Document/Exhibit Description Pages Size
1: 8-K Current Report 6 31K
2: EX-2.2 Plan of Acquisition, Reorganization, Arrangement, 3 11K
Liquidation or Succession
3: EX-2.3 Plan of Acquisition, Reorganization, Arrangement, 35 126K
Liquidation or Succession
4: EX-12.1 Statement re: Computation of Ratios 2± 11K
5: EX-23.1 Consent of Experts or Counsel 1 7K
6: EX-99.1 Miscellaneous Exhibit 41 245K
7: EX-99.2 Miscellaneous Exhibit 14 87K
8: EX-99.3 Miscellaneous Exhibit 8 45K
EXHIBIT 99-1
SABRE HOLDINGS CORPORATION
INDEX TO FINANCIAL STATEMENTS
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FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors 2
Consolidated Balance Sheets at December 31, 2000 and 1999 3
Consolidated Statements of Income 4
for the Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended 5
December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Years 6
Ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements 7
1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sabre Holdings Corporation
We have audited the accompanying consolidated balance sheets of
Sabre Holdings Corporation and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Sabre Holdings Corporation and subsidiaries at December 31, 2000
and 1999, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Dallas, Texas
January 15, 2001, except for the
matters described in Note 2, as to
which the date is July 2, 2001
2
SABRE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
[Enlarge/Download Table]
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December 31,
------------------------------------
2000 1999
----------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 7,778 $ 6,628
Marketable securities 137,258 604,498
Accounts receivable, net 448,463 295,254
Receivable from related party, net --- 29,093
Prepaid expenses 83,580 22,899
Deferred income taxes 15,889 18,052
----------------- -----------------
Total current assets 692,968 976,424
PROPERTY AND EQUIPMENT
Buildings and leasehold improvements 340,473 337,409
Furniture, fixtures and equipment 49,627 46,485
Service contract equipment 517,886 546,200
Computer equipment 527,085 482,334
----------------- -----------------
1,435,071 1,412,428
Less accumulated depreciation and amortization (879,030) (839,874)
----------------- -----------------
Total property and equipment 556,041 572,554
Investments in joint ventures 159,317 156,158
Goodwill and intangible assets, net 891,497 ---
Other assets, net 350,531 246,075
----------------- -----------------
TOTAL ASSETS $ 2,650,354 $ 1,951,211
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 173,954 $ 121,091
Accrued compensation and related benefits 91,196 89,424
Notes payable 710,000 ---
Other accrued liabilities 291,238 314,598
----------------- -----------------
Total current liabilities 1,266,388 525,113
Deferred income taxes 47,703 ---
Pensions and other postretirement benefits 109,889 119,687
Notes payable 149,000 ---
Other liabilities 46,877 44,366
Minority interests 239,480 ---
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock: $0.01 par value; 20,000 shares authorized; no shares issued --- ---
Common stock:
Class A: $0.01 par value; 250,000 shares authorized; 131,632 and 23,995
shares issued, respectively 1,321 240
Class B: $0.01 par value; 107,374 shares authorized; 0 and 107,374 shares
issued and outstanding, respectively --- 1,074
Additional paid-in capital 661,098 607,285
Retained earnings 196,164 727,050
Less treasury stock at cost; 1,625 and 1,573 shares, respectively (67,566) (73,604)
----------------- -----------------
Total stockholders' equity 791,017 1,262,045
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,650,354 $ 1,951,211
================= =================
The accompanying notes are an integral part of these financial statements.
3
SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
RECLASSIFIED FOR DISCONTINUED OPERATIONS
(in thousands, except per share amounts)
[Enlarge/Download Table]
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Year Ended December 31,
-----------------------------------------------------
2000 1999 1998
----------------- ---------------- -----------------
REVENUES $ 1,940,734 $ 1,698,967 $ 1,560,878
OPERATING EXPENSES
Cost of revenues 1,317,041 1,210,750 1,122,001
Selling, general and administrative 341,492 182,798 142,672
Amortization of goodwill and intangible assets 109,419 --- ---
----------------- ---------------- -----------------
Total operating expenses 1,767,952 1,393,548 1,264,673
----------------- ---------------- -----------------
OPERATING INCOME 172,782 305,419 296,205
OTHER INCOME (EXPENSE)
Interest income 16,248 27,673 26,034
Interest expense (31,686) (9,995) (19,493)
Other, net 1,490 137,765 14,541
----------------- ---------------- -----------------
Total other income (expense) (13,948) 155,443 21,082
----------------- ---------------- -----------------
MINORITY INTERESTS 30,754 --- ---
----------------- ---------------- -----------------
INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES 189,588 460,862 317,287
Provision for income taxes 93,483 170,379 115,420
----------------- ---------------- -----------------
INCOME FROM CONTINUING OPERATIONS 96,105 290,483 201,867
INCOME FROM DISCONTINUED OPERATIONS, NET 47,947 41,424 30,074
----------------- ---------------- -----------------
NET EARNINGS $ 144,052 $ 331,907 $ 231,941
================= ================ =================
EARNINGS PER COMMON SHARE - BASIC
Income from continuing operations $ .74 $ 2.24 $ 1.55
Income from discontinued operations .37 .32 .23
----------------- ---------------- -----------------
Net earnings $ 1.11 $ 2.56 $ 1.78
================= ================ =================
EARNINGS PER COMMON SHARE - DILUTED
Income from continuing operations $ .74 $ 2.22 $ 1.55
Income from discontinued operations .37 .32 .23
----------------- ---------------- -----------------
Net earnings $ 1.11 $ 2.54 $ 1.78
================= ================ =================
The accompanying notes are an integral part of these financial statements.
4
SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
[Enlarge/Download Table]
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Year Ended December 31,
-----------------------------------------------------
2000 1999 1998
-------------- ----------------- ------------------
OPERATING ACTIVITIES
Net earnings $ 144,052 $ 331,907 $ 231,941
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization 345,794 258,246 247,734
Deferred income taxes 22,334 (8,088) (1,021)
Gain on sale of investments --- (137,657) ---
Minority interests (30,754) --- ---
Other 19,335 1,544 1,940
Changes in operating assets and liabilities
Accounts receivable (125,038) 48,827 (103,237)
Prepaid expenses (88,861) (9,810) (9,744)
Other assets (20,582) 3,586 (437)
Accrued compensation and related benefits 7,042 (4,284) 24,014
Accounts payable and other accrued liabilities 125,355 (3,308) 53,288
Receivable from and payable to related parties 29,100 (7,491) (10,780)
Pensions and other postretirement benefits (9,798) 15,113 15,001
Payment to US Airways (81,469) --- ---
Other liabilities (25,738) 6,797 2,104
-------------- ----------------- ------------------
Cash provided by operating activities 310,772 495,382 450,803
INVESTING ACTIVITIES
Additions to property and equipment (190,126) (167,963) (320,031)
Proceeds from sale of equipment 1,517 2,002 30,276
Net decrease (increase) in marketable securities 442,930 (75,129) 43,373
Loan to American --- (300,000) ---
Proceeds from sale of investments --- 137,657 ---
Investments in joint ventures, net --- 5,965 (134,759)
Business combinations, net of cash acquired (711,383) --- ---
Other investing activities, net (15,917) (40,044) (41,691)
-------------- ----------------- ------------------
Cash used for investing activities (472,979) (437,512) (422,832)
FINANCING ACTIVITIES
Proceeds from issuance of common stock pursuant to
employee stock plans 18,198 20,645 10,997
Purchases of treasury stock (34,472) (60,454) (49,321)
Dividends paid (675,000) --- ---
Proceeds from issuance of notes payable 859,000 --- ---
Other financing activities, net (4,369) (1,568) 7,075
Payments on debenture payable to AMR --- (17,873) ---
-------------- ----------------- ------------------
Cash provided by (used for) financing activities 163,357 (59,250) (31,249)
Increase (decrease) in cash 1,150 (1,380) (3,278)
Cash at beginning of the period 6,628 8,008 11,286
-------------- ----------------- ------------------
CASH AT END OF THE PERIOD $ 7,778 $ 6,628 $ 8,008
============== ================= ==================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for income taxes $ 117,131 $ 173,907 $ 141,784
============== ================= ==================
Cash payments for interest $ 27,638 $ 14,699 $ 19,818
============== ================= ==================
The accompanying notes are an integral part of these financial statements.
5
SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
[Enlarge/Download Table]
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Class A Class B Additional
Common Common Paid-in Retained Treasury
Stock Stock Capital Earnings Stock Total
---------- ------------ ------------ ------------ --------------- ------------
Balance at December 31, 1997 $ 235 $ 1,074 $ 593,939 $ 164,004 $ (1,964) $ 757,288
Net earnings --- --- --- 231,941 --- 231,941
Repurchase of Company stock --- --- --- --- (49,321) (49,321)
Issuance of 486 shares of Class A
common stock pursuant to stock
option, restricted stock
incentive and stock purchase
plans 2 --- 2,278 --- 8,830 11,110
Tax benefit from exercise of
employee stock options --- --- 2,870 --- --- 2,870
Unrealized loss on investments --- --- --- (145) --- (145)
---------- ------------ ------------ ------------ --------------- ------------
Balance at December 31, 1998 237 1,074 599,087 395,800 (42,455) 953,743
Net earnings --- --- --- 331,907 --- 331,907
Repurchase of Company stock --- --- --- --- (60,454) (60,454)
Issuance of 289 shares of Class A
common stock pursuant to stock
option, restricted stock
incentive and stock purchase
plans 3 --- 1,276 --- 29,305 30,584
Tax benefit from exercise of
employee stock options --- --- 6,922 --- --- 6,922
Unrealized loss on investments --- --- --- (657) --- (657)
---------- ------------ ------------ ------------ --------------- ------------
Balance at December 31, 1999 240 1,074 607,285 727,050 (73,604) 1,262,045
Net earnings --- --- --- 144,052 --- 144,052
Exchange of Class B common
stock for Class A common stock 1,074 (1,074) --- --- --- ---
Dividends paid --- --- --- (675,000) --- (675,000)
Repurchase of Company stock --- --- --- --- (34,472) (34,472)
Issuance of 720 shares of Class A
common stock pursuant to stock
option, restricted stock
incentive and stock purchase
plans 7 --- (24,583) --- 40,510 15,934
Tax benefit from exercise of
employee stock options --- --- 3,125 --- --- 3,125
Options issued in connection with
business combinations, net of
unearned deferred
compensation of $46,855 --- --- 75,271 --- --- 75,271
Other --- --- --- 62 --- 62
---------- ------------ ------------ ------------ --------------- ------------
Balance at December 31, 2000 $ 1,321 $ --- $ 661,098 $ 196,164 $ (67,566) $ 791,017
========== ============ ============ ============ =============== ============
The accompanying notes are an integral part of these financial statements.
6
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANACIAL STATEMENTS
--------------------------------------------------------------------------------
1. GENERAL INFORMATION
Sabre Holdings Corporation is a holding company. Its sole direct subsidiary
is Sabre Inc., which is the successor to the businesses of The Sabre Group
which were previously operated as subsidiaries or divisions of American
Airlines, Inc. ("American") or AMR Corporation ("AMR"). The Sabre Group was
formed by AMR to capitalize on synergies of combining AMR's information
technology businesses under common management. On March 15, 2000, AMR
exchanged all of its 107,374,000 shares of the Company's Class B common
stock for an equal number of shares of the Company's Class A common stock
and distributed all those shares to AMR shareholders as a stock dividend
("the Spin-off"). AMR no longer has any ownership interest in the Company.
Unless otherwise indicated, references herein to the "Company" include
Sabre Holdings Corporation and its consolidated subsidiaries.
The Company is the world leader in the electronic distribution of travel
through its SABRE(R) computer reservations system ("the SABRE system"). The
Company also engages in business-to-consumer and business-to-business
travel services and distribution through its Travelocity.com and GetThere
subsidiaries. In addition, the Company is a leading provider of software
solutions to the travel and transportation industries. Prior to the
agreement discussed in Note 2, the Company was also a leading provider of
information technology infrastructure outsourcing services to the travel
and transportation industries.
2. SALE OF INFORMATION TECHNOLOGY INFRASTRUCTURE OUTSOURCING BUSINESS
On March 14, 2001, the Company entered into agreements with Electronic Data
Systems Corporation ("EDS") which provide for (i) the sale of the Company's
infrastructure outsourcing business (the "Outsourcing Business") and
information technology ("IT") infrastructure assets and associated real
estate to EDS (the "Asset Purchase Agreement"), (ii) a 10-year contract
with EDS to manage the Company's IT systems (the "IT Outsourcing
Agreement"), and (iii) agreements between the Company and EDS to jointly
market IT services and software solutions to the travel and transportation
industries (the "Marketing Agreements").
