from subsidiaries     168,029     85,151         (253,180 )    
  Other, net         19,134     (2,333 )       16,801  
   
 
 
 
 
 
    Total other income (expense)     239,422     17,900     17,212     (253,180 )   21,354  
Minority interests             214         214  
   
 
 
 
 
 
Income (loss) before income taxes     238,033     233,226     120,989     (253,180 )   339,068  
Provision for income taxes     23,889     65,197     35,838         124,924  
   
 
 
 
 
 
Net income (loss)   $ 214,144   $ 168,029   $ 85,151   $ (253,180 ) $ 214,144  
   
 
 
 
 
 

100



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2001
(in thousands)

 
  Sabre Holdings
  Sabre Inc.
  Non-
Guarantor Subsidiaries

  Eliminating Entries
  Sabre Consolidated
 
  Revenues   $   $ 1,660,384   $ 885,899   $ (401,322 ) $ 2,144,961  
 
Operating expenses

 

 

1,843

 

 

1,607,671

 

 

946,666

 

 

(402,510

)

 

2,153,670

 
   
 
 
 
 
 
  Operating income (loss)     (1,843 )   52,713     (60,767 )   1,188     (8,709 )
 
Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Interest income     37,251     18,885     5,774     (37,251 )   24,659  
    Interest expense     (9,581 )   (88,359 )   19,524     37,251     (41,165 )
    Income from subsidiaries     14,214     (74,844 )       60,630      
    Other, net         42,385     (5,629 )       36,756  
   
 
 
 
 
 
      Total other income (expense)     41,884     (101,933 )   19,669     60,630     20,250  
  Minority interests             22,469         22,469  
   
 
 
 
 
 
  Income (loss) from continuing operations before income taxes     40,041     (49,220 )   (18,629 )   61,818     34,010  
  Provision for income taxes     8,814     10,938     61,211         80,963  
   
 
 
 
 
 
  Income (loss) from continuing operations     31,227     (60,158 )   (79,840 )   61,818     (46,953 )
  Income (loss) from discontinued operations, net         36,164     1,329     (1,188 )   36,305  
  Gain on sale of discontinued operations, net         38,208     564         38,772  
   
 
 
 
 
 
  Income before cumulative effect of change in accounting method     31,227     14,214     (77,947 )   60,630     28,124  
  Cumulative effect of accounting method, net of minority interests and income taxes             3,103         3,103  
   
 
 
 
 
 
  Net income (loss)   $ 31,227   $ 14,214   $ (74,844 ) $ 60,630   $ 31,227  
   
 
 
 
 
 

101



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2000
(in thousands)

 
  Sabre Holdings
  Sabre Inc.
  Non-
Guarantor Subsidiaries

  Eliminating Entries
  Sabre Consolidated
 
  Revenues   $   $ 1,643,077   $ 594,952   $ (282,519 ) $ 1,955,510  
  Operating expenses     1,523     1,481,622     587,388     (287,805 )   1,782,728  
   
 
 
 
 
 
  Operating income (loss)     (1,523 )   161,455     7,564     5,286     172,782  
 
Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Interest income     28,534     11,894     4,197     (28,377 )   16,248  
    Interest expense         (74,953 )   14,890     28,377     (31,686 )
    Income from subsidiaries     126,259     15,812         (142,071 )    
    Other, net         310     1,180         1,490  
   
 
 
 
 
 
      Total other income (expense)     154,793     (46,937 )   20,267     (142,071 )   (13,948 )
  Minority interests             30,754         30,754  
   
 
 
 
 
 
  Income (loss) from continuing operations before income taxes     153,270     114,518     58,585     (136,785 )   189,588  
  Provision for income taxes     9,218     35,076     49,189         93,483  
   
 
 
 
 
 
  Income (loss) from continuing operations     144,052     79,442     9,396     (136,785 )   96,105  
  Income (loss) from discontinued operations, net         46,817     6,416     (5,286 )   47,947  
   
 
 
 
 
 
  Net income (loss)   $ 144,052   $ 126,259   $ 15,812   $ (142,071 ) $ 144,052  
   
 
 
 
 
 

102


SABRE HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


17.    Supplemental Guarantor/Non-Guarantor Financial Information (Continued)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
  Operating Activities                                
    Net earnings   $ 214,144   $ 168,029   $ 85,151   $ (253,180 ) $ 214,144  
    Adjustments to reconcile net earnings to cash provided by operating activities:                                
      Depreciation and amortization         42,136     74,812         116,948  
      Stock compensation             31,142         31,142  
      Deferred income taxes         88,375     (35,171 )       53,204  
      Tax benefit from exercise of stock options     9,687                 9,687  
      Minority interests             (214 )       (214 )
      (Income) loss from subsidiaries     (168,029 )   (85,151 )       253,180      
      Gain on sale of former headquarters building         (18,308 )           (18,308 )
      Other     11,828     (12,866 )   (21,292 )       (22,330 )
      Changes in operating assets and liabilities     (453,859 )   576,763     (207,782 )       (84,878 )
   
 
 
 
 
 
    Cash provided by (used for) operating activities     (386,229 )   758,978     (73,354 )       299,395  
 
Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Additions to property and equipment         (40,654 )   (21,996 )       (62,650 )
    Business combinations, net of cash acquired         (2,963 )   (495,545 )       (498,508 )
    Proceeds from exercise of Travelocity.com stock options                 33,658     33,658  
    Proceeds from sale of former headquarters building         80,000             80,000  
    Purchase of data center facility from lessor         (92,092 )           (92,092 )
    Proceeds from sale of data center facility         68,464             68,464  
    Proceeds from sale of minority interest in Sabre Pacific             23,466         23,466  
    Purchases of marketable securities         (4,373,678 )   (321,629 )       (4,695,307 )
    Sales of marketable securities         4,018,609     434,453         4,453,062  
    Proceeds from sale of investments             8,807         8,807  
    Investments in subsidiaries, net     (10,945 )   (457,494 )       468,439      
    Other investing activities, net         30,461     (26,107 )       4,354  
   
 
 
 
 
 
  Cash provided by (used for) investing activities     (10,945 )   (769,347 )   (398,551 )   502,097     (676,746 )
 
Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Contributions from (repayments to) affiliates         10,945     457,494     (468,439 )    
    Proceeds from issuance of common stock     399,763                 399,763  
    Proceeds from exercise of stock options and issuance of stock under employee stock purchase plan     36,609         33,658     (33,658 )   36,609  
    Purchase of treasury stock     (56,610 )               (56,610 )
    Other financing activities, net     17,412         (17,502 )       (90 )
   
 
 
 
 
 
  Cash provided by (used for) financing activities     397,174     10,945     473,650     (502,097 )   379,672  
   
Increase in cash

 

 


 

 

576

 

 

1,745

 

 


 

 

2,321

 
    Cash at beginning of the period         10,046     8,809         18,855  
   
 
 
 
 
 
    Cash at end of the period   $   $ 10,622   $ 10,554   $   $ 21,176  
   
 
 
 
 
 

103



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
  Operating Activities                                
    Net earnings   $ 31,227   $ 14,214   $ (74,844 ) $ 60,630   $ 31,227  
    Adjustments to reconcile net earnings to cash provided by operating activities:                                
      Depreciation and amortization         111,862     325,785         437,647  
      Stock compensation             7,624         7,624  
      Deferred income taxes         (74,892 )   (12,517 )       (87,409 )
      Tax benefit from exercise of stock options     31,126                 31,126  
      Minority interests             (22,469 )       (22,469 )
      (Income) loss from subsidiaries     (14,214 )   74,844         (60,630 )    
      Gain on sale of discontinued operations, net         (38,208 )   (564 )       (38,772 )
      Gain on sale of France Telecom shares         (47,303 )           (47,303 )
      Cumulative effect of accounting change, net             (3,103 )       (3,103 )
      Loss on disposal of equipment         8,132     215         8,347  
      Other         9,858     (7,322 )       2,536  
      Changes in operating assets and liabilities     (504,030 )   681,994     (107,178 )       70,786  
   
 
 
 
 
 
    Cash provided by (used for) operating activities     (455,891 )   740,501     105,627         390,237  
 
Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Additions to property and equipment         (121,196 )   (37,211 )       (158,407 )
    Business combinations, net of cash acquired         (9,387 )   (45,956 )       (55,343 )
    Proceeds from exercise of Travelocity.com stock options                 13,145     13,145  
    Proceeds from sale of discontinued operations         607,525     53,238         660,763  
    Purchases of marketable securities         (2,883,251 )   (456,974 )       (3,340,225 )
    Sales of marketable securities         2,466,243     367,671         2,833,914  
    Proceeds from sale of investments         47,303     38,950         86,253  
    Purchases of Travelocity.com common stock             (17,908 )       (17,908 )
    Investments in subsidiaries, net     (41,699 )   292         41,407      
    Dividends received         13,758         (13,758 )    
    Other investing activities, net         (36,023 )   (3,919 )       (39,942 )
   
 
 
 
 
 
  Cash provided by (used for) investing activities     (41,699 )   85,264     (102,109 )   40,794     (17,750 )
 
Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Contributions from (repayments to) affiliates         41,699     (292 )   (41,407 )    
    Proceeds from exercise of stock options and issuance of stock under employee stock purchase plan     109,262         13,145     (13,145 )   109,262  
    Purchase of treasury stock     (9,064 )               (9,064 )
    Dividends paid             (13,758 )   13,758      
    Issuance of notes payable     397,392                 397,392  
    Repayments of notes payable         (859,000 )           (859,000 )
    Other financing activities, net                      
   
 
 
 
 
 
  Cash provided by (used for) financing activities     497,590     (817,301 )   (905 )   (40,794 )   (361,410 )
   
Increase in cash

 

 


 

 

8,464

 

 

2,613

 

 


 

 

11,077

 
    Cash at beginning of the period         1,582     6,196         7,778  
   
 
 
 
 
 
    Cash at end of the period   $   $ 10,046   $ 8,809   $   $ 18,855  
   
 
 
 
 
 

