**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, 2001.** |   |

 

**OR**

 

| **o**  |   | **Transition Report Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934** |
|--------|--------|-----------------------------------------------------------------------------------------------|
|   |   | **For  the Transition Period From**                                                           |   | to | . |   |

 

 

**Commission file number 1-12175.**

 

 

 

 
| **SABRE HOLDINGS CORPORATION**                          |
|---------------------------------------------------------|
| (Exact  name of registrant as specified in its charter) |

 

| **Delaware**                                                    |   | **75-2662240**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State  or other jurisdiction of incorporation or organization) |   | (I.R.S.  Employer Identification No.) |
|                                                            |   |                                  |
| **4255 Amon Carter Blvd. Fort Worth, Texas**                    |   | **76155**                             |
| (Address  of principal executive offices)                       |   | (Zip  Code)                           |

 

|                                                                                                                                                                                                                                                                                                                                                                                   |   |                |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|
| Registrant's telephone  number, including area code                                                                                                                                                                                                                                                                                                                                    |   | **(817)  963-6400** |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                |
| **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 –  133,481,876 as of  October 31, 2001                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                |

 

 

** **

**INDEX**

 

**SABRE HOLDINGS CORPORATION**

 

 

 
| PART  I:  | FINANCIAL  INFORMATION                                                                                      |
|-----------|-------------------------------------------------------------------------------------------------------------|
|      |                                                                                                        |
|      |                                                                                                        |
| Item  1.  | Financial  Statements (Unaudited)                                                                           |
|      |                                                                                                        |
|      | Consolidated  Balance Sheets – September 30, 2001 and December 31, 2000                                |
|      |                                                                                                        |
|      | Consolidated  Statements of Income – Three and nine months ended September 30, 2001 and  2000          |
|      |                                                                                                        |
|      | Condensed  Consolidated Statement of Stockholders’ Equity – Nine months ended September  30, 2001 |
|      |                                                                                                        |
|      | Consolidated Statements of  Cash Flows – Nine months ended September 30, 2001 and 2000                 |
|      |                                                                                                        |
|      | Notes to Consolidated Financial  Statements                                                                 |
|      |                                                                                                        |
| Item  2.  | Management's  Discussion and Analysis of Financial Condition and Results of Operations                      |
|      |                                                                                                        |
|      |                                                                                                        |
|      |                                                                                                        |
|      |                                                                                                        |
| PART II:  | OTHER  INFORMATION                                                                                          |
|      |                                                                                                        |
|      |                                                                                                        |
| Item 1.   | Legal  Proceedings                                                                                          |
|      |                                                                                                        |
| Item 6.   | Exhibits and Reports  on Form 8-K                                                                           |
|      |                                                                                                        |
|      |                                                                                                        |
| SIGNATURE |
|      |                                                                                                        |
|           |                                                                                                             |  |

 

 

 

**PART I.FINANCIAL INFORMATION**

**Item 1.  Financial Statements**
| **SABRE  HOLDINGS CORPORATION**                                                                                                                                        |   |               |      |              |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|-------------------|--------|
| **CONSOLIDATED  BALANCE SHEETS**                                                                                                                                       |   |               |      |              |   |
| (Unaudited)  (In thousands)                                                                                                                                            |   |               |      |              |   |
|                                                                                                                                                                   |   | **September  30,** |      | **December  31,** |   |
|                                                                                                                                                                   |   | **2001**           |      | **2000**          |   |
| **Assets**                                                                                                                                                             |   |               |      |              |   |
| **Current  assets**                                                                                                                                                    |   |               |      |              |   |
| Cash                                                                                                                                                                   |   | $                  | 13,258    |              | $      | 7,778 |   |
| Marketable  securities                                                                                                                                                 |   | 817,227            |      | 137,258           |   |
| Accounts  receivable, net                                                                                                                                              |   | 393,305            |      | 448,463           |   |
| Prepaid  expenses                                                                                                                                                      |   | 58,501             |      | 83,580            |   |
| Deferred  income taxes                                                                                                                                                 |   | 45,300             |      | 15,889            |   |
| Total  current assets                                                                                                                                                  |   | 1,327,591          |      | 692,968           |   |
|                                                                                                                                                                   |   |               |      |              |   |
| **Property  and equipment**                                                                                                                                            |   |               |      |              |   |
| Buildings  and leasehold improvements                                                                                                                                  |   | 266,131            |      | 340,473           |   |
| Furniture,  fixtures and equipment                                                                                                                                     |   | 48,886             |      | 49,627            |   |
| Service  contract equipment                                                                                                                                            |   | -                  |      | 517,886           |   |
| Computer  equipment                                                                                                                                                    |   | 166,608            |      | 527,085           |   |
|                                                                                                                                                                   |   | 481,625            |      | 1,435,071         |   |
| Less  accumulated depreciation and amortization                                                                                                                        |   | (195,989           | )         | (879,030          | )      |
| Total  property and equipment                                                                                                                                          |   | 285,636            |      | 556,041           |   |
|                                                                                                                                                                   |   |               |      |              |   |
| Deferred  income taxes                                                                                                                                                 |   | 7,655              |      | -                 |   |
| Investments  in joint ventures                                                                                                                                         |   | 158,728            |      | 159,317           |   |
| Goodwill  and intangible assets, net                                                                                                                                   |   | 730,282            |      | 891,497           |   |
| Other  assets, net                                                                                                                                                     |   | 163,262            |      | 350,531           |   |
| **Total  assets**                                                                                                                                                      |   | $                  | 2,673,154 |              | $      | 2,650,354 |   |
| **Liabilities  and stockholders’ equity**                                                                                                                         |   |               |      |              |   |
| **Current  liabilities**                                                                                                                                               |   |               |      |              |   |
| Accounts  payable                                                                                                                                                      |   | $                  | 178,048   |              | $      | 173,954 |   |
| Accrued  compensation and related benefits                                                                                                                             |   | 77,809             |      | 91,196            |   |
| Notes  payable                                                                                                                                                         |   | -                  |      | 710,000           |   |
| Taxes  payable                                                                                                                                                         |   | 182,663            |      | 15,664            |   |
| Other  accrued liabilities                                                                                                                                             |   | 358,977            |      | 275,574           |   |
| Total  current liabilities                                                                                                                                             |   | 797,497            |      | 1,266,388         |   |
|                                                                                                                                                                   |   |               |      |              |   |
| Deferred  income taxes                                                                                                                                                 |   | -                  |      | 47,703            |   |
| Pensions  and other postretirement benefits                                                                                                                            |   | 89,516             |      | 109,889           |   |
| Notes  payable                                                                                                                                                         |   | 410,976            |      | 149,000           |   |
| Other  liabilities                                                                                                                                                     |   | 61,841             |      | 46,877            |   |
| Minority  interests                                                                                                                                                    |   | 222,548            |      | 239,480           |   |
|                                                                                                                                                                   |   |               |      |              |   |
| 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; 134,006 and 131,632 shares issued at September 30,  2001 and December 31, 2000, respectively |   | 1,338              |      | 1,321             |   |
| Additional  paid-in capital                                                                                                                                            |   | 793,953            |      | 660,987           |   |
| Retained  earnings                                                                                                                                                     |   | 297,098            |      | 196,164           |   |
| Accumulated  other comprehensive income                                                                                                                                |   | 5,212              |      | 111               |   |
| Less  treasury stock at cost: 10 and 1,625 shares, respectively                                                                                                        |   | (6,825             | )         | (67,566           | )      |
| Total  stockholders’ equity                                                                                                                                       |   | 1,090,776          |      | 791,017           |   |
| **Total  liabilities and stockholders’ equity**                                                                                                                   |   | $                  | 2,673,154 |              | $      | 2,650,354 |   |

 

SeeNotes to Consolidated Financial Statements

 
| **SABRE  HOLDINGS CORPORATION**                                                                         |   |                                       |    |
|---------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|---------|
| **CONSOLIDATED STATEMENTS OF INCOME**                                                                   |   |                                       |    |
| (Unaudited) (In  thousands, except per share amounts)                                                   |   |                                       |    |
|                                                                                                    |   | **Three  Months Ended September 30,** |    | **Nine  Months Ended September 30,** |   |
|                                                                                                    |   | **2001**                                   |    | **2000** |   | **2001** |   | **2000** |   |
|                                                                                                    |   |                                       |    |   |   |   |   |   |   |
| **Revenues**                                                                                            |   | $                                          | 524,829 |   | $ | 495,596 |   | $ | 1,680,278 |   | $ | 1,476,115 |   |
|                                                                                                    |   |                                       |    |   |   |   |   |   |   |
| **Operating  expenses**                                                                                 |   |                                       |    |   |   |   |   |   |   |
| Cost  of revenues                                                                                       |   | 341,217                                    |    | 328,426 |   | 1,059,065 |   | 973,518 |   |
| Selling,  general and administrative                                                                    |   | 110,731                                    |    | 84,630 |   | 328,739 |   | 242,840 |   |
| Amortization  of goodwill and intangible assets                                                         |   | 70,775                                     |    | 21,759 |   | 207,060 |   | 47,841 |   |
| Total  operating expenses                                                                               |   | 522,723                                    |    | 434,815 |   | 1,594,864 |   | 1,264,199 |   |
|                                                                                                    |   |                                       |    |   |   |   |   |   |   |
| **Operating  income**                                                                                   |   | 2,106                                      |    | 60,781 |   | 85,414 |   | 211,916 |   |
|                                                                                                    |   |                                       |    |   |   |   |   |   |   |
| **Other  income (expense)**                                                                             |   |                                       |    |   |   |   |   |   |   |
| Interest  income                                                                                        |   | 8,086                                      |    | 3,376 |   | 15,596 |   | 12,200 |   |
| Interest  expense                                                                                       |   | (5,869                                     | )       | (7,276 | ) | (34,470 | ) | (15,813 | ) |
| Other,  net                                                                                             |   | 47,618                                     |    | 747 |   | 39,765 |   | 772 |   |
| Total  other income (expense)                                                                           |   | 49,835                                     |    | (3,153 | ) | 20,891 |   | (2,841 | ) |
|                                                                                                    |   |                                       |    |   |   |   |   |   |   |
| **Minority  interests**                                                                                 |   | 5,038                                      |    | 8,544 |   | 17,209 |   | 23,451 |   |
|                                                                                                    |   |                                       |    |   |   |   |   |   |   |
| **Income  from continuing operations before income taxes**                                              |   | 56,979                                     |    | 66,172 |   | 123,514 |   | 232,526 |   |
| Provision  for income taxes                                                                             |   | 39,689                                     |    | 26,185 |   | 100,760 |   | 95,649 |   |
| **Income  from continuing operations**                                                                  |   | 17,290                                     |    | 39,987 |   | 22,754 |   | 136,877 |   |
|                                                                                                    |   |                                       |    |   |   |   |   |   |   |
| **Income  from discontinued operations, net**                                                           |   | -                                          |    | 4,428 |   | 36,305 |   | 36,562 |   |
| **Gain  on sale of discontinued operations, net**                                                       |   | 38,772                                     |    | - |   | 38,772 |   | - |   |
| **Income  before cumulative effect of change in accounting method**                                     |   | 56,062                                     |    | 44,415 |   | 97,831 |   | 173,439 |   |
| **Cumulative  effect of change in accounting method, net of minority interests and  income taxes** |   | -                                          |    | - |   | 3,103 |   | - |   |
|                                                                                                    |   |                                       |    |   |   |   |   |   |   |
| **Net  earnings**                                                                                       |   | $                                          | 56,062  |   | $ | 44,415 |   | $ | 100,934 |   | $ | 173,439 |   |
|                                                                                                    |   |                                       |    |   |   |   |   |   |   |
| **Earnings  per common share – basic**                                                             |   |                                       |    |   |   |   |   |   |   |
| Income  from continuing  operations                                                                |   | $                                          | .13     |   | $ | .31 |   | $ | .17 |   | $ | 1.06 |   |
| Income  from discontinued operations                                                                    |   | .29                                        |    | .03 |   | .57 |   | .28 |   |
| Cumulative  effect of change in accounting  method                                                 |   | -                                          |    | - |   | .02 |   | - |   |
| Net  earnings                                                                                           |   | $                                          | .42     |   | $ | .34 |   | $ | .76 |   | $ | 1.34 |   |
|                                                                                                    |   |                                       |    |   |   |   |   |   |   |
| **Earnings  per common share – diluted**                                                           |   |                                       |    |   |   |   |   |   |   |
| Income  from continuing operations                                                                      |   | $                                          | .13     |   | $ | .31 |   | $ | .17 |   | $ | 1.06 |   |
| Income  from discontinued operations                                                                    |   | .29                                        |    | .03 |   | .56 |   | .22 |   |
| Cumulative  effect of change in accounting method                                                       |   | -                                          |    | - |   | .02 |   | - |   |
| Net  earnings                                                                                           |   | $                                          | .42     |   | $ | .34 |   | $ | .75 |   | $ | 1.28 |   |
|  

