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INDEX SABRE HOLDINGS CORPORATION



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


FORM 10-Q


ý

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2002.

OR
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From                              To                             

Commission file number 1-12175.


GRAPHIC
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

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)


        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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

        Class A Common Stock, $.01 par value—144,871,129 as of August 8, 2002





INDEX
SABRE HOLDINGS CORPORATION

PART I: FINANCIAL INFORMATION   3

Item 1.

Financial Statements (Unaudited)

 

3
  Consolidated Balance Sheets—June 30, 2002 and December 31, 2001   3
  Consolidated Statements of Income—Three and six months ended June 30, 2002 and 2001   4
  Condensed Consolidated Statement of Stockholders' Equity—Six months ended June 30, 2002   5
  Consolidated Statements of Cash Flows—Six months ended June 30, 2002 and 2001   6
  Notes to Consolidated Financial Statements   7

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

28

PART II:

OTHER INFORMATION

 

40

Item 1.

Legal Proceedings

 

40

Item 4.

Submission of Matters to a Vote of Security Holders

 

40

Item 5.

Other Information

 

41

Item 6.

Exhibits and Reports on Form 8-K

 

42

SIGNATURE

 

 

43

2



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SABRE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands)

 
  June 30,
2002

  December 31, 2001
 
Assets              
Current assets              
  Cash   $ 20,297   $ 18,855  
  Marketable securities     872,533     648,032  
  Accounts receivable, net     363,089     327,816  
  Prepaid expenses     78,840     51,565  
  Deferred income taxes     31,964     45,970  
   
 
 
    Total current assets     1,366,723     1,092,238  
Property and equipment              
  Buildings and leasehold improvements     154,803     254,487  
  Furniture, fixtures and equipment     40,685     49,845  
  Computer equipment     197,444     189,298  
   
 
 
      392,932     493,630  
  Less accumulated depreciation and amortization     (167,437 )   (205,181 )
   
 
 
    Total property and equipment     225,495     288,449  
Deferred income taxes     1,672     19,611  
Investments in joint ventures     175,203     169,949  
Goodwill and intangible assets, net     871,334     672,145  
Other assets, net     153,013     133,625  
   
 
 
    Total assets   $ 2,793,440   $ 2,376,017  
   
 
 
Liabilities and stockholders' equity              
Current liabilities              
  Accounts payable   $ 184,383   $ 158,839  
  Accrued compensation and related benefits     54,317     73,274  
  Accrued subscriber incentives     83,397     89,337  
  Deferred revenues     45,781     42,389  
  Other accrued liabilities     218,375     200,617  
   
 
 
    Total current liabilities     586,253     564,456  
Pensions and other postretirement benefits     78,500     88,756  
Notes payable     409,703     400,375  
Other liabilities     59,187     60,938  
Minority interests     10,555     219,716  
Commitments and contingencies              
Stockholders' equity              
  Preferred stock: $0.01 par value; 20,000 shares authorized; no shares
    issued
         
  Class A common stock, $0.01 par value; 250,000 shares authorized;
    144,690 and 133,911 shares issued at June 30, 2002
    and December 31, 2001, respectively
    1,447     1,351  
  Additional paid-in capital     1,267,694     818,742  
  Retained earnings     383,338     227,986  
  Accumulated other comprehensive income     6,242     3,176  
  Less treasury stock at cost: 384 and 384 shares, respectively     (9,479 )   (9,479 )
   
 
 
    Total stockholders' equity     1,649,242     1,041,776  
   
 
 
    Total liabilities and stockholders' equity   $ 2,793,440   $ 2,376,017  
   
 
 

See Notes to Consolidated Financial Statements

3


SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (In thousands, except per share amounts)

 
  Three Months Ended June 30,
  Six Months Ended June 30,
 
 
  2002
  2001
  2002
  2001
 
Revenues   $ 532,729   $ 582,035   $ 1,072,096   $ 1,155,449  
Operating expenses                          
  Cost of revenues     283,945     342,182     573,732     693,281  
  Selling, general and administrative     131,216     131,548     247,172     242,574  
  Amortization of goodwill and intangible assets     13,264     69,857     26,894     136,285  
   
 
 
 
 
    Total operating expenses     428,425     543,587     847,798     1,072,140  
Operating income     104,304     38,448     224,298     83,309  
Other income (expense)                          
  Interest income     7,565     3,989     14,567     7,510  
  Interest expense     (5,580 )   (12,408 )   (11,264 )   (28,601 )
  Other, net     1,165     1,854     21,053     (7,854 )
   
 
 
 
 
    Total other income (expense)     3,150     (6,565 )   24,356     (28,945 )
Minority interests     (888 )   4,384     (41 )   12,171  
   
 
 
 
 
Income from continuing operations before
    income taxes
    106,566     36,267     248,613     66,535  
Provision for income taxes     38,601     31,216     93,261     61,071  
   
 
 
 
 
Income from continuing operations     67,965     5,051     155,352     5,464  
Income from discontinued operations, net         22,673         36,305  
   
