**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K**

**x**                              AnnualReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**For the fiscal year ended December 31,2006**

**OR**

**o**                                 TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**Commission file number: 1-12175**

****

**SABRE HOLDINGSCORPORATION**

(Exact name of registrant as specified in its charter)

| **Delaware**                              |   | **75-2662240**      |
|-------------------------------------------|--------|---------------------|
| (State or other  jurisdiction of          |   | (I.R.S. Employer    |
| incorporation or  organization)           |   | Identification No.) |
| **3150  Sabre Drive, Southlake, TX**      |   | **76092**           |
| (Address of principal  executive offices) |   | (Zip Code)          |

 

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

**None**

(Former name, former address and former fiscal year, if changed sincelast report)

Securities registered pursuant to Section 12(b) of the Act:

| **Title of each class**                              |   | **Name of  each exchange on which registered** |
|------------------------------------------------------|--------|------------------------------------------------|
| Class A Common Stock,  $.01 par value per share |   | New York Stock Exchange                        |

 

Securities registered pursuantto Section 12(g) of the Act:

**None**

Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act. Yes x  No o

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the ExchangeAct. Yes o  No x.

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days. Yes x  No o.

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. 
| Large accelerated  filer x | Accelerated filer o | Non-accelerated filer o |
|---------------------------------|--------------------------|------------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act). Yes o  No x

As of June 30, 2006, the aggregate market value of the registrant’scommon stock held by non-affiliates of the registrant was $2,845,891,356 basedon the closing sale price of $22.00 as reported on the New York Stock Exchange.

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.
| Class                                   | ** ** | **Outstanding at February 20, 2007** |
|-----------------------------------------|------------|-------------------------------------------|
| Common Stock, $.01 par  value per share |       | 133,799,727 shares                        |

 

 

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**Sabre Holdings CorporationAnnual Report of Form 10-K for the Year Ended December 31, 2006Table of Contents**

 
| **PART I:**   |                                                                                                                |   |   |   |
|--------------------|---------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Item 1.            | Business                                                                                                            |   | 3      |   |
| Item 1A.           | Risk Factors                                                                                                        |   | 14     |   |
| Item 1B.           | Unresolved Staff Comments                                                                                           |   | 21     |   |
| Item 2.            | Properties                                                                                                          |   | 21     |   |
| Item 3.            | Legal Proceedings                                                                                                   |   | 22     |   |
| Item 4.            | Submission of Matters to a  Vote of Security Holders                                                                |   | 22     |   |
| **PART II:**  |                                                                                                                |   |   |   |
| Item 5.            | Market for Registrant’s  Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities |   | 23     |   |
| Item 6.            | Selected Consolidated  Financial Data                                                                               |   | 25     |   |
| Item 7.            | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                         |   | 29     |   |
| Item 7A.           | Quantitative and Qualitative  Disclosures About Market Risk                                                         |   | 64     |   |
| Item 8.            | Financial Statements and  Supplementary Data                                                                        |   | 66     |   |
| Item 9.            | Changes in and Disagreements  with Accountants on Accounting and Financial Disclosure                               |   | 134    |   |
| Item 9A.           | Controls and Procedures                                                                                             |   | 136    |   |
| Item 9B.           | Other Information                                                                                                   |   | 137    |   |
| **PART III:** |                                                                                                                |   |   |   |
| Item 10.           | Directors, Executive  Officers and Corporate Governance                                                             |   | 138    |   |
| Item 11.           | Executive Compensation                                                                                              |   | 143    |   |
| Item 12.           | Security Ownership of  Certain Beneficial Owners and Management and Related Stockholder Matters                     |   | 164    |   |
| Item 13.           | Certain Relationships and  Related Transactions and Director Independence                                           |   | 169    |   |
| Item 14.           | Principal Accountant Fees  and Services                                                                             |   | 172    |   |
| **PART IV:**  |                                                                                                                |   |   |   |
| Item  15.          | Exhibits,  Financial Statement Schedules                                                                            |   | 174    |   |
| SIGNATURES         |                                                                                                                | 184    |   |

 

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**PART I**

In this AnnualReport on Form 10-K, the words “Sabre Holdings,” “company,” “we,” “our,”“ours” and “us” refer to Sabre Holdings Corporation and its consolidatedsubsidiaries unless otherwise stated or the context otherwise requires.

**ITEM 1.**                     BUSINESS

**Overview**

Sabre Holdings Corporation is a Delaware holding company incorporatedon June 25, 1996. Sabre Inc. is the principal operating subsidiaryand sole direct subsidiary of Sabre Holdings Corporation. Sabre Inc. orits direct or indirect subsidiaries conduct all of our businesses.

We are a world leader in travel commerce. Our companies and brandsoffer a broad portfolio of leading travel marketing, distribution andtechnology solutions. We support airlines, hotels, cruise lines, car rentalagencies and other travel suppliers through a distribution network that enablesglobal marketing through tens of thousands of points of sale, sophisticateddata gathering and analysis, and robust business optimization tools. We supportonline and conventional travel agencies, corporate travel purchasers andconsumers by providing an efficient electronic marketplace that consolidates awealth of travel information, and facilitates shopping and purchasing of travelcomponents and packages. We participate in travel distribution and marketing tomultiple audiences through different methods we refer to as “channels.” Thesechannels include travel agencies, direct to consumers, and corporate orbusiness-direct.

We organize our businesses into threesegments:

·         Travelocity

·         SabreTravel Network

·         SabreAirline Solutions

In 2006, approximately 36.2% of our revenue was generated fromTravelocity, 54.4% from Sabre Travel Network and 9.4% from Sabre AirlineSolutions, based on segment results that include intersegment revenues. Comparedto the year-ago period, revenues (including intersegment revenues) for thetwelve months ended December 31, 2006 increased 30.5% for Travelocity(including lastminute.com from July 20, 2005), 1.3% for Sabre TravelNetwork and 8.3% for Sabre Airline Solutions.

**Travelocity:**   Our Travelocity segment markets anddistributes travel-related products and services directly to individuals,including leisure travelers and business travelers. Our *Travelocity®**1,**lastminute.com*SM and *Zuji.com*SM branded websites and contact centersconstitute one of the largest travel agencies in the world. We also providecontent and functionality to, and market and sell products and services throughprivate-label websites for suppliers, distribution partners and travelagencies. Through our offerings, travelers can access offerings, pricing andinformation about airlines, hotels, car rental companies, cruise lines,vacation and last-minute travel packages and other travel-relatedservices. Our *Travelocity Business®*online corporate travel agency provides business travelers the corporate traveltechnology and full-service offering of our *GetThere®*products along with the online expertise of Travelocity.

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1                    ClientBase,eMergo, GetThere, Holiday Autos, holidayautos.com, Hotel Spotlight, IgoUgo,Jurni Network, lastminute.com, medhotels.com, MySabre, Nexion, PromoSpots, rejsefeber.dk,reisefeber.no, resfeber.se, Sabre, SabreAirline Solutions, Sabre Holdings, the Sabre Holdings logo, Sabre TravelNetwork, SabreSonic, Showtickets.com, Site 59, Site59.com, Surround, SynXis,TotalTrip, TRAMS, Travelocity, Travelocity Business, Travelocity PartnerNetwork, Travelocity.ca, Travelocity.com, Travelocity.co.uk, TurboSabre,Travelocity.de, Zuji, and Zuji.com are trademarks and/or service marks of anaffiliate of Sabre Holdings Corporation. All other trademarks, service marks,or tradenames are the property of their respective owners. © 2007Sabre Holdings Corporation. All rights reserved.

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**Sabre Travel Network:**   OurSabre Travel Network segmentmarkets and distributes travel-related products and services for itstravel supplier participants through the online and offline travel agency andcorporate channels. Our *Sabre®*global distribution system (the “*Sabre*system” or “*Sabre* GDS”) producesmore bookings for airlines and hotels than any other distribution system. Usersof the *Sabre* system (who we referto as “subscribers”) can access information about, book reservations for, andpurchase a variety of travel offerings. These offerings include, among otherthings, airline trips, hotel stays, car rentals, cruises and tour packages. Wealso enable corporate travel management through our *GetThere* products. We provide travel agencies with officeautomation tools, consortia management services and enable them to provideservices via the Internet. In addition, Sabre Travel Network provides marketinginformation to suppliers and reservation management and technology services tohotel properties.

**Sabre Airline Solutions:**   Our Sabre Airline Solutions segment is aglobal leader in providing passenger management solutions, software productsand related services, and consulting services to help airlines simplifyoperations and lower costs. We provide airline reservations, inventory andcheck-in hosting solutions that help airlines address the challenge of buildingand retaining customer loyalty while reducing costs. We supply decision-supportsoftware and technology for airlines to improve profitability, increaserevenue, streamline operations and improve workflow. In addition, we offer acomplete range of consulting services to the airline industry, ranging from onetime to extended engagements. Clients include airlines, airports, manufacturersand governments, as well as individuals, travel agencies and members of thefinancial community.

**Sale of the Company**

On December 12,2006, we entered into a definitive agreement and plan of merger (“MergerAgreement”) with affiliates of Texas Pacific Group and Silver Lake Partners(the “Sponsors”). Under the terms of the Merger Agreement, investment fundsaffiliated with the Sponsors will indirectly acquire the Class A CommonStock of Sabre Holdings for $32.75 per share. The $5.4 billion acquisition isanticipated to be funded with direct and indirect equity investments from theinvestment funds and with underwritten debt commitments from Deutsche Bank andMerrill Lynch.

If the mergeragreement is terminated in certain circumstances, we could be required to pay atermination fee of $135 million to the Sponsors’ affiliates. If the mergeragreement is terminated under other circumstances, the Sponsors’ affiliateshave agreed to pay us a business interruption fee of $175 million.

Upon completionof the merger, we will incur significant costs associated with the accelerationof employee and non-employee director share-based awards (see Note 12 to theConsolidated Financial Statements) as well as significant costs to complete thetransaction.

Completion of the transaction is subject to our receiving regulatoryand shareholder approvals. We expect the transaction to close by early secondquarter of 2007.

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**Travelocity**

Travelocity isa leading provider of consumer direct travel services for the leisure andbusiness traveler. In 2005, we significantly expanded our presence in Europewith the purchase of lastminute.com, a leader in European online travelmarketing. Travelocity operates through the *Travelocity.com*®and *Site59.com*® (“*Site 59*®”) websites, Travelocity’s internationalwebsites including *lastminute.com*,*HolidayAutos.com*SM and *Zuji.com*SM and its contact centers, travel agencypartners, and its *Travelocity PartnerNetwork*® offering. These services allow individual leisure andbusiness travelers to shop, compare prices and make travel reservations onlinewith airlines, car rental agencies, hotel companies and cruise and tourproviders. The *Travelocity Partner Network*offering expands Travelocity’s distribution reach through agreements withleading online retailers, including Yahoo! Travel, America Online, AmericanExpress, Southwest Airlines, US Airways, and AARP. For example, *Site 59* powers the last-minute travel sections ofTravelocity, AOL Travel, Cheap Tickets, Yahoo! Travel, American AirlinesVacations, Delta Air Lines Vacations, Continental Airlines Vacations, Northwest’snwa.com, and Bestfares.com, among others. We also offer access to a database ofinformation regarding specific destinations and other information of interestto travelers.

Travelocityfacilitates transactions between travel suppliers and consumers to book and payfor travel accommodations. For net rate transactions, we generate service feerevenue equal to the total amount paid by the customer, minus Travelocity’spayment to the travel supplier for the travel accommodations. We also generaterevenue from commissions or transaction fees from travel suppliers for thepurchase of travel products and services pursuant to reservations made throughour system. Other revenue sources include service fees charged to customers,advertising revenues and GDS incentives (from Sabre Travel Network and otherGDSs). Income or losses from interests in joint ventures, which are describedunder “*International*” below, arerecognized as revenue or contra-revenue. We derive intersegment revenuesfrom Sabre Travel Network, consisting mainly of incentives for Travelocitybookings made through the *Sabre*GDS, and fees paid by Sabre Travel Network and Sabre Airline Solutions forcorporate and airline trips booked through the *Travelocity*online booking technology. During 2006, customers transacted approximately$10.1 billion in travel and related services through Travelocity.

For ourbusiness customers, we also operate *TravelocityBusiness*, a comprehensive travel service available for corporationsand other organizations. *TravelocityBusiness* combines the integrated corporate travel technology andfull-service offering products of *GetThere*with the online expertise of Travelocity. Travelocity also operates multiplebusinesses tailored to customers outside the United States, as described under *“Strategic Development ofTravelocity”* and “*International”*below.

***StrategicDevelopment of Travelocity.******  ***The growth anddevelopment of Travelocity continues to be a strategic focus for us. Wecontinued to invest in areas that we believe offer rapid growth opportunities,such as in the business-direct channel and online distribution in Europeand Asia. For example:

·         OnJuly 20, 2005, we acquired lastminute.com, a leading online travel andleisure company in Europe that has become Travelocity’s lead brand in theregion. With the acquisition of lastminute.com, we can now offer travelsuppliers a greater number of potential buyers in a broader geographic area,particularly in Europe. We expect this greatly increased scale to allow us tooffer consumers even better travel deals and a greater range of internationaloptions. An immediate benefit is our ability to give lastminute.com customersaccess to the wide range of hotels in Travelocity’s net rate hotel program.lastminute.com customers have a greater range of U.S. and international traveloptions, and over time, Travelocity.com customers should gain more Europeantravel choices. Sabre Travel Network also expects to offer its network oftravel agency subscribers expanded European travel options as a result of theacquisition, expanding distribution reach for lastminute.com travel suppliers.

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·         ZujiHoldings Limited (“Zuji”), a joint venture operating in the Asia Pacific regionwith operations in Australia, Hong Kong, Korea, New Zealand, Singapore andTaiwan. On November 7, 2005, due to our issuing a $4 million loan toZuji, we became the primary beneficiary of the joint venture and in accordancewith Financial Accounting Standards Board (“FASB”) Interpretation No. 46R,*Consolidation of Variable Interest Entities(Revised)* (“FIN 46R”), we began accounting for our investment inZuji, which was previously accounted for using the equity method, on a fullyconsolidated basis. In January 2005, Travelocity entered into a put optionagreement relating to the equity of Zuji. On January 24, 2006, the putoption was exercised and we purchased the remaining 90% of Zuji that we did notalready own. We expect significant growth from Zuji as adoption of onlinetravel continues to grow in Asia.

See “Item 1A—*We may be unsuccessful in pursuing and integrating businesscombinations...*”

In June 2006,we sold three offline traditional retail businesses in our Travelocity Europeand lastminute.com operations as a part of the integration efforts thatcontinue in the Travelocity segment and in Europe particularly. This sale waspart of an effort to rationalize our portfolio of assets to focus on the highergrowth online operations.

***Net Rate Program.******  ***In an effortto provide additional choices to consumers, Travelocity is increasinglypromoting our net rate program, commonly referred to in the industry as a “merchantmodel program” due to the fact that Travelocity is the merchant of record forcredit card processing. Under the net rate program, we facilitate transactionsbetween travel suppliers and travelers for the booking of and payment fortravel accommodations. Under this model, we generally do not purchase andresell travel accommodations and do not have any obligations with respect totravel accommodations listed online that do not sell. Instead, we act as anintermediary by entering into agreements with travel suppliers for the right tomarket their products, services and other content offerings at pre-determinednet rates. Net rate travel offerings can include air travel, hotel stays, carrentals and dynamically packaged combinations. We market these net rateofferings to travelers at a price that includes service fees that we retain,plus an amount sufficient to pay the travel supplier for its charge forproviding the travel accommodations, along with any applicable occupancy andother local taxes on that charge. For this type of business model, we requirepre-payment by the traveler at the time of booking. Net rate content isbeneficial for travelers because they can often book travel at a price lowerthan regularly published offerings. For us, the net rate model generallydelivers higher service fee revenue per transaction than comparable transactionsunder an agency commission booking fee model. In addition, as long as the netrate program is growing, we experience improved operating cash flows as aresult of receiving pre-payments from customers while paying suppliers afterthe travel occurs. For net rate transactions, we recognize as revenue theservice fees that we retain on these transactions.

Our business strategy depends on net rate bookings as a significantsource of future revenue growth and increased margins. Our strategy calls forus to increase or maintain the number of hotel rooms we can market under ournet rate hotel program, based upon arrangements we make directly withindividual hotel properties and hotel chains. In addition, Travelocitycontinues to use a supplier-friendly approach, which includes timelypayment to suppliers and a two-way seamless connectivity to hotels’ propertymanagement systems so that reservations are not lost. See *“Item 1A—Travelocity’srevenue growth largely depends on international growth and on expanding netrate (merchant) programs.”*

**The Sabre Global Distribution System**

**Overview**

The *Sabre* system and other global distributionsystems are a primary means of air travel distribution in the United States andin many international regions. The *Sabre*system, like other global distribution systems, creates an electronicmarketplace where airlines, hotels and other travel suppliers displayinformation about their products and services.

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The *Sabre* system provides subscribers a singlerich source of travel information, allowing travel agents and other users tosearch within seconds tens of thousands of itinerary and pricing options acrossmultiple travel suppliers. The *Sabre*system provides suppliers with data about subscriber-generated reservations,allowing suppliers to better manage inventory and revenues. The *Sabre* system enables printing airlinetickets and itineraries. Additionally, the *Sabre*system offers extensive travel information on matters such as currency, medicaland visa requirements, weather and sightseeing.

In 2006, morethan 750 travel suppliers displayed information about their products andservices through the *Sabre*system. We estimate that nearly $90 billion of travel-relatedproducts and services were sold through the *Sabre*system during this time. Also during 2006, more airline and hotel bookings weremade through the *Sabre* systemthan through any other global distribution system.

***Travel Supplier Participation and Pricing Options.******  ***Airlines andother travel suppliers display and sell their inventory in the *Sabre* system. We offer airlines a range ofparticipation levels. The lowest level of participation for airlines, *Sabre® Basic Booking Request*, providesschedules and electronic booking functionality only. Higher levels ofparticipation for airlines provide enhanced levels of communication between the*Sabre* system and the travelsupplier’s inventory system, giving subscribers more reliable information andtravel suppliers improved inventory management. This direct connection allowsthe *Sabre* system to providereal-time information about inventory and confirmed reservations and theairline to optimize revenue for each flight. We offer car rental companies andhotel operators similar levels of participation. We also offer travel suppliersmarketing data derived from the *Sabre*system bookings. Travel suppliers use this marketing information and otheroperational systems we sell to improve their revenue and profitability.

We havedesigned service and pricing offerings to airlines to ensure that subscribers willcontinue to have broad, dependable access to airline schedules, seatavailability and fares. With the deregulation of the United States GDS industryin mid-2004 (described below under *ComputerReservation System Industry Regulation*), we have the flexibility tovary our pricing and other contract terms from airline to airline. We believethat airlines will see the benefits of more customizable relationships with us,including possible reductions in transaction fees. We are setting forth variouspricing options for airline suppliers, including options that may includeservices from each of our business segments and may expand “net rate” or othermerchandising opportunities. We also have “opt-in” agreements that offerparticipating airlines lower transaction fees for bookings created in certainregions, and make certain discounted fares on those airlines available only tothose subscribers that accept lowered incentive payments.

We have signednew long-term full content agreements with the following large U.S. airlines:American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines,United Airlines and US Airways, which had full content contracts up forrenewal, and AirTran Airways, Alaska Airlines, and JetBlue Airways, which didnot previously have long-term full content contracts. The US Airways agreementalso includes America West, which did not previously have a long-term fullcontent contract. The new agreements are for five to seven years and, like theoriginal Direct Connect Availability (“DCA”) 3-year agreements, requireparticipating airlines to provide all *Sabre*GDS users long-term, broad access to schedules, seat availability and publishedfares, including Web fares and other promotional fares. These agreements alsogenerally require participating airlines to furnish to passengers bookedthrough the *Sabre* GDS the samecustomer perquisites and amenities as those afforded to passengers bookedthrough other GDSs and websites. As of December 31, 2006, approximately60% of our global direct air bookings were subject to long-term contracts.

Additionally, we have transitioned over 350 carriers from ourtraditional Participating Carrier Agreement (“PCA”) to a new Travel MarketingAgreement (“TMA”). These new agreements are one-year agreements, as comparedwith 30 days in the PCA, and are automatically renewed unless cancelled byeither side. The TMA has pricing that varies by region and, in some cases, bythe value of the ticket that was sold. This pricing better aligns price withvalue for the airline and provides better content guarantees to Sabre TravelNetwork.

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**Sabre Travel Network**

Sabre TravelNetwork markets the *Sabre* GDS totravel suppliers, travel agency subscribers (online and brick and mortar) andcorporations. As of December 31, 2006, travel agencies with over 50,000locations in 113 countries on 6 continents subscribed to the *Sabre* system. We enabled these subscribersto make reservations with over 440 airlines, 28 car rental companies, 215tour operators, 12 cruise lines, 37 railroads and 277 hotel companies.

Approximately54.4%, 59.7% and 67.5% of our revenue (including intersegment revenues) in2006, 2005 and 2004, respectively, was generated by Sabre Travel Network,primarily through transaction fees paid by travel suppliers.

Subscribers mayaccess the *Sabre* system on theirown hardware over communications circuits contracted from theirtelecommunications vendors, or subscribers may contract with us for thehardware, software, technical support and other services needed to use the *Sabre* system. Increasingly, travel agentsare providing the majority of their own hardware. Fees for our services arepayable over the term of the subscriber’s agreement with us, generally fiveyears in the United States and Latin America, three years in Canada, and oneyear in Europe. In addition, we pay incentives to many travel agencies based ontheir booking productivity, which is our largest cost of revenue.

We havedesigned the *Sabre* systeminterface to meet the specific needs of different categories of travel agents.The *Sabre* system interfaces areavailable in English, Spanish, Portuguese, French, German, Italian andJapanese. We offer the *MySabre*Ô web-based travel agency portal, which combinesthe breadth of the Internet with the power of the *Sabre* GDS. It provides access to the content of the *Sabre* GDS, as well as web-based bookingtools for cruises, restaurants, ground transportation, theatre, local eventsand theme parks. *Turbo Sabre®*software is an advanced point-of-sale interface and application developmenttool that enables advanced functionality like customized screens, automatedquality control and database integration. In addition, *Turbo Sabre* eliminates complex commands,reducing keystrokes and training requirements.

In addition tothe *Sabre* system described above,Sabre Travel Network also provides bookings solutions to serve the specificonline needs of our subscribers and travel suppliers, including websitedevelopment, business logic middleware and back end processing. We also offertravel agencies back-office accounting systems and a simplified method todevelop and place their own marketing presence on the Internet. Subscriber andtravel supplier product offerings range from off-the-shelf applications tofully customized solutions. Subscribers pay license, consulting and web hostingfees that vary with the level of customization and volume generated by theirsites.

***Changing ourSabre Travel Network Revenue Model.******  ***Historically,the vast majority of our travel distribution revenues have been derived fromtransaction fees paid by travel suppliers measured by subscriber bookingsgenerated through the *Sabre* GDS.From those fees, Sabre Travel Network has paid incentives to its travel agencysubscribers as a cost of revenue. We continue to seek ways to provide moreflexible and cost-effective distribution options to suppliers and areincreasingly entering into arrangements that depart from our traditionalrevenue model. As our business evolves, we have broadened our description of “transaction”to include any travel reservation that generates a fee paid directly to us,including in part the following:

·         traditionalbooking fees paid by travel suppliers,

·         non-traditionaltransaction fees paid by travel suppliers,

·         transactionfees paid by travel agency subscribers, and

·         transactionfees paid by corporations related to our online booking tool, *GetThere*.

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See “*The Sabre Global Distribution System—Travel SupplierParticipation and Pricing Options*” above. For example, we havearrangements under which some travel suppliers pay our travel agency customer(such as Travelocity), who in turn pays a transaction fee to Sabre TravelNetwork. We are also looking for more opportunities to market net rateofferings, benefiting from the merchandising insight that we gain from ourintegrated portfolio of travel distribution and travel marketing assets. Netrate offerings are explained in more detail above in “*Travelocity—Net Rate Program.*” Some ofthese non-traditional transactions may have a lower rate per transaction than atraditional booking fee, and as a result the overall average revenue pertransaction may be lower as these non-traditional transactions increase.

***Launching ofthe Efficient Access Solution.******  ***OnSeptember 1, 2006 we launched the *Efficient Access**SM Solution* for our airline and travel agencycustomers. The *Efficient Access Solution* is abalanced program to address the economic pressures airlines face whilecontinuing to provide travel agencies with the incentives and long-termprotections described below. With the *Efficient Access Solution*,carriers participating in the program receive a discount on booking fees forreservations made by participating agencies. In return, the airlines agree toprovide over the long-term, key benefits and protections to agenciesparticipating in the program. Through participation in the *EfficientAccess Solution*, agencies are assured of long-term commitments fromthose airlines concerning:

·         Fullcontent from program carriers, including published fares and Web fares, as wellas non-discriminatory access to private fares, including agency negotiatedrates and rates provided to the corporate or government customers thoseagencies serve, and

·         Protectionfrom service fees that a program carrier might otherwise levy on bookings madethrough the *Sabre* GDS.

Agenciesparticipating in the program agree to adjusted financial terms in exchange forthe significant benefits and protections afforded by the new agreements. Theterms will vary according to agency contract type, but generally result inlower incentive payments. Additionally, because carriers participating in theprogram will receive a discount on booking fees, this could have the effect oflowering Sabre Travel Network revenues over time but is anticipated to beoffset by the lower incentive expense.

See “Item 1A—*Changes to our travelsupplier relationships may reduce our revenues.”*

**Sabre Airline Solutions**

Sabre AirlineSolutions is a global leader in providing technology that allows airlines tomarket and sell their inventory, serve their customers and manage dailyoperations to efficiently fly their schedules. We offer software productsand related services for all facets of their business along with strategic andoperational consulting services. Over 200 airlines worldwide use one ormore products in our broad portfolio to increase revenues and improveoperations. More than 100 airlines worldwide rely on our *SabreSonic*®**passengerreservations product suite, and in 2006 four new carriers implemented thisproduct suite, six new carriers signed agreements, and three carriers renewedtheir agreements, including Alaska Airlines. In addition, our *Sabre*® *eMergo*® Webaccess solution has grown to be the industry’s leading hosting solutionfor operational solutions with over 250 applications outsourced.

***Airline Passenger Solutions.******  ***We provideairline reservations, inventory and check-in hosting solutions that helpairlines address the challenge of building and retaining customer loyalty whilealso reducing costs. With support of e-ticketing and passenger self-serviceoptions, our departure control systems equip airlines with the tools toincrease sales through every distribution channel. Built on open-systemstechnology, our new generation *SabreSonicPassenger Solution* offers passenger-facing systems to airlinesregardless of size, location, business model or current reservations system.

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***Airline Products and Services.******  ***We providedecision-support software and technology for airlines to improveprofitability, increase revenue, streamline operations and improve workflow. Weoffer flexible product and service configurations to meet unique businessneeds, allowing airlines to choose a single, stand-alone system for aspecific operational area or a bundled solution of multiple systems to addressa variety of functional requirements and increase information sharing across agreater number of departments. Additionally, we offer the *Sabre**eMergo*web-enabled and dedicated network solutions, as well as an ASP offering toairlines. Providing convenient remote access to secure data, the *eMergo* solutions help significantly loweror eliminate expenses associated with upfront capital outlay, staffing, datastorage, ongoing maintenance and installation. Our decision-support toolsare designed exclusively to meet the needs of airlines, regardless of size orbusiness model, and assist in every key functional area of an airline, such ascrew and cargo management, flight operations and revenue management.

***ConsultingServices.******  ***We offer a complete range ofconsulting services to the airline industry. Assignments range from a one timeengagement to extended engagements. Typical engagements include achieving thenecessary standards to join an alliance, preparing for privatization andoptimizing current operations. Clients include airlines, airports,manufacturers and governments, as well as individuals, travel agencies andmembers of the financial community.

**International**

**Travelocity**—Wemarket Travelocity internationally directly through our various brands, andthrough a travel agency network in Europe. In Canada, Travelocity directlymarkets its *Travelocity.ca*® site. With the acquisition of lastminute.com in July 2005,we market in Europe using *lastminute.com*as our leading brand. Our European operations also include other Europeantravel websites, including *holidayautos.com*SM and *medhotels.com*®, onlinetravel.com, *Travelocity.co.uk*®in the United Kingdom, *resfeber.se*SM in Sweden, *rejsefeber.dk*SM in Denmark, *reisefeber.no*SM in Norway and*Travelocity.de*SM in Germany.Until December 2005, Travelocity also partnered with Otto Versand througha joint venture company that distributed *Travelocity*in Germany through several brands. Travelocity retained the *Travelocity.de* brand on dissolution ofthat joint venture.

**We operate inthe Asia Pacific region through *Zuji.com*,which is hosted by Travelocity and utilizes Travelocity technology. See *“Travelocity*—*Strategic Development of Travelocity”* above.**

**Sabre Travel Network**—We market the *Sabre* systeminternationally both directly and through joint venture and distributorshiparrangements. As of December 31, 2006, travel agencies with over 50,000locations in 113 countries on 6 continents subscribed to the *Sabre* system. Our marketing partnersoutside the United States principally include airlines that have strongrelationships with travel agents in their primary markets, and entities thatoperate regional computer reservation systems or other travel-relatednetwork services.

**Sabre TravelNetwork has long-term agreements with ABACUS International Holdings Ltd.,which created ABACUS International PTE Ltd. (“Abacus”), a Singapore-basedjoint venture company that manages travel distribution in the Asia Pacificregion. We own 35% of the joint venture and provide it with transactionprocessing and product development services on the *Sabre* system. We also own 51% of Sabre Pacific, a jointventure with Abacus that provides travel marketing and distribution services inAustralia and New Zealand. Sabre Travel Network also provides distributionproducts and services to Infini and Axess, Japan’s two largest GDS travelagency marketing companies. Infini is owned 40% by ABACUS and 60% by All NipponAirways. Axess is owned 25% by Sabre and 75% by Japan Airlines. Sabre TravelNetwork also provides travel marketing and distribution services in Mexicothrough our 51% owned (48% voting rights) joint venture, Sabre SociedadTechnologica S.A. de C.V. Sabre Travel Network Middle East, a joint ventureowned 60% by Sabre Travel Network and 40% by Gulf Air Company GSC (“Gulf Air”),provides technology services, bookable travel products and distributionservices for travel agencies, corporations and travel suppliers in the MiddleEast region.**

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**Sabre Airline Solutions**—Sabre Airline Solutions markets software solutionsand consulting services on four continents, with primary sales offices in theDallas/Ft. Worth area, London, Hong Kong and Sydney. We also maintain agencyrelationships to support sales efforts in key areas, including countries inAsia and the Middle East. Through Stockholm, Sweden-based RM Rocade (“Rocade”),we provide software solutions, including a fully functional flight operationsproduct suite, to international small, medium-size and low cost carriers.

**Competition**

The travelmarketplace is intensely competitive. Our companies and brands offer a broadportfolio of leading travel marketing, distribution and technology solutionsthat are well positioned in the marketplace. We market travel in the consumer-directchannel primarily through Travelocity. Travelocity’s competitors includePriceline.com, Travelport (which owns Orbitz and ebookers.com), Expedia (whichalso operates Hotels.com and Hotwire.com) and Opodo (owned by nine Europeanairlines and Amadeus Global Travel Distribution S.A. (“Amadeus”). Virtually allmajor airlines, and many other travel suppliers, have websites that allowconsumers to book directly with that supplier, and some offer an array ofproducts and services. Certain owners of these sites may make certaindiscounted fares and prices available exclusively on their proprietary or multi-vendorwebsites. See further discussion under “Item 1A—*Customers may reduce...”*

We markettravel in the business-direct channel principally through *Travelocity Business* travel service andour *GetThere* product. Themarketplace for Internet-based corporate and government travel procurementand supply services is highly competitive and rapidly evolving. Travelocity’scompetitors in the business-direct channel include traditional globaldistribution systems such as Amadeus’ E-Travel and Travelport’s Galileo as wellas online players such as Expedia.com and Travelport’s Orbitz for Business andTravelport for Business.

Sabre TravelNetwork competes in the travel agency channel against other large andwell-established traditional global distribution systems, such as Amadeus,Galileo International Inc. and Worldspan, L.P. Each of these competitorsoffers many products and services substantially similar to those offered bySabre Travel Network. The diverging price structures of competing globaldistribution systems, and our ability to offer our portfolio of solutions, mayprovide us with an opportunity to win additional business.

We routinelyface new competitors and new methods of travel distribution. Suppliers andthird parties seek to promote distribution systems that book directly withtravel suppliers. For example, established and start-up search engine companiesare attempting to enter the travel marketplace by aggregating travel searchresults across supplier, travel agent and other websites. Many alternativedistribution systems offer lower costs to suppliers, but they are not globaland offer travelers a limited subset of transactions from a limited subset ofsuppliers in one market segment. The systems often must rely on the scale andfunctionality of a GDS such as our *Sabre*system for a complete travel distribution solution for suppliers and travelagencies. They do not offer comprehensive functionality and do not have theinfrastructure to adequately service and support travel management companies orcorporations. They require the integration of a new, stand alone system intomost existing agency or corporate booking tool workflows. Many of thesealternative travel distribution channels are well financed but are in start-upor developing mode, and have yet to fully define their functionality and costs.These alternative travel distribution systems may have the effect of divertingcustomers from our online sites and our *Sabre*GDS, putting pressure on our revenues, pricing and operating margins. See“Item 1A—*Travel suppliers are pursuingdistribution options....”*

Another form ofcompetition derives from airlines, which have worked to divert travel bookingsonto channels that they control. Airlines have withheld inventory fromindependent travel distributors, have greatly reduced commissions paid toonline and traditional travel agencies and have conditioned independentdistributors’ access to inventory on their acceptance of pricing offered bychannels that those airlines control. Their collective efforts have resulted intravel bookings being diverted from traditional distribution channels towardsupplier-controlled channels, such as individual airline websites andcall centers. We believe, however, that the rate of “channel shift” from theGDS channel to supplier-controlled sites has stabilized.

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The developmentof competing technologies or the emergence of new industry standards may alsoadversely affect our competitive position. Competition could result in reducedmargins on our services and products. See “Item 1A—*Consolidation in the travel industry*....”

In the products and services business, Sabre Airline Solutions competeswith a number of boutique firms in specific product areas, as well as acrossour portfolio with vendors such as Lufthansa Systems. In the airline passengersolutions business, Sabre Airline Solutions competes with Amadeus, Navitaire,Worldspan, IBM and others.

**Computer Reservation System Industry Regulation**

Aspects of our travel marketing and distribution businesses are subjectto the Computer Reservation Systems (“CRS”) regulations in the European Union,Canada and Peru. These regulations generally govern GDS services for airlinesand travel agencies, but not for non-airline suppliers (except rail suppliersin limited circumstances). Among the topics addressed in some of the currentregulations are:

·         nopreferencing CRS displays based upon airline identity,

·         equaltreatment of airlines by the CRS,

·         equalparticipation in all CRSs by airlines that have an ownership interest in a CRS,and

·         limitson travel agency contract terms.

All CRS regulations in the United States expired on July 31, 2004.CRS regulations in Canada were eliminated on May 7, 2004, except rules prohibitingscreen preference and discrimination in providing the right for all airlines toparticipate in service enhancements. The deregulation of CRSs in both the U.S.and Canada has enhanced our opportunities to creatively market airline servicesand freely negotiate with travel agencies. Regulators in the European Union (“E.U.”)have indicated they may propose the total repeal of their current CRSregulations even though four large E.U.-based airlines retain substantialownership positions in the Amadeus CRS. It is not clear whether or when anyamendments in the European Union’s CRS Code of Conduct will be formallyproposed, or will take effect or what form they may ultimately take. The repealof CRS rules in a jurisdiction where a locally-strong airlineretains an ownership interest in a CRS presents significant competitive risks.See further discussion under “Item 1A—*Regulatorydevelopments in Europe could limit our ability to compete...”*

**Other Regulation**

Our businesses continue to be subject to regulations affecting issuessuch as: exports of technology, telecommunications, data privacy and electroniccommerce. Any such regulations may vary among jurisdictions. We believe that weare capable of addressing these regulatory issues as they arise.

**Seasonality**

The travel industry is seasonal in nature. Travel bookings for ourSabre Travel Network business, and the revenue we derive from those bookings,decrease significantly each year in the fourth quarter, primarily in December.Customers generally book their November and December holiday leisuretravel earlier in the year, and business travel declines during the holidayseason. Travelocity revenues are also impacted by the seasonality of travelbookings, but to a lesser extent since commissions from car and hotel travelproviders and net rate revenue for vacation packages and hotel stays arerecognized at the date of consumption. The acquisition of lastminute.com hasresulted in revenues and net earnings becoming more significant in the secondand third quarters for the Travelocity segment due largely to European travelpatterns. See the discussion on Seasonality in “Item 7—*Management’s Discussion and Analysis of FinancialCondition and Results of Operations”* for additional information.

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**Research and Development Expenses**

Research and development expenses represent costs incurred toinvestigate and gain new knowledge that could be useful in developing a newproduct or service and then translating those findings into a plan or designfor a product or service. Our research and development expenses approximated$26 million, $26 million and $32 million for 2006, 2005 and2004, respectively.

**Segment Information**

Financial information for our operating segments and geographicalrevenues and assets are included in Note 13 to the Consolidated FinancialStatements.

**Intellectual Property**

We use software, business processes and other proprietary informationto carry out our business. These assets and related patents, copyrights, tradesecrets, trademarks and other intellectual property rights are significantassets of our business. We rely on a combination of patent, copyright, tradesecret and trademark laws, confidentiality procedures and contractualprovisions to protect these assets. We seek patent protection on key technologyand business processes of our business. Our software and related documentationare also protected under trade secret and copyright laws where appropriate. Wealso seek statutory and common-law protection of our trademarks whereappropriate. The laws of some foreign jurisdictions may provide less protectionthan the laws of the United States for our proprietary rights. Unauthorized useof our intellectual property could have a material adverse effect on us andthere can be no assurance that our legal remedies would adequately compensateus for the damages to our business caused by such use.

**Employees**

As of December 31, 2006, we had approximately 9,000 employees. Acentral part of our philosophy is to attract and maintain a highly capablestaff. We consider our current employee relations to be good. Our employeesbased in the United States are not represented by a labor union.

**Available Information**

We are subjectto the informational requirements of the Securities Exchange Act of 1934, asamended, and in accordance therewith, we file reports, proxy and informationstatements and other information with the Securities and Exchange Commission (“SEC”).Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,Current Reports on Form 8-K, proxy and information statements andother information and amendments to those reports filed or furnished pursuantto Section 13(a) or 15(d) of the Securities Exchange Act of 1934are available through the Investor Relations section of our Website under thelinks to “—Financial Information—SEC Filings.” Our Internet address iswww.sabre-holdings.com. Reports are available free of charge as soon asreasonably practicable after we electronically file them with, or furnish themto, the SEC. In addition, our officers and directors file with the SEC initialstatements of beneficial ownership and statements of change in beneficialownership of our securities, which are also available on our website at thesame location. We are not including this or any other information on ourwebsite as a part of, nor incorporating it by reference into, this Form 10-Kor any of our other SEC filings.

In addition to our website, you may read and copy public reports wefile with or furnish to the SEC at the SEC’s Public Reference Room at 100F Street, NE, Washington, DC 20549. You may obtain information on theoperation of the Public Reference Room by calling the SEC at 1-800-732-0330.The SEC maintains an Internet site that contains our reports, proxy andinformation statements, and other information that we file electronically withthe SEC at www.sec.gov.

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**ITEM 1A.**             RISK FACTORS

**RISK FACTORS**

Risks associated with an investment in our securities, and withachieving the forward-looking statements contained in this report or inour news releases, websites, public filings, investor and analyst conferencesor elsewhere, include, but are not limited to, the risk factors describedbelow. Any of the risk factors described below could have a material adverseeffect on our business, financial condition or results of operations. We maynot succeed in addressing these challenges and risks.

**Completion of the sale of the Company to Silver Lake Partners and TexasPacific Group is subject to various conditions and the transaction may notoccur even if we obtain stockholder approval.**

Completion ofthe merger is subject to various risks, including but not limited to those setforth below. The list is not intended to be an exhaustive list of the risksrelated to the merger and should be read in conjunction with the otherinformation in our definitive Proxy Statement dated February 21, 2007. 

·         Stockholdersholding at least a majority of the shares of our outstanding Common Stockentitled to vote might not vote to adopt the merger agreement;

·     Ourfailure or the failure of Silver Lake Partners and Texas Pacific Group toobtain the required regulatory approvals by foreign governments regarding themerger (the required approval from U.S. authorities was received onJanuary 26, 2007 when the waiting period under the Hart-Scott-Rodino Actended without further action by U.S. competition officials);

·         Theenactment of a law or issuance of an order by a governmental authorityprohibiting the merger or other transactions contemplated by the mergeragreement;

·         Thependency of a non-frivolous suit or action, or any governmental proceeding,challenging or seeking to restrain the sale or the ability of Silver LakePartners and Texas Pacific Group to acquire our Common Stock;

·         Thefailure of any other conditions in the merger agreement; and

·         Thefailure of the sale of the Company to be completed for any other reason.

As a result of these risks, there can be no assurance that the sale ofthe Company will be completed even if we obtain stockholder approval.

**Failure to complete the sale of the Company could negatively impact themarket price of our Common Stock and operation of our businesses.**

An investment in our Common Stock is subject to risks related to afailure to complete the sale of the Company to Silver Lake Partners and TexasPacific Group, including: 

·         themarket price of our Common Stock could decline to the extent that the currentmarket price of our stock reflects a market assumption that the sale will becompleted;

·         costsrelated to the sale, such as legal fees, and, in specified circumstances,termination fees and expense reimbursements, must be paid even if the sale isnot completed; and

If our merger agreement is terminated and our Board of Directors seeksto sell the Company to another purchaser or to pursue a business combination,then our stockholders cannot be certain that we will be able to find anacquirer willing to pay an equivalent or better price than the price agreed tobe paid under the merger agreement.

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**Our revenues are highly dependent on the travel and transportationindustries, and particularly on air travel, and a prolonged substantialdecrease in travel transaction volumes could adversely affect us.**

Our revenue increases and decreases with the level of travel andtransportation activity. The travel industry is seasonal and our revenue variessignificantly from quarter to quarter. Our revenue is also highly subject todeclines in or disruptions to travel and transportation that may be caused byfactors entirely out of our control. For example, negative perceptions held bytravelers about the following factors may adversely affect travel activity:

·         economicdownturns, rising fuel costs and the financial instability of travel suppliers,

·         politicalinstability, acts of terrorism, hostilities and war,

·         securityissues, including increased airport security,

·         inclementweather, including hurricanes,

·         increasedoccurrence of travel-related accidents, and

·         travelers’concerns about exposure to contagious diseases.

A prolonged substantial decrease in travel transaction volumes couldhave an adverse impact on our financial performance, operations, liquidity, orcapital resources.

**Changes to our travel supplier relationships may reduce our revenues.**

Most of our revenue is derived from airlines, hotel operators, carrental companies, cruise and tour operators and other suppliers in the traveland transportation industry. We depend on a relatively small number of airlinesfor a significant portion of our revenues. To compete effectively in the traveldistribution industry, we must offer broad, dependable access to airlinecontent and features such as schedules, seat availability and fares, includingweb fares. Airlines and other suppliers may choose to limit our access to theircontent or the features and benefits they offer travelers in connection withthe sale of their services. If our access to supplier-provided content orfeatures and benefits were to be diminished relative to our competitors, ourbusiness could be materially adversely affected. Because offerings from majorairlines represent a large part of our business, if the *Sabre* GDS were to lack the ability tofacilitate bookings on one or more major airlines, our distribution channelswould be relatively less attractive to travel agencies and travel purchasers,which could reduce our transaction fee revenue and materially adversely affectour business. Several major airlines in the United States are experiencing liquidityproblems. Some of those airlines are considering consolidation, others havesought bankruptcy protection, and still others may consider bankruptcy relief.The financial instability of airlines or other travel suppliers could have amaterial negative impact on our business.

**Travel suppliers are pursuing distribution options that may reduce ouraccess to content, which could reduce our revenues.**

Some travel suppliers are seeking to decrease their reliance ondistribution intermediaries, including global distribution systems such as our *Sabre* GDS, by promoting other distributionchannels. Many airlines, hotels, car rental companies, cruise and touroperators have call centers and have established their own travel distributionwebsites. From time to time, travel suppliers offer advantages, such as bonusloyalty awards, lower transaction fees or discounted prices, when theirproducts and services are purchased from supplier-related channels. Our *Sabre* GDS also competes with competitorswho may offer less content, functionality and marketing reach at a relativelylower cost to suppliers. In addition, search engine providers are attempting toenter the online travel marketplace by aggregating travel search results acrosssupplier, travel agent and other travel-related websites. If our accessto supplier-provided content or features were to be diminished relativeto our competitors, our business could be materially adversely affected. See “*Business Trends*—*Trends Affecting Our Airline-Related Businesses*” and “*Business Trends*—*TrendsAffecting Competition in Travel Commerce.*”

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**Customers may reduce transactions through our distribution channels,which could reduce our revenues.**

Our portfolio of travel distribution businesses includes channels thatsupport the travel agency, business-direct and consumer-directsegments of the global travel distribution marketplace. We believe that we andour customers benefit when we broadly participate in the travel distributionindustry, including our direct to traveler services. Broad participation in theindustry gives us a competitive advantage, including greater scale of ourtechnology and other synergies. In all of these distribution channels, we facesignificant competition.

·         Inthe travel agency channel, our Sabre GDS historically has competed with otherlarge and well-established global distribution systems.

·         Inthe business-direct channel, both the *TravelocityBusiness* travel service and SabreTravel Network  *GetThere*products compete with similar offerings from travel agencies, airlines andother suppliers.

·         Inthe consumer-direct channel, Travelocity competes not only againstsimilar offerings from affiliates of other global distribution systems, butalso with travel suppliers, online vertical search engines, and a large numberof online travel agencies.

·         OurSabre Airline Solutions business unit competes against several organizationsoffering internal reservation system and related technology services toairlines.

In some circumstances, our business segments have objectives that leadto conflicts with customers of our other business segments. For example, ourTravelocity and Travelocity Business operations compete with travel-agencysubscribers of Sabre Travel Network. That competition could cause current orpotential travel agency subscribers to elect to use competing GDS providers,websites or other channels of travel distribution, which could reduce ourtransaction fee revenue and materially adversely affect our business. If ourcompetitors introduce new pricing or offerings that we cannot meet in a timelyor cost-effective manner, our customers may elect to use other traveldistribution channels and our business may be materially adversely affected. Inaddition, travelers and other persons may use our websites and other resourcesto obtain schedules, availability, pricing and other travel information andthen elect to purchase travel from a competitor, which would tend to increaseour costs without producing revenue.

**Consolidation in the travel industry and increased competition forcustomers may increase costs and reduce revenue.**

Consolidationamong participants in the travel industry may increase their negotiatingleverage, thereby providing them with competitive advantages over us that mayincrease our costs and reduce our revenues. Consolidation among travelsuppliers, such as major hotel and airline mergers and alliances, may increasecompetition from these supplier-related distribution channels or givethem additional leverage to negotiate lower transaction fees payable to ourtravel distribution channels, including the *Sabre*GDS. In order for our distribution channels to obtain access to importantairline content offerings, we are evaluating various pricing models for airlinesuppliers.

GDSs, such asour *Sabre* GDS, compete to attractand retain travel agencies. Some travel suppliers have reduced or eliminatedcommissions paid to travel agencies (including consumer-direct travelsites like *Travelocity*). The loss of suppliercommissions causes travel agencies to become more dependent on other sources ofrevenues, such as traveler-paid service fees and GDS-paid incentives. Thereduction or elimination of supplier-paid commissions has forced some smallertravel agencies to close or to combine with larger travel agencies. Althoughthe *Sabre* GDS has a leading shareof large travel agencies, competition is particularly intense among globaldistribution systems for larger travel agency subscribers, including onlinetravel agencies. Consolidation of travel agencies may increase competition forthese subscribers and increase the ability of those agencies to negotiatehigher GDS paid incentives. In order to compete effectively, we may need toincrease incentives, pre-pay incentives, increase spending on marketing orproduct development, or make significant investments to purchase strategicassets.

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Consolidation among competitors that offer global distributionssystems, such as the announced merger of TravelPort and Worldspan LLP, mayprovide those companies cost or revenue advantages as compared to the *Sabre* GDS adversely affecting our ability to successfullymaintain and grow our transaction revenues.

**Travelocity’s revenue growth largely depends on international growthand on expanding net rate (merchant) programs.**

Travelocity’s revenue growth is driven by expanding global use of theInternet and driving purchases through our online travel websites. The onlinetravel marketplace, especially in Europe, is highly competitive, withindependent online travel agencies, suppliers’ proprietary websites, and insome regions the websites of tour wholesalers, competing for customers.Travelocity’s business strategy largely depends on growing its net rate programofferings (commonly referred to in the industry as “merchant model” programs,because the online agency is the merchant of record for credit cardprocessing). Growing the net rate programs is particularly dependent upon ourability to offer adequate hotel rooms. Many hoteliers utilize net rate programsto dispose of excess hotel rooms at discounted rates. If demand increases forsuppliers’ products, services and other content offerings, suppliers may limitour right to distribute their offerings or may increase the cost of thoseofferings. Travelocity’s business strategy also depends on expanding itsdynamically packaged offerings, maintaining the breadth of its access tosupplier offerings, developing its brand in a cost-effective manner in theUnited States, Europe, Asia and other growth regions, increasing traffic to itswebsites (including direct distribution as well as through current and futuredistribution partners), and expanding the appeal of the *Travelocity Business* tool to businesstravelers. We also plan to invest strategically in growth opportunities, and ifany of these initiatives is not successful, or requires extensive investment,Travelocity’s growth may be limited and it may be unable to achieve or maintainprofitability.

**We may be unsuccessful in pursuing and integrating businesscombinations, strategic alliances, or products and technologies, which couldresult in increased expenditures or cause us to fail to achieve anticipatedcost savings or revenue growth.**

We are currently seeking to integrate recently acquired businesses asdescribed in this report, including our acquisition of lastminute.com. Thereare risks inherent in these types of transactions, such as: difficulty inassimilating or integrating the operations, technology and personnel of thecombined companies; difficulties and costs associated with integrating andevaluating the internal control systems of acquired businesses; disruption ofour ongoing business, including loss of management focus on existing businessesand marketplace developments; problems retaining key technical and managerialpersonnel; expenses associated with the amortization of identifiable intangibleassets; additional or unanticipated operating losses, expenses or liabilitiesof acquired businesses; impairment of relationships with existing employees,customers and business partners; and fluctuations in value and losses that mayarise from equity investments.

In addition, we plan to continue to examine possible businesscombinations, investments, joint ventures or other strategic alliances withother companies in order to maintain and grow revenue and marketplace presence.We may not be able to achieve the following: identify suitable candidates foradditional business combinations and strategic investments; obtain financing onacceptable terms for such business combinations and strategic investments; orotherwise consummate such business combinations and strategic investments onacceptable terms. We may be unable to successfully complete potentialacquisitions due to multiple factors, such as issues related to regulatoryreview of the proposed transactions. To consummate such transactions, we mayneed to raise external funds through the sale of stock and/or debt in thecapital markets or through private placements, which might affect ourliquidity.

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**Rapid technological changes and new distribution channels orunauthorized use of intellectual property may adversely affect the value of ourcurrent or future technologies to us and our customers, which could cause us toincrease expenditures to upgrade and protect our technology or develop and protectcompeting offerings in new distribution channels.**

New distribution channels, technology and customer behavior in ourindustry are evolving rapidly. Our ability to compete and our future resultsdepend in part on our continued ability to maintain and to make timely andcost-effective enhancements, upgrades and additions to our technology inresponse to changes in consumer preferences and increased demand for ourproducts and services. We must also keep pace with rapid advancements intechnology, standards and practices, and protect our technology. Maintainingflexibility to respond to technological and marketplace dynamics may requiresubstantial expenditures and lead time. We cannot assure you that we willsuccessfully identify and develop new products or services in a timely manner,that offerings, technologies or services developed by others will not renderour offerings obsolete or noncompetitive, or that the technologies in which wefocus our research and development investments will achieve acceptance in themarketplace and provide a return on our investment.

Unauthorized use of our intellectual property could have a materialadverse effect on us, and our legal remedies may not adequately compensate usfor the damages to our business caused by such use. Protecting our intellectualproperty from unauthorized use could be expensive and time-consuming.Additionally, claims that our products or services may infringe theintellectual property rights of others may require additional expenditures inresolving such claims and/or development of alternate technologies, either orwhich could be expensive and time-consuming.

**We will encounter risks and difficulties similar to those frequentlyexperienced in rapidly evolving industries such as the travel distributionindustry.**

Some of these risks relate to our ability to:

·         attractand retain customers on a cost-effective basis,

·         expandand enhance our service offerings, including the use of new technologies,

·         operate,support, expand and develop our operations, websites, software, data centers,communications and other systems,

·         maintainand diversify our sources of revenue, including by entering into agreementsthat may reflect changes to our *Sabre*GDS business model,

·         maintainand develop our existing brands and distribution channels, as well as to makecost-effective expenditures in connection with these initiatives,

·         manageour relationships with important travel suppliers and other industryparticipants, and

·         respondto competitive marketplace conditions.

If we are unsuccessful in addressing these risks or in executing ourbusiness strategy, our business, financial condition or results of operationsmay suffer.

**We rely on third parties to provide critical systems andinfrastructure.**

With the exception of our lastminute.com operations, our businesses arelargely dependent on the computer data centers and network systems operated forus by Electronic Data Systems Corporation. We also rely on other providers andon the global telecommunications infrastructure. We rely on severalcommunications service suppliers and on the global Internet to provide networkaccess between our computer data center and call centers and end-users of ourservices. The Travelocity(including the *Site59®* and *lastminute.com* websites) business isdependent upon GDSs (the *Sabre*GDS and others) to process travel bookings. If those providers do not enable usto provide our customers and suppliers with reliable, real-time access to oursystems, our business may be materially adversely affected.

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**Our success depends on maintaining the integrity of, and upgrading thequality of, our systems and infrastructure, which may suffer failures, capacityconstraints and business interruptions, which could increase our operatingcosts and cause us to lose customers.**

In order to be successful, we must providereliable, real-time access to our systems for our customers and suppliers whilealso pursuing a low-cost model. Consumers and suppliers will not tolerate aservice hampered by slow delivery times, unreliable service levels, serviceoutages due to the installation of upgrades, or insufficient capacity. As ouroperations grow in both size and scope, we will continually need to improve andupgrade our systems and infrastructure to offer an increasing number ofcustomers and travel suppliers enhanced products, services, features andfunctionality—all while maintaining the reliability and integrity of oursystems and infrastructure and while pursuing reduced costs per transaction.The expansion of our systems and infrastructure will require us to commitsubstantial financial, operational and technical resources before the volume ofbusiness increases, with no assurance that the volume of business willincrease. System capacity limits or constraints arising from unexpectedincreases in our volume of business could cause interruptions, outages ordelays in our services, or deterioration in their performance, or could impairour ability to process transactions. We occasionally experience systeminterruptions that make unavailable some or all of our global distributionsystem or other data processing services (including the services that SabreAirline Solutions provides to airlines). System interruptions may prevent usfrom efficiently providing services to our customers or other third parties,which could result in our losing customers and revenues, or incurringliabilities. Much of the computer and communications hardware upon which wedepend is located in a single facility. Our systems might be damaged orinterrupted by fire, flood, power loss, telecommunications failure, break-ins,earthquakes, terrorist attacks, hostilities or war or similar events. Computerviruses, denial of service attacks, physical or electronic break-ins andsimilar disruptions affecting the global Internet or our systems might causeservice interruptions, delays and loss of critical data, and could prevent usfrom providing our services. Problems affecting our systems might be expensiveto remedy and could significantly diminish our reputation and brand name andprevent us from providing services. We could be harmed by outages in, orunreliability of, the data center or network systems. The occurrence of any ofthese events could result in a material adverse effect on our business.

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**Our collection, processing, storage, use and transmission of personaldata may be restricted or result in liabilities.**

In our processing of travel transactions, we collect, process, store,use and transmit large amounts of personally identifiable data about travelers.Our handling of these types of data is increasingly subject to legalrestrictions around the world, which may result in conflicting legalrequirements in the United States and other jurisdictions. Companies thathandle these types of data have also been subject to investigations, lawsuitsand adverse publicity due to allegedly improper disclosure of personallyidentifiable information. Our business could be materially adversely affectedif legal restrictions on the use of personally identifiable information areexpanded or are interpreted in ways that conflict with our business practices.

**Tax issues have the potential to have an adverse effect on ourfinancial condition and results of operations.**

We are subjectto a variety of taxes in many jurisdictions globally. We establish reserves forour potential liability for taxes, consistent with applicable accountingprinciples and in light of all current facts and circumstances. Regarding value-addedtaxes, we have established reserves relating to the collection of refunds whichare subject to audit and collection risks in various regions of Europe. Thereserves represent our best estimate of our contingent liability for taxes. Theinterpretation of tax laws and the determination of any potential liabilityunder those laws are complex, and the amount of our liability may exceed ourestablished reserves and could therefore have a material adverse effect on ourfinancial results.

Some state and local taxing authorities impose taxes on the sale, useor occupancy of hotel room accommodations, which are called transient,occupancy, accommodation, sales or hotel room taxes. Hotel operators generallycollect and remit these occupancy taxes. Consistent with that practice, when acustomer books a hotel room through one of our travel services under our netrate hotel program, we collect from the customer an amount sufficient to paythe hotel its room charge and the occupancy taxes on that charge, as well as anadditional amount that represents our fees. We do not collect or remitoccupancy taxes on our fees. Some tax authorities claim that occupancy taxesshould be collected on some or all of those fees. We believe there are strongarguments that our fees are not subject to occupancy taxes (although tax lawsvary among the jurisdictions). We are attempting to resolve this issue with taxauthorities in various jurisdictions, but we cannot predict the resolution inany particular jurisdiction. Any actual liability we may have for occupancytaxes, or the size of the reserve we may establish for those taxes, could beaffected by a variety of factors, such as the number of jurisdictions thatprevail in either assessing additional occupancy taxes or negotiating asettlement with us, the amount of fees potentially subject to tax in eachjurisdiction, changes in applicable tax laws, and the timing of any or all ofthe foregoing.

**Regulatory developments in Europe could limit our ability to compete byremoving key protections needed to safeguard competition where locally strong airlinesretain ownership interests in a CRS, and regulatory developments elsewherecould, among other things, inhibit our flexibility to contract with airlines ortravel agencies, which could cause our customers to be diverted to ourcompetitors and adversely affect our revenue and results of operations.**

The E.U. Commission has suggested the potential elimination of its rules governingCRS systems. It is unclear when or if the E.U. Commission will make such aformal proposal, or if it does, the final changes that might ultimately be madeto those rules. Because large E.U.-based airlines retain substantialownership interests in one CRS, we could be unfairly and adversely affected if,for example, the E.U. Commission were to eliminate current requirements forairlines that own an interest in a CRS to participate equally in other CRSs. Wealso could be adversely affected in Europe or elsewhere if restrictions wereimposed or continued on CRS advertising and displays, or if additionallimitations were placed upon our right to contract with travel agents orairlines. We could also be adversely affected if changes to any of theforegoing CRS rules or to other general laws affecting our businesses, orif decisions made under such rules or laws, were to increase our cost ofdoing business or otherwise impair our flexibility.

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**Our international operations are subject to other risks, which mayimpede our ability to grow internationally and adversely affect our overallresults of operations.**

We continually seek to expand the reach of our various businesses intointernational markets as well as to successfully integrate, operate and manageour existing and future international operations. Our international operationsare subject to risks, including those listed below, that may adversely affectour ability to conduct and grow business internationally and could materiallyadversely affect our business:

·         changesin foreign currency exchange rates;

·         difficultyin developing, managing and staffing international operations as a result ofdistance, language and cultural differences;

·         disruptionsto communication and transportation services;

·         business,political and economic instability in foreign locations, including actual orthreatened terrorist activities, and military action;

·         adverselaws, governmental policies or actions, such as consumer, labor and tradeprotection measures; taxes, restrictions on foreign investment limits on therepatriation of funds; and lesser protection for intellectual property; and

·         economicand political conditions, including adverse political or consumer reactions inthe United States.

**ITEM 1B.**             UNRESOLVED STAFF COMMENTS

We had no unresolved SEC staff comments through December 31, 2006.

**ITEM 2.**                     PROPERTIES

In June 2003,Sabre Inc. refinanced the syndicated lease arrangement regarding ourcorporate headquarters facility (three buildings and two parking structures onapproximately 180 acres) in Southlake, Texas, and entered into a ten-yearmaster lease, accounted for as a capital lease. The initial term of the leaseexpires in 2013 with an option to purchase all or a portion of these facilitiesand/or the undeveloped land prior to or upon expiration of the lease. An optionto purchase one of the three headquarters buildings (and the relevant parkingstructure) along with approximately 145 acres of undeveloped land (“Solana”)from the capital lease was exercised on December 8, 2006. After exercisingthe purchase option, the Solana facilities were sold to a third party for $80 millionand leased back for a five-year term. The capital lease is still in place forthe remaining two buildings (and relevant parking structure) and approximately35 acres of undeveloped land. We plan to re-accommodate the approximately 1,200employees currently occupying the Solana building in two other headquartersbuildings, also in Southlake, Texas and vacate the Solana building in late 2007or early 2008, prior to the expiration of the five-year lease term. Uponvacating the Solana building, we expect to take a one-time charge ofapproximately $31 million to $36 million related to future obligationsunder the leaseback.

Additionally,we lease office facilities in Westlake, Texas, under leases expiring in 2008.These facilities are utilized by each of our three business units. We alsolease office facilities for our business units in approximately 146 otherlocations worldwide. These locations serve a variety of functions includingfacilities for various operating subsidiaries, branch offices in internationallocations and customer call centers.

In July 2005,we acquired 31 office locations throughout Europe as a result of ouracquisition of lastminute.com. These locations operate within our Travelocitysegment. We currently occupy 18 of the locations; three are sublet, four are currentlyvacant and six were closed in 2006 as a part of our lastminute.comrestructuring plan.

EDS subleases alarge office facility from us in Fort Worth, Texas, under a sublease that willexpire in 2019. We also sublease five small office facilities in North Americato various companies.

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We believe that our office facilities will be adequate for ourimmediate needs and could accommodate expansion.

**ITEM 3.**                     LEGAL PROCEEDINGS

The litigationmatters described below involve issues or claims that may be of particularinterest to the Company’s stockholders, regardless of whether any of thesematters may be material to the financial position or operations of the Companybased upon the standard set forth in the SEC’s rules.

We are a partyto three separate law suits arising from the pending sale of the Company toaffiliates of Texas Pacific Group and Silver Lake Partners.

On December 12,2006, purported shareholder class actions styled Jack McBride v. Sabre HoldingsCorp., et al. (Case No. 236-221611-06)and Lillian Chait v. Sabre Holdings Corp., et al. (Case No. 067-221619-06)were filed in the Tarrant County District Court for the State of Texas onbehalf of the holders of our Common Stock in connection with the merger. Bothcomplaints name as defendants Sabre Holdings and its Board of Directors. Thecomplaints allege that Sabre Holdings’ directors breached their fiduciaryduties by adopting the merger agreement and approving the merger. Thecomplaints purport to seek declaratory relief, an injunction preventingcompletion of the merger, the recovery of unspecified damages, and plaintiffs’attorneys’ fees. On January 22, 2007, Chait voluntarily dismissed hercomplaint. On February 7, 2007, an amended complaint was filed in theMcBride action. The amended complaint contains similar allegations to theoriginal complaint and adds allegations that Sabre Holdings’ directors have notfully and fairly disclosed all material information relating to the merger. Wecontinue to believe the lawsuit is without merit and intend to defend theaction vigorously.

On January 4, 2007, Joseph Holowach filed a purported shareholderderivative complaint in the Tarrant County District Court for the State ofTexas, Case No. 017-221963-07against the Board of Directors, Texas Pacific Group and Silver Lake Partners;the Company is named as a “nominal defendant.” The complaint purports to allegecauses of action for breach of fiduciary duty and abuse of control inconnection with the adoption of the merger agreement. The complaint does notseek monetary damages from the Company. The Company believes the lawsuit to bewithout merit, and not in the best interests of the Company, and intends todefend it vigorously.

**ITEM 4.**                     SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS

No matters weresubmitted to a vote of our security holders during the fourth quarter of the fiscalyear ended December 31, 2006.

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**PART II**

**ITEM 5.**                     MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

Our Class ACommon Stock, par value $0.01 per share (“Common Stock”) is traded on the NewYork Stock Exchange (symbol TSG). The approximate number of holders of recordof our Common Stock at February 20, 2007 was 8,454.

The range ofthe high and low sales prices for our Common Stock as reported by the New YorkStock Exchange by quarter for the two most recent fiscal years were:
|                         | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------|------------|----------|------------|---------|------------|
| Quarter  Ended:         |       |     |       |    |       |
| December 31, 2006  |       | $        | 32.12      |    | $          | 23.06 |   |
| September 30, 2006 |       | $        | 23.58      |    | $          | 20.50 |   |
| June 30, 2006      |       | $        | 23.56      |    | $          | 20.44 |   |
| March 31, 2006     |       | $        | 25.71      |    | $          | 23.30 |   |
| Quarter Ended:          |       |     |       |    |       |
| December 31, 2005  |       | $        | 24.90      |    | $          | 18.93 |   |
| September 30, 2005 |       | $        | 20.45      |    | $          | 18.26 |   |
| June 30, 2005      |       | $        | 22.24      |    | $          | 19.19 |   |
| March 31, 2005     |       | $        | 22.21      |    | $          | 19.84 |   |

 

*DIVIDENDS*

During 2004, 2005 and 2006, we paidout the following cash dividends:
| Declaration Date | ** ** | ** **             | ** ** | **Payable Date** | ** ** | **Amount per Share** | ** ** |
|-----------------------|------------|------------------------|------------|-----------------------|------------|--------------------------------|------------|
| **2004:**             | ** ** | ** **             | ** ** |                  | ** ** | ** **                     |       |
| January 20, 2004 |       | February 17, 2004 |       |                  | $          | 0.075                          | ** ** |   |
| April 20, 2004   |       | May 14, 2004      |       |                  | 0.075      | ** **                     |       |
| July 20, 2004    |       | August 16, 2004   |       |                  | 0.075      | ** **                     |       |
| October 26, 2004 |       | November 15, 2004 |       |                  | 0.075      | ** **                     |       |
| **2005:**             | ** ** | ** **             | ** ** |                  | ** ** | ** **                     |       |
| February 1, 2005 |       | February 28, 2005 |       |                  | $          | 0.090                          | ** ** |   |
| May 3, 2005      |       | May 26, 2005      |       |                  | 0.090      | ** **                     |       |
| July 26, 2005    |       | August 18, 2005   |       |                  | 0.090      | ** **                     |       |
| November 1, 2005 |       | November 29, 2005 |       |                  | 0.090      | ** **                     |       |
| **2006:**             | ** ** | ** **             | ** ** |                  | ** ** | ** **                     |       |
| January 30, 2006 |       | February 28, 2006 |       |                  | $          | 0.100                          | ** ** |   |
| May 1, 2006      |       | May 25, 2006      |       |                  | 0.100      | ** **                     |       |
| August 1, 2006   |       | August 28, 2006   |       |                  | 0.100      | ** **                     |       |
| October 11, 2006 |       | November 10, 2006 |       |                  | 0.130      | ** **                     |       |

 

On January 30,2007, our Board of Directors approved a dividend of $0.13 per share payable on March 5,2007 to stockholders of record at February 16, 2007.

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Subject to the pending sale of the Company to Texas Pacific Group andSilver Lake Partners, our Board of Directors currently intends to considerdeclaring and paying comparable future dividends on a regular quarterly basis,subject to our ability to pay dividends and to a determination by managementand our Board of Directors that dividends continue to be in the Company’s bestinterests and those of our stockholders. For additional information ondividends see the following sections of this Form 10-K: “*Liquidity and Capital Resources*” in Part II, Item 7; “ConsolidatedStatements of Cash Flows” and “Consolidated Statements of Shareholders’ Equity”in Part II, Item 8.

*ISSUER PURCHASES OF EQUITY SECURITIES*

On October 25,2004, our Board of Directors approved a share repurchase program authorizing usto repurchase up to $100 million of our Common Stock. We completed thisauthorization in March 2005 with the purchase of 2,042,063 shares of ourCommon Stock during the first three months of 2005. All purchases were madethrough the open market pursuant to 10b5-1 trading plans.

On May 2,2005, we received authorization from our Board of Directors to repurchase anadditional $100 million of our Common Stock. No purchases of our CommonStock have been made under this authorization as of the date of this report. Asin the past, implementation of the program is at management’s discretion andwill depend on the best uses for our available cash and cash equivalents.

On October 20,2003, our Board of Directors issued a standing annual authorization to purchaseshares of our Common Stock to satisfy our obligations to deliver shares underour Employee Stock Purchase Plan and our Long-Term Incentive Plan (the “AlternativeShare Settlement Program”). We purchased 850,000 shares of our Common Stockunder this authorization in December 2003, 840,000 shares of our CommonStock under this authorization in January 2005 and 1,100,000 shares of ourCommon Stock under this authorization in May and June 2006 through theopen market pursuant to Rule 10b5-1 trading plans.

We expect thatthe timing, volume and price of any future repurchases of our Common Stock willbe made pursuant to trading plans that we intend as qualifying under Rule 10b5-1,unless such plans are terminated at the discretion of management.

We made norepurchases of our Common Stock during the last quarter of 2006:

| Period                                         | ** ** | ** ** | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Weighted-  Average  Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased  as Part of a  Publicly  Announced  Program** | ** ** | **Value of Shares  That May Yet be  Purchased Under**

**such Programs (1)** | ** ** |
|------------------------------------------------|------------|------------|------------|----------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| October 1, 2006 - October 31, 2006   |       |       | —     |                                         |       |                                                    | n/a        |                                                                                                            |       |                                                                                                                 | —     |   |   |   | $ | 100,000,000 |   |   |
| November 1, 2006 - November 30, 2006 |       |       | —     |                                         |       |                                                    | n/a        |                                                                                                            |       |                                                                                                                 | —     |   |   |   | $ | 100,000,000 |   |   |
| December 1, 2006 - December 31, 2006 |       |       | —     |                                         |       |                                                    | n/a        |                                                                                                            |       |                                                                                                                 | —     |   |   |   | $ | 100,000,000 |   |   |
| Total 4th Quarter 2006 Repurchases        |       |       | —     |                                         |       |                                                    | n/a        |                                                                                                            |       |                                                                                                                 | —     |   |   |   |   |   |   |

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(1)            OurBoard of Directors did not impose a set limit on the repurchase authority underthe Alternative Shares Settlement Program described above. The amount purchasedis dependent on the number of shares required to satisfy our obligations todeliver shares under the Employee Stock Purchase Plan and Long-Term IncentivePlan.

For additional information on purchases of equity securities see thefollowing sections of this Form 10-K: “*Liquidityand Capital Resources*” in Part II, Item 7; “ConsolidatedStatements of Cash Flows” and “Consolidated Statements of Shareholders’ Equity”in Part II, Item 8.

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**ITEM 6.**                     SELECTEDCONSOLIDATED FINANCIAL DATA

The following selected financial data should be read in conjunctionwith “Item 7. Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and “Item 8. Financial Statements andSupplementary Data.” We have derived the selected financial data set forthbelow from our audited financial statements and related notes.

·         Wehave completed 11 acquisitions during the years 2002 through 2006 which affectthe comparability of the selected consolidated financial data presented. Thetable below summarizes these transactions. For further information regardingthese transactions, see “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and the Notes to the Consolidated Financial Statements.

| Year         | ** ** | ** **                                                                           | ** ** | **Purchase price** | ** ** |
|--------------|------------|--------------------------------------------------------------------------------------|------------|-------------------------|------------|
| **acquired** | ** ** | **Entity**                                                                           | ** ** | **(in millions)**  | ** ** |
| **2006**     |       | Zuji Holdings Limited (1)                                                            |       |                    | $          | 35 |   |   |
| ** **   |       | TRAMS, Inc.                                                                     |       |                    | $          | 22 |   |   |
| **2005**     |       | SynXis Corporation                                                                   |       |                    | $          | 41 |   |   |
| ** **   |       | lastminute.com plc                                                                   |       |                    | $          | 1,171 |   |   |
| **2004**     |       | RM Rocade AB and RM Rocade Assist AB                                                 |       |                    | $          | 15 |   |   |
|         |       | All State Tours, Inc.                                                           |       |                    | $          | 25 |   |   |
|         |       | Travelocity Europe—Remaining 50% of the  non-German operations                  |       |                    | $          | 33 |   |   |
|         |       | Sabre Travel Network Middle East Joint  Venture—60% ownership                   |       |                    | $          | 31 |   |   |
| **2003**     |       | Dillon Communications Systems GmbH  (“Dillon”)—remaining 49% interest |       |                    | $          | 30 |   |   |
|         |       | World Choice Travel, Inc.                                                       |       |                    | $          | 50 |   |   |
| **2002**     |       | Site59.com, Inc.                                                                |       |                    | $          | 44 |   |   |

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(1)            Zuji Holdings Limitedwas consolidated on November 7, 2005 in compliance with FIN 46R. On January 24,2006, upon exercise of a put option, we purchased the remaining 90% of Zujithat we did not already own (see Note 4 to the Consolidated FinancialStatements for further discussion).

·         OnApril 8, 2002, we completed a $28 per share cash tender offer for all ofthe approximately 16.7 million outstanding publicly held common shares ofTravelocity.com that we did not own. Prior to the tender offer, we had anapproximate 70% ownership stake in Travelocity.com. We consolidatedTravelocity.com and accounted for the 30% outside ownership as a minority interest.After the tender offer, we effected a short-form merger on April 11, 2002,whereby Travelocity.com became our indirect 100% owned subsidiary.

