UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission File No. 0-29296
TRAVEL SERVICES INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-2030324
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 CONGRESS PARK DRIVE
DELRAY BEACH, FLORIDA 33445
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(561) 266-0860
----------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's Common Stock, par value
$.01 per share, as of August 10, 1998, was 13,163,912.
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I FINANCIAL INFORMATION........................................................................... 3
Item 1. Consolidated Financial Statements............................................................... 3
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998 .......................... 3
Consolidated Statements of Income -- Historical for the Three Months Ended
June 30, 1997 and 1998 and the Six Months Ended June 30, 1997 and 1998.......................... 4
Consolidated Statements of Income -- Pro Forma for the Three Months Ended
June 30, 1997 and 1998 and Six Months Ended June 30, 1997 and 1998.............................. 5
Consolidated Statements of Cash Flows -- Historical for the Six Months
Ended June 30, 1997 and 1998.................................................................... 6
Notes to Consolidated Financial Statements...................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................... 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................................... 18
Item 2. Changes in Securities and Use of Proceeds....................................................... 18
Item 5. Other Information............................................................................... 18
Item 6. Exhibits and Reports on Form 8-K................................................................ 19
SIGNATURES................................................................................................. 20
</TABLE>
2
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PART I - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,490 $ 22,724
Accounts receivable, net of
allowance of $141 and $176, respectively 4,943 11,732
Receivables from affiliates and employees 637 520
Prepaid expenses 899 1,680
Deferred income taxes 773 2,299
Other current assets 208 55
-------- --------
Total current assets 15,950 39,010
Property and equipment, net 11,385 14,720
Goodwill, net 41,701 96,734
Notes Receivables from employees 255 395
Other assets 732 1,981
-------- --------
Total assets $ 70,023 $152,840
======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Current maturities of long-term debt 433 279
Due to affiliates and employees 478 1,453
Trade payables and accrued expenses 13,639 46,238
-------- --------
Total current liabilities 14,550 47,970
Borrowings under line of credit 0 28,600
Long-term debt, net of current portion 4,285 4,135
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized;
none outstanding
Common stock, $0.01 par value; 50,000,000 shares authorized;
10,847,631 and 11,133,805 shares outstanding, respectively 108 111
Additional paid-in capital 48,027 62,190
Retained earnings 3,053 9,834
-------- --------
Total stockholders' equity 51,188 72,135
-------- --------
Total liabilities and stockholders' equity $ 70,023 $152,840
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - HISTORICAL
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 16,668 $ 36,653 $ 28,290 $ 62,765
Operating expenses 9,473 19,047 17,463 33,547
----------- ----------- ----------- -----------
Gross profit 7,195 17,606 10,827 29,218
General and administrative expenses 4,899 8,410 8,269 16,079
Goodwill amortization -- 615 -- 1,022
----------- ----------- ----------- -----------
Income from operations 2,296 8,581 2,558 12,117
Interest expense and other, net 30 462 65 352
----------- ----------- ----------- -----------
Income before provision for income taxes 2,266 8,119 2,493 11,765
Provision for income taxes 952 3,410 1,047 4,941
----------- ----------- ----------- -----------
Net income $ 1,314 $ 4,709 $ 1,446 $ 6,824
=========== =========== =========== ===========
Basic earnings per share $ 0.45 $ 0.43 $ 0.49 $ 0.63
=========== =========== =========== ===========
Diluted earnings per share $ 0.45 $ 0.41 $ 0.49 $ 0.60
=========== =========== =========== ===========
Shares used in computing basic earnings per share 2,930,678 10,943,750 2,930,678 10,865,973
=========== =========== =========== ===========
Shares used in computing diluted earnings per share 2,930,678 11,530,066 2,930,678 11,399,280
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - PROFORMA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- ------------------------------
1997 1998 1997 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 29,627 $ 39,013 $ 50,841 $ 68,006
Operating expenses 16,428 20,358 29,786 36,519
------------ ----------- ----------- -----------
Gross profit 13,199 18,655 21,055 31,487
General and administrative expenses 5,651 8,740 10,043 16,802
Goodwill amortization 509 748 1,018 1,355
------------ ----------- ----------- -----------
Income from operations 7,039 9,167 9,994 13,330
Interest expense and other, net (104) 499 32 430
------------ ----------- ----------- -----------
Income before provision for income taxes 7,143 8,668 9,962 12,900
Provision for income taxes 3,000 3,641 4,184 5,418
------------ ----------- ----------- -----------
Net income $ 4,143 $ 5,027 $ 5,778 $ 7,482
============ =========== =========== ===========
Diluted pro forma earnings per share $ 0.37 $ 0.42 $ 0.52 $ 0.63
============ =========== =========== ===========
Shares used in computing diluted pro forma earnings per share 11,218,171 11,922,800 11,218,171 11,890,198
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - HISTORICAL
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1998
-------- --------
<S> <C> <C>
Cash from operating activities:
Net income $ 1,446 $ 6,824
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 455 2,038
Amortization of unearned compensation -- 16
Changes in operating assets and liabilities:
Accounts receivables (446) (3,575)
Receivables and notes from affiliates and employees (257) (13)
Prepaid expenses 630 (157)
Deferred income taxes -- (727)
Other assets (206) (1,056)
Trade payables and accrued expenses 11,161 26,942
-------- --------
Net cash provided by operating activities 12,783 30,292
Cash flows from investing activities:
Capital expenditures (1,398) (2,167)
Proceeds from sale of property and equipment 30 --
Cash paid for acquisitions, net of cash acquired -- (40,881)
-------- --------
Net cash used in investing activities (1,368) (43,048)
Cash flows from financing activities:
Proceeds from long-term debt and lines of credit 991 30,700
Payments on long-term debt and lines of credit (2,478) (3,710)
-------- --------
Net cash provided by (used in) financing activities (1,519) 26,990
Net increase in cash and cash equivalents 9,896 14,234
Cash and cash equivalents, beginning of period 1,649 8,490
-------- --------
Cash and cash equivalents, end of period $ 11,545 $ 22,724
======== ========
Supplemental cash flow information:
Cash paid for interest $ 185 $ 548
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim Consolidated Financial Statements as of June 30, 1998 and for the
three and six month periods ended June 30, 1997 and 1998 are unaudited, and
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary to fairly present the financial
position, results of operations, and cash flows with respect to interim
financial statements, have been included. Operating results for interim periods
are not necessarily indicative of the results for full years as a result of
seasonality and other factors.
