EXHIBIT 99.2
GALILEO INTERNATIONAL, INC.
QUARTER ENDED MARCH 31, 2001
INDEX
PAGE
----
Condensed Consolidated Balance Sheets as of March 31, 2001
(unaudited) and December 31, 2000 2
Condensed Consolidated Statements of Income for the quarters
ended March 31, 2001 and 2000 (unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
quarters ended March 31, 2001 and 2000 (unaudited) 4
Condensed Consolidated Statement of Stockholders' Equity
for the quarter ended March 31, 2001 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
2001 2000
---------- -------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 10,580 $ 2,460
Accounts receivable, net 271,249 192,199
Other current assets 51,798 50,036
---------- ----------
Total current assets 333,627 244,695
Property and equipment, at cost:
Land 6,470 6,470
Buildings and improvements 76,499 76,452
Equipment 424,721 416,406
---------- ----------
507,690 499,328
Less accumulated depreciation 298,623 288,651
---------- ----------
Net property and equipment 209,067 210,677
Computer software, net 164,359 160,270
Intangible assets, net 694,279 720,212
Other noncurrent assets 141,661 143,405
---------- ----------
$1,542,993 $1,479,259
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 72,262 $ 76,913
Accrued commissions 44,671 34,471
Income taxes payable 49,656 1,234
Other accrued liabilities 120,392 111,630
Long-term debt, current portion 187,654 212,654
---------- ----------
Total current liabilities 474,635 436,902
Pension and postretirement benefits 83,531 79,285
Deferred tax liabilities 28,902 35,398
Other noncurrent liabilities 30,420 28,046
Long-term debt, less current portion 434,392 434,392
---------- ----------
Total liabilities 1,051,880 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; 105,344,901 and 105,232,696 shares
issued; 87,737,783 and 88,311,977 shares
outstanding 1,053 1,052
Additional paid-in capital 684,024 682,988
Retained earnings 399,639 357,008
Unamortized restricted stock grants (1,763) (1,963)
Accumulated other comprehensive income (7,462) (4,493)
Common stock held in treasury, at cost:
17,607,118 and 16,920,719 shares (584,378) (569,356)
---------- ----------
Total stockholders' equity 491,113 465,236
---------- ----------
$1,542,993 $1,479,259
========== ==========
See accompanying notes to condensed consolidated financial statements.
2
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share data)
Quarter
Ended March 31,
--------------------------
2001 2000
---- ----
Revenues:
Electronic global distribution services $ 442,546 $ 421,306
Information and network services 23,307 19,432
------------ ------------
465,853 440,738
Operating expenses:
Cost of operations 163,645 134,004
Commissions, selling and administrative 197,990 180,734
Special charge - services agreement - 19,725
Special charge - in-process research and development
write-off - 7,000
------------ ------------
361,635 341,463
------------ ------------
Operating income 104,218 99,275
Other income (expense):
Interest expense, net (10,488) (9,275)
Other, net (3,444) (2,384)
------------ ------------
Income before income taxes 90,286 87,616
Income taxes 39,726 40,216
------------ ------------
Net income $ 50,560 $ 47,400
============ ============
Weighted average shares outstanding 87,978,305 90,678,954
============ ============
Basic earnings per share $ 0.57 $ 0.52
============ ============
Diluted weighted average shares outstanding 88,236,155 90,902,545
============ ============
Diluted earnings per share $ 0.57 $ 0.52
============ ============
<
See accompanying notes to condensed consolidated financial statements.
