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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 fiscal year ended December 31, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission file number 1-12175
THE SABRE GROUP HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 75-2662240
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
4255 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (817) 931-7300
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of exchange on which registered
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Class A Common Stock, par value $.01 per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 24, 1998 was approximately $803,561,045. As of March 24,
1998, 22,958,887 shares of the registrant's Class A Common Stock and 107,374,000
shares of the registrant's Class B 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 20,
1998.
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PART I
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ITEM 1. BUSINESS
The SABRE Group Holdings, Inc. is a holding company incorporated in
Delaware on June 25, 1996. Pursuant to a reorganization consummated on July 2,
1996 (the "Reorganization"), the Company became the successor to the businesses
of The SABRE Group which were formerly operated as divisions or subsidiaries of
American Airlines, Inc. ("American") or AMR Corporation ("AMR"). Unless
otherwise indicated, references herein to the "Company" include The SABRE Group
Holdings, Inc. and its consolidated subsidiaries and, for any period prior to
the Reorganization, the business of AMR and American constituting The SABRE
Group. On October 17, 1996, the Company completed an initial public offering
(the "Offering") of 23,230,000 shares of its Class A Common Stock, par value
$.01 per share, constituting approximately 17.8% of the economic interest of the
Company's outstanding common equity. As of March 24, 1998, AMR owned all
107,374,000 shares of the Company's Class B Common Stock, representing
approximately 82.4% of the economic interest and 97.9% of the combined voting
power of all classes of voting stock of the Company.
The Company is a world leader in the electronic distribution of travel
through its proprietary travel reservation and information system, SABRE(R), and
is the largest electronic distributor of travel in North America. In addition,
the Company is a leading provider of information technology solutions to the
travel and transportation industry and fulfills substantially all of the data
processing, network and distributed systems needs of American and AMR's other
subsidiaries, Canadian Airlines International, Ltd., and other customers.
ELECTRONIC TRAVEL DISTRIBUTION
SABRE and other global distribution systems are the principal means of
air travel distribution in the United States and a growing means of air travel
distribution internationally. Through the SABRE system, travel agencies,
corporate travel departments and individual consumers ("subscribers") can access
information on and book reservations with airlines and other providers of travel
and travel-related products and services ("associates"). As of December 31,
1997, travel agencies with more than 30,000 locations in over 70 countries on
six continents subscribed to SABRE. SABRE subscribers are able to make
reservations with more than 400 airlines and more than 50 car rental companies
and more than 200 hotel companies covering approximately 39,000 hotel properties
worldwide.
During 1997, more airline bookings in North America were made through
SABRE than through any other global distribution system. In 1997, approximately
67.3% of the Company's revenue was generated by the electronic distribution of
travel, primarily through booking fees paid by associates.
THE SABRE GLOBAL DISTRIBUTION SYSTEM
SABRE, like other global distribution systems, creates an electronic
marketplace where travel providers display information about their products and
warehouse and manage inventory. Subscribers -- principally travel agencies but
also corporate travel departments and individual consumers -- access information
and purchase travel products and services. In 1997, more than 700 vendors,
called "Associates", displayed information about their products and services
through SABRE, and the Company estimates that more than $66 billion of
travel-related products and services were sold through SABRE.
In addition to providing information to subscribers about airlines and
other travel-related vendors, SABRE reports to the travel providers transaction
data about subscriber-generated reservations, allowing vendors to better manage
inventory and revenues. The SABRE system also allows travel agency subscribers
to print airline tickets, boarding passes and itineraries. Additionally, SABRE
provides subscribers with travel information on matters such as currency,
medical and visa requirements, weather and sightseeing. By accessing the SABRE
system, a subscriber can, from a single source, obtain schedule, availability
and pricing information from multiple travel providers for complex travel
itineraries.
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ASSOCIATE PARTICIPATION
The Company derives its electronic travel distribution revenues
primarily from booking fees paid by associates for reservations made through
SABRE for their products and services. In addition to airlines, associates
include car rental companies, hotel companies, railroads, tour operators, ferry
companies and cruise lines.
Airlines and other associates can display, warehouse, manage and sell
their inventory in SABRE. The booking fee paid by an associate depends upon
several factors, including the associate's level of participation in SABRE and
the type of products or services provided by the associate. Airlines are offered
a wide range of participation levels. The lowest level of functionality for
airlines, Basic Booking Request(SM), provides schedules and electronic booking
only. Higher levels of functionality for airlines, such as Direct Connect
Availability(SM) , provide greater levels of communication with SABRE, giving
subscribers more detailed information and associates improved inventory
management. For an associate selecting one of the higher levels of
participation, SABRE provides subscribers with a direct connection to the
associate's internal reservation system, allowing SABRE 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. The Company also provides associates, upon
request, marketing data derived from SABRE bookings for fees that vary depending
on the amount and type of information provided.
SUBSCRIBER ACCESS
Access to SABRE enables subscribers to electronically locate, price,
compare and purchase travel products and services provided by associates. The
Company tailors the interface and functionality of SABRE to the needs of its
different types of subscribers. Marketing is targeted to travel agencies,
corporations and individual consumers.
TRAVEL AGENTS. The Company provides travel agents with the hardware,
software, technical support and other services needed to use SABRE, in return
for fees that typically vary inversely with the travel agency's productivity, as
measured by the number of bookings generated. Such fees are payable over the
term of the travel agent's agreement with the Company, generally five years in
the United States and Latin America, three years in Canada, and one year in
Europe.
Because travel agencies have differing needs, the Company has modified
the SABRE interface to meet the specific needs of different categories of travel
agents. Travel agents can choose interfaces that range from simple, text-based
systems to feature-laden graphical systems. For example, the Company developed
Turbo SABRE(TM), an advanced point-of-sale interface and application development
tool that enables advanced functionality such as customized screens, automated
quality control, database integration, and eliminates complex commands, reducing
keystrokes and training requirements.
Planet SABRE(TM), which the Company introduced in February 1997,
includes a graphical launch pad, which enables the user to move to any function
with one or two clicks of a mouse; a customizer feature, which allows travel
agencies to tailor Planet SABRE to meet their own specific needs; a tutorial;
online help; a place to store notes about clients, destinations or procedures;
and a suggestion system. Planet SABRE transforms SABRE from a complex
command-oriented system to an all-graphic interface with continued access to the
SABRE host system and its capabilities.
SABRE interfaces are available in English, Spanish, Portuguese, French,
German, Italian and Japanese. In addition, the Company offers travel agencies
back-office accounting systems and further supports travel agencies by offering
a simplified method to develop and place their own marketing presence on the
World Wide Web.
CORPORATIONS. The Company sells Commercial SABRE(TM) to corporations
and home-based travel agents who are sponsored by travel agencies. Using
Commercial SABRE, a traveler or agent can connect to the SABRE system and make
bookings which are automatically delivered to the sponsoring agency where travel
documents are issued.
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The Company also markets SABRE to corporations through SABRE Business
Travel Solutions(TM) ("SABRE BTS(TM)") released in October 1996. SABRE BTS is
designed for corporate travelers, travel arrangers and travel managers. It is a
fully-integrated product suite for travel planning and booking, expense
reporting and decision-support. SABRE BTS provides corporations with tools to
better manage travel costs, ensure compliance with corporate travel policies,
automate expense reporting and obtain real-time information on all aspects of
travel.
INDIVIDUAL CONSUMERS. Through the Company's Travelocity(SM) and
easySABRE(R) products, individual consumers can compare prices, make travel
reservations and obtain destination information. These products are available to
individual consumers free of charge.
Travelocity is accessible through the Internet and computer on-line
services. It features booking and purchase capability for all airline, car
rental and hotel companies for which booking and purchase capability is
available in SABRE. Vacation and cruise packages are available as well.
Travelocity also offers access to a database of destination and interest
information, articles from travel correspondents and interactive maps.
Travelocity averages approximately 22.6 million page views per month. The
Internet address for Travelocity is http://www.travelocity.com/.
The Company has entered into numerous co-branding agreements to provide
access to Travelocity on complementary Internet Web sites. These agreements
include a deal with Netscape Communications Corporation to launch Netcenter
Travel by Travelocity, accessible through the Netscape Netcenter free online
service. The Company also signed an agreement with Yahoo! Inc. for Travelocity
to become the exclusive co-branded travel booking service for Yahoo! and Yahoo!
Travel.
The Company introduced easySABRE in 1985 as one of the world's first
consumer booking systems for travel. easySABRE is available through a number of
computer on-line information systems and on the Internet. With easySABRE,
consumers can view travel reservation information and make bookings directly in
SABRE for no fee. The Internet address for easySABRE is
http://www.easySABRE.com/.
The Company receives booking fees from travel providers for purchases
of their travel products and services pursuant to reservations made through
Travelocity and easySABRE.
INTERNATIONAL MARKETING
The Company is actively involved in marketing SABRE internationally
either directly or through joint venture or distributorship arrangements. The
Company's 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 or other
travel-related network services.
In February 1998, the Company signed long-term agreements with ABACUS
International Holdings Ltd. which created a Singapore-based joint venture
company to manage travel distribution in the Asia-Pacific region. The Company
owns 35 percent of the joint venture company, called ABACUS International Ltd.,
and provides it with transaction processing on the SABRE computer reservations
system.
COMPETITION
The Company competes in electronic travel distribution primarily
against other large and well-established global distribution systems. SABRE's
principal competitors in marketing to travel agents include Amadeus/System One,
Galileo/Apollo and Worldspan. Each of these competitors offers many products and
services substantially similar to those of the Company.
Although certain barriers exist for any new provider of electronic
commerce -- barriers such as the need for significant capital investment to
acquire or develop the hardware, software and network facilities necessary to
operate a global distribution system -- the Company is faced with the potential
of new competitors, particularly as new channels for travel distribution
develop.
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The global market to attract and retain agency subscribers is intensely
competitive. Factors affecting competitive success of global distribution
systems 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.
Although distribution through travel agents continues to be the primary
method of travel distribution, new channels of direct distribution to businesses
and consumers, through computer on-line services, the Internet and private
networks, are developing rapidly. The deployment and adoption of these tools is
currently quite low, however the pace of adoption is expected to accelerate. The
Company believes that it has positioned its SABRE BTS, Travelocity and easySABRE
products to effectively compete in these emerging distribution channels.
CRS INDUSTRY REGULATION
The Company's electronic travel distribution business is subject to
regulation in the United States, the European Union, Canada, Australia and New
Zealand. These regulations address the relationships among computer reservation
systems ("CRSs"), airline associates, and travel agency subscribers. These
regulations do not currently address relationships with non-airline associates,
but future regulations in the European Union may include rail associates. In
general, these regulations are directed at ensuring fair competition among
travel providers. Among the principles addressed in the current regulations are:
unbiased CRS displays of airline information, fair treatment of airline
associates by CRSs, equal participation by airlines in non-owned CRSs, and fair
competition for subscribers. The CRS regulations in the United States and the
European Union are currently being revised, but the Company does not expect the
revisions to materially adversely affect its operations.
OTHER REGULATION
The Company is subject to regulations affecting issues such as: exports
of technology, telecommunications, data privacy, and electronic commerce. Some
portions of the Company's business, such as its Internet-based electronic travel
distribution, may be affected by newly-developed regulations. Regulations
affecting other areas of the Company's business may be revised from time to
time. Regulations also vary among jurisdictions. The Company believes that it is
capable of addressing these regulatory issues as they arise.
INFORMATION TECHNOLOGY SOLUTIONS
The Company is a leading provider of information technology services to
the travel and transportation industry. The Company employs its airline
technology expertise to offer information technology solutions to other
industries that face similar complex operations issues, including the airport,
railroad, logistics and hospitality industries. The solutions offered by the
Company include software development and product sales, transactions processing,
consulting, as well as comprehensive information technology outsourcing. The
Company provides data processing, network and distributed systems services to
American and AMR's other subsidiaries, Canadian Airlines International, Ltd.,
and other customers fulfilling substantially all of their information technology
requirements. In 1997, approximately 32.7% of the Company's revenue was
generated by the provision of information technology solutions.
The Company is aggressively pursuing strategic information technology
relationships that add a new dimension to traditional outsourcing agreements by
integrating our airline applications and business processes into customer
operations. Clients entering into a strategic agreement with the Company benefit
from our extensive airline industry expertise, experience with complex operating
and transaction environments and our extensive suite of software products and
applications.
SOLUTIONS
The Company offers a comprehensive set of information technology
solution services to the airline industry. These solutions include: (i)
information technology outsourcing; (ii) software development, sales and
licensing; and (iii) consulting, which includes capabilities ranging from
reengineering to functional consulting. Recruiting and retaining capable
personnel, particularly those with expertise in operations research, information
technology and industrial engineering, is vital to the provision of solutions by
the Company.
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The Company's solutions have helped American become one of the most
technologically advanced airlines in the world. The Company has provided
solutions to over 170 airlines or airline associations. These solutions have
many applications for airlines. For example, (i) with Fare Action Evaluator(SM),
airlines can seek to enhance revenue using statistical and database sources that
estimate the economic implications of fare actions before they are implemented,
(ii) with AIRPRICE(SM) , airlines can analyze and manage fares and react to
competitors' changes, (iii) with AIRFLITE(SM), airlines can determine superior
flight schedules and (iv) with AIRCREWS(SM), airlines can improve crew member
scheduling thus reducing staffing costs.
The Company also provides real-time transaction processing services,
whereby the Company provides access to its hardware and software to airlines for
reservations, flight operations, departure control and other related services.
Local computer terminals at a customer's location are linked to the Company's
mainframes, and the Company maintains and operates the entire system on a secure
and confidential basis.
The Company distributes its solutions and consulting services through a
sales and marketing organization with offices in eleven cities on four
continents (Boston, Chicago, Dallas, Tulsa, Vancouver, London, Paris, Kuwait
City, Hong Kong, Sydney and Auckland). The Company also maintains agency
relationships to support sales efforts in key markets, including India, China
and the Middle East. To date, the Company has provided business solutions to
nearly 500 clients located in more than 50 countries.
TECHNOLOGY SERVICES
In 1996, the Company executed an information technology services
agreement with American for a term of ten years for most services (three and
five years for others). Under this agreement, the Company provides data
processing, network, distributed systems, and applications development services
to American and AMR's other subsidiaries. The Company fulfills substantially all
of American's data processing requirements and manages all voice and data
communication services for American and AMR's other subsidiaries, including data
networks, voice networks and radio services. The Company also provides American
with the services required to design, install, operate and maintain its range of
local area networks, desktop, mobile computing and peripheral devices. The
Company completes nearly all of the applications development for American, as
well as manages the AMR Year 2000 project office and completes most of AMR
system's Year 2000 testing and compliance enhancements.
In January 1998, the Company completed the execution of a 25-year,
multibillion dollar technology agreement with US Airways, Inc. to provide
substantially all of US Airways' information technology services. As a part of
the agreement, the Company purchased approximately $47 million of US Airways'
information technology assets, and hired more than 600 former employees of US
Airways. The agreement covers the management and operation of US Airways'
systems and information technology services, including the migration or
conversion of US Airways' legacy systems to the Company's systems by mid-1999.
Additionally, the Company agreed to assist US Airways in making its information
systems Year 2000 compliant.
In February 1998, the Company executed a 10-year information technology
services agreement with Gulf Air. Under the agreement, the Company will be
responsible for all of Gulf Air's information technology infrastructure,
including application development and maintenance, as well as data center and
network management.
COMPETITION
In information technology solutions, the Company competes both against
solutions companies and full-service providers of technology outsourcing, some
of which have considerably greater financial resources than the Company, and
against smaller companies that offer a limited range of products. Among the
Company's full-service competitors are Electronic Data Systems, IBM Global
Services, Unisys, Andersen Consulting and Lufthansa Systems. Some of these
competitors have formed strategic alliances with large companies in the travel
industry, and the Company's access to these potential customers is thus limited.
The Company believes that its competitive position in the travel and
transportation industry is enhanced by its experience in developing systems for
American and other airlines and by its ability to offer not only software
applications but also systems development, integration and maintenance and
transaction processing services.
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INTELLECTUAL PROPERTY
In connection with the Reorganization, American transferred to the
Company the software used in the operation of the business of The SABRE Group.
This software, along with other software, proprietary information, patents,
copyrights, trade secrets, trademarks and intellectual property rights, are
significant assets of the Company. The Company relies on a combination of
patent, copyright, trade secret and trademark laws, confidentiality procedures
and contractual provisions to protect these assets. The Company's software and
related documentation are protected principally under trade secret and copyright
laws, which afford only limited protection. In addition, the laws of some
foreign jurisdictions may provide less protection than the laws of the United
States for the Company's proprietary rights. Unauthorized use of the Company's
intellectual property could have a material adverse effect on the Company, and
there can be no assurance that the Company's legal remedies would adequately
compensate it for the damages to its business caused by such use.
EMPLOYEES
As of December 31, 1997 the Company had approximately 8,500 full-time
employees. A central part of the Company's philosophy is to attract and maintain
a highly capable staff. The Company considers its current employee relations to
be good. None of the Company's employees based in the United States are
represented by a labor union.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Fort Worth,
Texas, primarily in three buildings, two of which are owned by the Company and
one of which is leased from the Dallas/Fort Worth International Airport Board
under a lease that expires in 2019, subject to four renewal options of five
years each, exercisable at the option of the Company. The Company leases a
fourth office building in Southlake, Texas, under a lease that expires in 2003,
subject to two renewal options of five years each, exerciseable at the option of
the Company. Additionally, the Company leases office facilities in approximately
70 other locations worldwide.
The Company's principal data center is located in an underground
facility in Tulsa, Oklahoma (the "Data Center"). The land on which the Data
Center is located is leased from the Tulsa Airport Improvements Trust, a public
trust organized under the laws of the State of Oklahoma, pursuant to a lease
that expires in 2038. SABRE and the Company's data processing services are
dependent on the Company's central computer operations and information
processing facility located in the Data Center. The Company also utilizes a
computer center located in one of its office buildings in Fort Worth (the "Fort
Worth Center"). At the Fort Worth Center, the Company operates and manages a
wide variety of server based and client/server distributed systems.
The Company's travel agency and corporate subscribers connect to SABRE
through leased access circuits. These leased access circuits, in turn, connect
to the domestic and international data networks leased by the Company, such as
those leased from Societe Internationale de Telecommunications Aeronautiques
("SITA"), which is owned by a consortium of Airlines, including American.
The Company believes that its office facilities will be adequate for
its immediate needs and that additional or substitute space is available if
needed to accommodate expansion. The Company also believes that its Data Center,
Fort Worth Center and network access will be adequate for its immediate and
foreseeable needs. The Company, however, continuously invests in research and
development to upgrade these facilities to meet changing technological needs.
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ITEM 3. LEGAL PROCEEDINGS
In connection with the Reorganization, the Company is the successor in
interest to American in the following two civil proceedings concerning disputed
booking fees.
In 1995, America West Airlines, Inc. ("America West") began withholding
SABRE booking fees that it claims were assessed in contravention of America
West's SABRE participation agreement. American and SABRE Associates, Inc., 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 of 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. America West has pending counter-claims
against the Company claiming breach of contract.
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 to America West's claims. 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. ATA has filed a cross-motion for summary
judgment similar to the one filed by America West claiming its interpretation of
the contract is the correct one.
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
a material adverse effect on the Company's financial position or results of
operations.
In 1994, Alaska Airlines filed a Petition for Rulemaking with the DOT
seeking a rule that would bar a global distribution system from requiring
airlines that are not GDS-Affiliated Airlines to participate in such system at
the same level of functionality as the airline participates in other global
distribution systems. On November 5, 1997, the DOT issued a final rule
prohibiting a GDS from enforcing so-called "parity" clauses unless the carrier
involved owns, is affiliated with, or markets a competing GDS. The Company does
not believe that this rule will have a material adverse effect on the Company's
financial condition or results of operations.
On November 18, 1997, the Canadian Court of Appeals affirmed a 1993
lower court judgment awarding the Company damages from Air Canada for actions
taken by Air Canada relating to the Company's purchase of Ticketnet Corporation.
The Court of Appeals reduced the damages awarded to CAD $10,160,000. With
interest and costs, the judgment is now approximately CAD $26,000,000. Air
Canada recently filed an appeal to the Supreme Court of Canada.
On January 9, 1998, Worldspan LP, the former provider of computer
reservation system services to ABACUS International Holdings, filed a lawsuit
against the Company in the United States District Court for the Northern
District of Georgia, Atlanta Division, seeking damages and an injunction, and
alleging, among other things, that the Company interfered with Worldspan's
relationship with ABACUS and misappropriated Worldspan's confidential
information. The same day, Worldspan filed a parallel lawsuit in the same court
against ABACUS. On February 26, 1998, the court denied Worldspan's motion for a
preliminary injunction against ABACUS. The Company believes that both lawsuits
are without merit and is vigorously defending itself.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended December 31, 1997.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock is traded on the New York Stock
Exchange (symbol TSG). The approximate number of record holders of the Company's
Class A Common Stock at March 24, 1998 was 394. All of the 107,374,000 shares
of the Company's Class B Common Stock are owned by AMR and there is no public
trading market for such shares.
The range of closing market prices for the Company's Class A Common
Stock on the New York Stock Exchange since the Company's initial public offering
of Class A Common Stock on October 11, 1996 was:
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High Low
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October 11, 1996 through December 31, 1996 $ 33.00 $ 26.00
Quarter Ended:
March 31, 1997 29.625 25.25
June 30, 1997 28.75 23.625
September 30, 1997 36.625 26.6875
December 31, 1997 35.50 24.50
</TABLE>
No cash dividends on Class A Common Stock or Class B Common Stock were
declared or paid during 1997.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
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<CAPTION>
YEAR ENDED DECEMBER 31,
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1997 1996 1995 1994 1993
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(IN MILLIONS, EXCEPT PER SHARE DATA AND OTHER DATA WHERE INDICATED)
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INCOME STATEMENT DATA (1):
Revenues $ 1,783.5 $ 1,622.0 $ 1,529.6 $ 1,406.7 $ 1,258.2
Operating expenses 1,475.8 1,295.2 1,149.2 1,056.5 1,004.5
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Operating income 307.7 326.8 380.4 350.2 253.7
Other income (expense), net (2) 15.9 (20.9) (10.3) (26.1) (84.7)
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Income before income taxes 323.6 305.9 370.1 324.1 169.0
Income taxes 123.7 119.3 144.2 126.9 69.0
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Net earnings $ 199.9 $ 186.6 $ 225.9 $ 197.2 $ 100.0
=========== ========= ========= ========== ==========
Earnings per common share, basic
and diluted (3) $ 1.53 $ 1.43 -- -- --
=========== ========= ========= ========== ==========
BALANCE SHEET DATA
(AT END OF PERIOD) (1):
Current assets $ 874.2 $ 694.5 $ 271.2 $ 404.3 $ 107.1
Total assets 1,524.0 1,287.1 729.4 873.5 584.3
Current liabilities (2) 316.5 289.8 218.6 503.2 346.4
Debenture payable to AMR 317.9 317.9 -- -- --
Stockholder's net investment -- -- 432.1 289.5 158.0
Stockholders' equity 757.3 569.6 -- -- --
OTHER DATA (1):
Operating income as a percentage
of revenue 17.3% 20.1% 24.9% 24.9% 20.2%
Percentage of revenue from
non-affiliated customers 70.5% 69.2% 64.2% 58.1% 56.6%
Reservations booked using SABRE 359.2 347.9 325.4 311.1 275.2
Cash flows from operating
activities $ 377.8 $ 415.8 $ 395.9 $ 265.3 $ 332.4
Capital expenditures $ 218.1 $ 184.3 $ 166.8 $ 168.9 $ 176.6
</TABLE>
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(1) The Company has significant transactions with AMR and American. The terms
of many of the agreements with AMR and its affiliates were revised
effective January 1, 1996 as a result of the plans for the Reorganization.
See Note 5 to the Consolidated Financial Statements.
(2) The operating results for the year ended December 31, 1993 includes a
provision for losses of $71 million associated with a reservation system
project and resolution of related litigation. The balance sheet as of
December 31, 1993 includes current liabilities for the losses of $133
million.
(3) Earnings per share for 1996 has been restated to comply with Statement of
Financial Accounting Standards No. 128, Earnings Per Share. For further
discussion of earnings per share and the impact of Statement No. 128, see
Notes 2 and 11 to the Consolidated Financial Statements.
10
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Summary
During 1997 the Company generated approximately 67.3% of its revenue
from electronic travel distribution services and approximately 32.7% of its
revenue from information technology solutions services. The following table sets
forth revenues by affiliation and geographic location as a percentage of total
revenues:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Affiliation
Unaffiliated Customers 70.5% 69.2% 64.2%
Affiliated Customers 29.5 30.8 35.8
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
Geographical
United States 81.0% 82.5% 83.6%
International 19.0 17.5 16.4
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
Total revenues have grown at a compound annual growth rate of 8.2% for
the three years ended December 31, 1997. Revenues from affiliated customers have
declined as a percentage of total revenues because of growth in the Company's
external business. Revenues from unaffiliated customers grew at a compound
annual growth rate of 15.5% during the three years ended December 31, 1997, to
$1,258 million in 1997. Revenues from affiliated customers decreased for the
same time period due to the impact of the Affiliate Agreements (described below)
on revenues in 1996 and 1997. The Company expects that the amount and proportion
of revenues from unaffiliated customers will continue to increase. International
revenues also increased as a percentage of total revenues. International
revenues grew at a compound annual growth rate of 17.2% for the three years
ended December 31, 1997, to $339 million in 1997. Revenues from the United
States grew at a compound annual rate of 6.5% over the same period, to $1,445
million in 1997.