See Notes to  Consolidated Financial Statements.                                                |   |                                       |    |   |   |   |   |   |   |   |
|                                                                                                         |        |                                            |         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

|   |   |  
**SABRE  HOLDINGS CORPORATION**

 

 
**CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**

 

 
**NINE  MONTHS ENDED SEPTEMBER 30, 2001**

 

 
**(Unaudited)  (In thousands)**

 

 
 

 

**Class A Common Stock**

 

**Additional Paid-in Capital**

 

**Retained Earnings**

 

**Accumulated Other Comprehensive Income**

 

**Treasury Stock**

 

**Total**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2000

 

$

1,321

 

$

660,987

 

$

196,164

 

$

111

 

$

(67,566

)

$

791,017

 

Issuance of Class A common stock  pursuant to stock option, restricted stock incentive and stock purchase plans

 

17

 

26,736

 

-

 

-

 

67,151

 

93,904

 

Tax benefit from exercise of employee  stock options

 

-

 

17,472

 

-

 

-

 

-

 

17,472

 

Purchase of treasury stock

 

-

 

-

 

-

 

-

 

(6,410

)

(6,410

)

Reclassification of US Airways options

 

-

 

100,447

 

-

 

-

 

-

 

100,447

 

Change in fair value of contingent  warrants to be issued to customer

 

-

 

(13,669

)

-

 

-

 

-

 

(13,669

)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

-

 

-

 

100,934

 

-

 

-

 

100,934

 

Unrealized gain on foreign currency  forward contracts, net of deferred income taxes

 

-

 

-

 

-

 

2,021

 

-

 

2,021

 

Unrealized gain on investments, net of  deferred income taxes

 

-

 

-

 

-

 

3,048

 

-

 

3,048

 

Unrealized foreign currency translation  gain

 

-

 

-

 

-

 

32

 

-

 

32

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

106,035

 

Other

 

-

 

1,980

 

-

 

-

 

-

 

1,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2001

 

$

1,338

 

$

793,953

 

$

297,098

 

$

5,212

 

$

(6,825

)

$

1,090,776

 

 

See Notes toConsolidated Financial Statements.

 

**SABRE  HOLDINGS CORPORATION**

 

 

 

**CONSOLIDATED  STATEMENTS OF CASH FLOWS**

 

 

 

(Unaudited)  (In thousands)

 

 

 

 

 

**Nine  Months Ended September 30,**

 

 

 

**2001**

 

**2000**

 

**Operating  Activities**

 

 

 

 

 

Net  earnings

 

$

100,934

 

$

173,439

 

Adjustments  to reconcile net earnings to cash provided by operating activities

 

 

 

 

 

Depreciation  and amortization

 

351,176

 

214,629

 

Deferred  income taxes

 

(84,769

)

3,655

 

Tax  benefit from exercise of stock options

 

17,472

 

1,547

 

Minority  interests

 

(17,209

)

(23,451

)

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

 

9,916

 

8,683

 

Changes  in operating assets and liabilities

 

 

 

 

 

Accounts  receivable

 

93,491

 

(195,614

)

Prepaid  expenses

 

(9,537

)

(69,230

)

Other  assets

 

(49,401

)

(40,050

)

Accrued  compensation and related benefits

 

(14,167

)

2,754

 

Accounts  payable and other accrued liabilities

 

238,622

 

139,440

 

Receivable  from related parties

 

-

 

29,093

 

Pensions  and other postretirement benefits

 

(20,373

)

(14,805

)

Payment  to US Airways

 

-

 

(81,469

)

Other  liabilities

 

(4,175

)

(26,822

)

Cash  provided by operating activities

 

522,802

 

121,799

 

 

 

 

 

 

 

**Investing  Activities**

 

 

 

 

 

Additions  to property and equipment

 

(133,231

)

(144,193

)

Acquisitions,  net of cash acquired

 

(45,956

)

(33,003

)

Proceeds  from sale of discontinued operations

 

660,763

 

-

 

Proceeds  from sale of investments

 

47,303

 

-

 

Sale  of securities acquired upon exercise of warrants

 

36,604

 

-

 

Purchases  of marketable securities

 

(2,703,107

)

(9,432,247

)

Sales  of marketable securities

 

2,028,523

 

9,857,073

 

Other  investing activities, net

 

(34,106

)

(12,452

)

Cash  provided by (used for) investing activities

 

(143,207

)

235,178

 

 

 

 

 

 

 

**Financing  Activities**

 

 

 

 

 

Proceeds  from issuance of common stock pursuant to employee stock plans

 

93,904

 

6,133

 

Purchases  of treasury stock

 

(6,410

)

(34,472

)

Dividends  paid

 

-

 

(675,000

)

Payment  of notes payable

 

(859,000

)

349,000

 

Proceeds  from issuance of notes payable

 

397,391

 

-

 

Cash  used for financing activities

 

(374,115

)

(354,339

)

 

 

 

 

 

 

Increase  in cash

 

5,480

 

2,638

 

Cash  at beginning of the period

 

7,778

 

6,628

 

 

 

 

 

 

 

Cash  at end of the period

 

$

13,258

 

$

9,266

 

 

 

 

 

 

 

See Notes to Consolidated FinancialStatements.

 

**SABRE HOLDINGS CORPORATION**

**NOTES****TO CONSOLIDATEDFINANCIAL STATEMENTS**

(Unaudited)

 

**1.     GeneralInformation**

 

Sabre HoldingsCorporation is a holding company.  Itssole direct subsidiary is Sabre Inc., which is the successor to certainbusinesses that were previously operated as subsidiaries or divisions ofAmerican Airlines, Inc. (“American”) or AMR Corporation (“AMR”). AMR spun-offSabre on March 15, 2000 and no longer has any ownership interest in theCompany.  Unless otherwise indicated,references herein to the “Company” include Sabre Holdings Corporation and itsconsolidated subsidiaries.

 

The Company generatesmost of its revenue from continuing operations by providing travel marketingand distribution services to travel agencies and travel suppliers using theSabre® global distribution system, ("the Sabre system"), to consumersusing the Travelocity.com Web site and to businesses using GetThereproducts.  The Company also generatesrevenues from the development and marketing of airline software solutions, andfrom products and services offered by emerging businesses.

 

**2.   Summary of Significant Accounting Policies**

 

**Basis of Presentation****–**The accompanying unaudited consolidated financial statements have been preparedin accordance with accounting principles generally accepted in the UnitedStates for interim financial information and with the instructions to Form 10-Qand Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by accounting principles generally accepted in the United States forcomplete financial statements.  In theopinion of management, these financial statements contain all adjustments,consisting of normal recurring accruals, necessary to present fairly thefinancial position, results of operations and cash flows for the periodsindicated. The preparation of financial statements in accordance withaccounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes. Operating results for thethree and nine month periods ended September 30, 2001 are not necessarilyindicative of results that may be expected for any other interim period or forthe year ended December 31, 2001. The Company’s quarterly financial data shouldbe read in conjunction with the consolidated financial statements of theCompany for the year ended December 31, 2000 (including the notes thereto), setforth in Sabre Holdings Corporation’s Current Report on Form 8-K filed with theSecurities and Exchange Commission on July 16, 2001.

 

**Reclassifications**–  Certain reclassifications have been made tothe 2000 financial statements to conform to the 2001 presentation.

 

**RecentAccounting Pronouncements** – In June 2001, the Financial AccountingStandards Board ("FASB") issued Statements of Financial AccountingStandards No. 141, *Business Combinations*, and No. 142, *Goodwill andOther Intangible Assets*, (“FAS 142”) effective for fiscal yearsbeginning after December 15, 2001.  Underthe new rules, goodwill and intangible assets deemed to have indefinite liveswill no longer be amortized, but will be subject to annual impairment tests inaccordance with the Statements.  Otherintangible assets will continue to be amortized over their useful lives.

 

TheCompany will apply the new rules on accounting for goodwill and otherintangible assets beginning in the first quarter of 2002.  Application of the nonamortizationprovisions of FAS 142 is expected to increase net income by approximately $218million, or $1.60 per diluted share, in 2002, as a result of the cessation ofamortization of existing goodwill and certain intangibles.  Amortization of goodwill and otherintangible assets recorded in connection with business combinations totaledapproximately $71 million and $207 million during the three and nine monthperiods ended September 30, 2001, respectively, and approximately $22 millionand $48 million during the three and nine month periods ended September 30,2000, respectively.

 

Priorto the adoption of FAS 142, the Company's policy is to evaluate goodwill forimpairment on an undiscounted projected future cash flows basis.  The Company will perform the first of therequired impairment tests of goodwill and indefinite lived intangible assetspursuant to FAS 142 as of January 1, 2002. The Company has not yet determined what the effect of these tests willbe on the earnings and financial position of the Company  (see Note 4).

 

TheFASB has also recently issued FAS No. 144, *Accounting for the Impairment of Disposal ofLong-Lived Assets* ("FAS 144"), which will be adopted bythe Company January 1, 2002.  The FASB'snew rules on asset impairment supersede FAS No. 121, *Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of* ("FAS 121").

 

FAS144 retains the requirements of FAS 121 to (a) recognize an impairment lossonly if the carrying amount of a long-lived asset is not recoverable from itsundiscounted cash flows and (b) measure an impairment loss as the differencebetween the carrying amount and fair value of the asset, but removes goodwillfrom its scope.  This aspect of FAS 144will primarily effect the Company’s accounting for intangible assests subject toamortization, property and equipment, and certain other long-lived assets.

 

FAS144 significantly changes the criteria that would have to be met to classify anasset as held-for-sale.  Under theprovisions of FAS 144, assets to be disposed of will be stated at the lower oftheir fair values or carrying amounts and depreciation no longer recognized.

 

FAS144 also supersedes the provisions of Accounting Principles Board("APB") Opinion No. 30, *Reporting the Results**of Operations - Reporting the Effectsof Disposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions*("APB 30")with regard to reporting the effects of a disposal of a segment of a business,and requires expected future operating losses from discontinued operations tobe displayed in discontinued operations in the period(s) in which the lossesare incurred (rather than as of the measurement date as presentlyrequired).  In addition, moredispositions will qualify for discontinued operations treatment in the incomestatement.

 

TheCompany has not yet evaluated what the effect of adoption of FAS 144 will be onits financial conditions and results of operations.

 

**3.  DiscontinuedOperations**

 

OnJuly 2, 2001 the Company completed a transaction with Electronic Data SystemsCorporation ("EDS") which provided for (i) the sale of the Company’sinfrastructure outsourcing business and information technology  (“IT”) infrastructure assets and associatedreal estate to EDS (the "Asset Purchase Agreement"), (ii) a 10-yearcontract with EDS to manage the Company’s IT systems (the "IT OutsourcingAgreement"), and (iii) agreements between the Company and EDS to jointlymarket IT services and software solutions to the travel and transportationindustries (the "Marketing Agreements").

