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 September 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 number 1-13153
Galileo International, Inc.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-4156005
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(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
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(Registrant's Telephone Number, Including Area Code)
N/A
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(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 November 11, 1998, there were 104,920,484 shares of Common Stock, par value
$.01 per share, of the registrant outstanding.
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GALILEO INTERNATIONAL, INC.
QUARTER ENDED SEPTEMBER 30, 1998
INDEX
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PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements of Galileo International, Inc.
(Formerly Galileo International Partnership through July 30, 1997)
Condensed Consolidated Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Income for the quarter
and nine months ended September 30, 1998 and 1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 (unaudited) 5
Condensed Consolidated Statement of Stockholders' Equity
for the nine months ended September 30, 1998 (unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
September 30, December 31,
1998 1997
----------------- -----------------
(Unaudited)
ASSETS
------
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Current assets:
Cash and cash equivalents $ 19,546 $ 19,367
Accounts receivable, net 215,017 165,407
Other current assets 46,300 39,501
---------- -----------
Total current assets 280,863 224,275
Property and equipment, at cost:
Land 6,470 6,470
Buildings and improvements 78,144 74,038
Equipment 381,598 330,112
----------- -----------
466,212 410,620
Less accumulated depreciation 281,856 221,439
----------- -----------
Net property and equipment 184,356 189,181
Computer software, net 201,104 224,575
Intangible assets, net 603,164 606,187
Other noncurrent assets 28,262 24,279
------------ ------------
$ 1,297,749 $ 1,268,497
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 54,966 $ 56,954
Accrued commissions 40,854 31,175
Income taxes payable 16,408 1,721
Other accrued liabilities 126,240 103,595
Capital lease obligations, current portion 6,009 7,918
------------ -----------
Total current liabilities 244,477 201,363
Pension and postretirement benefits 53,476 44,399
Deferred tax liability 26,688 19,618
Other noncurrent liabilities 26,877 41,645
Capital lease obligations, less current portion 24,502 27,776
Long-term debt 94,392 250,000
------------ -----------
Total liabilities 470,412 584,801
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; 104,912,893 and 104,799,700 shares
issued and outstanding, respectively 1,049 1,048
Additional paid-in capital 668,046 663,688
Retained earnings 164,208 18,832
Unamortized restricted stock grants (3,759) ---
Accumulated other comprehensive income (2,207) 128
------------ ------------
Total stockholders' equity 827,337 683,696
------------ ------------
$ 1,297,749 $ 1,268,497
============ ============
See accompanying notes to condensed consolidated financial statements.
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3
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GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share data)
Quarter Nine Months
Ended September 30, Ended September 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Electronic global distribution services $ 342,187 $ 302,694 $ 1,029,810 $ 898,078
Information services 35,274 24,961 105,298 44,423
---------- ---------- ----------- ----------
377,461 327,655 1,135,108 942,501
Operating expenses:
Cost of operations 146,786 114,269 425,829 241,901
Commissions, selling and administrative 144,344 142,110 424,727 509,447
Special charges --- 20,111 --- 20,111
---------- ---------- ---------- ----------
291,130 276,490 850,556 771,459
---------- ---------- ---------- ----------
Operating income 86,331 51,165 284,552 171,042
Other income (expense), net:
Interest expense, net (1,938) (2,980) (8,122) (4,890)
Other, net 684 526 2,081 2,442
---------- ---------- ---------- -----------
Income before income taxes 85,077 48,711 278,511 168,594
Income taxes:
Income taxes 33,946 12,654 111,126 13,944
Initial deferred income taxes --- 15,335 --- 15,335
---------- ---------- ---------- ----------
33,946 27,989 111,126 29,279
---------- ---------- ---------- ----------
Net income $ 51,131 $ 20,722 $ 167,385 $ 139,315
========== ========== ========== ==========
Weighted average number of shares
outstanding 104,807,205 99,321,537 104,802,229 91,773,846
============= ============ ============= ============
Basic earnings per share $ 0.49 $ 0.21 $ 1.60 $ 1.52
============= ============ ============= ============
Diluted weighted average number of shares
outstanding 105,252,952 99,364,099 105,178,343 91,788,033
============= ============ ============= ============
Diluted earnings per share $ 0.49 $ 0.21 $ 1.59 $ 1.52
============= ============ ============= ============
See accompanying notes to condensed consolidated financial statements.
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4
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GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months
Ended September 30,
----------------------------
1998 1997
---- ----
Operating activities:
<S> <C> <C>
Net income $ 167,385 $ 139,315
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 127,536 77,934
(Gain) loss on disposal of property and equipment (98) 397
Deferred income taxes, net 4,850 7,887
Changes in operating assets and liabilities, net of effects
from purchases of NDCs:
Increase in accounts receivable, net (45,748) (20,568)
Increase in other current assets (1,806) (445)
Increase in noncurrent assets (8,071) (3,476)
Increase (decrease) in accounts payable and accrued
commissions 20,700 (8,175)
Increase in accrued liabilities 21,079 17,831
Increase in income taxes payable 14,661 12,061
(Decrease) increase in noncurrent liabilities (6,567) 15,673
--------- ----------
Net cash provided by operating activities 293,921 238,434
Investing activities:
Purchase of property and equipment (60,799) (34,129)
Purchase and capitalization of computer software (18,684) (23,745)
Proceeds on disposal of property and equipment 3,195 88
Purchase of NDCs, net of $3,497 and $24,438 cash
acquired, respectively (33,715) (690,257)
---------- ----------
Net cash used in investing activities (110,003) (748,043)
Financing activities:
Borrowings under credit agreements 34,392 450,000
Repayments under credit agreements (190,000) (230,000)
Payments of capital lease obligations (6,141) (2,067)
Dividends paid to stockholders (22,009) ---
Proceeds from exercise of employee stock options, net 367 ---
Proceeds from sale of stock, net of fees paid --- 384,288
Distributions to partners --- (112,150)
---------- -----------
Net cash (used in) provided by financing activities (183,391) 490,071
Effect of exchange rate changes on cash (348) (75)
---------- -----------
Increase (decrease) in cash and cash equivalents 179 (19,613)
Cash and cash equivalents at beginning of period 19,367 78,196
---------- -----------
Cash and cash equivalents at end of period $ 19,546 $ 58,583
========== ===========
See accompanying notes to condensed consolidated financial statements.
