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, 1999
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.
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(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
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(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 May 03, 1999, there were 104,806,655 shares of Common Stock, par value $.01
per share, of the registrant outstanding.
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GALILEO INTERNATIONAL, INC.
QUARTER ENDED MARCH 31, 1999
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements of Galileo International, Inc.
Condensed Consolidated Balance Sheets as of March 31,
1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Income for the
quarters ended March 31, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the quarters ended March 31, 1999 and 1998 (unaudited) 5
Condensed Consolidated Statement of Stockholders'
Equity for the quarter ended March 31, 1999 (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 19
SIGNATURES 20
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
1999 1998
--------- ---------
(Unaudited)
ASSETS
------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 43,710 $ 9,828
Accounts receivable, net 234,499 177,858
Other current assets 51,394 55,841
--------- ---------
Total current assets 329,603 243,527
Property and equipment, at cost:
Land 6,470 6,470
Buildings and improvements 77,638 77,210
Equipment 398,994 392,299
--------- ---------
483,102 475,979
Less accumulated depreciation 304,619 281,010
--------- ---------
Net property and equipment 178,483 194,969
Computer software, net 182,346 189,247
Intangible assets, net 600,078 609,806
Other noncurrent assets 65,439 53,531
--------- ---------
$ 1,355,949 $ 1,291,080
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 40,639 $ 46,901
Accrued commissions 41,121 32,424
Income taxes payable 59,230 11,873
Other accrued liabilities 111,391 134,652
Capital lease obligations, current portion 25,743 5,976
--------- ---------
Total current liabilities 278,124 231,826
Pension and postretirement benefits 59,328 55,982
Deferred tax liability 22,182 25,404
Other noncurrent liabilities 48,535 42,969
Capital lease obligations, less current portion -- 22,752
Long-term debt 34,392 69,520
--------- ---------
Total liabilities 442,561 448,453
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; 104,963,525 and 104,930,750 shares issued;
104,794,425 and 104,761,650 shares outstanding 1,050 1,049
Additional paid-in capital 669,257 668,466
Retained earnings 254,729 184,575
Unamortized restricted stock grants (3,360) (3,559)
Accumulated other comprehensive income (1,523) (1,139)
Common stock held in treasury, at cost: 169,100 shares (6,765) (6,765)
--------- ---------
Total stockholders' equity 913,388 842,627
========= =========
$ 1,355,949 $ 1,291,080
========= =========
See accompanying notes to condensed consolidated financial statements.
3
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GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share data)
Quarter
Ended March 31,
-------------------------------
1999 1998
---- ----
Revenues:
<S> <C> <C>
Electronic global distribution services $ 385,229 $ 342,230
Information services 18,762 34,780
------------ ------------
403,991 377,010
Operating expenses:
Cost of operations 132,130 135,100
Commissions, selling and administrative 151,045 135,631
------------ ------------
283,175 270,731
------------ ------------
Operating income 120,816 106,279
Other income (expense), net:
Interest expense, net (790) (3,263)
Other, net 9,767 649
------------ ------------
Income before income taxes 129,793 103,665
Income taxes 51,787 41,362
------------ ------------
Net income $ 78,006 $ 62,303
============ ============
Weighted average number of shares outstanding 104,683,986 104,799,700
============ ============
Basic earnings per share $ 0.75 $ 0.59
============ ============
Diluted weighted average number of shares outstanding 105,483,986 105,063,135
============ ============
Diluted earnings per share $ 0.74 $ 0.59
============ ============
See accompanying notes to condensed consolidated financial statements.
4
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GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Quarter Ended
March 31,
---------------------------
1999 1998
---- ----
Operating activities:
<S> <C> <C>
Net income $ 78,006 $ 62,303
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 41,628 41,516
(Gain) loss on sale of assets (9,477) 141
Deferred income taxes, net 978 283
Changes in operating assets and liabilities:
Increase in accounts receivable, net (57,317) (55,849)
(Increase) decrease in other current assets (198) 2,313
Increase in noncurrent assets (4,959) (3,268)
Increase in accounts payable and accrued
commissions 3,118 6,940
Decrease in accrued liabilities (15,720) (1,804)
Increase in income taxes payable 47,456 40,296
Increase in noncurrent liabilities 8,552 1,723
----------- -----------
Net cash provided by operating activities 92,067 94,594
Investing activities:
Purchase of property and equipment (11,174) (18,598)
Purchase and capitalization of computer software (4,523) (4,093)
Proceeds on sale of assets 9,508 2,925
Other investing activities (7,274) --
----------- -----------
Net cash used in investing activities (13,463) (19,766)
Financing activities:
Borrowings under credit agreements 10,000 --
Repayments under credit agreements (45,128) (30,000)
Dividends paid to stockholders (7,852) (6,288)
Payments of capital lease obligations (2,139) (2,032)
Proceeds from exercise of employee stock options, net 792 --
----------- -----------
Net cash used in financing activities (44,327) (38,320)
Effect of exchange rate changes on cash (395) (182)
----------- -----------
Increase in cash and cash equivalents 33,882 36,326
Cash and cash equivalents at beginning of period 9,828 19,367
----------- -----------
Cash and cash equivalents at end of period $ 43,710 $ 55,693
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
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<TABLE>
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited, in thousands, except share data)
Special
Voting Additional
Preferred Common Paid - in Retained
Stock Stock Capital Earnings
----- ----- ------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $-- $ 1,049 $ 668,466 $ 184,575
Comprehensive income:
Net income -- -- -- 78,006
Other comprehensive income, net of tax:
Unrealized holding losses on securities -- -- -- --
Foreign currency translation adjustments -- -- -- --
Other comprehensive income
Comprehensive income
Amortization of restricted stock grants -- -- -- --
Issuance of 32,775 shares of Common stock under
employee stock option plans -- 1 791 --
Dividends paid ($0.075 per share) -- -- -- (7,852)
------ ------- --------- ---------
Balance at March 31, 1999 $-- $ 1,050 $ 669,257 $ 254,729
====== ======= ========= =========
Accumulated
Unamortized Other
Restricted Comprehensive Treasury
Stock Grants Income Stock Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ (3,559) $ (1,139) $ (6,765) $ 842,627
Comprehensive income:
Net income -- -- -- 78,006
Other comprehensive income, net of tax:
Unrealized holding losses on securities -- (199) -- (199)
Foreign currency translation adjustments -- (185) -- (185)
---------
Other comprehensive income (384)
---------
Comprehensive income 77,622
Amortization of restricted stock grants 199 -- -- 199
Issuance of 32,775 shares of Common stock under
employee stock option plans -- -- -- 792
Dividends paid ($0.075 per share) -- -- -- (7,852)
--------- --------- --------- ---------
Balance at March 31, 1999 $ (3,360) $ (1,523) $ (6,765) $ 913,388
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
6
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<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. (the "Company") 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 the interim periods presented.
