<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997.
[ ] 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.
The SABRE Group Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2662240
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4255 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number,including area code(817) 931-7300
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 X No .
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 - 23,413,793 as of May 7, 1997
Class B Common Stock, $.01 par value -107,374,000 as of May 7, 1997
<PAGE> 2
INDEX
THE SABRE GROUP HOLDINGS, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -- March 31, 1997 and December 31, 1996
Consolidated Statement of Income -- Three months ended March 31,1997
and 1996
Condensed Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows -- Three months ended March 31,
1997 and 1996
Notes to Condensed Consolidated Financial Statements -- March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other information
Pro forma Consolidated Statement of Income -- Three months ended
March 31, 1996
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SABRE GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited) (In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 4,991 $ 15,992
Short-term investments 471,721 426,945
Accounts receivable, net 238,605 197,015
Prepaid expenses 13,607 13,630
Deferred income taxes 34,208 40,946
Total current assets 763,132 694,528
Property and Equipment
Buildings and leasehold improvements 305,442 298,740
Furniture, fixtures and equipment 25,211 24,403
Service contract equipment 557,465 545,302
Computer equipment 371,941 356,506
1,260,059 1,224,951
Less accumulate depreciation and
amortization (688,382) (665,884)
Total property and equipment 571,677 559,067
Other assets, net 40,262 33,488
$1,375,071 $1,287,083
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 94,448 $ 96,622
Accrued compensation and related benefits 38,040 55,547
Other accrued liabilities 124,612 110,391
Payable to affiliates 38,289 27,267
Total current liabilities 295,389 289,827
Deferred income taxes 46,440 43,077
Other postretirement benefits 55,428 50,070
Other liabilities 23,264 16,595
Debenture payable to AMR 317,873 317,873
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; 23,404 issued
and outstanding at March 31, 1997 234 234
Class B:$0.01 par value;107,374
shares authorized; 107,374 issued
and outstanding at March 31, 1997 1,074 1,074
Additional paid-in capital 592,236 591,885
Retained earnings (deficit) 43,133 (23,552)
Total stockholders' equity 636,677 569,641
$1,375,071 $1,287,083
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
THE SABRE GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Revenues
Electronic travel distribution $308,115 $295,539
Information technology solutions 131,515 132,305
Total revenues 439,630 427,844
Operating expenses
Cost of revenues
Electronic travel distribution 196,965 184,792
Information technology solutions 99,424 95,644
Selling, general and administrative 35,454 31,817
Total operating expenses 331,843 312,253
Operating income 107,787 115,591
Other income (expense)
Interest income 5,503 2,342
Interest expense (4,647) (1,774)
Other - net 701 (1,606)
1,557 (1,038)
Income before provision for income
taxes 109,344 114,553
Provision for income taxes 42,659 44,566
Net earnings $ 66,685 $ 69,987
Earnings per common share data
Pro forma earnings per common share $ .54
Earnings per common share $ .51
Common and common equivalent shares
used in per share calculations 130,773 130,604
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
THE SABRE GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited) (In thousands)
<TABLE>
Class A Class B Retained
Common Common Additional (Deficit)
Stock Stock Paid-in Capital Earnings
<S> <C) <C> <C> <C>
Balance at December 31, 1996 $ 234 $ 1,074 $ 591,885 $ (23,552)
Net earnings --- --- --- 66,685
Issuance of Class A Common
Stock pursuant to stock option,
restricted stock incentive, and
stock purchase plans --- --- 351 ---
Balance at March 31, 1997 $ 234 $ 1,074 $ 592,236 $ 43,133
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
THE SABRE GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Operating Activities
Net earnings $66,685 $69,987
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization 44,176 43,163
Deferred income taxes 10,101 ---
Other (486) 1,839
Changes in operating assets and liabilities
Accounts receivable (41,590) (63,956)
Prepaid expenses 23 (1,435)
Other assets 1,597 1,005
Accrued compensation and related benefits (17,507) (18,916)
Accounts payable and other accrued
liabilities 12,047 4,517
Payable to affiliates 11,022 ---
Postretirement benefits 5,358 1,334
Other liabilities 6,669 1,833
Cash provided by operating activities 98,095 39,371
Investing Activities
Additions to property and equipment (60,674) (38,023)
Net increase in short-term investments (44,776) ---
Other investing activities, net (5,558) (4,549)
Proceeds from sale of equipment 1,634 2,587
Cash used for investing activities (109,374) (39,985)
Financing Activities
Proceeds from issuance of common stock 93 ---
Proceeds from exercise of stock options 185 ---
Cash provided by financing activities 278 ---
Decrease in cash and cash equivalents (11,001) (614)
Cash and cash equivalents at beginning
of the period 15,992 94,861
Cash and cash equivalents at end of the
period $ 4,991 $ 94,247
Supplemental cash flow information
Cash payments to affiliates for income $17,452 $44,566
taxes
Cash payments to affiliates for interest $12,161 $ ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General Information
The SABRE Group Holdings, Inc. is a holding company. Its sole direct
subsidiary is The SABRE Group, Inc., which, pursuant to the Reorganization
(as defined below), is the successor to the businesses of The SABRE Group
which were previously operated as subsidiaries or divisions of American
Airlines, Inc.("American") or AMR Corporation ("AMR"). The SABRE Group was
formed by AMR to capitalize on synergies of combining AMR's information
technology businesses under common management. Unless otherwise indicated,
references herein to the "Company" include The SABRE Group Holdings,Inc.
