<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
-------------
[ ] 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.
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SABRE HOLDINGS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 75-2662240
----------------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4255 Amon Carter Blvd.
Fort Worth, Texas 76155
----------------------------------------- ------------------------------------
(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 - 129,087,022 as of August 8, 2000
================================================================================
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INDEX
SABRE HOLDINGS CORPORATION
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999
Consolidated Statements of Income - Three and six months ended June 30,
2000 and 1999
Condensed Consolidated Statement of Stockholders' Equity - Six months ended
June 30, 2000
Consolidated Statements of Cash Flows - Six months ended June 30, 2000 and
1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SABRE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------ -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 18,014 $ 6,628
Short-term investments 124,485 604,498
Accounts receivable, net 499,611 295,254
Receivable from affiliates, net -- 29,093
Prepaid expenses 77,827 22,899
Deferred income taxes 24,147 18,052
------------------ -------------------
Total current assets 744,084 976,424
PROPERTY AND EQUIPMENT
Buildings and leasehold improvements 340,652 337,409
Furniture, fixtures and equipment 47,739 46,485
Service contract equipment 535,012 546,200
Computer equipment 489,923 482,334
------------------ -------------------
1,413,326 1,412,428
Less accumulated depreciation and amortization (863,323) (839,874)
------------------ -------------------
Total property and equipment 550,003 572,554
Investments in joint ventures 156,359 156,158
Travelocity.com goodwill and intangible assets, net 222,443 --
Other assets, net 260,288 246,075
------------------ -------------------
TOTAL ASSETS $ 1,933,177 $ 1,951,211
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 141,137 $ 121,091
Accrued compensation and related benefits 74,172 89,424
Notes payable 200,000 --
Other accrued liabilities 253,318 314,598
------------------ -------------------
Total current liabilities 668,627 525,113
Deferred income taxes 13,299 --
Pensions and other postretirement benefits 119,276 119,687
Notes payable 149,000 ---
Other liabilities 35,777 44,366
Commitments and contingencies
Minority interest in Travelocity.com 255,195 --
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; 131,438 and 23,995
shares issued, respectively 1,314 240
Class B: $0.01 par value; 107,374 shares authorized; 0 and 107,374 shares
issued and outstanding, respectively -- 1,074
Additional paid-in capital 606,923 607,285
Retained earnings 181,984 727,050
Less treasury stock at cost: 2,363 and 1,573 shares, respectively (98,218) (73,604)
------------------ -------------------
Total stockholders' equity 692,003 1,262,045
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,933,177 $ 1,951,211
================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (In thousands, except per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES
Electronic Travel Distribution $ 455,292 $ 388,062 $ 890,266 $ 769,170
Information Technology Solutions 206,492 250,757 416,424 507,756
---------------- ---------------- ---------------- ----------------
Total revenues 661,784 638,819 1,306,690 1,276,926
OPERATING EXPENSES
Cost of revenues
Electronic Travel Distribution 278,545 250,661 556,347 503,427
Information Technology Solutions 167,059 228,291 338,322 447,110
Selling, general and administrative 94,875 63,919 182,771 118,373
Amortization of Travelocity.com goodwill and
intangible assets 20,737 --- 26,082 ---
---------------- ---------------- ---------------- ----------------
Total operating expenses 561,216 542,871 1,103,522 1,068,910
---------------- ---------------- ---------------- ----------------
OPERATING INCOME 100,568 95,948 203,168 208,016
OTHER INCOME (EXPENSE)
Interest income 2,733 8,203 8,824 15,308
Interest expense (5,841) (4,496) (8,537) (9,706)
Other - net 237 57 25 34,944
---------------- ---------------- ---------------- ----------------
Total other income (expense) (2,871) 3,764 312 40,546
---------------- ---------------- ---------------- ----------------
MINORITY INTEREST IN NET LOSS OF TRAVELOCITY.COM 11,178 --- 14,907 ---
---------------- ---------------- ---------------- ----------------
INCOME BEFORE PROVISION FOR INCOME TAXES 108,875 99,712 218,387 248,562
Provision for income taxes 45,467 36,249 89,363 92,370
---------------- ---------------- ---------------- ----------------
NET EARNINGS $ 63,408 $ 63,463 $ 129,024 $ 156,192
================ ================ ================ ================
EARNINGS PER COMMON SHARE
Basic $ .49 $ .49 $ 1.00 $ 1.20
================ ================ ================ ================
Diluted $ .46 $ .48 $ .94 $ 1.19
================ ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SABRE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000
(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, 1999 $ 240 $ 1,074 $ 607,285 $ 727,050 $ (73,604) $ 1,262,045
Net earnings --- --- --- 129,024 --- 129,024
Issuance of Class A Common Stock pursuant to
stock option, restricted stock incentive
and stock purchase plans --- --- (2,719) --- 9,858 7,139
Tax benefit from exercise of employee stock
options --- --- 1,494 --- --- 1,494