The Company's primary expenses from providing electronic travel
distribution and information technology solution services consist of salaries,
benefits and other employee related costs, depreciation and amortization,
communication costs, and subscriber incentives. Salaries, benefits and other
employee related costs, depreciation and amortization and communication costs
represented over 69% of 1997 total operating expenses. From 1995 through 1997,
salaries and benefits grew at a rate higher than that of revenues in order to
support the Company's growth. Expenses in 1996 and 1997 were impacted by the
Affiliate Agreements (as described below) entered into with American, including
increased employee travel costs and other expenses, and marketing support
payments to American. As a result, operating income as a percentage of revenue
decreased from 24.9% in 1995 to 17.3% in 1997.
11
<PAGE> 12
Seasonality
The following table sets forth quarterly financial data for the Company (in
millions except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
1997
Revenues $439.6 $447.4 $456.0 $440.5
Operating income 107.8 93.1 88.1 18.7
Net earnings 66.7 58.5 56.2 18.4
Operating income as a percent of revenue 24.5% 20.8% 19.3% 4.2%
Reservations booked using SABRE 94.9 93.5 91.4 79.4
Earnings per common share, basic and diluted $ .51 $ .45 $ .43 $ .14
1996
Revenues $427.8 $410.4 $407.4 $376.3
Operating income 115.6 82.0 87.9 41.3
Net earnings 70.0 49.1 45.1 22.4
Operating income as a percent of revenue 27.0% 20.0% 21.6% 11.0%
Reservations booked using SABRE 91.9 89.3 89.3 77.4
Pro forma earnings per common share, basic
and diluted $ .54 $ .38 $ .35 --
Earnings per common share, basic
and diluted -- -- -- $.17
</TABLE>
The travel industry is seasonal in nature. Bookings, and thus booking
fees charged for the use of SABRE, 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.
AFFILIATE AGREEMENTS WITH AMR AND AMERICAN
The Company, AMR and American have entered into various agreements,
including an agreement for the provision of information technology services to
American by the Company (the "Technology Services Agreement"), an agreement for
the provision of marketing support by American for the Company's travel agency
products and SABRE BTS, Travelocity and easySABRE (the "Marketing Cooperation
Agreement"), an agreement for the provision of management services by American
to the Company (the "Management Services Agreement") and agreements for the
provision of travel services by American to the Company and its employees (the
"Corporate Travel Agreement" and the "Travel Privileges Agreement"). These
agreements are collectively referred to as the "Affiliate Agreements". See Note
5 to the Consolidated Financial Statements for a description of each agreement.
The rates under the agreements are adjusted or renegotiated from time to time,
and current rates may represent an increase or decrease over previous rates. The
financial terms of the Affiliate Agreements were applied to the Company's
operations commencing January 1, 1996, and the application thereof resulted in a
reduction in revenues and an increase in expenses for 1996 and 1997 as compared
to 1995.
The base term of the Technology Services Agreement expires June 30,
2006. The terms of the services to be provided by the Company to American,
however, vary. For 1997, revenues from services provided under the Technology
Services Agreement with a remaining service term of (i) two years represented
approximately 4.9% of total revenues, (ii) four years represented approximately
0.4% of total revenues and (iii) nine years represented approximately 14.7% of
total revenues.
The Affiliate Agreements generally establish pricing and service terms,
and certain agreements, including the Technology Services Agreement, provide for
periodic price adjustments that may take into account the market for similar
services. Commencing in 1998, the formulas for annually adjusting certain rates
under the Technology Services Agreement will be adjusted every two years through
negotiations of the parties which are to be guided by benchmarking procedures
set forth in the agreement.
12
<PAGE> 13
The Company entered into a Tax-Sharing Agreement with AMR dated July 1,
1996 (the "Tax-Sharing Agreement"), which in most respects formalizes the
Company's previous arrangements with AMR. See Note 2 to the Consolidated
Financial Statements for a description of the agreement.
The Company entered into a Non-Competition Agreement dated July 1, 1996
(the "Non-Competition Agreement"), pursuant to which AMR and American, on behalf
of themselves and certain of their subsidiaries, have agreed to limit their
competition with the Company's businesses under the circumstances described in
Note 5 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
ELECTRONIC TRAVEL DISTRIBUTION. Electronic travel distribution revenues for the
year ended December 31, 1997 increased approximately $98 million, 8.9%, compared
to the year ended December 31, 1996, from $1,102 million to $1,200 million. This
increase was primarily due to growth in booking fees from $1,007 million to
$1,081 million. The growth in booking fees was due to an increase in booking
volumes primarily attributable to international expansion in Europe and Latin
America and an overall increase in the price per booking charged to associates.
Cost of revenues for electronic travel distribution increased
approximately $90 million, 11.8%, from $763 million to $853 million. This
increase was primarily attributable to increases in salaries, benefits and
employee related costs, depreciation and amortization, subscriber incentive and
other operating expenses. Salaries, benefits and employee related costs
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 also increased due to increased travel expenses. Depreciation and
amortization expense increased primarily due to growth in the subscriber
equipment base, shorter depreciable lives on purchased subscriber equipment
reflecting increased technological changes and an increase in capitalized
software. Subscriber incentive expenses increased in order to maintain and
expand the Company's travel agency subscriber base. Other operating expenses
increased due to the write-off of a capitalized software development project
that was intended to create a new order entry and billing system, costs
associated with SABREWorld 97 (a global travel technology conference and trade
show), increased software license expenses, increased reserves for bad debt and
an increase in fees paid to American under the Marketing Cooperation Agreement.
INFORMATION TECHNOLOGY SOLUTIONS. Revenues from information technology solutions
for the year ended December 31, 1997 increased approximately $63 million, 12.1%,
compared to the year ended December 31, 1996, from $520 million to $583 million.
Revenues from unaffiliated customers increased approximately $39 million due to
an increase in software development, consulting and software license fee
revenues. Revenues from AMR increased $24 million due to an increase in software
development revenue and data processing volumes offset by a decrease in data
network revenues from the sale, in July 1996, of data network equipment to a
third party which began direct billing certain items to American.
Cost of revenues for information technology solutions increased
approximately $61 million, 15.7%, from $389 million to $450 million. This
increase was primarily attributable to an increase in salaries, benefits and
employee related costs, offset by a decrease in depreciation and amortization
expense. Salaries, benefits and employee related costs increased due to an
increase in the average number of employees necessary to support the Company's
business growth and annual salary increases. The decrease in depreciation and
amortization expense is primarily due to the benefits of lower price and higher
productivity of certain data center equipment and the sale, in July 1996, of
data network equipment with a net book value of approximately $25 million to a
third party.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $29 million, 20.3%, from $143 million to $172
million primarily due to an increase in salaries, benefits and employee related
costs. Salaries, benefits and employee related costs increased as a result of
sales growth initiatives for both the electronic travel distribution and the
information technology solutions lines of business. Employee related costs also
increased due to increased travel expenses.
OPERATING INCOME. Operating income decreased $19 million, 5.8%, from $327
million to $308 million. Operating margins decreased from 20.1% in 1996 to 17.3%
in 1997 due to an increase in revenues of 10.0% while operating expenses
increased 14.0%.
13
<PAGE> 14
INTEREST INCOME. Interest income increased $17 million due to higher balances
maintained in the Company's short-term investment accounts.
INTEREST EXPENSE. Interest expense decreased $6 million primarily due to a lower
outstanding principal balance on the Debenture (as defined below) issued to
American in July 1996 and lower interest rates.
OTHER INCOME. Other income increased $14 million primarily due to growth in
income from joint ventures in which the Company owns an interest accounted for
under the equity method.
INCOME TAXES. The provision for income taxes was $124 million and $119 million
in 1997 and 1996, respectively. The increase in the provision for income taxes
corresponds with the increase in income before the provision for income taxes.
See Note 7 to the Consolidated Financial Statements for additional information
regarding income taxes.
NET EARNINGS. Net earnings increased $13 million, 7.0%, from $187 million to
$200 million, primarily due to the increase in interest and other income offset
by the decrease in operating income.
1996 COMPARED TO 1995
ELECTRONIC TRAVEL DISTRIBUTION. Electronic travel distribution revenues for the
year ended December 31, 1996 increased approximately $95 million, 9.4%, compared
to the year ended December 31, 1995, from $1,007 million to $1,102 million. The
increase was primarily due to growth in booking fees from associates from $904
million to $1,007 million. This growth was driven by an increase in booking
volumes partially attributable to international expansion in Europe and Latin
America, an overall increase in the price per booking charged to associates and
a migration of associates to higher participation levels within SABRE.
Cost of revenues for electronic travel distribution increased
approximately $107 million, 16.3%, from $656 million to $763 million. This
increase was primarily attributable to an increase in salaries and benefits, the
Affiliate Agreements 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. The Affiliate
Agreements, entered into with American, resulted in an increase in expenses
estimated to be approximately $24 million for 1996. Subscriber incentive
expenses increased in order to maintain and expand the Company's travel agency
subscriber base.
INFORMATION TECHNOLOGY SOLUTIONS. Revenues from information technology solutions
for the year ended December 31, 1996 decreased approximately $2 million, 0.4%,
compared to the year ended December 31, 1995, from $522 million to $520 million.
Revenues from unaffiliated customers increased approximately $27 million, offset
by a decrease in revenues from such services provided to AMR of $29 million
primarily due to application of the financial terms of the Technology Services
Agreement.
Cost of revenues for information technology solutions increased
approximately $12 million, 3.2%, from $377 million to $389 million. This
increase was primarily attributable to an increase in salaries and benefits and
the Affiliate Agreements, 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 Affiliate Agreements resulted in an increase in
expenses estimated to be approximately $8 million for 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 to a third
party of certain computer network equipment during the year with a net book
value of approximately $25 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $26 million, 22.2%, from $117 million to $143
million primarily due to an increase in salaries and benefits, legal and
professional fees and the Affiliate Agreements. The Affiliate Agreements
resulted in an increase in selling, general and administrative expenses
estimated to be approximately $4 million for 1996.
Operating Income. Operating income decreased $54 million, 14.2%, from $381
million to $327 million. Operating margins decreased from 24.9% in 1995 to 20.1%
in 1996 due to an increase in revenues of 6.0% while operating expenses
increased 12.7%.
14
<PAGE> 15
INTEREST INCOME. Interest income increased $6 million due to higher balances
maintained in the Company's short-term investment accounts.
INTEREST EXPENSE. Interest expense increased $21 million primarily due to
interest expense incurred on the Debenture (as defined below) issued to American
in 1996.
OTHER EXPENSES. Other expenses decreased $5 million 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 $119 million and $144 million
in 1996 and 1995, respectively. See Note 7 to the Consolidated Financial
Statements for additional information regarding taxes.
NET EARNINGS. Net earnings decreased $39 million, 17.3%, from $226 million to
$187 million, primarily due to the decrease in operating income.
LIQUIDITY AND CAPITAL RESOURCES
The Company had substantial liquidity at December 31, 1997, with
approximately $585 million in cash and short-term investments and $558 million
in working capital. At December 31, 1996, cash and short-term investments and
working capital were $443 million and $405 million, respectively.
American performs cash management services for the Company under the
Management Services Agreement. The Company invests cash in short-term marketable
securities, consisting primarily of certificates of deposit, bankers'
acceptances, commercial paper, corporate notes and government notes.
The Company has funded its operations through cash generated from
operations. The Company's cash provided by operating activities of $378 million
in 1997 and $416 million in 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. Other investments were related to cash purchases of
short-term marketable securities. Capital expenditures for 1997 were $218
million and in 1996 were $184 million.
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 primarily 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 $360 million to $410 million for 1998. The Company
believes available balances of cash 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.
In 1997, the Company's Board of Directors authorized, subject to
certain business and market conditions, the repurchase of up to 1.5 million
shares of the Company's Class A Common Stock. The number of treasury shares
purchased in 1997 was 71,800.
15
<PAGE> 16
In January 1998, the Company completed the execution of a 25-year
information technology services agreement with US Airways, Inc. The Company will
provide substantially all of US Airways' information technology services.
Additionally, the Company agreed to assist US Airways in making its information
systems Year 2000 compliant. In connection with the agreement, in January 1998,
the Company purchased substantially all of US Airways' information technology
assets for approximately $47 million, hired more than 600 former employees of US
Airways, and granted to US Airways options to acquire 6 million shares of the
Company's Class A Common Stock.
In February 1998, the Company entered into a 10-year information
technology services agreement with Gulf Air. Under the terms of the agreement,
the Company will be responsible for all of Gulf Air's information technology
infrastructure, including application development and maintenance, as well as
data center and network management.
In February 1998, the Company signed long-term agreements with ABACUS
International Holdings Ltd. which created a Singapore-based joint venture
company to manage travel distribution in the Asia-Pacific region. The Company
received 35 percent of the joint venture company, called ABACUS International
Ltd. The Company paid $139 million in cash and contributed its assets related to
the Company's ongoing travel distribution activities in Asia-Pacific and other
considerations. The Company provides ABACUS International with transaction
processing on the SABRE computer reservations system.
YEAR 2000 COMPLIANCE
The Company has implemented a Year 2000 compliance program designed to
ensure that hardware and software systems operated or licensed in the Company's
business, including those of its travel agency subscribers, will properly
function beyond 1999. The Company believes that it has allocated adequate
resources for this purpose and expects its Year 2000 compliance program to be
completed on a timely basis. However, there is no assurance that systems
operated by third parties (e.g., data providers, associates, credit card
transaction processors) with which the Company's systems interface will continue
to properly interface with the Company's systems and will otherwise timely
achieve Year 2000 compliance. The Company's business, financial condition, or
results of operations could be materially adversely affected by the failure of
its systems and applications, those licensed to or operated for third parties,
or those operated by other parties to properly manage dates beyond 1999.
The Company expects to incur significant internal labor costs, as well
as consulting and other expenses to prepare its systems for the Year 2000. The
Company's total estimated cost of the Year 2000 compliance program is
approximately $80 to $95 million, of which approximately $21 million was
incurred as of December 31, 1997. The remaining expenses are expected to be
incurred primarily in 1998. A portion of these costs will not be incremental
costs to the Company, but rather will represent the redeployment of existing
information technology resources. Costs associated with achieving Year 2000
compliance will be expensed as incurred.
The costs of the projects and the date on which the Company plans to
complete the Year 2000 compliance program are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from these estimates. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes and similar uncertainties.
INFLATION
The Company believes that inflation has not had a material effect on
its results of operations.
OUTLOOK FOR 1998
The Company expects continued profitability and revenue growth in 1998.
Revenues from the Company's information technology solutions business should
grow dramatically in 1998 as a result of the multi-billion dollar technology
services agreement signed with US Airways, Inc. Additionally, the Company
expects overall revenue growth from the electronic travel distribution business
to be consistent with prior years. While the Company anticipates a decline in
domestic airline bookings growth in 1998, the Company expects to compensate for
the decline with growth in international bookings, non-air bookings and price
increases.
16
<PAGE> 17
PRO FORMA STATEMENT OF INCOME DATA
The pro forma statement of income data 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, 1995. The pro
forma information 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, 1995, nor is it necessarily
indicative of future results of operations.
The pro forma statement of income data should be read in conjunction
with the Consolidated Financial Statements and related notes thereto of the
Company included elsewhere herein. Pro forma adjustments include the impact of
the Affiliate Agreements and the Debenture as well as other adjustments
associated with the Reorganization and the Offering. See Note 5 to the
Consolidated Financial Statements. Amounts shown below are in thousands, with
the exception of per share amounts.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
Actual Pro Forma Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Electronic travel distribution $ 1,200,276 $ 1,101,791 $ 986,057
Information technology solutions 583,271 514,098 477,290
----------- ----------- -----------
Total revenues 1,783,547 1,615,889 1,463,347
Operating expenses
Cost of revenues
Electronic travel distribution 853,221 764,536 688,250
Information technology solutions 450,296 382,387 369,984
Selling, general and administrative 172,321 142,618 120,515
----------- ----------- -----------
Total operating expenses 1,475,838 1,289,541 1,178,749
----------- ----------- -----------
Operating income 307,709 326,348 284,598
Other income (expense)
Interest income 29,980 13,282 7,325
Interest expense (21,692) (25,107) (23,580)
Other, net 7,652 (6,826) (11,614)
----------- ----------- -----------
Income before provision for income taxes 323,649 307,697 256,729
Provision for income taxes 123,796 120,000 100,019
----------- ----------- -----------
Net earnings $ 199,853 $ 187,697 $ 156,710
=========== =========== ===========
Earnings per common share, basic and diluted $ 1.53
===========
Pro forma earnings per common share, basic and
diluted $ 1.44 $ 1.20
=========== ===========
</TABLE>
ACTUAL 1997 COMPARED TO PRO FORMA 1996
Electronic Travel Distribution. Electronic travel distribution actual revenues
for the year ended December 31, 1997 increased approximately $98 million, 8.9%,
compared to pro forma revenues for the year ended December 31, 1996, from $1,102
million to $1,200 million. The increase was primarily due to growth in booking
fees from $1,007 million to $1,081 million. The growth in booking fees was due
to an increase in booking volumes primarily attributable to international
expansion in Europe and Latin America and an overall increase in the price per
booking charged to associates.
17
<PAGE> 18
Actual cost of revenues for electronic travel distribution for the year
ended December 31, 1997 increased approximately $88 million, 11.5%, compared to
pro forma for the year ended December 31, 1996 from $765 million to $853
million. This increase was primarily attributable to an increase in salaries,
benefits and employee related costs, depreciation and amortization, subscriber
incentive and other operating expenses. Salaries, benefits and employee related
costs 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 primarily due to growth in the
subscriber equipment base, shorter depreciable lives on purchased subscriber
equipment reflecting increased technological changes and an increase in
capitalized software. Subscriber incentive expenses increased in order to
maintain and expand the Company's travel agency subscriber base. Other operating
expenses increased due to the write-off of a capitalized software development
project that was intended to create a new order entry and billing system, costs
associated with SABREWorld 97 (a global travel technology conference and trade
show), increased reserves for bad debt and an increase in fees paid to American
under the Marketing Cooperation Agreement.
INFORMATION TECHNOLOGY SOLUTIONS. Actual revenues from information technology
solutions for the year ended December 31, 1997 increased approximately $69
million, 13.4%, compared to pro forma revenues for the year ended December 31,
1996, from $514 million to $583 million. Revenues from unaffiliated customers
increased approximately $39 million due to an increase in software development,
consulting and software license fee revenues. Revenues from AMR increased $30
million due to an increase in software development revenue and data processing
volumes.
Actual cost of revenues for information technology solutions for the
year ended December 31, 1997 increased approximately $68 million, 17.8%,
compared to pro forma cost of revenues for the year ended December 31, 1996,
from $382 million to $450 million. This increase was primarily attributable to
an increase in salaries, benefits and employee related costs and communication
expenses, offset by a decrease in depreciation and amortization expense.
Salaries, benefits and employee related costs 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 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 until July 1996. The decrease in
depreciation and amortization expense is primarily due to the benefits of lower
price and higher productivity of certain data center equipment and the sale, in
July 1996, of data network equipment 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 $29 million, 20.3%, compared to pro forma
selling, general and administrative expenses, from $143 million to $172 million
primarily due to an increase in salaries, benefits and employee related costs.
Salaries, benefits and employee related costs increased as a result of sales
growth initiatives for both the electronic travel distribution and the
information technology solutions lines of business. Employee related costs also
increased due to increased travel expenses.
OPERATING INCOME. Actual operating income decreased $18 million, 5.5%, compared
to pro forma operating income, from $326 million to $308 million. Operating
margins decreased from 20.2% to 17.3% due to an increase in actual revenues of
10.4% compared to pro forma revenues, while actual operating expenses increased
14.4% compared to pro forma operating expenses.
INTEREST INCOME. Actual interest income increased $17 million, compared to pro
forma interest income, due to higher balances maintained in the Company's
short-term investment accounts.
INTEREST EXPENSE. Actual interest expense decreased $3 million, compared to pro
forma interest expense, due to a decrease in interest rates on the Debenture (as
defined below) issued to American.
OTHER INCOME. Actual other income increased $14 million, compared to pro forma
other income, primarily due to growth in income 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 $124 million and the pro
forma provision for income taxes was $120 million for the years ended December
31, 1997 and 1996, respectively. The increase in the provision for income taxes
corresponds with the increase in income before the provision for income taxes.
See Note 7 to the Consolidated Financial Statements for additional information
regarding income taxes.
18
<PAGE> 19
NET EARNINGS. Actual net earnings increased $12 million, 6.4%, compared to pro
forma net earnings, from $188 million to $200 million, primarily due to the
increase in interest and other income offset by the decrease in operating
income.
PRO FORMA 1996 COMPARED TO 1995
ELECTRONIC TRAVEL DISTRIBUTION. Electronic travel distribution pro forma
revenues for the year ended December 31, 1996 increased approximately $116
million, 11.8%, compared to the year ended December 31, 1995, from $986 million
to $1,102 million. The increase was primarily due to growth in booking fees from
associates from $904 million to $1,007 million. This growth was driven by an
increase in booking volumes partially attributable to international expansion in
Europe and Latin America, an overall increase in the price per booking charged
to associates, and a migration of associates to higher participation levels
within SABRE.
Pro forma cost of revenues for electronic travel distribution increased
approximately $77 million, 11.2%, from $688 million to $765 million. This
increase was primarily attributable to an increase in salaries and benefits 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 new product development. Subscriber incentive expenses
increased in order to maintain and expand the Company's travel agency subscriber
base.
INFORMATION TECHNOLOGY SOLUTIONS. Pro forma revenue from information technology
solutions for the year ended December 31, 1996 increased approximately $37
million, 7.8%, compared to the year ended December 31, 1995, from $477 million
to $514 million due to an increase in revenues from unaffiliated customers of
approximately $27 million and from AMR of approximately $10 million.
Pro forma cost of revenues for information technology solutions
increased approximately $12 million, 3.2%, from $370 million to $382 million.
This increase was primarily attributable to an increase in salaries and
benefits, 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 revenue growth and new product
development. The decrease in depreciation expense is primarily due to the
benefits of price and performance improvements for Data Center equipment and the
sale to a third party of certain computer network equipment during the year with
a net book value of approximately $25 million.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Pro forma selling, general and
administrative expenses increased $22 million, 18.2%, from $121 million to $143
million primarily due to an increase in salaries and benefits and legal and
professional fees.
OPERATING INCOME. Pro forma operating income increased $42 million, 14.8%, from
$284 million to $326 million. Operating margins increased from 19.4% to 20.2%
due to the increase in pro forma revenues of 10.4%, while pro forma operating
expenses increased 9.4%.
INTEREST INCOME. Pro forma interest income increased $6 million due to higher
balances maintained in the Company's short-term investment accounts.
OTHER EXPENSES. Pro forma other expenses decreased $5 million 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 pro forma provision for income taxes was $120 million and $100
million for 1996 and 1995, respectively. The increase in the provision for
income taxes corresponds with the increase in net income before the provision
for income taxes.
NET EARNINGS. Pro forma net earnings increased $31 million, 19.7%, from $157
million to $188 million due to the increase in operating income.
19
<PAGE> 20
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 130, Reporting Comprehensive Income, effective for fiscal
years beginning after December 15, 1997. Statement No. 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. The adoption of Statement No.
130 will require additional disclosures in the Company's financial statements,
but it will have no impact on the Company's results of operations.
Also in June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information, effective for fiscal years
beginning after December 15, 1997. Statement No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The adoption
of Statement No. 131 will require additional disclosures in the Company's
financial statements, but it will have no impact on the Company's financial
position or results of operations.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 97-2, Software Revenue Recognition,
effective for transactions entered into in fiscal years beginning after December
15, 1997. SOP 97-2 provides revised and expanded guidance on software revenue
recognition and applies to all entities that earn revenue from licensing,
selling or otherwise marketing computer software. The Company's accounting
policy for software revenue recognition is substantially in compliance with SOP
97-2, and its adoption is not expected to have a material impact on the
Company's financial position or results of operations.
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 the Company's technology, such as a failure to timely achieve Year
2000 compliance; 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.
20
<PAGE> 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to interest rates relates primarily to its investment
portfolio and to its debenture payable to AMR. The Company does not currently
use financial derivative instruments to manage interest rate risk; however, it
does closely monitor the relationship between interest rate-sensitive assets and
liabilities.
The objectives of the Company's short-term investments are safety of principal;
liquidity maintenance; yield maximization; and full investment of all available
funds. As such, the Company's investment portfolio consists primarily of high
credit quality certificates of deposit, bankers' acceptances, commercial paper
and corporate and government notes. If short-term interest rates average 10%
lower in 1998 than they were during 1997, the Company's interest income from
short-term investments would change by approximately $3 million. This amount was
determined by applying the hypothetical interest rate change to the Company's
short-term investments balance as of December 31, 1997.
In addition, the Company has a floating rate debenture payable to AMR (the
"Debenture") due September 30, 2004 with a principal balance of approximately
$318 million at December 31, 1997. Interest expense on the Debenture is accrued
based on the six month London Interbank Offered Rate (LIBOR rate) plus a margin
derived from 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 average interest rate on the Debenture for 1997 was 6.2%.