 

Thedisposition of the infrastructure outsourcing business represents the disposalof a business segment under APB 30.  Theaccompanying consolidated financial statements have been reclassified topresent the results of discontinued operations separately for all periods presented.  Summarized financial information for thediscontinued operations is as follows (in thousands):

 

 

 

**Three  months ended September 30,**

 

**Nine  months ended September 30,**

 

 

 

**2001**

 

**2000**

 

**2001**

 

**2000**

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

-

 

$

171,740

 

$

370,007

 

$

497,912

 

 

 

 

 

 

 

 

 

 

 

Income  before provision for income taxes

 

$

-

 

$

7,206

 

$

59,060

 

$

59,239

 

Provision for income taxes

 

-

 

2,778

 

22,755

 

22,677

 

Income from discontinued operations

 

$

-

 

$

4,428

 

$

36,305

 

$

36,562

 

 

Under the AssetPurchase Agreement, the Company sold its infrastructure outsourcing contracts,web hosting contracts and IT infrastructure assets to EDS for approximately$661 million in cash.  The Company usedthe entire $661 million of the cash proceeds from the sale plus $49 million ofadditional cash to completely pay off $710 million of borrowings. In addition,the Company may receive aggregate additional payments from EDS for these assetsranging from $6 million to $25 million on April 15, 2003 and 2004, depending onthe amount of revenues received by EDS under certain other airline outsourcingcontracts.  Such amounts will berecognized as a gain when and if earned. The Company recorded a gain of approximately $39 million, net of relatedincome taxes of approximately $25 million, resulting from the disposition ofthese assets during the three months ended September 30, 2001.

 

The assetstransferred included: outsourcing contracts with American, US Airways, GulfAir, and Dollar/Thrifty Rent-A-Car; data centers; and network, desktop and midrange computer systems.  Those assetswere used for the Company’s outsourcing business and for transaction processingin its travel marketing and distribution segment, including the operation ofthe Sabre system.  Approximately 4,000of the Company’s employees, located mostly in the United States, transitionedto employment with EDS upon the closing of the transaction.

 

The Companyretained its core travel marketing and distribution business, including theline of business related to contracts with travel suppliers and travel agencysubscribers for participation in the Sabre system; the Company's investment inthe Travelocity.comSM consumer on-line business, GetThereÔcorporate on-line booking business, and online travel sites for Web sitedevelopment and booking engine services. The Company plans to continue to focus its business on remaining theglobal leader in all channels of travel distribution.

 

The Company alsoretained contracts and assets that are related to airline solutions andemerging businesses, which includes providing internal reservation systems forairline customers; software applications development, maintenance andlicensing; the Company's intellectual property assets, including its softwareapplications portfolios; and the eMergoÔsuite of airline solutions offered by the Company as an online applicationservice provider.

 

Under the ITOutsourcing Agreement, EDS will provide, manage and operate the Company's ITinfrastructure, including data center management, applications hosting,selected applications development, data assurance, and network managementservices.  The term of the outsourcingagreement is 10 years.  Fees paid to EDSunder the Outsourcing Agreement will be primarily based on the usage ofservices.  The Outsourcing Agreement isexpected to generate future cost savings for the Company.
 
Under theMarketing Agreements, the Company and EDS will jointly market IT services andsoftware solutions to the travel and transportation industries.  As part of the marketing relationship, EDSwill contribute $20 million toward enhancing and promoting the Company'sportfolio of airline software solutions. Such amounts will be recognized as a reduction of the Company’s costs ofsuch enhancements and promotions.  EDSalso agreed to move its travel bookings to the Company's Sabre system and toimplement the Company's GetThere corporate booking platform in itsorganization.

 

**4.     SignificantEvents**

 

**Sabre Pacific**

 

In March 2001, theCompany purchased the Sabre Pacific travel distribution business forapproximately $46 million from TIAS, a travel distribution alliance among threeairlines in Australia and New Zealand. The acquisition has been accounted foras a purchase. Assets acquired and liabilities assumed have been recorded attheir fair values and the excess of cost over the estimated fair value of thenet tangible assets has been recorded as goodwill. The purchase will givetravel suppliers, travel agents and travelers in the South Pacific regiongreater access to the Company’s global resources and technology, potentiallyboosting the Company’s bookings share in that region.  The following table summarizes the allocation of the purchaseprice and amounts allocated to goodwill and intangible assets (in thousands):

 

Fair value of assets purchased 

 

$

9,738

 

Fair value of liabilities assumed

 

(7,944

)

Goodwill and intangible assets

 

44,394

 

 

 

 

 

Total purchase price

 

$

46,188

 

 

 

**Events of September 11, 2001**

 

On September 11, 2001, the United States was the target of terroristattacks of unprecedented scope involving the hijacking and destruction ofmultiple passenger aircraft operated by commercial air carriers. Air travel inthe United States was suspended for several days after the attacks.  As a consequence, the Company hasexperienced significant decreases in bookings volumes due to reduced travel inthe United States and, to a lesser degree, internationally. The Company’sresults of operations for the three months ended September 30, 2001 weresignificantly negatively affected by this reduction in travel.  Travel bookings decreased dramatically inthe days immediately following the attack but steadily increased from a 65%decline as compared to the same period a year ago, to a 35% decline by the endof September. 

 

Weexpect that the Company, the travel industry and the economy in general willcontinue to be adversely affected by the terrorist attacks on New York andWashington, and by any subsequent terrorist-related activity, particularly ifany such activity involves commercial air transportation.  It is not possible to predict either theseverity or duration of such decreases in the medium- or long-term.   A prolonged substantial decrease in travelbookings volumes could have an adverse impact on our financial performance,operations, liquidity, or capital resources and could impair the Company'sability to recover the carrying value of certain of its assets, includingcapitalized software, other intangible assets and goodwill  (see Note 2).

 

To assist its customersdealing with the severe financial impact of the attacks on September 11, theCompany implemented several initiatives to help the industry move forwardtoward eventual recovery. The Company provided credits to its airline customersfor booking fees related to reservations canceled by subscribers on the day ofdeparture for flights between September 11 and September 14 as a result of theFAA grounding U.S. flights.  The Companyalso has waived through the end of the year the premium charged to airlines’ forconnection to the highest connectivity level in the Sabre system.  For travel agents, measures included waivingthe shortfall levels through the end of the year, and creating Travel BulletinCentral, a travel advisory portal offering travelers the latest travel andsecurity information.  The Companyestimates that the costs for the three months ended September 30, 2001 forthese customer initiatives were approximately $2 million, and estimates fourthquarter 2001 expenses for these customer initiatives to be in the $8 million to$13 million range.

 

**US Airways options**

 

On December 31, 2000, theopportunity of US Airways to select an alternative vehicle in place ofreceiving approximately 3.4 million shares of the Company’s common stock uponexercise of a second tranche of options expired. As a result, beginning January1, 2001, those options held by US Airways began to be carried as an equityinstrument instead of a liability instrument. The fair market value of theoptions on January 1, 2001 of approximately $100 million was reclassified fromliabilities to Additional Paid-in Capital. The carrying value of the deferred asset associated with the options onJuly 2, 2001 of approximately $124 million has been included in the computationof the gain on the sale of discontinued operations (see Note 3).

 

**Sale of Equant Shares**

 

Prior to June 30, 2001,American held for the economic benefit of the Company 2.3 million depositorycertificates representing beneficial ownership of common stock of Equant N.V.(“Equant”), a telecommunications company affiliated with Societe Internationalede Telecommunications Aeronautiques (“SITA”). The depository certificates were issued by the SITA Foundation, whichholds the underlying Equant shares. On June 29, 2001, the SITA Foundationcompleted a transaction whereby all of the SITA Foundation’s Equant shares wereexchanged for shares of France Telecom. On July 3, 2001, the SITA Foundationsold in entirety the Company’s France Telecom shares.  The Company recorded a gain on the sale of approximately $47million which is included in other, net in the accompanying ConsolidatedStatements of Income for the three and nine months ended September 30, 2001.

 

**Issuance of Notes**

 

On August 7, 2001, Sabre Holdings Corporationissued $400 million in unsecured notes with a fixed interest rate of 7.35% dueAugust 1, 2011, ("Notes") in an underwritten public offering,receiving net cash proceeds of approximately $397 million.  The Company used $79 million of the proceedsto repay on August 8, 2001 the borrowings under the senior unsecured, revolvingcredit agreement entered into on February 4, 2000 by Sabre Inc., (the"Credit Facility").  Alongwith the repayment on July 20, 2001 of $70 million of borrowings under theCredit Facility using existing cash, the Company has repaid all outstandingborrowings under the Credit Facility. The remaining proceeds from the sale of the Notes were added to workingcapital.

 

**5.    Income Taxes**

 

Theprovision for income taxes relating to continuing operations differs fromamounts computed at the statutory federal income tax rate as follows (inthousands):

 

 

 

**Three  Months Ended**

 

**Three  Months Ended**

 

**Nine  Months Ended**

 

**Nine  Months Ended**

 

 

**September  30,**

 

**September 30,**

 

**September  30,**

 

**September  30,**

 

 

**2001**

 

**2000**

 

**2001**

 

**2000**

Income  tax provision at statutory federal income tax rate

 

$

19,943

 

$

23,160

 

$

43,230

 

$

81,384

State  income taxes, net of federal benefit

 

2,560

 

1,574

 

4,014

 

7,756

Nondeductible  goodwill amortization

 

21,457

 

3,818

 

59,350

 

10,669

Research  and experimentation credit

 

(1,000

) 

(2,400

)

(3,000

)

(2,400)

Other,  net

 

(3,271

)

33

 

(2,834

) 

(1,760)

Total  provision for income taxes

 

$

39,689

 

$

26,185

 

$

100,760

 

$

95,649

 

 

 

 

 

 

 

 

 

 

 

**6.    Derivatives**

 

The Company adopted Statement ofFinancial Accounting Standards No. 133, *Accounting for Derivative Instruments and HedgingActivities* (“FAS 133”) effective January 1, 2001.  FAS 133 requires the Company to recognizeall derivatives on the balance sheet at fair value.  Derivatives that are not hedges must be adjusted to fair valuethrough income. If the derivative is a hedge, depending on the nature of thehedge, changes in the fair value of derivatives will either be offset againstthe change in fair value of the hedged assets, liabilities, or firm commitmentsthrough earnings or recognized in other comprehensive income until the hedgeditem is recognized in earnings. The ineffective portion of the change in fairvalue of a derivative designated as a hedge will be immediately recognized inearnings.  For derivative instrumentsnot designated as hedging instruments, the gain or loss is recognized incurrent earnings during the period of change.

 

At January 1, 2001, theCompany was a party to certain derivative instruments, including foreigncurrency forwards related to anticipated foreign currency expenditures over thenext twelve months, an interest rate/foreign currency swap contract enteredinto in connection with Euro denominated debt related to the acquisition ofGradient Solutions Limited during 2000 and warrants received from HotelReservations Network (“HRN Warrants”) by Travelocity.com in connection with anaffiliation agreement entered into during 2000.

 

The Company hasdesignated its foreign currency forwards as a cash flow hedge.  As such, the effective portion of the gainor loss on the forwards is reported as a component of other comprehensiveincome and reclassified into earnings as a component of cost of revenues in thesame period or periods during which the hedged transaction affectsearnings.  Effectiveness is measured bycomparing the changes in the present value of the anticipated foreign currencydenominated expenses, measured using forward rates, arising from the hedgedforecasted expenses with the changes in the fair value of the forward contractusing forward exchange rates.  Any gainor loss on the forwards in excess of the cumulative change in the present valueof the anticipated foreign currency denominated expenses, if any, is recognizedin other income during the period of change. The cumulative effect of adoptionof FAS 133 related to these foreign currency forwards was insignificant.  Amounts reclassified from othercomprehensive income to earnings during the three and nine months endedSeptember 30, 2001 relating to the forwards were not significant.  There was no hedging ineffectivenessrecorded in earnings relating to the forwards during the nine months endedSeptember 30, 2001.