Effective July 1, 2001, the Company and EDS completed the sale of the
Company's infrastructure Outsourcing Business contracts, web hosting
contracts, and IT infrastructure assets and associated real estate to EDS
for approximately $661 million in cash, pursuant to the Asset Purchase
Agreement. Up to approximately $31 million of this amount is contingently
refundable to EDS based, in part, upon the amount of revenues received by
EDS from US Airways under its outsourcing contract during the 30 months
following the close of the transaction. In addition, the Company may
receive aggregate additional payments from EDS for these assets ranging
from $6 million to $25 million on April 15, 2003 and 2004, depending on the
amount of revenues received by EDS under certain other airline outsourcing
contracts. On July 2, 2001, the Company repaid $710 million of existing
short term borrowings using proceeds from the EDS sale and existing cash
balances. Terms of the debt required a payment to be made with the
proceeds of the sale of a significant portion of the Company's assets.
The assets transferred included, among other things, the Company's
outsourcing contracts with American, US Airways, Gulf Air, and
Dollar/Thrifty Rent-A-Car; and its data centers, network and desktop and
mid range computer systems. These assets were used for the Company's
outsourcing business and for transaction processing in its travel marketing
and distribution segment, including the operation of the Sabre(R) global
distribution system ("SABRE system"). Approximately 4,000 of the Company's
employees, located mostly in the United States, were transitioned to
employment with EDS upon closing of the transaction.
7
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The Company retained its travel marketing and distribution business,
Travelocity.com(SM), the Company's consumer on-line travel services
business, GetThere(TM), the Company's corporate on-line travel services
business; and its software development and consulting solutions business.
The Company plans to continue to focus its business on remaining the
global leader in all channels of travel distribution.
The Company also retained contracts and assets that are directly related to
its core travel marketing and distribution business. Those include its
multihost business, which provides internal reservation systems for airline
customers; contracts to provide software applications development,
maintenance and licensing; the Company's intellectual property assets,
including its software applications portfolios; and the eMergo(TM) suite of
airline solutions offered by the Company as an online application service
provider.
Under the IT Outsourcing Agreement, EDS will provide, manage and operate
the Company's IT infrastructure, including data center management,
applications hosting, selected applications development, data assurance,
and network management services. The term of the IT Outsourcing Agreement
is 10 years, and is expected to generate future cost savings for the
Company.
Under the Marketing Agreements, the Company and EDS will jointly market
certain IT services and software solutions to the travel and transportation
industries. As part of the marketing relationship, EDS will contribute $20
million toward enhancing and promoting the Company's portfolio of airline
software solutions. EDS has also agreed to move its travel bookings to the
Company's Sabre system and to implement the Company's GetThere corporate
booking platform in its organization.
This disposition of the infrastructure outsourcing business represents the
disposal of a business segment under Accounting Principles Board ("APB")
Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS - REPORTING THE EFFECTS
OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND
INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS ("APB 30"). As a result of
this transaction, the consolidated statements of operations for the years
ended December 31, 2000, 1999 and 1998 and the related notes thereto have
been reclassified to present the infrastructure outsourcing business as a
discontinued operation. The balance sheets as of December 31, 2000 and 1999
and the related statements of cash flows for the years ended December 31,
2000, 1999 and 1998, have not been reclassified as permitted by APB 30.
Summarized financial information for the discontinued operations is as
follows (in thousands):
[Enlarge/Download Table]
For the year Ended December 31,
----------------------------------------------------------
2000 1999 1998
--------------------- ---------------- ----------------
Revenues $ 676,640 $ 735,652 $ 745,509
===================== ================ ================
Income before provision for income taxes $ 77,680 $ 67,083 $ 54,167
Provision for income taxes 29,733 25,659 24,093
--------------------- ---------------- ----------------
Income from discontinued operations, net $ 47,947 $ 41,424 $ 30,074
===================== ================ ================
No interest expense has been allocated to the discontinued operations.
The Company currently anticipates recording a gain during the third
quarter of 2001 of approximately $20 million to $30 million, net of
related income taxes, as a result of the transaction.
8
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The Company consolidates all of its majority-owned
subsidiaries and companies over which the Company exercises control through
operating or financing agreements. The Company accounts for interests in
joint ventures which it does not control using the equity method. The
consolidated financial statements include the accounts of the Company after
elimination of all significant intercompany balances and transactions.
The consolidated financial statements reflect the results of operations,
financial condition and cash flows of the Company as a majority-owned
subsidiary of AMR through March 15, 2000 and may not be indicative of
actual results of operations and financial position of the Company under
other ownership. Management believes the consolidated income statements
include a reasonable allocation of administrative costs, which are
described in Note 7, incurred by AMR on behalf of the Company. Certain
reclassifications have been made to the 1999 and 1998 financial statements
to conform to the 2000 presentation.
STATEMENT OF CASH FLOWS - Marketable securities, without regard to
remaining maturity at acquisition, are not considered cash equivalents for
purposes of the statement of cash flows.
DEPRECIATION AND AMORTIZATION - The Company's depreciation and amortization
policies are as follows:
[Download Table]
Property and Equipment:
Buildings 30 years
Service contract equipment 3 to 5 years
Computer equipment 3 to 5 years
Furniture and fixtures 5 to 15 years
Leasehold improvements Lesser of lease term or useful life
Capitalized software 3 to 7 years
Other Assets:
Internally developed software 3 to 7 years
Intangible assets 3 to 20 years
Property and equipment are stated at cost less accumulated depreciation
and amortization, which is calculated on the straight-line basis.
Service contract equipment consists of hardware provided primarily to
subscribers of the SABRE system. Depreciation of property and equipment
included in continuing operations totaled approximately $146 million,
$161 million and $146 million in 2000, 1999 and 1998, respectively.
Amortization of other assets included in continuing operations
approximated $126 million in 2000, $14 million in 1999 and $14 million
in 1998. Other assets are amortized on the straight-line basis over the
periods indicated. Accumulated amortization of other assets approximated
$210 million and $80 million at December 31, 2000 and 1999, respectively.
REVENUE RECOGNITION - The Company provides various travel marketing and
distribution services using the SABRE system. As compensation for services
provided, fees are collected from airline, car rental, and hotel vendors
and other providers of travel-related products and services ("associates")
for reservations booked through the SABRE system. The fee per booking
charged to associates is dependent upon the level of functionality within
the SABRE system at which the associate participates. Revenue for airline
travel reservations is recognized at the time of the booking of the
reservation, net of estimated future cancellations. At December 31, 2000
and 1999, the Company had recorded booking fee cancellation reserves of
approximately $21 million and $20 million, respectively. Revenue for car
9
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
rental, hotel bookings and other travel providers is recognized at the time
the reservation is used by the customer. The Company also enters into
service contracts with subscribers (primarily travel agencies) to provide
access to the SABRE system, hardware, software, hardware maintenance and
other support services. Fees billed on service contracts are recognized as
revenue in the month earned.
The Company, through its ownership interest in the Travelocity.com
partnership, also receives commissions from travel suppliers for air
travel, hotel rooms, car rentals, vacation packages and cruises booked
through the Travelocity.com Web site and advertising revenues from the
delivery of advertising impressions on the Travelocity.com Web site.
Commissions from air travel providers are recognized upon confirmation of
pending payment of the commission. Commissions from other travel providers
are recognized upon receipt. Advertising revenues are recognized in the
period that advertising impressions are delivered.
The Company receives fees from travel suppliers and corporate customers for
transactions booked through GetThere's Web-based travel booking systems and
recognizes the associated revenues in the month of the transaction. In
addition, GetThere also charges certain up-front fees, such as
implementation, franchise, and license fees. The revenues for those fees
are deferred and generally recognized over the term of the related
contract.
Additionally, the Company provides other services to companies in the
travel industry and other industries worldwide. Revenue from software
license fees for standard software products is recognized when the software
is delivered, fees are fixed and determinable, no undelivered elements are
essential to the functionality of delivered software and collection is
probable. Fees for software maintenance are recognized ratably over the
life of the contract. Services on long-term software development and
consulting contracts are provided under both a time-and-materials basis and
a fixed fee basis. Revenues with respect to time-and-materials contracts
are recognized as services are performed. Revenues from services provided
under fixed fee contracts are recognized using the percentage of completion
method of accounting, based on hours completed in comparison to total hours
projected at completion. Losses, if any, on long-term contracts are
recognized when the current estimate of total contract costs indicates a
loss on a contract is probable. As a result of contractual billing terms,
at December 31, 2000 and 1999 the Company had recorded accounts receivable
of approximately $25 million and $10 million, respectively, that had not
been billed to customers and deferred revenues of approximately $35 million
and $19 million, respectively, related to advance payments from customers.
Approximately $9 million of deferred revenues were noncurrent as of each
balance sheet date.
ADVERTISING COSTS - Advertising costs are generally expensed as incurred.
Internet advertising expenses are recognized based on the terms of
individual agreements, but generally over the greater of the ratio of the
number of impressions delivered over the total number of contracted
impressions, or on a straight-line basis over the term of the contract.
Advertising costs related to continuing operations expensed in 2000, 1999
and 1998, including amounts paid to American under the terms of the
Marketing Cooperation Agreement (see Note 7), totaled approximately $90
million, $49 million and $37 million, respectively.
INCOME TAXES - The entities comprising the Company have been included in
the consolidated federal income tax return of AMR through March 15,
2000. The Company and AMR entered into a tax sharing agreement effective
July 1, 1996 (the "Tax Sharing Agreement"), which provides for the
allocation of tax liabilities during the tax periods the Company is
included in the consolidated federal, state and local income tax returns
filed by AMR. The Tax Sharing Agreement generally requires the Company
to pay to AMR the amount of federal, state and local income taxes that
the Company would have paid had it ceased to be a member of the AMR
consolidated tax group. The Company is jointly and severally liable for
the federal income tax of AMR and the other companies included in the
consolidated return for all periods in which the Company is included in
10
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
the AMR consolidated group. AMR has agreed, however, to indemnify the
Company for any liability for taxes reported or required to be reported on
a consolidated return arising from operations of subsidiaries of AMR other
than the Company.
Except for certain items specified in the Tax Sharing Agreement, AMR
generally retains any potential tax benefit carryforwards, and remains
obligated to pay all taxes attributable to periods before July 2, 1996. The
Tax Sharing Agreement also grants the Company certain limited participation
rights in any disputes with tax authorities.
As a result of the Spin-off, the Company is no longer consolidated with AMR
for tax purposes (see Note 7). Therefore, the Company will separately
report and file federal, state, and local income tax returns for the
taxable periods beginning March 16, 2000.
The results of operations of consolidated subsidiaries of the Company are
included in the Company's federal income tax return, with the exception of
Travelocity.com Inc., which files a separate federal income tax return. The
Company does include its proportionate share of the results of operations
of the Travelocity.com partnership in its federal income tax return (see
Note 10).
The provision for deferred income taxes has been computed using the
liability method as if the Company and Travelocity.com Inc. were separate
taxpayers during all periods presented. Under the liability method,
deferred income tax assets and liabilities are determined based on
differences between financial reporting and income tax bases of assets and
liabilities and are measured using the enacted tax rates and laws. The
measurement of deferred tax assets is adjusted by a valuation allowance, if
necessary, to recognize the extent to which, based on available evidence,
the future tax benefits more likely than not will be realized.
SOFTWARE DEVELOPMENT COSTS - All costs incurred in the development of
software which is licensed to third parties that have the option to take
possession of the software are classified as research and development costs
and are expensed as incurred until technological feasibility has been
established. Once technological feasibility has been established, such
costs are capitalized until the product is ready for service. The Company
defines technological feasibility in accordance with Statement of Financial
Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
TO BE SOLD, LEASED, OR OTHERWISE MARKETED. Technological feasibility is
achieved upon completion of all planning, designing, coding and testing
activities that are necessary to establish that a product can be produced
according to its design specifications.