Consequently, if short-term interest rates average 10% higher in 1998 than they
were during 1997, the Company's interest expenses would increase by
approximately $2.0 million. This amount was determined by applying the
hypothetical interest rate change to the Company's Debenture balance as of
December 31, 1997. If the Company's mix of interest rate-sensitive assets and
liabilities changes significantly, the Company may enter into derivative
transactions to manage its net interest exposure.
FOREIGN CURRENCY RISK
The Company has various foreign operations, primarily in North America, South
America, Europe, and Asia. As a result of these business activities, the Company
is exposed to foreign currency risk. However, with the exception of Europe,
these exposures have historically related to a small portion of the Company's
overall operations. In 1997, the Company established a hedging program to manage
its European currency exposures through December 31, 1997. In the future, the
Company intends to manage its European currency exposure by adjusting the mix of
European based revenues and expenses. The Company had no open derivative
transactions as of December 31, 1997, however, it may enter into derivative
transactions from time-to-time as foreign currency exposures arise.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 23
Consolidated Balance Sheets 24
Consolidated Statements of Income 25
Consolidated Statements of Cash Flows 26
Consolidated Statements of Stockholders' Equity 27
Notes to Consolidated Financial Statements 28
</TABLE>
22
<PAGE> 23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
The SABRE Group Holdings, Inc.
We have audited the accompanying consolidated balance sheets of The
SABRE Group Holdings, Inc. and subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of income and stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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
The SABRE Group Holdings, Inc. and subsidiary at December 31, 1997 and 1996, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
January 19, 1998,
except for Note 14, as to which
the date is February 27, 1998
23
<PAGE> 24
THE SABRE GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 11,286 $ 15,992
Short-term investments 573,620 426,945
Accounts receivable, net 239,626 197,015
Receivable from affiliates 10,829 --
Prepaid expenses 17,708 13,630
Deferred income taxes 21,093 40,946
----------- -----------
Total current assets 874,162 694,528
PROPERTY AND EQUIPMENT
Buildings and leasehold improvements 321,987 298,740
Furniture, fixtures and equipment 36,904 24,403
Service contract equipment 548,706 545,302
Computer equipment 395,887 356,506
----------- -----------
1,303,484 1,224,951
Less accumulated depreciation and amortization (721,917) (665,884)
----------- -----------
Total property and equipment 581,567 559,067
Other assets, net 68,229 33,488
----------- -----------
TOTAL ASSETS $ 1,523,958 $ 1,287,083
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 96,041 $ 96,622
Accrued compensation and related benefits 69,694 55,547
Other accrued liabilities 150,785 110,391
Payable to affiliates -- 27,267
----------- -----------
Total current liabilities 316,520 289,827
Deferred income taxes 12,354 43,077
Pensions and other postretirement benefits 89,573 50,070
Other liabilities 30,350 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; 23,480 issued at
December 31, 1997; 23,396 issued and outstanding at December
31, 1996 235 234
Class B: $0.01 par value; 107,374 shares authorized; 107,374
issued and outstanding at December 31, 1997 and 1996 1,074 1,074
Additional paid-in capital 593,939 591,885
Retained earnings (deficit) 164,004 (23,552)
Less treasury stock at cost; 72 shares at December 31, 1997 (1,964) --
----------- -----------
Total stockholders' equity 757,288 569,641
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,523,958 $ 1,287,083
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
THE SABRE GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Electronic Travel Distribution $ 1,200,276 $ 1,101,791 $ 1,006,926
Information Technology Solutions 583,271 520,196 522,690
----------- ----------- -----------
Total revenues 1,783,547 1,621,987 1,529,616
OPERATING EXPENSES
Cost of revenues
Electronic Travel Distribution 853,221 763,261 655,973
Information Technology Solutions 450,296 389,352 376,453
Selling, general and administrative 172,321 142,573 116,766
----------- ----------- -----------
Total operating expenses 1,475,838 1,295,186 1,149,192
----------- ----------- -----------
OPERATING INCOME 307,709 326,801 380,424
OTHER INCOME (EXPENSE)
Interest income 29,980 13,282 7,325
Interest expense (21,692) (27,401) (6,060)
Other - net 7,652 (6,826) (11,614)
----------- ----------- -----------
15,940 (20,945) (10,349)
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME
TAXES 323,649 305,856 370,075
Provision for income taxes 123,796 119,282 144,224
----------- ----------- -----------
NET EARNINGS $ 199,853 $ 186,574 $ 225,851
=========== =========== ===========
EARNINGS PER COMMON SHARE DATA
Pro forma earnings per common share $ 1.73
===========
Earnings per common share, basic and diluted $ 1.53 $ 1.43
=========== ===========
Common shares used in per share calculations
Basic 130,649 130,606
=========== ===========
Diluted 130,988 130,686
=========== ===========
Pro forma 130,604
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 26
THE SABRE GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 199,853 $ 186,574 $ 225,851
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization 185,175 165,064 171,471
Deferred income taxes (2,945) (28,346) (12,385)
Other 6,378 6,475 7,865
Changes in operating assets and liabilities
Accounts receivable (42,611) (58,043) (24,946)
Prepaid expenses (1,781) (7,779) (3,247)
Other assets (514) 15,428 (1,915)
Accrued compensation and related benefits 14,147 21,851 182
Accounts payable and other accrued liabilities 40,259 76,226 29,662
Receivable from and payable to affiliates (38,096) 27,267 --
Pensions and other postretirement benefits 19,183 4,310 4,780
Other liabilities (1,245) 6,814 (1,389)
----------- ----------- -----------
Cash provided by operating activities 377,803 415,841 395,929
INVESTING ACTIVITIES
Additions to property and equipment (218,124) (184,261) (166,816)
Purchases of short-term investments (2,783,655) (2,806,856) --
Maturities of short-term investments 2,638,939 2,381,398 --
Other investing activities, net (23,688) 24,229 (18,169)
Proceeds from sale of equipment 4,551 33,582 6,169
----------- ----------- -----------
Cash used for investing activities (381,977) (551,908) (178,816)
FINANCING ACTIVITIES
Cash advances to affiliates -- -- (236,367)
Contributions from affiliates -- -- 244,666
Distributions to affiliates -- -- (393,507)
Proceeds from issuance of common stock 771 589,089 --
Proceeds from exercise of stock options 661 236 --
Payments to acquire treasury stock (1,964) -- --
Payments on Debenture payable to AMR -- (532,127) --
----------- ----------- -----------
Cash provided by (used for) financing
activities (532) 57,198 (385,208)
----------- ----------- -----------
Decrease in cash and cash equivalents (4,706) (78,869) (168,095)
Cash and cash equivalents at beginning of the
period 15,992 94,861 262,956
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 11,286 $ 15,992 $ 94,861
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments to affiliates for income taxes $ 121,456 $ 128,932 $ 148,332
=========== =========== ===========
Cash payments to affiliates for interest $ 24,628 $ 15,524 $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 27
THE SABRE GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Additional Retained Stockholder's
Common Common Paid-in Earnings Net Treasury
Stock Stock Capital (Deficit) Investment Stock Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ --- $ --- $ --- $ --- $ 289,464 $ --- $ 289,464
Contributions from affiliates --- --- --- --- 310,329 --- 310,329
Distributions to affiliates --- --- --- --- (393,507) --- (393,507)
Net earnings --- --- --- --- 225,851 --- 225,851
-----------------------------------------------------------------------------------------
Balance at December 31, 1995 --- --- --- --- 432,137 --- 432,137
Net earnings prior to the
Reorganization --- --- --- --- 119,050 --- 119,050
Capitalization of the Company
in connection with the
Reorganization
Reclassification of
stockholder's net
investment --- --- --- 551,187 (551,187) --- ---
Issuance of Debenture
payable to AMR --- --- --- (850,000) --- --- (850,000)
Transfer of fixed assets --- --- --- 159,451 --- --- 159,451
Other --- --- --- 48,254 --- --- 48,254
Issuance of 23,230 shares of
Class A Common Stock in
initial public offering 232 --- 588,857 --- --- --- 589,089
Reclassification of shares of
common stock held by AMR
into 107,374 shares of
Class B Common Stock --- 1,074 (1,074) --- --- -- ---
Issuance of 166 shares of
Class A Common Stock
pursuant to stock option
and restricted stock
incentive plans 2 --- 4,102 --- --- --- 4,104
Net earnings subsequent to
Reorganization --- --- --- 67,524 --- --- 67,524
Unrealized gain on investments --- --- --- 32 --- --- 32
-----------------------------------------------------------------------------------------
Balance at December 31, 1996 234 1,074 591,885 (23,552) --- --- 569,641
Net earnings --- --- --- 199,853 --- --- 199,853
Assumption of net pension
liability from AMR --- --- --- (12,395) --- --- (12,395)
Issuance of 83 shares of
Class A Common Stock
pursuant to stock option,
stock purchase and restricted
stock incentive plans 1 --- 2,054 --- --- --- 2,055
Repurchase of Company stock --- --- --- --- --- (1,964) (1,964)
Unrealized gain on investments --- --- --- 98 --- --- 98
==========================================================================================
Balance at December 31, 1997 $ 235 $ 1,074 $ 593,939 $ 164,004 $ --- $ (1,964) $ 757,288
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 28
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. These
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 a
debenture payable to AMR. See Note 5.
Concurrently 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. See Note 9.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements have been
prepared using AMR's historical basis in the assets and liabilities of the
Company. The consolidated financial statements reflect the results of
operations, financial condition and cash flows of the Company as a
component and, subsequent to the Offering, a majority owned subsidiary of
AMR and may not be indicative of actual results of operations and financial
position of the Company under other ownership. Management believes the
consolidated income statements include a reasonable allocation of
administrative costs, which are described in Note 5, incurred by AMR on
behalf of the Company. Certain reclassifications have been made to the 1996
and 1995 financial statements to conform to the 1997 presentation.
CONSOLIDATION - All significant accounts and transactions among the
consolidated entities have been eliminated. For financial reporting
purposes for periods prior to the Reorganization, the equity accounts of
the previous divisions of American and subsidiaries of AMR have been
accumulated into a single disclosure caption entitled Stockholder's Net
Investment.
CASH AND CASH EQUIVALENTS - Prior to the Reorganization, 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. Cash equivalents
are carried at cost plus accrued interest, which approximates fair value.
Effective with the Reorganization, the Company began maintaining its own
cash management system with separate cash and investment accounts from
American. Subsequent to the Reorganization, the Company does not maintain
cash equivalents.
28
<PAGE> 29
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION - The Company's depreciation and amortization
policies are as follows:
<TABLE>
<S> <C>
Property and Equipment:
Buildings 30 years
Service contract equipment 3 to 5 years
Computer equipment 3 to 5 years
Furniture and fixtures 5 to 15 years
Leasehold improvements Lesser of lease term or useful life
Capitalized software 3 to 5 years
Other Assets:
Internally developed software 3 to 5 years
</TABLE>
Property and equipment are stated at cost less accumulated depreciation and
amortization, which is calculated on the straight-line basis. Service
contract equipment consists of hardware provided primarily to subscribers
of SABRE. Depreciation of property and equipment totaled approximately $178
million, $159 million and $166 million in 1997, 1996 and 1995,
respectively. Other assets are amortized on the straight-line basis over
the periods indicated.
REVENUE RECOGNITION - The Company provides electronic travel distribution
services using the SABRE computer reservations system, one of the largest
privately owned real-time computer systems in the world. As compensation
for electronic travel distribution services provided, fees are collected
from airline, car rental and hotel vendors and other providers of
travel-related products and services ("associates") for reservations booked
through SABRE. The fee per booking charged to associates is dependent upon
the level of functionality within SABRE at which the associate
participates. Revenue for airline travel reservations is recognized at the
time of the booking of the reservation, net of estimated future
cancellations. At December 31, 1997 and 1996, the Company had recorded
booking fee cancellation reserves of approximately $15 million and $14
million, respectively. Revenue for car rental and hotel bookings and other
travel providers is recognized at the time the reservation is used by the
customer. The Company also enters into service contracts with subscribers
(primarily travel agencies) to provide access to SABRE, hardware, software,
hardware maintenance and other support services. Fees billed on service
contracts are recognized as revenue in the month earned.
The Company also provides information technology solutions to AMR and
companies in the travel industry and other industries worldwide. Revenue
from data processing services is recognized in the period earned. Revenue
from software license fees for standard software products is recognized
when the software is delivered, provided no significant future vendor
obligations exist and collection is probable. The Company recognizes
revenue on long-term software development and consulting contracts under
the percentage of completion method of accounting. Losses, if any, on
long-term contracts are recognized when the current estimate of total
contract costs indicates a loss on a contract is probable. Fixed fees for
software maintenance are recognized ratably over the life of the contract.
As a result of contractual billing terms, at December 31, 1997 and 1996 the
Company had recorded accounts receivable of approximately $52 million and
$40 million, respectively, that had not been billed to customers.
INCOME TAXES - The entities comprising the Company are included in the
consolidated federal income tax return of AMR. Prior to July 1, 1996, under
the terms of a tax sharing agreement, the Company paid AMR an amount equal
to the income tax payments calculated as if the Company had filed separate
income tax returns.
The Company and AMR entered into a tax sharing agreement effective July 1,
1996 (the "Tax Sharing Agreement"), which provides for the allocation of
tax liabilities during the tax periods the Company is included in the
consolidated federal, state and local income tax returns filed by AMR. The
Tax Sharing Agreement generally requires the Company to pay to AMR the
amount of federal, state and local income taxes that the Company would have
paid had it ceased to be a member of the AMR consolidated tax group for
periods after the Reorganization. The Company is jointly and severally
liable for the federal income tax of AMR and the other companies included
in the consolidated return for all periods in which the Company is included
in the AMR consolidated group. AMR has agreed, however, to indemnify the
Company for any liability for taxes reported or required to be reported on
a consolidated return.
29
<PAGE> 30
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Except for certain items specified in the Tax Sharing Agreement, AMR
generally retains any potential tax benefit carryforwards, and remains
obligated to pay all taxes attributable to periods before the
Reorganization. The Tax Sharing Agreement also grants the Company certain
limited participation rights in any disputes with tax authorities.
The Company computes its provision for deferred income taxes using the
liability method as if it were a separate taxpayer. Under the liability
method, deferred income tax assets and liabilities are determined based on
differences between financial reporting and income tax bases of assets and
liabilities and are measured using the enacted tax rates and laws. The
measurement of deferred tax assets is adjusted by a valuation allowance, if
necessary, to recognize the extent to which, based on available evidence,
the future tax benefits more likely than not will be realized.
RESEARCH AND DEVELOPMENT COSTS - All costs in the software development
process which are classified as research and development costs are expensed
as incurred until technological feasibility has been established. Once
technological feasibility has been established, such costs are capitalized
until the product is ready for service. Research and development costs
approximated $24 million for 1997. Prior to 1997, research and development
costs were not material.
CONCENTRATION OF CREDIT RISK - The Company's customers are primarily
located in the United States, Europe, Canada and Latin America, and are
concentrated in the travel industry. Approximately 30%, 31% and 36% of
revenues in 1997, 1996 and 1995, respectively, were related to American and
other subsidiaries of AMR. The Company generally does not require security
or collateral from its customers as a condition of sale. The Company
maintained an allowance for losses of approximately $9 million and $4
million at December 31, 1997 and 1996, respectively, based upon the
expected collectibility of all accounts receivable.
USE OF ESTIMATES - The preparation of these financial statements in
conformity with generally accepted accounting principles requires that
certain amounts be recorded based on estimates and assumptions made by
management. Actual results could differ from these estimates and
assumptions.
STOCK AWARDS AND OPTIONS - The Company accounts for stock awards and
options (including awards of AMR stock and stock options granted to
employees prior to the Reorganization) in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
No compensation expense is recognized for stock option grants if the
exercise price is at or above the fair market value of the underlying stock
on the date of grant. Compensation expense relating to other stock awards
is recognized over the period during which the employee renders service to
the Company necessary to earn the award.
EARNINGS PER COMMON SHARE - The pro forma earnings per share data is
calculated as though the 23,230,000 shares of Class A Common Stock issued
in connection with the Offering and the reclassification of 107,374,000
shares of Class B Common Stock held by AMR were outstanding for the year
ended December 31, 1995. The earnings per common share data for 1996 is
calculated as though the 130,604,000 shares were outstanding the entire
year, adjusted for the weighted average additional shares of Class A Common
Stock issued subsequent to the Offering.
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike previously reported primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts
for all periods have been presented, and where appropriate, restated to
conform to the Statement 128 requirements.
30
<PAGE> 31
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting
Standards Board (the "FASB") issued Statement No. 130, Reporting
Comprehensive Income, effective for fiscal years beginning after December
15, 1997. Statement No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The adoption of Statement No. 130
will require additional disclosures in the Company's financial statements,
but it will have no impact on the Company's results of operations.
Also in June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information, effective for fiscal
years beginning after December 15, 1997. Statement No. 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in
interim financial reports issued to stockholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The adoption of Statement No. 131 will require
additional disclosures in the Company's financial statements, but it will
have no impact on the Company's financial position or results of
operations.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 97-2, Software Revenue
Recognition, effective for transactions entered into in fiscal years
beginning after December 15, 1997. SOP 97-2 provides revised and expanded
guidance on software revenue recognition and applies to all entities that
earn revenue from licensing, selling or otherwise marketing computer
software. The Company's accounting policy for software revenue recognition
is substantially in compliance with SOP 97-2, and its adoption is not
expected to have a material impact on the Company's financial position or
results of operations.
3. SHORT-TERM INVESTMENTS
Short-term investments consist of (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Overnight investment and time deposits $119,303 $ 66,848
Corporate notes 242,847 266,036
Mortgages 181,353 58,927
U.S. Treasuries 30,117 35,134
=========== ===========
$573,620 $426,945
=========== ===========
</TABLE>
The following table summarizes short-term investments by contractual
maturity at December 31, 1997 and 1996, (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Due in one year or less $346,540 $281,799
Due after one year through three years 187,316 86,219
Due after three years 39,764 58,927
----------- -----------
$573,620 $426,945
=========== ===========
</TABLE>
Short-term investments, all of which are classified as available-for-sale
in accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Debt and Equity Securities, are stated at fair value
based on market quotes. There were no significant differences between
amortized cost and estimated fair value at December 31, 1997. Net
unrealized gains and losses, net of deferred taxes, are reflected as an
adjustment to stockholders' equity. Short-term investments, without regard
to remaining maturity at acquisition, are not considered cash equivalents
for purposes of the statement of cash flows.
31
<PAGE> 32
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
To reduce its exposure to future exchange rate fluctuations, the Company
may enter into foreign currency derivative agreements. At December 31,
1997, no such agreements were outstanding.
During 1997, the Company entered into currency put option agreements that
resulted in the recognition of gains of approximately $1.8 million as of
December 31, 1997. Gains on the options are recognized as a component of
electronic travel distribution revenue in the same period as the
transactions. The Company does not hold or issue derivative financial
instruments for trading purposes.
5. CERTAIN RELATED PARTY TRANSACTIONS
DISTRIBUTIONS TO AND CONTRIBUTIONS FROM AFFILIATES - Certain of The SABRE
Group entities from which the Company was formed distributed, in their
capacity as divisions of American, $394 million in 1995 to American. Also
during 1995, AMR contributed $245 million to the Company and a note payable
to AMR of $66 million was capitalized in order to adequately capitalize
certain of The SABRE Group entities from which the Company was formed.
Proceeds from the contribution were used to reduce cash advances from AMR.
In conjunction with the capital infusion discussed above, amounts payable
to AMR of approximately $54 million were converted to intercompany notes
payable in 1995, upon which the Company was charged interest expense at an
average rate of 9.9%. On July 1, 1996 the note payable to AMR of
approximately $54 million was capitalized.
INTEREST ON CASH EQUIVALENTS - Prior to the Reorganization, American
allocated interest income or expense monthly based on the net balance of
cash equivalents and the payable to AMR at the average rate earned by
American's portfolio of short-term marketable securities. The allocation
may not be representative of what the Company would have earned or paid if
its cash were held externally. Cash payments for interest are equivalent to
net interest expense for periods prior to the Reorganization.
DEBENTURE PAYABLE TO AMR - On July 2, 1996, in connection with the
Reorganization, American transferred to the Company certain divisions and
subsidiaries of American through which AMR previously conducted its
information technology businesses, and in return the Company issued to
American a floating rate subordinated debenture due September 30, 2004 with
a principal amount of $850 million (the "Debenture") and common stock
representing 100% of the equity ownership interest in the Company. American
subsequently prepaid a portion of its note payable to AMR with the
Debenture. Because the assets and liabilities of the divisions and
subsidiaries of American transferred to the Company are included in the
historical financial statements of the Company, issuing the Debenture
resulted in a reduction of stockholders' equity.
The Company used approximately $532 million of the net proceeds from the
Offering to repay a portion of the Debenture held by AMR.
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 on the Debenture was
6.2% and 7.1% for 1997 and 1996, respectively. The Company may prepay the
principal balance, approximately $318 million at December 31, 1997, in
whole or in part at any interest payment date.
PROPERTY AND EQUIPMENT - On July 1, 1996 American contributed buildings,
furniture and fixtures in addition to those discussed above to the Company
with an original cost of approximately $298 million and a net book value of
$193 million. During 1997, the Company acquired a building from American
for approximately $6 million.
AFFILIATE AGREEMENTS - In connection with the Reorganization, the Company
has entered into certain agreements with AMR and its affiliates (the
"Affiliate Agreements"), which are discussed below.
32
<PAGE> 33
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES AGREEMENT - The Company is party to the
Information Technology Services Agreement with American dated July 1, 1996
(the "Technology Services Agreement"), to provide American with certain
information technology services. The parties agreed to apply the financial
terms of the Technology Services Agreement as of January 1, 1996. The base
term of the Technology Services Agreement expires June 30, 2006. The terms
of the services to be provided by the Company to American, however, vary.
For example, the Company will provide: (i) Data Center services, data
network services, application development and existing application
maintenance enhancement services until June 30, 2006; (ii) services
relating to existing client server operations until June 30, 2001; and
(iii) distributed systems services until June 30, 2000; and voice network
services until June 30, 2001.
The Technology Services Agreement provides for annual price adjustments.
For certain prices, adjustments are made according to formulas which,
commencing in 1998, are reset every two years and which may take into
account the market for similar services provided by other companies. The
resulting rates may reflect an increase or decrease over the previous
rates.
With limited exceptions, under the Technology Services Agreement the
Company will continue to be the exclusive provider of all information
technology services provided by the Company to American immediately prior
to the execution of the Technology Services Agreement. Any new information
technology services, including most new application development services,
requested by American can be outsourced pursuant to competitive bidding by
American or performed by American on its own behalf. With limited
exceptions, the Company has the right to bid on all new services for which
American solicits bids. Additionally, American may continue to perform
development and enhancement work that it is currently performing on its own
behalf.
After July 1, 2000, American may terminate the Technology Services
Agreement for convenience. If it does so, American will be required to pay
a termination fee equal to the sum of all amounts then due under the
Technology Services Agreement, including wind-down costs, net book value of
dedicated assets and a significant percentage of estimated lost profits.
American may also terminate the Technology Services Agreement without
penalty, in whole or in part depending upon circumstances, for egregious
breach by the Company of its obligations or for serious failure to perform
critical or significant services. If the Company is acquired by another
Company (other than AMR or American) with more than $1 billion in annual
airline transportation revenue, then American may terminate the Technology
Services Agreement without paying any termination fee. Additionally, if
American were to dispose of any portion of its businesses or any affiliate
accounting for more than 10% of the Company's fees from American, then
American shall either cause such divested business or affiliate to be
obligated to use the Company's services in accordance with the Technology
Services Agreement or pay a proportionate termination fee.
In addition, Airline Management Services, Incorporated (AMS), a subsidiary
of AMR, and Canadian have entered into an agreement pursuant to which AMR
and American supply to Canadian various services, including technology
services. The Company is a principal provider of data processing and
network distributed systems services to Canadian under the terms of the
Canadian Technical Services Subcontract (the "Canadian Subcontract") with
American which expires in 2006. Under the terms of the Canadian
Subcontract, American guaranteed full payment for services actually
performed by the Company and deferred costs associated with the
installation and implementation of certain systems. As permitted by the
terms of the Canadian Subcontract, in December 1996, American paid the
Company approximately $40 million, representing the unrecovered contract
costs. Approximately $5 million of these deferred costs were charged to
operations in both 1996 and 1995.
MANAGEMENT SERVICES AGREEMENT - The Company and American are parties to a
Management Services Agreement dated July 1, 1996 (the "Management Services
Agreement"), pursuant to which American performs various management
services for the Company, including treasury, risk management, and other
administrative services, that American has historically provided to the
Company. American also manages the Company's cash balances under the terms
of the Management Services Agreement. Transactions with American are
settled through monthly billings, with payment due in 30 days. The
Management Services Agreement will expire on June 30, 1999, unless
terminated earlier if American and the Company are no longer under common
control or if the Technology Services Agreement is terminated early.
Amounts charged to the Company under this agreement approximate American's
cost of providing the services plus a margin. The parties agreed to apply
the financial terms of the Management Services Agreement as of January 1,
1996.
