<PAGE> 1
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1999.
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the Transition Period From to .
Commission file number 1-12175.
Sabre Holdings Corporation
(Exact name of registrant as specified in its charter)
Delaware 75-2662240
(State or other jurisdiction (I.R.S.
of incorporation or organization) Employer Identification No.)
4255 Amon Carter Blvd. 76155
Fort Worth, Texas
(Address of principal executive offices) (Zip code)
Registrant's telephone
number, including area code (817) 963-6400
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes X No ___.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Class A Common Stock, $.01 par value - 22,106,844 as of
October 31, 1999
Class B Common Stock, $.01 par value - 107,374,000 as of
October 31, 1999
<PAGE> 2
INDEX
SABRE HOLDINGS CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1999 and
December 31,1998
Consolidated Statements of Income - Three and nine
months ended September 30, 1999 and 1998
Condensed Consolidated Statement of Stockholders'
Equity-Nine months ended September 30, 1999
Consolidated Statements of Cash Flows -- Nine months
ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SABRE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
September December
30, 31,
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 9,471 $ 8,008
Short-term investments 402,591 529,735
Accounts receivable, net 350,604 337,703
Receivable from affiliates, net 43,490 21,609
Prepaid expenses 24,909 21,559
Deferred income taxes 21,427 25,790
Total current assets 852,492 944,404
PROPERTY AND EQUIPMENT
Buildings and leasehold improvements 331,125 329,497
Furniture, fixtures and equipment 43,963 40,286
Service contract equipment 544,161 550,951
Computer equipment 480,685 460,530
1,399,934 1,381,264
Less accumulated depreciation and
amortization (810,284) (737,488)
Total property and equipment 589,650 643,776
Investments in joint ventures 153,641 148,683
Other assets, net 189,378 189,954
TOTAL ASSETS $1,785,161 $1,926,817
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $128,936 $157,044
Accrued compensation and related benefits 88,140 93,708
Other accrued liabilities 263,087 150,058
Total current liabilities 480,163 400,810
Deferred income taxes 3,583 13,068
Pensions and other postretirement benefits 112,930 104,574
Other liabilities 41,481 136,749
Debenture payable to AMR --- 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; 23,811 and 23,706 shares
issued, respectively 238 237
Class B: $0.01 par value; 107,374 shares
authorized;107,374 shares issued and
outstanding 1,074 1,074
Additional paid-in capital 601,379 599,087
Retained earnings 629,770 395,800
Less treasury stock at cost; 1,829 and
1,240 shares, respectively (85,457) (42,455)
Total stockholders' equity 1,147,004 953,743
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,785,161 $1,926,817
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES
Electronic Travel Distribution $376,524 $339,695 $1,145,694 $ 1,023,237
Information Technology
Solutions 240,718 264,620 748,474 711,751
Total revenues 617,242 604,315 1,894,168 1,734,988
OPERATING EXPENSES
Cost of revenues
Electronic Travel
Distribution 255,433 233,976 758,860 682,298
Information Technology
Solutions 171,098 226,227 618,208 592,255
Selling, general and
administrative 70,079 45,667 188,452 138,272
Total operating expenses 496,610 505,870 1,565,520 1,412,825
OPERATING INCOME 120,632 98,445 328,648 322,163
OTHER INCOME (EXPENSE)
Interest income 5,130 6,442 20,438 18,772
Interest expense --- (5,087) (9,706) (14,684)
Other - net 45 13,707 34,989 13,898
Total other income(expense) 5,175 15,062 45,721 17,986
INCOME BEFORE PROVISION FOR
INCOME TAXES 125,807 113,507 374,369 340,149
Provision for income taxes 47,379 42,083 139,749 128,414
NET EARNINGS $ 78,428 $ 71,424 $ 234,620 $211,735
EARNINGS PER COMMON SHARE
DATA
Earnings per common
share, basic $ .61 $ .55 $ 1.81 $ 1.63
Earnings per common
share, diluted $ .55 $ .55 $ 1.79 $ 1.62
Common shares used in per
share calculations
Basic 129,379 129,731 129,608 130,052
Diluted 131,265 130,084 131,023 130,579
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
SABRE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited) (In thousands)
<TABLE>
<CAPTION>
Class A Class B Additional
Common Common Paid-in Retained Treasury
Stock Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 $237 $ 1,074 $599,087 $395,800 $(42,455)$953,743
Net earnings --- --- --- 234,620 --- 234,620
Issuance of Class A
Common Stock pursuant
to stock option,
restricted stock
incentive, stock
purchase and career
equity plans 1 --- (2,583) --- 15,942 13,360
Tax benefit from
exercise of employee
stock options --- --- 4,875 --- --- 4,875
Repurchase of Class A
Common Stock --- --- --- --- (58,944) (58,944)
Unrealized loss on
investments, net of
deferred taxes --- --- --- (650) --- (650)
Balance at September
30, 1999 $ 238 $ 1,074 $601,379 $629,770 $(85,457) $1,147,004
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
Operating Activities
Net earnings $234,620 $211,735
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization 187,134 184,712
Deferred income taxes 156 (8,442)
Gain on sale of other investments (34,828) ---
Other (4,551) 3,661
Changes in operating assets and liabilities
Accounts receivable (8,877) (117,058)
Prepaid expenses (10,051) (9,137)
Other assets (1,030) 1,425
Accrued compensation and related benefits (5,568) 8,574
Accounts payable and other accrued
liabilities 8,313 73,586
Receivable from and payable to affiliates (21,888) (23,190)
Pensions and other postretirement benefits 8,356 9,350
Other liabilities 5,551 525
Cash provided by operating activities 357,337 335,741
Investing Activities
Additions to property and equipment (125,012) (259,974)
Net decrease in short-term investments 126,241 120,257
Loan to affiliate (300,000) ---
Proceeds from sale of other investments 34,828 ---
Net investments in joint ventures 5,052 (135,570)
Other investing activities, net (31,157) (23,661)
Cash used for investing activities (290,048) (298,948)
Financing Activities
Proceeds from issuance of common stock 1,680 1,055
Proceeds from exercise of stock options 10,472 6,081
Purchases of treasury stock (58,944) (49,321)
Other financing activities, net (1,161) ---
Payment of Debenture payable to AMR (17,873) ---
Cash used for financing activities (65,826) (42,185)
Increase (decrease) in cash 1,463 (5,392)
Cash at beginning of the period 8,008 11,286
Cash at end of the period $9,471 $ 5,894
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE> 7
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General Information
Effective July 30, 1999, the name of the corporation
was changed from The Sabre Group Holdings, Inc. to
Sabre Holdings Corporation. Sabre Holdings Corporation
is a holding company. Its sole direct subsidiary is
Sabre Inc., formerly The Sabre Group, Inc., which 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 Sabre Holdings
Corporation and its consolidated subsidiaries.
