<PAGE>
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 March 31, 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 number 1-13153
Galileo International, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-4156005
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
9700 West Higgins Road, Suite 400, Rosemont, Illinois 60018
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
(847) 518-4000
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Indicate by check mark whether the registrant: (1) had 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[_]
At May 8, 1998, there were 104,799,700 shares of Common Stock, par value $.01
per share, of the registrant outstanding.
<PAGE>
GALILEO INTERNATIONAL, INC.
QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Historical Financial Statements of Galileo International, Inc.
(Formerly Galileo International Partnership through July 30, 1997)
Condensed Consolidated Balance Sheets as of March 31,1998
(unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Income for the quarters
ended March 31, 1998 and 1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
quarters ended March 31, 1998 and 1997 (unaudited) 5
Condensed Consolidated Statement of Stockholders' Equity
for the quarter ended March 31, 1998 (unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 5. Other Information - Galileo International, Inc. 16
Condensed Consolidated Statement of Income (1998) and
Pro Forma Condensed Combined Statement of Income (1997)
for the quarters ended March 31, 1998 and 1997 (unaudited) 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 55,693 $ 19,367
Accounts receivable, net 221,112 165,407
Other current assets 38,783 39,501
------------- -------------
Total current assets 315,588 224,275
Property and equipment, at cost:
Land 6,470 6,470
Buildings and improvements 75,128 74,038
Equipment 342,823 330,112
------------- -------------
424,421 410,620
Less accumulated depreciation 241,357 221,439
------------- -------------
Net property and equipment 183,064 189,181
Computer software, net 213,097 224,575
Intangible assets, net 597,234 606,187
Other noncurrent assets 27,594 24,279
------------- -------------
$ 1,336,577 $ 1,268,497
============= =============
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable $ 46,858 $ 56,954
Accrued commissions 44,247 31,175
Income taxes payable 42,017 1,721
Other accrued liabilities 101,023 103,595
Capital lease obligations, current portion 7,643 7,918
------------- -------------
Total current liabilities 241,788 201,363
Pension and postretirement benefits 47,186 44,399
Other noncurrent liabilities 62,398 61,263
Capital lease obligations, less current portion 26,364 27,776
Long-term debt 220,000 250,000
------------- -------------
Total liabilities 597,736 584,801
Stockholders' equity:
Special voting preferred stock: $.01 par value;
7 shares authorized; 7 shares issued and
outstanding --- ---
Preferred stock: $.01 par value; 25,000,000 shares
authorized; no shares issued --- ---
Common stock: $.01 par value; 250,000,000 shares
authorized; 104,799,700 shares issued and outstanding 1,048 1,048
Additional paid-in capital 663,688 663,688
Retained earnings 74,847 18,832
Cumulative translation adjustments (742) 128
------------- -------------
Total stockholders' equity 738,841 683,696
------------- -------------
$ 1,336,577 $ $1,268,497
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
Quarter
Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Electronic global distribution services $ 342,230 $ 297,346
Information services 34,780 10,300
-------------- ------------
377,010 307,646
Operating expenses:
Cost of operations 135,100 62,098
Commissions, selling and administrative 135,631 179,237
-------------- ------------
270,731 241,335
-------------- ------------
Operating income 106,279 66,311
Other income (expense):
Interest expense, net (3,263) (1,774)
Other, net 649 1,370
-------------- ------------
Income before income taxes 103,665 65,907
Income taxes 41,362 415
-------------- ------------
Net income $ 62,303 $ 65,492
============== ============
Weighted average number of shares outstanding 104,799,700
==============
Basic earnings per share $ 0.59
==============
Diluted weighted average number of shares outstanding 105,063,135
==============
Diluted earnings per share $ 0.59
==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net income $ 62,303 $ 65,492
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 41,516 19,140
Loss on disposal of property and equipment 141 10
Deferred income taxes, net 283 ---
(Increase) decrease in noncurrent assets (3,268) 147
Increase (decrease) in noncurrent liabilities 1,723 (129)
Changes in operating assets and liabilities:
Increase in accounts receivable, net (55,849) (43,970)
Decrease (increase) in other current assets 2,313 (1,633)