33
<PAGE> 34
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARKETING COOPERATION AGREEMENT - The Company and American are parties to
the Marketing Cooperation Agreement dated July 1, 1996 (the "Marketing
Cooperation Agreement"), pursuant to which American will provide marketing
support for 10 years for the Company's professional SABRE products targeted
to travel agencies and for five years for SABRE Business Travel Solutions
("SABRE BTS"), Travelocity and easySABRE. The parties agreed to apply the
financial terms of the Marketing Cooperation Agreement as of January 1,
1996. The Marketing Cooperation Agreement may be terminated by either party
prior to June 30, 2006 only if the other party fails to perform its
obligations thereunder.
Under the Marketing Cooperation Agreement, American's marketing efforts
include ongoing promotional programs to assist in the sale of those SABRE
products, development with the Company of an annual sales plan, sponsorship
of sales/promotional events and the targeting of potential customers. Under
the terms of the Marketing Cooperation Agreement, the Company pays American
a fee for its marketing support for professional SABRE, the amount of which
may increase or decrease, depending on total SABRE booking volumes
generated by certain professional SABRE subscribers in the U.S., the
Caribbean and elsewhere and on SABRE's market share of travel agency
bookings in those areas. That fee was approximately $22 million and $20
million in 1997 and 1996, respectively. As payment for American's support
of the Company's promotion of SABRE BTS, Travelocity and easySABRE, the
Company pays American a marketing fee based upon booking volume.
Additionally, the Company has guaranteed to American certain cost savings
in the fifth year of the Marketing Cooperation Agreement. If American does
not achieve those savings, the Company will pay American any shortfall, up
to a maximum of $50 million.
NON-COMPETITION AGREEMENT - The Company, AMR and American have entered into
a Non-Competition Agreement dated July 1, 1996 (the "Non-Competition
Agreement"), pursuant to which AMR and American, on behalf of themselves
and certain of their subsidiaries, have agreed to limit their competition
with the Company's businesses of (i) electronic travel distribution; (ii)
development, maintenance, marketing and licensing of software for travel
agency, travel, transportation and logistics management; (iii) computer
system integration; (iv) development, maintenance and operation of a data
processing center providing data processing services to third parties; and
(v) travel industry, transportation and logistics consulting services
relating primarily to computer technology and automation. The
Non-Competition Agreement expires on December 31, 2001. American may
terminate the Non-Competition Agreement, however, as to the activities
described in clauses (ii) though (v) of this paragraph upon 90 days notice
to the Company if the Technology Services Agreement is terminated as a
result of an egregious breach thereof by the Company.
TRAVEL AGREEMENTS - The Company and American are parties to a Travel
Privileges Agreement dated July 1, 1996 (the "Travel Privileges
Agreement"), pursuant to which the Company is entitled to purchase personal
travel for its employees and retirees at reduced fares. The Travel
Privileges Agreement will expire on June 30, 2008. To pay for the provision
of flight privileges to certain of its future retired employees, the
Company makes a lump sum payment to American each year, beginning in 1997,
for each employee retiring in that year. The payment per retiree is based
on the number of years of service with the Company and AMR over the prior
ten years of service. Service years accrue for the Company beginning on
January 1, 1993. AMR will retain the obligation for the portion of benefits
attributable to service years prior to January 1, 1993. The accumulated
benefit obligation for postretirement travel privileges assumed by the
Company at July 1, 1996 of approximately $8 million, net of deferred taxes
of approximately $3 million, was recorded as a reduction to stockholders'
equity. The remaining cost of providing this privilege is being accrued
over the estimated service lives of the employees eligible for the
privilege. See Note 6.
The Company and American are also parties to a Corporate Travel Agreement
dated July 1, 1996 and ending June 30, 1998 (the "Corporate Travel
Agreement"), pursuant to which the Company receives discounts for certain
flights purchased on American. In exchange, the Company must fly a certain
percentage of its travel on American as compared to all other air carriers
combined. If the Company fails to meet the applicable percentage on an
average basis over any calendar quarter, American may terminate the
agreement upon 60 days' notice.
The parties agreed to apply the financial terms of the Travel Privileges
Agreement and the Corporate Travel Agreement as of January 1, 1996.
34
<PAGE> 35
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
CREDIT AGREEMENT - On July 1, 1996, the Company and American entered into a
Credit Agreement pursuant to which the Company is required to borrow from
American, and American is required to lend to the Company, amounts required
by the Company to fund its daily cash requirements. In addition, American
may, but is not required to, borrow from the Company to fund its daily cash
requirements. The maximum amount the Company may borrow at any time from
American under the Credit Agreement is $300 million. The maximum amount
that American may borrow at any time from the Company under the Credit
Agreement is $100 million. Loans under the Credit Agreement are not
intended as long-term financing. If the Company's credit rating is better
than "B" on the Standard & Poor's Rating Service Scale (or an equivalent
thereof) or American has excess cash, as defined, to lend the Company, the
interest rate to be charged to the Company is the sum of (a) the higher of
(i) American's average rate of return on short-term investments for the
month in which the borrowing occurred or (ii) the actual rate of interest
paid by American to borrow funds to make the loan to the Company under the
Credit Agreement, plus (b) an additional spread based upon the Company's
credit risk. If the Company's credit rating is "B" or below on the Standard
& Poor's Rating Service Scale (or an equivalent thereof) and American does
not have excess cash to lend to the Company, the interest rate to be
charged to the Company is the lower of (a) the sum of (i) the borrowing
cost incurred by American to draw on its revolving credit facility to make
the advance, plus (ii) an additional spread based on the Company's credit
risk, or (b) the sum of (i) the cost at which the Company could borrow
funds from an independent party plus (ii) one-half of the margin American
pays to borrow under its revolving credit facility. The Company believes
that the interest rate it will be charged by American could, at times, be
slightly above the rate at which the Company could borrow externally;
however, no standby fees for the line of credit will be required to be paid
by either party. The interest rate to be charged to American is the
Company's average portfolio rate for the months in which borrowing occurred
plus an additional spread based upon American's credit risk. At the end of
each quarter, American must pay all amounts owing under the Credit
Agreement to the Company. No borrowings have occurred by either the Company
or American as of December 31, 1997.
INDEMNIFICATION AGREEMENT - In connection with the Reorganization, the
Company and American entered into an intercompany agreement (the
"Indemnification Agreement") pursuant to which each party indemnified the
other for certain obligations relating to the Reorganization. Pursuant to
the Indemnification Agreement, the Company indemnified American for
liabilities assumed in the Reorganization, against third party claims
asserted against American as a result of American's prior ownership of
assets or operation of businesses contributed to the Company and for losses
arising from or in connection with the Company's lease of property from
American. In exchange, American indemnified the Company for specified
liabilities retained by it in the Reorganization, against third party
claims against the Company relating to American's businesses and asserted
against the Company as a result of the ownership or possession by American
prior to the Reorganization of any asset contributed to the Company in the
Reorganization and for losses arising from or in connection with American's
lease of property from the Company.
REVENUES FROM AFFILIATES - Revenues from American and other subsidiaries of
AMR were $526 million, $500 million and $548 million in 1997, 1996 and
1995, respectively.
OPERATING EXPENSES - Operating expenses are charged to the Company by
American and other subsidiaries of AMR to cover certain employee benefits,
facilities rental, marketing services, management services, legal fees and
certain other administrative costs based on employee headcount or actual
usage of facilities and services. The Company believes amounts charged to
the Company for these expenses approximate the cost of such services
provided by third parties. Travel service costs for travel by the Company's
employees for personal and business travel are charged to the Company based
on rates negotiated with American. If the Company were not affiliated with
American, the personal travel flight privilege would most likely not be
available to employees. It is estimated that business travel costs, had the
Company not been affiliated with American, for 1995 would have been
approximately $34 million, based on corporate travel rates offered by
American to similar companies. The rates negotiated with American for 1996
and 1997 under the Corporate Travel Agreement approximates corporate travel
rates offered by American to similar companies. Expenses charged to the
Company by affiliates are as follows (in thousands):
35
<PAGE> 36
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Employee benefits $ 55,872 $ 85,538 $ 68,743
Facilities rental 3,526 19,120 29,385
Marketing cooperation 21,779 20,436 ---
Management services 11,276 17,143 16,508
Other administrative costs 6,799 14,767 11,377
Travel services 47,638 42,855 28,761
------------ ------------ -------------
$ 146,890 $ 199,859 $ 154,774
============ ============ =============
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Prior to 1997, substantially all employees of the Company were eligible to
participate in American's tax-qualified defined benefit pension plan (the
"American Plan"). The American Plan provides benefits for participating
employees based on years of service and average compensation for a
specified period of time before retirement. Costs associated with employee
participation in this plan were determined based upon employee headcount
and were allocated to the Company by American. American's annual allocation
of costs to the Company for such benefits, which are included in employee
benefits in the table in Note 5, was approximately $20 million and $9
million in 1996 and 1995, respectively. The Company is jointly and
severally liable with AMR and other members of AMR's consolidated group for
applicable funding and termination liabilities of the plan. The historical
financial statements of the Company do not reflect the portion of the net
obligation of the defined benefit plan sponsored by American attributable
to employees of the Company.
Effective January 1, 1997, the Company established The SABRE Group
Retirement Plan (the "SGRP"), a defined contribution plan qualified under
Section 401(k) of the Internal Revenue Code of 1986 (the "Code"). Upon
establishment, substantially all Company employees under the age of 40 at
December 31, 1996 began participating in the SGRP.
The Company contributes 2.75% of each participating employee's base pay to
the SGRP. Employees vest in the Company's contributions after three years
of service, including any prior service with AMR affiliates. In addition,
the Company matches 50 cents of each dollar contributed by participating
employees, limited to the first 6% of the employee's base pay contribution,
subject to IRS limitations. Employees are immediately vested in their own
contributions and the Company's matching contributions. In 1997, costs for
the SGRP were $11 million.
The obligation for benefits previously earned by employees under the age of
40 under the American Plan are now the responsibility of the Legacy Pension
Plan (the "LPP"), a defined benefit plan sponsored by the Company which
offers benefits substantially similar to those offered by the American
Plan. These benefits are based on the credited years of service earned as
of December 31, 1996. However, these employees will continue to earn years
of service for purposes of determining vesting and early retirement
eligibility under the LPP based on future service to the Company.
Additionally, future increases in compensation levels will be considered in
the calculation of retirement benefits to be paid from the LPP to these
employees upon their retirement.
Employees age 40 or over as of December 31, 1996, who were participants in
the American Plan at that date, were given the option of participating in
the SGRP or the LPP. Benefits provided by the LPP to retirees of the
Company are based on years of credited service and the employee's base pay
for the highest consecutive five years of the ten years preceding
retirement. With the exception noted below, the obligation for benefits
previously earned by these employees under the American Plan is now the
responsibility of the LPP.
36
<PAGE> 37
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Certain employees of the Company meeting specified criteria have elected to
remain in the American Plan for service through December 31, 1996, and are
in the LPP for service and increases in compensation levels subsequent to
that date. The obligation for benefits earned by these employees as of
December 31, 1996 under the American Plan remained with the American Plan.
In October 1997, the portion of the American Plan applicable to employees
of the Company was spun-off to the LPP. At the date of spin-off, the net
obligation attributable to the Company's employees participating in the
American Plan, a liability of approximately $20 million, was charged to
stockholders' equity, net of deferred taxes of approximately $8 million.
Total costs for the year ended December 31, 1997 for the LPP were (in
thousands):
<TABLE>
<S> <C>
Service cost - benefits earned during the period $ 9,845
Interest cost on projected benefit obligation 10,056
Return on assets (13,877)
Net amortization and deferral 7,046
--------------
Net periodic pension cost $13,070
==============
</TABLE>
The funded status and actuarial present value of benefit obligations of the
LPP reconciled to the accrued pension cost recognized in the accompanying
balance sheet at December 31, 1997 were (in thousands):
<TABLE>
<S> <C>
Vested benefit obligation $ (55,776)
==============
Accumulated benefit obligation $ (69,574)
Effect of future salary increases (89,806)
--------------
Projected benefit obligation (159,380)
Plan assets at fair value 92,318
--------------
Projected benefit obligation in excess of plan
assets (67,062)
Unrecognized net loss 32,866
Unrecognized prior service costs 242
Unrecognized transition asset (363)
==============
Accrued pension cost $ (34,317)
==============
</TABLE>
The Company's funding policy is to make contributions equal to, or in
excess of, the minimum funding requirements of the Employee Retirement
Income Security Act of 1974.
Plan assets consist primarily of mutual fund shares managed by a subsidiary
of AMR invested in debt and equity securities.
The projected benefit obligation was calculated using a discount rate of
7.25%, a rate of annual compensation increase of 4.0%, and an expected
long-term rate of return on assets of 9.50% at December 31, 1997.
In addition to providing pension benefits, American provides certain health
care and life insurance benefits to retired employees. The amount of health
care benefits is limited to lifetime maximums as outlined in the plan.
Substantially all employees of the Company may become eligible for these
benefits if they satisfy eligibility requirements during their working
lives. Certain employee groups make contributions towards funding a portion
of their retiree health care benefits during their working lives. The
Company funds benefits as incurred and also matches employee prefunding.
The Company's cost for such benefits was approximately $5 million, $10
million and $5 million in 1997, 1996 and 1995, respectively. The Company is
jointly and severally liable with AMR and other members of AMR's
consolidated group for funding postretirement health care and life
insurance benefit liabilities.
37
<PAGE> 38
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Pursuant to the Travel Privileges Agreement, the Company is entitled to
purchase personal travel for certain retirees. To pay for the provision of
flight privileges to certain of its future retired employees, the Company
makes a lump sum payment, beginning in 1997, for each employee retiring in
that year. The payment per retiree is based on the number of years of
service with the Company and AMR over the prior ten years of service.
Service years accrue for the Company beginning on January 1, 1993. AMR
retains the obligation for the portion of benefits attributable to service
years prior to January 1, 1993. In connection with the Reorganization, the
accumulated benefit obligation for postretirement travel privileges at July
1, 1996 of approximately $8 million, net of deferred taxes of approximately
$3 million, was recorded as a reduction to stockholders' equity. The
remaining cost of providing this privilege is being accrued over the
estimated service lives of the employees eligible for the privilege. Prior
to the Reorganization, the flight privileges provided to retired employees
did not result in significant incremental costs for the Company and,
therefore, the cost of providing this to the Company's employees was not
included in the postretirement costs for periods prior to the
Reorganization.
Included in employee benefits in the table in Note 5 are the following net
other postretirement benefit costs for the years ended December 31, 1997,
1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995
----------- --------- ----------
<S> <C> <C> <C>
Service cost -- benefits earned during the period $3,891 $4,170 $2,620
Interest cost on accumulated other postretirement benefit obligation 3,592 6,043 2,420
Return on assets (460) (358) (160)
Net amortization and deferral (463) (70) (100)
=========== ========= ==========
Net other postretirement benefit cost $6,560 $9,785 $4,780
=========== ========= ==========
</TABLE>
The following table summarizes the funded status of the plans reconciled to
the accrued postretirement benefit liabilities recognized in the
accompanying balance sheets (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------ -------------
<S> <C> <C>
Retirees $ (599) ---
Fully eligible active participants (9,614) $ (4,980)
Other active participants (40,770) (37,601)
------------ -------------
Accumulated other postretirement benefit obligation (50,983) (42,581)
Plan assets at fair value 6,637 4,440
------------ -------------
Accumulated other postretirement benefit obligation in excess of
plan assets (44,346) (38,141)
Unrecognized net gain (9,330) (10,199)
Unrecognized prior service benefit (1,580) (1,730)
============ =============
Accrued other postretirement benefit cost $(55,256) $(50,070)
============ =============
</TABLE>
Plan assets consist primarily of mutual fund shares managed by a subsidiary
of AMR invested in debt and equity securities for the postretirement health
care and life insurance benefits.
As of December 31, 1997 and 1996, future postretirement health care benefit
costs were estimated assuming per capita cost of covered medical benefits
would increase at a five and six percent annual rate, respectively,
decreasing gradually to a four percent annual growth rate in 1999 and
thereafter. A one percent increase in this annual trend rate would have
increased the accumulated benefit obligation at December 31, 1997 by
approximately $7 million and 1997 postretirement benefit cost by
approximately $1 million. The weighted average discount rate used in
estimating the accumulated postretirement benefit obligation was 7.25% in
1997 and 7.75% in 1996.
38
<PAGE> 39
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
7. INCOME TAXES
The provision (benefit) for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current portion:
Federal $ 126,805 $ 121,774 $ 133,575
State 3,661 17,888 21,936
Foreign 5,052 2,644 1,098
--------- --------- ---------
135,518 142,306 156,609
Deferred portion:
Federal (23,141) (23,438) (11,792)
State 11,419 414 (593)
--------- --------- ---------
(11,722) (23,024) (12,385)
========= ========= =========
Total provision for taxes $ 123,796 $ 119,282 $ 144,224
========= ========= =========
</TABLE>
The provision for income taxes differs from amounts computed at the
statutory federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Statutory income tax provision $113,278 $107,050 $129,526
State income taxes, net of federal 9,802 11,896 13,581
benefit
Foreign tax credit -- 241 --
Valuation allowance -- -- 449
Other, net 716 95 668
======== ======== ========
$123,796 $119,282 $144,224
======== ======== ========
</TABLE>
The components of the Company's deferred tax assets and liabilities as of
December 31, 1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued expenses $ 31,626 $ 32,013
Employee benefits other than pensions 21,201 27,717
Deferred revenue 14,778 4,977
Pension obligations 13,127 --
State net operating loss carryforwards 922 1,754
Other 4,424 847
-------- --------
Total deferred tax assets 86,078 67,308
Deferred tax liabilities:
Depreciation and amortization (58,836) (59,588)
Other (18,503) (9,851)
-------- --------
Total deferred tax liabilities (77,339) (69,439)
-------- --------
Net deferred tax asset (liability) $ 8,739 $ (2,131)
======== ========
Current deferred income tax asset $ 21,093 $ 40,946
Noncurrent deferred income tax liability (12,354) (43,077)
-------- --------
Net deferred tax asset (liability) $ 8,739 $ (2,131)
======== ========
</TABLE>
39
<PAGE> 40
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
8. COMMITMENTS AND CONTINGENCIES
Certain service contracts with significant subscribers contain booking fee
productivity clauses and other provisions which allow subscribers to
receive various amounts of additional equipment and other services from the
Company at no cost to the subscribers. The Company establishes liabilities
for these commitments as the subscribers satisfy the applicable contractual
terms. The service contracts are priced so that the additional airline and
other booking fees generated over the life of the contract will exceed the
cost of the equipment and other services. Accrued subscriber incentives at
December 31, 1997 and 1996 were approximately $36 million and $31 million,
respectively.
On July 1, 1996 the Company entered into an operating lease agreement with
AMR for certain facilities and AMR assigned its rights and obligations
under certain leases to the Company. Also on July 1, 1996 the Company
entered into an operating lease agreement with a third party for the lease
of other facilities. At December 31, 1997, the future minimum lease
payments required under these operating lease agreements, along with
various other operating lease agreements with terms in excess of one year
for facilities and equipment, were as follows (in thousands):
<TABLE>
<CAPTION>
Affiliates Third Parties
-------------- ----------------
Year ending December 31,
<S> <C> <C>
1998 $2,996 $17,211
1999 2,924 10,936
2000 2,383 6,637
2001 1,748 5,943
2002 1,740 5,889
Thereafter 20,316 23,085
</TABLE>
Rental expense, excluding facilities rented from affiliates, was
approximately $35 million, $40 million and $33 million for the years ended
December 31, 1997, 1996 and 1995, respectively.
The Company is involved in certain disputes arising in the normal course of
business. Although the ultimate resolution of these matters cannot be
reasonably estimated at this time, management does not believe that they
will have a material adverse effect on the financial condition or results
of operations of the Company.
9. CAPITAL STOCK
The authorized capital stock of the Company consists of 250,000,000 shares
of Class A Common Stock, par value $.01 per share, 107,374,000 shares of
Class B Common Stock, par value $.01 per share, and 20,000,000 shares of
preferred stock, par value $.01 per share. As of December 31, 1997, no
shares of preferred stock have been issued.
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights, except that the holders of Class A Common Stock are
entitled to one vote per share while holders of Class B Common Stock are
entitled to 10 votes per share on all matters to be voted on by
stockholders. Holders of shares of Class A Common Stock and Class B Common
Stock are not entitled to cumulate their votes in the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority (or in the case of election of directors, by a
plurality) of the votes entitled to be cast by all shares of Class A Common
Stock and Class B Common Stock present in person or represented by proxy,
voting together as a single class, subject to any voting rights granted to
holders of any preferred stock. Except as otherwise provided by law, and
subject to any voting rights granted to holders of any outstanding
preferred stock, amendments to the Company's Certificate of Incorporation
generally must be approved by a majority of the combined voting power of
all Class A Common Stock and Class B Common Stock voting together as a
single class. However, amendments to the Company's Certificate of
Incorporation that would alter or change the powers, preferences or special
rights of the Class A Common Stock or the Class B Common Stock so as to
affect them adversely also must be approved by a majority of the votes
entitled to be cast by the holders of the shares affected by the amendment
voting as a separate class. Notwithstanding the foregoing, any amendment to
the Company's Certificate of Incorporation
40
<PAGE> 41
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
to increase the authorized shares of any class or authorize the creation,
authorization or issuance of any securities convertible into, or warrants
or options to acquire, shares of any such class or classes of stock must be
approved by the affirmative vote of the holders of a majority of the common
stock, voting together as a single class.
Effective as of the first time at which AMR ceases to be the beneficial
owner of an aggregate of at least a majority of the voting power of the
Voting Stock (as defined) of the Company then outstanding, amendments to
certain provisions of the Certificate of Incorporation will require the
approval of 80% of the combined voting power of all Class A Common Stock
and Class B Common Stock, voting together as a single class.
Holders of Class A Common Stock and Class B Common Stock will share in an
equal amount per share in any dividend declared by the Board of Directors,
subject to any preferential rights of any outstanding preferred stock.
Except as provided below, any shares of Class B Common Stock transferred to
a person other than AMR or any of its subsidiaries or the Class B
Transferee (as defined below) shall automatically convert to Class A Common
Stock upon such disposition. Shares of Class B Common Stock representing
more than 50% economic interest in the Company transferred by AMR or any of
its subsidiaries in a single transaction to one unrelated person (the
"Class B Transferee") or any subsidiary of the Class B Transferee shall not
automatically convert to shares of Class A Common Stock upon such
disposition. Any shares of Class B Common Stock retained by AMR or its
subsidiaries following any such transfer of shares of Class B Common Stock
to the Class B Transferee shall automatically convert into shares of Class
A Common Stock upon such transfer. Shares of Class B Common Stock
transferred to stockholders of AMR or stockholders of the Class B
Transferee in a transaction intended to be on a tax-free basis (a "Tax-Free
Spin-Off") under the Internal Revenue Code shall not convert to shares of
Class A Common Stock upon the occurrence of such Tax-Free Spin-Off.
Following a Tax-Free Spin-Off, shares of Class B Common Stock shall be
transferred as Class B Common Stock, subject to applicable laws; provided,
however that shares of Class B Common Stock shall automatically convert
into shares of Class A Common Stock on the fifth anniversary of the
Tax-Free Spin-Off, unless prior to such Tax-Free Spin-Off, AMR, or the
Class B Transferee, as the case may be, delivers to the Company an opinion
of counsel reasonably satisfactory to the Company to the effect that such
conversion could adversely affect the ability of AMR, or the Class B
Transferee, as the case may be, to obtain a favorable ruling from the
Internal Revenue Service that such transfer would be a Tax-Free Spin-Off.
If such an opinion is received, approval of such conversion shall be
submitted to a vote of holders of the common stock as soon as practicable
after the fifth anniversary of the Tax-Free Spin-Off, unless AMR or the
Class B Transferee, as the case may be, delivers to the Company an opinion
of counsel reasonably satisfactory to the Company prior to such anniversary
that such vote could adversely affect the status of the Tax-Free Spin-Off,
including the ability to obtain a favorable ruling from the Internal
Revenue Service; if such opinion is so delivered, such vote shall not be
held. Approval of such conversion will require the affirmative vote of the
holders of a majority of the shares of both Class A Common Stock and Class
B Common Stock present and voting, voting together as a single class, with
each share entitled to one vote for such purposes.
On liquidation, dissolution or winding up of the Company, after payment in
full of the amounts required to be paid to holders of preferred stock, if
any, all holders of common stock, regardless of class, are entitled to
share ratably in any assets available for distribution to holders of shares
of common stock.
No shares of either class of common stock are subject to redemption or have
preemptive rights to purchase additional shares of common stock.
In 1997, the Board of Directors authorized, subject to certain business and
market conditions, the purchase of up to 1.5 million shares of the
Company's Class A Common Stock. The number of treasury shares purchased in
1997 was 71,800.
41
<PAGE> 42
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
10. STOCK AWARDS AND OPTIONS
Prior to the Offering, officers and key employees of the Company were
eligible, under AMR's 1988 Long-Term Incentive Plan (the "AMR LTIP"), to be
granted deferred stock, restricted stock, stock options, stock appreciation
rights, stock purchase rights and/or other stock based awards in common
stock, par value $1 per share, of AMR ("AMR Common Stock").