The results of operations for the quarter ended March 31, 1999 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1999.
These financial statements should be read in conjunction with the audited
financial statements and notes to the audited financial statements for the year
ended December 31, 1998 included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 22, 1999.
NOTE 2 - BUSINESS ACQUISITIONS AND INVESTMENTS
On November 19, 1998, the Company acquired S. D. Shepherd Systems, Inc.
("Shepherd Systems"), an airline information systems company, for $16.7 million.
The Company also acquired two national distribution companies ("NDCs") during
1998. On June 1, 1998, Galileo Canada Distributions Systems, Inc. ("Galileo
Canada") was purchased for $34.4 million and on January 1, 1998 Galileo Nordiska
AB ("Nordiska) was purchased for $2.1 million. In connection with these
acquisitions, the Company also incurred expenses of $0.8 million, which have
been accounted for as part of the purchase prices. The Company accounted for
these acquisitions using the purchase method of accounting. Accordingly, the
costs of the acquisitions were allocated to the assets acquired and liabilities
assumed based on their respective fair values. Goodwill and other intangible
assets related to the cost of the acquisitions are being amortized over 6 to 25
years and are included in cost of operations expenses. The results of operations
and cash flows of the acquired companies have been consolidated with those of
the Company from the date of each acquisition. In connection with the
acquisition of Galileo Canada, the Company incurred $34.4 million of debt under
a five-year term loan agreement.
During the quarter ended March 31, 1999, the Company acquired minority
ownership equity positions in three technology-related companies for $7.3
million.
7
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NOTE 3 - EARNINGS PER SHARE
Basic earnings per share for the quarters ended March 31, 1999 and 1998 is
calculated based on the weighted average shares outstanding for each quarter.
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 quarters ended March 31, 1999 and 1998 of 800,000 and
263,435, respectively.
NOTE 4 - SPECIAL CHARGES
The Company recorded special charges of $26.4 million ($15.9 million after
tax) during the quarter ended December 31, 1998 related to a strategic
realignment of the Company's operations in the United Kingdom and, to a lesser
degree, other realignments within the Company. These special charges were
comprised primarily of $15.0 million in severance costs related to the
termination of 399 employees, primarily in the development and marketing groups,
and $11.4 million of other costs, principally related to the closing of the
remaining Swindon, United Kingdom facilities. As of March 31, 1999, $1.2 million
of severance related costs have been paid and charged against the liability and
23 employees have been terminated. The Company expects the realignment
activities to be substantially complete in 1999. In 1993, the Company, formerly
Covia Partnership, combined with The Galileo Company Ltd. and consolidated its
two data center facilities resulting in the closure of the Swindon, United
Kingdom data center. In connection therewith, the estimated cost of the
consolidation was charged to expense. At March 31, 1999 and December 31, 1998,
the estimated remaining liabilities for all of the above mentioned restructuring
activities were $35.5 million and $44.1 million, respectively, and are included
in the accompanying condensed consolidated balance sheets.
The Company recorded special charges of $20.1 million ($12.1 million after
tax) during the year ended December 31, 1997 related to the integration of NDCs
acquired in 1997 into the Company's operations. These special charges were
comprised primarily of $12.3 million in severance costs related to the
termination of 202 employees and $7.8 million of other integration costs,
principally related to the closing of duplicate facilities. As of March 31,
1999, $9.4 million of severance related costs have been paid and charged against
the liability and 121 employees have been terminated. The Company expects the
integration activities to be complete in 1999. At March 31, 1999 and December
31, 1998, the estimated remaining liabilities related to the integration were
$2.4 million and $3.4 million, respectively, and are included in the
accompanying condensed consolidated balance sheets.
8
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NOTE 5 - STOCKHOLDERS' EQUITY
During the quarter ended March 31, 1999, the Company accounted for a $0.3
million unrealized holding loss on available-for-sale marketable equity
securities in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities". The
after tax effect of $0.2 million is included as a separate component of
Stockholders' Equity.
NOTE 6 - SUBSEQUENT EVENTS
On May 5, 1999, the Company filed a registration statement with the
Securities and Exchange Commission relating to a proposed underwritten secondary
offering of its common stock pursuant to its Registration Rights Agreement with
its airline stockholders. The Company filed the registration statement as a
result of a demand for registration made by one of its airline stockholders, a
subsidiary of US Airways, Inc., that has requested the registration of all
7,000,400 shares of common stock it currently owns. Under the Registration
Rights Agreement, the other airline stockholders have the right to participate
in the registration initiated by the subsidiary of US Airways, subject to the
ability of the managing underwriters of the offering to limit the number of
other stockholders' shares that may be included in the registration. The airline
stockholders controlled by United Airlines, KLM Royal Dutch Airlines, Alitalia
and TAP Air Portugal have requested the inclusion in the offering of 17,500,000,
10,639,200, 1,500,000 and 88,000 shares, respectively, of common stock they
currently own. The Company anticipates commencing the offering, which will be
made only by means of a prospectus, during the second quarter of this year. The
Company will not receive any proceeds from the offering.
In addition, on April 29, 1999, the Board of Directors of the Company
authorized an increase in the size of the Company's share repurchase program
from $100.0 million to $500.0 million. The amount, timing and price of any
repurchases of the Company's common stock will depend on market conditions and
other factors.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SUMMARY
Galileo International, Inc. is one of the world's leading providers of
electronic global distribution services for the travel industry. We provide
travel agencies at approximately 40,000 locations, as well as other subscribers,
with the ability to view schedules, availability and fare information, book
reservations and issue tickets for more than 500 airlines. We also provide our
subscriber customers with information and booking capabilities for major hotel
chains, car rental companies, cruise lines and numerous tour operators
throughout the world.
Our geographic breadth is demonstrated by the table below which shows the
approximate number of travel agency locations and terminals by region.