Increase in accounts payable and accrued commissions 6,940 17,395
(Decrease) increase in accrued liabilities (1,804) 3,621
Increase in income taxes payable 40,296 319
------------ -----------
Net cash provided by operating activities 94,594 60,392
Investing activities:
Purchase of property and equipment (18,598) (11,055)
Purchase and capitalization of computer software (4,093) (5,472)
Proceeds on disposal of property and equipment 2,925 ---
------------ -----------
Net cash used in investing activities (19,766) (16,527)
Financing activities:
Repayments under credit agreements (30,000) (50,000)
Payments of capital lease obligations (2,032) (638)
Dividends paid to stockholders (6,288) ---
------------ -----------
Net cash used in financing activities (38,320) (50,638)
Effect of exchange rate changes on cash (182) (260)
------------ -----------
Increase (decrease) in cash and cash equivalents 36,326 (7,033)
Cash and cash equivalents at beginning of period 19,367 78,196
------------ -----------
Cash and cash equivalents at end of period $ 55,693 $ 71,163
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
Special
Voting
Preferred Stock Common Stock
------------------------ -----------------------
Shares Amount Shares Amount
------ -------- ------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 7 $ - 104,799,700 $ 1,048
Comprehensive income:
Net income - - - -
Change in cumulative translation adjustments - - - -
Dividends paid ($.06 per share) - - - -
-------- -------- ----------- --------
Balance at March 31, 1998 7 $ - 104,799,700 $ 1,048
======== ======== =========== ========
<CAPTION>
Additional Cumulative
Paid - In Retained Translation
Capital Earnings Adjustments Total
--------- ------------ ------------------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $663,688 $ 18,832 $ 128 $ 683,696
Comprehensive income:
Net income - 62,303 - 62,303
Change in cumulative translation adjustments - - (870) (870)
---------
61,433
Dividends paid ($.06 per share) - (6,288) - (6,288)
-------- --------- --------- ---------
Balance at March 31, 1998 $663,688 $ 74,847 $ (742) $ 738,841
======== ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
GALILEO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements of Galileo International, Inc. have been prepared pursuant to the
rules of the Securities and Exchange Commission for quarterly reports on Form
10-Q and do not include all of the information and note disclosures required by
generally accepted accounting principles. The information furnished herein
includes all adjustments, consisting of normal recurring adjustments, which are,
in the opinion of management, necessary for a fair presentation of results for
these interim periods.
Effective July 30, 1997, Galileo International Partnership merged into a
wholly owned limited liability company subsidiary of Galileo International, Inc.
(the "Merger"). Unless otherwise indicated, references to the "Company" mean,
at all times prior to the time of the Merger, Galileo International Partnership
and its consolidated subsidiaries and, at all times thereafter, Galileo
International, Inc. and its consolidated subsidiaries. In connection with the
Merger, the Company effected an initial public offering of its common stock at
an initial public offering price of $24.50 per share resulting in net proceeds
to the Company, after exercise of the underwriters over-allotment, of $390.0
million after deducting underwriting discounts and commissions (the "Offering").
The results of operations for the quarter ended March 31, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998.
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" for the quarter ended March 31, 1998.
Required changes are reflected in the Condensed Consolidated Statement of
Stockholders' Equity.
The Company's quarterly financial data should be read in conjunction with
the audited financial statements and notes thereto for the year ended December
31, 1997, included in the Galileo International, Inc. Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 17, 1998.
NOTE 2 - NDC ACQUISITIONS
During the quarter ended September 30, 1997, the Company acquired three
distribution companies (the "NDC Acquisitions"); Apollo Travel Services
Partnership ("ATS"), Traviswiss AG ("Traviswiss") and Galileo Nederland BV
("Galileo Nederland"), at purchase prices of $700.0 million, $8.5 million and
$2.0 million, respectively. In connection with the NDC
7
<PAGE>
Acquisitions, the Company also incurred expenses of approximately $4.2 million
which have been accounted for as part of the purchase prices.
The Company accounted for the NDC Acquisitions using the purchase method of
accounting. Accordingly, the costs of the NDC Acquisitions were allocated to the
assets acquired and liabilities assumed based upon their respective fair values.