In conjunction with the AMR LTIP, certain officers and key employees of the
Company were awarded 217,000 shares of deferred AMR Common Stock ("AMR
Career Equity Shares") at no cost, to be issued upon the individuals'
retirement from AMR. In connection with the Offering, the AMR Career Equity
Shares awarded to certain officers and key employees of the Company were
exchanged for 142,690 restricted shares of Class A Common Stock, options to
purchase 847,550 shares of Class A Common Stock and 75,600 deferred shares
of Class A Common Shares ("Company Career Equity Shares"). The number of
restricted shares, stock options and deferred shares issued was dependent
on, among other things, election by the individuals as to the mix of
restricted shares, stock options and deferred shares to be received, the
previous day's closing price of AMR Common Stock at the date of the
Offering and the initial public offering price of Class A Common Stock. The
restricted shares vest three years following the date of grant. The stock
options, which have an exercise price equal to the initial public offering
price of the Class A Common Stock, vest over a five-year period following
the date of grant and will expire ten years from the date of grant. The
Company Career Equity Shares will be issued upon the individual's
retirement from the Company. All of the Company Career Equity Shares issued
in connection with the Offering were outstanding at December 31, 1997 and
1996.
Effective with the Offering, the Company established the 1996 Long-Term
Incentive Plan (the "LTIP"), whereby officers and other key employees of
the Company may be granted restricted stock, deferred stock, stock options,
stock appreciation rights, stock purchase rights and/or other stock based
awards. 13,000,000 shares of Class A Common Stock are authorized to be
issued under the LTIP. The LTIP will terminate no later than ten years from
the date of its establishment. At December 31, 1997, approximately
9,222,000 shares were available for future grants of stock-based awards
under the LTIP.
Restricted stock activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1996
---------- -----------
<S> <C> <C>
Outstanding at January 1 151,550 ---
Issued upon conversion of AMR Career Equity and
Restricted Shares --- 149,330
Granted 24,910 2,220
Canceled (9,520) ---
---------- -----------
Outstanding at December 31 166,940 151,550
========== ===========
</TABLE>
The weighted-average grant date fair value of restricted stock granted
during 1997 and 1996 were $26.03 and $27.00, respectively.
In conjunction with the AMR LTIP, certain officers and key employees of the
Company were also awarded, at no cost, deferred AMR Common Stock
performance shares ("AMR Performance Shares"). The AMR Performance Shares
vest over a three-year performance period based on performance metrics of
AMR and the Company, as defined in the plan. In connection with the
Offering, certain AMR Performance Shares awarded to officers and key
employees of the Company were converted into 272,160 deferred Class A
Common Stock performance shares ("Company Performance Shares") based on the
initial public offering price of shares of Class A Common Stock and the
previous day's closing price of the AMR Common Stock on the date of the
Offering.
Under the Company's performance share plan, shares of deferred stock are
awarded at no cost to officers and key employees under the LTIP. The
Company Performance Shares vest over a three-year performance period
42
<PAGE> 43
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
based on performance metrics of the Company, as defined in the LTIP. The
Company's Performance Share activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1996
----------- ------------
<S> <C> <C>
Outstanding at January 1 433,860 ---
Issued upon conversion of AMR Performance Shares --- 272,160
Granted 205,370 162,450
Canceled (27,130) (750)
----------- ------------
Outstanding at December 31 612,100 433,860
=========== ============
</TABLE>
The weighted-average grant date fair value of Company Performance Shares
granted during 1997 and 1996 were $26.02 and $27.00, respectively.
In conjunction with the AMR LTIP, options to purchase shares of AMR Common
Stock ("AMR Options") were granted to officers and key employees of the
Company. Options granted were exercisable at the market value upon grant,
generally becoming exercisable over one to five years following the date of
grant, and expiring ten years from the date of grant.
In connection with the Offering, the AMR Options granted to officers and
key employees of the Company were exchanged for options to purchase 728,740
shares of Class A Common Stock of the Company. The exercise prices of the
options to purchase Class A Common Stock were computed by multiplying the
initial public offering price of Class A Common Stock by the ratio of the
exercise prices of the AMR Options to the previous day's closing price of
AMR Common Stock at the date of the Offering. The number of options was
increased to maintain the aggregate intrinsic value of each holder's
options. These options will continue to vest in equal annual installments
over the original vesting period.
Options granted under the LTIP will be exercisable at a price which is not
less than the market value of Class A Common Stock on the date of grant,
except as otherwise determined by a committee appointed by the Board of
Directors, and no such options are exercisable more than ten years after
the date of grant. Stock option activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1997 1996
--------------------------------- --------------------------------
Weighted-Average Weighted-Average
Exercise Exercise
Options Price Options Price
------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Outstanding at January 1 2,384,670 $ 24.89 --- ---
Issued upon exchange of AMR Options --- --- 728,740 $ 19.87
Issued upon exchange of AMR Career
Equity Shares --- --- 847,550 27.00
Granted 711,010 27.11 822,900 27.00
Exercised (34,540) 19.14 (14,520) 16.27
Canceled (187,070) 26.10 --- ---
------------- --------------
Outstanding at December 31 2,874,070 25.43 2,384,670 24.89
============= ==============
Exercisable options outstanding at
December 31 808,110 22.64 422,920 19.80
============= ==============
</TABLE>
The weighted-average grant date fair value of stock options granted during
1997 and 1996 were $9.71 and $9.24, respectively.
43
<PAGE> 44
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The following table summarizes information about the stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Number of Weighted-Average Number of
Range of Exercise Options Remaining Life Weighted-Average Options Weighted-Average
Prices Outstanding (years) Exercise Price Exercisable Exercise Price
-------------------- ---------------- ---------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
$12.95 - $19.49 193,150 6.00 $ 16.88 123,190 $ 16.80
$19.50 - $24.49 445,890 5.50 20.79 349,790 21.64
$24.50 - $35.81 2,235,030 8.90 27.09 335,130 26.87
---------------- ------------------
2,874,070 8.20 $ 25.43 808,110 $ 22.64
================ ==================
</TABLE>
For other stock-based awards, a committee established by the Board of
Directors determines the eligible persons to whom awards will be made, the
times at which the awards will be made, the number of shares to be awarded,
the price, if any, to be paid by the recipient and all other terms and
conditions of the award under the terms of the LTIP at the time of grant.
Stock appreciation rights may be granted in conjunction with all or part of
any stock option granted under the LTIP. All appreciation rights will
terminate upon termination or exercise of the related option and will be
exercisable only during the time that the related option is exercisable. If
an appreciation right is exercised, the related stock option will be deemed
to have been exercised.
The Company has a Directors' Stock Incentive Plan which provides for an
annual award of options to purchase 3,000 shares of the Company's Class A
Common Stock to each non-employee director. The plan also provides for a
one time award of options to purchase 10,000 shares of the Company's Class
A Common Stock to a new non-employee director upon his or her initial
election to the Board of Directors. The options, which will have an
exercise price equal to the market price of the Class A Common Stock on the
date of grant, will vest pro rata over a five-year period. Each option will
expire on the earlier of (i) the date the non-employee director ceases to
be a director of the Company, if for any reason other than due to death,
disability or retirement or (ii) three years from the date the non-employee
director ceases to be a director of the Company due to death, disability or
retirement. 350,000 shares of Class A Common Stock are reserved for
issuance under the Directors' Stock Incentive Plan. 78,000 options were
granted to directors during 1997. At December 31, 1997, 272,000 shares were
available for future grants under the Directors' Stock Incentive 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% of the market price at the beginning or the end
of each monthly offering period. The ESPP allows each employee to acquire
Class A Common Stock with an aggregate maximum purchase price equal to
either 1% or 2% of that employee's annual base pay, subject to limitations
under the Internal Revenue Code of 1986. Upon establishment of the ESPP,
1,000,000 shares of Class A Common Stock were reserved for issuance under
the plan. Approximately 34,000 shares were issued to the plan during 1997,
and approximately 966,000 shares remain available for future purchases
under the ESPP at December 31, 1997.
As required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, pro forma information regarding
net income and earnings per share have been determined as if the Company
had accounted for its employee stock options and stock-based awards under
the fair value method set forth in Statement No. 123. The fair value for
the stock options granted by AMR or the Company to officers and key
employees of the Company after January 1, 1995 was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 6.46% for 1995,
6.07% for 1996 and 6.20% to 6.70% for 1997; a dividend yield of 0%;
volatility factors of the expected market price of AMR Common Stock of .25
for 1995; a volatility factor of the expected market price of the Company's
Class A Common Stock of .28 for 1996 and .29 for 1997; and a
weighted-average expected life of the options granted of 4.5 years.
44
<PAGE> 45
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options. In addition, because Statement
No. 123 is applicable only to options and stock-based awards granted
subsequent to December 31, 1994, the pro forma impact does not reflect the
pro forma effect of all previous stock based awards to the Company's
employees.
For purposes of the pro forma disclosures, the estimated fair value of the
options and stock-based awards is amortized to expense over the vesting
period. The Company's pro forma information is as follows (in thousands,
except for earnings per common share information):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net earnings
As reported $199,853 $186,574 $225,851
============= ============= =============
Pro forma $198,404 $184,981 $225,764
============= ============= =============
Earnings per common share, as reported
Basic and diluted $1.53 $1.43
============= =============
Pro forma $1.73
=============
Earnings per common share, pro forma
Basic $1.52 $1.42
============= =============
Diluted $1.51 $1.42
============= =============
Pro forma $1.73
=============
</TABLE>
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income $199,853 $186,574 $225,851
=========== =========== ===========
Denominator:
Denominator for basic earnings per share -
weighted-average shares 130,649 130,606 130,604
Effect of dilutive securities:
Employee stock options 188 48 ---
Restricted shares 88 17 ---
Career equity shares 63 15 ---
----------- ----------- -----------
Dilutive potential common shares 339 80 ---
Denominator for diluted earnings per share
- adjusted weighted-average shares 130,988 130,686 130,604
=========== =========== ===========
Pro forma earnings per share $1.73
===========
Basic and diluted earnings per share $1.53 $1.43
=========== ===========
</TABLE>
For additional information regarding the employee stock options, restricted
and career equity shares, see Note 10.
45
<PAGE> 46
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Options to purchase 544,000 weighted average shares of common stock were
outstanding during 1997 but were excluded from the computation of diluted
earnings per share because the options' exercise prices were greater than
the average market price of the common shares for the period and,
therefore, the effect would be antidilutive.
12. GEOGRAPHICAL ANALYSIS
The Company derives revenues from worldwide operations. Data relating to
the Company's operations by geographic area is set forth below (in
thousands):
<TABLE>
<CAPTION>
United States Foreign Total
------------------- ---------------- ----------------
<S> <C> <C> <C>
1997
Revenues $1,444,795 $338,752 $1,783,547
Operating income 270,324 37,385 307,709
Identifiable assets 1,429,378 73,487 1,502,865
1996
Revenues $1,338,021 $283,966 $1,621,987
Operating income 308,529 18,272 326,801
Identifiable assets 1,184,770 61,367 1,246,137
1995
Revenues $1,279,471 $250,145 $1,529,616
Operating income 345,262 35,162 380,424
Identifiable assets 534,626 61,080 595,706
</TABLE>
Operating income from operations consists of revenues less operating
expenses, including an allocation of corporate expenses. Operating income
excludes interest income, interest expense and other income (expense) net.
Cash equivalents and deferred tax assets are excluded from identifiable
assets.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information
for the years ended December 31, 1997 and 1996 (in thousands except per
share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1997
Revenues $439,630 $447,378 $456,046 $440,493
Operating income 107,787 93,101 88,086 18,735
Net earnings 66,685 58,536 56,199 18,433
Earnings per common share,
basic and diluted $.51 $.45 $.43 $.14
1996
Revenues $427,844 $410,445 $407,420 $376,278
Operating income 115,591 81,998 87,914 41,298
Net earnings 69,987 49,063 45,151 22,373
Pro forma earnings per common
share, basic
and diluted $.54 $.38 $.35 ---
Earnings per common share,
basic and diluted --- --- --- $.17
</TABLE>
46
<PAGE> 47
THE SABRE GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The travel industry is seasonal in nature. Bookings, and thus booking fees
charged for the use of SABRE, decrease significantly each year in the
fourth quarter, primarily in December. During the fourth quarter of 1997,
the Company recorded a loss of approximately $11 million related to the
write-off of a capitalized software development project that was intended
to create a new order entry and billing system.
Earnings per share amounts for 1996 and the first three quarters of 1997
have been restated to comply with Statement of Financial Accounting
Standards No. 128, Earnings Per Share. For further discussion of earnings
per share and the impact of Statement No. 128, see Note 2.
14. SUBSEQUENT EVENTS
In January 1998, the Company completed the execution of a 25-year
information technology services agreement with US Airways, Inc. Under the
terms of the agreement, the Company will provide substantially all of US
Airways' information technology services. Additionally, the Company agreed
to assist US Airways in making its information systems Year 2000 compliant.
In connection with the agreement, the Company purchased substantially all
of US Airways' information technology assets for approximately $47 million,
hired more than 600 former employees of US Airways, and granted to US
Airways two tranches of stock options, each to acquire 3 million shares of
the Company's Class A Common Stock. At its election, US Airways may select
an alternative vehicle of substantially equivalent value in place of
receiving stock. The first tranche of options is exercisable during the six
month period ending two years after the transfer of US Airways' information
technology assets, has an exercise price of $27 per share and is subject to
a cap on share price of $90. The second tranche of options is exercisable
during the ten year period beginning on the fifth anniversary of the asset
transfer date, has an exercise price of $27 per share, and is subject to a
cap on share price of $127.
In February 1998, the Company entered into a 10-year information technology
services agreement with Gulf Air. Under the terms of the agreement, the
Company will be responsible for all of Gulf Air's information technology
infrastructure, including application development and maintenance, as well
as data center and network management.
In February 1998, the Company signed long-term agreements with ABACUS
International Holdings Ltd. which created a Singapore-based joint venture
company to manage travel distribution in the Asia-Pacific region. The
Company received 35 percent of the shares of the joint venture company,
called ABACUS International Ltd. The Company paid $139 million in cash and
contributed its assets related to the Company's ongoing travel distribution
activities in Asia-Pacific and other considerations. The Company provides
ABACUS International with transaction processing on the SABRE computer
reservations system.
47
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the information set forth under the
headings "Nominees for Election as Directors" and "Continuing Directors" in the
Company's definitive proxy statement for the annual meeting of stockholders to
be held on May 20, 1998.
EXECUTIVE OFFICERS
The executive officers of the Company, their positions and ages as of
December 31, 1997, are as follows:
<TABLE>
<S> <C>
Michael J. Durham...................... Director, President and Chief Executive Officer since July 1996. President and Chief
Executive Officer of The SABRE Group division of AMR from 1995 to 1996; Senior Vice
President and Treasurer of AMR and Senior Vice President -- Finance and Chief Financial
Officer of American from 1989 to 1995. Age 46.
Bradford J. Boston..................... Senior Vice President--SABRE Technology Solutions since July 1996. President--SABRE
Computer Services from June 1996 to July 1996; Senior Vice President for American
Express Travel Related Services from 1994 to 1996; Senior Vice President of Visa
International's Visanet operations from 1993 to 1994; and Vice President of Systems
Development for United Airlines/Covia Partnership from 1991 to 1993. Age 43.
Thomas M. Cook......................... Senior Vice President--SABRE Technology Solutions since July 1996. President--SABRE
Decision Technologies, a division of The SABRE Group, from 1994 to 1996;
President--American Airlines Decision Technologies from 1988 to 1994. Age 57.
Terrell B. Jones....................... Senior Vice President--SABRE Interactive and Chief Information Officer since July 1996.
President--SABRE Computer Services from 1993 to 1996; Division Vice President--SCS
Systems Planning & Development for American from 1991 to 1993; Managing Director & Vice
President--STIN Product Development for American from 1987 to 1991. Age 49.
Eric J. Speck.......................... Senior Vice President--SABRE Travel Information Network since April 1997. Vice
President--SABRE Europe from August 1995 to April 1997; Vice President--Marketing of
SABRE Travel Information Network from October 1994 to August 1995. Age 41.
T. Patrick Kelly....................... Senior Vice President, Chief Financial Officer and Treasurer since July 1996. Senior
Vice President--SABRE Group Planning from 1995 to July 1996; Vice President--Financial
Planning & Analysis for American from 1993 to 1995; Managing Director--SABRE Development
Services for American from 1992 to 1993; and Managing Director--Financial Planning for
American from 1990 to 1992. Age 40.
Andrew B. Steinberg.................... Senior Vice President, General Counsel and Corporate Secretary since October 1996.
Associate General Counsel for American from 1994 to 1996; Senior Attorney for American
from 1991 to 1994. Age 39.
</TABLE>
All officers serve at the discretion of the Board of Directors.
48
<PAGE> 49
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information set forth under the
heading "Executive Compensation" in the Company's definitive proxy statement for
the annual meeting of stockholders to be held on May 20, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information set forth under the
heading "Ownership of Securities" from the Company's definitive proxy statement
for the annual meeting of stockholders to be held on May 20, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the information set forth under the
headings "Other Matters" and "Relationship with AMR Corporation and Affiliates"
in the Company's definitive proxy statement for the annual meeting of
stockholders to be held on May 20, 1998 and under Note 5 to the Consolidated
Financial Statements in Item 8 of this report.
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1) The financial statements listed in the accompanying index to
financial statements and the schedules are filed as part of
this report.
(2) The schedules listed in the accompanying index to financial
statements and schedules are filed as part of this report.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
<TABLE>
EXHIBIT
<S> <C>
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 Colombia, 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)
</TABLE>
49
<PAGE> 50
<TABLE>
<S> <C>
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)
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 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. Employees Stock Purchase Plan. (3)
10.34 Option Issuance Agreement, dated January 1, 1998 between Registrant and US Airways, Inc.
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule as of December 31, 1996
</TABLE>
- ----------------
(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 was granted as to a portion of this
document.
(b) Reports on Form 8-K:
None.
50
<PAGE> 51
THE SABRE GROUP HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS
[ITEM 14(A)]
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS Page
<S> <C>
Report of Independent Auditors 23
Consolidated Balance Sheets at December 31, 1997 and 1996 24
Consolidated Statements of Income for the Years Ended 25
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended 26
December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years 27
Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements 28
</TABLE>
51
<PAGE> 52
CONSOLIDATED SCHEDULES FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
None.
All schedules are omitted because the required information is included in the
financial statements or notes thereto, or because the required information is
either not present or not present in sufficient amounts.
52
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ Michael J. Durham
-----------------------------------
Michael J. Durham
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ T. Patrick Kelly
-----------------------------------
T. Patrick Kelly
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates noted:
Directors:
/s/ Robert L. Crandall /s/ Dee J. Kelly
- ----------------------------------- -----------------------------------
Robert L. Crandall Dee J. Kelly
/s/ Gerard J. Arpey /s/ Glenn W. Marschel, Jr.
- ----------------------------------- -----------------------------------
Gerard J. Arpey Glenn W. Marschel, Jr.
/s/ Anne H. McNamara /s/ Bob L. Martin
- ----------------------------------- -----------------------------------
Anne H. McNamara Bob L. Martin
/s/ Edward A. Brennan /s/ Richard L. Thomas
- ----------------------------------- -----------------------------------
Edward A. Brennan Richard L. Thomas
/s/ Paul C. Ely, Jr.
- -----------------------------------
Paul C. Ely, Jr.
Date: March 30, 1998
53
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
EXHIBIT NO. DESCRIPTION
------------ ------------
<S> <C>
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 Colombia, 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)
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 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. Employees Stock Purchase Plan. (3)
10.34 Option Issuance Agreement, dated January 1, 1998 between Registrant and US Airways, Inc.
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule as of December 31, 1996.
</TABLE>
- ----------------
(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 was granted as to a portion of this
document.
<PAGE> 1
EXHIBIT 10.34
OPTION ISSUANCE AGREEMENT
AGREEMENT, dated as of January 1, 1998 by and between The SABRE Group
Holdings, Inc., a Delaware corporation (the "Corporation"), and US Airways,
Inc., a Delaware corporation ("US Airways").
W I T N E S S E T H :
WHEREAS, The SABRE Group, Inc., a Delaware corporation and wholly-owned
subsidiary of the Corporation ("TSG"), the Corporation and US Airways have
previously entered into an Interim Operation and Migration Agreement (the
"Interim Operation and Migration Agreement"), pursuant to which US Airways has
retained TSG to perform certain interim operation services and migration
services, an Information Technology Services Agreement (the "Information
Technology Services Agreement"), pursuant to which US Airways has retained TSG
to provide certain data processing services, enhanced data processing services
and other services and, whereas in connection with such agreements, TSG, the
Corporation and US Airways have previously entered into an Agreement of Purchase
and Sale (the "Agreement of Purchase and Sale") pursuant to which US Airways has
agreed to sell, and TSG has agreed to purchase, certain assets.
WHEREAS, in connection with the Agreement of Purchase and Sale, the
Interim Operation and Migration Agreement and the Information Technology
Services Agreement (collectively, the "Agreements"), the Corporation wishes to
issue to US Airways the options in the forms of Exhibit A hereto ("Option One")
and Exhibit B hereto ("Option Two," and collectively with Option One, the
"Options") to purchase shares of Class A Common Stock of the Corporation, par
value $.01 per share (the "Option Shares");
WHEREAS, the Corporation is, pursuant to an Assignment and Assumption
Agreement, dated as of the date hereof, by and among the Corporation, TSG and US
Airways (the "Assignment and Assumption Agreement") assigning to TSG its rights,
and TSG is assuming all obligations of the Corporation, in each case under the
Agreements, and
WHEREAS, the Corporation is, pursuant to the Assignment and Assumption
Agreement, directing US Airways to transfer to TSG any and all consideration
otherwise to be furnished to the Corporation in consideration of the issuance of
the Options.
ACCORDINGLY, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. Issuance of Options. The Corporation hereby agrees to issue on
the first day after the date hereof on which a share of Class A Common Stock of
the
<PAGE> 2
Corporation, par value $.01 per share shall be traded on the New York Stock
Exchange to US Airways the Options (the "Issuance") and US Airways hereby
directs the Corporation to deliver the Options to PNC Bank, National
Association, as escrow agent (the "Escrow Agent") pursuant to the escrow
agreement (the "Escrow Agreement"), dated as of the date of such Options, by and
between US Airways and the Escrow Agent, a copy of which is attached hereto as
Exhibit C.
SECTION 2. Representations and Warranties of the Corporation. As of the
date hereof, the Corporation hereby represents and warrants to US Airways as
follows:
2.1. Organization and Good Standing. The Corporation is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation.
2.2. Authorization of the Agreement and Options. (a) The Corporation has
all requisite power and authority to enter into and carry out the transactions
contemplated by this Agreement and the Options.
(b) The Corporation has taken all action required by law and necessary
corporate action to authorize the execution, delivery and performance of this
Agreement and the Options and the consummation of the transactions contemplated
hereby and thereby. This Agreement and the Options have been duly and validly
authorized, executed and delivered by it, and this Agreement and the Options
constitute the legal, valid and binding obligations of it, enforceable against
it in accordance with their respective terms.
2.3. Authorization and Issuance of Option Shares. The authorization,
reservation, issuance, sale and delivery of the Option Shares have been duly and
validly authorized by all requisite corporate action on the part of the
Corporation, and when issued, sold and delivered in accordance with this
Agreement and the Options, the Option Shares will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof, free and clear of any mortgages, judgments, claims,
liens, security interests, pledges, escrows, charges or other encumbrances of
any kind or character whatsoever ("Encumbrances"), other than Encumbrances, if
any, arising as a result of actions taken by US Airways.
2.4. No Conflict. The execution and delivery by the Corporation of this
Agreement and the Options and the consummation by the Corporation of the
transactions contemplated hereby and thereby and the compliance by the
Corporation with the provisions hereof and thereof will not, subject to the
expiration or termination of any required waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of
-2-
<PAGE> 3
1976, as amended, and the rules and regulations promulgated thereunder ("HSR")
(a) violate any provision of law, statute, rule or regulation, or any ruling,
writ, injunction, order, judgment or decree of any court, administrative agency
or other governmental body applicable to it, or any of its properties or assets,
(b) conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, or result in the creation of any Encumbrance upon any of its properties
or assets under, any contract, agreement, indenture, mortgage, guaranty, lease,
license or understanding, written or oral to which it is a party or (c) violate
its certificate of incorporation or by-laws or other organizational documents.
SECTION 3. Representations and Warranties of US Airways. As of the date
hereof, US Airways represents and warrants to the Corporation as follows:
(a) US Airways is acquiring (subject to potential cancellation in
connection with the provision of the Alternative Mechanism under Section 4.2)
the Options under this Agreement, and will acquire any Option Shares, for its
own account and not with a view to the distribution thereof within the meaning
of the Securities Act of 1933, as amended (the "Securities Act").
(b) US Airways understands that (i) the Options have not been, and that
the Option Shares will not be, registered under the Securities Act or any state
securities laws, by reason of their issuance by the Corporation in a transaction
exempt from the registration requirements thereof and (ii) in addition to any
other limitations on transfer contained in the Options, the Options and the
Option Shares may not be sold unless such disposition is registered under the
Securities Act and applicable state securities laws or is exempt from
registration thereunder.
(c) US Airways further understands that any exemption from registration
afforded by Rule 144 (the provisions of which are known to US Airways)
promulgated under the Securities Act depends on the satisfaction of various
conditions, in each case, which the Corporation is not obligated to cause the
satisfaction of, and that, if applicable to the Option Shares, Rule 144 may
afford the basis for sales only in limited amounts.
(d) US Airways believes it has received all the information it
considers necessary or appropriate for deciding to acquire (subject to potential
cancellation in connection with the provision of the Alternative Mechanism under
Section 4.2) the Options. US Airways further represents that it has had an
opportunity to ask questions and receive answers from the Corporation regarding
the terms and conditions of the
-3-
<PAGE> 4
Options and the business, properties, prospects and financial condition of the
Corporation.