Repurchase of Class A Common Stock --- --- --- --- (34,472) (34,472)
Exchange of Class B Common Stock for Class
A Common Stock 1,074 (1,074) --- --- --- ---
Dividends paid --- --- 863 (675,903) --- (675,040)
Unrealized gain on investments, net of
deferred taxes --- --- --- 1,813 --- 1,813
------------------------------------------------------------------------------------
Balance at June 30, 2000 $ 1,314 $ --- $ 606,923 $ 181,984 $ (98,218) $ 692,003
====================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 129,024 $ 156,192
Adjustments to reconcile net earnings to cash provided by operating activities
Depreciation and amortization 134,581 145,623
Deferred income taxes 10,571 (12,001)
Gain on sale of other investments --- (34,828)
Other 3,430 (1,086)
Changes in operating assets and liabilities
Accounts receivable (192,568) (21,628)
Prepaid expenses (64,170) (11,188)
Other assets (17,098) (6)
Accrued compensation and related benefits (17,307) (20,000)
Accounts payable and other accrued liabilities 83,405 (6,437)
Receivable from and payable to affiliates 29,093 (23,501)
Pensions and other postretirement benefits (411) 13,415
Other liabilities (4,900) 12,176
Payment to US Airways (81,469) ---
Minority interest in Travelocity.com (9,891) ---
---------------- ----------------
Cash provided by operating activities 2,290 196,731
INVESTING ACTIVITIES
Additions to property and equipment (89,297) (85,570)
Net decrease in marketable investments 459,029 220,358
Loan to affiliate --- (300,000)
Proceeds from sale of other investments --- 34,828
Net investments in joint ventures 6,402 1,413
Other investing activities, net (13,191) (23,892)
---------------- ----------------
Cash provided by (used for) investing activities 362,943 (152,863)
FINANCING ACTIVITIES
Proceeds from issuance of common stock pursuant to employee stock plans 7,064 9,357
Purchases of treasury stock (34,472) (29,779)
Dividends paid (675,000) ---
Proceeds from issuance of notes payable 349,000 ---
Other financing activities, net (439) (765)
Payment of Debenture payable to AMR --- (17,873)
---------------- ----------------
Cash used for financing activities (353,847) (39,060)
---------------- ----------------
Increase in cash 11,386 4,808
Cash at beginning of the period 6,628 8,008
---------------- ----------------
Cash at end of the period $ 18,014 $ 12,816
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
1. GENERAL INFORMATION
Sabre Holdings Corporation is a holding company. Its sole direct subsidiary
is Sabre 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. On March 15, 2000, AMR
exchanged all of its 107,374,000 shares of the Company's Class B Common
Stock for an equal number of shares of the Company's Class A Common Stock
and distributed all those shares to AMR shareholders as a stock dividend.
AMR no longer has any ownership interest in the Company. 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, 1999 (including the notes thereto), set forth
in Sabre Holdings Corporation's Annual Report on Form 10-K.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1999
financial statements to conform to the 2000 presentation.
3. COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions, events and circumstances from
non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners.
During the three and six months ended June 30, 2000, the difference between
net earnings and total comprehensive income was approximately $1,145,000
$1,813,000, respectively, due to unrealized gains on marketable
securities.
7
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
--------------------------------------------------------------------------------
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------------------------------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per common
share - net earnings $ 63,408 $ 63,463 $ 129,024 $ 156,192
Incremental amortization of deferred
asset related to options issued to US
Airways (4,063) --- (7,224) ---
----------- ----------- ------------ ------------
Numerator for diluted earnings per
common share - adjusted net earnings $ 59,345 $ 63,463 $ 121,800 $ 156,192
Denominator:
Denominator for basic earnings per
common share - weighted-average shares 128,986 129,692 129,344 129,725
Dilutive effect of stock awards and
options 193 1,466 691 1,175
----------- ----------- ------------ ------------
Denominator for diluted earnings per
common share - adjusted weighted-average
shares 129,179 131,158 130,035 130,900
=========== =========== ============ ============
Earnings per common share - basic $ .49 $ .49 $ 1.00 $ 1.20
=========== =========== ============ ============
Earnings per common share - diluted $ .46 $ .48 $ .94 $ 1.19
=========== =========== ============ ============
</TABLE>
5. SEGMENT REPORTING
The Company has three reportable segments: electronic travel distribution,
Travelocity.com and information technology solutions. The electronic travel
distribution segment distributes travel services to travel agencies and
corporate travel departments ("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 Travelocity.com segment distributes travel
services to individual consumers. Through the Travelocity.com Web site,
individual consumers can compare prices, make travel reservations and
obtain destination information online. 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. The electronic
travel distribution and Travelocity.com segments are aggregated and
presented as electronic travel distribution within the consolidated
statements of income for the three and six months ended June 30, 2000 and
1999.