and its consolidated subsidiaries and, for the period prior to the
Reorganization, the businesses of American and AMR constituting The SABRE
Group, an operating unit of AMR.
On July 2, 1996, AMR reorganized the businesses of The SABRE Group
(the "Reorganization"). As part of the Reorganization, the Company
was incorporated as a Delaware corporation and a direct wholly-
owned subsidiary of American, the businesses of The SABRE Group
formerly operated as divisions and subsidiaries of American or AMR
were combined under the Company and the Company and its
subsidiaries were dividended by American to AMR.
In connection with the Reorganization on July 2, 1996, the Company
issued 1,000 shares of common stock, par value $.01 per share, to
American which shares were subsequently dividended to AMR. The
Company completed its initial public offering (the "Offering") of
23,230,000 shares of Class A Common Stock, par value $.01 per share
on October 17, 1996. The offering price of $27.00 per share
resulted in net proceeds to the Company of approximately $589
million, after deducting underwriting discounts and commissions and
other expenses payable by the Company. The Company used
approximately $532 million of the net proceeds to repay a portion
of the debenture payable to AMR.
Concurrent with the Offering, the 1,000 shares of Common Stock held
by AMR were reclassified into 107,374,000 shares of Class B Common
Stock of the Company.
2. Summary of Significant Accounting Policies
Basis of Presentation The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, these financial statements contain all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position, results of operations and cash flows
for the periods indicated. The preparation of financial statements
in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Actual results may differ from these estimates. The
Company's quarterly financial data should be read in conjunction
with the consolidated financial statements of the Company for the
year ended December 31, 1996 (including the notes thereto), set forth
in The SABRE Group Holdings, Inc. Annual Report on Form 10-K.
<PAGE> 8
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Earnings Per Common Share - The pro forma earnings per share data
is calculated as though the 130,604,000 shares of common stock
issued in connection with the Offering and the reclassification of
shares of common stock held by AMR were outstanding for the three
months ended March 31, 1996. The earnings per common share data
for the three months ended March 31, 1997 is calculated based on
the weighted average shares outstanding for the period. The
dilutive impact of common equivalent shares related to stock awards
and options outstanding under the Long-term Incentive Plan was not
significant for the periods presented.
Reclassifications - Certain 1996 amounts have been reclassified to
conform to the current presentation.
3. Interest on Debenture
The Debenture Payable to AMR is a floating rate subordinated
debenture due September 30, 2004 with a principal balance of
$317,873,000 (the "Debenture"). The interest rate on the Debenture
is based on the sum of the London Interbank Offered Rate (LIBOR
rate) plus a margin determined based upon the Company's senior
unsecured long-term debt rating or, if such debt rating is not
available, upon the Company's ratio of net debt to total capital.
The interest rate is determined monthly and accrued interest is
payable each September 30 and March 31. The average interest rate
for the three months ended March 31, 1997 was 6.05 percent. The
Company may prepay the principal balance in whole or in part
at any interest payment date.
4. Employee Benefits
Effective January 1, 1997, the Company established The SABRE Group
Retirement Plan (the "SGRP"). Commencing January 1, 1997,
employees of the Company who were under the age of 40 as of
December 31, 1996 participate in the SGRP. Employees who were 40
or over as of December 31, 1996 and who were participants in
American's fixed-benefit retirement plan had the option of
participating in either the SGRP or the Legacy Pension Plan (the
"LPP"). Upon retirement, benefits under the LPP are calculated
based upon the employee's base pay for the highest consecutive five
years of the ten years preceding retirement. Benefits earned by
most of the employees of the Company under American's fixed benefit
retirement plan will be transferred to the LPP. The SGRP is a
defined contribution plan qualified under Section 401(k) of the
Internal Revenue Code of 1986 (the "Code"). For employees who
participate in the SGRP, benefits payable under the LPP are based
upon credited years of service as of December 31, 1996. However,
employees in the SGRP continue to earn years of service for
purposes of determining vesting and early retirement benefits under
the LPP and growth in base pay is considered for purposes of
determining retirement benefits under the LPP. Pursuant to the
SGRP, the Company contributes 2.75 percent of each employees base
pay to the SGRP. The employee vests in the Company's 2.75 percent
contributions after three years of service with the Company,
including prior service with AMR affiliates. In addition, the
Company matches 50 cents of each dollar contributed by an employee
up to 6 percent of the employee's base pay subject to IRS limits.