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5
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GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited, in thousands, except share data)
Special Additional
Voting Paid - In
Preferred Stock Common Stock Capital
--------------- ------------------------ --------------
Shares Amount Shares Amount
------ ------ ------ ------
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Balance at December 31, 1997 7 $-- 104,799,700 $ 1,048 $ 663,688
Comprehensive income:
Net income -- -- -- -- --
Foreign currency translation adjustments -- -- -- -- --
Comprehensive income
Issuance of restricted stock grants -- -- 97,900 1 3,991
Amortization of restricted stock grants -- -- -- -- --
Issuance of stock under employee stock option plans -- -- 15,293 -- 367
Dividends paid ($0.21 per share) -- -- -- -- --
----- ---- ------------ ------- ---------
Balance at September 30, 1998 7 $-- 104,912,893 $ 1,049 $ 668,046
===== ===== =========== ======= =========
Accumulated
Unamortized Other
Retained Restricted Comprehensive
Earnings Stock Grants Income Total
-------------------------------------------------------
Balance at December 31, 1997 $ 18,832 $ -- $ 128 $ 683,696
Comprehensive income:
Net income 167,385 -- -- 167,385
Foreign currency translation adjustments -- -- (2,335) (2,335)
--------
Comprehensive income 165,050
Issuance of restricted stock grants -- (3,992) -- --
Amortization of restricted stock grants -- 233 -- 233
Issuance of stock under employee stock option plans -- -- -- 367
Dividends paid ($0.21 per share) (22,009) -- -- (22,009)
---------- ---------- --------- ---------
Balance at September 30, 1998 $ 164,208 $ (3,759) $ (2,207) $ 827,337
========== ========== ========= =========
See accompanying notes to condensed consolidated financial statements.
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6
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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 September 30, 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" beginning with the quarter ended March 31,
1998. Required changes are reflected in the Condensed Consolidated Statement of
Stockholders' Equity.
Effective January 1, 1998, the Company adopted Statement of Position No.
98-1, ("Statement 98-1") "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". The adoption of Statement 98-1 did not
have a material impact on the Company's financial statements.
These financial statements 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.
7
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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 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, $157.6
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 17 years.
On April 22, 1998, the Company finalized the purchase of a national
distribution company ("NDC") serving markets in Sweden, Norway, and Finland (the
"Nordiska Acquisition"), Galileo Nordiska AB ("Galileo Nordiska"), at a price of
$2.1 million. The Company accounted for the acquisition using the purchase
method of accounting.
Effective June 1, 1998, the Company acquired its Canadian NDC (the "Canada
Acquisition"), Galileo Canada Distributions Systems Inc. ("Galileo Canada"), at
a purchase price of $34.4 million. In connection with the Canada Acquisition,
the Company also incurred expenses of $0.6 million, which have been accounted
for as part of the purchase price.
The Company accounted for the Canada Acquisition using the purchase method
of accounting. Accordingly, the costs of the Canada Acquisition were allocated
to the assets acquired and liabilities assumed based on their respective fair
values. The excess of the cost of the Canada Acquisition over the fair value of
the net assets acquired of $22.7 million is being amortized over 25 years. The
purchase price allocation is subject to adjustment. The results of operations
and cash flows of Galileo Canada have been consolidated with those of the
Company from the date of acquisition. In connection with the Canada Acquisition,
the Company incurred $34.4 million of debt under a five-year term loan
agreement. The effect of the purchase, on a pro forma basis, was immaterial to
the company's consolidated financial statements.
8
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NOTE 3 - EARNINGS PER SHARE
Basic earnings per share data for the quarter and nine months ended
September 30, 1998 and 1997 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 the beginning of the year
or the date of grant for all dilutive stock options, net of assumed repurchased
shares using the treasury stock method. This resulted in an increase in the
weighted average number of shares outstanding for the quarter and nine months
ended September 30, 1998 of 445,747 and 376,114, respectively. The increase in
the weighted average number of shares outstanding for the quarter and nine
months ended September 30, 1997 is 42,562 and 14,187, respectively.
NOTE 4 - STOCKHOLDERS' EQUITY
During the quarter ended June 30, 1998, the Company granted each employee
employed by the Company on the date of grant, options to purchase 150 shares of
the Company's Common Stock. In addition, the Company granted senior management
and other key employees options to purchase the Company's Common Stock.
Approximately 1,900,000 stock options were issued under the above grants. All of
the foregoing options were granted pursuant to the Galileo International 1997
Stock Incentive Plan (the "Plan"), vest in equal installments over a three-year
period measured from the date of grant and have a ten-year term.
