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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 September 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—143,466,253 as of November 7, 2003





INDEX
SABRE HOLDINGS CORPORATION

PART I: FINANCIAL INFORMATION   3

Item 1.

Financial Statements (Unaudited)

 

3
  Consolidated Balance Sheets—September 30, 2003 and December 31, 2002   3
  Consolidated Statements of Income—Three and nine months ended September 30, 2003 and 2002   4
  Condensed Consolidated Statement of Stockholders' Equity—Nine months ended September 30, 2003   5
  Consolidated Statements of Cash Flows—Nine months ended September 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

 

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

52

Item 4.

Controls and Procedures

 

52

PART II:

OTHER INFORMATION

 

53

Item 1.

Legal Proceedings

 

53

Item 6.

Exhibits and Reports on Form 8-K

 

53

SIGNATURE

 

55

2



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

 
  September 30,
2003

  December 31,
2002

 
Assets              
Current assets              
  Cash   $ 26,484   $ 21,176  
  Marketable securities     985,863     890,584  
  Accounts receivable, net     372,623     298,498  
  Prepaid expenses and other current assets     106,117     85,657  
  Deferred income taxes     17,081     15,728  
   
 
 
    Total current assets     1,508,168     1,311,643  
Property and equipment              
  Buildings and leasehold improvements     318,930     156,034  
  Furniture, fixtures and equipment     44,909     43,578  
  Computer software and equipment     265,261     236,639  
   
 
 
      629,100     436,251  
  Less accumulated depreciation and amortization     (232,007 )   (196,179 )
   
 
 
    Total property and equipment     397,093     240,072  
Investments in joint ventures     177,973     189,002  
Goodwill and intangible assets, net     812,226     855,683  
Other assets, net     137,936     160,131  
   
 
 
    Total assets   $ 3,033,396   $ 2,756,531  
   
 
 
Liabilities and stockholders' equity              
Current liabilities              
  Accounts payable   $ 179,248   $ 181,934  
  Accrued compensation and related benefits     56,681     54,770  
  Accrued subscriber incentives     68,838     69,132  
  Deferred revenues     39,186     46,252  
  Other accrued liabilities     179,224     147,826  
   
 
 
    Total current liabilities     523,177     499,914  
Deferred income taxes     10,044     13,755  
Pensions and other postretirement benefits     117,812     116,305  
Other liabilities     34,175     38,914  
Minority interests     11,602     10,300  
Notes payable     433,930     435,765  
Obligation under capital lease     162,915      
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; 145,795 and 144,775 shares issued at September 30, 2003 and December 31, 2002, respectively     1,459     1,448  
  Additional paid-in capital     1,289,397     1,269,101  
  Retained earnings     519,196     442,130  
  Accumulated other comprehensive loss     (15,385 )   (16,024 )
  Less treasury stock at cost: 2,166 and 2,172 shares, respectively     (54,926 )   (55,077 )
   
 
 
    Total stockholders' equity     1,739,741     1,641,578  
   
 
 
    Total liabilities and stockholders' equity   $ 3,033,396   $ 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
September 30,

  Nine Months Ended
September 30,

 
 
  2003
  2002
  2003
  2002
 
Revenues   $ 526,793   $ 517,374   $ 1,577,815   $ 1,603,480  
Operating expenses                          
  Cost of revenues     328,578     301,803     964,947     874,713  
  Selling, general and administrative     133,461     114,881     379,247     376,885  
  Amortization of intangible assets     20,888     13,216     45,469     40,110  
   
 
 
 
 
    Total operating expenses     482,927     429,900     1,389,663     1,291,708  
Operating income     43,866     87,474     188,152     311,772  
Other income (expense)                          
  Interest income     4,156     7,159     12,535     21,726  
  Interest expense     (6,790 )   (5,633 )   (17,562 )   (16,897 )
  Other, net     (839 )   1,920     (30,350 )   22,973  
   
 
 
 
 
