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, 2004.

 

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.

 

 

SABRE HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

75-2662240

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

3150 Sabre Drive, Southlake, Texas

 

76092

(Address of principal executive offices)

 

(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—135,480,073 as of October 29, 2004

 

 



 

INDEX

 

SABRE HOLDINGS CORPORATION

 

 

PART I:

FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets-September 30, 2004 and December 31, 2003

3

 

Consolidated Statements of Income—Three and nine months ended September 30, 2004 and 2003

4

 

Consolidated Condensed Statement of Stockholders’ Equity—Nine months ended September 30, 2004

5

 

Consolidated Statements of Cash Flows—Nine months ended September 30, 2004 and 2003

6

 

Notes to Consolidated Financial Statements

7

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

49

PART II:

OTHER INFORMATION

50

Item 1.

Legal Proceedings

50

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Submission of Matters to a Vote of Security Holders

51

Item 5.

Other Information

51

Item 6.

Exhibits

52

SIGNATURE

53

 

2



 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

SABRE HOLDINGS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

September 30,
2004

 

December 31,
2003

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

 

$

62,548

 

$

40,862

 

Marketable securities

 

853,885

 

881,749

 

Accounts receivable, net

 

383,351

 

348,988

 

Prepaid expenses and other current assets

 

61,439

 

86,475

 

Deferred income taxes

 

15,961

 

10,237

 

Total current assets

 

1,377,184

 

1,368,311

 

Property and equipment

 

 

 

 

 

Buildings and leasehold improvements

 

306,498

 

306,294

 

Furniture, fixtures and equipment

 

35,568

 

36,684

 

Computer software and equipment

 

320,082

 

275,664

 

 

 

662,148

 

618,642

 

Less accumulated depreciation and amortization

 

(272,992

)

(234,262

)

Total property and equipment

 

389,156

 

384,380

 

 

 

 

 

 

 

Investments in joint ventures

 

187,057

 

181,142

 

Goodwill and intangible assets, net

 

895,432

 

891,740

 

Other assets, net

 

140,751

 

130,580

 

Total assets

 

$

2,989,580

 

$

2,956,153

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

202,926

 

$

202,615

 

Accrued compensation and related benefits

 

76,322

 

62,557

 

Accrued subscriber incentives

 

89,078

 

70,178

 

Deferred revenues

 

36,242

 

34,791

 

Other accrued liabilities

 

145,561

 

133,254

 

Total current liabilities

 

550,129

 

503,395

 

 

 

 

 

 

 

Deferred income taxes

 

 

4,420

 

Pensions and other postretirement benefits

 

141,763

 

133,404

 

Other liabilities

 

23,019

 

25,162

 

Minority interests

 

6,160

 

6,463

 

Capital lease obligation

 

161,717

 

160,725

 

Public and other notes payable

 

442,238

 

442,476

 

 

 

 

 

 

 

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; 145,856 and 145,652 shares issued at September 30, 2004 and December 31, 2003, respectively

 

1,459

 

1,457

 

Additional paid-in capital

 

1,287,524

 

1,291,841

 

Retained earnings

 

633,470

 

495,372

 

Accumulated other comprehensive loss

 

(15,470

)

(8,115

)

Less treasury stock at cost: 10,378 and 4,322 shares, respectively

 

(242,429

)

(100,447

)

 

 

 

 

 

 

Total stockholders’ equity

 

1,664,554

 

1,680,108

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,989,580

 

$

2,956,153

 

 

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,

 

 

 

2004

 

2003

 

2004

 

2003

 

Revenues

 

$

544,390

 

$

526,793

 

$

1,635,046

 

$

1,577,815

 

Cost of revenues

 

302,015

 

323,667

 

921,307

 

953,575

 

Gross profit

 

242,375

 

203,126

 

713,739

 

624,240

 

Other operating expenses

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

153,209

 

138,372

 

439,293

 

390,619

 

Amortization of intangible assets

 

11,999

 

20,888

 

39,348

 

45,469

 

Total other operating expenses

 

165,208

 

159,260

 

478,641

 

436,088

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

77,167

 

43,866

 

235,098

 

188,152

 

Other income (expense)

 

 

 

 

 

 

 

 

 

Interest income

 

4,300

 

4,156

 

10,841

 

12,535

 

Interest expense

 

(6,861

)

(6,790

)

(19,719

)

(17,562

)

Other, net

 

2,119

 

(1,550

)

8,603

 

(31,652

)

Total other income (expense)

 

(442

)

(4,184

)

(275

)

(36,679

)

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

76,725

 

39,682

 

234,823

 

151,473

 

Provision for income taxes

 

9,299

 

14,233

 

65,424

 

54,329

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

67,426

 

$

25,449

 

$

169,399

 

$

97,144

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

 

 

 

 

 

 

 

 

Basic

 

$

.50

 

$

.18

 

$

1.23

 

$

.68

 

Diluted

 

$

.49

 

$

.18

 

$

1.22

 

$

.68

 

 

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$

.075

 

$

.07

 

$

.225

 

$

.14

 

 

See Notes to Consolidated Financial Statements

 

4



 

SABRE HOLDINGS CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2004

(Unaudited) (In thousands)

 

 

 

Class A
Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated Other
Comprehensive Loss

 

Treasury
Stock

 

Total

 

Balance at December 31, 2003

 

$

1,457

 

$

1,291,841

 

$

495,372

 

$

(8,115

)

$

(100,447

)

$

1,680,108

 

Issuance of Class A common stock and treasury shares pursuant to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option plans

 

 

(1,080

)

 

 

10,227

 

9,147

 

Restricted stock plan

 

2

 

(10,843

)

 

 

10,073

 

(768

)

Employee stock purchase plan

 

 

(1,748

)

 

 

8,733

 

6,985

 

Tax benefit from exercise of employee stock options

 

 

1,051

 

 

 

 

1,051

 

Stock based compensation for employees

 

 

9,182

 

 

 

 

9,182

 

Dividends

 

 

 

(31,301

)

 

 

(31,301

)

Purchase of treasury stock

 

 

 

 

 

(171,015

)

(171,015

)

Other

 

 

(879

)

 

 

 

(879

)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

169,399

 

 

 

169,399

 

Unrealized loss on foreign currency forward and option contracts, net of deferred income taxes

 

 

 

 

(4,599

)

 

(4,599

)

Unrealized loss on investments, net of deferred income taxes

 

 

 

 

(1,238

)

 

(1,238

)

Unrealized foreign currency translation loss

 

 

 

 

(928

)

 

(928

)

Other

 

 

 

 

(590

)

 

(590

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

162,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2004

 

$

1,459

 

$

1,287,524

 

$

633,470

 

$

(15,470

)

$

(242,429

)

$

1,664,554

 

 

See Notes to Consolidated Financial Statements.

