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


FORM 10-Q


ý

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

For the Quarterly Period Ended June 30, 2003.

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

For the Transition Period From                               To                              

Commission file number 1-12175.


GRAPHIC
SABRE HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
  75-2662240
(I.R.S. Employer Identification No.)

3150 Sabre Drive, Southlake, Texas
(Address of principal executive offices)

 

76092
(Zip Code)

Registrant's telephone number, including area code (682) 605-1000

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


        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

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

        Class A Common Stock, $.01 par value—143,590,655 as of August 8, 2003





INDEX
SABRE HOLDINGS CORPORATION

PART I: FINANCIAL INFORMATION   3

Item 1.

Financial Statements (Unaudited)

 

3
  Consolidated Balance Sheets—June 30, 2003 and December 31, 2002   3
  Consolidated Statements of Income—Three and six months ended June 30, 2003 and 2002   4
  Condensed Consolidated Statement of Stockholders' Equity—Six months ended June 30, 2003   5
  Consolidated Statements of Cash Flows—Six months ended June 30, 2003 and 2002   6
  Notes to Consolidated Financial Statements   7

Item 2.

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

 

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

49

Item 4.

Controls and Procedures

 

49

PART II:

OTHER INFORMATION

 

50

Item 1.

Legal Proceedings

 

50

Item 4.

Submission of Matters to a Vote of Security Holders

 

50

Item 6.

Exhibits and Reports on Form 8-K

 

51

SIGNATURE

 

53

2



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

 
  June 30,
2003

  December 31,
2002

 
Assets              
Current assets              
  Cash   $ 28,935   $ 21,176  
  Marketable securities     937,373     890,584  
  Accounts receivable, net     364,812     298,498  
  Prepaid expenses and other current assets     89,449     85,657  
  Deferred income taxes     10,686     15,728  
   
 
 
    Total current assets     1,431,255     1,311,643  
Property and equipment              
  Buildings and leasehold improvements     318,816     156,034  
  Furniture, fixtures and equipment     44,809     43,578  
  Computer software and equipment     261,893     236,639  
   
 
 
      625,518     436,251  
  Less accumulated depreciation and amortization     (222,987 )   (196,179 )
   
 
 
    Total property and equipment     402,531     240,072  
Investments in joint ventures     176,223     189,002  
Goodwill and intangible assets, net     833,217     855,683  
Other assets, net     165,405     160,131  
   
 
 
    Total assets   $ 3,008,631   $ 2,756,531  
   
 
 
Liabilities and stockholders' equity              
Current liabilities              
  Accounts payable   $ 180,225   $ 181,934  
  Accrued compensation and related benefits     38,059     54,770  
  Accrued subscriber incentives     66,338     69,132  
  Deferred revenues     52,204     46,252  
  Other accrued liabilities     182,542     147,826  
   
 
 
    Total current liabilities     519,368     499,914  

Deferred income taxes

 

 

2,764

 

 

13,755

 
Pensions and other postretirement benefits     114,589     116,305  
Other liabilities     35,257     38,914  
Minority interests     10,891     10,300  
Notes payable     444,856     435,765  
Obligation under capital lease     167,126      
Commitments and contingencies              
Stockholders' equity              
  Preferred stock: $0.01 par value; 20,000 shares authorized; no shares issued          
  Class A common stock, $0.01 par value; 250,000 shares authorized; 145,728 and 145,164 shares issued at June 30, 2003 and December 31, 2002, respectively     1,458     1,451  
  Additional paid-in capital     1,285,254     1,276,662  
  Retained earnings     503,796     442,130  
  Accumulated other comprehensive loss     (15,718 )   (16,024 )
  Less treasury stock at cost: 2,419 and 2,480 shares, respectively     (61,010 )   (62,641 )
   
 
 
    Total stockholders' equity     1,713,780     1,641,578  
   
 
 
    Total liabilities and stockholders' equity   $ 3,008,631   $ 2,756,531  
   
 
 

See Notes to Consolidated Financial Statements

3


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

 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
  2003
  2002
  2003
  2002
 
Revenues   $ 507,189   $ 536,748   $ 1,051,022   $ 1,086,105  
Operating expenses                          
  Cost of revenues     324,622     279,077     636,369     572,909  
  Selling, general and administrative     130,081     140,103     245,786     262,004  
  Amortization of intangible assets     12,094     13,264     24,581     26,894  
   
 
 
 
 
    Total operating expenses     466,797     432,444     906,736     861,807  
Operating income     40,392     104,304     144,286     224,298  
Other income (expense)                          
  Interest income     3,973     7,565     8,379     14,567  
  Interest expense     (5,300 )   (5,580 )   (10,772 )   (11,264 )
  Other, net     (29,945 )   1,165     (29,511 )   21,053  
   
 
 
 
 
    Total other income (expense)     (31,272 )   3,150     (31,904 )   24,356  
Minority interests     36     (888 )   (591 )   (41 )
   
 
 
 
 
Income before provision for income taxes     9,156     106,566     111,791     248,613  
Provision for income taxes     2,340     38,601     40,096     93,261  
   
 
 
 
 