The employee is immediately vested in his or her own contributions
and in the Company's matching contributions.
The current intent of AMR is to spin off the portion of the defined
benefit pension plan applicable to the Company's employees to the
LPP. At the date of the spin-off, the unrecognized net obligation
attributable to the Company's employees participating in the plan,
estimated to be a liability of approximately $40 million at March
31, 1997, will be charged to stockholders' equity, net of deferred
taxes of approximately $16 million.
5. Stock Purchase Plan
Effective January 1, 1997, the Company established The SABRE Group
Holdings, Inc. Employee Stock Purchase Plan (the "ESPP"). The ESPP
allows eligible employees the right to purchase Class A Common
Stock on a monthly basis at the lower of 85 percent of the market
price at the beginning or end of each monthly offering period.
The ESPP allows each employee to acquire annually Class A
Common Stock with an aggregate maximum purchase price equal to either
1 percent or 2 percent of that employee's base pay subject to
limitations under the Internal Revenue Code of 1986. As of January 1,
1997, 1,000,000 shares of Class A Common Stock have been reserved
for issuance under the ESPP.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
THE SABRE GROUP HOLDINGS, INC.
RESULTS OF OPERATIONS
Summary The Company generates its revenue from providing electronic
travel distribution services and information technology solutions
services. During the three months ended March 31, 1997, the Company
generated approximately 70.1 percent of its revenue from electronic
travel distribution services and approximately 29.9 percent of its
revenue from information technology solution services. The following
table sets forth revenues by affiliation and geographic location as a
percent of total revenues:
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
<S> <C> <C>
Affiliation:
Non-affiliated Customers 69.9% 68.5%
Affiliated Customers 30.1 31.5
Total 100.0% 100.0%
Geographical:
United States 82.0% 82.8%
International 18.0 17.2
Total 100.0% 100.0%
</TABLE>
The Company's operating income as a percentage of revenue was 24.5
percent and 27.0 percent for the three months ended March 31, 1997
as compared to 1996. Gross margins for electronic travel distribution
services and information technology solutions were 36.1 percent and
24.4 percent, respectively, for the three months ended March 31,
1997, and 37.5 percent and 27.7 percent, respectively, for the three
months ended March 31, 1996.
For the Three Months Ended March 31, 1997 and 1996
Electronic Travel Distribution. Electronic travel distribution
revenues for the three months ended March 31, 1997 increased
approximately $12 million, 4.1 percent, compared to the three months
ended March 31, 1996, from $296 million to $308 million. The increase
was primarily due to growth in booking fees from associates from $267
million to $282 million. This growth was driven by an increase in
booking volumes, both domestic and international, and an overall
increase in the price per booking charged to associates.
Cost of revenues for electronic travel distribution increased
approximately $12 million, 6.5 percent, from $185 million to $197
million. This increase was primarily attributable to an increase in
salaries and benefits, employee related costs, depreciation and
amortization and subscriber incentive expenses. Salaries and benefits
increased due to an increase in the average number of employees
necessary to support the Company's revenue growth and annual salary
increases. Employee related costs increased partially due to increased
travel expenses from travel on airlines other than American. Effective
with the Reorganization the Company was no longer eligible to participate
in discounts provided to American by other airlines. Depreciation and
amortization expense increased due to growth in the subscriber
equipment base and increased amortization of internally developed
software. Subscriber incentive expenses increased in order to
maintain and grow the Company's travel agency subscriber base.
Information Technology Solutions. Revenues from information
technology solutions remained constant at $132 million for the three
months ended March 31, 1997 and 1996, respectively. Revenues from
unaffiliated customers increased approximately $2 million, offset by a
decrease in revenues from such services provided to AMR of $2 million.
<PAGE> 10
THE SABRE GROUP HOLDINGS, INC.
RESULTS OF OPERATIONS (Continued)
Cost of revenues for information technology solutions increased
approximately $4 million, 4.2 percent, from $95 million to $99 million.