Effective January 1, 1999, the Company adopted the provisions of Statement
of Position 98-1, ACCOUNTING FOR COMPUTER SOFTWARE DEVELOPED OR OBTAINED
FOR INTERNAL USE. SOP 98-1 requires the capitalization of certain costs
incurred during internal-use software development projects. Capitalizable
costs consist of (a) certain external direct costs of materials and
services incurred in developing or obtaining internal-use computer
software, (b) payroll and payroll-related costs for employees who are
directly associated with and who devote time to the project and (c)
interest costs incurred. Research and development costs incurred during the
preliminary project stage or incurred for data conversion activities, and
training, maintenance and general and administrative or overhead costs are
expensed as incurred. Costs that cannot be separated between maintenance
of, and relatively minor upgrades and enhancements are also expensed as
incurred.
The Company amortizes capitalized development costs using the straight-line
method over the estimated economic life of the software. At December 31,
2000 and 1999, unamortized software development costs approximated $33
million and $24 million, respectively. Research and development
11
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
costs incurred in software development and included in continuing
operations approximated $57 million, $46 million and $39 million for 2000,
1999 and 1998, respectively.
CONCENTRATION OF CREDIT RISK - The Company's customers are primarily
located in the United States, Europe, Canada, Asia and Latin America, and
are concentrated in the travel industry. Approximately 12%, 12% and 12% of
revenues from continuing operations in 2000, 1999 and 1998 were related to
American and other subsidiaries of AMR. Approximately 9%, 12% and 9% of
revenues from continuing operations in 2000, 1999 and 1998, respectively,
were related to US Airways, Inc. ("US Airways"). Each of the Company's
segments recognizes revenues from transactions with American and US
Airways. The Company generally does not require security or collateral
from its customers as a condition of sale. The Company maintained an
allowance for losses of approximately $21 million and $12 million at
December 31, 2000 and 1999, respectively, based upon the amount of
accounts receivable expected to prove uncollectible.
USE OF ESTIMATES - The preparation of these financial statements in
conformity with generally accepted accounting principles requires that
certain amounts be recorded based on estimates and assumptions made by
management. Actual results could differ from these estimates and
assumptions.
CUSTOMER INCENTIVES - Certain service contracts with significant
subscribers contain booking fee productivity clauses and other provisions
which allow subscribers to receive cash payments, and/or various amounts of
additional equipment and other services from the Company at no cost. The
Company establishes liabilities for these commitments and recognizes the
related expense as the subscribers earn incentives based on the applicable
contractual terms. Accrued incentives at December 31, 2000 and 1999 were
approximately $80 million and $70 million, respectively. Periodically, the
Company makes cash payments to subscribers at inception or modification of
a service contract, which are deferred and amortized over the expected life
of the service contract, generally three years. The service contracts are
priced so that the additional airline and other booking fees generated over
the life of the contract will exceed the cost of the incentives provided.
STOCK AWARDS AND OPTIONS - The Company accounts for stock awards and
options (including awards of AMR stock and stock options granted to
employees prior to July 2, 1996 which were converted to Sabre Holdings
stock and stock options) in accordance with Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"). No
compensation expense is recognized for stock option grants 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 the
Company necessary to earn the award.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK
COMPENSATION ("FIN 44"), an interpretation of APB 25. FIN 44, which was
adopted by the Company prospectively as of July 1, 2000, requires certain
changes to previous practice regarding accounting for certain stock
compensation arrangements. FIN 44 does not change APB 25's intrinsic value
method, under which compensation expense is generally not recognized for
grants of stock options to employees with an exercise price equal to the
market price of the stock at the date of grant, but it has narrowed its
application. The primary effect of the adoption of FIN 44 was the
requirement to record deferred compensation of approximately $22 million
related to unvested employee stock options issued in connection with the
acquisition of GetThere (see Note 5).
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SABRE HOLDINGS CORPORATION
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COMPREHENSIVE INCOME - Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. For the years ended
December 31, 2000, 1999 and 1998, the differences between net earnings and
total comprehensive income were not significant and consisted primarily of
unrealized gains and losses on marketable securities.
FINANCIAL INSTRUMENTS - The carrying value of the Company's financial
instruments (excluding the depository certificates discussed below),
including cash, marketable securities, accounts receivable, and short and
long-term debt instruments approximate their respective fair values at
December 31, 2000 and 1999.
At December 31, 2000, American held 2.3 million depository certificates
representing beneficial ownership of common stock of Equant N.V.
("Equant"), a telecommunications company affiliated with Societe
Internationale de Telecommunications Aeronautiques ("SITA"), for the
economic benefit of the Company. The depository certificates are issued
by the SITA Foundation, which holds the underlying Equant shares. Based
upon the market value of the Equant's publicly-traded common stock, the
estimated value of the depository certificates held on behalf of the
Company by American was approximately $60 million and $258 million at
December 31, 2000 and 1999, respectively.
In November 2000, an agreement was announced in which the SITA
Foundation will exchange approximately 68 million Equant shares for
France Telecom shares. The SITA Foundation will receive one France
Telecom share for every 2.2 Equant shares. The agreement is conditional
upon certain regulatory approvals from the European Union and the United
States authorities. It is also subject to certain customary termination
provisions. Completion is expected to take place in the first half of
2001. Based upon the terms of the SITA Foundation exchange agreement
with France Telecom, the depository certificates have an estimated value
of approximately $90 million at December 31, 2000.
The Company's carrying value of these certificates was nominal at
December 31, 2000 and 1999 as certain restrictions limit the Company's
ability to freely dispose of the certificates. Any future disposal of
such depository certificates, or shares of France Telecom received in
exchange for the depository certificates, may result in additional gains
to the Company.
TREASURY STOCK - The Company accounts for the purchase of treasury stock at
cost. Upon reissuance of shares of treasury stock, the Company records any
difference between the weighted-average cost of such shares and any
proceeds received as an adjustment to additional paid-in capital.
RECENT ACCOUNTING PRONOUNCEMENT - The Company has adopted Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES ("FAS 133") effective January 1, 2001.
FAS 133 requires the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.
At December 31, 2000, the Company was a party to certain derivative
instruments, including foreign currency forwards designated as a hedge
related to anticipated foreign currency expenditures, an interest
rate/foreign currency swap contract entered into in connection with Euro
denominated debt related to the Gradient acquisition (see Note 5) and
warrants received from Hotel Reservations Network in connection with an
affiliation agreement. These instruments were not significant to the
Company's financial position or results of operations as of or for the year
ending December 31, 2000. The Company recorded a gain of approximately $7
million, before minority interest and related income taxes, related to the
adoption of FAS 133 in the first quarter of 2001.
4. MARKETABLE SECURITIES
Marketable securities consist of (in thousands):
[Download Table]
December 31,
--------------------------------
2000 1999
-------------- --------------
Corporate notes $ --- $ 380,857
Overnight investment and time deposits 99,961 149,072
Mortgages 17 23,081
Asset-backed securities --- 26,556
U.S. Government treasuries 37,280 24,932
-------------- --------------
Total $ 137,258 $ 604,498
============== ==============
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SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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The following table summarizes marketable securities by contractual
maturity (in thousands):
[Download Table]
December 31,
------------------------------
2000 1999
-------------- --------------
Due in one year or less $ 99,961 $ 268,873
Due after one year through three years 17 297,472
Due after three years 37,280 38,153
-------------- --------------
Total $ 137,258 $ 604,498
============== ==============
Marketable securities, all of which are classified as available-for-sale,
are stated at fair value based on market quotes. Net unrealized gains and
losses, net of deferred taxes, have not been significant and are reflected
as an adjustment to stockholders' equity.
The Company expects that the majority of marketable securities will be sold
within one year, regardless of maturity date. The Company primarily invests
in high credit quality debt instruments with an active resale market and
money market funds to ensure liquidity and the ability to readily convert
its investments into cash to fund current operations, or satisfy other cash
requirements as needed. Accordingly, the Company has classified all
marketable securities as current assets in the accompanying balance sheets.
5. MERGERS AND ACQUISITIONS
During 2000, the Company completed the following mergers and acquisitions.
Each of these transactions was accounted for using the purchase method of
accounting for business combinations.
MERGER OF TRAVELOCITY.COM INC. AND PREVIEW TRAVEL, INC. - On March 7, 2000,
the Company completed the merger of Travelocity.com Inc.
("Travelocity.com"), a newly created subsidiary of the Company, and Preview
Travel, Inc. ("Preview"), an independent publicly-traded company engaged in
consumer direct travel distribution over the Internet. Under the terms of
the merger agreement, shareholders of Preview received one common share of
Travelocity.com Inc., for each share of Preview held, and Preview was
merged into Travelocity.com Inc., the surviving entity. Shares of
Travelocity.com Inc. stock now trade under the symbol "TVLY" on the NASDAQ
National Market. In connection with the merger, the Company contributed its
Travelocity.com division and approximately $100 million in cash to
Travelocity.com LP, a Delaware limited partnership (the "Partnership").
Immediately following the merger, Travelocity.com Inc. contributed the
assets and businesses obtained from the acquisition of Preview to the
Partnership. As a result of the merger, the Company owns an economic
interest of approximately 70% in the combined businesses, composed of an
approximate 61% direct interest in the Partnership and an approximate 22%
interest in Travelocity.com Inc., which holds an approximate 39% interest
in the Partnership.
The cost of the acquisition of Preview was approximately $287 million,
which has been allocated to the respective assets and liabilities acquired
based on estimated fair values, with the remainder recorded as goodwill.
Fair values were determined by the Company's management based on
information furnished by Preview's management and independent valuations of
the net assets acquired, including intangible assets. The Company recorded
goodwill and other intangibles related to this acquisition of approximately
$252 million, which are being amortized over one to three years.
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SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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ACQUIRED INTEREST IN DILLON COMMUNICATION SYSTEMS GMBH ("DILLON") - On June
26, 2000, the Company acquired a 51% ownership interest in Dillon, a
supplier of electronic travel distribution services in Germany. In
accordance with the purchase agreement, the Company paid approximately $20
million in cash and will make additional payments of approximately $1
million in each of the next three years. The cost of the acquisition of
approximately $24 million was allocated to the respective assets and
liabilities acquired based on estimated fair values, based on information
furnished by Gradient's management and independent valuations with the
remainder recorded as goodwill. The Company recorded goodwill and other
intangible assets related to this acquisition of approximately $24 million,
which are being amortized over approximately five years.
ACQUISITION OF GRADIENT SOLUTIONS LIMITED ("GRADIENT") - On August 15,
2000, the Company acquired Gradient, resulting in Gradient becoming a
wholly owned subsidiary of the Company. Gradient is a Dublin, Ireland-based
technology company that provides e-commerce solutions to the global travel
marketplace. The cost of the acquisition was approximately $39 million, of
which approximately $13 million was paid in cash with the balance in
Euro-denominated notes payable. This cost was allocated to the respective
assets and liabilities acquired based on estimated fair values, based on
information furnished by Gradient's management and independent valuations,
with the remainder recorded as goodwill. The Company recorded goodwill and
other intangible assets of approximately $38 million related to this
acquisition, which are being amortized over approximately five years.
ACQUISITION OF GETTHERE, INC. ("GETTHERE") - On October 17, 2000, the
Company acquired GetThere, a Delaware corporation, resulting in GetThere
becoming a wholly owned subsidiary of the Company. GetThere operates one of
the world's largest Internet marketplaces focused on business-to-business
travel services and powers online travel sites for leading airlines. The
cost of the acquisition of GetThere was approximately $781 million. The
cost of the acquisition has been allocated to the respective assets and
liabilities acquired based on estimated fair values, with the remainder
recorded as goodwill. The fair values were determined by the Company's
management based on information furnished by GetThere's management and
independent valuations of the net assets acquired, including intangible
assets. The Company recorded goodwill and other intangible assets of
approximately $688 million related to this acquisition, which are being
amortized over two to four years.
The following unaudited pro forma information presents the Company's
results of continuing operations as if the mergers and acquisitions in 2000
had occurred as of January 1, 1999. The pro forma information has been
prepared by combining the results of continuing operations of the Company
and the acquired businesses for the years ended December 31, 2000 and 1999.
This pro forma information does not purport to be indicative of what would
have occurred had these mergers and acquisitions occurred as of that date,
or of results of continuing operations that may occur in the future (in
thousands, except per share data):
[Enlarge/Download Table]
Year Ended December 31,
----------------------------------------
2000 1999
------------------ ----------------
Revenues $ 1,969,313 $ 1,741,173
================== ================
Income (loss) from continuing operations $ (67,390) $ 49,926
================== ================
Income (loss) from continuing operations per common
share:
Basic $ (.52) $ .39
================== ================
Diluted $ (.52) $ .38
================== ================
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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6. SIGNIFICANT TRANSACTIONS
US AIRWAYS AGREEMENT - In January 1998, the Company completed the execution
of a 25-year information technology services agreement with US Airways.