The financial statements included herein should be read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations related thereto, for the year ended December 31, 1997, all of which
are included in the Company's Registration Statement on Form S-1 (File No.
333-56567) (the "Registration Statement") which was declared effective on July
15, 1998 by the Securities and Exchange Commission (the "SEC"). The Registration
Statement was filed in connection with an offering of the Company's common
stock, which was consummated on July 21, 1998 (the "Secondary Offering").
On July 28, 1997, Travel Services International, Inc. consummated its initial
public offering and acquired five specialized distributors of travel services
(the "Founding Companies") in separate combination transactions accounted for
using the purchase method of accounting (the "Combinations"). Historical
financial statements do not include the operating results of the Founding
Companies (other than Auto Europe, the "accounting acquiror") prior to July
1997. Historical financial statements for the three and six month periods ended
June 30, 1997 and 1998 include the operating results of seven additional
specialized distributors of cruise reservation services acquired from November
1997 through May 1998 under transactions accounted for using the pooling of
interests method of accounting (the "Pooling Acquisitions"). Historical
financial statements for the three and six months ended June 30, 1998 also
include the operating results of four specialized distributors of reservations
(one airline, two cruise and one auto rental) (the "Purchase Acquisitions") and
Lexington Services Associates, Ltd., an electronic hotel reservation services
company (the "Lexington Acquisition") acquired during the first six months of
1998 under transactions accounted for using the purchase method of accounting,
from the date of the acquisitions through June 30, 1998. The historical
financial statements for the three and six month periods ended June 30, 1997 do
not include the operating results of the Purchase Acquisitions or the Lexington
Acquisition.
Because of the significance of the Combinations in July 1997 and the Lexington
Acquisition in June 1998, pro forma combined statements of income for the three
and six month periods ended June 30, 1997 and 1998 have been prepared and
diluted pro forma earnings per share has been computed. The pro forma financial
information gives effect to the results of the Company combined with all the
Founding Companies and the Lexington Acquisition as if the Combinations and the
Lexington Acquisition had occurred at the beginning of each respective period,
along with certain adjustments associated with the Combinations, the Lexington
Acquisition and the Pooling Acquisitions. These adjustments include amortization
of goodwill resulting from the Combinations and the Lexington Acquisition,
certain adjustments to salaries, bonuses and management fees to former owners
and key management of the acquired companies, to which to which such persons
have agreed prospectively, reversal of merger and acquisition costs associated
with the Pooling Acquisitions and provision for income taxes as if pro forma
income was subject to corporate and federal income taxes during the periods.
The pro forma combined statements of income have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the Founding
7
<PAGE>
Companies and the Lexington Acquisition been under common control prior to the
Combinations and the Lexington Acquisition, or which may result in the future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes in the accounting policies of the Company
during the periods presented. For a description of these policies, refer to Note
2 to the Consolidated Financial Statements and related Notes thereto for the
year ended December 31, 1997, included in the Company's Registration Statement.
During 1998, the Company adopted Financial Standards Board Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
130") which establishes standards for reporting and display of comprehensive
income and its components in the financial statements. The following types of
items are to be considered in computing comprehensive income: foreign currency
translation adjustments, pension liability adjustments, unearned stock plan
awards and unrealized gain/loss on securities available for sale. For the three
and six month periods ended June 30, 1997 and 1998, there were no differences
between net income and comprehensive income.
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for the way that public business enterprises
report information about operating segments and for related disclosures about
products and services, geographic areas and major customers. The Company will
implement that disclosures provisions of SFAS No. 131 effective December 31,
1998.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. Management believes
the impact of adopting this statement will not have a material impact upon the
Company's results of operations or financial position.
3. LONG-TERM DEBT AND CREDIT FACILITY
The Company has a credit facility agreement with NationsBank, N.A.
("NationsBank") with respect to a $30 million revolving line of credit (the
"Credit Facility") and a term loan facility of $2.1 million (the "Term Loan").
Borrowings under the Credit Facility and Term Loan are due October 15, 2000 and
October 5, 2000, respectively. The Credit Facility may be used for acquisitions,
letters of credit not to exceed $3 million in the aggregate, and for capital
expenditures (including but not limited to investments in technology) and
general corporate purposes, which in the aggregate may not exceed $5 million. As
of June 30, 1998, outstanding borrowings under the Credit Facility totaled $28.6
million, all of which was repaid on July 21, 1998 using a portion of the net
proceeds of the Secondary Offering. All amounts repaid may be reborrowed.
Interest on outstanding balances of the Credit Facility and Term Loan are
computed based on the Eurodollar Rate plus a margin ranging from 1.25% to 2.0%,
depending on certain financial ratios. For a full description of the Credit
Facility, refer to Note 7 and 15 to the Consolidated Financial Statements and
related Notes thereto for the year ended December 31, 1997 included in the
Company's Registration Statement.
On March 30, 1998, $3 million previously pledged to Barnett Bank was released in
exchange for a guarantee by the Company of outstanding debt of one of the
Founding Companies. Such debt, totaling $3,141,241, was repaid on April 28,
1998, including $1,901,838 which was refinanced using the proceeds of the Term
Loan.
The Credit Facility requires the Company to secure an interest rate hedge on
fifty percent of the outstanding principal amount borrowed under the Credit
Facility and one hundred percent of the outstanding balance on the Term Loan. As
of June 30, 1998, the Company entered into interest rate swap hedge agreements
totaling $16.4 million and maturing in October 2000, of which $14.3 million
relates to the Credit Facility. These interest rate swap
8
<PAGE>
hedge agreements were not liquidated when borrowings under the Credit Facility
were repaid and an unrealized loss of approximately $140,000 was incurred.
The Credit Facility is secured by substantially all the assets of the Company
and requires the Company to comply with various loan covenants, which include
maintenance of certain financial ratios, restrictions on additional indebtedness
and restrictions on liens, guarantees, advances, capital expenditures, sale of
assets and dividends. At June 30, 1998 the Company was in compliance with the
loan covenants in all material respects.