Net earnings   $ 6,816   $ 67,965   $ 71,695   $ 155,352  
   
 
 
 
 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic   $ .05   $ .48   $ .50   $ 1.13  
   
 
 
 
 
  Diluted   $ .05   $ .47   $ .50   $ 1.10  
   
 
 
 
 
Dividends per common share   $ .07       $ .07      
   
 
 
 
 

See Notes to Consolidated Financial Statements

4


SABRE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2003
(Unaudited) (In thousands)

 
  Class A
Common
Stock

  Additional
Paid-in
Capital

  Retained
Earnings

  Accumulated
Other
Comprehensive
Loss

  Treasury
Stock

  Total
 
Balance at December 31, 2002   $ 1,451   $ 1,276,662   $ 442,130   $ (16,024 ) $ (62,641 ) $ 1,641,578  
Issuance of 698 shares of Class A
    common stock pursuant to stock
    option, restricted stock incentive
    and stock purchase plans
    7     (932 )           1,631     706  
Tax benefit from exercise of employee
    stock options
        265                 265  
Stock based compensation for
    employees
        9,259                 9,259  
Dividends             (10,029 )           (10,029 )
Comprehensive income:                                      
  Net earnings             71,695             71,695  
  Unrealized loss on foreign currency
    forward contracts, net of deferred
    income taxes
                (283 )       (283 )
  Unrealized gain on investments, net
    of deferred income taxes
                278         278  
  Unrealized foreign currency
    translation gain
                311         311  
                                 
 
Total comprehensive income                                   72,001  
   
 
 
 
 
 
 
Balance at June 30, 2003   $ 1,458   $ 1,285,254   $ 503,796   $ (15,718 ) $ (61,010 ) $ 1,713,780  
   
 
 
 
 
 
 

See Notes to Consolidated Financial Statements.

5


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

 
  Six Months Ended June 30,
 
 
  2003
  2002
 
Operating Activities              
Net earnings   $ 71,695   $ 155,352  
Adjustments to reconcile net earnings to cash provided by operating activities:              
  Depreciation and amortization     61,736     57,173  
  Stock compensation     9,259     22,355  
  Deferred income taxes     (5,292 )   53,621  
  Tax benefit from exercise of stock options     265     9,246  
  Minority interests     591     41  
  Gain on sale of former headquarters building         (18,308 )
  Loss on refinancing of building     27,947      
  Other     4,438     (12,333 )
  Changes in operating assets and liabilities:              
    Accounts receivable     (63,129 )   (64,952 )
    Prepaid expenses     (3,492 )   (22,896 )
    Other assets     (512 )   (7,371 )
    Accrued compensation and related benefits     (16,711 )   (18,958 )
    Accounts payable and other accrued liabilities     48,313     24,180  
    Pensions and other postretirement benefits     (1,716 )   (10,256 )
    Other liabilities     (2,465 )   (19,324 )
   
 
 
  Cash provided by operating activities     130,927     147,570  
Investing Activities              
Additions to property and equipment     (39,589 )   (28,675 )
Business combinations, net of cash acquired     (11,868 )   (477,330 )
Proceeds from sale of former headquarters building         80,000  
Proceeds from sale of minority interest in Sabre Pacific         23,466  
Proceeds from exercise of Travelocity.com stock options         33,658  
Purchases of marketable securities     (4,460,154 )   (1,617,380 )
Sales of marketable securities     4,414,602     1,392,790  
Other investing activities, net     13,141     30,320  
   
 
 
  Cash used for investing activities     (83,868 )   (563,151 )
Financing Activities              
Proceeds from issuance of common stock     706     433,257  
Dividends paid     (10,029 )    
Payment to refinance building     (27,947 )    
Other financing activities, net     (2,030 )   (16,234 )
   
 
 
  Cash provided by (used for) financing activities     (39,300 )   417,023  
   
 
 
Increase in cash     7,759     1,442  
Cash at beginning of period     21,176     18,855  
   
 
 
Cash at end of period   $ 28,935   $ 20,297  
   
 
 

See Notes to Consolidated Financial Statements

6


SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.     General Information

2.     Summary of Significant Accounting Policies

7


8


9


 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
  2003
  2002
  2003
  2002
Denominator for basic earnings per common                
  share—weighted-average shares   142,367   142,595   142,339   138,068
Dilutive effect of stock awards and options   741   2,711   480   2,933
   
 
 
 
Denominator for diluted earnings per common                
  share—adjusted weighted-average shares   143,108   145,306   142,819   141,001
   
 
 
 

10


 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
  2003
  2002
  2003
  2002
Net earnings as reported   $ 6,816   $ 67,965   $ 71,695   $ 155,352
Add stock compensation expense determined                        
  under intrinsic value method, net of income                        
  taxes     2,849     12,825     5,719     14,545
Less total stock-based employee compensation                        
  expense determined under fair value based                        
  method for all awards, net of income taxes     10,062     20,783     21,616     32,815
   
 
 
 
Pro forma net earnings   $ (397 ) $ 60,007   $ 55,798   $ 137,082
   
 
 