 

5



 

SABRE HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2004

 

2003

 

Operating Activities

 

 

 

 

 

Net earnings

 

$

169,399

 

$

97,144

 

Adjustments to reconcile net earnings to cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

91,278

 

96,353

 

Loss on impaired intangible assets

 

3,198

 

8,831

 

Stock based compensation for employees

 

9,182

 

13,892

 

Allowance for doubtful accounts

 

15,404

 

(123

)

Deferred income taxes

 

(2,451

)

(4,688

)

Tax benefit from exercise of stock options

 

1,051

 

586

 

Equity loss in joint ventures

 

7,066

 

1,839

 

Loss on refinancing of building

 

 

27,947

 

Other

 

(7,736

)

2,808

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(47,001

)

(70,858

)

Prepaid expenses

 

10,266

 

(21,230

)

Other assets

 

18,237

 

33,311

 

Accrued compensation and related benefits

 

13,580

 

1,911

 

Accounts payable and other accrued liabilities

 

29,426

 

35,009

 

Pensions and other postretirement benefits

 

7,769

 

1,507

 

Other liabilities

 

(498

)

(7,900

)

Cash provided by operating activities

 

318,170

 

216,339

 

Investing Activities

 

 

 

 

 

Additions to property and equipment

 

(56,463

)

(54,159

)

Business combinations, net of cash acquired

 

(46,843

)

(11,934

)

Investments in joint ventures

 

(29,642

)

(11,060

)

Purchases of marketable securities

 

(7,713,992

)

(6,528,942

)

Sales of marketable securities

 

7,741,718

 

6,434,837

 

Proceeds from sales of warrants

 

 

5,054

 

Other investing activities

 

(8,419

)

 

Cash used for investing activities

 

(113,641

)

(166,204

)

Financing Activities

 

 

 

 

 

Proceeds from exercise of stock options and issuance of stock under employee stock purchase plan

 

15,364

 

5,859

 

Dividends paid

 

(31,301

)

(20,078

)

Purchases of treasury stock

 

(165,011

)

 

Payment to refinance building

 

 

(27,947

)

Other financing activities, net

 

(1,895

)

(2,661

)

Cash used for financing activities

 

(182,843

)

(44,827

)

Increase decrease in cash

 

21,686

 

5,308

 

Cash at beginning of period

 

40,862

 

21,176

 

 

 

 

 

 

 

Cash at end of period

 

$

62,548

 

$

26,484

 

 

See Notes to Consolidated Financial Statements

 

6



 

SABRE HOLDINGS CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited)

 

1.              General Information

 

Sabre Holdings Corporation (“Sabre Holdings”) is a Delaware holding company.  Sabre Inc. is the principal operating subsidiary and sole direct subsidiary of Sabre Holdings.  Sabre Inc. or its direct or indirect subsidiaries conduct all of our businesses. In this Report on Form 10-Q, references to the “company”, “we”, “our”, “ours” and “us” refer to Sabre Holdings and its consolidated subsidiaries unless otherwise stated or the context otherwise requires.

 

We are a world leader in travel commerce, marketing travel products and providing distribution and technology solutions for the travel industry.  We operate in multiple travel distribution channels: the travel agency channel, the consumer-direct channel and the corporate or business-direct channel.  Through our Sabre®(1) global distribution system (the “Sabre system” or “Sabre GDS”) subscribers can access information about, and can book reservations for, among other things, airline trips, hotel stays, car rentals, cruises and tour packages. Our Sabre Travel Network™ business operates the Sabre GDS and markets and distributes travel-related products and services through the travel agency and corporate channels. We engage in consumer-direct and business-direct travel marketing and distribution through our TravelocityÒ business. In addition, our Sabre Airline Solutions™ business is a leading provider of technology and services, including development and consulting services, to airlines and other travel providers.

 

During the fourth quarter of 2003 we realigned our GetThereÒ business segment, which engaged in business direct travel services and had previously been operated as a separate business segment, within our other three segments.  This realignment resulted in GetThere products, services and operations being integrated into the remaining three segments.  Accordingly, GetThere is no longer reported as a separate segment.  Disaggregated information relating to the financial performance of our business segments for the three and nine months ended September 30, 2004 and 2003 is presented in Note 7 to the Consolidated Financial Statements.

 

2.              Summary of Significant Accounting Policies

 

Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of results that may be expected for any other interim period or for the year ended December 31, 2004.  Our quarterly financial data should be read in conjunction with our consolidated financial statements for the year ended December 31, 2003 (including the notes thereto), set forth in Sabre Holdings Corporation’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2004.

 

We consolidate all of our majority-owned subsidiaries and companies that are not variable interest entities over which we exercise control through majority voting rights.  We would also consolidate all variable interest entities of which we are the primary beneficiary.  However, no entities are currently consolidated due to control through operating, financing agreements, or other arrangements (including variable interests held in variable interest entities).