Travel Agency
Locations Terminals at
at March 31, 1999 March 31, 1999
---------------------- ---------------------
Region Number % Number %
- ------ ------ - ------ -
United States 12,500 31.2% 59,600 36.6%
Europe 13,600 33.9% 55,800 34.3%
Asia/Pacific 5,700 14.2% 22,400 13.8%
Canada 3,100 7.7% 11,100 6.8%
Middle East/Africa 3,400 8.5% 9,600 5.9%
Latin America 1,800 4.5% 4,300 2.6%
---------------------- ---------------------
40,100 100.0% 162,800 100.0%
====================== =====================
We generate revenue from the provision of electronic global distribution
services and information services. During the quarter ended March 31, 1999, we
generated 95.4% of our revenue from electronic global distribution services and
4.6% of our revenue from information services. The following table summarizes
electronic global distribution services revenues by geographic location as a
percentage of the total and summarizes total booking volumes for the
10
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quarters ended March 31, 1999 and 1998. The location of the travel agent making
the booking determines the geographic region credited with the related revenues
and bookings:
1999 1998
---- ----
Percentage of Revenue
- ---------------------
U.S. Market 42.3 % 44.3 %
All Other Markets 57.7 55.7
----- -----
100.0 % 100.0 %
===== =====
Worldwide Bookings
- ------------------
(in millions)
U.S. Market:
Air 36.0 36.1
Car/Hotel/Leisure 5.7 5.5
----- -----
41.7 41.6
All Other Markets:
Air 53.7 49.1
Car/Hotel/Leisure 1.5 1.4
----- -----
55.2 50.5
----- -----
Total Worldwide Bookings 96.9 92.1
===== =====
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
REVENUES. Revenues increased $27.0 million, or 7.2%, to $404.0 million for
the quarter ended March 31, 1999 from $377.0 million for the quarter ended March
31, 1998. Our electronic global distribution services revenues grew $43.0
million, or 12.6%, primarily due to an increase in airline booking revenues of
11.9% over the quarter ended March 31, 1998. The increase in airline booking
revenues was primarily due to a 5.3% increase in airline booking volumes and
booking fee price increases that went into effect in March 1999 and March 1998.
Total international booking volumes increased 9.3% for the quarter, while U.S.
booking volumes increased 0.2% over the same period last year. This modest
growth in U.S. bookings was due to a new fee structure we introduced in North
America in March 1998 under which we no longer charge airline vendors for
passive bookings that are not ticketed. We report only those bookings for which
we receive a fee. Excluding passive airline bookings, growth in active bookings
for the quarter was 2.0% in the United States. The increase in international
booking volumes for the quarter was driven by strong growth in Europe, Africa,
the Middle East, and Southeast Asia. Also contributing to the growth in
electronic global distribution revenues were increases in subscriber fees and
revenues from the sale of information products and services.
The growth in electronic global distribution services revenues was
partially offset by a $16.0 million decline in information services revenues due
principally to the impact of providing
11
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fewer network services to one of our airline vendors. This revenue loss was
largely offset by a reduction in operating expenses related to the provision of
these services.
COST OF OPERATIONS. Cost of operations expenses decreased $3.0 million, or
2.2%, to $132.1 million for the quarter ended March 31, 1999 from $135.1 million
for the quarter ended March 31, 1998. The decline in cost of operations expenses
was due primarily to a $13.8 million decrease in voice communication charges,
due to the discontinuation of certain airline vendor network services. Partially
offsetting this decrease was $6.7 million in additional cost of operations
expenses incurred during the first quarter of 1999 due to the Galileo Canada and
Shepherd Systems acquisitions in 1998. These additional operating expenses,
principally wages, maintenance and installation expenses, communication costs
and depreciation expense, were largely offset by lower commissions as we no
longer pay commissions to Galileo Canada but instead incur the direct costs of
distributing our products in this market. Additionally, we now record the
amortization of the excess of the cost of these acquisitions over the fair value
of net assets acquired and also record amortization of other intangibles
acquired.
The remaining increase in cost of operations expenses was primarily
attributable to higher wages and increased maintenance costs on subscriber
equipment at agency locations. Cost of operations expense growth was lower than
revenue growth due to management's continued focus on operating efficiency and
our continuing ability to take advantage of decreasing technology costs on Data
Centre equipment and to negotiate favorable supplier contracts for subscriber
equipment.
COMMISSIONS, SELLING AND ADMINISTRATIVE EXPENSES. Commissions, selling and
administrative expenses increased $15.4 million, or 11.4%, to $151.0 million for
the quarter ended March 31, 1999 from $135.6 million for the quarter ended March
31, 1998. NDC commissions and subscriber incentive payments increased $14.8
million, or 16.4%, to $105.0 million for the quarter ended March 31, 1999 from
$90.2 million for the quarter ended March 31, 1998. The increase in electronic
global distribution services revenues resulted in increased commissions to NDCs,
which were offset by the elimination of commissions to Galileo Canada as,
subsequent to this acquisition, we no longer pay commissions but instead incur
the direct costs of operating in this market. NDC commissions are generally
based on a percentage of booking revenues and have, therefore, grown at a rate
consistent with the growth in booking revenues by country. Incentive payments,
which are provided to subscribers in order to maintain and expand our travel
agency customer base, increased significantly in this quarter principally due to
the initiation of new contracts with multinational and key U.S. regional
accounts in late 1998 and the first quarter of 1999, as well as the impact of
payments to subscribers previously borne by Galileo Canada. The remaining
increase in commissions, selling and administrative expenses was primarily
attributable to the accrual of estimated payments required under services
agreements with the sellers of certain NDCs acquired in 1997 and 1998.
OTHER INCOME (EXPENSE), NET. Other income (expense), net includes interest
expense net of interest income, foreign exchange gains or losses and other
non-operating items. Other income, net increased $11.6 million, to $9.0 million
in income for the quarter ended March 31, 1999 from $2.6 million in expense for
the quarter ended March 31, 1998. This increase was
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primarily the result of a $9.4 million gain recognized from the sale of 12% of
the shares we owned in Equant, N.V., a telecommunications company. Lower
interest expense arising from lower debt levels in 1999 accounted for the
remainder of the increase in other income (expense), net during the first
quarter of 1999.
INCOME TAXES. Income taxes increased $10.4 million, or 25.2%, to $51.8
million for the quarter ended March 31, 1999 from $41.4 million for the quarter
ended March 31, 1998. The increase was a result of higher income before income
taxes for the quarter ended 1999 compared to 1998. Our effective tax rate was
approximately 40% in both periods.
NET INCOME. Net income increased $15.7 million, or 25.2%, to $78.0 million
for the quarter ended March 31, 1999, from $62.3 million for the quarter ended
March 31, 1998. Net income as a percentage of revenues increased to 19.3% from
16.5% over the same period.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $43.7 million and working capital totaled
$51.5 million at March 31, 1999. At December 31, 1998, cash and cash equivalents
totaled $9.8 million and working capital totaled $11.7 million. Due principally
to strong operating results and proceeds from the sale of shares in Equant,
N.V., cash and cash equivalents increased by $33.9 million despite the net
repayment of $35.1 million of indebtedness under credit agreements and $7.9
million in dividends we paid to our stockholders.
Cash flow used in investing activities principally relates to purchases of
mainframe data processing and network equipment and purchases of computer
equipment provided to our travel agency subscribers. Capital expenditures,
excluding the capitalization of internally developed software, were $12.9
million for the quarter ended March 31, 1999 compared to $19.1 million for the
quarter ended March 31, 1998. In addition, we used $7.3 million to acquire
minority ownership equity positions in three technology-related companies during
the quarter ended March 31, 1999. Proceeds from sale of assets were $9.5 million
for the quarter ended March 31, 1999 primarily from the sale of shares we owned
in Equant, N.V.