Of the total ATS purchase price, $405.6 million and $19.3 million was attributed
to the customer list and assembled workforce, respectively, and such amounts are
being amortized over 17 years and 8 years, respectively. The excess of the cost
of the NDC Acquisitions over the fair value of the net assets acquired, $157.3
million, is being amortized over 25 years. The results of operations and cash
flows of the acquired NDCs have been consolidated with those of the Company from
the date of each acquisition.
In connection with the acquisitions of Traviswiss and Galileo Nederland,
the Company terminated certain revenue sharing obligations in exchange for
agreements to pay SAirGroup and KLM, in four annual installments beginning on
the acquisition dates, a total of $22.4 million and $14.8 million, respectively.
The total intangible asset of $37.2 million is being amortized over 25 years.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share data for the quarter ended March 31, 1998 is
calculated based on the weighted average shares outstanding for the period.
Diluted earnings per share is calculated as if the Company had additional common
stock outstanding from January 1, 1998 for all dilutive stock options, net of
assumed repurchased shares using the treasury stock method, causing a 263,435
share increase in the weighted average number of shares outstanding.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
SUMMARY
Prior to the consummation of the July 1997 Offering, the Company conducted
its business through Galileo International Partnership. Immediately prior to the
consummation of the Offering, Galileo International Partnership was merged into
a wholly owned limited liability company subsidiary of Galileo International,
Inc. As a result of the Merger, (i) the Company became subject to U.S. federal
and state income taxes that were previously borne by the partners of Galileo
International Partnership, (ii) the Company recorded a $15.3 million
nonrecurring charge to income tax expense to reflect the establishment of
deferred tax assets and liabilities arising at the time of the Merger and (iii)
the Company's $200.0 million revolving credit facility was terminated and
replaced by a $200.0 million 364-day credit agreement and a $400.0 million five-
year credit agreement (collectively, the "Credit Agreements"). Upon the Merger,
the partnership interests of each airline partner were replaced with common
stock of the Company in the same proportion as that of their respective
partnership interests in Galileo International Partnership.
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
REVENUES. Revenues increased $69.4 million, or 22.6%, to $377.0 million
for the quarter ended March 31, 1998 from $307.6 million for the quarter ended
March 31, 1997. First quarter 1998 revenues include the impact of the NDC
Acquisitions whereas first quarter 1997 revenues represent Galileo International
Partnership revenues. The NDC Acquisitions resulted in $46.1 million of
additional revenues for the quarter. The remaining revenue growth resulted
principally from increased booking volumes and from booking fee price increases
that went into effect in March 1998 and March 1997.
OPERATING EXPENSES. Operating expenses increased $29.4 million, or 12.2%,
to $270.7 million for the quarter ended March 31, 1998, from $241.3 million for
the quarter ended March 31, 1997. The NDC Acquisitions resulted in additional
operating expenses which were partially offset by lower commissions as the
Company no longer pays commissions, but instead incurs the direct costs of
distributing its products, in these markets.
OTHER EXPENSES, NET. Other expenses, net include interest expense net of
interest income, and foreign exchange gains or losses. Other expenses, net
increased $2.2 million, to $2.6 million for the quarter ended March 31, 1998,
from $0.4 million for the quarter ended March 31, 1997. This increase was
primarily the result of higher interest expense arising from higher average debt
9
<PAGE>
levels due to the NDC Acquisitions which occurred in the third quarter of 1997,
and lower interest income arising from lower cash and cash equivalents.
INCOME TAXES. No provision for U.S. federal and state income taxes was
recorded in the quarter ended March 31, 1997 as such liability was the
responsibility of the partners of Galileo International Partnership, rather than
of the Company. Income taxes for 1997 represents certain of the Company's non-
U.S. subsidiaries which are subject to income taxes. The Company's effective tax
rate in 1998 is approximately 40%.
NET INCOME. Net income was $62.3 million for the quarter ended March 31,
1998. Net income was $65.5 million for the quarter ended March 31, 1997. Net
income in 1998 reflects the recognition of U.S. federal and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $55.7 million and working capital totaled
$73.8 million at March 31, 1998. At December 31, 1997, cash and cash
equivalents totaled $19.4 million and working capital totaled $22.9 million.