 

The consolidated financial statements include our accounts after elimination of all significant intercompany balances and transactions.  We account for our interests in joint ventures and investments in common stock of other companies that we do

 


(1)   Agent 59, Assured Vantage, Direct Connect, Hotel Spotlight, GetThere, Jurni Network, Sabre, Sabre Airline Solutions, Sabre Connected, Sabre Exclusives, Sabre Holdings, the Sabre Holdings logo, Sabre Travel Network, SabreSonic, Site 59, Site59.com, TotalTrip, Travelocity, Travelocity Business, Travelocity.com, and World Choice Travel are trademarks of affiliates of Sabre Holdings Corporation.  All other trademarks are the property of their respective owners.   ©2004 Sabre Holdings Corporation. All rights reserved.

 

7



 

not control but over which we exert significant influence using the equity method, with our share of their results classified as revenues.  Investments in the common stock of other companies over which we do not exert significant influence are accounted for at cost.  We periodically evaluate for impairment equity and debt investments by reviewing updated financial information provided by the investee, including valuation information from new financing transactions by the investee and information relating to competitors of investees when available.  If we determine that an investment is impaired, the carrying value of the investment is reduced to its estimated fair value.  To date, write-downs of investments have been insignificant to our results of operations.

 

Reclassifications – Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation.  These reclassifications are not material, either individually or in the aggregate, to our financial statements.

 

Revenue Recognition – Under our Travelocity merchant hotel and TotalTrip lines of business, we record merchant revenues on a net basis, defined as the amount paid by the customer for products or services, minus our payment to the travel supplier.  On the date a customer makes and prepays a reservation, we accrue for costs of merchant revenues as a supplier liability based on the amount we expect to be billed by our suppliers.  In some cases, a portion of Travelocity’s pre-paid merchant hotel and travel package sales goes unused by the traveler.  In those circumstances, and some others, Travelocity may not be billed the full amount of the accrued supplier liability.  Before the third quarter of 2004, we carried the entire unused portion of those pre-paid sales as an accrued supplier liability.  In the third quarter of 2004, we implemented technology improvements that allow us to better estimate the potential liability to suppliers for those pre-paid sales and we adopted a process to reduce the accrued supplier liability for amounts aged more than six months.  For the third quarter of 2004, that process resulted in an approximately $8 million decrease in the accrued supplier liability and an approximately $8 million increase to transaction revenue and operating income.  Based on recent trends in the amounts billed to us by suppliers as compared to the amounts we accrued, we estimate approximately $5 million of the $8 million adjustment is attributable to travel in the period prior to December 2003 which would be recognized six months following the travel date under our new process.  Our process includes consideration of key factors, including, but not limited to the age of the supplier liability and historical billing and payment information.  We intend to consistently apply this process on a going forward basis.

 

Earnings Per Share Basic earnings per share excludes any dilutive effect of any stock awards or options.  The number of shares used in the diluted earnings per share calculations includes the dilutive effect of any stock awards or options.

 

The following table reconciles weighted average shares used in computing basic and diluted earnings per common share (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per common share—weighted-average shares

 

135,513

 

142,672

 

137,370

 

142,451

 

Dilutive effect of stock awards and options

 

2,583

 

2,485

 

1,861

 

1,156

 

 

 

 

 

 

 

 

 

 

 

Denominator for diluted earnings per common share—adjusted weighted-average shares

 

138,096

 

145,157

 

139,231

 

143,607

 

 

Options to purchase approximately 16,734,112 and 16,117,038 weighted-average shares of our common stock were outstanding during the three and nine month periods ending September 30, 2004, but were excluded from the computation of diluted earnings per share because the effect would be anti-dilutive.  For the corresponding periods in 2003, anti-dilutive options to purchase approximately 16,346,710 and 17,261,417 weighted-average shares of our common stock were excluded from the computation of diluted earnings per share.  The overall decrease in the weighted-average shares for the three and nine month periods ending September 30, 2004 versus 2003 is due to our share repurchase programs.

 

Stock Awards and Options – In March 2004, the Financial Accounting Standards Board (“FASB”) issued an exposure draft entitled “Share Based Payment”, which would amend Financial Accounting Standards 123 and 95. We are monitoring the FASB’s progress on this guidance and its potential impact on our financial statements.  When the guidance becomes effective, we intend to adopt the statement in accordance with FASB requirements. As a result, current estimates of option values using the Black-Scholes method (as used in the table below) may not be indicative of results from valuation methodologies required by the final rules.  Currently, we account for stock awards and stock option grants using the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations.  Generally, no compensation expense is recognized for stock option grants to employees if the exercise price is at or above the fair market value of the underlying stock on the date of grant.  Compensation expense relating to other stock awards is recognized over the period during which the employee renders service to us necessary to earn the award.

 

8



 

The following table summarizes the pro forma effect of stock-based compensation on our net earnings and net earnings per share for the three and nine months ended September 30, 2004 and 2003, as if we had accounted for such compensation at fair value (in thousands, except per share data):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Net earnings as reported

 

$

67,426

 

$

25,449

 

$

169,399

 

$

97,144

 

Add stock compensation expense determined under intrinsic value method, net of income taxes

 

1,697

 

2,862

 

5,671

 

8,582

 

Less total stock-based employee compensation expense determined under fair value based method for all awards, net of income taxes

 

7,396

 

10,324

 

23,559

 

32,822

 

Pro forma net earnings

 

$

61,727

 

$

17,987

 

$

151,511

 

$

72,904

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share, as reported:

 

 

 

 

 

 

 

 

 

Basic

 

$

.50

 

$

.18

 

$

1.23

 

$

.68

 

Diluted

 

$

.49

 

$

.18

 

$

1.22

 

$

.68

 

Net earnings per common share, pro forma:

 

 

 

 

 

 

 

 

 

Basic

 

$

.46

 

$

.13

 

$

1.10

 

$

.51

 

Diluted

 

$

.45

 

$

.12

 

$

1.09

 

$

.51

 

 

3.              Significant Events

 

Contract Settlements In the first quarter of 2003, we recognized revenue of approximately $36 million, representing settlements from two travel agency subscribers (who were affiliated with each other and were acquired by a competitor of ours) in exchange for allowing them to cancel their existing subscriber agreements.

