<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 8-K/A
AMENDMENT #2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) June 1, 1999
--------------
GLOBAL VACATION GROUP, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<CAPTION>
New York 0-14353 13-1894567
-----------------------------------------------------------------------------------
<S> <C> <C>
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
</TABLE>
1420 New York Avenue NW, Suite 550, Washington DC 20005
-------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code. (202) 347-1800
------------------------------------------------------------------
Not Applicable
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
INFORMATION TO BE INCLUDED
This Form 8-K/A amends Item 7 of that certain Form 8-K filed with the Securities
and Exchange Commission on June 1, 1999 by including the financial information
referred to below.
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA INFORMATION.
The following financial statements are filed as part of this Report, where
indicated.
<PAGE> 2
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants................................................................... 2
Balance Sheets as of March 31, 1999 (Unaudited) and
December 31, 1998....................................................................................... 3
Statements of Operations for the Three Months Ended March 31, 1999 and 1998
(Unaudited), and the Year Ended December 31, 1998....................................................... 4
Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998
(Unaudited), and the Year Ended December 31, 1998....................................................... 5
Statements of Changes in Stockholder's Deficit for the Three Months Ended March 31, 1999
(Unaudited), and the Year Ended December 31, 1998....................................................... 6
Notes to Financial Statements.............................................................................. 7
Pro Forma Financial Information. The following pro forma financial information is attached hereto:
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1999 (Unaudited)....................... 13
Pro Forma Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 (Unaudited).................................................................... 14
Pro Forma Condensed Consolidated Statements of Operations for the Year Ended
December 31, 1998 (Unaudited)....................................................................... 15
Notes to Condensed Consolidated Pro Forma Financial Statements (Unaudited)............................ 16
</TABLE>
1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trase Miller Solutions, Inc.:
We have audited the accompanying balance sheet of Trase Miller Solutions,
Inc. (a Delaware corporation) as of December 31, 1998, and the related
statement of operations, stockholders' deficit, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Trase Miller Solutions, Inc.
as of December 31, 1998, and the results of their operations and their cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
July 29, 1999
2
<PAGE> 4
TRASE MILLER SOLUTIONS, INC.
BALANCE SHEETS
AS OF MARCH 31,1999 (UNAUDITED) AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- ------------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash ................................................... $ 4 $ 50
Accounts receivable, net ............................... 122 264
Due from related parties ............................... 1,624 615
Prepaid expenses and other current assets .............. 101 46
-------- --------
Total current assets ...................... 1,851 975
Property and equipment, net ................................. 2,788 2,172
Other assets ................................................ 5 6
-------- --------
Total assets .............................. $ 4,644 $ 3,153
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ....................................... $ 284 $ 275
Accrued expenses ....................................... 630 653
Due to related parties ................................. 1,609 337
Current portion of capital lease obligations ........... 279 283
Customer deposits ...................................... 9,050 7,325
-------- --------
Total current liabilities ................. 11,852 8,873
Capital lease obligations, net of current portion ........... 381 449
-------- --------
Total liabilities ......................... 12,233 9,322
-------- --------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value; 100,000 shares authorized,
87,000 shares issued and outstanding ................. 1 1
Additional paid-in capital ............................. 4,666 4,666
Accumulated deficit .................................... (12,256) (10,836)
-------- --------
Total stockholders' deficit ............... (7,589) (6,169)
-------- --------
Total liabilities and stockholders' deficit $ 4,644 $ 3,153
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE> 5