Also during the quarter ended June 30, 1998 and pursuant to the Plan, the
Company's Board of Directors approved the issuance of 97,900 shares of
restricted Common Stock to the Company's President and Chief Executive Officer.
Half of these shares vest in equal installments over a five-year period from the
date of grant and the remaining shares vest in equal installments over a
four-year period beginning one year from the date of grant.
During the quarter ended September 30, 1998, the Company granted 10,000
options to purchase the Company's Common Stock to a newly elected member of the
Company's Board of Directors. These options were granted pursuant to the Galileo
International 1997 Non-Employee Director Stock Plan, vest six months after the
date of grant and have a ten-year term.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
RESULTS OF OPERATIONS
Summary
Prior to the consummation of the 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.
Galileo International is one of the world's leading providers of electronic
global distribution services for the travel industry. The Company provides
travel agencies at approximately 39,000 locations, as well as other subscribers,
with the ability to access schedule and fare information, book reservations and
issue tickets for over 500 airlines. The Company also provides subscribers with
information and booking capabilities covering all the major hotel chains, car
rental companies, cruise lines and numerous tour operators throughout the world.
The geographic breadth of the Company is demonstrated by the table below
which shows the approximate number of travel agency locations and terminals by
region.
Travel Agency
Locations at Terminals at
September 30, 1998 September 30, 1998
----------------------- ---------------------
Region Number % Number %
- -------------------- ------- - ------- -
United States 12,500 32.1% 59,200 37.4%
Europe 13,200 33.8% 54,500 34.4%
Asia/Pacific 5,300 13.6% 20,700 13.1%
Canada 3,200 8.2% 10,800 6.8%
Middle East/Africa 3,100 7.9% 9,200 5.8%
Latin America 1,700 4.4% 4,000 2.5%
------------------------ -----------------------
39,000 100.0% 158,400 100.0%
======================== =======================
10
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The Company generates its revenue from the provision of electronic global
distribution services and information services. During the nine months ended
September 30, 1998, the Company generated approximately 90.7% of its revenue
from electronic global distribution services and approximately 9.3% of its
revenue from information services. The following table summarizes 1998 revenues
and 1997 pro forma revenues (as if the NDC Acquisitions had occurred on January
1, 1997) for electronic global distribution services by geographic location as a
percentage of total revenues and summarizes total booking volumes for each of
the periods indicated:
Quarter Nine Months
Ended September 30, Ended September 30,
--------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
(Percent of Revenue)
U.S. Market (1) 43.2 % 46.3 % 43.8 % 46.4 %
All Other Markets (1) 56.8 53.7 56.2 53.6
--------------------- ----------------------
100.0 % 100.0 % 100.0 % 100.0 %
===================== ======================
Worldwide Bookings (in millions)
U.S. Market: (1)
Air 33.2 34.6 103.2 107.1
Car/Hotel/Leisure 5.8 5.5 17.1 16.2
-------------------- -------------------
39.0 40.1 120.3 123.3
All Other Markets: (1)
Air 47.4 43.7 144.5 135.0
Car/Hotel/Leisure 1.5 1.3 4.2 3.8
-------------------- -------------------
48.9 45.0 148.7 138.8
Total Worldwide Bookings 87.9 85.1 269.0 262.1
==================== ===================
- --------
(1) The location of the travel agent making the booking determines the
geographic region credited with the related revenues and bookings.
11
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Third Quarter 1998 Compared to Third Quarter 1997
Revenues. Revenues increased $49.8 million, or 15.2%, to $377.5 million for
the quarter ended September 30, 1998 from $327.7 million for the quarter ended
September 30, 1997. Third quarter 1998 revenues include the impact of the
acquired NDCs whereas third quarter 1997 revenues, prior to the NDC
Acquisitions, represent Galileo International Partnership revenues. Assuming the
NDC Acquisitions occurred on January 1, 1997, pro forma revenues for the quarter
ended September 30, 1997 would have increased $15.0 million ($6.7 million
increase in electronic global distribution services and $8.3 million in
information services) representing primarily revenue from subscribers for
hardware, software and other services and revenue from airlines for information
services performed. Comparing 1998 to pro forma 1997, revenues increased $34.8
million, or 10.1%, to $377.5 million for the quarter ended September 30, 1998
from $342.7 million in pro forma revenues for the quarter ended September 30,
1997.
Growth in 1998 versus 1997 pro forma electronic global distribution
services revenues resulted primarily from an increase in airline booking volumes
of 2.9% and an increase in car, hotel and leisure booking volumes of 7.1% during
the quarter ended September 30, 1998 as compared to the quarter ended September
30, 1997. Total international booking volumes increased 8.7% for the quarter,
while U.S. booking volumes declined 2.8% over the same period last year. This
decrease in U.S. bookings is due to a new fee structure the Company introduced
in North America in March 1998 that only charges airline vendors for passive
bookings that are ticketed. The Company reports only those bookings for which it
receives a fee. Excluding passive airline bookings, growth in active bookings
for the quarter was 0.5% in the United States. The increase in international
booking volumes for the quarter was driven by strong growth in Africa, the
Middle East, Europe and Southeast Asia. An air booking fee price increase that
went into effect March 1, 1998 and other yield improvements also contributed to
the revenue growth in the quarter.