 
 
 
 
Income before cumulative effect of change in
    accounting method
    67,965     27,724     155,352     41,769  
Cumulative effect of change in accounting
    method, net of minority interests and
    income taxes
                3,103  
   
 
 
 
 
Net earnings   $ 67,965   $ 27,724   $ 155,352   $ 44,872  
   
 
 
 
 
Earnings per common share—basic                          
  Income from continuing operations   $ .48   $ .04   $ 1.13   $ .04  
  Income from discontinued operations         .17         .28  
  Cumulative effect of change in accounting method                 .02  
   
 
 
 
 
  Net earnings   $ .48   $ .21   $ 1.13   $ .34  
   
 
 
 
 
Earnings per common share—diluted                          
  Income from continuing operations   $ .47   $ .04   $ 1.10   $ .04  
  Income from discontinued operations         .16         .27  
  Cumulative effect of change in accounting method                 .02  
   
 
 
 
 
  Net earnings   $ .47   $ .20   $ 1.10   $ .33  
   
 
 
 
 

See Notes to Consolidated Financial Statements

4


SABRE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002
(Unaudited) (In thousands)

 
  Class A
Common
Stock

  Additional
Paid-in
Capital

  Retained
Earnings

  Accumulated Other
Comprehensive Income

  Treasury
Stock

  Total
 
Balance at December 31, 2001   $ 1,351   $ 818,742   $ 227,986   $ 3,176   $ (9,479 ) $ 1,041,776  
Issuance of 1,237 shares of Class A
    common stock pursuant to stock
    option, restricted stock incentive
    and stock purchase plans
    12     33,267                 33,279  
Issuance of 9,430 shares of Class A
    common stock in an underwritten
    public offering
    94     399,884                 399,978  
Cancellation of warrants issued in
    connection with business
    combinations
        (15,972 )               (15,972 )
Conversion of vested employee
    options pursuant to the acquisition
    of the Travelocity minority interest
        14,209                 14,209  
Tax benefit from exercise of
    employee stock options
        9,246                 9,246  
Stock based compensation for
    employees
        8,146                 8,146  
Comprehensive income:                                      
  Net earnings             155,352             155,352  
  Unrealized gain on foreign
    currency forward contracts, net
    of deferred income taxes
                3,696         3,696  
  Unrealized loss on investments,
    net of deferred income taxes
                (734 )       (734 )
  Unrealized foreign currency
    translation gain
                104         104  
                                 
 
Total comprehensive income                                   158,418  
                                 
 
Other     (10 )   172                 162  
   
 
 
 
 
 
 
Balance at June 30, 2002   $ 1,447   $ 1,267,694   $ 383,338   $ 6,242   $ (9,479 ) $ 1,649,242  
   
 
 
 
 
 
 

See Notes to Consolidated Financial Statements.

5


SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)

 
  Six Months Ended June 30,
 
 
  2002
  2001
 
Operating Activities              
Net earnings   $ 155,352   $ 44,872  
Adjustments to reconcile net earnings to cash provided by operating activities              
  Depreciation and amortization     57,173     265,825  
  Stock compensation     22,355      
  Deferred income taxes     56,145     (7,299 )
  Gain on sale of former headquarters building     (18,308 )    
  Minority interests     41     (12,171 )
  Tax benefit from exercise of stock options     9,246     14,330  
  Cumulative effect of change in accounting method, net         (3,103 )
  Other     (12,333 )   409  
  Changes in operating assets and liabilities              
    Accounts receivable     (64,952 )   (78,399 )
    Prepaid expenses     (22,896 )   (4,221 )
    Other assets     (5,451 )   (48,760 )
    Accrued compensation and related benefits     (18,958 )   (13,044 )
    Accounts payable and other accrued liabilities     24,180     80,309  
    Pensions and other postretirement benefits     (10,256 )   11,576  
    Other liabilities     (19,324 )   12,197  
   
 
 
  Cash provided by operating activities     152,014     262,521  
Investing Activities              
Additions to property and equipment     (28,675 )   (109,135 )
Business combinations, net of cash acquired     (477,330 )   (45,956 )
Sale of securities acquired upon exercise of warrants         36,600  
Proceeds from exercise of Travelocity.com stock options     33,658      
Proceeds from sale of former headquarters building     80,000      
Proceeds from sale of minority interest in Sabre Pacific     23,466      
Purchases of marketable securities     (1,617,380 )   (1,194,593 )
Sales of marketable securities     1,392,790     994,658  
Other investing activities, net     25,876     (7,674 )
   
 
 
  Cash used for investing activities     (567,595 )   (326,100 )
Financing Activities              
Proceeds from issuance of common stock     433,257     67,519  
Other financing activities, net     (16,234 )    
   
 
 
  Cash provided by financing activities     417,023     67,519  
Increase in cash     1,442     3,940  
Cash at beginning of period     18,855     7,778  
   
 
 
Cash at end of period   $ 20,297   $ 11,718  
   
 
 