TRASE MILLER SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,1999 AND MARCH 31, 1998 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31 DECEMBER 31
-------------------------- -----------
1999 1998 1998
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue .............................. $ 918 $ 966 $ 3,746
Operating expenses ................... (1,938) (2,210) (10,665)
General and administrative expenses .. (112) (153) (857)
Depreciation and amortization ........ (241) (195) (891)
-------- -------- --------
Loss from operations (1,373) (1,592) (8,667)
Interest expense ..................... (47) (41) (198)
Investment income .................... -- -- 8,034
-------- -------- --------
Loss before income taxes ............. (1,420) (1,633) (831)
Provision for income taxes ........... -- -- --
-------- -------- --------
Net loss ........... $ (1,420) $ (1,633) $ (831)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 6
TRASE MILLER SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,1999 AND MARCH 31, 1998 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31 DECEMBER 31
--------------------------- ------------
1999 1998 1998
---------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $(1,420) $(1,633) $ (831)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Gain on the sale of investment (Note 3) ............. -- -- (8,034)
Depreciation and amortization ....................... 241 195 891
Change in assets and liabilities:
Accounts receivable, net ....................... 143 (144) (30)
Due to/from related parties .................... 264 2,648 2,370
Prepaid expenses and other assets .............. (54) (51) (13)
Accounts payable and accrued expenses .......... (11) 303 447
Customer deposits .............................. 1,725 -- 7,325
--------- ------- -------
Net cash provided by operating activities .. 888 1,318 2,125
--------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment, net ................ (861) (1,269) (1,722)
Proceeds from sale of investment (Note 3) ............... -- -- 6,233
--------- ------- -------
Net cash (used in) provided by investing
activities ............................... (861) (1,269) 4,511
--------- ------- -------
Cash flows from financing activities:
Cash paid under capital lease obligations ............... (73) (50) (224)
Distributions to stockholders ........................... -- -- (6,363)
--------- ------- -------
Net cash used in financing activities ...... (73) (50) (6,587)
--------- ------- -------
Net increase (decrease) in cash .............................. (46) (1) 49
Cash, beginning of period .................................... 50 1 1
--------- ------- -------
Cash, end of period .......................................... $ 4 $ -- $ 50
========= ======= =======
Supplemental disclosure of cash flow information
Cash paid for interest .................................. $ 47 $ 41 $ 198
========= ======= =======
Supplemental disclosure of non-cash investing and financing
activities:
Distribution to shareholder (Note 3) .................... $ -- $ -- $ 2,703
========= ======= =======
Capital contribution (Note 4) ........................... $ -- $ -- $ 4,567
========= ======= =======
Assets purchased under capital lease obligation ......... $ -- $ -- $ 956
========= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
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TRASE MILLER SOLUTIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31,1999 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON TOTAL
STOCK ADDITIONAL UNREALIZED STOCKHOLDERS'
------------------ PAID-IN HOLDING ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL GAIN DEFICIT (DEFICIT)
------ ------ ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ................. 87 $ 1 $ 99 $ 1,601 $ (939) $ 762
Realized gain on sale of
investment (Note 3).................. -- -- -- (1,601) -- (1,601)
Cash distribution to stockholders
(Note 3)............................. -- -- -- -- (6,363) (6,363)
Non-cash distribution to
stockholder (Note 3)................. -- -- -- -- (2,703) (2,703)
Capital contribution (Note 4).......... -- -- 4,567 -- -- 4,567
Net loss .............................. -- -- -- -- (831) (831)
--- -------- -------- -------- -------- --------
Balance, December 31, 1998 ................. 87 $ 1 $ 4,666 $ -- $(10,836) $ (6,169)
Net loss (unaudited) .................. -- -- -- -- (1,420) (1,420)
--- -------- -------- -------- -------- --------
Balance, March 31, 1999 (unaudited) ........ 87 $ 1 $ 4,666 $ -- $(12,256) $ (7,589)
=== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 8
TRASE MILLER SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999, AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999, IS UNAUDITED)
1. BASIS OF PRESENTATION AND ORGANIZATION:
Trase Miller Solutions, Inc. ("TMS" or "the Company") develops and operates
management information systems that support the wholesale packaged travel
industry. Its systems provide reservation, inventory management, financial
reporting and other management information functionality.