    Total other income (expense)     (3,473 )   3,446     (35,377 )   27,802  
Minority interests     (711 )   (349 )   (1,302 )   (390 )
   
 
 
 
 
Income before provision for income taxes     39,682     90,571     151,473     339,184  
Provision for income taxes     14,233     32,650     54,329     125,911  
   
 
 
 
 
Net earnings   $ 25,449   $ 57,921   $ 97,144   $ 213,273  
   
 
 
 
 
Earnings per common share                          
  Basic   $ .18   $ .40   $ .68   $ 1.53  
   
 
 
 
 
  Diluted   $ .18   $ .40   $ .68   $ 1.50  
   
 
 
 
 
Dividends per common share   $ .07   $   $ .14   $  
   
 
 
 
 

See Notes to Consolidated Financial Statements

4


SABRE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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   $ 1,448   $ 1,269,101   $ 442,130   $ (16,024 ) $ (55,077 ) $ 1,641,578  
Issuance of 1,020 shares of Class A
    common stock pursuant to stock
    option, restricted stock incentive
    and stock purchase plans
    10     4,145             1,704     5,859  
Tax benefit from exercise of
    employee stock options
        586                 586  
Stock based compensation for
    employees
        13,892                 13,892  
Dividends             (20,078 )           (20,078 )
Other     1     1,673             (1,553 )   121  
Comprehensive income:                                      
  Net earnings             97,144             97,144  
  Unrealized loss on foreign
    currency forward contracts,
    net of deferred income taxes
                (830 )       (830 )
  Unrealized gain on investments,
    net of deferred income taxes
                1,105         1,105  
  Unrealized foreign currency
    translation gain
                364         364  
                                 
 
Total comprehensive income                                   97,783  
   
 
 
 
 
 
 
Balance at September 30, 2003   $ 1,459   $ 1,289,397   $ 519,196   $ (15,385 ) $ (54,926 ) $ 1,739,741  
   
 
 
 
 
 
 

See Notes to Consolidated Financial Statements.

5


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

 
  Nine Months Ended September 30,
 
 
  2003
  2002
 
Operating Activities              
Net earnings   $ 97,144   $ 213,273  
Adjustments to reconcile net earnings to cash provided by operating activities:              
  Depreciation and amortization     105,184     86,174  
  Stock based compensation for employees     13,892     27,079  
  Deferred income taxes     (4,688 )   78,957  
  Tax benefit from exercise of stock options     586     9,686  
  Minority interests     1,302     390  
  Gain on sale of former headquarters building         (18,308 )
  Loss on refinancing of building     27,947      
  Other     3,345     (16,496 )
  Changes in operating assets and liabilities:              
    Accounts receivable     (70,981 )   (49,314 )
    Prepaid expenses     (21,230 )   (43,654 )
    Other assets     14,167     (30,639 )
    Accrued compensation and related benefits     1,911     (15,826 )
    Accounts payable and other accrued liabilities     35,009     (13,446 )
    Pensions and other postretirement benefits     1,507     (6,158 )
    Other liabilities     (7,900 )   (23,074 )
   
 
 
  Cash provided by operating activities     197,195     198,644  
Investing Activities              
Additions to property and equipment     (54,159 )   (43,119 )
Business combinations, net of cash acquired     (11,934 )   (483,426 )
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  
Proceeds from sale of data center facility         68,464  
Purchase of data center facility from lessor         (92,092 )
Purchases of marketable securities     (6,528,942 )   (3,279,509 )
Sales of marketable securities     6,434,837     3,102,936  
Proceeds from sales of warrants     5,054     4,444  
Other investing activities, net     8,084     17,398  
   
 
 
  Cash used for investing activities     (147,060 )   (567,780 )
Financing Activities              
Proceeds from issuance of common stock     5,859     438,767  
Dividends paid     (20,078 )    
Purchases of treasury stock         (56,610 )
Payment to refinance building     (27,947 )    
Other financing activities, net     (2,661 )   (90 )
   