 

The Company alsorecognized a cumulative gain in earnings upon adoption of FAS 133 ofapproximately $3 million, net of minority interest of approximately $2 millionand deferred income taxes of approximately $2 million, relating to the HRNWarrants.  During March 2001, theCompany extended its affiliation agreement with HRN through July 31, 2005 andexpanded the scope of the HRN relationship. In connection with the expanded and extended agreement, the Companyreceived additional vested HRN Warrants with a fair value of approximately $30million on the date of receipt.  TheCompany will recognize this amount as revenue over the extended term of theagreement.  During the three and ninemonths ended September 30, 2001 the Company recognized revenue relating toamortization of the fair value of the HRN warrants received at contract originationand modification totaling approximately $2.2 million and $5.2 million,respectively, compared to $0.2 million and $0.6 million, respectively for thethree and nine months ended September 30, 2000.  The Company may also vest in additional warrants in the futurebased upon the achievement of certain performance metrics.  During the three and nine month periodsended September 30, 2001, the Company received additional HRN warrants, basedon certain performance metrics, with a fair value of approximately $0.7 millionand $2.5 million, respectively.  Suchamounts have been recognized as revenue in the periods the warrants wereearned.  The Company recorded a gain ofapproximately $0.1 million in other income during the three months endedSeptember 30, 2001 and recorded a loss of approximately $3.3 million in otherincome during the nine months ended September 30, 2001, relating to changes inthe fair value of the HRN Warrants, including a $0.4 million loss related toexercises of the warrants for HRN stock. The Company disposed of the HRN stock received upon exercise for cashproceeds totaling approximately $37 million. As of September 30, 2001 the Company holds approximately 50,967unexercised HRN warrants.

In connection with the issuance of the Notes (see Note4), the Company entered into two interest rate swaps.  Under the terms of the first swap, which has a notional amount of$100 million, the Company will receive semi-annual payments based on a fixedinterest rate of 7.35% and will make semi-annual payments on a LIBOR plus 140.5basis points.  Under the terms of thesecond swap, which has a notional amount of $200 million, the Company willreceive semi-annual payments based on a fixed interest rate of 7.35% and willmake semi-annual payments on a LIBOR plus 157.4 basis points.  The Company has designated the swaps as fairvalue hedges of $100 million and $200 million principal amount, respectively,of the notes.

Changes in the fair value of the swaps are expected toreflect changes in the fair value of the Notes due to changes in the swap rate,the designated benchmark interest rate. Because the critical terms of the Notes and the swaps match, the swapswill be considered a perfectly effective hedge against changes in the fairvalue of the Notes due to changes in the LIBOR rate.  Changes in the fair value of the swaps are recognized as acomponent of other income in each reporting period.  Additionally, the carrying value of the Notes is adjusted by alike amount, with the adjustment recognized as a component of otherincome.  During the three months endedSeptember 30, 2001, the Company recorded a hedging asset of approximately $14million, which is included in other assets, net in the accompanying balancesheet, and a corresponding increase in the carrying value of the Notes.

 

Theestimated fair values of the Company’s derivatives as of September 30, 2001 areprovided below (in thousands):

 

 

 

**Asset/(Liability)**

 

Foreign currency  forwards

 

$

935

 

HRN Warrants

 

714

 

Interest rate  swaps

 

13,538

 

 

 

$

15,187

 

 

Derivative assets and liabilities are classified ascurrent or long-term other assets and other liabilities, respectively, in theaccompanying balance sheet, depending on the date of settlement of thecontract.

 

**7.    Earnings Per Share**

 

The following tablereconciles weighted average shares used in computing basic and diluted earningsper common share (in thousands):

 

 

 

**Three Months Ended September 30,**

 

**Nine Months Ended September 30,**

 

 

 

**2001**

 

**2000**

 

**2001**

 

**2000**

 

Denominator:

 

 

 

 

 

 

 

 

 

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

 

133,110

 

128,889

 

132,092

 

129,191

 

Dilutive  effect of stock awards and options

 

1,966

 

169

 

2,519

 

398

 

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

 

135,076

 

129,058

 

134,611

 

129,589

 

 

      Income from discontinued operations, net, used in the diluted earningsper share calculations for the three and nine month periods ended September 30,2000, has been decreased by approximately $0.2 million and $7.4 million,respectively, to reflect the amortization expense that would have beenrecognized by the Company had options issued to US Airways qualified as equityinstruments for accounting purposes during these periods.

 

**8.    Segment Reporting**

 

The Company has fourreportable segments: Travel Marketing and Distribution, Travelocity.com,GetThere, and Airline Solutions and Emerging Businesses.  The Travel Marketing and Distributionsegment distributes travel services to travel agencies (“subscribers”).  Through the Company’s global distributionsystem, subscribers can access information about and book reservations withairlines and other providers of travel and travel-related products andservices. The Travelocity.com segment distributes travel services to individualconsumers. Through the Travelocity.com Web site, individual consumers cancompare prices, make travel reservations and obtain destination informationonline.  GetThere distributes travel serviceson-line directly to businesses.  GetThereoperates one of the world’s largest Internet marketplaces focused onbusiness-to-business travel services and powers online travel sites for leadingairlines.  The Airline Solutions andEmerging Businesses segment primarily provides software development andconsulting solutions and other products and services to airlines and othertravel providers.  The Company’sreportable segments are strategic business units that offer different productsand services and are managed separately because each business requiresdifferent market strategies.

 

The segment informationfor 2001 is presented on a basis that excludes certain special items that aresummarized below. The 2000 data has been reclassified to conform with thispresentation. This presentation is consistent with the manner in which theCompany’s management assesses the operating performance of its businesssegments.

 

Selected information for the Company’s fourreportable segments for the three and nine months ended September 30, 2001 and2000 follows (in thousands):

 

 

 

**Three  months ended September 30,**

 

**Nine  months ended September 30,**

 

 

 

**2001**

 

**2000**

 

**2001**

 

**2000**

 

Revenues  from external customers:

 

 

 

 

 

 

 

 

 

Travel  Marketing and Distribution

 

$

389,304

 

$

403,950

 

$

1,299,172

 

$

1,228,801

 

Travelocity.com

 

61,174

 

39,957

 

180,729

 

93,653

 

GetThere

 

11,312

 

1,274

 

33,150

 

3,572

 

Airline  Solutions and Emerging Businesses

 

57,244

 

44,508

 

150,710

 

134,760

 

Total

 

$

519,034

 

$

489,689

 

$

1,663,761

 

$

1,460,786

 

 

 

 

 

 

 

 

 

 

 

Intersegment  revenues:

 

 

 

 

 

 

 

 

 

Travel  Marketing and Distribution

 

$

6,751

 

$

4,549

 

$

19,550

 

$

11,318

 

Travelocity.com

 

17,286

 

13,404

 

52,926

 

33,529

 

GetThere

 

54

 

-

 

54

 

-

 

Airline  Solutions and Emerging Businesses

 

-

 

755

 

2,852

 

2,378

 

Total

 

$

24,091

 

$

18,708

 

$

75,382

 

$

47,225

 

 

 

 

 

 

 

 

 

 

 

Equity  in net income of equity method investees:

 

 

 

 

 

 

 

 

 

Travel  Marketing and Distribution

 

$

5,795

 

$

5,907

 

$

16,517

 

$

15,329

 

 

 

 

 

 

 

 

 

 

 

Total  consolidated revenues:

 

 

 

 

 

 

 

 

 

Travel  Marketing and Distribution

 

$

401,850

 

$

414,406

 

$

1,335,239

 

$

1,255,448

 

Travelocity.com

 

78,460

 

53,361

 

233,655

 

127,182

 

GetThere

 

11,366

 

1,274

 

33,204

 

3,572

 

Airline  Solutions and Emerging Businesses

 

57,244

 

45,263

 

153,562

 

137,138

 

Elimination  of intersegment revenues

 

(24,091

) 

(18,708

)

(75,382

)

(47,225

)

Total

 

$

524,829

 

$

495,596

 

$

1,680,278

 

$

1,476,115

 

 

 

 

 

 

 

 

 

 

 

Segment  operating income (loss)  Excluding special items:

 

 

 

 

 

 

 

 

 

Travel  Marketing and Distribution

 

$

89,073

 

$

102,572

 

$

356,480

 

$

352,882

 

Travelocity.com

 

3,658

 

(12,114

)

6,978

 

(37,649

)

GetThere

 

(10,847

)

(5,804

)

(42,472

)

(17,166

)

Airline  Solutions and Emerging Businesses

 

1,245

 

1,803

 

1,978

 

(15,611

)

Net  corporate allocations

 

(1,666

)

4,968

 

(15,596

)

374

 

Total

 

$

81,463

 

$

91,425

 

$

307,368

 

$

282,830

 

 

 

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

 

 

 

 

 

**Three  months ended  September 30,**

 

**Nine months ended Sepember 30,**

 

 

 

**2001**

 

**2000**

 

**2001**

 

**2000**

 

 

 

 

 

 

 

 

 

 

 

Travel  Marketing and Distribution:

 

 

 

 

 

 

 

 

 

Goodwill  and other intangibles  amortization

 

$

5,334

 

$

1,039

 

$

13,887

 

$

1,039

 

Stock  compensation

 

311

 

132

 

1,125

 

132

 

Severance  expenses

 

-

 

3,502

 

-

 

3,502

 

Total  Travel Marketing and Distribution

 

5,645

 

4,673

 

15,012

 

4,673

 

 

 

 

 

 

 

 

 

 

 

Travelocity.com:

 

 

 

 

 

 

 

 

 

Goodwill  and other intangibles  amortization

 

21,286

 

20,720

 

63,847

 

46,802

 

Merger  and  integration expenses

 

-

 

-

 

-

 

1,011

 

Stock  compensation

 

574

 

292

 

1,355

 

921

 

Severance  expenses

 

-

 

158

 

-

 

158

 

Total  Travelocity.com

 

21,860

 

21,170

 

65,202

 

48,892

 

 

 

 

 

 

 

 

 

 

 

GetThere:

 

 

 

 

 

 

 

 

 

Goodwill  and other intangibles  amortization

 

44,155

 

-

 

129,326

 

-

 

Stock  compensation

 

1,665

 

-

 

4,995

 

-

 

Severance  and integration expenses

 

-

 

-

 

1,386

 

-

 

 

 

 

 

 

 

 

 

 

 

Total  GetThere

 

45,820

 

-

 

135,707

 

-

 

 

 

 

 

 

 

 

 

 

 

Airline  Solutions and Emerging Businesses:

 

 

 

 

 

 

 

 

 

Expenses  related to write off of software which will not be utilized

 

5,975

 

-

 

5,975

 

-

 

Severance  expenses

 

-

 

2,082

 

-

 

2,082

 

Total  Airline Solutions and Emerging Business

 

5,975

 

2,082

 

5,975

 

2,082

 

 

 

 

 

 

 

 

 

 

 

Corporate:

 

 

 

 

 

 

 

 

 

Expenses  related to spin off from AMR

 

-

 

-

 

-

 

12,548

 

FAS  133 adjustment

 

58

 

-

 

58

 

-

 

Severance  expenses

 

-

 

2,719

 

-

 

2,719

 

Total  Corporate

 

58

 

2,719

 

58

 

15,267

 

Total  special items

 

$

79,358

 

$

30,644

 

$

221,954

 

$

70,914

 

 

 

 

 

 

 

 

 

 

 

Consolidated  operating income (loss):

 

 

 

 

 

 

 

 

 

Travel  Marketing and Distribution

 

$

83,428

 

$

97,899

 

$

341,468

 

$

348,209

 

Travelocity.com

 

(18,202

)

(33,284

)

(58,224

)

(86,541

)

GetThere

 

(56,667

)

(5,804

)

(178,179

)

(17,166

)

Airline  Solutions and Emerging Businesses

 

(4,730

)

(279

)

(3,997

)

(17,693

)

Corporate  allocations

 

(1,723

)

2,249

 

(15,654

)

(14,893

)

Total

 

$

2,106

 

$

60,781

 

$

85,414

 

$

211,916

 

 

**9.    SubsequentEvents**

 

In October 2001 theCompany informed employees of plans for a reduction in force by year-end toreduce costs as a result of the travel downturn after the September 11, 2001terrorist attacks.  The financialimpacts of the planned work force reductions have not yet been determined.