TMS is part of the Trase Miller Group, a group of companies under common
ownership. Certain of the other Trase Miller Group companies also provided
management services and financing to TMS. On May 1, 1998, Global Vacation Group,
Inc. ("GVG") acquired certain assets and liabilities of JFM, Inc. (formerly
known as MTI Vacations, Inc.) ("Old MTI") (the "MTI Acquisition"), another Trase
Miller Group company. In the MTI Acquisition, Old MTI and the Trase Miller Group
retained certain assets including certain management information system related
assets ("MIS Assets"). Old MTI transferred those MIS Assets on a historical cost
basis to TMS and TMS entered into a service agreement to provide certain
management information systems and services to GVG. GVG also purchased an option
to acquire TMS's assets. On June 1, 1999, GVG exercised its option and acquired
substantially all of the assets of TMS. The assets and liabilities of TMS not
acquired were principally non-operating assets and liabilities.
TMS's operations are subject to certain risks and uncertainties including,
among others, reliance on major customers, rapidly changing technology, the Year
2000 issue, changing industry dynamics related to new methods of distribution in
the travel industry, and current and potential competitors with greater
resources.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:
Unaudited Interim Financial Statements
The accompanying balance sheet as of March 31, 1999, and the accompanying
statements of operations and cash flows for the three months ended March 31,
1999 and 1998, are unaudited. The unaudited financial statements include all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of such financial
statements. The data disclosed in the notes to the financial statements for
these periods is unaudited. The results of operations for the three months ended
March 31, 1999, are not necessarily indicative of the results to be expected for
the entire fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The Trase Miller
Group companies participated in a cash management program with the affiliated
companies designed to invest excess cash balances on a daily basis. As a result,
certain cash balances reflect credit
7
<PAGE> 9
balances to the extent checks written have not yet been presented for payment.
These credit balances are included in accounts payable in the accompanying
financial statements.
Investments
In accordance with the Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investment in Debt and Equity
Securities," the Company classifies its investments as available for sale
securities, and reports them at fair value with unrealized gains and losses
included in a separate component of stockholders equity. All investments of TMS
are considered available for sale.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets, as
follows:
<TABLE>
<CAPTION>
<S> <C>
Computers and equipment................................... three to five years
Computer software......................................... three years
Furniture fixtures and office equipment................... five to seven years
</TABLE>
Leasehold improvements are amortized over the lesser of the estimated
useful life of the asset or the remaining lease term.
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER
1999 31,1998
--------- --------
(UNAUDITED)
<S> <C> <C>
Computers and equipment.......................................... $ 3,052 $ 2,968
Computer software................................................ 1,586 823
Furniture fixtures and office equipment.......................... 482 468
Phone equipment.................................................. 134 134
Leasehold improvements........................................... 370 370
------ ------
5,624 4,763
Accumulated depreciation and amortization........................ (2,836) (2,591)
------ ------
Property and equipment, net.................... $ 2,788 $ 2,172
======= =======
</TABLE>
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," the Company reviews its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Internal Use Computer Software
In March 1998, the AICPA issued Statement of Position 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use," ("SOP
98-1"). SOP 98-1 requires the Company to capitalize internal computer software
costs once the capitalization criteria are met. SOP 98-1 is effective January 1,
1999, and is applied to all projects in progress upon initial application. The
Company adopted SOP 98-1 on January 1, 1999, and
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<PAGE> 10
for the three months ended March 31, 1999, the Company capitalized approximately
$755,000 in costs related to its internally developed systems.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, and capital lease
obligations. In management's opinion, the carrying amounts of these financial
instruments approximate their fair values.
Revenue Recognition
Revenues from time and materials development and consulting contracts are
recognized based on fixed hourly rates for direct labor hours expended. Revenues
from fixed-price development and consulting contracts are recognized n the
percentage-of-completion method, with costs and estimated profits recorded as
work is performed. Revenues from service contracts are recognized during the
periods in which the services are performed.
Significant Customers
For the three months ended March 31, 1999 and the year ended December 31,
1998, revenue from GVG represented 63 and 62 percent of revenue, respectively.