2. Summary of Significant Accounting Policies
Basis of Presentation - The accompanying unaudited
consolidated financial statements have been prepared in
accordance with generally accepted accounting
principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, these
financial statements contain all adjustments,
consisting of normal recurring accruals, necessary to
present fairly the financial position, results of
operations and cash flows for the periods indicated.
The preparation of financial statements in accordance
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from
these estimates. The Company's quarterly financial
data should be read in conjunction with the
consolidated financial statements of the Company for
the year ended December 31, 1998 (including the notes
thereto), set forth in The Sabre Group Holdings, Inc.
Annual Report on Form 10-K.
Reclassifications - Certain reclassifications have
been made to the 1998 financial statements to conform
to the 1999 presentation.
3. Comprehensive Income
As of January 1, 1998, the Company adopted Financial
Accounting Standards Board Statement No. 130, Reporting
Comprehensive Income. Statement 130 establishes rules
for the reporting and display of comprehensive income
and its components. For the three and nine months
ended September 30, 1999 and 1998, the differences
between net earnings and total comprehensive income
were not significant.
<PAGE> 8
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Earnings Per Share
The following table sets forth the computations of
basic and diluted earnings per common share (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic
earnings per common
share - net earnings $ 78,428 $ 71,424 $ 234,620 $211,735
Change in amortization of
deferred asset related
to options issued
to US Airways (6,489) (254) (205) (254)
Numerator for diluted
earnings per common
share - adjusted net
earnings $ 71,939 $ 71,170 $ 234,415 $211,481
Denominator:
Denominator for basic
earnings per common
share - weighted-average
shares 129,379 129,731 129,608 130,052
Dilutive effect of stock
awards and options 1,886 353 1,415 527
Denominator for diluted
earnings per common
share - adjusted
weighted-average shares 131,265 130,084 131,023 130,579
Basic earnings per common
share $.61 $.55 $1.81 $1.63
Diluted earnings per
common share $.55 $.55 $1.79 $1.62
</TABLE>
5. Segment Reporting
The Company has two reportable segments: electronic travel
distribution and information technology solutions. The
electronic travel distribution segment distributes travel
services to travel agencies, corporate travel departments
and individual consumers ("subscribers"). Through the
Company's global distribution system, subscribers can
access information about and book reservations with
airlines and other providers of travel and travel-related
products and services. The information technology
solutions segment provides information technology
services including software development and consulting,
transaction processing and comprehensive information
technology outsourcing to the travel and transportation
industries. The Company's reportable segments are
strategic business units that offer different products
and services and are managed separately because each
business requires different market strategies.
<PAGE> 9
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Selected information for the Company's two reportable segments for
the three and nine months ended September 30, 1999 and September
30, 1998 follows (in thousands):
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues from external
customers:
Electronic Travel
Distribution $ 371,351 $ 337,209 $ 1,131,973 $ 1,017,788
Information Technology
Solutions 240,718 264,620 748,474 711,751
Total $ 612,069 $ 601,829 $ 1,880,447 $ 1,729,539
Equity in net income of
equity method
investees:
Electronic Travel
Distribution $ 5,173 $ 2,486 $ 13,721 $ 5,449
Operating income:
Electronic Travel
Distribution $ 80,529 $ 74,741 $ 274,601 $ 249,437
Information Technology
Solutions 44,123 20,910 56,496 68,194
Net corporate allocations (4,020) 2,794 (2,449) 4,532
Total $ 120,632 $ 98,445 $ 328,648 $ 322,163
</TABLE>
6. Stock Options - US Airways, Inc.
In January 1998, the Company entered into an information technology
services agreement with US Airways, Inc. ("US Airways"). In
connection with the agreement, the Company granted to US Airways
two tranches of stock options, each to acquire 3 million shares of the
Company's Class A Common Stock. The first tranche of options became
exercisable on June 30, 1999 and will expire December 31, 1999.
The Company has recorded a liability and a related
deferred asset equal to the number of options outstanding multiplied by
the difference between the exercise price of the options and the market
price of the Company's Class A Common Stock. The asset and liability
are adjusted for changes in the market price of the Company's stock
at each month-end. As of September 30, 1999, the Company has a current
liability relating to these options of $96 million and a net deferred
asset of approximately $81 million. The deferred asset is being amortized
over the eleven-year non-cancelable portion of the agreement. For the
nine months ended September 30, 1999, the Company recorded amortization
expense of approximately $6 million related to these options.
7.Significant Transactions
At December 31, 1998, American owned approximately 3.1 million
depository certificates representing beneficial ownership of common stock
of Equant N.V. ("Equant"), a telecommunications company affiliated
with Societe Internationale de Telecommunications Aeronatiques ("SITA").
Approximately 1.7 million of these depository certificates were held by
American for the economic benefit of the Company.
In connection with a secondary offering of Equant common stock, in
February 1999, American liquidated approximately 923,000 depository
certificates. Approximately 490,000 of these certificates, representing
approximately 30% of the Company's interest at December 31, 1998, were
liquidated for the Company's benefit. The Company received proceeds of
approximately $35 million from the transaction, resulting in a gain of
approximately $35 million.
<PAGE> 10
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
In July 1999, Equant officially notified the Company and American of
a reallocation, which had been previously anticipated, of depository
certificates among SITA members. Due to the Company's significantly
higher usage of the SITA network over the last four years, the Company's
interests in Equant increased substantially. The reallocation was
effective as of June 30, 1999. Accordingly, as of that date, the number
of depository certificates held by American for the economic benefit of
the Company increased to approximately 3.5 million. At September
30, 1999, the estimated value of these certificates was approximately
$284 million based upon the market value of Equant's publicly-traded
common stock.
The Company's carrying value of these depository certificates was nominal
at September 30, 1999 and December 31, 1998. Any future disposal of such
depository certificates will result in additional gains to the Company.