Cost of Operations. Cost of operations expenses increased $32.5 million, or
28.5%, to $146.8 million for the quarter ended September 30, 1998 from $114.3
million for the quarter ended September 30, 1997. Third quarter 1998 expenses
include the impact of the acquired NDCs whereas third quarter 1997 expenses,
prior to the NDC Acquisitions, represent Galileo International Partnership
expenses. Assuming the NDC Acquisitions occurred on January 1, 1997, pro forma
cost of operations for the quarter ended September 30, 1997 would have increased
$23.1 million to $137.4 million. The acquisitions of NDCs resulted in additional
operating expenses that 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. The additional operating expenses
represent principally the wages, maintenance, communication costs and
depreciation of the acquired NDCs. Additionally, in conjunction with the NDC
Acquisitions, Nordiska Acquisition and Canada Acquisition, the Company now
records the amortization of the excess of the cost of these acquisitions over
the fair value of the net assets acquired and the amortization of other
intangibles acquired.
Comparing 1998 to pro forma 1997, cost of operations increased $9.4
million, or 6.9% to $146.8 million for the quarter ended September 30, 1998 from
$137.4 million in pro forma
12
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expenses for the quarter ended September 30, 1997. The Canada Acquisition and
Nordiska Acquisition resulted in $5.3 million of the increase in cost of
operations expenses as the Company incurred the direct costs of operating in
these markets during the quarter. The remaining increase was primarily
attributable to higher wages for technical personnel, increased communication
costs due to market expansion and increased maintenance costs for subscriber
equipment at agency locations. Subsequent to the NDC Acquisitions, Nordiska
Acquisition and Canada Acquisition, cost of operations expense growth was lower
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 Centre
equipment and has negotiated favorable supplier contracts for subscriber
equipment.
Commissions, Selling and Administrative Expenses. Commissions, selling and
administrative expenses increased $2.2 million, or 1.6%, to $144.3 million for
the quarter ended September 30, 1998 from $142.1 million for the quarter ended
September 30, 1997. NDC commissions and subscriber incentive payments decreased
$10.6 million, or 10.4%, to $91.6 million for the quarter ended September 30,
1998 from $102.2 million for the quarter ended September 30, 1997. The increase
in electronic global distribution services revenues resulted in increased
commissions to NDCs which was more than offset by the elimination of commissions
to the acquired NDCs as, subsequent to these acquisitions, the Company no longer
pays commissions but instead incurs the direct cost of operating in these
markets. 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, which are provided to subscribers in order to
maintain and expand the Company's travel agency customer base, increased
significantly in this quarter due to the initiation of new deals with
multi-national accounts as well as the impact of payments to subscribers
previously borne by the acquired NDCs.
Remaining commissions, selling and administrative expenses increased
primarily because third quarter 1998 expenses include the impact of the NDC
Acquisitions whereas third quarter 1997 expenses, prior to these acquisitions,
represent Galileo International Partnership expenses. In addition, the Galileo
Canada and Galileo Nordiska acquisitions and a new employee profit sharing
program resulted in increased expenses.
Special Charges. The Company recorded special charges of $20.1 million
during the quarter ended September 30, 1997 related to the integration of the
acquired NDCs into the Company's operations. Special charges were comprised
primarily of $12.3 million in severance costs related to termination of
employees and $7.8 million of other integration costs, principally related to
duplicate facilities.
Other Income (Expense), Net. Other income (expense), net includes interest
expense net of interest income, and foreign exchange gains or losses. Other
income (expense), net decreased $1.2 million, to $1.3 million expense, net for
the quarter ended September 30, 1998 from $2.5 million expense, net for the
quarter ended September 30, 1997. This decrease was primarily the
13
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result of lower interest expense arising from lower average debt levels 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 prior to July 30, 1997 as such liability was the responsibility of the
partners of Galileo International Partnership, rather than of the Company. As a
result of the July 30, 1997 merger of Galileo International Partnership into a
wholly owned limited liability company subsidiary of Galileo International,
Inc., the Company recorded initial deferred income taxes of $15.3 million to
reflect the establishment of deferred tax assets and liabilities in 1997.
Remaining income taxes for 1997 represent U.S federal and state income taxes
subsequent to July 30, 1997 and income taxes for certain of the Company's
non-U.S. subsidiaries. Subsequent to the Merger, the Company's effective tax
rate is approximately 40%.
Net Income. Net income was $51.1 million for the quarter ended September
30, 1998. Net income was $20.7 million for the quarter ended September 30, 1997.
Net income in 1998 reflects the recognition of U.S. federal and state income
taxes for the entire third quarter.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Revenues. Revenues increased $192.6 million, or 20.4%, to $1,135.1 million
for the nine months ended September 30, 1998 from $942.5 million for the nine
months ended September 30, 1997. In 1998, revenues include the impact of the
acquired NDCs whereas 1997 revenues, prior to the NDC Acquisitions, represent
Galileo International Partnership revenues. Assuming the NDC Acquisitions
occurred on January 1, 1997, pro forma revenues for the nine months ended
September 30, 1997 would have increased $95.4 million ($40.7 million increase in
electronic global distribution services and $54.7 million in information
services) representing primarily revenue from subscribers for hardware, software
and other services and revenue from airlines for information services performed.
Comparing 1998 to pro forma 1997, revenues increased $97.2 million, or 9.4%, to
$1,135.1 million for the nine months ended September 30, 1998 from $1,037.9
million in pro forma revenues for the nine months ended September 30, 1997.