See Notes to Consolidated Financial Statements

6


SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    General Information

2.    Summary of Significant Accounting Policies

7


 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
  2002
  2001
  2002
  2001
Reported income from continuing operations   $ 67,965   $ 5,051   $ 155,352   $ 5,464
Add back goodwill and indefinite lived intangible
    assets amortization, net of tax
        53,309         104,427
   
 
 
 
Adjusted income from continuing operations   $ 67,965   $ 58,360   $ 155,352   $ 109,891
   
 
 
 
Reported net earnings   $ 67,965   $ 27,724   $ 155,352   $ 44,872
Add back goodwill and indefinite lived intangible
    assets amortization, net of tax
        53,309         104,427
   
 
 
 
Adjusted net earnings   $ 67,965   $ 81,033   $ 155,352   $ 149,299
   
 
 
 
Earnings per share                        
  Basic:                        
    Reported income from continuing operations   $ 0.48   $ 0.04   $ 1.13   $ 0.04
    Add back goodwill and indefinite lived
    intangible assets amortization, net
    of tax
        0.40         0.79
   
 
 
 
    Adjusted income from continuing operations   $ 0.48   $ 0.44   $ 1.13   $ .83
   
 
 
 
    Reported net earnings   $ 0.48   $ 0.21   $ 1.13   $ 0.34
    Add back goodwill and indefinite lived
    intangible assets amortization, net
    of tax
        0.40         0.79
   
 
 
 
    Adjusted net earnings   $ 0.48   $ 0.61   $ 1.13   $ 1.13
   
 
 
 
  Diluted:                        
    Reported income from continuing operations   $ 0.47   $ 0.04   $ 1.10   $ 0.04
    Add back goodwill and indefinite lived
    intangible assets amortization, net
    of tax
        0.39         0.78
   
 
 
 
    Adjusted income from continuing operations   $ 0.47   $ 0.43   $ 1.10   $ .82
   
 
 
 
    Reported net earnings   $ 0.47   $ 0.20   $ 1.10   $ .33
    Add back goodwill and indefinite lived
    intangible assets amortization, net
    of tax
        0.39         0.78
   
 
 
 
    Adjusted net earnings   $ 0.47   $ 0.59   $ 1.10   $ 1.11
   
 
 
 

8


 
   
  June 30, 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     $ 815,650   $   $ 626,785   $  
  Tradenames/trademarks       21,980         7,682      
       
 
 
 
 
          837,630         634,467      
Subject to amortization:                              
  Purchased technology   4 years     127,603     (52,608 )   125,146     (36,592 )
  Acquired customer relationships   7 years     36,366     (7,650 )   32,820     (4,950 )
  Non-compete agreements   4 years     17,059     (9,967 )   17,059     (4,971 )
  Acquired contracts   1 year     25,179     (8,201 )   8,261     (5,018 )
       
 
 
 
 
          206,207     (78,426 )   183,286     (51,531 )
       
 
 
 
 
Total       $ 1,043,837   $ (78,426 ) $ 817,753   $ (51,531 )
       
 
 
 
 
2002   $ 24,348
2003     45,169
2004     37,607
2005     10,035
2006     4,192
 
  Travel Marketing and Distribution
  Travelocity.com
  GetThere
  Airline
Solutions

  Total
 
Six months ended
    June 30, 2002:
                               
  Balance at beginning
    of period
  $ 123,719   $ 97,602   $ 401,740   $ 3,724   $ 626,785  
  Goodwill acquired         195,777             195,777  
  Goodwill adjustments             (6,841 )   (71 )   (6,912 )
   
 
 
 
 
 
  Balance at end of period   $ 123,719   $ 293,379   $ 394,899   $ 3,653   $ 815,650  
   
 
 
 
 
 

9


3.    Discontinued Operations

 
  Three Months Ended
June 30, 2001

  Six Months Ended
June 30, 2001

Revenues   $ 188,734   $ 370,007
   
 
Income before provision for income taxes   $ 36,836   $ 59,060
Provision for income taxes     14,163     22,755
   
 
Income from discontinued operations   $ 22,673   $ 36,305
   
 

4.    Significant Events

Tender Offer for Travelocity.com Common Stock

10


Minority interest assumed   $ 258,064
Deferred income tax asset, net     24,056
Distributor agreements (weighted average life of 3 years)     8,863
Supplier agreements (weighted average life of 2.5 years)     7,155
Proprietary software (weighted average life of 2 years)     2,256
Customer database (weighted average life of 10 years)     3,545
Trademark, tradename and domain name (indefinite life)     13,698
Goodwill     152,991
   
Total purchase price   $ 470,628
   

Acquisition of Site59

11


Working capital acquired   $ 1,770  
Property and equipment and other non-current assets     824  
Software     1,352  
Non-current liabilities     (76 )
Supplier agreements (weighted average life of 1.5 years)     900  
Trademark, tradename and domain name (indefinite life)     600  
Goodwill     37,322  
   
 
  Total Purchase Price   $ 42,692  
   
 