104



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
  Operating Activities                                
    Net earnings   $ 144,052   $ 126,259   $ 15,812   $ (142,071 ) $ 144,052  
    Adjustments to reconcile net earnings to cash provided by operating activities:                                
      Depreciation and amortization         179,458     166,336         345,794  
      Deferred income taxes         30,234     (7,900 )       22,334  
      Minority interests             (30,754 )       (30,754 )
      Income from subsidiaries     (126,259 )   (15,812 )       142,071      
      Other         16,784     2,551         19,335  
      Changes in operating assets and liabilities     243,836     (258,498 )   (175,327 )       (189,989 )
   
 
 
 
 
 
    Cash provided by (used for) operating activities     261,629     78,425     (29,282 )       310,772  
 
Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Additions to property and equipment         (154,523 )   (35,603 )       (190,126 )
    Business combinations, net of cash acquired             (711,383 )       (711,383 )
    Proceeds from exercise of Travelocity.com stock options                 3,786     3,786  
    Purchases of marketable securities         (9,726,716 )   (260,586 )       (9,987,302 )
    Sales of marketable securities         10,212,988     218,241         10,431,229  
    Investments in subsidiaries     53     (799,207 )       799,154      
    Dividends received     428,285     1,754         (430,039 )    
    Other investing activities, net         (40,564 )   21,381         (19,183 )
   
 
 
 
 
 
  Cash provided by (used for) investing activities     428,338     (506,268 )   (767,950 )   372,901     (472,979 )
 
Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Contributions from (repayments to) affiliates         (53 )   799,207     (799,154 )    
    Proceeds from exercise of stock options and issuance of stock under employee stock purchase plan     18,198         3,786     (3,786 )   18,198  
    Purchase of treasury stock     (34,472 )               (34,472 )
    Dividends paid     (675,000 )   (428,285 )   (1,754 )   430,039     (675,000 )
    Issuance of notes payable         859,000             859,000  
    Other financing activities, net         (4,362 )   (7 )       (4,369 )
   
 
 
 
 
 
  Cash provided by (used for) financing activities     (691,274 )   426,300     801,232     (372,901 )   163,357  
   
Increase (decrease) in cash

 

 

(1,307

)

 

(1,543

)

 

4,000

 

 


 

 

1,150

 
    Cash at beginning of the period     1,307     3,125     2,196         6,628  
   
 
 
 
 
 
    Cash at end of the period   $   $ 1,582   $ 6,196   $   $ 7,778  
   
 
 
 
 
 

105


ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11.    EXECUTIVE COMPENSATION

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14.    CONTROLS AND PROCEDURES

        Evaluation of disclosure controls and procedures.    Within 90 days prior to the filing of this report, our principal executive officer ("CEO") and principal financial officer ("CFO") evaluated the effectiveness of our disclosure controls and procedures. Based on these evaluations, our CEO and CFO believe (i) that our disclosure controls and procedures have been designed to ensure that information required to be disclosed by us in this Report is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure; and (ii) that our disclosure controls and procedures are functioning as designed.

        Changes in internal controls.    There have been no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the evaluation referred to above, nor have there been any corrective actions with regard to significant deficiencies or material weaknesses.


PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

106


Exhibit Number

  Description of Exhibit

2.1  

 

Asset Purchase Agreement by and among EDS Information Services L.L.C., Electronic Data Systems Corporation, Sabre Inc., and Sabre Holdings Corporation.(1)
2.2     First Amendment to Asset Purchase Agreement by and among EDS Information Services L.L.C., Electronic Data Systems Corporation, Sabre Inc., and Sabre Holdings Corporation.(2)
2.3     Second Amendment to Asset Purchase Agreement by and among EDS Information Services L.L.C., Electronic Data Systems Corporation, Sabre Inc., and Sabre Holdings Corporation.(3)
3.1     Restated Certificate of Incorporation of Sabre Holdings Corporation.(5)
3.2     Restated Bylaws of Sabre Holdings Corporation.(6)
4.1     Specimen Certificate representing Class A common stock.(7)
4.2     Indenture, dated as of August 3, 2001, between Sabre Holdings Corporation and SunTrust Bank, as Trustee, providing for issuance of debt securities in series.(8)
4.3     First Supplemental Indenture, to be dated August 7, 2001, between Sabre Holdings Corporation and SunTrust Bank, as Trustee, relating to the 7.35% Notes Due 2011 of Sabre Holdings Corporation.(9)
10.1   Marketing Cooperation Agreement, dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(10)(11)
10.2     Tax Sharing Agreement, dated July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(11)
10.3     Travel Privileges Agreement, dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(10)(11)
10.4     Amendment to Travel Privileges Agreement dated as of March 15, 2000 between Sabre Inc. and American Airlines, Inc.(10)(21)
10.5     Software Marketing Agreement, dated September 10, 1996, among Registrant, The Sabre Group, Inc. and AMR Corporation.(10)(11)
10.6     American Airlines Special Facilities Lease Agreement, dated October 1, 1972, between American Airlines, Inc. and the Dallas-Fort Worth Regional Airport Board, as amended by Supplemental Agreements Nos. 1-5.(11)
10.7     Assignment Agreement, dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(11)
10.8     Sublease, dated June 1, 1958, between American Airlines, Inc. and the Trustees of the Tulsa Municipal Airport Trust, as amended by Amendments Nos. 1-12.(11)
10.9     Assignment Agreement, dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(11)
10.10   Amended and Restated Sublease Agreement, dated May, 1996, between American Airlines, Inc. and the Tulsa Airports Improvement Trust.(11)
10.11   Assignment Agreement, dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(11)
10.12   Syndicated Lease Facility with Various Associated Documents, dated September 14, 1999 as specified below:(4)