4. ACQUISITIONS AND CAPITAL STOCK
On January 20, 1998, the Company consummated the acquisition of substantially
all of the assets and assumption of substantially all of the liabilities of
Diplomat Tours, Inc. and International Airline Consolidators (collectively,
"Diplomat"). Diplomat is a specialized distributor of international airline
reservations. The aggregate consideration paid consisted of 21,821 shares of
common stock and $2.0 million in cash. The acquisition is accounted for using
the purchase method of accounting. The historical operations of Diplomat when
compared to the historical operations of the Company are not significant.
On February 9, 1998, the Company consummated the acquisition of all of the
outstanding capital stock of Gold Coast Travel Agency Corporation, Inc. ("Gold
Coast"). Gold Coast is a specialized distributor of cruise reservations. The
aggregate consideration paid consisted of 163,755 shares of common stock and
$6.25 million in cash. An additional $500,000 in cash may be paid as contingent
consideration based upon financial performance in the 1998 fiscal year. The
acquisition is accounted for using the purchase method of accounting. The
historical operations of Gold Coast when compared to the historical operations
of the Company are not significant.
Effective April 1, 1998, the Company completed the acquisition of all of the
outstanding capital stock of The Cruise Line, Inc. ("Cruise Line"). Cruise Line
is a specialized distributor of cruise reservations. The aggregate consideration
paid consisted of $12.5 million in cash. The acquisition is accounted for using
the purchase method of accounting. The historical operations of Cruise Line when
compared to the historical operations of the Company are not significant.
On March 31, 1998, the Company consummated the acquisition of all of the
outstanding capital stock of CruiseMasters, Inc. ("CruiseMasters").
CruiseMasters is a specialized distributor of cruise reservations. The aggregate
consideration paid for this acquisition was 152,835 shares of common stock. The
acquisition is accounted for using the pooling of interests method of
accounting.
On May 21, 1998, the Company consummated the acquisition of all of the
outstanding capital stock of Landry & Kling, Inc. ("L&K"). L&K is a specialized
distributor of corporate incentive cruise reservations. The aggregate
consideration paid for this acquisition was 163,078 shares of common stock. The
acquisition is accounted for using the pooling of interests method of
accounting.
On May 31, 1998, the Company consummated the acquisition of all of the
outstanding capital stock of Goodfellow Enterprises, Inc., ("The Travel
Company"). The Travel Company is a specialized distributor of cruise
reservations. The aggregate consideration paid for this acquisition was 179,727
shares of common stock. The acquisition is accounted for using the pooling of
interests method of accounting.
Revenues and income before taxes generated by the three acquisitions above which
are accounted for using the pooling of interests method of accounting (the "1998
Poolings"), prior to the date of the acquisitions and included in the
accompanying consolidated statements of income for the three and six month
periods ended June 30, 1997 and 1998 were as follows: net revenues of $1.2
million and $1.9 million in the three and six month periods ended June 30, 1997,
respectively; income before taxes of $325,000 and $382,000 in the three and six
month periods ended June 30, 1997, respectively; net revenues of $462,000 and
$1.6 million in the three and six month periods ended June 30, 1998,
respectively; and income before taxes of $103,000 and $409,000 in the three and
six month periods ended June 30, 1998, respectively.
9
<PAGE>
Effective June 1, 1998, the Company consummated the acquisition of all of the
outstanding equity interests of the Lexington Services Associates, Ltd.
("Lexington"). Lexington is an electronic hotel reservation services company.
The aggregate consideration paid for this acquisition was 283,990 shares of
common stock and $20.0 million in cash. An additional $7.5 million in cash and
common stock may be paid as contingent consideration based upon financial
performance in the twelve months ended May 31, 1999. The acquisition is
accounted for using the purchase method of accounting. The historical operations
of Lexington when compared to the historical operations of the Company are
significant and, accordingly, net revenues and income before taxes generated by
Lexington prior to the date of acquisition are included in the accompanying pro
forma consolidated statements of net income for the three and six month periods
ended June 30, 1997 and 1998.
Effective July 1, 1998 the Company completed the acquisition of substantially
all the assets of ABC Corporate Services ("ABC"). ABC provides services to
independent travel agencies, including publication of a hotel guide and
after-hours travel services for certain travel agencies' corporate accounts. The
aggregate consideration paid was $4,250,000, as adjusted for certain changes in
working capital. The acquisition will be accounted for using the purchase method
of accounting. The historical operations of ABC when compared to the historical
operations of the Company are not significant.
On August 7, 1998, the Company signed definitive agreements to acquire all of
the outstanding capital stock of 1-800-CRUISES, Inc. and Jubilee Enterprises,
Inc., dba The Travel Dept. Among the assets to be acquired in these acquisitions
are the toll free telephone numbers 1-800-CRUISES and 1-800-CRUISING and the
www.1-800-CRUISES.com web-site address. In addition, the entities operate a
small cruise reservation call center. The acquisition will be accounted for
using the purchase method of accounting.
On July 21, 1998, the Company consummated the Secondary Offering. An aggregate
of 4,025,000 shares of Common Stock were registered and sold, including
2,025,000 shares sold by the Company and 2,000,000 shares sold by certain
selling stockholders. All of the shares were sold to the public at a price of
$34.50 per share. Net proceeds to the Company from the Secondary Offering (after
deducting underwriting discounts and commissions and estimated offering
expenses) were approximately $65.8 million, of which $28.6 million was used to
repay borrowings under the Credit Facility. The Company did not receive any
proceeds from shares sold by selling stockholders.
5. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") in 1997. Basic earnings per common share
("EPS") calculations are determined by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per common share calculations are determined by dividing net income by
the weighted average number of common shares and dilutive common share
equivalents. SFAS 128 had no impact on the Company's reported earnings per share
for 1997 periods as no common share equivalents existed during those periods.
A reconciliation of weighted average shares used in the calculation of
historical basic and diluted earnings per share for the three and six month
periods ended June 30, 1998 is as follows:
Six months Three months
June 30, 1998 June 30, 1998
Basic common shares outstanding 10,865,973 10,943,749
Dilutive effects of stock options 533,307 586,317
------- -------
Dilutive shares outstanding 11,399,280 11,530,066
---------- ----------
Dilutive pro forma earnings per share for the periods, which reflects the
dilutive effects of stock options, is also presented related to the pro forma
combined statements of income as discussed in Note 1 herein.
