Exhibit 99.2
GALILEO INTERNATIONAL, INC.
QUARTER ENDED JUNE 30, 2001
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements of Galileo International, Inc.
Condensed Consolidated Balance Sheets as of June 30, 2001
(unaudited) and December 31, 2000 3
Condensed Consolidated Statments of Income for the quarter
and six months ended June 30, 2001 and 2000 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2001 and 2000 (unaudited) 5
Condensed Consolidated Statement of Stockholders' Equity
for the six months ended June 30, 2001 (unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
2001 2000
------------- -----------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 17,643 $ 2,460
Accounts receivable, net 253,484 192,199
Deferred tax assets 22,850 17,794
Prepaid expenses 23,085 18,158
Other current assets 9,350 14,084
----------- -----------
Total current assets 326,412 244,695
Property and equipment, at cost:
Land 6,470 6,470
Buildings and improvements 76,757 76,452
Equipment 419,503 416,406
----------- -----------
502,730 499,328
Less accumulated depreciation 306,156 288,651
----------- -----------
Net property and equipment 196,574 210,677
Computer software, net 195,386 160,270
Intangible assets, net 714,897 720,212
Other noncurrent assets 134,773 143,405
----------- -----------
$ 1,568,042 $ 1,479,259
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 52,017 $ 76,913
Accrued commissions 45,184 34,471
Income taxes payable 20,933 1,234
Other accrued liabilities 116,167 109,992
Capital lease obligations, current portion 8,753 1,638
Long-term debt, current portion 194,120 212,654
----------- -----------
Total current liabilities 437,174 436,902
Pension and postretirement benefits 87,565 79,285
Deferred tax liabilities 26,238 35,398
Other noncurrent liabilities 30,599 25,427
Capital lease obligations, less current portion 12,371 2,619
Long-term debt, less current portion 456,207 434,392
----------- -----------
Total liabilities 1,050,154 1,014,023
Stockholders' equity:
Special voting preferred stock: $.01 par value;
7 shares authorized; 3 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; 105,540,057 and 105,232,696 shares
issued; 87,462,281 and 88,311,977 shares
outstanding 1,055 1,052
Additional paid-in capital 687,259 682,988
Retained earnings 435,805 357,008
Unamortized restricted stock grants (1,564) (1,963)
Accumulated other comprehensive income (8,635) (4,493)
Common stock held in treasury, at cost: 18,077,776
and 16,920,719 shares (596,032) (569,356)
----------- -----------
Total stockholders' equity 517,888 465,236
----------- -----------
$ 1,568,042 $ 1,479,259
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share data)
Quarter Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Electronic global distribution services $ 424,510 $ 405,178 $ 867,056 $ 826,484
Information and network services 23,113 20,166 46,420 39,598
----------- ----------- ----------- -----------
447,623 425,344 913,476 866,082
Operating expenses:
Cost of operations 164,457 154,776 328,102 288,780
Commissions, selling and administrative 192,778 176,013 390,768 356,747
Special charge - services agreement - - - 19,725
Special charge - in-process research
and development write-off - - - 7,000
----------- ----------- ----------- -----------
357,235 330,789 718,870 672,252
----------- ----------- ----------- -----------
Operating income 90,388 94,555 194,606 193,830
Other income (expense):
Interest expense, net (8,850) (12,293) (19,338) (21,568)
Other, net (2,896) (2,484) (6,340) (4,868)
----------- ----------- ----------- -----------
Income before income taxes 78,642 79,778 168,928 167,394
Income taxes 34,602 36,618 74,328 76,834
----------- ----------- ----------- -----------
Net income $ 44,040 $ 43,160 $ 94,600 $ 90,560
=========== =========== =========== ===========
Weighted average shares outstanding 87,441,618 91,154,649 87,708,479 90,916,802
=========== =========== =========== ===========
Basic earnings per share $ 0.50 $ 0.47 $ 1.08 $ 1.00
=========== =========== =========== ===========
Diluted weighted average shares outstanding 87,805,666 91,737,064 88,020,911 91,319,805
=========== =========== =========== ===========
Diluted earnings per share $ 0.50 $ 0.47 $ 1.07 $ 0.99
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
4