107


    10.12(a)   Participation Agreement dated as of September 14, 1999 among Sabre Inc., First Security Bank, National Association, as the Owner Trustee and Bank of America, N.A.(4)
    10.12(b)   Lease Agreement dated as of September 14, 1999 between Sabre Inc., and First Security Bank, National Association, as the Owner Trustee.(4)
    10.12(c)   Agency Agreement dated as of September 14, 1999 between Sabre Inc., and First Security Bank, National Association as the Owner Trustee.(4)
    10.12(d)   Credit Agreement dated as of September 14, 1999 among First Security Bank, National Association, as the Owner Trustee, as the Borrower, and Bank of America, N.A., as the Agent.(4)
    10.12(e)   Security Agreement dated as of September 14, 1999 between First Security Bank, National Association, as the Owner Trustee under the TSG Trust 1999-1, as the Borrower, and Bank of America, N.A., as the Agent, and accepted and agreed to by Sabre Inc.(4)
    10.12(f)   Trust Agreement dated as of September 14, 1999 between The Several Holders from Time to Time Parties thereto, as the Holders, and First Security Bank, National Association, in its individual capacity and as the Owner Trustee.(4)
    10.12(g)   First Amendment and Restatement of Operative Agreements dated as of December 15, 1999 among Sabre Inc., First Security Bank, National Association, as the Owner Trustee, the Various Banks and other lending institutions as the Holders, the Various Banks and other lending institutions, as the Lenders, and Bank of America, N.A., a national banking association, as the Agent for the Lenders.(4)
    10.12(h)   Second Amendment to Certain Operative Agreements dated as of October 4, 2000 among Sabre Inc., First Security Bank, National Association, as the Owner Trustee, the Various Banks and other lending institutions as the Holders, the Various Banks and other lending institutions, as the Lenders, and Bank of America, N.A., a national banking association, as the Agent for the Lenders.(4)
    10.12(i)   Third Amendment to Certain Operative Agreements dated as of March 11, 2002 among Sabre Inc., First Security Bank, National Association, as the Owner Trustee, the Various Banks and other lending institutions as the Holders, the Various Banks and other lending institutions, as the Lenders, and Bank of America, N.A., a national banking association, as the Agent for the Lenders.(4)
    10.12(j)   Fourth Amendment to Certain Operative Agreements dated as of June 11, 2002 among Sabre Inc., First Security Bank, National Association, as the Owner Trustee, the Various Banks and other lending institutions as the Holders, the Various Banks and other lending institutions, as the Lenders, and Bank of America, N.A., a national banking association, as the Agent for the Lenders.(4)
10.13   Reserved.
10.14   The Sabre Group Holdings, Inc. Directors Stock Incentive Plan.(11)

108


10.15   The Sabre Group Holdings, Inc. Employee Stock Purchase Plan.(12)
10.16   The Sabre Group Holdings, Inc. Deferred Compensation Plan.(16)
10.17   The Sabre Group Holdings, Inc. Amended and Restated 1996 Long-Term Incentive Plan, dated January 19, 1999, as amended November 13, 2000.(29)
10.18   Supplemental Agreement Regarding Workers' Compensation dated as of March 15, 2000 between Sabre Inc. and American Airlines, Inc.(10)(21)
10.19   Supplemental Executive Retirement Plan, as Amended (Restoration).(22)
10.20   Supplemental Executive Retirement Plan, as Amended (Officer).(23)
10.21   Supplemental Executive Retirement Plan, as Amended (Grandfathered).(24)
10.22   Form of Executive Termination Benefits Agreement.(25)
10.23   Forms of Addenda to Executive Termination Benefits Agreement with respect to William J. Hannigan, Jeffery M. Jackson and Eric J. Speck.(26)
10.24   Employment Agreement between Sabre Holdings Corporation, Sabre Inc. and William J. Hannigan.(29)
10.25   Employment Agreement Addendum between Sabre Inc. and William J. Hannigan.(29)
10.26   Employment Agreement Addendum between Sabre Inc. and William J. Hannigan.(4)
10.27   Option Issuance Agreement, dated January 1, 1998 between Registrant and US Airways, Inc.(15)
10.28   Agreement and Plan of Merger dated as of October 3, 1999 by and among Sabre Inc., Travelocity Holdings, Inc., Travelocity.com Inc. and Preview Travel, Inc.(18)
10.29   Agreement on Spin-off Taxes dated March 15, 2000 between AMR Corporation and Sabre Holdings Corporation.(10)(21)
10.30   Credit Agreement, dated as of February 4, 2000, among Sabre Inc., Bank of America, N.A., and the other banks party thereto.(27)
10.31   Amendment No. 1 to the Credit Agreement, dated as of October 4, 2000, among Sabre Inc., Bank of America, N.A., and the other banks party thereto.(29)
10.32   2000 Stock Option Plan effective March 2000.(30)
10.33   2000 Stock Option Plan Amended and Restated effective November 13, 2000.(4)
10.34   Form of Addenda to Executive Termination Benefits with respect to David A. Schwarte.(4)
10.35   Form of Addenda to Executive Termination Benefits with respect to M. Sam Gilliland.(4)
12.1     Computation of ratio of earnings to fixed charges for the year ended December 31, 2002.(4)
21.1     Subsidiaries of Registrant.(4)
23.1     Consent of Ernst & Young LLP.(4)

(1)
Incorporated by reference to Exhibit 2.1 to our report on Form 10-Q for the quarter ended March 31, 2001.