Under the terms of the agreement, the Company provided substantially all of
US Airways' information technology services. In connection with the IT
services agreement, the Company purchased substantially all of US Airways'
information technology assets for approximately $47 million, and hired more
than 600 former employees of US Airways. The IT services agreement and
those IT assets and personnel have been transferred to EDS as part of the
asset sale (see Note 2). Substantially all of those IT services will be
performed by EDS. Certain software applications development and maintenance
services were retained by the Company under a new agreement with US
Airways.
In January 1998 the Company granted to US Airways two tranches of stock
options, each to acquire 3 million shares of the Company's Class A common
stock. On December 14, 1999, US Airways exercised the first tranche of
stock options. Pursuant to the terms of the exercised options, the Company
settled the options in cash in lieu of issuing common stock and paid
approximately $81 million to US Airways on January 5, 2000.
The second tranche of options is exercisable during the ten-year period
beginning on the fifth anniversary of the asset transfer date. In
connection with the Company's payment of the $675 million dividend on
February 18, 2000, the Company adjusted the terms of the second tranche of
US Airways options to provide for the same aggregate intrinsic value of the
US Airways' holdings of the Company's common stock before and after the
effect of the dividend on the Company's stock price. Additionally, the
terms of the second tranche of options provided US Airways the opportunity
to select an alternative vehicle of substantially equivalent value in place
of receiving shares of the Company's stock during the six-month period
ended December 31, 2000. No such election was made during that time. The
Company may, at its discretion, choose to settle the remaining stock
options with alternative value in place of issuing shares of its common
stock. Such payment may result in the payment of cash by the Company to US
Airways.
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SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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The Company has recorded a liability and related deferred costs equal to
the number of options outstanding multiplied by the difference between the
exercise price of the options and the market price of the Company's Class A
common stock. The deferred costs and liability are adjusted for changes in
the market price of the Company's stock at each month-end until such time
as the options are settled or US Airways' ability to select an alternative
vehicle in place of receiving stock expires. At December 31, 2000 and 1999,
the Company had a liability relating to these options of $147 million and
$154 million, respectively, and net deferred costs of approximately $107
million and $126 million, respectively. During 2000, 1999, and 1998, the
Company recorded amortization expense of approximately $12 million, $18
million and $10 million, respectively, related to the options, which is
recorded in income from discontinued operations. The deferred costs were
being amortized over the eleven-year non-cancelable portion of the
agreement.
ABACUS JOINT VENTURE - In February 1998, the Company signed long-term
agreements with ABACUS International Holdings Ltd., which created a
Singapore-based joint venture company called ABACUS to manage travel
distribution in the Asia/Pacific region. The Company paid $139 million in
cash and contributed its assets related to the Company's ongoing travel
distribution activities in Asia/Pacific and other consideration. In
exchange, the Company received 35% of the shares of the joint venture
company. The Company accounts for its investment in the joint venture using
the equity method of accounting and records revenue for the Company's share
of the net income of ABACUS. The Company provides ABACUS with transaction
processing on the SABRE system. At December 31, 2000 and 1999, the
Company's net investment in ABACUS totaled approximately $144 million. The
Company's initial investment in ABACUS differed from its proportional share
of the net equity in the underlying assets of ABACUS by approximately $116
million. This amount is being amortized over 20 years.
TICKETNET JUDGMENT - In August 1998, the Company received a favorable court
judgment related to Ticketnet Corporation, an inactive subsidiary of the
Company, and recognized approximately $14 million of other income.
EQUANT DEPOSITORY CERTIFICATES - At December 31, 1998, American owned
approximately 1.7 million depository certificates representing beneficial
ownership of common stock of Equant for the economic benefit of the
Company. In connection with a secondary offering of Equant common stock, in
February 1999, American liquidated 490,000 of these certificates for the
Company's benefit. The Company received proceeds of approximately $35
million from the transaction, resulting in a gain of approximately $35
million.
In December 1999, in connection with an additional secondary offering of
Equant common stock, approximately 1.2 million certificates were liquidated
for the Company's benefit. The Company received proceeds of approximately
$103 million from the transaction, resulting in an additional gain of
approximately $103 million.
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SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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7. CERTAIN TRANSACTIONS WITH AMR AND AMERICAN
AMR AGREEMENTS - The Company entered into certain agreements with AMR and
its affiliates (the "AMR Agreements"), which are discussed below.
INFORMATION TECHNOLOGY SERVICES AGREEMENT - On July 1, 1996, the Company
entered into the Information Technology Services Agreement with American
(the "Technology Services Agreement"), to provide American with certain
information technology services. The base term of the Technology Services
Agreement expires June 30, 2006. The Technology Services Agreement and
related IT assets and personnel have been transferred to EDS as
part of the sale of the Outsourcing Business (see Note 2). Substantially
all of the services under the Technology Services Agreement will now be
provided by EDS. The Company may receive additional payments from EDS for
those assets, depending on the amount of revenues received by EDS under
the Technology Services Agreement. The terms of the services to be
provided to American by EDS, however, vary. Certain software applications
development and maintenance services were retained by the Company under a
new agreement with American. The Company also transferred to American
approximately 250 employees who had previously been providing dedicated
support services for American.
MANAGEMENT SERVICES AGREEMENT - The Company and American were parties to a
Management Services Agreement dated July 1, 1996 (the "Management Services
Agreement"), pursuant to which American performed certain management
services for the Company that American had historically provided to the
Company. In connection with the Spin-off, the Company and American agreed
to the early termination of certain services, effective March 2000, and the
continuation of certain services with termination dates through June 30,
2001.
MARKETING COOPERATION AGREEMENT - The Company and American are parties to
the Marketing Cooperation Agreement dated July 1, 1996 (the "Marketing
Cooperation Agreement"), pursuant to which American agreed to provide
marketing support for 10 years for certain of the Company's products. Under
the terms of the Marketing Cooperation Agreement, the Company pays American
a fee for its marketing support, the amount of which may increase or
decrease, generally based on booking volumes. The total fee was
approximately $20 million, $18 million and $17 million in 2000, 1999 and
1998, respectively, which has been included in income from continuing
operations. Additionally, the Company guaranteed to American certain
cost savings in the fifth year of the Marketing Cooperation Agreement. At
December 31, 1998, the Company recorded a liability of approximately $7
million for this guarantee. This liability was reversed during the fourth
quarter of 1999 based on projections of cost savings. In connection with
the Spin-off, the Company and American agreed to terminate the Company's
obligation to guarantee those cost savings.
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SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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NON-COMPETITION AGREEMENT - The Company, AMR and American entered into a
Non-Competition Agreement dated July 1, 1996 (the "Non-Competition
Agreement"), pursuant to which AMR and American, on behalf of themselves
and certain of their subsidiaries, have agreed to limit their competition
with the Company's businesses. The Non-Competition Agreement expires on
December 31, 2001. American may terminate the Non-Competition Agreement,
however, if the Technology Services Agreement is terminated as a result of
an egregious breach by EDS.
TRAVEL AGREEMENTS - The Company and American are parties to a Travel
Privileges Agreement dated July 1, 1996 (the "Travel Privileges
Agreement"), pursuant to which the Company is entitled to purchase personal
travel for its employees and retirees at reduced fares. The Travel
Privileges Agreement will expire on June 30, 2008. To pay for the provision
of flight privileges to certain of its future retired employees, the
Company makes a lump sum payment to American each year for each employee
retiring in that year. The payment per retiree is based on the number of
years of service with the Company and AMR over the prior ten years of
service. The cost of providing this privilege is accrued over the estimated
service lives of the employees eligible for the privilege (see Note 9).
The Company and American agreed to certain amendments to the Travel
Privileges Agreement in connection with the Spin-off and the EDS
transaction. These amendments allow American to provide certain employees
with additional limited travel privileges and require the Company to
indemnify American for costs related to the Company's continued use of the
travel privileges.
The Company and American are also parties to a Corporate Travel Agreement
(the "Corporate Travel Agreement"); pursuant to which the Company received
discounts for certain flights purchased on American. In exchange, the
Company agreed to fly a certain percentage of its travel on American as
compared to all other air carriers combined.
CREDIT AGREEMENT - On July 1, 1996, the Company and American entered into a
Credit Agreement pursuant to which the Company was required to borrow from
American, and American was required to lend to the Company, amounts
required by the Company to fund its daily cash requirements. In addition,
American could, but was not required to, borrow from the Company to fund
its daily cash requirements. The maximum amount the Company could borrow at
any time from American under the Credit Agreement was $300 million. The
maximum amount that American could borrow at any time from the Company
under the Credit Agreement was $100 million. No borrowings occurred by
either the Company or American under this agreement. In connection with the
Spin-off, the Credit Agreement was terminated on April 14, 2000.
DEBENTURE PAYABLE TO AMR - In 1996, the Company issued to AMR a floating
rate, subordinated debenture due September 30, 2004 (the "Debenture"). The
principal balance was approximately $318 million at December 31, 1998.
During 1999, in connection with the Omnibus Financing Agreement discussed
below, the Company prepaid the remaining principal balance and all
outstanding accrued interest under the Debenture. The average interest rate
on the Debenture was 5.6% and 6.1% for 1999 and 1998, respectively.
OMNIBUS FINANCING AGREEMENT - On March 1, 1999, the Company and American
entered into a short-term credit agreement pursuant to which American could
borrow from the Company up to a maximum of $300 million. During the first
half of 1999, American borrowed $300 million under the short-term credit
agreement. Subsequently, in June 1999, the Company, AMR and American
entered into an Omnibus Financing Agreement pursuant to which (a) the $300
million outstanding from American under the short-term credit agreement was
applied against the $318 million remaining under
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SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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the Debenture payable from the Company to AMR and (b) the Company paid the
remaining principal balance of approximately $18 million and all
outstanding accrued interest under the Debenture.
INDEMNIFICATION AGREEMENT - In July 1996, the Company and American entered
into an intercompany agreement (the "Indemnification Agreement") pursuant
to which each party indemnified the other for certain obligations relating
to the Reorganization. Pursuant to the Indemnification Agreement, the
Company indemnified American for liabilities assumed against third party
claims asserted against American as a result of American's prior ownership
of assets or operation of businesses contributed to the Company and for
losses arising from or in connection with the Company's lease of property
from American. In exchange, American indemnified the Company for specified
liabilities retained by it against third party claims against the Company
relating to American's businesses and asserted against the Company as a
result of the ownership or possession by American prior to July 2, 1996 of
any asset contributed to the Company in July 1996 and for losses arising
from or in connection with American's lease of property from the Company.
In connection with the Spin-off, the Company and American agreed to
terminate the Indemnification Agreement as of July 1, 2003.
AGREEMENT ON SPIN-OFF TAXES - In connection with the Spin-off, the Company
and AMR entered into an indemnity agreement (the "Agreement on Spin-off
Taxes") pursuant to which the Company will be responsible for Spin-off
related taxes, in certain circumstances, if the Spin-off is deemed to be
taxable as a result of certain factual representations and assumptions
relating to the Company being inaccurate or as a result of the Company's
subsequent actions. The Internal Revenue Service ("IRS") has issued a Tax
Ruling to the effect that the Spin-off will be tax-free to the Company, AMR
and AMR shareholders under Section 355 of the Internal Revenue Code of
1986, as amended (except to the extent that cash is received in lieu of
fractional shares). Under the terms of the Agreement on Spin-off Taxes, the
Company has also agreed to comply with certain restrictions on its future
operations to assure that the Spin-off will be tax free, including
restrictions with respect to a third party's acquisition of shares of the
Company's stock and the Company's issuance of stock.
REVENUES FROM AMR - Revenues from American and other subsidiaries of AMR
included in continuing operations were $226 million, $209 million and $195
million in 2000, 1999 and 1998, respectively.