8
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
--------------------------------------------------------------------------------
Selected information for the Company's three reportable segments for the
three and six months ended June 30, 2000 and 1999 follows (in thousands):
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
------------------------------ -------------------------------
2000 1999 2000 1999
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues from external customers:
Electronic Travel Distribution $ 412,110 $ 374,130 $ 825,988 $ 745,808
Travelocity.com 35,930 8,076 54,856 14,814
Information Technology Solutions 206,492 250,757 416,424 507,756
------------- -------------- -------------- --------------
Total $ 654,532 $ 632,963 $ 1,297,268 $ 1,268,378
============= ============== ============== ==============
Intersegment revenues:
Electronic Travel Distribution $ 5,012 $ (5,027) $ 7,929 $ (9,017)
Travelocity.com 10,868 5,027 18,965 9,017
Information Technology Solutions 1,962 --- 2,496 ---
------------- -------------- -------------- --------------
Total $ 17,842 $ --- $ 29,390 $ ---
============= ============== ============== ==============
Equity in net income of equity method
investees:
Electronic Travel Distribution $ 7,252 $ 5,856 $ 9,422 $ 8,548
============= ============== ============== ==============
Total consolidated revenues:
Electronic Travel Distribution $ 424,374 $ 374,959 $ 843,339 $ 745,339
Travelocity.com 46,798 13,103 73,821 23,831
Information Technology Solutions 208,454 250,757 418,920 507,756
Elimination of intersegment
revenues (17,842) --- (29,390) ---
------------- -------------- -------------- --------------
Total $ 661,784 $ 638,819 $ 1,306,690 $ 1,276,926
============= ============== ============== ==============
Operating income (loss):
Electronic Travel Distribution $ 118,885 $ 106,558 $ 233,608 $ 207,439
Travelocity.com (36,199) (6,500) (53,257) (13,367)
Information Technology Solutions 20,753 (2,054) 40,470 12,373
Net corporate allocations (2,871) (2,056) (17,653) 1,571
------------- -------------- -------------- --------------
Total $ 100,568 $ 95,948 $ 203,168 $ 208,016
============= ============== ============== ==============
</TABLE>
Net corporate allocations include approximately $2 million and $14 million
of nonrecurring expenses associated with the spin-off from AMR for the
three and six months ended June 30, 2000, respectively.
6. STOCK OPTIONS - US AIRWAYS, INC.
In December 1999, US Airways, Inc. ("US Airways") exercised one of its two
tranches of options to acquire three million shares of the Company's Class
A Common Stock. Pursuant to the terms of the exercised options, the Company
paid approximately $81 million to US Airways on January 5, 2000 instead of
issuing shares to US Airways.
In connection with the Company's payment of the $675 million dividend on
February 18, 2000, the Company adjusted the terms of the second tranche of
stock options held by US Airways such that the aggregate intrinsic value of
US Airways' holdings was the same before and after the effect of the
payment of the dividend on the Company's stock price.
9
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
--------------------------------------------------------------------------------
7. SIGNIFICANT TRANSACTIONS
On February 4, 2000, the Company entered into a $300 million, senior
unsecured, revolving credit agreement (the "Credit Facility"), which
expires on September 14, 2004. Additionally, on February 4, 2000, the
Company entered into a short-term $200 million, senior unsecured, term loan
agreement (the "Interim Loan"), which had an original maturity of August 4,
2000. On August 4, 2000, the Company executed an agreement to extend the
Interim Loan until February 4, 2001. The proceeds from both the Credit
Facility and Interim Loan are being used for working capital, capital
expenditures, acquisitions, payment of dividends and other corporate
purposes. The Company utilized a portion of its available cash balance and
short-term investments as well as proceeds from both the Credit Facility
and Interim Loan to fund the $675 million dividend paid to shareholders on
February 18, 2000 in connection with the separation of the Company from
AMR. Interest on these debt agreements is variable, based upon the London
Interbank Offered Rate ("LIBOR"), the prime rate or the federal funds rate
plus a margin, at the Company's option. The weighted-average annual
interest rate of debt outstanding under the Credit Facility and Interim
Loan at June 30, 2000 was 6.61%. As of June 30, 2000, borrowings under the
Credit Facility and Interim Loan were $149 million and $200 million,
respectively.
On March 7, 2000, the Company completed the merger of Travelocity.com Inc.,
a subsidiary of the Company 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 received one share of Travelocity.com Inc., a newly
created subsidiary of the Company, for each share of Preview held, and
Preview was merged into Travelocity.com Inc., the surviving entity. Shares
of Travelocity.com Inc. stock now trade under the symbol "TVLY" on the
NASDAQ National Market. In connection with the merger, the Company
contributed the existing assets and businesses of Travelocity.com Inc. and
approximately $100 million in cash to Travelocity.com LP, a Delaware
limited partnership (the "Partnership"). Immediately following the merger,
Travelocity.com Inc. contributed the assets and businesses obtained from
the acquisition of Preview to the Partnership. As a result of the merger,
the Company owns an economic interest of approximately 70% in the combined
businesses, composed of an approximate 61% direct interest in the
Partnership and an approximate 22% interest in Travelocity.com Inc., which
holds an approximate 39% interest in the Partnership.
The cost of the acquisition of Preview was approximately $287 million. This
amount was determined by the fair market value of Preview's outstanding
common stock on the last trading day before the merger agreement was
announced plus the value of the vested options of Preview assumed by
Travelocity.com in the merger and other direct costs associated with the
transaction as follows (in thousands):
<TABLE>
<S> <C>
Fair market value of Preview's common stock $ 253,395
Fair market value of vested Preview stock options 23,655
Investment advisor, legal, accounting and other
professional fees and expenses 9,342
Other costs directly related to the merger 493
---------
Total $ 286,885
=========
</TABLE>
The cost of the acquisition was allocated to the respective assets and
liabilities acquired with the remainder recorded as goodwill. The Company
is amortizing approximately $248 million of goodwill and other intangible
assets resulting from the acquisition over a three-year period. As of June
30, 2000, the accumulated amortization related to these assets was
approximately $26 million.