 

Cost ReductionsIn an effort to reduce our operating expenses and better align expenses with revenue targets for 2004 and future years, we reduced our workforce and recorded a charge of approximately $18 million for severance, salaries and benefits in the fourth quarter of 2003.  The remaining liability for this charge as of September 30, 2004 was approximately $1 million.  We have also incurred approximately $3 million during 2004 for a workforce reduction of which approximately $1 million remains outstanding as of September 30, 2004.

 

In the fourth quarter of 2003, we also consolidated our operations (including realigning the products, services, and operations of our GetThere business unit into our other three business units) and closed additional facilities in the United States.  These actions resulted in an approximately $17 million charge, consisting of write-offs of leasehold improvements and other facility-related assets, employee relocation expenses and lease termination costs.  The remaining liability for this charge as of September 30, 2004 was approximately $2 million, which relates entirely to corporate level charges.

 

The following table summarizes the liabilities included in the balance sheets at December 31, 2003 and September 30, 2004 and the amounts paid during the nine-month period (in thousands):

 

 

 

Severance

 

Facilities

 

Total

 

 

 

 

 

 

 

 

 

Remaining liability at December 31, 2003

 

$

7,941

 

$

4,264

 

$

12,205

 

Estimated cost of 2004 workforce reduction

 

2,777

 

 

2,777

 

Amounts paid through September 30, 2004

 

(8,479

)

(2,478

)

(10,957

)

Remaining liability at September 30, 2004

 

$

2,239

 

$

1,786

 

$

4,025

 

 

9



 

Amendment to AOL AgreementOn January 21, 2004, we revised the terms of and extended our agreement with America Online (“AOL”) through March 2006.  Travelocity continues to be the exclusive reservations engine for AOL’s Internet properties under the revised agreement.  Under the revised terms of the agreement, we benefit from more strategically aligned terms for placement within AOL’s brands.  Further, we are obligated for fixed payments of up to $28 million over the two-year term of the agreement.   These fixed payments, along with the unamortized portion of fixed payments previously paid under the original contract, are being expensed on a straight-line basis over the remaining term of the extended agreement.  For 2004, this expense will be approximately $23 million, of which approximately $6 million and $17 million was recognized for the three and nine months ended September 30, 2004, respectively.  Additionally, in exchange for lower fixed annual payments, we agreed to a reduced share of advertising revenues generated through the AOL properties.  The agreement also contains a productivity component, whereby AOL is paid a percentage of the transaction revenue generated through the AOL network.

 

WNS AgreementOn January 30, 2004, we entered into a multi-year master services agreement with WNS North America, Inc. (“WNS”).  Under the agreement, throughout 2004 we are outsourcing to WNS an increasing portion of our Travelocity contact center operations, primarily front-line customer service calls and back-office fulfillment.  By the end of the first quarter of 2005, WNS should be handling Travelocity’s front-line customer service calls and emails, as well as some mid-office and back-office functions.  WNS is transitioning these day-to-day operations of the customer service functions to its contact centers.  Travelocity employees will continue to handle sales calls, as well as advanced customer service issues and quality control.  We do not expect severance and related costs incurred due to this agreement to be significant.

 

For 2004, we have minimum commitments to WNS of $18 million, of which approximately $4 million and $13 million was recognized during the three and nine months ended September 30, 2004, respectively.  Thereafter, we are committed to minimum payments based on a calculation that considers both current and historical transaction volumes compared to thresholds established in the agreement.  For 2005 through 2010, the starting thresholds for calculating our commitment for each year ranges from approximately $17 million to $31 million, and actual commitments could be lower than these amounts, depending on call volumes.  Additionally, we committed to lend up to $10 million to WNS for transitional assistance.  As of September 30, 2004, we had loaned approximately $8 million to WNS. On October 4, 2004 we loaned to WNS the remaining balance of approximately $2 million under the $10 million loan agreement.  Amounts borrowed by WNS accrue interest at 5%, payable quarterly, and the principal will be due in three annual payments beginning in 2009.

 

Relocation of Certain Operations – In April 2004, we announced to affected employees that we will transition certain of our operations to a company-operated subsidiary in Latin America.  The transition will occur over the remainder of 2004 through the first half of 2006.  Severance, retention and other related costs associated with the plan are currently estimated to be in the range of $5 million to $7 million, and will primarily be recognized in 2005 and 2006 as operations are transitioned.

 

Acquisition of RM Rocade - On August 16, 2004, we completed the acquisition of Stockholm, Sweden-based RM Rocade AB and RM Assist AB (“RM Rocade”) for approximately $15 million in cash.  The acquisition of RM Rocade expands the ability of our Sabre Airline Solutions business segment to provide software solutions, including a fully functional flight operations product suite at a compelling price and value point to international small, medium-size and low cost carriers.  The results of operations of RM Rocade have been included in our consolidated statements of income and the results of operations of our Sabre Airline Solutions segment from the date of acquisition.  Assets acquired and liabilities assumed have been recorded at their estimated fair values and the $11 million excess of cost over the estimated fair value of the net assets has been recorded as goodwill.  The acquired goodwill is not deductible for tax purposes.  The fair values were determined by management based on a valuation of the net assets acquired, including intangible assets of $3 million.  Intangible assets subject to amortization are being amortized over a weighted average of 3 years and relate primarily to technology and customer relationships.

 

Acquisition of All State Tours, Inc. - On August 30, 2004 we completed the acquisition of All State Tours, Inc. (“Allstate Ticketing”), a leading distributor of show tickets and tours in Las Vegas, for approximately $25 million in cash.  The acquisition of Allstate Ticketing enhances the ability of our Travelocity business segment to sell show tickets, attraction passes and other travel extras for this popular destination.  The results of operations of Allstate Ticketing have been included in our consolidated statements of income and the results of operations of our Travelocity segment from the date of acquisition.  Assets acquired and liabilities assumed have been recorded at their estimated fair values and the $15 million excess of cost over the estimated fair value of the net assets has been recorded as goodwill.  The acquired goodwill is deductible for tax purposes.  The fair values were determined by management based on a valuation of the net assets acquired including an independent valuation of the intangible assets acquired of $10 million.  Intangible assets subject to amortization are being amortized over a weighted average of 5 years and relate primarily to customer relationships and technology.