Cash flow used in financing activities includes net repayments of $35.1
million under credit agreements and $7.9 million in dividends we paid to our
stockholders. We paid a $0.075 per share cash dividend on February 19, 1999 to
stockholders of record as of February 5, 1999. On April 1, 1999, we paid $25.5
million to terminate two equipment leases related to Swindon data center assets
pursuant to early termination provisions allowed within the leases. As of March
31, 1999, there was no debt outstanding under our revolving credit facilities
and we had $600.0 million available under these facilities.
We expect that future cash requirements will principally be for capital
expenditures, repayments of indebtedness, strategic acquisitions and
investments, and share repurchases. We believe that cash generated by operating
activities will be sufficient to fund our future cash
13
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requirements, except that significant acquisitions, investments or share
repurchases may require additional borrowings or other financing alternatives.
(1)
In addition to reinvesting a substantial portion of earnings in our
business, we currently intend to pay regular quarterly dividends and to
repurchase additional shares of our common stock. On April 23, 1999, we declared
a cash dividend of $.09 per share to be paid on May 21, 1999 to stockholders of
record as of May 7, 1999. The declaration and payment of future dividends, as
well as the amount thereof, and the amount of future repurchases of our common
stock are subject to the discretion of our Board of Directors and will depend
upon our results of operations, financial condition, cash requirements, future
prospects and other factors deemed relevant by our Board of Directors. There can
be no assurance that we will continue to declare and pay dividends or repurchase
shares of our common stock in the future. (1)
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We will implement the provisions of Statement of Financial Accounting
Standards No. 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 our financial statements.
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 our computer
programs or systems or those of vendors and suppliers that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than 2000.
Beginning in September 1995, we implemented a program designed to help
ensure that all hardware and software used in connection with our business,
including our 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 our hardware and software has led us to conclude that the majority of our
systems have been engineered to be Year 2000 compliant and should provide a
seamless transition to the Year 2000. In addition, we have consulted outside
experts, including attorneys and independent auditors, regarding our Year 2000
plans.
- ----------
(1) See Statement Regarding Forward-Looking Statements on page 18.
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We electronically exchange information with the computer systems of our
travel vendor customers and suppliers, including air, car, hotel, cruise, rail
and other vendors. We use standardized travel industry interchange formats to
electronically exchange information with many of these vendor customers 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
completed. Our GlobalFares(TM) system began successfully processing airline
fares with Year 2000 dates in July 1998. In addition, the investigation and
assessment of our network systems is complete and remediation for such systems
is in progress and on-track for completion during the third quarter of 1999. We
completed remediation planning for most of our travel agency-based software and
began distribution of Year 2000 upgrades for operating systems and package
installation systems used in connection with our travel agency-based software
during the third quarter of 1998. The Year 2000 remediation of most of our
travel agency-based software addresses aesthetic modifications and is not
essential for the reservation booking and ticketing capability of these
products. Remediation planning for country-specific software solutions
facilitating travel agency access to certain third party vendors is on-going. We
continue to develop, 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.
Remediation activities related to our mainframe computer systems, which
include our Galileo(R) and Apollo(R) computer reservation systems, were
completed on schedule in 1998. Our Galileo and Apollo systems successfully
processed the first Year 2000 airline reservation bookings on January 3, 1999
and February 4, 1999, respectively, with airlines which support Year 2000 in
their systems. Non-mainframe activities are on-track for completion before the
third quarter of 1999.
Embedded systems are not an integral component in our primary business or
operations. Nevertheless, we have identified and validated as compliant or,
where necessary, are in the process of remediating embedded systems in certain
of our facilities and environmental systems. We do not anticipate any material
adverse impact to our business or operations related to Year 2000 performance of
embedded systems.
As an electronic global distribution services company, our products are
dependent upon data provided by our air, car, hotel and tour vendor customers
and other suppliers of data. We are also dependent on critical service
providers, such as telecommunications firms, for worldwide product distribution.
We are continuing to assess Year 2000 issues arising from our relationships with
third parties, including our NDCs, to determine the extent to which our
interface systems are vulnerable to failure by these parties to remediate their
own Year 2000-sensitive systems. We have requested Year 2000 compliance status
information from all of our vendor customers, critical other suppliers of data
and our NDCs. We continue to work closely with our 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, we cannot
guarantee that the systems of these third parties will be made Year 2000
compliant in a
15
<PAGE>
timely manner. Vendor customers, service providers and NDCs continue to
participate with us in Year 2000 testing.
We completed contingency plans for our mainframe systems on schedule in
1998 and anticipate that the contingency plans for non-mainframe systems will be
complete prior to the third quarter of 1999. We will continue to review and
revise contingency plans to address possible Year 2000 failures of our internal
systems and business processes or those of vendor customers, critical service
suppliers, other suppliers of data and our NDCs, on whose systems we are
dependent. Our contingency plans identify the interruption of local services
provided by third parties, such as telecommunication firms and power supply
companies, as the events which would be most likely to occur. However, should a
problem occur, it would generally be localized and we do not anticipate that it
would have a material adverse effect on our business, financial condition or
results of operations. Our contingency planning involved risk assessment for all
of our business functions and operating and staff departments, including the
identification of assumptions and dependencies. The contingency plans for each
business function and operating and staff department provide for proactive
preparation for Year 2000 challenges, checklists of activities to perform for
validation of possible failures, and reactive planning to address any actual
Year 2000 failures. The contingency plans also address on-site staff coverage on
January 1, 2000 for all operating and staff departments, and include support
personnel from our critical hardware and software suppliers.
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 our business and
operations. With respect to bookings for travel after January 1, 2000, any
failure on our part or on the part of our vendor customers, other suppliers of
data or NDCs to ensure that systems are Year 2000 compliant, regardless of when
such bookings occur, could have a material adverse effect on our business,
financial condition or results of operations.
Testing is a critical component in our Year 2000 preparedness program. Our
system for Year 2000 hardware and software validation -- called the "Time
Machine" -- is essentially a copy of our production environment which performs
date-sensitive tests and supports connectivity to the systems of our vendor
customers, suppliers of data, NDCs and certain other third parties without
interrupting existing systems and without risk of contaminating "live"
production data.
We incurred $1.7 million of expenses in the quarter ended March 31, 1999,
$8.0 million of expenses in 1998, and $4.4 million of expenses in 1997 related
to Year 2000 remediation. We expect future expenditures to total approximately
$7.3 million. All of these costs are expected to be expensed as incurred.
Further, we expect to incur additional costs after 1999 to remediate and replace
less critical software applications and embedded systems; however, we do not
expect these expenses to have a material adverse effect on our business,
financial condition or results of operations.