 
 
  Cash provided by (used for) financing activities     (44,827 )   382,067  
   
 
 
Increase in cash     5,308     12,931  
Cash at beginning of period     21,176     18,855  
   
 
 
Cash at end of period   $ 26,484   $ 31,786  
   
 
 

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
September 30,

  Nine Months Ended
September 30,

 
  2003
  2002
  2003
  2002
Denominator for basic earnings per common
    share—weighted-average shares
  142,672   143,096   142,451   139,762
Dilutive effect of stock awards and options   2,485   1,794   1,156   2,550
   
 
 
 
Denominator for diluted earnings per common
    share—adjusted weighted-average shares
  145,157   144,890   143,607   142,312
   
 
 
 

10


 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
  2003
  2002
  2003
  2002
Net earnings as reported   $ 25,449   $ 57,921   $ 97,144   $ 213,273
Add stock compensation expense determined
    under intrinsic value method, net of
    income taxes
    2,862     2,683     8,582     17,228
Less total stock-based employee compensation
    expense determined under fair value based
    method for all awards, net of income
    taxes
    10,324     6,445     32,822     39,530
   
 
 
 
Pro forma net earnings   $ 17,987   $ 54,159   $ 72,904   $ 190,971
   
 
 
 
Net earnings per common share, as reported:                        
  Basic   $ .18   $ .40   $ .68   $ 1.53
   
 
 
 
  Diluted   $ .18   $ .40   $ .68   $ 1.50
   
 
 
 
Net earnings per common share, pro forma:                        
  Basic   $ .13   $ .38   $ .51   $ 1.37
   
 
 
 
  Diluted   $ .12   $ .37   $ .51   $ 1.34
   
 
 
 

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  
   
 
Total before interest     255,369  
Amounts representing interest     (87,363 )
   
 
Total obligations under capital lease   $ 168,006  
   
 

3.     Significant Events

Minority interest assumed   $ 252,597
Deferred income tax asset, net     21,665
Supplier and distributor agreements (weighted average life of 3 years)     20,208
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  
   
 

14


Pro Forma Statement of Operations Data

 
  Nine Months Ended
September 30, 2002

Revenues   $ 1,603,480
   
Net earnings   $ 219,752
   
Earnings per common share      
  Basic   $ 1.57
   
  Diluted   $ 1.54
   
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 nine months ended September 30, 2003     (10,226 )
Revision of 2002 workforce reduction     (925 )
   
 
Remaining liability at September 30, 2003   $ 263  
   
 

15


4.     Income Taxes

 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
 
  2003
  2002
  2003
  2002
 
Income tax provision at statutory federal income
    tax rate
  $ 13,889   $ 31,699   $ 53,016   $ 118,714  
State income taxes, net of federal benefit     291     1,412     2,692     9,401  
Other, net     53     (461 )   (1,379 )   (2,204 )
   
 
 
 
 
  Total provision for income taxes   $ 14,233   $ 32,650   $ 54,329   $ 125,911  
   
 
 
 
 

5.     Derivatives

16


17


 
  Assets at
 
  September 30, 2003
  December 31, 2002
Warrants   $ 2,849   $ 2,213
Foreign currency forwards     6,067     7,019
Interest rate swaps     16,824     21,397
   
 
    $ 25,740   $ 30,629
   
 

6.     Segment Reporting

18


19


 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
 
  2003
  2002
  2003
  2002
 
Revenues from external customers, excluding
    special items:
                         
  Sabre Travel Network   $ 371,451   $ 385,464   $ 1,121,374   $ 1,218,295  
  Travelocity     76,058     64,963     210,835     183,103  
  GetThere     13,616     13,704     37,463     38,251  
  Sabre Airline Solutions     55,822     50,417     165,688     154,512  
   
 
 
 
 
    Total   $ 516,947   $ 514,548   $ 1,535,360   $ 1,594,161  
   
 
 