On March 17, 1999, the Company and American entered into a short-term credit
agreement pursuant to which American could borrow from the Company up to
a maximum of $300 million. During the first half of 1999, American borrowed
$300 million under the short-term credit agreement. As part of this
agreement, the original credit agreement between the Company and
American entered into on July 1, 1996 was modified to terminate American's
ability to borrow additional funds under that agreement. Subsequently, in
June 1999, the Company, AMR and American entered into an omnibus financing
agreement pursuant to which (a) the $300 million outstanding from American
under the short-term credit agreement was applied against the $318 million
debenture payable from the Company to AMR; (b) the Company paid in June 1999
the remaining principal balance, approximately $18 million, and all
outstanding accrued interest under the debenture; and (c) the Company and
American renewed, extended and reinstated American's ability to borrow
funds under the original credit agreement for an additional year
to June 30, 2000. The renewed credit agreement allows the Company to borrow
up to $300 million from American and American to borrow up to $100 million
from the Company to meet short-term working capital requirements.
In August 1999, the Company entered into a syndicated lease financing
facility of approximately $210 million for the purchase of land and an
existing office building and the construction of a new corporate
headquarters facility in Southlake, Texas. The financing facility will
be accounted for as an operating lease.
8. SUBSEQUENT EVENTS
On October 4, 1999, the Company announced the terms of a merger of
Travelocity, an operating unit of the Company ("Travelocity") and Preview
Travel, Inc. ("Preview"), an independent publicly traded company
engaged in consumer direct travel distribution over the Internet. Under
the terms of the merger agreement, shareholders of Preview will receive
one share of Travelocity.com Inc., a newly created subsidiary of
the Company, for each share of Preview held, and Preview will be merged
into Travelocity.com Inc., which will be the surviving entity. The Company
will attempt to obtain a listing of the shares of Travelocity.com Inc. on
the NASDAQ exchange. Assuming that the listing is obtained, Travelocity.com
Inc. will be a publicly traded company. Immediately prior to the merger,
the Company will contribute the existing assets and businesses of
Travelocity and approximately $50 million in cash to Travelocity.com LP,
a Delaware limited partnership (the "Partnership"). Immediately following
the merger, Travelocity.com Inc. will contribute the assets and
businesses obtained from the acquisition of Preview to the Partnership.
As a result of the merger agreement, the Company will own an economic
interest of 70% in the combined businesses, composed of a 64%
direct interest in the Partnership and an 18% interest in Travelocity.com
Inc., which will hold a 36% interest in the Partnership.
Upon consummation of the merger, the Company anticipates that it will
recognize a gain and record goodwill based upon the ownership of
Travelocity exchanged for the ownership interest in Preview. In
addition, during the ten days following the merger, Travelocity.com Inc.
has the right to cause the Company to purchase with cash up to an
additional $50 million in Travelocity.com Inc. common stock.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SABRE HOLDINGS CORPORATION
RESULTS OF OPERATIONS
SUMMARY The Company generates its revenue from providing electronic
travel distribution services and information technology solutions
services. During the nine months ended September 30, 1999, the Company
generated approximately 60.5% of its revenue from electronic travel
distribution services and approximately 39.5% of its revenue from
information technology solutions services. The following table sets
forth revenues by affiliation as a percent of total revenues:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Affiliation:
Unaffiliated Customers 75.8% 75.9% 75.8% 74.4%
Affiliated Customers 24.2 24.1 24.2 25.6
Total 100.0% 100.0% 100.0% 100.0%
</TABLE>
The Company's operating margins were 17.4% and 18.6% for the nine months
ended September 30, 1999 and 1998, respectively. Gross margins for
electronic travel distribution and information technology solutions were
33.8% and 17.4%, respectively, for the nine months ended September 30, 1999,
and 33.3% and 16.8%, respectively,for the nine months ended September 30,
1998.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 and 1998
ELECTRONIC TRAVEL DISTRIBUTION. Electronic travel distribution revenues
for the three months ended September 30, 1999 increased approximately
$37 million, 10.9%, compared to the three months ended September 30, 1998,
from $340 million to $377 million. The increase was primarily due to
growth in booking fees from associates from $305 million to $332 million.
The growth in booking fees was driven by an increase in booking volumes and
an overall increase in the average price per booking charged to associates
due to a price increase implemented in February 1999. The increase in
booking fee revenues was also partially driven by increases in bookings made
through the Company's Travelocity.com online travel site ("the
Travelocity.com site"). Other revenues increased approximately $10 million
primarily due to services provided to, and equity income related to, the
Company's joint ventures and revenues from sales of miscellaneous
products and services.
Cost of revenues for electronic travel distribution
increased approximately $21 million, 9.0%, from $234
million to $255 million. This increase was primarily
attributable to increases in subscriber incentive expenses
in order to maintain and expand the Company's travel
agency subscriber base.
INFORMATION TECHNOLOGY SOLUTIONS. Revenues from
information technology solutions for the three months
ended September 30, 1999 decreased approximately $24
million, 9.1%, compared to the three months ended
September 30, 1998, from $265 million to $241 million.
Revenues from unaffiliated customers decreased approximately
$27 million, primarily related to services performed under the
information technology services agreement with US Airways moving
into a steady state partially offset by increased revenues from other
information technology outsourcing agreements signed during 1998.
Revenues from affiliated customers increased approximately $3 million,
primarily due to increased revenue from data processing and new systems
development services performed for AMR, offset by a decrease in Year
2000 services performed for AMR.
<PAGE> 12
SABRE HOLDINGS CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Cost of revenues for information technology solutions
decreased approximately $55 million, 24.3%, from $226
million to $171 million. This decrease was primarily
attributable to a decrease in contract labor expenses and
depreciation and amortization expense, partially offset by
an increase in salaries and benefits expenses. Contract
labor expenses decreased due to a planned reduction in
contract labor headcount. Depreciation and amortization
expense decreased primarily due to the reversal of
amortization expense on the deferred asset associated with
the stock options granted to US Airways. Due to a
reduction in the market price of the Company's common
stock, the value of the deferred asset decreased during
the three months ended September 30, 1999. That reduction
resulted in a credit to amortization expense during the
quarter of approximately $19 million. Salaries and
benefits increased due to higher average salaries and
benefits costs and severance charges related to the
reduction in force of approximately 330 employees at the
end of August 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
general and administrative expenses increased $24 million,
52.2%, from $46 million to $70 million primarily due to
due to an increase in salaries, benefits and employee
related costs, advertising and miscellaneous selling
expenses. Salaries, benefits and employee related costs
increased as a result of sales growth initiatives and
increased administrative requirements to support the
Company's growth. Advertising and miscellaneous selling
expenses increased in order to support the Company's
growth initiatives.