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The following table presents selectedhistorical financial data for each of the five years in the period ended December 31,2006:

|                                                                               | ** ** | **Year Ended December 31,**                                                                                | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2006**                                                                                                                  | ** ** | **2005** | ** ** | **2004** | ** ** | **2003 (2)** | ** ** | **2002 (2)** | ** ** |
| ** **                                                                    | ** ** | **(in millions, except per share data and other data where indicated)** | ** ** |
| **Income  Statement Data (5) (7):**                                      | ** ** | ** **                                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues (9) (10)                                                        |       | $                                                                                                                         | 2,823.8    |   | $ | 2,521.3 |   | $ | 2,131.0 |   | $ | 2,045.2 |   | $ | 2,056.5 |   |
| Operating expenses, excluding amortization of intangible assets  (8) (9) |       | 2,466.8                                                                                                                   |       | 2,212.2 |   | 1,825.4 |   | 1,822.7 |   | 1,685.6 |   |
| Amortization of intangible assets (1)                                         |       | 71.9                                                                                                                      |       | 48.2 |   | 46.9 |   | 56.3 |   | 53.4 |   |
| Operating income                                                              |       | 285.1                                                                                                                     |       | 260.9 |   | 258.7 |   | 166.2 |   | 317.5 |   |
| Other income (expense), net (6)                                               |       | (68.6                                                                                                                     | )          | (24.6 | ) | (3.3 | ) | (38.4 | ) | 21.4 |   |
| Minority interests                                                            |       | 3.7                                                                                                                       |       | 8.4 |   | 1.7 |   | (0.4 | ) | 0.2 |   |
| Income from continuing operations before provision for income taxes           |       | 220.2                                                                                                                     |       | 244.7 |   | 257.1 |   | 127.4 |   | 339.1 |   |
| Provision for income taxes                                                    |       | 64.6                                                                                                                      |       | 72.5 |   | 66.7 |   | 44.1 |   | 125.0 |   |
| Net earnings                                                                  |       | $                                                                                                                         | 155.6      |   | $ | 172.2 |   | $ | 190.4 |   | $ | 83.3 |   | $ | 214.1 |   |
| Earnings per common share—basic:                                         |       | $                                                                                                                         | 1.19       |   | $ | 1.33 |   | $ | 1.40 |   | $ | 0.59 |   | $ | 1.53 |   |
| Earnings per common share—diluted:                                       |       | $                                                                                                                         | 1.18       |   | $ | 1.32 |   | $ | 1.38 |   | $ | 0.58 |   | $ | 1.50 |   |
| Dividends per  common share                                                   |       | $                                                                                                                         | 0.43       |   | $ | 0.36 |   | $ | 0.30 |   | $ | 0.21 |   | $ | — |   |

 

|                                                                            | ** ** | **Year Ended December 31,**                                                                                | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2006**                                                                                                                  | ** ** | **2005** | ** ** | **2004** | ** ** | **2003 (2)** | ** ** | **2002 (2)** | ** ** |
| ** **                                                                 | ** ** | **(in millions, except per share data and other data where indicated)** | ** ** |
| **Balance  Sheet Data**                                                    | ** ** | ** **                                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(at  end of period) (5) (7):**                                      | ** ** | ** **                                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current assets                                                             |       | $                                                                                                                         | 1,136.9    |   | $ | 1,248.3 |   | $ | 1,273.5 |   | $ | 1,347.7 |   | $ | 1,288.0 |   |
| Goodwill and intangible assets, net (1) (7)                           |       | $                                                                                                                         | 2,494.5    |   | $ | 2,333.1 |   | $ | 988.6 |   | $ | 891.7 |   | $ | 859.5 |   |
| Total assets                                                               |       | $                                                                                                                         | 4,282.4    |   | $ | 4,374.1 |   | $ | 3,018.0 |   | $ | 2,966.5 |   | $ | 2,771.9 |   |
| Current liabilities (9) (10)                                          |       | $                                                                                                                         | 1,102.1    |   | $ | 1,885.8 |   | $ | 608.3 |   | $ | 503.4 |   | $ | 499.9 |   |
| Minority interests                                                         |       | $                                                                                                                         | 1.8        |   | $ | 38.9 |   | $ | 5.1 |   | $ | 6.5 |   | $ | 10.3 |   |
| Long-term capital lease obligation (11)                                    |       | $                                                                                                                         | 84.9       |   | $ | 158.2 |   | $ | 161.1 |   | $ | 160.7 |   | $ | — |   |
| Public and other notes payable                                             |       | $                                                                                                                         | 975.2      |   | $ | 426.4 |   | $ | 439.3 |   | $ | 442.5 |   | $ | 450.8 |   |
| Stockholders’ equity                                                  |       | $                                                                                                                         | 1,923.4    |   | $ | 1,643.1 |   | $ | 1,626.5 |   | $ | 1,680.1 |   | $ | 1,641.6 |   |
| **Other Data:**                                                            | ** ** | ** **                                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total transactions through the *Sabre*  system (in thousands) (2) (3) |       | 357,170                                                                                                                   |       | 342,681 |   | 330,398 |   | 314,924 |   | 343,623 |   |
| Operating margin                                                           |       | 10.1                                                                                                                      | %          | 10.3 | % | 12.1 | % | 8.1 | % | 15.4 | % |
| Ratio of earnings to fixed charges (4)                                     |       | 3.37                                                                                                                      |       | 4.91 |   | 8.63 |   | 5.34 |   | 11.69 |   |
| Cash flows from operating activities (12)                                  |       | $                                                                                                                         | 378.6      |   | $ | 225.5 |   | $ | 361.4 |   | $ | 277.9 |   | $ | 303.6 |   |
| Cash flows provided by (used for) investing activities (12)                |       | $                                                                                                                         | 9.3        |   | $ | (833.9 | ) | $ | (99.0 | ) | $ | (165.2 | ) | $ | (680.9 | ) |
| Cash flows provided by (used for) financing activities (12)                |       | $                                                                                                                         | (298.7     | ) | $ | 698.1 |   | $ | (255.4 | ) | $ | (94.4 | ) | $ | 379.7 |   |
| Capital  expenditures (12)                                                 |       | $                                                                                                                         | 108.9      |   | $ | 91.7 |   | $ | 78.0 |   | $ | 71.5 |   | $ | 62.7 |   |

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(1)    The results of operations for the periods presented were impactedby our merger and acquisition activities. See Notes 2 and 4 to theConsolidated Financial Statements and “*Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations*” for additional information regarding mergers andacquisitions. Amortization of intangible assets includes both cost of revenuesfor purchased technology and selling, general and administrative expense forother purchased intangible assets.

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(2)    On September 11, 2001, the United States was the target ofterrorist attacks of unprecedented scope involving the hijacking anddestruction of multiple passenger aircraft operated by commercial air carriers.After those attacks, all of our business segments were adversely affected bythe state of the United States economy, by the possibility of terroristattacks, possible military action, by the financial instability of many aircarriers, by delays resulting from added security measures at airports and fromchannel shift. Our revenues and results of operations for the years ended December 31,2002 and 2003 were negatively affected by this continued reduction in traveland from channel shift. In 2004, 2005 and 2006, the security and channel shiftconcerns remain, however, travel demand did increase these years resulting ingrowth in our transactions. The following table shows our year-over-yearpercentage increase (decrease) in total transactions through the *Sabre* system and North Americatransactions by year:

|                                                                      | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Total transactions through the *Sabre*  system (3)                   |       |                                       | 4.2        | % |   |   | 3.7 | % |   |   | 4.9 | % |   | (8.4 | )% | (8.2 | )% |
| Total North America transactions through the *Sabre* system (3) |       |                                       | 4.7        | % |   |   | 2.2 | % |   |   | 4.6 | % |   | (10.2 | )% | (10.9 | )% |

 

(3)    Transaction count includes transactions that generate a fee paiddirectly to Sabre related to a travel reservation, including the following:traditional booking fees paid by suppliers, non-traditional transaction feespaid by suppliers, transaction fees paid by travel agencies, and transactionfees paid by corporations related to our online booking tool.

(4)    For purposes of computing the ratio of earnings to fixed charges,earnings consist of the sum of income from continuing operations before incometaxes and the cumulative effect of change in accounting method, interestexpense and the portion of rent expense deemed to represent interest. Fixedcharges consist of interest incurred, including amortization of debt issuancecosts, if applicable, and the portion of rent expense deemed to representinterest.

(5)    See Note 5 to the Consolidated Financial Statements fordiscussion of the impact of other significant events and transactions on theperiods presented.

(6)    In 2002, we recorded an $18 million gain in other incomefrom the sale of our former corporate headquarters building. During 2003, werecorded a $28 million loss relating to the required residual valueguarantee payment in connection with terminating our syndicated lease facility.The 2005 increase in expense is primarily due to interest on the$800 million bridge facility obtained to partially finance our acquisitionof lastminute.com. In 2006, interest expense increased due to a full year ofoutstanding debt related to the acquisition of lastminute.com.

(7)    On July 20, 2005, we completed the acquisition oflastminute.com, a leading online travel agency and leisure company in Europe.lastminute.com has been included in our Consolidated Statements of Income fromthe date of acquisition. In order to help finance the acquisition, we obtainedan $800 million bridge facility (See Note 7 to the ConsolidatedFinancial Statements) which was repaid in full during the first quarter of 2006with $220 million of existing cash and cash equivalents and $580 million ofdebt (See *“Item 7. Managements Discussion and Analysis ofFinancial Condition and Results of Operations—Liquidity and Capital Resources—FinancingArrangements”*). The assets acquired and liabilities assumed areincluded in our Consolidated Balance Sheets based on results of an independentvaluation.

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(8)    On January 1, 2006 we adopted SFAS 123R, using themodified prospective method, which requires that the measurement and recognitionof share-based payment awards to employees and directors of the company be madeat the estimated fair value on the grant date. In the past, compensationexpense related to our stock options was generally only included in pro formafinancial statements and was not recognized in our financial statements. Byadopting SFAS 123R, our operating expenses are $15 million higher in2006 than they would have been under APB 25. See Note 12 to theConsolidated Financial Statements and “*Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations*” for additional information regarding stock compensation.

(9)    In the first quarter of 2006, we revised our estimate of theincentive liability to include $21 million in additional expense associatedwith our smaller travel agency customers that were previously recorded aspayments were made. We also performed a similar analysis on revenues wereceived from smaller travel agencies which resulted in additional subscriberrevenues of $7 million in the first quarter of 2006. See “*Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations*” for additionalinformation.

(10)  Sabre Travel Network has a booking fee cancellation reserve that iscalculated at each period end based on historical cancellation rates. Inestimating the amount of future cancellations that will require us to refund abooking fee, we assume that a certain percentage of cancellations are followedimmediately by a new reservation, without loss of revenue. In the first quarterof 2006, our estimate of the rebook rate increased, resulting in a $7 milliondecrease in the booking fee cancellation reserve. See Note 2 to theConsolidated Financial Statements and “*Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations*” for additional information.

(11)  In December 2006, wecompleted the sale of the Solana building, associated improvements and certainundeveloped land and other property rights at our Southlake, Texas headquarters(the “Property”) to Maguire Partners (“Maguire”) and began our five-yearleaseback of the Solana building from Maguire. We completed the sale of theProperty after exercising our option under the capital lease facility topurchase the Property, and we used the proceeds from the sale to repay aportion of the capital lease facility. SeeNote 8 to the Consolidated Financial Statements and “*Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations*” for additionalinformation on this transaction.

(12)  Balance sheet and cash flows data for 2002 were reclassified toconform to 2006, 2005, 2004 and 2003 presentation.

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**ITEM 7.**                     MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We beginManagement’s Discussion and Analysis of Financial Condition and Results ofOperations with an overview of our business by segment. This is followed by a discussionof various trends that are occurring in our business and how those trends areimpacting our business. We follow the discussion on trends with a descriptionof the revenues and expenses by segment which is followed by our period overperiod results of operations for the described revenues and expenses. We thendiscuss our Consolidated Balance Sheets and Consolidated Statements of CashFlows in the “*Liquidity and CapitalResources*” section. Lastly, we discuss our Critical AccountingPolicies that we believe are important in understanding judgments andassumptions incorporated into our financial results.

The followingdiscussion and analysis contains forward-looking statements about trends,uncertainties and our plans and expectations of what may happen in the future.Forward-looking statements are based on a number of assumptions andestimates that are inherently subject to significant risks and uncertainties,and our results could differ materially from the results anticipated by ourforward-looking statements as a result of many known or unknown factors,including, but not limited to, those factors discussed in “*Item 1A*—*Risk Factors*.”

The following discussion and analysis should be read in conjunctionwith “*Item 6**—Selected Financial Data*” and “*Item 8**—Financial Statements and Supplementary Data*”appearing elsewhere in this report.

**Overview of Business**

**We operateour business through the following business segments:**

**Travelocity:**   OurTravelocity segment markets and distributes travel-related products andservices directly to individuals, including leisure travelers and businesstravelers, through Travelocity-owned websites and contact centers, andindirectly through websites and contact centers owned by its supplier, travelagency and distribution partners. Travelocity customers can access offerings,pricing and information about airlines, hotels, car rental companies, cruiselines, vacation and last-minute travel packages from *Site59.com* and *lastminute.com*,and other travel-related services such as show tickets and tours from *lastminute.com*, *Showtickets.comTM*or *Travelocity on Location*. Forbusiness travelers, the *Travelocity Business*service provides the integrated online corporate travel technology andfull-service offering of our *GetThere*product along with the online expertise of Travelocity. For corporations, the *Travelocity Business* service offers a full-service corporatetravel agency and the *GetThere*product provides a corporate online travel reservation system that works inconjunction with any travel agency a company chooses.

Travelocityfacilitates transactions between travel suppliers and consumers for the bookingof, and payment for, travel accommodations. Travelocity generates net revenuefrom providing such facilitation services equal to the total amount paid by thecustomer for products and services, minus its payment to the travel supplier.Travelocity also generates revenues from commissions or transaction fees fromtravel suppliers for the purchase of travel products and services pursuant toreservations made through our system. Additionally, Travelocity revenuesinclude service fees charged to customers, advertising revenues and GDSincentives.

**Sabre Travel Network:**   OurSabre Travel Network segment markets and distributes travel-relatedproducts and services through the travel agency and corporate channels. Travelagencies, both online and brick and mortar who serve our business and leisurecustomers, subscribe to our services. Our services provide travel agencysubscribers information about, and the ability to reserve for and purchasetravel-related products and services from airlines, hotels, car rentalcompanies, cruise lines and others. We also provide travel agency officeautomation tools, enable travel agencies to provide services via the Internetand provide reservation management, distribution and technology services tohotel properties.

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Sabre TravelNetwork primarily generates revenues from transaction fees charged to airlinesand non-air travel suppliers who distribute their products and services throughthe *Sabre* system. Sabre TravelNetwork markets the *Sabre* GDS totravel suppliers, travel agency subscribers (online and brick and mortar) andcorporations. A “transaction” is defined as any travel reservation thatgenerates a fee paid directly to us including but not limited to the following:traditional booking fees paid by travel suppliers, non-traditional transactionfees paid by travel suppliers, transaction fees paid by travel agencysubscribers, and transaction fees paid by corporations related to our onlinebooking tool.

**Sabre Airline Solutions:**   SabreAirline Solutions is a global leader in providing passenger managementsolutions, software products and related services, and consulting services tohelp airlines simplify operations and lower costs. We provide airlinereservations, inventory and check-in hosting solutions that help airlinesaddress the challenge of building and retaining customer loyalty throughenhanced customer-centric offerings and service while also reducingcosts. We also supply the decision-support software and technologynecessary for airlines to improve profitability, increase revenue, streamlineoperations and improve workflow. We also offer a complete range of consultingservices to the airline industry, ranging from one time to extendedengagements. Typical engagements include projects such as achieving thenecessary standards to join an alliance, preparing for privatization and optimizingcurrent operations. Clients include airlines, airports, manufacturers andgovernments, as well as individuals, travel agencies and members of thefinancial community.

In 2006,approximately 36.2% of our revenue was generated from Travelocity, 54.4% fromSabre Travel Network and 9.4% from Sabre Airline Solutions based on segmentresults that include intersegment revenues. Compared to the year-ago period,revenues (including intersegment revenue) for the twelve months ended December 31,2006 increased 30.5% for Travelocity, 1.3% for Sabre Travel Network and 8.3%for Sabre Airline Solutions.

For a more detailed discussion of our business, please refer to Item 1of this Form 10-K.

**Business Trends**

The following is a discussion of trends that we believe are the mostsignificant opportunities and challenges currently impacting our business andindustry. The discussion also includes management’s assessment of what effectsthese trends are having on our businesses. In considering this discussion, youshould also review the factors referred to in Part I, Item 1A: *Risk Factors*.

***TrendsAffecting Our Airline-Related Businesses***

As a result ofprice competition, air travel has become increasingly affordable. Airlinesseeking incremental revenue have made seat inventory available through lower-priced,non-traditional methods such as last-minute offerings, opaque sales and reverseauctions. Airlines have aggressively sought to reduce distribution costs and tocontrol their relationships with travel purchasers. This has resulted inairline efforts to divert transactions away from GDS networks and towards theirown reservation centers and websites and other distribution channels thatairlines believe offer a lower expense per travel transaction or more controlover the travel purchaser. Outside the United States, a few foreign carriersthat have dominant positions in their national air transport markets appear tobe experimenting with a number of initiatives for driving transactions to theirown websites. In addition, low-price airlines represent a growing share ofrevenue passenger miles, and they have historically been less likely to fullyparticipate in a GDS than are traditional full-service airlines. (Recentlylow-price carriers in the United States, such as AirTrans and JetBlue, havereversed this trend and have expanded their participation in GDSs.) Some of theadvantages that airlines offer when their products and services are purchasedthrough their preferred distribution channels, such as bonus loyalty awards, maynot be available for purchases made through other intermediaries, or thoseintermediaries must accept lower transaction fees in exchange for access to thesame advantages. These trends put pressure on airline-paid travel agencycommissions and GDS revenues and the level of GDS-paid incentives to travelagencies.

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Our business segments have performed well despite the trends affectingour airline-related businesses. Increasingly, we are offering airlines aportfolio of services across our business segments—offerings that are noteasily matched by competitors who lack similar portfolios. We believe that ourcompetitive position enables us to make value-based offerings to airlinesand other suppliers, rather than merely cost-based offerings of transactionprocessing and other technology. We believe that our actions, includingreducing booking fees, have mitigated the rate at which transactions have leftthe GDS channel for supplier-controlled channels. Recently, Sabre TravelNetwork has experienced a trend of increasing transaction volumes due toon-line agencies moving their bookings to us and the expansion of participationby some low-price airlines.

***TrendsAffecting Travel Industry Globalization and Consolidation***

The travelindustry is experiencing consolidation among travel suppliers, such as majorhotels and airlines, as well as among travel agencies and other traveldistributors. As a result of this consolidation and global expansion, largetravel suppliers, agencies and distributors increasingly have greater scale andare able to provide a broader set of product offerings in a greater number ofgeographic marketplaces.

We are responding to these trends by growing our global reach and ourscale. For example, we significantly expanded our presence in the Europeanregion through the acquisition of lastminute.com in 2005. We expect longer termgrowth opportunities there, as well as in Asia (particularly China and India)and in the Pacific Basin. As our operations grow in both size and scope, we areincreasing the diversification of our product and service offerings and revenuesources. Broader global marketing reach and more points of sale improve ourvalue proposition for travel suppliers, and increased scale enables costsynergies.

***TrendsAffecting Competition in Travel Commerce***

Travelers, travel agents and travel suppliers are increasingly able tochoose from a number of alternative distribution systems that enable travelshopping, booking and purchasing, including websites run by search enginecompanies and travel suppliers’ proprietary systems. Many of these alternativedistribution systems lack the functionality and global reach of our services,deliver bookings with lower average yields, lack the infrastructure toadequately service and support travelers, and offer travelers more limitedalternatives. The scale and functionality of our *Sabre* GDS provides a more complete travel distributionsolution for travel suppliers and travel agencies and positions us well tocompete in the travel commerce marketplace. We are responding to this increasedcompetition by emphasizing our value proposition, focusing on our ability tooffer services across our business segments, offering cost efficient productsto suppliers, providing broader functionality and wider access to content,enabling greater geographic reach, and supporting higher average yields.

***TrendsAffecting Our Revenue Models***

Historically,the vast majority of our revenues were derived from transaction fees paid bytravel suppliers, measured by subscriber bookings generated through the *Sabre* GDS. From those fees, Sabre TravelNetwork pays incentives to its travel agency subscribers as a cost of revenue.Since 2000, we have increasingly become a travel marketing company, rather thana travel transaction processing company, as our revenue has become lessdirectly tied to transaction processing volumes. Our revenue is alsoincreasingly less dependent on air travel and more geographically diversified.

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Travelocity, and to a lesser extent Sabre Travel Network, are increasinglypromoting our net rate program, commonly referred to in the industry as a “merchantmodel program” due to the fact that we act as the merchant of record for creditcard processing. Net rate travel offerings can include air travel, hotel stays,car rentals and combinations. Many hoteliers utilize net rate programs todispose of excess hotel rooms at discounted rates. Under the net rate model, weact as an intermediary by agreeing to market products, services and otherofferings for travel suppliers at predetermined net rates. We market these netrate offerings to travelers at a price that includes service fees that weretain, plus an amount sufficient to pay the travel supplier for its charge forproviding the travel accommodations, along with any applicable taxes. For thistype of business model, we require prepayment by the traveler at the time ofbooking. In addition, as long as the net rate program is growing, we experienceimproved operating cash flows as a result of receiving prepayments from customerswhile paying suppliers after the customer has traveled.

***TrendsAffecting Our Consumer-Related Businesses***

Consumer use ofthe Internet for travel shopping and purchasing is increasing, but varies bygeographic region. We believe that there are significant near-term growthopportunities in Europe, and longer term in Asia, while Internet travelcommerce is more mature in the United States. The online travel marketplace ishighly competitive, with independent online travel agencies, suppliers’proprietary websites, travel search engines and others competing for customers.Online travel shoppers tend to compare alternatives and are sensitive to smallprice differences.

An increasing percentage of our revenues is derived from sales directlyto travelers, principally through our Travelocity segment. Travelocity’srevenue growth depends on increasing purchases through our online travelwebsites, particularly of higher margin offerings. Travelocity’s businessstrategy also depends on differentiated, customer relationship management-basedtargeted marketing of a complete travel experience, rather than travelcomponent sales. We are, therefore, focused on expanding our dynamicallypackaged offerings, growing our access to broad supplier offerings, anddeveloping awareness of our brand in a cost-effective manner.

***TrendsAffecting Our Travel Agency-Related Businesses***

Travel agenciesare able to deliver value to travelers, corporations and the travel suppliersthemselves by providing expertise and supporting the travel experience acrossmultiple travel suppliers. Some travel suppliers, seeking to reducedistribution costs, have reduced or eliminated commissions paid to travelagencies, which has caused travel agencies to become more dependent on othersources of revenues, such as traveler-paid service fees and GDS-paidincentives. Supplier efforts to reduce distribution costs are also puttingpressure on booking fees and the level of GDS-paid incentives to travelagencies based on booking volumes. Continued consolidation of travel agenciesmay increase competition among GDS companies for agency subscribers, andthereby increase the ability of those agencies to negotiate higher GDS-paidincentives. We recently introduced into the travel agency marketplace our *Efficient Access Solution* program, which reduces airlinebooking fees and travel agency incentives, while providing travel agencies withlong-term assurances of access to full content from airlines and protectionagainst airline-imposed service fees.

Our *Sabre* GDS competes toattract and retain travel agencies through a variety of qualities, includingits breadth of content, ease of use, functionality, dependability, back officesystems (e.g., *TRAMS*TM),client management systems (e.g., *ClientBase*®),consortia (*Jurni Network*®) andhost agency services (Nexion®), as well as through the payment of incentives.We are increasingly focused on managing our incentive costs. The *Sabre* GDS has a leading share of largetravel agencies, and competition to attract and retain large travel agencysubscribers, including online travel agencies, is particularly intense. We areexperiencing a trend of increasing bookings from online agencies, includingExpedia, Priceline and *lastminute.com*.Expedia recently activated their long-term technology partnership with SabreTravel Network and began processing reservations through our *Sabre* GDS. They also signed an extensionof their relationship with us through 2012 and announced their support of ournewly introduced *Efficient Access Solution*program.

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***TrendsAffecting Our Hotel-Related Businesses***

The majority ofhotel stays are booked directly with an individual hotel property, or throughthe centralized call center for hotel chains or a marketing company.

We believe we are competitively well positioned to take advantage ofsignificant opportunities to offer travel marketing services to hoteloperators. As described under *TrendsAffecting Our Revenue Models*, Travelocity, and to a lesser extentSabre Travel Network, are increasingly promoting our net rate offerings, whichcan include air travel, hotel stays, car rentals and dynamically packagedcombinations.

***Trends in CostReduction***

As part of our cost leadership strategy we are, as a standard practice,evaluating efficiency opportunities across the company to ensure that weoptimally manage our operational costs. Some of these cost-saving opportunitieshave involved and may continue to involve globally-sourcing some of ouroperations (either by contracting with companies that work for us, such asthrough the opening of call centers we operate abroad, or by expanding our ownoperations abroad). We recently announced plans to outsource components of ourEuropean finance function to a single shared service center (see Note 5 to theConsolidated Financial Statements). We anticipate to fully realize the benefitsof this outsourcing starting in 2009 with an anticipated annual savings of $10million. We are also working to rationalize facilities costs. We have sold andleased back a portion of our headquarters facilities which we expect willgenerate approximately $10 million in annual pre-tax savings starting in2008. See Note 5 to the Consolidated Financial Statements for a detaileddiscussion of this transaction. Additionally, with the launch of our *Efficient Access Solution* (see Note 5 to theConsolidated Financial Statements) we expect to lower incentive costs overtime.

**Matters Affecting Comparability**

***Mergers andAcquisitions***

Our discussion of the results of operationsfor the years ended 2004, 2005 and 2006 will be affected by significant mergersand acquisitions that have occurred in those same years as summarized in thefollowing table. For a more detailed discussion of our mergers and acquisitionssee Note 4 to the Consolidated Financial Statements.

| Year         | ** ** | ** **                                                          | ** ** | ** **              | ** ** |
|--------------|------------|---------------------------------------------------------------------|------------|-------------------------|------------|
| **acquired** | ** ** | ** **                                                          | ** ** | **Entity**              | ** ** | **Segment** | ** ** |
| **2006**     |       | Zuji Holdings Limited (1)                                           |       | Travelocity             |       |
| ** **   |       | TRAMS, Inc.                                                    |       | Sabre Travel Network    |       |
| **2005**     |       | SynXis Corporation                                                  |       | Sabre Travel Network    |       |
| ** **   |       | lastminute.com plc                                                  |       | Travelocity             |       |
| **2004**     |       | RM Rocade AB and RM Rocade  Assist AB                               |       | Sabre Airline Solutions |       |
|         |       | All State Tours, Inc.                                          |       | Travelocity             |       |
|         |       | Travelocity Europe—Remaining 50% of the  non-German operations |       | Travelocity             |       |
|         |       | Sabre Travel Network Middle East Joint Venture—60% ownership   |       | Sabre Travel Network    |       |
|              |            |                                                                     |            |                         |            |  |  |

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(1)            Zuji Holdings Limitedwas consolidated on November 7, 2005 in compliance with FIN 46R. On January 24,2006, upon exercise of a put option, we purchased the remaining 90% of Zujithat we did not already own (see Note 4 to the Consolidated FinancialStatements for further discussion).

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***Expensing ofStock-Based Awards***

On January 1, 2006, we adopted SFAS 123R, using the modifiedprospective method, which requires that the measurement and recognition ofshare-based payment awards to employees and directors of the Company be made atthe estimated fair value on the grant date. Stock options that had been grantedbut for which the requisite service period to earn the award had not beencompleted at January 1, 2006 are being expensed over their remainingrequisite service period using the fair value calculated on their grant date.All options granted prior to January 1, 2006 utilized the Black-Scholesmethod of valuation. In the past, compensation expense related to our stockoptions was generally only included in pro forma financial statements and wasnot recognized in our financial statements. For the year ended December 31,2006, we recognized $32 million in stock compensation expense beforetaxes, $12 million of which went to Travelocity, $17 million to SabreTravel Network and $5 million to Sabre Airline Solutions, less a reduction innon-operating expenses of $2 million for stock compensation expense recognizedprior to adoption of SFAS 123R on restricted stock grants that we believe willultimately forfeit. We concluded that this adjustment was not material enoughfor treatment as a cumulative effect of an accounting change.

***Changes inEstimates***

Sabre TravelNetwork pays incentive payments to our subscribers, generally travel agents,based upon volume and rates contained within the travel agency contracts. Forour larger subscribers, we have always accrued the incentive expense as thesevolumes represented the majority of our incentive liability. In the firstquarter of 2006, we revised our estimate of the incentive liability to includeexpense associated with our smaller travel agency customers that werepreviously recorded as payments were made. The incentives from these smalleragencies were immaterial in the past; however, recent analysis of smallertravel agencies showed a pattern of growth in incentives paid. This new accrualmethodology resulted in an additional $21 million in incentive expense inthe first quarter of 2006. We performed a similar analysis on revenues wereceived from smaller travel agencies which resulted in an additional$7 million in subscriber revenues in the first quarter of 2006. The netresult of these two accruals resulted in a reduction to our after tax netearnings for the three months ended March 31, 2006 of approximately$9 million or $0.07 per dilutive common share. We continue to accrue thisexpense and revenue and there has been no significant change since March 31,2006.

Sabre Travel Network has a booking fee cancellation reserve that iscalculated at each period end based on historical cancellation rates. Inestimating the amount of future cancellations that will require us to refund abooking fee, we assume that a certain percentage of cancellations are followedimmediately by a new reservation, without loss of revenue. This assumption isbased on historical rates of cancellations that results in new reservations andhas a significant impact on the amount reserved. In the first quarter of 2006,our estimate of the rebook rate increased. This change in the rebook rateassumption lowers the amount of reserve needed for cancelled bookings. In thefirst quarter of 2006, the new estimated rate, when compared to the previousrebook assumption, resulted in a $7 million decrease in the booking feecancellation reserve. This change resulted in a $4 million increase toafter tax net earnings for the three months ended March 31, 2006 or $0.03per dilutive common share. We continue to use the new rebook rate and there hasbeen no significant change since March 31, 2006.

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**Components of Revenues and Expenses**

*Revenues.**  *Travelocity generates revenues fromcommissions or transaction fees from suppliers for the purchase of travel,lifestyle products and services pursuant to reservations made through oursystem. Travelocity also generates net rate revenue from providing facilitationservices equal to the amount paid by the customer for travel and non-travelproducts and services, minus Travelocity’s payment to the supplier. AdditionalTravelocity revenues include other fees charged to customers, advertisingrevenues from our websites and GDS incentives. Travelocity derives intersegmentrevenues from Sabre Travel Network, consisting of incentives earned forTravelocity transactions processed through the *Sabre*GDS, and fees paid by Sabre Travel Network and Sabre Airline Solutions forcorporate trips booked through the *Travelocity*online booking technology. Sabre Travel Network primarily generates revenuesfrom transaction fees paid directly to us related to a travel reservationincluding the following: traditional booking fees paid by travel suppliers,non-traditional transaction fees paid by travel suppliers, transaction feespaid by travel agency subscribers, and transaction fees paid by corporationsrelated to our booking tool. Sabre Travel Network also earns revenue throughequipment service charges paid by subscribers. In addition, Sabre TravelNetwork earns revenue through the sale of other products and services(including the *Hotel Spotlight*SM program, which offers premium marketingopportunities to hoteliers through the *Sabre*GDS, the *Jurni Network* consortia,as well as *Nexion* and *SynXis*® offerings to hoteliers) and the *Sabre*® *Surround*®program (which bundles the *Hotel Spotlight*services with other advertising products) to travel suppliers, subscribers andother customers. Earnings (or losses as the case may be) derived from interestsin joint ventures and other investments are also included in revenues. SabreTravel Network earns intersegment revenues from data processing fees andtransaction fees paid by Travelocity. Sabre Airline Solutions generatesrevenues from the sale of airline reservations hosting services, productrevenues including inventory and check-in hosting solutions, decision-supportsoftware and technology, and airline consulting services.

*Cost of Revenues.**  *Travelocity cost of revenuesconsists primarily of customer service costs, technology costs, salaries,benefits and other employee expenses, data processing fees and transaction feespaid to Sabre Travel Network, credit card fees, charges related to fraudulentbookings, service compensation and depreciation and amortization charges. Inaddition, Travelocity cost of revenues includes recovery of certain VATpayments which are treated as a contra-expense. Sabre Travel Network costof revenues consists primarily of incentives paid to subscribers, dataprocessing charges resulting from the operation of the *Sabre* system, and salaries and otheroperating expenses. Sabre Travel Network also incurs intersegment expenses paidto Travelocity for incentives for Travelocity transactions processed throughthe *Sabre* GDS, as well as feesfor corporate trips booked through the *Travelocity*online booking technology. Sabre Airline Solutions cost of revenues iscomprised of labor cost incurred in the development and delivery of softwareand consulting services and depreciation and amortization. Sabre AirlineSolutions also incurs intersegment expenses paid to Travelocity for airlinetrips booked through the *Travelocity*online booking technology. Purchased technology includes amortization ofacquired software and other technology that is used to support various revenuegenerating activities.

*Operating Expenses.**  *Travelocity selling, general andadministrative and other operating expenses consist primarily of advertisingand promotion expenses, payments made to our travel agency and distributionpartners and salaries, benefits and employee related expenses for stafffunctions required to support the business. Sabre Travel Network selling,general and administrative expenses and other operating expenses consistprimarily of salaries, benefits and employee related expenses for staff whosell our services to new customers and other staff functions required tosupport the business as well as bad debt expense. Sabre Airline Solutionsoperating expenses consist of the costs of the sales organization and the stafffunctions required to support the business and bad debt expense.

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**Financial Results**

The following tables present operatingresults for the three years ended December 31, 2006, 2005 and 2004 (inthousands of dollars). The segment revenues and cost of revenues are shownincluding intersegment activity. We have included the elimination ofintersegment activity below to agree to the results of operations presented inthe Consolidated Financial Statements.

|            | ** ** | **Year Ended December 31,** | ** ** |
|------------|------------|-----------------------------|------------|
| ** ** | ** ** | **2006**                    | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** | **     2006     ** | ** ** | **     2005     ** | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** ** | ** ** | **Travelocity**             | ** ** | **Sabre Travel Network** | ** ** | **Sabre Airline Solutions** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|            |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Segment revenues                            |   | $       | 1,085,227 |    | $      | 831,328   |   | $         | 1,634,582 |   | $       | 1,614,197 |   |   | $       | 282,512 |   |   |   | $      | 260,812 |     |   | $        | — |      | $      | —    |   | $ | (178,524 | )      | $ | (185,082 | )      | $ | 2,823,797 |   | $ | 2,521,255 |   |
|---------------------------------------------|--------|---------|-----------|---------|--------|-----------|--------|-----------|-----------|--------|---------|-----------|--------|--------|---------|---------|--------|--------|--------|--------|---------|----------|--------|----------|--------|-----------|--------|-----------|--------|---|----------|--------|---|----------|--------|---|-----------|--------|---|-----------|--------|
| Cost of revenues                            |   | 423,371 |      | 358,742 |   | 1,128,921 |   | 1,116,454 |      |   | 202,680 |      |   |   | 176,713 |    |   | 2,242  |   | 1,573  |    | (178,524 | )      | (185,082 | )      | 1,578,690 |   | 1,468,400 |   |
| Amortization of purchased  technology       |   | 29,418  |      | 13,593  |   | 3,895     |   | 4,835     |      |   | 683     |      |   |   | 544     |    |   | — |   | — |    | —   |   | —   |   | 33,996    |   | 18,972    |   |
| Gross profit                                |   | 632,438 |      | 458,993 |   | 501,766   |   | 492,908   |      |   | 79,149  |      |   |   | 83,555  |    |   | (2,242 | )      | (1,573 | )       | —   |   | —   |   | 1,211,111 |   | 1,033,883 |   |
| Selling, general &  administrative |   | 600,607 |      | 453,126 |   | 243,661   |   | 251,598   |      |   | 40,187  |      |   |   | 42,330  |    |   | 3,644  |   | (3,299 | )       | —   |   | —   |   | 888,099   |   | 743,755   |   |
| Amortization of intangible  assets          |   | 27,047  |      | 16,136  |   | 9,424     |   | 10,825    |      |   | 1,393   |      |   |   | 2,294   |    |   | — |   | — |    | —   |   | —   |   | 37,864    |   | 29,255    |   |
| Operating income (loss)                     |   | $       | 4,784     |    | $      | (10,269   | )      | $         | 248,681   |   | $       | 230,485   |   |   | $       | 37,569  |   |   |   | $      | 38,931  |     |   | $        | (5,886 | )         | $      | 1,726     |   | $ | —   |   | $ | —   |   | $ | 285,148   |   | $ | 260,873   |   |

 

| ** ** | ** ** | **Year Ended December 31,** | ** ** |
|------------|------------|-----------------------------|------------|
| ** ** | ** ** | **2005**                    | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** | **    2005    ** | ** ** | **     2004    ** | ** ** | **2005** | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** ** | ** ** | **Travelocity**             | ** ** | **Sabre Travel Network** | ** ** | **Sabre Airline Solutions** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|            |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Segment revenues                            |   | $       | 831,328 |    | $      | 502,549   |   | $         | 1,614,197 |   | $       | 1,552,832 |   |   | $       | 260,812 |   |   |   | $      | 243,470 |     |   | $        | — |      | $      | —    |   | $ | (185,082 | )      | $ | (167,880 | )      | $ | 2,521,255 |   | $ | 2,130,971 |   |
|---------------------------------------------|--------|---------|---------|---------|--------|-----------|--------|-----------|-----------|--------|---------|-----------|--------|--------|---------|---------|--------|--------|--------|--------|---------|----------|--------|----------|--------|-----------|--------|-----------|--------|---|----------|--------|---|----------|--------|---|-----------|--------|---|-----------|--------|
| Cost of revenues                            |   | 358,742 |    | 224,386 |   | 1,116,454 |   | 1,005,812 |      |   | 176,713 |      |   |   | 176,902 |    |   | 1,573  |   | 960    |    | (185,082 | )      | (167,880 | )      | 1,468,400 |   | 1,240,180 |   |
| Amortization of purchased  technology       |   | 13,593  |    | 21,077  |   | 4,835     |   | 9,325     |      |   | 544     |      |   |   | 1,651   |    |   | — |   | — |    | —   |   | —   |   | 18,972    |   | 32,053    |   |
| Gross profit                                |   | 458,993 |    | 257,086 |   | 492,908   |   | 537,695   |      |   | 83,555  |      |   |   | 64,917  |    |   | (1,573 | )      | (960   | )       | —   |   | —   |   | 1,033,883 |   | 858,738   |   |
| Selling, general &  administrative |   | 453,126 |    | 273,189 |   | 251,598   |   | 257,516   |      |   | 42,330  |      |   |   | 50,026  |    |   | (3,299 | )      | 4,451  |    | —   |   | —   |   | 743,755   |   | 585,182   |   |
| Amortization of intangible  assets          |   | 16,136  |    | 4,395   |   | 10,825    |   | 9,282     |      |   | 2,294   |      |   |   | 1,149   |    |   | — |   | — |    | —   |   | —   |   | 29,255    |   | 14,826    |   |
| Operating income (loss)                     |   | $       | (10,269 | )       | $      | (20,498   | )      | $         | 230,485   |   | $       | 270,897   |   |   | $       | 38,931  |   |   |   | $      | 13,742  |     |   | $        | 1,726  |      | $      | (5,411    | )      | $ | —   |   | $ | —   |   | $ | 260,873   |   | $ | 258,730   |   |

 

**Results of Operations 2004-2006**

Management’sdiscussion and analysis of revenues, cost of revenues, selling, general andadministrative expenses, amortization of intangible assets and operating incomeby business segment are based upon segment results including intersegmentrevenues and cost of revenues of approximately $179 million,$185 million and $168 million for the years ended December 31,2006, 2005 and 2004, respectively. See *Components of Revenues andExpenses* above.

*Revenues.**  *The compounded annual growth rateof revenues by segment for the three years ended December 31, 2006 wasgrowth of 40.1% for Travelocity, growth of 1.6% for Sabre Travel Network, andgrowth of 6.7% for Sabre Airline Solutions. Each of our business segments havebenefited from generally good economic conditions, stronger demand for travelproducts and acquisitions. However, each of our business segments have beennegatively impacted by macroeconomic factors during this period including thewar and continued conflict in Iraq, ongoing travel security concerns, and fearof potential terrorist attacks, particularly in Europe. These negative impactsto the general economy and the travel industry impacted each of our businesssegments.

For the threeyears ended December 31, 2006, Travelocity has experienced 40.1%compounded annual growth in revenues due to our continued growth in NorthAmerica and expansion into the European market with the acquisitions oflastminute.com and Travelocity Europe which contributed to the growth inbookings made through our websites and contact centers, and increased yieldsand transaction volumes stimulated by increased net rate activity and improvedpackaging of offerings. Although Travelocity was negatively affected by theterrorist attacks and the negative factors noted above and by declininginternet advertising revenue, the growth in the internet travel businesscombined with the Travelocity net rate model and packaging initiatives andmarket expansion into Europe offset the negative impacts.

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Sabre TravelNetwork has performed well in an industry faced with economic downturn, travelsecurity concerns, channel shift and continued pressures on the GDS bookingfee. Sabre Travel Network annual transactions and transaction revenue have remainedrelatively stable since 2003 with a compounded 4.3% increase in annualtransactions processed through the *Sabre*system. Sabre Travel Network has been able to achieve this in part due tolong-term content agreements with key suppliers in exchange for discountedbooking fees. We believe that this has contributed in reducing the rate atwhich transactions leave the GDS channel for supplier-controlledchannels, including individual airline websites and call centers, and otherthird-party controlled distribution points.

Sabre AirlineSolutions has experienced 6.7% compounded annual growth in revenues for thethree years ended December 31, 2006. Although Sabre Airline Solutions andits customers were negatively affected by the terrorist attacks and the negativefactors noted above, we were able to grow revenues in each of the past severalyears. This increase in revenues is the result of increased sales of decisionsupport products and services, consulting and web-enabled solutions that offercost savings and more efficient operations to our customers. Additionally, thisincrease was driven by growth in airline reservation hosting revenues.

*Expenses.**  *Our primary operating expensesconsist of salaries, benefits, other employee-related costs, dataprocessing costs, communication costs, advertising and subscriber incentives,representing approximately 74.7%, 75.6% and 78.7% of total operating expensesin 2006, 2005 and 2004, respectively. We have seen a decline in our expenses asa percent of revenue as a result of cost reduction initiatives across ourorganization. However, since 2004, we have realized a compounded increase inour operating expenses of approximately 10.6% due primarily to the acquisitionof lastminute.com in July of 2005.

Travelocitycost of revenues and selling, general and administrative expenses haveincreased due to growth in the business. Significant acquisitions during thisperiod, including lastminute.com in 2005 and Travelocity Europe in 2004, havecontributed to the growth in expenses. We increased our expenditures foradvertising in order to drive additional travelers to Travelocity’s websites,and expenses have increased as a result of increases in transaction volumes forour growing net rate offerings. Our technology infrastructure related expenseshave also increased in order to support our growth and new offerings.

Sabre TravelNetwork hardware and communications costs have decreased as a result of themigration to lower cost solutions and the adoption of third-partysolutions by subscribers. These decreases were partially offset by increases inSabre Travel Network technology spending due to the phased implementation andcontinuing expansion of new functionality that requires running legacy systemsas well as the new technology, and increases in Sabre Travel Network subscriberincentives. Other increases in expenses have resulted from investments invarious new businesses such as our *SynXis*hotel reservations system.

Sabre Airline Solutions operating expenses have generally grown at a ratecommensurate with the growth in revenues during the 2004 to 2006 period. Theseexpenses have been offset by several cost reduction initiatives that haveresulted in reduced headcount-related expenses as well as improvements inour receivable collection activities, particularly in 2005.

**Results ofOperations: 2006 Compared to 2005**

| ** **             | ** **   | **Year Ended December 31,**                           | ** ** |
|------------------------|--------------|-------------------------------------------------------|------------|
| ** **             | ** **   | **2006**                                              | ** ** | **2005** | ** ** | **change** | ** ** | **% change** | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** | **change** | ** ** | **% change** | ** ** |
| ** **             | *** *** | **Total revenues before eliminations** | ** ** | **Eliminations** | ** ** | **Total consolidated revenues** | ** ** |
| ** **             | ** **   | **(thousands)**                                       | ** ** | ** ** | ** ** | **(thousands)** | ** ** | **(thousands)** | ** ** | ** ** | ** ** |
| Revenues               |         | $                                                     | 3,002,321  |   | $ | 2,706,337 |   | $ | 295,984 |   |   | 10.9 | % |   | $ | (178,524 | ) | $ | (185,082 | ) | $ | 2,823,797 |   | $ | 2,521,255 |   | $ | 302,542 |   |   | 12.0 | % |   |
| Total cost of revenues |         | 1,791,210                                             |       | 1,672,454 |   | 118,756 |   |   | 7.1 | % |   | (178,524 | ) | (185,082 | ) | 1,612,686 |   | 1,487,372 |   | 125,314 |   |   | 8.4 | % |   |
|                        |              |                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Total revenuesfor the year ended December 31, 2006 after intercompany eliminationsincreased approximately $303 million, or 12%, compared to the year ended December 31,2005, from $2,521 million to $2,824 million. Cost of revenues afterintercompany eliminations for the year ended December 31, 2006 increasedapproximately $125 million, or 8.4%, compared to the year ended December 31,2005, from $1,487 million to $1,612 million.

Management’sdiscussion and analysis of revenues, cost of revenues, selling, general andadministrative expenses, amortization of intangible assets and operating incomeby business segment are based upon segment results including intersegmentrevenues and cost of revenues of approximately $179 million and$185 million for the years ended December 31, 2006 and 2005,respectively. See *Components of Revenues and Expenses*above.

Total revenues(including intersegment revenues) for the year ended December 31, 2006increased approximately $296 million, or 10.9%, as compared to the yearended December 31, 2005, from $2,706 million to $3,002 million.

Total cost of revenues (including intersegment cost of revenues) forthe year ended December 31, 2006 increased $119 million, or 7.1%, ascompared to the year ended December 31, 2005, from $1,672 million to$1,791 million.

**Travelocity**

| ** **                                  | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **change** | ** ** | **% change** | ** ** |
| ** **                                  | ** ** | **(thousands)**                            | ** ** | ** ** | ** ** |
| Segment revenues                            |       | $                                          | 1,085,227  |   | $ | 831,328 |   | $ | 253,899 |   |   | 30.5 | % |   |
| Cost of  revenues                           |       | 423,371                                    |       | 358,742 |   | 64,629 |   |   | 18.0 | % |   |
| Amortization  of purchased technology       |       | 29,418                                     |       | 13,593 |   | 15,825 |   |   | 116.4 | % |   |
| Gross profit                                |       | 632,438                                    |       | 458,993 |   | 173,445 |   |   | 37.8 | % |   |
| Selling,  general & administrative |       | 600,607                                    |       | 453,126 |   | 147,481 |   |   | 32.5 | % |   |
| Amortization  of intangible assets          |       | 27,047                                     |       | 16,136 |   | 10,911 |   |   | 67.6 | % |   |
| Operating  income (loss)                    |       | $                                          | 4,784      |   | $ | (10,269 | ) | $ | 15,053 |   |   | 146.6 | % |   |

 

*Revenues*

In July of2005, we acquired United Kingdom-based lastminute.com. The results oflastminute.com are included in our financial results from the date of theacquisition on July 20, 2005.

The$254 million increase in revenue is comprised of an increase intransaction revenue of $224 million and an increase in non-transactionrevenue of $30 million.

Transactionrevenue, including lastminute.com, increased $224 million, or 31%, primarilydriven by a $198 million increase in non-air transaction revenue(including revenue resulting from sales of package offerings that include airtravel as a component) and a $26 million increase in stand-alone airtransaction revenue.

The $198 million increase in non-air transaction revenue consistedprimarily of the following:

·         A$41 million increase related to North America (including Zuji) drivenprimarily by a $30 million increase in stand-alone hotel revenue,resulting from higher revenue per transaction due to merchant mix. In addition,car revenue increased $4 million driven by both transaction volume andaverage revenue per transaction, and cruise revenue increased $1 million. Theseincreases were offset by a $2 million decrease in packaging revenue due toreduced availability of discounted air fares that are used in package offerings.All other North American non-air transaction revenue increased $2 million.Non-air transaction revenue associated with the Zuji acquisition increased$6 million.

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·         A$157 million increase in Europe driven primarily by the acquisition oflastminute.com in July 2005 where 2006 includes a full year of operatingresults. The impact of the acquisition resulted in growth of $151 million intransaction revenue. Revenue increased a further $12 million due to theweakening dollar and $3 million due to increasing booking volumes acrosslastminute.com businesses. These increases were offset by a decline of $9million due to the disposal of certain, primarily offline-focused, non-corebusinesses in the United Kingdom and France in 2006. These businesses generated$9 million in revenue for the third and fourth quarters of 2005, but had beendisposed of by the third quarter of 2006.

The $26 million increase in stand-alone air transactionrevenue was primarily due to the following:

·         InNorth America, volume growth in stand-alone air was offset by a declinein the average revenue per transaction resulting in a decline of $1 million. Thereduced revenue per transaction was due to our renegotiated air deals and lowerincentives from our *Efficient Access Solution*(EAS) agreement with Travel Network. An additional $8 million increase resultedfrom the Zuji acquisition.

·         A$19 million increase in Europe driven primarily by the acquisition oflastminute.com.

Non-transaction revenue which primarily consists of advertisingrevenue, corporate revenue, paper ticket fees and services, change and re-issuefees, increased $30 million, or 28%, consisting primarily of thefollowing:

·         An$11 million increase related to North America (including Zuji) drivenprimarily by a $6 million increase in corporate revenue, the fees paid bySabre Travel Network and Sabre Airline Solutions to Travelocity for tripsbooked through the *Travelocity*online booking technology, due to higher volume and the termination settlementof a supplier website, and a $5 million improvement in fees associated withcustomer service orders and paper tickets.

·         A$19 million increase in Europe due primarily to the acquisition oflastminute.com which gave rise to an increase year over year of $18 million.The remainder represents growth in the fourth quarter.

*Cost of Revenues*

The $65 million increase in cost of revenues includes a $2 milliondecrease in North America (including Zuji), offset by a $67 millionincrease in Europe.

·         TheNorth America decline of $2 million is a result of improvements in creditcard fraud performance as well as declines in customer service costs. These twoexpenses decreased in total by $15 million this year. Offsetting theseimprovements, technology related expenses, including resolution of a servicelevel agreement shortfall in the third quarter of 2006, increased $6 million. Bankservice charges increased $5 million as a result of higher merchant volumes. Stock-basedcompensation expense for North America employees increased $4 million dueto the adoption of SFAS 123R in the first quarter of 2006 (see *Matters Affecting Comparability: Expensing of Stock Options*).All other North America costs of revenue decreased $2 million.

·         Europecost of revenues increased $67 million, of which $74 million was driven by thetiming of the lastminute.com acquisition. Adjusting for this, cost of revenuesdeclined $7 million year over year. This decline is partially due to theTravelocity Europe businesses exited in 2006 which incurred $4 million ofexpense in 2005, and a settlement of a dispute with a vendor which resulted ina $4 million expense in 2005. Other cost controlling efforts resulted in afurther decline of $4 million during 2006. These declines were offset by currencymovement resulting in $5 million incremental expense this year.

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*Selling, General and Administrative Expenses*

The $147 million increase in selling, general and administrativeexpenses includes increases in North America totaling $16 million, an increaseof $25 million resulting from the Zuji acquisition, and an increase of$106 million in Europe.

·         InNorth America, advertising and marketing related expenses, including staffcosts, increased $5 million, and increased legal fees totaled $4 million. Inaddition, Travelocity’s share of corporate staff group and facility costsincreased due to Travelocity’s increased allocation of corporate resources,resulting in $16 million of additional expense. These increases were partiallyoffset by North America payments to distribution partners and affiliates whichdecreased by $10 million as a result of renegotiation of certaindistribution contracts. Other selling, general and administrative expensesincreased $1 million.

·         Europeselling, general and administrative expenses increased $106 million, of which$109 million was driven by the timing of the lastminute.com acquisition. Offsettingthis, selling, general and administrative expenses decreased by $3 million dueto a reduction in advertising and promotional expenses of $5 million. Thisreduction is due to an effort to reduce selling expenses as a percent ofrevenue. In addition, expenses declined by $6 million related to TravelocityEurope’s disposal of certain, primarily offline-focused businesses in theUnited Kingdom and France in 2006. This decrease was offset by an $8 millionincrease in our costs due to the weakening dollar.

*Amortization of Intangible Assets (Including Amortization of PurchasedTechnology)*

Amortization of intangible assets increased $27 million due toamortization from intangible assets acquired in the lastminute.com acquisition.

*Operating Income*

Operating income increased $15 million primarily due to a$20 million improvement in North America, including Zuji, driven byincreased revenues and reductions in fraud and customer service costs. Operatingincome for Europe declined $5 million driven by an increase inamortization expense of $27 million from the acquisition of lastminute.comoffset by an improvement in operating income of $22 million due to improvedmargins from expense controls.

**Sabre TravelNetwork**

| ** **                                  | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **change** | ** ** | **% change** | ** ** |
| ** **                                  | ** ** | **(thousands)**                            | ** ** | ** ** | ** ** |
| Segment  revenues                           |       | $                                          | 1,634,582  |   | $ | 1,614,197 |   | $ | 20,385 |   |   | 1.3 | % |   |
| Cost of  revenues                           |       | 1,128,921                                  |       | 1,116,454 |   | 12,467 |   |   | 1.1 | % |   |
| Amortization  of purchased technology       |       | 3,895                                      |       | 4,835 |   | (940 | ) |   | (19.4 | )% |   |
| Gross profit                                |       | 501,766                                    |       | 492,908 |   | 8,858 |   |   | 1.8 | % |   |
| Selling,  general & administrative |       | 243,661                                    |       | 251,598 |   | (7,937 | ) |   | (3.2 | )% |   |
| Amortization  of intangible assets          |       | 9,424                                      |       | 10,825 |   | (1,401 | ) |   | (12.9 | )% |   |
| Operating  income                           |       | $                                          | 248,681    |   | $ | 230,485 |   | $ | 18,196 |   |   | 7.9 | % |   |

 

40

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*Revenues*

The $20 million increase in revenues is dueto the following:

·         Transactionrevenue (see *Components of Revenues and Expenses*)decreased by $5 million, or 0.3%. This $5 million decrease includes a $51million decrease driven by a lower average rate per transaction due to growthin lower-priced, non-traditional transactions and new lower-pricedagreements with the major US carriers. This $51 million rate decrease wasoffset by a $40 million increase due to higher transaction volumes primarilyfrom online agencies and a $7 million increase due to a change in thecancellation rebook rate assumption in our air booking fee cancellation reserve(see *Matters Affecting Comparability: Changes in Estimates*).Total transactions were 357 million for the twelve months ended December 31,2006, an increase of 4.2% from the twelve months ended December 31, 2005.

·         Subscriberrevenue increased by $4 million driven by a $9 million increase fromgrowth in our mid and back-office solutions for agencies, and a $5 million decline in other subscriber revenue partially due to thecontinuing trend of subscribers moving to customer-owned equipment.

·         Other revenue increased by $21 million driven by a$17 million increase from GDS hotel products including *HotelSpotlight*,*PromoSpots*, *Sabre Surround*and the *SynXis* hotel reservation system. The increasein GDS hotel products is mainly driven by strong organic growth from eachproduct as well as the anniversary effect related to *SabreSurround* and the *SynXis* hotelreservation system, which both started generating revenue in 2005. The remaining increase is driven by a $7 million increasein revenue from our Asian joint venture due to improved performance overprior year and a $3 million decline in other revenue.

*Cost of Revenues*

Theincrease in cost of revenues of $12 million includes a $14 million decrease insubscriber support costs and a $26 million increase in other costs.

The$14 million decrease in subscriber support costs includes a decline of $35million due to the continuing trend of subscribers moving to customer-ownedequipment resulting in a decrease of $28 million and a year over year decline in incentive expense of $7million. The decline in incentive expense is due to growth in lower-priced,non-traditional transactions and the impact of our *EfficientAccess Solution* (EAS) program. Additionally, there is aone-time $21 million increase in subscriberincentives due to a change in accounting estimate for smaller travel agencieswhich were previously accounted for as they were paid (see *MattersAffecting Comparability: Changes in Estimates*).

The $26 million increase in other costsincludes a $10 million increase in depreciation expense related to themigration of our technology systems onto open-platforms and an $8 millionincrease in services purchased costs related to a higher volume of *GetThere* trips and *HotelSpotlight, PromoSpots*, and *Sabre Surround* revenue growth. Additionally, headcount related costs increased $4 millionprimarily driven by an increase in stock-based compensation expense dueto the adoption of SFAS 123R in the first quarter of 2006 (see *Matters Affecting Comparability: Expensing of Stock Options*)and miscellaneous cost of revenues increased by $4 million.

*Selling, General and Administrative Expenses*

Selling, general and administrative expensesdecreased $8 million. A $10 million reduction in marketingexpenses related to the signing of new airline contracts was almost entirelyoffset by an increase in stock based compensation expense due to the adoptionof SFAS 123R in the first quarter of 2006.  Therefore, the year over year decline inselling, general and administrative expenses is attributable to changes inoverhead expenses due to a shift in corporate services from Sabre TravelNetwork to Travelocity as that business grows and consumes more of suchservices.

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*Amortization of Intangible Assets (includingAmortization of Purchased Technology)*

The decrease in amortization of intangibleassets is due to intangible assets that have been fully amortized.

*Operating Income*

The growth in operating income is primarilydriven by growth in transaction volumes, partially offset by a decline in theaverage rate per transaction. Additionally, a decline in subscriber supportcosts and strong year over year growth in our hotel products contributed toearnings growth.

**Sabre Airline Solutions**

|                                            | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **change** | ** ** | **% change** | ** ** |
| ** **                                 | ** ** | ** **                                 | ** ** | **(thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Segment  revenues                          |       | $                                          | 282,512    |   |   | $ | 260,812 |   |   | $ | 21,700 |   |   | 8.3 | % |   |
| Cost of revenues                           |       | 202,680                                    |       |   | 176,713 |   |   | 25,967 |   |   | 14.7 | % |   |
| Amortization of purchased technology       |       | 683                                        |       |   | 544 |   |   | 139 |   |   | 25.6 | % |   |
| Gross profit                               |       | 79,149                                     |       |   | 83,555 |   |   | (4,406 | ) |   | (5.3 | )% |   |
| Selling, general & administrative |       | 40,187                                     |       |   | 42,330 |   |   | (2,143 | ) |   | (5.1 | )% |   |
| Amortization of intangible assets          |       | 1,393                                      |       |   | 2,294 |   |   | (901 | ) |   | (39.3 | )% |   |
| Operating  income                          |       | $                                          | 37,569     |   |   | $ | 38,931 |   |   | $ | (1,362 | ) |   | (3.5 | )% |   |

 

*Revenues*

The $22 million increase in revenues was driven primarily by a$20 million increase in airline reservations hosting revenue. This was theresult of the full year impact of customers added in 2005, new customers addedin 2006, and growth from our existing customer base. Included in the $20million increase from airline reservations hosting revenue is a $4 milliontermination fee from a customer contract. Additionally, consulting revenuesincreased $3 million due to certain contractual objectives being met andan increase in customer engagements, and product revenue increased$2 million as a result of higher demand for our products. This growth wasoffset by a $3 million decline in revenue associated with expiredroyalties.

*Cost of Revenues*

The $26 million increase in cost of revenues is due to a $10 millionincrease in employee related costs, which includes $4 million associated withincreased headcount related to global expansion and increased demand for ourproducts, a $2 million increase in FAS 123R related expenses, a $2 millionincrease in variable compensation due to more favorable performance, and a $1million increase related to severance expense. In addition, data processingexpenses increased by $8 million driven by higher transaction volume and a $2million payment associated with a terminated customer contract. Developmentexpenses increased $6 million due to an increase of $3 million in ongoingproduct development costs and $3 million infrastructure related projects costs.Amortization of internally developed software increased $1 million, and otherexpenses increased by $1 million.

*Amortization of IntangibleAssets (Including Amortization of Purchased Technology)*

The decrease in amortization of intangible assets is due to intangibleassets that fully amortized in 2006.

*Operating Income*

The decrease in operating income was driven primarily by an increase incost of revenues expenses associated with employee-related costs and othercosts to support growth in transaction volumes.

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**Non-Operating Items**

The following section describes our resultsof operations on a consolidated basis for non-operating income and expenseitems:

|                                          | ** ** | **Year Ended December 31,** | ** ** |            |
|------------------------------------------|------------|--------------------------------------------|------------|-----------------|
| ** **                               | ** ** | **2006**                                   | ** ** | **2005**        | ** ** | **change** | ** ** | **% change** | ** ** |   |
| ** **                               | ** ** | ** **                                 | ** ** | **(thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |   |
| Operating income                         |       | $                                          | 285,148    |            |   | $ | 260,873 |   |   | $ | 24,275 |   | 9.3 | % |   |
| Interest income                          |       | 16,380                                     |       |            | 22,411 |   |   | (6,031 | ) | (26.9 | )% |   |
| Interest expense                         |       | (79,122                                    | )          |            | (53,075 | ) |   | (26,047 | ) | (49.1 | )% |   |
| Gain on sale of investments              |       | —                                     |       |            | 27,132 |   |   | (27,132 | ) | (100.0 | )% |   |
| Loss on derivative instruments           |       | —                                     |       |            | (8,248 | ) |   | 8,248 |   | 100.0 | % |   |
| Other, net                               |       | (2,149                                     | )          |            | (4,378 | ) |   | 2,229 |   | 50.9 | % |   |
| Income before provision for income taxes |       | 220,257                                    |       |            | 244,715 |   |   | (24,458 | ) | (10.0 | )% |   |
| Less: Provision for income taxes         |       | 64,619                                     |       |            | 72,563 |   |   | (7,944 | ) | (10.9 | )% |   |
| Net Earnings                             |       | $                                          | 155,638    |            |   | $ | 172,152 |   |   | $ | (16,514 | ) | (9.6 | )% |   |
|                                          |            |                                            |            |                 |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Interest Income**

The $6 million decrease in interest income is due to the decreasein our marketable securities balances from 2005 to 2006 related primarily to thelastminute.com acquisition in July 2005.

**Interest Expense**

The increase in interest expense is attributable to higher average debtoutstanding during 2006, driven by the timing of the acquisition oflastminute.com and increased interest rates due to the interest rate swapsissued in connection with our Notes issued in August 2001. Our averagedebt outstanding, including our capital lease obligation, was approximately $1billion  for the year ended December 31,2006 and approximately $900 million for the year ended December 31, 2005.See Note 7 to the Consolidated Financial Statements for additional information.

**Gain on Sale of Investments**

For the year ended December 31, 2006, there were no gains from thesale of investments. For the year ended December 31, 2005, we recorded again of $21 million from the sale of our investment in Karavel SA, aFrench tour operator. Additionally, we recognized a $7 million gain on the saleof our remaining interest in the German operations of Travelocity Europe. Thesegains were offset by a $1 million loss on the conversion of a notereceivable and warrants from TRX.

**Loss on Derivative Instruments**

For the year ended December 31, 2006, there were no losses onderivative instruments. In the second quarter of 2005, we recorded a loss of$10 million on the option we purchased in May 2005 to acquire GBP andEUR at a fixed rate at or near the closing of the acquisition onlastminute.com. This $10 million loss was offset by a $2 million gainon forward contracts we entered into to purchase GBP 578 million and EUR115 million to lock in the U.S. Dollar price of the acquisition oflastminute.com. In the third quarter of 2005, these forward contracts maturedresulting in a gain of $2 million.

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**Other, net**

Other, net expenses decreased approximately $2 million. In 2006,we recorded $10 million in losses, before tax effect, on the sale of threebusinesses that were a part of our Travelocity Europe and lastminute.comoperations (see Note 5 to the Consolidated Financial Statements).Additionally, minority interest expense increased $5 million in 2006 dueprimarily to stronger performance of our Sabre Pacific joint venture and ouracquisition in January 2006 of the remaining 90% of Zuji Holdings Limitedthat we did not already own. Offsetting these increases to expense in 2006 wasa $2 million adjustment for forfeitures related to our Restricted StockIncentive Plan in conjunction with the adoption of SFAS 123R (seeNote 12 to our Consolidated Financial Statements). Additionally, in 2005we recorded a $15 million loss resulting from a litigation settlement withNorthwest Airlines, for which we had no comparable loss in 2006.

**Income Taxes**

The decrease in the provision for income taxes is primarily driven bythe $24 million decrease in income before taxes. See Note 10 to theConsolidated Financial Statements for additional information regarding incometaxes.

**Net Earnings**

Although all of our segments experienced positive revenue growth, netearnings decreased by $17 million during the year ended December 31,2006 as compared to the year ended December 31, 2005. The primary reasonfor this decline is a $21 million gain in the first quarter of 2005 fromthe sale of our investment in Karavel SA for which we had no equivalent gain in2006. Other factors adversely affecting our operations for the year ended December 31,2006 were an increase in amortization expense due to the acquisition oflastminute.com and headcount-related costs (including the impact ofexpensing stock options starting on January 1, 2006). Finally, we incurredhigher interest expense in 2006 due primarily to the higher debt levelsincurred to finance the lastminute.com purchase.

**Results ofOperations: 2005 Compared to 2004**

|                        | ** ** | **Year Ended December 31,**            | ** ** |
|------------------------|------------|-------------------------------------------------------|------------|
| ** **             | ** ** | **2005**                                              | ** ** | **2004** | ** ** | **change** | ** ** | **% change** | ** ** | **2005** | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** | **change** | ** ** | **% change** | ** ** |
| ** **             | ** ** | **Total revenues before eliminations** | ** ** | **Eliminations** | ** ** | **Total consolidated revenues** | ** ** |
| ** **             | ** ** | ** **                                            | ** ** | **(thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(thousands)** | ** ** | ** ** | ** ** | **(thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues               |       | $                                                     | 2,706,337  |   |   | $ | 2,298,851 |   |   | $ | 407,486 |   |   | 17.7 | % |   | $ | (185,082 | ) | $ | (167,880 | ) | $ | 2,521,255 |   |   | $ | 2,130,971 |   |   | $ | 390,284 |   |   | 18.3 | % |   |
| Total cost of revenues |       | 1,672,454                                             |       |   | 1,440,113 |   |   | 232,341 |   |   | 16.1 | % |   | (185,082 | ) | (167,880 | ) | 1,487,372 |   |   | 1,272,233 |   |   | 215,139 |   |   | 16.9 | % |   |
|                        |            |                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Total revenuesfor the year ended December 31, 2005 increased approximately$390 million, or 18.3%, compared to the year ended December 31, 2004,from $2,131 million to $2,521 million. Cost of revenues for the yearended December 31, 2005 increased approximately $215 million, or16.9%, compared to the year ended December 31, 2004, from$1,272 million to $1,487 million. These reported revenues andexpenses are net of intersegment revenues and expenses which were eliminated inconsolidation.

44

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Management’sdiscussion and analysis of revenues and cost of revenues by business segmentare based upon segment results including intersegment revenues and cost ofrevenues of approximately $185 million and $168 million for the yearsended December 31, 2005 and 2004, respectively. We account for significantintersegment transactions as if the transactions were to third parties, thatis, at estimated current market prices. The majority of the intersegmentrevenues and cost of revenues are between Travelocity and Sabre Travel Network,consisting mainly of incentives paid to Travelocity for Travelocitytransactions processed through the *Sabre*GDS, data processing fees and transaction fees paid by Travelocity to SabreTravel Network (including for transactions processed through the *Sabre* GDS), and fees paid by Sabre TravelNetwork to Travelocity for corporate trips booked through the *Travelocity* online booking technology. In addition, SabreAirline Solutions pays fees to Travelocity for airline trips booked through the*Travelocity* online booking technology.All intersegment revenues and corresponding cost of revenues have beeneliminated in consolidation.

Total revenues(including intersegment revenues) for the year ended December 31, 2005increased approximately $407 million, or 17.7%, as compared to the yearended December 31, 2004, from $2,299 million to $2,706 million.

Total cost of revenues (including intersegment cost of revenues) forthe year ended December 31, 2005 increased $232 million, or 16.1%, ascompared to the year ended December 31, 2004, from $1,440 million to$1,672 million.

**Travelocity**

|                                            | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                 | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **change** | ** ** | **% change** | ** ** |
| ** **                                 | ** ** | ** **                                 | ** ** | **(thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Segment revenues                           |       | $                                          | 831,328    |   |   | $ | 502,549 |   |   | $ | 328,779 |   |   | 65.4 | % |   |
| Cost of revenues                           |       | 358,742                                    |       |   | 224,386 |   |   | 134,356 |   |   | 59.9 | % |   |
| Amortization of purchased technology       |       | 13,593                                     |       |   | 21,077 |   |   | (7,484 | ) |   | (35.5 | )% |   |
| Gross profit                               |       | 458,993                                    |       |   | 257,086 |   |   | 201,907 |   |   | 78.5 | % |   |
| Selling, general & administrative |       | 453,126                                    |       |   | 273,189 |   |   | 179,937 |   |   | 65.9 | % |   |
| Amortization of intangible assets          |       | 16,136                                     |       |   | 4,395 |   |   | 11,741 |   |   | 267.1 | % |   |
| Operating loss                             |       | $                                          | (10,269    | ) |   | $ | (20,498 | ) |   | $ | 10,229 |   |   | 49.9 | % |   |

 

The following are important to understanding the comparability of theresults of operations between 2005 and 2004 for our Travelocity segment:

·         InOctober of 2004, we acquired sole control of the non-German operations ofTravelocity Europe, purchasing 50% of these entities. The remaining 50% that wealready owned indirectly through the Travelocity Europe joint venture wasdistributed to us by the joint venture so that we now directly own 100% ofthese entities. Since this acquisition, we have been consolidating the resultsof Travelocity Europe, whereas prior to October 2004, 50% of these resultswere recorded as a reduction to other revenues as equity losses.

·         Theresults of lastminute.com are included in our financial results from the dateof the acquisition on July 20, 2005.

·         NorthAmerica, when referred to below, represents all operations in North America andalso includes our Zuji joint venture in Asia.

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*Revenues*

Transactionrevenue, including Travelocity Europe in 2005 and lastminute.com since theacquisition, increased $296 million, or 69.1%, primarily driven by a$253 million increase in non-air transaction revenue (including revenueresulting from sales of package offerings that include air travel as acomponent) and a $43 million increase in stand-alone air transactionrevenue.

The $253 million increase in non-air transaction revenue consistedprimarily of the following:

·         $158 millionrelated to the acquisitions of Travelocity Europe and lastminute.com.

·         $95 millionrelated to North America driven primarily by a $50 million increase inpackaged trip revenue, a $36 million increase in stand-alone hotelrevenue, both of which were driven by higher transaction volumes, and a$7 million increase in Showtickets.com revenue which we only owned forpart of 2004. All other North American non-air transaction revenue increased$2 million.

The$43 million increase in stand-alone air transaction revenue wasprimarily due to a $29 million increase resulting from the acquisitions oflastminute.com and Travelocity Europe. North American stand-alone airtransaction revenue increased by $14 million driven by strong volumegrowth.

Non-transaction revenue increased $33 million, or 44.5%, consistingprimarily of the following:

·         $22 millionrelated to the acquisitions of Travelocity Europe and lastminute.com whichincludes the $13 million favorable impact of reduced joint venture equitymethod losses that resulted from the Travelocity Europe acquisition, and$9 million of advertising revenue.

·         $11 millionrelated to North America driven primarily by corporate revenue of$10 million (fees paid by Sabre Travel Network and Sabre Airline Solutionsto Travelocity for trips booked through the *Travelocity*online booking technology) and an increase in incentive payments from ourcredit card processing vendor related to volume growth in our net rate hotelproduct offset by a decline in advertising revenue.

*Cost of Revenues*

The increase in cost of revenues includes $84 million from theacquisitions of lastminute.com, Travelocity Europe, Showtickets.com and theconsolidation of Zuji, which we either did not own or consolidate in 2004(lastminute.com and Zuji) or we owned for only part of 2004 (Travelocity Europeand Showtickets.com). In addition, $45 million of the increase isassociated with the volume growth of our published, net rate hotel and packagedtrip programs, as explained above in transaction revenue. The $45 millionincrease includes a $28 million increase in expenses associated with arate increase for net rate credit card transactions and an increase in servicecompensation and a $17 million increase in customer service costs. Theremaining $5 million increase in cost of revenues is primarily due to asoftware write-off associated with upgrading to a new platform at TravelocityBusiness.

*Selling, General and Administrative Expenses*

The increase in selling, general and administrative expenses includes$143 million from lastminute.com, Travelocity Europe, Showtickets.com andZuji and $24 million due to increased advertising and customer acquisitioncosts to drive additional travelers to our North American websites. Headcount-relatedexpenses increased by $7 million driven by growth in our North Americanbusiness. Other selling, general and administrative expenses increased$6 million.

*Amortization of Intangible Assets (Including Amortization of PurchasedTechnology)*

Amortization of intangible assets increased $4 million in totaldue to the amortization of intangibles related to the acquisition oflastminute.com partially offset by other intangible assets becoming fullyamortized in 2004.

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***Operating Loss***

Operating loss decreased due to strong revenue growth in North America,which offset the incremental losses resulting from our acquisition oflastminute.com and Travelocity Europe.

**Sabre TravelNetwork**

|                                             | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                  | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **change** | ** ** | **% change** | ** ** |
| ** **                                  | ** ** | ** **                                 | ** ** | **(thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Segment  revenues                           |       | $                                          | 1,614,197  |   | $ | 1,552,832 |   | $ | 61,365 |   |   | 4.0 | % |   |
| Cost of  revenues                           |       | 1,116,454                                  |       | 1,005,812 |   | 110,642 |   |   | 11.0 | % |   |
| Amortization  of purchased technology       |       | 4,835                                      |       | 9,325 |   | (4,490 | ) |   | (48.2 | )% |   |
| Gross profit                                |       | 492,908                                    |       | 537,695 |   | (44,787 | ) |   | (8.3 | )% |   |
| Selling,  general & administrative |       | 251,598                                    |       | 257,516 |   | (5,918 | ) |   | (2.3 | )% |   |
| Amortization  of intangible assets          |       | 10,825                                     |       | 9,282 |   | 1,543 |   |   | 16.6 | % |   |
| Operating  income                           |       | $                                          | 230,485    |   | $ | 270,897 |   | $ | (40,412 | ) |   | (14.9 | )% |   |

 

*Revenues*

The increase in revenues is due to the following:

·         Transactionrevenue increased by $46 million or 3.5%. The increase includes a$49 million increase resulting from higher transaction volumes and a$3 million decrease driven by a lower average rate per transaction, due togrowth in lower-priced, non-traditional transactions. Total transactionswere 343 million for the year ended December 31, 2005, an increase of3.7% from 330 million transactions in 2004.

·         Subscriberrevenue decreased by $18 million, reflecting the trend towards theadoption of third-party equipment.

·         Otherrevenues increased by $33 million compared to 2004, driven primarily by a$20 million increase in SynXishotel reservations revenue (SynXiswas acquired in 2005) and $7 million increase in equity income andtransaction processing revenue from our joint ventures. In addition, otherrevenue increased approximately $6 million due to the *Hotel Spotlight* program and introduction of our *Sabre Surround* program.

*Cost of Revenues*

The increase in cost of revenues for the twelve months ended December 31,2005, as compared to the twelve months ended December 31, 2004, includesincreases in technology related spending of $26 million as a result of theexpiration of contractual credits of $14 million, and $12 million asa result of increased transaction volume and the continued implementation ofour open system pricing and shopping engine. Subscriber support costs increased$38 million, driven almost entirely by growth in subscriber incentives asa result of the year over year growth in transaction volume and a higheraverage incentive rate per transaction compared to the prior year. Other costof revenue increases include $29 million related to continued investmentin new businesses and new business models such as SynXis, Jurni Network and HotelSpotlight, $8 million for fulfillment costs for GetThere trips as a result of yearover year volume growth, $4 million due to severance related primarily toour second quarter reorganization of our software development group,$3 million due to depreciation and amortization and $3 million ofother expenses.

47

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*Selling, General and Administrative Expenses*

The decrease in selling, general and administrative expenses for thetwelve months ended December 31, 2005, as compared to the twelve monthsended December 31, 2004, was primarily driven by a $10 millionreduction in non-income tax accruals due to events occurring thatdecreased our potential liabilities for taxes and associated interest. Thisdecrease was offset by an increase in legal and other professional fees of$2 million due to an effort to settle litigation and an increase in otherexpenses of $2 million.

*Amortization of Intangible Assets (Including Amortization of PurchasedTechnology)*

Amortization of intangible assets decreased by $3 million due tointangibles that fully amortized in 2005 offset partially by increasedamortization expense from newly acquired entities.

*Operating Income*

The decline in operating income was largely the result of increasedtechnology and incentive expenses and continued investments in new businessesand new business models that exceeded our revenue growth.

**Sabre AirlineSolutions**

|                                            | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                 | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **change** | ** ** | **% change** | ** ** |
| ** **                                 | ** ** | ** **                                 | ** ** | **(thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Segment revenues                           |       | $                                          | 260,812    |   |   | $ | 243,470 |   |   | $ | 17,342 |   |   | 7.1 | % |   |
| Cost of revenues                           |       | 176,713                                    |       |   | 176,902 |   |   | (189 | ) |   | (0.1 | )% |   |
| Amortization of purchased technology       |       | 544                                        |       |   | 1,651 |   |   | (1,107 | ) |   | (67.1 | )% |   |
| Gross profit                               |       | 83,555                                     |       |   | 64,917 |   |   | 18,638 |   |   | 28.7 | % |   |
| Selling, general & administrative |       | 42,330                                     |       |   | 50,026 |   |   | (7,696 | ) |   | (15.4 | )% |   |
| Amortization of intangible assets          |       | 2,294                                      |       |   | 1,149 |   |   | 1,145 |   |   | 99.7 | % |   |
| Operating income                           |       | $                                          | 38,931     |   |   | $ | 13,742 |   |   | $ | 25,189 |   |   | 183.3 | % |   |

 

*Revenues*

The increase in revenues was driven primarily by a $16 millionincrease in airline reservations hosting revenue driven by higher volumes fromadding new customers as well as volume growth from our existing customer base.Additionally, consulting revenues increased $7 million due to certaincontractual objectives being met and an increase in customer engagements, andproduct revenue increased $4 million as a result of higher demand for ourproducts. This growth was offset by a $10 million decline in ourlow-margin, custom-developed software business due to decreased demand.

*Cost of Revenues*

The slight decrease in cost of revenues is due to a $10 milliondecrease in development labor expenses caused primarily by a decline in demandin our low-margin, custom-developed software business. Additionally,headcount-related expenses decreased $7 million driven by anincrease in capitalized salaries and an increased utilization of globalsourcing. These decreases were offset by a $4 million increase in variablecompensation due to more favorable performance, a $4 million increase indata processing cost primarily due to transaction volume growth, a$3 million increase in communications expenses caused by an increase indata network rates, a $2 million increase in amortization of internally-developedsoftware and project delivery costs due to higher capitalized balances, and a$1 million increase in services purchased due primarily to the outsourcingof training and other services. Additionally, other expenses increased$2 million.

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*Selling, General and Administrative Expenses*

The decrease in selling, general and administrative expenses was drivenby a $10 million decrease in bad debt expense caused by the receipt ofpayments on accounts that had been previously reserved. This decrease wassomewhat offset by increases in other expenses of $2 million.

*Amortization of Intangible Assets (Including Amortization of PurchasedTechnology)*

Amortization of intangible assets increased due to amortizationassociated with the acquisition of Rocade in August 2004, partially offsetby other intangible assets becoming fully amortized in 2004.