 

Legal Proceedings - We are party to two lawsuits against Northwest related to Northwest’s August 24, 2004 announcement and implementation on September 1, 2004 of a fare supplement for travel reservation bookings made through a GDS (including the Sabre GDS) by traditional travel agencies and some online travel sites (such as Travelocity).  We notified Northwest that it was in breach of the parties’ agreements, the DCA 3-Year Option Agreement, an amendment to their Participating Carrier Distribution and Services Agreement (“PCA”).  We also took commercial steps, which we believed were reasonable under the DCA 3-Year Option Agreement and PCA, in order to enforce both agreements.

 

The Company sued Northwest on August 24, 2004 in Sabre Inc. v. Northwest Airlines, Inc., Civil Action 4-04-CV-612-Y in the Fort Worth Division of the United States District Court for the Northern District of Texas.  We allege that Northwest breached the PCA, as amended by the DCA 3-Year Option Agreement.  Among other things, the DCA 3-Year Option Agreement requires that Northwest provide us with fares and other content for the Sabre GDS that Northwest makes available through other channels of ticket distribution.  We believe that Northwest breached the DCA 3-Year Option Agreement by imposing a fare supplement on tickets booked on the Sabre GDS and other competing GDSs but not on other channels of ticket distribution.  We seek monetary damages, attorneys fees, and to compel Northwest to adhere to the terms of their agreements.  On September 14, 2004, Northwest moved the Fort Worth court to dismiss the suit or transfer it to federal court in Minneapolis, Minnesota.  Briefing on the motion has been completed.

 

On August 25, 2004 Northwest sued Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Ltd. in a separate action styled Northwest Airlines Corporation v. Sabre Inc. et al., Cause No. 04-CV-03889 in the same Minneapolis federal court to which Northwest later sought to transfer the Fort Worth action. This Minneapolis action relates to the same factual events described above.  In its complaint filed on August 25, 2004, Northwest asserted that we breached our PCA with Northwest by our commercial actions in response to Northwest’s August 24, 2004 breach of the PCA.  On September 27, 2004, Northwest filed an amended complaint in the same cause number adding allegations that we had violated Section 2 of the Sherman Act, claiming that we had monopoly power and also asserting claims against us for alleged interference with prospective contractual relations, deceptive trade practices, fraud, false advertising under the federal Lanham Act, and for a declaratory judgment that Sabre, and not Northwest, is in breach of the PCA.  Northwest alleges that it has suffered unspecified damages. Northwest seeks treble damages under the antitrust laws, attorneys fees, to have the court declare that we breached the parties’ agreement and violated federal and state statutes, and to enjoin us from certain conduct.  On September 1, 2004, we moved to dismiss, stay, or transfer Northwest’s Minneapolis action to the federal court in Fort Worth.  That motion is scheduled to be heard by the Court in Minneapolis on November 10, 2004.

 

10



 

4.              Pension and Other Post Retirement Benefit Plans

 

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law.  The Act introduces a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.  We reflected the impact of the subsidy effective July 1, 2004 as an unrecognized gain, which reduced our accumulated postretirement benefit obligation by approximately $8 million.  The subsidy resulted in a reduction in our periodic postretirement benefit cost by approximately $0.4 million for the three and nine months ended September 30, 2004.

 

The components of net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans for the three and nine months ended September 30, 2004 and 2003 are presented in the tables below (in thousands).

 

Pension Benefits

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

Service cost

 

$

1,618

 

$

755

 

$

3,904

 

$

4,928

 

Interest cost

 

6,096

 

2,280

 

14,319

 

18,135

 

Expected return on plan assets

 

(6,855

)

(2,288

)

(15,840

)

(20,193

)

Amortization of transition asset

 

(3

)

(21

)

(11

)

(26

)

Amortization of prior service cost

 

13

 

19

 

48

 

47

 

Amortization of net loss

 

1,017

 

442

 

2,422

 

3,073

 

 

 

 

 

 

 

 

 

 

 

Total net periodic benefit cost

 

$

1,886

 

$

1,187

 

$

4,842

 

$

5,964

 

 

Other Benefits

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

Service cost

 

$

697

 

$

720

 

$

2,280

 

$

2,216

 

Interest cost

 

1,642

 

1,696

 

5,373

 

5,219

 

Amortization of transition asset

 

3

 

4

 

10

 

11

 

Amortization of prior service cost

 

78

 

73

 

237

 

221

 

Amortization of net loss

 

666

 

630

 

2,040

 

1,914

 

 

 

 

 

 

 

 

 

 

 

Total net periodic benefit cost

 

$

3,086

 

$

3,123

 

$

9,940

 

$

9,581

 

 

We made contributions to fund our defined benefit pension plans of $5 million and $15 million during the nine months ended September 30, 2004 and 2003, respectively.  We are evaluating making additional contributions during the remainder of 2004.

 

11



 

5.              Income Taxes

 

The provision for income taxes relating to continuing operations differs from amounts computed at the statutory federal income tax rate as follows (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Income tax provision at statutory federal income tax rate

 

$

26,854

 

$

13,889

 

$

82,188

 

$

53,016

 

State income taxes, net of federal benefit

 

989

 

291

 

3,189

 

2,692

 

Reversal of previously accrued taxes

 

(17,939

)

 

(17,939

)

 

Other, net

 

(605

)

53

 

(2,014

)

(1,379

)

 

 

 

 

 

 

 

 

 

 

Total provision for income taxes

 

$

9,299

 

$

14,233

 

$

65,424

 

$

54,329

 

 

During the third quarter of 2004, we reversed previously accrued taxes of $18 million related primarily to our federal income tax treatment of lump-sum payments made to subscribers at the beginning of a contract term (“upfront subscriber incentive payments”).  During the quarter, we changed our federal income tax treatment of such payments in accordance with recently issued Treasury regulations, and such change is effective for our 2003 tax year.  By changing our federal income tax treatment of these payments to comply with the new regulations effective for our 2003 tax return, the manner in which we treated such payments in years before 2003 will be respected.  Accordingly, we reversed previously accrued taxes of $18 million related to our treatment of these payments for federal income tax purposes for years before 2003.