Cash and cash equivalents increased by $36.3 million despite the repayment of
$30.0 million of indebtedness under the Credit Agreements and $6.3 million in
dividends to stockholders, due principally to strong operating results.
Cash flow used in investing activities principally relates to purchases of
mainframe data processing and network equipment and purchases of computer
equipment provided to the Company's travel agency subscribers. Capital
expenditures, excluding the capitalization of internally developed software,
were $19.1 million for the quarter ended March 31, 1998 compared to $11.7
million for the quarter ended March 31, 1997.
Cash flow used in financing activities includes repayments of $30.0 under
the Credit Agreements and $6.3 million in dividends paid to stockholders. The
Company paid a $.06 per share cash dividend on February 20, 1998 to stockholders
of record as of February 6, 1998.
The Company expects that future cash requirements will principally be for
capital expenditures, repayments of indebtedness, acquisitions of additional
NDCs and other potential acquisitions that are aligned with the Company's
strategic direction. The Company believes that cash generated by operating
activities will be sufficient to fund its future cash requirements, except that
significant acquisitions may require additional borrowings or other financing
alternatives. (1)
__________
(1) See Statement Regarding Forward-Looking Statements on page 15.
10
<PAGE>
In addition to reinvesting a substantial portion of earnings in its
business, the Company currently intends to pay regular quarterly dividends. On
April 23, 1998, the Company declared an increased cash dividend of $.075 per
share to be paid on May 22, 1998 to stockholders of record as of May 8, 1998.
The declaration and payment of dividends, as well as the amount thereof, are
subject to the discretion of the Board of Directors of the Company and will
depend upon the Company's results of operations, financial condition, cash
requirements, future prospects and other factors deemed relevant by the Board of
Directors. There can be no assurance that the Company will declare and pay any
future dividends.
OTHER
On April 22, 1998, the Company finalized the purchase of Galileo Nordiska
AB, a distribution company serving markets in Sweden, Norway and Finland, at a
price of $2.1 million. The Company will account for the acquisition using the
purchase method of accounting.
11
<PAGE>
PRO FORMA RESULTS OF OPERATIONS
GALILEO INTERNATIONAL, INC.
This discussion of pro forma results of operations is based on the
condensed consolidated statement of income (1998) and the pro forma condensed
combined statement of income (1997) presented in "Part II --- Other
Information, Item 5. Other Information".
SUMMARY
The Company generates its revenue from the provision of electronic global
distribution services and information services. During the quarter ended March
31, 1998, the Company generated approximately 90.8% of its revenue from
electronic global distribution services and approximately 9.2% of its revenue
from information services. The following table summarizes pro forma electronic
global distribution services revenues by geographic location as a percentage of
total revenues and summarizes total booking volumes for each of the periods
indicated:
<TABLE>
<CAPTION>
Quarter
Ended March 31,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Percent of Revenue
------------------
United States (1) 44.3% 47.3%
International (1) 55.7 52.7
-------------------------
100.0% 100.0%
=========================
Worldwide Bookings
------------------
(in millions)
Air 85.2 82.4
Car/Hotel/Leisure 6.9 6.3
-------------------------
92.1 88.7
=========================
United States (1) 41.6 42.6
International (1) 50.5 46.1
-------------------------
92.1 88.7
=========================
</TABLE>
__________
(1.) The location of the travel agent making the booking determines the
geographic region credited with the related revenues.
12
<PAGE>
FIRST QUARTER 1998 COMPARED TO PRO FORMA FIRST QUARTER 1997
REVENUES. Revenues increased $30.1 million, or 8.7%, to $377.0 million for
the quarter ended March 31, 1998, from $346.9 million in pro forma revenues for
the quarter ended March 31, 1997.