*Operating Income*

The increase in operating income was primarily driven by higherrevenues and favorable collection results.

**Non-Operating Items**

The following section describes our resultsof operations on a consolidated basis for non-operating income and expenseitems:

|                                  | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **change** | ** ** | **% change** | ** ** |
| ** **                       | ** ** | ** **                                 | ** ** | **(thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating income                 |       | $                                          | 260,873    |   |   | $ | 258,730 |   |   | $ | 2,143 |   |   | 0.8 | % |   |
| Interest income                  |       | 22,411                                     |       |   | 15,154 |   |   | 7,257 |   |   | 47.9 | % |   |
| Interest expense                 |       | (53,075                                    | )          |   | (26,862 | ) |   | (26,213 | ) |   | (97.6 | )% |   |
| Gain on sale of investments      |       | 27,132                                     |       |   | — |   |   | 27,132 |   |   | 100.0 | % |   |
| Loss on derivative instruments   |       | (8,248                                     | )          |   | — |   |   | (8,248 | ) |   | (100.0 | )% |   |
| Other, net                       |       | (4,378                                     | )          |   | 10,039 |   |   | (14,417 | ) |   | (143.6 | )% |   |
| Less: Provision for income taxes |       | 72,563                                     |       |   | 66,642 |   |   | 5,921 |   |   | 8.9 | % |   |
| Net Earnings                     |       | $                                          | 172,152    |   |   | $ | 190,419 |   |   | $ | (18,267 | ) |   | (9.6 | )% |   |

 

**Interest Income**

Interest income increased due primarily to higher interest rates on short-terminvestments and loans receivable, as well as interest on an $11 millionloan receivable from Zuji Holdings Limited issued on January 18, 2005.

**Interest Expense**

Interest expense increased $26 million, primarily from the bridgefacility we entered into on May 12, 2005, in order to provide temporaryfinancing in connection with the lastminute.com acquisition and to satisfylegal requirements for certainty of funding for the acquisition.

**Gain on Sale of Investments**

In March 2005, we sold our interest in Karavel SA, a French touroperator and recorded a $21 million gain. Additionally, we recognized a $7million gain on the sale of our remaining interest in the German operations ofTravelocity Europe. These gains were offset by a $1 million loss on the conversionof a note receivable and warrants from TRX.

49

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***Loss onDerivative Instruments***

When the lastminute.com acquisition was initially announced in May 2005,we purchased currency options for $10 million, which gave us the right topurchase GBP and EUR currencies at a fixed USD rate near the closing date ofthe transaction. This capped our foreign exchange exposure on the acquisition.Due to the strengthening of the USD against these currencies, the USDacquisition price decreased $67 million from the time we purchased theoptions. The options therefore expired with no value. As a result, we recordeda $10 million loss on the premium paid for the options. When theacquisition was approved by shareholders and bondholders, the acquisitionbecame highly certain, and we entered into forward contracts obligating us topurchase GBP 578 million and EUR 115 million, which locked in thelower USD price of the acquisition of lastminute.com. The USD weakened slightlysubsequent to the purchase of these forwards resulting in a gain on theforwards of $2 million.

**Other, net**

Other, net decreased due to a $15 million loss resulting from alitigation settlement with Northwest Airlines offset by minority interestincome of $8 million, primarily due to our consolidation of Zuji in thefourth quarter of 2005 and other income of $3 million. In 2004, we had a$6 million gain from settling a contract dispute.

**Income Taxes**

The provision for income taxes increased primarily due to a$6 million reduction of tax benefits associated with our foreignoperations. Other changes include a reduction in income taxes of$4 million related to a decrease in pre-tax income between periods offsetby additional state income tax expense of $2 million. Also included in2005 is a reversal of previously accrued taxes of $21 million related tocontingencies that no longer meet the standards for accrual under Statement ofFinancial Accounting Standards No. 5, *Accountingfor Contingencies*. In particular, we released $16 million ofpreviously accrued taxes due to the expiration of certain statutes oflimitation and $5 million of previously accrued taxes due to the finalresolution of certain issues related to a tax audit. In 2004, we had reversedpreviously accrued taxes of $23 million. Our effective tax rate for 2005prior to the reversal was 38%. Our effective tax rate for 2004 prior to thereversal was 35%. See Note 10 to the Consolidated Financial Statements foradditional information regarding income taxes.

**Net Earnings**

Net earningsdecreased by $18 million despite growth in our operating income of$2 million. The decrease was primarily due to $26 million more ininterest expense in 2005 due to our bridge facility used to provide temporaryfinancing for our acquisition of lastminute.com and our $8 million netloss on derivative instruments also related to our acquisition oflastminute.com. Gains from the sale of our Karavel investment and higherinterest income only partially offset these other increases in expenses. Inaddition, 2004 contains a $6 million gain resulting from a contractdispute.

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**SABRE HOLDINGS CORPORATION**

**LIQUIDITY AND CAPITAL RESOURCES**

We utilize cashand cash equivalents to pay our operating expenses, make capital expenditures,invest in our products and offerings, pay dividends, repurchase shares of ourCommon Stock and service our debt and other long-term liabilities. Although ourprimary source of funds has been from our operations, we have in the past andmay in the future raise external funds through the sale of stock or debt in thepublic capital markets or in privately negotiated transactions. In assessingour liquidity, key components include our net earnings adjusted for non-cashand non-operating items, and current assets and liabilities, in particularaccounts receivable, accounts payable and accrued expenses. For the longerterm, our debt and long-term liabilities are also considered key to assessingour liquidity.

Our future minimum non-cancelable contractualobligations as of December 31, 2006 are as follows (in thousands ofdollars):

|                                                                                              | ** ** | **Payments Due by Year**                        | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **For the Years Ending December 31,** | ** ** |
| ** **                                                                                   | ** ** | ** **                                                     | ** ** | ** ** | ** ** | **2008 -** | ** ** | **2010 -** | ** ** | ** ** | ** ** |
| **Contractual Obligations**                                                             | ** ** | ** **                                                     | ** ** | **Total** | ** ** | **2007** | ** ** | **2009** | ** ** | **2011** | ** ** | **Thereafter** | ** ** |
| Notes payable  (1)                                                                           |       | $                                                              | 1,343,947  |   | $ | 55,059 |   | $ | 264,988 |   | $ | 509,600 |   | $ | 514,300 |   |
| Capital lease  obligations (2)                                                               |       | 124,445                                                        |       | 5,391 |   | 10,782 |   | 10,782 |   | 97,490 |   |
| Operating  lease obligations                                                                 |       | 173,136                                                        |       | 42,057 |   | 59,834 |   | 39,750 |   | 31,495 |   |
| IT  outsourcing agreement (3)                                                                |       | 15,436                                                         |       | 15,436 |   | — |   | — |   | — |   |
| Yahoo!  agreement (4)                                                                        |       | 32,750                                                         |       | 32,750 |   | — |   | — |   | — |   |
| WNS agreement  (5)                                                                           |       | 114,110                                                        |       | 24,365 |   | 58,942 |   | 30,803 |   | — |   |
| Pension and  other benefit obligations (see Note 9 to the Consolidated Financial Statements) |       | 232,821                                                        |       | 16,279 |   | 43,284 |   | 41,303 |   | 131,955 |   |
| Other  long-term obligations (6)                                                             |       | 111,788                                                        |       | 43,552 |   | 28,754 |   | 18,248 |   | 21,234 |   |
| Amounts receivable  under non-cancelable subleases (7)                                  |       | (33,806                                                        | )          | (7,763 | ) | (14,827 | ) | (10,804 | ) | (412 | ) |
| Total contractual cash obligations                                                           |       | $                                                              | 2,114,627  |   | $ | 227,126 |   | $ | 451,757 |   | $ | 639,682 |   | $ | 796,062 |   |
|                                                                                              |            |                                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)            Includesall interest and principal related to $400 million senior unsecured notesmaturing August 1, 2011, $400 million senior unsecured notes maturing March 15,2016, and all interest and principal balance of $155 million outstanding underour revolving credit agreement. Excludes the effect of interest rate swaps. SeeNote 6 to the Consolidated Financial Statements.

(2)            Consistsprimarily of headquarters facility lease, including interest. Excludes theeffect of interest rate swap. See Note 6 to the Consolidated Financial Statements.

(3)            Representsminimum amounts due to EDS under the terms of our Outsourcing Agreement.

(4)            Fixedpayment under an agreement with Yahoo! whereby we are the exclusive air, carand hotel booking engine on Yahoo! Travel through December 31, 2007.

(5)            Weare committed to minimum payments to WNS, an entity to which we outsource aportion of our Travelocity contact center operations and back-officefulfillment through 2010 based upon current and historical transaction levels.

(6)            Consistsprimarily of minimum payments due under various marketing agreements. Alsoincludes a note payable and related interest owed to a joint venture partner.

(7)            EDSsubleases from us an office facility in Fort Worth, Texas under a sublease thatwill expire in 2011.

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During thethree months ended March 31, 2006, we prepaid the entire $800 millionoutstanding under the bridge facility we used to acquire lastminute.com in July 2005with $580 million of debt and $220 million of our existing cash andcash equivalents. Other than the bridge facility refinancing, our current cashflows from operations, existing balances in cash and cash equivalents andshort-term investments and funds available under our revolving credit facilityare sufficient to fund our planned expenditures which include operatingexpenses, capital expenditures, investments in our products and offerings,interest payments on our debt and dividends. We may also consider using ourfunds available or possibly external sources of funds for additionalacquisitions of, or investments in, complementary businesses, products,services and technologies when such opportunities become available (seeNote 4 to the Consolidated Financial Statements for current yearacquisitions and investment activity). These types of additional activitiesmight affect our liquidity requirements or cause us to issue additional equityor debt securities.

In the longterm, we expect to use our existing funds and cash flows from operations tosatisfy our debt and other long-term obligations, and subject to the sale ofthe Company to Texas Pacific Group and Silver Lake Partners (see Note 5 to theConsolidated Financial Statements), to repurchase our stock or increasedividend payments. We may also use our funds, as well as external sources offunds, to retire debt as appropriate, based upon market conditions and ourdesired liquidity and capital structure.

See the riskfactors referred to under Part I, Item 1A: Risk Factors, which includecertain risk factors that may affect the availability of our internallygenerated funds.

On December 12, 2006, we entered into a definitive agreement tosell the Company to an investment group consisting of affiliates of TexasPacific Group and Silver Lake Partners. As a result of the agreement, which issubject to regulatory and other shareholder approvals and other customaryclosing conditions, Standard & Poor’s changed our credit rating fromBBB to BB and put us on a negative ratings watch, and Moody’s Investors Serviceput our Baa3 ratings on review for a possible downgrade. The ratings change didnot have a material impact on our cost of borrowing.

***CashInvestments***

We invest cash in high-credit-quality marketablesecurities, including: fixed or variable rate obligations issued by the U.S.Treasury, government agencies and municipalities, mutual funds, asset-backedsecurities issued by banks, corporations, and bankruptcy-remote trusts.We use some of our securities to enter into repurchase agreements. Ourinvestment objectives are preservation of principal, liquidity and yield. Wetry to invest all of our excess cash and cash equivalents (with maturities ofless than three months) in marketable securities. Therefore, our annualinvestments will fluctuate depending on the levels of cash provided or used byall of our other investing, operating and financing activities. See Note 2to the Consolidated Financial Statements for a discussion of restricted cash.

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***CapitalActivities***

***Dividends***

| Declaration Date  | ** ** | ** **             | ** ** | **Payable Date** | ** ** | **Amount per Share** | ** ** |
|------------------------|------------|------------------------|------------|-----------------------|------------|--------------------------------|------------|
| **2004:**              | ** ** | ** **             | ** ** |                  | ** ** | ** **                     |       |
| January 20,  2004 |       | February 17, 2004 |       |                  | $          | 0.075                          | ** ** |   |
| April 20,  2004   |       | May 14, 2004      |       |                  | 0.075      | ** **                     |       |
| July 20,  2004    |       | August 16, 2004   |       |                  | 0.075      | ** **                     |       |
| October 26,  2004 |       | November 15, 2004 |       |                  | 0.075      | ** **                     |       |
| **2005:**              | ** ** | ** **             | ** ** |                  | ** ** | ** **                     |       |
| February 1,  2005 |       | February 28, 2005 |       |                  | $          | 0.090                          | ** ** |   |
| May 3, 2005       |       | May 26, 2005      |       |                  | 0.090      | ** **                     |       |
| July 26,  2005    |       | August 18, 2005   |       |                  | 0.090      | ** **                     |       |
| November 1,  2005 |       | November 29, 2005 |       |                  | 0.090      | ** **                     |       |
| **2006:**              | ** ** | ** **             | ** ** |                  | ** ** | ** **                     |       |
| January 30,  2006 |       | February 28, 2006 |       |                  | $          | 0.100                          | ** ** |   |
| May 1,  2006      |       | May 25, 2006      |       |                  | 0.100      | ** **                     |       |
| August 1,  2006   |       | August 28, 2006   |       |                  | 0.100      | ** **                     |       |
| October 11, 2006  |       | November 10, 2006 |       |                  | 0.130      | ** **                     |       |

 

Subject to the sale of the Company to Texas Pacific Group and SilverLake Partners, our Board of Directors currently intends to consider declaringand paying comparable future dividends on a regular quarterly basis, subject toour ability to pay dividends and to a determination by management and our Boardof Directors that dividends continue to be in our best interests and those ofour stockholders.

***Repurchases of Stock***

| Date Authorized  | ** ** | ** ** | ** **  | **Authorized for  Repurchase** | ** ** | **Repurchased** | ** ** | **Repurchased  under ASSP** | ** ** | **Available for  Repurchase** | ** ** |
|-----------------------|------------|------------|-------------|-------------------------------------|------------|-----------------|------------|----------------------------------|------------|------------------------------------|------------|
| October 20, 2003 |       | $          | 100 million |                                | $          | 100 million     |       | $                                | 58 million |                               | —     | (1) |
| April 19, 2004   |       | $          | 100 million |                                | $          | 100 million     |       | —                           |       | —                             | (2)        |
| October 25, 2004 |       | $          | 100 million |                                | $          | 100 million     |       | —                           |       | —                             | (3)        |
| May 2, 2005      |       | $          | 100 million |                                | —     |            | —     |                             | $          | 100 million                        | (4)        |
|                       |            |            |             |                                     |            |                 |            |                                  |            |                                    |            |  |  |  |  |

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(1)            OnOctober 20, 2003, our Board of Directors approved a share repurchaseprogram authorizing us to repurchase up to $100 million of our CommonStock. During the three months ended December 31, 2003, we repurchased1,309,597 shares of our Common Stock. During the three months ended March 31,2004, we repurchased 3,336,862 shares of our Common Stock thereby completingthe remaining authorization to repurchase shares under that program. Inaddition, on October 20, 2003, our Board of Directors issued a standingannual authorization to purchase shares of our Common Stock to satisfy ourobligations to deliver shares under our Employee Stock Purchase Plan and ourLong-Term Incentive Plan (the “Alternative Share Settlement Program”). Wepurchased 850,000 shares of our Common Stock under this authorization in December 2003,840,000 shares of our Common Stock under this authorization in January 2005and 1,100,000 shares of our Common Stock under this authorization in May andJune 2006.

(2)            OnApril 19, 2004, our Board of Directors approved another share repurchaseprogram authorizing us to repurchase up to an additional $100 million ofour Common Stock. We repurchased 4,038,166 shares of our Common Stock underthis authorization. This authorization was completed on November 1, 2004.

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(3)            OnOctober 25, 2004, our Board of Directors approved another share repurchaseprogram authorizing us to repurchase up to an additional $100 million of ourCommon Stock. We repurchased 4,558,347 shares of our Common Stock. Theauthorization was completed on March 14, 2005.

(4)            OnMay 2, 2005, we received authorization from the Board of Directors torepurchase an additional $100 million of our Common Stock. No purchases ofour Common Stock have been made, and none are planned, under this authorizationas of the date of this report. As in the past, implementation of the program isat management’s discretion and will depend on management’s decision about the bestuses for our available cash and cash equivalents.

We will generally seek to make any future share repurchases pursuant to10b5-1 trading plans, unless such plans are terminated at the discretionof management.

***FinancingArrangements***

**Bridge Financing Arrangement—****On**May 12,2005, we entered into an $800 million, unsecured bridge loan agreement inorder to provide short-term financing in connection with the lastminute.comacquisition and to satisfy legal requirements for certainty of funding for theacquisition. On July 22, 2005, we entered into an amendment to the bridgefacility whereby all the rights and obligations of Sabre Inc. under thebridge facility were assumed by Sabre Holdings and Sabre Inc. wasdischarged from its obligations thereunder.

Effective August 1,2005, we borrowed $800 million under the bridge facility in order to funda portion of the purchase of the shares of lastminute.com in connection withthe lastminute.com acquisition.

During thethree months ended March 31, 2006, we prepaid the entire $800 millionoutstanding under the bridge facility with $580 million of debt (seePublicly Issued Senior Unsecured Notes and Revolving Credit Agreement below)and $220 million of our existing cash and cash equivalents.

**Publicly Issued Senior Unsecured Notes****—**In March 2006, Sabre HoldingsCorporation issued $400 million in senior unsecured notes (“2016 Notes”),bearing interest at a fixed rate of 6.35% and maturing March 15, 2016, inan underwritten public offering resulting in net cash proceeds after expensesof approximately $397 million. The 2016 Notes include certainnon-financial covenants, including restrictions on incurring certain types ofdebt or entering into certain sale and leaseback transactions. We used all ofthe net proceeds plus available cash and cash equivalents and marketablesecurities to prepay $400 million of the bridge facility. Under the termsof the 2016 Notes we are obligated to pay $25 million in interest chargesin 2007, and $25 million per year afterwards until 2016. The interest ratepayable on the notes may increase if, after the sale of the Company to TexasPacific Group and Silver Lake Partners (see Note 5 to the ConsolidatedFinancial Statements), the rating of the notes from Moody’s Investors Servicefalls below Baa3, or the rating of the notes from Standard & Poor’sfalls below BBB. As of December 31, 2006, we were in compliance with allcovenants under the indenture for the 2016 Notes.

In August 2001,we issued through Sabre Holdings Corporation $400 million in seniorunsecured notes (“2011 Notes”), bearing interest at 7.35% and maturing August 1,2011, in an underwritten public offering resulting in net cash proceeds to usof approximately $397 million. The 2011 Notes include certainnon-financial covenants, including restrictions on incurring certain types ofdebt or entering into certain sale and leaseback transactions. The transactionto sell and subsequently lease back a portion of our corporate headquartersfacilities (see Note 5 to the Consolidated Financial Statements) is not inviolation of any covenants under our 2011 Notes. As of December 31, 2006,we were in compliance with all covenant requirements under the 2011 Notes. Inconjunction with these 2011 Notes, we have entered into two interest rate swapsthrough 2011 for a total of $300 million, which pay us 7.35% and on whichwe pay a variable rate based on a six-month LIBOR plus 231 basis points (seeNote 6 to the Consolidated Financial Statements).

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**Revolving Credit Agreement****—**On July 22, 2005, in order to facilitatethe consummation of the lastminute.com acquisition and to provide additionalliquidity and flexibility in our capital structure, we entered into certainamendments to our current revolving credit agreement (“Credit Facility”). Underthe amendments, Sabre Holdings assumed all of the rights and obligations ofSabre Inc. under the Credit Facility and Sabre Inc. was dischargedfrom its obligations thereunder. The amendments also include, among otherthings: (i) amendments to certain financial and negative covenants(including amendments to provide us more flexibility under the ConsolidatedLeverage Ratio covenant, as shown in the table below, and amendments that placeadditional restrictions on the ability of our subsidiaries to incurindebtedness), (ii) amendments that prohibit us from using proceeds fromthe Credit Facility to repay the bridge facility to the extent such proceedsrepresent more than 50% of the then aggregate committed amount of the lendersunder the Credit Facility, (iii) amendments that increase the aggregateamount committed by those lenders to $360 million, and (iv) amendmentsthat allow us to request a future increase of the aggregate amount committed bythe lenders under the Credit Facility to as much as $500 million.

On March 17,2006, we borrowed $180 million under our revolving credit agreement. Weused the proceeds to prepay $180 million of the outstanding principal onthe bridge facility. The interest rate on this indebtedness is based on theLondon Interbank Offered Rate (“LIBOR”) plus a borrowing spread, and issensitive to our credit rating. At December 31, 2006, the interest ratewas 5.95%. All or part of this indebtedness can be extended month-to-month atour option but it must be repaid on or before June 15, 2009. The indebtednessmay be accelerated in certain circumstances that are described in the revolvingcredit agreement. We may repay the revolving credit loans outstanding under therevolving credit agreement at any time without significant penalty prior to thematurity date.

In May 2006, we repaid $25 millionof the outstanding borrowings under the revolving credit agreement. Based onthe terms of this agreement, we have $205 million of unused borrowingcapacity under this facility at December 31, 2006. As of December 31,2006, we were in compliance with all covenants under this agreement includingthe following financial covenants:

| Covenant                                     | ** ** | ** **        | ** ** | **Requirement** | ** ** | **Level at  December 31, 2006** | ** ** |
|----------------------------------------------|------------|-------------------|------------|-----------------|------------|------------------------------------------------|------------|
| Consolidated Leverage Ratio (Debt to EBITDA) |       | 3.25 to 1 maximum |       |            | 2.24 to 1  |                                           |       |
| Consolidated Net Worth (1)                   |       | $1.3 billion      |       |            | $          | 1.8 billion                                    |       |   |
|                                              |            |                   |            |                 |            |                                                |            |  |  |  |

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(1)            Consolidatednet worth for debt covenants requires excluding the unrealized foreign currencytranslation from the total stockholders’ equity.

Our covenants under the amended revolvingcredit agreement are as follows:

| As amended on July 22, 2005          | ** ** | ** **        | ** ** | **Requirement** | ** ** |
|---------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|
| Consolidated Leverage Ratio (Debt to EBITDA):                 |       |              |       |
| Quarters ended December 31, 2006 and March 31, 2007 |       | 3.25 to 1 maximum |       |
| Quarters ended June 30, 2007 and thereafter              |       | 3.00 to 1 maximum |       |

 

**Capital Lease Facility—****In** June 2003,Sabre Inc. entered into a ten-year master lease for our corporateheadquarters facility in Southlake, Texas, with CSL Leasing, Inc., whichis accounted for as a capital lease. The interest rate on the capital leasefacility was fixed at 5.37%. At the inception of the lease, we recorded anasset of approximately $168 million, along with a liability ofapproximately $168 million, representing the present value of the minimum leasepayments due under the lease and the residual value guarantee.

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In December 2006,we completed the sale of the Solana building, associated improvements andcertain undeveloped land and other property rights at our Southlake, Texasheadquarters to Maguire Partners and began our five-year leaseback of theSolana building from Maguire. We completed the sale of the Property afterexercising our option under the capital lease facility to purchase theProperty, we used the proceeds from the sale to repay a portion of the capitallease facility, and we are amortizing the $4 million loss on the transactionover the term of the new lease. As a result of this transaction, we have aremaining $94 million obligation under the capital lease facility with an $89million residual value guarantee. As previously disclosed in our Form 8-Kdated September 1, 2006 and filed on September 8, 2006, we plan tovacate the Solana building in late 2007 or early 2008 and to re-accommodate theapproximately 1,200 employees currently occupying the Solana building in twoother headquarters buildings in Southlake, Texas. Upon vacating the Solanabuilding in late 2007 or early 2008, we expect to take a one-time charge ofapproximately $31 to $36 million related to future obligations under theleaseback. Thereafter, we expect to generate approximately $10 million inannual savings by reducing lease and other operating expenses, and interestexpenses, related to our headquarters facilities.

In conjunction with the capital leasefacility, we have an interest rate swap, covering our entire capital leaseobligation, which pays us 5.37% and on which we pay a variable rate based on asix-month LIBOR plus 153 basis points (see Note 6 to the Consolidated FinancialStatements). Amending the capital lease facility did not have an impact on ourinterest rate swap. Under the amended lease agreement, we are subject tocertain covenants. As of December 31, 2006, we were in compliance with allcovenants under this amended agreement including the following financialcovenant:

| Covenant               | ** ** | ** ** | ** **  | **Requirement** | ** ** | **Level at  December 31, 2006** | ** **  |
|------------------------|------------|------------|-------------|-----------------|------------|------------------------------------------------|-------------|
| Consolidated Net Worth |       | $          | 1.2 billion |            |       | $                                              | 1.9 billion |   |   |
|                        |            |            |             |                 |            |                                                |             |  |  |  |  |

 

***Cash Flows (in thousands)***

|                                                               | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                    | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cash provided  by operating activities                        |       | $                                          | 378,623    |   | $ | 225,506 |   | $ | 361,433 |   |
| Cash provided  by (used for) investing activities             |       | 9,325                                      |       | (833,904 | ) | (98,992 | ) |
| Cash provided  by (used for) financing activities             |       | (298,673                                   | )          | 698,057 |   | (255,393 | ) |
| Effect of  exchange rate changes on cash and cash equivalents |       | 24,277                                     |       | (4,097 | ) | 1,761 |   |
| Total cash and cash equivalents increase                      |       | $                                          | 113,552    |   | $ | 85,562 |   | $ | 8,809 |   |

** **

**Operating Activities—****Cash**flows providedby operating activities for the year ended December 31, 2006 was$379 million which was primarily from net earnings of $377 millionadjusted for non-cash and non-operating items. In addition, cash provided byoperating activities includes favorable changes in working capital of$2 million. Cash flows from operations increased $153 million in theyear ended December 31, 2006 from the same period a year ago. Net incomeadjusted for non-cash and non-operating items increased $78 million primarilydue to increased stock compensation expense due to the implementation of SFAS123R and increased amortization from lastminute.com which was acquired in thethird quarter of 2005. Additionally, working capital increased $76 million. Arelease of restricted cash resulted in an approximate $11 million increase inthe first quarter of 2006 as the related liability was extinguished. We hadlower accounts receivable due to lower airline revenue compared to the yearended December 31, 2005 and improved collections of airline commissionsdue to a change in the timing of when our international clearing houseprocesses payments. Other changes were primarily due to timing differences.

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Cash flowsprovided by operating activities for the year ended December 31, 2005 was$226 million which resulted from net income adjusted for non-cash andnon-operating items of $300 million. This was offset by unfavorablechanges in our working capital of $74 million. Cash flows from operatingactivities decreased $136 million in the year ended December 31, 2005compared to the same period a year ago. This decrease was primarily driven by a$17 million reduction in our net income adjusted for non-cash and non-operatingitems. Another factor that contributed significantly to the reduction in cashflow from operating activities was the timing of the acquisition oflastminute.com in the third quarter of 2005 which, along with the fourthquarter being historically the slowest from a cash generation perspective.lastminute.com generates most of its positive cash flows during the first partof the year, from which we were unable to benefit in 2005. Other factorscontributing to the reduced cash flow from operating activities includecollection of a $20 million receivable in 2004 related to the 2003cancellation of two subscriber contracts and higher payouts of variablecompensation due to positive 2004 financial results. Other changes areprimarily due to timing differences.

Cash providedby operating activities during year ended December 31, 2004 was$361 million, which was primarily from net earnings of $317 millionadjusted for non-cash and non-operating items. In addition, cash provided byoperating activities includes favorable changes in working capital of$45 million.

**Investing Activities**—The$843 million decrease in cash used for investing activities for the yearended December 31, 2006 compared to the prior year period primarilyresults from the use of cash in 2005 for the acquisition of lastminute.com inthe third quarter of 2005, $17 million in loans and investments to jointventures and a $10 million foreign currency option purchase. Further in2006, cash used for investing activities was offset by the release of$37 million in cash which had previously been restricted to fulfill travel-relatedbonding requirements in Europe, and $5 million in proceeds from loans.These decreases in cash used for investing activities were offset by a$289 million decrease in net sales of our portfolio of marketablesecurities, a $39 million decrease in proceeds from the sale ofinvestments, and a $17 million increase in capital expenditures.Additionally, cash used in investing activities for the year ended December 31,2005 included $13 million in proceeds for the sale of a joint venture. Inconjunction with the sale and subsequent lease back of the Solana building, theproceeds of approximately $80 million were used to pay down our capital leaseobligation by a similar amount.

The$735 million increase in cash used for investing activities in the yearended December 31, 2005 as compared to the same period in 2004, primarilyresults from a $1 billion increase in acquisitions (net of cash acquired) whichresults primarily from our acquisition of lastminute.com. Additionally, capitalexpenditures increased $14 million. Offsetting these cash uses forinvesting activities are the $318 million increase in net sales of ourportfolio of marketable securities primarily used in the purchase oflastminute.com and $41 million of proceeds from the sale of ourinvestments in Karavel and TRX.

**Financing Activities**—Cashused for financing activities was $299 million for the year ended December 31,2006, compared to cash provided by financing activities of $698 million for thesame period a year ago. This was primarily due to the prepayment of the$800 million bridge facility in the first quarter of 2006, the repaymentof other short-term borrowings of $25 million, and a $9 millionincrease in dividends paid, offset by the issuance of senior unsecured notes of$397 million and borrowings under our revolving credit agreement of$180 million to refinance the bridge facility. In the year ended December 31,2005, cash provided by financing activities also included proceeds of$800 million from the bridge facility which were used to acquirelastminute.com in third quarter of 2005. Additionally, there was a$40 million decrease in repurchases of our Common Stock under our Boardauthorized stock repurchase plans. There was also a $26 million increasein proceeds from the issuance of Common Stock due to increased employee stockoption exercises resulting from a generally higher price of our Common Stock,and $1 million in excess tax benefits from stock-based compensationexpense that was classified as a financing cash inflow during the year ended December 31,2006.

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Cash provided by financing activities was $698 million for theyear ended December 31, 2005, compared to a use of cash of$255 million for the same period in 2004. This was primarily due to the$800 million in proceeds from our bridge facility that we used to acquirelastminute.com. Additionally, a reduction in the number of shares of our CommonStock that we repurchased under our Board authorized stock repurchasing plansresulted in a $165 million reduction in cash outflows. Offsetting thisdecrease in shares of Common Stock repurchased was an increase in dividendspaid of $6 million due to an increase in our dividend rate from $.075 pershare in 2004 to $.09 per share in 2005. Proceeds from the issuance of CommonStock decreased $6 million due to fewer employee stock option exercisesresulting from a generally lower price of our Common Stock.

**Off Balance Sheet Arrangements**

We do not have any significant relationships or agreements as of December 31,2006 that would be considered an off balance sheet arrangement as defined byItem 303(a)(4)(ii) of Regulation S-K.

**Critical Accounting Policies**

The discussionand analysis of our financial condition and results of operations is based onour consolidated financial statements, which have been prepared in accordancewith generally accepted accounting principles (“GAAP”) in the United States.The preparation of these financial statements requires us to make estimates andjudgments that affect our reported assets and liabilities, revenues andexpenses and other financial information. Actual results may differsignificantly from these estimates, and our reported financial condition andresults of operations could vary under different assumptions and conditions. Inaddition, our reported financial condition and results of operations could varydue to a change in the application of a particular accounting standard.

We regard anaccounting estimate underlying our financial statements as a “criticalaccounting estimate” if the accounting estimate requires us to make assumptionsabout matters that are uncertain at the time of estimation and if changes inthe estimate are reasonably likely to occur and could have a material effect onthe presentation of financial condition, changes in financial condition, orresults of operations.

We haveincluded below a discussion of the accounting policies involving materialestimates and assumptions that we believe are most critical to the preparationof our financial statements, how we apply such policies and how resultsdiffering from our estimates and assumptions would affect the amounts presentedin our financial statements. We have discussed the development, selection anddisclosure of these accounting policies with our audit committee. Although webelieve these policies to be the most critical, other accounting policies alsohave a significant effect on our financial statements and certain of thesepolicies also require the use of estimates and assumptions. Note 2 to theConsolidated Financial Statements discusses each of our significant accountingpolicies.

**Air, Car and Hotel Commission Reserves:**   OurTravelocity segment receivescommissions from travel suppliers for air travel, hotel rooms, car rentals,vacation packages and cruises booked through our Travelocity websites.Commissions from air travel providers are recognized at the time of booking thereservations except for lastminute.com entities that recognize revenue related toair travel at the time of departure. The revenue recognition method used bylastminute.com will be changed to conform to the remainder of our Travelocitysegment when adequate historical data on cancellations is developed.Commissions from car and hotel travel providers are recognized upon thescheduled date of travel consumption. We record car and hotel commissionrevenue net of an estimated reserve for no-shows. If circumstances shouldchange such that the cancellation rates are significantly higher than expected,it could have a significant impact on the amount reserved. At December 31,2006 and 2005, our reserve for car and hotel commissions was approximately$7 million and $8 million, respectively.

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**Booking Fee Cancellation Reserve:**   OurSabre Travel Network segmentrecords revenue for airline travel reservations processed through the *Sabre* system at the time of the booking ofthe reservation. However, if the booking is cancelled in a later month, thebooking fee must be refunded to the customer (less a small cancellation fee).Therefore we record revenue net of an estimated amount reserved to account forfuture cancellations. This reserve is calculated based on historicalcancellation rates. In estimating the amount of future cancellations that willrequire us to refund a booking fee, we assume that a significant percentage ofcancellations are followed immediately by a new reservation, without loss ofrevenue. This assumption is based on historical rates of cancellations thatresulted in a new reservation and has a significant impact on the amountreserved. If circumstances change, such as higher than expected cancellationrates or changes in booking behavior, our estimates of future cancellationscould be increased by a material amount and our revenue decreased by acorresponding amount. At December 31, 2006 and 2005, our booking feecancellation reserves were $11 million and $17 million, respectively. Asnoted in Note 2 to the Consolidated Financial Statements, we concludedduring the first quarter of 2006 that the rebooking rate estimated indetermining the booking fee cancellation reserve needed to be raised based uponrecent levels of rebookings that we have been experiencing. This change in therebook rate assumption lowers the amount of reserve needed for cancelledbookings. In the first quarter of 2006, the new estimated rate, as compared tothe previous rebook assumption, resulted in a $7 million decrease in thebooking fee cancellation reserve. We continue to use the new rebook rate;however, there has been no significant change since March 31, 2006. Thisreserve is sensitive to changes in booking levels and the number of bookingspriced under the terms of the DCA 3-year agreements. For example, if 2006booking volumes had been 10% lower or the weighted-average booking feerate had been 10% lower, the reserve balance would have been reduced byapproximately $2 million.

**Software Revenue Recognition:**   OurSabre Airline Solutions segmentdevelops software that is generally sold as part of agreements which alsorequire us to provide customization and implementation services. Suchagreements are accounted for using contract accounting under the provisions ofStatement of Position 97-2, *SoftwareRevenue Recognition*. Revenue from license fees, when software issold without associated customization or implementation services, is recognizedwhen the software is delivered, fees are fixed and determinable, no undeliveredelements are essential to the functionality of delivered software andcollection is probable. At times, determining if all of these elements havebeen met requires judgment. Fees for software maintenance are recognizedratably over the life of the contract. The fees for software maintenanceincluded in initial software license agreements is based on the vendor specificobjective evidence of the fair value of the services determined using actualrenewal rates for software maintenance services. The process of allocating feesbased on vendor specific evidence of fair value can require judgment.

**Stock-Based Compensation Expense:****  **On January 1, 2006, we adopted Statement ofFinancial Accounting Standards No. 123 (Revised 2004), *Share-Based Payments* (“SFAS 123R”),using the modified prospective method, which requires that the measurement andrecognition of share-based payment awards to employees and directors ofthe Company be made at the estimated fair value on the grant date. Determiningthe fair value of any share-based awards requires information aboutseveral variables including, but not limited to, share price, expected stock volatilityover the terms of the awards, expected dividend yields and the predictedemployee exercise behavior.

Stock optionsgranted subsequent to the date of adoption of SFAS 123R will be valuedusing a lattice-binomial model as opposed to the Black-Scholesmodel used for all shares issued prior to adoption and used in our pro formadisclosures. During the year ended December 31, 2006, we recognized$16 million in compensation expense from stock options.

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In 2006, we issued 919,250 performance sharesto certain employees. The shares are divided equally into tranches that mayvest annually over a four-year period. The number of shares received by therecipients each year, if any, will be determined by the cumulative performanceof our Common Stock including dividends (“Total Shareholder Return”) whencompared to the performance of the Standard & Poor’s 500. For example,the number of shares which vest in year three of the grant will be determinedbased on the three-year cumulative Total Shareholder Return of our Common Stockwhen compared to the performance of the Standard & Poor’s 500 over thesame period. Each tranche was valued separately using a Monte Carlo-basedsimulation. The average fair value of these awards is $11.55 per share. Eachtranche will expense ratably over its requisite service period regardless ofwhether the shares are ultimately issued or not. For the year ended December 31,2006, we recognized $4 million in expense related to these shares.Significant assumptions used in determining the fair value of the performanceshares include, but are not limited to:

| Sabre Holdings initial stock  price |   | $          | 23.62 |   |
|-------------------------------------|--------|------------|-------|--------|
| Sabre Holdings implied volatility   |   | 27.41      | %     |
| Sabre Holdings dividend yield       |   | 1.67       | %     |
| Risk free rate                      |   | 4.63%-4.65 | %     |

 

All stock-basedcompensation expense is being recorded net of an estimated forfeiture rate. Theforfeiture rate is based upon historical activity and is analyzed at leastquarterly as actual forfeitures occur.

Any changes inour current factors used to value share-based compensation expense couldcause future grants to be valued differently.

**Accounts Receivable:**   Weevaluate the collectibility of our accounts receivable based on a combinationof factors. In circumstances where we are aware of a specific customer’sinability to meet its financial obligations to us (e.g., bankruptcy filings,failure to pay amounts due to us or others), we record a specific reserve forbad debts against amounts due to reduce the net recognized receivable to theamount we reasonably believe will be collected. For all other customers, werecognize reserves for bad debts based on past write-off history (averagepercentage of receivables written off historically) and the length of time thereceivables are past due. Several of our airline customers are experiencingfinancial difficulty, especially carriers in the Latin America region. Some carriershave sought bankruptcy protection and still others may consider bankruptcyrelief. We believe that we have appropriately considered the effects of thesefactors, as well as any other known customer liquidity issues, on the abilityof our customers to pay amounts owed to us. However, if demand for commercialair travel softens, due to prevailing economic conditions, terrorist acts, waror other incidents involving commercial air transport, or other factors, thefinancial condition of our customers may be adversely impacted.

**Business Combinations:**   During2006 and 2005, we completed a number of acquisitions of other companies usingthe purchase method of accounting. The amounts assigned to the identifiableassets and liabilities acquired in connection with these acquisitions werebased on estimated fair values as of the date of the acquisition, with theremainder recorded as goodwill. The fair values were determined by ourmanagement, generally based upon information supplied by the management of the acquiredentities and valuations prepared by independent appraisal experts. Thevaluations have been based primarily upon future cash flow projections for theacquired assets, discounted to present value using a risk-adjusted discountrate. For certain classes of intangible assets, the valuations have been basedupon estimated cost of replacement. In connection with these acquisitions, wehave recorded a significant amount of intangible assets, including goodwill.

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**Goodwill and Long-Lived Assets:**   Pursuantto Statement of Financial Accounting Standards No. 142, *Goodwill and Other Intangible Assets* (“SFAS 142”),we evaluate goodwill and indefinite-lived intangible assets forimpairment on an annual basis or if impairment indicators exist. For indefinite-livedintangible assets, the evaluation requires a comparison of the estimated fairvalue of the asset to the carrying value of the asset. If the carrying value ofan indefinite-lived intangible asset exceeds its fair value, as generallyestimated using a discounted future net cash flow projection, the carryingvalue of the asset is reduced to its fair value. For goodwill, the evaluationrequires a comparison of the estimated fair value of the reporting unit towhich the goodwill has been assigned to the sum of the carrying value of theassets and liabilities of that unit. If the sum of the carrying value of theassets and liabilities of a reporting unit exceeds the fair value of thatreporting unit, the carrying value of the reporting unit’s goodwill is reducedto its implied fair value through an adjustment to the goodwill balance,resulting in an impairment charge. We evaluate four reporting units underSFAS 142, which include Sabre Travel Network, Travelocity, Sabre AirlineSolutions, and Emerging Businesses. A majority of our Emerging Businessesreporting units are included with Sabre Travel Network for segment reportingpurposes.

The fair valuesused in our SFAS 142 evaluation are estimated based upon discounted futurecash flow projections. These cash flow projections are based upon a number ofassumptions, including risk-adjusted discount rates, future booking andtransaction volume levels, future price levels, rates of growth in our consumerand corporate direct booking businesses and rates of increase in operatingexpenses. We believe that the assumptions we have made in projecting futurecash flows for the evaluations described above are reasonable. However, iffuture actual results do not meet our expectations, we may be required torecord an impairment charge, the amount of which could be material to ourresults of operations.

Property andequipment and intangible assets subject to amortization are evaluated forimpairment pursuant to Statement of Financial Accounting Standards No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets* (“SFAS 144”), which requires impairmenttesting whenever events or changes in circumstances indicate that the carryingamount of an amortizable asset may not be recoverable. If impairment indicatorsexist for an amortizable asset, the undiscounted future cash flows associatedwith the expected service potential of the asset are compared to the carryingvalue of the asset. If our projection of undiscounted future cash flows is inexcess of the carrying value of the asset, no impairment charge is recorded. Ifour projection of undiscounted cash flows is less than the carrying value ofthe asset, an impairment charge is recorded to reduce the asset to its fairvalue.

In 2006, werecorded an impairment charge of approximately $4 million to goodwill. In 2004,we recorded an impairment charge of approximately $3 million on technology-relatedassets. No other significant impairments of our goodwill or intangible assetshave been recorded.

**Pension and Other Postretirement Benefits:**   Pensionand other postretirement benefits are actuarially determined and are affectedby assumptions including the discount rate, the estimated future return on planassets, the annual rate of increase in compensation for plan employees, theincrease in costs of health care benefits and other factors. The Companyevaluates assumptions used on a periodic basis and makes adjustments to theseassumptions as necessary. See Note 9 to the Consolidated FinancialStatements for additional information regarding the assumptions used and forchanges in the benefit obligation.

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**Income and Non-Income Taxes:**   Thecalculation of our tax liabilities involves significant judgment and evaluationof uncertainties in the interpretation of complex tax laws. As a result, wehave established reserves for taxes and associated interest that may becomepayable in future years as a result of audits by tax authorities. Regardingvalue-added taxes, we have established reserves regarding the collectionof refunds which are subject to audit and collection risks in various regionsof Europe. Tax reserves are currently reviewed regularly pursuant to Statementof Financial Accounting Standard No. 5, *Accountingfor Contingencies*. See Note 2 to the Consolidated FinancialStatements for a discussion of FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*,an interpretation of FASB Statement No. 109, *Accounting for Income Taxes.* Tax reserves are adjusted asevents occur that affect our potential liability for additional taxes andassociated interest, such as the expiration of statutes of limitation,conclusion of tax audits, identification of additional exposure based oncurrent calculations, identification of new issues, or the issuance ofstatutory or administrative guidance or rendering of a court decision affectinga particular issue. The amount of our liability for taxes could exceed ourreserves, which could have a material adverse effect on our financial results.

**Seasonality**

The travelindustry is seasonal in nature. Travel bookings for our Sabre Travel Networkbusiness, and the revenue we derive from those bookings, decrease significantlyeach year in the fourth quarter, primarily in December. Customers generallybook their November and December holiday leisure travel earlier inthe year, and business travel declines during the holiday season. Travelbookings for our Travelocity business decrease each year in the fourth quarter,primarily in December. Customers generally book their holiday leisure travelearlier in the year. Travelocity revenues are also impacted by the seasonalityof travel bookings, but to a lesser extent since commissions from car and hoteltravel providers and net rate revenue for vacation packages and hotel stays arerecognized upon date of consumption. In 2005, the seasonal variations describedabove did continue, however, our revenues did not decline in the fourth quarterdue to the acquisition of lastminute.com. The acquisition of lastminute.com hasresulted in revenues and net earnings becoming more significant in the secondand third quarters for the Travelocity segment due largely to European travelpatterns.

The following table sets forth our quarterlyfinancial data (unaudited), (in thousands, except per share data). Certainreclassifications have been made between gross profit and selling, general andadministrative expenses from the results presented in our first quarterForm 10-Q filed on May 5, 2006 and our second quarterForm 10-Q filed on August 4, 2006 in order to be consistentwith our year-end presentation. These reclassifications are not material,either individually or in the aggregate, to our financial statements.

|                             | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|-----------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| *2006*                      |       |               |       |                |       |               |       |                |       |
| Revenues                    |       | $                  | 700,188    |                | $          | 722,612            |       | $                   | 746,129    |   | $ | 654,868 |   |
| Gross profit                |       | 261,231            |       | 315,989             |       | 362,024            |       | 271,867             |       |
| Operating  income           |       | 37,926             |       | 78,389              |       | 119,560            |       | 49,273              |       |
| Net earnings                |       | 16,807             |       | 33,756              |       | 67,572             |       | 37,503              |       |
| Earnings per  common share: |       |               |       |                |       |               |       |                |       |
| Basic                       |       | $                  | 0.13       |                | $          | 0.26               |       | $                   | 0.52       |   | $ | 0.29 |   |
| Diluted                     |       | $                  | 0.13       |                | $          | 0.26               |       | $                   | 0.52       |   | $ | 0.28 |   |

 

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|                             | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|-----------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| *2005*                      |       |               |       |                |       |               |       |                |       |
| Revenues                    |       | $                  | 581,888    |                | $          | 619,255            |       | $                   | 699,706    |   | $ | 620,406 |   |
| Gross profit                |       | 241,779            |       | 244,047             |       | 320,339            |       | 227,718             |       |
| Operating  income           |       | 71,194             |       | 83,106              |       | 99,571             |       | 7,002               |       |
| Net earnings                |       | 57,681             |       | 43,887              |       | 58,496             |       | 12,088              |       |
| Earnings per  common share: |       |               |       |                |       |               |       |                |       |
| Basic                       |       | $                  | 0.44       |                | $          | 0.34               |       | $                   | 0.45       |   | $ | 0.09 |   |
| Diluted                     |       | $                  | 0.44       |                | $          | 0.34               |       | $                   | 0.45       |   | $ | 0.09 |   |

 

**Recent Accounting Pronouncements**

On January 1,2006, we adopted Statement of Financial Accounting Standards No. 123(Revised 2004), *Share-Based Payments*.See Note 12 to the Consolidated Financial Statements for additionalinformation.

In May 2005,the FASB issued Statement of Financial Accounting Standards No. 154, *Accounting Changes and Error Corrections*,a replacement of APB Opinion No. 20, *AccountingChanges*, and Statement of Financial Accounting Standards No. 3,*Reporting Accounting Changes in InterimFinancial Statements*. The standard requires changing the accountingand reporting requirements of voluntary and mandatory (unless the pronouncementprovides other transition requirements) changes in accounting principle byrequiring retroactive application of the change in accounting principle toprior periods’ financial statements, unless it is not practical to do so,rather than recording a cumulative catch up adjustment in net earnings in theyear of the change. Reporting error corrections are handled similar to a changein accounting principle. The standard was effective on January 1, 2006 andto date has not had any impact on our financial statements.

In June 2006,the FASB issued Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes*, an interpretation of FASB StatementNo. 109, *Accounting for Income Taxes*.The interpretation, effective for fiscal years beginning after December 15,2006, provides thresholds and measurement guidelines for recognizing anuncertain tax position taken or expected to be taken in a tax return. We willadopt Interpretation No. 48 in the first quarter of 2007.  We are currently evaluating the potentialimpact this interpretation might have on our financial results.

In September 2006,the FASB issued Statement of Financial Accounting Standards No. 157, *Fair Value Measurements*. This standard,effective for fiscal years ending after November 15, 2007, defines fairvalue, provides guidance regarding the measurement of fair value and expandsthe required disclosures for fair value measurements. We are currentlyevaluating the potential impact this interpretation might have on our financialresults but do not believe the impact will be material.

We have adopted Statement of Financial Accounting Standards No. 158,*Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans, an amendment of FASB Statements No. 87, 88,106 and 132(R)* issued in September 2006. This newstandard requires recognition of the over or under funded status of a definedbenefit postretirement plan as either an asset or liability in the consolidatedbalance sheets and recognition of changes in the funded status through othercomprehensive income in the year that the changes occur. Additionally, thestatement requires measurement of the funded status as of the fiscal year-endbalance sheet date. The standard also requires additional annual disclosuresregarding adjustments to other comprehensive income related to changes in thefunded status and amounts expected to be recognized as net periodic benefitcosts over the following fiscal year.  Wehave applied the recognition provisions and disclosure requirements of thisstandard prospectively in accordance with the guidance. The measurement dateprovisions of this statement are effective for fiscal years ending after December 15,2008 with earlier application encouraged. The new measurement standards willhave no effect on our current practice, as we currently measure the fundedstatus of our defined benefit pension plans and other postretirement benefitplans as of the year-end balance sheet date. See Note 9 to the ConsolidatedFinancial Statements for application of this new standard.

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**Inflation**

We believe that inflation has not had a material effect on our resultsof operations.

**ITEM 7A.**             QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

**Interest Rate Risk**

As of December 31,2006, our exposure to interest rates relates primarily to our interest rateswaps (see Note 6 to our Consolidated Financial Statements) and intereston our borrowings on the revolving credit agreement. Offsetting some of thisexposure is interest income received from our marketable securities portfolio.The objectives of our marketable securities are preservation of principal,liquidity and yield. As such, our investment portfolio consists primarily offixed or variable rate obligations issued by the U.S. Treasury, governmentagencies and municipalities, mutual funds, asset-backed securities issuedby banks, corporations, and bankruptcy-remote trusts. If short-terminterest rates average 10% lower in 2007 than they were during 2006, ourinterest income from marketable securities would decrease by $1 million.In comparison, at December 31, 2005, we estimated that if short-terminterest rates averaged 10% lower in 2006 than they were in 2005, our interest incomefrom marketable securities would have decreased by approximately $1 million.These amounts were determined by applying the hypothetical interest rate changeto our average marketable securities invested during 2006 and 2005.

At December 31, 2006, we had obligations under our fixed ratenotes of $400 million due in 2016, fixed rate notes of $400 milliondue in 2011, $100 million capital lease obligation and $155 millionof borrowings under our revolving credit agreement. We have entered intofixed-to-floating interest rate swaps related to $300 million of theoutstanding 2011 notes, effectively converting $300 million of the$400 million fixed rate notes into floating rate obligations. We alsoentered into a fixed-to-floating interest rate swap that effectively converts$100 million of the capital lease obligation into a floating rateobligation (see Note 6 to the Consolidated Financial Statements foradditional details on the swaps). If short-term interest rates average 10%higher in 2007 than they were in 2006, our interest expense would increase byapproximately $3 million. This amount was determined by applying thehypothetical interest rate change to our floating rate borrowings balance,including the revolving credit agreement, during the year ended December 31,2006. If our mix of interest rate-sensitive assets and liabilities changessignificantly, we may enter into additional derivative transactions to manageour net interest rate exposure.

**Foreign Currency Risk**

We have variousoperations outside of the United States, primarily in North America, SouthAmerica, Europe, Australia and Asia. As a result of these business activities,we are exposed to foreign currency risk. During times of volatile currencymovements, this risk can materially impact our earnings. To reduce the impactof this earnings volatility, we hedge a portion of our foreign currencyexposure by entering into foreign currency forward contracts on our threelargest foreign currency exposures. The notional amounts of these forward contracts,totaling $135 million at December 31, 2005 and $152 million at December 31,2006, represent obligations to purchase foreign currencies at a predeterminedexchange rate to fund a portion of our expenses that are denominated in foreigncurrencies. The principal foreign currencies involved include the British PoundSterling, Euro and the Australian Dollar. We also enter into short-datedforward contracts to hedge a portion of our foreign currency exposure relatedto lastminute.com’s travel supplier liability payments denominated in a foreigncurrency. In December 2004, we purchased foreign currency-denominatedgovernment bonds to function as a hedge of a portion of our 2005 foreigncurrency exposure. To protect these bond investments from foreign currencyrisk, we purchased put options on the currencies in which the government bondswere denominated. Those options gave us the right to sell the foreigncurrencies at predetermined prices. There were no bonds or options outstandingas of December 31, 2006.

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The result of an immediate 10 percentappreciation of the U.S. dollar in 2007 from December 31, 2006 levels,relative to our primary foreign currency exposures, would result in a positiveU.S. dollar impact of approximately $5 million in 2007, net of hedgeinstruments outstanding. This sensitivity analysis was prepared based upon 2007projections of our primary foreign currency-denominated expenses andforeign currency forwards as of December 31, 2006.

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**ITEM 8.**                     FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA

|                                                          | ** ** | **Page** | ** ** |
|----------------------------------------------------------|------------|----------|------------|
| Report of Independent Registered Public  Accounting Firm |       |     | 67         |   |   |
| Consolidated Statements of Income                        |       |     | 68         |   |   |
| Consolidated Balance Sheets                              |       |     | 69         |   |   |
| Consolidated Statements of Cash Flows                    |       |     | 70         |   |   |
| Consolidated Statements of Stockholders’ Equity     |       |     | 71         |   |   |
| Notes to Consolidated Financial Statements               |       |     | 72         |   |   |

 

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**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

The Board ofDirectors and StockholdersSabre Holdings Corporation

We have auditedthe accompanying consolidated balance sheets of Sabre Holdings Corporation andsubsidiaries as of December 31, 2006 and 2005, and the relatedconsolidated statements of income, stockholders’ equity and cash flows for eachof the three years in the period ended December 31, 2006. Our audits alsoincluded the financial statement schedule listed under Item 15(a). These financialstatements and schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andschedule based on our audits.

We conductedour audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion,the consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Sabre HoldingsCorporation and subsidiaries at December 31, 2006 and 2005, and theconsolidated results of their operations and their cash flows for each of thethree years in the period ended December 31, 2006, in conformity with U.S.generally accepted accounting principles. Also, in our opinion, the relatedfinancial statement schedule, when considered in relation to the basicfinancial statements taken as a whole, presents fairly in all material respectsthe information set forth therein.

As discussed inNote 2 to the consolidated financial statements, effective January 1,2006, the Company adopted Statement of Financial Accounting Standards No. 123(Revised 2004), *Share-Based Payments*.As discussed in Note 2 to the consolidated financial statements, effective December 31,2006, the Company adopted Statement of Financial Accounting Standards No. 158,*Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans, an Amendment of FASB Statements No. 87,88, 106, and 132(R)*.

We also have audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theeffectiveness of Sabre Holdings Corporation’s internal control over financialreporting as of December 31, 2006, based on criteria established inInternal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated February 23,2007 expressed an unqualified opinion thereon.
|                        | /s/ ERNST & YOUNG  LLP |
|------------------------|---------------------------------|
| Ft. Worth, Texas       |
| February 23, 2007 |

 

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**SABRE HOLDINGS CORPORATIONCONSOLIDATED STATEMENTS OF INCOME(in thousands, except per share amounts)**

 

|                                               | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Revenues**                                  |       | $                                          | 2,823,797  | ** ** | $ | 2,521,255 | ** ** | $ | 2,130,971 | ** ** |
| Cost of revenues                              |       | 1,578,690                                  |       | 1,468,400 |   | 1,240,180 |   |
| Amortization of purchased technology          |       | 33,996                                     |       | 18,972 |   | 32,053 |   |
| Total cost of  revenues                       |       | 1,612,686                                  | ** ** | 1,487,372 | ** ** | 1,272,233 | ** ** |
| **Gross  profit**                             |       | 1,211,111                                  | ** ** | 1,033,883 | ** ** | 858,738 | ** ** |
| **Other operating expenses**                  |       |                                       | ** ** |   | ** ** |   | ** ** |
| Selling, general and administrative           |       | 888,099                                    |       | 743,755 |   | 585,182 |   |
| Amortization of other intangible assets       |       | 37,864                                     |       | 29,255 |   | 14,826 |   |
| Total other  operating expenses               |       | 925,963                                    | ** ** | 773,010 | ** ** | 600,008 | ** ** |
| **Operating income**                          |       | 285,148                                    | ** ** | 260,873 | ** ** | 258,730 | ** ** |
| **Other income (expense)**                    |       |                                       | ** ** |   | ** ** |   | ** ** |
| Interest income                               |       | 16,380                                     |       | 22,411 |   | 15,154 |   |
| Interest expense                              |       | (79,122                                    | )          | (53,075 | ) | (26,862 | ) |
| Gain on sale of investments                   |       | —                                     |       | 27,132 |   | — |   |
| Loss on derivative instruments                |       | —                                     |       | (8,248 | ) | — |   |
| Other, net                                    |       | (2,149                                     | )          | (4,378 | ) | 10,039 |   |
| Total other expense                           |       | (64,891                                    | )          | (16,158 | ) | (1,669 | ) |
| **Income  before provision for income taxes** |       | 220,257                                    | ** ** | 244,715 | ** ** | 257,061 | ** ** |
| Provision for  income taxes                   |       | 64,619                                     |       | 72,563 |   | 66,642 |   |
| **Net  earnings**                             |       | $                                          | 155,638    | ** ** | $ | 172,152 | ** ** | $ | 190,419 | ** ** |
| **Earnings per common share**                 | ** ** | ** **                                 | ** ** | ** ** | ** ** |   | ** ** |
| Basic                                         |       | $                                          | 1.19       |   | $ | 1.33 |   | $ | 1.40 |   |
| Diluted                                       |       | $                                          | 1.18       |   | $ | 1.32 |   | $ | 1.38 |   |
| **Weighted-average shares outstanding**       | ** ** | ** **                                 | ** ** | ** ** | ** ** |   | ** ** |
| Basic                                         |       | 130,274                                    |       | 129,587 |   | 136,326 |   |
| Diluted                                       |       | 131,930                                    |       | 130,336 |   | 137,931 |   |

 

Theaccompanying notes are an integral part of these financial statements.

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**SABRE HOLDINGS CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands)**

** **

|                                                                                                                                                                   | ** ** | **December 31,          2006        ** | ** ** | **December 31,          2005        ** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
| **Assets**                                                                                                                                                        |       |                                                                                                                        |       |                                                                                                                        |       |   |   |   |   |
| **Current assets**                                                                                                                                                |       |                                                                                                                        |       |                                                                                                                        |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                         |       |                                                                                                                        | $          | 248,785                                                                                                                     |       |   |   | $ | 135,233 |   |   |
| Restricted cash                                                                                                                                                   |       |                                                                                                                        | 9,954      |                                                                                                                        |       |   | 57,019 |   |   |
| Marketable securities                                                                                                                                             |       |                                                                                                                        | 253,130    |                                                                                                                        |       |   | 376,585 |   |   |
| Accounts receivable, net                                                                                                                                          |       |                                                                                                                        | 439,653    |                                                                                                                        |       |   | 487,034 |   |   |
| Prepaid expenses                                                                                                                                                  |       |                                                                                                                        | 35,192     |                                                                                                                        |       |   | 41,632 |   |   |
| Deferred income taxes                                                                                                                                             |       |                                                                                                                        | 18,557     |                                                                                                                        |       |   | 23,013 |   |   |
| Other receivables                                                                                                                                                 |       |                                                                                                                        | 131,665    |                                                                                                                        |       |   | 127,772 |   |   |
| Total current assets                                                                                                                                              |       |                                                                                                                        | 1,136,936  |                                                                                                                        |       |   | 1,248,288 |   |   |
| **Property and equipment**                                                                                                                                        |       |                                                                                                                        |       |                                                                                                                        |       |   |   |   |   |
| Buildings and leasehold  improvements                                                                                                                             |       |                                                                                                                        | 233,846    |                                                                                                                        |       |   | 318,880 |   |   |
| Furniture, fixtures and equipment                                                                                                                                 |       |                                                                                                                        | 29,035     |                                                                                                                        |       |   | 38,349 |   |   |
| Computer equipment                                                                                                                                                |       |                                                                                                                        | 196,611    |                                                                                                                        |       |   | 148,965 |   |   |
| Internally developed software                                                                                                                                     |       |                                                                                                                        | 311,198    |                                                                                                                        |       |   | 257,990 |   |   |
| ** **                                                                                                                                                        |       |                                                                                                                        | 770,690    |                                                                                                                        |       |   | 764,184 |   |   |
| Less accumulated depreciation and  amortization                                                                                                                   |       |                                                                                                                        | (407,055   | )                                                                                                                           |       |   | (334,616 | ) |   |
| Total property and equipment                                                                                                                                      |       |                                                                                                                        | 363,635    |                                                                                                                        |       |   | 429,568 |   |   |
| Deferred income taxes                                                                                                                                             |       |                                                                                                                        | —     |                                                                                                                        |       |   | 32,419 |   |   |
| Investments in joint ventures                                                                                                                                     |       |                                                                                                                        | 154,122    |                                                                                                                        |       |   | 156,277 |   |   |
| Goodwill and intangible assets, net                                                                                                                               |       |                                                                                                                        | 2,494,548  |                                                                                                                        |       |   | 2,333,140 |   |   |
| Other assets, net                                                                                                                                                 |       |                                                                                                                        | 133,174    |                                                                                                                        |       |   | 174,419 |   |   |
| **Total  assets**                                                                                                                                                 |       |                                                                                                                        | $          | 4,282,415                                                                                                                   |       |   |   | $ | 4,374,111 |   |   |
| **Liabilities and stockholders’ equity**                                                                                                                     |       |                                                                                                                        |       |                                                                                                                        |       |   |   |   |   |
| **Current liabilities**                                                                                                                                           |       |                                                                                                                        |       |                                                                                                                        |       |   |   |   |   |
| Accounts payable                                                                                                                                                  |       |                                                                                                                        | $          | 164,374                                                                                                                     |       |   |   | $ | 165,705 |   |   |
| Travel supplier liabilities and deferred revenue                                                                                                                  |       |                                                                                                                        | 347,305    |                                                                                                                        |       |   | 303,557 |   |   |
| Accrued compensation and related benefits                                                                                                                         |       |                                                                                                                        | 82,570     |                                                                                                                        |       |   | 74,628 |   |   |
| Accrued subscriber incentives                                                                                                                                     |       |                                                                                                                        | 106,763    |                                                                                                                        |       |   | 81,877 |   |   |
| Deferred revenues                                                                                                                                                 |       |                                                                                                                        | 45,701     |                                                                                                                        |       |   | 32,047 |   |   |
| Other accrued liabilities                                                                                                                                         |       |                                                                                                                        | 355,421    |                                                                                                                        |       |   | 427,999 |   |   |
| Bridge facility                                                                                                                                                   |       |                                                                                                                        | —     |                                                                                                                        |       |   | 800,000 |   |   |
| Total current liabilities                                                                                                                                         |       |                                                                                                                        | 1,102,134  |                                                                                                                        |       |   | 1,885,813 |   |   |
| Deferred income taxes                                                                                                                                             |       |                                                                                                                        | 56,245     |                                                                                                                        |       |   | — |   |   |
| Pensions and other postretirement benefits                                                                                                                        |       |                                                                                                                        | 111,120    |                                                                                                                        |       |   | 191,453 |   |   |
| Other liabilities                                                                                                                                                 |       |                                                                                                                        | 27,684     |                                                                                                                        |       |   | 30,218 |   |   |
| Minority interests                                                                                                                                                |       |                                                                                                                        | 1,755      |                                                                                                                        |       |   | 38,948 |   |   |
| Long-term capital lease obligation                                                                                                                                |       |                                                                                                                        | 84,900     |                                                                                                                        |       |   | 158,188 |   |   |
| Public and other notes payable                                                                                                                                    |       |                                                                                                                        | 975,221    |                                                                                                                        |       |   | 426,379 |   |   |
| **Stockholders’ equity**                                                                                                                                     |       |                                                                                                                        |       |                                                                                                                        |       |   |   |   |   |
| Preferred stock: $0.01 par value;  20,000 shares authorized; no shares issued                                                                                     |       |                                                                                                                        | —     |                                                                                                                        |       |   | — |   |   |
| Class A Common Stock: $0.01  par value; 250,000 shares authorized; 145,937 & 145,856 shares  issued at December 31, 2006 and 2005 respectively |       |                                                                                                                        | 1,459      |                                                                                                                        |       |   | 1,459 |   |   |
| Additional paid-in capital                                                                                                                                        |       |                                                                                                                        | 1,286,631  |                                                                                                                        |       |   | 1,275,836 |   |   |
| Retained earnings                                                                                                                                                 |       |                                                                                                                        | 868,124    |                                                                                                                        |       |   | 769,231 |   |   |
| Accumulated other comprehensive  income                                                                                                                           |       |                                                                                                                        | 54,866     |                                                                                                                        |       |   | (77,872 | ) |   |
| Less treasury stock at cost:  12,668 and 14,281 shares, respectively                                                                                              |       |                                                                                                                        | (287,724   | )                                                                                                                           |       |   | (325,542 | ) |   |
| Total stockholders’ equity                                                                                                                                   |       |                                                                                                                        | 1,923,356  |                                                                                                                        |       |   | 1,643,112 |   |   |
| **Total liabilities and stockholders’ equity**                                                                                                               |       |                                                                                                                        | $          | 4,282,415                                                                                                                   |       |   |   | $ | 4,374,111 |   |   |

 

Theaccompanying notes are an integral part of these financial statements.

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**SABRE HOLDINGS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)**

 

|                                                                                  | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Operating Activities**                                                         | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net earnings                                                                     |       | $                                          | 155,638    |   | $ | 172,152 |   | $ | 190,419 |   |
| Adjustments to reconcile net  earnings to cash provided by operating activities: |       |                                       |       |   |   |   |   |
| Depreciation  and amortization                                                   |       | 175,936                                    |       | 130,643 |   | 116,712 |   |
| Stock-based  compensation                                                        |       | 32,453                                     |       | 11,735 |   | 11,328 |   |
| Allowance for  doubtful accounts                                                 |       | 16,075                                     |       | 8,722 |   | 19,176 |   |
| Deferred  income taxes                                                           |       | 18,016                                     |       | (3,375 | ) | (23,608 | ) |
| Loss on  derivative instruments                                                  |       | —                                     |       | 8,248 |   | — |   |
| Loss on sale  leaseback                                                          |       | —                                     |       | — |   | 7,302 |   |
| Joint venture  equity loss / (income)                                            |       | (16,067                                    | )          | (1,832 | ) | 5,198 |   |
| Gain on sale  of investments                                                     |       | (115                                       | )          | (27,132 | ) | — |   |
| Loss on sale  of subsidiaries                                                    |       | 9,768                                      |       | — |   | — |   |
| Other                                                                            |       | (13,746                                    | )          | 354 |   | (9,893 | ) |
| Changes in  operating assets and liabilities:                                    |       |                                       |       |   |   |   |   |
| Accounts and  other receivables                                                  |       | 11,106                                     |       | (32,735 | ) | (10,961 | ) |
| Prepaid  expenses                                                                |       | 13,650                                     |       | 16,566 |   | (7,396 | ) |
| Other assets                                                                     |       | 17,524                                     |       | (8,295 | ) | 18,070 |   |
| Accrued compensation  and related benefits                                       |       | 8,094                                      |       | (5,820 | ) | 16,881 |   |
| Accounts  payable and other accrued liabilities                                  |       | (78,980                                    | )          | 36,333 |   | (13,955 | ) |
| Travel  supplier liabilities and deferred revenue                                |       | 46,548                                     |       | (77,565 | ) | 34,151 |   |
| Pensions and  other postretirement benefits                                      |       | (16,387                                    | )          | (2,493 | ) | 8,009 |   |
| Other  liabilities                                                               |       | (890                                       | )          | — |   | — |   |
| Cash provided  by operating activities                                           |       | 378,623                                    |       | 225,506 |   | 361,433 |   |
| **Investing Activities**                                                         | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Additions to property and  equipment                                             |       | (108,912                                   | )          | (91,660 | ) | (77,998 | ) |
| Purchases of marketable securities                                               |       | (12,629,602                                | )          | (10,317,265 | ) | (10,208,282 | ) |
| Sales of marketable securities                                                   |       | 12,753,098                                 |       | 10,729,382 |   | 10,302,619 |   |
| Proceeds from sale of investments                                                |       | 1,940                                      |       | 40,920 |   | — |   |
| Proceeds from sale of joint  venture                                             |       | —                                     |       | 13,018 |   | — |   |
| Acquisitions (net of cash  acquired)                                             |       | (50,438                                    | )          | (1,178,939 | ) | (69,744 | ) |
| Previously restricted cash                                                       |       | 37,211                                     |       | — |   | — |   |
| Other investing activities                                                       |       | 6,028                                      |       | (29,360 | ) | (45,587 | ) |
| Cash provided  by (used for) investing activities                                |       | 9,325                                      |       | (833,904 | ) | (98,992 | ) |
| **Financing Activities**                                                         | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds from bridge facility                                                    |       | —                                     |       | 800,000 |   | — |   |
| Proceeds from share-based payment  arrangements                                  |       | 35,547                                     |       | 9,750 |   | 15,744 |   |
| Dividends paid                                                                   |       | (56,745                                    | )          | (47,281 | ) | (41,431 | ) |
| Prepayment of bridge facility                                                    |       | (800,000                                   | )          | — |   | — |   |
| Proceeds from borrowings on  revolving credit facility                           |       | 180,000                                    |       | — |   | — |   |
| Payments on borrowings on  revolving credit facility                             |       | (25,000                                    | )          | — |   | — |   |
| Proceeds from issuance of senior  unsecured notes                                |       | 397,136                                    |       | — |   | — |   |
| Excess tax benefits from  stock-based compensation arrangements                  |       | 890                                        |       | — |   | — |   |
| Purchases of treasury stock                                                      |       | (23,387                                    | )          | (63,212 | ) | (227,814 | ) |
| Other financing activities                                                       |       | (7,114                                     | )          | (1,200 | ) | (1,892 | ) |
| Cash provided  by (used for) financing activities                                |       | (298,673                                   | )          | 698,057 |   | (255,393 | ) |
| Effect of  exchange rate changes on cash and cash equivalents                    |       | 24,277                                     |       | (4,097 | ) | 1,761 |   |
| Increase in cash and cash  equivalents                                           |       | 113,552                                    |       | 85,562 |   | 8,809 |   |
| Cash and cash equivalents at  beginning of period                                |       | 135,233                                    |       | 49,671 |   | 40,862 |   |
| **Cash and cash equivalents at end of period**                                   |       | $                                          | 248,785    |   | $ | 135,233 |   | $ | 49,671 |   |
| Cash payments  for income taxes                                                  |       | $                                          | 51,354     |   | $ | 50,556 |   | $ | 95,319 |   |
| Cash payments for interest                                                       |       | $                                          | 68,135     |   | $ | 45,330 |   | $ | 26,489 |   |

 

Theaccompanying notes are an integral part of these financial statements.

70

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**SABRE HOLDINGS CORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands)**

 

|                                                                                                     | ** ** | **Class A  Common  Stock** | ** ** | **Additional Paid  in Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (loss)** | ** ** | **Treasury  Stock** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-------------------------------------------|------------|------------------------|------------|-----------------------------------------------------------|------------|---------------------|------------|-----------|------------|
| Balance  at December 31, 2003                                                                  |       |                            | $          | 1,457                                     |       |                   |       | $                                                         | 1,291,841  |                |       | $         | 495,372    |   |   | $ | (8,115 | ) |   | $ | (100,447 | ) | $ | 1,680,108 |   |
| Issuance  of class A common stock pursuant to:                                                      |       |                            |       |                                      |       |                   |       |                                                      |       |                |       |      |       |   |   |   |   |   |   |
| Stock option plans                                                                                  |       |                            | 1          |                                      |       |                   | (2,251     | )                                                         |       | —              |       |      | —     |   |   | 11,489 |   | 9,239 |   |
| Restricted stock (net of  forfeitures)                                                              |       |                            | 1          |                                      |       |                   | (9,902     | )                                                         |       | —              |       |      | —     |   |   | 9,901 |   | — |   |
| Restricted stock withheld upon  vesting                                                             |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | —     |   |   | (480 | ) | (480 | ) |
| Employee stock purchase plan                                                                        |       |                            | —     |                                      |       |                   | (1,748     | )                                                         |       | —              |       |      | —     |   |   | 8,733 |   | 6,985 |   |
| Tax benefit from exercise of  employee stock options                                                |       |                            | —     |                                      |       |                   | 1,173      |                                                      |       | —              |       |      | —     |   |   | — |   | 1,173 |   |
| Dividends,  $0.30 per common share                                                                  |       |                            | —     |                                      |       |                   | —     |                                                      |       | (41,431             | )          |      | —     |   |   | — |   | (41,431 | ) |
| Purchases  of treasury stock                                                                        |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | —     |   |   | (228,682 | ) | (228,682 | ) |
| Amortization  of restricted stock                                                                   |       |                            | —     |                                      |       |                   | 6,128      |                                                      |       | —              |       |      | —     |   |   | — |   | 6,128 |   |
| Amortization  of other stock-based compensation                                                     |       |                            | —     |                                      |       |                   | 5,200      |                                                      |       | —              |       |      | —     |   |   | — |   | 5,200 |   |
| **Comprehensive income:**                                                                           |       |                            |       |                                      |       |                   |       |                                                      |       |                |       |      |       |   |   |   |   |   |   |
| Net earnings                                                                                        |       |                            | —     |                                      |       |                   | —     |                                                      |       | 190,419             |       |      | —     |   |   | — |   | 190,419 |   |
| Minimum pension liability  adjustment, net of deferred income taxes                                 |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | (8,330     | ) |   | — |   | (8,330 | ) |
| Unrealized gain on foreign  currency forward and option contracts, net of deferred income taxes     |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | 519        |   |   | — |   | 519 |   |
| Unrealized loss on investments,  net of deferred income taxes                                       |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | (1,422     | ) |   | — |   | (1,422 | ) |
| Unrealized foreign currency translation  gain, net of deferred income taxes                         |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | 7,922      |   |   | — |   | 7,922 |   |
| Total comprehensive income                                                                          |       |                            |       |                                      |       |                   |       |                                                      |       |                |       |      |       |   |   |   |   | 189,108 |   |
| Other                                                                                               |       |                            | —     |                                      |       |                   | (867       | )                                                         |       | —              |       |      | —     |   |   | — |   | (867 | ) |
| Balance  at December 31, 2004                                                                  |       |                            | $          | 1,459                                     |       |                   |       | $                                                         | 1,289,574  |                |       | $         | 644,360    |   |   | $ | (9,426 | ) |   | $ | (299,486 | ) | $ | 1,626,481 |   |
| Issuance  of class A common stock pursuant to:                                                      |       |                            |       |                                      |       |                   |       |                                                      |       |                |       |      |       |   |   |   |   |   |   |
| Stock option plans                                                                                  |       |                            | —     |                                      |       |                   | (1,572     | )                                                         |       | —              |       |      | —     |   |   | 10,116 |   | 8,544 |   |
| Restricted stock (net of  forfeitures)                                                              |       |                            | —     |                                      |       |                   | (22,667    | )                                                         |       | —              |       |      | —     |   |   | 22,667 |   | — |   |
| Restricted stock withheld upon  vesting                                                             |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | —     |   |   | (3,055 | ) | (3,055 | ) |
| Employee stock purchase plan                                                                        |       |                            | —     |                                      |       |                   | (942       | )                                                         |       | —              |       |      | —     |   |   | 5,203 |   | 4,261 |   |
| Tax loss from exercise of employee  stock options and restricted stock                              |       |                            | —     |                                      |       |                   | (282       | )                                                         |       | —              |       |      | —     |   |   | — |   | (282 | ) |
| Dividends,  $0.36 per common share                                                                  |       |                            | —     |                                      |       |                   | —     |                                                      |       | (47,281             | )          |      | —     |   |   | — |   | (47,281 | ) |
| Purchases  of treasury stock                                                                        |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | —     |   |   | (60,987 | ) | (60,987 | ) |
| Amortization  of restricted stock                                                                   |       |                            | —     |                                      |       |                   | 10,298     |                                                      |       | —              |       |      | —     |   |   | — |   | 10,298 |   |
| Amortization  of other stock-based compensation                                                     |       |                            | —     |                                      |       |                   | 1,437      |                                                      |       | —              |       |      | —     |   |   | — |   | 1,437 |   |
| **Comprehensive income:**                                                                           |       |                            |       |                                      |       |                   |       |                                                      |       |                |       |      |       |   |   |   |   |   |   |
| Net earnings                                                                                        |       |                            | —     |                                      |       |                   | —     |                                                      |       | 172,152             |       |      | —     |   |   | — |   | 172,152 |   |
| Minimum pension liability adjustment,  net of deferred income taxes                                 |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | (24,433    | ) |   | — |   | (24,433 | ) |
| Unrealized loss on foreign  currency forward and option contracts, net of deferred income taxes     |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | (11,101    | ) |   | — |   | (11,101 | ) |
| Unrealized gain on investments, net  of deferred income taxes                                       |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | 634        |   |   | — |   | 634 |   |
| Unrealized foreign currency translation  gain, net of deferred income taxes                         |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | (33,546    | ) |   | — |   | (33,546 | ) |
| Total comprehensive income                                                                          |       |                            |       |                                      |       |                   |       |                                                      |       |                |       |      |       |   |   |   |   | 103,706 |   |
| Other                                                                                               |       |                            | —     |                                      |       |                   | (10        | )                                                         |       | —              |       |      | —     |   |   | — |   | (10 | ) |
| Balance  at December 31, 2005                                                                  |       |                            | $          | 1,459                                     |       |                   |       | $                                                         | 1,275,836  |                |       | $         | 769,231    |   |   | $ | (77,872 | ) |   | $ | (325,542 | ) | $ | 1,643,112 |   |
| Issuance  of class A common stock pursuant to:                                                      |       |                            |       |                                      |       |                   |       |                                                      |       |                |       |      |       |   |   |   |   |   |   |
| Stock option plans                                                                                  |       |                            | —     |                                      |       |                   | (6,292     | )                                                         |       | —              |       |      | —     |   |   | 44,806 |   | 38,514 |   |
| Restricted stock (net of  forfeitures)                                                              |       |                            | —     |                                      |       |                   | (20,782    | )                                                         |       | —              |       |      | —     |   |   | 20,782 |   | — |   |
| Restricted stock withheld upon  vesting                                                             |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | —     |   |   | (3,625 | ) | (3,625 | ) |
| Employee stock purchase plan                                                                        |       |                            | —     |                                      |       |                   | (21        | )                                                         |       | —              |       |      | —     |   |   | 679 |   | 658 |   |
| Tax benefit from exercise of  employee stock options and restricted stock                           |       |                            | —     |                                      |       |                   | 3,990      |                                                      |       | —              |       |      | —     |   |   | — |   | 3,990 |   |
| Dividends,  $0.43 per common share                                                                  |       |                            | —     |                                      |       |                   | —     |                                                      |       | (56,745             | )          |      | —     |   |   | — |   | (56,745 | ) |
| Purchases  of treasury stock                                                                        |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | —     |   |   | (23,387 | ) | (23,387 | ) |
| Amortization  of restricted stock                                                                   |       |                            | —     |                                      |       |                   | 11,710     |                                                      |       | —              |       |      | —     |   |   | — |   | 11,710 |   |
| Amortization  of other stock-based compensation                                                     |       |                            | —     |                                      |       |                   | 20,743     |                                                      |       | —              |       |      | —     |   |   | — |   | 20,743 |   |
| **Comprehensive income:**                                                                           |       |                            |       |                                      |       |                   |       |                                                      |       |                |       |      |       |   |   |   |   |   |   |
| Net earnings                                                                                        |       |                            | —     |                                      |       |                   | —     |                                                      |       | 155,638             |       |      | —     |   |   | — |   | 155,638 |   |
| Minimum pension liability  adjustment, net of deferred income taxes                                 |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | 1,654      |   |   | — |   | 1,654 |   |
| Unrealized gain on foreign  currency forward and option contracts, net of deferred income taxes     |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | 8,016      |   |   | — |   | 8,016 |   |
| Unrealized gain on hedge  settlement                                                                |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | 2,321      |   |   | — |   | 2,321 |   |
| Unrealized gain on investments, net  of deferred income taxes                                       |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | 1,749      |   |   | — |   | 1,749 |   |
| Unrealized foreign currency translation  gain, net of deferred income taxes                         |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | 116,362    |   |   | — |   | 116,362 |   |
| Total comprehensive income                                                                          |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | —     |   |   | — |   | 285,740 |   |
| Adjustment to initially apply Statement  of Financial Accounting Standards No. 158, net of tax |       |                            | —     |                                      |       |                   | —     |                                                      |       | —              |       |      | 2,636      |   |   | — |   | 2,636 |   |
| Other                                                                                               |       |                            | —     |                                      |       |                   | 1,447      |                                                      |       | —              |       |      | —     |   |   | (1,437 | ) | 10 |   |
| Balance  at December 31, 2006                                                                  |       |                            | $          | 1,459                                     |       |                   |       | $                                                         | 1,286,631  |                |       | $         | 868,124    |   |   | $ | 54,866 |   |   | $ | (287,724 | ) | $ | 1,923,356 |   |

 

Theaccompanying notes are an integral part of these financial statements.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**1.**              General Information

Sabre HoldingsCorporation (“Sabre Holdings”) is a Delaware holding company incorporated on June 15,1996. Sabre Inc. is the principal operating subsidiary and sole directsubsidiary of Sabre Holdings. Sabre Inc. or its direct or indirectsubsidiaries conduct all of our businesses. In this Annual Report on Form 10-K,references to the “company”, “we”, “our”, “ours” and “us” refer to SabreHoldings and its consolidated subsidiaries unless otherwise stated or thecontext otherwise requires.