109


(2)
Incorporated by reference to Exhibit 2.2 to our report on Form 8-K on July 16, 2001.

(3)
Incorporated by reference to Exhibit 2.3 to our report on Form 8-K on July 16, 2001.

(4)
Filed herewith.

(5)
Incorporated by reference to Exhibit 3.1 to our report on Form 10-Q for the quarter ended June 30, 2000.

(6)
Incorporated by reference to Exhibit 3.2 to our report on Form 10-Q for the quarter ended June 30, 2001.

(7)
Incorporated by reference to Exhibit 4.1 to our report on Form 10-Q for the quarter ended March 31, 2000.

(8)
Incorporated by reference to Exhibit 4.6 to our report on Form 8-K dated August 2, 2001.

(9)
Incorporated by reference to Exhibit 4.7 to our report on Form 8-K dated August 2, 2001.

(10)
Confidential treatment was granted as to a portion of this document.

(11)
Incorporated by reference to exhibits 3.1 through 10.32 to our Registration Statement on Form S-1 (Registration No. 333-09747).

(12)
Incorporated by reference to Exhibit B to our proxy statement on Schedule 14A filed April 17, 2000.

(13)
Incorporated by reference to Exhibit A to our proxy statement on Schedule 14A filed April 17, 2000.

(14)
Incorporated by reference to Exhibit 10 to AMR's report on Form 10-K for the year ended December 31, 1994.

(15)
Incorporated by reference to Exhibit 10.34 to our report on Form 10-K for the year ended December 31, 1997.

(16)
Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-8 (Registration No. 333-51291).

(17)
Incorporated by reference to Exhibit 10.46 to our report on Form 10-Q for the quarterly period ended September 30, 1999.

(18)
Incorporated by reference to Exhibits 3.1 and 3.2 to our report on Form 10-Q for the quarterly period ended June 30, 2000.

(19)
Incorporated by reference to Exhibit 4.1 to our report on Form 10-Q for the quarterly period ended March 30, 2000.

(20)
Reserved.

(21)
Incorporated by reference to Exhibits 10.47 through 10.56 to our report on Form 10-K for the year ended December 31, 1999.

(22)
Incorporated by reference to Exhibit 10.1 to our report on Form 10-Q for the quarter ended June 30, 2001.

(23)
Incorporated by reference to Exhibit 10.2 to our report on Form 10-Q for the quarter ended June 30, 2001.

(24)
Incorporated by reference to Exhibit 10.3 to our report on Form 10-Q for the quarter ended June 30, 2001.

(25)
Incorporated by reference to Exhibit 10.4 to our report on Form 10-Q for the quarter ended June 30, 2001.

110


(26)
Incorporated by reference to Exhibit 10.5 to our report on Form 10-Q for the quarter ended September 30, 2001.

(27)
Incorporated by reference to Exhibit 10.1 to our report on Form 10-Q for the quarter ended June 30, 2000.

(28)
Reserved.

(29)
Incorporated by reference to Exhibit 10.16, 10.23, 10.24 and 10.30 to our report on Form 10-K for the year ended December 31, 2001.

(30)
Incorporated by reference to our Registration Statement on Form S-8 (Registration No. 333-40932).

(b)
Reports on Form 8-K:

On December 9, 2002, Sabre Holdings Corporation submitted a report on Form 8-K confirming that Sabre's wholly-owned subsidiary Travelocity.com expects to begin charging early in 2003 customer service fees of up to $5 for most airline tickets purchased on its North American web sites.

On December 23, 2002, Sabre Holdings Corporation submitted a report on Form 8-K, a portion of which was filed supplementing financial projections issued on December 13, 2002. The portion that was furnished as an Item 9 disclosure is not incorporated into this Form 10-K or into any other form or report filed with the Commission into which this Form 10-K would be incorporated by reference.

Pursuant to General Instruction B.2. of Form 8-K, the Forms 8-K listed below contained only Item 9 disclosures, except for the December 23, 2002 Form 8-K, a portion of which was furnished under Item 9 as noted above and below, and consequently such Forms 8-K are not incorporated into this Form 10-K or into any other form or report filed with the Commission into which this Form 10-K would be incorporated by reference.

On October 22, 2002, Sabre Holdings Corporation submitted a report on Form 8-K announcing a new multi-year offering for airlines in its Participating Carrier Agreement for Direct Connect Availability.

On October 23, 2002, Sabre Holdings Corporation submitted an amended report on Form 8-K/A amending and restating its report of October 22, 2002 about the new multi-year offering for airlines in its Participating Carrier Agreement for Direct Connect Availability.