Pro forma Statement of Operations Data

 
  Three Months Ended June 30,
  Six Months Ended June 30,
 
 
  2002
  2001
  2002
  2001
 
Revenues   $ 532,729   $ 582,035   $ 1,072,096   $ 1,155,449  
   
 
 
 
 
Income from continuing operations   $ 76,763   $ (934 ) $ 160,903   $ (16,069 )
   
 
 
 
 
Income before cumulative effect of change
    in accounting method
  $ 76,763   $ 21,739   $ 160,903   $ 20,236  
   
 
 
 
 
Net earnings   $ 76,763   $ 21,739   $ 160,903   $ 24,669  
   
 
 
 
 
Earnings per common share—basic:                          
  Income from continuing operations   $ .54   $ .00   $ 1.17   $ (.12 )
   
 
 
 
 
  Net earnings   $ .54   $ .16   $ 1.17   $ .19  
   
 
 
 
 
Earnings per common share—diluted:                          
  Income from continuing operations   $ .53   $ .00   $ 1.14   $ (.12 )
   
 
 
 
 
  Net earnings   $ .53   $ .16   $ 1.14   $ .18  
   
 
 
 
 

12


Equity Offering

Events of September 11, 2001

Yahoo! Agreement

2002   $ 14,000
2003     28,000
2004     29,000
2005     29,000
   
    $ 100,000
   

Workforce Reduction

13


 
  Severance
  Other
  Total
 
Original estimate of liability   $ 19,945   $ 8,245   $ 28,190  
Amounts paid in 2001     (3,055 )   (513 )   (3,568 )
   
 
 
 
Remaining accrual December 31, 2001     16,890     7,732     24,622  
Amounts paid in 2002     (10,291 )   (1,081 )   (11,372 )
Revisions of estimates         (3,508 )   (3,508 )
   
 
 
 
Remaining accrual June 30, 2002   $ 6,599   $ 3,143   $ 9,742  
   
 
 
 

Sale of Previous Headquarters

5.    Income Taxes

 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
  2002
  2001
  2002
  2001
 
Income tax provision at statutory federal
    income tax rate
  $ 37,298   $ 12,693   $ 87,015   $ 23,287  
State income taxes, net of federal benefit     3,681     819     7,989     2,598  
Foreign tax credit     (1,623 )   (413 )   (2,441 )   (1,788 )
Nondeductible goodwill amortization         17,432         34,847  
Other, net     (755 )   685     698     2,127  
   
 
 
 
 
  Total provision for income taxes   $ 38,601   $ 31,216   $ 93,261   $ 61,071  
   
 
 
 
 

14


6.    Derivatives

15


 
  Asset/(Liability)
June 30,

 
 
  2002
  2001
 
Hotels.com warrants   $ 1,486   $ 1,500  
Foreign currency forwards     6,341     (2,011 )
Interest rate swaps     12,071      
   
 
 
    $ 19,898   $ (511 )
   
 
 

7.    Earnings Per Share

 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
  2002
  2001
  2002
  2001
Denominator for basic earnings per common
    share—weighted-average shares
  142,595   132,301   138,068   131,578
Dilutive effect of stock awards and options   2,711   3,718   2,933   2,925
   
 
 
 
Denominator for diluted earnings per common
    share—adjusted weighted-average shares
  145,306   136,019   141,001   134,503
   
 
 
 

8.    Segment Reporting

16


 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
  2002
  2001
  2002
  2001
 
Revenues from external customers:                          
  Travel Marketing and Distribution   $ 404,005   $ 453,847   $ 818,821   $ 910,387  
  Travelocity.com     59,960     64,381     118,140     119,555  
  GetThere     12,917     10,857     24,547     21,838  
  Airline Solutions     51,767     46,337     104,095     92,947  
   
 
 
 
 
    Total   $ 528,649   $ 575,422   $ 1,065,603   $ 1,144,727  
   
 
 
 
 
Intersegment revenues:                          
  Travel Marketing and Distribution   $ 6,618   $ 6,478   $ 12,642   $ 12,799  
  Travelocity.com     17,723     17,963     34,039     35,640  
  GetThere     238         399      
  Airline Solutions         777         2,852  
   
 
 
 
 
    Total   $ 24,579   $ 25,218   $ 47,080   $ 51,291  
   
 
 
 
 
Equity in net income of equity
    method investees:
                         
  Travel Marketing and Distribution   $ 5,463   $ 6,613   $ 8,707   $ 10,722  
  Travelocity.com     (1,383 )       (2,214 )    
   
 
 
 
 
    Total   $ 4,080   $ 6,613   $ 6,493   $ 10,722  
   
 
 
 
 
Total consolidated revenues:                          
  Travel Marketing and Distribution   $ 416,086   $ 466,938   $ 840,170   $ 933,908  
  Travelocity.com     76,300     82,344     149,965     155,195  
  GetThere     13,155     10,857     24,946     21,838  
  Airline Solutions     51,767     47,114     104,095     95,799  
  Elimination of intersegment revenues     (24,579 )   (25,218 )   (47,080 )   (51,291 )
   