OPERATING EXPENSES - Prior to the Spin-off, operating expenses were charged
to the Company by American and other subsidiaries of AMR to cover certain
employee benefits, facilities rental, marketing services, management
services, legal fees and certain other administrative costs based on
employee headcount or actual usage of facilities and services. The Company
believes amounts charged to the Company for these expenses approximate the
cost of such services provided by third parties. Travel service costs for
travel by the Company's employees for personal and business travel are
charged to the Company based on rates negotiated with American. If the
Company had not been affiliated with American, the personal travel flight
privilege would most likely not have been available to employees. The rates
negotiated with American for 2000, 1999 and 1998 under the Corporate Travel
Agreement approximate corporate travel rates offered by American to similar
companies. Expenses charged to the Company by AMR and its affiliates
approximated $19 million for the two months prior to the Spin-off in March
2000. Expenses charged to the Company by AMR and its affiliates, unadjusted
for discontinued operations, for the years ended December 31, 1999 and 1998
are as follows (in thousands):
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SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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[Download Table]
Year Ended December 31,
-----------------------------
1999 1998
------------ ------------
Employee benefits $ 45,471 $ 41,348
Facilities rental 2,814 2,706
Marketing cooperation 10,793 24,044
Management services 5,719 10,069
Other administrative costs 2,816 12,732
Travel services 45,190 45,433
------------ ------------
Total expenses $112,803 $136,332
============ ============
Of these total amounts, approximately $66 million and $88 million was included
in continuing operations in 1999 and 1998, respectively.
8. DEBT
On February 4, 2000, the Company entered into a $300 million, senior
unsecured, revolving credit agreement (the "Credit Facility"), which
expires on September 14, 2004. Concurrently, the Company entered into a
short-term $200 million, senior unsecured, term loan agreement (the
"Interim Loan"), with an original maturity of August 4, 2000 which was
subsequently extended to February 4, 2001. On February 18, 2000, the
Company utilized a portion of its available cash balance and marketable
securities, as well as proceeds from both the Credit Facility and Interim
Loan to fund a $675 million dividend to shareholders. In connection with
the bridge credit facility discussed below, the entire $200 million balance
outstanding under the Interim Loan was repaid and the Interim Loan
agreement was terminated. At December 31, 2000, there were no outstanding
borrowings under the Interim Loan and $149 million outstanding under the
Credit Facility at an average annual interest rate of 6.7%.
On October 10, 2000, the Company entered into a $865 million bridge credit
agreement (the "Bridge Credit Agreement") which expires on July 10, 2001.
Proceeds of the Bridge Credit Agreement were used to fund the acquisition
of GetThere and to repay the $200 million outstanding under the Interim
Loan. Interest on the Bridge Credit Agreement is variable, based upon the
London Interbank Offered Rate ("LIBOR"), the prime rate or the federal
funds rate plus a margin, at the Company's option. At December 31, 2000,
the outstanding balance of borrowings under the Bridge Credit Agreement was
$710 million at an average interest rate of 7.1%. Borrowings under the
Bridge Credit Agreement were retired on July 2, 2001 using proceeds from
the sale of the Outsourcing Business (Note 2) and existing cash balances.
9. EMPLOYEE BENEFIT PLANS
The Company sponsors The Sabre Group Retirement Plan (the "SGRP"), a
defined contribution plan qualified under Section 401(k) of the Internal
Revenue Code of 1986. The Company makes a defined contribution and matches
a defined portion of employee contributions to the plan and has recorded
expenses related to the SGRP of approximately $21 million, $20 million and
$16 million in 2000, 1999 and 1998, respectively.
Additionally, the Company sponsors The Sabre Group Legacy Pension Plan (the
"LPP"), a tax-qualified defined benefit plan for employees meeting certain
eligibility requirements.
21
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
As a result of the Spin-off, the Company amended its retiree medical and
life insurance plan effective January 1, 2001. The Company changed the plan
to offer subsidized retiree medical coverage only to employees hired prior
to October 1, 2000. Employees hired after that date will be offered access
to the Company-sponsored plan but with no subsidy and therefore no
liability to the Company. In addition, active employees will no longer
pre-fund their share of the retiree medical benefit costs but will make
post-retirement contributions averaging 20% of the cost of retiree medical
coverage. Previously established employee pre-funding account balances will
continue to accrue interest and will be used to offset future retiree
contributions; however, new pre-funding contributions were discontinued.
The lifetime maximums for the retiree medical plan were increased due to
the consolidation of supplemental medical plan benefits into the basic
retiree medical plan.
Officers and certain employees of the Company are eligible for additional
retirement benefits, to be paid by the Company, under the Supplemental
Executive Retirement Plan (the "SERP") as an operating expense. The SERP
provides pension benefits (calculated upon the basis of final average base
salary, incentive compensation payments and performance returns) to which
officers and certain employees of the Company would be entitled, but for
the limit on the maximum annual benefit payable under the Employee
Retirement Income Security Act of 1974 ("ERISA") and the Internal Revenue
Code of 1986 ($135,000 for 2000), and the limit on the maximum amount of
compensation which may be taken into account under the Company's retirement
program ($170,000 for 2000).
Pursuant to the Travel Privileges Agreement, the Company is entitled to
purchase personal travel for certain retirees. To pay for the provision of
flight privileges to certain of its future retired employees, the Company
makes a lump sum payment to American for each employee retiring in that
year. The payment per retiree is based on the number of years of service
with the Company and AMR over the prior ten years of service. The cost of
providing this privilege is accrued over the estimated service lives of the
employees eligible for the privilege.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December
31, 2000 and 1999, and a statement of funded status as of December 31, 2000
and 1999 (in thousands):
[Enlarge/Download Table]
Pension Benefits Other Benefits
------------------------------ ------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
Change in benefit obligation:
Benefit obligation at January 1 $ (201,950) $ (211,445) $ (61,335) $ (57,333)
Service cost (10,836) (13,055) (4,369) (5,118)
Interest cost (16,974) (15,710) (4,764) (4,350)
Actuarial gains (losses) (27,828) 37,846 (5,895) 5,066
Plan amendments --- (557) (7,673) ---
Settlements --- --- 9,739 ---
Benefits paid
633 971 982 400
-------------- -------------- -------------- --------------
Benefit obligation at December 31 $ (256,955) $ (201,950) $ (73,315) $ (61,335)
============== ============== ============== ==============
Change in plan assets:
Fair value at January 1 $ 126,299 $ 110,607 $ 10,600 $ 8,933
Actual return on plan assets 10,122 2,025 (1,654) (159)
Company contributions 18,261 11,903 12,741 2,226
Transfers from AMR (1,384) 2,735 --- ---
Settlements --- --- (9,739) ---
Benefits paid (633) (971) (982) (400)
-------------- -------------- -------------- --------------
Fair value at December 31 $ 152,665 $ 126,299 $ 10,966 $ 10,600
============== ============== ============== ==============
22
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
Funded status of the plan
(underfunded) $ (104,290) $ (75,651) $ (62,349) $ (50,735)
Unrecognized net loss (gain) 54,292 22,252 (4,246) (15,044)
Unrecognized prior service cost 702 755 5,995 (1,280)
Unrecognized transition asset 7 16 --- ---
-------------- -------------- -------------- --------------
Accrued benefit cost $ (49,289) $ (52,628) $ (60,600) $ (67,059)
============== ============== ============== ==============
The assumptions used in the measurement of the Company's benefit
obligations as of December 31, 2000 and 1999 are as follows:
[Enlarge/Download Table]
Pension Benefits Other Benefits
------------------------------ ------------------------------
Weighted-average assumptions: 2000 1999 2000 1999
------------- ------------- ------------- -------------
Discount rate 7.50% 8.00% 7.50% 8.00%
Expected return on plan assets 9.50% 9.50% 9.50% 9.50%
Rate of compensation increase 5.25% 5.25% --- ---
Due to the revisions to the retiree medical program, a 9% annual rate of
increase in the per capita cost of covered retiree health care benefits was
assumed for 2001. This rate was assumed to gradually decrease by .5% each
year until it reaches an ultimate rate of 5%.
The following table provides the components of net periodic benefit costs
for the three years ended December 31, 2000 (in thousands). Total costs for
other postretirement benefits are included in employee benefits in the
table in Note 7.
[Enlarge/Download Table]
Pension Benefits Other Benefits
---------------------------------- ----------------------------------
2000 1999 1998 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
Service cost $10,836 $ 13,055 $ 11,257 $ 4,369 $ 5,118 $ 5,261
Interest cost 16,974 15,710 12,370 4,764 4,350 4,065
Expected return on plan assets (13,025) (10,294) (8,336) (1,093) (904) (684)
Amortization of transition asset 9 (151) (228) --- --- ---
Amortization of prior service cost 53 22 22 248 (150) (150)
Amortization of net loss (gain) 74 3,032 1,690 (475) (533) (241)
---------- ---------- ---------- ---------- ---------- ----------
Total net periodic benefit cost $ 14,921 $ 21,374 $ 16,775 $ 7,813 $ 7,881 $ 8,251
========== ========== ========== ========== ========== ==========
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement medical benefit plans. A one
percentage point decrease in the assumed health care cost trend rates would
decrease the total service and interest cost components of total net
periodic benefit cost for 2000 and the postretirement benefit obligations
at December 31, 2000 by approximately $2 million and $10 million,
respectively. A one percentage point increase in the assumed health care
cost trend rates would increase the total service and interest cost
components of total net periodic benefit cost for 2000 and the
postretirement benefit obligations at December 31, 2000 by approximately $2
million and $12 million, respectively.
Plan assets for the LPP and for the postretirement health care and life
insurance benefits consist primarily of mutual fund shares managed by a
subsidiary of AMR invested in debt and equity securities.
Expenses included in income from continuing operations related to employee
benefit plans totaled approximately $24 million, $27 million, and $23
million in 2000, 1999 and 1998, respectively. The Company anticipates
recording a curtailment gain as a component of the gain on the sale of
the Outsourcing Business relating to the cessation of benefits under the
plans described above for the employees transferred to EDS.
23
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
10. INCOME TAXES
The provision (benefit) for income taxes from continuing operations is as
follows (in thousands):
[Enlarge/Download Table]
Year Ended December 31,
--------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Current portion:
Federal $ 63,966 $ 148,325 $ 92,156
State 1,041 10,961 6,172
Foreign 10,611 6,929 11,930
--------------- --------------- ---------------
Total current 75,618 166,215 110,258
Deferred portion:
Federal 9,198 (3,501) 342
State 8,667 7,665 4,820
--------------- --------------- ---------------
Total deferred 17,865 4,164 5,162
--------------- --------------- ---------------
Total provision for income taxes $ 93,483 $ 170,379 $ 115,420
=============== =============== ===============
The provision for income taxes relating to continuing operations differs
from amounts computed at the statutory federal income tax rate as follows
(in thousands):
[Enlarge/Download Table]
Year Ended December 31,
-------------------------------------------------
2000 1999 1998
-------------- --------------- ---------------
Income tax provision at statutory federal income
tax rate $ 66,352 $ 161,302 $ 107,963
State income taxes, net of federal benefit 4,194 12,107 7,145
Nondeductible goodwill amortization 28,278 --- ---
Research and experimentation credit (4,000) --- ---
Other, net (1,341) (3,030) 312
-------------- --------------- ---------------
Total provision for income taxes $ 93,483 $ 170,379 $ 115,420
============== =============== ===============
24
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The components of the Company's deferred tax assets and liabilities were as
follows (in thousands):
[Enlarge/Download Table]
December 31,
-------------------------------
2000 1999
-------------- --------------
Deferred tax assets:
Accrued expenses $ 39,630 $ 35,248
Employee benefits other than pensions 29,432 31,286
Deferred revenue 5,855 5,662
Pension obligations 10,606 18,395
Net operating loss carryforwards 82,225 416
-------------- --------------
Total deferred tax assets 167,748 91,007
Deferred tax liabilities:
Foreign operations (837) (3,269)
Depreciation and amortization (25,588) (29,313)
Amortization of computer software and intangible assets (77,214) (14,997)
Other (47,123) (23,184)
-------------- --------------
Total deferred tax liabilities (150,762) (70,763)
Valuation allowance (48,800) ---
-------------- --------------
Net deferred tax asset (liability) $ (31,814) $ 20,244
============== ==============
Current deferred income tax asset $ 15,889 $ 18,052
Noncurrent deferred income tax asset (liability) (47,703) 2,192
-------------- --------------
Net deferred tax asset (liability) $ (31,814) $ 20,244
============== ==============
The increase in the deferred tax liability for amortization of computer
software and intangible assets resulted from a deferred tax liability
recorded for the intangible assets, other than goodwill, recorded in
connection with the acquisition of GetThere.