On November 14, 2002, Sabre Holdings Corporation submitted a report on Form 8-K stating that it had delivered to the SEC statements in writing, under oath, of each of the principal executive officer and the principal financial officer of Sabre Holdings Corporation pursuant to Title 18 United States Code Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.

On December 23, 2002, Sabre Holdings Corporation submitted a report on Form 8-K, a portion of which was furnished under Item 9 supplementing financial projections issued on December 13, 2002.

111



SABRE HOLDINGS CORPORATION

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS

[Item 15(a)]

Financial Statements

 
  Page
Report of Independent Auditors   42
Consolidated Balance Sheets at December 31, 2002 and 2001   43
Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000   44
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000   45
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2002, 2001 and 2000   46
Notes to Consolidated Financial Statements   47
Schedule II—Valuation and Qualifying Accounts for the Years Ended December 31, 2002, 2001 and 2000   113

112



Sabre Holdings Corporation

Schedule II—Valuation and Qualifying Accounts

For Each of the Three Years in the Period Ended December 31, 2002

(in thousands)

 
   
  Additions
   
   
Classification

  Balance at
Beginning of
Year

  Charged to
Costs and
Expenses

  Charged to
Other
Accounts(1)

  Deductions(2)
  Balance at
End of Year

Year Ended December 31, 2002                              
  Allowance for uncollectible accounts   $ 41,317   $ 12,812   $   $ (19,629 ) $ 34,500
  Booking fee cancellation reserve     21,017         840     (3,500 )   18,357
  Associate reserves     2,189     10,831 (3)       (5,850 )   7,170
Year Ended December 31, 2001                              
  Allowance for uncollectible accounts   $ 21,053   $ 35,099       $ (14,835 ) $ 41,317
  Booking fee cancellation reserve     20,854         1,163     (1,000 )   21,017
  Associate reserves     1,600     5,283         (4,694 )   2,189
Year Ended December 31, 2000                              
  Allowance for uncollectible accounts     11,913     16,412         (7,272 )   21,053
  Booking fee cancellation reserve     19,748         1,106         20,854
  Associate reserves     1,704     4,133         (4,237 )   1,600

113



Signatures

    SABRE HOLDINGS CORPORATION

 

 

/s/  
WILLIAM J. HANNIGAN      
William J. Hannigan
Chairman and Chief Executive Officer (Principal Executive Officer)


 


 


/s/  
JEFFERY M. JACKSON      
Jeffery M. Jackson
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

 

 

Date: March 14, 2003

 

 

 


 

 

 

/s/  
ROYCE S. CALDWELL      
Royce S. Caldwell

 

/s/  
BOB L. MARTIN      
Bob L. Martin

/s/  
PAUL C. ELY, JR.      
Paul C. Ely, Jr.

 

/s/  
PAMELA B. STROBEL      
Pamela B. Strobel

/s/  
WILLIAM J. HANNIGAN      
William J. Hannigan

 

/s/  
MARY ALICE TAYLOR      
Mary Alice Taylor


/s/  
RICHARD G. LINDNER      
Richard G. Lindner


 


/s/  
RICHARD L. THOMAS      
Richard L. Thomas

/s/  
GLENN W. MARSCHEL, JR.      
Glenn W. Marschel, Jr.

 

 

Date: March 14, 2003

 

 

114


I, William J. Hannigan, certify that:


Date: March 14, 2003    
    /s/  WILLIAM J. HANNIGAN      
William J. Hannigan
Chairman of the Board,
President and Chief Executive Officer

115


I, Jeffery M. Jackson, certify that:


Date: March 14, 2003    
    /s/  JEFFERY M. JACKSON      
Jeffery M. Jackson
Executive Vice President and
Chief Financial Officer

116



Index to Exhibits

Exhibit Number

  Description of Exhibit

2.1  

 

Asset Purchase Agreement by and among EDS Information Services L.L.C., Electronic Data Systems Corporation, Sabre Inc., and Sabre Holdings Corporation.(1)
2.2     First Amendment to Asset Purchase Agreement by and among EDS Information Services L.L.C., Electronic Data Systems Corporation, Sabre Inc., and Sabre Holdings Corporation.(2)
2.3     Second Amendment to Asset Purchase Agreement by and among EDS Information Services L.L.C., Electronic Data Systems Corporation, Sabre Inc., and Sabre Holdings Corporation.(3)
3.1     Restated Certificate of Incorporation of Sabre Holdings Corporation.(5)
3.2     Restated Bylaws of Sabre Holdings Corporation.(6)
4.1     Specimen Certificate representing Class A common stock.(7)
4.2     Indenture, dated as of August 3, 2001, between Sabre Holdings Corporation and SunTrust Bank, as Trustee, providing for issuance of debt securities in series.(8)
4.3     First Supplemental Indenture, to be dated August 7, 2001, between Sabre Holdings Corporation and SunTrust Bank, as Trustee, relating to the 7.35% Notes Due 2011 of Sabre Holdings Corporation.(9)
10.1   Marketing Cooperation Agreement, dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(10)(11)
10.2     Tax Sharing Agreement, dated July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(11)
10.3     Travel Privileges Agreement, dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(10)(11)
10.4     Amendment to Travel Privileges Agreement dated as of March 15, 2000 between Sabre Inc. and American Airlines, Inc.(10)(21)
10.5     Software Marketing Agreement, dated September 10, 1996, among Registrant, The Sabre Group, Inc. and AMR Corporation.(10)(11)
10.6     American Airlines Special Facilities Lease Agreement, dated October 1, 1972, between American Airlines, Inc. and the Dallas-Fort Worth Regional Airport Board, as amended by Supplemental Agreements Nos. 1-5.(11)
10.7     Assignment Agreement, dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(11)
10.8     Sublease, dated June 1, 1958, between American Airlines, Inc. and the Trustees of the Tulsa Municipal Airport Trust, as amended by Amendments Nos. 1-12.(11)
10.9     Assignment Agreement, dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(11)
10.10   Amended and Restated Sublease Agreement, dated May, 1996, between American Airlines, Inc. and the Tulsa Airports Improvement Trust.(11)
10.11   Assignment Agreement, dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines, Inc.(11)
10.12   Syndicated Lease Facility with Various Associated Documents, dated September 14, 1999 as specified below:(4)

