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

FORM 10-Q


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

For the Quarterly Period Ended September 30, 2002.

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

For the Transition Period From                              To                             

Commission file number 1-12175.

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

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

3150 Sabre Drive Southlake, Texas
(Address of principal executive offices)
 
76092
(Zip Code)

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

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

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

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

        Class A Common Stock, $.01 par value—142,677,179 as of November 7, 2002

INDEX
SABRE HOLDINGS CORPORATION

PART I: FINANCIAL INFORMATION   3

Item 1.
Financial Statements (Unaudited)
 
3
  Consolidated Balance Sheets—September 30, 2002 and December 31, 2001   3
  Consolidated Statements of Income—Three and nine months ended September 30, 2002 and 2001   4
  Condensed Consolidated Statement of Stockholders' Equity—Nine months ended September 30, 2002   5
  Consolidated Statements of Cash Flows—Nine months ended September 30, 2002 and 2001   6
  Notes to Consolidated Financial Statements   7

Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
29

Item 4.
Controls and Procedures
 
44

PART II:
OTHER INFORMATION
 
44

Item 1.
Legal Proceedings
 
44

Item 5.
Other Information
 
44

Item 6.
Exhibits and Reports on Form 8-K
 
46

SIGNATURE
 
47

Certifications
 
48

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

 
   September 30,
2002
   December 31,
2001
  
Assets              
Current assets              
  Cash   $ 31,786   $ 18,855  
  Marketable securities     824,997     648,032  
  Accounts receivable, net     347,451     327,816  
  Prepaid expenses and other current assets     98,815     51,565  
  Deferred income taxes     15,019     45,970  
   
 
 
    Total current assets     1,318,068     1,092,238  
Property and equipment              
  Buildings and leasehold improvements     157,549     254,487  
  Furniture, fixtures and equipment     42,492     49,845  
  Computer equipment     208,994     189,298  
   
 
 
      409,035     493,630  
  Less accumulated depreciation and amortization     (181,139 )   (205,181 )
   
 
 
    Total property and equipment     227,896     288,449  
Deferred income taxes     —     19,611  
Investments in joint ventures     183,681     169,949  
Goodwill and intangible assets, net     864,939     672,145  
Other assets, net     180,779     133,625  
   
 
 
    Total assets   $ 2,775,363   $ 2,376,017  
   
 
 
Liabilities and stockholders' equity              
Current liabilities              
  Accounts payable   $ 174,096   $ 158,839  
  Accrued compensation and related benefits     57,449     73,274  
  Accrued subscriber incentives     74,328     89,337  
  Deferred revenues     45,905     42,389  
  Other accrued liabilities     175,944     200,617  
   
 
 
    Total current liabilities     527,722     564,456  
Deferred income taxes     6,936     —  
Pensions and other postretirement benefits     82,598     88,756  
Notes payable     435,109     400,375  
Other liabilities     52,709     60,938  
Minority interests     10,904     219,716  
Commitments and contingencies              
Stockholders' equity              
  Preferred stock: $0.01 par value; 20,000 shares authorized; no shares
    issued		     —     —  
  Class A common stock, $0.01 par value; 250,000 shares authorized;
    144,907 and 133,911 shares issued at September 30, 2002 and
    December 31, 2001, respectively		     1,449     1,351  
  Additional paid-in capital     1,275,443     818,742  
  Retained earnings     441,259     227,986  
  Accumulated other comprehensive income     4,596     3,176  
  Less treasury stock at cost: 2,509 and 384 shares, respectively     (63,362 )   (9,479 )
   
 
 
    Total stockholders' equity     1,659,385     1,041,776  
   
 
 
    Total liabilities and stockholders' equity   $ 2,775,363   $ 2,376,017  
   
 
 

See Notes to Consolidated Financial Statements

3

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

 
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
  
 
   2002
   2001
   2002
   2001
  
Revenues   $ 510,645   $ 524,829   $ 1,582,741   $ 1,680,278  
Operating expenses                          
  Cost of revenues     290,305     321,641     864,037     1,014,923  
  Selling, general and administrative     119,650     130,308     366,822     372,881  
  Amortization of goodwill and intangible assets     13,216     70,775     40,110     207,060  
   
 
 
 
 
    Total operating expenses     423,171     522,724     1,270,969     1,594,864  
Operating income     87,474     2,105     311,772     85,414  
Other income (expense)                          
  Interest income     7,159     8,086     21,726     15,596  
  Interest expense     (5,633 )   (5,869 )   (16,897 )   (34,470 )
  Other, net     1,920     47,619     22,973     39,765  
   
 
 
 
 
    Total other income     3,446     49,836     27,802     20,891  
Minority interests     (349 )   5,038     (390 )   17,209  
   
 
 
 
 
Income from continuing operations before
    income taxes		     90,571     56,979     339,184     123,514  
Provision for income taxes     32,650     39,689     125,911     100,760  
   
 
 
 
 
Income from continuing operations     57,921     17,290     213,273     22,754  
Income from discontinued operations, net     —     —     —     36,305  
Gain on sale of discontinued operations, net     —     38,772     —     38,772  
   
 
 
 
 
Income before cumulative effect of change in
    accounting method		     57,921     56,062     213,273     97,831  
Cumulative effect of change in accounting
    method, net of minority interests and
    income taxes		     —     —     —     3,103  
   
 
 
 
 
Net earnings   $ 57,921   $ 56,062   $ 213,273   $ 100,934  
   
 
 
 
 