 

6.              Derivatives

 

Travelocity received certain vested warrants from a former hotel supplier in connection with an affiliation agreement entered into during 2000.  In March 2001, we extended our affiliation agreement with that supplier through July 31, 2005 and expanded the scope of the supplier relationship. In connection with the expanded and extended agreement, we received additional vested warrants with a fair value of approximately $30 million on the date of receipt. We were recognizing this amount as revenue over the extended term of the agreement, which amounted to approximately $2 million and $6 million during the three and nine months ended September 30, 2003, respectively.  During the three and nine months ended September 30, 2003, respectively, we also recognized approximately $3 million and $10 million of revenue for performance warrants earned under this agreement.  This agreement was terminated in the third quarter of 2003 and we recognized the remaining deferred balance of approximately $8 million related to these warrants at that time.

 

We are a party to certain foreign currency forward and option contracts. We have designated these instruments as cash flow hedges. Amounts reclassified from other comprehensive income to earnings due to the settlement of forward and option contracts were $3 million and $2 million during the three months ended September 30, 2004 and 2003, respectively and $9 million and $9 million during the nine months ended September 30, 2004 and 2003, respectively.  No hedging ineffectiveness was recorded in earnings relating to the forwards or options during 2004 or 2003.  The estimated fair values of the foreign currency forward and option contracts were $3 million and $10 million at September 30, 2004 and December 31, 2003, respectively.

 

We are also a party to certain interest rate swap contracts.  We have designated the swaps as fair value hedges of our public notes payable and capital lease obligation. No hedging ineffectiveness was recorded in earnings relating to our interest rate swaps during 2004 or 2003.  The estimated fair values of the interest rate swaps were a net asset of $11 million and $9 million at September 30, 2004 and December 31, 2003, respectively.

 

12



 

7.              Business Segments

 

We are a world leader in travel commerce, marketing travel products and providing distribution and technology solutions for the travel industry.  We operate in multiple travel distribution channels: the travel agency channel, the consumer-direct channel and the corporate or business-direct channel.  Through our Sabre global distribution system (the “Sabre system” or “Sabre GDS”) subscribers can access information about, and can book reservations for, among other things, airline trips, hotel stays, car rentals, cruises and tour packages. Our Sabre Travel Network business operates the Sabre GDS and markets and distributes travel-related products and services through the travel agency and corporate channels. We engage in consumer-direct and business-direct travel marketing and distribution through our Travelocity business.  In addition, our Sabre Airline Solutions business is a leading provider of technology and services, including development and consulting services, to airlines and other travel providers.

 

During the fourth quarter of 2003, we realigned our GetThere business segment, which engaged in business direct travel services and had previously been operated as a separate business segment, within our other three segments.  This realignment resulted in GetThere products, services and operations being integrated into the remaining three segments.  Accordingly, GetThere is no longer reported as a separate segment.  The segment information presented below is based on the new segment definition for all periods presented.

 

Our reportable segments are strategic business segments that offer different products and services and are managed separately because each business requires different market strategies.  The accounting policies of the segments are the same as those used in our consolidated results.  We account for significant intersegment transactions as if the transactions were to third parties, that is, at estimated current market prices.  The majority of the intersegment revenues and cost of revenues are between Travelocity and Sabre Travel Network, consisting mainly of incentives and marketing fees paid by Sabre Travel Network to Travelocity for bookings made through the Sabre GDS, data processing fees paid by Travelocity to Sabre Travel Network for bookings made through the Sabre GDS, and fees paid by Sabre Travel Network to Travelocity for corporate trips booked through Travelocity’s online booking technology.  In addition, Sabre Airline Solutions pays fees to Travelocity for airline trips booked through Travelocity’s online booking technology.

 

Personnel and related costs for the corporate headquarters, certain legal and professional fees, and other corporate charges are allocated to the segments through a management fee based on the relative size of the segments and usage of corporate resources or services.  Depreciation expense on the corporate headquarters buildings and related facilities costs are allocated to the segments through a facility fee based on headcount.  Benefits expense, including pension expense, postretirement benefits, medical insurance and workers’ compensation, are allocated to the segments based on headcount.  Unallocated corporate expenses include costs associated with the corporate headquarters buildings that were not allocated to the reportable segments as well as certain other corporate charges maintained at the corporate level.

 

13



 

The segment operating results are presented on a basis that excludes certain adjusting items that are summarized below, except where noted. This presentation is consistent with the manner in which our management assesses the operating performance of our business segments.  Selected information for our three reportable segments for the three and nine months ended September 30, 2004 and 2003 follows (in thousands).

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Revenues from external customers, excluding adjusting items:

 

 

 

 

 

 

 

 

 

Sabre Travel Network

 

$

373,514

 

$

380,961

 

$

1,170,563

 

$

1,148,711

 

Travelocity

 

109,916

 

76,902

 

290,897

 

213,384

 

Sabre Airline Solutions

 

60,405

 

59,084

 

180,652

 

173,265

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

543,835

 

$

516,947

 

$

1,642,112

 

$

1,535,360

 

 

 

 

 

 

 

 

 

 

 

Intersegment revenues:

 

 

 

 

 

 

 

 

 

Sabre Travel Network

 

$

7,845

 

$

7,118

 

$

23,073

 

$

20,474

 

Travelocity

 

35,569

 

30,505

 

105,152

 

87,339

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

43,414

 

$

37,623

 

$

128,225

 

$

107,813

 

 

 

 

 

 

 

 

 

 

 

Equity in net income of equity method investees:

 

 

 

 

 

 

 

 

 

Sabre Travel Network

 

$

6,545

 