Growth in 1998 versus 1997 pro forma electronic global distribution
services revenues resulted primarily from an increase in airline booking volumes
of 2.3% and an increase in car, hotel and leisure booking volumes of 7.2% during
the nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997. Total international booking volumes increased 7.2% for the
nine months ended September 30, 1998, while U.S. booking volumes declined 2.4%
over the same period last year. This decrease in U.S. bookings is due to a new
fee structure the Company introduced in North America in March 1998 that only
charges airline vendors for passive bookings that are ticketed. The Company
reports only those bookings for which it receives a fee. Excluding passive
airline bookings, growth in active bookings for the nine months ended September
30, 1998 was 1.0% in the United States. An air booking fee price increase that
went into effect March 1, 1998 and other yield improvements also contributed to
the revenue growth in the nine month period.
14
<PAGE>
Cost of operations. Cost of operations expenses increased $183.9 million,
or 76.0%, to $425.8 million for the nine months ended September 30, 1998 from
$241.9 million for the nine months ended September 30, 1997. In 1998, expenses
include the impact of the acquired NDCs whereas 1997 expenses, prior to the NDC
Acquisitions, represent Galileo International Partnership expenses. Assuming the
NDC Acquisitions occurred on January 1, 1997, pro forma cost of operations for
the nine months ended September 30, 1997 would have increased $156.6 million to
$398.5 million. The acquisitions of NDCs resulted in additional operating
expenses that 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. The additional operating expenses represent
principally the wages, maintenance, communication costs and depreciation of the
acquired NDCs. Additionally, in conjunction with the NDC Acquisitions, Nordiska
Acquisition and Canada Acquisition, the Company now records the amortization of
the excess of the cost of these acquisitions over the fair value of the net
assets acquired and the amortization of other intangibles acquired.
Comparing 1998 to pro forma 1997, cost of operations increased $27.3
million, or 6.9% to $425.8 million for the nine months ended September 30, 1998
from $398.5 million in pro forma expenses for the nine months ended September
30, 1997. The Canada Acquisition and Nordiska Acquisition resulted in $8.1
million of the increase in cost of operations expenses as the Company began to
incur the direct costs of operating in these markets following these
acquisitions. The remaining increase was primarily attributable to higher wages
for technical personnel, increased communication costs due to market expansion
and increased maintenance costs for subscriber equipment at agency locations.
Subsequent to the NDC Acquisitions, Nordiska Acquisition and Canada Acquisition,
cost of operations expense growth was lower 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 Centre equipment and has negotiated
favorable supplier contracts for subscriber equipment.
Commissions, Selling and Administrative Expenses. Commissions, selling and
administrative expenses decreased $84.7 million, or 16.6%, to $424.7 million for
the nine months ended September 30, 1998 from $509.4 million for the nine months
ended September 30, 1997. NDC commissions and subscriber incentive payments
decreased $139.1 million, or 33.5%, to $275.6 million for the nine months ended
September 30, 1998 from $414.7 million for the nine months ended September 30,
1997. The increase in electronic global distribution services revenues resulted
in increased commissions to NDCs which was more than offset by the elimination
of commissions to the acquired NDCs as, subsequent to the NDC Acquisitions, the
Nordiska Acquisition and the Canada Acquisition, the Company no longer pays
commissions but instead incurs the direct cost of operating in these markets.
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, which are provided to subscribers in order to
maintain and expand the Company's travel agency customer base, increased due to
the initiation of new deals with multi-national accounts primarily in the third
quarter of 1998, as well as the impact of payments to subscribers previously
borne by the acquired NDCs.
15
<PAGE>
Remaining commissions, selling and administrative expenses increased
primarily because 1998 expenses include the impact of the NDC Acquisitions
whereas 1997 expenses, prior to these acquisitions, represent Galileo
International Partnership expenses. In addition, the Galileo Canada and Galileo
Nordiska acquisitions and a new employee profit sharing program resulted in
increased expenses.
Special Charges. The Company recorded special charges of $20.1 million
during the nine months ended September 30, 1997 related to the integration of
the acquired NDCs into the Company's operations. Special charges were comprised
primarily of $12.3 million in severance costs related to termination of
employees and $7.8 million of other integration costs, principally related to
duplicate facilities.
Other Income (Expense), Net. Other income (expense), net includes interest
expense net of interest income, and foreign exchange gains or losses. Other
income (expense), net increased $3.6 million, to $6.0 million expense for the
nine months ended September 30, 1998 from $2.4 million expense for the nine
months ended September 30, 1997. This increase was primarily the result of
higher interest expense arising from higher average debt levels due to the
acquisitions of NDCs, 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 prior to July 31, 1997 as such liability was the responsibility of the
partners of Galileo International Partnership, rather than of the Company. As a
result of the July 30, 1997 merger of Galileo International Partnership into a
wholly owned limited liability company subsidiary of Galileo International,
Inc., the Company recorded initial deferred income taxes of $15.3 million to
reflect the establishment of deferred tax assets and liabilities in 1997.
Remaining income taxes for 1997 represent U.S. federal and state income taxes
subsequent to July 30, 1997 and income taxes for certain of the Company's
non-U.S. subsidiaries. Subsequent to the Merger, the Company's effective tax
rate is approximately 40%.
Net Income. Net income was $167.4 million for the nine months ended
September 30, 1998. Net income was $139.3 million for the nine months ended
September 30, 1997. Net income in 1998 reflects the recognition of U.S. federal
and state income taxes for the entire nine month period.