For the three months ended March 31, 1999 and the year ended December 31, 1998,
another customer represented 21 and 18 percent of revenue, respectively. Revenue
from other Trase Miller Group companies totaled 13 and 9 percent of revenue for
the three months ended March 31, 1999 and the year ended December 31, 1998,
respectively.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
corporate income taxes on its taxable income. Instead, the shareholders are
liable for individual income taxes on their respective shares of the Company's
taxable income. Accordingly, there is no provision or benefit for Federal income
taxes in the accompanying financial statements. The Company is taxable in
certain states and other jurisdictions that do not recognize S Corporation
status.
The Company accounts for state and local income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax
assets and liabilities are computed based on the difference between the
financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. SFAS No. 109 requires that a net deferred tax asset
be reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the net
deferred tax asset will not be realized.
3. SALE OF INVESTMENT AND DISTRIBUTION:
In May 1998, TMS sold 230,565 shares of common stock previously held as an
investment. The proceeds from the sale of approximately $6,233,000 were, in
turn, distributed to the stockholders of the Company on a pro rata basis. The
remaining 100,000 shares of common stock, valued at approximately $2,703,000
based upon the quoted market price of the common stock, held by the Company were
distributed to the principal stockholder. In connection with this non-cash
distribution, the Company made cash distributions to the minority shareholders
in exchange for their interests in the common stock. The common stock sold and
distributed had previously been held as an available for sale investment and the
Company recognized a gain of approximately $8,034,000 during 1998 in connection
with the above transaction.
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4. CONTRIBUTION OF CAPITAL:
On January 1, 1998 TMS purchased the MIS Assets from Old MTI for
$1,122,000, the net book value of those assets at such time. The stockholders of
TMS then purchased the receivable balance due to Old MTI from Old MTI for
$1,122,000 by issuing a note to Old MTI. In addition, as of March 31, 1998, TMS
was indebted to another Trase Miller Group Company (the "Affiliate") for an
amount totaling $3,445,000. The stockholders of TMS also purchased this
liability from the Affiliate by issuing a note to the Affiliate in the amount of
$3,445,000. The stockholders of TMS then forgave the related obligations of TMS
totaling $4,567,000. Accordingly, this amount has been reflected as a
contribution of capital in the accompanying financial statements.
5. GVG SERVICE AGREEMENT:
In connection with the MTI Acquisition, GVG entered into an information and
business systems outsourcing arrangement with TMS. In August 1998, GVG, TMS and
the principal stockholder of TMS entered into an agreement to expand the
agreement (the "Service Agreement") to provide MIS services to additional GVG
businesses. Under the terms of the Service Agreement, TMS provides GVG
information systems and related services, including operating services, system
maintenance, general management and support and implementation and migration
services. In connection with the Service Agreement, GVG paid $6,750,000 to
acquire an option to purchase the assets of TMS. In January 1999, GVG paid an
additional $2,300,000 to extend the option. In the event the option was not
exercised, the amounts paid would have been credited against payments due under
the Service Agreement. The amounts paid by GVG have been reflected as customer
deposits in the accompanying financial statements.
6. RELATED-PARTY TRANSACTIONS:
As a result of the Company's participation as part of the Trase Miller
Group, the Company has entered into various transactions with other Trase Miller
Group companies. The Company leases its office space from its principal
stockholder with annual rentals of $220,000. The Trase Miller Group has provided
financing to TMS through its cash management program and other advances. Related
party interest totaled $47,000 and $198,000 for the three months ended March 31,
1999 and the year ended December 31, 1998, respectively. The Trase Miller Group
companies have also charged management fees to TMS that totaled $16,000 and
$62,000 for the three months ended March 31, 1999 and the year ended December
31, 1998. TMS has provided development and consulting services to other Trase
Miller Group companies. For the three months ended March 31, 1999 and the year
ended December 31, 1998, revenues from Trase Miller Group companies totaled
$119,000 and $347,000, respectively.
The amounts due to and from other Trase Miller Group companies have been
reflected as related party payables and receivables in the accompanying
financial statements. Such assets and liabilities were not acquired or assumed
by GVG in connection with the acquisition of TMS by GVG.