 
 
Intersegment revenues:                          
  Sabre Travel Network   $ 6,748   $ 7,430   $ 19,328   $ 20,072  
  Travelocity     24,047     18,883     69,202     52,922  
  GetThere     401     264     1,177     663  
  Sabre Airline Solutions                  
   
 
 
 
 
    Total   $ 31,196   $ 26,577   $ 89,707   $ 73,657  
   
 
 
 
 
Equity in net income of equity method investees:                          
  Sabre Travel Network   $ 4,446   $ 3,658   $ 9,324   $ 12,365  
  Travelocity     (2,436 )   (832 )   (11,163 )   (3,046 )
   
 
 
 
 
    Total   $ 2,010   $ 2,826   $ (1,839 ) $ 9,319  
   
 
 
 
 
Segment revenues, excluding special items:                          
  Sabre Travel Network   $ 382,645   $ 396,552   $ 1,150,026   $ 1,250,732  
  Travelocity     97,669     83,014     268,874     232,979  
  GetThere     14,017     13,968     38,640     38,914  
  Sabre Airline Solutions     55,822     50,417     165,688     154,512  
  Elimination of intersegment revenues     (31,196 )   (26,577 )   (89,707 )   (73,657 )
   
 
 
 
 
    Total   $ 518,957   $ 517,374   $ 1,533,521   $ 1,603,480  
   
 
 
 
 
Revenue special items:                          
  Sabre Travel Network—settlement revenue from
    canceled subscriber contract
            36,458      
  Travelocity—recognition of deferred warrant
    revenue upon termination of Hotels.com
    agreement
    7,836         7,836      
   
 
 
 
 
    Total   $ 7,836   $   $ 44,294   $  
   
 
 
 
 
Consolidated revenues:                          
  Sabre Travel Network   $ 382,645   $ 396,552   $ 1,186,484   $ 1,250,732  
  Travelocity     105,505     83,014     276,710     232,979  
  GetThere     14,017     13,968     38,640     38,914  
  Sabre Airline Solutions     55,822     50,417     165,688     154,512  
  Elimination of intersegment revenues     (31,196 )   (26,577 )   (89,707 )   (73,657 )
   
 
 
 
 
    Total   $ 526,793   $ 517,374   $ 1,577,815   $ 1,603,480  
   
 
 
 
 

20


 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
 
  2003
  2002
  2003
  2002
 
Segment operating income (loss) excluding special
    items:
                         
  Sabre Travel Network   $ 66,012   $ 109,454   $ 217,738   $ 385,514  
  Travelocity     (5,951 )   (4,781 )   (17,361 )   (2,472 )
  GetThere     (3,419 )   (4,806 )   (14,256 )   (21,085 )
  Sabre Airline Solutions     1,324     3,493     8,638     18,375  
  Net corporate allocations     1,249     343     1,383     (2,516 )
   
 
 
 
 
    Total   $ 59,215   $ 103,703   $ 196,142   $ 377,816  
   
 
 
 
 
Impact of special items on operating income—(increase)/decrease:  
Sabre Travel Network:                          
  Settlement revenue from canceled subscriber contract   $   $   $ (36,458 ) $  
  Other intangibles amortization     3,106     3,339     9,346     12,844  
  Stock compensation     16     110     47     398  
  Restructuring expenses             (288 )    
   
 
 
 
 
    Total Sabre Travel Network     3,122     3,449     (27,353 )   13,242  
   
 
 
 
 
Travelocity:                          
  Other intangibles amortization/impairment     11,186     2,860     16,336     6,211  
  Stock compensation     2,386     2,450     7,089     21,317  
  Recognition of deferred warrant revenue upon
    termination of Hotels.com agreement
    (7,836 )       (7,836 )    
  Restructuring expenses             (37 )    
  Tender offer expenses                 7,111  
   
 
 
 
 
    Total Travelocity     5,736     5,310     15,552     34,639  
   
 
 