** **

** **

**Item 2.  Management'sDiscussion and Analysis of Financial Condition and Results of Operations**

**SABRE HOLDINGS CORPORATION**

**RESULTSOF OPERATIONS**

 

***Summary.*****  **The Companygenerates its revenue from continuing operations by providing travel marketingand distribution services to travel agencies, corporate travel departments andtravel suppliers using the Sabre system, to consumers using the Travelocity.comWeb sites and to businesses using GetThere products, from the development andmarketing of airline solutions and from products and services offered byemerging businesses.  During the ninemonths ended September 30, 2001, the Company generated approximately 78.2% ofits revenue from Travel Marketing and Distribution services, approximately10.8% from Travelocity.com, 2.0% from GetThere and 9.0% from Airline Solutionsand Emerging Businesses.  The Company’sconsolidated operating margins were 5.1% and 14.4% for the nine months endedSeptember 30, 2001 and 2000, respectively.

 

***EDS Transaction***.  On July 2, 2001, the Company completed atransaction with EDS which provided for (i) the sale of the Company’sinfrastructure outsourcing business and IT infrastructure assets and associatedreal estate to EDS, (ii) a 10-year contract with EDS to manage the Company’s ITsystems, and (iii) agreements between the Company and EDS to jointly market ITservices and software solutions to the travel and transportation industries. Asa result of the EDS transaction, the Company’s financial statements have beenreclassified to present the results of operations of the information technologyinfrastructure outsourcing business as discontinued operations for all periodspresented.  See Note 3 to theConsolidated Financial Statements for additional information regarding thistransaction.

 

***Events of September 11, 2001****. *On September11, 2001, the United States was the target of terrorist attacks ofunprecedented scope involving the hijacking and destruction of multiplepassenger aircraft operated by commercial air carriers. Air travel in theUnited States was suspended for several days after the attacks.  As a consequence, the Company hasexperienced significant decreases in bookings volumes due to reduced travel inthe United States and, to a lesser degree, internationally. The Company’sresults of operations for the three months ended September 30, 2001 weresignificantly negatively affected by this reduction in travel.  Travel bookings decreased dramatically inthe days immediately following the attack but steadily increased from a 65%decline as compared to the same period a year ago, to a 35% decline by the endof September. 

 

Weexpect that the Company, the travel industry and the economy in general willcontinue to be adversely affected by the terrorist attacks on New York andWashington, and by any subsequent terrorist-related activity, particularly ifany such activity involves commercial air transportation.  It is not possible to predict either theseverity or duration of such decreases in the medium- or long-term.   A prolonged substantial decrease in travelbookings volumes could have an adverse impact on our financial performance,operations, liquidity, or capital resources and could impair the Company'sability to recover the carrying value of certain of its assets, includingcapitalized software, other intangible assets and goodwill  (see Note 2).

 

To assist its customers dealing with the severefinancial impact of the attacks on September 11, the Company implementedseveral initiatives to help the industry move forward toward eventual recovery.The Company provided credits to its airline customers for booking fees relatedto reservations canceled by subscribers on the day of departure for flightsbetween September 11 and September 14 as a result of the FAA grounding U.S.flights.  The Company also has waivedthrough the end of the year the premium charged to airlines’ for connection tothe highest connectivity level in the Sabre system.  For travel agents, measures included waiving the shortfall levelsthrough the end of the year, and creating Travel Bulletin Central, a traveladvisory portal offering travelers the latest travel and security information.The Company estimates that the costs for the three months ended September 30, 2001for these customer initiatives were approximately $2 million, and estimatesfourth quarter 2001 expenses for these customer initiatives to be in the $8million to $13 million range.

 

**Three Months Ended September30, 2001 and 2000**

***Revenues.***  Total revenues for the three months endedSeptember 30, 2001 increased approximately $29 million, 5.9%, compared to thethree months ended September 30, 2000, from $496 million to $525 million.Travel marketing and distribution revenue decreased $15 million, 3.6%.  This decrease was primarily due to a $14million decrease in booking and other fees from associates while revenues fromother services fell $1 million. Decreases in bookings were the result of reduced air travel after theSeptember 11 terrorist attacks.  Travelocity.comincreased revenues approximately $21 million, 53.1%.  Transaction services revenues from associates increased $15million due to growth in booking volumes. In addition, advertising and otherrevenues grew by $6 million. GetThere revenues increased $10 million, primarilyas a result of the combination of GetThere with the Company’s existing BusinessTravel Solutions business in October 2000. Supplier revenue, which consists of services provided to air suppliers,such as United, for hosting their consumer Web sites, increased $5million.  GetThere also increasedcorporate and other revenue $5 million due to increases in trip fees andrevenues from partnerships with agencies such as American Express and otheron-line customers.  Airline Solutionsand Emerging Businesses increased revenues approximately $13 million, 28.6%,due to increases in product and service revenues.  Revenues in each of the Company's segments were adverselyaffected by the reduction in travel following the September 11 terroristattacks.

***Cost of Revenues*****.**  Cost of revenues for the three months endedSeptember 30, 2001 increased approximately $13 million, 3.9%, compared to thethree months ended September 30, 2000, from $328 million to $341 million.Travel marketing and distribution cost of revenues decreased $28 million,10.9%. This decrease was driven by lower depreciation, communications, dataprocessing, and development labor costs that were slightly offset by increasedsubscriber incentives and maintenance costs. Travelocity.com cost of revenues increased $6 million, 31.2%, primarilyas a result of higher salaries, benefits and employee related expenses, dataprocessing costs, and facilities charges partially offset by reduced contractservices expenses. GetThere cost of revenues increased $12 million. Thisincrease was primarily attributable to the combination of GetThere with theCompany's existing Business Travel Solutions business in October 2000 andhigher salaries, benefits and employee-related expenses, development labor, anddepreciation expenses. Airline solutions and emerging businesses cost ofrevenues increased $23 million, 48.5% primarily due to increases in costsrequired to support the increase in revenues for the same period, a write-offof software which will not be utilized and increases in other operatingexpenses.

***Selling, General and AdministrativeExpenses. ***Selling,general and administrative expenses for the three months ended September 30,2001 increased $26 million, 30.8%, compared to the three months ended September30, 2000, from $85 million to $111 million. The increase is primarily due to anincrease in advertising and promotion costs, bad debt reserves, and otherselling, general and administrative expenses to support the Company’s growth,as well as costs historically allocated to the information technologyoutsourcing business that are still being incurred as part of continuingoperations.

***Amortization of goodwill and intangibleassets. ***Amortizationof goodwill and intangible assets was $71 million for the three months endedSeptember 30, 2001 compared to $22 million for the three months ended September30, 2000.  Goodwill and intangibleassets of approximately $1 billion were recorded during 2000 in connection withthe merger of Travelocity.com and Preview Travel; the acquisitions of GetThere,Gradient Solutions Limited and a 51% interest in Dillon Communications Systemsand the acquisition of Sabre Pacific in March 2001.The acquired goodwill andintangible assets are being amortized over periods ranging from one to sevenyears.  See the discussion on RecentAccounting Pronouncements in Note 2 of the Consolidated Financial Statementsfor information about the effect on amortization of acquired goodwill andintangible assets from the pending January 1, 2002 adoption of Statement ofFinancial Accounting Standards No. 142, *Goodwill and Other Intangible Assets.*

***Operating Income.*** Operating income decreased $59 million,96.5%, from $61 million to $2 million. Operating margins decreased from 12.3% in 2000 to 0.4% in 2001 as the5.9% increase in revenues was more than offset by a 20.2% increase in operatingexpenses. Travel marketing and distribution operating income decreased $14million due to decreased revenues primarily related to the events of September11.  Travelocity.com operating lossdecreased $15 million primarily due to increased transaction service revenuesfrom associates and increases in advertising revenues, slightly offset byincreased operating expenses.  GetThereoperating loss increased $51 million primarily due to the combination of theCompany’s Business Travel Solutions business with GetThere in October 2000 andhigher goodwill amortization.  Airlinesolutions and emerging businesses operating loss increased $4 million dueto higher operating expenses and the write off of software which will not beutilized.

***Interest Income.***  Interest income increased $5 million due tohigher average balances maintained in the Company’s investment accountspartially offset by lower average interest rates.

***Interest Expense. ***Interest expense decreased $1 million dueto the pay off of the $859 million of debt primarily with the proceeds from thesale of assets to EDS, partially offset by interest on the Note during thethree months ended September 30, 2001.

***Other income, net****. *Other, net,in 2001 is primarily composed of a $47 million gain from the sale of the Equantshares and from exercises of warrants held by the Company to purchase shares ofHotel Reservation Network common stock, partially offset by write downs ofunderperforming investments.

***Minority interest***.  The minority interest includes minorityowners’ interests in the results of operations of consolidated subsidiaries ofthe Company, primarily Travelocity.com. The decrease in losses attributable to minority interest is dueprimarily to a decrease in the net loss of Travelocity.com.

***Income Taxes.***  The provision for income taxes was $40million and $26 million for the three months ended September 30, 2001 and 2000,respectively.  The increase in theprovision for income taxes reflects the impact of nondeductible goodwillamortization expense partially offset by the benefit of an estimated researchand experimentation credit.

***Discontinued Operations.***   Net earnings from discontinued operations forthe three months ended September 30, 2001 decreased approximately $4 millioncompared to the three months ended September 30, 2000 due to the sale of thebusiness to EDS, on July 2, 2001. Discontinued operations have been fully allocated with selling, generaland administrative expenses to be representative of the business as it operatedduring the relevant period.  Some of theselling, general and administrative expenses historically allocated to theinformation technology outsourcing business may still be incurred as part ofcontinuing operations in the future.

 

***Gain on Sale of Discontinued Operations,net.***  On July 2,2001 the Company completed the sale of the Company’s infrastructure outsourcingbusiness and IT infrastructure assets and associated real estate to EDS.  The Company recorded a gain of approximately$39 million, net of related income taxes, resulting from the dispositionof these assets during the three months ended September 30, 2001.  See Note 3 to the Consolidated FinancialStatements for additional information regarding this transaction.

 

**Nine Months Ended September 30, 2001 and 2000**

***Revenues.***  Total revenues for the nine months endedSeptember 30, 2001 increased approximately $204 million, 13.8%, compared to thenine months ended September 30, 2000, from $1,476 million to $1,680 million.Travel marketing and distribution revenue increased $72 million, 5.8%.  This increase was primarily due to a $56million increase from booking and other fees from associates while revenuesfrom other services grew $16 million. These increases were offset by the effectof the events of September 11 on the travel industry. Travelocity.com increasedrevenues approximately $87 million, 93.0%. Transaction service revenues from associates increased $50 million dueto growth in booking volumes, and advertising and other revenues grew by $37million. GetThere revenues increased $29 million, primarily as a result of thecombination of GetThere with the Company’s existing Business Travel Solutionsbusiness in October 2000.  Supplierrevenue, which consists of services provided to air suppliers, such as United,for hosting their consumer Web sites, increased $12 million.  GetThere also increased corporate and otherrevenue $17 million, due to increases in trip fees and revenues frompartnerships with agencies such as American Express and other on-linecustomers.  Airline Solutions andEmerging Businesses increased revenues approximately $16 million, 11.8%, due toincreases in reservations revenues and revenues from other products andservices. Revenues in each of the Company's segments were adversely affected bythe reduction in travel following the September 11 terrorist attacks.

***Cost of Revenues*.**  Cost of revenues for the nine months endedSeptember 30, 2001 increased approximately $86 million, 8.8%, compared to thenine months ended September 30, 2000, from $973 million to $1,059 million.  Travel marketing and distribution cost ofrevenues increased $15 million, 1.9%. This increase was driven by highersalaries and benefits, data processing, subscriber incentives, and maintenancefees that were partially offset by reduced depreciation expenses and decreasesin sales and use taxes and property taxes due to the sale of assets to EDS.  Travelocity.com cost of revenues increased$18 million, 34.3%, primarily as a result of higher salaries, benefits andemployee related expenses partially offset by reduced contract servicesexpenses. GetThere cost of revenues increased $40 million. This increase wasprimarily attributable to the combination of GetThere with the Company’sexisting Business Travel Solutions business in October 2000 as well as highersalaries, benefits and employee-related expenses, development labor anddepreciation expenses. Airline solutions and emerging businesses cost ofrevenues increased $13 million, 8.9% due primarily to increases in developmentlabor costs.