During 1999, the Company entered into an agreement with America Online,
Inc. ("AOL") that became effective upon the consummation of the merger of
Travelocity.com with Preview on March 7, 2000. The agreement provides,
among other things, that the Travelocity.com Web site will be the exclusive
reservations engine for AOL's Internet properties. Payments of up to $200
million will be made to AOL and Travelocity.com and AOL will share
advertising revenues and commissions over the five-year term of the
agreement. In connection with this agreement, Travelocity.com paid $40
million to AOL on March 7, 2000 for the first year of the agreement.
10
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
--------------------------------------------------------------------------------
On March 14, 2000, the Company's Board of Directors approved a broad-based
stock option plan (the "Option Plan") effective March 15, 2000. Seven
million shares are authorized under the Option Plan for grants of options
and stock appreciation rights to employees of the Company. On March 16,
2000, the Company granted approximately two million options under the
Option Plan.
On March 15, 2000, AMR exchanged all of its 107,374,000 shares of the
Company's Class B Common Stock for an equal number of shares of the
Company's Class A Common Stock and distributed all those shares to AMR
shareholders as a stock dividend. AMR no longer has any ownership interest
in the Company.
On June 26, 2000, the Company entered into an agreement to acquire a 51%
ownership stake in Dillon Communication Systems GmbH ("DCS"), a supplier of
electronic travel distribution services in Germany. DCS also has operations
in the United Kingdom, Belgium, the Netherlands, Austria, Luxembourg,
Switzerland and Poland. In connection with the agreement, the Company paid
approximately $20 million in cash in July 2000 and will make additional
payments of approximately $1 million in each of the next three years.
11
<PAGE>
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 six months ended June 30, 2000, the Company generated approximately 68.1%
of its revenue from electronic travel distribution services and approximately
31.9% of its revenue from information technology solutions services. The
Company's operating margins were 15.5% and 16.3% for the six months ended June
30, 2000 and 1999, respectively. Gross margins for electronic travel
distribution and information technology solutions were 37.5% and 18.8%,
respectively, for the six months ended June 30, 2000, and 34.5% and 11.9%,
respectively, for the six months ended June 30, 1999.
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
ELECTRONIC TRAVEL DISTRIBUTION. Electronic travel distribution revenues for
the three months ended June 30, 2000 increased approximately $67 million,
17.3%, compared to the three months ended June 30, 1999, from $388 million to
$455 million. The increase in revenues was primarily due to growth in booking
and other fees from associates from $341 million to $399 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 2000. The increase in booking fee revenues
was also partially driven by increased bookings made through the
Travelocity.com Web site. Other revenues increased approximately $9 million
primarily due to advertising revenues from the Travelocity.com Web site,
services provided to and equity income related to the Company's joint ventures
and increased sales of miscellaneous products and services.
Cost of revenues for electronic travel distribution increased approximately
$28 million, 11.2%, from $251 million to $279 million. This increase was
primarily attributable to increased subscriber incentives, salaries, benefits,
other operating expenses and data processing costs, which were partially
offset by decreased depreciation and amortization expenses. Subscriber
incentive expenses increased in order to maintain and expand the Company's
travel agency subscriber base and to respond to competitive pressures.
Salaries, benefits and other operating expenses increased to support the
growth of the Travelocity.com business. Additionally, data processing costs
increased due to the growth in bookings and transactions processed. Those
increases were partially offset by reduced depreciation and amortization
expenses primarily attributable to certain classes of computer equipment
becoming fully depreciated in fiscal year 2000.
INFORMATION TECHNOLOGY SOLUTIONS. Revenues from information technology
solutions for the three months ended June 30, 2000 decreased approximately $45
million, 17.9%, compared to the three months ended June 30, 1999, from $251
million to $206 million. Revenues from US Airways decreased approximately $12
million due primarily to the conclusion of conversion and migration work under
the information technology services agreement. In addition, revenues from AMR
decreased approximately $12 million, primarily due to decreased development
and data processing services. The reduction in revenues was also due to
reduced application development services for Canadian Airlines, the
divestiture of the Company's logistics business and lower transaction
processing and software development sales to other customers.
Cost of revenues for information technology solutions decreased approximately
$61 million, 26.8%, from $228 million to $167 million. This decrease was
primarily attributable to decreased salaries, benefits, contract labor and
depreciation and amortization expenses. Salaries, benefits and contract labor
expenses decreased due to a planned reduction in headcount during 1999.
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 June 30, 2000. That reduction resulted in a credit to
amortization expense during the quarter of approximately $4 million, compared
to amortization expense of approximately $22 million recognized during the
quarter ended June 30, 1999.
12
<PAGE>
SABRE HOLDINGS CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $31 million, 48.4%, from $64 million to $95
million. The increase is partially due to the amortization of payments made
by Travelocity.com to strategic distribution partners such as America Online,
Inc., Yahoo! Inc. and certain others. In addition, advertising and promotion
costs and other administrative expenses increased in order to support the
growth of Travelocity.com.
AMORTIZATION OF TRAVELOCITY.COM GOODWILL AND INTANGIBLE ASSETS. Amortization
of goodwill and intangible assets was $21 million for the three months ended
June 30, 2000. Goodwill and intangible assets of $248 million were recorded in
connection with the merger of Travelocity.com and Preview on March 7, 2000 and
are being amortized over a three-year period.