(e) US Airways has not employed any broker or finder in connection with
the transactions contemplated by this Agreement.
(f) US Airways is duly organized, validly existing and in good standing
under the laws of the state of its incorporation and has all power and authority
to enter into and perform this Agreement, the Options and the Escrow Agreement
(collectively, the "Documents"). US Airways has taken all action required by law
and necessary corporate action to authorize the execution, delivery and
performance of this Agreement and each other Document and the consummation of
the transactions contemplated hereby and thereby. Each Document has been duly
and validly authorized, executed and delivered by US Airways, and constitutes
the legal, valid and binding obligations of it, enforceable against it in
accordance with its terms.
(g) The execution and delivery by US Airways of each of the Documents
does not, and the consummation by US Airways of the transactions contemplated
hereby and thereby and compliance by US Airways with the provisions hereof and
thereof will not, subject to the expiration or termination of any required
waiting period under HSR, (a) violate any provision of law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body applicable to it, or any
of its properties or assets, (b) conflict with or result in any breach of any of
the terms, conditions or provisions of, or constitute (with due notice or lapse
of time, or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any
Encumbrance upon any of its properties or assets under, any contract, agreement,
indenture, mortgage, guaranty, lease, license or understanding, written or oral
to which it is a party or (c) violate its certificate of incorporation or
by-laws or other organizational documents.
SECTION 4. Covenants.
4.1. No Market Manipulation. During the 60 day period immediately preceding
the exercise of any Option, US Airways shall not, without the prior written
consent of the Corporation, offer, purchase, sell, contract to purchase or sell
or otherwise acquire or dispose of any securities of the Corporation that are
substantially similar to the Option Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Option Shares or any such substantially similar securities.
-4-
<PAGE> 5
4.2. Alternative Mechanism . (a) (i) With respect to Option One, at any
time after June 30, 1999 but prior to December 31, 1999, US Airways may exercise
its rights under this Section 4.2(a)(i) in lieu of, and thereby cancel, its
corresponding rights under such Option, provided that US Airways has concluded,
in its good faith reasonable judgment, that it is not then able to deliver the
certificate in the form attached as Exhibit A to Option One. US Airways shall be
deemed to have exercised its rights under this Section 4.2(a)(i) by delivering
to the Corporation a notice of proposal ("Notice of Proposal"), together with
supporting reasoning and calculations, setting forth a means (the "Alternative
Mechanism") for the Corporation to provide value, which shall be determined
taking into account present value principles, in an amount equal to the Cash-Out
Amount under Section 2.02(c) of such Option (the "Option Value"). For purposes
of computing the Option Value under this Section 4.2(a)(i), US Airways' delivery
of the Notice of Proposal shall be treated as an Exercise Notice within the
meaning of Section 2.02(a) of Option One, and the Option Value of the
Alternative Mechanism that US Airways is entitled to receive shall equal the
Cash-Out Amount that it would have received under Section 2.02(c) of such Option
if US Airways had presented to the Corporation an Exercise Notice on the date of
delivery of the Notice of Proposal and the Corporation had elected its Cash-Out
Right under Section 2.02(c). For avoidance of doubt, (i) US Airways shall not be
required to deliver a certificate in the form attached as Exhibit A of Option
One in connection with the exercise of its rights under this Section 4.2 and
(ii) if Option One has terminated prior to the delivery of a Notice of Proposal,
the Option Value shall be zero. The Alternative Mechanism proposed by US Airways
shall specify the form in which Option Value is to be delivered by the
Corporation, which may include, but shall not be limited to cash and/or price
reductions under the Information Technology Services Agreement, to whom such
value shall be delivered, including, without limitation, US Airways, its
shareholders or the Escrow Agent (provided, that US Airways is not required
under any Document to propose that such value be delivered to the Escrow Agent),
and the timing of any such delivery. Within twenty-one days of receipt of the
Notice of Proposal, the Corporation shall deliver to US Airways a notice either
accepting US Airways' proposal or setting forth the Corporation's
counter-proposal for an Alternative Mechanism and supporting reasoning and
calculations (the "Counter Proposal"). If, within twenty-one days after delivery
of the Corporation's Counter Proposal, the parties are unable, in good faith, to
agree on an Alternative Mechanism having a value equal to the Option Value, the
dispute shall be resolved in accordance with the Dispute Resolution Appendix set
forth as Exhibit D hereto (the "Dispute Resolution Exhibit"). In no event,
however, shall the resolution of such dispute result in (i) US Airways failing
to be entitled to an amount of value reasonably believed to equal the Option
Value (taking into account present value principles) or (ii) the Corporation
being
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<PAGE> 6
required, without its consent, to issue stock of the Corporation or to
cause the issuance of stock of any affiliate thereof.
(ii) With respect to Option Two, at any time after July 1, 2000 but
prior to January 1, 2001, if at such time US Airways has not concluded, in its
good faith reasonable judgment, that if such Option were then exercisable, US
Airways would be able to deliver the certificate in the form attached as Exhibit
A to Option Two, US Airways may exercise its rights under the Section 4.2(a)(ii)
in lieu of, and thereby cancel its corresponding rights under such Option. US
Airways shall be deemed to have exercised its rights under this Section
4.2(a)(ii) by delivering to the Corporation a Notice of Proposal, together with
supporting reasoning and calculations, setting forth an Alternative Mechanism
for the Corporation to provide value, which shall be determined taking into
account present value principles, in an amount equal to the value of such Option
("Option Two Value") as of the date of delivery of such Notice of Proposal. For
avoidance of doubt, (i) US Airways shall not be required to deliver a
certificate in the form attached as Exhibit A of Option Two in connection with
the exercise of its rights under this Section 4.2 and (ii) if Option Two has
terminated prior to the delivery of a Notice of Proposal, the Option Two Value
shall be zero. The Alternative Mechanism proposed by US Airways shall specify
the form in which Option Two Value is to be delivered by the Corporation, and
the timing of any such delivery. Within twenty-one days of receipt of the Notice
of Proposal, the Corporation shall deliver to US Airways a notice either
accepting US Airways' proposal or setting forth the Corporation's Counter
Proposal. If, within twenty-one days after delivery of the Corporation's Counter
Proposal, the parties are unable, in good faith, to agree on an Alternative
Mechanism having a value equal to the Option Two Value, the dispute shall be
resolved in accordance with the Dispute Resolution Exhibit. In no event,
however, shall the resolution of such dispute result in (i) US Airways failing
to be entitled to an amount of value reasonably believed to equal to the Option
Two Value (taking into account present value principles) or (ii) the Corporation
being required, without its consent, to issue stock of the Corporation or to
cause the issuance of stock of any affiliate thereof.
(b) If (x) US Airways fails to exercise, prior to the expiration or
termination thereof, Option One or its rights with respect to such Option under
Section 4.2(a)(i) and (y) US Airways has not concluded in its good faith
reasonable judgment by December 31, 1999 that it is able to deliver the
certificate in the form attached as Exhibit A to Option One, then US Airways
shall automatically become entitled on the expiration or termination of Option
One under this Section 4.2(b) to an Alternative Mechanism with an Option Value
(determined taking into account present value principles) equal to the Cash-Out
Amount under Section 2.02(c) of Option One, determined as if US Airways had
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<PAGE> 7
delivered a Notice of Proposal under Section 4.2(a)(i) on the Expiration Date
(as defined in such Option) or termination date, as applicable, (in either case,
the "Expired Option Value") of such Option. For the avoidance of doubt, if the
termination date occurs prior to the time Option One is exercisable by its
terms, the Expired Option Value shall be zero. US Airways shall have the right
to propose, within twenty-one days after the Expiration Date or termination
date, as applicable, the Alternative Mechanism (specifying, as provided in
Section 4.2(a)(i), the form in which the Expired Option Value is to be delivered
by the Corporation, to whom such value shall be delivered, and the timing of any
delivery) for the Expired Option Value. Within twenty-one days of receipt of US
Airways' proposal, or, if none shall have been delivered, within forty-two days
of the Expiration Date or termination date, as applicable, the Corporation shall
deliver to US Airways a notice either accepting US Airways proposal (if
applicable) or setting forth a Counter Proposal. If, within twenty-one days
after delivery of the Corporation's Counter Proposal, the parties are unable, in
good faith, to agree on an Alternative Mechanism having a value equal to the
Expired Option Value, the dispute shall be resolved in accordance with the
Dispute Resolution Exhibit. In no event, however, shall the resolution result in
(i) US Airways failing to be entitled to an amount of value reasonably believed
to equal the Expired Option Value (taking into account present value principles)
or (ii) the Corporation being required, without its consent, to issue stock of
the Corporation or to cause the issuance of stock of any affiliate thereof.
(c) The Corporation shall deliver the Alternative Mechanism, as
promptly as practicable after its final determination pursuant to Section
4.2(a)(i), Section 4.2(a)(ii) or Section 4.2(b), as applicable, or at such other
time as is contemplated by the Alternative Mechanism.
4.3. Termination of Services Agreements. If, prior to the fifteenth annual
anniversary of the effective date thereof, US Airways terminates the Information
Technology Services Agreement pursuant to Sections 23.3, 23.4, 23.5 or 23.6
thereof, TSG terminates the Information Technology Services Agreement pursuant
to Section 23.1(B) thereof or TSG terminates the Interim Operation and Migration
Agreement pursuant to Section 22.1(B) thereof, US Airways shall pay to the
Corporation on the later of the effective date of such termination or the date
on which the Corporation delivers an alternative mechanism pursuant to Section
4.2(b), if applicable, in immediately available funds by wire transfer to a bank
account designated in writing by the Corporation an amount equal to (i) the sum
of (a) the remainder of the Closing Price (as defined in any exercised Option)
minus the Exercise Price (as defined in any exercised Option) as of the date of
exercise of such Option, multiplied by the number of Option Shares issued
thereunder, (b) any cash amount paid by the Corporation pursuant to its right to
cash-out
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<PAGE> 8
any exercised Option, (c) the Option Value and Option Two Value in respect of
which an Alternative Mechanism has been delivered by the Corporation pursuant to
Section 4.2(a)(i) or Section 4.2(a)(ii), plus (d) the Expired Option Value in
respect of which an Alternative Mechanism has been delivered by the Corporation
pursuant to Section 4.2(b) multiplied by (ii) a fraction, the numerator of which
is the remainder of 180 minus the number of calendar months elapsed since the
effective date of the Information Technology Services Agreement and prior to the
effective date of the termination of such agreement and the denominator of which
is 180.
4.4. Delivery to Escrow Agent. (a) Upon exercise of Option One, US Airways
shall direct the Corporation to deliver the Option Shares issuable, or other
proceeds (including, without limitation, cash) payable, upon such exercise to
the Escrow Agent.
(b) US Airways shall not deliver to the Escrow Agent the certificate
contemplated by Section 3(a) of the Escrow Agreement prior to the earliest of
the expiration, termination or exercise of Option One.
4.5. Reporting. The parties intend and agree that upon exercise of any
Option issued hereunder, or upon receipt of the Alternative Mechanism pursuant
to Section 4.2, US Airways shall report as income an amount equal to the
Cash-Out Amount under Section 2.02(c) of such Option (or, in the case of receipt
of the Alternative Mechanism pursuant to Section 4.2(a)(ii), such other
appropriate amount), and the Corporation shall deduct or capitalize, as
appropriate, an amount equal to the Cash-Out Amount under Section 2.02(c) of
such Option (or, in the case of receipt of the Alternative Mechanism pursuant to
Section 4.2(a)(ii), such other appropriate amount).
SECTION 5. Transfer Taxes. US Airways agrees to bear any transfer,
documentary, stamp or other similar taxes which may be determined to be payable
in connection with the execution and delivery and performance of this Agreement.
SECTION 6. Further Assurances. At any time or from time to time after the
date hereof, the Corporation, on the one hand, and US Airways, on the other
hand, agree to cooperate with each other, and at the request of the other party,
to execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby relating to
the Issuance and to otherwise carry out the intent of the parties hereunder.
SECTION 7. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the Corporation and US Airways and their respective successors
and
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<PAGE> 9
assigns; except that this Agreement may not be assigned by the Corporation
(other than to an entity to whom TSG has assigned all of its rights and
delegated all of its duties consistent with, and under, the Information
Technology Services Agreement) without the prior written consent of US Airways,
which consent may be withheld in its sole discretion, or by US Airways (other
than (i) to wholly-owned subsidiaries or entities of which US Airways is a
wholly-owned subsidiary or (ii) to an entity to whom US Airways has assigned all
of its rights and delegated all of its duties consistent with, and under, the
Information Technology Services Agreement, provided, that for purposes of this
clause (ii), such entity is not, at the time of such assignment, a member of the
Corporation's "affiliated group," a "person" "related" to the Corporation or to
any member of the Corporation's "affiliated group" or "acting in concert with"
any of the foregoing "persons", as such terms are used in Treasury Reg.
1.1504-4(c)(4)(ii)) without the prior written consent of the Corporation, which
consent may be withheld in its sole discretion.
SECTION 8. Entire Agreement. This Agreement and the other writings referred
to herein or delivered pursuant hereto which form a part hereof contain the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto, excluding the Agreement of Purchase and Sale and any agreements
attached as exhibits thereto.
SECTION 9. Notices. Any notice, request, response, demand, claim or other
communication required or permitted hereunder by any party hereto to any other
party shall be in writing and transmitted, delivered or sent by (a) personal
delivery, (b) courier or messenger service, whether overnight or same day (c)
certified United States mail postage prepaid, return receipt requested, or (d)
prepaid telecopy or facsimile,
if to US Airways to:
US Airways, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Telecopier: (703) 872-5252
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
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<PAGE> 10
Telecopier: (212) 735-2000
Attention: Thomas H. Kennedy, Esq.
if to the Corporation to:
The SABRE Group Holdings, Inc.
4255 Amon Carter Boulevard
Mail Drop 4319
Fort Worth, Texas 76155
Telecopier: (817) 967-4044
Attention: Chief Financial Officer
with a copy to:
The SABRE Group Holdings, Inc.
4255 Amon Carter Boulevard
Mail Drop 4204
Fort Worth, Texas 76155
Telecopier: (817) 967-1215
Attention: General Counsel
and a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopier: (212) 859-4000
Attention: Charles M. Nathan, Esq.
or at such other address for a party as shall be specified by like notice. Each
communication transmitted, delivered, or sent (a) in person, by courier or
messenger service, or by certified United States mail (postage prepaid and
return receipt requested) shall be deemed given, received, and effective on the
date delivered to or refused by the intended recipient (with the return receipt
or the equivalent record of the courier or messenger being deemed conclusive
evidence of delivery or refusal); or (b) by telecopy or facsimile transmission
or by electronic mail shall be deemed given, received, and effective on the date
of actual receipt (with the confirmation of transmission or the electronic
receipt being deemed conclusive evidence of such receipt, except where the
intended recipient has promptly notified the other party that the transmission
is illegible).
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<PAGE> 11
Nevertheless, if the date of delivery or transmission is not a business day, or
if the delivery or transmission is after 5:00 p.m., local time in Fort Worth,
Texas, on a business day, the communication shall be deemed given, received, and
effective on the next business day.
SECTION 10. Dispute Resolution.
10.1. Disputes in General. Except as otherwise stated in this Agreement,
the parties shall resolve any dispute, disagreement, claim, or controversy
arising in connection with or relating to this Agreement, or the validity,
interpretation, performance or breach of this Agreement ("Dispute") in
accordance with the procedure or process by which a Dispute must be resolved
(except as otherwise stated or modified in this Agreement) as described in the
Dispute Resolution Exhibit. Nevertheless, if any Person (as defined in the
Agreement of Purchase and Sale) other than the parties and their affiliates:
A. Has initiated a lawsuit or other judicial, administrative, or
arbitration proceedings against or involving either or both of the parties in
which a Dispute will be resolved, or
B. Is a necessary participant in any judicial, administrative, or
arbitration proceedings to resolve a Dispute and cannot be joined by either or
both of the parties in an arbitration of that Dispute under Section B.3 of the
Dispute Resolution Exhibit,
so that (in either case) the Dispute Resolution Procedure is or will be
ineffective, then the parties need not use or follow the Dispute Resolution
Procedure to resolve that Dispute, although the submission to jurisdiction in
Section B.5 of the Dispute Resolution Exhibit shall apply if necessary.
10.2. Information for Resolution. The parties shall freely share, and may
disclose to any mediator or arbitrator as part of any Dispute resolution
proceeding, any and all reasonably requested relevant information needed to
facilitate the resolution of any Dispute and any and all information likely to
lead to such relevant information.
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<PAGE> 12
10.3. Continuity During Dispute. In the event of a Dispute, the parties
shall continue to perform their respective obligations pursuant to this
Agreement.
10.4. Parties' Agreement. Nothing in this Section 10 or the Dispute
Resolution Procedure prevents the parties from resolving any Dispute by mutual
agreement at any time.
SECTION 11. Amendments. The terms and provisions of this Agreement may be
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, only pursuant to the written consent of the parties hereto.
SECTION 12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of law.
SECTION 13. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
SECTION 14. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have duly executed this Option
Issuance Agreement as of the date first above written.
THE SABRE GROUP HOLDINGS, INC.
By: /s/ Patrick Kelly
-----------------
Name: Patrick Kelly
Title: Senior Vice President and Chief
Financial Officer
US AIRWAYS, INC.
By: /s/ Rakesh Gangwal
------------------
Name: Rakesh Gangwal
Title: President and Chief Operating Officer
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<PAGE> 14
NEITHER THE OPTIONS REPRESENTED THIS CERTIFICATE NOR THE SHARES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT. NEITHER SUCH OPTIONS NOR SUCH SHARES MAY BE
OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
IN COMPLIANCE WITH SUCH ACT AND APPLICABLE STATE SECURITIES AND "BLUE SKY"
LAWS.
OPTION TO PURCHASE
3,000,000 SHARES OF CLASS A COMMON STOCK,
PAR VALUE $.01 PER SHARE,
OF
THE SABRE GROUP HOLDINGS, INC.
NO. SOUS-1
This certifies that for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, US Airways, Inc., a Delaware
corporation (the "Optionee") is entitled to purchase at the Exercise Price from
The SABRE Group Holdings, Inc., a Delaware corporation (the "Corporation"),
subject to the terms and conditions hereof, at any time after 9:00 A.M., Fort
Worth, Texas time, on the Initial Exercise Date and before 5:00 P.M., local
time in Fort Worth, Texas on the Expiration Date, the number of fully paid and
non-assessable shares of Common Stock stated above.
ARTICLE I
Section 1.01: Definition of Terms. As used in this Option, the
following capitalized terms shall have the following respective meanings:
(a) Agreement of Purchase and Sale: The Agreement of Purchase and
Sale, dated as of December 15, 1997, by and among US Airways Group, Inc., a
Delaware corporation, the Optionee, the Corporation and TSG.
(b) Business Day: A day other than a Saturday, Sunday, national
holiday in the United States, or other day in which banks in the State of Texas
are authorized by law to remain closed.
(c) Cap: $90.00 per Option Share, as such number may be adjusted
from time to time pursuant to Article III hereof.
(d) Closing Price: The average of the highest and lowest trading
prices on the NYSE for the Notice Date, per share of Common Stock as reported
on the Composite
<PAGE> 15
Transactions Tape (or, if not listed on the NYSE, as reported on any other
national securities exchange or automated quotation system on which the Common
Stock is listed or quoted, as reported in the Wall Street Journal (Northeast
edition), or, if not reported thereby, any other authoritative source) or, if
not listed on the NYSE or reported on any other national securities exchange or
automated quotation system, the fair market value of a share of Common Stock as
determined by agreement of the Optionee and the Corporation or, in the absence
of such an agreement, by an independent investment banking firm selected by
agreement of an independent investment banking firm selected by the Optionee
and an independent investment banking firm selected by the Corporation, which
agreed upon investment banking firm shall be engaged by the Corporation ( the
cost of which engagement will be divided equally between the Corporation and
the Optionee).
(e) Common Stock: Class A Common Stock, par value $.01 per share,
of the Corporation.
(f) Composite Transactions Tape: A security price reporting
service that includes all transactions in a security on each of the exchanges
and in the over-the-counter market.
(g) Exercise Price: $27.00 per Option Share, as such price may be
adjusted from time to time pursuant to Article III hereof.
(h) Expiration Date: December 31, 1999.
(i) HSR: The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
(j) Information Technology Services Agreement: The Information
Technology Services Agreement, dated as of December 15, 1997, by and between
the Optionee, the Corporation and TSG.
(k) Initial Exercise Date: June 30, 1999.
(l) Interim Operation and Migration Agreement: The Interim
Operation and Migration Agreement, dated as of December 15, 1997, by and
between the Optionee, the Corporation and TSG.
(m) Issue Date: The date of execution of this Option as set forth
on page 14 hereof.
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<PAGE> 16
(n) Merger: A consolidation or merger of the Corporation with or
into any other corporation or corporations (other than a consolidation or
merger in which the Corporation is the continuing Corporation).
(o) NYSE: New York Stock Exchange.
(p) Option Issuance Agreement: The Option Issuance Agreement,
dated as of January 1, 1998, by and among the Optionee and the Corporation.
(q) Option Shares: Shares of Common Stock and/or securities
purchased or purchasable upon exercise of this Option.
(r) Person: An individual, partnership, joint venture,
corporation, trust, unincorporated organization or government of any department
or agency thereof.
(s) TSG: The SABRE Group, Inc., a Delaware corporation and
wholly-owned subsidiary of the Corporation.
ARTICLE II
DURATION AND EXERCISE OF OPTION
Section 2.01: Duration of Option. The Optionee may exercise this
Option at any time and from time to time after 9:00 A.M., Fort Worth, Texas
time, on the Initial Exercise Date, and before 5:00 P.M., local time in Fort
Worth, Texas time, on the Expiration Date. If (i) this Option is not exercised
prior to 5:00 P.M., local time in Fort Worth, Texas on the Expiration Date,
(ii) the Optionee shall terminate the Information Technology Services Agreement
pursuant to Sections 23.3, 23.4, 23.5 or 23.6 thereof, (iii) TSG shall
terminate the Information Technology Services Agreement pursuant to Section
23.1(B) thereto or TSG shall terminate the Interim Operation and Migration
Agreement pursuant to Section 22.1(B) thereto, or (iv) the Optionee shall
deliver a notice pursuant to Section 4.2(a)(i) of the Option Issuance
Agreement, then this Option shall become void, and all rights hereunder shall
immediately thereupon cease.
Section 2.02: Exercise of Option.
(a) The Optionee may exercise this Option, in whole and not in
part, by presenting, or causing to be presented, to the Corporation after 9:00
A.M., Fort Worth, Texas time, on the Initial Exercise Date and prior to 5:00
P.M., Fort Worth, Texas time on the Expiration Date, (i) a written notice (an
"Exercise Notice"; the date of which being herein referred to as the "Notice
Date") containing the Optionee's irrevocable election to exercise this Option,
and a date not earlier than fifteen Business Days nor later than twenty
Business Days from the Notice Date for the closing (the "Option Closing") of
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<PAGE> 17
such purchase (an "Option Closing Date") and (ii) a certificate of a duly
authorized officer of the Optionee in the form of Exhibit A hereto. Upon
presentation of such written notice and certificate, this Option shall be
deemed exercised for all purposes hereunder. Any Option Closing will be at an
agreed location and time on the applicable Option Closing Date or at such later
date as may be necessary so as to comply with HSR and obtain or make any
consents, approvals, orders, notifications or authorizations, required in
connection with the requested issuance of Option Shares (the "Regulatory
Approvals").
(b) Notwithstanding anything to the contrary contained herein, any
exercise of this Option and purchase of Option Shares shall be subject to
compliance with applicable laws and regulations, which may prohibit the
purchase of all the Option Shares specified in the Exercise Notice without
first obtaining or making certain Regulatory Approvals. In such event, if this
Option is otherwise exercisable and the Optionee wishes to exercise this
Option, this Option may be exercised in accordance with Section 2.02(a) and the
Optionee shall acquire the maximum number of Option Shares specified in the
Exercise Notice that the Optionee is then permitted to acquire under the
applicable laws and regulations, and if the Optionee thereafter (but prior to
the Expiration Date) obtains the Regulatory Approvals to acquire the remaining
balance of the Option Shares specified in the Exercise Notice, then the
Optionee shall be entitled to acquire such remaining balance. The Corporation
agrees to assist the Optionee in seeking the Regulatory Approvals. The
Corporation may require the Optionee to pay a sum sufficient to cover any
reasonable out-of-pocket expenses incurred in connection with any assistance.
(c) Notwithstanding anything to the contrary contained herein, if
at any time prior to the tenth Business Day after its receipt of the Exercise
Notice, the Corporation presents to the Optionee a notice exercising its right
(the "Cash-Out Right") pursuant to this Section 2.02(c), then the Corporation
shall pay to the Optionee or its designee, on the Option Closing Date, in
exchange for the cancellation of the Option, an amount (the "Cash-Out Amount")
in cash equal to the lesser of (A) the number of Option Shares which would
otherwise be purchased on the Option Closing Date (calculated without giving
effect to any reduction in such number pursuant to Section 3.01(g) but giving
effect to any other adjustment pursuant to Article III or Section 2.02(b))
multiplied by the difference between (i) the Closing Price and (ii) the
Exercise Price, as adjusted pursuant to Article III and (B) the number of
Option Shares which would otherwise be purchased on the Option Closing Date
(calculated without giving effect to any reduction in such number pursuant to
Section 3.01(g) but giving effect to any other adjustment pursuant to Article
III or Section 2.02(b)) multiplied by the difference between (i) the Cap, as
adjusted pursuant to Article III, and (ii) the Exercise Price, as adjusted
pursuant to Article III.