 
Net earnings per common share, as reported:                        
    Basic   $ .05   $ .48   $ .50   $ 1.13
   
 
 
 
    Diluted   $ .05   $ .47   $ .50   $ 1.10
   
 
 
 
Net earnings per common share, pro forma:                        
    Basic   $ (.00 ) $ .42   $ .39   $ .99
   
 
 
 
    Diluted   $ (.00 ) $ .41   $ .39   $ .97
   
 
 
 

11


12


Year Ending December 31,
 
2003   $ 4,803  
2004     9,607  
2005     9,607  
2006     9,607  
2007     9,607  
2008 and thereafter     212,138  
Amounts representing interest     (87,363 )
   
 
Total   $ 168,006  
   
 

3.     Significant Events

Minority interest assumed   $ 252,597
Deferred income tax asset, net     21,665
Distributor agreements (weighted average life of 3 years)     18,016
Supplier agreements (weighted average life of 3 years)     2,192
Proprietary software (weighted average life of 3 years)     2,256
Customer database (weighted average life of 7 years)     3,739
Trademark, tradename and domain name (indefinite life)     13,698
Goodwill     160,146
   
Total purchase price   $ 474,309
   

13


Working capital acquired   $ 1,770  
Property and equipment and other non-current assets     824  
Software     1,352  
Non-current liabilities     (75 )
Supplier agreements (weighted average life of 1.5 years)     900  
Trademark, tradename and domain name (indefinite life)     600  
Goodwill     38,232  
   
 
  Total purchase price   $ 43,603  
   
 

Pro Forma Statement of Operations Data

14


 
  Three Months Ended
June 30, 2002

  Six Months Ended
June 30, 2002

Revenues   $ 536,748   $ 1,086,105
   
 
Net earnings   $ 65,253   $ 149,752
   
 
Earnings per common share            
  Basic   $ .46   $ 1.08
   
 
  Diluted   $ .45   $ 1.06
   
 
Estimated cost of 2002 workforce reduction   $ 15,791  
Amounts paid in 2002     (4,377 )
   
 
Remaining liability at December 31, 2002     11,414  
Amounts paid in six months ended June 30, 2003     (10,101 )
Revision of 2002 workforce reduction     (925 )
   
 
Remaining liability at June 30, 2003   $ 388  
   
 

15


4.     Income Taxes

 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
  2003
  2002
  2003
  2002
 
Income tax provision at statutory federal income
    tax rate
  $ 3,205   $ 37,298   $ 39,127   $ 87,015  
State income taxes, net of federal benefit     (447 )   3,681     2,402     7,989  
Other, net     (418 )   (2,378 )   (1,433 )   (1,743 )
   
 
 
 
 
  Total provision for income taxes   $ 2,340   $ 38,601   $ 40,096   $ 93,261  
   
 
 
 
 

5.     Derivatives

16


 
  Assets at
 
  June 30, 2003
  December 31, 2002
Warrants   $ 4,758   $ 2,213
Foreign currency forwards     6,562     7,019
Interest rate swaps     31,324     21,397
   
 
    $ 42,644   $ 30,629
   
 

17


6.     Segment Reporting

18


 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
  2003
  2002
  2003
  2002
 
Revenues from external customers
    excluding special item:
                         
  Sabre Travel Network   $ 369,517   $ 408,024   $ 749,922   $ 832,830  
  Travelocity     72,096     59,960     134,778     118,140  
  GetThere     11,865     12,917     23,847     24,547  
  Sabre Airline Solutions     54,386     51,767     109,866     104,095  
   
 
 
 
 
    Total   $ 507,864   $ 532,668   $ 1,018,413   $ 1,079,612  
   
 
 
 
 
Intersegment revenues:                          
  Sabre Travel Network   $ 6,254   $ 6,618   $ 12,580   $ 12,642  
  Travelocity     22,538     17,723     45,154     34,039  
  GetThere     460     238     776     399  
  Sabre Airline Solutions                  
   
 
 
 
 
    Total   $ 29,252   $ 24,579   $ 58,510   $ 47,080  
   
 
 
 
 
Equity in net income of equity method
    investees:
                         
  Sabre Travel Network   $ 2,761   $ 5,463   $ 4,878   $ 8,707  
  Travelocity     (3,436 )   (1,383 )   (8,727 )   (2,214 )
   
 
 
 
 
    Total   $ (675 ) $ 4,080   $ (3,849 ) $ 6,493  
   
 
 
 
 
Segment revenues, excluding special item:                          
  Sabre Travel Network   $ 378,532   $ 420,105   $ 767,380   $ 854,179  
  Travelocity     91,198     76,300     171,205     149,965  
  GetThere     12,325     13,155     24,623     24,946  
  Sabre Airline Solutions     54,386     51,767     109,866     104,095  
  Elimination of intersegment revenues     (29,252 )   (24,579 )   (58,510 )   (47,080 )
   
 
 
 
 
    Total   $ 507,189   $ 536,748   $ 1,014,564   $ 1,086,105  
   
 
 
 
 
Revenue special item:                          
Sabre Travel Network:                          
  Settlement revenue from canceled subscriber contract           $ 36,458      
   