16
<PAGE>
The cost of our Year 2000 project and the dates on which we plan to
complete our 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 our current schedule for completion of our Year 2000 project, we
believe that our planning is adequate to secure Year 2000 readiness of our
critical systems. Nevertheless, achieving Year 2000 readiness is subject to
various risks and uncertainties, many of which are described above. We are not
able to predict all of the factors that could cause actual results to differ
materially from our current expectations about our Year 2000 readiness. At this
time, we believe 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. Our failure, or failure of third
parties with whom we have significant business relationships, to achieve Year
2000 readiness with respect to critical systems could have a material adverse
effect on our business, financial condition or results of operations.
NEW EUROPEAN CURRENCY
In January 1999, certain European countries introduced a new currency unit
called the "euro". We planned, developed and successfully implemented a project
to ensure that hardware and software systems operated or licensed in our
business, including systems provided to our travel agency subscriber and travel
vendor customers, are designed to properly process reservations denominated in
euros. We completed the necessary development and successfully issued tickets in
euros on the first official trading day, January 4, 1999. We estimate that the
introduction of the euro, including the total costs for the euro project, will
not have a material effect on our business, financial condition, or results of
operations. (1)
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 18.
17
<PAGE>
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
These statements are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.
We have based these forward-looking statements on our current expectations
and projections about future events. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. These forward-looking statements are
subject to risks and uncertainties that could cause actual events or results to
differ materially from the events or results expressed or implied by the
forward-looking statements. You are cautioned not to place undue reliance on
these forward-looking statements.
Risks and uncertainties associated with our forward-looking statements
include, but are not limited to:
o the loss and inability to replace the bookings generated by one or more of
our five largest travel agency customers,
o our sensitivity to general economic conditions and events that affect
airline travel and the airlines that participate in our Apollo and Galileo
systems,
o circumstances relating to our investment in technology, including our
ability to timely develop and achieve market acceptance of new products, or
our failure or the failure of our customers and other third parties to
achieve Year 2000 compliance in a timely and cost-effective manner,
o the results of our international operations and expansion into developing
and new CRS markets, governmental approvals, trade and tariff barriers, and
political risks,
o new or different legal or regulatory requirements governing the CRS
industry; and
o natural disasters or other calamities that may cause significant damage to
our Data Centre facility.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
10.1 Addendum No. 4 to Program Product Master License Agreement between Candle
Corporation and Galileo International Partnership (incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement on Form
S-1, including all amendments (Registration No. 333-27495)).
10.2 Product Schedule to Software License Agreement and Addendum, dated August
19, 1994, between Sterling Software (U.S.A.), Inc. and Galileo
International (the "Product Schedule") (incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement on Form S-1,
including all amendments (Registration No. 333-27495)).
10.3 Addendum No. 1 to the Product Schedule
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, 1999.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Galileo International, Inc.
Date: May 6, 1999 By: /s/ Paul H. Bristow
-----------------------
Paul H. Bristow
Senior Vice President, Chief
Financial Officer, Treasurer and
Director (Principal Financial and
Accounting Officer)
20
<PAGE>
GALILEO INTERNATIONAL, INC.
Exhibit Index
Exhibit
Number Description
- ------ -----------
10.1 Addendum No. 4 to Program Product Master License Agreement between Candle
Corporation and Galileo International Partnership (incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement on Form
S-1, including all amendments (Registration No. 333-27495)).
10.2 Product Schedule to Software License Agreement and Addendum, dated August
19, 1994, between Sterling Software (U.S.A.), Inc. and Galileo
International (the "Product Schedule") (incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement on Form S-1,
including all amendments (Registration No. 333-27495)).
10.3 Addendum No. 1 to the Product Schedule
27.1 Financial Data Schedule
21
<PAGE>
Exhibit 10.1
ADDENDUM NUMBER FOUR
TO CANDLE CORPORATION LICENSE AGREEMENT
Commencing on: September 1, 1995, March 22, 1996, and December 31, 1996
(hereinafter "Agreement")
BY AND BETWEEN CANDLE CORPORATION AND
GALILEO INTERNATIONAL, LLC. A WHOLLY OWNED SUBSIDIARY OF
GALILEO INTERNATIONAL INC.
This ADDENDUM is entered into by and between Candle Corporation (hereinafter
"Licensed ") and Galileo International, LLC, A Wholly Owned Subsidiary of
Galileo International, Inc. (hereinafter "Licensee").
THE AGREEMENT IS HEREBY MODIFIED AS FOLLOWS:
This Addendum is notification that we have updated our records to reflect your
authorized Licensed Capacity has been upgraded and you have purchased the
software upgrade to Candle Command Center for Sysplex effective September 30,
1998 as follows:
Licensed Products/Services Licensed Capacity
CANDLE COMMAND CENTER for SYSPLEX 1200 MIPS
OMEGA VIEW 1200 MIPS
DB3 SOLUTION PAC 1200 MIPS
OMEGAMON PERFORMANCE PAC for VM 700 MIPS
Professional services Pac On as defined in
the attached Services Agreement
TOTAL FEES: XXX.XXX.XX (exclusive of shipping, handling and applicable taxes)
Payment Terms
Payment due within 30 days from invoice date.
In accordance with the terms contained in this Agreement and/or Addendum,
Licensee hereby makes a binding non-contingent, irrevocable and non-cancelable
commitment to make payments to licensor as follows:
Payment No. Due Date Total
1 September 30, 1998 xxx,xxx.xx
2 May 1, 1999 xxx,xxx.xx
3 May 1, 2000 xxx,xxx.xx
4 May 1, 2001 xxx,xxx.xx
Maintenance Terms
In consideration for receiving Fixed Cost Maintenance and Enhancement Plan Fees
for the Product(s). Licensee hereby makes a binding, non-contingent,
irrevocable, and non-cancelable commitment to extend its participation in the
Maintenance and Enhancement Plan (the "Plan") and pay the associated fees listed
above for three (3) years and seven (7) months beginning September 30, 1998 and
ending on April 30, 2002 (the "Period") and said fees shall be billed annually
in advance during the period. At the end of the Period, fees for the Plan will
be billed annually in advance based on the then current Plan price list in
effect as of the date the Plan is renewed.
Licensee, at its option, is entitled to receive and install multiple copies of
the licensed Product(s), providing the Product(s) do not exceed the Licensed
Capacity as specified in this Agreement.
<PAGE>
If at any time during or after the Period the Licensed Capacity is exceeded,
Licensee shall immediately (1) notify Licensor of such increase or change in
writing, (2) modify this Agreement to provide for the additional capacity, and
(3) pay an additional license fee. In addition, fees for the Plan will be
adjusted as of the date of the increased capacity. The amount of the license fee
and the Plan fee adjustment will be determined by the then-current price list(s)
No credit will be given for either license fees or Plan fees in the event of a
decrease in Licensed Capacity, although future Plan fees arising after the
period will be adjusted as of the date the Plan is renewed.