 
 
GetThere:                          
  Other intangibles amortization     6,107     6,607     18,319     19,819  
  Stock compensation     834     863     2,523     1,852  
   
 
 
 
 
    Total GetThere     6,941     7,470     20,842     21,671  
   
 
 
 
 
Sabre Airline Solutions:                          
  Restructuring expenses             (231 )    
   
 
 
 
 
Corporate:                          
  Other     (450 )       (450 )    
  Restructuring expenses             (370 )   (3,508 )
   
 
 
 
 
    Total Corporate     (450 )       (820 )   (3,508 )
   
 
 
 
 
      Total operating income special items   $ 15,349   $ 16,229   $ 7,990   $ 66,044  
   
 
 
 
 
Consolidated operating income (loss):                          
  Sabre Travel Network   $ 62,890   $ 106,005   $ 245,091   $ 372,272  
  Travelocity     (11,687 )   (10,091 )   (32,913 )   (37,111 )
  GetThere     (10,360 )   (12,276 )   (35,098 )   (42,756 )
  Sabre Airline Solutions     1,324     3,493     8,869     18,375  
  Corporate Allocations     1,699     343     2,203     992  
   
 
 
 
 
    Total   $ 43,866   $ 87,474   $ 188,152   $ 311,772  
   
 
 
 
 

21


7.     Supplemental Guarantor/Non-Guarantor Financial Information

22


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

 
  Sabre
Holdings

  Sabre Inc.
  Non-Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

Assets                              
Current assets                              
  Cash and marketable securities   $   $ 992,012   $ 20,335   $   $ 1,012,347
  Accounts receivable—trade, net         280,429     92,194         372,623
  Intercompany accounts
    receivable (payable)
    1,565,969     (1,769,158 )   203,189        
  Prepaid expenses and other
    current assets
        45,417     60,700         106,117
  Deferred income taxes         15,706     1,375         17,081
   
 
 
 
 
    Total current assets     1,565,969     (435,594 )   377,793         1,508,168
Property and equipment, net         349,033     48,060         397,093
Investments in joint ventures         3,722     174,251         177,973
Goodwill and intangible assets, net         10,760     801,466         812,226
Investments in subsidiaries     588,508     1,262,699         (1,851,207 )  
Other assets, net     23,245     83,124     31,567         137,936
   
 
 
 
 
    Total assets   $ 2,177,722   $ 1,273,744   $ 1,433,137   $ (1,851,207 ) $ 3,033,396
   
 
 
 
 
Liabilities and stockholders' equity                        
Current liabilities                              
  Accounts payable   $ 3   $ 128,301   $ 50,944   $   $ 179,248
  Accrued compensation and
    related benefits
        44,662     12,019         56,681
  Other accrued liabilities     2,984     175,961     108,303         287,248
   
 
 
 
 
    Total current liabilities     2,987     348,924     171,266         523,177
Deferred income taxes         41,399     (31,355 )       10,044
Pensions and other
    postretirement benefits
        116,805     1,007         117,812
Other liabilities     1,064     15,193     17,918         34,175
Minority interests             11,602         11,602
Notes payable     433,930                 433,930
Obligation under capital lease         162,915             162,915
Stockholders' equity     1,739,741     588,508     1,262,699     (1,851,207 )   1,739,741
   
 
 
 
 
    Total liabilities and
    stockholders' equity
  $ 2,177,722   $ 1,273,744   $ 1,433,137   $ (1,851,207 ) $ 3,033,396
   
 
 
 
 

23


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
   
 
 
 
 

24


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

 
  Sabre
Holdings

  Sabre Inc.
  Non-Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Revenues   $   $ 1,147,049   $ 807,943   $ (377,177 ) $ 1,577,815  
Operating expenses     2,218     1,057,672     706,950     (377,177 )   1,389,663  
   
 
 
 
 