 
 
 
 
Consolidated revenues:                          
  Sabre Travel Network   $ 378,532   $ 420,105   $ 803,838   $ 854,179  
  Travelocity     91,198     76,300     171,205     149,965  
  GetThere     12,325     13,155     24,623     24,946  
  Sabre Airline Solutions     54,386     51,767     109,866     104,095  
  Elimination of intersegment revenues     (29,252 )   (24,579 )   (58,510 )   (47,080 )
   
 
 
 
 
    Total   $ 507,189   $ 536,748   $ 1,051,022   $ 1,086,105  
   
 
 
 
 

19


 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
  2003
  2002
  2003
  2002
 
Segment operating income (loss) excluding
    special items:
                         
  Sabre Travel Network   $ 61,986   $ 139,648   $ 151,725   $ 276,060  
  Travelocity     (5,933 )   (3,722 )   (11,410 )   2,309  
  GetThere     (5,260 )   (7,106 )   (10,837 )   (16,279 )
  Sabre Airline Solutions     3,555     7,924     7,314     14,882  
  Net corporate allocations     (67 )   (3,136 )   134     (2,859 )
   
 
 
 
 
    Total   $ 54,281   $ 133,608   $ 136,926   $ 274,113  
   
 
 
 
 
Impact of special items on operating
    income—(increase)/decrease:
                         
Sabre Travel Network:                          
  Settlement revenue from canceled
    subscriber contract
  $   $   $ (36,458 ) $  
  Other intangibles amortization     3,144     3,535     6,240     9,505  
  Stock compensation     15     146     31     288  
  Restructuring expenses     (288 )       (288 )    
   
 
 
 
 
    Total Sabre Travel Network     2,871     3,681     (30,475 )   9,793  
   
 
 
 
 
Travelocity:                          
  Other intangibles amortization     2,355     2,691     5,149     3,351  
  Stock compensation     2,360     18,574     4,702     18,867  
  Restructuring expenses     (37 )       (37 )    
  Tender offer expenses         335         7,111  
   
 
 
 
 
    Total Travelocity     4,678     21,600     9,814     29,329  
   
 
 
 
 
GetThere:                          
  Other intangibles amortization     6,107     6,606     12,213     13,212  
  Stock compensation     834     925     1,689     989  
   
 
 
 
 
    Total GetThere     6,941     7,531     13,902     14,201  
   
 
 
 
 
Sabre Airline Solutions:                          
  Restructuring expenses     (231 )       (231 )    
   
 
 
 
 
Corporate:                          
  Restructuring expenses     (370 )   (3,508 )   (370 )   (3,508 )
   
 
 
 
 
    Total operating income special items   $ 13,889   $ 29,304   $ (7,360 ) $ 49,815  
   
 
 
 
 
Consolidated operating income (loss):                          
  Sabre Travel Network   $ 59,115   $ 135,967   $ 182,200   $ 266,267  
  Travelocity     (10,611 )   (25,322 )   (21,224 )   (27,020 )
  GetThere     (12,201 )   (14,637 )   (24,739 )   (30,480 )
  Sabre Airline Solutions     3,786     7,924     7,545     14,882  
  Corporate Allocations     303     372     504     649  
   
 
 
 
 
    Total   $ 40,392   $ 104,304   $ 144,286   $ 224,298  
   
 
 
 
 

20


7.     Supplemental Guarantor/Non-Guarantor Financial Information

21


UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
JUNE 30, 2003
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

Assets                              
Current assets                              
  Cash and marketable securities   $   $ 946,626   $ 19,682   $   $ 966,308
  Accounts receivable—trade, net         273,478     91,334         364,812
  Intercompany accounts
    receivable (payable)
    1,559,050     (2,005,475 )   446,425        
  Prepaid expenses and other current
    assets
        37,791     51,658         89,449
  Deferred income taxes         9,334     1,352         10,686
   
 
 
 
 
    Total current assets     1,559,050     (738,246 )   610,451         1,431,255
Property and equipment, net         351,334     51,197         402,531
Investments in joint ventures         4,183     172,040         176,223
Goodwill and intangible assets, net         11,352     821,865         833,217
Investments in subsidiaries     574,430     1,515,058         (2,089,488 )  
Other assets, net     33,830     91,700     39,875         165,405
   
 
 
 
 
Total assets   $ 2,167,310   $ 1,235,381   $ 1,695,428   $ (2,089,488 ) $ 3,008,631
   
 
 
 
 
Liabilities and stockholders' equity                              
Current liabilities                              
  Accounts payable   $ 57   $ 143,606   $ 36,562   $   $ 180,225
  Accrued compensation and related
    benefits
        24,691     13,368         38,059
  Other accrued liabilities     7,577     178,538     114,969         301,084
   
 
 
 
 
    Total current liabilities     7,634     346,835     164,899         519,368
Deferred income taxes         23,490     (20,726 )       2,764
Pensions and other
    postretirement benefits
        113,554     1,035         114,589
Other liabilities     1,040     9,946     24,271         35,257
Minority interests             10,891         10,891
Notes payable     444,856                 444,856
Obligation under capital lease         167,126             167,126
Stockholders' equity     1,713,780     574,430     1,515,058     (2,089,488 )   1,713,780
   