$

4,446

 

$

12,492

 

$

9,324

 

Travelocity

 

(5,990

)

(2,436

)

(19,558

)

(11,163

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

555

 

$

2,010

 

$

(7,066

)

$

(1,839

)

 

 

 

 

 

 

 

 

 

 

Segment revenues, excluding adjusting items:

 

 

 

 

 

 

 

 

 

Sabre Travel Network

 

$

387,904

 

$

392,525

 

$

1,206,128

 

$

1,178,509

 

Travelocity

 

139,495

 

104,971

 

376,491

 

289,560

 

Sabre Airline Solutions

 

60,405

 

59,084

 

180,652

 

173,265

 

Elimination of intersegment revenues

 

(43,414

)

(37,623

)

(128,225

)

(107,813

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

544,390

 

$

518,957

 

$

1,635,046

 

$

1,533,521

 

 

 

 

 

 

 

 

 

 

 

Revenue adjusting item:

 

 

 

 

 

 

 

 

 

Sabre Travel Network – settlement revenue from canceled subscriber contracts

 

 

 

 

$

36,458

 

Travelocity – recognition of deferred warrant revenue

 

$

 

$

7,836

 

$

 

$

7,836

 

Total Revenue Adjusting Items

 

$

 

$

7,836

 

$

 

$

44,294

 

 

 

 

 

 

 

 

 

 

 

Consolidated revenues:

 

 

 

 

 

 

 

 

 

Sabre Travel Network

 

$

387,904

 

$

392,525

 

$

1,206,128

 

$

1,214,967

 

Travelocity

 

139,495

 

112,807

 

376,491

 

297,396

 

Sabre Airline Solutions

 

60,405

 

59,084

 

180,652

 

173,265

 

Elimination of intersegment revenues

 

(43,414

)

(37,623

)

(128,225

)

(107,813

)

Total

 

$

544,390

 

$

526,793

 

$

1,635,046

 

$

1,577,815

 

 

14



 

A summary of the adjusting items and reconciliation to consolidated operating income is set forth below (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Segment operating income (loss) excluding adjusting items:

 

 

 

 

 

 

 

 

 

Sabre Travel Network

 

$

77,629

 

$

65,476

 

$

251,423

 

$

211,096

 

Travelocity

 

9,655

 

(9,855

)

17,833

 

(30,306

)

Sabre Airline Solutions

 

2,904

 

3,755

 

7,876

 

14,038

 

Net corporate allocations

 

(441

)

(161

)

188

 

1,314

 

Total

 

$

89,747

 

$

59,215

 

$

277,320

 

$

196,142

 

 

 

 

 

 

 

 

 

 

 

Impact of adjusting items on operating income – (increase) / decrease:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sabre Travel Network:

 

 

 

 

 

 

 

 

 

Settlement revenue from canceled subscriber contract

 

$

 

$

 

$

 

$

(36,458

)

Intangibles amortization

 

3,471

 

3,106

 

14,989

 

9,346

 

Stock compensation

 

 

182

 

 

551

 

Restructuring expenses

 

 

 

 

(288

)

Total Sabre Travel Network

 

3,471

 

3,288

 

14,989

 

(26,849

)

 

 

 

 

 

 

 

 

 

 

Travelocity:

 

 

 

 

 

 

 

 

 

Intangibles amortization

 

7,556

 

17,293

 

22,408

 

34,655

 

Hotel supplier deferred revenues

 

 

(7,836

)

 

(7,836

)

Stock compensation

 

1,219

 

3,006

 

4,474

 

8,964

 

Restructuring expenses

 

 

 

 

(37

)

Total Travelocity

 

8,775

 

12,463

 

26,882

 

35,746

 

 

 

 

 

 

 

 

 

 

 

Sabre Airline Solutions:

 

 

 

 

 

 

 

 

 

Intangibles amortization

 

334

 

 

334

 

 

Stock compensation

 

 

32

 

 

97

 

Restructuring expenses

 

 

 

 

(231

)

Total Sabre Airline Solutions

 

334

 

32

 

334

 

(134

)

 

 

 

 

 

 

 

 

 

 

Corporate:

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Stock compensation

 

 

(434

)

17

 

(403

)

Restructuring expenses

 

 

 

 

(370

)

Total Corporate

 

 

(434

)

17

 

(773

)

Total operating income adjusting items

 

$

12,580

 

$

15,349

 

$

42,222

 

$

7,990

 

 

 

 

 

 

 

 

 

 

 

Consolidated operating income (loss):

 

 

 

 

 

 

 

 

 

Sabre Travel Network

 

$

74,158

 

$

62,188

 

$

236,434

 

$

237,945

 

Travelocity

 

880

 

(22,318

)

(9,049

)

(66,052

)

Sabre Airline Solutions

 

2,570

 

3,723

 

7,542

 

14,172

 

Net Corporate Allocations

 

(441

)

273

 

171

 

2,087

 

Total

 

$

77,167

 

$

43,866

 

$

235,098

 

$

188,152

 

 

15



 

8.              Supplemental Guarantor/Non-Guarantor Financial Information

 

Certain obligations of Sabre Holdings Corporation (“Sabre Holdings”) have been solely guaranteed by its 100% owned operating subsidiary, Sabre Inc. There are currently no restrictions on Sabre Holdings’ ability to obtain funds from Sabre Inc. in the form of a dividend or loan other than typical dividend requirements under Delaware law.  Additionally, there are no significant restrictions on Sabre Inc.’s ability to obtain funds from its direct or indirect subsidiaries other than those that would exist under state or foreign law.  Sabre Inc. is the sole direct subsidiary of Sabre Holdings.  All other subsidiaries are direct or indirect subsidiaries of Sabre Inc.  These other subsidiaries are all included in the non-guarantor financial statements.  The following financial information presents condensed consolidating balance sheets, statements of income and statements of cash flows for Sabre Holdings, Sabre Inc. and non-guarantor subsidiaries. The information has been presented as if Sabre Holdings accounted for its ownership of Sabre Inc., and Sabre Inc. accounted for its ownership of the non-guarantor subsidiaries, using the equity method of accounting.  Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation.  These reclassifications are not material, either individually or in the aggregate, to our financial statements.