 
Operating income (loss)     (2,218 )   89,377     100,993         188,152  
Other income (expense)                                
  Interest income     60,302     8,607     12,948     (69,322 )   12,535  
  Interest expense     (12,855 )   (71,772 )   (2,257 )   69,322     (17,562 )
  Income (loss) from subsidiaries     67,350     75,251         (142,601 )    
  Other, net         (27,061 )   (3,289 )       (30,350 )
   
 
 
 
 
 
    Total other income (expense)     114,797     (14,975 )   7,402     (142,601 )   (35,377 )
Minority interests             (1,302 )       (1,302 )
   
 
 
 
 
 
Income (loss) before provision for
    income taxes
    112,579     74,402     107,093     (142,601 )   151,473  
Provision for income taxes     15,435     7,052     31,842         54,329  
   
 
 
 
 
 
Net income (loss)   $ 97,144   $ 67,350   $ 75,251   $ (142,601 ) $ 97,144  
   
 
 
 
 
 

25


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

 
  Sabre
Holdings

  Sabre Inc.
  Non-Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Revenues   $   $ 1,251,217   $ 676,354   $ (324,091 ) $ 1,603,480  
Operating expenses     1,096     996,112     618,591     (324,091 )   1,291,708  
   
 
 
 
 
 
Operating income (loss)     (1,096 )   255,105     57,763         311,772  
Other income (expense)                                
  Interest income     70,926     17,392     17,249     (83,841 )   21,726  
  Interest expense     (14,348 )   (84,431 )   (1,959 )   83,841     (16,897 )
  Income (loss) from subsidiaries     176,724     51,632         (228,356 )    
  Other, net         18,405     4,568         22,973  
   
 
 
 
 
 
    Total other income (expense)     233,302     2,998     19,858     (228,356 )   27,802  
Minority interests             (390 )       (390 )
   
 
 
 
 
 
Income (loss) before provision for
    income taxes
    232,206     258,103     77,231     (228,356 )   339,184  
Provision for income taxes     18,933     81,379     25,599         125,911  
   
 
 
 
 
 
Net income (loss)   $ 213,273   $ 176,724   $ 51,632   $ (228,356 ) $ 213,273  
   
 
 
 
 
 

26


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

 
  Sabre
Holdings

  Sabre Inc.
  Non-Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Revenues   $   $ 360,934   $ 291,695   $ (125,836 ) $ 526,793  
Operating expenses     468     357,311     250,984     (125,836 )   482,927  
   
 
 
 
 
 
Operating income (loss)     (468 )   3,623     40,711         43,866  
Other income (expense)                                
  Interest income     22,998     3,014     3,845     (25,701 )   4,156  
  Interest expense     (4,201 )   (27,627 )   (663 )   25,701     (6,790 )
  Income (loss) from subsidiaries     13,375     29,634         (43,009 )    
  Other, net         72     (911 )       (839 )
   
 
 
 
 
 
    Total other income (expense)     32,172     5,093     2,271     (43,009 )   (3,473 )
Minority interests             (711 )       (711 )
   
 
 
 
 
 
Income (loss) before provision for
    income taxes
    31,704     8,716     42,271     (43,009 )   39,682  
Provision for income taxes     6,255     (4,659 )   12,637         14,233  
   
 
 
 
 
 
Net income (loss)   $ 25,449   $ 13,375   $ 29,634   $ (43,009 ) $ 25,449  
   
 
 
 
 
 

27


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

 
  Sabre
Holdings

  Sabre Inc.
  Non-Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Revenues   $   $ 393,788   $ 237,118   $ (113,532 ) $ 517,374  
Operating expenses     (102 )   329,627     213,907     (113,532 )   429,900  
   
 
 
 
 
 
Operating income (loss)     102     64,161     23,211         87,474  
Other income (expense)                                
  Interest income     47,945     5,769     5,586     (52,141 )   7,159  
  Interest expense     (4,684 )   (52,321 )   (769 )   52,141     (5,633 )
  Income from subsidiaries     29,355     18,318         (47,673 )    
  Other, net         1,023     897         1,920  
   