 
 
 
 
    Total   $ 532,729   $ 582,035   $ 1,072,096   $ 1,155,449  
   
 
 
 
 
Segment operating income (loss)
    excluding special items:
                         
  Travel Marketing and Distribution   $ 136,337   $ 132,835   $ 272,749   $ 259,942  
  Travelocity.com     (3,722 )   2,895     2,309     3,320  
  GetThere     (7,106 )   (15,063 )   (16,279 )   (31,625 )
  Airline Solutions     7,924     2,047     14,882     6,439  
  Net corporate allocations     175     (11,983 )   452     (12,171 )
   
 
 
 
 
    Total   $ 133,608   $ 110,731   $ 274,113   $ 225,905  
   
 
 
 
 

17


 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
  2002
  2001
  2002
  2001
 
Travel Marketing and Distribution:                          
  Goodwill and other intangibles
    amortization
  $ 1,927   $ 2,615   $ 6,482   $ 3,841  
   
 
 
 
 
    Total Travel Marketing and Distribution     1,927     2,615     6,482     3,841  
   
 
 
 
 
Travelocity.com:                          
  Goodwill and other intangibles
    amortization
    2,691     21,401     3,351     42,561  
  Stock compensation     18,574     362     18,867     781  
  Tender offer expenses     335         7,111      
   
 
 
 
 
    Total Travelocity.com     21,600     21,763     29,329     43,342  
   
 
 
 
 
GetThere:                          
  Goodwill and other intangibles amortization     6,606     43,736     13,212     85,171  
  Stock compensation     925     1,665     989     3,330  
  Severance and integration expenses                 1,386  
   
 
 
 
 
    Total GetThere     7,531     45,401     14,201     89,887  
   
 
 
 
 
Corporate:                          
  Goodwill and other intangibles
    amortization
    1,608     2,105     3,023     4,712  
  Restructuring charge     (3,508 )       (3,508 )    
  Stock compensation     146     399     288     814  
   
 
 
 
 
    Total Corporate     (1,754 )   2,504     (197 )   5,526  
   
 
 
 
 
      Total special items   $ 29,304   $ 72,283   $ 49,815   $ 142,596  
   
 
 
 
 
Consolidated operating income (loss):                          
  Travel Marketing and Distribution   $ 134,410   $ 130,220   $ 266,267   $ 256,101  
  Travelocity.com     (25,322 )   (18,868 )   (27,020 )   (40,022 )
  GetThere     (14,637 )   (60,464 )   (30,480 )   (121,512 )
  Airline Solutions     7,924     2,047     14,882     6,439  
  Corporate Allocations     1,929     (14,487 )   649     (17,697 )
   
 
 
 
 
    Total   $ 104,304   $ 38,448   $ 224,298   $ 83,309  
   
 
 
 
 

9.    Supplemental Guarantor/Non-Guarantor Financial Information

18


19


UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
JUNE 30, 2002
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating Entries
  Sabre
Consolidated

Assets                              
Current assets                              
  Cash and marketable securities   $   $ 742,122   $ 150,708   $   $ 892,830
  Accounts receivable—trade, net         255,561     107,528         363,089
  Intercompany accounts receivable
    (payable)
    1,521,485     (2,051,992 )   530,507        
  Prepaid expenses         37,070     41,770         78,840
  Deferred income taxes         31,733     231         31,964
   
 
 
 
 
    Total current assets     1,521,485     (985,506 )   830,744         1,366,723
Property and equipment, net         175,244     50,251         225,495
Deferred income taxes         (7,569 )   9,241         1,672
Investments in joint ventures         12,069     163,134         175,203
Goodwill and intangible assets, net         8,929     862,405         871,334
Investments in subsidiaries     531,316     1,789,489         (2,320,805 )  
Other assets, net     14,982     93,085     44,946         153,013
   
 
 
 
 
Total assets   $ 2,067,783   $ 1,085,741   $ 1,960,721   $ (2,320,805 ) $ 2,793,440
   
 
 
 
 
Liabilities and stockholders' equity                              
Current liabilities                              
  Accounts payable   $ 209   $ 157,822   $ 26,352   $   $ 184,383
  Accrued compensation and related
    benefits
        41,882     12,435         54,317
  Other accrued liabilities     7,445     259,650     80,458         347,553
   
 
 
 
 
    Total current liabilities     7,654     459,354     119,245         586,253
Deferred income taxes                    
Pensions and other postretirement
    benefits
        77,576     924         78,500
Other liabilities     1,184     17,495     40,508         59,187
Minority interests             10,555         10,555
Notes payable     409,703                 409,703
Stockholders' equity     1,649,242     531,316     1,789,489     (2,320,805 )   1,649,242
   
 
 
 
 
Total liabilities and stockholders'
    equity
  $ 2,067,783   $ 1,085,741   $ 1,960,721   $ (2,320,805 ) $ 2,793,440
   
 
 
 
 

20


UNAUDITED 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
   
 
 