OPERATING INCOME. Operating income increased $5 million, 5.2%, from $96
million to $101 million. Operating margins increased from 15.0% in 1999 to
15.2% in 2000 due to an increase in revenues of 3.6% while operating expenses
increased 3.4%.
INTEREST INCOME. Interest income decreased $5 million due to lower average
balances maintained in the Company's short-term investment accounts.
INTEREST EXPENSE. Interest expense increased $1 million due to interest
expense on the $349 million of debt incurred in February 2000, related to the
payment of the $675 million cash dividend, partially offset by the settlement
of the $318 million debenture payable to AMR in June 1999.
MINORITY INTEREST IN NET LOSS OF TRAVELOCITY.COM. The minority interest in the
net loss of Travelocity.com represents minority owners' approximate 30% share
of the net loss of Travelocity.com.
INCOME TAXES. The provision for income taxes was $45 million and $36 million
for the three months ended June 30, 2000 and 1999, respectively. The increase
in the provision for income taxes corresponds with the increase in net income
before the provision for income taxes and an increase in the effective tax
rate resulting from the impact of nondeductible goodwill amortization expense
related to the merger of Travelocity.com and Preview.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
ELECTRONIC TRAVEL DISTRIBUTION. Electronic travel distribution revenues for
the six months ended June 30, 2000 increased approximately $121 million,
15.7%, compared to the six months ended June 30, 1999, from $769 million to
$890 million. The increase was primarily due to growth in booking and other
fees from associates from $687 million to $791 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 2000. The increase in booking fee revenues was also
partially driven by increased bookings made through the Travelocity.com Web
site. Other revenues increased $17 million primarily due to advertising
revenues from the Travelocity.com Web site, services provided to and equity
income related to the Company's joint ventures and increased sales of
miscellaneous products and services.
Cost of revenues for electronic travel distribution increased approximately
$53 million, 10.5%, from $503 million to $556 million. This increase was
primarily attributable to increases in subscriber incentives, salaries,
benefits, other operating expenses and data processing costs, which were
partially offset by decreased depreciation and amortization expenses.
Subscriber incentive expenses increased in order to maintain and expand the
Company's travel agency subscriber base and to respond to competitive
pressures. Salaries, benefits and other operating expenses increased to
support the growth of the Travelocity.com business. Data processing costs
increased due to the growth in bookings and transactions processed. Those
increases were partially offset by reduced depreciation and amortization
expenses primarily attributable to certain classes of computer equipment
becoming fully depreciated in fiscal year 2000.
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<PAGE>
SABRE HOLDINGS CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
INFORMATION TECHNOLOGY SOLUTIONS. Revenues from information technology
solutions for the six months ended June 30, 2000 decreased approximately $92
million, 18.1%, compared to the six months ended June 30, 1999, from $508
million to $416 million. Revenues from US Airways decreased approximately $35
million due primarily to the conclusion of conversion and migration work under
the information technology services agreement. In addition, revenues from AMR
decreased approximately $18 million, primarily due to decreased development
and data processing services. The reduction in revenues was also due to
reduced applications development services for Canadian Airlines, the
conclusion of work on an information technology project in Russia, the
divestiture of the Company's logistics business and lower transaction
processing and software development sales to other customers.
Cost of revenues for information technology solutions decreased approximately
$109 million, 24.4% from $447 million to $338 million. This decrease was
primarily attributable to decreased salaries, benefits, contract labor and
depreciation and amortization expenses. Salaries, benefits and contract labor
expenses decreased due to a planned reduction in headcount during 1999.
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
six months ended June 30, 2000. That reduction resulted in a credit to
amortization expense during the six months ended June 30, 2000 of
approximately $6 million, compared to amortization expense of approximately
$25 million recognized during the six months ended June 30, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $65 million, 55.1%, from $118 million to
$183 million. Expenses for the six months ended June 30, 2000 include $14
million of nonrecurring charges associated with the spin-off from AMR.
Additionally, approximately $46 million of the increase is due to increased
expenses related to the Travelocity.com business including the amortization of
payments made to strategic distribution partners, additional advertising and
promotion activities and other administrative expenses to support the growth
of the business.
AMORTIZATION OF TRAVELOCITY.COM GOODWILL AND INTANGIBLE ASSETS. Amortization
of goodwill and intangible assets was $26 million for the six months ended
June 30, 2000. Goodwill and intangible assets of $248 million were recorded in
connection with the merger of Travelocity.com and Preview on March 7, 2000 and
are being amortized over a three-year period.
OPERATING INCOME. Operating income decreased $5 million, 2.4%, from $208
million to $203 million. Operating margins decreased from 16.3% in 1999 to
15.5% in 2000 due to an increase in revenues of 2.3% while operating expenses
increased 3.2%.
INTEREST INCOME. Interest income decreased $6 million due to lower average
balances maintained in the Company's short-term investment accounts.
INTEREST EXPENSE. Interest expense decreased $1 million as a result of the
settlement of the $318 million debenture payable to AMR in June 1999,
partially offset by interest expense on the $349 million of debt incurred in
February 2000, related to the payment of the $675 million cash dividend in
February 2000.