10
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7. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions arising in the ordinary course
of business. The Company believes that none of the actions currently pending
will have a material adverse effect on its business, financial condition and
results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with (i) the Company's
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Report and (ii) the Company's Consolidated Financial Statements and
related Notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations related thereto, for the year ended December
31, 1997 included in the Company's Registration Statement. Statements contained
in this discussion regarding future financial performance and results and other
statements that are not historical facts are forward-looking statements. The
forward looking statements are subject to numerous risks and uncertainties to
the Company. See Part II, Item 5, Risk Factors and Qualification of Forward
Looking Statements.
INTRODUCTION
The Company was established to create a leading specialized distributor of
leisure travel services to both travel agents and travelers. The Company
conducts its operations as a leading specialized distributor of cruise
vacations, domestic and international airline tickets and European auto rentals,
and a leading provider of electronic reservation services through various
subsidiaries (the "Operating Companies").
Because of the significance of the Combinations in July 1997 and the Lexington
Acquisition in June 1998, pro forma combined statements of income for the three
and six month periods ended June 30, 1997 and 1998 have been prepared in
addition to historical statements of operations. The pro forma combined
statements of income have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations which actually would have
resulted had the Founding Companies and the Lexington Acquisition been under
common control prior to the Combinations or the Lexington Acquisition, or which
may result in the future.
The Company's revenue is derived primarily from selling travel related services,
including cruise vacations, airline tickets and European auto rentals, and by
providing electronic hotel reservations. The Company does not record the gross
amount of the travel services sold to travelers or travel agents. Net revenues
recorded by the Company include commissions and markups on travel services,
volume bonuses and override commissions, processing and delivery fees, franchise
fees, and hotel reservation fees.
The Company records net revenues when earned, which for cruise bookings is when
the cruise is fully paid and the customer is no longer entitled to a full refund
of the cost of the cruise, generally 45 to 90 days prior to the sailing date,
for airline tickets and auto rentals is at the time the reservation is booked
and ticketed, and for hotel reservation services is at the time the traveler
checks out of the hotel. The Company provides allowances for bad debts,
cancellations, reservation changes, "no shows" and currency exchange guarantees,
which are based on historical experience.
Operating expenses include compensation of sales and sales support personnel,
commissions, credit card merchant fees, telecommunications, mail, courier,
marketing, global distribution systems fees and other expenses that vary with
revenues. Commissions to travel agents are typically based on a percentage of
the gross amount of the travel services sold. The Company's sales personnel are
compensated either on an hourly basis, a commission basis or a combination of
the two, with the vast majority of agents receiving a substantial portion of
their compensation based
11
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on sales generated. The Company's independent contractors selling cruises
receive a portion of the commissions earned by the Company. The Company receives
a portion of commissions earned by its franchisees selling cruises.
General and administrative expenses include compensation and benefits to
management and administrative employees, fees for professional services, rent,
information services, depreciation, travel and entertainment, office services,
amortization of capitalized internally developed software and other overhead
costs. Internally developed software is amortized over five years.
The Company records as goodwill the excess of consideration paid over the
estimated fair market value of net assets acquired in business combinations
accounted for under the purchase method. Goodwill is amortized over 35 years for
the travel service companies acquired and over five years for an acquired
software company. As of June 30, 1998, goodwill, net was $96.7 million.
RESULTS OF OPERATIONS - HISTORICAL
Historical financial results for each period presented represent those of Auto
Europe and the Pooling Acquisitions and include the operations of the other four
Founding Companies and Travel Services International, Inc., only since July 28,
1997, and the operations of the Purchase Acquisitions and the Lexington
Acquisition only since their respective acquisition dates in 1998.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 -
HISTORICAL
The following table sets forth certain selected historical financial data, also
stated as a percentage of net revenues, for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------
1997 1998
------------------- -----------------
<S> <C> <C> <C> <C>
Net revenues $16,668 100.0% $36,653 100.0%
Operating expenses 9,473 56.8 19,047 52.0
------- ----- ------- -----
Gross profit 7,195 43.2 17,606 48.0
General and administrative expenses 4,899 29.4 8,410 22.9
Goodwill amortization 0 0 615 1.7
----- ------- -----
Income from operations 2,296 13.8 8,581 23.4
Interest expense and other, net 30 .2 462 1.3
------- ----- ------- -----
Income before provision for income taxes 2,266 13.6 8,119 22.1
Provision for income taxes 952 5.7 3,410 9.3
------- ----- ------- -----
Net income $ 1,314 7.9% $ 4,709 12.8%
======= ===== ======= =====
</TABLE>
Net revenues increased from $16.7 million in 1997 to $36.7 million in 1998. Net
revenues in the European auto rental segment increased 8.0% and net revenues of
the Pooling Acquisitions increased 24.7%, with the balance of the net increase
in net revenues attributable to the inclusion of the net revenues of four of the
Founding Companies commencing on July 28, 1997 and the Purchase Acquisitions and
the Lexington Acquisition commencing from the date of acquisitions in 1998.
Operating expenses increased from $9.5 million in 1997 to $19.0 million in 1998.
As a percentage of net revenues, total operating expenses decreased from 56.8%
in 1997 to 52.0% in 1998, primarily due to the change in the mix of business in
each travel segment as a result of acquisitions, and as a result of lower
commission and telecommunications expenses as a percentage of net revenues in
the European auto rental segment in 1998.
General and administrative expenses increased from $4.9 million in 1997 to $8.4
million in 1998 and were 29.4% and 22.9% of net revenues, respectively. The
increase in expenses was primarily the result of expenses associated with being
a public company and costs of maintaining a corporate headquarters which did not
exist prior to the
12
<PAGE>
initial public offering and expenses of the Purchase Acquisitions in 1998,
offset somewhat by lower general and administrative expenses at the other
Operating Companies as a percentage of net revenues.