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months
Ended June 30,
-----------------------
2001 2000
---- ----
Operating activities:
Net income $ 94,600 $ 90,560
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 122,213 100,726
Write-off of in-process research and development - 7,000
Gain on sale of assets (1,096) (48)
Deferred income taxes, net (12,737) (17,118)
Changes in operating assets and liabilities,
net of effects from acquisition of businesses:
Accounts receivable, net (61,987) (64,889)
Other current assets (1,053) 10,217
Noncurrent assets 5,553 (2,764)
Accounts payable and accrued commissions 14,222 21,314
Accrued liabilities 7,964 3,817
Income taxes payable 18,548 22,277
Noncurrent liabilities 13,079 8,866
Other 6,848 1,637
---------- ----------
Net cash provided by operating activities 206,154 181,595
Investing activities:
Purchase of property and equipment (58,654) (15,853)
Purchase and capitalization of computer software (45,989) (17,287)
Proceeds on sale of assets 4,795 227
Acquisition of businesses, net of cash acquired of
$167 and $15,551, respectively (12,802) (129,191)
Other investing activities (4,938) (27,421)
---------- ----------
Net cash used in investing activities (117,588) (189,525)
Financing activities:
Borrowings under credit agreements 102,000 184,000
Repayments under credit agreements (133,000) (30,000)
Dividends paid to stockholders (15,803) (16,312)
Repurchase of common stock for treasury (26,676) (119,583)
Payments of capital lease obligations (826) (61)
Other financing activities 1,157 406
---------- ----------
Net cash (used in) provided by financing activities (73,148) 18,450
Effect of exchange rate changes on cash (235) (157)
---------- ----------
Increase in cash and cash equivalents 15,183 10,363
Cash and cash equivalents at beginning of period 2,460 1,794
---------- ----------
Cash and cash equivalents at end of period $ 17,643 $ 12,157
========== ==========
See accompanying notes to condensed consolidated financial statements.
5
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
------------ ------------- ------------ ------------
Balance at December 31, 2000 $ - $ 1,052 $ 682,988 $ 357,008
Comprehensive income:
Net income - - - 94,600
Other comprehensive income (loss), net of tax:
Unrealized holding losses on marketable securities - - - -
Reclassification adjustment for gains included
in net income - - - -
Foreign currency translation adjustments - - - -
Cash flow hedge- net derivative losses - - - -
Other comprehensive income (loss)
Comprehensive income
Amortization of restricted stock grants - - - -
Issuance of 261,749 shares of common stock under
employee stock option plans - 3 3,616 -
Issuance of 45,612 shares of common stock under
employee stock purchase plan - - 655 -
Repurchase of 1,157,057 shares of common stock
for treasury - - - -
Dividends paid ($0.18 per share) - - - (15,803)
------------ ------------- ----------- -------------
Balance at June 30, 2001 $ - $ 1,055 $ 687,259 $ 435,805
============ ============= ============= ===========
Accumulated
Unamortized Other
Restricted Comprehensive Treasury
Stock Grants Income Stock Total
------------ ------------ ----------- -------------
Balance at December 31, 2000 $ (1,963) $ (4,493) $ (569,356) $ 465,236
Comprehensive income:
Net income - - - 94,600
Other comprehensive income (loss), net of tax:
Unrealized holding losses on marketable securities - (799) - (799)
Reclassification adjustment for gains included
in net income - (686) - (686)
Foreign currency translation adjustments - (2,170) - (2,170)
Cash flow hedge- net derivative losses - (487) - (487)
------------
Other comprehensive income (loss) (4,142)
------------
Comprehensive income 90,458
Amortization of restricted stock grants 399 - - 399
Issuance of 261,749 shares of common stock under
employee stock option plans - - - 3,619
Issuance of 45,612 shares of common stock under
employee stock purchase plan - - - 655
Repurchase of 1,157,057 shares of common stock
for treasury - - (26,676) (26,676)
Dividends paid ($0.18 per share) - - - (15,803)
------------ ------------- ------------ ------------
Balance at June 30, 2001 $ (1,564) $ (8,635) $ (596,032) $ 517,888
============ ============= ============ ============
See accompanying notes to condensed consolidated financial statements.