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<PAGE> 18
(d) At any Option Closing, either (A) the Optionee shall pay, or
shall cause to be paid, to the Corporation in immediately available funds by
wire transfer to a bank account designated in writing by the Corporation at
least two Business Days prior to such Option Closing an amount equal to the
product of (i) the product of the Exercise Price, as adjusted pursuant to
Article III, multiplied by the number of Option Shares issuable hereunder
(calculated without giving effect to any adjustment pursuant to Article III
(other than pursuant to Section 3.01(d)) or Section 2.02(b) but giving effect
to any adjustment pursuant to Section 3.01(d)), multiplied by (ii) a fraction,
the numerator of which is the number of Option Shares to be purchased at such
Option Closing (calculated giving effect to any adjustments pursuant to Article
III or Section 2.02(b)) and the denominator of which is the number of Option
Shares issuable hereunder (calculated giving effect to any adjustment pursuant
to Article III but not giving effect to Section 2.02(b)) or (B) if the
Corporation shall have exercised its Cash-Out Right pursuant to Section 2.02
(c), the Corporation shall pay to the Optionee or its designee in immediately
available funds by wire transfer to a bank account designated in writing by the
Optionee at least two Business Days prior to such Option Closing, the Cash-Out
Amount.
(e) At any Option Closing, (i) simultaneously with the delivery by
the Optionee or its designee of immediately available funds as provided in
Section 2.02(d) and the surrender of this Option, the Corporation will deliver
to the Optionee or its designee a certificate or certificates representing the
Option Shares to be purchased at such Option Closing, or (ii) if the
Corporation shall have exercised its Cash-Out Right pursuant to Section 2.02
(c), simultaneous with the delivery by the Corporation of immediately available
funds as provided in Section 2.02(d), the Optionee shall surrender, or shall
cause the surrender of, this Option.
(f) The Optionee shall pay, or shall cause to be paid, any and all
stock transfer and similar taxes which may be payable in respect of the issue
of any Option Shares or payment of cash to the Optionee.
Section 2.03: Reservation of Shares. The Corporation hereby agrees
that at all times there shall be reserved for issuance and delivery upon
exercise of this Option such number of shares of Common Stock from time to time
issuable upon exercise of this Option. All such shares shall be duly
authorized, and when issued upon such exercise, shall be validly issued, fully
paid and nonassessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale and free and clear of
all preemptive rights.
Section 2.04: Fractional Shares. The Corporation shall not be
required to issue any fraction of a share of its capital stock in connection
with the exercise of this Option, and in any case where the Optionee would,
except for the provisions of this Section 2.04, be entitled under the terms of
this Option to receive a fraction of a share upon the exercise
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<PAGE> 19
of this Option, the Corporation shall, upon the exercise of this Option and
receipt of the Exercise Price, issue the largest number of whole shares
purchasable upon exercise of this Option. The Corporation shall, in lieu of
issuing any fractional share, pay the Optionee a sum in cash equal to the
product of the Closing Price and such fractional interest.
Section 2.05: Registration Rights. The Corporation shall, if
requested by the Optionee at any time and from time to time within one year
after the exercise of this Option, as expeditiously as possible prepare and
file up to two registration statements under the Securities Act of 1933, as
amended (the "Securities Act") if such registration is necessary in order to
permit the sale or other disposition of any or all Option Shares in accordance
with the intended method of sale or other disposition stated by the Optionee,
including, if the conditions thereto are satisfied, a "shelf" registration
statement under Rule 415 under the Securities Act or any successor provision,
and the Corporation shall use reasonable efforts to qualify such shares under
any applicable state securities laws. The Corporation shall use reasonable
efforts to cause each such registration statement to become effective, to
obtain all consents or waivers of other parties which are required therefor,
and to keep such registration statement effective for such period not in excess
of 180 calendar days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sale or other
disposition. The obligations of the Corporation hereunder to file a
registration statement and to maintain its effectiveness may be suspended for
up to 60 calendar days in the aggregate if the Board of Directors of the
Corporation shall have determined that the filing of such registration
statement or the maintenance of its effectiveness would require premature
disclosure of material nonpublic information that would materially and
adversely affect the Corporation or otherwise interfere with or adversely
affect any pending or proposed offering of securities of the Corporation or any
other material transaction involving the Corporation. Any registration
statement prepared and filed under this Section 2.05, and any sale covered
thereby, shall be at the Optionee's expense provided, that the Corporation
shall bear the costs of its own legal counsel. The Optionee shall provide all
information reasonably requested by the Corporation for inclusion in any
registration statement to be filed hereunder. In connection with any
registration pursuant to this Section 2.05, the Corporation and the Optionee
shall provide each other and any underwriter of the offering with customary
representations, warranties, covenants, indemnification, and contribution in
connection with such registration.
Section 2.06: Listing. If, at any time, Common Stock or any other
securities to be acquired upon exercise of this Option are then listed on the
NYSE (or any other national securities exchange or automated quotation system),
the Corporation shall promptly file an application to list the shares of Common
Stock or other securities to be acquired upon exercise of this Option on the
NYSE (and any such other national securities exchange or automated quotation
system) and shall use reasonable efforts to obtain approval of such listing as
promptly as practicable.
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<PAGE> 20
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK
PURCHASABLE AND OF EXERCISE PRICE
The Exercise Price and the number and kind of Option Shares shall be
subject to adjustment from time to time as provided in this Article III.
Section 3.01: Mechanical Adjustments.
(a) In case the Corporation shall at any time or from time to time
after the date hereof (i) pay any dividend, or make any distribution, on the
outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide
the outstanding shares of Common Stock, (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, (iv) issue by reclassification of
the shares of Common Stock any shares of capital stock of the Corporation or
(v) experience any other change in its corporate or capital structure
(including, without limitation, the declaration or payment of a dividend (other
than an ordinary periodic dividend) of cash or other property) (each of the
events described in the foregoing clauses (i) through (v) referred to as an
"Adjustment Event"), then and in each such case, the Exercise Price in effect
immediately prior to such Adjustment Event or the record date therefor,
whichever is earlier, shall be adjusted so that the Optionee shall be entitled
to receive the number and type of shares of Common Stock or other capital stock
or other assets or property (including, without limitation, cash) which such
Optionee would have owned or have been entitled to receive after the happening
of any of the Adjustment Events described above, had such Option been converted
into Common Stock immediately prior to the happening of such Adjustment Event
or the record date therefor, whichever is earlier. An adjustment made pursuant
to this Section 3.01(a) shall become effective (x) in the case of any such
dividend or distribution, immediately after the close of business on the record
date for the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (y) in the case of such subdivision,
reclassification, combination or other change in corporate or capital
structure, at the close of business on the day upon which such corporate action
becomes effective.
(b) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution and shall thereafter, and before such dividend or distribution is
paid or delivered to shareholders entitled thereto, legally abandon its plan to
pay or deliver such dividend or distribution, then no adjustment in the
Exercise Price then in effect shall be made by reason of the
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<PAGE> 21
taking of such record, and any such adjustment previously made as a result of
the taking of such record shall be reversed.
(c) In the case of a Merger or a reorganization of the Corporation
or a reclassification of the capital stock of the Corporation (except a
transaction for which provision for adjustment is otherwise made in this
Section 3.01), the Option shall thereafter be exercisable into the number of
shares of stock or other securities or property (including, without limitation,
cash) to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon exercise of such Option would have been entitled
upon such Merger, reorganization or reclassification; and, in any such case,
appropriate adjustment (as determined by the Board of Directors) shall be made
in the application of the provisions herein set forth with respect to the
rights and interest thereafter of the holders of the Option, to the end that
the provisions set forth herein (including provisions with respect to changes
in and other adjustments of the applicable conversion price) shall thereafter
be applicable, as nearly as reasonably may be, in relation to any shares of
stock or other property thereafter deliverable upon the exercise of the Option.
The Corporation shall not effect any such Merger unless prior to or
simultaneously with the consummation thereof the successor Corporation shall
assume by written instrument the obligation to deliver to the Optionee such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, each such holder is entitled to receive.
(d) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Section 3.01(a), the number of Option Shares
issuable hereunder shall simultaneously be adjusted by multiplying the number
of Option Shares initially issuable upon exercise of this Option (as set forth
on the front page of this Option) by the Exercise Price on the Issue Date and
dividing the product so obtained by the Exercise Price, as adjusted.
(e) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Section 3.01(a), the Cap shall simultaneously be
adjusted by multiplying the Cap immediately prior to such adjustment by the
Exercise Price, as adjusted pursuant to Section 3.01(a), and dividing the
product so obtained by the Exercise Price immediately prior to such adjustment.
(f) In the event that at any time, as a result of any adjustment
made pursuant to Section 3.01(a), the Optionee thereafter shall become entitled
to receive any shares of capital stock of the Corporation other than Common
Stock, thereafter the number of such other shares so receivable upon exercise
of any Option shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Common Stock contained in Section 3.01(a).
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<PAGE> 22
(g) In the event that the Closing Price exceeds the Cap, the
Option Shares issuable upon exercise of this Option shall be reduced by the
quotient of (i) the product of (a) the excess of (y) the Closing Price, over
(z) the Cap, multiplied by (b) the number of Option Shares prior to such
adjustment, divided by (ii) the Closing Price.
Section 3.02: Notices of Adjustment. Whenever the number of Option
Shares or the Exercise Price is adjusted as herein provided, the Corporation
shall prepare and deliver forthwith to the Optionee a certificate signed by a
President or a Vice President, or by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, setting forth the
adjusted number of shares purchasable upon the exercise of this Option and the
Exercise Price of such shares after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which adjustment was made.
Section 3.03: Form of Option After Adjustments. The form of this
Option need not be changed because of any adjustments in the Exercise Price or
the number or kind of the Option Shares, and Options theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in this Option, as initially issued.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF OPTIONEE
Section 4.01: No Rights as Shareholders; Notice to Optionees.
Nothing contained in this Option shall be construed as conferring upon the
Optionee any ownership or rights whatsoever as a shareholder of the
Corporation, including, without limitation, the right to vote, consent or
receive notice as a shareholder in respect of any meeting of shareholders for
the election of directors of the Corporation or of any other matter or the
right to receive dividends or receive proceeds upon the liquidation,
dissolution or winding up of the Corporation.
Section 4.02: Lost, Stolen, Mutilated or Destroyed Options. If this
Option is lost, stolen, mutilated or destroyed, the Corporation may, on such
reasonable terms as to indemnity or otherwise as it may in its reasonable
discretion impose (which shall, in the case of a mutilated Option, include the
surrender thereof), issue a new Option of like denomination and tenor as, and
in substitution for, this Option.
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ARTICLE V
TRANSFER OF OPTIONS
Section 5.01: Transfer. Except as otherwise provided in Section
6.01, neither this Option nor any rights hereunder may be sold, transferred,
assigned or otherwise disposed of, in whole or in part, to any person without
the prior written consent of the Corporation, which consent may be withheld in
its sole discretion. Any such sale, transfer or other disposition of this
Option or any rights hereunder shall be made in accordance with and subject to
the provisions of the Securities Act, and the rules and regulations promulgated
thereunder.
Section 5.02: Restrictive Legend. Each Option Share issued upon
exercise of this Option shall bear a legend containing the following words:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES AND "BLUE SKY" LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT AND APPLICABLE
STATE SECURITIES AND "BLUE SKY" LAWS."
The requirement that the above legend be placed upon certificates evidencing
any such securities shall cease and terminate upon the earliest of the
following events: (i) when such shares are transferred in a public offering,
(ii) when such shares are transferred pursuant to Rule 144 under the Securities
Act or (iii) when such shares are transferred in any other transaction if the
seller delivers to the Corporation an opinion of its counsel, which counsel and
opinion shall be reasonably satisfactory to the Corporation to the effect that
such legend is no longer necessary in order to protect the Corporation against
a violation by it of the Securities Act or any applicable state securities or
"blue sky" laws upon any sale or other disposition of such shares without
registration thereunder. Upon the occurrence of such event, the Corporation,
upon the surrender of certificates containing such legend, shall, at its own
expense, deliver to the holder of any such securities as to which the
requirement for such legend shall have terminated, one or more new certificates
evidencing such securities not bearing such legend.
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<PAGE> 24
ARTICLE VI
OTHER MATTERS
Section 6.01: Successors and Assigns. Except as otherwise
contemplated by Section 2.01, the terms and provisions of this Option shall
bind and inure to the benefit of the Optionee and its permitted successors and
permitted assigns; except that this Option may not be assigned by the Optionee
(other than (i) to wholly-owned subsidiaries or entities of which the Optionee
is a wholly-owned subsidiary or (ii) to an entity to whom the Optionee has
assigned all of its rights and delegated all of its duties consistent with, and
under, the Information Technology Services Agreement, provided, that for
purposes of this clause (ii), such entity is not, at the time of such
assignment, a member of the Corporation's "affiliated group", a "person"
"related" to the Corporation or to any member of the Corporation's "affiliated
group" or "acting in concert with" any of the foregoing "persons", as such
terms are used in Treasury Reg. 1.1504-4(c)(4)(ii)) without the prior written
consent of the Corporation, which consent may be withheld in its sole
discretion.
Section 6.02: Entire Agreement. This Option, together with the
Agreement of Purchase and Sale and any agreements attached as exhibits thereto,
contains the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous arrangements or
understandings with respect thereto.
Section 6.03: Amendments and Waivers. The terms and provisions of
this Option, including the provisions of this sentence, may be modified or
amended, or any of the provisions hereof waived, temporarily or permanently,
pursuant to the written consent of the Corporation and the Optionee.
Section 6.04: Counterparts. This Option may be executed in any
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
Section 6.05: Governing Law. This Option shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of law.
Section 6.06: Notice. Any notice, request, response, demand, claim
or other communication required or permitted hereunder by any party hereto to
any other party shall be in writing and transmitted, delivered or sent by (a)
personal delivery, (b) courier or messenger service, whether overnight or same
day (c) certified United States mail postage prepaid, return receipt requested,
or (d) prepaid telecopy or facsimile (except, that no Exercise Notice may be
provided by telecopy or facsimile),
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<PAGE> 25
if to Optionee to:
US Airways, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Telecopier: (703) 872-5252
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP.
919 Third Avenue
New York, New York 10022
Telecopier: (212) 735-2000
Attention: Thomas H. Kennedy, Esq.
if to the Corporation to:
The SABRE Group Holdings, Inc.
4255 Amon Carter Boulevard
Mail Drop 4319
Fort Worth, Texas 76155
Telecopier: (817) 967-4044
Attention: Chief Financial Officer
with a copy to:
The SABRE Group Holdings Inc.
4255 Amon Carter Boulevard
Mail Drop 4204
Fort Worth, Texas 76155
Telecopier: (817) 967-1215
Attention: General Counsel
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<PAGE> 26
and a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopier: (212) 859-4000
Attention: Charles M. Nathan, Esq.
or at such other address for a party as shall be specified by like notice.
Each communication transmitted, delivered, or sent (a) in person, by courier or
messenger service, or by certified United States mail (postage prepaid and
return receipt requested) shall be deemed given, received, and effective on the
date delivered to or refused by the intended recipient (with the return receipt
or the equivalent record of the courier or messenger being deemed conclusive
evidence of delivery or refusal); or (b) by telecopy or facsimile transmission
or by electronic mail shall be deemed given, received, and effective on the
date of actual receipt (with the confirmation of transmission or the electronic
receipt being deemed conclusive evidence of such receipt, except where the
intended recipient has promptly notified the other party that the transmission
is illegible).
Nevertheless, if the date of delivery or transmission is not a Business Day, or
if the delivery or transmission is after 5:00 p.m., local time in Fort Worth,
Texas, on a Business Day, the communication shall be deemed given, received,
and effective on the next Business Day.
Section 6.07: Dispute Resolution.
(a) Except as otherwise stated in this Option, the parties shall
resolve any dispute, disagreement, claim, or controversy arising in connection
with or relating to this Option, or the validity, interpretation, performance
or breach of this Option ("Dispute") in accordance with the procedure or
process by which a Dispute must be resolved (except as otherwise stated or
modified in this Option) as described in the Dispute Resolution Appendix (as
defined in the Option Issuance Agreement). Nevertheless, if any Person (as
defined in the Agreement of Purchase and Sale) other than the parties and their
affiliates:
(i) Has initiated a lawsuit or other judicial,
administrative, or arbitration proceedings against or involving either or both
of the parties in which a Dispute will be resolved, or
(ii) Is a necessary participant in any judicial,
administrative, or arbitration proceedings to resolve a Dispute and cannot be
joined by either or both of the parties in an arbitration of that Dispute under
Section B.3 of the Dispute Resolution Appendix,
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<PAGE> 27
so that (in either case) the Dispute Resolution Procedure is or will be
ineffective, then the parties need not use or follow the Dispute Resolution
Procedure to resolve that Dispute, although the submission to jurisdiction in
Section B.5 of the Dispute Resolution Exhibit shall apply if necessary.
(b) The parties shall freely share, and may disclose to any
mediator or arbitrator as part of any Dispute resolution proceeding, any and
all reasonably requested relevant information needed to facilitate the
resolution of any Dispute and any and all information likely to lead to such
relevant information.
(c) In the event of a Dispute, the parties shall continue to
perform their respective obligations pursuant to this Agreement.
(d) Nothing in this Section 6.07 or the Dispute Resolution
Procedure prevents the parties from resolving any Dispute by mutual agreement
at any time.
Section 6.08: Severability. Whenever possible, each provision of
this Option shall be interpreted in such manner as to be effective and valid,
but if any provision of this Option is held to be invalid or unenforceable in
any respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Option.
IN WITNESS WHEREOF, this Option has been duly, executed by the
Corporation under its corporate seal as of the 2nd day of January, 1998.
THE SABRE GROUP HOLDINGS, INC.
By: /s/ Patrick Kelly
-----------------
Name: Patrick Kelly
Title: Senior Vice President and Chief
Financial Officer
Attest: /s/ James F. Brashear
---------------------
Assistant Secretary
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<PAGE> 28
Exhibit A
Officer's Certificate
[Date]
The undersigned certifies that he is the duly elected, qualified and
acting ________________ of US Airways, Inc., a Delaware corporation (the
"Optionee") and as such, he is familiar with matters certified herein and is
authorized to execute this Certificate on behalf of the Optionee and, with
reference to Section 2.02(a) of that Option, No. _________, to purchase
3,000,000 shares of Class A Common Stock, par value $.01 per share, of The
SABRE Group Holdings, Inc. (capitalized terms used herein and not otherwise
defined herein have the respective meanings specified in such option) and that
Exercise Notice attached as Exhibit 1 hereto, he further certifies as follows:
1. Neither the exercise of the Option requested pursuant to the
Exercise Notice nor the receipt by the Optionee or its designee of Option
Shares upon such exercise does, as of the date hereof, or will, as of the
Option Closing Date, conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time,
or both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any encumbrance of any kind
or character upon any of Optionee's properties or assets under, any contract,
agreement, indenture, mortgage, guaranty, lease, license or understanding,
written or oral to which it is a party.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of the date first written above.
By:
-------------------------------------
Name:
Title:
I, ________________, Secretary of US Airways, Inc., do hereby certify
that _____________ is duly elected and qualified as ______________ of US
Airways, Inc. as of the date hereof, and that the signature set forth above is
such officer's signature.
By:
-------------------------------------
Name:
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<PAGE> 29
NEITHER THE OPTIONS REPRESENTED BY THIS CERTIFICATE NOR THE SHARES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT. NEITHER SUCH OPTIONS NOR SUCH SHARES MAY BE
OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
IN COMPLIANCE WITH SUCH ACT AND APPLICABLE STATE SECURITIES AND "BLUE SKY" LAWS.
OPTION TO PURCHASE
3,000,000 SHARES OF CLASS A COMMON STOCK,
PAR VALUE $.01 PER SHARE,
OF
THE SABRE GROUP HOLDINGS, INC.
NO. SOUS-2
This certifies that for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, US Airways, Inc., a Delaware
corporation (the "Optionee") is entitled to purchase at the Exercise Price from
The SABRE Group Holdings, Inc., a Delaware corporation (the "Corporation"),
subject to the terms and conditions hereof, at any time after 9:00 A.M., Fort
Worth, Texas time, on the Initial Exercise Date and before 5:00 P.M., local
time in Fort Worth, Texas on the Expiration Date, the number of fully paid and
non-assessable shares of Common Stock stated above.
ARTICLE I
Section 1.01: Definition of Terms. As used in this Option, the
following capitalized terms shall have the following respective meanings:
(a) Agreement of Purchase and Sale: The Agreement of Purchase and
Sale, dated as of December 15, 1997, by and among US Airways Group, Inc., a
Delaware corporation, the Optionee, the Corporation and TSG.
(b) Business Day: A day other than a Saturday, Sunday, national
holiday in the United States, or other day in which banks in the State of Texas
are authorized by law to remain closed.
(c) Cap: $127.00 per Option Share, as such number may be adjusted
from time to time pursuant to Article III hereof.
<PAGE> 30
(d) Closing Price: The average of the highest and lowest trading
prices on the NYSE for the Notice Date, per share of Common Stock as reported
on the Composite Transactions Tape (or, if not listed on the NYSE, as reported
on any other national securities exchange or automated quotation system on
which the Common Stock is listed or quoted, as reported in the Wall Street
Journal (Northeast edition), or, if not reported thereby, any other
authoritative source) or, if not listed on the NYSE or reported on any other
national securities exchange or automated quotation system, the fair market
value of a share of Common Stock as determined by agreement of the Optionee and
the Corporation or, in the absence of such an agreement, by an independent
investment banking firm selected by agreement of an independent investment
banking firm selected by the Optionee and an independent investment banking
firm selected by the Corporation, which agreed upon investment banking firm
shall be engaged by the Corporation ( the cost of which engagement will be
divided equally between the Corporation and the Optionee).
(e) Common Stock: Class A Common Stock, par value $.01 per share,
of the Corporation.
(f) Composite Transactions Tape: A security price reporting
service that includes all transactions in a security on each of the exchanges
and in the over-the-counter market.
(g) Exercise Price: $27.00 per Option Share, as such price may be
adjusted from time to time pursuant to Article III hereof.
(h) Expiration Date: January 2, 2013.
(i) HSR: The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
(j) Information Technology Services Agreement: The Information
Technology Services Agreement, dated as of December 15, 1997, by and between
the Optionee, the Corporation and TSG.
(k) Initial Exercise Date: January 2, 2003.
(l) Interim Operation and Migration Agreement: The Interim
Operation and Migration Agreement, dated as of December 15, 1997, by and
between the Optionee, the Corporation and TSG.
(m) Issue Date: The date of execution of this Option as set forth
on page 14 hereof.
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<PAGE> 31
(n) Merger: A consolidation or merger of the Corporation with or
into any other corporation or corporations (other than a consolidation or
merger in which the Corporation is the continuing Corporation).
(o) NYSE: New York Stock Exchange.
(p) Option Issuance Agreement: The Option Issuance Agreement,
dated as of January 1, 1998, by and among the Optionee and the Corporation.
(q) Option Shares: Shares of Common Stock and/or securities
purchased or purchasable upon exercise of this Option.
(r) Person: An individual, partnership, joint venture,
corporation, trust, unincorporated organization or government of any department
or agency thereof.
(s) TSG: The SABRE Group, Inc., a Delaware corporation and
wholly-owned subsidiary of the Corporation.
ARTICLE II
DURATION AND EXERCISE OF OPTION
Section 2.01: Duration of Option. The Optionee may exercise this
Option at any time and from time to time after 9:00 A.M., Fort Worth, Texas
time, on the Initial Exercise Date, and before 5:00 P.M., local time in Fort
Worth, Texas time, on the Expiration Date. If (i) this Option is not exercised
prior to 5:00 P.M., local time in Fort Worth, Texas on the Expiration Date,
(ii) the Optionee shall terminate the Information Technology Services Agreement
pursuant to Sections 23.3, 23.4, 23.5 or 23.6 thereof, (iii) TSG shall
terminate the Information Technology Services Agreement pursuant to Section
23.1(B) thereto or TSG shall terminate the Interim Operation and Migration
Agreement pursuant to Section 22.1(B) thereto, or (iv) the Optionee shall
deliver a notice pursuant to Section 4.2(a)(ii) of the Option Issuance
Agreement, then this Option shall become void, and all rights hereunder shall
immediately thereupon cease.
Section 2.02: Exercise of Option.
(a) The Optionee may exercise this Option, in whole and not in
part, by presenting, or causing to be presented, to the Corporation after 9:00
A.M., Fort Worth, Texas time, on the Initial Exercise Date and prior to 5:00
P.M., Fort Worth, Texas time on the Expiration Date, (i) a written notice (an
"Exercise Notice"; the date of which being herein referred to as the "Notice
Date") containing the Optionee's irrevocable election to exercise this Option,
and a date not earlier than fifteen Business Days nor later than twenty
Business Days from the Notice Date for the closing (the "Option Closing") of
such purchase (an "Option Closing Date") and (ii) a certificate of a duly
authorized
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<PAGE> 32
officer of the Optionee in the form of Exhibit A hereto. Upon presentation of
such written notice and certificate, this Option shall be deemed exercised for
all purposes hereunder. Any Option Closing will be at an agreed location and
time on the applicable Option Closing Date or at such later date as may be
necessary so as to comply with HSR and obtain or make any consents, approvals,
orders, notifications or authorizations, required in connection with the
requested issuance of Option Shares (the "Regulatory Approvals").