This increase was primarily attributable to an increase in salaries
and benefits and other operating expenses offset by a decrease
in depreciation and amortization. Salaries and benefits increased due
to an increase in the average number of employees necessary to support
the Company's business growth and annual salary increases. The
increase in other operating expenses is primarily due to an increase
in the total amount of reserves for potential disputes of billed
amounts. The decrease in depreciation and amortization expense is
primarily due to the benefits of price and performance improvements
for data center equipment and the sale, in July 1996, of certain
computer network equipment with net book value of approximately $25
million to a third party.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4 million, 12.5 percent, from $32
million to $36 million primarily due to an increase in salaries and
benefits and employee related costs.
Operating Income. Operating income decreased $8 million, 6.9 percent,
from $116 million to $108 million. Operating margins decreased from
27.0 percent in 1996 to 24.5 percent in 1997 due to an increase in
revenues of 2.8 percent while operating expenses increased 6.4 percent.
Interest Income. Interest income increased $4 million due to higher
balances maintained in the Company's short-term investment accounts.
Interest Expense. Interest expense increased $3 million due to
interest expense incurred on the Debenture issued to American in July
1996.
Other Expenses. Other expenses decreased $3 million primarily due to
a reduction in the losses from joint ventures in which the Company
owns an interest accounted for under the equity method.
Income Taxes. The provision for income taxes was $43 million and $45
million for the three months ended March 31, 1997 and 1996,
respectively. The decrease in the provision for income taxes
corresponds with the decrease in net income before the provision for
income taxes.
Net Earnings. Net earnings decreased $3 million, 4.3 percent, from
$70 million to $67 million, primarily due to the decrease in operating
income.
LIQUIDITY AND CAPITAL RESOURCES
The Company had substantial liquidity at March 31, 1997, with
approximately $477 million in cash and cash equivalents and short-term
investments and $468 million in working capital. At December 31,
1996, cash and cash equivalents and short-term investments and working
capital were $443 million and $405 million, respectively. Prior to
July 2, 1996, the Company's cash and cash equivalents were held for
the Company by American. Cash and cash equivalents were immediately
charged or credited to the Company upon recording certain
transactions, including transactions with American for airline booking
fees and purchases of goods and services.
Effective with the Reorganization on July 2, 1996, the Company began
maintaining a separate cash management system and cash and investment
accounts separate from American. Transactions with American no longer
result in the recording of cash equivalents, but are settled through
intercompany billings, with payment due in 30 days. American performs
cash management services for the Company under the Management Services
Agreement. The Company invests the cash in short-term marketable
securities, consisting primarily of certificates of deposit, bankers'
acceptances, commercial paper, corporate notes and government notes.
<PAGE> 11
THE SABRE GROUP HOLDINGS, INC.
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company has funded its operations through cash generated from
operations. The Company's cash provided by operating activities of
$98 million for the three months ended March 31, 1997 and $39 million
for the three months ended March 31, 1996 was primarily attributable
to net earnings before noncash charges.
Capital investment principally has been related to purchases of
computer equipment to be provided to subscribers of SABRE and to be
used in data processing services. Capital expenditures for the three
months ended March 31, 1997 and 1996 were $61 million and $38 million,
respectively.
The Company expects that the principal use of funds in the
foreseeable future will be for capital expenditures, software product
development, acquisitions and working capital. Capital expenditures
will consist of purchases of equipment for the data center, as well
as computer equipment, printers, fileservers and workstations to
support (i) updating subscriber equipment primarily for travel
agencies, (ii) expansion of the subscriber base and (iii) new product
capital requirements. The Company has estimated capital expenditures
of approximately $240 million to $280 million for 1997. The Company
believes available balances of cash and cash equivalents and short-
term investments combined with cash flows from operations will be
sufficient to meet the Company's capital requirements.
The Company currently intends to retain its earnings to finance
future growth and, therefore, does not anticipate paying any cash
dividends on its common stock in the foreseeable future. Any
determination as to the payment of dividends will depend upon the
future results of operations, capital requirements and financial
condition of the Company and its subsidiaries and such other factors
as the Board of Directors of the Company may consider, including any
contractual or statutory restrictions on the Company's ability to pay
dividends.
Inflation
The Company believes that inflation has not had a material effect on
its results of operations.
Pro forma Results of Operations
The discussion of pro forma results of operations is based on the pro
forma condensed consolidated financial information presented in Part
II: Other Information, Item 5. Other Information. The statement of
income assumes the Reorganization and Offering were consummated on
January 1, 1996.