 
 
 
 
 
    Total other income (expense)     72,616     (27,211 )   5,714     (47,673 )   3,446  
Minority interests             (349 )       (349 )
   
 
 
 
 
 
Income (loss) before provision for
    income taxes
    72,718     36,950     28,576     (47,673 )   90,571  
Provision for income taxes     14,797     7,595     10,258         32,650  
   
 
 
 
 
 
Net income (loss)   $ 57,921   $ 29,355   $ 18,318   $ (47,673 ) $ 57,921  
   
 
 
 
 
 

28


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

 
  Sabre
Holdings

  Sabre Inc.
  Non-Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Operating Activities                                
  Net earnings   $ 97,144   $ 67,350   $ 75,251   $ (142,601 ) $ 97,144  
  Adjustments to reconcile net
    earnings to cash provided by
    operating activities:
                               
    Depreciation and amortization         41,189     63,995         105,184  
    Stock compensation         2,608     11,284         13,892  
    Deferred income taxes         (4,688 )           (4,688 )
    Tax benefit from exercise of
    stock options
    586                 586  
    Loss on refinancing building         27,947             27,947  
    Minority interests             1,302         1,302  
    (Income) loss from subsidiaries     (67,350 )   (75,251 )       142,601      
    Other     (1,256 )   1,700     2,901         3,345  
    Changes in operating assets and
    liabilities
    (25,009 )   (368,881 )   346,373         (47,517 )
   
 
 
 
 
 
  Cash provided by (used for)
    operating activities
    4,115     (308,026 )   501,106         197,195  
Investing Activities                                
  Additions to property and
    equipment
        (39,056 )   (15,103 )       (54,159 )
  Purchases of marketable securities         (6,529,049 )   107         (6,528,942 )
  Sales of marketable securities         6,436,855     (2,018 )       6,434,837  
  Investments in subsidiaries, net     9,986     488,829         (498,815 )    
  Business combinations, net of cash
    acquired
        (11,934 )           (11,934 )
  Other investing activities, net             13,138         13,138  
   
 
 
 
 
 
    Cash provided by (used for)
    investing activities
    9,986     345,645     (3,876 )   (498,815 )   (147,060 )
Financing Activities                                
  Distributions to affiliates         (9,986 )   (488,829 )   498,815      
  Proceeds from issuance of common
    stock
    5,859                 5,859  
  Dividends paid     (20,078 )               (20,078 )
  Payment to refinance building         (27,947 )           (27,947 )
  Other financing activities, net     118         (2,779 )       (2,661 )
   
 
 
 
 
 
  Cash provided by (used for)
    financing activities
    (14,101 )   (37,933 )   (491,608 )   498,815     (44,827 )
   
 
 
 
 
 
  Increase in cash         (314 )   5,622         5,308  
  Cash at beginning of period         9,219     11,957         21,176  
   
 
 
 
 
 
  Cash at end of period   $   $ 8,905   $ 17,579   $   $ 26,484  
   
 
 
 
 
 

29


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

 
  Sabre
Holdings

  Sabre Inc.
  Non-Guarantor
Subsidiaries

  Eliminating
Entries

  Sabre
Consolidated

 
Operating Activities                                
  Net earnings   $ 213,273   $ 176,724   $ 51,632   $ (228,356 ) $ 213,273  
  Adjustments to reconcile net
    earnings to cash provided by
    operating activities:
                               
    Depreciation and amortization         29,718     56,456         86,174  
    Stock compensation             27,079         27,079  
    Deferred income taxes         64,801     14,156         78,957  
    Tax benefit from exercise of
    stock options
    9,686                 9,686  
    Minority interests             390         390  
    (Income) loss from subsidiaries     (176,724 )   (51,632 )       228,356      
    Gain on sale of former
    headquarters building
        (18,308 )           (18,308 )
    Other     10,955     (15,199 )   (12,252 )       (16,496 )
    Changes in operating assets and
    liabilities
    (447,351 )   480,185     (214,945 )       (182,111 )
   