 

Sabre Inc. conducts the domestic operations of both the Sabre Travel Network and Sabre Airline Solutions segments.  The operations of the Travelocity segment, as well as the principal international operations of the Sabre Travel Network segment, are conducted by the non-guarantor subsidiaries.

 

Sabre Inc. and certain non-guarantor subsidiaries are parties to various intercompany agreements that affect the amount of operating expenses reported in the following condensed consolidating statements of income. Among other things, fees are paid by Sabre Inc. to a non-guarantor subsidiary relating to the use of trademarks, tradenames, etc. owned by a non-guarantor subsidiary; incentive and marketing payments are made by Sabre Inc. to non-guarantor subsidiaries relating to the use and distribution of the Sabre system; and payments are made by non-guarantor subsidiaries to Sabre Inc. for access to the Sabre system under the terms of these agreements. During the three months ended September 30, 2004 and 2003, Sabre Inc. recognized operating expenses in connection with these agreements totaling approximately $62 million and $77 million, respectively.  During the nine months ended September 30, 2004 and 2003, Sabre Inc. recognized operating expenses in connection with these agreements totaling approximately $181 million and $230 million, respectively.  These amounts, and the corresponding amounts recognized by the non-guarantor subsidiaries are eliminated in consolidation.

 

16



 

UNAUDITED CONSOLIDATING CONDENSED BALANCE SHEETS

SEPTEMBER 30, 2004

(in thousands)

 

 

 

Sabre
Holdings

 

Sabre Inc.

 

Non-
Guarantor
Subsidiaries

 

Eliminating
Entries

 

Sabre
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

Cash and marketable securities

 

$

 

$

866,969

 

$

49,464

 

$

 

$

916,433

 

Accounts receivable—trade, net

 

 

281,106

 

102,245

 

 

383,351

 

Intercompany accounts receivable (payable)

 

 

(157,145

)

157,145

 

 

 

Prepaid expenses and other current assets

 

 

26,111

 

35,328

 

 

61,439

 

Deferred income taxes

 

 

14,618

 

1,343

 

 

15,961

 

Total current assets

 

 

1,031,659

 

345,525

 

 

1,377,184

 

Property and equipment, net

 

 

344,630

 

44,526

 

 

389,156

 

Investments in joint ventures

 

 

3,709

 

183,348

 

 

187,057

 

Goodwill and intangible assets, net

 

 

12,170

 

883,262

 

 

895,432

 

Investments in subsidiaries

 

679,001

 

1,326,270

 

 

(2,005,271

)

 

Intercompany notes

 

1,406,662

 

(1,406,662

)

 

 

 

Other assets, net

 

17,842

 

76,572

 

46,337

 

 

140,751

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,103,505

 

$

1,388,348

 

$

1,502,998

 

$

(2,005,271

)

$

2,989,580

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,007

 

$

121,245

 

$

74,674

 

$

 

$

202,926

 

Accrued compensation and related benefits

 

 

61,467

 

14,855

 

 

76,322

 

Other accrued liabilities

 

3,317

 

161,851

 

105,713

 

 

270,881

 

Total current liabilities

 

10,324

 

344,563

 

195,242

 

 

550,129

 

Deferred income taxes

 

(235

)

45,611

 

(45,376

)

 

 

Pensions and other postretirement benefits

 

 

140,992

 

771

 

 

141,763

 

Other liabilities

 

1,700

 

16,464

 

4,855

 

 

23,019

 

Minority interests

 

 

 

6,160

 

 

6,160

 

Capital lease obligation

 

 

161,717

 

 

 

161,717

 

Public and other notes payable

 

427,162

 

 

15,076

 

 

442,238

 

Stockholders’ equity

 

1,664,554

 

679,001

 

1,326,270

 

(2,005,271

)

1,664,554

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,103,505

 

$

1,388,348

 

$

1,502,998

 

$

(2,005,271

)

$

2,989,580

 

 

17



 

UNAUDITED CONSOLIDATING CONDENSED BALANCE SHEETS

DECEMBER 31, 2003

(in thousands)

 

 

 

Sabre
Holdings

 

Sabre Inc.

 

Non-
Guarantor
Subsidiaries

 

Eliminating
Entries

 

Sabre
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

Cash and marketable securities

 

$

 

$

889,638

 

$

32,973

 

$

 

$

922,611

 

Accounts receivable—trade, net

 

 

254,656

 

94,332

 

 

348,988

 

Intercompany accounts receivable (payable)

 

 

(121,476

)

121,476

 

 

 

Prepaid expenses

 

 

42,478

 

43,997

 

 

86,475

 

Deferred income taxes

 

 

8,736

 

1,501

 

 

10,237

 

Total current assets

 

 

1,074,032

 

294,279

 

 

1,368,311

 

Property and equipment, net

 

 

345,930

 

38,450

 

 

384,380

 

Investments in joint ventures

 

 

3,994

 

177,148

 

 

181,142

 

Goodwill and intangible assets, net

 

 

13,811

 

877,929

 

 

891,740

 

Investments in subsidiaries

 

572,696

 

1,260,428

 

 

(1,833,124

)

 

Intercompany notes

 

1,529,296

 

(1,529,296

)

 

 

 

Other assets, net

 

17,057

 

75,668

 

37,855

 

 

130,580

 

Total assets

 

$

2,119,049

 

$

1,244,567

 

$

1,425,661

 

$

(1,833,124

)

$

2,956,153

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,926

 

$

124,189

 

$

75,500

 

$

 

$

202,615

 

Accrued compensation and related benefits

 

 

50,554

 

12,003

 

 

62,557

 

Other accrued liabilities

 

7,474

 

140,814

 

89,935

 

 

238,223

 

Total current liabilities

 

10,400

 

315,557

 

177,438

 

 

503,395