 
 

21


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating Entries
  Sabre
Consolidated

 
Revenues   $   $ 842,092   $ 440,564   $ (210,560 ) $ 1,072,096  
Operating expenses     1,198     651,148     406,012     (210,560 )   847,798  
   
 
 
 
 
 
Operating income (loss)     (1,198 )   190,944     34,552         224,298  
Other income (expense)                                
  Interest income     22,981     11,623     11,663     (31,700 )   14,567  
  Interest expense     (9,664 )   (32,110 )   (1,190 )   31,700     (11,264 )
  Income from subsidiaries     147,369     33,314         (180,683 )    
  Other, net         17,382     3,671         21,053  
   
 
 
 
 
 
    Total other income (expense)     160,686     30,209     14,144     (180,683 )   24,356  
Minority interests             (41 )       (41 )
   
 
 
 
 
 
Income (loss) before income taxes     159,488     221,153     48,655     (180,683 )   248,613  
Provision for income taxes     4,136     73,784     15,341         93,261  
   
 
 
 
 
 
Net income (loss)   $ 155,352   $ 147,369   $ 33,314   $ (180,683 ) $ 155,352  
   
 
 
 
 
 

22


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating Entries
  Sabre
Consolidated

 
Revenues   $   $ 896,297   $ 443,559   $ (184,407 ) $ 1,155,449  
Operating expenses     1,111     772,046     484,577     (185,594 )   1,072,140  
   
 
 
 
 
 
Operating income (loss)     (1,111 )   124,251     (41,018 )   1,187     83,309  
Other income (expense)                                
  Interest income     17,936     4,930     13,983     (29,339 )   7,510  
  Interest expense         (57,222 )   (718 )   29,339     (28,601 )
  Income from subsidiaries     33,788     (45,458 )       11,670      
  Other, net         (2,001 )   (5,853 )       (7,854 )
   
 
 
 
 
 
    Total other income (expense)     51,724     (99,751 )   7,412     11,670     (28,945 )
Minority interests             12,171         12,171  
   
 
 
 
 
 
Income (loss) from continuing operations
    before income taxes
    50,613     24,500     (21,435 )   12,857     66,535  
Provision for income taxes     5,741     25,689     29,641         61,071  
   
 
 
 
 
 
Income (loss) from continuing operations     44,872     (1,189 )   (51,076 )   12,857     5,464  
Income (loss) from discontinued operations         34,977     2,515     (1,187 )   36,305  
   
 
 
 
 
 
Income (loss) before cumulative effect
    of change in accounting method
    44,872     33,788     (48,561 )   11,670     41,769  
Cumulative effect of change in accounting
    method, net of minority interests and
    income taxes
            3,103         3,103  
   
 
 
 
 
 
Net income (loss)   $ 44,872   $ 33,788   $ (45,458 ) $ 11,670   $ 44,872  
   
 
 
 
 
 

23


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2002
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating Entries
  Sabre
Consolidated

 
Revenues   $   $ 416,600   $ 227,827   $ (111,698 ) $ 532,729  
Operating expenses     860     322,659     216,604     (111,698 )   428,425  
   
 
 
 
 
 
Operating income (loss)     (860 )   93,941     11,223         104,304  
Other income (expense)                                
  Interest income     14,445     5,901     6,414     (19,195 )   7,565  
  Interest expense     (4,640 )   (19,393 )   (742 )   19,195     (5,580 )
  Income from subsidiaries     62,073     13,036         (75,109 )    
  Other, net         976     189         1,165  
   
 
 
 
 
 
    Total other income (expense)     71,878     520     5,861     (75,109 )   3,150  
Minority interests             (888 )       (888 )
   
 
 
 
 
 
Income (loss) before income taxes     71,018     94,461     16,196     (75,109 )   106,566  
Provision for income taxes     3,053     32,388     3,160         38,601  
   
 
 
 
 
 
Net income (loss)   $ 67,965   $ 62,073   $ 13,036   $ (75,109 ) $ 67,965  
   
 
 
 
 
 

24


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2001
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating Entries
  Sabre
Consolidated

 
Revenues   $   $ 443,925   $ 235,663   $ (97,553 ) $ 582,035  
Operating expenses     939     389,861     249,453     (96,666 )   543,587  
   
 
 
 
 
 
Operating income (loss)     (939 )   54,064     (13,790 )   (887 )   38,448  
Other income (expense)                                
  Interest income     9,293     2,676     6,770     (14,750 )   3,989  
  Interest expense         (26,805 )   (353 )   14,750     (12,408 )
  Income from subsidiaries     22,220     (17,628 )       (4,592 )    
  Other, net             1,854         1,854  
   
 
 
 
 
 
    Total other income (expense)     31,513     (41,757 )   8,271     (4,592 )   (6,565 )
Minority interests             4,384         4,384  
   
 
 
 
 
 
Income (loss) from continuing operations
    before income taxes
    30,574     12,307     (1,135 )   (5,479 )   36,267  
Provision for income taxes     2,850     10,001     18,365         31,216  
   