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GALILEO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated
financial statements of Galileo International, Inc. (herein referred
to as the "Company", "Galileo", "we", "us", and "our") 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 accounting
principles generally accepted in the United States of America. 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 and six months ended
June 30, 2001 are not necessarily indicative of the results to be
expected for the year ending December 31, 2001.
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, 2000 included in the
Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 13, 2001.
NOTE 2 - MERGER AGREEMENT WITH CENDANT CORPORATION
On June 15, 2001, the Company entered into an Agreement and Plan
of Merger (the "Merger Agreement") with Cendant Corporation ("Cendant")
and Galaxy Acquisition Corp., a subsidiary of Cendant, whereby such
subsidiary will merge with and into the Company with the Company as the
surviving corporation. Following the merger, the Company will be a
wholly owned subsidiary of Cendant. The companies have filed all of the
required notifications for U.S. and international regulatory approvals
and have been notified by the U.S. Federal Trade Commission that early
termination of the Hart-Scott-Rodino waiting period has been granted
for the proposed acquisition. Additional information was provided
to the Commission of the European Communities ( the "European
Commission") in response to a request. Following receipt of this
material, the European Commission advised that the effective date of the
requisite notification is August 9, 2001. The European Commission has
until September 11, 2001 to review the transaction. This initial review
period may be extended for up to an additional four months if the
European Commission decides to conduct a full investigation of the
merger. Alternatively, the initial review period may be shortened at
the discretion of the European Commission. On July 13, 2001, the Company
announced that August 30, 2001 has been set as the date of its special
meeting of stockholders to consider and vote on adoption of the Merger
Agreement. The Company expects the transaction to close by the end of
the third quarter of
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2001, but can provide no assurance that the transaction will be
completed or as to the timing of its completion. The transaction will
be accounted for using the purchase method of accounting.
NOTE 3 - BUSINESS ACQUISITIONS
On April 2, 2001, the Company acquired Southern Cross
Distribution Systems Pty Limited ("Galileo Southern Cross") from
Travel Industries Automated Systems Pty Limited, the owners of which
are the Qantas Airways group, Ansett Airlines and Air New Zealand
(collectively, the "TIAS Owners"). Based in Sydney, Australia,
Galileo Southern Cross distributes the Galileo computerized
reservation system to travel agency locations across Australia, New
Zealand and the South Pacific. In connection with this acquisition,
the Company also obtained five-year non-compete agreements from the
TIAS Owners and certain related parties. The purchase price of this
acquisition, including the non-compete agreements, was $49.9 million.
The purchase price consisted of cash payments totaling $12.5 million
and the issuance of credit notes totaling $37.4 million. The pro
forma effects of this acquisition are not significant.
In connection with the acquisition of Galileo Southern Cross, the
Company incurred expenses of $0.4 million, which have been accounted
for as part of the purchase price. The Company accounted for this
acquisition using the purchase method of accounting. Accordingly, the
costs of this acquisition were allocated to the assets acquired and
liabilities assumed based on their respective fair values. Goodwill
and other intangibles related to the cost of the acquisition are being
amortized over 5 to 17 years. The resulting amortization is included
in cost of operations expenses. The results of operations and cash
flows of Galileo Southern Cross have been consolidated with those of
the Company from the date of acquisition.
NOTE 4 - INVESTMENTS
On April 23, 2001, the Company acquired a minority equity
interest in a travel-related company for $4.9 million. This
investment is considered non-marketable as the equity securities are
not publicly traded. The Company also completed the sale of one of
its marketable equity investments resulting in a realized gain of $0.6
million during the six months ended June 30, 2001.
For the six months ended June 30, 2001, the Company accounted for
a $1.3 million unrealized holding loss on available-for-sale
marketable equity securities in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". The after tax effect of
$0.8 million is included as a separate component of Stockholders'
Equity.
Also during the six months ended June 30, 2001, the Company
recorded net impairment charges of $6.4 million to write down certain
of the Company's non-marketable equity investments in
technology-related companies to estimated fair value. The estimated
fair values were determined by using management's estimates of the net
proceeds the Company expects to
8
recover upon the eventual disposition of the investments. The decline
in the estimated fair values of these investments was considered to be
other than temporary.