***Selling, General and AdministrativeExpenses. ***Selling,general and administrative expenses for the nine months ended September 30,2001 increased $86 million, 35.4%, compared to the nine months ended September30, 2000, from $243 million to $329 million. The increase is primarily due to increases in advertising and promotioncosts, development labor and data processing increases, and increases in baddebt reserves. The increase was also partially due to increases in otherselling and administrative expenses to support the Company’s growth as well ascosts historically allocated to the information technology outsourcing businessthat are still being incurred as part of continuing operations.

***Amortization of goodwill and intangibleassets. ***Amortizationof goodwill and intangible assets was $207 million for the nine months endedSeptember 30, 2001 compared to $48 million for the nine months ended September30, 2000.  Goodwill and intangibleassets of approximately $1 billion were recorded in connection with the mergerin 2000 of Travelocity.com and Preview Travel; the acquisitions in 2000 ofGetThere, Gradient Solutions Limited and a 51% interest in DillonCommunications Systems and the acquisition of Sabre Pacific in March 2001.Theacquired goodwill and intangible assets are being amortized over periodsranging from one to seven years.  Seethe discussion on Recent Accounting Pronouncements in Note 2 of theConsolidated Financial Statements for imformation about the effect onamortization of acquired goodwill and intangible assets from the pendingJanuary 1, 2002 adoption of Statement of Financial Accounting Standards No.142, *Goodwill and Other Intangible Assets*.

***Operating Income.*** Operating income decreased $127 million,59.9%, from $212 million to $85 million. Operating margins decreased from 14.4% in 2000 to 5.1% in 2001 as the13.8% increase in revenues was more than offset by a 26.2% increase inoperating expenses. Travel marketing and distribution operating incomedecreased $7 million due to decreased revenues primarily related to the eventsof September 11 and increased operating expenses.  Travelocity.com operating loss decreased $28 million due toincreased revenues from associates and increases in other revenues, slightlyoffset by increased operating expenses. GetThere operating loss increased $161million primarily due to combination of the Company’s Business Travel Solutionsbusiness with GetThere in October 2000 and higher goodwill amortization.Airline solutions and emerging businesses operating loss decreased $14 milliondue to increased revenues offset by higher operating expenses and the write-offof software which will not be utilized.

***Interest Income.***  Interest income increased $4 million due tohigher average balances maintained in the Company’s investment accountspartially offset by lower average interest rates.

***Interest Expense. ***Interest expense increased $18 milliondue to interest expense on the $859 million of debt incurred during 2000related to the payment of the $675 million cash dividend in February 2000 andthe acquisition of GetThere in October 2000.

***Other income (expense), net****. *Other, net,in 2001 is primarily composed of the gain on the sale of Equant shares andrealized losses on warrants to purchase shares of Hotel Reservation Networkcommon stock held by the Company, partially offset by write offs of otherunderperforming investments.

***Minority interest***.  The minority interest includes minorityowners’ interests in the results of operations of consolidated subsidiaries ofthe Company, primarily Travelocity.com. The decrease in losses attributable to minority interest is due primarilyto a decrease in the net loss of Travelocity.com.

***Income Taxes.***  The provision for income taxes was $101million and $96 million for the nine months ended September 30, 2001 and 2000,respectively.  The increase in theprovision for income taxes reflects the impact of nondeductible goodwillamortization expense partially offset by the benefit of an estimated researchand experimentation credit.

 

***Discontinued Operations.***   Net earnings from discontinued operationsfor the nine months ended September 30, 2001 decreased approximately $0.3 millioncompared to the nine months ended September 30, 2000, from $36.6 million to$36.3 million due primarily to increased revenues from applications developmentservices performed for American which were offset by the loss of earnings inthe third quarter of 2001 due to the sale of the business to EDS.  Discontinued operations have been fullyallocated with selling, general and administrative expenses to berepresentative of the business as it operated during the relevant period.  Some of the selling, general andadministrative expenses historically allocated to the information technologyoutsourcing business may still be incurred as part of continuing operations inthe future.

 

***Gain on Sale of Discontinued Operations,net.***  On July 2,2001 the Company completed the sale of the Company’s infrastructure outsourcingbusiness and IT infrastructure assets and associated real estate to EDS.  The Company recorded a gain of approximately$39 million, net of related income taxes, resulting from the dispositionof these assets during the three months ended September 30, 2001.  See Note 3 to the Consolidated FinancialStatements for additional information regarding this transaction.

 

***Cumulative Effect of Accounting Change.***  The Company adopted Statement of FinancialAccounting Standards No. 133, *Accounting for Derivative Instruments and HedgingActivities* (“FAS 133”) effective January 1, 2001. The Companyrecognized a cumulative gain in earnings for the nine months ended September30, 2001 upon adoption of FAS 133 of approximately $3 million, net of minorityinterest of approximately $2 million and deferred income taxes of approximately$2 million, relating to the HRN Warrants. (see Note 6 to the ConsolidatedFinancial Statements)

 

 

**SABRE HOLDINGS CORPORATION**

**LIQUIDITYAND CAPITAL RESOURCES**

 

AtSeptember 30, 2001, the Company had approximately $830 million in cash andshort-term investments and working capital of $530 million. At December 31,2000, the Company had $193 million in cash and marketable securities, including$47 million of long-term marketable securities, and a working capital deficitof $573 million. The Company invests cash in short-term marketable securities,consisting primarily of certificates of deposit, bankers’ acceptances,commercial paper, corporate notes and government notes.

 

Historically,the Company has funded its operations through cash generated fromoperations.  The Company has experiencedsignificant decreases in bookings volumes as a consequence of terroristactivity since September 11, 2001.  Weexpect that the Company, the travel industry and the economy in general willcontinue to be adversely affected by the terrorist attacks on New York andWashington, and by any subsequent terrorist-related activity.  It is not possible to predict either theseverity or duration of such decreases in the medium- or long-term. A prolongedsubstantial decrease in travel volumes would have an adverse impact on theCompany's liquidity.

The Company generated $523 million of cash fromoperating activities during the nine months ended September 30, 2001 comparedto $122 million of cash generated for the nine months ended September 30, 2000.The $401 million increase in cash provided by operating activities was due to a2001 decrease in accounts receivable in contrast to a 2000 increase, anincrease in accounts payable and other accrued liabilities, and increasedamortization charges partially offset by lower net income. The Companyanticipates that cash flows from operating activities will not be significantlyaffected as a result of the EDS transaction.

 

OnAugust 7, 2001, Sabre Holdings Corporation issued $400 million in unsecurednotes with a fixed interest rate of 7.35% due August 1, 2011,("Notes") in an underwritten public offering, receiving net cashproceeds of approximately $397 million. The Company used $79 million of the proceeds to retire the remainingborrowings under the Sabre Inc. Credit Facility on August 8, 2001.  The remaining proceeds from the sale of theNotes were added to working capital.

 

At June 30, 2001, there was $149 million outstandingunder the $300 million Credit Facility. On July 20, 2001, the Company used $70 million of available cash toreduce the balance under the Credit Facility to $79 million, and on August 8,2001, the Company used a portion of the proceeds of its $400 million publicoffering of senior, unsecured notes to pay off the remaining balance of theCredit Facility.

 

On July 2, 2001, the Company used theentire $661 million of the cash proceeds from the asset sale to EDS, plus $49million of additional cash, to pay off the $710 million outstanding balance ofthe bridge credit agreement entered into October 10, 2000 by Sabre Inc. (the"Bridge Credit Agreement"). See Footnote 3 of the Financial Statements for additional informationregarding the EDS transaction.

 

Sabre Inc. hasagreed to unconditionally guarantee certain debt obligations of Sabre HoldingsCorporation.

 

During the thirdquarter of 2001, the Company made an unsecured $30 million loan to acustomer in the travel industry.  Theloan is due March 21, 2002.

 

TheCompany has not paid any dividends on its Common Stock since a one-time cashdividend was paid in February 2000 in connection with the separation fromAMR.  In the future, the Company intendsto retain its earnings to finance future growthand, therefore, does notanticipate paying any cash dividends on its Common Stock.  Any determination as to the future paymentof dividends will depend upon the future results of operations, capitalrequirements and financial condition of the Company and its subsidiaries andsuch other factors as the Board of Directors of the Company may consider,including any contractual or statutory restrictions on the Company’s ability topay dividends.

 

In 1999, the Company entered into an agreement withAOL that provides, among other things, that the Travelocity**.**com Web site will be theexclusive reservations engine for AOL’s Internet properties.  Travelocity.com is obligated for payments ofup to $200 million and AOL and Travelocity.com will share advertising revenuesand commissions over the five-year term of the agreement.  Under certain circumstances, Travelocity.commay elect to alter the terms of this agreement such that guaranteed payments toAOL would no longer be required.  In connectionwith this agreement, Travelocity.com paid $40 million upon closing of theagreement on March 7, 2000.  Paymentsmade to AOL for the nine months ended September 30, 2001 totaled approximately$40 million.

 

Capital investments for the nine months endedSeptember 30, 2001 and 2000 were $133 million and $144 million, respectively.The Company has estimated capital investments of approximately $150 to $175million for 2001 as compared to original estimated capital investments ofapproximately $225 to $275 million for the year.  This estimated reduction is due to anticipated decreases of ITasset acquisitions resulting from the Company’s IT infrastructure outsourcingservices contract with EDS.

 

During the third quarter, the Company repurchased273,000 of its own shares at an average price of $23.48 per share.  As of September 30, 2001, the Company hadauthorization to spend up to $59 million to repurchase its own shares.  The timing, volume and price of any futurerepurchases will be made at the discretion of management, and will depend oncorporate considerations and market conditions.  Cash flows from financing activities for 2001 include proceedsfrom issuance of common stock pursuant to employee stock plans and exercise ofstock  options.

 

On January 16, 2001, the Board of Directors authorizedthe purchase of up to $25 million of Travelocity.com Common Stock atmanagement’s discretion. During the first nine months of 2001, the Companypurchased 857,500 shares of Common Stock of Travelocity.com in the open marketat a cost of $18 million.  The purchaseswere made to offset the potentially dilutive effect on Sabre’s equity ownershippercentage of Travelocity.com from employee stock options granted byTravelocity.com.  As of September 30,2001 Sabre and its affiliates held a total of 2,033,970 shares of Common Stockand 33 million shares of Class A Common Stock in Travelocity.com.  Accordingly, the Company holds anapproximate 70% economic interest in the Travelocity.com business. The Companymay, from time to time, effect future purchases for the same reason.  These and any such future purchases do notreflect any change in Sabre’s publicly disclosed plans with respect toTravelocity.com.

 

The Company believes available balances of cash andshort-term investments, cash flows from operations and funds available underthe various credit facilities, and cash received from the EDS transaction,combined with issuance of the Notes discussed above, will be sufficient to meetthe Company’s cash requirements for the foreseeable future.

 

**Recent AccountingPronouncements** – In June 2001, the Financial AccountingStandards Board (“FASB”) issued Statements of Financial Accounting StandardsNo. 141, *BusinessCombinations*, and No. 142, *Goodwill and Other Intangible Assets*,  (“FAS 142”) effective for fiscal yearsbeginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to haveindefinite lives will no longer be amortized, but will be subject to annualimpairment tests in accordance with the Statements.  Other intangible assets will continue to be amortized over theiruseful lives.