7. COMMITMENTS AND CONTINGENCIES:
Shareholders Agreement
In July 1995, the Company and its stockholders entered into an agreement
that, among other things, prescribes certain distributions, limits the
transferability of the shares of common stock and provides for the repurchase
or redemption of the common stock by the Company in certain circumstances.
Retirement Plan
The Company maintains an incentive savings plan for the benefit of
substantially all employees with more than six months of service. Participants
may contribute up to 20 percent of their annual compensation to the plan.
Employee contributions are fully vested. The Company will match 50 percent of
each employee's contributions up to six percent of each employee's salary.
Employees vest in the Company's matching and any discretionary contributions
ratably over six years. The Company made contributions of $20,000 and $77,000
for the three months ended March 31, 1999, and the year ended December 31, 1998,
respectively.
10
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Leases
The Company leases office space and equipment under operating leases that
expire on various dates through March 2003. The Company also leases computer
and office equipment under capital leases that expire through December 2001.
The future minimum lease obligations under operating and capital leases as
of December 31, 1998, are as follows in thousands:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------ ------
<S> <C> <C>
1999............................................................. $ 356 $315
2000............................................................. 268 289
2001............................................................. 221 182
2002............................................................. 220 --
2003............................................................. 73 --
------ ----
Total............................................... $1,138 786
======
Less- Amounts representing interest.............................. (54)
----
$732
====
</TABLE>
Litigation and Claims
The Company is periodically a party to disputes arising from normal
business activities. In the opinion of management, resolution of these matters
will not have a material adverse effect upon the financial position or future
operating results of the Company, and adequate provision for any potential
losses has been made in the accompanying financial statements.
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PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Balance Sheet
under the heading "Pro Forma GVG and TMS" gives effect to the acquisition of
Trase Miller Systems, Inc. ("TMS"), for cash of approximately $30.4 million
(including direct acquisition costs of $312,000), as if the acquisition had
occurred on March 31, 1999.
The following unaudited Pro Forma Condensed Consolidated Statement of
Operations for the three months ended March 31, 1999 under the heading "Pro
Forma GVG and TMS" gives effect to the TMS acquisition as if it had occurred on
January 1, 1998.
The following unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1998 under the heading "Pro Forma
GVG" gives effect to the acquisitions of Haddon Holidays, Inc. ("Haddon"),
Classic Custom Vacations ("Classic"), MTI Vacations, Inc. ("MTI") and
Globetrotters, Inc. ("Globetrotters"), as if each had occurred on January 1,
1998. The following unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1998 under the heading "Pro Forma GVG
and TMS" gives effect to the acquisition TMS acquisition as if it had occurred
on January 1, 1998.
The Company has preliminarily analyzed the savings that it expects to
realize by combining certain operational and general and administrative
functions. To the extent that owners and certain key employees of the Company
and the acquired businesses have agreed prospectively to reductions in salary
and bonuses, these reductions have been reflected in the unaudited pro forma
condensed consolidated statements of operations. The unaudited pro forma
condensed consolidated statements of operations also reflect (i) the use of
proceeds from the Company's 1998 initial public offering ("IPO") to repay
borrowings under its Credit Facility, (ii) the termination of the Company's S
Corporation status and (iii) the recapitalization of the Company.
Each of the acquisitions have been accounted for by the purchase method of
accounting. The purchase price has been allocated on a preliminary basis to the
assets acquired based upon the estimated fair value of such assets.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. This information should be read in conjunction with the notes
included herein, Trase Miller Solutions, Inc. Financial Statements and notes
thereto included herein and the GVG Consolidated Financial Statements and notes
thereto included in the Company's Form 10-Q for the quarter ended March 31, 1999
and Form 10-K for the year ended December 31, 1998.
In the opinion of management of GVG, all adjustments have been made that
are necessary to present fairly the unaudited Pro Forma condensed combined
consolidated financial statements. The unaudited Pro Forma condensed combined
consolidated financial statements do not purport to represent what the combined
Company's results of operations or financial position actually would have been
had this transaction occurred on the dates specified, or to project the combined
Company's results of operations or financial position for any future period or
date. Because the entities were not under common control of management,
historical combined consolidated results may not be comparable to, or indicative
of, future performance.