Goodwill amortization was $615,000 in 1998. No goodwill amortization was
recorded prior to the Combinations in July 1997.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 -
HISTORICAL
The following table sets forth certain selected historical financial data, also
stated as a percentage of net revenues, for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------
1997 1998
----------------- ------------------
<S> <C> <C> <C> <C>
Net revenues $28,290 100.0% $62,765 100.0%
Operating expenses 17,463 61.7 33,547 53.4
------- ----- ------- -----
Gross profit 10,827 38.3 29,218 46.6
General and administrative expenses 8,269 29.3 16,079 25.7
Goodwill amortization 0 0 1,022 1.6
------- ----- ------- -----
Income from operations 2,558 9.0 12,117 19.3
Interest expense and other, net 65 .2 352 .6
------- ----- ------- -----
Income before provision for income taxes 2,493 8.8 11,765 18.7
Provision for income taxes 1,047 3.7 4,941 7.8
------- ----- ------- -----
Net income $ 1,446 5.1% $ 6,824 10.9%
======= ===== ======= =====
</TABLE>
Net revenues increased from $28.3 million in 1997 to $62.8 million in 1998. Net
revenues in the European auto rental segment increased 12.5% and net revenues of
the Pooling Acquisitions increased 36.2%, with the balance of the net increase
in net revenues attributable to the inclusion of the net revenues of four of the
Founding Companies commencing on July 28, 1997 and the Purchase Acquisitions and
the Lexington Acquisition commencing from the date of acquisitions in 1998.
Operating expenses increased from $17.5 million in 1997 to $33.5 million in
1998. As a percentage of net revenues, total operating expenses decreased from
61.7% in 1997 to 53.4% in 1998, primarily due to the change in the mix of
business in each travel segment as a result of acquisitions, and as a result of
lower commission and telecommunications expenses as a percentage of net revenues
in the European auto rental segment in 1998.
General and administrative expenses increased $7.8 million, or 94.4%, from $8.3
million in 1997 to $16.1 million in 1998 and were 29.3% and 25.7% of net
revenues, respectively. The increase in expenses was primarily the result of
expenses associated with being a public company and costs of maintaining a
corporate headquarters which did not exist prior to the initial public offering
and expenses of the Purchase Acquisitions in 1998, offset somewhat by lower
general and administrative expenses at the other Operating Companies as a
percentage of net revenues.
Goodwill amortization was $1,022,000 in 1998. No goodwill amortization was
recorded prior to the Combinations in July 1997.
RESULTS OF OPERATIONS - PRO FORMA
Pro forma combined financial results for each period presented give effect to
the results of the Company combined with all the Founding Companies and the
Lexington Acquisition as if the Combinations and the Lexington Acquisition had
occurred at the beginning of each respective period, along with certain
adjustments associated with the Combinations, the Lexington Acquisition and the
Pooling Acquisitions described elsewhere herein.
13
<PAGE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 -
PRO FORMA
The following table sets forth certain selected pro forma financial data, also
stated as a percentage of net revenues, for the periods indicated (dollars in
thousands):
THREE MONTHS ENDED JUNE 30,
-------------------------------------
1997 1998
----------------- ---------------
Net revenues $ 29,627 100.0% $39,013 100.0%
Operating expenses 16,428 55.4 20,358 52.2
-------- ----- ------- -----
Gross profit 13,199 44.6 18,655 47.8
General and administrative expenses 5,651 19.1 8,740 22.4
Goodwill amortization 509 1.7 748 1.9
-------- ----- ------- -----
Income from operations 7,039 23.8 9,167 23.5
Interest expense and other, net (104) (.3) 499 1.3
-------- ----- ------- -----
Income before provision for income taxes 7,143 24.1 8,668 22.2
Provision for income taxes 3,000 10.1 3,641 9.3
-------- ----- ------- -----
Net income $ 4,143 14.0% $ 5,027 12.9%
======== ===== ======= =====
Net revenues increased $9.4 million, or 31.7%, from $29.6 million in 1997 to
$39.0 million in 1998. The increase in net revenues is primarily attributable to
acquisitions and increased transaction volumes of travel services by the Company
in each segment. Net revenues for the period increased 68.3%, 13.0%, 8.0% and
43.6% in the cruise, air, European auto rental, and hotel segments,
respectively. Of the 31.7% increase in combined pro forma net revenues, 14.0%
was attributable to internal growth at the Founding Companies, the Pooling
Acquisitions and the Lexington Acquisition, and 17.7% was attributable to the
net revenues recorded for the Purchase Acquisitions in 1998. Net revenues for
1997 are not recorded by the Company for the Purchase Acquisitions. Internal
growth rates at the Purchase Acquisitions in the cruise segment are estimated to
be approximately 50%, which is not reflected in the 14.0% internal growth rate
for the Company referred to above.
Operating expenses increased $3.9 million, or 23.9%, from $16.4 million in 1997
to $20.4 million in 1998. As a percentage of net revenues, total operating
expenses decreased from 55.4% in 1997 to 52.2% in 1998, primarily due to a
change in the mix of business by segment as a result of acquisitions and a
result of lower commission and telecommunications expenses as a percentage of
net revenues in the European auto rental segment in 1998.
General and administrative expenses increased $3.1 million, or 54.7%, from $5.7
million in 1997 to $8.7 million in 1998, and were 19.1% and 22.4% of net
revenues, respectively. The increase in expenses was primarily the result of
expenses associated with being a public company and costs of maintaining a
corporate headquarters which did not exist prior to the initial public offering
and expenses of the Purchase Acquisitions in 1998, offset somewhat by lower
general and administrative expenses at the other Operating Companies as a
percentage of net revenues.
Goodwill amortization expense increased $239,000, or 47.0%, from $509,000 in
1997 to $748,000 in 1998. The increase in goodwill amortization expense in 1998
was the result of amortization related to the Purchase Acquisitions.
14
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 - PRO
FORMA
The following table sets forth certain selected pro forma financial data, also
stated as a percentage of net revenues, for the periods indicated (dollars in
thousands):
SIX MONTHS ENDED JUNE 30,
-------------------------------------
1997 1998
----------------- ----------------
Net revenues $50,841 100.0% $68,006 100.0%
Operating expenses 29,786 58.6 36,519 53.7
------- ----- ------- -----
Gross profit 21,055 41.4 31,487 46.3
General and administrative expenses 10,043 19.7 16,802 24.7
Goodwill amortization 1,018 2.0 1,355 2.0
------- ----- ------- -----
Income from operations 9,994 19.7 13,330 19.6
Interest expense and other, net 32 .1 430 .6
------- ----- ------- -----
Income before provision for income taxes 9,962 19.6 12,900 19.0
Provision for income taxes 4,184 8.2 5,418 8.0
------- ----- ------- -----
Net income $ 5,778 11.4% $ 7,482 11.0%
======= ===== ======= =====
Net revenues increased $17.2 million, or 33.8%, from $50.8 million in 1997 to
$68.0 million in 1998. The increase in net revenues is primarily attributable to
acquisitions and increased transaction volumes of travel services by the Company
in each segment. Net revenues for the period increased 65.0%, 16.5%, 12.5% and
39.2%, in the cruise, air, European auto rental, and hotel segments,
respectively. Of the 33.8% increase in combined pro forma net revenues, 13.8%
was attributable to the Purchase Acquisitions and 20.0% was attributable to
internal growth at the Founding Companies, the Pooling Acquisitions and the
Lexington Acquisition. Net revenues for 1997 are not recorded by the Company for
the Purchase Acquisitions. Internal growth rates at the Purchase Acquisitions in
the cruise segment are estimated to be approximately 50%, which is not reflected
in the 20.0% internal growth rate for the Company referred to above.