At December 31, 2000 the Company owned 1,106,564 non-marketable
depository certificates representing beneficial ownership of Equant
N.V. ("Equant") common stock held by the SITA Foundation on behalf of
its members. In November 2000, Equant announced a planned merger with
France Telecom's Global One business. In connection with this planned
merger, the SITA Foundation signed a Share Purchase Agreement (the
"Share Purchase Agreement") with France Telecom S.A. to exchange all of
its Equant shares for France Telecom shares. The merger was completed
on June 29, 2001, at which time the SITA Foundation received one
France Telecom common share for every 2.2 shares of Equant it owned.
As a result, the Company now holds non-marketable depository
certificates representing beneficial ownership of 502,984 shares of
France Telecom common stock. The Share Purchase Agreement permits the
SITA Foundation to distribute France Telecom shares to the depository
certificate holders after a period of seven months has passed
following the closing of the transaction. The SITA Foundation has not
made a final decision concerning the timing of any distribution of
France Telecom shares. France Telecom shares are listed on the New
York Stock Exchange under the ticker symbol: FTE. If the Company's
depository certificates were converted into registered common stock
of France Telecom, the market value at June 30, 2001 would have been
$24.3 million. The Company's carrying value of the depository
certificates was nominal at June 30, 2001 and December 31, 2000.
Any future disposal of such depository certificates may result in
significant gains to the Company.
NOTE 5 - EARNINGS PER SHARE
Basic earnings per share for the quarter and six months ended
June 30, 2001 and 2000 is calculated based on the weighted average
shares outstanding for the period. Diluted earnings per share is
calculated as if the Company had additional Common Stock outstanding
from the beginning of the year or the date of grant for all dilutive
stock options, net of assumed repurchased shares using the treasury
stock method. This resulted in an increase in the weighted average
number of shares outstanding for the quarter and six months ended June
30, 2001 of 364,048 and 312,432, respectively. The increase in the
weighted average number of shares outstanding for the quarter and six
months ended June 30, 2000 was 582,415 and 403,003, respectively.
NOTE 6 - SPECIAL CHARGES
The Company recorded a special charge of $1.7 million during the
quarter ended September 30, 2000 related to the integration of Travel
Automation Services Limited ("Galileo UK") into the Company's
operations. The special charge was comprised of $1.4 million in
severance costs related to the termination of 29 employees, and $0.3
million in facilities expenses. As of June 30, 2001, $1.3 million of
severance related costs have been paid and charged against the liability
and 24 employees have been terminated. The estimated remaining
9
liabilities at June 30, 2001 and December 31, 2000 were $0.4 million and
$1.1 million, respectively, and are included in the accompanying
condensed consolidated balance sheets.
In 1993, the Company, formerly Covia Partnership, combined with
The Galileo Company Ltd. and consolidated its two data center
facilities resulting in the closing of the Swindon, U.K. data center.
In connection therewith, the estimated cost of the consolidation was
charged to expense. At June 30, 2001 and December 31, 2000, the
estimated remaining liabilities, principally related to facility
closure costs, were $6.6 million and $7.0 million, respectively, and
are included in the accompanying condensed consolidated balance
sheets.
NOTE 7 - DEBT
Outstanding long-term debt consists of the following at June 30,
2001 and December 31, 2000:
(In millions) June 30, December 31,
2001 2000
------------ ------------
Five-year credit agreement $ 400.0 $ 400.0
16-month credit agreement 181.0 212.0
Term loan 34.4 34.4
CRS credit notes 34.2 -
Other 0.7 0.7
------------ ------------
650.3 647.1
Less current portion of long-term debt 194.1 212.7
------------ ------------
Long-term debt $ 456.2 $ 434.4
============ ============
In connection, with the acquisition of Galileo Southern Cross in
April 2001, the Company issued nine CRS Credit Notes ( the "Credit
Notes"), with an aggregate notional amount of $37.4 million, to the
former owners of Galileo Southern Cross. Payments on the Credit Notes
are effectively made by reducing CRS booking fee invoices owed to the
Company by these former owners. The maximum term of the Credit Notes is
36 months. Interest is payable quarterly and is based upon the 90-day
LIBOR plus a specified margin. The effective interest rate on the Credit
Notes for the quarter ended June 30, 2001 was 5.8%.