    10.12(a)   Participation Agreement dated as of September 14, 1999 among Sabre Inc., First Security Bank, National Association, as the Owner Trustee and Bank of America, N.A.(4)
    10.12(b)   Lease Agreement dated as of September 14, 1999 between Sabre Inc., and First Security Bank, National Association, as the Owner Trustee.(4)
    10.12(c)   Agency Agreement dated as of September 14, 1999 between Sabre Inc., and First Security Bank, National Association as the Owner Trustee.(4)
    10.12(d)   Credit Agreement dated as of September 14, 1999 among First Security Bank, National Association, as the Owner Trustee, as the Borrower, and Bank of America, N.A., as the Agent.(4)
    10.12(e)   Security Agreement dated as of September 14, 1999 between First Security Bank, National Association, as the Owner Trustee under the TSG Trust 1999-1, as the Borrower, and Bank of America, N.A., as the Agent, and accepted and agreed to by Sabre Inc.(4)
    10.12(f)   Trust Agreement dated as of September 14, 1999 between The Several Holders from Time to Time Parties thereto, as the Holders, and First Security Bank, National Association, in its individual capacity and as the Owner Trustee.(4)
    10.12(g)   First Amendment and Restatement of Operative Agreements dated as of December 15, 1999 among Sabre Inc., First Security Bank, National Association, as the Owner Trustee, the Various Banks and other lending institutions as the Holders, the Various Banks and other lending institutions, as the Lenders, and Bank of America, N.A., a national banking association, as the Agent for the Lenders.(4)
    10.12(h)   Second Amendment to Certain Operative Agreements dated as of October 4, 2000 among Sabre Inc., First Security Bank, National Association, as the Owner Trustee, the Various Banks and other lending institutions as the Holders, the Various Banks and other lending institutions, as the Lenders, and Bank of America, N.A., a national banking association, as the Agent for the Lenders.(4)
    10.12(i)   Third Amendment to Certain Operative Agreements dated as of March 11, 2002 among Sabre Inc., First Security Bank, National Association, as the Owner Trustee, the Various Banks and other lending institutions as the Holders, the Various Banks and other lending institutions, as the Lenders, and Bank of America, N.A., a national banking association, as the Agent for the Lenders.(4)
    10.12(j)   Fourth Amendment to Certain Operative Agreements dated as of June 11, 2002 among Sabre Inc., First Security Bank, National Association, as the Owner Trustee, the Various Banks and other lending institutions as the Holders, the Various Banks and other lending institutions, as the Lenders, and Bank of America, N.A., a national banking association, as the Agent for the Lenders.(4)
10.13   Reserved.
10.14   The Sabre Group Holdings, Inc. Directors Stock Incentive Plan.(11)
10.15   The Sabre Group Holdings, Inc. Employee Stock Purchase Plan.(12)
10.16   The Sabre Group Holdings, Inc. Deferred Compensation Plan.(16)
10.17   The Sabre Group Holdings, Inc. Amended and Restated 1996 Long-Term Incentive Plan, dated January 19, 1999, as amended November 13, 2000.(29)