OPERATING INCOME. Operating income increased $23 million,
23.5%, from $98 million to $121 million. Operating
margins increased from 16.3% in 1998 to 19.5% in 1999 due
to an increase in revenues of 2.1% while operating
expenses declined 1.8%.
INTEREST INCOME. Interest income decreased $1 million due
to lower average balances maintained in the Company's
short-term investment accounts.
INTEREST EXPENSE. Interest expense decreased $5 million
as a result of the settlement of the $318 million
debenture payable to AMR on June 30, 1999.
OTHER INCOME (EXPENSE). Other income (expense) decreased
$14 million due to the one-time gain of $14 million
recognized in 1998 as a result of the favorable court
judgment relating to Ticketnet Corporation, an inactive
subsidiary of the Company.
INCOME TAXES. The provision for income taxes was $47
million and $42 million for the three months ended
September 30, 1999 and 1998, respectively. The increase
in the provision for income taxes primarily corresponds
with the increase in net income before the provision for
income taxes.
NET EARNINGS. Net earnings increased $7 million, 9.9%,
from $71 million to $78 million, primarily due to the
increase in operating income and the reduction in interest
expense offset by the decrease in other income.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 and 1998
ELECTRONIC TRAVEL DISTRIBUTION. Electronic travel
distribution revenues for the nine months ended September
30, 1999 increased approximately $123 million, 12.0%,
compared to the nine months ended September 30, 1998, from
$1,023 million to $1,146 million. The increase was
primarily due to growth in booking fees from associates
from $921 million to $1,022 million. The growth in booking
fees was driven by an increase in booking volumes and an
overall increase in the average price per booking charged
to associates due to a price increase implemented in
February 1999. The increase in booking fee revenues was
also partially driven by increases in bookings made
through the Company's Travelocity.com site. Other
revenues increased approximately $22 million primarily due
to services provided to, and equity income related to, the
Company's joint ventures and revenues from sales of
miscellaneous products and services.
<PAGE> 13
SABRE HOLDINGS CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Cost of revenues for electronic travel distribution
increased approximately $77 million, 11.3%, from $682
million to $759 million. This increase was primarily
attributable to increases in subscriber incentive
expenses, salaries and benefits and data processing
costs, partially offset by reductions in depreciation
and amortization expense and expenses associated with
the marketing cooperation agreement with American.
Subscriber incentive expenses increased in order to maintain
and expand the Company's travel agency subscriber base.
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. Data processing costs
increased due to the growth in bookings and transactions
processed. Depreciation and amortization expense decreased
primarily due to a reduction in the reserve for obsolete
computer equipment, partially offset by additional
depreciation expense associated with new equipment
acquisitions.
INFORMATION TECHNOLOGY SOLUTIONS. Revenues from
information technology solutions for the nine months ended
September 30, 1999 increased approximately $36 million,
5.1%, compared to the nine months ended September 30,
1998, from $712 million to $748 million. Revenues from
unaffiliated customers increased approximately $33
million, due to services performed under the various
information technology services agreements signed during
1998. Revenues from affiliated customers increased
approximately $3 million due to new systems development
services performed for AMR, offset by a decrease in Year
2000 services performed for AMR.
Cost of revenues for information technology solutions
increased approximately $26 million, 4.4%, from $592
million to $618 million. This increase was primarily
attributable to an increase in salaries and benefits
expenses, partially offset by a decrease in contract labor
expenses. Salaries and benefits increased due to higher
average salaries and benefits costs and severance charges
related to the reduction in force of approximately 330
employees at the end of August 1999. Contract labor
expenses decreased due to a planned reduction in contract
labor headcount.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
general and administrative expenses increased $50 million,
36.2%, from $138 million to $188 million primarily due to
an increase in salaries, benefits and employee related
costs, advertising and miscellaneous selling expenses.
Salaries, benefits and employee related costs increased as
a result of sales growth initiatives and increased
administrative requirements to support the Company's
growth. Advertising and miscellaneous selling expenses
increased in order to support the Company's growth
initiatives.
OPERATING INCOME. Operating income increased $7 million,
2.2%, from $322 million to $329 million. Operating
margins decreased from 18.6% in 1998 to 17.4% in 1999 due
to an increase in revenues of 9.2% while operating
expenses increased 10.8%.
INTEREST INCOME. Interest income increased by $2 million
due primarily to interest earned on the short-term loan
receivable from American.
INTEREST EXPENSE. Interest expense decreased $5 million as
a result of the settlement of the $318 million debenture
payable to AMR on June 30, 1999.
OTHER INCOME (EXPENSE). Other income (expense) increased
$21 million due to a $35 million gain recognized on the
liquidation, in February 1999, of Equant depository
certificates held by American for the economic benefit of
the Company, partially offset by the one-time gain of $14
million recognized in 1998 as a result of the favorable
court judgment relating to Ticketnet Corporation, an
inactive subsidiary of the Company.
INCOME TAXES. The provision for income taxes was $140
million and $128 million for the nine months ended
September 30, 1999 and 1998, respectively. The increase
in the provision for income taxes
corresponds with the increase in net income before the
provision for income taxes, partially offset by a lower
effective tax rate due primarily to increased foreign
tax benefits.
NET EARNINGS. Net earnings increased $23 million,
10.8%, from $212 million to $235 million, primarily due
to the increases in other income and operating income
and the reduction in interest expense.
<PAGE > 14
SABRE HOLDINGS CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
OUTLOOK FOR THE REMAINDER OF 1999
For the remaining three months of 1999, the Company
expects growth in electronic travel distribution revenues
to be consistent with current levels. The Company also
anticipates continued pressure on subscriber incentive
expenses and intends to manage such expenses to keep them
in line with market share gains. Furthermore, the
Company expects to continue to invest in emerging
distribution channels and product development.