OTHER INCOME (EXPENSE). Other income (expense) decreased $35 million due to a
gain recognized during the six months ended June 30, 1999 on the liquidation
of a portion of the Company's beneficial interest in Equant, N.V.
MINORITY INTEREST IN NET LOSS OF TRAVELOCITY.COM. The minority interest in the
net loss of Travelocity.com represents minority owners' approximate 30% share
of the net loss of Travelocity.com.
INCOME TAXES. The provision for income taxes was $89 million and $92 million
for the six months ended June 30, 2000 and 1999, respectively. The decrease in
the provision for income taxes corresponds with the decrease in net income
before the provision for income taxes, partially offset by an increase in the
effective tax rate resulting from the impact of nondeductible goodwill
amortization expense related to the merger of Travelocity.com and Preview.
14
<PAGE>
SABRE HOLDINGS CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
OUTLOOK FOR THE REMAINDER OF 2000
The Company expects continued profitability and revenue growth in 2000. The
Company expects the revenue growth rate from electronic travel distribution
to continue at its strong growth rate due to growth in travel bookings,
initiatives related to emerging distribution channels and projected growth
for the Travelocity.com business. The Company plans to grow market share and
continue to invest in products that will assist the travel agency community
in meeting customer demands. The Company expects revenue from information
technology solutions to continue to decrease during the third quarter of
2000, compared to 1999, due to the timing of systems applications and
development revenue. However, during the fourth quarter, information
technology solutions revenue is expected to increase over fourth quarter 1999
results. The Company also expects to continue to invest in emerging
distribution channels, product development and web hosting services.
Furthermore, the Company anticipates continued pressure on subscriber
incentive expenses and intends to manage such expenses to keep them in line
with any market share gains.
The Company expects improved operating margins in 2000 for the information
technology solutions business by controlling headcount and employee-related
expenses and reducing certain other expenses. However, the Company expects
selling, general and administrative expenses to be higher in 2000 than in
1999 as a result of the spin-off from AMR and to support the growth of the
Travelocity.com business. As a result, operating margins for the combined
electronic travel distribution business may come under pressure versus 1999
levels due primarily to spending within the Travelocity.com business.
Additionally, interest income should decrease and interest expense increase
due to funding requirements for the $675 million dividend paid to the
Company's shareholders in February 2000.
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<PAGE>
SABRE HOLDINGS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had approximately $142 million in cash and
short-term investments and $75 million in working capital. At December 31,
1999, cash and short-term investments and working capital were $611 million
and $451 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.
Approximately $326 million in cash and short-term investments was used for the
payment of a $675 million cash dividend on February 18, 2000. The Company also
borrowed $349 million to fund the dividend, of which $200 million has a
short-term maturity. The funding and subsequent payment of the $675 million
cash dividend resulted in the decrease in working capital during the six
months ended June 30, 2000.
The Company generated $2 million of cash from operating activities during the
six months ended June 30, 2000 compared to $197 million for the six months
ended June 30, 1999. Historically, the Company has funded its operations
through cash generated from operations. The decrease in cash provided by
operating activities during the six months ended June 30, 2000 was primarily
due to the impact of the acquisition of Preview, payment of amounts due under
the agreement between Travelocity.com and America Online, Inc. and the payment
of $81 million to US Airways upon the exercise of options in lieu of issuing
shares of the Company's common stock on January 5, 2000.
In addition, on February 4, 2000, the Company entered into a $300 million,
senior unsecured, revolving credit agreement (the "Credit Facility"), which
expires on September 14, 2004. Additionally, on February 4, 2000, the Company
entered into a short-term $200 million, senior unsecured, term loan agreement
(the "Interim Loan"), which had an original maturity of August 4, 2000. On
August 4, 2000, the Company executed an agreement to extend the Interim Loan
until February 4, 2001. The proceeds from both the Credit Facility and Interim
Loan are being used for working capital, capital expenditures, acquisitions,
dividends and other corporate purposes. On February 18, 2000, the Company
utilized a portion of its available cash balance and short-term investments
and proceeds from both the Credit Facility and Interim Loan to fund the $675
million dividend paid to shareholders. As of June 30, 2000, borrowings under
the Credit Facility and Interim Loan amounted to approximately $149 million
and $200 million, respectively.
On February 7, 2000, in connection with the separation from AMR, the Company
declared a one-time cash dividend on all outstanding shares of the Company's
Class A and Class B Common Stock. The aggregate amount of the dividend was
$675 million, or approximately $5.20 per share, and was paid to shareholders
on February 18, 2000. In the future, the Company intends to retain its
earnings to finance future growth and, therefore, does not anticipate paying
any additional cash dividends on its common stock. Any determination as to the
future 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.
During 1999, the Company entered into an agreement with America Online, Inc.
("AOL") that became effective upon the consummation of the merger of
Travelocity.com with Preview on March 7, 2000. The agreement provides, among
other things, that the Travelocity.com Web site will be the exclusive
reservations engine for AOL's Internet properties. Payments of up to $200
million will be made to AOL and Travelocity.com and AOL will share advertising
revenues and commissions over the five-year term of the agreement. In
connection with this agreement, Travelocity.com paid $40 million to AOL on
March 7, 2000 for the first year of the agreement.