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<PAGE> 14
GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
------------------------- PRO FORMA PRO FORMA GVG
GVG TMS ADJUSTMENTS AND TMS
---------- ---------- ------------- ---------------
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents........................... $ 37,132 $ 4 $ (2,753) (I) $ 34,383
Short-term investments.............................. 2,876 -- -- 2,876
Accounts receivable................................. 14,535 122 -- 14,657
Related-party receivables........................... 53 1,624 (1,624) (S) 53
Other current assets................................ 5,393 101 -- 5,494
---------- ---------- --------- ------------
Total current assets................... 59,989 1,851 (4,377) 57,463
Property and equipment, net.............................. 6,214 2,788 12,380 (J) 21,382
Related party and other long-term receivables............ 2,176 -- -- 2,176
Intangible assets, net................................... 74,894 -- 17,800 (J) 92,694
Other assets............................................. 11,808 5 (9,050) (T) 2,763
---------- ---------- --------- ------------
Total assets........................... $155,081 $ 4,644 $ 16,753 $176,478
========== ========== ========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .............. $ 42,235 $ 914 $ 794 (K) $ 43,943
Customer deposits................................... 49,352 9,050 (9,050) (T) 49,352
Related-party payables.............................. -- 1,609 (1,609) (S) --
Current portion of capital lease obligation......... -- 279 -- 279
---------- ---------- --------- ------------
Total current liabilities.............. 91,587 11,852 (9,865) 93,574
Long-term debt, net of current portion................... 11,713 -- 18,287 (O) 30,000
Other long-term liabilities.............................. 551 381 -- 932
---------- ---------- --------- ------------
Total liabilities...................... 103,851 12,233 8,422 124,506
---------- ---------- --------- ------------
Total stockholders' equity............. 51,230 (7,589) 8,331 51,972
---------- ---------- --------- ------------
Total liabilities and stockholders'
equity............................... $155,081 $ 4,644 $ 16,753 $176,478
========== ========== ========= ============
</TABLE>
13
<PAGE> 15
GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
(UNAUDITED) PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
------------------------- PRO FORMA PRO FORMA GVG
GVG TMS ADJUSTMENTS AND TMS
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues............................................... $22,759 $ 918 $(583) (N) $23,094
Operating expenses......................................... 21,421 1,938 (583) (N) 22,776
--------- --------- ------ -----------
Gross profit............................. 1,338 (1,020) -- 318
General and administrative expenses........................ 3,067 112 (16) (A) 3,163
Depreciation and amortization.............................. 1,046 241 257 (L) 1,544
--------- --------- ------ -----------
Loss from operations..................... (2,775) (1,373) (241) (4,389)
--------- --------- ------ -----------
Other income (expense):
Interest income....................................... 455 -- -- 455
Interest expense...................................... (144) (47) (286) (G) (477)
Other, net............................................ 9 -- -- 9
--------- --------- ------ -----------
Total.................................... 320 (47) (286) (13)
--------- --------- ------ -----------
Loss before income taxes and extraordinary item ........... (2,455) (1,420) (527) (4,402)
Benefit for income taxes................................... 917 -- 727 (M) (1,644)
--------- --------- ------ -----------
Loss before extraordinary item............................. (1,538) (1,420) 200 (2,758)
Extraordinary item, net of income tax benefit of $224...... (257) -- -- (257)
--------- --------- ------ -----------
Net loss................................................... $(1,795) $(1,420) $ 200 $(3,015)
========= ========= ====== ===========
Basic and diluted net loss per share:
Loss per share available to Common shareholder before
extraordinary item.................................. (0.10) (0.19)
Extraordinary item per share.......................... (0.02) (0.02)
--------- -----------
Basic and diluted net loss per share available to common
shareholder............................................. $ (0.12) $ (0.21)
========= ===========
Basic and diluted weighted average shares outstanding...... 14,706 14,706
========= ===========
</TABLE>
14
<PAGE> 16
GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
(UNAUDITED) PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------------------
GVG HADDON (P) CLASSIC (Q) MTI (Q) GLOBETROTTERS (Q)
-------- ----------- ------------ --------- ------------------
<S> <C> <C> <C> <C> <C>
Net revenues................................................ $90,421 $1,427 $20,464 $8,055 $3,134
Operating expenses.......................................... 69,386 1,265 19,176 7,418 3,258