For the year ending December 31, 1999, the Company
anticipates that revenues from information technology
solutions activities will be comparable to revenues for
fiscal year 1998. Revenues from certain of the Company's
existing outsourcing customers will likely be down the
remainder of 1999 compared to the prior year as revenues
generated from the performance of Year 2000 services
decline and services under the US Airways contract move
into a steady-state. Although the Company is pursuing
additional technology outsourcing agreements, the timing
and anticipated revenue growth from any new contracts are
uncertain.
<PAGE> 15
SABRE HOLDINGS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
The Company had substantial liquidity at September 30,
1999, with approximately $412 million in cash and short-
term investments and $372 million in working capital. At
December 31, 1998, cash and short-term investments and
working capital were $538 million and $544 million,
respectively. 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 historically funded its operations through
cash generated from operations. The Company's cash
provided by operating activities of $357 million and $336
million for the nine months ended September 30, 1999 and
1998, respectively, was primarily attributable to net
earnings before noncash charges.
Capital investments for the nine months ended September
30, 1999 and 1998 were $151 million and $419 million,
respectively. The Company has estimated capital
investments of approximately $180 million to $220 million
for 1999.
On March 16, 1999, the Company's Board of Directors
authorized, subject to certain business and market
conditions, the repurchase of up to an additional 1
million shares of the Company's Class A Common Stock.
During the nine months ended September 30, 1999, the
Company purchased such treasury shares at a cost of
approximately $59 million. On September 15, 1999, the
Company's Board of Directors authorized, subject to certain
business and market conditions, the repurchase of up to an
additional $100 million of the Company's Class A Common Stock
during the next two years.
On March 17, 1999, the Company and American entered into a
short-term credit agreement pursuant to which American
could borrow from the Company up to a maximum of $300
million. During the first half of 1999, American borrowed
$300 million under the short-term credit agreement. As
part of this agreement, the original credit agreement
between the Company and American entered into on July 1,
1996 was modified to terminate American's ability to
borrow additional funds under that agreement.
Subsequently, in June 1999, the Company, AMR and American
entered into an omnibus financing agreement pursuant to
which (a) the $300 million outstanding from American under
the short-term credit agreement was applied against the
$318 million debenture payable from the Company to AMR;
(b) the Company paid in June 1999 the remaining principal
balance, approximately $18 million, and all outstanding
accrued interest under the debenture; and (c) the Company
and American renewed, extended and reinstated American's
ability to borrow funds under the original credit
agreement for an additional year to June 30, 2000. The
renewed credit agreement allows the Company to borrow up
to $300 million from American and American to borrow up to
$100 million from the Company to meet short-term working
capital requirements.
In August 1999, the Company entered into a syndicated
lease financing facility of approximately $210 million for
the purchase of land and an existing office building and
the construction of a new corporate headquarters facility
in Southlake, Texas. The financing facility will be
accounted for as an operating lease.
In addition, during 1999, the Company's Board of Directors
authorized capital expenditures of up to $97 million
related to the development of new data center facilities
in Tulsa, Oklahoma. The Company is currently considering
various funding alternatives.
In January 1998, the Company entered into an information
technology services agreement with US Airways. In
connection with that agreement, the Company granted to US
Airways two tranches of stock options, each to acquire 3
million shares of the Company's Class A Common Stock. The
first tranche of options became exercisable on June 30,
1999 and will expire December 31, 1999. The Company
intends to settle the first tranche of options with a cash
payment. The amount of the cash payment will be
determined based upon the difference between the exercise
price of $27 per share and the market price of the
Company's Class A Common Stock on the date of settlement,
subject to a cap on share price of $90. At September 30,
1999, the Company had recorded a $48 million liability
related to this settlement based upon the closing market
price of the Company's common stock at that date.
<PAGE> 16
SABRE HOLDINGS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company expects that the principal use of funds in the
foreseeable future will be for capital expenditures,
software product development, acquisitions, new facility
costs and working capital. Capital expenditures will
primarily consist of purchases of equipment for the data
center, as well as computer equipment to support (i)
updating existing subscriber equipment, (ii) expansion of
the subscriber base and (iii) new product capital
requirements. 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.
YEAR 2000 COMPLIANCE
STATE OF READINESS. In 1995, the Company implemented a
project (the "Year 2000 Project") intended to ensure that
hardware and software systems operated or licensed in the
Company's business, including systems provided to its
travel agency subscribers and its outsourcing customers,
are designed to operate and properly manage dates beyond
December 31, 1999 ("Year 2000 Compliant"). The Year 2000
Project consists of six phases: (i) awareness, (ii)
assessment,(iii) analysis, design and remediation, (iv) testing and
validation, (v) quality assurance review (to ensure
consistency throughout the Year 2000 Project) and (vi)
creation of business continuity strategy, including
contingency plans in the event of Year 2000 failures. In
developing the Company's proprietary software analysis,
remediation and testing methodology for Year 2000
compliance, it studied the best practices of the Institute
of Electrical and Electronics Engineers and the British
Standards Institution. The Company has assessed (i) its
over 1,000 information technology applications and
operating systems that will be utilized to process dates
after December 31, 1999 ("IT Systems") and (ii) its non-
information technology systems, including embedded
technology, relating to security, elevator control, HVAC
and other systems ("Non-IT Systems").
IT Systems. The Company has completed the first five
phases of the Year 2000 Project for all of its IT Systems
including its computer reservations and flight operating
system applications that perform such "mission critical"
functions as passenger bookings, ticketing, passenger
check-in, aircraft weight and balance, flight planning and
baggage and cargo processing. As of October 1, 1999,
approximately 45% of those IT Systems (including the Sabre
computer reservations systems) are already successfully
processing Year 2000 dates in actual use. All software
developed by the Company and currently being marketed is
Year 2000 Compliant. The Company has installed Year 2000
Compliant hardware and software at substantially all of
its travel agency subscriber locations worldwide. The
Company is following structured clean management processes
to keep all of its IT Systems Year 2000 ready.
Non-IT Systems. The Company has completed the Year 2000
Project for substantially all of its Non-IT Systems. The
Company believes that its business, financial condition
and results of operations would not be materially
adversely affected, and that it has adequate contingency
plans to ensure business continuity, if any of its Non-IT
Systems are not Year 2000 Compliant. Accordingly, the
Company has primarily focused its Year 2000 Project
efforts on its IT Systems.