Net capital investments for the six months ended June 30, 2000 and 1999 were
$96 million and $108 million, respectively. The Company has estimated capital
investments of approximately $200 million to $250 million for 2000.
During the six months ended June 30, 2000, the Company purchased approximately
1 million treasury shares at a cost of approximately $34 million.
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<PAGE>
SABRE HOLDINGS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On March 10, 2000, the Company filed a registration statement on Form S-3 with
the Securities and Exchange Commission through which the Company intends to
sell certain securities from time to time after the effective date of the
registration statement. The Company intends to use the proceeds from the sale
of any securities for general corporate purposes, including the retirement of
debt, additions to working capital, capital expenditures and for acquisitions.
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,
cash flows from operations and funds available under the Credit Facility and
Interim Loan combined with the ability to raise funds from the sale of
securities in connection with the registration statement on Form S-3 will be
sufficient to meet the Company's cash requirements for the foreseeable future.
ACQUISITION OF PREVIEW TRAVEL, INC.
On March 7, 2000, the Company completed the merger of Travelocity.com Inc., a
subsidiary of the Company and Preview Travel, Inc., an independent
publicly-traded company engaged in consumer direct travel distribution over
the Internet. Under the terms of the merger agreement, shareholders of Preview
received one share of Travelocity.com Inc., a newly created subsidiary of the
Company, for each share of Preview held, and Preview was merged into
Travelocity.com Inc., the surviving entity. Shares of Travelocity.com Inc.
stock now trade under the symbol "TVLY" on the NASDAQ National Market. In
connection with the merger, the Company contributed the existing assets and
businesses of Travelocity.com and approximately $100 million in cash to
Travelocity.com LP, a Delaware limited partnership (the "Partnership").
Immediately following the merger, Travelocity.com Inc. contributed the assets
and businesses obtained from the acquisition of Preview to the Partnership. As
a result of the merger, the Company owns an economic interest of approximately
70% in the combined businesses, composed of an approximate 61% direct interest
in the Partnership and an approximate 22% interest in Travelocity.com Inc.,
which holds an approximate 39% interest in the Partnership.
The cost of the acquisition of Preview was approximately $287 million. This
amount was determined by the fair market value of Preview's outstanding common
stock on the last trading day before the merger agreement was announced plus
the value of the vested options of Preview assumed by Travelocity.com in the
merger and other direct costs associated with the transaction. The cost of the
acquisition was allocated to the respective assets and liabilities acquired
with the remainder recorded as goodwill. The Company recorded goodwill and
other intangible assets of approximately $248 million, which is being
amortized over a three-year period.
INVESTMENT IN DILLON COMMUNICATION SYSTEMS GMBH
On June 26, 2000, the Company entered into an agreement to acquire a 51%
ownership stake in Dillon Communication Systems GmbH ("DCS"), a supplier of
electronic travel distribution services in Germany. DCS also has operations in
the United Kingdom, Belgium, the Netherlands, Austria, Luxembourg, Switzerland
and Poland. In connection with the agreement, the Company paid approximately
$20 million in cash in July 2000 and will make additional payments of
approximately $1 million in each of the next three years.
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<PAGE>
SABRE HOLDINGS CORPORATION
CAUTIONARY STATEMENT
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 in this
report 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 terminate any of the agreements with the Company, or fail
or otherwise become unable to fulfill their principal obligations thereunder,
or determine not to renew certain of the agreements; risks associated with
the spin-off by AMR of its equity interest in the Company including potential
liability for income taxes; risks related to the $675 million dividend paid
in February 2000, including the increased debt service for indebtedness
incurred to effect that dividend; 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;
risks associated with online commerce and doing business through an Internet
Web site, such as security issues, liability for site content, and uncertain
protection of intellectual property; risks relating to the Company's
investment in technology, including the ability of the Company to timely
develop and achieve market acceptance of new products; risks associated with
industry consolidation, including strategic alliances, in the computer
reservations system industry; 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,
hotel operators and car rental companies that participate in the Sabre
system, including the increased price of fuel; risks of a natural disaster,
computer terrorism or other calamity that may cause significant damage to the
Company's data center facilities and enterprise information systems; risks of
interruption or deterioration of third party services on which the Company
relies to provide its services; risks of deterioration or obsolescence of the
Company's current systems and infrastructures; risks associated with the
Company's international operations, such as currency fluctuations,
governmental approvals, tariffs and trade barriers, and political
instability; 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 and execute
alliances.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 2000, the Company's exposure to interest rates relates primarily
to its investment portfolio and to its variable rate debt instruments. In
February 2000, the Company entered into a long-term, $300 million, senior
unsecured, revolving credit agreement and a short-term $200 million, senior
unsecured, term loan agreement. Interest on these debt agreements is variable,
based upon LIBOR, prime rate or the federal funds rate plus a margin, at the
Company's option. The Company's earnings are affected by changes in interest
rates due to the impact that those changes have on the interest expense
associated with the loans. The weighted-average annual interest rate of debt
outstanding at June 30, 2000 was 6.61%. If short-term interest rates average
10% higher in 2001 than during 2000, the Company's interest expenses would
increase by approximately $2 million. This amount was determined by applying
the hypothetical interest rate change to the Company's long-term and
short-term debt balances as of June 30, 2000. 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.