For those Product licenses which are not tiered licenses, all references to
"Authorized CPU" made in the Master Terms and Conditions and in this Agreement,
shall be deemed to read "Designated Site(s)" and all references to the term
"CPU(s) shall be deemed to read "Site(s)".
Additional MIPS Fee Schedule
Product(s) MIPS From MIPS To Fee per MIPS
CANDLE COMMAND CENTER FOR SYSPLEX 1200 2499 xxx.xx
Licensee may purchase additional MIPS in one (1) MIP increment referencing the
above pricing which is valid from September 30, 1998 through April 30, 2001.
Therefore, fees for additional MIP purchases will be based off of Licensee's
then-current price list.
This Addendum is effective as of the 30th day of September, 1998. All other
terms and conditions of the Agreement shall remain in full force and effect.
ACCEPTED BY LICENSEE: ACCEPTED BY LICENSOR:
Galileo International, L.L.C Candle Corporation
A Wholly Owned Subsidiary o 2425 Olympic Boulevard
Galileo International, Inc. Santa Monica, California
5350 South Valencia Way 90404
Englewood, CO 80111
By: /s/ Lori M. Tobin By: /s/ Benjamin C. Scafer
Name:Lori M. Tobin Name: Benjamin C. Schafer
Title: Senior Manager Purchasing Title:Supervisor, Business
Operations and Negotiator
Date: October 21, 1998 Date: October 22, 1998
Purchase Order #:11G005-21
(For invoicing purposes only)
<PAGE>
Candle
US and Canadian Services Agreement Effective January 1998
Statement of Work Cover Sheet for Professional Service Pac Services
This agreement ("Agreement") is entered into on September 30,1998 (effective
"Date") between Candle Corporation ("Candle"), a California Corporation and
Galileo International, L.L.C a Wholly-Owned Subsidiary of Galileo International,
Inc, (Customer"). The Candle Professional Services Agreement Terms and
Conditions No. 502-0307, and this Statement of Work Cover Sheet constitute the
entire Agreement between the parties and replace any prior oral or written
communications and any other agreements between the parties on this subject.
Unless signed by both parties this Agreement will expire 60 days from the
Effective Date above.
Professional Service Pac One ("PSP Services"): 110 CSUs
Territory: United States: Canada
The Professional Service Pac includes only the PSP Services defined herein, and
does not include licenses to any products other than the Deliverable Product
provided hereunder. There will be no implied Deliverables/Work Product with the
Professional Service Pac unless they are written into this Agreement and
approved in writing by Candle prior to signature by Customer. A separate
Services Agreement shall govern any other services not covered in this Agreement
that Candle provides.
Customer may utilize CSUs for professional services in accordance with the
provisions of this Agreement and according to the conversion formula contained
herein. Customer must request a consultant's services from Candle a minimum of
two (2) weeks in advance of the desired date of delivery of those Services, and
must specify the desired skill and start date. Consultant Service Units ("CSUs")
must be used in contiguous increments of five (5) or more days. CSUs will be
delivered based upon a Candle standard eight (8) hour workday ("Candle FTE
Day"). Any consulting effort delivered in excess of a Candle FTE Day will be
subject to an allocation of a fractional rate of CSUs of at least 5 CSUs per
Consultant per hour, of portion thereof.
Conversion of CSUs: CSUs provided hereunder shall be consumed at the rate
indicated below, depending upon the type of services required and the consultant
skill level needed to deliver the PSF Services:
Consultant Capabilities CSUs per Day
Senior, Documentation Specialist 1.5
Associate Consultant 03
Consultant: Basic Product Support Specialist (e.g., Product
Install/Coding 04
Senior Consultant; Designer (e.g., Program Design,
Authorization) 05
Principle Consultant (Architecture, Project Management,
Education) 06
Time of Performance of all Deliverables/Work Product and Services to be
completed by: September 29, 1999. Services must be used within 12 calendar
months from Effective Date. There will be no carry over of Services to a
Subsequent year.
Compensation: Candle shall be compensated at the following: as indicated on
Addendum Number Four. This Agreement, once signed by Customer, will be
non-cancelable and non-refundable. Candle's invoice for the entire Professional
Service Pac Fees amount must be paid by Customer prior to any work being
performed by Candle. Payment terms are Net 30 from invoice date.
Reimbursement: Travel Anticipated: _______X_______ Yes _____________ No
If yes, Customer shall reimburse Candle for reasonable out-of-pocket expenses
incurred by Candle including: Automobile Mileage, Auto Rental, Lodging, Air
Travel, Meals, and other related expenses.
Designated Contacts: Customer Contact: Candle Contact:
Paul Quade Debbie Higdom
Phone: (303)714-7880 Phone: (972) 776-6707
Fax: (303) 397-5299 Fax: (972) 776-6673
<PAGE>
ACCEPTED BY CUSTOMER: ACCEPTED BY CANDLE:
Galileo International, L.L.C Candle Corporation
A Wholly-Owned Subsidiary of 2425 Olympic Boulevard
Galileo International, Inc. Santa Monica, CA
Englewood, CO 80111 90404
By: /s/ Lori M. Tobin By:/s/ Benjamin C. Schafer
Name: Lori M. Tobin Name: Benjamin C. Schafer
Title: Senior Manager Purchasing Title:Supervisor, Business
Operations and Negotiator
Date: October 21, 1998 Date: October 22, 1998
<PAGE>
Exhibit 10.2
PRODUCT SCHEDULE
1. Reference to Agreement: This Product Schedule is subject to and
incorporates all of the provisions stated in the Software License
Agreement between Sterling Software (U.S.A.), Inc. ("Sterling"), a
wholly-owned subsidiary of Sterling Software, Inc. and Galileo
International, L.L.C. ("Licensee") dated the 29th day of February,
1996. By its acceptance of this Product Schedule, each party certifies
that it has read, understands, and accepts the provisions of this
Agreement. The terms and conditions of this Product Schedule shall
take precedence over any conflicting terms and conditions contained in
the Software License Agreement.