Three Months Ended March 31, 1997 Compared to Pro Forma Three Months
Ended March 31, 1996
Electronic Travel Distribution. Electronic travel distribution actual
revenues for the three months ended March 31, 1997 increased
approximately $16 million, 5.5 percent, compared to pro forma for the
three months ended March 31, 1996, from $292 million to $308 million.
The increase was primarily due to growth in booking fees from associates
from $267 million to $282 million. This growth was driven by an
increase in booking volumes, both domestic and international, and an
overall increase in the price per booking charged to associates.
Actual cost of revenues for electronic travel distribution increased
approximately $10 million, 5.3 percent, compared to pro forma, from
$187 million to $197 million. This increase was primarily attributable
to an increase in salaries and benefits, depreciation and amortization
and subscriber incentive expenses. Salaries and benefits increased
due to an increase in the average number of employees necessary to
support the Company's revenue growth and annual salary increases.
Depreciation and amortization expense increased due growth in the
subscriber equipment base and increased amortization of internally
developed software. Subscriber incentive expenses increased in order
to maintain and grow the Company's travel agency subscriber base.
<PAGE> 12
THE SABRE GROUP HOLDINGS, INC.
PRO FORMA RESULTS OF OPERATIONS (Continued)
Information Technology Solutions. Actual revenues from information
technology solutions for the three months ended March 31, 1997
increased approximately $3 million, 2.3 percent, compared to pro forma
for the three months ended March 31, 1996, from $129 million to $132
million. Revenues from unaffiliated customers increased approximately
$2 million and revenues from such services provided to AMR increased
$1 million.
Actual cost of revenues for information technology solutions increased
approximately $7 million, 7.6 percent, compared to pro forma, from
$92 million to $99 million. This increase was primarily attributable
to an increase in salaries and benefits, other operating expenses and
communication expenses, offset by a decrease in depreciation and
amortization expense. Salaries and benefits increased due to an
increase in the average number of employees necessary to support the
Company's business growth and annual salary increases. The increase
in other operating expenses is primarily due to an increase in the
total amount of reserves for potential disputes of billed amounts.
The increase in communication expense is primarily due to the lease of
the domestic data network from a third party. This data network was
owned by the Company through July 1996. The decrease in depreciation
and amortization expense is primarily due to the benefits of price and
performance improvements for data center equipment and the sale, in
July 1996, of certain computer network equipment during 1996 with a
net book value of approximately $25 million to a third party.
Selling, General and Administrative Expenses. Actual selling, general
and administrative expenses increased $4 million, 12.5 percent, compared
to pro forma, from $32 million to $36 million primarily due to an
increase in salaries and benefits.
Operating Income. Actual operating income decreased $2 million, 1.8
percent, compared to pro forma, from $110 million to $108 million. Pro
forma operating margin in 1996 was 26.1 percent compared to actual
operating margin of 24.5 percent in 1997 due to an increase in
revenues of 4.5 percent while operating expenses increased 6.6 percent.
Interest Income. Actual interest income increased $4 million,
compared to pro forma, due to higher balances maintained in the
Company's short-term investment accounts.
Interest Expense. Actual interest expense decreased $1 million,
compared to pro forma, due to a decrease in the interest rate on the
Debenture.
Other Expenses. Actual other expenses decreased $1 million, compared
to pro forma, due to a reduction in the losses from joint ventures in
which the Company owns an interest accounted for under the equity
method.
Income Taxes. The actual provision for income taxes was $43 million
and the pro forma provision for income taxes was $40 million for the
three months ended March 31, 1997 and 1996, respectively. The
increase in the provision for income taxes corresponds with the
increase in net income before the provision for income taxes.
Net Earnings. Actual net earnings increased $3 million, 4.7
percent, compared to pro forma, from $64 million to $67 million, primarily
due to the increase in other income.
<PAGE> 13
THE SABRE GROUP HOLDINGS, INC.
CAUTIONARY STATEMENT
Statements in this report which are not purely historical facts,
including statements regarding the Company's 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 the
Company on the date of this report. The Company undertakes 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.
Risks associated with the Company's forward looking statements
include, but are not limited to: risks related to the Company's
relationships with American and its affiliates, including risks that
American may terminate any of the agreements with the Company, or fail
or otherwise become unable to fulfill its principal obligations
thereunder, or determine not to renew certain of the agreements; risks
associated with competition, and technological innovation by
competitors, which could require the Company to reduce prices, to
change billing practices, to increase spending or marketing or product
development or otherwise to take actions that might adversely affect
its operations or earnings; risks related to seasonality of the travel
industry and booking revenues; risks of the Company's sensitivity to
general economic conditions and events that affect airline travel and
the airlines that participate in the SABRE system; risks of a natural
disaster or other calamity that may cause significant damage to the
Company's data center facility; risks associated with the Company's
international operations, such as currency fluctuations, governmental
approvals, tariffs and trade barriers; risks of new or different legal
and regulatory requirements; and risks associated with the Company's
growth strategy, including investments in emerging markets and the
ability to successfully conclude alliances.