10.18   Supplemental Agreement Regarding Workers' Compensation dated as of March 15, 2000 between Sabre Inc. and American Airlines, Inc.(10)(21)
10.19   Supplemental Executive Retirement Plan, as Amended (Restoration).(22)
10.20   Supplemental Executive Retirement Plan, as Amended (Officer).(23)
10.21   Supplemental Executive Retirement Plan, as Amended (Grandfathered).(24)
10.22   Form of Executive Termination Benefits Agreement.(25)
10.23   Forms of Addenda to Executive Termination Benefits Agreement with respect to William J. Hannigan, Jeffery M. Jackson and Eric J. Speck.(26)
10.24   Employment Agreement between Sabre Holdings Corporation, Sabre Inc. and William J. Hannigan.(29)
10.25   Employment Agreement Addendum between Sabre Inc. and William J. Hannigan.(29)
10.26   Employment Agreement Addendum between Sabre Inc. and William J. Hannigan.(4)
10.27   Option Issuance Agreement, dated January 1, 1998 between Registrant and US Airways, Inc.(15)
10.28   Agreement and Plan of Merger dated as of October 3, 1999 by and among Sabre Inc., Travelocity Holdings, Inc., Travelocity.com Inc. and Preview Travel, Inc.(18)
10.29   Agreement on Spin-off Taxes dated March 15, 2000 between AMR Corporation and Sabre Holdings Corporation.(10)(21)
10.30   Credit Agreement, dated as of February 4, 2000, among Sabre Inc., Bank of America, N.A., and the other banks party thereto.(27)
10.31   Amendment No. 1 to the Credit Agreement, dated as of October 4, 2000, among Sabre Inc., Bank of America, N.A., and the other banks party thereto.(29)
10.32   2000 Stock Option Plan effective March 2000.(30)
10.33   2000 Stock Option Plan Amended and Restated effective November 13, 2000.(4)
10.34   Form of Addenda to Executive Termination Benefits with respect to David A. Schwarte.(4)
10.35   Form of Addenda to Executive Termination Benefits with respect to M. Sam Gilliland.(4)
12.1     Computation of ratio of earnings to fixed charges for the year ended December 31, 2002.(4)
21.1     Subsidiaries of Registrant.(4)
23.1     Consent of Ernst & Young LLP.(4)

(1)
Incorporated by reference to Exhibit 2.1 to our report on Form 10-Q for the quarter ended March 31, 2001.

(2)
Incorporated by reference to Exhibit 2.2 to our report on Form 8-K on July 16, 2001.

(3)
Incorporated by reference to Exhibit 2.3 to our report on Form 8-K on July 16, 2001.

(4)
Filed herewith.

(5)
Incorporated by reference to Exhibit 3.1 to our report on Form 10-Q for the quarter ended June 30, 2000.

(6)
Incorporated by reference to Exhibit 3.2 to our report on Form 10-Q for the quarter ended June 30, 2001.

(7)
Incorporated by reference to Exhibit 4.1 to our report on Form 10-Q for the quarter ended March 31, 2000.

(8)
Incorporated by reference to Exhibit 4.6 to our report on Form 8-K dated August 2, 2001.

(9)
Incorporated by reference to Exhibit 4.7 to our report on Form 8-K dated August 2, 2001.

(10)
Confidential treatment was granted as to a portion of this document.

(11)
Incorporated by reference to exhibits 3.1 through 10.32 to our Registration Statement on Form S-1 (Registration No. 333-09747).

(12)
Incorporated by reference to Exhibit B to our proxy statement on Schedule 14A filed April 17, 2000.

(13)
Incorporated by reference to Exhibit A to our proxy statement on Schedule 14A filed April 17, 2000.

(14)
Incorporated by reference to Exhibit 10 to AMR's report on Form 10-K for the year ended December 31, 1994.

(15)
Incorporated by reference to Exhibit 10.34 to our report on Form 10-K for the year ended December 31, 1997.

(16)
Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-8 (Registration No. 333-51291).

(17)
Incorporated by reference to Exhibit 10.46 to our report on Form 10-Q for the quarterly period ended September 30, 1999.

(18)
Incorporated by reference to Exhibits 3.1 and 3.2 to our report on Form 10-Q for the quarterly period ended June 30, 2000.

(19)
Incorporated by reference to Exhibit 4.1 to our report on Form 10-Q for the quarterly period ended March 30, 2000.

(20)
Reserved.

(21)
Incorporated by reference to Exhibits 10.47 through 10.56 to our report on Form 10-K for the year ended December 31, 1999.

(22)
Incorporated by reference to Exhibit 10.1 to our report on Form 10-Q for the quarter ended June 30, 2001.

(23)
Incorporated by reference to Exhibit 10.2 to our report on Form 10-Q for the quarter ended June 30, 2001.

(24)
Incorporated by reference to Exhibit 10.3 to our report on Form 10-Q for the quarter ended June 30, 2001.

(25)
Incorporated by reference to Exhibit 10.4 to our report on Form 10-Q for the quarter ended June 30, 2001.

(26)
Incorporated by reference to Exhibit 10.5 to our report on Form 10-Q for the quarter ended September 30, 2001.

(27)
Incorporated by reference to Exhibit 10.1 to our report on Form 10-Q for the quarter ended June 30, 2000.

(28)
Reserved.

(29)
Incorporated by reference to Exhibit 10.16, 10.23, 10.24 and 10.30 to our report on Form 10-K for the year ended December 31, 2001.

(30)
Incorporated by reference to our Registration Statement on Form S-8 (Registration No. 333-40932).



QuickLinks

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SABRE HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands)
SABRE HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
SABRE HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
SABRE HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 2002 (in thousands)
CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 2001 (in thousands)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 2002 (in thousands)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 2001 (in thousands)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 2000 (in thousands)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 2002 (in thousands)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 2001 (in thousands)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 2000 (in thousands)
PART III
PART IV
SABRE HOLDINGS CORPORATION INDEX TO FINANCIAL STATEMENTS AND SCHEDULES COVERED BY REPORT OF INDEPENDENT AUDITORS [Item 15(a)]
Sabre Holdings Corporation Schedule II—Valuation and Qualifying Accounts For Each of the Three Years in the Period Ended December 31, 2002 (in thousands)
Signatures
Index to Exhibits