Operating expenses increased $6.7 million, or 22.6%, from $29.8 million in 1997
to $36.5 million in 1998. As a percentage of net revenues, total operating
expenses decreased from 58.6% in 1997 to 53.7% in 1998, primarily due a change
in the mix of business by segment, and as a result of lower commission and
telecommunications expenses as a percentage of net revenues in the European auto
rental segment in 1998.
General and administrative expenses increased $6.8 million, or 67.3%, from $10.0
million in 1997 to $16.8 million in 1998. The increase in expenses was primarily
the result of expenses associated with being a public company and costs of
maintaining a corporate headquarters which did not exist prior to the initial
public offering and expenses of the Purchase Acquisitions in 1998, offset
somewhat by lower general and administrative expenses at the other Operating
Companies as a percentage of net revenues.
Goodwill amortization expense increased $337,000, or 33.1%, from $1.0 million in
1997 to $1.4 million in 1998. The increase in goodwill amortization expense in
1998 was the result of amortization related to the Purchase Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL TRANSACTIONS, INCLUDING ACQUISITIONS
The Company's three primary sources of liquidity and capital are cash flow from
operating activities, issuance of Common Stock and borrowings under its Credit
Facility.
15
<PAGE>
In the six months ended June 30, 1997 and 1998, on a historical basis, net cash
provided by operating activities was approximately $12.8 million and $30.2
million, respectively, capital expenditures were $1.4 million and $2.2 million,
respectively, borrowing under the Term Loan and other net borrowings were
$991,000 and $2.1 million, respectively and net repayment of debt was $2.5
million and $3.7 million, respectively. In addition, borrowings under line of
credit were $28.6 million in the six months ended June 30, 1998.
The Company issued 626,795 shares of common stock and paid $32.5 million cash
consideration during the three months ended June 30, 1998 in connection with
four acquisitions described herein. Two of the acquisitions were accounted for
using the pooling of interests method of accounting, and two of the
acquisitions, including the Lexington Acquisition described below, were
accounted for using the purchase method of accounting.
The Company issued 965,206 shares of common stock and paid $40.9 million cash
consideration during the six months ended June 30, 1998 in connection with eight
acquisitions described herein. Three of the acquisitions were accounted for
using the pooling of interests method of accounting, and five of the
acquisitions, including the Lexington Acquisition described below, were
accounted for using the purchase method of accounting.
Effective June 1, 1998, the Company consummated the acquisition of all of the
outstanding equity interests of the Lexington Services Associates, Ltd.
("Lexington"). Lexington is an electronic hotel reservation services company.
The aggregate consideration paid for this acquisition was 283,990 shares of
common stock and $20.0 million in cash. An additional $7.5 million in cash and
common stock may be paid as contingent consideration based upon financial
performance for the twelve months ending May 31, 1999. The acquisition is
accounted for using the purchase method of accounting. The historical operations
of Lexington when compared to the historical operations of the Company are
significant and, accordingly, net revenues and income before taxes generated by
Lexington prior to the date of acquisition are included in the accompanying pro
forma consolidated statements of net income for the three and six month periods
ended June 30, 1997 and 1998.
On July 21, 1998, the Company consummated its Secondary Offering. An aggregate
of 4,025,000 shares of Common Stock were offered and sold, including 2,025,000
shares sold by the Company and 2,000,000 shares sold by certain selling
stockholders. All of the shares were sold at a price to the public of $34.50 per
share. Net proceeds to the Company from the Secondary Offering (after deducting
underwriting discounts and commissions and estimated offering expenses) are
approximately $65.8 million, of which $28.6 million was used to repay borrowings
under the Credit Facility. The Company did not receive any proceeds from shares
sold by selling stock holders.
The Company expects to spend in excess of $8 million during 1998 for capital
expenditures, including $4 million for development of technology applications.
The remainder of the 1998 capital budget relates to purchases of computer
hardware and personal computers, telecommunications equipment, leasehold and
building improvements and furniture and fixtures. Capital expenditures during
the six months ended June 30, 1998 totaled $2.2 million, of which $1.4 million
relates to development of technology software applications. Capitalized
internally developed software totals $1.5 million at June 30, 1998. In addition,
the Company expects to spend approximately $11 million in 1999 for development
of technology applications, excluding computer and telecommunications hardware
and implementation costs.
The technology systems currently being used at the Company's headquarters are
Year 2000 compliant, and new systems currently under development by the Company
are working with compliant standards. A Year 2000 Project Office has been
established and is in the process assessing Year 2000 readiness of the
technology currently being used in the Operating Companies. The Company cannot
make any assurances with respect to such readiness at this time; however, once
an assessment is complete, a comprehensive view of Year 2000 state of readiness
will be formulated. The assessment being conducted by the Company includes
inquires of management and certification requests from hardware and software
vendors. New systems under development by the Company are expected to replace
some of the older software applications currently in use at certain Operating
Companies. There can be no assurances, however, that such replacements will be
made or will be made on time. The Company can not assess whether its travel
providers and other third parties have appropriate plans to remedy Year 2000
compliance issues where their systems interface with the Company's systems or
otherwise impact its operations. There can be no
16
<PAGE>
assurances that a failure of systems of third parties on which the Company's
systems and operations rely to be Year 2000 compliant will not have a material
adverse effect on the Company's business, financial condition and operating
results.