In July 2001, the Company replaced the $500.0 million 16-month
credit agreement that was due to expire in July 2001 with an amended
and restated $350.0 million six-month credit agreement that expires in
January 2002.
As of June 30, 2001, the effective interest rate for amounts
outstanding under the two credit agreements was 4.3%.
10
NOTE 8 - STOCKHOLDERS' EQUITY
On February 22, 2001, the Board of Directors of the Company
adopted a stockholder rights plan (the "Plan"). Under the Plan, the
Company declared a dividend distribution of one Preferred Stock
Purchase Right (a "Right") for each share of Common Stock of the
Company outstanding at the close of business on March 8, 2001 (the
"Record Date"), pursuant to the terms of a Rights Agreement, dated as
of February 22, 2001 (the "Rights Agreement"). The Rights Agreement
also provides, subject to specified exceptions and limitations, that
shares of Common Stock issued or delivered from the Company's treasury
after the Record Date will be entitled to and accompanied by Rights.
The Rights are in all respects subject to and governed by the
provisions of the Rights Agreement. The Rights initially trade
together with the Company's Common Stock and are not exercisable.
Under certain circumstances specified in the Rights Agreement, and in
the absence of further action by the Company's Board of Directors, the
rights generally will become exercisable and allow the holder to
purchase from the Company one one-hundredth of a share of Series H
Junior Participating Ordinary Preferred Stock at an initial purchase
price of $90. The Board authorized the issuance of 2,500,000 preferred
shares under the Plan, none of which have been issued. The Rights will
become exercisable at a specified period of time after any person
becomes the beneficial owner of 15% or more of the outstanding shares
of Common Stock or commences a tender or exchange offer which, if
consummated, would result in any person becoming the beneficial owner
of 15% or more of the Common Stock, in each case, without the approval
of the Board. If any person becomes the beneficial owner of 15% or
more of the outstanding Common Stock, each Right will entitle the
holder, other than the acquiring person, to purchase, for $90, a
number of shares of the Common Stock having a market value of $180.
For persons who, as of February 22, 2001, beneficially owned 15% or
more of the outstanding Common Stock, the Plan "grandfathers" their
current level of ownership, so long as they do not purchase additional
shares that result in ownership of 20% or more of the outstanding
Common Stock. The Company's Board of Directors may, at its option,
redeem all rights for $0.01 per Right at any time prior to the time
the Rights become exercisable. The Rights will expire on March 8,
2011, unless earlier redeemed, exchanged or amended by the Board of
Directors. Pursuant to its Merger Agreement, the Company amended the
Plan to provide that the Rights would not become exercisable solely by
reason of the execution and delivery of the Merger Agreement or the
consummation of the transactions contemplated by the Merger Agreement
and that the Plan would expire immediately prior to the effective date
of the merger.
For the six months ended June 30, 2001, the Company accounted for
an $0.8 million net derivative loss on cash flow hedges in accordance
with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). The after tax effect of $0.5 million is
included as a separate component of Stockholders' Equity.
The Company terminated its share repurchase program on June 15,
2001 pursuant to the Merger Agreement. The Company repurchased 470,658
of its shares in the open market at a total cost of $11.6 million
between April 1 and June 15, 2001. As of June 15, 2001 the Company had
repurchased $73.4 million in shares of its Common Stock under the $250
million share repurchase program, which was authorized by its Board of
Directors in April 2000. As of June 30, 2001, the Company held a total
of 18,077,776 shares in treasury.
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Comprehensive income for the six months ended June 30, 2000 was
$87.4 million, comprised of net income of $90.6 million, unrealized
holding losses on securities of $(0.7) million, and foreign currency
translation adjustments of $(2.5) million.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Six Months
(In millions) Ended June 30,
----------------
Cash paid for: 2001 2000
---- ----
Interest $ 22.9 $ 24.0
Income taxes 69.3 71.7
Noncash investing and financing activities:
Capital lease obligations from acquisition
of software 17.7 -
12