<PAGE> 14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In connection with the Reorganization, the Company is the successor in
interest to American in the following two cases involving booking fee
disputes.
In 1995, America West Airlines, Inc. ("America West") began
withholding SABRE booking fees it claims were assessed for
illegitimate bookings. American and an affiliate of the Company filed
a lawsuit against America West in the District Court of Tarrant
County, Texas, 153rd Judicial District, to recover the unpaid booking
fees from America West. On April 10, 1997, the District Court of
Tarrant County, Texas, granted the Company's motion for summary
judgment as to the proper interpretation of the contract, upholding
the Company's position. On April 21, 1997, America West paid the
Company $2.9 million in past due booking fees, with a stipulation that
preserves its rights in the lawsuit.
In June 1996, American Trans Air, Inc. ("ATA") filed a lawsuit against
American in the U.S. District Court for the Southern District of
Indiana, Indianapolis Division, seeking a refund of over $400,000 in
SABRE booking fees on similar grounds. In addition, since June 1996
ATA has withheld payment of more than $300,000 in SABRE booking fees.
The Company filed a motion for summary judgment in the ATA lawsuit
which is similar to the one granted in the America West lawsuit.
If either ATA or America West were to prevail on their claims, other
associates might make similar claims. Nevertheless, the Company
believes that the booking fees are properly charged pursuant to its
contracts and that the claims of ATA and America West can be
successfully defended or resolved without any material adverse effect
on the Company's financial position or results of operations.
<PAGE> 15
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE> 16
Item 5. Other Information
THE SABRE GROUP HOLDINGS, INC.
PRO FORMA STATEMENT OF INCOME DATA
(Unaudited) (In thousands, except per share amounts)
The pro forma statement of income data for the three months ended
March 31, 1996 in the table below is based upon the historical
financial statements of the Company and assumes the Reorganization and
the Offering were consummated on January 1, 1996. The pro forma
information for the three months ended March 31, 1996 is presented for
illustrative purposes only and is not necessarily indicative of the
operating results that would have occurred if such transactions had
been consummated on January 1, 1996, nor is it necessarily indicative
of future results of operations.
The pro forma statement of income data for the three months ended
March 31, 1996 should be read in conjunction with the Condensed
Consolidated Financial Statements and related notes thereto of the
Company included elsewhere herein. Pro forma adjustments include the
impact of the Information Technology Services Agreement and the
Debenture Payable to AMR as well as other adjustments associated with
the Reorganization and the Offering. Amounts shown below are in
thousands, with the exception of per share amounts.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
Actual Pro Forma
<S> <C> <C>
Revenues
Electronic travel distribution $308,115 $291,538
Information technology solutions 131,515 129,233
Total operating revenues 439,630 420,771
Operating expenses
Cost of revenues
Electronic travel distribution 196,965 186,777
Information technology solutions 99,424 92,421
Selling, general and administrative 35,454 31,958
Total operating expenses 331,843 311,156
Operating income 107,787 109,615
Other income (expense)
Interest income 5,503 2,342
Interest expense (4,647) (6,231)
Other - net 701 (1,606)
1,557 (5,495)
Income before provision for income 109,344 104,120
taxes
Provision for income taxes 42,659 40,497
Net earnings $ 66,685 $ 63,623
Pro forma earnings per common share data:
Pro forma earnings per common share $ .49
Earnings per common share $ .51
Common and common equivalent shares
used in per share calculations 130,773 130,604
</TABLE>
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
The Company did not file any reports on Form 8-K during the three
months ended March 31, 1997.
Exhibit Number Description of Exhibit
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Restated Bylaws of Registrant. (1)
4.1 Registration Rights Agreement between Registrant. and AMR
Corporation. (1)
4.2 Specimen Certificate representing Class A Common Stock.(1)
10.1 Registration Rights Agreement between Registrant and AMR
Corporation (See Exhibit 4.1).