We are a world leader in travel commerce, marketing travel products andproviding distribution and technology solutions for the travel industry.Through our *Sabre* globaldistribution system (the “*Sabre*system” or “*Sabre* GDS”)subscribers, generally travel agencies, can access information about, and canbook reservations for, among other things, airline trips, hotel stays, carrentals, cruises and tour packages. Our SabreTravel Network business operates the *Sabre*GDS. We market and distribute travel-related products and servicesdirectly and indirectly through travel agencies and other distributionpartners, to leisure and business travelers including air, hotel, car rental,cruises and packaged trip offerings through our Travelocity business. In addition, our Sabre Airline Solutions business is a leading provider oftechnology and services, including development and consulting services, toairlines and other travel providers.

**2.**              Summaryof Significant Accounting Policies

**Basis ofPresentation—****We**consolidate all of our majority-ownedsubsidiaries and companies over which we exercise control through majorityvoting rights. From November 7, 2005 through January 23, 2006, wewere the primary beneficiary of Zuji Holdings Limited (“Zuji”) and consolidatedits results, which were previously accounted for using the equity method, inaccordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46R,*Consolidation of Variable Interest Entities(Revised)* (“FIN 46R”). In 2005, Travelocity entered into a putoption agreement with the other owners of Zuji, exercisable from January 1,2006 through January 31, 2006. This put option was exercised on January 24,2006 and Travelocity gained 100% control of Zuji. See Note 4 foradditional information. Other than Zuji for the time period noted above, noother entities are currently consolidated due to control through operatingagreements, financing agreements, or as the primary beneficiary of a variableinterest entity.

TheConsolidated Financial Statements include our accounts after elimination of allsignificant intersegment balances and transactions. We utilize the equitymethod to account for our interests in joint ventures and investments in commonstock of other companies that we do not control but over which we exertsignificant influence, with our share of their results classified as revenues.Investments in the common stock of other companies over which we do not exertsignificant influence are accounted for at cost. We periodically evaluateequity and debt investments in entities accounted for at cost for impairment byreviewing updated financial information provided by the investee, includingvaluation information from new financing transactions by the investee andinformation relating to competitors of investees when available. If wedetermine that a cost method investment is other than temporarily impaired, thecarrying value of the investment is reduced to its estimated fair value. Todate, writedowns of investments carried at cost have been insignificant to ourresults of operations.

Certainreclassifications have been made to the 2005 and 2004 Consolidated FinancialStatements to conform to the 2006 presentation. These reclassifications are notmaterial, either individually or in the aggregate, to our financial statements.

72

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**2.**              Summary ofSignificant Accounting Policies (Continued)

**Useof Estimates**—The preparation of these financialstatements in conformity with generally accepted accounting principles requiresthat certain amounts be recorded based on estimates and assumptions made bymanagement. Actual results could differ from these estimates and assumptions.Our accounting policies which include significant estimates and assumptionsinclude estimation of the collectibility of accounts receivable, amounts forfuture cancellations of bookings processed through the *Sabre* system, revenue recognition forsoftware development, determination of the fair value of assets and liabilitiesacquired in a business combination, the evaluation of the recoverability of thecarrying value of intangible assets and goodwill, assumptions utilized in thedetermination of pension and other post-employment benefit liabilities and theevaluation of uncertainties surrounding the calculation of our tax assets andliabilities. These policies are discussed in greater detail below.

**Changesin Estimates**—Sabre Travel Network pays incentivepayments to our subscribers, generally travel agents, based upon bookingsvolume and rates contained within the travel agency contracts. Historically, weestimated our accrued incentive liability based upon bookings volume and ratesfor our larger subscribers because these volumes represented the majority ofour incentive liability. In the first quarter of 2006, we revised our estimateof the incentive liability to include expense associated with our smallertravel agency customers that was previously recorded as payments were made. Theincentives from these smaller agencies were immaterial in the past; however,recent analysis of smaller travel agencies showed a pattern of growth inincentives which warranted accrual of the expense. This new accrual methodologyresulted in an additional $21 million in incentive expense in the firstquarter of 2006. We performed a similar analysis on revenues we received fromsmaller travel agencies which resulted in an additional $7 million insubscriber revenues in the first quarter of 2006. Both of these accrualsresulted in a net reduction to our after tax net earnings for the three monthsended March 31, 2006 of approximately $9 million or $0.07 perdilutive common share. We continue to accrue this expense and revenue and therehas been no significant change since March 31, 2006.

Sabre TravelNetwork has a booking fee cancellation reserve that is calculated at eachperiod end based on historical cancellation rates. In estimating the amount offuture cancellations that will require us to refund a booking fee, we assumethat a certain percentage of cancellations are followed immediately by a newreservation, without loss of revenue. This assumption is based on historicalrates of cancellations that result in new reservations and has a significantimpact on the amount reserved. In the first quarter of 2006, our estimate ofthe rebook rate increased. This change in the rebook rate assumption lowers theamount of reserve needed for cancelled bookings. In the first quarter of 2006,the new estimated rate, when compared to the previous rebook assumption,resulted in a $7 million decrease in the booking fee cancellation reserve.This change resulted in a $4 million increase to after tax net earningsfor the three months ended March 31, 2006 or $0.03 per dilutive commonshare. We continue to use the new rebook rate and there has been no significantchange since March 31, 2006.

**Statementof Cash Flows**—Marketable securities, without regard toremaining maturity at acquisition, are not considered cash equivalents forpurposes of the Consolidated Statements of Cash Flows.

73

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**2.**              Summary ofSignificant Accounting Policies (Continued)

**Depreciation and Amortization**—Ourdepreciation and amortization policies are as follows:
| Property and equipment:                             |   |                                 |
|-----------------------------------------------------|--------|--------------------------------------|
| Buildings, including buildings  under capital lease |   | Lesser of lease term or 35 years     |
| Furniture and fixtures                              |   | 5 to 15 years                        |
| Leasehold improvements                              |   | Lesser of lease term or useful  life |
| Computer/service contract  equipment                |   | 3 to 5 years                         |
| Computer software                                   |   | 3 to 7 years                         |
| Other amortizable assets:                           |   |                                 |
| Capitalized software development  costs             |   | 3 to 7 years                         |
| Intangible assets                                   |   | 1 to 20 years                        |

 

We arecurrently depreciating the capital lease assets for our corporate headquartersbuildings, furniture and fixtures to the amount of the residual value guaranteeover the ten-year term of the lease. In December 2006, we completed thesale of the Solana building, associated improvements and certain undevelopedland and other property rights at our Southlake, Texas headquarters (the “Property”)to Maguire Partners (“Maguire”) and began our five-year leaseback of the Solanabuilding from Maguire Partners. We completed the sale of the Property afterexercising our option under the capital lease facility to purchase theProperty, and we used the proceeds from the sale to repay a portion of thecapital lease facility. See Note 8 for additional information on thistransaction.

Property and equipment and other assets are stated at cost lessaccumulated depreciation and amortization, which is calculated on thestraight-line basis. Depreciation of property, capital lease assets andequipment totaled approximately $97 million, $76 million and$74 million in 2006, 2005 and 2004, respectively. Amortization of otherassets totaled approximately $79 million, $55 million and$53 million in 2006, 2005 and 2004, respectively. Accumulated amortizationof other assets approximated $377 million and $289 million at December 31,2006 and 2005, respectively.

**Revenue Recognition**

*Travelocity—**Our*Travelocitysegment receives commissions from travel suppliers for air travel, hotel rooms,car rentals, vacation packages and cruises booked through our Travelocitywebsites and advertising revenues from the delivery of advertising impressionson our Travelocity websites. Commissions from air travel providers arerecognized at the time of booking the reservation, except for lastminute.comentities that recognize revenue related to air travel at the time of departure.The revenue recognition method used by lastminute.com will be changed toconform to the remainder of our Travelocity segment when adequate historicaldata on cancellations is developed. Commissions from car and hotel travelproviders are recognized upon the scheduled date of travel consumption. Werecord car and hotel commission revenue net of an estimated reserve forno-shows. At December 31, 2006 and 2005, our reserve for car and hotelcommissions was approximately $7 million and $8 million,respectively. Advertising revenues are recognized in the period thatadvertising impressions are delivered.

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**2.**              Summary ofSignificant Accounting Policies (Continued)

Travelocity hasnegotiated with travel suppliers for the right to access travel content atpre-determined net rates. Net rate travel offerings can include air travel,hotel stays, car rentals and dynamically packaged combinations of thosecomponents. We market those travel offerings to travelers at a price thatincludes an amount sufficient to pay the travel supplier its charge forproviding the travel accommodations, along with any applicable occupancy andother local taxes we expect will be invoiced to us by the travel supplier onthat charge, as well as additional amounts representing our service fees.Travelocity requires pre-payment by the traveler at the time of booking.Travelocity generally does not have purchase obligations for unused offerings.Travelocity recognizes net rate revenue for stand-alone air travel at thetime the travel is booked, except for lastminute.com entities which recognizenet rate revenues for stand-alone air travel at the date of departure;this policy will also be eventually conformed to the rest of the Travelocitysegment when adequate historical data is developed. Vacation packages and hotelnet rate revenue is recognized at the date of consumption.

For our *Travelocity* net rate and *TotalTrip*SM offerings, we record net rate revenues basedon the total amount paid by the customer for products and services, minus ourpayment to the travel supplier. At the time a customer makes and prepays areservation, we accrue a supplier liability based on the amount we expect to bebilled by our suppliers. In some cases, a portion of Travelocity’s prepaid netrate and travel package transactions goes unused by the traveler. In thosecircumstances, and some others, Travelocity may not be billed the full amountof the accrued supplier liability. Before the third quarter of 2004, we carriedthe entire unused portion of those prepaid transactions as an accrued supplierliability. In the third quarter of 2004, we implemented technology improvementsthat allow us to better estimate the potential liability to suppliers for thoseprepaid transactions, and we adopted a process to reduce the accrued supplierliability for amounts aged more than six months. During 2006, 2005 and 2004,that process resulted in reductions of approximately $27 million, $19 millionand $13 million in the accrued supplier liability, respectively, withcorresponding increases to transaction revenue and operating income. Ourprocess includes consideration of key factors, including, but not limited to,the age of the supplier liability, historical billing and payment information.We applied this process consistently throughout 2005 and 2006 for our domesticTravelocity supplier liabilities. We have begun applying a similar policy forlastminute.com.

*Sabre Travel Network—**We*provide varioustravel marketing and distribution services using the *Sabre* system. As compensation for services provided, feesare collected from airline, car rental and hotel vendors and other providers oftravel-related products and services (“associates”) for reservationsbooked through the *Sabre* system.The fee per booking charged to associates is dependent upon the level offunctionality within the *Sabre*system at which the associate participates. Revenue for airline travelreservations is recognized at the time of the booking of the reservation, netof estimated future cancellations. In estimating the amount of futurecancellations that will require us to refund a booking fee, we assume that acertain percentage of cancellations are followed immediately by a newreservation, without loss of revenue. At December 31, 2006 and 2005, wehave recorded transaction fee cancellation reserves of approximately $11million and $17 million, respectively. In 2006, we increased our estimateof the rebook rate, lowering the amount of reserve needed for cancelledbookings. Revenue for car rental, hotel bookings and other travel providers isrecognized at the time the reservation is used by the customer.

We also enterinto service contracts with subscribers (primarily travel agencies) forhardware, software, hardware maintenance and other support services. Feesbilled on service contracts are recognized as revenue in the month earned. Wereceive fees from travel suppliers and corporate customers for transactionsbooked through our web-based travel booking systems and recognize theassociated revenues in the month of the transaction.

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**2.**              Summary ofSignificant Accounting Policies (Continued)

*Sabre Airline Solutions—We*providesoftware solutions and airline reservation hosting services. Revenue fromairline reservation hosting services is recognized in the period earned. Oursoftware is sometimes sold as part of agreements which also require us toprovide customization and implementation services. Such agreements areaccounted for using contract accounting under the provisions of Statement ofPosition 97-2, *Software RevenueRecognition*. Revenue from license fees, when software is soldwithout associated customization or implementation services, is recognized whenthe software is delivered, fees are fixed and determinable, no undeliveredelements are essential to the functionality of delivered software andcollection is probable. Fees for software maintenance are recognized ratablyover the life of the contract. The fees for software maintenance included ininitial software license agreements is based on the vendor-specificobjective evidence of the fair value of the services determined using actualrenewal rates for software maintenance services. We also provide our softwaresolutions in a hosted environment. Revenue from implementation services in ahosted environment is recognized ratably over the term of the agreementgenerally through a monthly fee.

Services onlong-term software development and consulting contracts are provided under botha time-and-materials basis and a fixed fee basis. Revenues with respect totime-and-materials contracts are recognized as services are performed. Revenuesfrom services provided under fixed fee contracts are based on costs incurred todate in comparison to total cost projected at completion. A contract isconsidered substantially complete when the product has been delivered andperformance specifications have been substantially met. Losses, if any, onlong-term contracts are recognized when the current estimate of total contractcosts indicates a loss on a contract is probable.

As a result ofcontractual billing terms, at December 31, 2006 and 2005 we had recordedaccounts receivable of approximately $29 million and $25 million,respectively, that had not been billed to customers and deferred revenues ofapproximately $25 million and $22 million, respectively, related toadvance payments from customers. Substantially all of these deferred revenueswere classified as current liabilities as of December 31, 2006 and 2005.

**Derivatives**—Werecognize all derivatives on the Consolidated Balance Sheets at fair value.Derivatives that are not hedges must be adjusted to fair value through income.If the derivative is designated as a hedge, depending on the nature of thehedge, changes in the fair value of derivatives are offset against the changein fair value of the hedged item through earnings or recognized in othercomprehensive income until the hedged item is recognized in earnings. The ineffectiveportion of the change in fair value of a derivative designated as a hedge isimmediately recognized in earnings. For derivative instruments not designatedas hedging instruments, the gain or loss is recognized in current earningsduring the period of change.

**AdvertisingCosts**—Advertising costs are expensed as incurred.Advertising costs expensed in 2006, 2005 and 2004 totaled approximately$216 million, $204 million and $146 million, respectively.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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**2.**              Summary ofSignificant Accounting Policies (Continued)

**SubscriberIncentives**—Certain service contracts with significanttravel agency subscribers contain booking productivity clauses and otherprovisions that allow subscribers to receive cash payments or otherconsideration. We establish liabilities for these commitments and recognize therelated expense as the subscribers earn incentives based on the applicablecontractual terms. Accrued incentives liabilities at December 31, 2006 and2005 were approximately $107 million and $82 million, respectively.Periodically, we make cash payments to subscribers at inception or modificationof a service contract which are deferred and amortized over the expected lifeof the service contract, which is generally three years. At December 31,2006 and 2005, we had $43 million and $45 million, respectively, indeferred charges related to such contracts. The service contracts are priced sothat the additional airline and other booking fees generated over the life ofthe contract will exceed the cost of the incentives provided. See *Changes In Estimates* above.

**IncomeTaxes**—The provision for income taxes has been computedusing the liability method. Under the liability method, deferred income taxassets and liabilities are determined based on differences between financial reportingand income tax basis of assets and liabilities and are measured using the taxrates and laws in effect at the time of such determination. The measurement ofdeferred tax assets is adjusted by a valuation allowance, if necessary, torecognize the extent to which, based on available evidence, the future taxbenefits more likely than not will not be realized. In addition, the Companydoes not assume that for tax purposes it is permanently invested in foreignsubsidiaries and accordingly provides for deferred taxes on the unremittedforeign earnings.

The calculationof our tax liabilities involves significant judgment and evaluation ofuncertainties in the interpretation of complex tax laws. We have establishedreserves for taxes and associated interest that may become payable in futureyears as a result of audits by tax authorities. Tax reserves are reviewedregularly pursuant to Statement of Financial Accounting Standards No. 5, *Accounting for Contingencies.* Tax reserves are adjusted asevents occur that affect our potential liability for additional taxes andassociated interest, such as the expiration of statutes of limitation,conclusion of tax audits, identification of additional exposure based oncurrent calculations, identification of new issues, or the issuance ofstatutory or administrative guidance or rendering of a court decision affectinga particular issue. Accordingly, we may experience significant changes in ourtax reserves in the future if or when such events occur.

**ComputerSoftware Developed or Purchased for Internal Use**—Costsrelated to applications, infrastructure and graphics development for the *Sabre* system and our websites, arecapitalizable under Statement of Position 98-1, *Accounting for Computer Software Developed orObtained for Internal Use* (“SOP 98-1”) and are included inproperty and equipment in the Consolidated Balance Sheets. Capitalizable costsconsist of (a) certain external direct costs of materials and servicesincurred in developing or obtaining internal-use computer software and (b) payrolland payroll-related costs for employees who are directly associated withand who devote time to the project. Research and development costs incurredduring the preliminary project stage or costs incurred for data conversionactivities and training, maintenance and general and administrative or overheadcosts are expensed as incurred. Costs that cannot be separated betweenmaintenance of, and relatively minor upgrades and enhancements to, internal-usesoftware are also expensed as incurred.

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**2.**              Summary ofSignificant Accounting Policies (Continued)

We amortizecomputer software using the straight-line method over the estimated useful lifeof the software, approximately three to seven years. At December 31, 2006and 2005, unamortized computer software costs for internal use approximated$155 million and $154 million, respectively. In 2005, our Travelocitysegment wrote off $2 million to amortization expense from the impairmentof software which became obsolete due to an upgrade to a new platform.Amortization expense for computer software developed or purchased for internaluse was $53 million, $40 million and $26 million in 2006, 2005and 2004, respectively.

**CapitalizedSoftware Development Costs**—All costs incurred in thedevelopment of software which is licensed to third parties that have the optionto take possession of the software are classified as research and developmentcosts and are expensed as incurred until technological feasibility has beenestablished. Once technological feasibility has been established, such costsare capitalized until the product is ready for service. We define technologicalfeasibility in accordance with Statement of Financial Accounting Standards No. 86,*Accounting for the Costs of ComputerSoftware to Be Sold, Leased, or Otherwise Marketed* (“SFAS 86”).Technological feasibility is achieved upon completion of all planning,designing, coding and testing activities that are necessary to establish that aproduct can be produced according to its design specifications.

We amortizecapitalized software development costs using the straight-line method over theestimated economic life of the software. At December 31, 2006 and 2005,unamortized software development costs, which represents products developed forlicensing from our Sabre Airline Solutions segment, approximated $18 millionand $17 million, respectively. Amortization expense for capitalizedsoftware development costs were $6 million, $7 million and $5 millionin 2006, 2005 and 2004, respectively.

**Researchand Development**—Research and development costsincurred for both SOP 98-1 and SFAS 86 software development approximated$26 million, $26 million and $32 million for 2006, 2005 and2004, respectively.

**Goodwilland Long-Lived Assets**—Pursuant to Statement of FinancialAccounting Standards No. 142, *Goodwilland Other Intangible Assets* (“SFAS 142”), we evaluate goodwilland indefinite-lived intangible assets for impairment on an annual basisor if impairment indicators exist. For indefinite-lived intangible assets,the evaluation requires a comparison of the estimated fair value of the assetto the carrying value of the asset. If the carrying value of an indefinite-livedintangible asset exceeds its fair value, as generally estimated using adiscounted future net cash flow projection, the carrying value of the asset isreduced to its fair value. For goodwill, the evaluation requires a comparisonof the estimated fair value of the reporting unit to which the goodwill hasbeen assigned to the sum of the carrying value of the assets and liabilities ofthat unit. If the sum of the carrying value of the assets and liabilities of areporting unit exceeds the fair value of that reporting unit, the carryingvalue of the reporting unit’s goodwill is reduced to its implied fair valuethrough an adjustment to the goodwill balance, resulting in an impairmentcharge. We evaluate four reporting units under SFAS 142, which includeSabre Travel Network, Travelocity, Sabre Airline Solutions and EmergingBusinesses.

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**2.**              Summary ofSignificant Accounting Policies (Continued)

The fair valuesused in our SFAS 142 evaluation are estimated based upon discounted futurecash flow projections. These cash flow projections are based upon a number ofassumptions, including risk-adjusted discount rates, future booking andtransaction volume levels, future price levels, rates of growth in our consumerand corporate direct booking businesses and rates of increase in operatingexpenses. We believe that the assumptions we have made in projecting future cashflows for the evaluations described above are reasonable. However, if futureactual results do not meet our expectations, we may be required to record animpairment charge, the amount of which could be material to our results ofoperations. For the year ended December 31, 2006, we recognized a goodwillimpairment charge of $4 million within our Sabre Travel Network segment.

Intangibleassets subject to amortization are evaluated for impairment pursuant toStatement of Financial Accounting Standards No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets* (“SFAS 144”), which requires impairmenttesting whenever events or changes in circumstances indicate that the carryingamount of an amortizable intangible asset may not be recoverable. If impairmentindicators exist for an amortizable intangible asset, the undiscounted futurecash flows associated with the expected service potential of the asset arecompared to the carrying value of the asset. If our projection of undiscountedfuture cash flows is in excess of the carrying value of the intangible asset,no impairment charge is recorded. If our projection of undiscounted cash flowsis less than the carrying value of the intangible asset, an impairment chargeis recorded to reduce the intangible asset to its fair value.

Amortizationexpense relating to intangible assets subject to amortization totaled$72 million, $48 million and $47 million during the years ended December 31,2006, 2005 and 2004, respectively.

Except for the$4 million impairment charge mentioned above, there have been no significantgoodwill or intangible asset impairments.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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**2.**              Summaryof Significant Accounting Policies (Continued)

At December 31,2006 and 2005, our intangible assets were comprised of the following (inthousands):

|                                                          | ** ** | ** **                              | ** ** | **December 31, 2006**                    | ** ** | **December 31, 2005** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------------------|------------|---------------------------------|------------|
| ** **                                               | ** ** | **Weighted-Average  Useful Lives** | ** ** | **Gross Carrying  Amount, at Cost** | ** ** | **Accumulated  Amortization**   | ** ** | **Gross Carrying  Amount, at Cost** | ** ** | **Accumulated  Amortization** | ** ** |
| Not subject to amortization:                             |       |                                    |       |                                               |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Goodwill                                                 |       |                                    |       |                                               |       |                            | $          | 1,889,728 |   |   |   | $ | — |   |   |   | $ | 1,743,746 |   |   |   | $ | — |   |   |
| Tradenames,  trademarks and domain names                 |       |                                    |       |                                               |       |                            | 351,445    |   |   |   | — |   |   |   | 308,621 |   |   |   | — |   |   |
|                                                     |       |                                    |       |                                               |       |                            | 2,241,173  |   |   |   | — |   |   |   | 2,052,367 |   |   |   | — |   |   |
| Subject to amortization:                                 |       |                                    |       |                                               |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchased  technology                                    |       |                                    | 4 years    |                                               |       |                            | 268,151    |   |   |   | (193,446 | ) |   |   | 245,855 |   |   |   | (153,922 | ) |   |
| Acquired  customer relationships and database            |       |                                    | 7 years    |                                               |       |                            | 180,195    |   |   |   | (69,001 | ) |   |   | 157,444 |   |   |   | (43,053 | ) |   |
| Non-compete  agreements                                  |       |                                    | 6 years    |                                               |       |                            | 26,868     |   |   |   | (23,802 | ) |   |   | 25,736 |   |   |   | (22,005 | ) |   |
| Trademarks and  brandnames                               |       |                                    | 14 years   |                                               |       |                            | 50,078     |   |   |   | (6,629 | ) |   |   | 43,480 |   |   |   | (1,839 | ) |   |
| Acquired  contracts, supplier and distributor agreements |       |                                    | 4 years    |                                               |       |                            | 61,421     |   |   |   | (40,460 | ) |   |   | 59,784 |   |   |   | (30,707 | ) |   |
|                                                     |       |                                    |       |                                               |       |                            | 586,713    |   |   |   | (333,338 | ) |   |   | 532,299 |   |   |   | (251,526 | ) |   |
| Total                                                    |       |                                    |       |                                               |       |                            | $          | 2,827,886 |   |   |   | $ | (333,338 | ) |   |   | $ | 2,584,666 |   |   |   | $ | (251,526 | ) |   |

Estimated amortization expense relating to intangible assets subject toamortization for each of the five succeeding years and beyond is as follows (inthousands):

| 2007      |   | $      | 71,329  |   |
|-----------|--------|--------|---------|--------|
| 2008      |   | 62,647 |    |
| 2009      |   | 30,541 |    |
| 2010      |   | 25,991 |    |
| 2011-2025 |   | 62,867 |    |
| Total     |   | $      | 253,375 |   |

 

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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**2.**              Summary ofSignificant Accounting Policies (Continued)

Changes in the carrying amount of goodwill during the twelve monthsended December 31, 2005 and 2006 are as follows (in thousands):

|                                    | ** ** | **Travelocity** | ** ** | **Sabre Travel  Network** | ** ** | **Sabre Airline  Solutions** | ** ** | **Total** | ** ** |
|------------------------------------|------------|-----------------|------------|--------------------------------|------------|-----------------------------------|------------|-----------|------------|
| Balance at  December 31, 2004 |       | $               | 589,347    |                           |       | $                                 | 257,307    |      |       |   | $ | 52,750 |   |   | $ | 899,404 |   |
| Goodwill acquired                  |       | 853,899         |       |                           | 30,828     |                              |       |      | —     |   |   | 884,727 |   |
| Goodwill  adjustments              |       | 2,867           |       |                           | (14,497    | )                                 |       |      | 225        |   |   | (11,405 | ) |
| Foreign  exchange revaluation      |       | (21,250         | )          |                           | (5,538     | )                                 |       |      | (2,192     | ) |   | (28,980 | ) |
| Balance at  December 31, 2005 |       | 1,424,863       |       |                           | 268,100    |                              |       |      | 50,783     |   |   | 1,743,746 |   |
| Goodwill  acquired                 |       | 5,555           |       |                           | 6,656      |                              |       |      | —     |   |   | 12,211 |   |
| Goodwill  adjustments              |       | 21,475          |       |                           | (8,395     | )                                 |       |      | —     |   |   | 13,080 |   |
| Foreign  exchange revaluation      |       | 115,629         |       |                           | 3,325      |                              |       |      | 1,737      |   |   | 120,691 |   |
| Balance at December 31, 2006  |       | $               | 1,567,522  |                           |       | $                                 | 269,686    |      |       |   | $ | 52,520 |   |   | $ | 1,889,728 |   |

In addition to the goodwill amounts above, $94 million is includedin investments in joint ventures on the Consolidated Balance Sheets andrepresents our excess basis over the underlying equity in joint ventures.

**Concentration of Credit Risk**—Our customers are primarily located in the UnitedStates, Canada, Europe, Latin America and Asia, and are concentrated in thetravel industry. We generate a significant portion of our revenues andcorresponding accounts receivable from services provided to the commercial airtravel industry. As of December 31, 2006, approximately 65% of our tradeaccounts receivable was attributable to these customers. Our other accountsreceivable are generally due from other participants in the travel andtransportation industry. We generally do not require security or collateralfrom our customers as a condition of sale.

We regularly monitor the financial condition of the air transportation industry and have notedthe financial difficulties faced by several air carriers. We believe the creditrisk related to the air carriers’ difficulties is mitigated somewhat by thefact that we collect a significant portion of the receivables from thesecarriers through the Airline Clearing House (“ACH”) and other similar clearinghouses. We believe use of ACH mitigates our credit risk in cases of airlinebankruptcies.

We maintained an allowance for losses ofapproximately $33 million and $25 million at December 31, 2006and 2005, respectively, based upon the amount of accounts receivable expectedto prove uncollectible. During 2006, approximately $5 million in specificcustomer net write-offs were recorded against allowance for losses. We evaluatethe collectibility of our accounts receivable based on a combination offactors. In circumstances where we are aware of a specific customer’s inabilityto meet its financial obligations to us (e.g., bankruptcy filings, failure topay amounts due to us or others), we record a specific reserve for bad debtsagainst amounts due to reduce the net recognized receivable to the amount wereasonably believe will be collected. For all other customers, we recognizereserves for bad debts based on past write-off history (average percentage ofreceivables written off historically) and the length of time the receivablesare past due.

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**2.**              Summary ofSignificant Accounting Policies (Continued)

**Travel Supplier Liabilities and RelatedDeferred Revenue**—Ourtravel suppliers provide content, including air travel, hotel stays, carrentals and dynamically packaged combinations of these components, on either afee-based or a net-rate basis. Under our fee-based arrangements, we collect thefull price of the travel from the consumer and remit the payment to the travelsupplier, after withholding our service fee. Under our net-rate agreements, suppliersprovide content to us at pre-determined net rates. We market net-rate offeringsto travelers at a price that includes an amount sufficient to pay the travelsupplier for its charge for providing the travel accommodations, along with anyapplicable taxes we expect will be invoiced to us by the travel supplier onthat charge, as well as additional amounts representing our service fees. Werecord amounts due to travel suppliers in travel supplier liabilities on theConsolidated Balance Sheets until these amounts are paid to the suppliers. Werecord our service fees in deferred revenue on the Consolidated Balance Sheetsuntil they are recognized as revenue upon consumption of the travel.

**Earnings Per Share**—Basic earnings per share excludes any dilutive effectof options, warrants and other stock-based awards. The number of sharesused in the diluted earnings per share calculations includes the dilutiveeffect of stock options and restricted shares.

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

|                                                                                          | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                               | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Denominator  for basic earnings per common share—weighted-average shares            |       | 130,274                                    |       | 129,587 |   | 136,326 |   |
| Dilutive  effect of stock awards and options                                             |       | 1,656                                      |       | 749 |   | 1,605 |   |
| Denominator for diluted earnings per common  share—adjusted weighted-average shares |       | 131,930                                    |       | 130,336 |   | 137,931 |   |

 

Options to purchase 13,678,337, 19,780,413and 16,110,965 weighted-average shares of Common Stock were outstandingduring 2006, 2005 and 2004, respectively, but were excluded from thecomputation of diluted earnings per share because the effect would beantidilutive. The number of antidilutive options for 2005 and 2004 includesapproximately 3,400,000 options that were granted to a third party in 1998 andexpire in 2013. The decrease in antidilutive options in 2006 compared to priorperiods was due to a generally higher stock price for the year. For additionalinformation regarding stock awards and options, see Note 12.

**Stock Awards and Options**—Prior to January 1, 2006, we accounted forstock awards and stock option grants using the intrinsic value method set forthin Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees* (“APB 25”),and related interpretations as permitted by Statement of Financial AccountingStandards No. 123, *Accounting for Stock-BasedCompensation* (“SFAS 123”). Generally, no compensation expensewas recognized for stock option grants to employees if the exercise price wasat or above the fair market value of the underlying stock on the date of grantbut was included in a pro forma disclosure in the footnotes to the financialstatements. Compensation expense relating to other stock awards was recognizedover the period during which the employee rendered service to us necessary toearn the award.

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**2.**              Summary ofSignificant Accounting Policies (Continued)

Effective January 1, 2006, we adopted Statement of FinancialAccounting Standards No. 123 (Revised 2004), *Share-Based Payments* (“SFAS 123R”), which is arevision of SFAS 123. SFAS 123R supersedes APB 25 and amendsFASB Statement of Financial Accounting Standards No. 95, *Statement of Cash Flows*. We adoptedSFAS 123R using the modified prospective method. Stock options that weregranted prior to January 1, 2006, but for which the requisite serviceperiod had not been provided will be expensed, based on the Black-Scholesvalue of those options as determined for the purposes of our pro formadisclosures in accordance with SFAS 123, over their remaining requisiteservice period adjusted for expected forfeitures. Compensation expense forrestricted shares issued to employees was recognized prior to and subsequent tothe adoption of SFAS 123R over their requisite service periods. Beginning January 1,2006 the restricted stock expense was net of estimated forfeitures. Priorperiod financial statements have not been restated. The effect of adopting SFAS123R reduced stock compensation expense by $1.8 million which was consideredimmaterial for treatment as the cumulative effect of adopting this newpronouncement. The following table details stock-based compensationexpense recorded for the years ended December 31, 2006, 2005 and 2004 (in thousands):

|                       | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------|------------|--------------------------------------------|------------|
| ** **            | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Stock options         |       | $                                          | 16,366     |   | $ | 1,743 |   | $ | 5,200 |   |
| Restricted  stock     |       | 13,539                                     |       | 9,992 |   | 6,128 |   |
| Performance  shares   |       | 4,379                                      |       | — |   | — |   |
| SFAS 123R  adjustment |       | (1,831                                     | )          | — |   | — |   |
| Total                 |       | $                                          | 32,453     |   | $ | 11,735 |   | $ | 11,328 |   |

For additional information regarding stock awards and options, seeNote 12.

**Comprehensive Income**—Comprehensive income is defined as the change inequity of a business enterprise during a period from transactions and otherevents and circumstances from non-owner sources. During 2006, 2005 and 2004,amounts included in comprehensive income other than net income wereapproximately a $133 million gain, a $68 million loss and a$1 million loss respectively, primarily consisting of minimum pension liabilityadjustments in 2004 and 2005 and the adjustment to initially apply Statement ofAccounting Standards No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans, an amendment of FASBStatements No. 87, 88, 106 and 132(R) *in 2006 (Note 9),and unrealized gains or losses on investments, hedge settlements, foreigncurrency forward contracts and foreign currency translations.

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**2.**              Summary ofSignificant Accounting Policies (Continued)

At December 31, 2006, the components of accumulated othercomprehensive income/(loss) were as follows (in thousands):

|                                                                                                     | ** ** | **Minimum  Pension  Liability** | ** ** | **Defined  Benefit  Pension & Other  Post Retirement  Benefit Plans** | ** ** | **Unrealized  Gains/(Losses)  on Foreign  Currency  Forward  Contracts** | ** ** | **Unrealized  Gains/(Losses)  on Investments** | ** ** | **Unrealized  Foreign  Currency  Translation  Gains/(Losses)** | ** ** | **Total  Accumulated  Other  Comprehensive  Income/(Loss)** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Balance at  December 31, 2003                                                                  |       |                            | $          | (22,861                                                                                       | )          |                                                                          |       | $                                                   | —     |                                                           |       |                                                        | $          | 6,413 |   |   |   | $ | 1,326 |   |   |   | $ | 7,007 |   |   |   | $ | (8,115 | ) |   |
| 2004 other  comprehensive income (loss), net of deferred taxes                                      |       |                            | (8,330     | )                                                                                             |       |                                                                          | —     |                                                |       |                                                           | 519        |                                                        |       |   | (1,422 | ) |   |   | 7,922 |   |   |   | (1,311 | ) |   |
| Balance at  December 31, 2004                                                                  |       |                            | (31,191    | )                                                                                             |       |                                                                          | —     |                                                |       |                                                           | 6,932      |                                                        |       |   | (96 | ) |   |   | 14,929 |   |   |   | (9,426 | ) |   |
| 2005 other  comprehensive income (loss), net of deferred taxes                                      |       |                            | (24,433    | )                                                                                             |       |                                                                          | —     |                                                |       |                                                           | (11,101    | )                                                           |       |   | 634 |   |   |   | (33,546 | ) |   |   | (68,446 | ) |   |
| Balance at  December 31, 2005                                                                  |       |                            | (55,624    | )                                                                                             |       |                                                                          | —     |                                                |       |                                                           | (4,169     | )                                                           |       |   | 538 |   |   |   | (18,617 | ) |   |   | (77,872 | ) |   |
| Cumulative  adjustment to initially apply Statement of Financial Accounting Standards  No. 158 |       |                            | 53,970     |                                                                                          |       |                                                                          | (51,334    | )                                                   |       |                                                           | —     |                                                        |       |   | — |   |   |   | — |   |   |   | 2,636 |   |   |
| 2006 other  comprehensive income, net of deferred taxes                                             |       |                            | 1,654      |                                                                                          |       |                                                                          | —     |                                                |       |                                                           | 8,016      |                                                        |       |   | 4,070 |   |   |   | 116,362 |   |   |   | 130,102 |   |   |
| Balance at December 31, 2006                                                                   |       |                            | $          | —                                                                                        |       |                                                                          |       | $                                                   | (51,334    | )                                                              |       |                                                        | $          | 3,847 |   |   |   | $ | 4,608 |   |   |   | $ | 97,745 |   |   |   | $ | 54,866 |   |   |

 

The 2005 and 2004 minimum pension liabilityadjustments are net of deferred tax effects of approximately $15 millionand $5 million, respectively. The 2006 net adjustment to initially applyStatement of Financial Accounting Standards No. 158 is net of deferred taxeffects of approximately $2 million. Unrealized gains and losses on foreigncurrency forward contracts for 2006 and 2005 are net of deferred tax effects ofapproximately $5 million and $7 million, respectively. Unrealized foreigncurrency translation gains and losses are net of deferred tax effects ofapproximately $62 million, $10 million and an insignificant amount for theyears ended December 31, 2006, 2005 and 2004, respectively. The taxeffects allocated to all other components of other comprehensive income duringthe years ended December 31, 2006, 2005 and 2004 were not significant.Unrealized gains and losses from foreign currency forward contracts that werereclassified from other comprehensive income to net income were losses of  less than $1 million for the year ended December 31,2006 and gains of approximately $5 million and $11 million for theyears ended December 31, 2005 and 2004, respectively.Reclassifications from other comprehensive income to net income for all othercomponents of other comprehensive income for the years ended December 31,2006, 2005 and 2004 were not significant.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**2.     Summaryof Significant Accounting Policies (Continued)**

**Cash and Cash Equivalents**—We classify all highlyliquid instruments, including money market funds, with a remaining maturity ofthree months or less at the time of purchase, as cash equivalents.

**FinancialInstruments**—Thecarrying value of our financial instruments including cash and cash equivalents,marketable securities, accounts receivable and short and long-term debtinstruments, except for our 2016 Notes, approximate their fair values at December 31,2006 and 2005. Our 2016 Notes have a current fair value of $360 million as of December 31,2006. Our derivative instruments (Note 6) are carried at their estimatedfair values at December 31, 2006 and 2005.

**Treasury Stock**—We account for the purchase of treasury stock atcost. Upon reissuance of shares of treasury stock, we record any differencebetween the weighted-average cost of such shares and any proceedsreceived as an adjustment to additional paid-in capital.

**Restricted Cash**—At December 31,2006, we held $10 million in cash that is restricted. Approximately $7 millionof this restricted cash represents deposits required by airlines and othertravel regulatory bodies as well as an office premises for Zuji as required bythe lessor. At December 31, 2005, we held $57 million in cash thatwas restricted including $40 million to fulfill bonding requirements inEurope related to lastminute.com.In the first quarter of 2006, $37 million of this bonding requirement wasreleased in exchange for a bond provided by Royal Bank of Scotland andguaranteed by Sabre, Inc. Additionally, during the first quarter of 2006,we were able to release $11 million in cash held in an escrow account asthe related liability was extinguished.

**Recent Accounting Pronouncements**—OnJanuary 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(Revised 2004), *Share-Based Payments*.See Note 12 for additional information.

In May 2005, the FASB issued Statement of Financial AccountingStandards No. 154, *Accounting Changesand Error Corrections*, a replacement of APB Opinion No. 20, *Accounting Changes*, and Statement ofFinancial Accounting Standards No. 3, *ReportingAccounting Changes in Interim Financial Statements*. The standardrequires changing the accounting and reporting requirements of voluntary andmandatory (unless the pronouncement provides other transition requirements)changes in accounting principle by requiring retroactive application of thechange in accounting principle to prior periods’ financial statements, unlessit is not practical to do so, rather than recording a cumulative catch upadjustment in net earnings in the year of the change. Reporting errorcorrections are handled similar to a change in accounting principle. Thestandard was effective on January 1, 2006 and to date has not had anyimpact on our financial statements.

In June 2006, the FASB issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*,an interpretation of FASB Statement No. 109, *Accounting for Income Taxes*. The interpretation, effectivefor fiscal years beginning after December 15, 2006, provides thresholdsand measurement guidelines for recognizing an uncertain tax position taken orexpected to be taken in a tax return. We will adopt Interpretation No. 48in the first quarter of 2007. We are currently evaluating the potential impactthis interpretation might have on our financial results.

In September 2006, the FASB issued Statement of FinancialAccounting Standards No. 157, *FairValue Measurements*. This standard, effective for fiscal years endingafter November 15, 2007, defines fair value, provides guidance regardingthe measurement of fair value and expands the required disclosures for fairvalue measurements. We are currently evaluating the potential impact thisinterpretation might have on our financial results but do not believe theimpact will be material.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**2.     Summary of Significant Accounting Policies(Continued)**

We have adoptedStatement of Financial Accounting Standards No. 158, Employers’ Accountingfor Defined Benefit Pension and Other Postretirement Plans, an amendment ofFASB Statements No. 87, 88, 106 and 132(R) issued in September 2006.This new standard requires recognition of the funded status of a definedbenefit postretirement plan as either an asset or liability in the ConsolidatedBalance Sheets and recognition of changes in the funded status through othercomprehensive income in the year that the changes occur. Additionally, thestatement requires measurement of the funded status as of the fiscal year-endbalance sheet date. The standard also requires additional annual disclosuresregarding adjustments to other comprehensive income related to changes in thefunded status and amounts expected to be recognized as net periodic benefitcosts over the following fiscal year.  Wehave applied the recognition provisions and disclosure requirements of thisstandard prospectively in accordance with the guidance. The measurement dateprovisions of this statement are effective for fiscal years ending after December 15,2008 with earlier application encouraged. The new measurement standards willhave no effect on our current practice, as we have historically measured thefunded status of our defined benefit pension plans and other postretirementbenefit plans as of the year-end balance sheet date. See Note 9 for applicationof this new standard.

**3.**              MarketableSecurities

Marketable securities consist of (inthousands):

|                                                                                                  | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                       | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Corporate  notes                                                                                 |       | $                     | 30,261     |   | $ | 233,351 |   |
| Debt  securities issued by U.S. Treasury, foreign governments and other government  agencies (1) |       | 116,500               |       | 103,200 |   |
| Mortgages                                                                                        |       | 2,799                 |       | 4,738 |   |
| Other debt  securities (1)                                                                       |       | 103,570               |       | 35,296 |   |
| Total                                                                                            |       | $                     | 253,130    |   | $ | 376,585 |   |

----

(1)           Includessecurities guaranteed by a U.S. government agency.

The following table summarizes marketablesecurities by contractual maturity (in thousands):

|                                         | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Due in one  year or less                |       | $                     | 126,316    |   | $ | 138,254 |   |
| Due after one  year through three years |       | 45,415                |       | 193,305 |   |
| Due after  three years                  |       | 81,399                |       | 45,026 |   |
| Total                                   |       | $                     | 253,130    |   | $ | 376,585 |   |

 

Marketable securities, all of which are classified asavailable-for-sale, are stated at fair value based on market quotes. Unrealizedgains and losses, net of deferred taxes, have not been significant and arerecorded as a component of other comprehensive income.

The investments in mortgages are allclassified in the due after three years category based on the average expectedlife of the securities.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**3.**              MarketableSecurities (Continued)

We expect that the majority of marketable securities will be soldwithin one year, regardless of maturity date. We primarily invest inhigh-credit-quality debt instruments with an active resale market andmoney market funds to ensure liquidity and the ability to readily convert theseinvestments into cash to fund current operations, or satisfy other cashrequirements as needed. Accordingly, we have classified all marketablesecurities as current assets in the accompanying balance sheets. The decreasein marketable securities between 2005 and 2006 is due to various investing andfinancing activities (See Note 5 and the Consolidated Statements of CashFlows).

**4.**              Mergers and Acquisitions

***2006 Mergers and Acquisitions***

During 2006, we completed the following acquisitions, each of whichwere accounted for using the purchase method of accounting for businesscombinations. The results of operations of the acquired entities have beenincluded in our Consolidated Statements of Income from the date of acquisition.

**Acquisition of TRAMS, Inc. and Related Assets*—***OnFebruary 10, 2006, we acquired certain assets from an individual,including all of the outstanding stock of TRAMS, Inc. (“TRAMS”), a leadingprovider of financial reporting, customer relationship management tools anddirect marketing solutions and services for travel agencies. The purchase pricewas $22 million in cash, $20 million of which had been paid as of December 31,2006. We are also contingently liable for up to $8 million in purchaseprice if certain contractually determined performance measures are met over thenext three years. The acquisition enables Sabre Travel Network to directlyserve the end-to-end needs, from front to back-office, of a broad spectrum oftravel agencies, with initial focus on small and mid-sized leisure agencies.With the acquisition, Sabre Travel Network will be able to integrate the *TRAMS* offerings more seamlessly withexisting and future *Sabre*solutions. The results of operations of TRAMS have been included in ourConsolidated Statements of Income and the results of operations of our SabreTravel Network segment from the date of acquisition. Assets acquired andliabilities assumed have been recorded at their estimated fair values, and the$6 million excess of cost over the estimated fair value of the net assetshas been recorded as goodwill. A portion of the acquired goodwill is deductiblefor tax purposes. The fair values were determined by management based in parton an independent valuation of the net assets acquired, which includesintangible assets of $16 million. Intangible assets subject toamortization are being amortized over a weighted-average period of11 years and relate primarily to technology and customer relationships.

**Consolidation and Acquisition of ZujiHoldings Limited**—On November 7, 2005, pursuant toissuing a $4 million loan to Zuji, we became the primary beneficiary ofthe joint venture and in accordance with FIN 46R, began accounting for ourinvestment in the *Zuji*SM business, which was previously accounted forusing the equity method, on a fully consolidated basis. Zuji was established asa joint venture in 2002 with 16 Asia Pacific airlines and operates in the AsiaPacific region. Zuji is hosted by Travelocity and utilizes Travelocitytechnology.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**4.     Mergersand Acquisitions (Continued)**

On January 24, 2006, a put option thatwe entered into in 2005 with the other equity investors of Zuji was exercisedand pursuant to the agreement, we paid $34 million for the remaining 90%interests in Zuji that we did not already own. Therefore, 100% of the resultsof operations for Zuji are included in our Consolidated Statements of Incomeand the results of operations of our Travelocity segment from the date ofacquisition. Because we previously owned 10% of Zuji, the acquisition wasaccounted for as a step-acquisition. The purchase price was allocated based on90% of the estimated fair value of the net assets acquired, includingintangible assets acquired. After adding our original 10% cost basis in theentity to the 90% of the fair value of the net assets acquired, our totalinvestment in Zuji is $35 million, including $51 million of goodwill.The recorded goodwill is not deductible for non-U.S. income tax purposes butwill reduce the amount of U.S. tax paid on distributions of Zuji profits to itsU.S. parent. The goodwill represents a value attributable to an increasedcompetitive position in the Asia Pacific region and greater scale. The fairvalues of the net assets acquired were determined by management based, in part,on a preliminary independent valuation of the intangible assets acquired.Intangible assets acquired are being amortized over a weighted-averageperiod of 5 years and relate primarily to contracts and tradenames. Thefollowing table summarizes the allocation of the purchase price and the amountsallocated to goodwill (in thousands):

| Working capital                 |   | $      | (25,566 | )      |
|---------------------------------|--------|--------|---------|--------|
| Tradenames (indefinite life)    |   | 5,400  |    |
| Tradenames (5 year useful life) |   | 800    |    |
| Technology (5 year useful life) |   | 3,130  |    |
| Goodwill                        |   | 51,295 |    |
| Total purchase price            |   | $      | 35,059  |   |

 

***2005 Mergersand Acquisitions***

During 2005, wecompleted the following acquisitions, each of which were accounted for usingthe purchase method of accounting for business combinations. The results ofoperations of the acquired entities have been included in our ConsolidatedStatements of Income from the date of acquisition.

**Acquisitionof SynXis**—On January 19, 2005, we completed theacquisition of SynXis Corporation (“SynXis”), a provider of the *SynXis* reservation management,distribution and technology services for hotels, for approximately$41 million in cash. This acquisition enables Sabre Travel Network tofurther build on our capabilities and offerings to hoteliers, to leverage newhotel content for all of our travel agents, and to extend reservationtechnology currently used at approximately 8,200 hotels, primarily in theUnited States and Europe. SynXis will continue to operate under the *SynXis* name as a wholly-owned subsidiary ofSabre Inc. The acquired goodwill is not deductible for tax purposes.Intangible assets subject to amortization are being amortized over theirrespective lives.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**4.     Mergersand Acquisitions (Continued)**

The following table summarizes the allocationof the purchase price and the amounts allocated to goodwill (in thousands):

| Working capital                             |   | $      | 5,503  |   |
|---------------------------------------------|--------|--------|--------|--------|
| Purchased technology (5 year useful life)   |   | 3,900  |   |
| Customer relationships (8 year useful life) |   | 10,700 |   |
| Tradenames                                  |   | 1,800  |   |
| Goodwill                                    |   | 19,196 |   |
| Total purchase price                        |   | $      | 41,099 |   |

 

**Acquisitionof lastminute.com**—On July 20, 2005, we completedthe acquisition of lastminute.com plc, a leading online travel agency andleisure company in Europe and began consolidating its results. The aggregatecost of the acquisition was approximately $1.2 billion($1,069 million net of cash acquired). The aggregate cost includes$1,019 million of cash paid to lastminute.com plc stockholders,$138 million of debt retired and $15 million of direct acquisitioncosts. We used approximately $371 million of available cash and cashequivalents and marketable securities ($269 million net of cash acquired)to fund the acquisition and incurred $800 million in indebtedness under anunsecured bridge loan agreement (Note 7). During the first quarter of2006, we prepaid the entire amount outstanding under the bridge loan agreement.

With theacquisition of lastminute.com, our Travelocity segment greatly expanded itsscale. We can now offer travel suppliers a greater number of potential buyersin a broader geographic area, particularly Europe. We expect this increasedscale to allow us to offer consumers even better travel deals and a greaterrange of international options. An immediate benefit is our ability to providelastminute.com customers access to the wide range of hotels in Travelocity’snet rate hotel program. lastminute.com customers will have a greater range ofU.S. and international travel options, and over time, Travelocity should gainmore European travel choices.

lastminute.comhas been included in our Consolidated Statements of Income from the date ofacquisition, July 20, 2005. The assets acquired and liabilities assumedhave been recorded on our Consolidated Balance Sheets at their estimated fairvalues, and the excess of cost over the estimated fair value of the net assetshas been recorded as goodwill. The fair values were determined by managementbased in part on an independent valuation of the net assets acquired, whichincludes intangible assets as presented in the table below. The recordedgoodwill related to the acquisition of lastminute.com by our Travelocitysegment is deductible for tax purposes and represents a value attributable toan increased competitive position in Europe and greater scale.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**4.     Mergersand Acquisitions (Continued)**

The following table summarizes the allocationof the purchase price and the amounts allocated to goodwill (in thousands):

| Working capital                                             |   | $       | (224,816  | )      |
|-------------------------------------------------------------|--------|---------|-----------|--------|
| Property and equipment                                      |   | 19,629  |      |
| Other assets, net                                           |   | 556     |      |
| Tradenames (indefinite life)                                |   | 281,789 |      |
| Tradenames (14.2 year average useful life)                  |   | 45,005  |      |
| Technology (3.5 year useful life)                           |   | 95,411  |      |
| Customer and contractual relationships (7 year useful life) |   | 108,012 |      |
| Non-compete agreements (1 year useful life)                 |   | 1,800   |      |
| Goodwill                                                    |   | 845,537 |      |
| Non-current liabilities                                     |   | (1,483  | )         |
| Total purchase price                                        |   | $       | 1,171,440 |   |

 

Working capitalincludes an accrual of approximately $37 million of acquisition-relatedcosts, including $10 million, net of deferred taxes of $5 million,for the fair value of a restructuring plan described further below. The accrualalso included a material contingent liability in relation to a dispute with avendor and other items described more fully below.

Shortlyfollowing the completion of the acquisition, we began to develop a plan toeliminate duplicate costs, including certain duplicate facilities, and torestructure certain areas of the lastminute.com business. At the acquisitiondate, we accrued $11 million, offset by deferred taxes of $4 million,for the present value of future lease payments and related costs due onfacilities that are being closed and consolidated with existing facilities inthe United Kingdom, Germany and Sweden. The majority of the accrual relates tothe relocation of staff from a facility in Camberley to a facility in Wokingwhich has excess capacity. The Camberley facility is no longer being utilizedand we plan to pursue options to sublet or terminate our lease early for thisfacility, although at this time we do not know if either of these options ispossible. As of December 31, 2006, the accrual is approximately$8 million.

Additionally,we accrued $4 million for severance and related costs for reductions inheadcount in various areas of lastminute.com, including in the United Kingdom,France, Germany and Holland. The reductions are due to the elimination ofduplicate staff with the consolidation of facilities and activities ofTravelocity.com and lastminute.com, outsourcing of certain call centeractivities and other redundancies identified in our analysis of the business.Since the acquisition, we have paid $3 million of the severance accrued.As of December 31, 2006, the remaining accrual for severance and relatedcosts is $1 million.

lastminute.comhad an ongoing dispute with a vendor when we completed the acquisition on July 20,2005. On April 27, 2006, we settled this dispute for an amount that wasnot materially different than the amount accrued in the purchase priceallocation and which was significantly less than what was claimed.

In the third quarter of 2006, we finalized our purchase priceallocation for the acquisition of lastminute.com. Adjustments since the date ofacquisition were for the final asset valuation appraisals, to adjust fordifferences in United Kingdom versus U.S. accounting principles, forpre-acquisition contingencies and for inaccuracies related to pre-acquisitiontransactions and other activities. The increase to goodwill from what wereported at December 31, 2005 is primarily due to these adjustments.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**4.     Mergersand Acquisitions (Continued)**

***Pro FormaStatement of Operations Data for Mergers and Acquisitions During 2005***

The following unaudited pro forma informationpresents our results of operations from continuing operations as if the acquisitionof lastminute.com, discussed above, had occurred as of January 1, 2004.The pro forma information has been prepared by combining our results ofoperations and lastminute.com’s results of operations for the years ended December 31,2005 and 2004. Prior to the acquisition, lastminute.com utilized a September 30fiscal year end. The lastminute.com statements of operations have been adjustedto conform to our calendar year end financial statement presentation. Forpurposes of this report, unaudited pro forma adjustments, including areconciliation between GAAP in the United Kingdom, where lastminute.com isheadquartered, and GAAP in the United States, have been made to thelastminute.com historical financial statements. The pro forma information doesnot purport to be indicative of the results that would have occurred if theacquisition had actually been in effect earlier than July 20, 2005, norindicative of future performance. The pro forma results during the nine monthsended September 30, 2005 include several non-recurring adjustmentstotaling $43 million, which have a material effect on the resultspresented. These adjustments, which are not anticipated in future periods,include costs incurred and amounts expensed related to the acquisition and a materialdisputed amount due to a vendor. Pro forma adjustments related to any otheracquisitions occurring during 2005 have not been included, as the effect ofdoing so would be immaterial. Amounts below are presented in thousands, exceptper share data:

|                                          | ** ** | **Year ended**             | ** ** | **Year ended**             | ** ** |
|------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
| Pro forma revenues                       |       |                            | $          | 2,705,612                       |       |   |   | $ | 2,463,675 |   |   |
| Pro forma net earnings                   |       |                            | 110,561    |                            |       |   | 137,400 |   |   |
| Pro forma net earnings per common share: |       |                            |       |                            |       |   |   |   |   |
| Basic                                    |       |                            | $          | 0.85                            |       |   |   | $ | 1.01 |   |   |
| Diluted                                  |       |                            | $          | 0.85                            |       |   |   | $ | 1.00 |   |   |

 

***2004 Mergersand Acquisitions***

During 2004, wecompleted the following acquisitions, each of which was accounted for using thepurchase method of accounting for business combinations. The results ofoperations of the acquired entities have been included in our ConsolidatedStatements of Income from the date of acquisition.

**Acquisitionof RM Rocade**—On August 16, 2004, we completed theacquisition of Stockholm, Sweden-based RM Rocade AB and RM Rocade AssistAB (“Rocade”) for approximately $15 million in cash. The acquisition ofRocade expands the ability of our Sabre Airline Solutions business segment toprovide software solutions to international small, medium-size and low-costcarriers. Assets acquired and liabilities assumed have been recorded at theirestimated fair values and the $11 million excess of cost over theestimated fair value of the net assets has been recorded as goodwill. Theacquired goodwill is not deductible for tax purposes. The fair values were determinedby management based on a valuation of the net assets acquired, includingintangible assets of $3 million. Intangible assets subject to amortizationare being amortized over a weighted-average of 2 years and relateprimarily to technology and customer relationships.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**4.     Mergersand Acquisitions (Continued)**

**Acquisitionof All State Tours, Inc.**—On August 30, 2004we completed the acquisition of All State Tours, Inc. (“Showtickets.com”),a leading distributor of show tickets and tours in Las Vegas, NV, forapproximately $25 million in cash. The acquisition of Showtickets.comenhances the ability of our Travelocity business segment to sell show tickets,attraction passes and other travel extras for this popular destination. Assetsacquired and liabilities assumed have been recorded at their estimated fairvalues and the $15 million excess of cost over the estimated fair value ofthe net assets has been recorded as goodwill. The acquired goodwill isdeductible for tax purposes. The fair values were determined by managementbased on a valuation of the net assets acquired including an independentvaluation of the intangible assets acquired of $10 million. Intangibleassets subject to amortization are being amortized over a weighted-average of5 years and relate primarily to customer relationships and technology.

**Acquisition of TEU**—OnOctober 4, 2004, we completed the acquisition of certain entities in theUnited Kingdom, Sweden, Denmark, Norway and France, which were previously ownedjointly by the Travelocity Europe joint venture. We purchased the 50% of theseentities that we did not indirectly already own from the Otto Group’s OttoFreizeit and Touristik GmbH for approximately $33 million(26.6 million Euros) in cash. The remaining 50% of these entities that wedid already own indirectly through the Travelocity Europe joint venture wasdistributed to us by the joint venture so that we now directly own 100% ofthese entities. The entities acquired include Travelocity.co.uk in the UnitedKingdom, Resfeber.se and Box Office in Sweden, Rejsefeber.dk and Arte Udland inDenmark, Reisefeber.no and Ticket Service in Norway and Usit Connections SAS,Boomerang SAS and Travelocity SAS in France. Our decision to take fullownership of Travelocity Europe outside of Germany has enabled us to investmore heavily and efficiently in the products, technology and marketingnecessary to grow in this key region. See Note 5, regarding *Sale of Certain TravelocityEurope and lastminute.com Businesses*. The results of operations ofthe acquired entities are included in our Consolidated Statement of Income andthe results of operations of our Travelocity segment from the date ofacquisition. Because we previously owned 50% of these entities (accounted forusing the equity method), the acquisition was accounted for as astep-acquisition. The purchase price was allocated based on 50% of theestimated fair value of the net assets acquired, including intangible assetsacquired. After adding our original 50% cost basis in the entities to the 50%of the fair value of the assets acquired, our total investment in TravelocityEurope is $55 million, consisting almost entirely of goodwill as noted inthe purchase price allocation table below. The acquired goodwill is deductiblefor tax purposes. The fair values of the net assets acquired were determined bymanagement based on an independent valuation of the intangible assets acquired.Intangible assets subject to amortization are being amortized over a weighted-averageperiod of 5 years and relate primarily to supplier relationships. Thefollowing table summarizes the allocation of the purchase price and the amountsallocated to goodwill (in thousands):

| Working capital                |   | $      | (5,835 | )      |
|--------------------------------|--------|--------|--------|--------|
| Contracts (5 year useful life) |   | 3,970  |   |
| Tradenames                     |   | 2,227  |   |
| Goodwill                       |   | 54,828 |   |
| Total                          |   | $      | 55,190 |   |

 

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**4.     Mergersand Acquisitions (Continued)**

**Gulf Air Joint Venture**—OnDecember 31, 2004, we entered into a business combination which formed a jointventure with Gulf Air, a leading airline carrier in the Middle East, for whichwe paid $31 million throughout 2005. The joint venture, Sabre TravelNetwork Middle East, is owned 60% by Sabre Travel Network and 40% by Gulf Airand will further extend our travel network products and services into theMiddle East region. The operation provides technology services, bookable travelproducts and distribution services for travel agencies, corporations and travelsuppliers in the region. In addition, Sabre Airline Solutions entered into a five-yearrevised contract with Gulf Air to provide the *SabreSonic*suite of products for passenger management, as well as additional operationalsoftware and consulting services. The goodwill resulting from this transactionis not deductible for tax purposes. Intangible assets subject to amortizationwill be amortized over their respective lives. The results of Sabre TravelNetwork Middle East are consolidated into our financial results with a minorityinterest for the portion that we do not own. The following table summarizes theallocation of the purchase price and the amounts allocated to goodwill (inthousands):

| Subscriber contracts (3 year  useful life) |   | $      | 10,679 |   |
|--------------------------------------------|--------|--------|--------|--------|
| Working capital                            |   | 517    |   |
| Goodwill                                   |   | 20,008 |   |
| Total                                      |   | $      | 31,204 |   |

 

Pro forma information related to the mergers and acquisitions otherthan the acquisition of lastminute.com have not been presented, as the effectof these acquisitions was not material to our historical results of operations.

**5.**              SignificantTransactions and Events

**Sale of the Company**—On December 12, 2006, we entered intoan agreement to sell the Company through a definitive agreement and plan ofmerger (“Merger Agreement”) with affiliates of Texas Pacific Group and SilverLake Partners (the “Sponsors”). Under the terms of the Merger Agreement,investment funds affiliated with the Sponsors will indirectly acquire the Class ACommon Stock of Sabre Holdings for $32.75 per share. The $5.4 billionacquisition is anticipated to be funded with direct and indirect equity investmentsfrom the investment funds and with underwritten debt commitments from DeutscheBank and Merrill Lynch.

If the mergeragreement is terminated in certain circumstances, we could be required to pay atermination fee of $135 million to the Sponsors’ affiliates. If the mergeragreement is terminated under other circumstances, the Sponsors’ affiliateshave agreed to pay us a business interruption fee of $175 million.

Upon completionof the merger, we will incur significant costs associated with the accelerationof employee and non-employee director share-based awards (see Note 12) as wellas significant costs to complete the transaction.

Completion ofthe transaction is subject to our receiving regulatory and shareholderapprovals. We expect the transaction to close by early second quarter of 2007.

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** **

**5.     SignificantTransactions and Events (Continued)**

**Sale and Leaseback of a Portion of OurSouthlake, Texas Headquarters Facilities**—In December 2006, we completed the saleof the Solana building, associated improvements and certain undeveloped landand other property rights at our Southlake, Texas headquarters (the “Property”)to Maguire Partners (“Maguire”) and began our five-year leaseback of the Solanabuilding from Maguire Partners. Under theleaseback, we will be responsible for rent of approximately $6 millionannually for a term of 5 years and for operational expenses such as maintenanceand property taxes. We completed the sale of the Property afterexercising our option under the capital lease facility to purchase theProperty, and we used the proceeds from the sale to repay a portion of thecapital lease facility. See Note 8 foradditional information on this transaction.

**Saleof Certain Travelocity Europe and lastminute.com Businesses**—InJune 2006, we sold three offline traditional retail businesses in ourTravelocity Europe and lastminute.com operations as a part of the integrationefforts that continue in the Travelocity segment and in Europe particularly.This sale was part of an effort to rationalize our portfolio of assets to focuson the higher growth online operations. The revenues and costs of thesebusinesses were not material, individually or in the aggregate. The sale ofthese three businesses resulted in a pre-tax loss of $10 million, net ofproceeds, recorded in Other, net in our Consolidated Statements of Income.

**CostReductions**—In the fourth quarter of 2003, in an effortto reduce our operating expenses and better align expenses with revenue targetsfor 2004 and future years, we reduced our workforce by approximately 8.6% andrecorded a charge for severance, salaries and benefits of approximately$18 million. This $18 million charge included $7 million at thecorporate level, $6 million for Sabre Travel Network, $3 million forTravelocity and approximately $2 million for Sabre Airline Solutions. Theremaining liability for this charge was paid out in the first quarter of 2006.

In the fourthquarter of 2003, we consolidated our operations and closed facilities in theUnited States. These actions resulted in a charge of approximately$17 million, consisting of write-offs of leasehold improvements and otherfacility-related assets, and lease termination costs. The$17 million charge included $13 million at the corporate level,$4 million for Travelocity and immaterial charges for both Sabre TravelNetwork and Sabre Airline Solutions. Of the $13 million recorded at thecorporate level, approximately $6 million represented assets written off dueto the facilities consolidation and approximately $2 million and$4 million were paid during 2004 and 2003, respectively. This liabilityconsists primarily of lease payments for vacated facilities, which will be paidover the applicable lease terms. All of the amounts recorded to Travelocity,Sabre Travel Network and Sabre Airline Solutions represented assets written offdue to the facilities consolidation and an insignificant liability remains forthese segments as of December 31, 2006.

In 2006,2005 and 2004 we reduced our workforce and accrued approximately $3 million, $6million and $4 million, respectively, for severance and related costs forformal cost reduction plans, of which only a negligible amount remainsoutstanding for each of these accruals as of December 31, 2006. We expectthat the remainder of these accruals will be paid out in 2007.

InJanuary 2007, we announced to affected employees plans to reduce ourworkforce by outsourcing components of our European finance function to asingle shared service center. We expect the costs associated with thisreduction will be approximately $4 million with payouts beginning to occurearly in the third quarter.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**5.**              SignificantTransactions and Events (Continued)

The following table summarizes the severance costs related to exitactivities, as well as the liabilities included in the Consolidated BalanceSheets at December 31, 2005 and 2006 (in thousands):

|                                                  | ** ** | **2003 Restructuring Plan** | ** ** | **2004  Restructuring  Plan** | ** ** | **2005  Restructuring  Plan**    | ** ** | **2006  Restructuring  Plan**    | ** ** | ** **                       | ** ** |
|--------------------------------------------------|------------|---------------------------------------|------------|-------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                       | ** ** | **Severance and  Benefits**      | ** ** | **Facilities  Related**       | ** ** | **Severance and  Benefits** | ** ** | **Severance and  Benefits** | ** ** | **Severance and  Benefits** | ** ** | **Total** | ** ** |
| Remaining  liability at December 31, 2004   |       |                                  | $          | 920                           |       |                             |       | $                                | 1,361      |                             |       |   | $ | 3,043 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 5,324 |   |
| Estimated  cost of 2005 workforce reduction |       |                                  | —     |                          |       |                             | —     |                             |       |                             | —     |   |   |   | 6,344 |   |   |   | — |   |   | 6,344 |   |
| Amounts paid  in 2005                            |       |                                  | (759       | )                             |       |                             | (1,241     | )                                |       |                             | (2,736     | ) |   |   | (1,010 | ) |   |   | — |   |   | (5,746 | ) |
| Remaining  liability at December 31, 2005   |       |                                  | 161        |                          |       |                             | 120        |                             |       |                             | 307        |   |   |   | 5,334 |   |   |   | — |   |   | 5,922 |   |
| Estimated  cost of 2006 workforce reduction |       |                                  | —     |                          |       |                             | —     |                             |       |                             | —     |   |   |   | — |   |   |   | 2,518 |   |   | 2,518 |   |
| Amounts paid  in 2006                            |       |                                  | (161       | )                             |       |                             | (125       | )                                |       |                             | (297       | ) |   |   | (5,144 | ) |   |   | (1,852 | ) |   | (7,579 | ) |
| Remaining liability at December 31,  2006   |       |                                  | $          | —                        |       |                             |       | $                                | (5         | )                                |       |   | $ | 10 |   |   |   | $ | 190 |   |   |   | $ | 666 |   |   | $ | 861 |   |

 

The costs inthe table above are included in the Consolidated Statements of Income as costof revenues or selling, general and administrative expenses depending on theclassification of the related employees or assets. The total amount ofseverance and other benefit costs including costs incurred for reductions madeoutside of formalized plans was $10 million in both 2006 and 2005 and was $6million in 2004.

**Legal Settlement—****We**had previouslydisclosed two lawsuits, which were consolidated in federal court in Fort Worth,Texas, to which we were a party against Northwest Airlines, Inc. (“Northwest”)related to Northwest’s August 24, 2004 announcement and September 1,2004 implementation of a fare supplement for travel reservation bookings madethrough a GDS, including the *Sabre*GDS, by traditional travel agencies and some online travel sites, such as *Travelocity*. The bankruptcy court approveda settlement of this litigation by an order effective on February 25,2006. The settlement resulted in a pre-tax loss of $15 million in thefourth quarter of 2005 recorded in Other, net on our Consolidated Statements ofIncome.

**Long-Term Full Content Agreements—****Sabre**Travel Networkhas signed new long-term full content agreements with the following large U.S.airlines: American Airlines, Continental Airlines, Delta Air Lines, NorthwestAirlines, United Airlines and US Airways, which had full content contracts upfor renewal, and AirTran Airways, Alaska Airlines, and JetBlue Airways, whichdid not previously have long-term full content contracts. The US Airwaysagreement also includes America West, which did not previously have a long-termfull content contract. The new agreements are for five to seven years and, likethe original DCA 3-year agreements, require participating airlines toprovide all *Sabre* GDS userslong-term, broad access to schedules, seat availability and published fares,including Web fares and other promotional fares. These agreements alsogenerally require participating airlines to furnish to passengers bookedthrough the *Sabre* GDS the samecustomer perquisites and amenities as those afforded to passengers bookedthrough other GDSs and websites.

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** **

**5.     Significant Transactions and Events(Continued)**

Additionally,we have transitioned over 350 carriers from our traditional ParticipatingCarrier Agreement (“PCA”) to a new Travel Marketing Agreement (“TMA”). Thesenew agreements are one-year agreements, as compared with 30 days in thePCA, and are automatically renewed unless cancelled by either side. The TMA haspricing that varies by region and, in some cases, by the value of the ticketthat was sold. This pricing better aligns price with value for the airline andprovides better content guarantees to Sabre Travel Network.

**Efficient Access Solution—**On September 1,2006 we launched the *Efficient Access*SM* Solution* for our airline and travelagency customers. The *Efficient Access Solution*is a balanced program to address the economic pressures airlines face whilecontinuing to provide travel agencies with the incentives and long-termprotections described below. With *Efficient Access Solution*,carriers participating in the program receive a discount on booking fees forreservations made by participating agencies. In return, the airlines agree toprovide over the long-term, key benefits and protections to agenciesparticipating in the program. Through participation in *EfficientAccess Solution*, agencies are assured of long-term commitments from thoseairlines concerning:

·         Fullcontent from program carriers, including published fares and Web fares, as wellas non-discriminatory access to private fares, including agency negotiatedrates and rates provided to the corporate or government customers thoseagencies serve, and

·         Protectionfrom service fees that a program carrier might otherwise levy on bookings madethrough the *Sabre* GDS.

Agenciesparticipating in the program agree to adjusted financial terms in exchange forthe significant benefits and protections afforded by the new agreements. Theterms will vary according to agency contract type, but generally result inlower incentive payments. Additionally, because carriers participating in theprogram will receive a discount on booking fees, this could have the effect oflowering Sabre Travel Network revenues over time. However, we anticipate thatthis effect will be offset by lower incentive expense.

**WNS Agreement—****On**January 30,2004, we entered into a multi-year master services agreement with WNS NorthAmerica, Inc. (“WNS”). Under the agreement, we outsourced to WNS a portionof our Travelocity contact center operations, primarily front-line customerservice calls and back-office fulfillment. Travelocity employees continue tohandle sales calls, as well as advanced customer service issues and qualitycontrol. Severance and related costs incurred due to this agreement have notbeen significant.

We arecommitted to minimum payments based on a calculation that considers bothcurrent and historical transaction volumes compared to thresholds establishedin the agreement. For 2007 through 2010, the starting thresholds forcalculating our commitment for each year ranges from approximately $24 millionto $31 million and actual commitments could be lower than these amounts,depending on call volumes. Additionally, we loaned approximately$10 million to WNS for transitional assistance. Amounts borrowed by WNSaccrued interest at 5%, payable quarterly, with the principal due in threeannual payments beginning in 2009. However, in the fourth quarter of 2005, WNSvoluntarily repaid $5 million of the $10 million loan, and in thefirst quarter of 2006 repaid the remainder.

In January 2007,we amended our agreement with WNS to include additional services related tocertain of our European accounting functions. There were no changes to thecommitted minimum payments required under the original agreement.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**5.     Significant Transactions and Events(Continued)**

**Equipment Sale and Leaseback—****On**November 30,2004, we entered into a Master End User Agreement for Sun Products and Services(the “Agreement”) with Sun Microsystems, Inc. (“Sun Microsystems”) toassist with the consolidation of the Company’s existing midrange environmentand to provide the Company with Enterprise System software and ongoingconsulting services. The Agreement allows us to consolidate approximately 900of our existing midrange platform servers onto a standardized midrangeenvironment consisting of approximately 400 servers, resulting in significantsavings from the optimization of our hardware capacity and leveraging of newer,more efficient technology infrastructure.