------- ------ ------- ------ ------
Gross profit.............................. 21,035 162 1,288 637 (124)
General and administrative expenses......................... 10,248 850 1,349 1,171 142
Depreciation and amortization............................... 2,779 31 369 173 27
------- ------ ------- ------ ------
Income (loss) from operations.......................... 8,008 (719) (430) (707) (293)
------- ------ ------- ------ ------
Other income (expense)
Investment income...................................... 2,480 37 994 421 65
Interest expense....................................... (1,504) -- (100) -- (6)
Other, net............................................. 26 -- (4) -- --
------- ------ ------- ------ ------
Total..................................... 1,002 37 890 421 59
------- ------ ------- ------ ------
Income (loss) before income taxes and extraordinary item.... 9,010 (682) 460 (286) (234)
(Provision) benefit for income taxes........................ (3,908) -- (5) -- (1)
------- ------ ------- ------ ------
Income (loss) before extraordinary item..................... 5,102 (682) 455 (286) (235)
Extraordinary item, net of income tax benefit of $224....... (379) -- -- -- --
------- ------ ------- ------ ------
Net income (loss)......................... 4,723 (682) 455 (286) (235)
Dividends on Class A Convertible Preferred Stock............ (2,519) -- -- -- --
------- ------ ------- ------ ------
Net income (loss) available to common shareholders.......... $ 2,204 $ (682) $ 455 $ (286) $ (235)
======= ====== ======= ====== ======
Basic income (loss) per share:
Income (loss) per share before extraordinary item...... 0.26
Extraordinary item per share........................... (0.04)
-------
Basic income (loss) per share.......................... 0.22
=======
Diluted income (loss) per share:
Income (loss) per share before extraordinary item...... 0.26
Extraordinary item per share........................... (0.04)
-------
Diluted income (loss) per share........................ 0.22
=======
Weighted average shares outstanding:
Basic.................................................. 9,931
Diluted................................................ 9,990
<CAPTION>
HISTORICAL
----------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS GVG TMS ADJUSTMENTS GVG AND TMS
----------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues.............................................. $ -- $123,501 $ 3,746 $(2,308) (N) $124,939
Operating expenses........................................ (38) (B) 100,465 10,665 (2,408) (N) 108,722
------- -------- ------- ------- --------
Gross profit............................ 38 23,036 (6,919) 100 16,217
General and administrative expenses....................... (1,677) (C) 12,083 857 (62) (A) 12,878
Depreciation and amortization............................. 441 (D) 3,820 891 1,029 (L) 5,740
------- -------- ------- ------- --------
Income (loss) from operations........................ 1,274 7,133 (8,667) (867) (2,401)
------- -------- ------- ------- --------
Other income (expense)
Investment income.................................... (339) (E) 3,658 8,034 (U) -- 11,692
Interest expense..................................... 1,024 (F) (586) (198) (1,143) (G) (1,927)
Other, net........................................... -- 22 -- -- 22
------- -------- ------- ------- --------
Total................................... 685 3,094 7,836 (1,143) 9,787
------- -------- ------- ------- --------
Income (loss) before income taxes and extraordinary item.. 1,959 10,227 (831) (2,010) 7,386
(Provision) benefit for income taxes...................... (111) (H) (4,025) -- 1,118 (M) (2,907)
------- -------- ------- ------- --------
Income (loss) before extraordinary item................... 1,848 6,202 (831) (892) 4,479
Extraordinary item, net of income tax benefit of $224..... 379 (R) -- -- -- --
------- -------- ------- ------- --------
Net income (loss)....................... 2,227 6,202 (831) (892) 4,479
Dividends on Class A Convertible Preferred Stock.......... 2,519 -- -- -- --
------- -------- ------- ------- --------
Net income (loss) available to common shareholders........ $ 4,746 $ 6,202 $ (831) $ (892) $ 4,479
======= ======== ======= ======= ========
Basic income (loss) per share:
Income (loss) per share before extraordinary item.... 0.42 0.30
Extraordinary item per share......................... -- --
-------- --------
Basic income (loss) per share........................ 0.42 0.30
======== ========
Diluted income (loss) per share:
Income (loss) per share before extraordinary item.... 0.42 0.30
Extraordinary item per share......................... - --
-------- --------
Diluted income (loss) per share...................... 0.42 0.30
======== ========
Weighted average shares outstanding:
Basic................................................ 14,746 14,746
Diluted.............................................. 14,805 14,805
</TABLE>
15
<PAGE> 17
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) Reflects the elimination of management fees charged to TMS by other Trase
Miller Group companies.