The Company believes that the net proceeds of the Secondary Offering, together
with cash flow from operating activities and borrowings under the Credit
Facility, will be adequate to meet the Company's capital requirements over the
next 12 months. However, changes in the method of financing or expected size of
future acquisitions may affect the Company's liquidity and capital requirements
during such time.
LONG-TERM DEBT AND CREDIT FACILITY
The Company has a credit facility agreement with NationsBank, N.A.
("NationsBank") with respect to a $30 million revolving line of credit (the
"Credit Facility") and a term loan facility of $2.1 million (the "Term Loan").
Borrowings under the Credit Facility and Term Loan are due October 15, 2000 and
October 5, 2000, respectively. The Credit Facility may be used for acquisitions,
letters of credit not to exceed $3 million in the aggregate, and for capital
expenditures (including but not limited to investments in technology) and for
general corporate purposes, which in the aggregate may not exceed $5 million. As
of June 30, 1998, outstanding borrowings under the Credit Facility totaled $28.6
million, all of which was repaid on July 21, 1998 using a portion of the net
proceeds of the Secondary Offering. All amounts repaid may be reborrowed.
Interest on outstanding balances of the Credit Facility and Term Loan are
computed based on the Eurodollar Rate plus a margin ranging from 1.25% to 2.0%,
depending on certain financial ratios.
On March 30, 1998, $3 million previously pledged to Barnett Bank was released in
exchange for a guarantee by the Company of outstanding debt of one of the
Founding Companies. Such debt, totaling $3,141,241, was repaid on April 28,
1998, including $1,901,838 which was refinanced using the proceeds of the Term
Loan.
The Credit Facility requires the Company to secure an interest rate hedge on
fifty percent of the outstanding principal amount borrowed under the Credit
Facility and one hundred percent of the outstanding balance on the Term Loan. As
of June 30, 1998, the Company entered into interest rate swap hedge agreements
totaling $16.4 million and maturing in October 2000, of which $14.3 million
relates to the Credit Facility. These interest rate swap hedge agreements were
not liquidated when borrowings under the Credit Facility were repaid and an
unrealized loss of approximately $140,000 was incurred.
The Credit Facility is secured by substantially all the assets of the Company
and requires the Company to comply with various loan covenants, which include
maintenance of certain financial ratios, restrictions on additional indebtedness
and restrictions on liens, guarantees, advances, capital expenditures, sale of
assets and dividends. At June 30, 1998 the Company was in compliance with the
loan covenants in all material respects.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The results of the Company are subject to quarterly fluctuations caused
primarily by the seasonal variations in the travel industry, especially the
leisure travel segment. Seasonality also varies depending on the travel segment.
Net revenues and operating income of the European auto rental segment are
generally higher in the first and second quarters, net revenues and operating
income of the airline and cruise reservation companies are generally higher in
the second and third quarters, and net revenues and operating income of the
lodging segment are generally higher in the third and fourth quarters. The
Company expects this seasonality and quarterly fluctuations to continue.
The Company's quarterly results of operations may also be subject to
fluctuations as a result of the timing and cost of acquisitions, changes in the
mix of services offered by the Company, fare wars by travel providers, net daily
rates charged to travelers by hotels, changes in relationships with certain
travel providers (including commission rates and programs), changes in the
timing and payment of overrides by travel providers, extreme weather conditions
or other factors affecting travel or the economy. Unexpected variations in
quarterly results could adversely affect the Company's results of operations, as
well as the price of the common stock, which in turn could limit the ability of
the Company to make acquisitions.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal claims and actions arising in the
ordinary course of business. The Company believes that none of the actions
currently known to the Company will have a material adverse effect on its
business, financial condition or operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's ability to pay dividends is restricted by the terms of the Credit
Facility.
ITEM 5. OTHER INFORMATION
RISK FACTORS AND QUALIFICATION OF FORWARD LOOKING STATEMENTS
The Company is subject to various risks associated with its operations,
strategies, management and industry, including the risk factors discussed in the
Company's Registration Statement (File No. 333-56567) and the Prospectus
contained therein. In addition, the statements contained in this Report that are
not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation statements regarding the
Company's expectations, beliefs, intentions or strategies regarding the future.
All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. The forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause actual results, experience and the performance or achievements
of the Company to be materially different from those anticipated, expressed or
implied by the forward-looking statements. In evaluating the Company's business,
the following factors, in addition to the Risk Factors set forth in the
Company's Prospectus referred to above, should be carefully considered:
successful integration of systems; factors affecting internal growth and
management of growth; dependence on travel providers; success of the acquisition
strategy and availability of acquisition financing; success in entering new
segments of the travel market and new geographic areas; dependence on
technology; labor and technology costs; advertising and promotional efforts;
risks associated with the travel industry generally; seasonality and quarterly
fluctuations; competition; and general economic conditions. In addition, the
Company's business strategy and growth strategy involve a number of risks and
challenges, and there can be no assurance that these risks and other factors
will not have a material adverse effect on the Company.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-- ----------------------
11 Schedule of Computations of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed the following Reports on Form 8-K during the
Quarter ended June 30, 1998:
Current report on Form 8-K dated June 2, 1998.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRAVEL SERVICES INTERNATIONAL, INC.
Date: August 13, 1998 By: /s/ JILL M. VALES
-----------------
Jill M. Vales
Senior Vice President and Chief
Financial Officer (as both a duly
authorized officer of the registrant and
the principal financial officer or chief
accounting officer of the registrant)
20
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
11 Schecdule of Computations of Earnings Per Share
27 Financial Data Schedule
EXHIBIT 11
TRAVEL SERVICES INTERNATIONAL, INC.