10.2 Intercompany Agreement, dated as of July 2,1996, among
Registrant, The SABRE Group,Inc., TSGL Holding, Inc.,
TSGL-SCS, Inc., TSGL, Inc., SABRE International, Inc.,
SABRE Servicios Columbia, LTDA and American Airlines,
Inc. (1)
10.3 Management Services Agreement, dated as of July 1, 1996,
between The SABRE Group, Inc. and American Airlines,
Inc. (1) (4)
10.4 Credit Agreement, dated as of July 1, 1996 between
Registrant, The SABRE Group, Inc., AMR Corporation and
American Airlines, Inc. (1)
10.5 $850,000,000 Subordinated Debenture, dated July 2, 1996,
executed by Registrant and payable to AMR Corporation.(1)
10.6 Information Technology Services Agreement, dated July 1,
1996, between The SABRE Group Inc. and American Airlines,
Inc. (1) (4)
10.7 Non-competition Agreement, dated July 1, 1996, among
Registrant, The SABRE Group, Inc., AMR Corporation and
American Airlines, Inc. (1)
10.8 Marketing Cooperation Agreement, dated as of July 1,
1996, between The SABRE Group, Inc. and American
Airlines, Inc. (1) (4)
10.9 Tax Sharing Agreement, dated July 1,1996, between The
SABRE Group, Inc. and American Airlines, Inc. (1)
10.10 Travel Privileges Agreement, dated as of
July 1, 1996, between The SABRE Group, Inc. and
American Airlines, Inc. (1) (4)
10.11 Corporate Travel Agreement, dated July 25,1996, between
The SABRE Group, Inc. and American Airlines, Inc. (1) (4)
10.12 Software Marketing Agreement, dated September 10, 1996,
among Registrant, The SABRE Group, Inc. and AMR
Corporation. (1)(4)
10.13 Canadian Technical Services Subcontract, dated as of
July 1, 1996, between The SABRE Group,Inc. and American
Airlines, Inc. (1)(4)
10.14 Form of Participating Carrier Agreement between The SABRE
Group, Inc. and American Airlines, Inc. (1)
10.15 Investment Agreement, dated September 11,1996, between
The SABRE Group, Inc. and AMR Investment Services,Inc.(1)(4)
10.16 Assignment and Amendment Agreement, dated as of July 1,
1996, among The SABRE Group, Inc., American Airlines,
Inc. and the Dallas-Fort Worth International Airport
Board. (1)
10.17 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. (1)
10.18 Assignment Agreement, dated as of July 1, 1996, between
The SABRE Group, Inc. and American Airlines, Inc. (1)
10.19 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. (1)
10.20 Assignment Agreement, dated as of July 1, 1996, between
The SABRE Group, Inc. and American Airlines, Inc. (1)
<PAGE> 18
10.21 Amended and Restated Sublease Agreement, dated May, 1996,
between American Airlines,Inc. and the Tulsa Airports
Improvement Trust. (1)
10.22 Assignment Agreement, dated as of July 1, 1996, between
The SABRE Group, Inc. and American Airlines, Inc. (1)
10.23 Office Lease Agreement, dated as of January 19, 1996,
between American Airlines, Inc. and Maguire/Thomas
Partners - Westlake/Southlake Partnership. (1)
10.24 American Airlines, Inc. Supplemental Executive
Retirement Plan dated November 16, 1994. (2)
10.25 The SABRE Group Holdings, Inc. Long-Term Incentive
Plan. (1)
10.26 The SABRE Group Holdings, Inc. Directors Stock Incentive
Plan. (1)
10.27 Form of Executive Termination Benefits Agreement. (1)
10.28 Employment Agreement, dated August 30, 1996, between The
SABRE Group, Inc. and Michael J. Durham. (1)
10.29 Employment Agreement, dated September 7, 1995, between
American Airlines, Inc. and Thomas M. Cook. (1)
10.30 Employment Agreement, dated May 7, 1996, between American
Airlines, Inc. and Terrell B. Jones. (1)
10.31 Letter Agreement, dated July 15, 1996, between Registrant
and Thomas M. Cook. (1)
10.32 Letter Agreement, dated July 15, 1996, between Registrant
and Terrell B. Jones. (1)
10.33 The SABRE Group Holdings, Inc. Employee Stock Purchase
Plan. (3)
21.1 Subsidiaries of Registrant.
27.1 Financial Data Schedule.
(1) Incorporated by reference to exhibits 3.1 through 10.32 to the
Company's Registration Statement on Form S-1 ( Registration No. 333-
09747).
(2) Incorporated by reference to Exhibit 10(mmm) to AMR's report on
Form 10-K for the year ended December 31, 1994, (File No. 1-8400).
(3) Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Registration No. 333-18851).
(4) Confidential treatment has been requested for portions of this
agreement and the omitted information has been filed separately with
the Securities and Exchange Commission pursuant to an application for
confidential treatment.
<PAGE> 19
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.
THE SABRE GROUP HOLDINGS, INC.