(B) Reflects $100,000 in incremental computer costs required to operate
certain reservation systems at MTI at the contracted rate. Also reflects a
reduction in operating expenses of $74,000 associated with specifically
identified cost savings as well as a reduction of $64,000 of excess rental
payments made to prior owners.
(C) Reflects transaction costs of approximately $1.0 million related to the
Recapitalization. Also reflects compensation savings of approximately $1.0
million and incremental costs of $375,000 related to new GVG management.
(D) Reflects incremental goodwill amortization of approximately $600,000 and
reductions in depreciation of approximately $159,000 related to equipment
disposed of.
(E) Reflects the incremental reduction of interest income of $339,000 related
to the sale of certain marketable securities at March 31, 1998.
(F) Reflects a reduction in interest expense related to the transfer of
certain debt obligations at March 31, 1998, and a reduction in interest
expense related to the repayment of outstanding debt with proceeds from
the Company's IPO.
(G) Reflects the incremental interest expense assuming the amounts outstanding
under the Credit Facility were drawn on January 1, 1998, at an interest
rate of 6.25%.
(H) Reflects the incremental provision for federal and state income taxes
relating to the historical income tax provisions for the acquired
businesses and the termination of the Company's status as an S
Corporation.
(I) Reflects the cash paid of $30.1 for the TMS acquisition net of $9.0
million previously paid by GVG for the option to purchase TMS and $18.3
million in borrowings under the Credit Facility to finance the TMS
acquisition.
(J) Reflects the excess purchase price paid by GVG over the fair value of the
TMS net assets acquired. Such amount has been allocated to TMS's
technology platform ($12.7 million), a non-compete agreement ($100,000)
and goodwill ($17.7 million).
(K) Reflects the accrual of estimated direct costs related to the acquisition
and the accrual of the estimated costs of closing redundant facilities and
terminating certain employees.
(L) Reflects amortization of the excess of the purchase price paid by GVG over
the fair value of the TMS net assets acquired over the estimated useful
lives of the respective intangible assets (technology platform - 25 years,
non-compete - 3.5 years, goodwill - 35 years)
(M) Reflects the (provision) benefit for income taxes resulting from the
termination of TMS's status as an S Corporation.
(N) Reflects the elimination of transactions between GVG and TMS under the
Services Agreement. The pro forma adjustment to operating expenses for the
year ended December 31, 1998 reflects the elimination of the $100,000 pro
forma adjustment for computer costs described in Note B.
(O) Reflects additional borrowings under the Credit Facility to finance the
TMS acquisition.
(P) Historical Haddon financial statements are for the three month period
ending March 31, 1998.
16
<PAGE> 18
(Q) Historical Classic, MTI, and Globetrotter financial statements are for the
four month period ending April 30, 1998.
(R) Reflects the elimination of the deferred financing costs related to the
repayment of outstanding debt with proceeds from the Company's IPO.
(S) Reflects the elimination of related-party receivables and payables not
acquired or assumed.
(T) Reflects the elimination of amounts paid by GVG for the option to purchase
TMS.
(U) Amount represents a one-time gain on the sale of an investment.
17