The migrationonto the consolidated hardware environment was completed in 2006. As part ofthe migration, we sold our existing infrastructure assets to Sun Microsystemsfor approximately $2 million. These assets are being leased back to usover the term of the migration period. The assets that we sold had an originalcost of approximately $25 million, accumulated depreciation of approximately$15 million, and a net book value of approximately $10 million. Wereceived approximately $2 million in proceeds from this sale, and recordedan approximate $7 million book loss as a result of this transaction. We donot expect the loss resulting from this transaction to have any impact on ourfuture cash expenditures.

**AOL Agreement—****In**1999, we enteredinto an agreement with America Online, Inc. (“AOL”) that provided, amongother things, that Travelocity would be the exclusive reservations engine forAOL. On January 21, 2004, we revised the terms of and extended ouragreement with AOL through March 2006. In March 2006, we againextended the terms and now have an agreement through March 2009, whichincludes an option to exit the contract in March 2008. Under the terms ofthe extension, Travelocity will have lower fixed payment obligations. We alsomaintained terms that reduce the fixed payment if AOL does not meet certainrevenue targets. This variable payment is currently estimated to be $12 millionover the 3-year term of the agreement plus a fixed financial commitmentof $6 million also to be paid over the term of the agreement. Travelocitycontinues to be the exclusive reservations engine for AOL’s Internet propertiesunder the revised agreement. The revised terms also allow AOL to continue toexpand in the travel search arena through its sites and partners. At December 31,2005, we had remaining $6 million of unamortized fixed payments paid underthe original contract, which was extended through March 2006, which wasrecognized in the first quarter of 2006. We recognized $4 million in 2006for the extension of the contract through March 2009.

**Sale of Karavel Investment—****On**March 11,2005, we sold our interest in Karavel SA, a French tour operator. We receivedapproximately $26 million (Euro 20 million) in cash proceeds inconnection with the sale and recorded a $21 million gain in other incomein our Consolidated Statements of Income.

**Conversion of TRX Note and Warrants—****During**the thirdquarter 2005, we converted a note receivable and warrants of TRX, Inc. (“TRX”),a provider of transaction processing and data integration to the travelindustry, into shares of TRX common stock, a majority of which we sold. As aresult of these transactions, we recorded a loss of $1 million to otherincome and received cash proceeds of $15 million, including payments foraccrued interest. During the first quarter of 2006, we sold our remaining TRXshares, recorded on our Consolidated Balance Sheets at a market value of $1million, at a minimal loss. Before these transactions, our Consolidated BalanceSheets reflected under other assets a net asset balance of $17 millionrelated to TRX, including accrued interest.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**5.     Significant Transactions and Events(Continued)**

**Divestiture of Equity Interest in German Operations of TravelocityEurope—****On**December 30, 2005, we soldour 50% interest in the German operations of Travelocity Europe for$13 million to The Otto Group, which now owns 100% of the formerTravelocity Europe German business, including the brands of Travelchannel.de,Travel Overland and Flug.de. The brand name of Travelocity.de was retained byus. As a result of this transaction, we recorded a gain (net of taxes) ofapproximately $4 million to other income.

The revenues and cost of revenues of TRX and the German operations ofTravelocity Europe were not material to our operations.

**6.**              Derivatives

In order tohedge our operational exposure to foreign currency movements, we are a party tocertain foreign currency forward contracts all expiring within approximatelyone year. We have also used options in the past, but have no options currentlyoutstanding. We have designated these instruments as cash flow hedges. Amountsreclassified from other comprehensive income to earnings due to the settlementof forward and option contracts were losses of less than $1 million forthe year ended December 31, 2006 and gains of approximately$5 million and $11 million for the years ended December 31, 2005and 2004, respectively. No hedging ineffectiveness was recorded in earningsrelating to the forwards during the years ended December 31, 2006, 2005and 2004. The estimated fair values of the foreign currency forward contractswere an asset of $7 million at December 31, 2006 and a liability of $6million at December 31, 2005. At December 31, 2006, amounts relatedto derivatives qualifying as cash flow hedges amounted to $4 million, net oftaxes, in equity balances representing unrealized gains on the derivatives.Based on foreign exchange rates as of December 31, 2006, we expect totransfer the $4 million to earnings in 2007, along with the earningseffects of the related forecasted transactions. These foreign currency forwardcontracts were recorded in prepaid assets at December 31, 2006 and boththe forward and options contracts were recorded in other accrued liabilities atDecember 31, 2005 on the Consolidated Balance Sheets. We also haveshort-term forward contracts in our lastminute.com subsidiaries that hedge aportion of our foreign currency exposure related to travel supplier liabilitypayments. The impact of these contracts on the financial statements for theyears ended December 31, 2006 and 2005 was not significant.

We are also aparty to certain interest rate swap contracts. We have designated the swaps asfair value hedges of our $400 million in senior unsecured notes, which maturein 2011, and capital lease obligation. No hedging ineffectiveness relating toour interest rate swaps was recorded in earnings during the years ended December 31,2006, 2005 or 2004. The estimated fair value of the interest rate swaps was aliability of $8 million at December 31, 2006 which was recorded inother liabilities on the Consolidated Balance Sheet. The estimated fair valueof the interest rate swaps was a net liability of $5 million at December 31,2005, of which $2 million was recorded in other assets and $7 millionin other liabilities on the Consolidated Balance Sheet.

On February 20,2007, we settled our outstanding interest rate swaps on our senior unsecurednotes, maturing in 2011 and  on ourcapital lease obligation for a total of $8.2 million.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**6.     Derivatives (Continued)**

In order toprotect ourselves against the impacts of interest rate fluctuations occurringprior to the issuance of $400 million of senior unsecured notes in March 2006,we entered into two interest rate hedges on the Ten Year U.S. Treasury Note,which locked in the treasury component of our borrowing rate on the notes. Wehedged $250 million on February 16, 2006, at a rate of 4.628%, and wehedged $150 million on March 3, 2006, at a rate of 4.69%. The hedgeswere sold on March 8, 2006, simultaneously with the pricing of the bonds.The resulting gain on the sale of $3 million was recorded in othercomprehensive income and will be recognized over the life of the notes, usingthe effective yield method.In order to offset our currency exposure in relationto the acquisition of lastminute.com, in May 2005, we purchased an optionto acquire British Pounds Sterling (“GBP”) and Euros (“EUR”) at a fixed rate ator near the closing of the transaction for $10 million. Due to thestrengthening of the U.S. Dollar against contractual rates of these currencies,this transaction resulted in a loss of $10 million to the ConsolidatedStatements of Income, the majority of which was recorded in the second quarterof 2005.

On June 29,2005, we entered into forward contracts to purchase GBP 578 million andEUR 115 million to hedge the U.S. Dollar costs of the acquisition oflastminute.com, including debt held by lastminute.com. In the third quarter of2005, these forward contracts matured, resulting in a gain of $2 milliondue to the weakening of the U.S. Dollar against the contractual rates of thesecurrencies.

The estimated fair values of our derivatives as of December 31,2006 and 2005 are provided below (in thousands):

|                                       | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Foreign currency forwards and options |       | $                     | 6,649      |   | $ | (6,078 | ) |
| Interest rate swaps                   |       | (8,307                | )          | (4,805 | ) |
| Total                                 |       | $                     | (1,658     | ) | $ | (10,883 | ) |

 

Derivative assets and liabilities are classified as current orlong-term other assets and other liabilities, respectively, in the accompanyingbalance sheets, depending on the date of settlement of the related contract.

**7.**              Debt

**Bridge Financing Arrangement—****On**May 12,2005, Sabre, Inc. entered into an $800 million, unsecured bridge loanagreement in order to provide short-term financing in connection with thelastminute.com acquisition and to satisfy legal requirements for certainty offunding for the acquisition. On July 22, 2005, we entered into anamendment to the bridge facility whereby all the rights and obligations ofSabre Inc. under the bridge facility were assumed by Sabre Holdings andSabre Inc. was discharged from its obligations thereunder.

Effective August 1,2005, we borrowed $800 million under the bridge facility in order to funda portion of the purchase of the shares of lastminute.com in connection withthe lastminute.com acquisition.

During the three months ended March 31, 2006, we prepaid theentire $800 million outstanding under the bridge facility with$580 million of debt (see Publicly Issued Senior Unsecured Notes andRevolving Credit Agreement below) and $220 million of our existing cashand cash equivalents.

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**7.     Debt (Continued)**

**Publicly IssuedSenior Unsecured Notes**—****In March 2006, Sabre Holdings Corporationissued $400 million in senior unsecured notes (“2016 Notes”), bearinginterest at a fixed rate of 6.35% and maturing March 15, 2016, in anunderwritten public offering resulting in net cash proceeds after expenses ofapproximately $397 million. The 2016 Notes include certain non-financialcovenants, including restrictions on incurring certain types of debt orentering into certain sale and leaseback transactions. We used all of the netproceeds plus available cash  and cashequivalents and marketable securities to prepay $400 million of the bridgefacility. Under the terms of the 2016 Notes we are obligated to pay$25 million in interest charges in 2007, and $25 million per year afterwardsuntil 2016. The interest rate payable on the notes may increase if, after thesale of the Company to Texas Pacific Group and Silver Lake Partners (see Note5), the rating of the notes from Moody’s Investors Service falls below Baa3, orthe rating of the notes from Standard & Poor’s falls below BBB. As of December 31,2006, we were in compliance with all covenants under the indenture for the 2016Notes.

In August 2001,we issued through Sabre Holdings $400 million in senior unsecured notes (“2011Notes”), bearing interest at 7.35% and maturing August 1, 2011, in anunderwritten public offering resulting in net cash proceeds to us ofapproximately $397 million. The 2011 Notes include certain non-financialcovenants, including restrictions on incurring certain types of debt orentering into certain sale and leaseback transactions. The transaction to selland subsequently lease back a portion of our corporate headquarters facilities(see Note 5) is not in violation of any covenants under our 2011 Notes. Asof December 31, 2006, we were in compliance with all covenant requirementsunder the 2011 Notes. In conjunction with these 2011 Notes, we have enteredinto two interest rate swaps through 2011 for a total of $300 million,which pay us 7.35% and on which we pay a variable rate based on a six-monthLIBOR plus 231 basis points (see Note 6).

**Revolving Credit Agreement—****On**July 22,2005, in order to facilitate the consummation of the lastminute.com acquisitionand to provide additional liquidity and flexibility in our capital structure,we entered into certain amendments to our current revolving credit agreement (“CreditFacility”). Under the amendments, Sabre Holdings assumed all of the rights andobligations of Sabre Inc. under the Credit Facility and Sabre Inc.was discharged from its obligations thereunder. The amendments also include,among other things: (i) amendments to certain financial and negativecovenants (including amendments to provide us more flexibility under theConsolidated Leverage Ratio covenant, as shown in the table below, andamendments that place additional restrictions on the ability of oursubsidiaries to incur indebtedness), (ii) amendments that prohibit us fromusing proceeds from the Credit Facility to repay the bridge facility to theextent such proceeds represent more than 50% of the then aggregate committedamount of the lenders under the Credit Facility, (iii) amendments thatincrease the aggregate amount committed by those lenders to $360 million,and (iv) amendments that allow us to request a future increase of theaggregate amount committed by the lenders under the Credit Facility to as muchas $500 million.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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**7.     Debt (Continued)**

On March 17, 2006, we borrowed $180 million under ourrevolving credit agreement. We used the proceeds to prepay $180 million ofthe outstanding principal on the bridge facility. The interest rate on thisindebtedness is based on the London Interbank Offered Rate (“LIBOR”) plus aborrowing spread, and is sensitive to our credit rating. At December 31,2006, the interest rate was 5.95%. All or part of this indebtedness can beextended month-to-month at our option but it must be repaid on or before June 15,2009. The indebtedness may be accelerated in certain circumstances that aredescribed in the revolving credit agreement. We may repay the revolving creditloans outstanding under the revolving credit agreement at any time withoutsignificant penalty prior to the maturity date. In May 2006, we repaid$25 million of the outstanding borrowings under the revolving creditagreement. Based on the terms of this agreement, we have $205 million ofunused borrowing capacity under this facility at December 31, 2006. As of December 31,2006, we were in compliance with all covenants under this agreement includingthe following financial covenants:

| Covenant                                     | ** ** | ** **        | ** ** | **Requirement** | ** ** | **Level at  December 31,  2006** | ** ** |
|----------------------------------------------|------------|-------------------|------------|-----------------|------------|--------------------------------------------|------------|
| Consolidated Leverage Ratio (Debt to EBITDA) |       | 3.25 to 1 maximum |       |            | 2.24 to 1  |                                       |       |
| Consolidated Net Worth (1)                   |       | $1.3 billion      |       |            | $          | 1.8 billion                                |       |   |
|                                              |            |                   |            |                 |            |                                            |            |  |  |  |

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(1)    Consolidated net worth for debt covenants requires excluding theunrealized foreign currency translation from the total stockholders’ equity.

Our covenantsunder the amended revolving credit agreement are as follows:

| As amended on July 22, 2005          | ** ** | ** **        | ** ** | **Requirement** | ** ** |
|---------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|
| Consolidated Leverage Ratio (Debt to EBITDA):                 |       |              |       |
| Quarters ended December 31, 2006 and March 31, 2007 |       | 3.25 to 1 maximum |       |
| Quarters ended June 30, 2007 and thereafter              |       | 3.00 to 1 maximum |       |

 

Public and other notes payable includes a $15 million note, payable toa joint venture partner. The interest rate is at 8% and the note is due in March 2012.

**8.**              Commitmentsand Contingencies

**Capital Lease Financing—****In**June 2003,Sabre Inc. entered into a ten-year master lease for our corporate headquartersfacility in Southlake, Texas, with CSL Leasing, Inc., which is accountedfor as a capital lease. The interest rate on the capital lease facility wasfixed at 5.37%. At the inception of the lease, we recorded an asset ofapproximately $168 million, along with a liability of approximately$168 million, representing the present value of the minimum lease paymentsdue under the lease and the residual value guarantee.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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**8.     Commitments and Contingencies(Continued)**

In December 2006,we completed the sale of the Solana building, associated improvements andcertain undeveloped land and other property rights at our Southlake, Texasheadquarters (the “Property”) to Maguire Partners (“Maguire”) and began ourfive-year leaseback of the Solana building from Maguire. We completed the saleof the Property after exercising our option under the capital lease facility topurchase the Property, we used the proceeds from the sale to repay a portion ofthe capital lease facility, and we are amortizing the $4 million loss onthe transaction over the term of the new lease. As a result of thistransaction, we have a remaining $94 million obligation under the capital leasefacility with an $89 million residual value guarantee. As previously disclosedin our Form 8-K dated September 1, 2006 and filed on September 8,2006, we plan to vacate the Solana building in late 2007 or early 2008 and tore-accommodate the approximately 1,200 employees currently occupying the Solanabuilding in two other headquarters buildings in Southlake, Texas. Upon vacatingthe Solana building in late 2007 or early 2008, we expect to take a one-timecharge of approximately $31 to $36 million related to future obligations underthe leaseback. Thereafter, we expect to generate approximately $10 million inannual savings by reducing lease and other operating expenses, and interestexpenses, related to our headquarters facilities.

In conjunction with the capital lease facility, we have an interestrate swap, covering our entire capital lease obligation, which pays us 5.37%and on which we pay a variable rate based on a six-month LIBOR plus 153 basispoints (see Note 6). Amending the capital lease facility did not have an impacton our interest rate swap. Under the amended lease agreement, we are subject tocertain covenants. As of December 31, 2006, we were in compliance with allcovenants under this amended agreement including the following financialcovenant:

| Covenant               | ** ** | ** ** | ** **  | **Requirement** | ** ** | **Level at  December 31,  2006** | ** **  |
|------------------------|------------|------------|-------------|-----------------|------------|--------------------------------------------|-------------|
| Consolidated Net Worth |       | $          | 1.2 billion |            |       | $                                          | 1.9 billion |   |   |
|                        |            |            |             |                 |            |                                            |             |  |  |  |  |

 

Minimum leasepayments as of December 31, 2006 under the capital lease and areconciliation to the balance sheet are as follows (in thousands):

| Year Ending December 31,        | ** ** |
|------------------------------------------------|------------|
| 2007                                           |       | $ | 5,391 |   |
| 2008                                           |       | 5,391 |   |
| 2009                                           |       | 5,391 |   |
| 2010                                           |       | 5,391 |   |
| 2011                                           |       | 5,391 |   |
| 2012 and thereafter                            |       | 97,490 |   |
| Total before interest                          |       | 124,445 |   |
| Amounts representing interest                  |       | (31,887 | ) |
| Total obligations under capital lease          |       | 92,558 |   |
| Less fair value of interest rate swap (Note 6) |       | (7,182 | ) |
| Less current portion                           |       | (476 | ) |
| Long-term capital lease obligation             |       | $ | 84,900 |   |

** **

102

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**8.     Commitments and Contingencies (Continued)**

**Yahoo! Agreement—****We**have an agreementwith Yahoo! whereby we are the exclusive air, car and hotel booking engine onYahoo! Travel through December 31, 2007 with the same terms as 2006.Travelocity will continue to be the exclusive provider of air, car, and hotelproducts to Yahoo! Travel. Our fees for 2007 will consist of a fixed payment of$33 million, which includes payments for purchased advertising andcorporate services; while we will pay a productivity component, in which Yahoo!is paid a percentage of the transaction services revenue generated through theYahoo! Network. $10 million of the $33 million fixed fee paymentcould be reduced depending on revenue performance compared to 2006 levels. Webelieve this variability provides necessary downside protections into thecontract extension to preserve the value of our investment in that partnership.The revised terms also allow Yahoo! to continue and expand in the travel searcharena throughout the Yahoo! network. Pursuant to this agreement, Travelocityhas decided to not participate in Yahoo!’s Farechase metasearch model undereither the *Travelocity* brand or the Yahoo! travelbrand. Payments to Yahoo! are being amortized on a straight-line basis over theremaining term of the agreement.

**Future Minimum Payments Under Contractual Obligations—****At**December 31,2006, future minimum payments required under the 2011 Notes & 2016Notes, the capital lease for our corporate headquarters facility, operatinglease agreements with terms in excess of one year for facilities, equipment andsoftware licenses and other significant contractual cash obligations were asfollows (in thousands):

|                                                       | ** ** | **Payments Due by Year  For the Years Ending December 31,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| **Contractual Obligations**                      | ** ** | ** **                                                                                          | ** ** | **Total** | ** ** | **2007** | ** ** | **2008 -  2009** | ** ** | **2010 -  2011** | ** ** | **Thereafter** | ** ** |
| Notes payable (1)                                     |       | $                                                                                                   | 1,343,947  |   | $ | 55,059 |   | $ | 264,988 |   | $ | 509,600 |   | $ | 514,300 |   |
| Capital lease obligations (2)                         |       | 124,445                                                                                             |       | 5,391 |   | 10,782 |   | 10,782 |   | 97,490 |   |
| Operating lease obligations                           |       | 173,136                                                                                             |       | 42,057 |   | 59,834 |   | 39,750 |   | 31,495 |   |
| IT outsourcing agreement (3)                          |       | 15,436                                                                                              |       | 15,436 |   | — |   | — |   | — |   |
| Yahoo! agreement (4)                                  |       | 32,750                                                                                              |       | 32,750 |   | — |   | — |   | — |   |
| WNS agreement (5)                                     |       | 114,110                                                                                             |       | 24,365 |   | 58,942 |   | 30,803 |   | — |   |
| Pension and other benefit obligations (Note 9)   |       | 232,821                                                                                             |       | 16,279 |   | 43,284 |   | 41,303 |   | 131,955 |   |
| Other long-term obligations (6)                       |       | 111,788                                                                                             |       | 43,552 |   | 28,754 |   | 18,248 |   | 21,234 |   |
| Amounts receivable under non-cancelable subleases (7) |       | (33,806                                                                                             | )          | (7,763 | ) | (14,827 | ) | (10,804 | ) | (412 | ) |
| Total contractual cash  obligations              |       | $                                                                                                   | 2,114,627  |   | $ | 227,126 |   | $451,757 |   | $ | 639,682 |   | $ | 796,062 |   |
|                                                       |            |                                                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)           Includesall interest and principal related to $400 million senior unsecured notesmaturing August 1, 2011, $400 million senior unsecured notes maturing March 15,2016, and all interest and principal balance of $155 million outstanding underour revolving credit agreement. Excludes the effect of interest rate swaps.(See Note 6)

(2)           Consistsprimarily of headquarters facility lease, including interest. Excludes theeffect of interest rate swap. (See Note 6)

103

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**8.     Commitments and Contingencies (Continued)**

(3)           Representsminimum amounts due to Electronic Data Systems (“EDS”) under the terms of anoutsourcing agreement through which EDS manages a significant portion of ourinformation technology systems. Under this 10-year agreement through June 2011,including opt-out rights after eight years with no termination penalties, EDSprovides technology services, including data center management, applicationhosting, applications development data assurance and network management withminimum commitments through 2007.

(4)           Fixedpayment under an agreement with Yahoo! whereby we are the exclusive air, carand hotel booking engine on Yahoo! Travel through December 31, 2007.

(5)           Weare committed to minimum payments to WNS, an entity to which we outsource aportion of our Travelocity contact center operations and back-officefulfillment through 2010 based upon current and historical transactions.

(6)           Consistsprimarily of minimum payments due under various marketing agreements. Alsoincludes a note payable and related interest owed to a joint venture partner.

(7)           EDSsubleases from us an office facility in Fort Worth, Texas under sublease thatwill expire in 2011.

During thethree months ended March 31, 2006, we prepaid the entire $800 millionoutstanding under the bridge facility we used to acquire lastminute.com in July 2005with $580 million of debt and $220 million of our existing cash andcash equivalents. Other than the bridge facility refinancing, our current cashflows from operations, existing balances in cash and cash equivalents andshort-term investments and funds available under our revolving credit facilityare sufficient to fund our planned expenditures, which include operatingexpenses, capital expenditures, investments in our products and offerings,interest payments on our debt and dividends. We may also consider using ourfunds available, or possibly external sources of funds, for additionalacquisitions of or investments in complementary businesses, products, servicesand technologies when such opportunities become available. See Note 4 forcurrent year acquisitions and investment activity. These types of additionalactivities might affect our liquidity requirements or cause us to issueadditional equity or debt securities.

Subject to thepending sale of the Company to affiliates of Texas Pacific Group and SilverLake Partners, in the long term, we expect to use our existing funds and cashflows from operations to satisfy our debt and other long-term obligations. Wemay also use our funds, as well as external sources of funds, to retire debt asappropriate, based upon market conditions and our desired liquidity and capitalstructure.

There are no change in control provisions that would require us toaccelerate any principle repayments due under our Notes,  Revolving Credit Agreement or capital leaseobligation.

The following table presents rental expense for the years endedDecember 31, 2006, 2005 and 2004 (in thousands):

|                    | ** ** | **Year Ended December 31,** | ** ** |
|--------------------|------------|--------------------------------------------|------------|
| ** **         | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Rent expense       |       | $                                          | 51,438     |   | $ | 41,809 |   | $ | 34,728 |   |
| Less:              |       |                                       |       |   |   |   |   |
| Sublease rent      |       | (6,615                                     | )          | (6,392 | ) | (6,199 | ) |
| Total Rent expense |       | $                                          | 44,823     |   | $ | 35,417 |   | $ | 28,529 |   |

 

104

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**8.     Commitments and Contingencies (Continued)**

We haveestablished a reserve for potential occupancy tax liability. The reserverepresents our best estimate of our contingent liability for occupancy taxesand is not material to our financial position. We are involved in certaindisputes and other matters arising in the normal course of business.Additionally, we are subject to review and assessment by various taxingauthorities. Although the ultimate resolution of these matters cannot bereasonably estimated at this time, we do not believe that they will have amaterial adverse effect on our financial condition or results of operations.

We are a partyto three separate law suits arising from the pending sale of the Company toTexas Pacific Group and Silver Lake Partners. We do not believe that theselegal proceeding will have a material impact to the business or our financialcondition.

We are also engaged from time to time in other routine legalproceedings incidental to our business. We do not believe that any of theseroutine legal proceedings will have a material impact on the business or ourfinancial condition.

**9.     Employee Benefit Plans**

We sponsor TheSabre Inc. 401(k) Savings Plan (“401(k) Plan”), which is atax-qualified defined contribution plan that allows tax-deferred savings byeligible employees to provide funds for their retirement. We make a matchingcontribution equal to 100% of each pre-tax dollar contributed by theparticipant on the first 6% of eligible compensation. Prior to 2006, we made adefined contribution on behalf of each participant in an amount equal to 2.75%of eligible compensation and a matching contribution equal to 50% of eachpre-tax dollar contributed by the participant on the first 6% of eligiblecompensation, except for participants in The Sabre Inc. Legacy Pension Plan (“LPP”)who elected to continue accruing benefits for service under the LPP. We haverecorded expenses related to the 401(k) Plan of approximately $17 million,$15 million and $14 million in 2006, 2005 and 2004, respectively.

We also sponsorpersonal pension plans for eligible staff at lastminute.com. lastminute.comcontributed 5% of eligible pay on behalf of these employees to the plan. Forthe years ended December 31, 2006 and December 31, 2005, wecontributed and expensed approximately $1 million and less than $1 million,respectively.

Additionally,we sponsor the LPP, which is a tax-qualified defined benefit pension plan foremployees meeting certain eligibility requirements. The LPP and relatedbenefits under the Supplemental Executive Retirement Plan (“SERP”) were amendedto freeze pension benefit accruals as of December 31, 2005, so that noadditional pension benefits will be accrued after that date. As a result of thefreeze, a curtailment gain of $2 million was recognized in the fourth quarterof 2005. We also sponsor a defined benefit pension plan for certain employeesin Canada.

Pursuant to aTravel Privileges Agreement with AMR (American Airlines), we are entitled topurchase personal travel for certain retirees. To pay for the provision offlight privileges for eligible retired employees, we make a lump sum payment toAmerican Airlines in the year they retire. The cost of providing this privilegeis accrued over the estimated service lives of the employees eligible for theprivilege. This agreement will expire on June 30, 2008.

105

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**9.     Employee Benefit Plans(Continued)**

We provideretiree life insurance benefits to certain employees who retired prior to January 1,2001, and we subsidize a portion of the cost of retiree medical benefits forcertain retirees and eligible employees hired prior to October 1, 2000.Effective July 1, 2004, we adopted Financial Accounting Standard BoardStaff Position (“FSP”) No. 106-2 *Accountingand Disclosure Requirements Related to the Medicare Prescription Drug,Improvement and Modernization Act of 2003* (“Act”). This FSP providedguidance on the accounting for the effects of the Act for employers thatsponsor postretirement health care plans that provide prescription drugbenefits, and requires employers to provide certain disclosures regarding theeffect of the federal subsidy provided by the Act. We reflected the impact ofthe subsidy as an unrecognized gain, which reduced our accumulatedpostretirement benefit obligation and periodic postretirement benefit cost byapproximately $8 million and $1 million, respectively, for year endedDecember 31, 2004.

In December 2004,we amended the retiree medical benefit plan, effective as of January 1,2005, to cap our portion of medical costs for retirees and covered dependentsat the level of our subsidy for 2004. The effect of this amendment was toreduce the accumulated postretirement benefit obligation as of December 31,2004, by $62 million and the 2005 net periodic benefit cost by approximately$11 million.

In December 2006, we adopted Statementof Financial Accounting Standards No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans, anamendment of FASB Statements No. 87, 88, 106 and 132(R)* issuedin September 2006. There was no effect of adoption on the Company’s pensionplans. The following table provides an illustration of the incremental effectof applying FAS 158 to the other postretirement benefit plans on individualline items in the Consolidated Balance Sheet as of December 31, 2006 (inthousands):

|                                                          | ** ** | **Prior to**      | ** ** | **Effect of** | ** ** | ** **                      | ** ** |
|----------------------------------------------------------|------------|------------------------|------------|--------------------|------------|---------------------------------|------------|
| ** **                                               | ** ** | **Adopting**           | ** ** | **Adopting**       | ** ** | **As reported at**    | ** ** |
| ** **                                               | ** ** | **Statement 158** | ** ** | **Adjustments**    | ** ** | **December 31, 2006** | ** ** |
| Deferred  income tax asset                               |       |                   | $          | 31,774             |       |                            |       | $ | (1,517 | ) |   |   | $ | 30,257 |   |   |
| Liability for  pension and other postretirement benefits |       |                   | $          | (121,363           | )          |                            |       | $ | 4,153 |   |   |   | $ | (117,210 | ) |   |
| Accumulated other comprehensive income                   |       |                   | $          | 53,970             |       |                            |       | $ | (2,636 | ) |   |   | $ | 51,334 |   |   |

 

106

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**9.     Employee Benefit Plans (Continued)**

The following tables provide a reconciliationof the changes in the plans’ benefit obligations, fair value of assets and thefunded status as of December 31, 2006 and 2005 (in thousands):

|                                          | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                               | ** ** | **2006**                  | ** ** | **2005**                | ** ** | **2006** | ** ** | **2005** | ** ** |
| Change in  benefit obligation:           |       |                      |       |                    |       |   |   |   |   |
| Benefit obligation at January 1     |       | $                         | (378,671   | )                       | $          | (365,692 | ) | $ | (83,339 | ) | $ | (75,780 | ) |
| Service cost                             |       | (116                      | )          | (6,045                  | )          | (1,170 | ) | (1,214 | ) |
| Interest cost                            |       | (20,955                   | )          | (21,638                 | )          | (4,648 | ) | (4,457 | ) |
| Participant contributions                |       | —                    |       | —                  |       | (1,174 | ) | (942 | ) |
| Actuarial losses, net                    |       | (8,864                    | )          | (43,124                 | )          | (3,625 | ) | (6,254 | ) |
| Curtailments                             |       | —                    |       | 49,124                  |       | — |   | — |   |
| Benefits paid                            |       | 12,714                    |       | 8,704                   |       | 6,670 |   | 5,308 |   |
| Benefit obligation at December 31   |       | $                         | (395,892   | )                       | $          | (378,671 | ) | $ | (87,286 | ) | $ | (83,339 | ) |
| Change in  plan assets:                  |       |                      |       |                    |       |   |   |   |   |
| Fair value of assets at January 1   |       | $                         | 328,673    |                    | $          | 285,223 |   | $ | — |   | $ | — |   |
| Actual return on plan assets             |       | 35,030                    |       | 20,517                  |       | — |   | — |   |
| Transfers                                |       | —                    |       | (87                     | )          | — |   | — |   |
| Employer contributions                   |       | 14,979                    |       | 31,724                  |       | 5,497 |   | 4,367 |   |
| Participant contributions                |       | —                    |       | —                  |       | 1,174 |   | 942 |   |
| Benefits paid                            |       | (12,714                   | )          | (8,704                  | )          | (6,671 | ) | (5,309 | ) |
| Fair value of assets at December 31 |       | $                         | 365,968    |                    | $          | 328,673 |   | $ | — |   | $ | — |   |
| Funded status  at December 31       |       | $                         | (29,924    | )                       | $          | (49,998 | ) | $ | (87,286 | ) | $ | (83,339 | ) |

 

The cumulative amounts recognized in the Consolidated Balance Sheetsconsist of (in thousands):

|                         | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** | **Total** | ** ** |
|-------------------------|------------|---------------------------|------------|-------------------------|------------|-----------|------------|
| ** **              | ** ** | **2006**                  | ** ** |
| Current  assets         |       |                      | $          | —                  |       |      |       | $ | — |   |   | $ | — |   |
| Noncurrent  assets      |       |                      | —     |                    |       |      | —     |   |   | — |   |
| Current  liabilities    |       |                      | —     |                    |       |      | (6,090     | ) |   | (6,090 | ) |
| Noncurrent  liabilities |       |                      | (29,924    | )                       |       |      | (81,196    | ) |   | (111,120 | ) |
| Total                   |       |                      | $          | (29,924                 | )          |      |       | $ | (87,286 | ) |   | $ | (117,210 | ) |

 

The amounts recognized in accumulated other comprehensive incomeconsist of (in thousands):

|                                        | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|---------------------------|------------|-------------------------|------------|-----------|------------|
| ** **                             | ** ** | **2006**                  | ** ** |
| Net actuarial  loss                    |       |                      | $          | 54,045                  |       |      |       | $ | 26,917 |   |   | $ | 80,962 |   |
| Prior service  cost                    |       |                      | —     |                    |       |      | (29,605    | ) |   | (29,605 | ) |
| Transition  (Asset) Obligation         |       |                      | (75        | )                       |       |      | 52         |   |   | (23 | ) |
| Accumulated other comprehensive income |       |                      | $          | 53,970                  |       |      |       | $ | (2,636 | ) |   | $ | 51,334 |   |

 

107

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**9.     Employee Benefit Plans (Continued)**

The accumulatedbenefit obligation for all defined pension plans was $396 million and$379 million at December 31, 2006 and 2005, respectively. Ourqualified pension plan for eligible U.S. employees had accumulated benefitobligation of $386 million and $367 million at December 31, 2006 and 2005,respectively; and had plan assets at fair value of $362 million and $326million at December 31, 2006 and 2005, respectively.

The discount rate used in the measurement ofour benefit obligations as of December 31, 2006 and 2005 is as follows:

|               | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|---------------|------------|---------------------------|------------|-------------------------|------------|
| ** **    | ** ** | **2006**                  | ** ** | **2005**                | ** ** | **2006** | ** ** | **2005** | ** ** |
| Discount rate |       | 6.00                      | %          | 5.75                    | %          | 6.00 | % | 5.75 | % |

 

Due to thefreeze of pension benefit accruals under the LPP and SERP as of December 31,2005, no assumption for future rate of compensation increase is necessary.

The following table provides the components of net periodic benefitcosts for the years ended December 31, 2006, 2005 and 2004 (in thousands):

|                                          | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** | **Total** | ** ** |
|------------------------------------------|------------|---------------------------|------------|-------------------------|------------|-----------|------------|
| ** **                               | ** ** | **2006**                  | ** ** | **2005**                | ** ** | **2004**  | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Components of net periodic benefit cost: |       |                      |       |                    |       |      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service cost                             |       | $                         | 116        |                    | $          | 6,045     |       | $ | 5,556 |   | $ | 1,170 |   | $ | 1,214 |   | $ | 2,924 |   | $ | 1,286 |   | $ | 7,259 |   | $ | 8,480 |   |
| Interest cost                            |       | 20,955                    |       | 21,638                  |       | 20,476    |       | 4,648 |   | 4,457 |   | 7,051 |   | 25,603 |   | 26,095 |   | 27,527 |   |
| Expected return on plan assets           |       | (26,061                   | )          | (24,462                 | )          | (22,745   | )          | — |   | — |   | — |   | (26,061 | ) | (24,462 | ) | (22,745 | ) |
| Amortization of transition asset         |       | (12                       | )          | (11                     | )          | (19       | )          | 16 |   | 15 |   | 18 |   | 4 |   | 4 |   | (1 | ) |
| Amortization of prior service cost       |       | —                    |       | 138                     |       | 61        |       | (6,491 | ) | (6,491 | ) | 299 |   | (6,491 | ) | (6,353 | ) | 360 |   |
| Amortization of net loss                 |       | 2,369                     |       | 4,743                   |       | 3,458     |       | 3,838 |   | 3,558 |   | 1,770 |   | 6,207 |   | 8,301 |   | 5,228 |   |
| Net periodic benefit cost                |       | (2,633                    | )          | 8,091                   |       | 6,787     |       | 3,181 |   | 2,753 |   | 12,062 |   | 548 |   | 10,844 |   | 18,849 |   |
| Settlement loss                          |       | 307                       |       | —                  |       | 339       |       | — |   | — |   | — |   | 307 |   | — |   | 339 |   |
| Curtailment (gain)/ loss                 |       | —                    |       | (1,907                  | )          | —    |       | — |   | — |   | 126 |   | — |   | (1,907 | ) | 126 |   |
| Net benefit cost                         |       | $                         | (2,326     | )                       | $          | 6,184     |       | $ | 7,126 |   | $ | 3,181 |   | $ | 2,753 |   | $ | 12,188 |   | $ | 855 |   | $ | 8,937 |   | $ | 19,314 |   |

 

Expensesincluded in income related to pensions and other postretirement benefitstotaled approximately $1 million, $9 million and $19 million in2006, 2005 and 2004, respectively.

The estimatednet actuarial loss for the defined benefit pension plans that will be amortizedfrom accumulated other comprehensive income into net periodic benefit cost in2007 is approximately $2 million. The estimated net actuarial loss and priorservice credit for the other postretirement benefit plans that will beamortized from accumulated other comprehensive income into net periodic benefitcost in 2007 are $4 million and $6 million, respectively.

The principal assumptions used in the measurement of our net benefitcosts for the three years ended December 31, 2006, 2005 and 2004 are asfollows:

|                                 | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|---------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                      | ** ** | **2006**                  | ** ** | **2005**                | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Discount rate                   |       | 5.75                      | %          | 6.00                    | %          | 6.25 | % | 5.75 | % | 6.00 | % | 6.25 | % |
| Expected  return on plan assets |       | 8.00                      | %          | 8.50                    | %          | 8.75 | % | — |   | — |   | — |   |
| Rate of compensation increase   |       | —                    |       | 4.50                    | %          | 4.50 | % | — |   | — |   | — |   |

 

108

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**9.     Employee Benefit Plans (Continued)**

A 7.5% annualrate of increase in the per capita cost of covered retiree health care benefitswas assumed for 2004. This rate was assumed to gradually decrease by 0.5% eachyear until it reaches an ultimate rate of 5.0%. Due to a cap on the Company’sretiree medical plan cost, a one-percentage point change in the assumed healthcare cost trend rates would not have a significant impact on service andinterest cost or on our postretirement benefit obligation as of December 31,2006 and December 31, 2005.

The following table provides the pensionplans’ target asset allocation as of December 31, 2006 and the actualweighted-average asset allocations at December 31, 2006 and 2005, byasset category:

|                         | ** ** | **Target 2007** | ** ** | **Asset Allocation at  December 31,** | ** ** |
|-------------------------|------------|----------------------|------------|------------------------------------------------------|------------|
| **Asset Category** | ** ** | ** **           | ** ** | **Allocation**                                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Equity securities       |       |                 | 47%-53%    |                                                 |       |   | 52 | % |   |   | 53 | % |   |
| Debt securities         |       |                 | 47%-53%    |                                                 |       |   | 48 | % |   |   | 47 | % |   |
| Total plan assets       |       |                 |       |                                                 |       |   | 100 | % |   |   | 100 | % |   |
|                         |            |                      |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |

 

Assetallocation percentages at December 31, 2006, reflect a $5 millioncontribution on December 28, 2006, into the retirement money market fund,which was invested according to the target asset allocation during January 2007.

Defined benefitpension plan assets are invested in selected mutual funds and commingled pooledfunds. Diversification is provided by using an asset allocation primarilybetween equity and debt securities in proportions expected to provideopportunities for reasonable long-term returns with acceptable levels ofinvestment risk. The basis for the selected target asset allocation includedconsideration of the demographic profile of plan participants, expected futurebenefit obligations and payments, projected funded status of the plan and otherfactors.

The expectedlong-term rate of return on plan assets for each measurement date was selectedafter giving consideration to historical returns on plan assets, assessments ofexpected long-term inflation and market returns for each asset category and thetarget asset allocation strategy.

We do not anticipatethe return of any plan assets to us in 2007 and we are currently not requiredto make any significant contributions to the defined benefit plans in 2007.

Based on our assumptions discussed above, we expect to make thefollowing estimated future benefit payments under the plans as follows (inthousands):

|           | ** ** | **Pension** | ** ** | **Other Benefits** | ** ** |
|-----------|------------|-------------|------------|-------------------------|------------|
| 2007      |       | $           | 10,111     |                    |       | $ | 6,168 |   |   |
| 2008      |       | 11,874      |       |                    | 10,495     |   |   |
| 2009      |       | 14,842      |       |                    | 6,073      |   |   |
| 2010      |       | 14,283      |       |                    | 5,749      |   |   |
| 2011      |       | 14,951      |       |                    | 6,320      |   |   |
| 2012-2016 |       | 102,016     |       |                    | 29,939     |   |   |
|           |            |             |            |                         |            |  |  |  |  |

 

109

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**10.  Income Taxes**

The provision for income taxes consisted ofthe following (in thousands):

|                                  | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Current  portion:                |       |                                       |       |   |   |   |   |
| Federal                          |       | $                                          | 32,400     |   | $ | 48,642 |   | $ | 72,414 |   |
| State and Local                  |       | 1,855                                      |       | 2,779 |   | 4,301 |   |
| Foreign                          |       | 12,348                                     |       | 24,517 |   | 13,535 |   |
| Total current                    |       | 46,603                                     |       | 75,938 |   | 90,250 |   |
| Deferred  portion:               |       |                                       |       |   |   |   |   |
| Federal                          |       | 36,651                                     |       | 16,988 |   | (9,548 | ) |
| State                            |       | (18,635                                    | )          | (20,363 | ) | (14,060 | ) |
| Total deferred                   |       | 18,016                                     |       | (3,375 | ) | (23,608 | ) |
| Total provision for income taxes |       | $                                          | 64,619     |   | $ | 72,563 |   | $ | 66,642 |   |

 

The provision for income taxes differs from amounts computed at thestatutory federal income tax rate as follows (in thousands):

|                                                            | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                 | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Income tax  provision at statutory federal income tax rate |       | $                                          | 77,090     |   | $ | 85,650 |   | $ | 89,971 |   |
| State income  taxes, net of federal benefit                |       | 4,163                                      |       | 4,793 |   | 2,387 |   |
| Reversal of  previously accrued taxes                      |       | (19,843                                    | )          | (21,368 | ) | (23,438 | ) |
| Other, net                                                 |       | 3,209                                      |       | 3,488 |   | (2,278 | ) |
| Total provision for income taxes                           |       | $                                          | 64,619     |   | $ | 72,563 |   | $ | 66,642 |   |

 

The expectedcash payments for the current federal income tax expense for 2006, 2005 and2004 were reduced by approximately $4 million, less than $1 million and $1 million,respectively, as a result of the exercise of nonqualified employee stockoptions. The income tax benefit resulting from the exercise of these optionshas been credited to additional paid-in capital.

During 2006, wereversed previously accrued taxes of $20 million related to contingenciesthat no longer meet the standards for accrual under Statement of FinancialAccounting Standard No. 5, *Accountingfor Contingencies*(“SFAS 5”).The entire reversal resulted from the expiration of certain statutes oflimitation.

During 2005, wereversed previously accrued taxes of $21 million related to contingenciesthat no longer meet the standards for accrual under SFAS 5. In particular, wereleased $16 million of previously accrued taxes due to the expiration ofcertain statutes of limitation and $5 million of previously accrued taxesdue to the final resolution of certain issues related to a tax audit.

During 2004, wereversed previously accrued taxes of $18 million related primarily to ourfederal income tax treatment of lump-sum payments made to subscribers at thebeginning of a contract term. During the year, we changed our federal incometax treatment of such payments in accordance with recently issued Treasuryregulations, and such change is effective for our 2003 tax year. By changingour federal income tax treatment of these payments to comply with the newregulations effective for our 2003 tax return, the manner in which we treatedsuch payments in years before 2003 will be respected. In addition, during 2004,we reversed $5 million of previously accrued taxes due to the expirationof certain statutes of limitation.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**10.  Income Taxes (Continued)**

The components of our deferred tax assets andliabilities were as follows (in thousands):

| ** **                                         | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Deferred tax  assets:                              |       |                  |       |   |   |
| Accrued expenses                                   |       | $                     | 64,847     |   | $ | 63,636 |   |
| Employee benefits other than pensions              |       | 29,485                |       | 34,924 |   |
| Deferred revenue                                   |       | 8,992                 |       | 3,349 |   |
| Pension obligations                                |       | 9,605                 |       | 28,210 |   |
| Net operating loss carryforwards                   |       | 10,774                |       | 20,676 |   |
| Non-compensatory options                           |       | 37,863                |       | 39,041 |   |
| Currency translation adjustment                    |       | —                |       | 9,829 |   |
| Total deferred tax assets                          |       | 161,566               |       | 199,665 |   |
| Deferred tax liabilities:                          |       |                  |       |   |   |
| Depreciation and amortization                      |       | (16,369               | )          | (19,337 | ) |
| Software development costs                         |       | (58,108               | )          | (58,555 | ) |
| Intangible assets                                  |       | (39,229               | )          | (25,559 | ) |
| Currency translation adjustment                    |       | (52,634               | )          | — |   |
| Other                                              |       | (32,914               | )          | (40,782 | ) |
| Total deferred tax liabilities                     |       | (199,254              | )          | (144,233 | ) |
| Net deferred tax (liability) asset                 |       | $                     | (37,688    | ) | $ | 55,432 |   |
| Current deferred income tax asset                  |       | $                     | 18,557     |   | $ | 23,013 |   |
| Non-current  deferred income tax (liability) asset |       | (56,245               | )          | 32,419 |   |
| Net deferred tax (liability) asset                 |       | $                     | (37,688    | ) | $ | 55,432 |   |

As of December 31,2006, the Company had net operating loss carryforwards (“NOLs”) ofapproximately $31 million that begin expiring in 2016. These NOLs resultedfrom prior business acquisitions and are subject to limitation on their abilityto be utilized under Section 382 of the Internal Revenue Code. Suchlimitation is not expected to have a significant impact on the Company’sability to utilize the NOLs and we believe, more likely than not, the Companywill be able to utilize all of these NOLs. Accordingly, no valuation allowancehas been established related to these NOLs.

In connection with our spin-off from AMR on March 15, 2000, weentered into an indemnity agreement with AMR (the “Agreement on Spin-off Taxes”)pursuant to which we will be responsible for Spin-off related taxes, in certaincircumstances, if the Spin-off is deemed to be taxable as a result of certainfactual representations and assumptions relating to us being inaccurate or as aresult of our subsequent actions. The Internal Revenue Service (“IRS”) hasissued a tax ruling to the effect that the Spin-off will be tax-free to us, AMRand AMR stockholders under Section 355 and certain other related Sectionsof the Internal Revenue Code of 1986, as amended (except to the extent thatcash is received in lieu of fractional shares). Under the terms of theAgreement on Spin-off Taxes, we have also agreed to comply with certainrestrictions on our future operations to assure that the Spin-off will betax-free, including restrictions with respect to a third party’s acquisition ofshares of our stock and our issuance of stock. The restrictions with respect toa third party’s acquisition of shares of our stock are generally no longerapplicable.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**10.  Income Taxes (Continued)**

The entitiescomprising Sabre Holdings were included in the consolidated federal income taxreturn of AMR through March 15, 2000. We entered into a tax sharingagreement with AMR effective July 1, 1996 (the “Tax Sharing Agreement”)that provides for the allocation of tax liabilities between AMR and us duringthe tax periods that are included in the consolidated federal, state and localincome tax returns filed by AMR. The Tax Sharing Agreement generally requiresus to pay to AMR the amount of federal, state and local income taxes that wewould have paid had we ceased to be a member of the AMR consolidated tax group.We are severally liable for the federal income tax of AMR and the othercompanies included in its consolidated return for all periods in which we areincluded in the AMR consolidated group. AMR has agreed, however, to indemnifyus for any liability for taxes reported or required to be reported on aconsolidated return arising from operations of subsidiaries of AMR other thanus. Except for certain items specified in the Tax Sharing Agreement, AMRgenerally is entitled to any tax benefit carryforwards and remains obligated topay all taxes attributable to periods before July 2, 1996. The Tax SharingAgreement also grants us certain limited participation rights in any disputeswith tax authorities arising with respect to periods during which we were partof the AMR consolidated group. At December 31, 2006, our outstandingobligation to AMR under this agreement is $43.5 million.

**11.  Capital Stock**

*Dividends*

Based on the amounts per share in the table below, we paid a totaldividends of $57 million, $47 million and $41 million in 2006,2005 and 2004, respectively.

| Declaration Date  | ** ** | ** **             | ** ** | **Payable Date** | ** ** | **Amount per Share** | ** ** |
|------------------------|------------|------------------------|------------|-----------------------|------------|--------------------------------|------------|
| **2004:**              | ** ** | ** **             | ** ** |                  | ** ** | ** **                     |       |
| January 20,  2004 |       | February 17, 2004 |       |                  | $          | 0.075                          | ** ** |   |
| April 20,  2004   |       | May 14, 2004      |       |                  | 0.075      | ** **                     |       |
| July 20,  2004    |       | August 16, 2004   |       |                  | 0.075      | ** **                     |       |
| October 26,  2004 |       | November 15, 2004 |       |                  | 0.075      | ** **                     |       |
| **2005:**              | ** ** | ** **             | ** ** |                  | ** ** | ** **                     |       |
| February 1,  2005 |       | February 28, 2005 |       |                  | $          | 0.090                          | ** ** |   |
| May 3,  2005      |       | May 26, 2005      |       |                  | 0.090      | ** **                     |       |
| July 26,  2005    |       | August 18, 2005   |       |                  | 0.090      | ** **                     |       |
| November 1,  2005 |       | November 29, 2005 |       |                  | 0.090      | ** **                     |       |
| **2006:**              | ** ** | ** **             | ** ** |                  | ** ** | ** **                     |       |
| January 30,  2006 |       | February 28, 2006 |       |                  | $          | 0.100                          | ** ** |   |
| May 1,  2006      |       | May 25, 2006      |       |                  | 0.100      | ** **                     |       |
| August 1,  2006   |       | August 28, 2006   |       |                  | 0.100      | ** **                     |       |
| October 11, 2006  |       | November 10, 2006 |       |                  | 0.130      | ** **                     |       |

On January 30,2007, our Board of Directors approved a dividend of $0.13 per share payable on March 5,2007 to stockholders of record at February 16, 2007.

We have only Class ACommon Stock outstanding. We are authorized by our certificate of incorporationto issue up to 250 million shares of Class A Common Stock and up to20 million shares of Preferred Stock.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**11.  Capital Stock (Continued)**

*Repurchases ofStock*

During 2006, 2005 and 2004, respectively, we repurchased 1,100,000shares, 2,042,063 shares and 9,891,312 shares of Class A Common Stock pursuantto authorizations by our Board of Directors.

The following table summarizes the share repurchase authorizations by ourBoard of Directors:

| Date Authorized   | ** ** | ** ** | ** **  | **Authorized for  Repurchase** | ** ** | **Repurchased** | ** ** | **Repurchased  under ASSP** | ** ** | **Available for  Repurchase** | ** ** |
|------------------------|------------|------------|-------------|-------------------------------------|------------|-----------------|------------|----------------------------------|------------|------------------------------------|------------|
| October 20,  2003 |       | $          | 100 million |                                | $          | 100 million     |       | $                                | 58 million |                               | —     | (1) |
| April 19,  2004   |       | $          | 100 million |                                | $          | 100 million     |       | —                           |       | —                             | (2)        |
| October 25,  2004 |       | $          | 100 million |                                | $          | 100 million     |       | —                           |       | —                             | (3)        |
| May 2, 2005       |       | $          | 100 million |                                | —     |            | —     |                             | $          | 100 million                        | (4)        |
|                        |            |            |             |                                     |            |                 |            |                                  |            |                                    |            |  |  |  |  |

----

(1)           OnOctober 20, 2003, our Board of Directors approved a share repurchaseprogram authorizing us to repurchase up to $100 million of our CommonStock. During the three months ended December 31, 2003, we repurchased1,309,597 shares of our Common Stock. During the three months ended March 31,2004, we repurchased 3,336,862 shares of our Common Stock thereby completingthe remaining authorization to repurchase shares under that program. Inaddition, on October 20, 2003, our Board of Directors issued a standingannual authorization to purchase shares of our Common Stock to satisfy ourobligations to deliver shares under our Employee Stock Purchase Plan and ourLong-Term Incentive Plan (the “Alternative Share Settlement Program”). Wepurchased 850,000 shares of our Common Stock under this authorization in December 2003,840,000 shares of our Common Stock under this authorization in January 2005and 1,100,000 shares of our Common Stock under this authorization in May andJune 2006.

(2)    On April 19, 2004, our Board of Directors approved a sharerepurchase program authorizing us to repurchase up to an additional$100 million of our Common Stock. We repurchased 4,038,166 shares of ourCommon Stock under this authorization. This authorization was completed on November 1,2004.

(3)    On October 25, 2004, our Board of Directors approved a sharerepurchase program authorizing us to repurchase up to an additional$100 million of our Common Stock. We repurchased 4,558,347 shares of ourCommon Stock. The authorization was completed on March 14, 2005.

(4)    On May 2, 2005, we received authorization from the Board ofDirectors to repurchase an additional $100 million of our Common Stock. Nopurchases of our Common Stock have been made, and none are planned, under thisauthorization as of the date of this report. As in the past, implementation ofthe program is at management’s discretion and will depend on management’sdecision about the best uses for our available cash and cash equivalents.

We will generally seek to make any future share repurchases pursuant to10b5-1 trading plans, unless such plans are terminated at the discretionof management.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**12.  Options and Other Stock-Based Awards**

Prior to January 1, 2006, we accounted for stock awards and stockoption grants using the intrinsic value method set forth in AccountingPrinciples Board Opinion No. 25, *Accountingfor Stock Issued to Employees* (“APB 25”), and relatedinterpretations as permitted by Statement of Financial Accounting Standards No. 123,*Accounting for Stock-BasedCompensation* (“SFAS 123”). Generally, no compensation expensewas recognized for stock option grants to employees if the exercise price wasat or above the fair market value of the underlying stock on the date of grantbut was included in a pro forma disclosure in the footnotes to the financialstatements. Compensation expense relating to other stock awards was recognizedover the period during which the employee rendered service to us necessary toearn the award.

Effective January 1, 2006, we adoptedSFAS No. 123 (Revised 2004), *Share-BasedPayments* (“SFAS 123R”), which is a revision of SFAS 123.SFAS 123R supersedes APB 25 and amends FASB Statement of FinancialAccounting Standards No. 95, *Statementof Cash Flows*. We adopted SFAS 123R using the modifiedprospective method. Stock options that were granted prior to January 1,2006, but for which the requisite service period had not been provided will beexpensed, based on the Black-Scholes value of those options as determinedfor the purposes of our pro forma disclosures in accordance with SFAS 123,over their remaining requisite service period adjusted for expected forfeitures.Compensation expense for restricted shares issued to employees was recognizedprior to and subsequent to the adoption of SFAS 123R over their requisiteservice periods. Beginning January 1, 2006, the restricted stock expenseis net of estimated forfeitures. Prior period financial statements have notbeen restated. The following table details stock-based compensationexpense recorded for the years ended December 31, 2006, 2005 and 2004 (inthousands):

|                       | ** ** | Year Ended December 31, | ** ** |
|-----------------------|------------|----------------------------------------|------------|
| ** **            | ** ** | **2006**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Stock options         |       | $                                      | 16,366     |   | $ | 1,743 |   | $ | 5,200 |   |
| Restricted  stock     |       | 13,539                                 |       | 9,992 |   | 6,128 |   |
| Performance  shares   |       | 4,379                                  |       | — |   | — |   |
| SFAS 123R  adjustment |       | (1,831                                 | )          | — |   | — |   |
| Total                 |       | $                                      | 32,453     |   | $ | 11,735 |   | $ | 11,328 |   |

Expensesrelated to stock options in 2006 and the SFAS 123R adjustment are theresult of adopting SFAS 123R. The approximately $2 millionSFAS 123R adjustment is for stock-based compensation expenserecognized prior to adoption of SFAS 123R on restricted stock grants thatwe believe will ultimately forfeit. This adjustment was booked in accordancewith implementation guidance set forth in SFAS 123R. We concluded thatthis adjustment was not material enough for treatment as a cumulative effect ofan accounting change. By adopting SFAS 123R, our income before provisionfor income taxes and net earnings are $15 million and $9 millionlower, respectively, for the year ended December 31, 2006 than they wouldhave been under APB 25. Basic and dilutive earnings per common share areeach $0.07 lower for the year ended December 31, 2006 than they would havebeen had we continued to account for stock-based compensation expenseunder APB 25.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**12.  Options and Other Stock-Based Awards(Continued)**

Prior to the adoption of SFAS 123R, all tax benefits resultingfrom the exercise of options were presented as an operating cash flow in theStatement of Cash Flows. SFAS 123R requires that tax deductions in excessof compensation expense for exercised shares be presented as a financing cashflow with a corresponding reduction in operating cash flows. As a result, ourStatement of Cash Flows includes approximately $1 million in cash flowsfrom financing activities that would have been in cash flows from operatingactivities had we not adopted SFAS 123R.

We have not made, and will not make, loans (including the acceptance ofpromissory notes) for the exercise of our stock options or the purchase of ourCommon Stock.

The following table summarizes the pro formaeffect of stock-based compensation expense on our net earnings and netearnings per share for the years ended December 31, 2005 and 2004, as ifwe had accounted for such compensation at fair value (in thousands, except pershare data):

|                                                                                                                                    | ** ** | Year ended December 31,                                           | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                                                                                         | ** ** | **      2005      ** | ** ** | **      2004      ** | ** ** |
| Net earnings,  as reported                                                                                                         |       |                                                                             | $          | 172,152 |   |   |   | $ | 190,419 |   |   |
| Add stock  compensation expense determined under intrinsic value method, net of income  taxes                                      |       |                                                                             | 7,361      |   |   |   | 6,995 |   |   |
| Less total stock-based employee compensation expense determined under  fair value based method for all awards, net of income taxes |       |                                                                             | (30,937    | ) |   |   | (31,094 | ) |   |
| Pro forma net  earnings                                                                                                            |       |                                                                             | $          | 148,576 |   |   |   | $ | 166,320 |   |   |
| Net earnings per common share, as reported:                                                                                        |       |                                                                             |       |   |   |   |   |   |   |
| Basic                                                                                                                              |       |                                                                             | $          | 1.33 |   |   |   | $ | 1.40 |   |   |
| Diluted                                                                                                                            |       |                                                                             | $          | 1.32 |   |   |   | $ | 1.38 |   |   |
| Net earnings  per common share, pro forma:                                                                                         |       |                                                                             |       |   |   |   |   |   |   |
| Basic                                                                                                                              |       |                                                                             | $          | 1.15 |   |   |   | $ | 1.22 |   |   |
| Diluted                                                                                                                            |       |                                                                             | $          | 1.14 |   |   |   | $ | 1.21 |   |   |

The above pro forma information regarding net earnings and earnings pershare has been determined as if we had accounted for employee stock options andstock-based awards under the fair value method set forth inSFAS 123. The fair value for the stock options granted by us to employeeswas estimated at the date of grant using the Black-Scholes option pricingmodel with the following weighted-average assumptions:

|                                    | ** ** | **Year Ended December 31,**                                                   | ** ** |
|------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                         | ** ** | **       2005       ** | ** ** | **       2004       ** | ** ** |
| Average  risk-free interest rate   |       |                                                                                         | 3.65       | % |   |   | 2.77 | % |   |
| Expected life  (in years)          |       |                                                                                         | 4.5        |   |   |   | 4.5 |   |   |
| Sabre  Holdings dividend yield     |       |                                                                                         | 1.7        | % |   |   | 1.4 | % |   |
| Sabre  Holdings implied volatility |       |                                                                                         | 49.8       | % |   |   | 52.0 | % |   |
| Fair value                         |       |                                                                                         | $          | 8.27 |   |   |   | $ | 8.55 |   |   |
|                                    |            |                                                                                              |            |  |  |  |  |  |  |  |  |

** **

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**12.  Options and Other Stock-Based Awards(Continued)**

The followinginformation is subject to the pending sale of the Company to affiliates of TexasPacific Group and Silver Lake Partners (see Note 5). Upon a change in control,all stock based compensation awards that are in the money will vest immediatelyupon closing and the resulting compensation expense will be recognized; allother awards will be cancelled.

**Restricted Stock**—Sharesof restricted stock are awarded at no cost to employees. Restricted sharesgenerally vest evenly from one to five years following the date of grant.Dividends issued with respect to restricted shares may be paid in cash ortreated as additional shares of restricted stock that are subject to the samerestrictions and other terms and conditions that apply to the shares withrespect to which such dividends are issued. During 2004, 2005 and 2006, thedividends were paid in cash. We recognize the expense for restricted stockgrants over the requisite service period of the grant using the market value onthe date of the grant. Certain restricted stock issued to employees oflastminute.com contains performance conditions which could result in theacceleration of vesting. In these cases, we are recognizing compensationexpense over the longer service period. If it becomes probable that theperformance conditions will be met, we will recognize compensation expense overthe shorter performance period.

The following table summarizes the activity for our restricted stockplan during the year ended December 31, 2006:

| Restricted Stock                | ** ** | ** ** | ** ** | **Shares** | ** ** | **Weighted-  Average Grant  Date Fair Value** | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|--------------------------------------------------------------|------------|
| Nonvested at  December 31, 2005 |       | 1,757,084  |       |       | $          | 20.81                                                        |       |   |
| Granted                              |       | 1,292,850  |       |       | 23.40      |                                                         |       |
| Vested                               |       | (550,800   | )          |       | 20.50      |                                                         |       |
| Forfeited                            |       | (277,541   | )          |       | 21.25      |                                                         |       |
| Nonvested at December 31, 2006  |       | 2,221,593  |       |       | $          | 22.20                                                        |       |   |

As of December 31,2006, there was $36 million of total unrecognized compensation costrelated to our restricted stock plan, including grants that we believe willeventually forfeit. This cost is expected to be recognized over a weighted-averageperiod of three years. The total fair value of shares vested during 2006, 2005and 2004 was $13 million, $10 million and $3 million, respectively. Theweighted-average grant date fair market values of restricted stock grantedduring 2006, 2005 and 2004 were $23.40, $20.66 and $21.20, respectively. Thefair market values were calculated as the average of the high and low stockprice on the grant date.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**12.  Options and Other Stock-Based Awards(Continued)**

**Performance Shares**—In 2006,we issued 919,250 performance shares under the Amended and Restated 2005Long-Term Incentive Plan and Performance Share Unit Agreement. The shares aredivided equally into tranches that may vest annually over a four-year period.The number of shares received by the recipients each year, if any, will bedetermined by the cumulative performance of our Common Stock includingdividends (“Total Shareholder Return”) when compared to the performance of theStandard & Poor’s 500. For example, the number of shares which vest inyear three of the grant will be determined based on the three-year cumulativeTotal Shareholder Return of our Common Stock when compared to the performanceof the Standard & Poor’s 500 over the same period. Each tranche ofthese shares was valued using a Monte Carlo simulation model. The average fairvalue of these shares was estimated at $11.55 per share. Certain assumptionsused in the model include (but are not limited to) the following:

| Sabre Holdings initial stock  price |   | $          | 23.62 |   |
|-------------------------------------|--------|------------|-------|--------|
| Sabre  Holdings implied volatility  |   | 27.41      | %     |
| Sabre  Holdings dividend yield      |   | 1.67       | %     |
| Risk free rate                      |   | 4.63%-4.65 | %     |

 

As of December 31,2006, there were 853,650 performance shares outstanding. For the year ended December 31,2006, we recorded $4 million in compensation expense related to theseshares. As of December 31, 2006, we have approximately $6 million inunrecognized compensation expense (including shares we expect to ultimatelyforfeit) that will be recognized over the next four years.

As of December 31,2006, we have several other stock-based compensation plans under whichthere are outstanding awards, including the following:

**The Amended and Restated 2005 Long-TermIncentive Plan**—Under our Amended and Restated 2005Long-Term Incentive Plan (the “LTIP”), executives, non-employee directors,managers and other key employees may be granted restricted stock, deferredstock, stock options, stock appreciation rights, stock purchase rights, otherstock-based awards and/or performance-related awards. Under theLTIP:

·          thetotal number of shares of Class A Common Stock reserved and available fordistribution is currently limited to an aggregate of 27,635,410;

·          thenumber of shares available for grant in the form of restricted stock, deferredstock and other stock-based awards is limited to an aggregate of5,000,000 shares issued on or after May 17, 2005;

·          theprovisions of the LTIP provide flexibility with respect to the option price pershare for stock option conversions associated with a merger or acquisition, butprohibit the repricing of stock options without stockholder approval;

·          upona change of control of the Company (as defined in the LTIP), any issued andoutstanding stock options, stock appreciation rights, restricted stock,deferred stock, stock purchase rights, performance shares or any other stock-basedawards may continue in effect or be converted to equivalent equity awards ofany successor company; and

·          nomore than 1,000,000 shares of stock may be granted to any employee in aone-year period.

The LTIP will terminate in May 2015. At December 31, 2006,10,860,412 shares remained available for future grants of stock-basedawards under the LTIP.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**12.  Options and Other Stock-Based Awards(Continued)**

**Sabre Holdings Corporation StockOption Plan**—In 2000, we established the Sabre HoldingsCorporation Stock Option Plan (the “2000 Plan”) to attract, retain and rewardour employees by offering stock incentives. Under the 2000 Plan, employees maybe granted stock options or stock appreciation rights. The total number ofshares of Class A Common Stock authorized for distribution under the 2000Plan is 7,000,000 shares. At December 31, 2006, 1,659,008 shares remained available for future grants.

**Travelocity Stock Incentive Plans**—In2002, in conjunction with the tender offer to acquire the portion of the Travelocity.com business that we didnot already own, we assumed the Travelocity.com plans and converted options inTravelocity.com to options in our Common Stock. We are recognizing stockcompensation expense based on the intrinsic value of the awards converted atthe date of acquisition over the remaining vesting periods. These convertedoptions remain under the original Travelocity plans and are administered underthe original terms and conditions. In 2002, we terminated the plans so that nofuture grants could be issued.

**Directors’ Stock Incentive Plan**—Underthe 1996 Director Stock Incentive Plan, non-employee directors received awardsof options. Shares were granted from the plan through 1998. Beginning in 1999,stock options granted to non-employee directors were granted under the LTIP. Asof December 31, 2006, 109,026 options had been granted to directors at aweighted-average exercise price of $25.20. As of December 31, 2006,36,342 of those options have been exercised, and 72,684 are still outstanding.These amounts are also included in the stock options outstanding table below.

**Stock Options Outstanding**—Allstock options have an exercise price equal to the fair market value of our Class ACommon Stock on the date of grant, although the Board of Directors has thediscretion to grant options with an exercise price at or above fair marketvalue. Stock options generally vest over one to five years and are notexercisable more than ten years after the date of grant. For valuationpurposes, the entire grant is valued using the Black-Scholes method foroptions issued prior to adoption of SFAS 123R on January 1, 2006. Webegan using a lattice model for any options granted after January 1, 2006.Options are amortized on a straight-line basis over the requisite serviceperiod for the entire award.

In the year ended December 31, 2006, we granted 35,833 stockoptions to our non-employee directors which had an immaterial impact on ourfinancial statements. The weighted-average grant-date fair value of optionsgranted during the years 2006, 2005 and 2004 was $8.33, $8.27 and $8.56,respectively. The total intrinsic value of options exercised during the years2006, 2005 and 2004 was $11 million, $2 million and $3 million, respectively.

For stock options only, we recognized $16 million in stockcompensation expense for the year ended December 31, 2006. At December 31,2006, we have approximately $17 million in unrecognized compensationexpense (including options that we expect will ultimately forfeit) which willbe recognized over the next four years.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**12.**       Optionsand Other Stock-Based Awards (Continued)

The following table summarizes activity under all stock option plans(in thousands, except for per share and contractual term amounts):

| Stock Options                     | ** ** | ** ** | ** ** | **Shares** | ** ** | **Weighted-Average  Exercise Price  per Share** | ** ** | **Average  Remaining  Contractual Term  (years)** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|-----------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------|------------|
| Outstanding  at December 31, 2005 |       | 16,929,827 |       |       | $          | 30.08                                                     |       |                                                   |       | 6.33                                |       |   |   | $ | 29,893,753 |   |   |
| Granted                                |       | 35,833     |       |       | 24.28      |                                                      |       |                                                   |       |                                |       |   |   |   |   |
| Exercised                              |       | (1,971,584 | )          |       | 20.15      |                                                      |       |                                                   |       |                                |       |   |   |   |   |
| Cancelled                              |       | (2,112,753 | )          |       | 33.33      |                                                      |       |                                                   |       |                                |       |   |   |   |   |
| Outstanding at December 31, 2006  |       | 12,881,323 |       |       | $          | 31.05                                                     |       |                                                   |       | 5.30                                |       |   |   | $ | 66,073,947 |   |   |

 

|                                             | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Range of Exercise Prices** | ** ** | ** **                   | ** ** | **Shares**                   | ** ** | **Weighted-Average  Remaining Life  (Years)** | ** ** | **Weighted-Average  Exercise Price** | ** ** | **Shares** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
| $  0.16  - $15.99                 |       | 22,757                       |       |                         | 3.24       |   |   |   | $ | 7.41 |   |   | 22,657 |   |   | $ | 7.38 |   |   |
| $16.00 -  $25.99                            |       | 5,678,960                    |       |                         | 6.97       |   |   |   | 20.66 |   |   | 3,387,872 |   |   | 20.55 |   |   |
| $26.00 -  $35.99                            |       | 1,209,056                    |       |                         | 2.87       |   |   |   | 31.84 |   |   | 1,188,727 |   |   | 31.92 |   |   |
| $36.00 -  $48.99                            |       | 4,951,486                    |       |                         | 4.41       |   |   |   | 38.33 |   |   | 4,951,486 |   |   | 38.33 |   |   |
| $49.00 -  $60.99                            |       | 911,781                      |       |                         | 3.24       |   |   |   | 49.94 |   |   | 911,781 |   |   | 49.94 |   |   |
| $61.00 -  $80.26                            |       | 107,283                      |       |                         | 3.18       |   |   |   | 80.25 |   |   | 107,283 |   |   | 80.25 |   |   |
| Total                                       |       | 12,881,323                   |       |                         | 5.30       |   |   |   | $ | 31.05 |   |   | 10,569,806 |   |   | $ | 33.27 |   |   |
|                                             |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Stockappreciation rights (“SAR”) may be granted in conjunction with all or part ofany stock option granted. All SARs will be forfeited upon termination orexercise of the related option and will be exercisable only during the timethat the related option is exercisable. If a SAR is exercised, the relatedstock option will be deemed to have been exercised. As of December 31,2006, an insignificant number of stock appreciation rights remained outstandingand are excluded from the tables above.

**2003Directors’ Deferred Compensation and Deferred Stock Unit Plan****—**Under the 2003 Directors’ Deferred Compensation andDeferred Stock Unit Plan, directors may be issued deferred stock units.Additionally, directors may defer their cash fees into stock equivalent unitsat their individual elections. Through May 17, 2005, each director wasgranted 400 deferred stock units for each regularly scheduled Board ofDirectors meeting attended. On December 17, 2004, the CompensationCommittee approved a new compensation arrangement for directors effective afterthe 2005 Annual Meeting. Under the new arrangement, directors receive $60,000in deferred stock units annually, granted in two semiannual payments on June 1and December 1 each year. The units, which are payable in cash, areaccounted for as liabilities and marked to the current fair market valuethrough expense until the deferral period ends. Fair market value is determinedbased on an average range of our stock price over the most recent valuationperiod. At December 31, 2006, 104,699 deferred stock units and 86,317stock equivalent units at a fair market value of $31.89 per share areoutstanding.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**12.**       Options and Other Stock-Based Awards (Continued)

**EmployeeStock Purchase Plan****—**Wesponsor an Employee Stock Purchase Plan (the “ESPP”). Effective January 1,2005, we amended the terms of the ESPP. The amended terms allow participatingemployees to purchase stock on a quarterly basis at 95% of the market price ofthe stock at the end of a three-month period. Employees may continue topurchase stock up to an aggregate maximum purchase price of 10% of the employee’sannual compensation, subject to certain limitations. We issued approximately36,000 shares of Common Stock in 2006 under the ESPP. On May 4, 2004,shareholders approved an authorization of an additional 2,000,000 shares of Class ACommon Stock under the ESPP, bringing the total number of shares reserved underthe plan to 4,000,000. At December 31, 2006, 2,084,970 shares remainedavailable for future issuance. However, in February 2007, we suspendedpurchases under the plan due to the pending sale of the Company to affiliatesof Texas Pacific Group and Silver Lake Partners.

**13.**       BusinessSegments

We are a worldleader in travel commerce, marketing travel products and providing distributionand technology solutions for the travel industry. We market and distributetravel-related products and services directly and indirectly throughtravel agencies and other distribution partners, to leisure and businesstravelers including air, hotel, car rental, cruises and packaged trip offeringsthrough our Travelocity business. Through our *Sabre*global distribution system subscribers, generally travel agencies, can accessinformation about, and can book reservations for, among other things, airlinetrips, hotel stays, car rentals, cruises and tour packages. Our Sabre TravelNetwork business operates the *Sabre*GDS. In addition, our Sabre Airline Solutions business is a leading provider oftechnology and services, including development and consulting services, toairlines and other travel providers.

Our reportablesegments are strategic business segments that offer different products andservices and are managed separately because each business requires differentmarket strategies. The accounting policies of the segments are the same asthose used in our consolidated results. We account for significant intersegmenttransactions as if the transactions were to third parties, that is, atestimated current market prices. The majority of the intersegment revenues andcost of revenues are between Travelocity and Sabre Travel Network, consistingmainly of incentives paid by Sabre Travel Network to Travelocity fortransactions processed through the *Sabre*GDS, data processing fees paid by Travelocity to Sabre Travel Network fortransactions processed through the *Sabre*GDS, transaction fees paid by Travelocity to Sabre Travel Network fortransactions facilitated through the *Sabre*GDS in which the travel supplier pays Travelocity directly, and fees paid bySabre Travel Network to Travelocity for corporate trips booked through the *Travelocity* online booking technology. Inaddition, Sabre Airline Solutions pays fees to Travelocity for airline tripsbooked through the *Travelocity*online booking technology. Personnel and related costs for the corporateheadquarters, certain legal and professional fees, and other corporate chargesare allocated to the segments through a management fee based on the relativesize of the segments and usage of corporate resources or services. Depreciationexpense on the corporate headquarters buildings and related facilities costsare allocated to the segments through a facility fee based on headcount.Benefits expense, including pension expense, postretirement benefits, medicalinsurance and workers’ compensation are allocated to the segments based onheadcount.

In the third quarter of 2006, we consolidated our online travelcommunity business, *IgoUgo*®, intoTravelocity. This business had previously been included in our Sabre TravelNetwork segment. This change reduces operating income for Travelocity byapproximately $6 million and $7 million for the years endedDecember 31, 2006 and 2005, respectively, with corresponding increases tooperating income for our Sabre Travel Network segment.