2. List of Software and Fees:
Software: OS/390 Edition of SAMS: Vantage Automation,
SAMS:SMS Plus and SAMS:HSM Plus
Type of License: MIPS Based License
Max MVS MIPS: 1200
Network Edition of SAMS:Vantage
Configuration: Two (2) Application Servers
Two (2) Application Server
Consolidation Features
One (1) MVS ADSM Server
Reporting Feature
One Hundred (100) Node
Registrations
Btrieve (one (1) copy)
Term of License: Perpetual, subject to Addendum No. 1 to Product
Schedule
License Fee: $XXX,XXX.XX payable in three (3) annual payments as
follows: $XXX,XXX.XX due December 30, 1998, December
30, 2000, see Addendum No. 1
Installation Site Billing Address
5350 South Valentia Way Same
Englewood, CO 80111
County: Arapahoe
Purchase Order: (please check a box)
Purchase Order Required # US995321-ET
Purchase Order Not Required
Effective Date:
<PAGE>
3. Additional Terms and Conditions:
A. In consideration of the following terms and conditions, Licensee's
existing license for the OS/390 Edition of SAMS: Vantage
including SAMS: Vantage Automation, SAMS:SMA Plus and SAMS:HSM
Plus (previously called SAMS:Vantage including Base and the
Automation, SMAS Plus and HSM Reporting Components), licensed
under the Product Schedule dated February 29, 1996, as amended by
the Addendum dated September 26, 1997, is hereby superseded by
this Product Schedule by execution herein. Although this Product
Schedule supersedes the Product Schedule dated February 29, 1996,
it does not supersede the Software License Agreement dated
February 29, 1996 and the terms and conditions of the Software
License dated August 19, 1994 as they were incorporated by
reference. Sterling will not send to Licensee new copies of the
Software with the exception of the Network Edition of
SAMS:Vantage.
B. With respect to the OS/390 Edition of SAMS:Vantage including
SAMS:Vantage Automation, SAMS:SMS Plus and SAMS:HSM Plus
(hereinafter "Mainframe Software"), the following terms and
conditions shall apply:
1. Licensee may install the Mainframe Software on up to 1200
MVS MIPS. This means that Licensee may install any number
and any combination of copies of the Mainframe Software on
an unlimited number of Licensee owned mainframe CPUs at the
above reference Installation Site, provided that the
maximum cumulative total number of MVS MIPS of all CPUs on
which the Mainframe Software is installed and any CPU(s)
sharing DASD with the CPU(s) on which the Mainframe
Software is installed at the Installation Site above
(hereinafter known as the "Max MVS MIPS"), does not exceed
1200 MIPS.
2. If Licensee will be exceeding the Max MVS MIPS level of 1200 MIPS for
the Mainframe Software, Licensee shall immediately send
written notice to Sterling and such usage shall be subject
to additional license and maintenance and enhancement
fees. For a period of three (3) years from the Effective
Date of this schedule, such additional license fee shall be
$X,XXX.XX for each (10) MVS MIPS added for the Software,
and such additional maintenance and enhancement fees shall
be $XXX.XX per year for each ten (10) MVS MIPS added for
the Software. Thereafter, such additional license fees and
maintenance and enhancement fees for such increased MVS
MIPS usage shall increase each year by ten percent (10%)
over the previous year's additional fees. MVS MIPS may be
added only in increments of ten (10) MVS MIPS, even though
Licensee may be using less than ten (10) additional MVS
MIPS.
C. With respect to the Network Edition of SAMS:Vantage and Btrieve, the
following terms and conditions shall apply:
1. Use of the Network Edition of SAMS:Vantage in a configuration
other than as defined in Section 2. Above, shall be subject to
Sterling's then current terms and fees.
2. Licensee may use the Network Edition of SAMS:Vantage at the
installation Site above, and at additional Licensee owned
locations, provided such locations are within the United
States.
<PAGE>
3. Licensee may increase the configuration listed in Section 2,
upon written notice to Sterling and upon execution of an
upgrade amendment to this Schedule, subject to additional
license and maintenance and enhancement fees. For a period of
three (3) years from the Effective Date of this Schedule, such
additional license fee and maintenance fee and maintenance
fees shall be as follows:
Additional
License Fee Maintenance/Year
Application Servers (per one) XXXXXX XXXXXX
Application Server Consolidation
Features (per one) XXXXXX XXXXXX
MVS ADSM Server Reporting
Feature (per one) XXXXXX XXXXXX
Node Registrations (per 10) XXXXXX XXXXXX
At the end of such three (3) year period, Licensee shall be
subject to payment of Sterling's then current additional
license fees and maintenance and enhancement fees for any
increase in the configuration. Node registrations may be added
only in increments of ten (10) node registrations, even though
Licensee may be using less than ten (10) additional node.
D. With respect to all of the Software (Mainframe Software and the Network
Edition of SAMS:Vantage and Btrieve), the following terms and conditions
shall apply:
1. Provided the Max MVS MIPS level has not been exceeded, and
provided the use of the Network Edition of SAMS:Vantage is in
accordance with the configuration specified in Section 2.
above, Maintenance and Enhancement for the Software shall be
included in the above License Fee for a period of three (3)
years commencing on the Effective Date of this Schedule.
2. Licensee shall provide a written report to Sterling at 10811
International Drive, Rancho Cordova, CA 95670-7319,
Attention: Contracts Department, annually, beginning one
(1) year after the Effective Date of this Schedule, and at
Sterling's reasonable request. Such report shall include
the cumulative total MVS MIPS level for all CPUs on which
the Mainframe Software is installed at the Installation
Site above, and the configuration of use of the Network
Edition of SAMS:Vantage. In addition, upon reasonable
notice to Licensee, Sterling shall have the right to audit
Licensee" Installation Site and Licensee" additional
locations, if it has reason to believe that the Max MVS MIPS
level for the Mainframe Software has been exceeded and/or
the use of the Network Edition of SAMS:Vantage is other
than as licensed herein. In the event of such audit,
Sterling shall be subject to Licensee's security
requirements. If the Max MVS MIPS level has been exceeded,
or use of the Network Edition of SAMS:Vantage is other than
as licensed herein, Licensee shall pay the additional fees
referenced above.
<PAGE>
E. At the end of the three (3) year period described in section 3.D. (1)
above, Licensee will be billed for maintenance and enhancement for the
Mainframe Software and Network Edition of SAMS:Vantage at the above
referenced Installation Site as follows: For the Mainframe Software,
Licensee shall be billed for the then current Max MVS MIPS level at the
rate of XXXXX per ten (10) MVS MIPS. Thereafter, provided Licensee
Subscribes to the Maintenance and Enhancement plan without
interruption, the annual maintenance and enhancement fee for the Max
MVS MIPS shall increase each year by ten percent (10%) over the
previous year's maintenance and enhancement fees. Licensee shall,
however, pay any increased maintenance and enhancement fee with respect
to any increase in Max MIPS as set forth in Section B.2., which fees
shall be subject to further increase only as set forth herein. For the
Network Edition of SAMS:Vantage, Licensee shall be billed for the then
current configuration of use at Sterling's then current terms and fees.