(b) Notwithstanding anything to the contrary contained herein, any
exercise of this Option and purchase of Option Shares shall be subject to
compliance with applicable laws and regulations, which may prohibit the
purchase of all the Option Shares specified in the Exercise Notice without
first obtaining or making certain Regulatory Approvals. In such event, if this
Option is otherwise exercisable and the Optionee wishes to exercise this
Option, this Option may be exercised in accordance with Section 2.02(a) and the
Optionee shall acquire the maximum number of Option Shares specified in the
Exercise Notice that the Optionee is then permitted to acquire under the
applicable laws and regulations, and if the Optionee thereafter (but prior to
the Expiration Date) obtains the Regulatory Approvals to acquire the remaining
balance of the Option Shares specified in the Exercise Notice, then the
Optionee shall be entitled to acquire such remaining balance. The Corporation
agrees to assist the Optionee in seeking the Regulatory Approvals. The
Corporation may require the Optionee to pay a sum sufficient to cover any
reasonable out-of-pocket expenses incurred in connection with any assistance.
(c) Notwithstanding anything to the contrary contained herein, if
at any time prior to the tenth Business Day after its receipt of the Exercise
Notice, the Corporation presents to the Optionee a notice exercising its right
(the "Cash-Out Right") pursuant to this Section 2.02(c), then the Corporation
shall pay to the Optionee or its designee, on the Option Closing Date, in
exchange for the cancellation of the Option, an amount (the "Cash-Out Amount")
in cash equal to the lesser of (A) the number of Option Shares which would
otherwise be purchased on the Option Closing Date (calculated without giving
effect to any reduction in such number pursuant to Section 3.01(g) but giving
effect to any other adjustment pursuant to Article III or Section 2.02(b))
multiplied by the difference between (i) the Closing Price and (ii) the
Exercise Price, as adjusted pursuant to Article III and (B) the number of
Option Shares which would otherwise be purchased on the Option Closing Date
(calculated without giving effect to any reduction in such number pursuant to
Section 3.01(g) but giving effect to any other adjustment pursuant to Article
III or Section 2.02(b)) multiplied by the difference between (i) the Cap, as
adjusted pursuant to Article III, and (ii) the Exercise Price, as adjusted
pursuant to Article III.
(d) At any Option Closing, either (A) the Optionee shall pay, or
shall cause to be paid, to the Corporation in immediately available funds by
wire transfer to a bank
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<PAGE> 33
account designated in writing by the Corporation at least two Business Days
prior to such Option Closing an amount equal to the product of (i) the product
of the Exercise Price, as adjusted pursuant to Article III, multiplied by the
number of Option Shares issuable hereunder (calculated without giving effect to
any adjustment pursuant to Article III (other than pursuant to Section 3.01(d))
or Section 2.02(b) but giving effect to any adjustment pursuant to Section
3.01(d)), multiplied by (ii) a fraction, the numerator of which is the number
of Option Shares to be purchased at such Option Closing (calculated giving
effect to any adjustments pursuant to Article III or Section 2.02(b)) and the
denominator of which is the number of Option Shares issuable hereunder
(calculated giving effect to any adjustment pursuant to Article III but not
giving effect to Section 2.02(b)) or (B) if the Corporation shall have
exercised its Cash-Out Right pursuant to Section 2.02 (c), the Corporation
shall pay to the Optionee or its designee in immediately available funds by
wire transfer to a bank account designated in writing by the Optionee at least
two Business Days prior to such Option Closing, the Cash-Out Amount.
(e) At any Option Closing, (i) simultaneously with the delivery by
the Optionee or its designee of immediately available funds as provided in
Section 2.02(d) and the surrender of this Option, the Corporation will deliver
to the Optionee or its designee a certificate or certificates representing the
Option Shares to be purchased at such Option Closing, or (ii) if the
Corporation shall have exercised its Cash-Out Right pursuant to Section 2.02
(c), simultaneous with the delivery by the Corporation of immediately available
funds as provided in Section 2.02(d), the Optionee shall surrender, or shall
cause the surrender of, this Option.
(f) The Optionee shall pay, or shall cause to be paid, any and all
stock transfer and similar taxes which may be payable in respect of the issue
of any Option Shares or payment of cash to the Optionee.
Section 2.03: Reservation of Shares. The Corporation hereby agrees
that at all times there shall be reserved for issuance and delivery upon
exercise of this Option such number of shares of Common Stock from time to time
issuable upon exercise of this Option. All such shares shall be duly
authorized, and when issued upon such exercise, shall be validly issued, fully
paid and nonassessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale and free and clear of
all preemptive rights.
Section 2.04: Fractional Shares. The Corporation shall not be
required to issue any fraction of a share of its capital stock in connection
with the exercise of this Option, and in any case where the Optionee would,
except for the provisions of this Section 2.04, be entitled under the terms of
this Option to receive a fraction of a share upon the exercise of this Option,
the Corporation shall, upon the exercise of this Option and receipt of the
Exercise Price, issue the largest number of whole shares purchasable upon
exercise of this
-5-
<PAGE> 34
Option. The Corporation shall, in lieu of issuing any fractional share, pay
the Optionee a sum in cash equal to the product of the Closing Price and such
fractional interest.
Section 2.05: Registration Rights. The Corporation shall, if
requested by the Optionee at any time and from time to time within one year
after the exercise of this Option, as expeditiously as possible prepare and
file up to two registration statements under the Securities Act of 1933, as
amended (the "Securities Act") if such registration is necessary in order to
permit the sale or other disposition of any or all Option Shares in accordance
with the intended method of sale or other disposition stated by the Optionee,
including, if the conditions thereto are satisfied, a "shelf" registration
statement under Rule 415 under the Securities Act or any successor provision,
and the Corporation shall use reasonable efforts to qualify such shares under
any applicable state securities laws. The Corporation shall use reasonable
efforts to cause each such registration statement to become effective, to
obtain all consents or waivers of other parties which are required therefor,
and to keep such registration statement effective for such period not in excess
of 180 calendar days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sale or other
disposition. The obligations of the Corporation hereunder to file a
registration statement and to maintain its effectiveness may be suspended for
up to 60 calendar days in the aggregate if the Board of Directors of the
Corporation shall have determined that the filing of such registration
statement or the maintenance of its effectiveness would require premature
disclosure of material nonpublic information that would materially and
adversely affect the Corporation or otherwise interfere with or adversely
affect any pending or proposed offering of securities of the Corporation or any
other material transaction involving the Corporation. Any registration
statement prepared and filed under this Section 2.05, and any sale covered
thereby, shall be at the Optionee's expense provided, that the Corporation
shall bear the costs of its own legal counsel. The Optionee shall provide all
information reasonably requested by the Corporation for inclusion in any
registration statement to be filed hereunder. In connection with any
registration pursuant to this Section 2.05, the Corporation and the Optionee
shall provide each other and any underwriter of the offering with customary
representations, warranties, covenants, indemnification, and contribution in
connection with such registration.
Section 2.06: Listing. If, at any time, Common Stock or any other
securities to be acquired upon exercise of this Option are then listed on the
NYSE (or any other national securities exchange or automated quotation system),
the Corporation shall promptly file an application to list the shares of Common
Stock or other securities to be acquired upon exercise of this Option on the
NYSE (and any such other national securities exchange or automated quotation
system) and shall use reasonable efforts to obtain approval of such listing as
promptly as practicable.
-6-
<PAGE> 35
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK
PURCHASABLE AND OF EXERCISE PRICE
The Exercise Price and the number and kind of Option Shares shall be
subject to adjustment from time to time as provided in this Article III.
Section 3.01: Mechanical Adjustments.
(a) In case the Corporation shall at any time or from time to time
after the date hereof (i) pay any dividend, or make any distribution, on the
outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide
the outstanding shares of Common Stock, (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, (iv) issue by reclassification of
the shares of Common Stock any shares of capital stock of the Corporation or
(v) experience any other change in its corporate or capital structure
(including, without limitation, the declaration or payment of a dividend (other
than an ordinary periodic dividend) of cash or other property) (each of the
events described in the foregoing clauses (i) through (v) referred to as an
"Adjustment Event"), then and in each such case, the Exercise Price in effect
immediately prior to such Adjustment Event or the record date therefor,
whichever is earlier, shall be adjusted so that the Optionee shall be entitled
to receive the number and type of shares of Common Stock or other capital stock
or other assets or property (including, without limitation, cash) which such
Optionee would have owned or have been entitled to receive after the happening
of any of the Adjustment Events described above, had such Option been converted
into Common Stock immediately prior to the happening of such Adjustment Event
or the record date therefor, whichever is earlier. An adjustment made pursuant
to this Section 3.01(a) shall become effective (x) in the case of any such
dividend or distribution, immediately after the close of business on the record
date for the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (y) in the case of such subdivision,
reclassification, combination or other change in corporate or capital
structure, at the close of business on the day upon which such corporate action
becomes effective.
(b) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution and shall thereafter, and before such dividend or distribution is
paid or delivered to shareholders entitled thereto, legally abandon its plan to
pay or deliver such dividend or distribution, then no adjustment in the
Exercise Price then in effect shall be made by reason of the taking of such
record, and any such adjustment previously made as a result of the taking of
such record shall be reversed.
-7-
<PAGE> 36
(c) In the case of a Merger or a reorganization of the Corporation
or a reclassification of the capital stock of the Corporation (except a
transaction for which provision for adjustment is otherwise made in this
Section 3.01), the Option shall thereafter be exercisable into the number of
shares of stock or other securities or property (including, without limitation,
cash) to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon exercise of such Option would have been entitled
upon such Merger, reorganization or reclassification; and, in any such case,
appropriate adjustment (as determined by the Board of Directors) shall be made
in the application of the provisions herein set forth with respect to the
rights and interest thereafter of the holders of the Option, to the end that
the provisions set forth herein (including provisions with respect to changes
in and other adjustments of the applicable conversion price) shall thereafter
be applicable, as nearly as reasonably may be, in relation to any shares of
stock or other property thereafter deliverable upon the exercise of the Option.
The Corporation shall not effect any such Merger unless prior to or
simultaneously with the consummation thereof the successor Corporation shall
assume by written instrument the obligation to deliver to the Optionee such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, each such holder is entitled to receive.
(d) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Section 3.01(a), the number of Option Shares
issuable hereunder shall simultaneously be adjusted by multiplying the number
of Option Shares initially issuable upon exercise of this Option (as set forth
on the front page of this Option) by the Exercise Price on the Issue Date and
dividing the product so obtained by the Exercise Price, as adjusted.
(e) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Section 3.01(a), the Cap shall simultaneously be
adjusted by multiplying the Cap immediately prior to such adjustment by the
Exercise Price, as adjusted pursuant to Section 3.01(a), and dividing the
product so obtained by the Exercise Price immediately prior to such adjustment.
(f) In the event that at any time, as a result of any adjustment
made pursuant to Section 3.01(a), the Optionee thereafter shall become entitled
to receive any shares of capital stock of the Corporation other than Common
Stock, thereafter the number of such other shares so receivable upon exercise
of any Option shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Common Stock contained in Section 3.01(a).
(g) In the event that the Closing Price exceeds the Cap, the
Option Shares issuable upon exercise of this Option shall be reduced by the
quotient of (i) the product of
-8-
<PAGE> 37
(a) the excess of (y) the Closing Price, over (z) the Cap, multiplied by (b)
the number of Option Shares prior to such adjustment, divided by (ii) the
Closing Price.
Section 3.02: Notices of Adjustment. Whenever the number of Option
Shares or the Exercise Price is adjusted as herein provided, the Corporation
shall prepare and deliver forthwith to the Optionee a certificate signed by a
President or a Vice President, or by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, setting forth the
adjusted number of shares purchasable upon the exercise of this Option and the
Exercise Price of such shares after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which adjustment was made.
Section 3.03: Form of Option After Adjustments. The form of this
Option need not be changed because of any adjustments in the Exercise Price or
the number or kind of the Option Shares, and Options theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in this Option, as initially issued.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF OPTIONEE
Section 4.01: No Rights as Shareholders; Notice to Optionees.
Nothing contained in this Option shall be construed as conferring upon the
Optionee any ownership or rights whatsoever as a shareholder of the
Corporation, including, without limitation, the right to vote, consent or
receive notice as a shareholder in respect of any meeting of shareholders for
the election of directors of the Corporation or of any other matter or the
right to receive dividends or receive proceeds upon the liquidation,
dissolution or winding up of the Corporation.
Section 4.02: Lost, Stolen, Mutilated or Destroyed Options. If this
Option is lost, stolen, mutilated or destroyed, the Corporation may, on such
reasonable terms as to indemnity or otherwise as it may in its reasonable
discretion impose (which shall, in the case of a mutilated Option, include the
surrender thereof), issue a new Option of like denomination and tenor as, and
in substitution for, this Option.
ARTICLE V
TRANSFER OF OPTIONS
Section 5.01: Transfer. Except as otherwise provided in Section
6.01, neither this Option nor any rights hereunder may be sold, transferred,
assigned or otherwise disposed of, in whole or in part, to any person without
the prior written consent of the Corporation,
-9-
<PAGE> 38
which consent may be withheld in its sole discretion. Any such sale, transfer
or other disposition of this Option or any rights hereunder shall be made in
accordance with and subject to the provisions of the Securities Act, and the
rules and regulations promulgated thereunder.
Section 5.02: Restrictive Legend. Each Option Share issued upon
exercise of this Option shall bear a legend containing the following words:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES AND "BLUE SKY" LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT AND APPLICABLE
STATE SECURITIES AND "BLUE SKY" LAWS."
The requirement that the above legend be placed upon certificates evidencing
any such securities shall cease and terminate upon the earliest of the
following events: (i) when such shares are transferred in a public offering,
(ii) when such shares are transferred pursuant to Rule 144 under the Securities
Act or (iii) when such shares are transferred in any other transaction if the
seller delivers to the Corporation an opinion of its counsel, which counsel and
opinion shall be reasonably satisfactory to the Corporation to the effect that
such legend is no longer necessary in order to protect the Corporation against
a violation by it of the Securities Act or any applicable state securities or
"blue sky" laws upon any sale or other disposition of such shares without
registration thereunder. Upon the occurrence of such event, the Corporation,
upon the surrender of certificates containing such legend, shall, at its own
expense, deliver to the holder of any such securities as to which the
requirement for such legend shall have terminated, one or more new certificates
evidencing such securities not bearing such legend.
ARTICLE VI
OTHER MATTERS
Section 6.01: Successors and Assigns. Except as otherwise
contemplated by Section 2.01, the terms and provisions of this Option shall
bind and inure to the benefit of the Optionee and its permitted successors and
permitted assigns; except that this Option may not be assigned by the Optionee
(other than (i) to wholly-owned subsidiaries or entities of which the Optionee
is a wholly-owned subsidiary or (ii) to an entity to whom
-10-
<PAGE> 39
the Optionee has assigned all of its rights and delegated all of its duties
consistent with, and under, the Information Technology Services Agreement,
provided, that for purposes of this clause (ii), such entity is not, at the
time of such assignment, a member of the Corporation's "affiliated group", a
"person" "related" to the Corporation or to any member of the Corporation's
"affiliated group" or "acting in concert with" any of the foregoing "persons",
as such terms are used in Treasury Reg. 1.1504-4(c)(4)(ii)) without the prior
written consent of the Corporation, which consent may be withheld in its sole
discretion.
Section 6.02: Entire Agreement. This Option, together with the
Agreement of Purchase and Sale and any agreements attached as exhibits thereto,
contains the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous arrangements or
understandings with respect thereto.
Section 6.03: Amendments and Waivers. The terms and provisions of
this Option, including the provisions of this sentence, may be modified or
amended, or any of the provisions hereof waived, temporarily or permanently,
pursuant to the written consent of the Corporation and the Optionee.
Section 6.04: Counterparts. This Option may be executed in any
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
Section 6.05: Governing Law. This Option shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of law.
Section 6.06: Notice. Any notice, request, response, demand, claim
or other communication required or permitted hereunder by any party hereto to
any other party shall be in writing and transmitted, delivered or sent by (a)
personal delivery, (b) courier or messenger service, whether overnight or same
day (c) certified United States mail postage prepaid, return receipt requested,
or (d) prepaid telecopy or facsimile (except, that no Exercise Notice may be
provided by telecopy or facsimile),
if to Optionee to:
US Airways, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Telecopier: (703) 872-5252
Attention: General Counsel
-11-
<PAGE> 40
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP.
919 Third Avenue
New York, New York 10022
Telecopier: (212) 735-2000
Attention: Thomas H. Kennedy, Esq.
if to the Corporation to:
The SABRE Group Holdings, Inc.
4255 Amon Carter Boulevard
Mail Drop 4319
Fort Worth, Texas 76155
Telecopier: (817) 967-4044
Attention: Chief Financial Officer
with a copy to:
The SABRE Group Holdings Inc.
4255 Amon Carter Boulevard
Mail Drop 4204
Fort Worth, Texas 76155
Telecopier: (817) 967-1215
Attention: General Counsel
and a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopier: (212) 859-4000
Attention: Charles M. Nathan, Esq.
or at such other address for a party as shall be specified by like notice.
Each communication transmitted, delivered, or sent (a) in person, by courier or
messenger service, or by certified United States mail (postage prepaid and
return receipt requested) shall be deemed given, received, and effective on the
date delivered to or refused by the intended recipient (with the return receipt
or the equivalent record of the courier or messenger being deemed conclusive
evidence of delivery or refusal); or (b) by telecopy or facsimile transmission
or by electronic mail shall be deemed given, received, and effective on the
date of actual receipt (with the confirmation of transmission or the electronic
receipt being deemed conclusive evidence of such receipt, except where the
intended recipient has promptly notified the other party that the transmission
is illegible).
-12-
<PAGE> 41
Nevertheless, if the date of delivery or transmission is not a Business Day, or
if the delivery or transmission is after 5:00 p.m., local time in Fort Worth,
Texas, on a Business Day, the communication shall be deemed given, received,
and effective on the next Business Day.
Section 6.07: Dispute Resolution.
(a) Except as otherwise stated in this Option, the parties shall
resolve any dispute, disagreement, claim, or controversy arising in connection
with or relating to this Option, or the validity, interpretation, performance
or breach of this Option ("Dispute") in accordance with the procedure or
process by which a Dispute must be resolved (except as otherwise stated or
modified in this Option) as described in the Dispute Resolution Appendix (as
defined in the Option Issuance Agreement). Nevertheless, if any Person (as
defined in the Agreement of Purchase and Sale) other than the parties and their
affiliates:
(i) Has initiated a lawsuit or other judicial,
administrative, or arbitration proceedings against or involving either or both
of the parties in which a Dispute will be resolved, or
(ii) Is a necessary participant in any judicial,
administrative, or arbitration proceedings to resolve a Dispute and cannot be
joined by either or both of the parties in an arbitration of that Dispute under
Section B.3 of the Dispute Resolution Appendix,
so that (in either case) the Dispute Resolution Procedure is or will be
ineffective, then the parties need not use or follow the Dispute Resolution
Procedure to resolve that Dispute, although the submission to jurisdiction in
Section B.5 of the Dispute Resolution Exhibit shall apply if necessary.
(b) The parties shall freely share, and may disclose to any
mediator or arbitrator as part of any Dispute resolution proceeding, any and
all reasonably requested relevant information needed to facilitate the
resolution of any Dispute and any and all information likely to lead to such
relevant information.
(c) In the event of a Dispute, the parties shall continue to
perform their respective obligations pursuant to this Agreement.
(d) Nothing in this Section 6.07 or the Dispute Resolution
Procedure prevents the parties from resolving any Dispute by mutual agreement
at any time.
Section 6.08: Severability. Whenever possible, each provision of
this Option shall be interpreted in such manner as to be effective and valid,
but if any provision of this Option is held to be invalid or unenforceable in
any respect, such invalidity or
-13-
<PAGE> 42
unenforceability shall not render invalid or unenforceable any other provision
of this Option.
IN WITNESS WHEREOF, this Option has been duly, executed by the
Corporation under its corporate seal as of the 2nd day of January, 1998.
THE SABRE GROUP HOLDINGS, INC.
By: /s/ Patrick Kelly
-----------------
Name: Patrick Kelly
Title: Senior Vice President and Chief
Financial Officer
Attest: James F. Brashear
-----------------
Assistant Secretary
-14-
<PAGE> 43
Exhibit A
Officer's Certificate
[Date]
The undersigned certifies that he is the duly elected, qualified and
acting ________________ of US Airways, Inc., a Delaware corporation (the
"Optionee") and as such, he is familiar with matters certified herein and is
authorized to execute this Certificate on behalf of the Optionee and, with
reference to Section 2.02(a) of that Option, No. _________, to purchase
3,000,000 shares of Class A Common Stock, par value $.01 per share, of The
SABRE Group Holdings, Inc. (capitalized terms used herein and not otherwise
defined herein have the respective meanings specified in such option) and that
Exercise Notice attached as Exhibit 1 hereto, he further certifies as follows:
1. Neither the exercise of the Option requested pursuant to the
Exercise Notice nor the receipt by the Optionee or its designee of Option
Shares upon such exercise does, as of the date hereof, or will, as of the
Option Closing Date, conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time,
or both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any encumbrance of any kind
or character upon any of Optionee's properties or assets under, any contract,
agreement, indenture, mortgage, guaranty, lease, license or understanding,
written or oral to which it is a party.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of the date first written above.
By:
------------------------------------
Name:
Title:
I, ________________, Secretary of US Airways, Inc., do hereby certify
that _____________ is duly elected and qualified as ______________ of US
Airways, Inc. as of the date hereof, and that the signature set forth above is
such officer's signature.
By:
------------------------------------
Name:
-15-
<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.
SABRE Technology Enterprises, Ltd. (Cayman Islands)
SABRE Technology Holland B.V. (The Netherlands)
SABRE Limited (New Zealand)
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)
56
<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 Servicios Colombia LTDA (Colombia) (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 (Colombia) (1%)
SABRE UK Marketing Ltd. (UK) (1%)
STIN Luxembourg SA (Luxembourg) (1%)
SST HOLDING, INC. SUBSIDIARY*
SABRE Sociedad Tecnologica S.A. (Mexico) (51%)
SABRE SOCIEDAD TECNOLOGICA S.A. SUBSIDIARY*
SABRE Services Administration (Mexico)
SABRE TECHNOLOGY ENTERPRISES, LTD. SUBSIDIARY*
SABRE Technology Enterprises II, Ltd. (Cayman Islands)
The SABRE Group International (BAHRAIN) W.L.L. (Bahrain)
TSGL, INC. SUBSIDIARIES*
TSGL Holding, Inc. (Delaware)
TSGL-SCS, Inc. (Delaware)
TICKETNET CORPORATION SUBSIDIARY*
148548 Canada, Inc. (Canada)
* All subsidiaries are wholly-owned unless otherwise noted in parenthesis
57
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-13917, 333-14509, and 333-18851) pertaining to The SABRE
Group Holdings, Inc. 1996 Long-Term Incentive Plan, 1996 Directors Stock
Incentive Plan, and the Employee Stock Purchase Plan, respectively, of our
report dated January 19, 1998, except for Note 14, as to which the date is
February 27, 1998, with respect to the consolidated financial statements of The
SABRE Group Holdings, Inc. included in the Annual Report (Form 10-K) for the
year ended December 31, 1997.
ERNST & YOUNG LLP
Dallas, Texas
March 23, 1998
58
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,286
<SECURITIES> 573,620
<RECEIVABLES> 248,531
<ALLOWANCES> 8,905
<INVENTORY> 0
<CURRENT-ASSETS> 874,162
<PP&E> 1,303,484
<DEPRECIATION> 721,917
<TOTAL-ASSETS> 1,523,958
<CURRENT-LIABILITIES> 316,520
<BONDS> 317,873
0
0
<COMMON> 1,309
<OTHER-SE> 755,979
<TOTAL-LIABILITY-AND-EQUITY> 1,523,958
<SALES> 0
<TOTAL-REVENUES> 1,783,547
<CGS> 0
<TOTAL-COSTS> 1,303,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,692
<INCOME-PRETAX> 323,649
<INCOME-TAX> 123,796
<INCOME-CONTINUING> 199,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199,853
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,992
<SECURITIES> 426,945
<RECEIVABLES> 201,109
<ALLOWANCES> 4,094
<INVENTORY> 0
<CURRENT-ASSETS> 694,528
<PP&E> 1,224,951
<DEPRECIATION> 665,884
<TOTAL-ASSETS> 1,287,083
<CURRENT-LIABILITIES> 289,827
<BONDS> 317,873
0
0
<COMMON> 1,308
<OTHER-SE> 568,333
<TOTAL-LIABILITY-AND-EQUITY> 1,287,083
<SALES> 0
<TOTAL-REVENUES> 1,621,987
<CGS> 0
<TOTAL-COSTS> 1,152,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,401
<INCOME-PRETAX> 305,856
<INCOME-TAX> 119,282
<INCOME-CONTINUING> 186,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 186,574
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
</TABLE>