Third Party Services. The Company relies on third party
providers for many services, such as telecommunications,
utilities, data and credit card transaction processing.
In providing services to the Company, those providers
depend on their hardware and software systems and, in the
case of telecommunications and data service providers, on
interfaces with the Company's IT Systems. The Company
received responses from substantially all of its 650
telecommunications and data service providers, other than
providers of discretionary data services that would not
materially adversely affect the Company's business,
financial condition and results of operations. Those
respondents assured the Company that their software,
hardware and internal business processes are Year 2000 Compliant. The
Company has completed extensive Year 2000 testing of 550
external interfaces with 265 external companies.
<PAGE> 17
SABRE HOLDINGS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's business is particularly dependent on its
ability to transmit data on a worldwide basis through
telecommunications networks. For telecommunications
network services, the Company relies on third party
service providers throughout the world, including AT&T,
SITA and MCI Worldcom. Many of those service providers
rely on other communications service providers that are
located in less developed countries and may have allocated
limited resources to Year 2000 compliance. The failure of
a segment of the telecommunications network could disrupt
the Company's ability to provide services to its
customers. Depending on its severity, a disruption could
have a material adverse affect on the Company's business,
financial condition and results of operations. The
Company does not expect the Year 2000 issues it might
encounter with third parties to be materially different
from those encountered by other information technology
companies, including the Company's competitors.
COSTS OF YEAR 2000 PROJECT. The Company expects to incur
significant hardware, software and labor costs, as well as
consulting and other expenses, in its Year 2000 Project.
The Company estimates the total cost of the project will
not exceed $105 million. Approximately $96 million,
cumulatively, was incurred as of September 30, 1999. The
total costs include approximately $31 million for the
installation of Year 2000 Compliant hardware and software
at travel agency subscriber locations, approximately $32
million for the Company's software applications,
approximately $23 million related to the Company's
hardware and software infrastructure and approximately $10
million for project management and other labor costs.
Future costs of the Year 2000 Project will primarily
result from the redeployment of information technology
resources, although no significant internal IT Systems
projects are being deferred to further the Year 2000
Project. The remaining costs primarily relate to the
ongoing upgrade of certain hardware and software that
support the Company's IT Systems; the analysis, testing
and verification of the Year 2000 readiness of third party
service providers; and the refinement of the Company's
business continuity plans. Costs associated with the Year
2000 project will be expensed as incurred and will be paid
from operating cash flows.
RISKS OF YEAR 2000 NON-COMPLIANCE. The economy in
general, and the travel and transportation industries in
particular, may be adversely affected by risks associated
with the Year 2000. The Company's business, financial
condition, and results of operations could be materially
adversely affected if IT Systems that it operates or
licenses to third parties, or systems that are operated by
other parties with which the Company's IT Systems
interface, are not Year 2000 Compliant in time. There can
be no assurance that these systems will continue to
properly function and interface and will otherwise be Year
2000 Compliant. Management believes that its most likely
Year 2000 risks relate to the failure of third parties
with whom it has material relationships, particularly
telecommunications network providers, to be Year 2000
Compliant.
Although the Company is not aware of any threatened claims
related to the Year 2000, the Company may be subject to
litigation arising from such claims and, depending on the
outcome, such litigation could have a material adverse
affect on the Company. There can be no assurance that the
Company's insurance coverage would be adequate to offset
these and other business risks related to the Year 2000
issue.
BUSINESS CONTINUITY PLANS. The Company has identified
three potential risk areas related to the Year 2000 and is
developing and refining plans to continue its business in the
event of Year 2000 failures in response to those risks. The Company
believes that its most likely Year 2000 risks relate to
the failure of third parties with whom it has material
relationships, particularly telecommunications network
providers, to be Year 2000 Compliant. In response to this
risk, the Company has surveyed and collected information
on the Year 2000 readiness of material external suppliers
and is in the process of collecting additional business
continuity information from such suppliers in order to
effectively manage any failures. The second risk area
relates to the effective prioritization and management of
any Year 2000 failures. The Company is establishing an
Enterprise Command Center in order to prioritize issues,
manage resources, coordinate problem resolution and
communicate status in the event of Year 2000 failures. The
third risk area relates to the failure of critical
internal business processes, services, systems and
facilities. The Company is developing business continuity
plans to manage potential internal Year 2000 failures.
The Company's business continuity plans include performing
certain processes manually; maintaining dedicated staff to
be available at crucial dates to remedy unforeseen
problems; installing defensive code to protect real-time
systems from improperly formatted date data supplied by
third parties; repairing or obtaining replacement systems;
and reducing or suspending certain non-critical aspects of
the Company's services or operations. Because of the
pervasiveness and complexity of the Year 2000 issue, and
in particular the uncertainty concerning the efforts and
success of third parties to be Year 2000 Compliant, the
Company will continue to refine its contingency plans
during 1999.
<PAGE> 18
SABRE HOLDINGS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
INTEREST IN EQUANT
At December 31, 1998, American owned approximately 3.1
million depository certificates representing beneficial
ownership of common stock of Equant, a telecommunications
company affiliated with SITA. Approximately 1.7 million of
these depository certificates were held by American for
the economic benefit of the Company.
In connection with a secondary offering of Equant common
stock, in February 1999, American liquidated approximately
923,000 depository certificates. Approximately 490,000 of
these certificates, representing approximately 30% of the
Company's interest at December 31, 1998, were liquidated
for the Company's benefit. The Company received proceeds
of approximately $35 million from the transaction,
resulting in a gain of approximately $35 million.
In July 1999, Equant officially notified the Company and
American of a reallocation, which had been previously
anticipated, of depository certificates among SITA
members. Due to the Company's significantly higher usage
of the SITA network over the last four years, the
Company's interests in Equant increased substantially.
The reallocation was effective as of June 30, 1999.
Accordingly, as of that date, the number of depository
certificates held by American for the economic benefit of
the Company increased to approximately 3.5 million. At
September 30, 1999, the estimated value of these
certificates was approximately $284 million based upon the
market value of Equant's publicly-traded common stock.
The Company's carrying value of these depository
certificates was nominal at September 30, 1999 and
December 31, 1998. Any future disposal of such depository
certificates will result in additional gains to the
Company.