As a result of the merger of Travelocity.com and Preview, Travelocity.com
acquired net operating losses ("NOL's") of approximately $105 million
previously incurred by Preview, which begin expiring in 2009. Additionally,
as a result of the acquisition of GetThere, the Company acquired NOL's of
approximately $100 million previously incurred by GetThere, which begin
expiring in 2011. Preview and GetThere NOL's are subject to limitation
under Section 382 of the Internal Revenue Code, but such limitation is not
expected to have a significant impact on the Company's ability to utilize
the NOL's.
25
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The results of operations of Travelocity.com Inc. are not included in the
federal income tax return of the Company (see Note 3). Accordingly, only
Travelocity.com Inc. can utilize the NOL's acquired from Preview.
Travelocity.com Inc. has additional NOL's totaling approximately $18
million relating to its proportionate share of the losses of the
Travelocity.com partnership during 2000 (see Note 5). At December 31, 2000,
a valuation allowance has been recorded to fully reserve the deferred tax
assets resulting from Travelocity.com Inc.'s NOL's, as the Company has been
unable to conclude that it is more likely than not that Travelocity.com
Inc. will be able to utilize these NOL's. To the extent that the NOL's
acquired from Preview are utilized to offset Travelocity.com Inc.'s future
taxable income, goodwill and non-current intangible assets recorded in
connection with the acquisition will be reduced. If goodwill and
non-current intangible assets have been fully amortized or reduced to zero,
income tax expense will be reduced. To the extent that Travelocity.com Inc.
is able to realize the benefit of the NOL's, either acquired from Preview
or arising subsequent to the acquisition of Preview, the Company will
recognize a benefit equal to its ownership interest in Travelocity.com Inc.
of approximately 22%.
The Company believes that, more likely than not, it will be able to utilize
the NOL's acquired from GetThere. Accordingly, no valuation allowance has
been established related to these NOL's.
11. COMMITMENTS AND CONTINGENCIES
On July 1, 1996, the Company entered into an operating lease agreement with
AMR for certain facilities and AMR assigned its rights and obligations
under certain leases to the Company. Also on July 1, 1996, the Company
entered into an operating lease agreement with a third party for the lease
of other facilities.
In October 1998, the Company sold data center mainframe equipment to an
unrelated party for approximately $34 million. The Company then entered
into an agreement to lease back the equipment from the unrelated party. The
Company recognized a deferred gain of approximately $1 million on the
transaction. The agreement has a term of seven years; however, the Company
has the option, at its discretion, to terminate the contract as of December
31, 2001. Under the agreement, the Company may lease additional equipment
at rates specified in the agreement. This agreement was transferred to EDS
as part of its purchase of the Company's IT infrastructure assets (see Note
2).
In 1999, the Company entered into a syndicated lease financing facility of
approximately $310 million for the use of land, an existing office building
and the construction of a new corporate headquarters facility in Southlake,
Texas, as well as the development of new data center facilities in Tulsa,
Oklahoma. The financing facility will be accounted for as an operating
lease. The initial term of the lease extends through September 2004, with
two optional one-year renewal periods thereafter. At the end of each
renewal period, the Company is required to either renew the lease, purchase
the property for its original cost, or arrange for the sale of the property
to a third party, with the Company guaranteeing to the lessor proceeds on
such sale of approximately 85% of the original fair value of the leased
facility, or approximately $264 million. EDS purchased the new Tulsa data
center facilities as part of its purchase of the Company's IT
infrastructure assets (see Note 2).
Additionally, in 1999, the Company entered into an agreement with AOL that
provides, among other things, that the Travelocity.com Web site will be the
exclusive reservations engine for AOL's Internet properties.
Travelocity.com is obligated for payments of up to $200 million and AOL and
Travelocity.com will share advertising revenues and commissions over the
five-year term of the agreement. Under certain circumstances,
Travelocity.com may elect to alter the terms of this agreement such that
guaranteed payments to AOL would no longer be required. The Company is
amortizing the payments due under the AOL Agreement as a selling and
marketing expense based upon the noncancellable period of the contract.
Payments are recorded as prepaid assets, which are reduced by amortization.
Approximately $16 million is recorded in prepaid assets at December 31,
2000. Commissions are due to AOL as travel reservations are made by AOL
users through Travelocity.com's co-branded AOL web-site. Such amounts are
recorded as revenues and recognized by Travelocity. Amounts received from
AOL under the advertising revenue sharing arrangement are recognized in the
month earned.
26
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
At December 31, 2000, future minimum lease payments required under the
aforementioned operating lease agreements and other operating lease
agreements with terms in excess of one year for facilities, equipment and
software licenses as well as other guaranteed payments were as follows (in
thousands):
[Download Table]
Year Ending December 31,
-------------------------
2001 $ 95,777
2002 95,598
2003 83,899
2004 80,174
2005 18,556
Thereafter 42,752
Rental expense included in continuing operations was approximately $61
million, $54 million and $40 million for the years ended December 31, 2000,
1999 and 1998, respectively.
The Company is involved in certain disputes and other matters arising in
the normal course of business. Additionally, the Company is subject to
review and assessment by various taxing authorities. Although the ultimate
resolution of these matters cannot be reasonably estimated at this time,
management does not believe that they will have a material, adverse effect
on the financial condition or results of operations of the Company.
12. CAPITAL STOCK
On February 7, 2000, the Company declared a one-time cash dividend on all
outstanding shares of the Company's Class A and Class B common stock. The
aggregate amount of the dividend was $675 million, or approximately $5.20
per share, and was paid to shareholders on February 18, 2000. In the
future, the Company intends to retain its earnings to finance future growth
and, therefore, does not anticipate paying any additional cash dividends on
its common stock. Any determination as to the future payment of dividends
will depend upon the future results of operations, capital requirements and
financial condition of the Company and its subsidiaries and such other
factors as the Board of Directors of the Company may consider, including
any contractual or statutory restrictions on the Company's ability to pay
dividends.
On March 15, 2000, AMR exchanged all of its 107,374,000 shares of the
Company's Class B common stock for an equal number of shares of the
Company's Class A common stock and distributed such shares to AMR
shareholders as a stock dividend. The distribution consisted of AMR's
entire ownership interest in the Company. The Company now has only Class A
common stock outstanding. The Company is authorized by its certificate of
incorporation to issue up to 250 million shares of Class A common stock,
and up to 20 million shares of Preferred Stock.
In 1997, the Company's Board of Directors authorized, subject to certain
business and market conditions, the purchase of up to 1.5 million shares of
the Company's Class A common stock. On March 16, 1999, the Company's Board
of Directors authorized the repurchase of up to an additional 1 million
shares of the Company's Class A common stock. On September 15, 1999, the
Company's Board of Directors authorized the repurchase of up to an
additional $100 million of the Company's Class A common stock during the
next two years. The Company repurchased 1,004,193; 1,029,890 and 1,428,200
shares of Class A common stock in 2000, 1999 and 1998, respectively. The
Company uses Treasury Stock to settle exercised stock options.
27
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
13. OPTIONS AND OTHER STOCK-BASED AWARDS
Under the Company's 1996 Long-Term Incentive Plan (the "1996 Plan")
officers and other key employees of the Company may be granted restricted
stock, deferred stock, stock options, stock appreciation rights, stock
purchase rights, other stock-based awards and/or performance-related
awards. The 1996 Plan will terminate no later than October 2006. In 1999,
the Company amended the 1996 Plan (the "Amended Plan"). Under the Amended
Plan, the Company expanded the employees eligible for awards to include
non-employee directors and managers of the Company in addition to officers
and key employees. The total number of shares of Class A common stock
authorized to be issued under the Amended Plan is approximately 14 million
shares, provided that no more than 1 million shares of stock shall be
granted to any employee in a one-year period. At December 31, 2000,
approximately 3 million shares remained available for future grants of
stock-based awards under the Amended Plan.
In 2000, the Company established the Sabre Holdings Corporation Stock
Option Plan (the "2000 Plan") to attract, retain, and reward employees of
the Company, by offering stock incentives in the Company. Under the 2000
Plan, employees may be granted stock options, stock appreciation rights or
other stock-based awards. The total number of shares of Class A common
stock authorized for distribution under the 2000 Plan is 7 million shares.
At December 31, 2000 approximately 3 million shares remained available for
future grants.
The total charge for stock compensation expense included in income from
continuing operations was $10 million, $9 million and $7 million for 2000,
1999 and 1998, respectively. No compensation expense was recognized for
stock option grants under the 1996 Plan, the Amended Plan or the 2000 Plan
since the exercise price of the Company's stock option grants was equal to
the fair market value of the underlying stock on the date of grant.
Shares of restricted stock are awarded at no cost to employees. Restricted
shares generally vest three years following the date of grant. Unadjusted
for discontinued operations, restricted stock activity follows:
[Download Table]
Year Ended December 31,
--------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
Outstanding at January 1 192,410 155,590 166,940
Granted 715,957 168,000 12,390
Issued (67,148) (126,740) (10,280)
Canceled --- (4,440) (13,460)
-------------- -------------- --------------
Outstanding at December 31 841,219 192,410 155,590
============== ============== ==============
The weighted-average grant date fair values of restricted stock granted
during 2000, 1999 and 1998 were $34.70, $50.08 and $38.49, respectively.
The grant date fair values are based on the Company's stock price on the
date of grant. The Company recognizes stock compensation expense for these
grants over the related vesting period.
28
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Company Performance Shares are also awarded at no cost to officers and key
employees of the Company based on performance metrics of the Company. The
Company Performance Shares vest over a three-year performance period and
are settled in cash. Unadjusted for discontinued operations, the Company's
Performance Share activity was as follows:
[Download Table]
Year Ended December 31,
--------------------------------------------------
2000 1999 1998
------------- ------------- -------------
Outstanding at January 1 479,069 504,873 612,100
Granted 282,361 197,326 206,970
Awards settled in cash (194,957) (179,035) (263,040)
Canceled (100,326) (44,095) (51,157)
------------- ------------- -------------
Outstanding at December 31 466,147 479,069 504,873
============= ============= =============
The weighted-average grant date fair values of Company Performance Shares
granted during 2000, 1999 and 1998 were $46.43, $42.30 and $36.42,
respectively. The grant date fair values are based on the Company's stock
price on the date of grant. The Company recognizes stock compensation
expense for these grants over the related performance periods.
Stock options are granted at the market value of Class A common stock on
the date of grant, except as otherwise determined by a committee appointed
by the Board of Directors, generally vest over three to five years, and are
not exercisable more than ten years after the date of grant. Unadjusted for
discontinued operations, stock option activity follows:
[Enlarge/Download Table]
Year Ended December 31,
--------------------------------------------------------------------------------
2000 1999 1998
------------------------- -------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------------------- ------------------------- --------------------------
Outstanding at January 1 4,672,970 $38.20 3,395,390 $ 29.10 2,874,070 $ 25.43
Granted 13,551,898 30.89 2,469,600 46.37 1,245,600 34.94
Exercised (779,866) 27.07 (697,130) 52.17 (433,270) 21.97
Canceled (1,701,498) 37.54 (494,890) 33.49 (291,010) 28.41
-------------- ------------- -------------
Outstanding at December 31 15,743,504 $32.53 4,672,970 $ 38.20 3,395,390 $ 29.10
============== ============= =============
Exercisable options outstanding at
December 31 3,305,349 $21.61 826,430 $ 27.19 870,670 $ 24.82
============== ============= =============
The weighted-average grant date fair value of stock options granted during
2000, 1999 and 1998 were $13.42, $18.75 and $12.55, respectively. The grant
date fair values were estimated at the date of grant using the
Black-Scholes option-pricing model.
29
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The following table, which has not been adjusted for discontinued
operations, summarizes information about the stock options outstanding at
December 31, 2000:
[Enlarge/Download Table]
Options Outstanding Options Exercisable
----------------------------------------------------- ------------------------------------
Weighted-Average
Range of Exercise Remaining Life Weighted-Average Weighted-Average
Prices Shares (years) Exercise Price Shares Exercise Price
--------------------- ---------------- ---------------- ------------------ ---------------- ------------------
$ 0.16 - $25.99 5,298,291 8.49 $ 19.25 2,759,265 $ 19.25
$26.00 - $35.99 2,657,760 8.47 31.88 493,844 32.73
$36.00 - $48.99 5,321,792 9.67 38.16 52,240 40.72
$49.00 - $69.40 2,465,661 9.17 49.63 --- ---
---------------- ----------------
Total 15,743,504 8.99 $ 32.53 3,305,349 $ 21.61
================ ================
Stock appreciation rights ("SARS") may be granted in conjunction with all
or part of any stock option granted. All appreciation rights will terminate
upon termination or exercise of the related option and will be exercisable
only during the time that the related option is exercisable. If a SAR is
exercised, the related stock option will be deemed to have been exercised.