 
 
 
 
 
Income (loss) from continuing operations     27,724     2,306     (19,500 )   (5,479 )   5,051  
Income (loss) from discontinued
    operations, net
        19,914     1,872     887     22,673  
   
 
 
 
 
 
Net income (loss)   $ 27,724   $ 22,220   $ (17,628 ) $ (4,592 ) $ 27,724  
   
 
 
 
 
 

25


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating Entries
  Sabre
Consolidated

 
Operating Activities                                
  Net earnings   $ 155,352   $ 147,369   $ 33,314   $ (180,683 ) $ 155,352  
  Adjustments to reconcile net earnings
    to cash provided by operating
    activities:
                               
    Depreciation and amortization         19,256     37,917         57,173  
    Stock compensation             22,355         22,355  
    Deferred income taxes         41,330     14,815         56,145  
    Tax benefit from exercise of stock options     9,246                 9,246  
    Minority interests             41         41  
    (Income) loss from subsidiaries     (147,369 )   (33,314 )       180,683      
    Gain on sale of certain assets         (18,308 )           (18,308 )
    Other     12,484     (13,436 )   (11,381 )       (12,333 )
    Changes in operating assets and
    liabilities
    (451,579 )   577,430     (243,508 )       (117,657 )
   
 
 
 
 
 
  Cash provided by (used for)
    operating activities
    (421,866 )   720,327     (146,447 )       152,014  
Investing Activities                                
  Additions to property and equipment         (19,422 )   (9,253 )       (28,675 )
  Purchases of marketable securities         (1,313,871 )   (303,509 )       (1,617,380 )
  Sales of marketable securities         1,112,018     280,772         1,392,790  
  Investments in subsidiaries, net     (11,391 )   (623,653 )       635,044      
  Business combinations, net of
    cash acquired
            (477,330 )       (477,330 )
  Proceeds from exercise of Travelocity.com
    stock options
                33,658     33,658  
  Proceeds from sale of former
    headquarters building
        80,000             80,000  
  Proceeds from sale of subsidiary             23,466         23,466  
  Other investing activities, net         30,284     (4,408 )       25,876  
   
 
 
 
 
 
    Cash provided by (used for)
    investing activities
    (11,391 )   (734,644 )   (490,262 )   668,702     (567,595 )
Financing Activities                                
  Contributions from affiliates         11,391     623,653     (635,044 )    
  Proceeds from issuance of
    common stock
    433,257         33,658     (33,658 )   433,257  
  Other financing activities, net             (16,234 )       (16,234 )
   
 
 
 
 
 
    Cash provided by (used for)
    financing activities
    433,257     11,391     641,077     (668,702 )   417,023  
  Increase (decrease) in cash         (2,926 )   4,368         1,442  
  Cash at beginning of the period         8,642     10,213         18,855  
   
 
 
 
 
 
  Cash at end of the period   $   $ 5,716   $ 14,581   $   $ 20,297  
   
 
 
 
 
 

26


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating Entries
  Sabre
Consolidated

 
Operating Activities                                
  Net earnings   $ 44,872   $ 33,788   $ (45,458 ) $ 11,670   $ 44,872  
  Adjustments to reconcile net earnings
    to cash provided by operating
    activities:
                               
    Depreciation and amortization         98,376     167,449         265,825  
    Deferred income taxes         4,625     (11,924 )       (7,299 )
    Minority interests             (12,171 )       (12,171 )
    Tax benefit from exercise of
    stock options
    14,330                 14,330  
    (Income) loss from subsidiaries     (33,788 )   45,458         (11,670 )    
    Cumulative effect of accounting
    change, net
            (3,103 )       (3,103 )
    Other     29,971     (24,661 )   (4,901 )       (409 )
    Changes in operating assets
    and liabilities
    (109,750 )   82,580     (13,172 )       (40,342 )
   
 
 
 
 
 
  Cash provided by (used for)
    operating activities
    (54,365 )   240,166     76,720         262,521  
Investing Activities                                
  Additions to property and equipment         (85,565 )   (23,570 )       (109,135 )
  Purchases of marketable securities         (974,838 )   (219,755 )       (1,194,593 )
  Sales of marketable securities         813,133     181,525         994,658  
  Sale of securities acquired upon
    exercise of warrants
            36,600         36,600  
  Investments in subsidiaries, net     (13,154 )   (6,130 )       19,284      
  Business combinations, net of
    cash acquired
            (45,956 )       (45,956 )
  Other investing activities, net         627     (8,301 )       (7,674 )
   
 
 
 
 
 
    Cash provided by (used for)
    investing activities
    (13,154 )   (252,773 )   (79,457 )   19,284     (326,100 )
Financing Activities                                
  Contributions from affiliates         13,154     6,130     (19,284 )    
  Proceeds from issuance of common stock     67,519                 67,519  
   
 
 
 
 