16
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents totaled $19.5 million and working capital totaled
$36.4 million at September 30, 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 $0.1 million despite the net repayment of
$155.6 million of indebtedness under the Company's credit agreements and $22.0
million in dividends paid 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 $67.8 million for the nine months ended September 30, 1998 compared to
$40.0 million for the nine months ended September 30, 1997.
Cash flow used in financing activities includes repayments of $190.0
million under the Credit Agreements and $22.0 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, a $.075 per share cash
dividend on May 22, 1998 to stockholders of record as of May 8, 1998, as well
as, a $.075 per share cash dividend on August 21, 1998 to stockholders of record
as of August 7, 1998. On June 5, 1998, the Company incurred additional
borrowings of $34.4 million under a five-year term loan agreement, which were
used to fund the acquisition of Galileo Canada.
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)
In addition to reinvesting a substantial portion of earnings in its
business, the Company currently intends to pay regular quarterly dividends. On
October 15, 1998, the Company declared a cash dividend of $.075 per share to be
paid on November 20, 1998 to stockholders of record as of November 6, 1998. The
declaration and payment of future 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. (1)
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 22.
17
<PAGE>
Effect of Recently Issued Accounting Pronouncements
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 132, ("Statement 132") "Employers' Disclosures about
Pensions and Other Postretirement Benefits" which is required to be adopted in
1998. Statement 132 standardizes the disclosure requirements for pensions and
other postretirement benefits but does not change the measurement or recognition
of those plans. Management believes that adoption of Statement 132 will not have
a material impact on the Company's financial statements.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 133, ("Statement 133") "Accounting for Derivative
Instruments and Hedging Activities" which is required to be adopted for
financial statements issued for the fiscal year ending December 31, 2000.
Statement 133 standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. Management believes that
adoption of Statement 133 will not have a material impact on the Company's
financial statements.
18
<PAGE>
Year 2000 (1)
The Year 2000 issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Any of the computer
programs or systems of the Company or the Company's vendors and suppliers that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than 2000.
Beginning in September of 1995, the Company implemented a program designed
to help ensure that all hardware and software used in connection with the
Company's business, including the Company's software products, will manage and
manipulate data involving the transition of dates from 1999 to 2000 without
functional or data abnormality and without producing inaccurate results related
to such dates. An internal analysis of the Company's hardware and software has
led the Company to conclude that the majority of the Company's systems have been
engineered to be Year 2000 compliant and should provide a seamless transition to
the Year 2000. In addition, the Company has consulted outside experts, including
legal and independent auditors, regarding its Year 2000 plans.
The Company electronically exchanges information with the computer systems
of the Company's vendors and suppliers, including air, car, hotel and tour
vendors. The Company uses standardized travel industry interchange formats to
electronically exchange information with many of such vendors and suppliers.
Many of these formats did not require modification in order to be Year 2000
compliant. Where required modifications to these formats have been identified,
they have either been completed or are in process. The Company's GlobalFares(TM)
product began successfully processing airline fares with Year 2000 dates in July
1998. In addition, the investigation and assessment of the Company's network
systems is complete and remediation for such systems is in progress and on-track
for completion during the third quarter of 1999. The Company has completed
remediation planning for the Company's travel agency-based software and began
distribution of Year 2000 upgrades for operating systems and package
installation systems used in connection with the Company's travel agency-based
software during the third quarter of 1998. The Company will continue to work
with its National Distribution Companies (NDCs) to distribute and install, where
necessary, upgrades to PC hardware and software either on a normal maintenance
cycle where it exists, or a separate implementation plan where it does not
exist.
Management believes that Year 2000 activities related to the Company's
mainframe host computer systems will be completed in 1998. Non-mainframe
activities are on track for completion before the third quarter of 1999. The
mainframe host computer systems include the Company's Apollo(R) and Galileo(R)
computerized reservation systems (CRSs).
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 22.
19
<PAGE>
Embedded systems are not an integral component in the Company's primary
business or operations. Nevertheless, the Company has identified and validated
as compliant or, where necessary, is in the process of remediating embedded
systems in certain of the Company's facilities and environmental systems. The
Company does not anticipate any material adverse impact to its business or
operations related to Year 2000 performance of embedded systems.
As an Electronic Global Distribution System, the Company's products are
dependent upon data provided by its air, car, hotel and tour vendor customers
and other suppliers of data. The Company is also dependent on critical service
providers, such as telecommunications firms for worldwide product distribution.
The Company is continuing to assess Year 2000 issues arising from its
relationships with these third parties, including its NDCs, to determine the
extent to which the Company's interface systems are vulnerable to failure by
such parties to remediate their own Year 2000-sensitive systems. The Company has
requested written Year 2000 compliance status information from all of its vendor
customers, critical service providers, other suppliers of data and its NDCs. The
Company continues to work closely with its NDCs to provide assistance to meet
their Year 2000 challenges. While many of these third parties have reported that
they are not finding significant problems in their own systems, there can be no
guarantee that the systems of these third parties will be made Year 2000
compliant in a timely manner. Vendor customers, service providers and NDCs
continue to participate with Galileo International in Year 2000 testing.
The interruption of services provided by critical service providers, such
as telecommunications firms and power supply companies due to their own Year
2000 difficulties could have a material adverse effect on the Company's business
and operations. With respect to bookings for travel after January 1, 2000, any
failure on the part of the Company, its vendor customers, other suppliers of
data or NDCs to ensure that their systems are Year 2000 compliant, regardless of
when such bookings occur, could have a material adverse effect on the business,
financial condition and results of operations of the Company.