The Company has a Directors' Stock Incentive Plan, which provides for an
annual award of options to purchase 3,000 shares of the Company's Class A
common stock to each non-employee director. The plan also provides for a
one-time award of options to purchase 10,000 shares of the Company's Class
A common stock to a new non-employee director upon his or her initial
election to the Board of Directors. The options have an exercise price
equal to the market price of the Class A common stock on the date of grant
and vest pro rata over a five-year period. Each option expires on the
earlier of (i) the date the non-employee director ceases to be a director
of the Company, if for any reason other than due to death, disability or
retirement, or (ii) three years from the date the non-employee director
ceases to be a director of the Company due to death, disability or
retirement. 350,000 shares of Class A common stock are reserved for
issuance under the Directors' Stock Incentive Plan. As of December 31,
2000, 109,026 options had been granted to directors at a weighted-average
exercise price of $25.20. None of the options granted to the directors have
been exercised. At December 31, 2000, approximately 241,000 shares were
available for future grants under the Directors' Stock Incentive Plan.
Beginning in 1999, stock options granted to non-employee directors were
granted under the Amended Plan. In 2000 and 1999, 54,543 and 24,000 options
were granted to directors at weighted-average exercise prices of $30.79 and
$62.59, respectively. These amounts are included in the previous stock
options outstanding table. None of these options have been exercised.
Certain officers and key employees of the Company have been awarded
deferred shares of the Company's Class A common stock ("Company Career
Equity Shares"). The Company Career Equity Shares are issued upon the
individual's retirement from the Company. During 2000, 1,066 of these
shares were issued and 5,057 shares were canceled. At December 31, 2000
and 1999, 3,609 and 7,600 shares of the Company Career Equity Shares were
outstanding, respectively.
30
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
In connection with the payment of the $675 million dividend on February 18,
2000, the Company adjusted the terms of its outstanding employee stock
option plans such that the exercise price per share of each option was
reduced, and the number of options held by each employee was increased,
such that the aggregate intrinsic value of each employee's option holdings
was the same before and after the effect of the payment of the dividend on
the Company's stock price. Because the adjustment to the option terms was
done in accordance with Emerging Issues Task Force Consensus No. 90-9,
CHANGES TO FIXED EMPLOYEE STOCK OPTION PLANS AS A RESULT OF EQUITY
RESTRUCTURING, no compensation expense was recorded by the Company. The
weighted-average exercise prices included in the schedules above, for stock
options granted prior to the payment of the dividend have not been adjusted
for the effects of the dividend.
The Company sponsors an Employee Stock Purchase Plan (the "ESPP"). The ESPP
allows eligible employees to purchase Class A common stock at a discount
from the market price of such stock. From January 1997 through June 2000,
participating employees could purchase the stock on a monthly basis at 85%
of the market price at the beginning or the end of each monthly offering
period, whichever was lower. Participating employees were limited to an
aggregate maximum purchase price of either 1% or 2% of the employee's
annual compensation, subject to certain limitations. The ESPP was amended
July 1, 2000 to allow participating employees to purchase stock on a
semiannual basis at 85% of the lower of the market price of the stock at
the beginning or the end of a six month period. In addition, the amended
ESPP allows participating employees to purchase stock up to an aggregate
maximum purchase price of 10% of the employee's annual compensation,
subject to certain limitations. 2,000,000 shares of Class A common stock
have been reserved for issuance under the ESPP. Approximately 57,000,
59,000 and 54,000 shares were issued under the ESPP during 2000, 1999 and
1998, respectively, and approximately 1,800,000 shares remain available for
future purchases at December 31, 2000.
For other stock-based awards, a committee established by the Board of
Directors determines the eligible persons to whom awards will be made, the
times at which the awards will be made, the number of shares to be awarded,
the price, if any, to be paid by the recipient and all other terms and
conditions of the award.
As required by Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, pro forma information regarding
net income and earnings per share has been determined as if the Company had
accounted for its employee stock options and stock-based awards under the
fair value method set forth in Statement No. 123. The fair value for the
stock options granted by the Company to officers and key employees of the
Company after January 1, 1995 was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 5.65% to 6.51% for 2000, 4.65% to
6.22% for 1999 and 5.45% to 5.67% for 1998; a dividend yield of 0%; a
volatility factor of the expected market price of the Company's Class A
common stock of 0.40 for 2000, 0.39 for 1999 and 0.32 for 1998; and a
weighted-average expected life of the options granted of 4.5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable and requires the input of highly
subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes
in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
31
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
For purposes of the pro forma disclosures, the estimated fair value of the
options and stock-based awards is amortized to expense over the vesting
period. The Company's pro forma information unadjusted for discontinued
operations is as follows (in thousands, except per share amounts):
[Enlarge/Download Table]
Year Ended December 31,
-----------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
Net earnings:
As reported $ 144,052 $ 331,907 $ 231,941
=============== ============== ===============
Pro forma $ 134,066 $ 326,788 $ 228,672
=============== ============== ===============
Earnings per common share, as reported:
Basic $ 1.11 $ 2.56 $ 1.78
=============== ============== ===============
Diluted $ 1.11 $ 2.54 $ 1.78
=============== ============== ===============
Earnings per common share, pro forma:
Basic $ 1.04 $ 2.52 $ 1.76
=============== ============== ===============
Diluted $ 1.03 $ 2.50 $ 1.75
=============== ============== ===============
14. EARNINGS PER SHARE
Basic earnings per share excludes any dilutive effect of options, warrants
and other stock-based awards. The number of shares used in the diluted
earnings per share calculations includes the dilutive effect of stock
options, and restricted and career equity shares.
The following table reconciles weighted average shares used in computing
basic and diluted earnings per common share (in thousands):
[Enlarge/Download Table]
Year Ended December 31,
------------------------------------------------
2000 1999 1998
-------------- -------------- -------------
Denominator:
Denominator for basic earnings per common share -
weighted-average shares 129,198 129,574 129,943
Dilutive effect of stock awards and options 643 1,081 578
-------------- -------------- -------------
Denominator for diluted earnings per common share -
adjusted weighted-average shares 129,841 130,655 130,521
============== ============== =============
For additional information regarding stock awards and options, see Note 13.
Options to purchase approximately 8,280,000; 3,130,000 and 2,470,000
weighted-average shares of common stock were outstanding during 2000, 1999
and 1998, respectively, but were excluded from the computation of diluted
earnings per share because the effect would be antidilutive.
32
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
15. SEGMENT REPORTING
Prior to the divestiture of its outsourcing business (Note 2), the Company
had four reportable segments: Travel Marketing and Distribution,
Travelocity.com, GetThere, and Outsourcing and Software Solutions.
Subsequent to the divestiture, the Company has redefined its Outsourcing
and Software Solutions segment as the Airlines and Emerging Businesses
segment. The segment information presented below is based on the new
segment definition for all periods presented.
The Travel Marketing and Distribution segment distributes travel services
to travel agencies ("subscribers"). Through the Company's global
distribution system, subscribers can access information about and book
reservations with airlines and other providers of travel and travel-related
products and services. The Travelocity.com segment distributes travel
services to individual consumers. Through the Travelocity.com Web site,
individual consumers can compare prices, make travel reservations and
obtain destination information online. GetThere distributes travel services
on-line directly to businesses. GetThere operates one of the world's
largest Internet marketplaces focused on business-to-business travel
services and powers online travel sites for leading airlines. The Airline
Solutions and Emerging Businesses segment primarily provides software
development and consulting solutions and other products and services to
airlines and other travel providers.
The Company's reportable segments are strategic business units that offer
different products and services and are managed separately because each
business requires different market strategies. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies. The company accounts for intersegment transactions as
if the transactions were to third parties, that is, at estimated current
market prices. Intersegment transactions are recorded as expense offsets
and are not included in segment revenues.
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 primarily on usage. Depreciation
expense on the corporate headquarters buildings and related facilities
costs are allocated to the segments through a facility fee based on
headcount. The related assets are not allocated to the segments. Other
assets not allocated to the segments include cash, marketable securities
and deferred tax assets. Benefits expense, including pension expense,
postretirement benefits, medical insurance and workers' compensation, are
allocated to the segments based on headcount. Unallocated corporate
expenses include depreciation expense and other costs associated with the
corporate headquarters buildings, net of facility fees allocated to the
reportable segments and affiliated companies, expenses related to the
Spin-off and certain other corporate charges maintained at the corporate
level.
The segment information is presented on a basis that excludes certain
special items that are summarized below, except where noted. This
presentation is consistent with the manner in which the Company's
management assesses the operating performance of its business segments.
33
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
Year Ended December 31,
-----------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Revenues from external customers:
Travel marketing and distribution $ 1,585,762 $ 1,420,693 $ 1,302,344
Travelocity.com 144,261 40,305 13,564
GetThere 11,991 2,165 ---
Airline solutions and emerging businesses 177,871 217,767 236,083
--------------- --------------- ---------------
Total external revenues $ 1,919,885 $ 1,680,930 $ 1,551,991
=============== =============== ===============
Intersegment revenues:
Travel marketing and distribution $ 16,249 $ (23,882) $ (8,524)
Travelocity.com 48,409 23,882 8,524
GetThere --- --- ---
Airline solutions and emerging businesses 3,046 --- ---
--------------- --------------- ---------------
Total intersegment revenues $ 67,704 $ --- $ ---
=============== =============== ===============
Equity in net income of equity method investees:
Travel marketing and distribution $ 20,849 $ 18,037 $ 8,887
=============== =============== ===============
Total consolidated revenues:
Travel marketing and distribution $ 1,622,860 $ 1,414,848 $ 1,302,707
Travelocity.com 192,670 64,187 22,088
GetThere 11,991 2,165 ---
Airline solutions and emerging businesses 180,917 217,767 236,083
Elimination of intersegment revenues (67,704) --- ---
--------------- --------------- ---------------
Total consolidated revenues $ 1,940,734 $ 1,698,967 $ 1,560,878
=============== =============== ===============
Segment operating income (loss) from continuing
operations, excluding special items:
Travel marketing and distribution $ 408,406 $ 367,957 $ 306,088
Travelocity.com (43,502) (22,578) (22,729)
GetThere (36,705) (21,565) ---
Airline solutions and emerging businesses (18,088) (12,068) 9,966
Net corporate allocations (1,894) (4,042) 2,880
--------------- --------------- ---------------
Total segment operating income (loss) from
continuing operations excluding special items: $ 308,217 $ 307,704 $ 296,205
=============== =============== ===============
34
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
A summary of the special items and reconciliation to consolidated operating
income from continuing operations is set forth below (in thousands):
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----
Travel Marketing and Distribution:
Goodwill and other intangibles amortization $ 4,207 $ --- $ ---
Stock compensation 527 --- ---
Severance expense 4,055 603 ---
---------------- --------------- ---------------
Total Travel Marketing and Distribution 8,789 603 ---
---------------- --------------- ---------------
Travelocity.com:
Goodwill and other intangibles amortization 67,996 --- ---
Stock compensation 2,556 --- ---
---------------- --------------- ---------------
Total Travelocity.com 70,552 --- ---
---------------- --------------- ---------------
GetThere:
Goodwill and other intangibles amortization 37,216 --- ---
Stock compensation 1,665 --- ---
Integration expenses 549 --- ---
---------------- --------------- ---------------
Total GetThere 39,430 --- ---
---------------- --------------- ---------------
Airline Solutions and Emerging Businesses:
Severance expenses 3,153 1,682 ---
---------------- --------------- ---------------
Total Airline Solutions and Emerging Businesses 3,153 1,682 ---
---------------- --------------- ---------------
Corporate:
Expenses related to spin off from AMR 12,548 --- ---
Severance expenses 963 --- ---
---------------- --------------- ---------------
Total Corporate 13,511 --- ---
---------------- --------------- ---------------
Total special items $ 135,435 $ 2,285 $ ---
================ =============== ===============
Operating income (loss) from continuing operations
including special items:
Travel Marketing and Distribution $ 399,617 $ 367,354 $ 306,088
Travelocity.com (114,054) (22,578) (22,729)
GetThere (76,135) (21,565) ---
Airline Solutions and Emerging Businesses (21,241) (13,750) 9,966
Unallocated corporate expenses (15,405) (4,042) 2,880
---------------- --------------- ---------------
Total consolidated operating income from continuing
operations $ 172,782 $ 305,419 $ 296,205
================ =============== ===============
35
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
Depreciation and amortization included in income from continuing
operations:
Travel marketing and distribution $ 110,699 $123,268 $124,475
Travelocity.com 82,348 2,833 2,412
GetThere 38,758 5,018 5,810
Airline solutions and emerging businesses 22,826 20,544 6,382
Unallocated depreciation and amortization 17,296 23,553 20,255
--------------- --------------- ---------------
Total consolidated depreciation and amortization
included in income from continuing operations $ 271,927 $175,216 $159,334
=============== =============== ===============
Amortization of goodwill and intangible assets included in
income from continuing operations, including special items:
Travel marketing and distribution $ 4,207 $ --- $ ---
Travelocity.com 67,996 --- ---
GetThere 37,216 --- ---
---------------- --------------- ---------------
Total amortization of goodwill and intangible
assets included in income from continuing operations $ 109,419 $ --- $ ---
================ =============== ===============
Segment assets as presented below have not been revised for the effects of
the sale of the Outsourcing Business (Note 2). Assets sold to EDS
totaling approximately $519 million at December 31, 2000 are included in
the table below. Service contract equipment sold to EDS totaling
approximately $220 million, net of accumulated depreciation, is included
in the December 31, 2000 assets of the Travel Marketing and Distribution
segment. Segment assets totaling approximately $300 million relating to the
Outsourcing Business are included in the assets of the Airline Solutions
and Emerging Businesses segment at December 31, 2000.