19
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
PAKISTAN INTERNATIONAL AIRLINES ARBITRATION
On March 16, 2000, the Company initiated an arbitration proceeding in Paris,
France in which it is seeking to recover, from Pakistan International Airlines
("PIA"), $8.5 million for services rendered plus lost profits and termination
fees. On July 31, 2000, PIA filed counterclaims against the Company seeking
damages relating to the Company's alleged failure to perform. Because the
arbitration has just begun, the Company cannot estimate the time to complete
the arbitration or its results; however, the Company believes its claims are
valid and enforceable. Additionally, the Company believes that PIA's
counterclaims are without merit and will vigorously defend itself.
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 Tribunal
ruled in favor of Worldspan on August 7, 2000. 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. Additionally, the
Company is entitled to indemnification from ABACUS pursuant to the terms of
the agreement between the parties. No trial date has been set.
INDIA TAX ISSUE
In 1998, the tax authority in India asserted that the Company has a taxable
presence in India. In March 1999, the Company received a $30 million USD tax
assessment (including interest) for the two years ending March 31, 1998. The
Company challenged 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 intervened on behalf of the
Company (and other U.S. companies currently facing similar tax-related issues
with the Indian government). The Company appealed the validity and amount of
the assessment within the Indian tax authority. Although the Company did not
prevail in its appeal at this level on merits, a reassessment based on correct
data was ordered. The Company is awaiting that redetermination. The Company
continues to believe that the position of the Indian government is without
merit and that it will ultimately prevail either through the U.S. government's
efforts or on its direct appeal. The Company anticipates that it will appeal
the case through judicial systems in India if an unfavorable ruling is
obtained from the tax authority in India.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on May 17, 2000. The
owners of 116,054,593 shares of Class A Common Stock, representing more than
89% of the voting power of all of the Company's shares issued and outstanding
at April 10, 2000, were represented at the annual meeting. Each share of Class
A Common Stock was entitled to one vote at the annual meeting.
The stockholders of the Company elected each of the following individuals as a
director of the Company for a three year term: Edward A. Brennan (114,802,426
votes in favor, 1,252,167 votes withheld) and Mary Alice Taylor (114,424,708
votes in favor, 1,629,885 votes withheld). The terms of office of the
following directors will continue after the annual meeting: Paul C. Ely, Jr.,
William J. Hannigan, Glenn W. Marschel, Jr. , Bob L. Martin and Richard L.
Thomas.
The stockholders of the Company approved the proposal to amend the Company's
Restated Certificate of Incorporation to remove provisions relating to the
Class B Common Stock and the Company's status as a controlled subsidiary of
AMR. In addition, the stockholders approved an amendment to provide that any
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause, or newly
created directorships resulting from any increase in the authorized number of
directors, shall be filled only by a majority of the directors then in office,
though less than a quorum, and not by the stockholders. The Restated
Certificate of Incorporation was approved with 88,393,612 votes in favor,
27,285,561 votes against, and 375,420 votes abstaining. The Second Restated
Certificate of Incorporation of the Company is filed as an exhibit to this
report.
The stockholders of the Company approved proposed amendments to the Company's
Employee Stock Purchase Plan. The amendments consisted of (a) an increase in
the maximum amount of base pay an eligible employee may apply toward the
purchase of shares from 2% to 10% during each purchase period, (b) an increase
in the number of available shares from 1,000,000 to 2,000,000, and (c) an
extension of the purchase period from one month to six months. The proposed
amendments to the Employee Stock Purchase Plan were approved with 114,595,702
votes in favor, 1,107,408 votes against, and 351,483 votes abstaining. The
Employee Stock Purchase Plan was summarized in and filed as an exhibit to the
Company's proxy statement for the annual meeting, which was filed with the
Securities and Exchange Commission on April 17, 2000 (File No. 001-12175).
The stockholders of the Company ratified the appointment of Ernst & Young LLP
as independent auditors for the Company for the year ending December 31, 2000
with 115,704,809 votes in favor, 65,935 votes against and 283,849 votes
abstaining.
ITEM 5. OTHER INFORMATION
At a regular meeting on July 18, 2000, the Board of Directors of the Company
amended and restated the Bylaws of the Company. The amendments to the Bylaws
include the following changes: (a) changes which conform the Bylaws to the
Company's Second Restated Certificate of Incorporation, (b) changes which
implement amendments to the Delaware General Corporation Law, and (c) other
changes. The restated Bylaws are filed as an exhibit to this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three months ended
June 30, 2000.
The following exhibits are included herein:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
<S> <C>
3.1 Second Restated Certificate of Incorporation of Registrant.
3.2 Restated Bylaws of Registrant.
10.1 Credit agreement, dated as of February 4, 2000, among Sabre Inc., Bank of America, N.A., and the
other banks party thereto.
10.2 Bridge loan promissory note, dated August 4, 2000, between Sabre Inc. and Bank of America, N.A.
12.1 Computation of ratio of earnings to fixed charges for the six months ended June 30, 2000.
27.1 Financial Data Schedule as of June 30, 2000.
</TABLE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SABRE HOLDINGS CORPORATION
Date: August 14, 2000 BY: /s/ Jeffery M. Jackson
-------------------------------------
Jeffery M. Jackson
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
22