Growth in electronic global distribution services revenues resulted from an
increase in airline booking volumes of 3.3% and an increase in car, hotel and
leisure booking volumes of 9.3% during the quarter ended March 31, 1998 as
compared to the quarter ended March 31, 1997. Revenue growth was also driven by
air booking fee price increases that went into effect March 1, 1998 and March 1,
1997 as well as improvements in yield and increases in other electronic global
distribution revenues. Total international booking volumes increased 9.4% for
the quarter, with strong growth in Europe, Africa and Asia, while domestic
booking volumes declined 2.3% over the same period last year. This decrease in
domestic bookings is partially due to lower passive airline booking volumes
relative to last year, which is a result of carriers' efforts to minimize those
passive bookings that they feel do not add value. In addition, in March 1998,
Galileo introduced a new passive fee structure in North America that only
charges airline vendors for passive bookings that are ticketed.
COST OF OPERATIONS. Cost of operations expenses increased $6.5 million, or
5.1%, to $135.1 million for the quarter ended March 31, 1998 from $128.6 million
in pro forma expenses for the quarter ended March 31, 1997. This increase was
primarily attributable to higher wages for technical personnel, increased
communication costs due to market expansion and increased maintenance costs on
subscriber equipment at agency locations. Cost of operations expenses reflect
lower increases than revenue growth due to management's continued focus on
operating efficiency and savings realized from the integration of the acquired
NDCs. The Company continues to take advantage of decreasing technology costs on
Data Center equipment and has negotiated favorable supplier contracts for
subscriber equipment.
COMMISSIONS, SELLING AND ADMINISTRATIVE EXPENSES. Commissions, selling and
administrative expenses increased $6.1 million, or 4.7%, to $135.6 million for
the quarter ended March 31, 1998, from $129.5 million in pro forma expenses for
the quarter ended March 31, 1997. NDC commissions and subscriber incentive
payments increased $5.8 million, or 6.9%, to $90.2 million for the quarter ended
March 31, 1998, from $84.4 million for the quarter ended March 31, 1997,
reflecting the increase in electronic global distribution services revenues.
NDC commissions are generally based on a percentage of booking revenues and
have, therefore, grown at a rate consistent with the growth in booking fees by
country. Incentive payments are provided to subscribers in order to maintain
and expand the Company's travel agency customer base. Remaining commissions,
selling and administrative expenses increased $0.3 million, or 0.7%, to $45.4
million from $45.1 million over the same periods. This limited growth in other
commissions, selling and administrative expenses reflects the Company's
continued focus on expense management and savings realized from the integration
of the acquired NDCs.
13
<PAGE>
OPERATING INCOME. Operating income increased $17.5 million, or 19.7%, to
$106.3 million for the quarter ended March 31, 1998, from $88.8 million in pro
forma operating income for the quarter ended March 31, 1997, resulting in an
improvement in operating margin to 28.2% for the quarter ended March 31, 1998,
from 25.6% for the quarter ended March 31, 1997.
OTHER EXPENSES, NET. Other expenses, net include interest expense, net of
interest income, and foreign exchange gains or losses. Other expenses, net
decreased $3.5 million, or 57.4%, to $2.6 million for the quarter ended March
31, 1998, from $6.1 million in pro forma other expenses, net for the quarter
ended March 31, 1997. This decrease was primarily the result of lower interest
expense arising from lower debt levels and interest rates, partially offset by
lower interest income arising from lower cash and cash equivalents.
INCOME TAXES. Income taxes increased $8.5 million, or 25.8%, to $41.4
million for the quarter ended March 31, 1998, from $32.9 million in pro forma
income taxes for the quarter ended March 31, 1997. The increase in income taxes
was due to higher operating income. The Company's effective tax rate is
approximately 40%.
NET INCOME. Net income, increased $12.5 million, or 25.2%, to $62.3
million for the quarter ended March 31, 1998, from $49.8 million in pro forma
net income for the quarter ended March 31, 1997. Net income as a percentage of
revenues increased to 16.5% from 14.4% over the same period.
14
<PAGE>
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
These statements are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. All forward-
looking statements in this report are based upon information available to the
Company on the date of this report. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Any forward-looking statements
involve risks and uncertainties that could cause actual events or results to
differ materially from the events or results described in the forward-looking
statements. Readers are cautioned not to place undue reliance on these forward-
looking statements.