TRAVELOCITY TRANSACTION
On October 4, 1999, the Company announced the terms of a
merger of Travelocity, an operating unit of the Company
("Travelocity") and Preview Travel, Inc. ("Preview"), an
independent publicly traded company engaged in consumer
direct travel distribution over the Internet. Under the
terms of the merger agreement, shareholders of Preview
will receive one share of Travelocity.com Inc., a newly
created subsidiary of the Company, for each share of
Preview held, and Preview will be merged into
Travelocity.com Inc., which will be the surviving entity.
The Company will attempt to obtain a listing of the shares
of Travelocity.com Inc. on the NASDAQ exchange. Assuming
that the listing is obtained, Travelocity.com Inc. will be
a publicly traded company. Immediately prior to the
merger, the Company will contribute the existing assets
and businesses of Travelocity and approximately $50
million in cash to Travelocity.com LP, a Delaware limited
partnership (the "Partnership"). Immediately following
the merger, Travelocity.com Inc. will contribute the
assets and businesses obtained from the acquisition of
Preview to the Partnership. As a result of the merger
agreement, the Company will own an economic interest of
70% in the combined businesses, composed of a 64% direct
interest in the Partnership and an 18% interest in
Travelocity.com Inc., which will hold a 36% interest in
the Partnership.
Upon consummation of the merger, the Company anticipates
that it will recognize a gain and record goodwill based
upon the ownership of Travelocity exchanged for the
ownership interest in Preview. In addition, during the
ten days following the merger, Travelocity.com Inc. has
the right to cause the Company to purchase with cash up to
an additional $50 million in Travelocity.com Inc. common
stock.
<PAGE> 19
SABRE HOLDINGS CORPORATION
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 US
Airways and their affiliates, including risks that they
may fail or otherwise become unable to fulfill their
principal obligations under any of the agreements with the
Company, or seek material changes in any of those
agreements, or terminate or determine not to renew any 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 or a failure of third party
suppliers to become Year 2000 Compliant and the outcome
of possible Year 2000 litigation involving the Company;
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
computer reservations 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, imposition of additional taxes, governmental
approvals, tariffs and trade barriers; risks of new or
different legal and regulatory requirements; and risks
associated with the Company's growth strategy, including
investments in emerging markets and the ability to
successfully conclude alliances.
<PAGE> 20
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Booking Fee Disputes
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 booking fees charged
by Sabre Inc. In the Reorganization, the Company became
the successor in interest to American in the case. Since
June 1996, ATA has withheld payment of approximately
$250,000 in Sabre system booking fees. On August 12,
1998, the District Court granted the Company's motion as
to the definition of a "booking" and the validity of the
charges under the participation agreement. In January
1999, the Company filed additional motions seeking to
dismiss the remaining issues in the case, which involve
interpretation of the U.S. Department of Transportation's
CRS regulations. In September 1999, the parties reached
final settlement of all claims and the case was dismissed
with prejudice by both sides.
Pakistan International Airlines Shareholder Dispute
In August 1999, two shareholders of Pakistan International
Airlines ("PIA") filed suit in Pakistan against PIA and
others, including the Company, claiming, among other
things, that the outsourcing and consulting agreements
between the Company and PIA violate the Pakistani
constitution and therefore are void. There are no direct
claims against the Company. The Company believes that the
claims as to the validity of the agreements are without
merit and will vigorously defend the contracts. As the
proceeding is just beginning, no trial date has been set.
Worldspan Dispute
On January 9, 1998, Worldspan LP ("Worldspan"), the former
provider of computer reservation system services to ABACUS
International Holdings ("ABACUS"), 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, violated the U.S. antitrust
laws, 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. Thereafter, the
court stayed the ABACUS case pending arbitration between
ABACUS and Worldspan. The arbitration concluded on May
20, 1999. The Arbitration Tribunal has not yet issued a
ruling in the matter. Discovery continues in the case
between Worldspan and the Company. The Company believes
that Worldspan's claims are without merit and is
vigorously defending itself. No trial date has been set.
India Tax Issue
The tax authority in India recently asserted that the
Company has a taxable presence in India arising from the
Company's relationship with its Indian distributor. In
March 1999, the Company received a $30 million USD tax
assessment (including interest) for the two years ending
March 31, 1998. The Company is challenging the assessment
on the grounds that it does not have a taxable presence in
India and, even if it does, the assessment is based on
incorrect data. The United States government has
intervened on behalf of the Company (and other U.S.
companies currently facing similar tax-related issues with
the Indian government). Pursuant to that process, the
Indian tax authority has stayed efforts to collect the
assessment from the Company. The Company has also
appealed the validity and amount of the assessment within
the Indian tax authority. The Company believes that the
position of the Indian government is without merit and
that it will ultimately prevail either through the U.S.-
India tax dispute procedures or on its direct appeal.
<PAGE> 21
ITEM 5. OTHER INFORMATION
In its Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 5, 1999,
AMR Corporation ("AMR") states that it has been
considering a potential spin-off transaction in which AMR
would distribute to its shareholders all of its ownership
interest in the Company.
Effective July 30, 1999, the legal name of The SABRE Group
Holdings, Inc. was changed to Sabre Holdings Corporation,
and the name of the Company's principal operating
subsidiary, The Sabre Group, Inc., was changed to Sabre
Inc. The Company's stock ticker symbol on the New York
Stock Exchange continues to be TSG.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
3.1 Restated Certificate of Incorporation of
Registrant. (1)
3.2 Restated Bylaws of Registrant. (1)
3.3 Certificate of Amendment of Certificate of
Incorporation of The Sabre Group Holdings, Inc. (2)
4.1 Registration Rights Agreement between
Registrant and AMR Corporation. (1)
4.2 Specimen Certificate representing Class A
Common Stock. (1)
10.1 Agreement and Plan of Merger dated as of
October 3, 1999 by and among Sabre Inc., Travelocity
Holdings, Inc., Travelocity.com Inc. and Preview
Travel, Inc.(3)
21.1 Subsidiaries of Registrant.
27.1 Financial Data Schedule as of September 30, 1999.
27.2 Restated Financial Data Schedule as of
September 30, 1998.