Testing is a critical component in the Company's Year 2000 preparedness
program. The Company's system for Year 2000 hardware and software validation --
called the "Time Machine" -- is essentially a copy of the Company's production
environment which performs date-sensitive tests and supports connectivity to the
systems of its vendor customers, suppliers of data, NDCs and certain other third
parties without interrupting existing systems and without risk of contaminating
"live" production data.
The Company is preparing contingency plans to address possible Year 2000
failures of its internal systems and business processes or those of its vendor
customers, critical service providers, other suppliers of data and NDCs on whose
systems the Company is dependent. The Company expects to complete these
contingency plans by year-end 1998.
The Company incurred $6.0 million of expenses in the first nine months of
1998 and $4.4 million of expenses in 1997 related to Year 2000 remediation. The
Company expects future expenditures to total approximately $11.0 million. All of
such costs are expected to be expensed as incurred. Further, the Company expects
to incur additional costs after 1999 to remediate and
20
<PAGE>
replace less critical software applications and embedded systems, however, such
expenses are not expected to have a material adverse effect on the Company's
business, financial condition or results of operations.
The cost of the Company's Year 2000 project and the dates on which the
Company plans to complete its Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, third parties' Year 2000 readiness and other factors.
Based on the Company's current schedule for completion of its Year 2000
project, the Company believes that its planning is adequate to secure Year 2000
readiness of its critical systems. Nevertheless, achieving Year 2000 readiness
is subject to various risks and uncertainties, many of which are described
above. The Company is not able to predict all of the factors that could cause
actual results to differ materially from its current expectations about its Year
2000 readiness. At this time, the Company believes the major risks associated
with Year 2000 processing are a system failure or miscalculation causing an
inability to process bookings or engage in other normal business activities. If
the Company, or third parties with whom the Company has significant business
relationships, fail to achieve Year 2000 readiness with respect to critical
systems, there could be a material adverse effect on the Company's business,
financial condition and results of operations.
21
<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 and the
effect of consolidation, including strategic alliances, in the CRS industry;
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; risks related to the Company's relationships with
its airline stockholders, including United Airlines and its affiliates; risks
relating to the Company's investment in technology, including the ability of the
Company to timely develop and achieve market acceptance of new products, or to
achieve Year 2000 compliance in a timely and cost-effective manner; risks
associated with the Company's international operations and expansion into
developing and new CRS markets, including governmental approvals, trade and
tariff barriers, and political risks; risks of new or different legal or
regulatory requirements governing the CRS industry; risks associated with the
integration of acquired businesses, including the amount and timing of
cost-savings and synergies that may be achieved; and risks of a natural disaster
or other calamity that may cause significant damage to the Company's Data Centre
facility.
22
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
10.1 Amended and Restated $200,000,000 364-Day Credit Agreement
(incorporated by reference to Exhibit 10.1 to the Company's
Form 10Q for the quarter ended June 30, 1998)
27.1 Financial Data Schedule
- -------------------------------------------
(b) Reports on Form 8-K - No reports on Form 8-K were filed for the quarter
ended September 30, 1998.
23
<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: November 12, 1998 By: /s/ Paul Bristow
----------------
Paul H. Bristow
Senior Vice President, Chief Financial
Officer, Treasurer and Director
(Principal Financial and Accounting
Officer)
24
<PAGE>
GALILEO INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.1 Amended and Restated $200,000,000 364-Day Credit
Agreement (incorporated by reference to Exhibit 10.1
to the Company's 2nd Quarter Form 10-Q)
27.1 Financial Data Schedule
CONFORMED COPY
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 22, 1998 among
GALILEO INTERNATIONAL, INC. (the "Company"), the BANKS listed on the signature
pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into a Credit
Agreement dated as of July 23, 1997, amended as of December 12, 1997 and April
28, 1998 (the "Agreement");
WHEREAS, at the date hereof, there are no Loans outstanding under the
Agreement; and
WHEREAS, the parties hereto desire to amend the Agreement as set forth
herein and to restate the Agreement in its entirety to read as set forth in the
Agreement with the amendments specified below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each capitalized term used herein which is defined in the
Agreement shall have the meaning assigned to such term in the Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other similar
reference and each reference to "this Agreement" and each other similar
reference contained in the Agreement shall from and after the date hereof refer
to the Agreement as amended and restated hereby. The term "Notes" defined in the
Agreement shall include from and after the date hereof the New Notes (as defined
below).
SECTION 2. Amendments to Definitions. Section 1.01 is amended as
follows:
(a) The definition of "Termination Date" is amended by replacing the
date "July 22, 1998" with the date "July 21, 1999".
SECTION 3. Each Borrowing and Issuance. The reference to Section
4.04(d) in Section 3.02(e) of the Agreement is changed to Section 4.04(c).
<PAGE>
8
SECTION 4. Updated Representations. Section 4.04 of the Agreement is
amended in its entirety to read as follows:
(a) The consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of December 31, 1997 and the related consolidated statements of
income and cash flows for the fiscal year then ended, reported on by KPMG Peat
Marwick LLP, copies of which have been delivered to each of the Banks, fairly
present, in conformity with generally accepted accounting principles, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of March 31, 1998 and the related unaudited
consolidated statements of income and cash flows for the three months then
ended, copies of which have been delivered to each of the Banks, fairly present
in all material respects, in conformity with generally accepted accounting
principles applied on a basis consistent with the financial statements referred
to in subsection (a) of this Section, the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such three month period
(subject to normal year-end adjustments).