Risks associated with the Company's forward-looking statements include, but are
not limited to: risks related to the loss and inability to replace the bookings
generated by one or more of its five largest travel agency customers; risks
associated with the competition and technological innovation by competitors,
which could require the Company to reduce prices, to change billing practices,
to increase spending or marketing or product development or otherwise to take
actions that might adversely affect its operations or earnings; risks of the
Company's sensitivity to general economic conditions and events that affect
airline travel and the airlines that participate in the Company's Apollo and
Galileo systems; and risks of a natural disaster or other calamity that may
cause significant damage to the Company's Data Center facility.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The accompanying 1997 pro forma condensed combined statement of income is
based on the historical financial statements of Galileo International
Partnership, ATS, Traviswiss and Galileo Nederland. The pro forma statement of
income gives pro forma effect to (i) the Merger; (ii) the Offering; (iii) the
incurrence of $328.7 million of indebtedness under the Credit Agreements; (iv)
the acquisition of ATS, Traviswiss, and Galileo Nederland; and (v) the
termination of certain revenue sharing obligations. Such transactions were
assumed to be consummated on January 1, 1997.
The accompanying 1997 pro forma combined statement of income does not
purport to represent what the Company's operating results would have been had
such transactions occurred on the dates indicated or to project the Company's
operating results for any future period. The pro forma adjustments are based
upon available information and certain assumptions that the Company believes are
reasonable.
The 1997 pro forma condensed combined statement of income should be read in
conjunction with the condensed consolidated financial statements of Galileo
International, Inc. (formerly Galileo International Partnership through July 30,
1997) included elsewhere herein as well as the Financial Statements and Pro
Forma Condensed Combined Financial Information included in the Galileo
International, Inc. Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 17, 1998.
16
<PAGE>
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (1998) AND
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (1997)
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
Quarter
Ended March 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Electronic global distribution services $ 342,230 $ 313,022
Information services 34,780 33,853
------------- -------------
377,010 346,875
Operating expenses:
Cost of operations 135,100 128,567
Commissions, selling and administrative 135,631 129,551
------------- -------------
270,731 258,118
------------- -------------
Operating income 106,279 88,757
Other income (expense):
Interest expense, net (3,263) (7,593)
Other, net 649 1,484
------------- -------------
Income before income taxes 103,665 82,648
Income taxes 41,362 32,877
------------- -------------
Net income $ 62,303 $ 49,771
============= =============
Weighted average number of shares outstanding 104,799,700 104,799,700
============= =============
Basic earnings per share (pro forma 1997) $ 0.59 $ 0.48
============= =============
Diluted weighted average number of shares outstanding 105,063,135 104,799,700
============= =============
Diluted earnings per share (pro forma 1997) $ 0.59 $ 0.48
============= =============
</TABLE>
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
27.1 Financial Data Schedule
___________________________________________
(b) Reports on Form 8-K - No current reports on Form 8-K were filed for the
quarter ended March 31, 1998.
18
<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.
Galileo International, Inc.
Date: ____________, 1998 By: /s/ Paul H. Bristow
------------------------------------------
Paul H. Bristow
Senior Vice President, Chief Financial
Officer, Treasurer and Director (Principal
Financial and Accounting Officer)
19
<PAGE>
Galileo International, Inc.
Exhibit Index
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
27.1 Financial Data Schedule
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This Schedule contains summary financial information extracted from
the Form 10-Q for the quarter ended March 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 55,693
<SECURITIES> 0
<RECEIVABLES> 245,016
<ALLOWANCES> 23,904
<INVENTORY> 0
<CURRENT-ASSETS> 315,588
<PP&E> 424,421
<DEPRECIATION> 241,357
<TOTAL-ASSETS> 1,336,577
<CURRENT-LIABILITIES> 241,788
<BONDS> 246,364
0
0
<COMMON> 1,048
<OTHER-SE> 737,793
<TOTAL-LIABILITY-AND-EQUITY> 1,336,577
<SALES> 0
<TOTAL-REVENUES> 377,010
<CGS> 0
<TOTAL-COSTS> 270,731
<OTHER-EXPENSES> 2,614
<LOSS-PROVISION> 1,067
<INTEREST-EXPENSE> 3,787
<INCOME-PRETAX> 103,665
<INCOME-TAX> 41,362
<INCOME-CONTINUING> 62,303
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,303
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