SCHEDULE OF COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
BASIC DILUTED
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES SHARES SHARES
---------- ---------- ----------
<S> <C> <C> <C>
HISTORICAL:
Quarter ended June 30, 1997
Shares attributable to Auto Europe, accounting acquiror, at beginning of period 1,083,334 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,847,344 1,847,344 1,847,344
---------- ---------- ----------
Shares used in computing earnings per share for quarter ended June 30, 1997 2,930,678 2,930,678 2,930,678
========== ========== ==========
Quarter ended June 30, 1998
Shares attributable to Auto Europe, accounting acquiror, at beginning of period 1,083,334 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,847,344 1,847,344 1,847,344
Shares issued in consideration for acquisition of Other Founding Companies 2,338,891 2,338,891 2,338,891
Shares issued to founders and management of TSI 2,484,501 2,484,501 2,484,501
Sold pursuant to the Offering 2,875,000 2,875,000 2,875,000
Shares issued in consideration for acquisition of Trax Software 32,985 32,985 32,985
Shares issued in consideration for acquisition of Diplomat 21,821 21,821 21,821
Shares issued in consideration for acquisition of Goldcoast 163,755 163,755 163,755
Shares issued in consideration for acquisition of AutoNet 2,183 1,455 1,455
Shares issued in consideration for acquisition of Lexington 283,990 94,663 94,663
Options granted 1,211,547 -- 586,317
---------- ---------- ----------
Shares used in computing earnings per share for the quarter ended June 30, 1998 12,345,351 10,943,750 11,530,066
========== ========== ==========
PRO FORMA:
Quarter ended June 30, 1997
Shares attributable to Auto Europe, accounting acquiror, at beginning of year 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,847,344 1,847,344
Shares issued in consideration for acquisition of Other Founding Companies 2,338,891 2,338,891
Shares issued to founders and management of TSI 2,484,501 2,484,501
Sold pursuant to the Offering 2,875,000 2,875,000
Shares issued in consideration for acquisition of Lexington 283,990 283,990
Shares related to Lexington 305,111 305,111
---------- ----------
Shares used in computing earnings per share for quarter ended June 30, 1997 11,218,171 11,218,171
========== ==========
Quarter ended June 30, 1998
Shares attributable to Auto Europe, accounting acquiror, at beginning of period 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,847,344 1,847,344
Shares issued in consideration for acquisition of Other Founding Companies 2,338,891 2,338,891
Shares issued to founders and management of TSI 2,484,501 2,484,501
Sold pursuant to the Offering 2,875,000 2,875,000
Shares issued in consideration for acquisition of Trax Software 32,985 32,985
Shares issued in consideration for acquisition of Diplomat 21,821 21,821
Shares issued in consideration for acquisition of Goldcoast 163,755 163,755
Shares issued in consideration for acquisition of Lexington 283,990 283,990
Shares issued in consideration for acquisition of AutoNet 2,183 1,455
Options granted 1,211,547 586,317
Shares related to Lexington 305,111 203,407
---------- ----------
Shares used in computing earnings per share for the quarter ended June 30, 1998 12,650,462 11,922,800
========== ==========
</TABLE>
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
SCHEDULE OF COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
BASIC DILUTED
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES SHARES SHARES
---------- ---------- ----------
<S> <C> <C> <C>
HISTOHISTORICAL:
Six months ended June 30, 1997
Shares attributable to Auto Europe, accounting acquiror, at beginning of period 1,083,334 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,847,344 1,847,344 1,847,344
---------- ---------- ----------
Shares used in computing earnings per share for six months ended June 30, 1997 2,930,678 2,930,678 2,930,678
========== ========== ==========
Six months ended June 30, 1998
Shares attributable to Auto Europe, accounting acquiror, at beginning of period 1,083,334 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,847,344 1,847,344 1,847,344
Shares issued in consideration for acquisition of Other Founding Companies 2,338,891 2,338,891 2,338,891
Shares issued to founders and management of TSI 2,484,501 2,484,501 2,484,501
Sold pursuant to the Offering 2,875,000 2,875,000 2,875,000
Shares issued in consideration for acquisition of Trax Software 32,985 32,985 32,985
Shares issued in consideration for acquisition of Diplomat 21,821 19,396 19,396
Shares issued in consideration for acquisition of Goldcoast 163,755 136,463 136,463
Shares issued in consideration for acquisition of Lexington 283,990 47,332 47,332
Shares issued in consideration for acquisition of AutoNet 2,183 728 728
Options granted 1,211,547 -- 533,307
---------- ---------- ----------
Shares used in computing earnings per share for the six months ended June 30, 1998 12,345,351 10,865,973 11,399,280
========== ========== ==========
PRO FORMA:
Six months ended June 30, 1997
Shares attributable to Auto Europe, accounting acquiror, at beginning of year 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,847,344 1,847,344
Shares issued in consideration for acquisition of Other Founding Companies 2,338,891 2,338,891
Shares issued to founders and management of TSI 2,484,501 2,484,501
Sold pursuant to the Offering 2,875,000 2,875,000
Shares issued in consideration for acquisition of Lexington 283,990 283,990
Shares related to Lexington 305,111 305,111
---------- ----------
Shares used in computing earnings per share for six months ended June 30, 1997 11,218,171 11,218,171
========== ==========
Six months ended June 30, 1998
Shares attributable to Auto Europe, accounting acquiror, at beginning of period 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,847,344 1,847,344
Shares issued in consideration for acquisition of Other Founding Companies 2,338,891 2,338,891
Shares issued to founders and management of TSI 2,484,501 2,484,501
Sold pursuant to the Offering 2,875,000 2,875,000
Shares issued in consideration for acquisition of Trax Software 32,985 32,985
Shares issued in consideration for acquisition of Diplomat 21,821 19,396
Shares issued in consideration for acquisition of Goldcoast 163,755 136,463
Shares issued in consideration for acquisition of Lexington 283,990 283,990
Shares issued in consideration for acquisition of AutoNet 2,183 728
Options granted 1,211,547 533,307
Shares related to Lexington 305,111 254,259
---------- ----------
Shares used in computing earnings per share for the six months ended June 30, 1998 12,650,462 11,890,198
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Data is for Consolidated Historical Financial Statement as of June 30, 1998, See
see Footnote 1, Basis of Presentation
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,724
<SECURITIES> 0
<RECEIVABLES> 12,428
<ALLOWANCES> 176
<INVENTORY> 0
<CURRENT-ASSETS> 39,010
<PP&E> 14,720
<DEPRECIATION> 0
<TOTAL-ASSETS> 152,840
<CURRENT-LIABILITIES> 47,970
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 72,024
<TOTAL-LIABILITY-AND-EQUITY> 72,135
<SALES> 62,765
<TOTAL-REVENUES> 62,765
<CGS> 33,547
<TOTAL-COSTS> 33,547
<OTHER-EXPENSES> 17,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 352
<INCOME-PRETAX> 11,765
<INCOME-TAX> 4,941
<INCOME-CONTINUING> 6,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,824
<EPS-PRIMARY> .63
<EPS-DILUTED> .60
</TABLE>