 
 
 
 
Total liabilities and stockholders'
    equity
  $ 2,167,310   $ 1,235,381   $ 1,695,428   $ (2,089,488 ) $ 3,008,631
   
 
 
 
 

22


UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2002
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

Assets                              
Current assets                              
  Cash and marketable securities   $   $ 898,958   $ 12,802   $   $ 911,760
  Accounts receivable—trade, net         223,216     75,282         298,498
  Intercompany accounts
    receivable (payable)
    1,532,426     (2,094,913 )   562,487        
  Prepaid expenses and other current
    assets
        38,994     46,663         85,657
  Deferred income taxes         15,678     50         15,728
   
 
 
 
 
    Total current assets     1,532,426     (918,067 )   697,284         1,311,643
Property and equipment, net         187,783     52,289         240,072
Investments in joint ventures         4,169     184,833         189,002
Goodwill and intangible assets, net         10,605     845,078         855,683
Investments in subsidiaries     529,892     1,675,167         (2,205,059 )  
Other assets, net     24,058     96,783     39,290         160,131
   
 
 
 
 
    Total assets   $ 2,086,376   $ 1,056,440   $ 1,818,774   $ (2,205,059 ) $ 2,756,531
   
 
 
 
 
Liabilities and stockholders' equity                              
Current liabilities                              
  Accounts payable   $ 88   $ 163,071   $ 18,775   $   $ 181,934
  Accrued compensation and related
    benefits
        44,752     10,018         54,770
  Other accrued liabilities     8,381     169,783     85,046         263,210
   
 
 
 
 
    Total current liabilities     8,469     377,606     113,839         499,914
  Deferred income taxes         24,863     (11,108 )       13,755
  Pensions and other postretirement
    benefits
        115,400     905         116,305
  Other liabilities     564     8,679     29,671         38,914
  Minority interests             10,300         10,300
  Notes payable     435,765                 435,765
  Stockholders' equity     1,641,578     529,892     1,675,167     (2,205,059 )   1,641,578
   
 
 
 
 
    Total liabilities and stockholders'
    equity
  $ 2,086,376   $ 1,056,440   $ 1,818,774   $ (2,205,059 ) $ 2,756,531
   
 
 
 
 

23


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Revenues   $   $ 786,115   $ 516,248   $ (251,341 ) $ 1,051,022  
Operating expenses     1,750     700,361     455,966     (251,341 )   906,736  
   
 
 
 
 
 
Operating income (loss)     (1,750 )   85,754     60,282         144,286  
Other income (expense)                                
  Interest income     37,304     5,593     9,103     (43,621 )   8,379  
  Interest expense     (8,654 )   (44,145 )   (1,594 )   43,621     (10,772 )
  Income (loss) from subsidiaries     53,975     45,617         (99,592 )    
  Other, net         (27,133 )   (2,378 )       (29,511 )
   
 
 
 
 
 
    Total other income (expense)     82,625     (20,068 )   5,131     (99,592 )   (31,904 )
Minority interests             (591 )       (591 )
   
 
 
 
 
 
Income (loss) before provision for
    income taxes
    80,875     65,686     64,822     (99,592 )   111,791  
Provision for income taxes     9,180     11,711     19,205         40,096  
   
 
 
 
 
 
Net income (loss)   $ 71,695   $ 53,975   $ 45,617   $ (99,592 ) $ 71,695  
   
 
 
 
 
 

24


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

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Revenues   $   $ 857,429   $ 439,236   $ (210,560 ) $ 1,086,105  
Operating expenses     1,198     666,485     404,684     (210,560 )   861,807  
   
 
 
 
 
 
Operating income (loss)     (1,198 )   190,944     34,552         224,298  
Other income (expense)                                
  Interest income     22,981     11,623     11,663     (31,700 )   14,567  
  Interest expense     (9,664 )   (32,110 )   (1,190 )   31,700     (11,264 )
  Income (loss) from subsidiaries     147,369     33,314         (180,683 )    
  Other, net         17,382     3,671         21,053  
   
 
 
 
 
 
    Total other income (expense)     160,686     30,209     14,144     (180,683 )   24,356  
Minority interests             (41 )       (41 )
   
 
 
 
 
 
Income (loss) before provision for
    income taxes
    159,488     221,153     48,655     (180,683 )   248,613  
Provision for income taxes     4,136     73,784     15,341         93,261  
   
 
 
 
 
 
Net income (loss)   $ 155,352   $ 147,369   $ 33,314   $ (180,683 ) $ 155,352  
   
 
 
 
 
 

25


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2003
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Revenues   $   $ 365,948   $ 271,128   $ (129,887 ) $ 507,189  
Operating expenses     1,104     359,565     236,015     (129,887 )   466,797  
   
 
 
 
 
 
Operating income (loss)     (1,104 )   6,383     35,113         40,392  
Other income (expense)                                
  Interest income     18,554     2,336     4,504     (21,421 )   3,973  
  Interest expense     (4,272 )   (21,696 )   (753 )   21,421     (5,300 )
  Income (loss) from subsidiaries     (1,865 )   25,779         (23,914 )    
  Other, net         (27,798 )   (2,147 )       (29,945 )
   