 
    Cash provided by (used for)
    financing activities
    67,519     13,154     6,130     (19,284 )   67,519  
  Increase (decrease) in cash         547     3,393         3,940  
  Cash at beginning of the period         1,582     6,196         7,778  
   
 
 
 
 
 
  Cash at end of the period   $   $ 2,129   $ 9,589   $   $ 11,718  
   
 
 
 
 
 

27



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

SABRE HOLDINGS CORPORATION

RESULTS OF OPERATIONS

Three Months Ended June 30, 2002 and 2001

28


29


Six Months Ended June 30, 2002 and 2001

30


31


SABRE HOLDINGS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES

32


33


OUTLOOK FOR THE REMAINDER OF 2002

34


SABRE HOLDINGS CORPORATION
CAUTIONARY STATEMENT

Risk Factors

WE FACE COMPETITION FROM ESTABLISHED AND EMERGING TRAVEL DISTRIBUTION CHANNELS.

35


MANY OF OUR COMPETITORS IN THE TRAVEL MARKETING AND DISTRIBUTION BUSINESS ARE WELL FUNDED AND HAVE MAJOR TRAVEL SUPPLIERS AS SIGNIFICANT SHAREHOLDERS.

SUPPLIER COST SAVINGS EFFORTS COULD ADVERSELY AFFECT US

INDUSTRY CONSOLIDATION AND INCREASED COMPETITION FOR TRAVEL AGENCY SUBSCRIBERS MAY RESULT IN INCREASED EXPENSES, REDUCED REVENUE AND MARKET POSITION, AND GREATER FINANCIAL LEVERAGE.

AIRLINES THAT ARE DIVESTING THEIR OWNERSHIP OF GLOBAL DISTRIBUTION SYSTEMS MIGHT LIMIT THEIR PARTICIPATION IN OUR TRAVEL MARKETING AND DISTRIBUTION SERVICES.

36


REGULATORY DEVELOPMENTS COULD LIMIT OUR ABILITY TO COMPETE.

RAPID TECHNOLOGICAL CHANGES AND NEW DISTRIBUTION CHANNELS MAY RENDER OUR TECHNOLOGY OBSOLETE OR DECREASE THE ATTRACTIVENESS OF OUR SERVICES TO CUSTOMERS.

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

37


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.

WE FACE TRADE BARRIERS OUTSIDE OF NORTH AMERICA THAT LIMIT OUR ABILITY TO COMPETE.

OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO OTHER RISKS, WHICH MAY IMPEDE OUR ABILITY TO GROW INTERNATIONALLY.

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WE MAY NOT SUCCESSFULLY MAKE AND INTEGRATE BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings

Worldspan Dispute

Travelocity.com Shareholder Litigation


Item 4. Submission of Matters to a Vote of Security Holders

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Item 5. Other Information

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Item 6. Exhibits and Reports on Form 8-K

(a)
The following exhibits are included herein:

Exhibit Number
  Description of Exhibit
3.1   Restated Certificate of Incorporation of Sabre Holdings Corporation.(1)
3.2   Restated Bylaws of Sabre Holdings Corporation.(2)
12.1   Computation of ratio of earnings to fixed charges for the six months ended June 30, 2002.

(1)
Incorporated by reference to Exhibit 3.1 to our report on Form 10-Q for the quarter ended June 30, 2000.

(2)
Incorporated by reference to Exhibit 3.2 to our report on Form 10-Q for the quarter ended June 30, 2001.


(b)
Reports on Form 8-K:

On April 4, 2002, Sabre Holdings Corporation filed a report on Form 8-K to file copies of the underwriting agreement, legal opinion and consents relating to its offering of 8,200,000 shares of its Class A Common Stock, par value $.01 per share.

On April 11, 2002, Sabre Holdings Corporation filed a report on Form 8-K reporting (a) the completion of its tender offer for all the outstanding shares of Travelocity.com, Inc. and (b) the subsequent merger of Travelocity with and into a wholly owned subsidiary of Sabre Holdings Corporation. We also reported on financial results for the first quarter of 2002.

Pursuant to General Instruction B.2. of Form 8-K, the Forms 8-K listed below contained only Item 9 disclosures, and consequently such Forms 8-K are not incorporated into this Form 10-Q or into any other form or report filed with the Commission into which this Form 10-Q would be incorporated by reference.

On May 17, 2002, Sabre Holdings Corporation filed a report on Form 8-K announcing the publication of its investment community newsletter.

On June 4, 2002, Sabre Holdings Corporation filed a report on Form 8-K reporting that Sabre and Travelocity.com have entered into a long term strategic alliance with Yahoo!. The report also discussed the effect of the alliance on Sabre's earnings.

On June 20, 2002, Sabre Holdings Corporation filed a report on Form 8-K reporting on April and May 2002 Media Metrix Home/Work measurement figures for Travelocity.com, including traffic from all portal partners. This report was amended on June 21, 2002.

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    SABRE HOLDINGS CORPORATION

 

 

By:

 

/s/  
JEFFERY M. JACKSON      
Jeffery M. Jackson
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
Date: August 14, 2002        

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