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**13.**       Business Segments (Continued)

The segmentoperating results are presented on a basis that excludes certain adjustingitems that are summarized below, except where noted. Our management usessegment operating income excluding adjusting items (primarily stockcompensation expense and intangible asset amortization) to analyze operating results and to makeoperational and investment decisions, as we believe it provides consistency andcomparability in our financial reporting. We provide it in order to enableinvestors to more thoroughly evaluate our current performance as compared topast performance because items such as stock compensation and intangibleamortization from merger and acquisition activity will change periodically, andtherefore can be episodic in nature and can obscure our core operating resultsand skew projections. Consequently, we believe adjusted operating incomeaccurately represents our core operating results and provides a better baselinefor modeling future operating earnings expectations. Adjusted operating incomedoes not provide a complete position of our results of operations, as thehistorical items listed in the related reconciliation are included in operatingincome presented under GAAP. Therefore a review of operating income on both anon-GAAP basis and GAAP basis should be performed to get a complete view of ourresults on both a historical basis and on a basis of what we believe to be abetter representation of our business in the future. Selectedinformation for our three reportable segments for the years ended December 31,2006, 2005 and 2004 follows (in thousands):

|                                                              | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                   | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues from external customers, excluding adjusting items: |       |                                       |       |   |   |   |   |
| Travelocity                                                  |       | $                                          | 942,603    |   | $ | 685,661 |   | $ | 387,507 |   |
| Sabre Travel Network                                         |       | 1,582,615                                  |       | 1,572,950 |   | 1,505,192 |   |
| Sabre Airline Solutions                                      |       | 282,512                                    |       | 260,812 |   | 243,470 |   |
| Total                                                        |       | $                                          | 2,807,730  |   | $ | 2,519,423 |   | $ | 2,136,169 |   |
| Intersegment revenues:                                       |       |                                       |       |   |   |   |   |
| Travelocity                                                  |       | $                                          | 141,829    |   | $ | 155,233 |   | $ | 137,763 |   |
| Sabre Travel Network                                         |       | 36,695                                     |       | 29,849 |   | 30,117 |   |
| Total                                                        |       | $                                          | 178,524    |   | $ | 185,082 |   | $ | 167,880 |   |
| Equity in net income (loss) of equity method investees:      |       |                                       |       |   |   |   |   |
| Travelocity                                                  |       | $                                          | 795        |   | $ | (9,566 | ) | $ | (22,721 | ) |
| Sabre Travel Network                                         |       | 15,272                                     |       | 11,398 |   | 17,523 |   |
| Total                                                        |       | $                                          | 16,067     |   | $ | 1,832 |   | $ | (5,198 | ) |
| Segment revenues, excluding adjusting items:                 |       |                                       |       |   |   |   |   |
| Travelocity                                                  |       | $                                          | 1,085,227  |   | $ | 831,328 |   | $ | 502,549 |   |
| Sabre Travel Network                                         |       | 1,634,582                                  |       | 1,614,197 |   | 1,552,832 |   |
| Sabre Airline Solutions                                      |       | 282,512                                    |       | 260,812 |   | 243,470 |   |
| Elimination of intersegment revenues                         |       | (178,524                                   | )          | (185,255 | ) | (167,880 | ) |
| Total                                                        |       | $                                          | 2,823,797  |   | $ | 2,521,082 |   | $ | 2,130,971 |   |
| Consolidated revenues:                                       |       |                                       |       |   |   |   |   |
| Travelocity                                                  |       | $                                          | 1,085,227  |   | $ | 831,328 |   | $ | 502,549 |   |
| Sabre Travel Network                                         |       | 1,634,582                                  |       | 1,614,197 |   | 1,552,832 |   |
| Sabre Airline Solutions                                      |       | 282,512                                    |       | 260,812 |   | 243,470 |   |
| Elimination of intersegment revenues                         |       | (178,524                                   | )          | (185,082 | ) | (167,880 | ) |
| Total                                                        |       | $                                          | 2,823,797  |   | $ | 2,521,255 |   | $ | 2,130,971 |   |

 

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**13.**       Business Segments (Continued)

A summary of the adjusting items and thereconciliation to consolidated operating income is set forth below (inthousands):

|                                                                              | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Segment  operating income (loss) excluding adjusting items:                  |       |                                       |       |   |   |   |   |
| Travelocity                                                                  |       | $                                          | 73,221     |   | $ | 20,896 |   | $ | 12,600 |   |
| Sabre Travel  Network                                                        |       | 282,896                                    |       | 245,824 |   | 292,064 |   |
| Sabre Airline  Solutions                                                     |       | 44,289                                     |       | 41,178 |   | 15,729 |   |
| Net corporate  allocations                                                   |       | (2,190                                     | )          | (1,718 | ) | (4,267 | ) |
| Total                                                                        |       | $                                          | 398,216    |   | $ | 306,180 |   | $ | 316,126 |   |
| *Impact of  adjusting items on operating income—(increase) / decrease:* |       |                                       |       |   |   |   |   |
| Travelocity:                                                                 |       |                                       |       |   |   |   |   |
| Other  intangibles amortization                                              |       | $                                          | 56,466     |   | $ | 29,729 |   | $ | 25,472 |   |
| Stock  compensation                                                          |       | 11,971                                     |       | 1,436 |   | 5,183 |   |
| Loss on sale  of equipment                                                   |       | —                                     |       | — |   | 2,443 |   |
| Total  Travelocity                                                           |       | $                                          | 68,437     |   | $ | 31,165 |   | $ | 33,098 |   |
| Sabre Travel  Network:                                                       |       |                                       |       |   |   |   |   |
| Goodwill  impairment                                                         |       | $                                          | 3,920      |   | $ | — |   | $ | — |   |
| Other  intangibles amortization                                              |       | 13,307                                     |       | 15,339 |   | 18,526 |   |
| Loss on sale  of equipment                                                   |       | —                                     |       | — |   | 2,641 |   |
| Stock  compensation                                                          |       | 16,988                                     |       | — |   | — |   |
| Total Sabre  Travel Network                                                  |       | $                                          | 34,215     |   | $ | 15,339 |   | $ | 21,167 |   |
| Sabre Airline  Solutions:                                                    |       |                                       |       |   |   |   |   |
| Other  intangibles amortization                                              |       | $                                          | 1,747      |   | $ | 2,247 |   | $ | 895 |   |
| Loss on sale  of equipment                                                   |       | —                                     |       | — |   | 1,092 |   |
| Stock  compensation                                                          |       | 4,973                                      |       | — |   | — |   |
| Total Sabre  Airline Solutions                                               |       | $                                          | 6,720      |   | $ | 2,247 |   | $ | 1,987 |   |
| Corporate:                                                                   |       |                                       |       |   |   |   |   |
| Acquisition  expenses                                                        |       | $                                          | 3,696      |   | $ | — |   | $ | — |   |
| Loss on sale  of equipment                                                   |       | —                                     |       | — |   | 1,127 |   |
| Stock  compensation                                                          |       | —                                     |       | — |   | 17 |   |
| Restructuring  expenses                                                      |       | —                                     |       | (3,444 | ) | — |   |
| Total  Corporate                                                             |       | $                                          | 3,696      |   | $ | (3,444 | ) | $ | 1,144 |   |
| Total operating income adjusting items                                       |       | $                                          | 113,068    |   | $ | 45,307 |   | $ | 57,396 |   |
| Consolidated  operating income (loss):                                       |       |                                       |       |   |   |   |   |
| Travelocity                                                                  |       | $                                          | 4,784      |   | $ | (10,269 | ) | $ | (20,498 | ) |
| Sabre Travel  Network                                                        |       | 248,681                                    |       | 230,485 |   | 270,897 |   |
| Sabre Airline  Solutions                                                     |       | 37,569                                     |       | 38,931 |   | 13,742 |   |
| Net corporate  allocations                                                   |       | (5,886                                     | )          | 1,726 |   | (5,411 | ) |
| Total                                                                        |       | $                                          | 285,148    |   | $ | 260,873 |   | $ | 258,730 |   |

 

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**13.**       Business Segments (Continued)

Our segment results above includeapproximately $10 million for 2006 and 2005 and $6 million for 2004 ofseverance costs that were not considered adjusting items because of prioroccurrences (Note 5).

|                                                                      | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Depreciation and amortization included in income (in thousands):     |       |                                       |       |   |   |   |   |
| Travelocity                                                          |       | $                                          | 92,743     |   | $ | 53,338 |   | $ | 45,516 |   |
| Sabre Travel  Network                                                |       | 61,786                                     |       | 55,863 |   | 61,550 |   |
| Sabre Airline  Solutions                                             |       | 21,407                                     |       | 21,442 |   | 19,085 |   |
| Unallocated  depreciation and amortization                           |       | —                                     |       | — |   | 1,061 |   |
| Total  consolidated depreciation and amortization included in income |       | $                                          | 175,936    |   | $ | 130,643 |   | $ | 127,212 |   |

 

|                                                                                       | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                            | ** ** | **2006**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Segment assets (in thousands):                                                        |       |                             |       |   |   |   |   |
| Travelocity                                                                           |       | $                                | 2,494,557  |   | $ | 2,336,121 |   | $ | 775,685 |   |
| Sabre Travel  Network                                                                 |       | 1,233,119                        |       | 1,186,849 |   | 986,695 |   |
| Sabre Airline  Solutions                                                              |       | 515,467                          |       | 457,696 |   | 441,625 |   |
| Unallocated  cash and cash equivalents, investments, corporate headquarters and other |       | 39,272                           |       | 393,445 |   | 813,972 |   |
| Total  consolidated assets                                                            |       | $                                | 4,282,415  |   | $ | 4,374,111 |   | $ | 3,017,977 |   |

 

|                                                         | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **2006**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Capital expenditures for segment assets (in thousands): |       |                             |       |   |   |   |   |
| Travelocity                                             |       | $                                | 50,160     |   | $ | 32,310 |   | $ | 21,850 |   |
| Sabre Travel  Network                                   |       | 48,671                           |       | 45,110 |   | 45,168 |   |
| Sabre Airline  Solutions                                |       | 9,234                            |       | 14,116 |   | 9,740 |   |
| Unallocated  capital expenditures                       |       | 847                              |       | 124 |   | 1,240 |   |
| Total capital  expenditures                             |       | $                                | 108,912    |   | $ | 91,660 |   | $ | 77,998 |   |

 

Our revenues and long-lived assets, includinggoodwill and intangible assets, by geographic region are summarized below (inthousands). Revenues are attributed to countries based on the location of thecustomer.

|               | ** ** | **Year Ended December 31,** | ** ** |
|---------------|------------|-----------------------------|------------|
| ** **    | ** ** | **2006**                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues:     |       |                        |       |   |   |   |   |
| United States |       | $                           | 1,600,273  |   | $ | 1,535,366 |   | $ | 1,407,578 |   |
| Europe        |       | 697,910                     |       | 475,738 |   | 268,133 |   |
| Other foreign |       | 525,614                     |       | 510,151 |   | 455,260 |   |
| Total         |       | $                           | 2,823,797  |   | $ | 2,521,255 |   | $ | 2,130,971 |   |

 

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**13.**       Business Segments (Continued)

|                                                    | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **2006**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Long-lived assets:                                 |       |                             |       |   |   |   |   |
| United States                                      |       | $                                | 1,264,640  |   | $ | 1,422,625 |   | $ | 1,357,032 |   |
| Europe                                             |       | 1,614,186                        |       | 1,438,075 |   | 164,742 |   |
| Singapore  (primarily investment in joint venture) |       | 209,517                          |       | 205,565 |   | 149,592 |   |
| Other foreign                                      |       | 57,136                           |       | 59,558 |   | 73,096 |   |
| Total                                              |       | $                                | 3,145,479  |   | $ | 3,125,823 |   | $ | 1,744,462 |   |

 

**14.**       QuarterlyFinancial Information (Unaudited)

The following is a summary of the unaudited quarterly financialinformation for the years ended December 31, 2006 and 2005 (in thousandsexcept per share data). Certain reclassifications have been made between grossprofit and selling, general and administrative expenses from the resultspresented in our First Quarter Form 10 Q filed on May 5, 2006 and our SecondQuarter Form 10 Q filed on August 4, 2006 in order to be consistent with ouryear-end presentation. The reclassifications are not material, individually orin the aggregate, to our financial statements.

|                             | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|-----------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| 2006                        | * *   | * *           | * *   | * *            | * *   | * *           | * *   | * *            | * *   |
| Revenues                    |       | $                  | 700,188    |                | $          | 722,612            |       | $                   | 746,129    |   | $ | 654,868 |   |
| Gross profit                |       | 261,231            |       | 315,989             |       | 362,024            |       | 271,867             |       |
| Operating  income           |       | 37,926             |       | 78,389              |       | 119,560            |       | 49,273              |       |
| Net earnings                |       | 16,807             |       | 33,756              |       | 67,572             |       | 37,503              |       |
| Earnings per  common share: |       |               |       |                |       |               |       |                |       |
| Basic                       |       | $                  | 0.13       |                | $          | 0.26               |       | $                   | 0.52       |   | $ | 0.29 |   |
| Diluted                     |       | $                  | 0.13       |                | $          | 0.26               |       | $                   | 0.52       |   | $ | 0.28 |   |

 

|                             | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|-----------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| 2005                        | * *   | * *           | * *   | * *            | * *   | * *           | * *   | * *            | * *   |
| Revenues                    |       | $                  | 581,888    |                | $          | 619,255            |       | $                   | 699,706    |   | $ | 620,406 |   |
| Gross profit                |       | 241,779            |       | 244,047             |       | 320,339            |       | 227,718             |       |
| Operating  income           |       | 71,194             |       | 83,106              |       | 99,571             |       | 7,002               |       |
| Net earnings                |       | 57,681             |       | 43,887              |       | 58,496             |       | 12,088              |       |
| Earnings per  common share: |       |               |       |                |       |               |       |                |       |
| Basic                       |       | $                  | 0.44       |                | $          | 0.34               |       | $                   | 0.45       |   | $ | 0.09 |   |
| Diluted                     |       | $                  | 0.44       |                | $          | 0.34               |       | $                   | 0.45       |   | $ | 0.09 |   |

 

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**14.**       QuarterlyFinancial Information (Unaudited) (Continued)

The travel industry is seasonal in nature. Travel bookings for ourSabre Travel Network business, and the revenue we derive from those bookings,decrease significantly each year in the fourth quarter, primarily in December.Customers generally book their November and December holiday leisuretravel earlier in the year, and business travel declines during the holidayseason. Travel bookings for our Travelocity business decrease each year in thefourth quarter, primarily in December. Customers generally book their holidayleisure travel earlier in the year. Travelocity revenues are also impacted bythe seasonality of travel bookings, but to a lesser extent since commissionsfrom car and hotel travel providers and net rate revenue for vacation packagesand hotel stays are recognized upon date of consumption. In 2005, the seasonalvariations described above did continue, however, our revenues did not declinein the fourth quarter due to the acquisition of lastminute.com. The acquisitionof lastminute.com has resulted in revenues and net earnings becoming moresignificant in the second and third quarters for the Travelocity segment duelargely to European travel patterns.

**15.**       SupplementalGuarantor/Non-Guarantor Financial Information

Allindebtedness of Sabre Holdings has been guaranteed by its 100%-ownedoperating subsidiary, Sabre Inc. pursuant to an intercompany guarantyexecuted by Sabre Inc. in favor of Sabre Holdings. There are norestrictions on Sabre Holdings’ ability to obtain funds from Sabre Inc. inthe form of a dividend or loan, other than those that would exist underDelaware law. Additionally, there are no significant restrictions onSabre Inc.’s ability to obtain funds from its direct or indirectsubsidiaries, other than those that would exist under state or foreign law.Sabre Inc. is the sole direct subsidiary of Sabre Holdings. All othersubsidiaries of the Company are direct or indirect subsidiaries ofSabre Inc. These subsidiaries are all included in the non-guarantorfinancial statements. The following financial information presents condensedconsolidating balance sheets, statements of income and statements of cash flowsfor Sabre Holdings, Sabre Inc. and non-guarantor subsidiaries. The informationhas been presented as if Sabre Holdings accounted for its ownership ofSabre Inc., and Sabre Inc. accounted for its ownership of thenon-guarantor subsidiaries, using the equity method of accounting. Certainreclassifications have been made to the 2004 and 2005 financial statements toconform to the 2006 presentation.

Sabre Inc.conducts the domestic operations of the Company’s Sabre Travel Network segmentand the Sabre Airline Solutions segment. The operations of the Travelocitysegment, as well as the principal international operations of the Sabre TravelNetwork segment, are conducted by the non-guarantor subsidiaries.

Sabre Inc.and certain non-guarantor subsidiaries are parties to various intercompanyagreements, which affect the amount of operating expenses reported in thefollowing condensed consolidating statements of income. Among other things,fees are paid by Sabre Inc. to a non-guarantor subsidiary relating to theuse of trademarks, tradenames, etc. owned by a non-guarantor subsidiary; incentiveand marketing payments are made by Sabre Inc. to non-guarantorsubsidiaries relating to the use and distribution of the *Sabre* system; and payments are made bynon-guarantor subsidiaries to Sabre Inc. for access to the *Sabre* system under the terms of theseagreements. During 2006, 2005 and 2004, Sabre Inc. recognized operatingexpenses totaling approximately $260 million, $294 million and$242 million, respectively, in connection with these agreements. Theseamounts, and the corresponding amounts recognized by the non-guarantorsubsidiaries, are eliminated in consolidation.

125

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**15.  SupplementalGuarantor/Non-Guarantor Financial Information (Continued)**

**CONDENSED CONSOLIDATING STATEMENTS OF INCOMEYEAR ENDED DECEMBER 31, 2006(in thousands)**

|                                          | ** ** | **Sabre  Holdings** | ** ** | **Sabre Inc.** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Sabre  Consolidated** | ** ** |
|------------------------------------------|------------|---------------------|------------|----------------|------------|---------------------------------|------------|------------------|------------|-------------------------|------------|
| Revenues                                 |       | $                   | —     |           | $          | 1,490,890                       |       |             | $          | 1,850,551               |       |   |   | $ | (517,644 | ) |   |   | $ | 2,823,797 |   |   |
| Operating expenses                       |       | 8,404               |       | 1,326,530      |       |                            | 1,721,359  |             |       |                    | (517,644   | ) |   |   | 2,538,649 |   |   |
| Operating income (loss)                  |       | (8,404              | )          | 164,360        |       |                            | 129,192    |             |       |                    | —     |   |   |   | 285,148 |   |   |
| Other income (expense)                   | ** ** | ** **          | ** ** | ** **     | ** ** |                            |       |             |       |                    |       |   |   |   |   |   |   |
| Interest  income                         |       | 150,979             |       | 8,678          |       |                            | 27,597     |             |       |                    | (170,874   | ) |   |   | 16,380 |   |   |
| Interest  expense                        |       | (64,732             | )          | (182,587       | )          |                            | (2,677     | )                |       |                    | 170,874    |   |   |   | (79,122 | ) |   |
| Income from  subsidiaries                |       | 103,692             |       | 89,791         |       |                            | —     |             |       |                    | (193,483   | ) |   |   | — |   |   |
| Other, net                               |       | 1,831               |       | 1,785          |       |                            | (5,765     | )                |       |                    | —     |   |   |   | (2,149 | ) |   |
| Total other  income (expense)            |       | 191,770             |       | (82,333        | )          |                            | 19,155     |             |       |                    | (193,483   | ) |   |   | (64,891 | ) |   |
| Income before provision for income taxes | ** ** | 183,366             |       | 82,027         |       |                            | 148,347    |             |       |                    | (193,483   | ) |   |   | 220,257 |   |   |
| Provision (credit) for income taxes      |       | 27,728              |       | (21,665        | )          |                            | 58,556     |             |       |                    | —     |   |   |   | 64,619 |   |   |
| Net income                               |       | $                   | 155,638    |           | $          | 103,692                         |       |             | $          | 89,791                  |       |   |   | $ | (193,483 | ) |   |   | $ | 155,638 |   |   |

 

126

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**15.  SupplementalGuarantor/Non-Guarantor Financial Information (Continued)**

**CONDENSED CONSOLIDATING STATEMENTS OF INCOMEYEAR ENDED DECEMBER 31, 2005(in thousands)**

|                                          | ** ** | **Sabre  Holdings** | ** ** | **Sabre Inc.** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Sabre  Consolidated** | ** ** |
|------------------------------------------|------------|---------------------|------------|---------------------|------------|---------------------------------|------------|------------------|------------|-------------------------|------------|
| Revenues                                 |       | $                   | —     |                | $          | 1,523,316                       |       |             | $          | 1,510,627               |       |   |   | $ | (512,688 | ) |   |   | $ | 2,521,255 |   |   |
| Operating expenses                       |       | 3,651               |       | 1,348,446           |       |                            | 1,420,973  |             |       |                    | (512,688   | ) |   |   | 2,260,382 |   |   |
| Operating income (loss)                  |       | (3,651              | )          | 174,870             |       |                            | 89,654     |             |       |                    | —     |   |   |   | 260,873 |   |   |
| Other income (expense)                   |       |                |       |                |       |                            |       |             |       |                    |       |   |   |   |   |   |   |
| Interest  income                         |       | 119,738             |       | 14,744              |       |                            | 21,174     |             |       |                    | (133,245   | ) |   |   | 22,411 |   |   |
| Interest  expense                        |       | (39,644             | )          | (142,793            | )          |                            | (3,883     | )                |       |                    | 133,245    |   |   |   | (53,075 | ) |   |
| Income from  subsidiaries                |       | 122,063             |       | 81,500              |       |                            | —     |             |       |                    | (203,563   | ) |   |   | — |   |   |
| Other, net                               |       | —              |       | (22,336             | )          |                            | 36,842     |             |       |                    | —     |   |   |   | 14,506 |   |   |
| Total other  income (expense)            |       | 202,157             |       | (68,885             | )          |                            | 54,133     |             |       |                    | (203,563   | ) |   |   | (16,158 | ) |   |
| Income before provision for income taxes | ** ** | 198,506             |       | 105,985             |       |                            | 143,787    |             |       |                    | (203,563   | ) |   |   | 244,715 |   |   |
| Provision (credit) for income taxes      |       | 26,354              |       | (16,078             | )          |                            | 62,287     |             |       |                    | —     |   |   |   | 72,563 |   |   |
| Net income                               |       | $                   | 172,152    |                | $          | 122,063                         |       |             | $          | 81,500                  |       |   |   | $ | (203,563 | ) |   |   | $ | 172,152 |   |   |

 

127

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**15.  SupplementalGuarantor/Non-Guarantor Financial Information (Continued)**

**CONDENSED CONSOLIDATING STATEMENTS OF INCOMEYEAR ENDED DECEMBER 31, 2004(in thousands)**

|                                           | ** ** | **Sabre  Holdings** | ** ** | **Sabre Inc.** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Sabre  Consolidated** | ** ** |
|-------------------------------------------|------------|---------------------|------------|---------------------|------------|---------------------------------|------------|------------------|------------|-------------------------|------------|
| Revenues                                  |       | $                   | —     |                | $          | 1,438,988                       |       |             | $          | 1,210,180               |       |   |   | $ | (518,197 | ) |   |   | $ | 2,130,971 |   |   |
| Operating  expenses                       |       | 3,429               |       | 1,305,074           |       |                            | 1,081,935  |             |       |                    | (518,197   | ) |   |   | 1,872,241 |   |   |
| Operating  income (loss)                  |       | (3,429              | )          | 133,914             |       |                            | 128,245    |             |       |                    | —     |   |   |   | 258,730 |   |   |
| Other income  (expense)                   |       |                |       |                |       |                            |       |             |       |                    |       |   |   |   |   |   |   |
| Interest income                           |       | 104,336             |       | 12,108              |       |                            | 8,470      |             |       |                    | (109,760   | ) |   |   | 15,154 |   |   |
| Interest expense                          |       | (17,689             | )          | (117,605            | )          |                            | (1,328     | )                |       |                    | 109,760    |   |   |   | (26,862 | ) |   |
| Income from subsidiaries                  |       | 135,895             |       | 92,860              |       |                            | —     |             |       |                    | (228,755   | ) |   |   | — |   |   |
| Other, net                                |       | —              |       | 8,360               |       |                            | 1,679      |             |       |                    | —     |   |   |   | 10,039 |   |   |
| Total other income                        |       | 222,542             |       | (4,277              | )          |                            | 8,821      |             |       |                    | (228,755   | ) |   |   | (1,669 | ) |   |
| Income before  provision for income taxes | ** ** | 219,113             |       | 129,637             |       |                            | 137,066    |             |       |                    | (228,755   | ) |   |   | 257,061 |   |   |
| Provision for  income taxes               |       | 28,694              |       | (6,258              | )          |                            | 44,206     |             |       |                    | —     |   |   |   | 66,642 |   |   |
| Net income                                |       | $                   | 190,419    |                | $          | 135,895                         |       |             | $          | 92,860                  |       |   |   | $ | (228,755 | ) |   |   | $ | 190,419 |   |   |

 

128

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**15.**      Supplemental Guarantor/Non-Guarantor Financial Information (Continued)

**CONDENSEDCONSOLIDATING BALANCE SHEETSDECEMBER 31, 2006(in thousands)**

|                                                      | ** ** | **Sabre**    | ** ** | ** **     | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Sabre**        | ** ** |
|------------------------------------------------------|------------|--------------|------------|----------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **Holdings** | ** ** | **Sabre Inc.** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                           | ** ** | ** **   | ** ** | ** **     | ** ** |              | ** ** | ** **       |       | ** **       | ** ** |   | ** ** | ** ** |   |
| **Current  Assets**                                  | ** ** | ** **   | ** ** | ** **     | ** ** |              | ** ** | ** **       |       | ** **       | ** ** |   | ** ** | ** ** |   |
| Cash and cash equivalents and  marketable securities |       | $            | —     |           | $          | 267,851           |       |             | $          | 234,064          | ** ** |   | $ | — |   |   | $ | 501,915 | ** ** |   |
| Restricted cash                                      |       | —       |       | —         |       |              | 9,954      | ** **       |       | —           |       |   | 9,954 | ** ** |   |
| Accounts receivable, net                             |       | —       |       | 201,011        |       |              | 238,642    | ** **       |       | —           |       |   | 439,653 | ** ** |   |
| Intercompany accounts receivable (payable)      |       | —       |       | (242,295       | )          |              | 242,295    | ** **       |       | —           |       |   | — | ** ** |   |
| Other current assets                                 |       | —       |       | 93,049         |       |              | 92,365     | ** **       |       | —           |       |   | 185,414 | ** ** |   |
| Total current assets                                 |       | —       |       | 319,616        |       |              | 817,320    | ** **       |       | —           |       |   | 1,136,936 | ** ** |   |
| Property and  equipment, net                         |       | —       |       | 261,326        |       |              | 102,309    | ** **       |       | —           |       |   | 363,635 | ** ** |   |
| Investment in  subsidiaries                          |       | 977,078      |       | 2,844,171      |       |              | —     | ** **       |       | (3,821,249       | )          |   | — | ** ** |   |
| Intercompany  notes                                  |       | 1,923,565    |       | (1,923,565     | )          |              | —     | ** **       |       | —           |       |   | — | ** ** |   |
| Investment in  joint ventures                        |       | —       |       | 5,284          |       |              | 148,838    | ** **       |       | —           |       |   | 154,122 | ** ** |   |
| Goodwill and  intangible assets, net                 |       | —       |       | 10,784         |       |              | 2,483,764  | ** **       |       | —           |       |   | 2,494,548 | ** ** |   |
| Other assets,  net                                   |       | 5,412        |       | 90,651         |       |              | 37,111     | ** **       |       | —           |       |   | 133,174 | ** ** |   |
| **Total assets**                                     |       | $            | 2,906,055  |           | $          | 1,608,267         |       |             | $          | 3,589,342        | ** ** |   | $ | (3,821,249 | ) |   | $ | 4,282,415 | ** ** |   |
| **Liabilities  and stockholders’ equity**       | ** ** | ** **   | ** ** | ** **     | ** ** |              | ** ** | ** **       |       | ** **       | ** ** |   | ** ** | ** ** |   |
| **Current  liabilities**                             | ** ** | ** **   | ** ** | ** **     | ** ** |              | ** ** | ** **       |       | ** **       | ** ** |   | ** ** | ** ** |   |
| Accounts payable                                     |       | $            | 149        |           | $          | 70,282            |       |             | $          | 93,943           | ** ** |   | $ | — |   |   | $ | 164,374 | ** ** |   |
| Travel supplier liabilities and deferred  revenue    |       | —       |       | —         |       |              | 347,305    | ** **       |       | —           |       |   | 347,305 | ** ** |   |
| Accrued compensation and related benefits       |       | —       |       | 61,950         |       |              | 20,620     | ** **       |       | —           |       |   | 82,570 | ** ** |   |
| Other current accrued liabilities                    |       | 21,071       |       | 290,493        |       |              | 196,321    | ** **       |       | —           |       |   | 507,885 | ** ** |   |
| Total current liabilities                            |       | 21,220       |       | 422,725        |       |              | 658,189    | ** **       |       | —           |       |   | 1,102,134 | ** ** |   |
| Pensions and  other postretirement benefits          |       | —       |       | 110,195        |       |              | 925        | ** **       |       | —           |       |   | 111,120 | ** ** |   |
| Other  liabilities                                   |       | 1,334        |       | 13,369         |       |              | 69,226     | ** **       |       | —           |       |   | 83,929 | ** ** |   |
| Minority  interests                                  |       | —       |       | —         |       |              | 1,755      | ** **       |       | —           |       |   | 1,755 | ** ** |   |
| Long-term  capital lease obligation                  |       | —       |       | 84,900         |       |              | —     | ** **       |       | —           |       |   | 84,900 | ** ** |   |
| Public and  other notes payable                      |       | 960,145      |       | —         |       |              | 15,076     | ** **       |       | —           |       |   | 975,221 | ** ** |   |
| Total stockholders’ equity                      |       | 1,923,356    |       | 977,078        |       |              | 2,844,171  | ** **       |       | (3,821,249       | )          |   | 1,923,356 | ** ** |   |
| **Total liabilities and stockholders’ equity**  |       | $            | 2,906,055  |           | $          | 1,608,267         |       |             | $          | 3,589,342        | ** ** |   | $ | (3,821,249 | ) |   | $ | 4,282,415 | ** ** |   |

** **

129

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

** **

**15.**         SupplementalGuarantor/Non-Guarantor Financial Information (Continued)

**CONDENSED CONSOLIDATING BALANCE SHEETSDECEMBER 31, 2005(in thousands)**

|                                                      | ** ** | **Sabre**    | ** ** | ** **     | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Sabre**        | ** ** |
|------------------------------------------------------|------------|--------------|------------|----------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **Holdings** | ** ** | **Sabre Inc.** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                           | ** ** | ** **   | ** ** | ** **     | ** ** |              | ** ** | ** **       |       | ** **       | ** ** |   | ** ** | ** ** |   |
| **Current Assets**                                   | ** ** | ** **   | ** ** | ** **     | ** ** |              | ** ** | ** **       |       | ** **       | ** ** |   | ** ** | ** ** |   |
| Cash and cash  equivalents and marketable securities |       | $            | —     |           | $          | 380,898           |       |             | $          | 130,920          | ** ** |   | $ | — |   |   | $ | 511,818 | ** ** |   |
| Restricted  cash                                     |       | —       |       | 11,237         |       |              | 45,782     | ** **       |       | —           |       |   | 57,019 | ** ** |   |
| Accounts  receivable, net                            |       | —       |       | 251,408        |       |              | 235,626    | ** **       |       | —           |       |   | 487,034 | ** ** |   |
| Intercompany  accounts receivable (payable)     |       | —       |       | (158,906       | )          |              | 158,906    | ** **       |       | —           |       |   | — | ** ** |   |
| Other current  assets                                |       | —       |       | 81,192         |       |              | 111,225    | ** **       |       | —           |       |   | 192,417 | ** ** |   |
| Total current  assets                                |       | —       |       | 565,829        |       |              | 682,459    | ** **       |       | —           |       |   | 1,248,288 | ** ** |   |
| Property and equipment, net                          |       | —       |       | 344,179        |       |              | 85,389     | ** **       |       | —           |       |   | 429,568 | ** ** |   |
| Investment in subsidiaries                           |       | 744,562      |       | 2,583,474      |       |              | —     | ** **       |       | (3,328,036       | )          |   | — | ** ** |   |
| Intercompany notes                                   |       | 2,122,011    |       | (2,122,011     | )          |              | —     | ** **       |       | —           |       |   | — | ** ** |   |
| Investment in joint ventures                         |       | —       |       | 4,189          |       |              | 152,088    | ** **       |       | —           |       |   | 156,277 | ** ** |   |
| Goodwill and intangible assets, net                  |       | —       |       | 11,361         |       |              | 2,321,779  | ** **       |       | —           |       |   | 2,333,140 | ** ** |   |
| Other assets, net                                    |       | 4,106        |       | 169,509        |       |              | 33,223     | ** **       |       | —           |       |   | 206,838 | ** ** |   |
| **Total assets**                                     |       | $            | 2,870,679  |           | $          | 1,556,530         |       |             | $          | 3,274,938        | ** ** |   | $ | (3,328,036 | ) |   | $ | 4,374,111 | ** ** |   |
| **Liabilities and stockholders’ equity**        | ** ** | ** **   | ** ** | ** **     | ** ** |              | ** ** | ** **       |       | ** **       | ** ** |   | ** ** | ** ** |   |
| **Current liabilities**                              | ** ** | ** **   | ** ** | ** **     | ** ** |              | ** ** | ** **       |       | ** **       | ** ** |   | ** ** | ** ** |   |
| Accounts  payable                                    |       | $            | 3,559      |           | $          | 77,478            |       |             | $          | 84,668           | ** ** |   | $ | — |   |   | $ | 165,705 | ** ** |   |
| Travel  supplier liabilities and deferred revenue    |       | —       |       | —         |       |              | 303,557    | ** **       |       | —           |       |   | 303,557 | ** ** |   |
| Accrued  compensation and related benefits      |       | —       |       | 56,710         |       |              | 17,918     | ** **       |       | —           |       |   | 74,628 | ** ** |   |
| Other current  accrued liabilities                   |       | 11,013       |       | 303,333        |       |              | 227,577    | ** **       |       | —           |       |   | 541,923 | ** ** |   |
| Bridge facility                                      |       | 800,000      |       | —         |       |              | —     | ** **       |       | —           |       |   | 800,000 | ** ** |   |
| Total current  liabilities                           |       | 814,572      |       | 437,521        |       |              | 633,720    | ** **       |       | —           |       |   | 1,885,813 | ** ** |   |
| Pensions and other postretirement benefits           |       | —       |       | 190,486        |       |              | 967        | ** **       |       | —           |       |   | 191,453 | ** ** |   |
| Other liabilities                                    |       | 1,692        |       | 25,773         |       |              | 2,753      | ** **       |       | —           |       |   | 30,218 | ** ** |   |
| Minority interests                                   |       | —       |       | —         |       |              | 38,948     | ** **       |       | —           |       |   | 38,948 | ** ** |   |
| Long-term capital lease obligation                   |       | —       |       | 158,188        |       |              | —     | ** **       |       | —           |       |   | 158,188 | ** ** |   |
| Public and other notes payable                       |       | 411,303      |       | —         |       |              | 15,076     | ** **       |       | —           |       |   | 426,379 | ** ** |   |
| Total stockholders’ equity                      |       | 1,643,112    |       | 744,562        |       |              | 2,583,474  | ** **       |       | (3,328,036       | )          |   | 1,643,112 | ** ** |   |
| **Total liabilities and stockholders’ equity**  |       | $            | 2,870,679  |           | $          | 1,556,530         |       |             | $          | 3,274,938        | ** ** |   | $ | (3,328,036 | ) |   | $ | 4,374,111 | ** ** |   |

 

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**15.**       SupplementalGuarantor/Non-Guarantor Financial Information (Continued)

**CONDENSED CONSOLIDATING STATEMENTS OF CASHFLOWSYEAR ENDED DECEMBER 31, 2006(in thousands)**

|                                                                   | ** ** | ** **                                                          | ** ** | ** **     | ** ** | **Non-**         | ** **     | ** **       | ** ** | ** **       | ** **                                              |
|-------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|----------------|------------|------------------|----------------|------------------|------------|------------------|---------------------------------------------------------|
| ** **                                                        | ** ** | **Sabre**                                                           | ** ** | **Sabre**      | ** ** | **Guarantor**    | ** **     | ** **       | ** ** | **Sabre**        | ** **                                              |
| ** **                                                        | ** ** | **Holdings**                                                        | ** ** | **Inc.**       | ** ** | **Subsidiaries** | ** **     | **Eliminations** | ** ** | **Consolidated** | ** **                                              |
| **Operating  Activities**                                         |       |                                                                |       |           |       |             |           |             |       |             |                                                    |   |   |   |   |   |   |
| Cash provided by operating activities                             |       | $          — |       | $ 287,120 |       |             | $ 91,503  |             |       |             | $        — |   |   |   | $ 378,623 |   |   |
| **Investing Activities**                                          |       |                                                                |       |           |       |             |           |             |       |             |                                                    |   |   |   |   |   |   |
| Additions to property and equipment                               |       | —                                                              |       | (59,382        | )          |             | (49,530        | )                |       |             | —                                                  |   |   |   | (108,912 | ) |   |
| Net sales of marketable securities                                |       | —                                                              |       | 123,400        |       |             | 96             |             |       |             | —                                                  |   |   |   | 123,496 |   |   |
| Proceeds from sale of investments                                 |       | —                                                              |       | —         |       |             | 1,940          |             |       |             | —                                                  |   |   |   | 1,940 |   |   |
| Acquisitions (net of cash acquired)                               |       | —                                                              |       | (19,727        | )          |             | (30,711        | )                |       |             | —                                                  |   |   |   | (50,438 | ) |   |
| Proceeds from return of cash collateral                           |       | —                                                              |       | —         |       |             | 37,211         |             |       |             | —                                                  |   |   |   | 37,211 |   |   |
| Other investing activities                                        |       | —                                                              |       | (956           | )          |             | 6,984          |             |       |             | —                                                  |   |   |   | 6,028 |   |   |
| Cash provided by (used for) investing  activities                 |       | —                                                              |       | 43,335         |       |             | (34,010        | )                |       |             | —                                                  |   |   |   | 9,325 |   |   |
| **Financing Activities**                                          |       |                                                                |       |           |       |             |           |             |       |             |                                                    |   |   |   |   |   |   |
| Proceeds from share-based payment  arrangements                   |       | 35,547                                                              |       | —         |       |             | —         |             |       |             | —                                                  |   |   |   | 35,547 |   |   |
| Dividends paid                                                    |       | (56,745                                                             | )          | —         |       |             | —         |             |       |             | —                                                  |   |   |   | (56,745 | ) |   |
| Contributions (distributions) from  affiliates, net               |       | 292,759                                                             |       | (326,328       | )          |             | 33,569         |             |       |             | —                                                  |   |   |   | — |   |   |
| Prepayment of bridge facility                                     |       | (800,000                                                            | )          | —         |       |             | —         |             |       |             | —                                                  |   |   |   | (800,000 | ) |   |
| Proceeds from borrowings on revolving  credit agreement           |       | 180,000                                                             |       | —         |       |             | —         |             |       |             | —                                                  |   |   |   | 180,000 |   |   |
| Payment of borrowings on revolving credit  agreement              |       | (25,000                                                             | )          | —         |       |             | —         |             |       |             | —                                                  |   |   |   | (25,000 | ) |   |
| Proceeds from issuance of Notes                                   |       | 395,936                                                             |       | 1,200          |       |             | —         |             |       |             | —                                                  |   |   |   | 397,136 |   |   |
| Excess tax benefits from stock-based  compensation arrangements   |       | 890                                                                 |       | —         |       |             | —         |             |       |             | —                                                  |   |   |   | 890 |   |   |
| Purchases of treasury stock                                       |       | (23,387                                                             | )          | —         |       |             | —         |             |       |             | —                                                  |   |   |   | (23,387 | ) |   |
| Other financing activities, net                                   |       | —                                                              |       | 4,985          |       |             | (12,099        | )                |       |             | —                                                  |   |   |   | (7,114 | ) |   |
| **Cash provided by (used for) financing  activities**             |       | —                                                              |       | (320,143       | )          |             | 21,470         |             |       |             | —                                                  |   |   |   | (298,673 | ) |   |
| **Effect of exchange rate changes on cash and  cash equivalents** |       | —                                                              |       | —         |       |             | 24,277         |             |       |             | —                                                  |   |   |   | 24,277 |   |   |
| **Increase in cash and cash equivalents**                         |       | —                                                              |       | 10,312         |       |             | 103,240        |             |       |             | —                                                  |   |   |   | 113,552 |   |   |
| **Cash and cash equivalents at beginning of  period**             |       | —                                                              |       | 4,418          |       |             | 130,815        |             |       |             | —                                                  |   |   |   | 135,233 |   |   |
| **Cash and cash equivalents at end of period**                    |       | $          — |       | $ 14,730  |       |             | $ 234,055 |             |       |             | $      —             |   |   |   | $ 248,785 |   |   |

 

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**15.**       SupplementalGuarantor/Non-Guarantor Financial Information (Continued)

**CONDENSED CONSOLIDATING STATEMENTS OF CASHFLOWSYEAR ENDED DECEMBER 31, 2005(in thousands)**

|                                                                   | ** ** | ** **                                                          | ** ** | ** **                     | ** ** | **Non-**             | ** ** | ** **       | ** **                                              | ** **       | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------|------------|----------------------|------------|------------------|---------------------------------------------------------|------------------|------------|
| ** **                                                        | ** ** | **Sabre**                                                           | ** ** | **Sabre**                      | ** ** | **Guarantor**        | ** ** | ** **       | ** **                                              | **Sabre**        | ** ** |
| ** **                                                        | ** ** | **Holdings**                                                        | ** ** | **Inc.**                       | ** ** | **Subsidiaries**     | ** ** | **Eliminations** | ** **                                              | **Consolidated** | ** ** |
| **Operating Activities**                                          |       |                                                                |       |                           |       |                 |       |             |                                                    |             |       |   |   |
| Cash provided  by operating activities                            |       | $          — |       | $ 99,998                  |       | $  125,508 |       |             | $        — |             |       | $  225,506 |   |
| **Investing Activities**                                          |       |                                                                |       |                           |       |                 |       |             |                                                    |             |       |   |   |
| Additions to  property and equipment                              |       | —                                                              |       | (59,752                        | )          | (31,908              | )          |             | —                                                  |             |       | (91,660 | ) |
| Net sales of marketable  securities                               |       | —                                                              |       | 383,919                        |       | 28,198               |       |             | —                                                  |             |       | 412,117 |   |
| Proceeds from  sale of investments                                |       | —                                                              |       | —                         |       | 40,920               |       |             | —                                                  |             |       | 40,920 |   |
| Acquisitions  (net of cash acquired)                              |       | —                                                              |       | (41,748                        | )          | (1,137,191           | )          |             | —                                                  |             |       | (1,178,939 | ) |
| Other  investing activities                                       |       | —                                                              |       | (10,000                        | )          | (6,342               | )          |             | —                                                  |             |       | (16,342 | ) |
| Cash provided  by (used for) investing activities                 |       | —                                                              |       | 272,419                        |       | (1,106,323           | )          |             | —                                                  |             |       | (833,904 | ) |
| **Financing Activities**                                          |       |                                                                |       |                           |       |                 |       |             |                                                    |             |       |   |   |
| Proceeds from  bridge facility                                    |       | 800,000                                                             |       | —                         |       | —               |       |             | —                                                  |             |       | 800,000 |   |
| Proceeds from  share-based payment arrangements                   |       | 9,750                                                               |       | —                         |       | —               |       |             | —                                                  |             |       | 9,750 |   |
| Dividends  paid                                                   |       | (47,281                                                             | )          | —                         |       | —               |       |             | —                                                  |             |       | (47,281 | ) |
| Contributions  (distributions) from affiliates, net               |       | (699,257                                                            | )          | (374,267                       | )          | 1,073,524            |       |             | —                                                  |             |       | — |   |
| Purchases of  treasury stock                                      |       | (63,212                                                             | )          | —                         |       | —               |       |             | —                                                  |             |       | (63,212 | ) |
| Other  financing activities, net                                  |       | —                                                              |       | (1,200                         | )          | —               |       |             | —                                                  |             |       | (1,200 | ) |
| Cash provided  by (used for) financing activities                 |       | —                                                              |       | (375,467                       | )          | 1,073,524            |       |             | —                                                  |             |       | 698,057 |   |
| **Effect of exchange rate  changes on cash and cash equivalents** |       | —                                                              |       | —                         |       | (4,097               | )          |             | —                                                  |             |       | (4,097 | ) |
| **Increase (decrease) in cash  and cash equivalents**             |       | —                                                              |       | (3,050                         | )          | 88,612               |       |             | —                                                  |             |       | 85,562 |   |
| **Cash and cash equivalents at  beginning of period**             |       | —                                                              |       | 7,468                          |       | 42,203               |       |             | —                                                  |             |       | 49,671 |   |
| **Cash and cash equivalents at end of period**                    |       | $          — |       | $    4,418 |       | $  130,815 |       |             | $      —             |             |       | $  135,233 |   |

 

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**SABRE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**15.**       SupplementalGuarantor/Non-Guarantor Financial Information (Continued)

**CONDENSED CONSOLIDATING STATEMENTS OF CASHFLOWSYEAR ENDED DECEMBER 31, 2004(in thousands)**

|                                                                   | ** ** | ** **                                                          | ** ** | ** **                     | ** ** | **Non-**         | ** **     | ** **       | ** ** | ** **       | ** **                                              |
|-------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------|------------|------------------|----------------|------------------|------------|------------------|---------------------------------------------------------|
| ** **                                                        | ** ** | **Sabre**                                                           | ** ** | **Sabre**                      | ** ** | **Guarantor**    | ** **     | ** **       | ** ** | **Sabre**        | ** **                                              |
| ** **                                                        | ** ** | **Holdings**                                                        | ** ** | **Inc.**                       | ** ** | **Subsidiaries** | ** **     | **Eliminations** | ** ** | **Consolidated** | ** **                                              |
| **Operating Activities**                                          |       |                                                                |       |                           |       |             |           |             |       |             |                                                    |   |   |   |   |   |   |
| Cash provided  by operating activities                            |       | $          — |       | $ 89,154                  |       |             | $ 272,279 |             |       |             | $        — |   |   |   | $ 361,433 |   |   |
| **Investing Activities**                                          |       |                                                                |       |                           |       |             |           |             |       |             |                                                    |   |   |   |   |   |   |
| Additions to  property and equipment                              |       | —                                                              |       | (56,036                        | )          |             | (21,962        | )                |       |             | —                                                  |   |   |   | (77,998 | ) |   |
| Net sales  (purchases) of marketable securities                   |       | —                                                              |       | 121,065                        |       |             | (26,728        | )                |       |             | —                                                  |   |   |   | 94,337 |   |   |
| Acquisitions  (net of cash acquired)                              |       | —                                                              |       | (9,274                         | )          |             | (60,470        | )                |       |             | —                                                  |   |   |   | (69,744 | ) |   |
| Other  investing activities                                       |       | —                                                              |       | 397                            |       |             | (45,984        | )                |       |             | —                                                  |   |   |   | (45,587 | ) |   |
| Cash provided  by (used for) investing activities                 |       | —                                                              |       | 56,152                         |       |             | (155,144       | )                |       |             | —                                                  |   |   |   | (98,992 | ) |   |
| **Financing Activities**                                          |       |                                                                |       |                           |       |             |           |             |       |             |                                                    |   |   |   |   |   |   |
| Proceeds from  share-based payment arrangements                   |       | 15,744                                                              |       | —                         |       |             | —         |             |       |             | —                                                  |   |   |   | 15,744 |   |   |
| Dividends  paid                                                   |       | (41,431                                                             | )          | —                         |       |             | —         |             |       |             | —                                                  |   |   |   | (41,431 | ) |   |
| Contributions  (distributions) from affiliates, net               |       | 253,501                                                             |       | (147,971                       | )          |             | (105,530       | )                |       |             | —                                                  |   |   |   | — |   |   |
| Purchases of  treasury stock                                      |       | (227,814                                                            | )          | —                         |       |             | —         |             |       |             | —                                                  |   |   |   | (227,814 | ) |   |
| Other  financing activities, net                                  |       | —                                                              |       | (836                           | )          |             | (1,056         | )                |       |             | —                                                  |   |   |   | (1,892 | ) |   |
| Cash used for  financing activities                               |       | —                                                              |       | (148,807                       | )          |             | (106,586       | )                |       |             | —                                                  |   |   |   | (255,393 | ) |   |
| **Effect of exchange rate  changes on cash and cash equivalents** |       | —                                                              |       | —                         |       |             | 1,761          |             |       |             | —                                                  |   |   |   | 1,761 |   |   |
| **Increase (decrease) in cash  and cash equivalents**             |       | —                                                              |       | (3,501                         | )          |             | 12,310         |             |       |             | —                                                  |   |   |   | 8,809 |   |   |
| **Cash and cash equivalents at  beginning of period**             |       | —                                                              |       | 10,969                         |       |             | 29,893         |             |       |             | —                                                  |   |   |   | 40,862 |   |   |
| **Cash and cash equivalents at end of period**                    |       | $          — |       | $    7,468 |       |             | $ 42,203  |             |       |             | $      —             |   |   |   | $ 49,671 |   |   |

 

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**ITEM9.**                     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNALCONTROLSOVER FINANCIAL REPORTING**

The Board ofDirectors and StockholdersSabre Holdings Corporation

We have auditedmanagement’s assessment, included in the accompanying Management’s Assessmentof the Effectiveness of Internal Controls, that Sabre Holdings Corporationmaintained effective internal control over financial reporting as of December 31,2006, based on criteria established inInternal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (the COSO criteria). SabreHoldings Corporation’s management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Our responsibilityis to express an opinion on management’s assessment and an opinion on theeffectiveness of the company’s internal control over financial reporting basedon our audit.

We conductedour audit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal controlover financial reporting, evaluating management’s assessment, testing andevaluating the design and operating effectiveness of internal control, andperforming such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinion.

A company’sinternal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion,management’s assessment that Sabre Holdings Corporation maintained effectiveinternal control over financial reporting as of December 31, 2006, isfairly stated, in all material respects, based on the COSO criteria. Also, inour opinion, Sabre Holdings Corporation maintained, in all material respects,effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria**.**

We also have audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the consolidated balancesheets of Sabre Holdings Corporation and subsidiaries as of December 31,2006 and 2005, and the related consolidated statements of income, stockholders’equity and cash flows for each of the three years in the period ended December 31,2006 of Sabre Holdings Corporation and subsidiaries and our report dated February 23,2007 expressed an unqualified opinionthereon.
|                        | /s/ ERNST & YOUNG  LLP |   |
|------------------------|---------------------------------|--------|
| Ft. Worth, Texas       |
| February 23, 2007 |

 

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**ITEM 9A.**             CONTROLS AND PROCEDURES

***Disclosure Controls Evaluation and Related CEO and CFO Certifications.******  ***Ourmanagement, with the participation of our principal executive officer (“CEO”)and principal financial officer (“CFO”) conducted an evaluation of theeffectiveness of the design and operation of our disclosure controls andprocedures as of the end of the period covered by this Annual Report. Thecontrols evaluation was conducted by our Disclosure Controls Council, comprisedof senior representatives from our Finance, Accounting, Internal Audit, Tax,Investor Relations, Corporate Communications and Legal Departments under thesupervision of our CEO and CFO.

Attached asexhibits to this Annual Report are certifications of our CEO and our CFO, whichare required in accordance with Rule 13a-14 of the Securities Exchange Actof 1934, as amended (“Exchange Act”). This “Controls and Procedures” sectionincludes the information concerning the controls evaluation referred to in thecertifications, and it should be read in conjunction with the certificationsfor a more complete understanding of the topics presented.

***Limitations on the Effectiveness of Controls.******  ***We do notexpect that our disclosure controls and procedures will prevent all errors andall fraud. A system of controls and procedures, no matter how well conceivedand operated, can provide only reasonable, not absolute, assurance that theobjectives of the system are met. Because of the limitations in all suchsystems, no evaluation can provide absolute assurance that all control issuesand instances of fraud, if any, within the Company have been detected.Furthermore, the design of any system of controls and procedures is based inpart upon certain assumptions about the likelihood of future events, and therecan be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions, regardless of how unlikely. Because ofthese inherent limitations in a cost-effective system of controls andprocedures, misstatements or omissions due to error or fraud may occur and notbe detected.

***Scope of the Controls Evaluation.******  ***The evaluationof our disclosure controls and procedures included a review of their objectivesand design, the Company’s implementation of the controls and procedures and theeffect of the controls and procedures on the information generated for use inthis Annual Report. In the course of the evaluation, we sought to identifywhether we had any data errors, control problems or acts of fraud and toconfirm that appropriate corrective action, including process improvements,were being undertaken if needed. This type of evaluation is performed on aquarterly basis so that conclusions concerning the effectiveness of ourdisclosure controls and procedures can be reported in our Quarterly Reports on Form 10-Q,which supplement our disclosures made in our Annual Report on Form 10-K.Many of the components of our disclosure controls and procedures are alsoevaluated by our Internal Audit Department, our Legal Department and bypersonnel in our Finance organization. The overall goals of these variousevaluation activities are to monitor our disclosure controls and procedures onan ongoing basis, and to maintain them as dynamic systems that change asconditions warrant.

***Conclusions Regarding Disclosure Controls.******  ***Based on therequired evaluation of our disclosure controls and procedures, our CEO and CFOhave concluded that, as of December 31, 2006, we maintain disclosurecontrols and procedures that are effective in providing reasonable assurancethat information required to be disclosed by us in the reports that we file orsubmit under the Securities Exchange Act of 1934, as amended, is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicatedto our management, including our CEO and CFO, as appropriate to allow timelydecisions regarding required disclosure.

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***Management’s Report on Internal Control over Financial Reporting.******  ***Our managementis responsible for establishing and maintaining adequate internal control overfinancial reporting, as such term is defined in Rule 13a-15(f) of theSecurities Exchange Act of 1934. Under the supervision and with theparticipation of our management, including our CEO and CFO, we conducted anevaluation of the effectiveness of our internal control over financialreporting based on the framework set forth in Internal Control IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission. Based on our evaluation under the framework set forth in InternalControl Integrated Framework, our management concluded that our internalcontrol over financial reporting was effective as of December 31, 2006.Our management’s assessment of the effectiveness of our internal control overfinancial reporting as of December 31, 2006 has been audited by Ernst &Young LLP, an independent registered public accounting firm, as stated in theirreport which is included in this Form 10-K.

***Changes in Internal Controls Over Financial Reporting.******  ***During thethree months ended December 31, 2006, there was no change in our internalcontrol over financial reporting (or in other factors) that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting, including any corrective actions required with regardto significant deficiencies or material weaknesses.

***Remediation ofMaterial Weaknesses in Internal Control Environment at lastminute.com.******  ***We havesuccessfully remediated the previously identified internal control weaknessesat lastminute.com. Independent assessment of these remediation efforts wascompleted and as such, we do not have any material weaknesses in our internalcontrol environment as of December 31, 2006.

**ITEM 9B.    OTHER INFORMATION**

None.

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**PART III**

**ITEM 10.**              DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT ANDCORPORATE GOVERNANCE

**Directors of the Registrant**

The directors of Sabre Holdings, their ages and their committeememberships are as follows:

**MICHAEL S. GILLILAND, age 44.**

Mr. Gillilandis the Chairman, President and Chief Executive Officer of Sabre HoldingsCorporation and Chairman of the Executive Committee.

Mr. Gilliland was named Chairman of the Board of Directors in November 2004.He was elected as a director and President and Chief Executive Officer of SabreHoldings in December 2003. From May 2002 until December 2003, Mr. Gillilandwas President and Chief Executive Officer of Travelocity.com Inc., a whollyowned subsidiary of the Corporation. From March 2001 until December 2003,he was an Executive Vice President of Sabre Holdings.

**ROYCE S. CALDWELL, age 68.**

Mr. Caldwellis Chairman of the Governance and Nominating Committee, and is a member of theAudit Committee and the Compensation Committee. He became a director in 2001and was named in November 2004 as our lead independent director (“LeadDirector”). As Lead Director he presides over executive sessions of theindependent directors and acts as a liaison between the Chairman and theindependent directors. The Board of Directors affirmatively determined that hequalifies as an independent director.

Mr. Caldwell retired as the Vice Chairman of SBC Communications, Inc.(now AT&T Inc.), a telecommunications company, where he served as ViceChairman from 1998 to 2001.

**CHRISTOPHER J. (CJ) FRALEIGH, age 43.**

Mr. Fraleighis a member of the Audit Committee, the Compensation Committee, and theGovernance and Nominating Committee. He became a director in September 2006.The Board of Directors affirmatively determined that he qualifies as anindependent director.

Mr. Fraleigh is Chief Executive Officer of Sara Lee Food &Beverage and a Senior Vice President of Sara Lee Corporation. Mr. Fraleighjoined Sara Lee in January 2005 in his current position. Prior to joiningSara Lee, he served as general manager for General Motors’ GMC-Buick-Pontiacdivision. Before joining General Motors as Executive Director of Advertisingand Corporate Marketing in 2001, he was Vice President, Colas at PepsiCo. Hejoined PepsiCo in 1989 serving in positions of increasing responsibility.

**RICHARD G. LINDNER, age 52.**

Mr. Lindneris Chairman of the Audit Committee and a member of the Compensation Committeeand the Governance and Nominating Committee. He became a director in October 2002.The Board of Directors affirmatively determined that he qualifies as anindependent director and as an audit committee financial expert.

Mr. Lindner is Chief Financial Officer of AT&T Inc., atelecommunications company, and has held this position since May 2004. Hewas Chief Financial Officer of Cingular Wireless, a wireless communicationscompany from 2000 to 2004.

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**GLENN W. MARSCHEL, JR., age 60.**

Mr. Marschelis a member of the Audit Committee, the Compensation Committee, and theGovernance and Nominating Committee. He became a director in November 1996.The Board of Directors affirmatively determined that he qualifies as anindependent director.

Mr. Marschel is President and Chief Executive Officer of NetNumberInc., a provider of software and services to the telecommunications industry,and has held this position since 2000.

**BOB L. MARTIN, age 58.**

Mr. Martinis a member of the Governance and Nominating Committee, the Audit Committee,the Compensation Committee, and the Executive Committee. He became a directorin January 1997. The Board of Directors affirmatively determined that hequalifies as an independent director.

Mr. Martin has been an independent business executive since 1999.He retired as President and Chief Executive Officer of Wal-Mart International, Inc.,a retailing company, where he served from 1984 to 1999. Mr. Martin alsoserves as a director of Furniture Brands International, Inc., Gap Inc.,and Guitar Center, Inc.

**PAMELA B. STROBEL, age 54.**

Ms. Strobelis Chairman of the Compensation Committee and a member of the Audit Committee,the Governance and Nominating Committee, and the Executive Committee. Shebecame a director in October 2000. The Board of Directors affirmativelydetermined that she qualifies as an independent director.

Ms. Strobel retired in 2005 from Exelon Corporation, an electricand gas distribution company, where she served as Chief Administrative Officerfrom May 2003 and Executive Vice President from October 2000. Ms. Strobelwas Chairman and Chief Executive Officer of Exelon Energy Delivery, an electricand gas distribution company, from April 2002 to May 2003. She servedas Chairman of Commonwealth Edison Company (“ComEd”) and PECO Energy Company (“PECO”),both energy utility companies, from October 2000 to May 2003. Ms. Strobelserved as Vice Chair and Chief Executive Officer of Exelon Energy Delivery fromOctober 2001 to April 2002.

**MARY ALICE TAYLOR, age 57.**

Ms. Tayloris a member of the Audit Committee, the Compensation Committee, and theGovernance and Nominating Committee. She became a director in May 2000.The Board of Directors affirmatively determined that she qualifies as anindependent director.

Ms. Taylor has been an independent business executive since October 2000.

**RICHARD L. THOMAS, age 76.**

Mr. Thomasis a member of the Audit Committee and a member of the Compensation Committee,the Governance and Nominating Committee, and the Executive Committee. He becamea director in November 1996. The Board of Directors affirmativelydetermined that he qualifies as an independent director.

Mr. Thomas retired as Chairman of First Chicago NBD Corporation, afinancial services company, where he served in this capacity from 1992 to 1996.Mr. Thomas also serves as a director of Exelon Corporation andCommonwealth Edison Company.

**RONALD V. WATERS III, age 54.**

Mr. Watersis a member of the Audit Committee, the Compensation Committee, and theGovernance and Nominating Committee. He became a director in September 2006.The Board of Directors affirmatively determined that he qualifies as an independentdirector.

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Mr. Waters most recently served as Chief Operating Officer for theWm. Wrigley Jr. Company, Chicago, Illinois, the world’s leading chewing gummanufacturer, and was responsible for Wrigley’s worldwide commercialoperations, supply chain and strategy. Mr. Waters, who retired fromWrigley in April 2006, had been COO since December 2003 after beingthe company’s Chief Financial Officer for four years. Mr. Waters alsoserves as a director of HNI Corporation.

**Executive Officers of the Registrant**

The executive officers of Sabre Holdings, their ages and theirpositions are as follows:

**MICHAEL S. GILLILAND, age 44.**

Mr. Gilliland was elected Chairman of the Board of Directors ofSabre Holdings Corporation in November 2004. He has served as a director,President and Chief Executive Officer of Sabre Holdings since December 2003.From May 2002 until December 2003, Mr. Gilliland was Presidentand Chief Executive Officer of Travelocity.com Inc., a wholly-ownedsubsidiary of the Corporation. From March 2001 until December 2003, Mr. Gillilandwas an Executive Vice President of Sabre Holdings Corporation. He was ChiefMarketing Officer of Sabre Inc., the principal operating subsidiary of theCorporation, from July 2000 until May 2002 and General Manager, ProductMarketing of Sabre Inc. from May 1999 until July 2000.

**JEFFERY M. JACKSON, age 51.**

Mr. Jackson has been Executive Vice President, Chief FinancialOfficer, and Treasurer of Sabre Holdings Corporation since May 1999. Heserved as Senior Vice President of Sabre Inc. from 1998 to 1999. In 1998,he was Vice President and Controller of American Airlines, Inc., and from1995 to 1998, he was Vice President, Corporate Development, and Treasurer ofAmerican Airlines, Inc.

**THOMAS KLEIN, age 44.**

Mr. Klein has been Group President of the Sabre Travel Network andSabre Airline Solutions businesses since July 2004 and was elected asExecutive Vice President of Sabre Holdings Corporation in January 2005.Before that, he was Senior Vice President and President, Sabre AirlineSolutions from May 2002 to July 2004. Mr. Klein was Senior VicePresident and President, Emerging Business and Business Development ofSabre Inc. from 2000 to 2002. From 1999 to 2000, he was Senior VicePresident, North America of Sabre Inc.

**MICHELLE A. PELUSO, age 35.**

Ms. Peluso has been President and Chief Executive Officer ofTravelocity.com, Inc. since December 2003 and was elected as anExecutive Vice President of Sabre Holdings Corporation in January 2005.From June 2003 until December 2003, she was Chief Operating Officerof Travelocity.com Inc. and Senior Vice President, Product Strategy andDistribution for Travelocity.com Inc. from April 2002 until June 2003.Before joining Travelocity, Ms. Peluso served as Chief Executive Officerof *Site59.com*, a travel website, from November 1999until March 2002 and as Senior Advisor to the Secretary of Labor and WhiteHouse Fellow from August 1998 to November 1999.

**DAVID A. SCHWARTE, age 56.**

Mr. Schwarte has been Executive Vice President and General Counselof Sabre Holdings Corporation since March 2000. He served as Director ofthe law firm Kelly, Hart & Hallman, a Professional Corporation, from1998 to 2000. Before that, he was an attorney in the legal department ofAmerican Airlines, Inc. from 1979 to 1996 and also served in variouspositions, including Managing Director of International Affairs from 1996 to1998.

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**MARK K. MILLER, age 41.**

Mr. Miller has been Senior Vice President and Controller ofSabre Inc., the principal operating subsidiary of the Corporation, since April 2003.Before that, he was Chief Financial Officer of GetThere Inc., a whollyowned subsidiary of the Corporation, from November 2000 until April 2003.From December 1999 to November 2000, Mr. Miller served as VicePresident of Technology Finance for Sabre Inc.

**JOHN S. STOW, age 60.**

Mr. Stow has been Senior Vice President and President, SabreTravel Network of Sabre Inc. since May 2002. He was President, TravelAgency Solutions of Sabre Inc. from 2000 to 2002. From 1999 to 2000, heserved as Senior Vice President and General Manager, Electronic TravelDistribution Sales & Service of Sabre Inc.

**Section 16(a) Beneficial Ownership Reporting Compliance**

Section 16(a) ofthe Securities Exchange Act of 1934 requires our directors and executiveofficers, and certain persons who own more than ten percent of a registeredclass of our equity securities, to file with the SEC initial reports ofownership and reports of changes in ownership of Common Stock and othersecurity interests. Directors, executive officers, and greater than ten percentstockholders are required by the regulations of the SEC to furnish us withcopies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of suchreports furnished to us and written representations that no other reports wererequired during the year ended December 31, 2006, all Section 16(a) filingrequirements applicable to our directors, executive officers, and greater thanten percent owners were timely met, except that on July 27, 2006, a Form 4was inadvertently filed late on behalf of Mr. Klein to report the vestingof his restricted stock on July 23, 2006.

**Corporate Governance Policy**

Sabre HoldingsCorporation is committed to conducting its business in a way that reflects bestpractices as well as the highest standards of legal and ethical conduct. Wewant to be a company of integrity and to be perceived as such by everyone whocomes in contact with us.

To that end,the Board of Directors of the Corporation has approved a comprehensive systemof corporate governance documents that collectively constitute the *Corporate Governance Policy* of SabreHoldings Corporation. These documents meet the requirements established by theNew York Stock Exchange’s corporate governance listing standards and by theSecurities and Exchange Commission.

The Corporate Governance Policy describes thepolicies, processes and practices followed by our directors, officers andemployees in governing the Corporation, and serves as a flexible framework forsound corporate governance. The Corporate Governance Policy, which includes theCharters of each of the Committees of our Board of Directors and our BusinessEthics Policy, is available on the Corporate Governance section of our Website.Stockholders may request a free copy of the Corporate Governance Policy from:

Sabre HoldingsCorporationAttention: Investor Relations3150 Sabre DriveSouthlake, TX 76092682 605 1000

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**Code of Ethics**

Sabre HoldingsCorporation and its subsidiaries endeavor to do business according to thehighest ethical and legal standards, complying with both the letter and spiritof the law. Our Board of Directors has approved a Business Ethics Policy thatapplies to the Corporation’s directors, officers (including our principalexecutive officer, principal financial officer and controller), employees andcontractors around the globe. Our Business Ethics Policy, a component of theSabre Holdings Corporation Corporate Governance Policy (described above), isadministered by our General Counsel, who acts as the Compliance Officer for theCorporation.

Our employeesare encouraged to report any suspected violations of laws, regulations and theBusiness Ethics Policy, and all unethical business practices. We providecontinuously monitored hotlines for anonymous reporting by employees, and alsoobtain annual compliance certifications from all officers and management levelemployees.

Our BusinessEthics Policy is available on the Corporate Governance section of our websiteat:

*http://www.sabre-holdings.com/governance/documents/busEthics.html*

Stockholdersmay request a free copy of the Business Ethics Policy by contacting InvestorRelations at the phone number and address set forth above under “CorporateGovernance Policy.”

In addition, within five business days of:

·         Anyamendment to a provision of our Business Ethics Policy that applies to ourChief Executive Officer, our Chief Financial Officer, or Controller, or

·         Thegrant of any waiver, including an implicit waiver, from a provision of ourBusiness Ethics Policy to one of these officers that relates to one or more ofthe items set forth in Item 406(b) of Regulation S-K,

we will provide information regarding any such amendment or waiver(including the nature of any waiver, the name of the person to whom the waiverwas granted and the date of the waiver) on our Website at the Internet addressabove, and such information will be available on our Website for at least a 12-monthperiod. In addition, we will disclose any amendments and waivers to ourBusiness Ethics Policy as required by the listing standards of the New YorkStock Exchange.

**Audit Committee and Audit Committee Financial Expert**

The AuditCommittee’s members are Directors Caldwell, Fraleigh, Lindner (Chairman),Marschel, Martin, Strobel, Taylor, Thomas and Waters. All members have beenaffirmatively determined by the Board to be financially literate under the NYSElisting standards. Mr. Lindner, the chairman of the committee, has beendesignated by the Board as the audit committee financial expert within themeaning of Item 401 of Regulation S-K. The Board of Directors hasaffirmatively determined that, because Ms. Taylor does not serve as anexecutive of any company, her service on the audit committees of three otherpublic companies does not interfere with her service on our Audit Committee.

The Audit Committee meets the requirements of section 3(a)(58)(A) ofthe Securities Exchange Act of 1934. Its principal purposes andresponsibilities (which are detailed in its charter) include overseeing theintegrity of our financial statements and financial reporting processes,overseeing compliance with legal and regulatory requirements, reviewing theexternal auditor’s qualifications and independence (including auditorrotation), reviewing the performance of the our internal audit function, andpreparing the Audit Committee’s report included in our proxy statements.Current copies of the Audit Committee charter, administration guidelines andkey tasks and processes are available on the governance section of our website.

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**ITEM 11.**              EXECUTIVE COMPENSATION

**Compensation Discussion and Analysis**

In theparagraphs that follow, we will discuss the overall objectives of ourcompensation program and what it is designed to reward, each element of compensationthat we provide, and an explanation of the reasons for the compensationdecisions we have made regarding the following individuals, whom we refer to asour named executive officers:

·         ourpresident and chief executive officer, Michael S. Gilliland (principalexecutive officer),

·         ourexecutive vice president and chief financial officer, Jeffery M. Jackson(principal financial officer),

·         ourexecutive vice president, and president and chief executive officer ofTravelocity, Michele A. Peluso,

·         ourexecutive vice president and group president, Sabre Travel Network and SabreAirline Solutions, Thomas Klein, and

·         ourexecutive vice president and general counsel, David A. Schwarte.

Later in this annual report under the heading “Executive Compensation”you will find a series of tables containing specific data about thecompensation earned or awarded in 2006 to our named executive officers. Thediscussion below is intended to help explain and provide context to thatinformation.

**Objectives of our Compensation Program**

The objectivesof our compensation program are to attract, motivate and retain an industryleading executive team. To do this, we follow a pay-for-performance philosophy,increasing the levels of at-risk pay as the scope of an executive’s responsibilityincreases.

Executives’at-risk pay is earned based on performance relative to corporate, business unitand individual objectives. For example, as we discuss in more detail later, thesize of our executives’ annual bonus is largely determined by our achievementof operating income objectives, a measure we believe is well-understood by ourexecutives and is closely tied to other common indicators of corporateperformance, such as earnings-per-share. We also consider—and refine ourcompensation decisions based on—key performance indicators tailored to ourindividual businesses. Key performance indicators for our businesses includesuch things as airline contract renewals, non-air revenue growth, systemdeveloper cost, cost per passenger boarded, marketing effectiveness, superiorrevenue and EBITDA growth relative to competitors, customer satisfaction, andemployee survey results. We select the key performance indicators every yearbased on what is most important to a particular business at that time. By usingthose indicators to influence our executives’ compensation opportunities, wehope to focus creativity and innovation that will help us excel in thosespecific areas.

In the case of equity awards, our executives’ at-risk pay is dependenton the value and performance of our stock. As discussed below, we deliver twoforms of equity awards:

·         Restrictedstock awards, which vest over four years, based on the executives’ continuedemployment. We believe that this simple component supports executive retention,which we believe is a concern given the volatility that affects the travelindustry. Since the value of theseawards fluctuates directly with our stock price, they also encourage theexecutive to achieve financial and operational goals that can be expected tohelp our stock rise in value over the course of the vesting period and beyond. Inthis way, the executive is positioned to think like an owner of the business.

·   Performance shares represent the right toreceive shares of our common stock based on our cumulative total shareholderreturn (TSR) as compared to that of the S&P 500 companies, measuredannually over a four-year performance period. We believe TSR is an appropriateindicator of the long-term performance of the company which rewards our executivesfor delivering stock performance that exceeds most companies in the market.

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Each of these equity awards serves a distinct purpose in our program,and both tend to align the interests of our executives directly with theinterests of our shareholders.

**How We Determine and Assess Executive Compensation Generally**

TheCompensation Committee of our Board of Directors (the “committee”) hasresponsibility for approving the compensation programs for our named executiveofficers and making decisions regarding specific compensation to be paid orawarded to them. Each of our directors other than Mr. Gilliland is amember of the committee. Information about the committee and its composition,responsibilities and operations can be found in the Investors section on theCompany’s website.

To assist in developing and evaluating our compensation program, thecommittee engages the services of Towers Perrin, a nationally recognizedcompensation consulting firm, as its independent consultant. Towers Perrinrepresentatives generally participate in all regularly scheduled meetings ofthe committee.

**Executive Compensation Process**

**Market Data—**The committee considers the compensation levels,programs and practices of certain other companies to assist us in setting andevaluating our executive compensation to ensure that it is market competitive. In2006, we used the following peer group for these purposes. We believe that wecompete directly for business and talent with the companies noted as “directpeers” in this group. We do not competedirectly for business or talent with the companies noted as “comparator”companies. However, the compensation practices of these companies do provide uswith additional data points from businesses with business models similar tothose of the Company’s business units.

| “Direct Peers”     | ** ** | **“Comparators”**    |
|------------------------------|------------|--------------------------------|
| Worldspan Technologies  Inc. |       | Automatic Data Processing Inc. |
| Priceline.com Inc.           |       | Ceridian Corp.                 |
| Pegasus Solutions Inc.       |       | First Data Corp.               |
| Expedia Inc.                 |       | Fiserv Inc.                    |
| Cendant Corp.                |       |                           |

 

We obtaininformation on the compensation levels, programs and practices of the companieswithin this peer group from Towers Perrin. We also consider market survey data providedby Towers Perrin and Radford Consulting. We use the peer group and market datato provide context for our compensation decisions, rather than as a directdeterminant of pay levels for our executive officers. We target base salariesand annual incentive opportunities (which we refer to as “total cashcompensation”) of our named executive officers to be in the mid-range ofcompetitive practices of the peer group and the surveys. For reasons discussedbelow, we targeted total direct compensation (which is total cash compensationplus long-term incentive opportunities) in 2006 to be in the third quartile ofthe marketplace.

**Other Factors—**While market competitiveness is important, it is notthe only factor we consider when establishing compensation opportunities of ournamed executive officers. Actual pay decisions are made following a review anddiscussion of the financial and operational performance of our businesses,individual performance, as described below, specific retention concerns, andinternal equity.

In consideringthe pay opportunities for our named executive officers, we consider both theperformance of our consolidated operations and individual businesses for whichthe executive has responsibility. For example, elements of Messrs. Gilliland,Jackson and Schwarte’s compensation are based on financial measures for Sabre Holdings,while Mr. Klein’s compensation is based on the financial performance ofSabre Holdings and our Travel Network and Airline Solutions businesses. Similarly,Ms. Peluso’s compensation is based on the performance of both SabreHoldings and our Travelocity business.

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**2006 Review ofTotal Compensation—**In 2006, the committee reviewed a tally sheetdetailing our named executive officers’ total compensation, including basesalary and annual and long-term incentives, as well as accumulated retirementbenefits and severance payouts under various hypothetical scenarios. Thisinformation is considered by the committee when making all pay-relateddecisions.

**Elements of our Compensation Program**

Our compensation policies and programs are considered by the committeewithin the context of an integrated total rewards framework considering both “pay”—basesalary, annual incentive compensation, and long-term incentive compensation;and “benefits”—severance plans, retirement benefits (including supplementalretirement benefits), and perquisites. Our executive compensation programconsists primarily of the following components:

·         basesalary;

·         annualincentive awards;

·         long-termincentive awards;

·         perquisitesand other executive benefits; and

·         severanceand other post-termination compensation.

**Base Salary**

We believe thatcompetitive base salary is essential in attracting and retaining key executivetalent. The committee reviews the base salaries of our named executive officerson an annual basis.

2006 basesalary levels for our named executive officers were established afterconsideration of several factors, including: (i) contribution towardsmeeting our 2005 adjusted operating income objectives, (ii) attainment ofindividual goals and objectives for 2005, (iii) value to our company reflectedin each individual’s knowledge and experience, (iv) base pay relative toother executives within the Company, and (v) base pay relative tocomparable positions within other companies in our peer group, as discussedabove.

Based on a review of the above factors, the committee approved salaryincreases in 2006 for our named executive officers, with increases averagingabout 10.7 percent. These salary increases were intended to address perceivedshortfalls relative to market pay for comparable positions and to recognizechanges in responsibilities among the executive officers. The base salaries for2006 of our named executive officers are reflected in the Summary Compensationtable.

**Annual Incentive Awards**

We believe thatshort-term incentives support and encourage the achievement of specificcorporate and business unit goals and objectives that drive our business plansfor the coming year. Our named executive officers receive annual incentiveawards under our Variable Compensation Program (VCP). Subject to availablefunding, the VCP provides cash payments based upon attainment of performanceobjectives established at the beginning of the fiscal year.

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**VCP Funding****—Prior**to thebeginning of each year, the committee determines the maximum funding for VCPawards to our executive officers for the following year based on a percentageof consolidated operating income. For the 2006 performance year, the bonus poolavailable for our named executive officers, other than our chief executiveofficer, was $3,982,170 (1% percent of consolidated adjusted operating income).The bonus pool available to our chief executive officer was $2,986,628 (0.75%of consolidated adjusted operating income). Funding VCP awards in this mannerenables the Company to preserve the tax-deductibility of amounts paid to thenamed executive officers. Within these funding limits, the annual incentiveawards earned by our named executive officers are determined based on theattainment of established VCP objectives, as discussed below.

**Individual Incentive Opportunities****—At**the beginning ofthe year, each named executive officer is assigned a target VCP award,expressed as a percentage of his or her base salary. Payouts can vary from zeroif threshold performance is not achieved, up to a stated maximum, based onperformance against individual and business objectives, as described below. Underno circumstances may the earned award exceed the available funding (see VCPFunding above). We seek to ensure that a significant portion of each executiveofficer’s annual total cash compensation (approximately 50% at targetperformance levels) is linked to the attainment of our annual VCP objectives. Weset the target annual awards for our executives at the mid-range of marketpractices, with the philosophy that each executive’s total cash compensationshould become increasingly competitive with the marketplace when our VCPobjectives are achieved and exceeded. In those years in which our VCPobjectives are not fully realized, our executive officers will receive less orno annual incentive pay.

The VCP awardsto our named executive officers are earned upon achievement of both businessand individual objectives. An officer’s VCP bonus is determined at the end ofthe year by multiplying his or her target award by two factors: (i) thepercentage achievement of relevant business objectives (which can range from50% for threshold performance to 175% for superior performance, and can befurther adjusted up or down by up to 25 percentage points by the committee basedon its assessment of key performance indicators), and (ii) the percentageof achievement of individual goals for the executive, as determined by thecommittee.

**VCP “Business” Objectives****—VCP**BusinessObjectives are comprised of operating income goals for both the corporation andindividual business units. We believe operating income is an appropriatemeasure of performance as this measure is more directly within the control ofour business unit leaders than other common metrics. Many other metrics, forexample, are affected by corporate tax policy decisions. Also, operating incomeis closely tied to other common indicators of performance, includingearnings-per-share guidance which we provide to the public.