Date: May 14, 1997 BY: /s/ T. Patrick Kelly
Senior Vice President and Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,991
<SECURITIES> 471,721
<RECEIVABLES> 244,827
<ALLOWANCES> 6,222
<INVENTORY> 0
<CURRENT-ASSETS> 763,132
<PP&E> 1,260,059
<DEPRECIATION> 688,382
<TOTAL-ASSETS> 1,375,071
<CURRENT-LIABILITIES> 295,389
<BONDS> 317,873
0
0
<COMMON> 1,308
<OTHER-SE> 635,369
<TOTAL-LIABILITY-AND-EQUITY> 1,375,071
<SALES> 0
<TOTAL-REVENUES> 439,630
<CGS> 0
<TOTAL-COSTS> 296,389
<OTHER-EXPENSES> 35,454
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,647
<INCOME-PRETAX> 109,344
<INCOME-TAX> 42,659
<INCOME-CONTINUING> 66,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,685
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
<PAGE>1
Exhibit 21.1
SUBSIDIARIES
THE SABRE GROUP HOLDINGS, INC.
THE SABRE GROUP HOLDINGS, INC. SUBSIDIARIES
(EACH SUBSIDIARY'S SUBSIDIARIES OUTLINED FURTHER BELOW)*
The SABRE Group, Inc. (Delaware)
THE SABRE GROUP, INC. SUBSIDIARIES
Axess International Network, Inc. (Japan) (25%)
ENCOMPASS Holding, Inc. (Delaware)
Prize Ltd. (Latvia) (50%)
SABRE Decision Technologies International, Inc. (Delaware)
SABRE Decision Technologies Licensing, Inc. (Delaware)
SABRE International Holdings, Inc. (Delaware)
SABRE International, Inc. (Delaware)
SST Finance, Inc. (Delaware)
SST Holding, Inc. (Delaware)
TSGL, Inc. (Delaware)
Ticketnet Corporation (Canada)
SABRE Enterprises, Inc. (Delaware)
The SABRE Group Sales (Barbados), Ltd.
ENCOMPASS HOLDING, INC. SUBSIDIARY*
ENCOMPASS (partnership) (50%)
SABRE DECISION TECHNOLOGIES INTERNATIONAL, INC. SUBSIDIARY*
SABRE Decision Technologies (Australia) Pty Ltd.
SABRE INTERNATIONAL, INC. SUBSIDIARIES*
SABRE Belgium (Belgium) (99%)
SABRE Computer-Reservierungssystem GmbH (Austria)
SABRE Danmark ApS (Denmark)
SABRE Deutschland Marketing GmbH (Germany)
SABRE Deutschland Services GmbH (Germany)
SABRE Espana Marketing, S.A. (Spain) (99%)
SABRE Europe Management Services Ltd. (UK) (99%)
SABRE France Sarl (France)
SABRE Hellas SA (Greece)
SABRE Ireland Limited (Ireland)
<PAGE> 2
SABRE INTERNATIONAL, INC. SUBSIDIARIES* - CONTINUED
SABRE Italia S.r.l. (Italy) (99%)
SABRE Marketing Nederland B.V. (The Netherlands)
SABRE Norge AS (Norway)
SABRE Portugal Servicos Lda (Portugal) (99%)
SABRE Suomi Oy (Finland)
SABRE Sverige AB (Sweden)
SABRE UK Marketing Ltd. (UK) (99%)
STIN Luxembourg S.A. (Luxembourg) (99%)
SABRE INTERNATIONAL HOLDINGS, INC. SUBSIDIARIES*
SABRE Belgium (Belgium) (1%)
SABRE Espana Marketing, S.A. (Spain) (1%)
SABRE Europe Management Services Ltd. (UK) (1%)
SABRE Italia S.r.l. (Italy) (1%)
SABRE Portugal Servicos LDA (Portugal) (1%)
SABRE Servicios Colombia LTDA (Columbia) (1%)
SABRE UK Marketing Ltd. (UK) (1%)
STIN Luxembourg SA (Luxembourg) (1%)
SST HOLDING, INC. SUBSIDIARY*
SABRE Sociedad Technolgica S.A. (Mexico) (50%)
SABRE SOCIEDAD TECHNOLOGICA S.A. SUBSIDIARY*
SABRE Services Administration (Mexico)
TSGL, INC. SUBSIDIARIES*
TSGL Holding, Inc. (Deleware)
TSGL-SCS, Inc. (Deleware)
TICKETNET CORPORATION SUBSIDIARY*
148548 Canada, Inc. (Canada)
* All subsidiaries are wholly-owned unless otherwise noted in parenthesis