[Enlarge/Download Table]
December 31,
-------------------------------------------------
Segment assets: 2000 1999 1998
--------------------------------------------------
Travel marketing and distribution $ 459,483 $ 546,971 $ 598,972
Travelocity.com 370,205 9,606 10,970
GetThere 684,810 2,400 6,927
Airline solutions and emerging businesses 543,907 434,273 501,882
Unallocated cash and investments 145,036 611,126 537,710
Unallocated corporate headquarters and other 446,913 346,835 270,356
---------------- --------------- ---------------
Total consolidated assets $2,650,354 $1,951,211 $1,926,817
================ =============== ===============
Capital expenditures, as presented in the table below, have not been
revised for the effects of the sale of the Outsourcing Business.
[Enlarge/Download Table]
Year Ending December 31,
--------------------------------------------------
2000 1999 1998
--------------------------------------------------
Capital expenditures for segment assets:
Travel marketing and distribution $ 78,567 $ 67,466 $ 96,908
Travelocity.com 11,755 522 2,346
GetThere 1,341 491 85
Airline solutions and emerging businesses 81,876 62,057 186,475
Unallocated capital expenditures 16,587 37,427 34,217
---------------- --------------- ---------------
Total capital expenditures $190,126 $ 167,963 $ 320,031
================ =============== ===============
36
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The Company's revenues from continuing operations and long-lived assets,
including goodwill and intangible assets, by geographic region are
summarized below (in thousands). Revenues from continuing operations are
attributed to countries based on the location of the customer.
[Enlarge/Download Table]
Year Ended December 31,
------------------------------------------------------
2000 1999 1998
----------------- ---------------- -----------------
Revenues from continuing operations:
United States $ 1,436,731 $1,147,597 $1,053,134
Foreign 504,003 551,370 507,744
----------------- ---------------- -----------------
Total $ 1,940,734 $1,698,967 $1,560,878
================= ================ =================
Long-lived assets as presented below have not been revised for the effects
of the divestiture of the outsourcing business. Long-lived assets sold to
EDS totaling approximately $488 million at December 31, 2000 are included
in the table below. These assets are primarily located in the United
States.
[Download Table]
Year Ended December 31,
------------------------------------------------------
2000 1999 1998
----------------- ---------------- -----------------
United States $ 1,681,641 $ 754,201 $ 758,224
Singapore 145,606 145,586 143,496
Other foreign 130,139 75,000 80,693
----------------- ---------------- -----------------
Total $ 1,957,386 $ 974,787 $ 982,413
================= ================ =================
37
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information
for the years ended December 31, 2000 and 1999 (in thousands except per
share data):
[Enlarge/Download Table]
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- -------------- ------------- --------------
2000
Revenues $ 479,142 $ 501,377 $ 495,596 $ 464,619
Operating income (loss) 76,271 74,864 60,781 (39,134)
Income (loss) from continuing operations 49,358 47,532 39,987 (40,772)
Income from discontinued operations, net 16,258 15,876 4,428 11,385
Net earnings (loss) 65,616 63,408 44,415 (29,387)
Earnings per common share - basic:
Income (loss) from continuing operations $ .38 $ .37 $ .31 $ (.32)
Income from discontinued operations, net $ .13 $ .12 $ .03 $ .09
Net earnings (loss) $ .51 $ .49 $ .34 $ (.23)
Earnings (loss) per common share - diluted:
Income (loss) from continuing operations $ .38 $ .37 $ .31 $ (.32)
Income from discontinued operations, net $ .10 $ .09 $ .03 $ .09
Net earnings (loss) $ .48 $ .46 $ .34 $ (.23)
1999
Revenues $ 439,052 $ 446,267 $ 435,110 $ 378,538
Operating income 91,502 96,447 78,669 38,801
Income from continuing operations 80,030 63,746 52,575 94,132
Income (loss)from discontinued operations, net 12,699 (307) 25,912 3,120
Net earnings 92,729 63,439 78,487 97,252
Earnings per common share - basic:
Income from continuing operations $ .61 $ .49 $ .41 $ .73
Income from discontinued operations, net $ .10 $ .00 $ .20 $ .02
Net earnings $ .71 $ .49 $ .61 $ .75
Earnings per common share - diluted:
Income from continuing operations $ .61 $ .48 $ .40 $ .73
Income from discontinued operations, net $ .10 $ .00 $ .15 $ .02
Net earnings $ .71 $ .48 $ .55 $ .75
38
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The travel industry is seasonal in nature. Bookings, and thus booking fees
charged for the use of the SABRE system, decrease significantly each year
in the fourth quarter, primarily in December.
The Company recorded expenses associated with the separation of the Company
from AMR of approximately $13 million in the first quarter of 2000.
The Company recorded amortization expense in continuing operations on
goodwill and intangible assets acquired as a result of the strategic
acquisitions consummated during 2000 of approximately $5 million, $21
million, $22 million and $64 million for the four quarters of 2000,
respectively (Note 5).
During the third quarter of 2000, the Company recorded approximately $8
million in severance expenses related to the reduction in its work force in
continuing operations.
The Company recognized a gain included in continuing operations of
approximately $35 million during the first quarter of 1999 and
approximately $103 million during the fourth quarter of 1999 related to the
liquidation of Equant depository certificates held by American for the
economic benefit of the Company (see Note 6).
During the third quarter of 1999, the Company recorded approximately $2
million in severance expenses related to the reduction in its work force in
continuing operations.
During the fourth quarter of 1999, the Company reversed a liability of
approximately $7 million related to a cost savings guarantee in the fifth
year of the Marketing Cooperation Agreement with American based on
projected cost savings.
39
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents historical financial data of the Company.
Effective on July 1, 2001 the Company completed the sale of its information
technology infrastructure Outsourcing Business ("Outsourcing Business") to
Electronic Data Systems ("EDS"). The results of operations of the Outsourcing
Business have been presented as a discontinued operation for the year ended
December 31, 2000, 1999, and 1998. See Note 2 of the Consolidated Financial
Statements. During 2000, the Company acquired Preview; Gradient Solutions
Limited ("Gradient"); GetThere and a 51% ownership interest in Dillon
Communication Systems GmbH ("Dillon"). Those acquisitions affect the
comparability of the data presented. See Management's Discussion and Analysis
of Financial Condition and Results of Operations and Note 5 to the Consolidated
Financial Statements for further information regarding these acquisitions and
their impact on the Company's financial condition and results of operations.
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
2000 1999 1998 1997 (6) 1996 (6)
--------------- ------------ ------------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA AND OTHER DATA WHERE INDICATED)
INCOME STATEMENT DATA (1)(2)(6):
Revenues $ 1,940.7 $ 1,699.0 $ 1,560.9 $ 1,788.4 $ 1,625.1
Operating expenses 1,767.9 1,393.5 1,264.7 1,475.8 1,295.2
------------- ------------ ------------- ------------ ------------
Operating income 172.8 305.5 296.2 312.6 329.9
Other income (expense), net (13.9) 155.4 21.1 11.0 (24.0)
Minority interests 30.7 --- --- --- ---
------------- ------------ ------------- ------------ ------------
Income from continuing operations
before income taxes 189.6 460.9 317.3 323.6 305.9
Income taxes 93.5 170.4 115.4 123.7 119.3
------------- ------------ ------------- ------------ ------------
Income from continuing operations 96.1 290.5 201.9 199.9 186.6
Income from discontinued operations,
net 48.0 41.4 30.0 --- ---
------------- ------------ ------------- ------------ ------------
Net earnings $ 144.1 $ 331.9 $ 231.9 $ 199.9 $ 186.6
Earnings per common share - basic:
Income from continuing operations(6) .74 2.24 1.55 --- ---
Income from discontinued operations(6) .37 .32 .23 --- ---
------------- ------------ ------------- ------------ ------------
Net income $ 1.11 $ 2.56 $ 1.78 $ 1.53 $ 1.43
============= ============ ============= ============ ============
Earnings per common share - diluted:
Income from continuing operations(6) .74 2.22 1.55 --- ---
Income from discontinued operations(6) .37 .32 .23 --- ---
------------- ------------ ------------- ------------ ------------
Net income $ 1.11 $ 2.54 $ 1.78 $ 1.53 $ 1.43
============= ============ ============= ============ ============
BALANCE SHEET DATA
(AT END OF PERIOD) (1) (2) (5)(6):
Current assets $ 693.0 $ 976.4 $ 944.4 $ 877.6 $ 694.5
Goodwill and intangible assets, net 891.5 --- --- --- ---
Total assets 2,650.4 1,951.2 1,926.8 1,504.0 1,287.1
Current liabilities 1,266.4 525.1 400.8 311.5 289.8
Long-term notes payable 149.0 --- 317.9 317.9 317.9
Minority interests 239.5 --- --- --- ---
Stockholders' equity 791.0 1,262.0 953.7 757.3 569.6
OTHER DATA (1) (2) (5):
Direct reservations booked using the
SABRE system (3) 394 370 358 360 349
Total reservations processed using
the SABRE system (4) 467 439 409 372 356
Cash flows from operating activities(6) $ 310.8 $ 495.4 $ 450.8 $ 372.8 $ 415.8
Capital expenditures(6) $ 190.1 $ 168.0 $ 320.0 $ 218.1 $ 184.3
40
(1) 2000 results of operations were impacted by the Company's merger and
acquisition activities and the related goodwill amortization expense
associated with those transactions. See Note 4 to the Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations for additional information regarding
mergers and acquisitions and the impact on the Company's financial
condition and results of operations.
(2) The Company has significant transactions with AMR and American. The terms
of many of the agreements with AMR and its affiliates were revised in
connection with AMR's divestiture of its entire ownership interest in the
Company in the first quarter of 2000. See Note 6 to the Consolidated
Financial Statements.
(3) CRS reservations for which the Company collects a booking fee.
(4) Includes direct reservations plus reservations processed by joint venture
partners using the SABRE system.
(5) Balance sheet and cash flow data have not been revised for the effects of
the Company's sale of its outsourcing business.
(6) Effective on July 1, 2001, the Company completed the sale of the Company's
Outsourcing Business, and also entered into agreements with Electronic Data
Systems Corporation ("EDS") for (i) EDS to manage the Company's IT systems
for 10-years (the "IT Outsourcing Agreement"), and (ii) the Company and EDS
to jointly market certain IT services and software solutions to the travel
and transportation industries (the "Marketing Agreements"). See Note 2 to
the Consolidated Financial Statements. The results of operations of the
Outsourcing Business have been reclassified and presented as income from
discontinued operations, net, for 2000, 1999 and 1998. Results of
operations for 1997 and 1996 have not been reclassified for discontinued
operations due to the changes in the Company's organizational structure
beginning in 1998 which limit the ability of the Company to accurately
reclassify the results of operations for these periods to present the
Outsourcing Business as a discontinued operation.
41
Dates Referenced Herein and Documents Incorporated by Reference
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