The threshold(50%), target (100%) and maximum (175%) VCP funding levels based on operatingincome were calibrated to planned financial results, with consideration ofindustry conditions, competitor growth expectations, and global growthforecasts at the time the financial targets were set for each business unit. Thetarget level of performance was generally consistent with guidance provided tothe public regarding the 2006 financial performance of the Company. Minimum andmaximum performance levels vary by business unit, but are generally within ±25%of the target level of performance.

When evaluatingperformance of the corporation and business units against operating incomegoals, the committee has discretion to adjust performance goals for certaintransactions or events. The committee exercises this discretion sparingly andonly when it believes the best interests of the company are met by doing so.

Operatingincome is not the sole “Business” Objective within the VCP. We believe that theconditions affecting the travel industry warrant consideration of otherperformance factors. Other key performance indicators, which are set by ourchief executive officer and reviewed by the committee at the beginning of eachyear, are intended to capture more specific objectives that are strategic tothe health of our businesses in the current year and beyond. Based onperformance on these additional factors, the Committee may increase or decreasethe VCP performance rating for “Business” Objectives by ±25 percentage points. Thecommittee has sparingly used its discretion to make these types of adjustments.

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In weightingthe “business” element of the VCP program for our named executive officers, wefocus on the businesses with respect to which the executive has the mostinfluence. For our corporate level executive officers, Messrs. Gilliland,Jackson and Schwarte, the business element of their VCP awards for 2006 was aweighted-average of adjusted operating income targets as follows: 50% SabreTravel Network, 40% Travelocity and 10% Sabre Airline Solutions. For Mr. Klein,the adjusted operating income targets were weighted 75% on Sabre Travel Networkand 25% on Sabre Airline Solutions. The business portion of Ms. Peluso’s2006 VCP award was calculated solely on the performance of Travelocity againstits adjusted operating income target.

**VCP Individual Objectives****—After**applicationof the business performance factor, our executive officers’ VCP awards arefurther adjusted based on the committee’s assessment of their performanceagainst individual objectives set at the beginning of the year.

*2006 Annual Incentive Awards:**  *The aggregateVCP awards paid to our named executive officers for 2006 performance totaledapproximately $2 million, or 50% percent of the available VCP bonus pool:individual award amounts are reported under the “Non-Equity Incentive PlanCompensation” column in the Summary Compensation Table.

Except as notedbelow, amounts paid to each of the named executive officers were determinedbased solely on the achievement of operating income goals for the individualbusiness units and the corporation as a whole. In determining the award for Ms. Peluso,the committee elected to use its allowable discretion to recognize hercontributions toward Travelocity’s performance relative to that of its primarycompetitors, as reflected in year-over-year revenue growth and improvedoperating margins.

*2007 Annual Incentive Awards:*   Thebasic structure and application of the VCP program will remain unchanged forfiscal 2007. For fiscal 2007, the committee has authorized a maximum bonus poolof 1.15% percent of adjusted operating income for the named executive officers,other than our chief executive officer, and 0.75% percent of adjusted operatingincome our chief executive officer. Notwithstanding the committee’s ability toexercise discretion, VCP awards payable to the named executive officers may notexceed these amounts. If the proposed acquisition of the Company is approved byshareholders, we expect the 2007 VCP may be revised or terminated following theeffective date of the pending merger with Texas Pacific Group and Silver LakePartners.

**Long-Term Incentive Awards**

In addition toproviding incentives to achieve near-term financial, operational, and otherobjectives, we believe it is also important to provide incentives which focusattention on achieving longer-term objectives and which align their interestswith those of our shareholders. In keeping with our desire to provide a totaldirect compensation package that favors at-risk components of pay, long-termincentives comprise the largest portion of each executive officer’s totaldirect compensation, averaging approximately 60% at target.

In 2006, we delivered long term incentives to our executive officersand key employees through awards of both retention-based restricted stock andperformance-based restricted stock units, which we refer to as performanceshares. We describe these two forms of equity awards later in this section. TheGrants of Plan-Based Awards table reflects the equity awards we granted to ournamed executive officers in 2006. In determining the number of shares ofrestricted stock and performance shares to grant to each officer, weconsidered:

·         Theexecutive’s skill, prior experience and level of responsibility,

·         Historicalaward data, and

·         Marketplacepractices as reflected in our peer group and survey data.

The restrictedstock awards are intended to provide an element of predictability to thecompensation program and may yield total direct compensation at levels betweenthe 25th and 50th percentile ofmarket depending upon both the level of earned VCP awards and stock priceperformance. Performance shares provide our executives the opportunity toincrease their compensation to levels between the 50th and 75th percentiles ofthe market.

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**Restricted Stock Awards****—Restricted**stockawards are actual shares of our common stock that are granted to an executiveofficer, earned on the basis of continued service to the Company, but subjectto forfeiture if the executive terminates employment before the shares areearned. The restricted stock awards we granted in 2006 vest (becomenonforfeitable) as to 25% of the award at the end of each year that theexecutive remains employed by us.

**Performance Shares****—Performance**sharesrepresent the right to receive shares of our common stock based on our cumulativetotal shareholder return (TSR) as compared to that of the S&P 500companies, measured annually over a four-year performance period. We believethat TSR is an appropriate indicator of the long-term performance of thecompany that rewards the named executive officers for delivering stockperformance that exceeds most companies in the market.

TSR is calculated as the annualized rate of return, reflecting stockprice appreciation plus dividends. Up to 25% of the total award of performanceshares may vest (become payable in stock) in any one year. In order for anyperformance shares to vest for a given year, our cumulative TSR through thatyear-end must rank at or above the 40th percentile of the S&P 500. Vestingincreases ratably between the lower bound of each performance tier to the upperbound of each performance tier, as follows:
| Percentile ranking of our  cumulative TSR as  compared to the S&P 500 Companies | ** ** | ** ** | ** ** | **% of Performance Shares  that vest** |
|-------------------------------------------------------------------------------------|------------|------------|------------|----------------------------------------|
| Below 40th percentile                                                          |       | 0%         |
| 40th percentile to 50th percentile                                        |       | 0% to 25%  |
| 50th percentile to 60th percentile                                        |       | 25% to 50% |
| 60th percentile to 80th percentile                                        |       | 50% to 75% |
| Above 80th percentile                                                          |       | 100%       |

 

For 2006, ourTSR ranked in the 83rd percentile withinthe S&P 500, so that 100% of the performance shares available to vest forthe year were earned. Performance shares which are not earned in any given yeardue to the performance of the Company are forfeited and may not be earned bythe executive in a future period.

In anticipation of the acquisition of the Company by Texas PacificGroup and Silver Lake Partners, no long-term incentive grants have been made tothe named executive officers during 2007. If the transaction were not completedand the committee were to make any equity awards for 2007, no changes areanticipated with respect to the structure of our current equity award program.

**Perquisites and Other Executive Benefits**

We believe thatperquisites, retirement benefits and deferred compensation opportunities shouldbe a part of our executives’ overall compensation. Our executives alsoparticipate in our health care and other welfare benefit plans along with ourother employees.

**Perquisites****—Our**subsidiariesprovide certain additional benefits to a limited number of executives. Whilethe purpose of many of these additional programs is to fulfill business needs,such as airline and other club memberships, they are generally considered to beperquisites. Our named executive officers receive the following perquisites:

·         financialplanning services,

·         countryclub memberships,

·         executivephysical examinations, and

·         enhancedsubsidized travel privileges available on American Airlines.

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For information on the incremental cost of these perquisites and otherpersonal benefits, see footnote 7 to the Summary Compensation Table below.

**Retirement Benefits****—Our**named executive officers are eligiblefor benefits under our Supplemental Executive Retirement Plan (SERP). The SERPprovides additional benefits to individuals whose retirement benefits areaffected by the limit on the maximum amount of compensation which may be takeninto account under the qualified pension and 401(k) plans and providesadditional benefits on annual bonus payments not recognized under the qualifiedplans. Prior to December 31, 2005, certain of our executives participatedin either a defined benefit SERP, a defined contribution SERP, or both. As of December 31,2005, the defined benefit SERP was “frozen” with no additional benefitsaccruing past that date. Those impacted by the freeze, who had participatedonly in the defined benefit SERP, will participate in the defined contributionSERP in the future. For more information on our SERP, see Note 9 to theConsolidated Financial Statements.

**Retiree Travel and Medical Benefits****—Named**executive officers who meet eligibilityrequirements are eligible for retiree travel privileges and retireemedical, dental and vision benefits. For more information on these programs,see *Other Benefits* below.

**Deferred Compensation Plans****—Our**named executive officers participate indeferred compensation plans maintained by our subsidiaries. Our deferredcompensation plans allow participants to defer base salary or bonus payments ona pre-tax basis. Annual 401(k) contribution limits impact the ability ofhighly compensated individuals to save and invest on a pre-tax basis. Ourdeferred compensation program provides our named executive officers with ameans to augment savings and investment opportunities to meet their retirementor other needs.

**Severance and Other Post-Termination Compensation**

We haveseverance agreements with Messrs. Jackson, Klein and Schwarte, andemployment agreements with Mr. Gilliland and Ms. Peluso, whichprovide severance pay and benefits if the executive terminates employment withus under some conditions. In addition, each of our named executive officers hasan executive termination benefit agreement that may trigger benefits in thecase of a change of control or potential change of control. Under each of theseagreements, the level of severance payments and benefits depends on thecircumstances in which the termination of employment occurs. The highest levelof severance applies if the executive is terminated in connection with or incontemplation of a change in control of the Company. Under these circumstances,severance payments to our named executive officers range from two to threetimes the executive’s base salary and annual bonus. We believe it is in ourbest interests to offer this heightened protection in a change in controlcontext so that we can be assured of our executives’ continued focus oncompleting the transaction without undue distraction based on uncertainty as totheir continuing role afterwards. Lesser payments and benefits apply if thetermination is not in connection with a change in control. We believe that thelevel of benefits provided under these various agreements are in line withmarket practice and help us to attract and retain key talent.

For more information on the terms of these agreements, see “EmploymentAgreements and Termination of Employment and Change in Control Arrangements”.

**Other Items and Policies**

**Equity Grant Practices****—We**have not adopteda formal policy for the timing of grant of equity awards. However, thecommittee follows an informal practice of granting annual equity awards on thefirst Monday following the release of our year-end financial results or as soonafterwards as administratively feasible. We would expect our stock price atthat time to reflect the market’s reaction to the recent release of ourfinancial information. We generally grant off-cycle awards, such in the case ofnew hires, promotions or special retention awards, on the fifth trading day ofeach month.

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**Stock Ownership Requirements****—Our**seniorexecutives are encouraged to own a meaningful amount of our common stock. Executivesabove the level of vice president are expected to achieve and maintain anequity interest in the Company having a value equal to the followingpercentages of base salary:

·         chiefexecutive officer, 500%;

·         executivevice presidents, 300%;

·         seniorvice presidents, 150%.

Only shares that are owned outright are included in the ownershipcalculation. Our executive officers are required to retain all of the proceedsfrom their equity awards, net of taxes, to apply to the attainment of theirownership goals. Our senior vice presidents are required to retain one half oftheir net proceeds from equity awards until their ownership goals are reached. Thecommittee regularly reviews the level of attainment of these ownership levels. Executiveofficers who are subject to our stock ownership guidelines are expected toachieve these ownership levels by January 2009 (five years after weadopted the policy) or by the fifth year after their hiring or promotion to aposition above the vice president level. A copy of the stock ownershipguidelines can be found on the governance section of our website.

**Tax and Accounting Considerations**

**Tax Considerations****—Section**162(m) ofthe Internal Revenue Code (“Code”) imposes a $1 million limit on thetax-deductibility of compensation paid to our five most highly paid executives,which includes our named executive officers. Exceptions are provided forcompensation that is “performance-based” and paid pursuant to a plan meetingcertain requirements of Section162(m) of the Code. The committee hascarefully considered the implications of Code Section 162(m) andbelieves that tax deductibility of compensation is an important consideration. Accordingly,where possible and considered appropriate, the committee strives to preservecorporate tax deductions. For example, annual bonuses paid to our executiveofficers pursuant to the VCP and awards of performance shares are intended tomeet the requirements for tax-deductibility as performance-based compensation. Thecommittee reserves flexibility, where appropriate, to approve compensationarrangements that may not be tax deductible to the Company, such as basedsalary and awards of time-based restricted stock. The committee will continueto review the Company’s executive compensation practices to determine if otherelements of executive compensation constitute “qualified performance-basedcompensation” under the Code.

We continue tomonitor the regulatory developments under Code Section 409A, which wasenacted as part of the American Jobs Creation Act of 2004. Section 409Aimposes substantial limitations and conditions on nonqualified deferredcompensation plans, including certain types of equity compensation andseparation pay arrangements. In 2006, we amended our compensation arrangementsto comply with Section 409A.

**Accounting Considerations****—Prior**to 2005, wefollowed a method of accounting that heavily favored the use of time-vestingstock options over other forms of equity or cash incentive compensation. Withthe adoption of FAS 123R, we do not expect accounting treatment of differingforms of equity awards to vary significantly and, therefore, accountingtreatment is not expected to have a material effect on our selection of forms ofequity compensation.

**Information regarding the compensation of Directors**

The Compensation Committee reviews director compensation every twoyears and engages an independent compensation consultant to advise it on marketdata, trends, and recommendations for this review. The committee establishesthe compensation for the outside directors based upon this review and advice.

**2006 Director Compensation****—Our** outside directors are compensated in twosemi-annual installments that include the following:

·         acash retainer of $37,500 ($75,000 annually);

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·         $30,000in deferred stock units (“DSUs”) ($60,000 annually) granted under the 2003Directors Plan—DSUs vest immediately upon the date of grant;

·         $20,000in stock options ($40,000 annually) granted under the Amended and Restated 2005Long-Term Incentive Plan (the “2005 LTIP”)—stock options vest 100% on the firstanniversary of the date of grant;

·         anadditional cash retainer of $7,500 ($15,000 annually) for each committee chair;and

·         anadditional cash retainer of $15,000 ($30,000 annually) for the Lead Director.

When a director leaves the Board, we will paythe director an amount in cash equal to the number of his or her accumulatedDSUs multiplied by the fair market value, as determined under the 2003Directors Plan, of our Common Stock on the last day of the month following themonth in which the service terminates.

**Deferred Director Compensation****—Directors**may defer receipt of all or part of their cashfees. The 2003 Directors Plan provides two deferral alternatives. Under onedeferral alternative, we will pay interest on the amount deferred using thesix-month London Interbank Offered Rate (LIBOR), plus one percent. Under theother deferral alternative, the amount deferred during any calendar month isconverted into stock equivalent units (“SEUs”). The number of SEUs isdetermined by dividing the amount of deferred compensation by the 30 DayAverage Stock Price.

At the end of the applicable deferral period,we will pay to the director an amount in cash equal to the amount accrued inthe director’s interest deferral account or an amount equal to the number ofaccumulated SEUs multiplied by the fair market value of our Common Stock on thedate of payment, as determined under the 2003 Directors Plan. The deferrals aredesigned to comply with Section 409A of the Internal Revenue Code.

**Dividend Reinvestment****—DSUs**and SEUs held by directors are eligible fordividend payments—equal to those paid on the common stock of the Corporation. Thesedividend payments are reinvested into additional DSUs and SEUs.

**DirectorCompensation**

The following table provides information on2006 compensation for non-employee directors.

**DIRECTOR COMPENSATION TABLE**

| Name           | ** ** | ** ** | ** **    | **Fees Earned or  Paid in Cash (1)** | ** ** | **Stock Awards  (2) (3)** | ** **    | **Options  Awards (4) (5)** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** **                                              | **Change in Pension  Value &  Nonqualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation (6)** | ** **                                              | **Total** | ** ** |   |
|----------------|------------|------------|---------------|---------------------------------------------------------------|------------|-------------------------------------|---------------|---------------------------------------|------------|---------------------------------------------------|---------------------------------------------------------|---------------------------------------------------------------------------------------------------|------------|-------------------------------------------|---------------------------------------------------------|-----------|------------|--------|
| R. S. Caldwell |       |       | $ 97,500 |                                                          |       |                                | $ 60,024 |                                  |       |                                              | $ 39,149                                           |                                                                                              |       |                                      | $        — |      |       |   | $        — |   |   |   | $ 1,804 |   |   | $ 198,477 |   |
| P. C. Ely      |       |       | —        |                                                          |       |                                | —        |                                  |       |                                              | —                                                  |                                                                                              |       |                                      | —                                                  |      |       |   | — |   |   |   | 2,715 |   |   | 2,715 |   |
| C. Fraleigh    |       |       | 75,000        |                                                          |       |                                | 60,022        |                                  |       |                                              | —                                                  |                                                                                              |       |                                      | —                                                  |      |       |   | — |   |   |   | — |   |   | 135,022 |   |
| R. Lindner     |       |       | 90,000        |                                                          |       |                                | 60,024        |                                  |       |                                              | 39,149                                                  |                                                                                              |       |                                      | —                                                  |      |       |   | — |   |   |   | 3,571 |   |   | 192,744 |   |
| G. Marschel    |       |       | 75,000        |                                                          |       |                                | 60,024        |                                  |       |                                              | 39,149                                                  |                                                                                              |       |                                      | —                                                  |      |       |   | — |   |   |   | 3,323 |   |   | 177,496 |   |
| B. Martin      |       |       | 82,500        |                                                          |       |                                | 60,024        |                                  |       |                                              | 35,101                                                  |                                                                                              |       |                                      | —                                                  |      |       |   | — |   |   |   | 3,470 |   |   | 181,095 |   |
| P. B. Strobel  |       |       | 90,000        |                                                          |       |                                | 60,024        |                                  |       |                                              | 39,149                                                  |                                                                                              |       |                                      | —                                                  |      |       |   | — |   |   |   | 3,143 |   |   | 192,316 |   |
| M. A. Taylor   |       |       | 75,000        |                                                          |       |                                | 60,024        |                                  |       |                                              | 39,149                                                  |                                                                                              |       |                                      | —                                                  |      |       |   | — |   |   |   | 4,160 |   |   | 178,333 |   |
| R. L. Thomas   |       |       | 75,000        |                                                          |       |                                | 60,024        |                                  |       |                                              | 35,101                                                  |                                                                                              |       |                                      | —                                                  |      |       |   | — |   |   |   | 3,164 |   |   | 173,289 |   |
| R. Waters      |       |       | $ 75,000 |                                                          |       |                                | $ 60,022 |                                  |       |                                              | $        — |                                                                                              |       |                                      | $        — |      |       |   | $        — |   |   |   | $        — |   |   | $ 135,022 |   |

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(1)        Cashfees include the annual retainer of $75,000 for all the non-employee directorswith the exception of Mr. Ely. Mr. Caldwell, Mr. Lidner,Mr. Martin and Ms. Strobel also received additional fees for theirservice as a Committee chairperson or the Lead Director. Directors do notreceive separate fees for attendance of Board and Committee meetings.

(2)        Amountsinclude the expense recognized for deferred stock units granted to directorsduring 2006. The expense for these grants was determined pursuant to Financial Accounting StandardsBoard Statement of Financial Accounting Standards No. 123 (revised 2004) *Share-Based Payment* (which we refer to as FAS123R). Expense includesonly those deferred stock units awarded to directors in 2006. The FAS 123Rgrant date fair value of these awards is equal to the average of the high andlow stock price on the date of grant.

For further information regardingthe FAS 123R expense calculations, see Note 12 to the Consolidated FinancialStatements.

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(3)        Grants of deferred stock units granted in 2006 are summarizedin the table below. These grants do not include additional shares earnedthrough the reinvestment of dividends on DSUs and SEUs.
|                | ** ** | **June 2006** | ** ** | **October 2006**      | ** ** | **December 2006**  | ** **                            | **Total**        | ** ** |
|----------------|------------|--------------------|------------|----------------------------|------------|-------------------------|---------------------------------------|------------------|------------|
| **Director**   | ** ** | ** **         | ** ** | **Number of  shares** | ** ** | **Fair  market  value** | ** **                            | **Total  value** | ** ** | **Number of  shares** | ** ** | **Fair  market  value** | ** ** | **Total  value** | ** ** | **Number  of  shares** | ** ** | **Fair  market  value** | ** ** | **Total  value** | ** ** | **Number  of  shares** | ** ** | **Total  value** | ** ** |
| R. S. Caldwell |       |               | 1,381      |                       |       |                    | $ 21.74                          |             |       | $ 30,019 |   |   | — |   |   |   | $     — |   |   | $        — |   |   | 1,135 |   |   |   | $ 26.44 |   |   | $ 30,005 |   |   | 2,516 |   |   | $ 60,024 |   |
| P. C. Ely      |       |               | —     |                       |       |                    | —                                |             |       | — |   |   | — |   |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   |   | — |   |   | — |   |
| C. Fraleigh    |       |               | —     |                       |       |                    | —                                |             |       | — |   |   | 1,331 |   |   |   | 22.55 |   |   | 30,017 |   |   | 1,135 |   |   |   | 26.44 |   |   | 30,005 |   |   | 2,466 |   |   | 60,022 |   |
| R. Lindner     |       |               | 1,381      |                       |       |                    | 21.74                                 |             |       | 30,019 |   |   | — |   |   |   | — |   |   | — |   |   | 1,135 |   |   |   | 26.44 |   |   | 30,005 |   |   | 2,516 |   |   | 60,024 |   |
| G. Marschel    |       |               | 1,381      |                       |       |                    | 21.74                                 |             |       | 30,019 |   |   | — |   |   |   | — |   |   | — |   |   | 1,135 |   |   |   | 26.44 |   |   | 30,005 |   |   | 2,516 |   |   | 60,024 |   |
| B. Martin      |       |               | 1,381      |                       |       |                    | 21.74                                 |             |       | 30,019 |   |   | — |   |   |   | — |   |   | — |   |   | 1,135 |   |   |   | 26.44 |   |   | 30,005 |   |   | 2,516 |   |   | 60,024 |   |
| P. B. Strobel  |       |               | 1,381      |                       |       |                    | 21.74                                 |             |       | 30,019 |   |   | — |   |   |   | — |   |   | — |   |   | 1,135 |   |   |   | 26.44 |   |   | 30,005 |   |   | 2,516 |   |   | 60,024 |   |
| M. A. Taylor   |       |               | 1,381      |                       |       |                    | 21.74                                 |             |       | 30,019 |   |   | — |   |   |   | — |   |   | — |   |   | 1,135 |   |   |   | 26.44 |   |   | 30,005 |   |   | 2,516 |   |   | 60,024 |   |
| R. L. Thomas   |       |               | 1,381      |                       |       |                    | 21.74                                 |             |       | 30,019 |   |   | — |   |   |   | — |   |   | — |   |   | 1,135 |   |   |   | 26.44 |   |   | 30,005 |   |   | 2,516 |   |   | 60,024 |   |
| R. Waters      |       |               | —     |                       |       |                    | $     — |             |       | $        — |   |   | 1,331 |   |   |   | $ 22.55 |   |   | $ 30,017 |   |   | 1,135 |   |   |   | $ 26.44 |   |   | $ 30,005 |   |   | 2,466 |   |   | $ 60,022 |   |
|                |            |                    |            |                            |            |                         |                                       |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

(4)        Amounts include the 2006 FAS123R expenserecognized for the stock options granted under the Amended and Restated 1996Long-term Incentive Plan and the Amended and Restated 2005 Long-Term IncentivePlan. Expense was recognized for stock options awarded to directors in 2005 and2006. The FAS 123R grant date fair value was calculated using the Black-Scholesoption pricing model.

For further information regardingthe FAS 123R expense calculations, see Note 12 to the Consolidated FinancialStatements.

(5)        Grants of stock options granted in 2006 include:
|                | ** ** | **June 2006** | ** ** | **October 2006**      | ** ** | **December 2006**     | ** **                | **Total**        | ** ** |
|----------------|------------|--------------------|------------|----------------------------|------------|----------------------------|---------------------------|------------------|------------|
| **Director**   | ** ** | ** **         | ** ** | **Number of  shares** | ** ** | **Black-  Scholes  value** | ** **                | **Total  value** | ** ** | **Number of  shares** | ** ** | **Black-  Scholes  value** | ** ** | **Total  value** | ** ** | **Number of  shares** | ** ** | **Black-  Scholes  value** | ** ** | **Total  value** | ** ** | **Number of  shares** | ** ** | **Total  value** | ** ** |
| R. S. Caldwell |       |               | 2,223      |                       |       |                       | $ 9.00               |             |       | $ 20,007 |   |   | — |   |   |   | $   — |   |   | $        — |   |   | 1,796 |   |   |   | $ 11.14 |   |   | $ 20,007 |   |   | 4,019 |   |   | $ 40,014 |   |
| P. C. Ely      |       |               | —     |                       |       |                       | —                    |             |       | — |   |   | — |   |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   |   | — |   |   | — |   |
| C. Fraleigh    |       |               | —     |                       |       |                       | —                    |             |       | — |   |   | 2,054 |   |   |   | 9.74 |   |   | 20,006 |   |   | 1,796 |   |   |   | 11.14 |   |   | 20,007 |   |   | 3,850 |   |   | 40,013 |   |
| R. Lindner     |       |               | 2,223      |                       |       |                       | 9.00                      |             |       | 20,007 |   |   | — |   |   |   | — |   |   | — |   |   | 1,796 |   |   |   | 11.14 |   |   | 20,007 |   |   | 4,019 |   |   | 40,014 |   |
| G. Marschel    |       |               | 2,223      |                       |       |                       | 9.00                      |             |       | 20,007 |   |   | — |   |   |   | — |   |   | — |   |   | 1,796 |   |   |   | 11.14 |   |   | 20,007 |   |   | 4,019 |   |   | 40,014 |   |
| B. Martin      |       |               | 2,223      |                       |       |                       | 9.00                      |             |       | 20,007 |   |   | — |   |   |   | — |   |   | — |   |   | 1,796 |   |   |   | 11.14 |   |   | 20,007 |   |   | 4,019 |   |   | 40,014 |   |
| P. B. Strobel  |       |               | 2,223      |                       |       |                       | 9.00                      |             |       | 20,007 |   |   | — |   |   |   | — |   |   | — |   |   | 1,796 |   |   |   | 11.14 |   |   | 20,007 |   |   | 4,019 |   |   | 40,014 |   |
| M. A. Taylor   |       |               | 2,223      |                       |       |                       | 9.00                      |             |       | 20,007 |   |   | — |   |   |   | — |   |   | — |   |   | 1,796 |   |   |   | 11.14 |   |   | 20,007 |   |   | 4,019 |   |   | 40,014 |   |
| R. L. Thomas   |       |               | 2,223      |                       |       |                       | 9.00                      |             |       | 20,007 |   |   | — |   |   |   | — |   |   | — |   |   | 1,796 |   |   |   | 11.14 |   |   | 20,007 |   |   | 4,019 |   |   | 40,014 |   |
| R. Waters      |       |               | —     |                       |       |                       | $   — |             |       | $        — |   |   | 2,054 |   |   |   | $ 9.74 |   |   | $ 20,006 |   |   | 1,796 |   |   |   | $ 11.14 |   |   | $ 20,007 |   |   | 3,850 |   |   | $ 40,013 |   |
|                |            |                    |            |                            |            |                            |                           |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

(6)        Thisincludes tax gross-up amounts for the reimbursement of expenses or receipt ofcertain amenities in connection with attendance at Board meetings (includingexpenses related to spouses when they are invited to attend Board events).

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**Executive Compensation**

The following table sets forth informationconcerning compensation paid or accrued by us during the most recent fiscalyear to our Chief Executive Officer and our next four most highly compensatedexecutive officers (with our CEO we call them our “Named Executive Officers”).

**SUMMARY COMPENSATION TABLE**

| Name & Principal Position | ** ** | ** ** | ** ** | **Year** | ** **     | **Salary (1)** | ** ** | **Bonus (2)** | ** **                            | **Stock Awards (3)** | ** ** | **Options Awards  (4)** | ** **           | **Non-Equity  Incentive Plan  Compensation (5)** | ** ** | **Change in Pension  Value &  Nonqualified  Deferred  Compensation  Earnings (6)** | ** **     | **All Other  Compensation (7)** | ** ** | **Total** | ** **           |       |
|----------------------------------------------|------------|------------|------------|----------|----------------|---------------------|------------|--------------------|---------------------------------------|--------------------------------|------------|------------------------------|----------------------|------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|----------------|-------------------------------------------|------------|-----------|----------------------|------------|
| **M. S. Gilliland**                          | ** ** | ** ** | ** ** |     | ** **     | ** **          |       |               | ** **                            | ** **                     |       |                         | ** **           | ** **                                                 |       |                                                                                                       | ** **     | ** **                                |       |      | ** **           | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| President and Chief                          |       |       |       |     |           | ** **          |       |               |                                  | ** **                     |       |                         |                 | ** **                                                 |       |                                                                                                       |           | ** **                                |       |      |                 | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |   |   |
| Executive Officer                            |       | 2006       |       |     | $ 794,231 | ** **          |       |               | $     — | ** **                     |       |                         | $ 2,240,206     | ** **                                                 |       |                                                                                                       | $ 498,065 | ** **                                |       |      | $ 1,100,000     | ** ** |   |   | $      — | ** ** |   |   | $ 123,947 | ** ** |   | $ 4,756,449 |   |
| **J. M. Jackson**                            | ** ** | ** ** | ** ** |     | ** **     | ** **          |       |               | ** **                            | ** **                     |       |                         | ** **           | ** **                                                 |       |                                                                                                       | ** **     | ** **                                |       |      | ** **           | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| EVP, CFO and Treasurer                       |       | 2006       |       |     | 469,115        | ** **          |       |               | —                                | ** **                     |       |                         | 1,126,260            | ** **                                                 |       |                                                                                                       | 160,267        | ** **                                |       |      | 422,204              | ** ** |   |   | 11,624 | ** ** |   |   | 83,277 | ** ** |   | 2,272,747 |   |
| **M. A. Peluso**                             | ** ** | ** ** | ** ** |     | ** **     | ** **          |       |               | ** **                            | ** **                     |       |                         | ** **           | ** **                                                 |       |                                                                                                       | ** **     | ** **                                |       |      | ** **           | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| EVP, President and CEO                       |       |       |       |     |           | ** **          |       |               |                                  | ** **                     |       |                         |                 | ** **                                                 |       |                                                                                                       |           | ** **                                |       |      |                 | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |   |   |
| Travelocity                                  |       | 2006       |       |     | 441,346        | ** **          |       |               | —                                | ** **                     |       |                         | 778,140              | ** **                                                 |       |                                                                                                       | 194,277        | ** **                                |       |      | 745,673              | ** ** |   |   | — | ** ** |   |   | 55,866 | ** ** |   | 2,215,302 |   |
| **T. Klein**                                 | ** ** | ** ** | ** ** |     | ** **     | ** **          |       |               | ** **                            | ** **                     |       |                         | ** **           | ** **                                                 |       |                                                                                                       | ** **     | ** **                                |       |      | ** **           | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| EVP and Group President                      |       |       |       |     |           | ** **          |       |               |                                  | ** **                     |       |                         |                 | ** **                                                 |       |                                                                                                       |           | ** **                                |       |      |                 | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |   |   |
| Travel Industry Group                        |       | 2006       |       |     | 441,346        | ** **          |       |               | —                                | ** **                     |       |                         | 968,893              | ** **                                                 |       |                                                                                                       | 111,185        | ** **                                |       |      | 600,231              | ** ** |   |   | — | ** ** |   |   | 59,153 | ** ** |   | 2,180,808 |   |
| **D. A. Schwarte**                           | ** ** | ** ** | ** ** |     | ** **     | ** **          |       |               | ** **                            | ** **                     |       |                         | ** **           | ** **                                                 |       |                                                                                                       | ** **     | ** **                                |       |      | ** **           | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| EVP and General Counsel                      |       | 2006       |       |     | $ 361,423 | ** **          |       |               | $   —             | ** **                     |       |                         | $  630,337 | ** **                                                 |       |                                                                                                       | $ 131,606 | ** **                                |       |      | $  227,696 | ** ** |   |   | $      — | ** ** |   |   | $ 45,278 | ** ** |   | $ 1,396,340 |   |

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(1)          Amounts include the base salary earnedby executives in fiscal year 2006.

(2)          In the most recent fiscal year,executives did not receive a cash award based on satisfaction of a performancetarget that was not pre-established and communicated or the outcome of whichwas not substantially uncertain.

(3)          Amounts include the FAS 123R expenserecognized during 2006 for restricted stock and performance share awardsgranted under the Amended and Restated 2005 Long-term Incentive Plan.

For further information regarding the FAS 123R expense calculations, seeNote 12 to the Consolidated Financial Statements.

Expense was recognized for restricted stockawarded to executives in 2003, 2004, 2005 and 2006. The FAS 123R fair value wascalculated using the average of the high and low stock price on the date ofgrant.

2003 Grants—Mr. Gilliland,Mr. Jackson, Ms. Peluso, Mr. Klein and Mr. Schwarte weregranted 40,089, 40,907, 10,098, 23,175 and 38,726 restricted shares,respectively, that vest in four equal installments in 2004 through and 2007.

2004 Grants—Mr. Gilliland,Mr. Jackson, Ms. Peluso, Mr. Klein and Mr. Schwarte weregranted 67,500, 40,000, 10,000, 30,000 and 26,000 restricted shares,respectively, that vest in four equal installments from 2005 through 2008.Additionally, Ms. Peluso was also granted 10,000 restricted shares thatvest 6,000 shares in 2006 and 4,000 shares in 2007.

2005 Grants—Mr. Gilliland,Mr. Jackson, Ms. Peluso, Mr. Klein and Mr. Schwarte weregranted 125,000, 40,000, 40,000, 40,000 and 26,000 restricted shares,respectively, that vest in four equal installments from 2006 to 2009.

2006 Grants—Mr. Gilliland,Mr. Jackson, Ms. Peluso, Mr. Klein and Mr. Schwarte weregranted 100,000, 49,450, 34,600, 49,450 and 17,000 restricted shares,respectively, that vest in four equal installments from 2007 to 2010.

Performance share awards were granted toexecutives in 2006. Up to 25% of the performance shares may be earned each yearbased on cumulative total shareholder return (“TSR”) performance and actualpayments may vary from 0% to 100% of the target amount.

For further information on these awards, see the Grants of Plan-BasedAwards table.

(4)          Amounts include the FAS 123R expenserecognized during 2006 for stock options awarded to executives in 2002, 2003,2004 and 2005.

For further information regarding the FAS 123R expense calculations, seeNote 12 to the Consolidated Financial Statements.

2002 Grants—Mr. Gilliland,Mr. Jackson, Ms. Peluso, Mr. Klein and Mr. Schwarte weregranted 70,000, 70,000, 39,040, 40,000 and 45,000 stock options, respectively,that vest 25% on the first anniversary of the date of grant and 6.25% quarterlyover the next three years.

2003 Grants—Mr. Gilliland,Mr. Jackson, Ms. Peluso, Mr. Klein and Mr. Schwarte weregranted 155,000, 30,000, 28,000, 15,000 and 30,000 stock options, respectively,that vest 25% on the first anniversary of the date of grant and 6.25% quarterlyover the next three years. Additionally, Ms. Peluso was also granted10,000 stock options that vest 6,000 shares in 2005 and 4,000 shares in 2006.

2004 Grants—Mr. Jackson, Mr. Kleinand Mr. Schwarte were granted 20,000, 15,000 and 15,000 stock options,respectively, that vest 25% on the first anniversary of the date of grant and6.25% quarterly over the next three years.

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2005 Grants—Mr. Gilliland,Mr. Jackson, Ms. Peluso, Mr. Klein and Mr. Schwarte weregranted 75,000, 18,400, 18,400, 18,400 and 11,960 stock options, respectively,that vest 25% on the first anniversary of the date of grant and 6.25% quarterlyover the next three years.

(5)          Amounts reflect annual bonuses earnedbased on 2006 performance as measured under the Company’s 2006 VariableCompensation Plan.

(6)          Amounts reflect the increase inactuarial values of each executive’s benefit under our Legacy Pension Plan andSERP Legacy Pension Plan. For further information regarding these amounts, see Note9 to the Consolidated Financial Statements. Negative accruals in pensionbenefits for 2006 include:

Gilliland—($6,872)Klein—($1,550)

(7)          Weprovided the following benefits and perquisites to selected individuals asoutlined in the following table and footnotes. Figures do not include the valueof post employment medical, dental and vision benefits as these benefits do notaccrue to eligible employees on the same basis as retirement income plans andremain forfeitable through retirement.

**ALL OTHER COMPENSATION**

| Name             | ** ** | ** ** | ** **    | **Perquisites &  Other Personal  Benefits (a)** | ** ** | **Registrant  Contributions to  Defined  Contribution Plans  (b)** | ** **    | **Registrants  Contributions to  Qualified 401(k)  Plan (c)** | ** ** | **Tax Reimbursements  (d)** | ** **    | **Total (e)** | ** ** |
|------------------|------------|------------|---------------|--------------------------------------------------------------------|------------|------------------------------------------------------------------------------|---------------|------------------------------------------------------------------------------|------------|----------------------------------|---------------|--------------------|------------|
| M. S.  Gilliland |       |       | $ 20,491 |                                                               |       |                                                                         | $ 88,454 |                                                                         |       |                             | $ 13,200 |               |       |   | $ 1,802 |   |   | $ 123,947 |   |
| J. M. Jackson    |       |       | 29,310        |                                                               |       |                                                                         | 39,255        |                                                                         |       |                             | 13,200        |               |       |   | 1,512 |   |   | 83,277 |   |
| M. A. Peluso     |       |       | 6,567         |                                                               |       |                                                                         | 35,682        |                                                                         |       |                             | 13,200        |               |       |   | 417 |   |   | 55,866 |   |
| T. Klein         |       |       | 12,764        |                                                               |       |                                                                         | 30,900        |                                                                         |       |                             | 13,200        |               |       |   | 2,289 |   |   | 59,153 |   |
| D. A. Schwarte   |       |       | $ 5,448  |                                                               |       |                                                                         | $ 26,161 |                                                                         |       |                             | $ 13,200 |               |       |   | $ 469 |   |   | $ 45,278 |   |

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(a)    Perquisites & Other PersonalBenefits Column include:

Non-revenue travel—Our portion of thecost of employee non-revenue travel (flight privileges on American Airlinesthat are available to approximately 2,477 of our employees).

Financial and estate planning allowances—We provide an annualfinancial planning allowance for selected senior executives. We value theseitems at the actual charges we incur for the services.

Executive physical—The program includesmedical examination procedures normally considered to be part of an annualphysical. Additional procedures or follow-ups are subject to the executive’s regularmedical plan. We value this item at the actual charges we incur for theservices.

Club dues—We value this item based on the portion of theincremental cost to us that is attributable to the executive’s non-businessuse.

**Specific Benefits and Perquisites for our NamedExecutive Officers:**

Mr. Gilliland: For 2006, Mr. Gillilandhad other annual compensation of $20,491 comprised of $13,934 for non-revenuetravel, $2,465 for an executive physical and $4,092 for club dues.

Mr. Jackson: For 2006, Mr. Jackson hadother annual compensation of $29,310 comprised of $14,939 for non-revenuetravel, $4,815 for financial planning, $1,888 for an executive physical and$7,669 for club dues.

Ms. Peluso: For 2006, Ms. Peluso hadother annual compensation of $6,567 comprised of $5,000 for financial planningand $1,567 for an executive physical.

Mr. Klein: For 2006, Mr. Klein hadother annual compensation of $12,764 comprised of $8,850 for non-revenuetravel, $3,200 for financial planning and $714 for club dues.

Mr. Schwarte:For 2006, Mr. Schwarte had other annual compensation of $5,488 comprisedof $1,577 for an executive physical and $3,871 for club dues.

(b)    This column includes 2006 Companycontributions to the 401(k) SERP. For further information regarding theseamounts, refer to the section labeled Nonqualified Deferred Compensation.

(c)    This column includes 2006 Companycontributions to the qualified 401(k) plan.

(d)    This amount includes tax reimbursement orgross-ups for the reimbursement of expenses or receipt of certain amenities inconnection with attendance at Board meetings (including expenses related tospouses when they are invited to attend Board events).

(e)    Does not include any accruals for retireetravel plan benefits; these benefits are discussed in more detail in the OtherBenefits section.

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**Grants of Plan-Based Awards**

The followingtable sets forth information concerning incentive compensation provided to eachnamed executive officer. Annual incentive compensation, which we refer to asthe “VCP”, under our Amended and Restated 2005 Long-Term Incentive Plan (the “LTIP”)provides for cash awards to be paid based upon attainment of established performancestandards for a given fiscal year. Amounts earned with respect to the 2006performance year are reported in the Summary Compensation Table.

Long-term incentive awards consist of a grant of a mix ofrestricted stock and performance shares under our Amended and Restated 2005Long-Term Incentive Plan. Participants received restricted stock andperformance share grants of equal size in terms of number of shares. Therestricted stock awards vest 25% per year over four years, and the participantreceives dividends and has voting rights during the restricted period. Up to25% of the performance shares may be earned each year based on cumulative totalshareholder return (“TSR”) performance and actual payments may vary from 0% to100% of the target amount. Amounts earned with respect to the 2006 performanceyear will be 100% of target.

Refer to the Compensation Discussion and Analysis for additionalinformation regarding both of these programs.

**GRANTS OF PLAN-BASED AWARDS**

|                 | ** ** | **Grant**  | ** ** | **Date of** | ** ** | **Estimated Future Payouts  Under Non-Equity  Incentive Plan Awards (1) (2)** | ** **                                  | **Estimated Future Payouts  Under Equity  Incentive Plan Awards (3)** | ** ** | **All Other  Stock  Awards:  Number  of Shares  of Stock or** | ** ** | **Grant  Date Fair  Value of  Stock and  Option  Awards** | ** ** |
|-----------------|------------|------------|------------|------------------|------------|------------------------------------------------------------------------------------------------------------------|---------------------------------------------|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| **Name**        | ** ** | ** ** | ** ** | **Date**         | ** ** | **Action**                                                                                                       | ** **                                  | **Threshold**                                                                                       | ** ** | **Target**                                                                        | ** ** | **Maximum**                                                              | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Maximum** | ** ** | **Units (4)** | ** ** | **(5) (6)** | ** ** |
| M. S. Gilliland |       | 30-Jan-06  |       | 30-Jan-06        |       |                                                                                                             | $      — |                                                                                                |       | $ 1,200,000                                                                  |       | $ 2,400,000                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $           — |   |
|            |       | 13-Feb-06  |       | 30-Jan-06        |       |                                                                                                             |                                        |                                                                                                |       |                                                                              |       |                                                                     |       |   | — |   |   | 100,000 |   |   | 100,000 |   |   |   |   |   |   | $ 1,155,250 |   |
|            |       | 13-Feb-06  |       | 30-Jan-06        |       |                                                                                                             |                                        |                                                                                                |       |                                                                              |       |                                                                     |       |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |   | $ 2,368,000 |   |
| J. M. Jackson   |       | 30-Jan-06  |       | 30-Jan-06        |       |                                                                                                             | $    —             |                                                                                                |       | $  475,000                                                              |       | $  950,000                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|            |       | 13-Feb-06  |       | 30-Jan-06        |       |                                                                                                             |                                        |                                                                                                |       |                                                                              |       |                                                                     |       |   | — |   |   | 49,450 |   |   | 49,450 |   |   |   |   |   |   | $  571,271 |   |
|            |       | 13-Feb-06  |       | 30-Jan-06        |       |                                                                                                             |                                        |                                                                                                |       |                                                                              |       |                                                                     |       |   |   |   |   |   |   |   |   |   |   |   | 49,450 |   |   | $ 1,170,976 |   |
| M. A. Peluso    |       | 30-Jan-06  |       | 30-Jan-06        |       |                                                                                                             | $    —             |                                                                                                |       | $  450,000                                                              |       | $  900,000                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|            |       | 30-Jan-06  |       | 30-Jan-06        |       |                                                                                                             | $    —             |                                                                                                |       | $  525,000                                                              |       | $ 1,050,000                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|            |       | 13-Feb-06  |       | 30-Jan-06        |       |                                                                                                             |                                        |                                                                                                |       |                                                                              |       |                                                                     |       |   | — |   |   | 34,600 |   |   | 34,600 |   |   |   |   |   |   | $  399,717 |   |
|            |       | 13-Feb-06  |       | 30-Jan-06        |       |                                                                                                             |                                        |                                                                                                |       |                                                                              |       |                                                                     |       |   |   |   |   |   |   |   |   |   |   |   | 34,600 |   |   | $  819,328 |   |
| T. Klein        |       | 30-Jan-06  |       | 30-Jan-06        |       |                                                                                                             | $    —             |                                                                                                |       | $  450,000                                                              |       | $  900,000                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|            |       | 13-Feb-06  |       | 30-Jan-06        |       |                                                                                                             |                                        |                                                                                                |       |                                                                              |       |                                                                     |       |   | — |   |   | 49,450 |   |   | 49,450 |   |   |   |   |   |   | $  571,271 |   |
|            |       | 13-Feb-06  |       | 30-Jan-06        |       |                                                                                                             |                                        |                                                                                                |       |                                                                              |       |                                                                     |       |   |   |   |   |   |   |   |   |   |   |   | 49,450 |   |   | $ 1,170,976 |   |
| D. A. Schwarte  |       | 30-Jan-06  |       | 30-Jan-06        |       |                                                                                                             | $    —             |                                                                                                |       | $  255,500                                                              |       | $  511,000                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **      |       | 13-Feb-06  |       | 30-Jan-06        |       |                                                                                                             |                                        |                                                                                                |       |                                                                              |       |                                                                     |       |   | — |   |   | 17,000 |   |   | 17,000 |   |   |   |   |   |   | $  196,393 |   |
| ** **      |       | 13-Feb-06  |       | 30-Jan-06        |       |                                                                                                             |                                        |                                                                                                |       |                                                                              |       |                                                                     |       |   |   |   |   |   |   |   |   |   |   |   | 17,000 |   |   | $  402,560 |   |
|                 |            |            |            |                  |            |                                                                                                                  |                                             |                                                                                                     |            |                                                                                   |            |                                                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)          Awards granted on January 1, 2006represent threshold, target and maximum payout values under the VCP for 2006 performance. For moreinformation on the VCP, refer to the Compensation Discussion and Analysis,beginning on page    . In each case, the actual amountearned by each named executive officer is reported under the Non-EquityIncentive Plan Compensation column in the Summary Compensation Table.

(2)          The second non-equity incentive plan award granted to Ms. Pelusoon January 30, 2006 represents a long-term cash award granted under theCompany’s Amended and Restated 2005 Long-Term Incentive Plan. The cash award issubject to specific performance measurements and actual payment may vary from0% to 200% of the target amount. The award will vest ratable over three yearsbased on three annual adjusted operating income targets for lastminute.com.

(3)          Amounts include the threshold, target and maximum number ofshares to be earned under the performance share awards granted under theCompany’s Amended and Restated 2005 Long-Term Incentive Plan. The award vestsannually over 4 years based on cumulative TSR performance. For more informationon these awards refer to the Compensation Discussion and Analysis and thevesting description provided in the Outstanding Equity Awards table.

(4)          Awards of restricted stock under the Amended and Restated2005 Long-Term Incentive Plan. Restricted shares are shares ofour Common Stock that are subject to restrictions on transfer until vesting andthat are subject to forfeiture under certain circumstances if the employeeterminates employment with us before the shares are vested.

(5)          Grant date fair value of the performance shares isbased on the average of the fair values for each of the four tranches.

(6)          Grant date fair value of the restricted shares is based onthe average of the high and low stock price on the date of grant.

For further information regarding the FAS 123R expense calculations, seeNote 12 to the Consolidated Financial Statements.

155

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**OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR-END**

|                     | ** ** | **Option Awards**                                                         | ** ** | **Stock Awards**                                                            | ** ** |                        |
|---------------------|------------|--------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|-----------------------------|
| **Name**            | ** ** | **Number  of  Securities  Underlying  Unexercised  Options  Exercisable  (1)** | ** ** | **Number  of  Securities  Underlying  Unexercised  Options  Unexercisable  (2)** | ** ** | **Option  Exercise  Price** | ** ** | **Option  Expiration  Date** | ** ** | **Number  of  Shares or  Units of  Stock That  Have Not  Vested (3)** | ** ** | **Market  Value of  Shares or  Units of  Stock That  Have Not  Vested (4)** | ** ** | **Equity  Incentive  Plan Awards:  Number of  Unearned  Shares,  Units  or Other  Rights That  Have Not  Vested (5)** | ** ** | **Equity  Incentive  Plan Awards:  Market or  Payout  Value of  Unearned  Shares,  Units or  Other  Rights That  Have Not  Vested (4)** | ** ** |   |
| **M. S. Gilliland** | ** ** | **1,863**                                                                      | ** ** | **—**                                                                       | ** ** | **$**                       | **31.48** | ** ** | **23-Mar-08** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **          | ** ** | **3,680**                                                                      | ** ** | **—**                                                                       | ** ** | **$**                       | **35.72** | ** ** | **22-Mar-09** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **          | ** ** | **11,357**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **53.11** | ** ** | **26-Apr-09** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **          | ** ** | **56,782**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **44.19** | ** ** | **13-Dec-09** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **          | ** ** | **20,000**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **24.09** | ** ** | **18-Jul-10** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **          | ** ** | **42,750**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **36.59** | ** ** | **01-Dec-10** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **          | ** ** | **70,000**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **37.63** | ** ** | **14-Jan-12** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **          | ** ** | **28,125**                                                                     | ** ** | **1,875**                                                                        | ** ** | **$**                       | **18.43** | ** ** | **14-Jan-13** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **          | ** ** | **93,750**                                                                     | ** ** | **31,250**                                                                       | ** ** | **$**                       | **20.45** | ** ** | **02-Dec-13** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **          | ** ** | **32,812**                                                                     | ** ** | **42,188**                                                                       | ** ** | **$**                       | **20.92** | ** ** | **07-Feb-15** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **          | ** ** | ** **                                                                     | ** ** | ** **                                                                       | ** ** | ** **                  | ** ** |   |   | **237,523** |   | **$** | **7,574,608** |   | ** ** | **100,000** |   | ** ** | ** ** | **$** | **3,189,000** |   |   |
| **J. M. Jackson**   | ** ** | **66,096**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **35.36** | ** ** | **13-Aug-08** |   |   |   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** |   |   |
| ** **          | ** ** | **17,035**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **41.08** | ** ** | **25-Jan-09** |   |   |   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** |   |   |
| ** **          | ** ** | **113,564**                                                                    | ** ** | **—**                                                                       | ** ** | **$**                       | **44.19** | ** ** | **13-Dec-09** |   |   |   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** |   |   |
| ** **          | ** ** | **50,000**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **36.59** | ** ** | **01-Dec-10** |   |   |   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** |   |   |
| ** **          | ** ** | **70,000**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **37.63** | ** ** | **14-Jan-12** |   |   |   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** |   |   |
| ** **          | ** ** | **28,125**                                                                     | ** ** | **1,875**                                                                        | ** ** | **$**                       | **18.43** | ** ** | **14-Jan-13** |   |   |   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** |   |   |
| ** **          | ** ** | **13,750**                                                                     | ** ** | **6,250**                                                                        | ** ** | **$**                       | **22.09** | ** ** | **20-Jan-14** |   |   |   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** |   |   |
| ** **          | ** ** | **8,050**                                                                      | ** ** | **10,350**                                                                       | ** ** | **$**                       | **20.92** | ** ** | **07-Feb-15** |   |   |   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** |   |   |
| ** **          | ** ** | ** **                                                                     | ** ** | ** **                                                                       | ** ** | ** **                  | ** ** |   |   | **109,677** |   | **$ 3,497,600** | ** ** | ** ** | **49,450** |   | ** ** | ** ** | **$** | **1,576,961** |   |   |
| **M. A. Peluso**    | ** ** | **35,040**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **47.90** | ** ** | **27-Mar-12** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **4,000**                                                                      | ** ** | **—**                                                                       | ** ** | **$**                       | **33.05** | ** ** | **08-Jul-12** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **7,500**                                                                      | ** ** | **500**                                                                          | ** ** | **$**                       | **17.99** | ** ** | **28-Jan-13** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **25,000**                                                                     | ** ** | **5,000**                                                                        | ** ** | **$**                       | **20.45** | ** ** | **02-Dec-13** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **8,050**                                                                      | ** ** | **10,350**                                                                       | ** ** | **$**                       | **20.92** | ** ** | **07-Feb-15** |   |   |   | ** ** | ** ** | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | ** **                                                                     | ** ** | ** **                                                                       | ** ** | ** **                  | ** ** |   |   | **76,125** |   | **$** | **2,427,626** |   | ** ** | **34,600** |   | ** ** | ** ** | **$** | **1,103,394** |   |   |
| **T. Klein**        | ** ** | **443**                                                                        | ** ** | **—**                                                                       | ** ** | **$**                       | **23.11** | ** ** | **21-Mar-07** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **364**                                                                        | ** ** | **—**                                                                       | ** ** | **$**                       | **22.67** | ** ** | **01-May-07** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **2,704**                                                                      | ** ** | **—**                                                                       | ** ** | **$**                       | **31.48** | ** ** | **23-Mar-08** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **4,430**                                                                      | ** ** | **—**                                                                       | ** ** | **$**                       | **35.72** | ** ** | **22-Mar-09** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **4,543**                                                                      | ** ** | **—**                                                                       | ** ** | **$**                       | **42.93** | ** ** | **18-Jan-10** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **6,500**                                                                      | ** ** | **—**                                                                       | ** ** | **$**                       | **49.44** | ** ** | **16-Mar-10** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **8,000**                                                                      | ** ** | **—**                                                                       | ** ** | **$**                       | **24.09** | ** ** | **18-Jul-10** |   | ** ** |   | ** ** |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **15,000**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **36.59** | ** ** | **01-Dec-10** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **40,000**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **37.63** | ** ** | **14-Jan-12** |   |   |   |   |   | ** ** | ** ** |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **14,062**                                                                     | ** ** | **938**                                                                          | ** ** | **$**                       | **18.43** | ** ** | **14-Jan-13** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **10,312**                                                                     | ** ** | **4,688**                                                                        | ** ** | **$**                       | **22.09** | ** ** | **20-Jan-14** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **8,050**                                                                      | ** ** | **10,350**                                                                       | ** ** | **$**                       | **20.92** | ** ** | **07-Feb-15** |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | ** **                                                                     | ** ** | ** **                                                                       | ** ** | ** **                  | ** ** | ** ** |   | **100,244** |   | **$** | **3,196,781** |   | ** ** | **49,450** |   | ** ** | ** ** | **$** | **1,576,961** |   |   |
| **D. A. Schwarte**  | ** ** | **100,000**                                                                    | ** ** | **—**                                                                       | ** ** | **$**                       | **39.50** | ** ** | **27-Mar-10** |   | ** ** |   | ** ** |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **35,000**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **36.59** | ** ** | **01-Dec-10** |   | ** ** |   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **45,000**                                                                     | ** ** | **—**                                                                       | ** ** | **$**                       | **37.63** | ** ** | **14-Jan-12** |   | ** ** |   | ** ** |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **28,125**                                                                     | ** ** | **1,875**                                                                        | ** ** | **$**                       | **18.43** | ** ** | **14-Jan-13** |   | ** ** |   | ** ** |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **10,312**                                                                     | ** ** | **4,688**                                                                        | ** ** | **$**                       | **22.09** | ** ** | **20-Jan-14** |   | ** ** |   | ** ** |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | **5,232**                                                                      | ** ** | **6,728**                                                                        | ** ** | **$**                       | **20.92** | ** ** | **07-Feb-15** |   | ** ** |   | ** ** |   | ** ** |   |   | ** ** | ** ** |   |   |   |
| ** **          | ** ** | ** **                                                                     | ** ** | ** **                                                                       | ** ** | ** **                  | ** ** | ** ** |   | **59,182** |   | **$** | **1,887,314** |   | ** ** | **17,700** |   | ** ** | ** ** | **$** | **542,130** |   |   |
|                     |            |                                                                                |            |                                                                                  |            |                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                   Fully-vested stock options awarded underthe Amended and Restated 1996 Long-Term Incentive Plan.

(2)                   Stock options awarded under the Amendedand Restated 1996 Long-Term Incentive Plan and the Amended and Restated 2005Long-Term Incentive Plan.Twenty-five percent of the options vested one year from date of grant and theremainder vest 6.25% per quarter over the next 36 months.

(3)                   Restricted stock awarded under the Amendedand Restated 1996 Long-Term Incentive Plan and the Amended and Restated2005 Long-Term Incentive Plan. Restricted stock vest in 25% increments on the first, second, thirdand fourth anniversary of the date of grant.

2003 Grants—Mr. Gilliland, Mr. Jackson,Ms. Peluso, Mr. Klein and Mr. Schwarte hold 10,023, 10,227,2,525, 5,794 and 9,682 restricted shares, respectively, that were granted in2003 and will vest on January 14, 2007.

2004 Grants—Mr. Gilliland, Mr. Jackson,Ms. Peluso, Mr. Klein and Mr. Schwarte hold 33,750, 20,000,5,000, 10,000 and 13,000 restricted shares, respectively, that were granted in2004. Grants to Mr. Gilliland and Ms. Peluso will vest in two equalinstallments on January 5, 2007 and January 5, 2008. Grants to Mr. Jackson,Mr. Klein and Mr. Schwarte will vest in two equal installments on January 20,2007 and January 20, 2008.

Ms. Pelusoalso holds 4,000 restricted shares that were granted in 2004 and will vest on January 5,2007.

156

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Mr. Kleinalso holds 5,000 restricted shares that were granted in 2004 and will vest intwo equal installments on July 23, 2007 and July 23, 2008.

2005 Grants—Mr. Gilliland, Mr. Jackson,Ms. Peluso, Mr. Klein and Mr. Schwarte hold 93,750, 30,000,30,000, 30,000 and 19,500 restricted shares, respectively, that were granted in2005 and will vest in three equal installments on February 7, 2007; February 7,2008 and February 7, 2009.

2006 Grants—Mr. Gilliland, Mr. Jackson,Ms. Peluso, Mr. Klein and Mr. Schwarte hold 100,000, 49,450,34,600, 49,450 and 17,000 restricted shares, respectively, that were granted in2006 and will vest in four equal installments on February 13, 2007; February 13,2008; February 13, 2009 and February 13, 2010.

(4)                   Reflects the value as calculated using theclosing stock price of $31.89 per share on December 29, 2006 which was thelast trading data of fiscal year 2006.

(5)                   Performance share awards granted toexecutives in 2006 under the Amended and Restated 1996 Long-Term Incentive Plan.The performance shares may vest up to 25% per year over four years based on ourtotal shareholder return compared to the S&P 500 companies. In year one,the performance shares will vest based on total shareholder return for 2006; inyear two, the performance shares will vest based on total shareholder returnfor 2006 through 2007; in year three, the performance shares will vest based ontotal shareholder return for 2006 through 2008; and in year four, theperformance shares will vest based on total shareholder return for 2006 through2009.

To the extent actual performanceresults in this measure fail to meet certain threshold levels of performanceduring the performance period, no performance shares will be paid with respectto such objective. To the extent actual results exceed target levels ofperformance, a varying number of actual shares will be earned, from 0% to 100%of the target award. This amount reflects the maximum number of shares (i.e.100% of target) that may be earned because performance share awards will payout at 100% of target for the first tranche based on 2006 performance.

**OPTION EXERCISES AND STOCK VESTED**

|                  | ** ** | **Option Awards** | ** ** | **Stock Awards (1)**                             | ** ** |
|------------------|------------|------------------------|------------|------------------------------------------------------------|------------|
| **Name**         | ** ** | ** **             | ** ** | **Number of Shares  Acquired on  Exercise** | ** ** | **Value Realized on  Exercise** | ** ** | **Number of Shares  Acquired on Vesting** | ** ** | **Value Realized on  Vesting** | ** ** |
| M. S.  Gilliland |       |                   | —     |                                                       |       |   | $ |       — |   |   |   | 58,147 |   |   |   | $ | 1,416,134 |   |   |
| J. M. Jackson    |       |                   | —     |                                                       |       |   | — |   |   |   | 30,227 |   |   |   | 732,072 |   |   |
| M. A. Peluso     |       |                   | —     |                                                       |       |   | — |   |   |   | 21,024 |   |   |   | 510,767 |   |   |
| T. Klein         |       |                   | —     |                                                       |       |   | — |   |   |   | 23,294 |   |   |   | 554,663 |   |   |
| D. A. Schwarte   |       |                   | —     |                                                       |       |   | $ | — |   |   |   | 22,681 |   |   |   | $ | 551,637 |   |   |
|                  |            |                        |            |                                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)            Amounts includerestricted stock that vested in 2006. Value realized is calculated by thenumber of shares vesting multiplied by the market price of our common stock asof the date of vesting.

| Executive        | ** ** | ** ** | ** ** | **Grant Date** | ** ** | **Shares  Vested** | ** ** | **Stock Price  on Date of  Vesting** | ** ** |
|------------------|------------|------------|------------|---------------------|------------|--------------------|------------|-----------------------------------------------------|------------|
| M. S.  Gilliland |       | 1/14/2003  |       | 10,022              |       |               | $          | 24.99                                               |       |   |
|             |       | 1/5/2004   |       | 16,875              |       |               | 24.78      |                                                |       |
|             |       | 2/7/2005   |       | 31,250              |       |               | 23.93      |                                                |       |
| J. M. Jackson    |       | 1/14/2003  |       | 10,227              |       |               | 24.99      |                                                |       |
|             |       | 1/20/2004  |       | 10,000              |       |               | 23.73      |                                                |       |
|             |       | 2/7/2005   |       | 10,000              |       |               | 23.93      |                                                |       |
| M. Peluso        |       | 1/28/2003  |       | 2,524               |       |               | 24.14      |                                                |       |
|             |       | 1/5/2004   |       | 8,500               |       |               | 24.78      |                                                |       |
|             |       | 2/7/2005   |       | 10,000              |       |               | 23.93      |                                                |       |
| T. Klein         |       | 1/14/2003  |       | 5,794               |       |               | 24.99      |                                                |       |
|             |       | 1/20/2004  |       | 5,000               |       |               | 23.73      |                                                |       |
|             |       | 7/23/2004  |       | 2,500               |       |               | 20.80      |                                                |       |
|             |       | 2/7/2005   |       | 10,000              |       |               | 23.93      |                                                |       |
| D. Schwarte      |       | 1/14/2003  |       | 9,681               |       |               | 24.99      |                                                |       |
|             |       | 1/20/2004  |       | 6,500               |       |               | 23.68      |                                                |       |
|             |       | 2/7/2005   |       | 6,500               |       |               | $          | 23.93                                               |       |   |

 

157

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**Retirement Plans**

The followingtable sets forth information regarding defined benefit pension benefits payableto each named executive officer. Effective December 31, 2005, the Companydiscontinued accruing benefits under these programs, although age and years ofservice will continue to be credited toward vesting and meeting eligibility tocommence retirement benefits prior to normal retirement age 65.

Upon the freeze of benefit accruals of the pension plans, participantsbecame eligible in 2006 to receive company contributions under the Company’sdefined contribution plans. Refer to the Compensation Discussion and Analysisfor additional information regarding both of these programs.

**PENSION BENEFITS**

| Name            | ** ** | ** **          | ** ** | **Plan Name** | ** ** | **Number of Years  Credited Service** | ** ** | **Present Value of  Accumulated  Benefit** | ** **                                                                      | **Payments During  Last Fiscal Year** | ** ** |
|-----------------|------------|---------------------|------------|--------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|---------------------------------------------------------------------------------|------------------------------------------------------|------------|
| M. S. Gilliland |       | Legacy Pension Plan |       |               | 8.0        |                                                 |       |                                                 | $                                                                               | 134,348                                              |       |   |   | $ |     — |   |   |
|            |       | Legacy SERP         |       |               | 17.0       |                                                 |       |                                                 | 760,980                                                                         |                                                 |       |   | — |   |   |
| J. M. Jackson   |       | Legacy Pension Plan |       |               | 20.5       |                                                 |       |                                                 | 451,482                                                                         |                                                 |       |   | — |   |   |
|            |       | Legacy SERP         |       |               | 20.5       |                                                 |       |                                                 | 1,162,097                                                                       |                                                 |       |   | — |   |   |
| M. A. Peluso    |       |                |       |               | —     |                                                 |       |                                                 | —                                                                          |                                                 |       |   | — |   |   |
| T. Klein        |       | Legacy Pension Plan |       |               | 7.5        |                                                 |       |                                                 | 127,065                                                                         |                                                 |       |   | — |   |   |
|            |       | Legacy SERP         |       |               | 7.5        |                                                 |       |                                                 | 73,293                                                                          |                                                 |       |   | — |   |   |
| D. A. Schwarte  |       |                |       |               | —     |                                                 |       |                                                 | $            — |                                                 |       |   | $ |     — |   |   |

 

(1)    Elements of the change inpresent value of the Legacy Pension Plan benefit for 2006 include:

| Name            | ** ** | ** ** | ** ** | **Service/ Pay  Increase** | ** ** | **Passage of  Time** | ** ** | **New Discount  Rate** | ** ** | **Other  Assumptions** | ** ** |
|-----------------|------------|------------|------------|---------------------------------|------------|---------------------------|------------|-----------------------------|------------|------------------------|------------|
| M. S. Gilliland |       |       | $          |     —  |       |                      |       | $                           | 7,784      |                   |       |   | $ | (8,815 | ) |   |   | $ |     — |   |   |
| J. M. Jackson   |       |       | —     |                            |       |                      | 25,773     |                        |       |                   | (22,521    | ) |   |   | — |   |   |
| T. Klein        |       |       | $          |     —  |       |                      |       | $                           | 7,363      |                   |       |   | $ | (8,345 | ) |   |   | $ |     — |   |   |

 

(2)    Elements of the change inpresent value of the Legacy Pension Plan SERP benefit for 2006 include:

| Name            | ** ** | ** ** | ** ** | **Service/ Pay  Increase** | ** ** | **Passage of  Time** | ** ** | **New Discount  Rate** | ** ** | **Other  Assumptions** | ** ** |
|-----------------|------------|------------|------------|---------------------------------|------------|---------------------------|------------|-----------------------------|------------|------------------------|------------|
| M. S. Gilliland |       |       | $          |     —  |       |                      |       | $                           | 44,092     |                   |       |   | $ | (49,933 | ) |   |   | $ |     — |   |   |
| J. M. Jackson   |       |       | —     |                            |       |                      | 66,339     |                        |       |                   | (57,968    | ) |   |   | — |   |   |
| T. Klein        |       |       | $          |     —  |       |                      |       | $                           | 4,247      |                   |       |   | $ | (4,814 | ) |   |   | $ |     — |   |   |

 

(3)    Values are calculated using the same assumptions as weredisclosed in the footnotes to the financials as of December 31, 2006 and December 31,2005.

**Legacy Pension Plan (LPP)—****The**plan covers anyemployee of Sabre who was a participant in the American Airlines plan on December 31,1996 or subsequently transferred from American Airlines to Sabre prior to March 15,2000 and was an AA plan participant prior to the transfer.

Pensionable pay is defined as a member’s regular pay includingcommissions and 401(k) salary reduction amounts but excluding overtime,shift differentials, bonuses, variable compensation and expenses. Final averagecompensation is defined as the highest 60 months of consecutive pensionable payout of the last 120 consecutive months of plan participation. The plan wasamended December 31, 2005 to freeze all future benefit accruals;therefore, pensionable pay and credited service after this date will not resultin any additional pension benefits.

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The benefit payable at the plan’s normalretirement date of age 65 is the greatest of (a), (b), (c) or (d):

(a)    One-twelfth of the basic retirement benefit accrued April 1,1978 under the provisions of the prior plan, plus 1.25% of pensionable pay foreach subsequent calendar year through 2005 not in excess of $6,600, plus 2% ofsuch pensionable pay in excess of $6,600.

(b)    1.667% of final average compensation multiplied by creditedservice.

(c)    The monthly amount shownbelow, multiplied by credited service.
| Final Average Compensation | ** ** | ** ** | ** ** | **Monthly Amount** | ** ** |
|--------------------------------------|------------|------------|------------|-------------------------|------------|
| Less than $15,000                    |       |       | $          | 23.50                   |       |   |
| $15,000 and over                     |       |       | $          | 24.00                   |       |   |

 

(d)    2% of final average compensation multiplied by credited service(the base benefit), less 1.5% of the Social Security amount multiplied bycredited service, not greater than 33-1/3 years. If the annual basebenefit exceeds $50,000, the benefit is offset by an additional amount of 2% ofthe Social Security amount (up to 50%) for each $1,000 that the base benefitexceeds $50,000

Participants may retire before normalretirement date and on or after attaining the earlier of:

·       Age55 and completing 15 years of credited service, or

·       Age62 and completing 10 years of credited service

Benefits will be reduced for early retirement by 3.0% for each yearpayments begin prior to age 62, and 3% for each year payments begin prior toage 65 if an employee does not have 15 years of credited service at retirement.

The normal form of payment is a straight life annuity. Otheractuarially equivalent optional forms, other than lump sum payment, are available.

**Supplemental Executive Retirement Plan (SERP)—**Theplan covers employees of Sabre whose pensionable pay exceeds the Section 401limits and who are designated by the SERP Committee. The plan was amended December 31,2005 to freeze all future benefit accruals in the defined benefit portion ofthe SERP; therefore, pay and credited service after this date will not resultin any additional pension benefits.

The total benefit is defined as the frozen annual amount of aparticipant’s or a beneficiary’s benefit under the LPP computed as of the planfreeze date without regard to IRS limits. The excess retirement benefit isdefined as the amount by which the total benefit exceeds the LPP benefit. Forgrandfathered officers, the 401(k) balance as of December 31, 2005,increased with investment return to retirement age, is used as an offset. Earlyretirement provisions are the same as defined in the LPP for employeesparticipating in the defined benefit portion of the SERP.

The normal form of payment is a straight life annuity. In addition tothe same actuarially equivalent optional forms of monthly payment offered underthe LPP, SERP participants may also elect to receive their benefit in the formof a lump sum payment. Such election must be made no later than one year priorto the date of retirement. Lump sum values are determined based on the1994 GARmortality table and a 30-year Treasury interest rate.

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**Other Benefits**

Certainemployees, including some of the named executive officers, are eligible forretiree travel privileges and retiree health benefits. Additional informationabout these plans follow.

**Retiree Travel Privileges—****Certain**retirees whomeet eligibility requirements are offered lifetime travel privileges on a majorair carrier. Among the named executive officers, only Mr. Jackson iseligible for this benefit. The company pays the major air carrier a one-timepayment upon the eligible employee’s date of retirement. The current amount ofthe payment is approximately $22,125. The plan covers employees who were hiredbefore March 16, 2000 (and not rehired after this date). Employees must beat least age 50 with 15 years of service and terminate from employment by June 30,2008 to receive privileges under this plan. Those hired before July 31,1996 can receive travel privileges if they leave by June 30, 2008 andafter age 55 with at least 5 years of service. Commencement of privileges isimmediate for those who leave after age 55 with at least 10 years of serviceand is deferred to age 55 for those who leave at ages 50 to 54 with 15 or moreyears of service.

**Retiree Health Benefits—****Employees**who leavethe Company after attaining age 55 with at least 10 years of service areeligible for continuation of their medical, dental and vision benefitscoverage. Among the named executive officers, Mr. Gilliland, Mr. Jackson,Mr. Klein and Mr. Schwarte are eligible for this benefit. Retireebenefits may begin immediately or be deferred to a later date at the retiree’selection. Employees who leave the Company after attaining age 50 with at least10 years of service are eligible for benefits commencing as early as age 55. Employeeswho were hired or rehired on or after October 1, 2000 and who meet theeligibility requirements above may participate in retiree benefits coverage,but will not receive any company subsidy toward the cost of coverage. TheCompany capped its subsidy toward the cost of retiree coverage as of January 1,2005 and future cost increases will increase premiums of retirees eligible forthe subsidy.

**Nonqualified Deferred Compensation**

Named executive officers have theopportunity to participate in deferred compensation plans. Ourdeferred compensation plans allow participants to defer base salary or bonuspayments on a pre-tax basis. Annual 401(k) contribution limits impact theability of highly compensated individuals to save and invest on a pre-tax basis.Our deferred compensation program provides our named executive officers with ameans to augment savings and investment opportunities to meet their retirementor other needs. Company contributions to each named executive during the lastfiscal year reflect 401(k) plan contributions in excess of IRS incomelimits.

**NONQUALIFIED DEFERRED COMPENSATION**

| Name             | ** ** | ** **                  | ** ** | **Plan Name** | ** ** | **Executive  Contributions in  2006** | ** ** | **Registrant  Contributions in  2006** | ** ** | **Aggregate  Earnings in 2006** | ** ** | **Aggregate  Withdrawals /  Distributions** | ** ** | **Aggregate Balance  at December 31,  2006** | ** ** |
|------------------|------------|-----------------------------|------------|--------------------|------------|--------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------|------------|
| M. S.  Gilliland |       | 401(k) SERP            |       |               | $          |     —             |       |                                        |       | $                                         | 88,454     |                                             |       |                                                        | $          | 42,223 |   |   |   | $ |     — |   |   |   | $ | 343,374 |   |   |
| J. M. Jackson    |       | 401(k) SERP            |       |               | —     |                                       |       |                                        | 39,255     |                                      |       |                                             | 3,079      |                                                        |       |   | — |   |   |   | 42,334 |   |   |
| M. A. Peluso     |       | 401(k) SERP            |       |               | —     |                                       |       |                                        | 35,682     |                                      |       |                                             | 9,434      |                                                        |       |   | — |   |   |   | 84,131 |   |   |
| T. Klein         |       | 401(k) SERP            |       |               | —     |                                       |       |                                        | 30,900     |                                      |       |                                             | 16,193     |                                                        |       |   | — |   |   |   | 134,108 |   |   |
|             |       | Deferred  Compensation Plan |       |               | —     |                                       |       |                                        | —     |                                      |       |                                             | 41,345     |                                                        |       |   | — |   |   |   | 353,813 |   |   |
| D. A. Schwarte   |       | 401(k) SERP            |       |               | $          |     —             |       |                                        |       | $                                         | 26,161     |                                             |       |                                                        | $          | 24,565 |   |   |   | $ |     — |   |   |   | $ | 148,095 |   |   |

 

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**Post Termination Benefits**

Each of ournamed executive officers is party to individual, formal agreements that providecompensation and benefits in the event of their termination of employment withus.

**Executive****Change in Control Termination BenefitsAgreements—****We**have executive termination benefits agreements with certain senior executives,including our named executive officers, each for a term of three years withautomatic three year extensions unless expressly not renewed at least180 days before the renewal date. The benefits are payable under theseagreements (i) if we terminate the executive’s employment without causeduring the 180 days before or 24 months after a change in control, or(ii) if the executive resigns for good reason during the first 24 monthsafter a change in control (as such terms are defined in the agreements). Inaddition, the agreements for Messrs. Gilliland, Jackson and Schwarteprovide benefits if the executive resigns for any reason during the 30-dayperiod beginning one year after a change in control. If the executive’semployment is terminated in connection with a change in control for cause, oras a consequence of death, disability, or retirement, the agreements do notprovide any enhanced termination benefits.

Upon a termination in connection with a change in control as describedabove (including a resignation during the 30-day post-change-in-controlwindow period described above for Messrs. Gilliland, Jackson andSchwarte), the executive will receive the following payments and benefits:

**CHANGE IN CONTROL BENEFITS (1)**

|                                               | ** ** | **Gilliland** | ** ** | **Jackson** | ** ** | **Peluso** | ** ** | **Klein**  | ** ** | **Schwarte** | ** ** |
|-----------------------------------------------|------------|---------------|------------|-------------|------------|------------|------------|------------|------------|--------------|------------|
| **Compensation:**                             | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** **   | ** ** |
| Severance Pay (2)                             |       | $             | 6,000,000  |        | $          | 2,850,000  |       | $          | 2,391,346  |         | $          | 2,100,462 |   | $ | 1,991,817 |   |
| Prorata Incentive Pay                         |       | —        |       | —      |       | —     |       | —     |       | —       |       |
| *Long-term Compensation*                      | * *   | * *      | * *   | * *    | * *   | * *   | * *   | * *   | * *   | * *     | * *   |
| Performance Shares (3)                        |       | 2,403,270     |       | 1,188,417   |       | 831,532    |       | 1,188,417  |       | 408,556      |       |
| Stock Options and Restricted Stock (3)        |       | 8,420,516     |       | 3,697,679   |       | 2,605,395  |       | 3,368,940  |       | 2,032,334    |       |
| **Benefits and Perquisites:**                 | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** **   | ** ** |
| Incremental Non-Qualified Pension (4)         |       | 360,000       |       | 171,000     |       | 143,481    |       | 126,028    |       | 119,509      |       |
| H&W Benefits (5)                          |       | 49,691        |       | 37,991      |       | 9,766      |       | 26,587     |       | 51,431       |       |
| Executive Benefits and Perquisites (6)        |       | 61,472        |       | 87,931      |       | 13,134     |       | 25,527     |       | 16,344       |       |
| One-Time Payment (7)                          |       | 20,000        |       | 20,000      |       | 20,000     |       | 20,000     |       | 20,000       |       |
| Excise Tax Gross-up on Severance Benefits (8) |       | 4,099,961     |       | 1,608,044   |       | 1,607,804  |       | 1,573,749  |       | 949,344      |       |
| **Total**                                     |       | $             | 21,414,911 |        | $          | 9,661,062  |       | $          | 7,622,457  |         | $          | 8,429,710 |   | $ | 5,589,335 |   |

----

(1)            Thechange in control calculations assume that on December 29, 2006, (i) achange-in-control occurred and (ii) each of the executives’ employmentterminated without cause.

