The SABRE Group Reports First Quarter 1999 Results
Travel Distribution Revenues Up 15 Percent
FORT WORTH, Texas Sabre today reported revenues of $639 million for the second quarter ended June 30, an increase of 11 percent over revenues for the second quarter of 1998. Revenue from the electronic travel distribution business grew 15 percent over second quarter 1998, while revenue from the information technology solutions business grew 5 percent over the same period.
The companys net earnings, excluding the charge described below, increased 11 percent to $77 million, or $0.59 per share on a diluted basis, compared to net earnings of $69 million, or $0.53 per share on a diluted basis, in the same period last year. Operating income, excluding the charge, was $118 million for the quarter, an increase of 6 percent, compared to $111 million for the same period in 1998.
"Growth in travel bookings in both the travel agency channel and the on-line consumer channel drove solid revenue and earnings growth in the travel distribution business," said Michael J. Durham, president and chief executive officer of Sabre. "As expected, with the ramp down in the US Airways system conversion efforts and conclusion of Year 2000 remediation work for American Airlines, revenue growth in the IT solutions business was slower than last year. We are pleased with our overall earnings results, which were within our expectations, and although operating margins were slightly down from last year, we are taking steps now that we believe will improve margins in the latter half of the year."
During the second quarter, the company incurred a significant charge to earnings related to amortization expense on options issued to US Airways as part of the long-term technology agreement signed in 1997. US Airways received options for 6,000,000 shares of Sabre stock at an exercise price of $27 per share. The first tranche of options for 3,000,000 shares is exercisable during the six-month period of July 1, 1999 through December 31, 1999. The second tranche of options for the remaining 3,000,000 shares is exercisable for a 10 year period beginning on January 2, 2003.
The options are considered liability instruments under Statement of Financial Accounting Standards
No. 123, which requires adjusting the value of the options based upon the difference between the current stock price and the exercise price of the option. With the significant price appreciation in Sabres stock during the second quarter, the amortization expense related to these options was $22 million, $13 million net of tax, or $0.10 per share on a diluted basis. Comparatively, the option expense incurred in the second quarter of 1998 was $1.3 million, $0.8 million net of tax, or $0.01 per share. Due to the nature of this charge, the company has separated out this expense for comparative purposes.
Including this option amortization expense, net earnings were $63 million, or $0.48 per share on a diluted basis for the second quarter 1999, a decline of 7 percent compared to the second quarter 1998. Operating income was $96 million for the quarter, a decline of 12 percent, compared to $109 million for the same period in 1998.
Total worldwide bookings processed through the Sabre® computer reservations system, which include direct bookings and joint venture bookings, were 116 million for the quarter, an increase of 9 percent over the same period last year.
Direct worldwide reservations booked through the Sabre® system were 97 million during the second quarter an increase of 6 percent over the same period in 1998, driven by travel growth, market share gains and rapid growth in Travelocity.com, the companys leading travel Web site. Direct bookings within the United States grew 3 percent for the quarter, while direct international bookings grew 12 percent for that period.
Travel sales, which represents the value of travel products sold, through Travelocity.com reached $173 million in the second quarter, an increase of 190 percent over the second quarter of 1998 and a 35 percent increase over the first quarter of this year. As reported earlier, the company continues to evaluate alternative capital structures for this Internet business.
Revenue for the first six months of 1999 was $1.3 billion, an increase of 13 percent over the same period last year. Net earnings for the first half of the year, excluding certain items booked in the first and second quarters, rose 6 percent to $150 million, or $1.15 per share on a diluted basis, compared to net earnings of $142 million, $1.08 per share on a diluted basis, in the same period last year. Operating income, before special items, grew 3 percent to $233 million for the six months ended June 30, compared to $226 million for the same period in 1998.
In the first quarter of 1999 the company recorded a one-time gain of $21 million, net of tax, or $0.16 per share on a diluted basis, arising from the sale in a secondary offering of 490,000 shares of Equant, N.V., a telecommunications company. In addition the first quarter includes charges related to the US Airways options of $2 million, net of tax, or $0.01 per share on a diluted basis.
Including these items, net earnings for the six months ended June 30, 1999, were $156 million, an increase of 11 percent compared to the same period in 1998. Operating income was $208 million for the first half of 1999, compared to $224 million for the first half of 1998, a decline of 7 percent.
"The travel distribution business has performed very well in the first half of 1999, as we continue our efforts to gain market share through leading edge technology and superior customer service," Durham added. "With our industry knowledge and extensive applications portfolio, we believe the long-term prospects for our outsourcing business remain strong. In the short-term, we will be implementing measures throughout the company to reduce our costs to match our current revenue growth and to improve margins within this business."
The company indicated that efforts to balance costs with revenue growth will likely result in some headcount reductions in certain areas of the business as sales and marketing efforts, as well as product development initiatives continue to be streamlined.
Sabre and the Sabre logo are registered trademarks of an affiliate of The Sabre Group, Inc., soon to be known as Sabre Holdings
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