 
 
 
 
 
  Cash provided by (used for)
    operating activities
    (390,161 )   666,289     (77,484 )       198,644  
Investing Activities                                
  Additions to property and
    equipment
        (29,413 )   (13,706 )       (43,119 )
  Purchases of marketable securities         (2,958,197 )   (321,312 )       (3,279,509 )
  Sales of marketable securities         2,668,483     434,453         3,102,936  
  Investments in subsidiaries, net     (9,409 )   (465,548 )       474,957      
  Business combinations, net of cash
    acquired
        29,541     (512,967 )       (483,426 )
  Proceeds from exercise of
    Travelocity.com stock options
                33,658     33,658  
  Proceeds from sale of former
    headquarters building
        80,000             80,000  
  Purchase of data center facility from
    lessor
        (92,092 )           (92,092 )
  Proceeds from sale of data center
    facility
        68,464             68,464  
  Proceeds from sale of minority
    interest in Sabre Pacific
            23,466         23,466  
  Other investing activities, net         29,968     (8,126 )       21,842  
   
 
 
 
 
 
    Cash provided by (used for)
    investing activities
    (9,409 )   (668,794 )   (398,192 )   508,615     (567,780 )
Financing Activities                                
  Contributions from affiliates         9,409     465,548     (474,957 )    
  Proceeds from issuance of common
    stock
    438,767         33,658     (33,658 )   438,767  
  Purchases of treasury stock     (56,610 )               (56,610 )
  Other financing activities, net     17,413         (17,503 )       (90 )
   
 
 
 
 
 
    Cash provided by (used for)
    financing activities
    399,570     9,409     481,703     (508,615 )   382,067  
  Increase in cash         6,904     6,027         12,931  
  Cash at beginning of period         8,642     10,213         18,855  
   
 
 
 
 
 
  Cash at end of period   $   $ 15,546   $ 16,240   $   $ 31,786  
   
 
 
 
 
 

30


8.     Subsequent Events


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

SABRE HOLDINGS CORPORATION

RESULTS OF OPERATIONS

        Summary


1
Sabre, Direct Connect, eVoya, Turbo Sabre, Travelocity, Travelocity.com, Travelocity.ca, and GetThere are registered trademarks, and Sabre Holdings, Sabre Travel Network, Sabre Airline Solutions, Basic Booking Request and eMergo are trademarks of an affiliate of Sabre Holdings Corporation. All other trademarks are the property of their respective owners. ©2003 Sabre Holdings Corporation. All rights reserved.

31


32


33


Three Months Ended September 30, 2003 and 2002

34



35


36


Nine Months Ended September 30, 2003 and 2002

37


38



39


40


41


SABRE HOLDINGS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES

42


43


44


 
  Year Ending December 31,
 
2003   $ 4,803  
2004     9,607  
2005     9,607  
2006     9,607  
2007     9,607  
2008 and thereafter     212,138  
   
 
Total before interest     255,369  
Amounts representing interest     (87,363 )
   
 
Total obligations under capital lease   $ 168,006  
   
 

45


SABRE HOLDINGS CORPORATION
CAUTIONARY STATEMENT

46


47


48


49


50


51



Item 3. Quantitative and Qualitative Disclosures about Market Risk


Item 4. Controls and Procedures

52



PART II: OTHER INFORMATION

Item 1. Legal Proceedings


Item 6. Exhibits and Reports on Form 8-K

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)
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 November 13, 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 November 13, 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 November 13, 2003, signed by William J. Hannigan as Chief Executive Officer (4)
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 November 13, 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.

53


(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.

54



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: November 13, 2003        

55




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INDEX SABRE HOLDINGS CORPORATION
PART I. FINANCIAL INFORMATION
Financial Statements (Unaudited)
Signature