 

TheCompany will apply the new rules on accounting for goodwill and otherintangible assets beginning in the first quarter of 2002.  Application of the nonamortizationprovisions of FAS 142 is expected to increase net income by approximately $218million, or $1.60 per diluted share, in 2002, as a result of the cessation ofamortization of existing goodwill and certain intangible assets.  Amortization of goodwill and otherintangible assets recorded in connection with business combinations totaledapproximately $71 million and $207 million during the three and nine monthperiods ended September 30, 2001, respectively and approximately $22 millionand $48 million during the three and nine month periods ended September 30,2000, respectively.

 

Priorto the adoption of FAS 142, the Company’s policy is to evaluate goodwillfor impairment on an undiscounted projected future cash flows basis. Thecompany will perform the first of the required impairment tests of goodwill andindefinite lived intangible assets as of January 1, 2002. The Company has notyet determined what the effect of these tests will be on the earnings andfinancial position of the Company.

 

TheFASB has also recently issued FAS No. 144, *Accounting for the Impairment of Disposal ofLong-Lived Assets* ("FAS 144"), which will be adopted bythe Company January 1, 2002.  The FASB'snew rules on asset impairment supersede FAS No. 121, *Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of*("FAS121").

 

FAS144 retains the requirements of FAS 121 to (a) recognize an impairment lossonly if the carrying amount of a long-lived asset is not recoverable from itsundiscounted cash flows and (b) measure an impairment loss as the differencebetween the carrying amount and fair value of the asset, but removes goodwillfrom its scope.  This aspect of FAS 144will primarily effect the Company’s accounting for intangible assets subject toamortization, property and equipment, and certain other long-lived assets.

 

FAS144 significantly changes the criteria that would have to be met to classify anasset as held-for-sale.  Under theprovisions of FAS 144, assets to be disposed of will be stated at the lower oftheir fair values or carrying amounts and depreciation no longer recognized.

 

FAS144 also supersedes the provisions of Accounting Principles Board Opinion 30with regard to reporting the effects of a disposal of a segment of a business,and requires expected future operating losses from discontinued operations tobe displayed in discontinued operations in the period(s) in which the lossesare incurred (rather than as of the measurement date as presently required).  In addition, more dispositions will qualifyfor discontinued operations treatment in the income statement.

 

TheCompany has not yet evaluated what the effect of adoption of FAS 144 will be onits financial conditions and results of operations.**OUTLOOKFOR THE REMAINDER OF 2001**

 

 

On September 11, 2001, the United Stateswas the target of terrorist attacks of unprecedented scope involving thehijackings and destruction of multiple passenger aircraft operated bycommercial air carriers. Air travel in the United States was suspended forseveral days after the attacks. As a consequence, the Company has experiencedsignificant decreases in bookings volumes due to reduced travel in the UnitedStates and, to a lesser degree, internationally.

 

We expect that the Company, the travelindustry and the economy in general will continue to be adversely affected bythe terrorist attacks on New York and Washington, and by any subsequentterrorist-related activity, particularly if any such activity involvescommercial air transportation. It is not possible to predict either theseverity or duration of such decreases in the medium- or long-term.

 

Therefore, the Company expects a declinein fourth quarter 2001 revenue from the travel marketing and distributionsegment compared to 2000, primarily due to reduced travel and the capacityreduction in the airline industry. However, the Company expects continued revenue growth year over year,from its Travelocity.com and GetThere businesses.

 

The Company continues to realize savingsfrom the cost cutting initiatives announced last year as well as from the EDStransaction and other management actions taken during the year.  The Company will continue to look for moreopportunities to contain costs during the fourth quarter.  The Company expects pressure from expensessuch as subscriber incentives and data processing to continue, and it plans tomanage such expenses.  Overall, theCompany expects a decline in operating margins as a result of the decline inbooking volumes.

 

The Company expects interest income toincrease and interest expense to decrease as a result of the pay down of debtfrom the sale of the IT businesses to EDS.

 

**SABREHOLDINGS CORPORATIONCAUTIONARY STATEMENT**

Statementsin this report which are not purely historical facts, including statementsregarding the Company's anticipations, beliefs, expectations, hopes, intentionsor strategies for the future, may be forward-looking statements within themeaning of Section 21E of the Securities Exchange Act of 1934, and Section 27Aof the Securities Act of 1933, as amended. All forward-looking statements in this report are based upon informationavailable to the Company on the date of this report.  The Company undertakes no obligation to publicly update or reviseany forward-looking statements, whether as a result of new information, futureevents or otherwise. Any forward-looking statements involve risks anduncertainties that could cause actual events or results to differ materiallyfrom the events or results described in the forward-looking statements.  Readers are cautioned not to place unduereliance on these forward-looking statements.

**RISKFACTORS**

Risks associated with an investment in the Company'ssecurities, and with achievement of the Company's forward-looking statements inthis report, its news releases, its Web sites, public filings, investor andanalyst conferences and elsewhere, include, but are not limited to, the riskfactors described below. Any of the risk factors described below could have amaterial adverse effect on the Company's business, financial condition orresults of operations. The Company may not succeed in addressing thesechallenges and risks.

For a discussion of risk factors specific to theTravelocity.com business, please refer to the filings made with the Securitiesand Exchange Commission by Travelocity.com Inc.  Those filings may be accessed on the Internet at www.sec.gov**.**

THE COMPANY FACESCOMPETITION FROM ESTABLISHED AND EMERGING TRAVEL DISTRIBUTION CHANNELS. MANY OFTHE COMPANY'S COMPETITORS IN THE TRAVEL MARKETING AND DISTRIBUTION BUSINESS AREWELL FUNDED AND HAVE MAJOR TRAVEL SUPPLIERS AS SIGNIFICANT SHAREHOLDERS.

The Company's travelmarketing and distribution business includes channels of distribution thattarget the Travel Agency, Business-to-Business, and Business-to-Consumersegments of the global travel distribution market. In all of these distributionchannels, the Company faces significant competitors in the travel marketing anddistribution business. In the Travel Agency channel, the Company's *Sabre*global distribution system competes primarily against other large andwell-established global distribution systems, including those operated byAmadeus, Galileo and Worldspan. In addition, the Company faces competition inthe Travel Agency channel from travel suppliers that distribute directly toTravel Agencies and from non-global distribution system companies. In theBusiness-to-Business channel, the Company's *GetThere* suite of products compete notonly against similar products offered by Amadeus, Galileo and Worldspan, butalso with products offered by competitors such as Oracle and SAP.  Some of these competitors market businesstravel systems that are bundled with financial and other non-travel softwaresystems that are not offered by the Company. In the Business-to-Consumerchannel, the Company's *Travelocity* product offering competes notonly against similar products offered by Amadeus, Galileo and Worldspan, butalso with a large number of travel Web sites, including those operated bytravel suppliers and by Expedia and Priceline. Airlines and other travelsuppliers, such as Cendant, have significant ownership stakes in some of thesecompetitors. In addition, various airlines have recently established their owntravel distribution Web sites, and several have created multi-airline traveldistribution Web sites (such as Orbitz in the United States and Opodo inEurope). Although government authorities in some jurisdictions are examiningwhether the content and features made available through multi-airline Web sitesby their owner airlines must also be made available to competitor Web sites,and although Orbitz remains subject to review by the U.S. Departments ofJustice and Transportation, it is uncertain whether the various governmentswill act to require carriers owning multi-carrier Web sites to treat competingWeb sites in a fair and non-discriminatory way.  Consolidation among travel suppliers, including airline mergersand alliances, may increase competition from these supplier-relateddistribution channels.

DECREASED SUPPLIERCOMMISSIONS COULD ADVERSELY AFFECT THE COMPANY

Some travel suppliershave reduced commissions paid to Travel Agencies, which causes Travel Agenciesto become more dependent on other sources of revenues, such as traveler-paidservices fees and GDS-paid incentives. That may increase the use of incentivesin competition for Travel Agency business. A few travel suppliers haveeliminated commissions paid to on-line Travel Agencies such as Travelocity,resulting in service fees being charged by on-line Travel Agencies for bookingson those suppliers, which fees are not charged by Web sites that are related tothose suppliers. Furthermore, many travel suppliers offer discounted priceswhen their products and services are purchased directly from a supplier-relatedsite. Those pricing differences may have the effect of diverting customers tosupplier-related Web sites.

INDUSTRY CONSOLIDATIONAND INCREASED COMPETITION FOR TRAVEL AGENCY SUBSCRIBERS MAY RESULT IN INCREASEDEXPENSES, REDUCED REVENUE AND MARKET POSITION, AND GREATER FINANCIAL LEVERAGE.

The absolute and relativesize of the Company's Travel Agency subscriber base is important to theCompany's success.  The reduction insupplier-paid commissions which has forced some smaller Travel Agencies toclose or to combine with larger Travel Agencies. Although the Company has aleading share of large Travel Agencies, competition is particularly intenseamong global distribution systems for Travel Agency subscribers.  The potential for the Company to add newTravel Agency subscribers exists primarily outside of North America. Some ofthe Company's competitors aggressively pay economic incentives to TravelAgencies to obtain business. New ownership or potential consolidation ofexisting global distribution systems may result in increased competition. Forexample, Galileo was recently acquired by Cendant.  In order to compete effectively, the Company may need to increaseincentives, increase spending on marketing or product development, or makesignificant investments to purchase strategic assets.  If the Company does not retain subscribers representing asignificant percentage of historic bookings through the Company's globaldistribution system, the Company's booking fee revenues would decrease.

AIRLINES THAT AREDIVESTING THEIR OWNERSHIP OF GLOBAL DISTRIBUTION SYSTEMS MIGHT LIMIT THEIRPARTICIPATION IN THE COMPANY'S TRAVEL MARKETING AND DISTRIBUTION SERVICES.

Rules in the U.S., Canadaand the European Union govern "computer reservation systems" such asthe Company's global distribution system. Airlines that divest their ownership of computer reservation systems(such as British Airways, United Airlines, US Airways, and ContinentalAirlines) may not be subject to the rules in these jurisdictions, which wouldotherwise require them to participate in the Company's global distributionsystem in a non-discriminatory manner. The Company could be adversely affectedby a decision by one or more large airlines to discontinue or to lower itslevel of participation in the Company's global distribution system.  Consolidation among travel suppliers,including airline mergers, may increase competition from these supplier-relateddistribution channels and place more negotiating leverage generally in thehands of suppliers which account for larger shares of the Company’s business.

REGULATORY DEVELOPMENTSCOULD LIMIT THE COMPANY'S ABILITY TO COMPETE.

The U.S. Department ofTransportation is engaged in a comprehensive review of its rules governingcomputer reservation systems such as the Company's global distribution system.It is unclear at this time when the Department of Transportation will completeits review and what changes, if any, will be made to the U.S. rules. TheCompany could be unfairly and adversely affected if the U.S. rules are retainedas to traditional global distribution systems used by Travel Agencies but arenot applied to Business-to-Consumer travel distribution Web sites owned by morethan one airline. The Company could also be adversely affected if changes tothe U.S. rules increased its cost of doing business, weakened thenon-discriminatory participation rules to allow one or more large airlines todiscontinue or to lower its level of participation in the Company's globaldistribution system, or caused the Company to be subject to rules that do notapply to its travel marketing and distribution competitors.

RAPID TECHNOLOGICALCHANGES AND NEW DISTRIBUTION CHANNELS MAY RENDER THE COMPANY'S TECHNOLOGYOBSOLETE OR DECREASE THE ATTRACTIVENESS OF ITS SERVICES TO CUSTOMERS.

New distribution channelsand technology in the travel marketing and distribution business and airlinesolutions and emerging businesses are rapidly emerging, such as the Internet,computer on-line services, private networks, cellular telephones and otherwireless communications devices. The Company's ability to compete in the travelmarketing and distribution business and airline solutions and emergingbusinesses, and the Company's future results, depend in part on its ability tomake timely and cost-effective enhancements and additions to its technology andto introduce new products and services that meet customer demands and rapidadvancements in technology. Maintaining flexibility to respond to technologicaland market dynamics may require substantial expenditures and lead-time. Therecan be no assurance that the Company will successfully identify and develop newproducts or services in a timely manner, that products, technologies orservices developed by others will not render the Company's offerings obsoleteor noncompetitive, or that the technologies in which the Company focuses itsresearch and development investments will achieve acceptance in themarketplace.