F. In the Software License Agreement, Item Eleven (11), line four (4) after,
"....supplied to Licensee., " insert the following:
Sterling warrants that the Software supplied pursuant to this
agreement will be year 2000 compliant. "year 2000 compliant" means
that the Software supplied hereunder will have the following
capabilities:
1. Will manage and manipulate data involving dates, including
single century formulas and multi-century formulas, and will
not cause an abnormally ending scenario within the application
or result in incorrect values generated involving such dates,
and
2. Will provide that all date related user interface
functionalities and all date related data interface
functionalities will be clearly defined to include the
definition of century, i.e., where 2 digit year is provided
clear definition of the assumptions used for century shall be
provided. For example, years 60 through 99 assume century to
be 19, while years 00 through 59 assume century to be 20.
Provided Licensee is a current subscriber to Software Support, Sterling
warrants that the Software supplied hereunder and used by the Licensee
prior to, during or after the calendar year 2000 includes.or shall
include, at no cost to Licensee, design and performance so Licensee shall
not experience the Software abending and/or invalid and/or incorrect
results from the Software in the operation of the business of the
Licensee. The Software design to ensure Year 2000 compatibility shall
include, but not be limited to, date data century recognition,
calculations which accommodate same century and multi-century formulas and
date values, and date data interfaced values that reflect the century.
G. Licensee may upon advance written notice to Sterling assign this license
for the Software to a purchaser of or successor to substantially all of
the assets and/or stock of Licensee provided such assignee notifies
Sterling in writing of its acceptance of assignment and agrees to be bound
by the terms and conditions of this Agreement. No assignment shall be
construed as to increase the scope of use of the Software under this
agreement.
<PAGE>
H. By execution of this Product Schedule, Licensee agrees to return the
original executed Schedule to Sterling within (5) days of its effective
Date, however; the nonperformance of this obligation by Licensee shall not
affect in any way, the fact that this is a valid and binding contract upon
execution by both parties.
I. The terms of this Product Schedule are contingent upon Licensee executing
and returning this Schedule to Sterling on or before January 29, 1999.
Accepted By: Accepted By:
Sterling Software (U.S.A.), Inc. Galileo International, L.L.C.
A wholly-owned subsidiary of "Licensee")
Sterling Software, Inc.
("Sterling")
By ___________________________ By /s/ Lori Tobin____________
Printed Name Bryan Urquhart______ Printed Name Lori M. Tobin____
Title V.P. Finance & Administration__ Title Sr. Purchasing Manager___
Date _________________________ Date ___1/7/99 ____________
<PAGE>
Exhibit 10.3
ADDENDUM No. 1
This document serves as an Addendum to the Product Schedule dated
_______________, attached to the Software License Agreement between Sterling
Software (U.S.A.), Inc. ("Sterling"), a wholly-owned subsidiary of Sterling
Software, Inc., having its principal place of business at 10811 International
Drive, Rancho Cordova, CA 95670, and Galileo International, L.L.C. ("Licensee")
having its principal place of business at 5350 South Valentia Way, Englewood, CO
80111, dated February 29, 1996 ("License Agreement"). This Addendum takes
precedence over any conflicting points contained in the Product Schedule to
which this amends.
Licensee shall pay to Sterling the lease payments during the Term stated in the
Product Schedule in three (3) annual installments. The first payment shall be
$XXX,XXX.XX plus applicable taxes, due on December 30, 1998. The second payment
shall be $XXX,XXX.XX plus applicable taxes, due on December 30, 1999. And the
third payment shall be $XXX,XXX.XX plus applicable taxes, due December 30, 2000.
All payments shall be made in accordance with the terms and conditions on this
Addendum No. 1. All payments shall be subject to the payment terms listed below.
Notwithstanding anything to the contrary contained elsewhere in the License
Agreement (as the same may be amended and/or supplemented from time to time by
addenda or schedules hereto or thereto) or in any other agreement between the
parties, (a) Licensee's payment obligations shall be as set forth above on this
Addendum and except in the event of i) a failure of the Software to perform as
warranted; or ii) a breach by Sterling of its maintenance obligations under the
Master License Agreement or the Schedule, are non-cancelable, absolute,
unconditional and not subject to any setoff, defense or counterclaim whatsoever;
(b) upon the full and final payment of all amounts due with respect to this
Software License Schedule, Licensee's rights in the Software shall fully vest as
a nonexclusive perpetual license for the remainder of its duration as provided
in the License Agreement; (c) in the event any payment is not made within thirty
(30) days of receipt of a proper invoice (`proper" meaning the correct amount,
the correct software and/or services, and the correct purchase order number),
Licensee shall pay interest on the unpaid amount until the unpaid amount is
paid, which interest shall accrue at the rate of 1-1/2% per month, and, in
addition to its other rights and remedies under the License Agreement, including
but not limited to its right to terminate Licensee's rights in the software
thereunder, Sterling may, in its sole discretion: (i) declare all unaccrued
periodic payments, plus any applicable taxes, immediately due and payable, and
Licensee shall pay the same, upon which payment the provisions of this Addendum
as to payment shall automatically terminate and Licensee's rights in the
Software shall fully vest as a non-exclusive perpetual license under the license
Agreement for the remainder of its duration as provided in the license
Agreement; and/or (ii) exercise any other right or remedy available to it under
applicable law; (d) in addition to its other rights and remedies, Sterling shall
be entitled to recover from Licensee any collection costs Sterling incurs as a
result of Licensee's default in its payment obligations; and (e) Licensee
acknowledges that Sterling may assign its interests in the payments and interest
due hereunder, and any assignee may in turn assign or pledge its rights and
interests herein to any subsequent assignee, in each case without notice to or
consent of Licensee. In the event of assignment, the assignee shall have all the
rights of Sterling herein.
Sterling Software (U.S.A.), Inc. Galileo International, L.L.C.
A wholly-owned Subsidiary of ("Licensee")
Sterling Software, Inc.
("Sterling")
By __________________________ By /s/ Lori Tobin___________
Printed Name Bryan Urquhart_____ Printed Name Lori M. Tobin____
Title VP, Finance & Administration__ Title Sr. Purchasing Manager
Date _________________________ Date 1/7/99________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the Form
10-Q for the quarter ended March 31, 1999 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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 43,710
<SECURITIES> 0
<RECEIVABLES> 246,515
<ALLOWANCES> 12,016
<INVENTORY> 0
<CURRENT-ASSETS> 329,603
<PP&E> 483,102
<DEPRECIATION> 304,619
<TOTAL-ASSETS> 1,355,949
<CURRENT-LIABILITIES> 278,124
<BONDS> 34,392
0
0
<COMMON> 1,050
<OTHER-SE> 912,338
<TOTAL-LIABILITY-AND-EQUITY> 1,355,949
<SALES> 0
<TOTAL-REVENUES> 403,991
<CGS> 0
<TOTAL-COSTS> 283,175
<OTHER-EXPENSES> (8,977)
<LOSS-PROVISION> 294
<INTEREST-EXPENSE> 1,234
<INCOME-PRETAX> 129,793
<INCOME-TAX> 51,787
<INCOME-CONTINUING> 78,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,006
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.74
</TABLE>