(c) Since March 31, 1998 there has been no material adverse change in the
business, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
SECTION 5. Changes in Lenders. With effect from and including the date
this Amendment and Restatement becomes effective in accordance with Section 8,
(i) each Person listed on the signature pages hereof which is not a party to the
Agreement (a "New Bank") shall become a Bank party to the Agreement and (ii) the
Commitment of each Bank shall be the amount set forth opposite the name of such
Bank on the signature pages hereof. Any Bank whose Commitment is changed to zero
shall upon such effectiveness cease to be a Bank party to the Agreement, and all
accrued fees and other amounts payable under the Agreement for the account of
such Bank shall be due and payable on such date; provided that the provisions of
Sections 8.03 and 9.03 of the Agreement shall inure to the benefit of each such
Bank with respect to the period during which such Bank was a Bank party to the
Agreement.
SECTION 6. Representations and Warranties. The Company represents and
warrants that as of the date hereof and after giving effect hereto:
(a) no Default has occurred and is continuing; and
(b) each representation and warranty of the Company set forth in the
Agreement after giving effect to this Amendment and Restatement is true and
correct as though made on and as of such date.
<PAGE>
SECTION 7. Governing Law. This Amendment and Restatement shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 8. Counterparts; Effectiveness. This Amendment and Restatement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment and Restatement shall become effective on the date
that each of the following conditions shall have been satisfied:
(i) receipt by the Agent of duly executed counterparts hereof
signed by each of the parties hereto (or, in the case of any party as to
which an executed counterpart shall not have been received, the Agent
shall have received telegraphic, telex or other written confirmation
from such party of execution of a counterpart hereof by such party);
(ii) receipt by the Agent of a duly executed Note of the Company
for each of the New Banks (a "New Note"), dated on or before date of
effectiveness hereof and otherwise in compliance with Section 2.06 of
the Agreement;
(iii) receipt by the Agent of an opinion of Babetta R. Gray, Senior
Vice President and General Counsel of the Company, substantially in the
form of Exhibit E to the Agreement with reference to this Amendment and
Restatement, the Agreement as amended and restated hereby and the New
Notes; and
(iv) receipt by the Agent of all documents it may reasonably
request relating to the existence of the Company, the corporate
authority for and the validity of the Agreement as amended and restated
hereby, the New Notes and any other matters relevant hereto, all in form
and substance satisfactory to the Agent;
provided that this Amendment and Restatement shall not become effective or
binding on any party hereto unless all of the foregoing conditions are satisfied
not later than August 1, 1998. The Agent shall promptly notify the Company and
the Banks of the effectiveness of this Amendment and Restatement, and such
notice shall be conclusive and binding on all parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
GALILEO INTERNATIONAL, INC.
By: /s/ Paul H. Bristow
Title: Senior Vice President & Chief
Financial Officer
Address: 9700 West Higgins Road, Suite 400
Rosemont, IL 60018
Attn: Chief Financial Officer
Facsimile: (847) 518-4201
Commitments
AGENT
$20,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW
YORK
By: /s/ Diana Imhof
Title: Vice President
CO-ARRANGERS
$22,750,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Nelson D. Albrecht
Title: Vice President
<PAGE>
$20,000,000 BANK OF MONTREAL
By: /s/ Sheila C. Weimer
Title: Director
CO-AGENTS
$17,666,667 MIDLAND BANK PLC
By: /s/ E M Houston
Title: Head of Aerospace
$16,666,667 THE BANK OF TOKYO-MITSUBISHI,
LTD., CHICAGO BRANCH
By: /s/ Hajime Watanabe
Title: Deputy General Manager
$16,666,667 THE SUMITOMO BANK, LIMITED
CHICAGO BRANCH
By: /s/ Ken-Ichiro Kobayashi
Title: Joint General Manager
<PAGE>
$11,333,333 ABN AMRO BANK N.V.
By: /s/ John L. Church
Title: Vice President
By: /s/ Angela Reitz
Title: Vice President
$8,333,333 BANK AUSTRIA AKTIENGESELLSCHAFT-
NEW YORK BRANCH
By: /s/ Michael Wiegand
Title: Senior Vice President
By: /s/ Karen L. Jill
Title: Assistant Vice President
PARTICIPANTS
10,000,000 CREDIT LYONNAIS
NEW YORK BRANCH
By: /s/ Philippe Soustra
Title: Senior Vice President
$0 ROYAL BANK OF CANADA
By:
Title:
<PAGE>
$10,000,000 SOCIETE GENERALE
CHICAGO BRANCH
By: /s/ Jose A. Moreno
Title: Director
$10,000,000 UBS AG,
STAMFORD BRANCH
By: /s/ James J. Diaz
Title: Executive Director
Loan Portfolio Support, US
By: /s/ Denise M. Clerkin
Title: Associate Director
Loan Portfolio Support, US
$12,750,000 THE NORTHERN TRUST COMPANY
By: /s/ Mark Taylor
Title: Second Vice President
$10,000,000 THE SANWA BANK, LIMITED,
CHICAGO BRANCH
By: /s/ Gordon R. Holtby
Title: Vice President & Manager
$8,833,333 WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By: /s/ Lisa Walker
Title: Vice President
By: /s/ Elisabeth R. Wilds
Title: Associate
$5,000,000 THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By: /s/ Armund J. Schoen, Jr.
Title: Senior Vice President
Total Commitments
$200,000,000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
form 10-Q for the quarter ended September 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001039300
<NAME> Galileo International, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
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