99.1 Press release dated October 4, 1999 "Sabre's
Travelocity to Merge with Preview Travel, Establishing
Clear Leader in Online Travel". (4)
99.2 Analyst Presentation entitled "Sabre's
Travelocity and Preview Travel Combine to Create the
Clear Leader in Online Travel". (3)
</TABLE>
(1) Incorporated by reference to Exhibits 3.1 through 4.2 to the
Company's Registration Statement on Form S-1
(Registration No. 33309747).
(2) Incorporated by reference to Exhibit 3.3 to the
Company's report on Form 10-Q for the quarterly period
ended June 30, 1999.
(3) Incorporated by reference to Exhibits 99.1 and 99.2 to the
Company's report on Form 8-K filed October 6, 1999.
(4) Incorporated by reference to Exhibit 99.1 to the
Company's report on Form 8-K filed October 4, 1999.
FORM 8-K
On October 4, 1999, the Company filed a current report on Form 8-K
relative to a press release to announce that on October 3,
1999, Sabre Inc., the operating subsidiary of the Company,
together with other wholly-owned subsidiaries, entered
into an Agreement and Plan of Merger with Preview Travel,
Inc. Also, the Company announced that Travelocity
Holdings, Inc., a wholly-owned subsidiary of Sabre Inc.,
entered into an Interactive Services and Exclusive Channel
Agreement with America Online, Inc.
On October 6, 1999, the Company filed a current report on
Form 8-K to file as an exhibit the Agreement and Plan of
Merger dated as of October 3, 1999 by and among Sabre
Inc., Travelocity Holdings, Inc., Travelocity.com Inc. and
Preview Travel, Inc. Also filed as an exhibit with the
Form 8-K was the Analyst Presentation entitled "Sabre's
Travelocity and Preview Travel Combine to Create the Clear
Leader in Online Travel".
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
SABRE HOLDINGS CORPORATION
Date: November 5, 1999 BY: /s/ Jeffery M. Jackson
Jeffery M. Jackson
Executive Vice President,
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
<
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<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 234,620
<EPS-BASIC> 1.81
<EPS-DILUTED> 1.79
</TABLE>
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES
SABRE HOLDINGS CORPORATION
Sabre Holdings Corporation SUBSIDIARY
(All subsidiaries are wholly-owned unless otherwise noted
in parenthesis.
Each subsidiary's subsidiaries outlined further below.)
Sabre Inc. (Delaware)
Sabre 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 Enterprises, Inc. (Delaware)
Sabre Inc. (Delaware)
Sabre Investments, Inc. (Delaware)
Sabre International, Inc. (Delaware)
Sabre International Holdings, Inc. (Delaware)
Sabre Limited (New Zealand)
Sabre Soluciones de Viaje S. de R.L. de C.V. (Mexico)
(99%)
Sabre Technology Enterprises, Ltd. (Cayman Islands)
Sabre Technology Holland B.V. (The Netherlands)
SST Finance, Inc. (Delaware)
SST Holding, Inc. (Delaware)
TSGL, Inc. (Delaware)
The Sabre Group Sales (Barbados), Ltd.
Ticketnet Corporation (Canada)
Travelocity Holdings, Inc. (Delaware)
Sabre Decision Technologies International, Inc. SUBSIDIARIES
Airline Technology Services Mauritius Ltd. (Mauritius)
Sabre Group International Limited, formerly INHOCO 858
Limited (UK)
Sabre Decision Technologies (Australia) Pty Ltd.
Airline Technology Services Mauritius Ltd. SUBSIDIARY
Sabre Pakistan (Limited) (Pakistan) (99%)
Sabre International, Inc. SUBSIDIARIES
Sabre CIS Holdings, Inc. (Delaware)
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)
Sabre Italia S.r.l. (Italy) (99%)
Sabre Marketing Nederland B.V. (The Netherlands)
<PAGE> 2
Sabre International, Inc. SUBSIDIARIES - Continued
Sabre Norge AS (Norway)
Sabre Portugal Servicios 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 Servicios LDA (Portugal) (1%)
Sabre Servicios Colombia LTDA (Colombia) (1%)
Sabre UK Marketing Ltd. (UK) (1%)
STIN Luxembourg S.A. (Luxembourg) (1%)
The Sabre Group International (Bahrain) W.L.L. (1%)
Sabre Investments, Inc. SUBSIDIARY
Sabre Investments - PK-1, Inc. (Delaware)
Sabre Soluciones de Viaje S. de R.L. de C.V. SUBSIDIARY
Sabre Informacion S.A. de C.V. (Mexico) (99%)
Sabre Technology Enterprises, Ltd. SUBSIDIARIES
Sabre Technology Enterprises II, Ltd. (Cayman Islands)
The Sabre Group International (Bahrain) W.L.L. (99%)
Sabre Technology Holland B.V. SUBSIDIARIES
Sabre Informacion S.A. de C.V. (Mexico) (1%)
Sabre Soluciones de Viaje S. de R.L. de C.V. (Mexico)
(1%)
SST Holding, Inc. SUBSIDIARY
Sabre Sociedad Tecnologica S.A. (Mexico) (51%)
Sabre Sociedad Tecnologica S.A. SUBSIDIARY
Sabre Services Administration (Mexico)
TSGL, Inc. SUBSIDIARY
TSGL Holding, Inc. (Delaware)
Ticketnet Corporation SUBSIDIARY
148548 Canada, Inc. (Canada)
<PAGE> 3
Travelocity Holdings, Inc. SUBSIDIARY
Travelocity.com Inc. (Delaware)
* All subsidiaries are wholly-owned unless otherwise noted
in parenthesis
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,894
<SECURITIES> 454,140
<RECEIVABLES> 367,190
<ALLOWANCES> 12,527
<INVENTORY> 0
<CURRENT-ASSETS> 901,764
<PP&E> 1,425,305
<DEPRECIATION> 758,991
<TOTAL-ASSETS> 1,809,630
<CURRENT-LIABILITIES> 409,477
<BONDS> 317,873
0
0
<COMMON> 1,311
<OTHER-SE> 928,252
<TOTAL-LIABILITY-AND-EQUITY> 1,809,630
<SALES> 0
<TOTAL-REVENUES> 1,734,988
<CGS> 0
<TOTAL-COSTS> 1,274,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,684
<INCOME-PRETAX> 340,149
<INCOME-TAX> 128,414
<INCOME-CONTINUING> 211,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211,735
<EPS-BASIC> 1.63
<EPS-DILUTED> 1.62
</TABLE>