 
 
 
 
 
    Total other income (expense)     12,417     (21,379 )   1,604     (23,914 )   (31,272 )
Minority interests             36         36  
   
 
 
 
 
 
Income (loss) before provision for
    income taxes
    11,313     (14,996 )   36,753     (23,914 )   9,156  
Provision for income taxes     4,497     (13,131 )   10,974         2,340  
   
 
 
 
 
 
Net income (loss)   $ 6,816   $ (1,865 ) $ 25,779   $ (23,914 ) $ 6,816  
   
 
 
 
 
 

26


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

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Revenues   $   $ 421,533   $ 226,913   $ (111,698 ) $ 536,748  
Operating expenses     860     327,592     215,690     (111,698 )   432,444  
   
 
 
 
 
 
Operating income (loss)     (860 )   93,941     11,223         104,304  
Other income (expense)                                
  Interest income     14,445     5,901     6,414     (19,195 )   7,565  
  Interest expense     (4,640 )   (19,393 )   (742 )   19,195     (5,580 )
  Income from subsidiaries     62,073     13,036         (75,109 )    
  Other, net         976     189         1,165  
   
 
 
 
 
 
    Total other income (expense)     71,878     520     5,861     (75,109 )   3,150  
Minority interests             (888 )       (888 )
   
 
 
 
 
 
Income (loss) before provision for
    income taxes
    71,018     94,461     16,196     (75,109 )   106,566  
Provision for income taxes     3,053     32,388     3,160         38,601  
   
 
 
 
 
 
Net income (loss)   $ 67,965   $ 62,073   $ 13,036   $ (75,109 ) $ 67,965  
   
 
 
 
 
 

27


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(in thousands)

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Operating Activities                                
  Net earnings   $ 71,695   $ 53,975   $ 45,617   $ (99,592 ) $ 71,695  
  Adjustments to reconcile net earnings
    to cash provided by operating activities:
                               
    Depreciation and amortization         25,660     36,076         61,736  
    Stock compensation         2,608     6,651         9,259  
    Deferred income taxes         (5,292 )           (5,292 )
    Tax benefit from exercise of stock options     265                 265  
    Loss on refinancing building         27,947             27,947  
    Minority interests             591         591  
    (Income) loss from subsidiaries     (53,975 )   (45,617 )       99,592      
    Other     (837 )   2,150     3,125         4,438  
    Changes in operating assets and liabilities     (17,876 )   (145,906 )   124,070         (39,712 )
   
 
 
 
 
 
  Cash provided by (used for) operating activities     (728 )   (84,475 )   216,130         130,927  
Investing Activities                                
  Additions to property and equipment         (27,718 )   (11,871 )       (39,589 )
  Purchases of marketable securities         (4,458,582 )   (1,572 )       (4,460,154 )
  Sales of marketable securities         4,414,459     143         4,414,602  
  Investments in subsidiaries, net     10,051     206,783         (216,834 )    
  Business combinations, net of cash acquired         (10,161 )   (1,707 )       (11,868 )
  Other investing activities, net             13,141         13,141  
   
 
 
 
 
 
    Cash provided by (used for)
    investing activities
    10,051     124,781     (1,866 )   (216,834 )   (83,868 )
Financing Activities                                
  Distributions to affiliates         (10,051 )   (206,783 )   216,834      
  Proceeds from issuance of
    common stock
    706                 706  
  Dividends paid     (10,029 )               (10,029 )
  Payment to refinance building         (27,947 )           (27,947 )
  Other financing activities, net             (2,030 )       (2,030 )
   
 
 
 
 
 
    Cash provided by (used for)
    financing activities
    (9,323 )   (37,998 )   (208,813 )   216,834     (39,300 )
   
 
 
 
 
 
  Increase in cash         2,308     5,451         7,759  
  Cash at beginning of period         9,219     11,957         21,176  
   
 
 
 
 
 
  Cash at end of period   $   $ 11,527   $ 17,408   $   $ 28,935  
   
 
 
 
 
 

28


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

 
  Sabre
Holdings

  Sabre Inc.
  Non-
Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Operating Activities                                
  Net earnings   $ 155,352   $ 147,369   $ 33,314   $ (180,683 ) $ 155,352  
  Adjustments to reconcile net earnings                                
    to cash provided by operating activities:                          
    Depreciation and amortization         19,256     37,917         57,173  
    Stock compensation             22,355         22,355  
    Deferred income taxes         41,330     12,291         53,621  
    Tax benefit from exercise of
    stock options
    9,246                 9,246  
    Minority interests             41         41  
    (Income) loss from subsidiaries     (147,369 )   (33,314 )       180,683      
    Gain on sale of certain assets         (18,308 )           (18,308 )
    Other     12,484     (13,436 )   (11,381 )       (12,333 )
    Changes in operating assets
    and liabilities
    (451,579 )   577,430     (245,428 )       (119,577 )
   
 
 
 
 