THE COMPANY'S SYSTEMS MAY SUFFER FAILURES, CAPACITYCONSTRAINTS AND BUSINESS INTERRUPTIONS, WHICH COULD INCREASE OUR OPERATINGCOSTS AND CAUSE US TO LOSE CUSTOMERS.

 

The Company's travel marketing and distribution andairline solutions businesses are largely dependent on the computer data centersand network systems operated by EDS. The Company relies on severalcommunications service suppliers to provide network access between its computerdata center and end-users of its travel marketing and distribution and airlinesolutions services. The Company occasionally experiences system interruptionsthat make its global distribution system or other data processing servicesunavailable. Much of its computer and communications hardware is located in asingle facility. The Company's systems might be damaged or interrupted by fire,flood, power loss, telecommunications failure, break-ins, earthquakes andsimilar events. Computer viruses, physical or electronic break-ins and similardisruptions might cause system interruptions, delays and loss of critical dataand could significantly diminish the Company's reputation and brand name andprevent it from providing services. Although the Company believes it has takenadequate steps to address these risks, it could be harmed by outages in orunreliability of the data center or network systems.

 

THE COMPANY'S REVENUES ARE HIGHLY DEPENDENT ONTHE TRAVEL AND TRANSPORTATION INDUSTRIES, AND PARTICULARLY ON THE AIRLINES.

 

Most of the Company's revenue is derived from airlines,hotel operators, car rental companies and other suppliers in the travel andtransportation industries. The Company's revenue increases and decreases withthe level of travel and transportation activity and is therefore highly subjectto declines in or disruptions to travel and transportation. The travel industryis seasonal, and the Company's revenue varies significantly from quarter toquarter. Factors that may adversely affect travel and transportation activityinclude price escalation in travel-related industries, airline or othertravel-related labor action, political instability and hostilities, inclementweather, fuel price escalation, increased occurrence of travel-relatedaccidents, acts of terrorism, and economic downturns and recessions. The Company,the travel industry and the economy in general may continue to be adversely affectedby the September 11, 2001 terrorist attacks on New York and Washington, and byany subsequent terrorist-related activity, particularly if any such activityinvolves commercial air transportation. It is not possible to predict eitherthe severity or duration of such decreases in the medium- or long-term. Aprolonged substantial decrease in travel bookings volumes could have an adverseimpact on our financial performance, operations, liquidity, or capitalresources and could impair the Company’s ability to recover the carrying valueof certain of its assets, including capitalized software, other intangibleassets and goodwill.

 

THECOMPANY FACES TRADE BARRIERS OUTSIDE OF NORTH AMERICA THAT LIMIT ITS ABILITY TOCOMPETE.

 

Trade barriers erected by non-U.S. travel suppliers — historically oftengovernment–owned — haveon occasion prevented the Company from offering its products and services intheir markets or have denied the Company content or features that they give tothe Company's competitors. Those trade barriers make the Company's products andservices less attractive to travel agencies in those countries than otherglobal distribution systems that have such capability and have restricted itsability to gain market share outside of the U.S. Competition in those countriescould require the Company to increase incentives, reduce prices, increasespending on marketing or product development, or otherwise to take actionsadverse to it.

 

THECOMPANY'S INTERNATIONAL OPERATIONS ARE SUBJECT TO OTHER RISKS.

 

The Company faces risks inherent in internationaloperations, such as risks of currency exchange rate fluctuations, localeconomic and political conditions, restrictive governmental actions (such astrade protection measures, including export duties and quotas and custom dutiesand tariffs), changes in legal or regulatory requirements, import or exportlicensing requirements, limitations on the repatriation of funds, difficulty inobtaining distribution and support, nationalization, different accounting practicesand potentially longer payment cycles, seasonal reductions in businessactivity, higher costs of doing business, consumer protection laws andrestrictions on pricing or discounts, lack of or the failure to implement theappropriate infrastructure to support our technology, disruptions of capitaland trading markets, laws and policies of the U.S. affecting trade, foreigninvestment and loans, and tax and other laws. These risks may adversely affectthe Company's ability to conduct and grow business internationally.

 

THECOMPANY MAY NOT SUCCESSFULLY MAKE AND INTEGRATE BUSINESS COMBINATIONS ANDSTRATEGIC ALLIANCES.

 

TheCompany plans to continue to enter into business combinations, investments,joint ventures or other strategic alliances with other companies in order tomaintain and grow revenue and market presence. Those transactions with othercompanies create risks such as difficulty in assimilating the operations,technology and personnel of the combined companies; disruption of the Company'songoing business, including loss of management focus on existing businesses andother market developments; problems retaining key technical and managerialpersonnel; expenses associated with amortization of goodwill and otherpurchased intangible assets; additional operating losses and expenses ofacquired businesses; impairment of relationships with existing employees,customers and business partners; and fluctuations in value and losses that mayarise from equity investments. In addition, the Company may not be able toidentify suitable candidates for business combinations and strategicinvestments, obtain financing or acceptable terms for such business combinations and strategic investmentsor otherwise make such business combinations and strategic investments on acceptableterms.

 

 

 

**PARTII:  OTHERINFORMATION**

 

**Item 1****.  LegalProceedings**

 

**WorldspanDispute**

 

On January 9, 1998, Worldspan LP(“Worldspan”), the former provider of computer reservation system services toABACUS International Holdings (“ABACUS”), filed a lawsuit against the Companyin the United States District Court for the Northern District of Georgia,Atlanta Division, seeking damages and an injunction, and alleging, among otherthings, that the Company interfered with Worldspan’s relationship with ABACUS,violated the U.S. antitrust laws, and misappropriated Worldspan’s confidentialinformation.  On March 30, 2001, theparties filed cross motions for summary judgment on certain claims and saidmotions were heard by the court on November 6, 2001.  The court granted Sabre’s motion for partial summary judgmentdismissing Worldspan’s state law claims, including alleged tortiousinterference and misappropriation of trade secrets.  The Company believes that Worldspan’s remaining claims arewithout merit and is vigorously defending itself.  Additionally, the Company is entitled to indemnification pursuantto the terms of the agreement with ABACUS. No trial date has been set.

 

**India Tax Issue**

 

In 1998, the tax authority in India asserted that theCompany has a taxable presence in India. In March 1999, the Company received a $30 million USD tax assessment(including interest) for the two years ending March 31, 1998.  The Company challenged the assessment on thegrounds that it does not have a taxable presence in India and, even if it does,the assessment is based on incorrect data. The United States government intervened on behalf of the Company (andother U.S. companies currently facing similar tax-related issues with theIndian government).  The Company appealedthe validity and amount of the assessment within the Indian tax authority.  Although the Company did not prevail in itsappeal at this level on merits, a reassessment based on correct data wasordered.  The Company is awaiting thatredetermination.  The Company continuesto believe that the position of the Indian government is without merit and thatit will ultimately prevail either through the U.S. government’s efforts or onits direct appeal.  The Company anticipatesthat it will appeal the case through judicial systems in India if anunfavorable ruling is obtained from the tax authority in India.

 

**Northwest Dispute**

 

On June 5, 2001,Northwest Airlines ("NWA") filed a lawsuit in California DistrictCourt (San Mateo County) against Sabre Holdings Corporation and GetThere L.P.seeking 778,209 shares of Sabre Holdings common stock.  On June 6, 2001, without knowledge of theCalifornia action, Sabre Holdings Corporation, Sabre Inc., GetThere L.P., andGetThere Inc. filed a declaratory judgment action against NWA in the FederalDistrict Court - Northern District of Texas (Fort Worth).  The California lawsuit is based on a 1999agreement between GetThere (before its acquisition by the Company) and NWA,whereby NWA could exercise a number of warrants to obtain GetThere stock (whichwere converted into warrants for Sabre Holdings Corporation stock after theacquisition) if, within a certain period of time, the parties entered intocertain additional agreements and GetThere began processing transactions forthe NWA web site.  The Company believesthat NWA's claim to entitlement to stock is meritless because none of theconditions precedent have been satisfied. On July 19, 2001, the Fort Worth court granted NWA’s motion to stay theproceedings pending resolution of the motions filed in California, and hassubsequently dismissed the case without prejudice.  On July 20, 2001, the California court denied the Company’smotions to dismiss or stay the California action.  The California court did not rule on the merits.  Sabre’s appeal of the decision wasdenied.  Sabre has since filed apetition for review with the California Supreme Court, which is pending.  No trial date has been set.

 

 

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

 

 

The following exhibitsare included herein:

** **

**Exhibit Number**

 

**Description of Exhibit**

 

 

 

 

3.1

 

Restated Certificate  of Incorporation of Registrant. (1)

 

 

 

3.2

 

Restated Bylaws of  Registrant. (2)

 

 

 

4.1

 

Specimen Certificate  representing Class A common stock. (3)

 

 

 

10.1

 

Asset Purchase Agreement  by and among EDS Information Services L.L.C. ("EDS IS"), Electronic  Data Systems Corporation ("EDS"), Sabre Inc. ("Sabre"),  and Sabre Holdings Corporation ("Sabre Holdings"). (4)

 

 

 

10.2

 

First Amendment to  Asset Purchase Agreement by and among EDS IS, EDS, Sabre and Sabre Holdings.  (5)

 

 

 

10.3

 

Second Amendment to  Asset Purchase Agreement by and among EDS IS, EDS, Sabre and Sabre Holdings.  (6)

 

 

 

10.5

 

Forms of Addenda to  Executive Termination Benefit Agreements

 

 

 

12.1

 

Computation of ratio  of earnings to fixed charges for nine months ended September 30, 2001.

 

(1)Incorporated by reference to Exhibit 3.1 to the Company's report on Form 10-Qfor the period ended June 30, 2000.

(2)Incorporated by reference to Exhibit 3.2 to the Company's report on Form 10-Qfor the period ended June 30, 2001.

(3)Incorporated by reference to Exhibit 4.1 to the Company's report on form 10-Qfor the period ended March 31, 2000.

(4)Incorporated by reference to Exhibit 2.1 of the Company's report on Form 10-Qfor the period ended March 31, 2001.

(5)Incorporated by reference to Exhibit 2.2 of the Registrant's report on Form 8-Kfiled July 16, 2001.

(6)Incorporated by reference to Exhibit 2.3 of the Registrant's report on Form 8-Kfiled July 16, 2001.

 

 

**Form 8-K**

 

Form8-K filed August 7, 2001 attaching as exhibits certain agreements related tothe Company's offering of debt securities.

Form8-K filed August 2, 2001 clarifying the identity of the borrower under the $300million senior unsecured revolving credit agreement described in thePreliminary Prospectus Supplement for the Company's offering of debtsecurities, and updating facts related to the Company's existing indebtedness.

Form8-K filed July 27, 2001 providing historical financial information with respectto the Company's acquisition of GetThere Inc.

Form8-K/A filed July 26, 2001 amending a computation of Ratio of Earnings to FixedCharges filed on 7/16/01 related to the EDS transaction.

Form8-K filed July 16, 2001 reporting the sale of the Company's infrastructureoutsourcing contracts, web hosting contracts, and IT infrastructure assets andrelated real estate to EDS effective on July 1, 2001, and providing pro formafinancial statements for the continuing business.

 

Pursuant to GeneralInstruction B.2. of Form 8-K, the Forms 8-K listed below contained only Item 9disclosures, and consequently such Forms 8-K are not incorporated into thisForm 10-Q or into any other form or report filed with the Commission into whichthis Form 10-Q would be incorporated by reference.

 

Form8-K filed August 10, 2001 announcing the publication of the Company'sinvestment community newsletter. (Item 9)

 

 

**Signature**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 

 

 

 

SABRE HOLDINGS CORPORATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date:  November 14, 2001

BY:

 

/s/  Jeffery M. Jackson

 

 

 

 

Jeffery  M. Jackson

 

 

 

Executive Vice President, Chief Financial Officer  and Treasurer

 

 

 

(Principal  Financial and Accounting Officer)

 

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