Earnings per common share—basic                          
  Income from continuing operations   $ .40   $ .13   $ 1.53   $ .17  
  Income from discontinued operations     —     .29     —     .57  
  Cumulative effect of change in accounting method     —     —     —     .02  
   
 
 
 
 
  Net earnings   $ .40   $ .42   $ 1.53   $ .76  
   
 
 
 
 
Earnings per common share—diluted                          
  Income from continuing operations   $ .40   $ .13   $ 1.50   $ .17  
  Income from discontinued operations     —     .29     —     .56  
  Cumulative effect of change in accounting method     —     —     —     .02  
   
 
 
 
 
  Net earnings   $ .40   $ .42   $ 1.50   $ .75  
   
 
 
 
 

See Notes to Consolidated Financial Statements

4

SABRE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited) (In thousands)

 
   Class A
Common
Stock
   Additional
Paid-in
Capital
   Retained
Earnings
   Accumulated Other
Comprehensive Income
   Treasury
Stock
   Total
  
Balance at December 31, 2001   $ 1,351   $ 818,742   $ 227,986   $ 3,176   $ (9,479 ) $ 1,041,776  
Issuance of 1,358 shares of Class A
    common stock pursuant to stock
    option, restricted stock incentive
    and stock purchase plans		     14     36,048     —     —     2,727     38,789  
Issuance of 9,430 shares of Class A
    common stock in an underwritten
    public offering		     94     399,884     —     —     —     399,978  
Purchase of treasury shares     —     —     —     —     (56,610 )   (56,610 )
Settlement of warrants issued in
    connection with business
    combinations		     —     (15,972 )   —     —     —     (15,972 )
Conversion of vested employee
    options pursuant to the acquisition
    of the Travelocity minority interest		     —     14,209     —     —     —     14,209  
Tax benefit from exercise of
    employee stock options		     —     9,686     —     —     —     9,686  
Stock based compensation for
    employees		     —     12,870     —     —     —     12,870  
Comprehensive income:                                      
  Net earnings     —     —     213,273     —     —     213,273  
  Unrealized gain on foreign
    currency forward contracts, net
    of deferred income taxes		     —     —     —     3,085     —     3,085  
  Unrealized loss on investments,
    net of deferred income taxes		     —     —     —     (1,793 )   —     (1,793 )
  Unrealized foreign currency
    translation gain		     —     —     —     128     —     128  
                                 
 
Total comprehensive income                                   214,693  
                                 
 
Other     (10 )   (24 )   —     —     —     (34 )
   
 
 
 
 
 
 
Balance at September 30, 2002   $ 1,449   $ 1,275,443   $ 441,259   $ 4,596   $ (63,362 ) $ 1,659,385  
   
 
 
 
 
 
 

See Notes to Consolidated Financial Statements.

5

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

 
   Nine Months Ended September 30,
  
 
   2002
   2001
  
Operating Activities              
Net earnings   $ 213,273   $ 100,934  
Adjustments to reconcile net earnings to cash provided by operating activities:              
  Depreciation and amortization     86,174     351,176  
  Stock compensation     27,079     5,844  
  Deferred income taxes     78,957     (86,329 )
  Tax benefit from exercise of stock options     9,686     17,472  
  Minority interests     390     (17,209 )
  Gain on sale of former headquarters building     (18,308 )   —  
  Gain on sale of discontinued operations, net     —     (38,772 )
  Gain on sale of Equant shares     —     (47,303 )
  Cumulative effect of change in accounting method, net     —     (3,103 )
  Other     (16,496 )   723  
  Changes in operating assets and liabilities:              
    Accounts receivable     (49,314 )   93,491  
    Prepaid expenses     (43,654 )   (9,537 )
    Other assets     (30,639 )   (35,861 )
    Accrued compensation and related benefits     (15,826 )   (14,167 )
    Accounts payable and other accrued liabilities     (13,446 )   238,622  
    Pensions and other postretirement benefits     (6,158 )   (20,373 )
    Other liabilities     (23,074 )   (17,715 )
   
 
 
  Cash provided by operating activities     198,644     517,893  
Investing Activities              
Additions to property and equipment     (43,119 )   (133,231 )
Business combinations, net of cash acquired     (483,426 )   (45,956 )
Proceeds from exercise of Travelocity.com stock options     33,658     —  
Proceeds from sale of former headquarters building     80,000     —  
Purchase of data center facility from lessor     (92,092 )   —  
Proceeds from sale of data center facility     68,464     —  
Proceeds from sale of minority interest in Sabre Pacific     23,466     —  
Proceeds from sale of discontinued operations     —     660,763  
Purchases of marketable securities     (3,279,509 )   (2,750,862 )
Sales of marketable securities     3,102,936     2,075,802  
Proceeds from sales of investments     4,444     83,907  
Other investing activities, net     17,398     (28,721 )
   
 
 
  Cash used for investing activities     (567,780 )   (138,298 )
Financing Activities              
Proceeds from issuance of common stock     438,767     93,904  
Proceeds from issuance of notes payable     —     397,391  
Purchases of treasury stock     (56,610 )   (6,410 )
Payment of notes payable     —     (859,000 )
Other financing activities, net     (90 )   —  
   
 
 
  Cash provided by (used for) financing activities     382,067     (374,115 )
Increase in cash     12,931     5,480  
Cash at beginning of period     18,855     7,778  
   
 
 
Cash at end of period   $ 31,786   $ 13,258  
   
 
 

See Notes to Consolidated Financial Statements

6

SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    General Information

2.    Summary of Significant Accounting Policies