 
  Cash provided by (used for)
    operating activities
    (421,866 )   720,327     (150,891 )       147,570  
Investing Activities                                
  Additions to property and equipment         (19,422 )   (9,253 )       (28,675 )
  Purchases of marketable securities         (1,313,871 )   (303,509 )       (1,617,380 )
  Sales of marketable securities         1,112,018     280,772         1,392,790  
  Investments in subsidiaries, net     (11,391 )   (623,653 )       635,044      
  Business combinations, net of
    cash acquired
            (477,330 )       (477,330 )
  Proceeds from exercise of Travelocity.com
    stock options
                33,658     33,658  
  Proceeds from sale of former headquarters building         80,000             80,000  
  Proceeds from sale of subsidiary             23,466         23,466  
  Other investing activities, net         30,284     36         30,320  
   
 
 
 
 
 
  Cash provided by (used for)
    investing activities
    (11,391 )   (734,644 )   (485,818 )   668,702     (563,151 )
Financing Activities                                
  Contributions from affiliates         11,391     623,653     (635,044 )    
  Proceeds from issuance of common stock     433,257         33,658     (33,658 )   433,257  
  Other financing activities, net             (16,234 )       (16,234 )
   
 
 
 
 
 
  Cash provided by (used for)
    financing activities
    433,257     11,391     641,077     (668,702 )   417,023  
  Increase (decrease) in cash         (2,926 )   4,368         1,442  
  Cash at beginning of the period         8,642     10,213         18,855  
   
 
 
 
 
 
  Cash at end of the period   $   $ 5,716   $ 14,581   $   $ 20,297  
   
 
 
 
 
 

29


8.     Subsequent Events

        None.


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

SABRE HOLDINGS CORPORATION

RESULTS OF OPERATIONS

30


31


Three Months Ended June 30, 2003 and 2002

32


33


34


Six Months Ended June 30, 2003 and 2002

35


36


37


38


SABRE HOLDINGS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES

39


40


41


Year Ending December 31,
 
2003   $ 4,803  
2004     9,607  
2005     9,607  
2006     9,607  
2007     9,607  
2008 and thereafter     212,138  
Amounts representing interest     (87,363 )
   
 
Total   $ 168,006  
   
 

SABRE HOLDINGS CORPORATION
CAUTIONARY STATEMENT

RISK FACTORS

General

42


OUR REVENUES ARE HIGHLY DEPENDENT ON THE TRAVEL AND TRANSPORTATION INDUSTRIES, AND PARTICULARLY ON AIRLINES, AND A PROLONGED SUBSTANTIAL DECREASE IN TRAVEL BOOKINGS VOLUMES COULD ADVERSELY AFFECT US.

WE FACE COMPETITION FROM ESTABLISHED AND EMERGING TRAVEL DISTRIBUTION CHANNELS, WHICH COULD DIVERT CUSTOMERS TO OUR COMPETITORS AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

43


SOME TRAVEL SUPPLIERS ARE AGGRESSIVELY SEEKING TO BYPASS OUR TRAVEL DISTRIBUTION CHANNELS, WHICH MAY HAVE THE EFFECT OF ADVERSELY AFFECTING OUR RESULTS OF OPERATIONS.

CONSOLIDATION IN THE TRAVEL AGENCY INDUSTRY AND INCREASED COMPETITION FOR TRAVEL AGENCY SUBSCRIBERS MAY RESULT IN INCREASED EXPENSES, LOST BOOKINGS AND REDUCED REVENUE.

AIRLINES THAT DIVEST THEIR OWNERSHIP OF GLOBAL DISTRIBUTION SYSTEMS MIGHT LIMIT THEIR PARTICIPATION IN OUR GLOBAL DISTRIBUTION SYSTEM

44


SERVICES, WHICH WOULD ADVERSELY AFFECT OUR BOOKING FEE REVENUE AND OUR RESULTS OF OPERATIONS.

SOME OF OUR COMPETITORS ARE WELL FUNDED, WHICH MAY GIVE THESE COMPETITORS A COMPETITIVE ADVANTAGE THAT COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

WE MAY BE UNSUCCESSFUL IN PURSUING AND INTEGRATING BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES, WHICH COULD RESULT IN INCREASED EXPENDITURES OR CAUSE US TO FAIL TO ACHIEVE ANTICIPATED COST SAVINGS OR REVENUE GROWTH.

RAPID TECHNOLOGICAL CHANGES AND NEW DISTRIBUTION CHANNELS OR UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY MAY RENDER OUR TECHNOLOGY OBSOLETE OR ADVERSELY AFFECT THE VALUE OF OUR CURRENT OR FUTURE TECHNOLOGIES TO US AND OUR CUSTOMERS, WHICH COULD CAUSE US TO INCREASE EXPENDITURES TO UPGRADE OUR TECHNOLOGY OR DEVELOP COMPETING PRODUCTS IN NEW DISTRIBUTION CHANNELS AND TO PROTECT THEM.