(2)            Theseamounts represent three times the sum of base salary plus target annualincentive pay for Messrs. Gilliland and Jackson. These amounts representsthree times the sum of base salary plus the highest actual annual incentivepaid within the past three years for Mr. Schwarte, and two times the sumof base salary plus the highest actual annual incentive paid within the pasttwo years for Ms. Peluso and Mr. Klein.

(3)            Amountincludes intrinsic value of unvested stock options, restricted stock andperformance shares, and the value of earned performance shares which areunvested, based on a stock price of $31.89 per share which represents theclosing market price of our common stock on December 29, 2006.

(4)            Includesthe enhanced benefit earned upon a change in control.

161

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(5)            Theseamounts represent three times the sum of the executives’ current health andwelfare benefits for Messrs. Gilliland, Jackson and Schwarte and two timesthe sum of executives’ current health and welfare benefits for Ms. Pelusoand Mr. Klein.

(6)            Theseamounts represent three times the sum of the executives’ current executivebenefits and perquisites for Messrs. Gilliland, Jackson and Schwarte andtwo times the sum of executives’ executive benefits and perquisites for Ms. Pelusoand Mr. Klein. Messrs. Gilliland and Jackson are also eligible forthe company providing a value or benefit equivalent to the extension of travelprivileges beyond June 2008; the value of this benefit is indeterminableand has been excluded from the calculation of CIC benefits.

(7)            Representsone-time payment paid to executives for additional benefits.

(8)            Estimatedadditional payment to executives to offset for excise taxes imposed by 280G.

**Other****Termination ScenariosNot in Connection with a Change in Control—****Sabre also**maintainsemployment agreements with the Named Executive Officers. When the employmentagreements do not address all of the components of compensation, we havereferences the appropriate plan documents for our termination scenarios.

**TERMINATION SCENARIOS (1) **

|                   | ** ** | **Gilliland**                  | ** ** | **Jackson** | ** ** | **Peluso**     | ** ** |
|-------------------|------------|--------------------------------|------------|-------------|------------|----------------|------------|
| ** **        | ** ** | **Voluntary &  For Cause** | ** ** | **Death**   | ** ** | **Disability** | ** ** | **Without  Case** | ** ** | **Voluntary &  For Cause** | ** ** | **Death** | ** ** | **Disability** | ** ** | **Without  Case** | ** ** | **Voluntary &  For Cause** | ** ** | **Death** | ** ** | **Disability** | ** ** | **Without  Case** | ** ** |
| **Compensation:** | ** ** |                           |       | ** **  | ** ** |           | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |
|                   |            |                                |            |             |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Severance Pay (2)                               |       | $      | —   |       | $          | —   |       |       | $        | —     | ** ** |   | $        | 4,000,000  |       | $        | —     |       | $        | —     |       |   | $        | —     | ** ** |     | $          | 950,000    |     | $          | —     |   | $ | —  |   |   | $ | —  | ** ** |   | $ | 1,800,000 |   |
|-------------------------------------------------|------------|--------|----------|------------|------------|----------|------------|------------|----------|------------|------------|--------|----------|------------|------------|----------|------------|------------|----------|------------|------------|--------|----------|------------|------------|----------|------------|------------|----------|------------|------------|--------|---|---------|--------|--------|---|---------|------------|--------|---|-----------|--------|
| Prorata Incentive Pay                           |       | — |     | —     |       |     | —     | ** ** |     | —     |       | — |     | —     |       |     | —     | ** ** |     | —     |       | — |     | —     |       |     | —     | ** ** |     | —     |       |
| *Long-term Compensation  (3)*                   | * *   |   | * * | * *   | * *   | * * | * *   | ** ** | * * | * *   | * *   |   | * * | * *   | * *   | * * | * *   | ** ** | * * | * *   | * *   |   | * * | * *   | * *   | * * | * *   | ** ** | * * | * *   | * *   |
| Performance Shares (4)                     |       | — |     | —     |       |     | —     | ** ** |     | 797,250    |       | — |     | —     |       |     | —     | ** ** |     | 394,256    |       | — |     | —     |       |     | —     | ** ** |     | 275,849    |       |
| Stock Options (5)                               |       | — |     | 845,907    |       |     | 845,907    | ** ** |     | 166,097    |       | — |     | 200,079    |       |     | 200,079    | ** ** |     | —     |       | — |     | 177,769    |       |     | 177,769    | ** ** |     | 33,880     |       |
| Restricted Stock (6)                            |       | — |     | —     |       |     | —     | ** ** |     | 2,651,590  |       | — |     | —     |       |     | —     | ** ** |     | 1,358,195  |       | — |     | —     |       |     | —     | ** ** |     | 754,996    |       |
| LastMinute.com Cash Performance  Award (7) |       | — |     | —     |       |     | —     | ** ** |     | —     |       | — |     | —     |       |     | —     | ** ** |     | —     |       | — |     | 525,000    |       |     | 525,000    | ** ** |     | —     |       |
| **Benefits and Perquisites  (8):**              | ** ** |   |     | ** ** | ** ** |     | ** ** | ** ** |     | ** ** | ** ** |   |     | ** ** | ** ** |     | ** ** | ** ** |     | ** ** | ** ** |   |     | ** ** | ** ** |     | ** ** | ** ** |     | ** ** | ** ** |
| Health and Welfare                              |       | — |     | —     |       |     | —     | ** ** |     | 16,564     |       | — |     | —     |       |     | —     | ** ** |     | 12,664     |       | — |     | —     |       |     | —     | ** ** |     | 4,883      |       |
| Executive Benefits and Perquisites              |       | — |     | —     |       |     | —     | ** ** |     | —     |       | — |     | —     |       |     | —     | ** ** |     | —     |       | — |     | —     |       |     | —     | ** ** |     | —     |       |
| One-Time Payment                                |       | — |     | —     |       |     | —     | ** ** |     | 20,000     |       | — |     | —     |       |     | —     | ** ** |     | 20,000     |       | — |     | —     |       |     | —     | ** ** |     | 20,000     |       |
| **Total**                                       |       | $      | —   |       | $          | 845,907  |       |       | $        | 845,907    | ** ** |   | $        | 7,651,500  |       | $        | —     |       | $        | 200,079    |       |   | $        | 200,079    | ** ** |     | $          | 2,735,115  |     | $          | —     |   | $ | 702,769 |   |   | $ | 702,769 | ** ** |   | $ | 2,889,607 |   |

 

|                                            | ** ** | **Klein**                | ** ** | **Schwarte** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|--------------|------------|
| ** **                                 | ** ** | **Voluntary &** | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | **Voluntary &** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **For Cause**       | ** ** | **Death**    | ** ** | **Disability** | ** ** | **Without Case** | ** ** | **For Cause** | ** ** | **Death** | ** ** | **Disability** | ** ** | **Without Case** | ** ** |
| **Compensation:**                          | ** ** |                     |       | ** **   | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   |   | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Severance Pay (2)                          |       | $                        | —     |         | $          | — |   |   | $ | — | ** ** |   |   | $ | 1,800,000 | ** ** |   | $ | — |   | $ | — |   |   | $ | — | ** ** |   |   | $ | 620,500 | ** ** |   |
| Prorata Incentive Pay                      |       | —                   |       | —       |       |   | — | ** ** |   |   | — | ** ** |   | — |   | — |   |   | — | ** ** |   |   | — | ** ** |   |
| *Long-term Compensation  (3)*              | * *   |                     | * *   | * *     | * *   | * * | * * | ** ** | * * | * * | * * | ** ** | * * |   | * * | * * | * * | * * | * * | ** ** | * * | * * | * * | ** ** |   |
| Performance Shares (4)                     |       | —                   |       | —       |       |   | — | ** ** |   |   | 394,256 | ** ** |   | — |   | — |   |   | — | ** ** |   |   | 135,533 | ** ** |   |
| Stock Options (5)                          |       | —                   |       | 172,159      |       |   | 172,159 | ** ** |   |   | — | ** ** |   | — |   | 145,020 |   |   | 145,020 | ** ** |   |   | — | ** ** |   |
| Restricted Stock (6)                       |       | —                   |       | —       |       |   | — | ** ** |   |   | 1,137,102 | ** ** |   | — |   | — |   |   | — | ** ** |   |   | 858,861 | ** ** |   |
| LastMinute.com Cash Performance Award  (7) |       | —                   |       | —       |       |   | — | ** ** |   |   | — | ** ** |   | — |   | — |   |   | — | ** ** |   |   | — | ** ** |   |
| **Benefits and Perquisites  (8):**         | ** ** |                     |       | ** **   | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   |   | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Health and Welfare                         |       | —                   |       | —       |       |   | — | ** ** |   |   | 13,294 | ** ** |   | — |   | — |   |   | — | ** ** |   |   | 17,144 | ** ** |   |
| Executive Benefits and Perquisites         |       | —                   |       | —       |       |   | — | ** ** |   |   | — | ** ** |   | — |   | — |   |   | — | ** ** |   |   | — | ** ** |   |
| One-Time Payment                           |       | —                   |       | —       |       |   | — | ** ** |   |   | 20,000 | ** ** |   | — |   | — |   |   | — | ** ** |   |   | 20,000 | ** ** |   |
| **Total**                                  |       | $                        | —     |         | $          | 172,159 |   |   | $ | 172,159 | ** ** |   |   | $ | 3,364,652 | ** ** |   | $ | — |   | $ | 145,020 |   |   | $ | 145,020 | ** ** |   |   | $ | 1,652,037 | ** ** |   |

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(1)        Thetermination calculations assume that on December 29, 2006 each of theexecutives’ employment terminated for several reasons including voluntarytermination, termination for cause, death, disability and termination withoutcause.

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(2)        Theseamounts represent a multiple times the sum of base salary plus target annualincentive pay. The multiples are as follows:

·     For Mr. Gilliland , Ms. Peluso and Mr. Klein,two times for termination without cause.

·     For Messrs. Jackson and Schwarte, one times fortermination without cause.

(3)        Valuesbased on a stock price of $31.89 per share which represents the closing marketprice of our common stock on December 29, 2006.

(4)        Upontermination without cause, executives receive all unvested performance sharesthat would vest within 90 days of termination.

(5)        Upontermination without cause, Mr. Gilliland and Ms. Peluso receive allunvested stock options that would vest within 90 days of termination. Upondeath and disability, all executive receive all unvested stock options.

(6)        Upontermination without cause, executives receive all unvested restricted stockthat would vest within 90 days of termination.

(7)        Representsthe Long-term Incentive Cash Performance Award granted to Ms. Peluso andearned based on the performance of Lastminute.com.

(8)        Upontermination without cause, executives receive a cash payment equal to the sumof executives’ current health and welfare benefits as well as a one-timepayment of $20,000 for outplacement benefits.

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**Compensation Committee Interlocks and Insider Participation**

None of our executive officers serves as a director or member of thecompensation committee of any other entity that has one or more executiveofficers serving as one of our directors or member of our CompensationCommittee. Additionally, no member of our Compensation Committee was during2006, or formerly, an officer or employee of ours or any of our subsidiaries.

**Compensation Committee Report**

TheCompensation Committee of the Board of Directors of Sabre Holdings Corporationhas reviewed and discussed the Compensation Discussion and Analysis sectionincluded in this annual report on Form 10-K with management, andbased on such review and discussions, the Compensation Committee recommended toour Board of Directors that the Compensation Discussion and Analysis beincluded in this annual report on Form 10-K.

The foregoingreport has been submitted by the following members of the CompensationCommittee.

Pamela B. Strobel, ChairmanRoyce S. CaldwellC. J. FraleighRichard G. LindnerGlenn W. Marschel, Jr.Bob L. MartinMary Alice TaylorRichard L. ThomasRon Waters

*The foregoingCompensation Committee Report does not constitute “soliciting material” andshould not be deemed to be “filed” with the Securities and Exchange Commissionor incorporated by reference into any of our other filings under the SecuritiesAct of 1933, as amended, or the Securities Exchange Act of 1934, as amended,except to the extent that we specifically incorporate this Report by referencein any of those filings.*

**ITEM 12.**              SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

**EQUITY COMPENSATION PLAN INFORMATION**

The following table sets forth certaininformation regarding securities authorized for issuance under Sabre Holdings’equity compensation plans as of December 31, 2006.

| ** **                                                      | ** ** | **Equity Compensation Plan Information** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **Plan Category**                                          | ** ** | ** **                                              | ** ** | **Number of securities to  be issued upon exercise  of outstanding options,  warrants and rights(1)(2)** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights(1)(2)** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities  reflected in Column (a))(1)** | ** ** |
| ** **                                                      | ** ** | **(a)**                                                 | ** ** | **(b)** | ** ** | **(c)** | ** ** |
| Equity compensation plans approved by  security holders:        |       |                                                    | 7,638,445  |   |   |   | $ | 29.71 |   |   |   | 12,945,382 | (3) |   |
| Equity compensation plans not approved by  security holders:(4) |       |                                                    | 4,179,147  |   |   |   | $ | 31.53 |   |   |   | 1,659,008 |   |   |
| Total                                                           |       |                                                    | 11,817,592 |   |   |   | $ | 30.35 |   |   |   | 14,604,390 |   |   |
|                                                                 |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)    Excludes 1,063,731 sharesof Common Stock to be issued upon the exercise of outstanding options and SARsunder the following assumed plans: GetThere.com, Inc. 1996 Stock IncentivePlan and GetThere.com, Inc. 

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1999 Stock Incentive Plan (together, known as the “GetThere Plans”), andTravelocity.com LP 1999 Long-Term Incentive Plan, Travelocity.com LP SecondAmended 1999 Long-Term Incentive Plan, Travelocity Holdings, Inc. Amended1999 Long-Term Incentive Plan, and Preview Travel, Inc. 1997 Stock OptionPlan (together, known as the “Travelocity Plans”). In connection with theacquisition of GetThere.com, Inc. and the buy-in ofTravelocity.com Inc., the Corporation assumed these plans and convertedall outstanding options to options for Common Stock. These converted optionsremain subject to their original plans and are administered under theiroriginal terms and conditions. No future grants will be made under these plans.The number of securities to be issued upon exercise of outstanding options andSARs for assumed plans is as follows: GetThere Plans—164,460, Travelocity Plans—899,271.Weighted average exercise price of outstanding options and SARs for assumedplans are as follows: GetThere Plans—$23.43, Travelocity Plans—$41.54. As ofDecember 31, 2006, an insignificant number of stock appreciation rightsalso remained outstanding in the LTIP and SOP plans and are also excluded from the total.

(2)    Excludes shares purchased under the Sabre Holdings CorporationEmployee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible employeesto purchase Sabre Holdings’ Class A Common Stock at a discount from themarket price of such stock. The ESPP allows participating employees to purchasestock on a quarterly basis at 95 percent of the market price of the stockat the end of the three-month purchase period. A total of 4,000,000shares of Sabre Holdings’ Class A Common Stock have been reserved forissuance under the ESPP. Approximately 36,000, 34,074, 380,000, 480,000, and251,000 shares were issued under the ESPP during 2006, 2005, 2004, 2003, and2002 respectively, and 2,084,970 shares remained available for future purchasesas of December 31, 2005 (included in column c).

(3)    Includes 10,860,412 shares remaining available for issuancepursuant to the 1996 LTIP and 2,084,970 shares remaining available for futurepurchases under the ESPP. Shares remaining available under the 1996 LTIP may beissued pursuant to the exercise of stock options, stock appreciation rights andstock purchase rights, and may be granted as awards of restricted stock (up to2,908,000 shares of restricted stock remain available for grants under the 1996LTIP), deferred stock, performance awards, and other stock-based awards.

(4)    Equity compensation plans not approved by security holdersinclude the Sabre Holdings Corporation 2000 Stock Option Plan (the “2000 StockOption Plan”) and the 1996 Directors’ Stock Incentive Plan (the “1996 DirectorsPlan”), each as described below.

**2000 Stock Option Plan**—The Corporation established the2000 Stock Option Plan to attract, retain, and reward employees with stockoptions or stock appreciation rights. The total number of shares of CommonStock authorized for distribution under the 2000 Stock Option Plan is 7,000,000shares, of which 4,106,463 are subject to outstanding options (at a weightedaverage exercise price of  $31.64), and1,659,008 remain available for future grants. The exercise price of optionsgranted under the plan may not be less than fair market value of Common Stockon the date of grant, and no stock option may be exercisable more than tenyears after the date of grant. Options granted prior to December 1, 2000,have a three-year cliff vesting, options granted on or after December 1,2000, vest 25 percent one year from the date of grant and 6.25 percentquarterly thereafter. Generally, grants made prior to December 2001 areexercisable for 10 years from the date of grant and grants made during orafter December 2001 are exercisable for 5 years from the date ofgrant. Since March 2005, the plan no longer allows shares to becomeavailable for distribution if 1) the exercisable shares are withheld tosettle the exercise price or the tax for another award or 2) the sharesthemselves are used to settle the exercise price or the tax of another award.

**1996 DirectorsPlan**—The 1996Directors Plan, under which grants were made until 1999, provided for annualawards of options to purchase shares of Sabre Holdings’ Common Stock tonon-employee directors. As of December 31, 2006, there were 72,684 optionsoutstanding under the plan at a weighted average exercise price of $25.20. Theoptions have an exercise price equal to the fair market value of SabreHoldings’ Common Stock on the date of grant and vest pro rata over a five-yearperiod. Each option expires on the earlier of (i) the date thenon-employee director ceases to be a director of the Corporation for any reasonother than death, disability, or retirement, or (ii) three years from thedate the non-employee director ceases to be a director of the Corporation dueto death, disability, or retirement.

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**SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

**Executive Officers and Directors**

The following table sets forth certaininformation regarding beneficial ownership of our Common Stock as ofFebruary 20, 2007 (except as noted below) by (i) our executiveofficers, (ii) each director and (iii) all directors and executiveofficers as a group. The number of shares of Common Stock beneficially owned byeach person or entity is determined in accordance with the applicablerules of the SEC, and includes voting or investment power with respect toshares of our Common Stock. The information is not necessarily indicative ofbeneficial ownership for any other purpose. Shares of our Common Stock issuableunder stock options that are exercisable currently or within 60 days ofFebruary 20, 2007 or that may be delivered upon vesting of restrictedstock or restricted stock units currently or within 60 days ofFebruary 20, 2007 are deemed beneficially owned for computing the percentageownership of the person holding the stock options or restricted stock units,but are not deemed outstanding for computing the percentage ownership of anyother person. Unless otherwise indicated, to our knowledge, all persons namedin the table have sole voting and investment power with respect to their sharesof Common Stock, except to the extent authority is shared by spouses undercommunity property laws. Unless otherwise indicated, the address of alldirectors and executive officers is c/o Sabre Holdings Corporation, 3150Sabre Drive, Southlake, Texas 76092. The inclusion of any shares deemedbeneficially owned in this table does not constitute an admission of beneficialownership of those shares.

| Name of Beneficial Owner                  | ** ** | ** ** | ** ** | **Sabre Holdings  Class A  Common Stock(1)** | ** ** | **Percent of  Class** | ** ** | **Total Sabre  Holdings  Equity Stake(2)** | ** ** |
|----------------------------------------------------------|------------|------------|------------|-------------------------------------------------------------|------------|----------------------------|------------|------------------------------------------------------|------------|
| Michael S. Gilliland(3)                                  |       |       | 716,466    |                                                        |       |                       | *          |                                                 |       |   | 852,404 |   |   |
| Royce S. Caldwell(4)                                     |       |       | 32,165     |                                                        |       |                       | *          |                                                 |       |   | 50,791 |   |   |
| Christopher J. Fraleigh(4)                               |       |       | —     |                                                        |       |                       | *          |                                                 |       |   | 9,435 |   |   |
| Richard G. Lindner(4)                                    |       |       | 26,565     |                                                        |       |                       | *          |                                                 |       |   | 48,788 |   |   |
| Glenn W. Marschel, Jr.(4)                           |       |       | 87,196     |                                                        |       |                       | *          |                                                 |       |   | 129,965 |   |   |
| Bob L. Martin(4)                                         |       |       | 51,881     |                                                        |       |                       | *          |                                                 |       |   | 84,091 |   |   |
| Pamela B. Strobel(4)                                     |       |       | 36,165     |                                                        |       |                       | *          |                                                 |       |   | 64,781 |   |   |
| Mary Alice Taylor(4)                                     |       |       | 35,565     |                                                        |       |                       | *          |                                                 |       |   | 64,845 |   |   |
| Richard L. Thomas(4)                                     |       |       | 76,680     |                                                        |       |                       | *          |                                                 |       |   | 111,700 |   |   |
| Ronald V. Waters, III(4)                            |       |       | —     |                                                        |       |                       | *          |                                                 |       |   | 9,435 |   |   |
| Jeffery M. Jackson(5)                                    |       |       | 530,801    |                                                        |       |                       | *          |                                                 |       |   | 580,839 |   |   |
| David A. Schwarte(6)                                     |       |       | 319,855    |                                                        |       |                       | *          |                                                 |       |   | 341,398 |   |   |
| John S. Stow(7)                                          |       |       | 247,845    |                                                        |       |                       | *          |                                                 |       |   | 266,293 |   |   |
| Thomas Klein(8)                                          |       |       | 235,867    |                                                        |       |                       | *          |                                                 |       |   | 284,968 |   |   |
| Michelle Peluso(9)                                       |       |       | 179,934    |                                                        |       |                       | *          |                                                 |       |   | 218,834 |   |   |
| Mark Miller(10)                                          |       |       | 83,247     |                                                        |       |                       | *          |                                                 |       |   | 100,948 |   |   |
| Directors and Executive Officers as a group (16 persons) |       |       | 2,660,232  |                                                        |       |                       | 1.96       | %                                                    |       |   | 3,219,515 |   |   |

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*       Percentage does not exceed one percent of the totaloutstanding class.

(1)    Except as otherwise indicated below and subject to applicablecommunity property laws, ownership of “Sabre Holdings Class A CommonStock” represents sole voting and investment powers with respect to the numberof shares listed.

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(2)    “Total Sabre HoldingsEquity Stake” represents beneficially owned shares, as well as other sharessubject to vesting and/or other restrictions as follows:

·     ExecutiveOfficers: unvested options which will vest during the period betweenMay 2007 and February 2009 and performance shares which may be earnedand vest prior to March 2010, contingent upon the achievement of specificperformance criteria. Shares purchased through the Employee Stock Purchase Planinclude an estimate of the dividend declared February 16, 2007, which willbe paid March 6, 2007, using the fair market value on February 16,2007.

·     Directors:unvested options, DSUs, and deferred SEUs. DSUs and SEUs also include anestimate of the dividend declared February 16, 2007, which will be paidMarch 6, 2007, using the fair market value on February 16, 2007.

(3)    Amounts include 186,597 shares of Sabre Holdings’ Class ACommon Stock owned by Mr. Gilliland and 367,682 shares of Common Stocksubject to options that are vested and currently exercisable, plus anadditional 7,812 shares subject to options vesting between February 20,2007 and April 21, 2007. Amounts also include 154,375 shares of SabreHoldings’ restricted stock to which Mr. Gilliland holds voting rights butwhich are subject to restrictions on transfer. Restrictions lapse onMr. Gilliland’s restricted stock as follows: 73,125 shares in 2008; 56,250shares in 2009; and 25,000 shares in 2010.

(4)    Amounts include: 

| **Name of  Beneficial Owner** | ** ** | ** ** | ** ** | **Options  vested and  currently  exercisable** | ** ** | **Options  vesting within  60 days** | ** ** | **Common Stock** | ** ** | **SEUs** | ** ** | **DSUs** | ** ** |
|-----------------------------------------|------------|------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------|------------|----------|------------|----------|------------|
| Royce S. Caldwell             | ** ** |       | 32,165     |                                                 |       |                                           | —     |                  |       |     | —     |     |       | — |   | 14,607 | ** ** |
| Christopher J. Fraleigh       | ** ** |       | —     |                                                 |       |                                           | —     |                  |       |     | —     |     |       | 3,102 |   | 2,483 | ** ** |
| Richard G. Lindner            | ** ** |       | 23,565     |                                                 |       |                                           | —     |                  |       |     | 3,000      |     |       | 4,023 |   | 14,182 | ** ** |
| Glenn W. Marschel, Jr.   | ** ** |       | 73,195     |                                                 |       |                                           | —     |                  |       |     | 14,001     |     |       | 24,143 |   | 14,607 | ** ** |
| Bob L. Martin                 | ** ** |       | 51,279     |                                                 |       |                                           | —     |                  |       |     | 602        |     |       | 14,000 |   | 14,191 | ** ** |
| Pamela B. Strobel                       |       |       | 35,165     |                                                 |       |                                           | —     |                  |       |     | 1,000      |     |       | 9,990 |   | 14,607 |   |
| Mary Alice Taylor                       |       |       | 35,565     |                                                 |       |                                           | —     |                  |       |     | —     |     |       | 11,075 |   | 14,186 |   |
| Richard L. Thomas                       |       |       | 50,679     |                                                 |       |                                           | —     |                  |       |     | 26,001     |     |       | 17,229 |   | 13,772 |   |
| Ronald V. Waters, III              |       |       | —     |                                                 |       |                                           | —     |                  |       |     | —     |     |       | 3,102 |   | 2,483 |   |

 

         SEUsare deferred pursuant to the 2003 Directors Compensation and Deferred StockUnit Plan, and are included under the “Total Sabre Holdings Equity Stake.” DSUsare included under the “Total Sabre Holdings Equity Stake.” The remaining SabreHoldings’ options for Mr. Caldwell, Mr. Fraleigh, Mr. Lindner,Mr. Marschel, Mr. Martin, Ms. Strobel, Ms. Taylor,Mr. Thomas and Mr. Waters will vest during the period between June 2007and December 2007.

   (5) Amounts include 91,568 shares owned byMr. Jackson and 370,895 shares of Common Stock subject to options that arevested and currently exercisable, plus an additional 1,250 shares subject tooptions vesting between February 20, 2007 and April 21, 2007. Amountsalso include 67,088 shares of Sabre Holdings’ restricted stock to whichMr. Jackson holds voting rights but which are subject to restrictions ontransfer. Restrictions lapse on Mr. Jackson’s restricted stock as follows:32,363 shares in 2008; 22,362 shares in 2009; and 12,363 shares in 2010.

   (6) Amounts include 59,438 shares owned byMr. Schwarte and 227,230 shares of Common Stock subject to options thatare vested and currently exercisable, plus an additional 937 shares subject tooptions vesting between February 20, 2007 and April 21, 2007. Amountsalso include 32,250 shares of Sabre Holdings’ restricted stock to whichMr. Schwarte hold voting rights but which are subject to restrictions ontransfer. Restrictions lapse on Mr. Schwarte’s restricted stock asfollows: 17,250 shares in 2008; 10,750 shares in 2009; and 4,250 shares in2010.

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   (7) Amounts include 43,621 shares owned by Mr. Stow and 176,712 shares of Common Stocksubject to options that are vested and currently exercisable, plus anadditional 937 shares subject to options vesting between February 20, 2007and April 21, 2007. Amounts also include 26,575 shares of Sabre Holdings’restricted stock to which Mr. Stow holds voting rights but which aresubject to restrictions on transfer. Restrictions lapse on Mr. Stow’srestricted shares as follows: 14,025 shares in 2008; 9,025 shares in 2009; and3,525 shares on 2010.

   (8) Amounts include 50,408 shares owned byMr. Klein and 117,434 shares of Common Stock subject to options that arevested and currently exercisable, plus an additional 937 shares subject tooptions vesting between February 20, 2007 and April 21, 2007. Amountsalso include 67,088 shares of Sabre Holdings’ restricted stock to whichMr. Klein holds voting rights but which are subject to restrictions ontransfer. Restrictions lapse on Mr. Klein’s restricted stock as follows:2,500 shares in 2007; 29,863 shares in 2008; 22,362 shares in 2009; and 12,363shares in 2010.

   (9) Amounts include 48,994 shares owned by Ms. Peluso and 81,240 shares of Common Stocksubject to options that are vested and currently exercisable, plus anadditional 1,250 shares subject to options vesting between February 20,2007 and April 21, 2007. Amounts also include 48,450 shares of SabreHoldings’ restricted stock to which Ms. Peluso holds voting rights butwhich are subject to restrictions on transfer. Restrictions lapse onMs. Peluso’s restricted stock as follows: 21,150 shares in 2008; 18,650shares in 2009; and 8,650 shares in 2010.

(10) Amounts include 12,609 shares owned byMr. Miller and 47,223 shares of Common Stock subject to options that arevested and currently exercisable. Amounts also include 23,415 shares of SabreHoldings’ restricted stock to which Mr. Miller holds voting rights butwhich are subject to restrictions on transfer. Restrictions lapse onMr. Miller’s restricted stock as follows: 2,052 shares in 2007; 10,113shares in 2008; 7,500 shares in 2009; and 3,750 shares in 2010.

**Beneficial Owners of more than Five Percent**

The following table sets forth certaininformation with respect to persons who are believed by us to beneficially ownmore than 5% of our outstanding Common Stock. The percentage of Common Stockwith respect to the number of Common Stock beneficially owned is as ofFebruary 20, 2007. The number of shares of Common Stock beneficially ownedis taken from the most recent Schedule 13G filed with the SEC on behalf of suchpersons as of February 20, 2007. Except as otherwise indicated, thereporting persons have stated that they possess sole voting and soledispositive power over the entire number of shares reported.

| Name and Address of Beneficial Owner                         | ** ** | ** ** | ** ** | **Amount and Nature  of Beneficial Ownership** | ** ** | **Percent   of Class** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------|------------|--------------------------------------------------------------------|------------|-----------------------------|------------|
| Lord,  Abbet & Co. LLC  90 Hudson Street  Jersey City, NJ 07302              |       |       | 15,426,857 | (1)                                                                |       |                        | 11.53      | % |   |
| Capital Research and Management Company  333 South Hope Street  Los Angeles, CA 90071 |       |       | 11,296,920 | (2)                                                                |       |                        | 8.44       | % |   |

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(1)    Based upon that Schedule13G filed on February 14, 2007 by Lord, Abbett & Co. LLC (“LordAbbett”) reporting that on December 30, 2006 Lord Abbett held sole votingpower over 14,920,157 shares and sole dispositive power over 15,426,857 sharesof Common Stock. Lord Abbett filed as an investment advisor in accordance withSection 240.13d-1(b)(1)(ii)(E).

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(2)    Based upon that Schedule 13G filed on February 12, 2007 byCapital Research and Management Company, reporting that on December 29,2006 Capital Research and Management Company, an investment adviser registeredunder Section 203 of the Investment Advisers Act of 1940, as amended (the“Investment Advisers Act”) was deemed to have sole dispositive power andbeneficial ownership of 11,296,920 shares (or 8.44 percent) of our Common Stockas a result of acting as investment adviser to various investment companiesregistered under Section 8 of the Investment Company Act of 1940, asamended (the “Investment Company Act”) and sole voting power over 888,800shares. The Schedule 13G also reported that The Growth Fund ofAmerica, Inc., an investment company registered under the InvestmentCompany Act of 1940 which is advised by Capital Research and ManagementCompany, was the beneficial owner of 7,062,811 shares (or 5.28 percent) of ourCommon Stock.

**ITEM 13.**              CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Since the beginning of fiscal year 2006, there have been notransactions in which the Company was or is to be a participant, in which theamount involved exceeds $120,000 and in which any related person had or willhave a direct or indirect material interest as required to be reported pursuantto Item 404(a) of Regulation S-K.

**Review, Approval or Ratification of Transactions with Related Persons**

Our Board of Directors has adopted the Sabre Holdings CorporationRelated Person Transactions Policy, which sets forth in writing the policiesand procedures for the review, approval or ratification of any transaction,arrangement or relationship (or any series of similar transactions,arrangements or relationships) in which we, including any of our subsidiaries,were, are or will be a participant and the amount involved exceeds $[60,000],and in which any related person had, has or will have a direct or indirect[material] interest. A “related person” is:

·         anyperson who is, or at any time since the beginning of the last fiscal year was,a director or executive officer of our company or a nominee to become adirector;

·         anyperson who is known to be the beneficial owner of more than 5% of any class ofour voting securities;

·         anyimmediate family member of any of the foregoing persons; and

·         anyfirm, corporation or other entity in which any of the foregoing persons isemployed or is a partner or principal or in a similar position or in which suchperson has a 5% or greater beneficial ownership interest.

As soon as reasonably practicable after nomination, appointment orelection, each director, nominee for director and executive officer must submitto our corporate secretary a list of his or her immediate family members andfor each person listed as well as himself or herself:

·         theperson’s employer and job title or brief job description,

·         eachfirm, corporation or other entity in which such person is a partner orprincipal or in a similar position or in which such person has a 5% or greaterbeneficial ownership interest, and

·         eachcharitable or non-profit organization for which the person is actively involvedin fundraising or otherwise serves as a director, trustee or in a similarcapacity.

Directors andexecutive officers will also provide this information at least once per year toour corporate secretary and are also expected to notify our corporate secretaryof any changes to such previously submitted information. When we become awareof a person’s status as a beneficial owner of more than 5% of any class of ourvoting securities, our corporate secretary requests the same information setforth above if the person is an individual, and if the person is a firm,corporation or entity, a list of the principals or executive officers of suchentity. In addition, our corporate secretary, if necessary, expands or updatesthe information provided by directors, executive officers, nominees and 5%beneficial owners based on publicly available information to reflect anychanges in family relationships, employment or parent companies, subsidiariesor sibling companies including the principals or executive officers of suchcompanies.

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Our corporatesecretary, from time to time, compiles the information collected to create amaster list of related persons, which is made available, along with anyupdates, to various individuals within our company including certain businessunit and department leaders and our chief financial officer, controller,compliance officer, and directors of accounts payable and accounts receivable.

Prior to entering into or amending a related person transaction, therelated person (or the director, executive officer, nominee or 5% beneficialowner who is an immediate family member of the related person) or the businessunit or department leader responsible for the potential transaction, providesnotice to our corporate secretary or chief compliance officer of the facts andcircumstances of the proposed transaction. If our corporate secretary or chiefcompliance officer determines that the proposed transaction is a related persontransaction for purposes of our policy, the transaction is submitted to ourAudit Committee for consideration at its next meeting or, in those instanceswhere it is not practicable or desirable for us to wait until the next AuditCommittee meeting, to the Chairman of the Audit Committee. The Audit Committeeor Audit Committee Chairman, as applicable, considers all relevant facts andcircumstances including but not limited to:

·         thebenefits to our company from the transaction;

·         theimpact on a director’s independence if applicable;

·         theavailability of other sources for comparable products or services;

·         theterms of the transaction;

·         theterms available to unrelated third parties or employees generally; and

·         whetherthe potential related person transaction is consistent with our Business EthicsPolicy.

No member ofthe Audit Committee participates in any review, consideration or approval ofany related person transaction with respect to which such member or any of hisor her immediate family members is the related person. The Audit Committee orits Chairman, as applicable, is authorized to approve those transactions thatare in, or are not inconsistent with, the best interests of our company and ourshareholders and are consistent with our Business Ethics Policy. Other relatedperson transactions should be disapproved by the Audit Committee or theChairman and we should not enter into such transactions. The Audit Committee orits Chairman conveys the decision to our corporate secretary or chiefcompliance officer who informs the appropriate people within our company.

In the event a related person transaction ispending, ongoing or completed and has not been previously approved or ratifiedunder the policy, it is submitted to the Audit Committee or Chairman of theAudit Committee as soon as possible. The Committee or its Chairman, asapplicable, considers all relevant facts and circumstances, including those setforth above. If a related person transaction is ongoing or completed and it isdisapproved by the Audit Committee or its Chairman, the Committee will evaluatethe circumstances of the transaction to determine if termination or rescissionof the transaction is appropriate, if disciplinary action is appropriate, ifchanges to the policy or its procedures are appropriate and the impact on adirector’s independence if applicable.

If any relatedperson transaction is approved, ratified or disapproved by the Chairman of ourAudit Committee pursuant to his delegated authority under the policy, theChairman reports such approval, ratification or disapproval to the full AuditCommittee at its next meeting. Furthermore, pursuant to our policy, the AuditCommittee meeting will annually review any previously approved or ratifiedrelated person transaction that is ongoing.

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**DirectorIndependence**

The Board ofDirectors comprises nine non-management directors and one management director,who is our Chief Executive Officer. The Board’s approved criteria forevaluating the independence of our non-management directors can be found in ourCorporate Governance Guidelines on our website (www.sabre-holdings.com). Ourdirector independence criteria are more stringent than those adopted as part ofthe New York Stock Exchange (“NYSE”) corporate governance listing standards(the “NYSE listing standards”) for independent directors and the SEC’sstandards for independent audit committee members. The Board reviewed thefollowing relationships under these standards and determined that they are notmaterial:

·         Mr. ChristopherJ. Fraleigh, a non-management director of the Company, is the CEO of Sara LeeFood and Beverage. An affiliate of Sabre Holdings Corporation, Sabre Inc. d/b/aSabre Travel Network, provides *GetThere* travelbooking technology to Sara Lee Corporation. Sabre Travel Network also providesGDS technology to the travel agency used by Sara Lee Corporation. A portion ofthe booking incentives paid by Sabre Travel Network to the travel agency arepassed on to Sara Lee Corporation. These arrangements were entered into before Mr. Fraleighjoined the Sabre Holdings Corporation Board of Directors in September 2006.The economics and other terms are arms’ length. We believe that Mr. Fraleighhas no direct or indirect material interest in these transactions.

·         Mr. RichardG. Lindner, a non-management director of the Company, is the CFO of AT&TInc. Affiliates of Sabre Holdings Corporation purchase telecommunicationsservices from AT&T and its affiliates, including Cingular Wireless. Theeconomics and other terms are arms’ length. We believe that Mr. Lindnerhas no direct or indirect material interest in these transactions.

·         Mr. DavidA. Schwarte, the general counsel of the Company, has a daughter who is anemployee of a commercial real estate affiliate of Goldman Sachs. Sabre HoldingsCorporation and its affiliates use Goldman Sachs for financial and investmentbanking services. We believe that Mr. Schwarte and his daughter have nodirect or indirect material interest in these transactions.

·         Mr. BobL. Martin, a non-management director of the Company, is also a director of TheGuitar Center. An affiliate of Sabre Holdings Corporation, TravelocityBusiness, provides services to The Guitar Center. The economics and other termsare arms’ length. We believe that Mr. Martin has no direct or indirectmaterial interest in these transactions.

The Board affirmatively determined that eachof Royce S. Caldwell, Christopher J. (CJ) Fraleigh, Richard G. Lindner, GlennW. Marschel, Jr., Bob L. Martin, Pamela B. Strobel, Mary Alice Taylor,Richard L. Thomas and Ronald V. Waters III, who are all the non-managementdirectors, is independent under those criteria. Each of our non-managementdirectors also serves on our Audit Committee, Compensation Committee andNominating and Governance Committee, and by satisfying the more stringentindependence criteria in our Corporate Governance Guidelines, fulfills theindependence requirements for membership on such committees set forth in theNYSE listing standards. In addition, the Board affirmatively determined thatPaul C. Ely, Jr., who served as one of our non-management directors duringpart of 2006, was independent under our criteria while a director. Mr. Elyretired from service as one of our directors upon the expiration of his term atour 2006 annual meeting of stockholders. As part of its annual evaluation ofdirector independence, the Board examined (among other things) whether anytransactions or relationships exist currently (or existed during the past threeyears) between each non-management director and the Corporation, itssubsidiaries, affiliates, equity investors, or independent auditors. The Boardalso examined any transactions or relationships between each non-managementdirector and the senior management of Sabre Holdings or its affiliates.

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The independent directors meet several timeseach year in executive session outside the presence of managementrepresentatives. The Board has designated a Lead Director who generallypresides over those executive sessions. A majority of the independent directorsmay designate another independent director to preside over any executivesession. Interested parties, including stockholders, may communicate with theentire Board, the Chairman, the Lead Director, the non-management directors asa group or the chairman of any particular committee. Written communicationsshould be addressed to the appropriate body or director and sent via pre-paidmail or courier to:

c/o Corporate SecretarySabre Holdings Corporation3150 Sabre DriveSouthlake, Texas 76092United States of America

or via e-mail toCorporate.Secretary@sabre-holdings.com. We also provide a confidential,anonymous hotline at 1 (877) 219-3180, which is a toll-freecall if placed from within the United States. The call center is staffed24 hours a day, 7 days a week.

Our process forcollecting and organizing security holder communications and determining whichcommunications will be relayed to Board members is administered by theCorporate Secretary, is overseen by the Governance and Nominating Committee,and was approved by all of the independent directors.

**ITEM 14.**              PRINCIPALACCOUNTING FEES AND SERVICES

The following table shows the fees we paid oraccrued for the audit and other services provided by Ernst & Young LLPfor fiscal years 2006 and 2005 (in thousands):

|                        | ** ** | **Year Ended December 31,** | ** ** |
|------------------------|------------|--------------------------------------------|------------|
| ** **             | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Audit fees (1) (5)     |       |                                       | $          | 5,276 |   |   |   | $ | 4,847 |   |   |
| Audit-related fees (2) |       |                                       | 208        |   |   |   | 181 |   |   |
| Tax fees (3)           |       |                                       | 173        |   |   |   | 173 |   |   |
| All other fees (4)     |       |                                       | 43         |   |   |   | 48 |   |   |
| Total fees             |       |                                       | $          | 5,700 |   |   |   | $ | 5,249 |   |   |

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(1)            Audit fees of E&Yfor 2006 and 2005 consisted of the examination of our annual consolidatedfinancial statements and reviews of our quarterly financial statements as wellas statutory audits, which are required for certain international subsidiaries,fees related to filings made with the SEC, and other attest fees. Audit fees ofE&Y also include fees relating to our assessment of, and report on, ourinternal controls over financial reporting.

(2)            Audit-relatedfees include, among other items, the required audits of our employee benefitplans, as well as accounting advisory fees related to financial accountingmatters and mergers and acquisitions.

(3)            Taxfees include assistance with the preparation of tax returns of certain of ourinternational subsidiaries and assistance with audits, as well as advisingmanagement as to the tax implications of certain transactions undertaken by us.

(4)            Allother fees include services related to miscellaneous international employeebenefit and tax related matters and other miscellaneous filings.

(5)            2005audit fees have been increased by $507,000 for statutory audits that wereomitted inadvertently and for overruns incurred in the completion of the 2005statutory audits.

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The AuditCommittee has determined that the provision of services related to auditservices, audit-related services, tax compliance, advisory services, and otherservices is compatible with maintaining the independence of E&Y. E&Ydid not render professional services relating to financial information systemsdesign and implementation for the fiscal year ended December 31, 2006.

The AuditCommittee, or its designee, pre-approved 100% of the services provided byE&Y during 2006. Our auditor services pre-approval policy can be found onthe governance section of our website.

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**PART IV**

**ITEM 15.**              EXHIBITS, FINANCIAL STATEMENT SCHEDULES

| (a)(1) |   | The financial statements listed in the accompanying index to  financial statements and the schedules are filed as part of this report.                                                                                              |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    |   | The schedules listed in the accompanying index to financial  statements and schedules are filed as part of this report.                                                                                                             |
| (3)    |   | Exhibits required to be filed by Item 601 of Regulation S-K.  The exhibits listed in items 10.1 through 10.29, 10.39 and 10.42 through  10.51 consist of management contracts or compensatory plans or arrangements. |

 

| Exhibit   Number | ** ** | **Description of Exhibit**                                                                                                                                                                                                          |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1              |       | Asset Purchase Agreement by and among EDS Information Services  L.L.C., Electronic Data Systems Corporation, Sabre Inc., and Sabre Holdings  Corporation. (1)                                                                       |
| 2.2              |       | First Amendment to Asset Purchase Agreement by and  among EDS Information Services L.L.C., Electronic Data Systems Corporation,  Sabre Inc., and Sabre Holdings Corporation. (2)                                                    |
| 2.3              |       | Second Amendment to Asset Purchase Agreement by and  among EDS Information Services L.L.C., Electronic Data Systems Corporation,  Sabre Inc., and Sabre Holdings Corporation. (3)                                                   |
| 2.4              |       | Form of Implementation Agreement dated as of  May 12, 2005 between Sabre Inc., Travelocity Europe Limited and  lastminute.com plc. (4)                                                                                    |
| 2.5              |       | Form of Scheme of Arrangement dated as of  June 6, 2005 between Sabre Inc., Travelocity Europe Limited and  lastminute.com plc. (5)                                                                                       |
| 2.6              |       | Form of Letter dated as of June 8, 2005 to  holders of options granted under the lastminute.com plc 2000 Approved  Executive Share Option Scheme and 2000 Unapproved Executive Share Option  Scheme. (6)                  |
| 2.7              |       | Form of Letter dated as of June 8, 2005 to  holders of out-of-the-money options granted under the  lastminute.com plc 1999 Unapproved Executive Share Option Scheme. (7)                                                  |
| 2.8              |       | Form of Letter dated as of June 8, 2005 to  Mr. A. Leighton in respect of options granted under the Non-Executive  Scheme. (8)                                                                                       |
| 2.9              |       | Form of Letter dated as of June 8, 2005 to  holders of out-of-the-money options granted under the  lastminute.com plc 2000 Approved Executive Share Option Scheme and 2000  Unapproved Executive Share Option Scheme. (9) |
| 2.10             |       | Form of Letter dated as of June 8, 2005 to  holders of options granted under the lastminute.com plc 1998 Unapproved  Executive Share Option Scheme and 1999 Unapproved Executive Share Option  Scheme. (10)               |
| 2.11             |       | Form of Letter dated as of June 8, 2005 to  holders of options granted under the lastminute.com plc Sharesave Scheme. (11)                                                                                                |
| 2.12             |       | Form of Bondholder Circular dated as of  June 6, 2005. (12)                                                                                                                                                               |
| 2.13             |       | Agreement and Plan of Merger by and among Sovereign  Holdings, Inc., Sovereign Merger Sub, Inc. and Sabre Holdings  Corporation, dated as of December 12, 2006. (13)                                                 |
| 3.1              |       | Third Restated Certificate of Incorporation of Sabre  Holdings Corporation. (14)                                                                                                                                                    |
| 3.2              |       | Amended and Restated Bylaws of Sabre Holdings  Corporation. (15)                                                                                                                                                                    |
| 4.1              |       | Specimen Certificate representing Class A  common stock. (16)                                                                                                                                                                  |

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| 4.2   |   | Indenture, dated as of August 3, 2001, between  Sabre Holdings Corporation and SunTrust Bank, as Trustee, providing for  issuance of debt securities in series. (17)                                                |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.3   |   | First Supplemental Indenture dated August 7,  2001, between Sabre Holdings Corporation and SunTrust Bank, as Trustee,  relating to the 400,000,000 7.35% Senior Notes Due 2011 of Sabre Holdings  Corporation. (18) |
| 4.4   |   | Second Supplemental Indenture dated March 13,  2006 between Sabre Holdings Corporation and SunTrust Bank, as Trustee  relating to $400,000,000 6.350% Senior Notes Due 2016 of Sabre Holdings  Corporation. (19)    |
| 10.1  |   | Sabre Holdings Deferred Compensation Plan, as  amended May 16, 2003. (20)                                                                                                                                           |
| 10.2  |   | Travelocity.com LP Second Amended 1999 Long-Term  Incentive Plan. (21)                                                                                                                                                   |
| 10.3  |   | Supplemental Executive Retirement Plan, as Amended  effective July 18, 2000. (Restoration). (22)                                                                                                                    |
| 10.4  |   | Supplemental Executive Retirement Plan, as Amended  effective July 18, 2000. (Officer). (23)                                                                                                                        |
| 10.5  |   | Supplemental Executive Retirement Plan, as Amended  (Grandfathered). (24)                                                                                                                                                |
| 10.6  |   | Form of Executive Termination Benefits  Agreement. (25)                                                                                                                                                             |
| 10.7  |   | Form of Addenda to Executive Termination  Benefits Agreement with respect to Michael S. Gilliland, Jeffery M. Jackson  and Eric J. Speck. (26)                                                                      |
| 10.8  |   | Form of Addendum to Executive Termination  Benefits Agreement with respect to David A. Schwarte. (27)                                                                                                               |
| 10.9  |   | Forms of Addendum to Executive Termination Benefits  Agreement with respect to John S. Stow. (28)                                                                                                                        |
| 10.10 |   | Form of Addendum to Executive Termination  Benefits Agreement with respect to Thomas Klein. (29)                                                                                                                    |
| 10.11 |   | Form of Addendum to Executive Termination  Benefits with respect to Michelle A. Peluso. (30)                                                                                                                        |
| 10.12 |   | Form of Letter Formalizing Involuntary  Termination Benefits. (31)                                                                                                                                                  |
| 10.13 |   | Form of Employment Agreement between Sabre  Holdings Corporation, Sabre Inc. and Michael S. Gilliland. (32)                                                                                                    |
| 10.14 |   | Form of Employment Agreement between Sabre  Holdings Corporation, Sabre Inc. and Michelle A. Peluso. (33)                                                                                                      |
| 10.15 |   | Form of Employee Intellectual Property and  Confidentiality Agreement for Mark K. Miller. (34)                                                                                                                      |
| 10.16 |   | Form of Severance Agreement with respect to  Thomas Klein. (35)                                                                                                                                                     |
| 10.17 |   | Addendum to Letter Employment Agreement of  December 1, 2003 with respect to Michael S. Gilliland. (36)                                                                                                        |
| 10.18 |   | Addendum to Letter Employment Agreement of  December 1, 2003 with respect to Michelle A. Peluso. (37)                                                                                                          |
| 10.19 |   | Executive Termination Benefits Agreement effective  as of January 19, 2004. (38)                                                                                                                                    |
| 10.20 |   | Addendum to Executive Termination Benefits  Agreements version 1. (39)                                                                                                                                              |
| 10.21 |   | Addendum to Executive Termination Benefits  Agreements version 2. (40)                                                                                                                                              |
| 10.22 |   | Addendum to Executive Termination Benefits  Agreements version 3. (41)                                                                                                                                              |

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| 10.23  |   | Addendum to Executive  Termination Benefits Agreements version 4. (42)                                                                                                                                                                                                                                                                                                        |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.24  |   | Form Involuntary  Termination Benefits Letter with respect to Jeffery M. Jackson and  David A. Schwarte. (43)                                                                                                                                                                                                                                                       |
| 10.25  |   | Form Involuntary Termination  Benefits Letter with respect to Thomas Klein. (44)                                                                                                                                                                                                                                                                                              |
| 10.26  |   | 2004 Bonus Criteria for Executive Officers. (45)                                                                                                                                                                                                                                                                                                                                   |
| 10.27  |   | Information regarding the Compensation of Directors.  (46)                                                                                                                                                                                                                                                                                                                         |
| 10.28  |   | 2000 Stock Option Plan Amended and Restated  effective November 13, 2000. (47)                                                                                                                                                                                                                                                                                                |
| 10.29  |   | 2003 Directors Deferred Compensation and Deferred  Stock Unit Plan. (48)                                                                                                                                                                                                                                                                                                           |
| 10.30  |   | Form of Sabre Holdings Corporation Cash Award  Agreement. (49)                                                                                                                                                                                                                                                                                                                |
| 10.31  |   | The Sabre Group Holdings, Inc. 1996 Directors  Stock Incentive Plan. (50)                                                                                                                                                                                                                                                                                                     |
| 10.32  |   | Sabre Holdings Corporation Employee Stock Purchase  Plan Amended and Restated Effective as of January 1, 2005. (51)                                                                                                                                                                                                                                                           |
| 10.33  |   | Sabre Holdings Corporation Amended and Restated 1996  Long-Term Incentive Plan, as amended November 13, 2000. (52)                                                                                                                                                                                                                                                            |
| 10.34  |   | Sabre Holdings Corporation Amended and Restated 1996  Long-Term Incentive Plan, as amended May 14, 2002. (53)                                                                                                                                                                                                                                                                 |
| 10.35  |   | Form of Sabre Holdings Corporation 2005  Restricted Stock Agreement for Executive Officers. (54)                                                                                                                                                                                                                                                                              |
| 10.36  |   | Form of Sabre Holdings Corporation 2005 Stock  Option Agreement for Executive Officers. (55)                                                                                                                                                                                                                                                                                  |
| 10.37  |   | Information Regarding the Compensation of Directors  of Sabre Holdings Corporation. (56)                                                                                                                                                                                                                                                                                           |
| 10.38  |   | 2005 Bonus Criteria for Executive Officers. (57)                                                                                                                                                                                                                                                                                                                                   |
| 10.39  |   | Option Issuance Agreement, dated January 1,  1998 between The SABRE Group Holdings, Inc. and US Airways, Inc. (58)                                                                                                                                                                                                                                                  |
| 10.40  |   | Credit Agreement, dated as of June 15, 2004, by  and among Sabre Inc., Bank of America, N.A., as Administrative Agent,  Citibank, N.A., Sumitomo Mitsui Banking Corp., New York, UFJ Bank Limited,  and JPMorgan Chase Bank, as Co-Syndication Agents, Banc of America  Securities LLC, as Sole Lead Arranger and Sole Book Manager, and the other  banks party thereto. (59) |
| 10.41  |   | Amendment No. 1 to the  Credit Agreement, effective July 22, 2005. (60)                                                                                                                                                                                                                                                                                                  |
| 10.42  |   | Amendment No. 2 to the Credit Agreement,  effective July 22, 2005. (61)                                                                                                                                                                                                                                                                                                  |
| 10.43  |   | Modification Agreement to the  Credit Agreement, effective July 22, 2005. (62)                                                                                                                                                                                                                                                                                                |
| 10.44  |   | Capital Lease Facility with Various Associated  Documents dated June 15, 2003, as specified below:                                                                                                                                                                                                                                                                            |
|   |   | 10.44 (a) Participation Agreement dated as of  June 15, 2003, among Sabre Inc., as Lessee, Sabre Holdings Corporation,  as Lessee Guarantor, CSL Leasing Inc., as Lessor, the Institutional Investors  named on Schedule 2, as Purchasers, and Wilmington Trust Company, as  Indenture Trustee.(63)                                                                      |
|   |   | 10.44 (b) Master Lease and Deed of Trust dated  as of June 15, 2003, between Sabre Inc., as Lessee, and CSL Leasing  Inc., as Lessor.(63)                                                                                                                                                                                                                                |

176

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|        |   | 10.44 (c) Lease Supplement No. 1  (Memorandum of Lease Supplement, Memorandum of Master Lease and Deed of  Trust, Fixture Filing and Memorandum of Option to Purchase) dated  June 26, 2003, between Sabre Inc., as the Lessee and grantor, and CSL  Leasing Inc., as Lessor and beneficiary, and to Jeffrey A. Rattikin, as  trustee and grantee.(63) |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | 10.44 (d) Trust Indenture and Security  Agreement dated as of June 15, 2003, between CSL Leasing Inc. and  Wilmington Trust Company, as Indenture Trustee.(63)                                                                                                                                                                                                   |
|   |   | 10.44 (e) Assignment of Lease and Rent and  Security Agreement dated as of June 15, 2003, made by CSL Leasing Inc.,  as Assignor, in favor of Wilmington Trust Company, as Indenture Trustee.(63)                                                                                                                                                                |
|   |   | 10.44 (f) Deed of Trust and Security Agreement  with Assignment of Rents dated as of June 15, 2003, from CSL Leasing  Inc., as grantor, and Sabre Inc., as grantor, to Jeffrey A. Rattikin, as Deed  of Trust trustee, for the use and benefit of Wilmington Trust Company, as  Indenture Trustee.(63)                                                           |
|   |   | 10.44 (g) Lease Guaranty dated as of  June 15, 2003, made by Sabre Holdings Corporation, as Lessee, Guarantor,  in favor of CSL Leasing Inc., as Lessor, the parties who from time to time  become Purchasers under the Operative Documents, and Wilmington Trust  Company, as Indenture Trustee.(63)                                                            |
| 10.45  |   | Amendment to Capital Lease Agreement dated  August 31, 2006. (64)                                                                                                                                                                                                                                                                                                     |
| 10.46  |   | Amendment to Capital Lease Agreement dated  December 8, 2006. (65)                                                                                                                                                                                                                                                                                                    |
| 10.47  |   | Agreement to Sell and Purchase by and between  Maguire Partners-Dallas, LTD. and Sabre Inc., dated  September 7, 2006. (66)                                                                                                                                                                                                                                 |
| 10.48  |   | Master Agreement dated August 20, 2004 by and  between Otto (GmbH & Co KG), Otto Freizeit und Touristik GmbH,  Travelocity.com LP, Travelocity GmbH, Kommanditgesellschaft Travel Overland  Flugreisen GmbH & Co., and Travelocity Holdings Gmbh. (67)                                                                                              |
| 10.49  |   | Share Transfer Agreement dated October 1, 2004 by  Travelocity Holdings GmbH and Travelocity Sabre GmbH. (68)                                                                                                                                                                                                                                                         |
| 10.50  |   | Share Purchase and Transfer Agreement dated  October 1, 2004 between Travelocity Holdings GmbH and  Kommanditgesellschaft Travel Overland Flugreisen GmbH & Co. (69)                                                                                                                                                                                         |
| 10.51  |   | Share Transfer Agreement dated October 1, 2004  between Kommanditgesellschaft Travel Overland Flugreisen GmbH & Co.,  Otto Freizeit und Touristik GmbH and Travelocity GmbH. (70)                                                                                                                                                                            |
| 10.52  |   | Share Purchase and Transfer Agreement dated  October 1, 2004 between Otto Freizeit und Touristik GmbH and Travelocity  GmbH. (71)                                                                                                                                                                                                                                     |
| 10.53  |   | Put Option Agreement among AGC Holdings Limited,  Abacus International Pte Ltd., Travelocity.com L.P., and Zuji Holdings  Limited dated January 17, 2005. (72)                                                                                                                                                                                                        |
| 10.54  |   | Form of Amended and Restated 2005 Long-Term  Incentive Plan. (73)                                                                                                                                                                                                                                                                                                     |
| 10.55  |   | Form of Credit Agreement dated as of  May 12, 2005 among Sabre Inc., Morgan Stanley Senior Funding, Inc.,  and Bear, Sterns & Co., Inc. (74)                                                                                                                                                                                                  |
| 10.56  |   | Form of Cash Confirmation Letter dated as of  May 12, 2005 by Sabre Inc. and Travelocity Europe Limited. (75)                                                                                                                                                                                                                                                    |
| 10.57  |   | Form of LTIP Letter dated as of June 21,  2005. (76)                                                                                                                                                                                                                                                                                                             |
| 10.58  |   | Form of Options Cover Statement dated as of  June 8, 2005. (77)                                                                                                                                                                                                                                                                                                  |

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| 10.59 |   | 2004 Form of Restricted Stock Unit Replacement  Award Agreement. (78)                                                                                                                                                             |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.60 |   | 2005 Form of Restricted Stock Unit Replacement  Award Agreement. (79)                                                                                                                                                             |
| 10.61 |   | 2006 Salary and Bonus Criteria for Named Executive  Officers. (80)                                                                                                                                                                     |
| 10.62 |   | Form of Amended 2004 Executive Termination  Benefits Agreement. (81)                                                                                                                                                              |
| 10.63 |   | Form of Alternative Addendum to 2004 Executive  Termination Benefits Agreement. (82)                                                                                                                                              |
| 10.64 |   | Form of 2005 Executive Termination Benefits  Agreement. (85)                                                                                                                                                                      |
| 10.65 |   | Form of Addendum to 2005 Executive Termination  Benefits Agreement. (86)                                                                                                                                                          |
| 10.66 |   | Fifth Amendment to the Sabre Inc. Legacy  Pension Plan. (87)                                                                                                                                                                      |
| 12.1  |   | Computation of ratio of earnings to fixed charges  for the year ended December 31, 2006. (65)                                                                                                                                     |
| 14.1  |   | Sabre Holdings Corporation Business Ethics Policy  revised January 25, 2005. (83)                                                                                                                                                 |
| 21.1  |   | Subsidiaries of Registrant. (65)                                                                                                                                                                                                       |
| 23.1  |   | Consent of Ernst & Young LLP. (65)                                                                                                                                                                                            |
| 31.1  |   | Written statement to 17 CFR 240.13a-14(a), as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,  dated February 23, 2007, signed by Michael S. Gilliland as Chief  Executive Officer. (65)                 |
| 31.2  |   | Written statement pursuant to 17 CFR 240.13a-14(a),  as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002,  dated February 23, 2007, signed by Jeffery M. Jackson as Chief Financial  Officer. (65)              |
| 32.1  |   | Written statement pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002, dated February 23, 2007, signed by Michael S. Gilliland as  Chief Executive Officer. (84) |
| 32.2  |   | Written statement pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002, dated February 23, 2007, signed by Jeffery M. Jackson as  Chief Financial Officer. (84)   |

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1.      Incorporatedby reference to Exhibit 2.1 to our report on Form 10-Q for thequarter ended March 31, 2001.

2.      Incorporated by reference to Exhibit 2.2 to our report onForm 8-K on July 16, 2001.

3.      Incorporated by reference to Exhibit 2.3 to our report onForm 8-K on July 16, 2001.

4.      Incorporated by reference to Exhibit 2.1 to our report onForm 8-K dated July 20, 2005.

5.      Incorporated by reference to Exhibit 2.2 to our report onForm 8-K dated July 20, 2005.

6.      Incorporated by reference to Exhibit 2.3 to our report onForm 8-K dated July 20, 2005.

7.      Incorporated by reference to Exhibit 2.4 to our report onForm 8-K dated July 20, 2005.

8.      Incorporated by reference to Exhibit 2.5 to our report onForm 8-K dated July 20, 2005.

9.      Incorporated by reference to Exhibit 2.6 to our report onForm 8-K dated July 20, 2005.

10.   Incorporated by reference toExhibit 2.7 to our report on Form 8-K dated July 20, 2005.

11.   Incorporated by reference toExhibit 2.8 to our report on Form 8-K dated July 20, 2005.

12.   Incorporated by reference toExhibit 2.9 to our report on Form 8-K dated July 20, 2005.

13.   Incorporatedby reference to Exhibit 2.1 to our report on Form 8-K datedDecember 18, 2006.

178

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14.   Incorporated by reference toExhibit 4.1 to our report on Form S-8 dated July 28, 2005.

15.   Incorporated by reference toExhibit 3.2 to our report on Form 8-K dated July 28, 2005.

16.   Incorporated by reference toExhibit 4.1 to our report on Form 10-Q for the quarter endedMarch 31, 2000.

17.   Incorporated by reference toExhibit 4.6 to our report on Form 8-K dated August 7,2001.

18.   Incorporated by reference toExhibit 4.7 to our report on Form 8-K dated August 7,2001.

19.   Incorporatedby reference to Exhibit 4.1 to our report on Form 8-K datedMarch 13, 2006.

20.   Incorporated by reference toExhibit 10.1 to our report on Form 10-K for the year endedDecember 31, 2004.

21.   Incorporated by reference toExhibit (e)(5) to Schedule 14D-9 filed byTravelocity.com, Inc. on March 18, 2002.

22.   Incorporated by reference toExhibit 10.1 to our report on Form 10-Q for the quarter endedJune 30, 2001.

23.   Incorporated by reference toExhibit 10.2 to our report on Form 10-Q for the quarter endedJune 30, 2001.

24.   Incorporated by reference toExhibit 10.3 to our report on Form 10-Q for the quarter endedJune 30, 2001.

25.   Incorporated by reference toExhibit 10.4 to our report on Form 10-Q for the quarter endedJune 30, 2001.

26.   Incorporated by reference toExhibit 10.2 to our report on Form 10-Q for the quarter endedMarch 31, 2004.

27.   Incorporated by reference toExhibit 10.3 to our report on Form 10-Q for the quarter endedMarch 31, 2004.

28.   Incorporated by reference toExhibit 10.4 to our report on Form 10-Q for the quarter endedMarch 31, 2004.

29.   Incorporated by reference toExhibit 10.5 to our report on Form 10-Q for the quarter endedMarch 31, 2004.

30.   Incorporated by reference toExhibit 10.11 to our report on Form 10-K for the year endedDecember 31, 2004.

31.   Incorporated by reference toExhibit 10.3 to our report on Form 10-Q for the quarter endedMarch 31, 2003.

32.   Incorporated by reference toExhibit 10.11 to our report on Form 10-K for the year endedDecember 31, 2003.

33.   Incorporated by reference toExhibit 10.14 to our report on Form 10-K for the year endedDecember 31, 2004.

34.   Incorporated by reference toExhibit 10.6 to our report on Form 10-Q for the quarter endedSeptember 30, 2004.

35.   Incorporated by reference toExhibit 10.16 to our report on Form 10-K for the year endedDecember 31, 2004.

36.   Incorporatedby reference to Exhibit 10.5 to our Form 10-Q for the quarterended March 31, 2006.

37.   Incorporated by reference toExhibit 10.6 to our Form 10-Q for the quarter endedMarch 31, 2006.

38.   Incorporatedby reference to Exhibit 10.7 to our Form 10-Q for the quarterended March 31, 2006.

39.   Incorporatedby reference to Exhibit 10.8 to our Form 10-Q for the quarterended March 31, 2006.

40.   Incorporatedby reference to Exhibit 10.9 to our Form 10-Q for the quarterended March 31, 2006.

41.   Incorporatedby reference to Exhibit 10.10 to our Form 10-Q for the quarterended March 31, 2006.

42.   Incorporatedby reference to Exhibit 10.11 to our Form 10-Q for the quarterended March 31, 2006.

43.   Incorporatedby reference to Exhibit 10.12 to our Form 10-Q for the quarterended March 31, 2006.

44.   Incorporated by reference toExhibit 10.13 to our Form 10-Q for the quarter endedMarch 31, 2006.

45.   Incorporated by reference toExhibit 10.17 to our report on Form 10-K for the year endedDecember 31, 2004.

46.   Incorporated by reference toExhibit 99.1 to our report on Form 8-K dated December 21,2004.

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47.   Incorporated by reference toExhibit 10.19 to our report on Form 10-K for the year endedDecember 31, 2004.

48.   Incorporated by reference toExhibit 10.1 to our report on Form 10-Q for the quarter endedMarch 31, 2003.

49.   Incorporated by reference toExhibit 10.2 to our report on Form 10-Q for the quarter endedMarch 31, 2003

50.   Incorporated by reference toExhibit 10.26 to our Registration Statement on Form S-1(Registration No. 333-09747).

51.   Incorporated by reference toExhibit 10.23 to our report on Form 10-K for the year endedDecember 31, 2004.

52.   Incorporated by reference toExhibit 10.16 to our report on Form 10-K for the year endedDecember 31, 2001.

53.   Incorporated by reference toExhibit 10.22 to our report on Form 10-K for the year endedDecember 31, 2003.

54.   Incorporated by reference toExhibit 99.1 to our report on Form 8-K dated onJanuary 28, 2005.

55.   Incorporated by reference toExhibit 99.2 to our report on Form 8-K dated onJanuary 28, 2005.

56.   Incorporated by reference toExhibit 99.1 to our report on Form 8-K on December 21,2004.

57.   Incorporated by reference toExhibit 10.17 to our report on Form 10-K for the year endedDecember 31, 2004.

58.   Incorporated by reference toExhibit 10.34 to our report on Form 10-K for the year endedDecember 31, 1997. This exhibit is available as Exhibit 10.34 on theSEC’s EDGAR website as an exhibit to the Sabre Holdings Corporation (filenumber 001-12175) Form 10-K for the year endedDecember 31, 1997.

59.   Incorporated by reference toExhibit 10.1 to our report on Form 10-Q for the quarter endedJune 30, 2004.

60.   Incorporatedby reference to Exhibit 10.1 to our Form 10-Q for the quarterended March 31, 2006.

61.   Incorporatedby reference to Exhibit 10.2 to our Form 10-Q for the quarterended March 31, 2006.

62.   Incorporatedby reference to Exhibit 10.3 to our Form 10-Q for the quarterended March 31, 2006.

63.   Incorporated by reference toExhibit 10.1 (a-g) to our report on Form 10-Q for the quarterended June 30, 2003.

64.   Incorporated by reference toExhibit 10.2 to our Form 10-Q for the quarter ended September 30,2006.

65.   Filed herewith.

66.   Incorporated by reference toExhibit 10. 1 to our Form 10-Q for the quarter endedSeptember 30, 2006.

67.   Incorporated by reference toExhibit 10.1 to our report on Form 10-Q for the quarter endedSeptember 30, 2004.

68.   Incorporated by reference toExhibit 10.2 to our report on Form 10-Q for the quarter endedSeptember 30, 2004.

69.   Incorporated by reference toExhibit 10.3 to our report on Form 10-Q for the quarter endedSeptember 30, 2004.

70.   Incorporated by reference toExhibit 10.4 to our report on Form 10-Q for the quarter endedSeptember 30, 2004.

71.   Incorporated by reference toExhibit 10.5 to our report on Form 10-Q for the quarter endedSeptember 30, 2004.

72.   Incorporated by reference toExhibit 10.38 to our report on Form 10-K for the year endedDecember 31, 2004.

73.   Incorporated by reference toExhibit 10.1 to our report on Form 10-Q for the quarter endedJune 30, 2005.

74.   Incorporated by reference toExhibit 10.2 to our report on Form 10-Q for the quarter endedJune 30, 2005.

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75.   Incorporated by reference toExhibit 10.3 to our report on Form 10-Q for the quarter endedJune 30, 2005.

76.   Incorporated by reference toExhibit 10.4 to our report on Form 10-Q for the quarter endedJune 30, 2005.

77.   Incorporated by reference toExhibit 10.5 to our report on Form 10-Q for the quarter endedJune 30, 2005.

78.   Incorporated by reference toExhibit 10.1 to our report on Form 10-Q for the quarter endedSeptember 30, 2005.

79.   Incorporated by reference toExhibit 10.2 to our report on Form 10-Q for the quarter endedSeptember 30, 2005.

80.   Incorporated by reference tothe description in Item 1.01 of our Form 8-K filed onFebruary 3, 2006.

81.   Incorporated by reference toExhibit 10.47 to our report on Form 10-K for the year endedDecember 31, 2005.

82.   Incorporated by reference toExhibit 10.48 to our report on Form 10-K for the year endedDecember 31, 2005.

83.   Incorporated by reference toExhibit 14.1 to our report on Form 10-K for the year endedDecember 31, 2004.

84.   Sabre Holdings Corporationis furnishing, but not filing, the written statements pursuant to Title 18United States Code Section 1350, as added by Section 906 of theSarbanes-Oxley Act of 2002, of Michael S. Gilliland, the Chief ExecutiveOfficer of Sabre Holdings Corporation, and Jeffery M. Jackson, the ChiefFinancial Officer of Sabre Holdings Corporation.

85.   Incorporated by reference toExhibit 10.49 to our report on Form 10-K for the year endedDecember 31, 2005.

86.   Incorporated by reference toExhibit 10.50 to our report on Form 10-K for the year endedDecember 31, 2005.

87.   Incorporated by reference toExhibit 10.51 to our report on Form 10-K for the year endedDecember 31, 2005.

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**SABRE HOLDINGS CORPORATION**

**INDEX TO FINANCIAL STATEMENTS AND SCHEDULESCOVERED BY REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**[Item 15(a)]**

**Financial Statements**

|                                                                                                                 | ** ** | **Page** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| Report of Independent Registered Public Accounting Firm                                                         |       |     | 67         |   |   |
| Consolidated Statements of Income for the  Years Ended   December 31, 2006, 2005 and 2004                  |       |     | 68         |   |   |
| Consolidated Balance Sheets at December 31, 2006 and 2005                                                  |       |     | 69         |   |   |
| Consolidated Statements of Cash Flows for the Years Ended  December 31, 2006, 2005 and 2004                |       |     | 70         |   |   |
| Consolidated Statements of Stockholders’ Equity for the Years  Ended December 31, 2006, 2005 and 2004 |       |     | 71         |   |   |
| Notes to Consolidated Financial Statements                                                                      |       |     | 72         |   |   |
| Schedule II Valuation and Qualifying  Accounts for the Years   Ended December 31, 2006, 2005 and 2004      |       |     | 183        |   |   |

 

All otherschedules are omitted because the required information is included in thefinancial statements or notes thereto, or because the required information iseither not present or not present in sufficient amounts.

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**SabreHoldings CorporationSchedule II Valuation and Qualifying AccountsFor Each of the Three Years in the Period Ended December 31, 2006(in thousands)**
|                                       | ** ** | ** ** | ** ** | **Additions**                                            | ** ** | ** **                                                            | ** ** |
|---------------------------------------|------------|------------|------------|----------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| **Classification**                    | ** ** | ** ** | ** ** | **Balance at   Beginning of   Year** | ** ** | **Charged   (Credited)  to Costs and   Expenses** | ** ** | **Deductions (2)** | ** ** | **Balance at   End of year** | ** ** |
| **Year Ended December 31, 2006** | ** ** |       | ** ** | ** **                                               |       |                                                                  | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Allowance for  uncollectible accounts |       |       | $          | 24,952                                                   | ** ** |                                                                  |       | $ | 12,298 |   |   |   | $ | (4,591 | ) |   |   | $ | 32,659 | ** ** |   |
| Booking fee  cancellation reserve     |       |       | 17,063     | ** **                                               |       |                                                                  | (6,557     | ) |   |   | — |   |   |   | 10,506 | ** ** |   |
| Associate  reserves                   |       |       | 16,231     | ** **                                               |       |                                                                  | 41,278     |   |   |   | (42,421 | ) |   |   | 15,088 | ** ** |   |
| **Year Ended December 31, 2005** | ** ** |       | ** ** | ** **                                               |       |                                                                  | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Allowance for  uncollectible accounts |       |       | $          | 24,156                                                   | ** ** |                                                                  |       | $ | 6,943 |   |   |   | $ | (6,147 | ) |   |   | $ | 24,952 | ** ** |   |
| Booking fee  cancellation reserve     |       |       | 16,714     | ** **                                               |       |                                                                  | 349        |   |   |   | — |   |   |   | 17,063 | ** ** |   |
| Associate  reserves                   |       |       | 11,033     | ** **                                               |       |                                                                  | 49,747     |   |   |   | (44,549 | ) |   |   | 16,231 | ** ** |   |
| **Year Ended December 31, 2004** | ** ** |       | ** ** | ** **                                               |       |                                                                  | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Allowance for  uncollectible accounts |       |       | $          | 15,415                                                   | ** ** |                                                                  |       | $ | 19,176 |   |   |   | $ | (10,435 | ) |   |   | $ | 24,156 | ** ** |   |
| Booking fee  cancellation reserve     |       |       | 16,953     | ** **                                               |       |                                                                  | —     |   |   |   | (239 | ) |   |   | 16,714 | ** ** |   |
| Associate reserves                    |       |       | 10,252     | ** **                                               |       |                                                                  | 29,368     |   |   |   | (28,587 | ) |   |   | 11,033 | ** ** |   |
|                                       |            |            |            |                                                          |            |                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)            Includes write-offsfor uncollectible accounts and other reserve adjustments.

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**Signatures**

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.
| Date: February 23, 2007 | **SABRE HOLDINGS CORPORATION** |
|------------------------------|--------------------------------|
|                         |                           | /s/ MICHAEL  S. GILLILAND |
|                         |                           | Michael S. Gilliland |
|                         |                           | *President and Chief Executive Officer (Principal  Executive Officer)* |
|                         |                           | /s/ JEFFERY  M. JACKSON |
|                         |                           | Jeffery M. Jackson |
|                         |                           | *Executive Vice President, Chief Financial Officer  and Treasurer (Principal Financial Officer)* |
|                         |                           | /s/ MARK K.  MILLER |
|                         |                           | Mark K. Miller |
|                         |                           | *Senior Vice President and Controller (Principal  Accounting Officer)* |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated:

Date: February 23,2007

Directors:

| /s/ ROYCE S. CALDWELL          |   | /s/ BOB L. MARTIN         |
|--------------------------------|--------|---------------------------|
| Royce S. Caldwell              |   | Bob L. Martin             |
| /s/ CHRISTOPHER J. FRALEIGH    |   | /s/ PAMELA B. STROBEL     |
| Christopher J. Fraleigh        |   | Pamela B. Strobel         |
| /s/ MICHAEL S. GILLILAND       |   | /s/ MARY ALICE TAYLOR     |
| Michael S. Gilliland, Chairman |   | Mary Alice Taylor         |
| /s/ RICHARD G. LINDNER         |   | /s/ RICHARD L. THOMAS     |
| Richard G. Lindner             |   | Richard L. Thomas         |
| /s/ GLENN W. MARSCHEL          |   | /s/ RONALD V. WATERS  III |
| Glenn W. Marschel, Jr.    |   | Ronald V. Waters III      |

 

184

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