45


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

REGULATORY DEVELOPMENTS COULD LIMIT OUR ABILITY TO COMPETE BY RESTRICTING OUR FLEXIBILITY TO RESPOND TO COMPETITIVE CONDITIONS, WHICH COULD CAUSE OUR CUSTOMERS TO BE DIVERTED TO OUR COMPETITORS AND ADVERSELY AFFECT OUR REVENUE AND RESULTS OF OPERATIONS.

46


WE FACE TRADE BARRIERS OUTSIDE OF NORTH AMERICA THAT LIMIT OUR ABILITY TO COMPETE, WHICH COULD REQUIRE US TO INCREASE INCENTIVES, REDUCE PRICES, INCREASE SPENDING ON MARKETING OR PRODUCT DEVELOPMENT, OR TO OTHERWISE TAKE ACTIONS THAT COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO OTHER RISKS, WHICH MAY IMPEDE OUR ABILITY TO GROW INTERNATIONALLY AND ADVERSELY AFFECT OUR OVERALL RESULTS OF OPERATIONS.

47


48



Item 3. Quantitative and Qualitative Disclosures about Market Risk


Item 4. Controls and Procedures

49



PART II: OTHER INFORMATION

Item 1. Legal Proceedings

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

50



Item 6. Exhibits and Reports on Form 8-K

(a)
The following exhibits are included herein:

Exhibit Number
  Description of Exhibit
3.1   Restated Certificate of Incorporation of Sabre Holdings Corporation. (1)
3.2   Restated Bylaws of Sabre Holdings Corporation. (2)
10.1   Capital Lease Facility with Various Associated Documents dated as of June 15, 2003, as specified below.

 

 

10.1 (a) Participation Agreement dated as of June 15, 2003, among Sabre Inc., as Lessee, Sabre Holdings Corporation, as Lessee Guarantor, CSL Leasing Inc., as Lessor, the Institutional Investors named therein, as Purchasers, and Wilmington Trust Company, as Indenture Trustee. (3)

 

 

10.1 (b) Master Lease and Deed of Trust dated as of June 15, 2003, between Sabre Inc., as Lessee, and CSL Leasing Inc., as Lessor. (3)

 

 

10.1 (c) Lease Supplement No. 1 (Memorandum of Lease Supplement, Memorandum of Master Lease and Deed of Trust, Fixture Filing and Memorandum of Option to Purchase) dated June 26, 2003, between Sabre Inc., as the Lessee and grantor, and CSL Leasing Inc., as Lessor and beneficiary, and to Jeffrey A. Rattikin, as trustee and grantee. (3)

 

 

10.1 (d) Trust Indenture and Security Agreement dated as of June 15, 2003, between CSL Leasing Inc. and Wilmington Trust Company, as Indenture Trustee. (3)

 

 

10.1 (e) Assignment of Lease and Rent and Security Agreement dated as of June 15, 2003, made by CSL Leasing Inc., in favor of Wilmington Trust Company, as Indenture Trustee.(3)

 

 

10.1 (f) Deed of Trust and Security Agreement with Assignment of Rents dated as of June 15, 2003, from CSL Leasing Inc., as grantor, and Sabre Inc., as grantor, to Jeffrey A. Rattikin, as trustee, for the use and benefit of Wilmington Trust Company, as Indenture Trustee. (3)

 

 

10.1 (g) Lease Guaranty dated as of June 15, 2003, made by Sabre Holdings Corporation, in favor of CSL Leasing Inc., as Lessor, the parties who from time to time become Purchasers under the Operative Documents, and Wilmington Trust Company, as Indenture Trustee. (3)

12.1

 

Sabre Holdings Corporation Computation of Ratio of Earnings to Fixed Charges (3)
31.1   Written statement pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 14, 2003, signed by William J. Hannigan as Chief Executive Officer (3)
31.2   Written statement pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 14, 2003, signed by Jeffery M. Jackson as Chief Financial Officer (3)
32.1   Written statement pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 15, 2003, signed by William J. Hannigan as Chief Executive Officer (4)
     

51


32.2   Written statement pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 15, 2003, signed by Jeffery M. Jackson as Chief Financial Officer (4)

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

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

(3)
Filed herewith.

(4)
Sabre Holdings Corporation is furnishing, but not filing, the written statements pursuant to Title 18 United States Code Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, of William J. Hannigan, the Chief Executive Officer of Sabre Holdings Corporation, and Jeffery M. Jackson, the Chief Financial Officer of Sabre Holdings Corporation.

(b)
Reports on Form 8-K:

Pursuant to General Instruction B.2. of Form 8-K, to the extent that the Forms 8-K listed below contain Item 9 and/or Item 12 disclosures, and consequently such Forms 8-K, those Items are not incorporated into this Form 10-Q or into any other form or report filed with the Commission into which this Form 10-Q would be incorporated by reference.

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Signature

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

    SABRE HOLDINGS CORPORATION

 

 

By:

 

/s/  
JEFFERY M. JACKSON      
Jeffery M. Jackson
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
Date: August 14, 2003        

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INDEX SABRE HOLDINGS CORPORATION
PART I. FINANCIAL INFORMATION
Financial Statements (Unaudited)
CONSOLIDATED STATEMENTS OF INCOME
Signature