3
GALILEO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Quarter
Ended March 31,
-----------------------
2001 2000
---- ----
Operating activities:
Net income $ 50,560 $ 47,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 60,299 42,969
Write-off of in-process research and development - 7,000
Gain on sale of assets (783) (169)
Deferred income taxes, net (9,244) (13,978)
Changes in operating assets and liabilities,
net of effects from acquisition of businesses:
Accounts receivable, net (77,959) (76,410)
Other current assets (597) 12,089
Noncurrent assets (2,446) (418)
Accounts payable and accrued commissions 8,491 23,845
Accrued liabilities 10,509 (226)
Income taxes payable 48,490 53,780
Noncurrent liabilities 6,630 (383)
Other 3,649 1,437
---------- ----------
Net cash provided by operating activities 97,599 96,936
Investing activities:
Purchase of property and equipment (25,815) (6,276)
Purchase and capitalization of computer software (18,388) (7,735)
Proceeds on sale of assets 2,287 169
Acquisition of businesses, net of $11,613 cash acquired - (101,214)
Other investing activities - (5,000)
---------- ----------
Net cash used in investing activities (41,916) (120,056)
Financing activities:
Borrowings under credit agreements 19,000 135,000
Repayments under credit agreements (44,000) -
Dividends paid to stockholders (7,929) (8,091)
Repurchase of common stock for treasury (15,022) (57,393)
Payments of capital lease obligations (416) (29)
Other financing activities 1,037 21
---------- ----------
Net cash (used in) provided by financing activities (47,330) 69,508
Effect of exchange rate changes on cash (233) (297)
---------- ----------
Increase in cash and cash equivalents 8,120 46,091
Cash and cash equivalents at beginning of period 2,460 1,794
---------- ----------
Cash and cash equivalents at end of period $ 10,580 $ 47,885
========== ==========
See accompanying notes to condensed consolidated financial statements.
4
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 - - - 50,560
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 84,505 shares of common stock under
employee stock option plans - 1 683 -
Issuance of 27,700 shares of common stock under
employee stock purchase plan - - 353 -
Repurchase of 686,399 shares of common stock
for treasury - - - -
Dividends paid ($0.09 per share) - - - (7,929)
------------- ------------- ------------ --------------
Balance at March 31, 2001 $ - $ 1,053 $ 684,024 $ 399,639
============= ============= ============ =============
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 - - - 50,560
Other comprehensive income (loss), net of tax:
Unrealized holding losses on marketable securities - (427) - (427)
Reclassification adjustment for gains included
in net income - (686) - (686)
Foreign currency translation adjustments - (1,364) - (1,364)
Cash flow hedge- net derivative losses - (492) - (492)
-------------
Other comprehensive income (loss) (2,969)
-------------
Comprehensive income 47,591
Amortization of restricted stock grants 200 - - 200
Issuance of 84,505 shares of common stock under
employee stock option plans - - - 684
Issuance of 27,700 shares of common stock under
employee stock purchase plan - - - 353
Repurchase of 686,399 shares of common stock
for treasury - - (15,022) (15,022)
Dividends paid ($0.09 per share) - - - (7,929)
------------- ------------ ------------ --------------
Balance at March 31, 2001 $ (1,763) $ (7,462) $(584,378) $ 491,113
============= ============= ============ ==============
See accompanying notes to condensed consolidated financial statements.
5
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", "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 ended March 31, 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 - EARNINGS PER SHARE
Basic earnings per share for the quarters ended March 31, 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 quarters ended March 31, 2001 and 2000
of 257,850 and 223,591, respectively.
NOTE 3 - 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 March 31, 2001, $0.9 million of
severance related costs have been paid and charged against the
liability and 19 employees have been terminated. The estimated
remaining liabilities at March 31, 2001 and December 31, 2000 were
$0.8 million and $1.1 million, respectively, and are included in the
accompanying condensed consolidated balance sheets.
6
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 March 31, 2001 and December 31, 2000, the
estimated remaining liabilities, principally related to facility
closure costs, were $6.7 million and $7.0 million, respectively, and
are included in the accompanying condensed consolidated balance
sheets.
NOTE 4 - DEBT
Outstanding long-term debt consists of the following at March 31,
2001 and December 31, 2000:
(In millions) March 31, December 31,
2001 2000
------------ ------------
Five-year credit agreement $ 400.0 $ 400.0
16-month credit agreement 187.0 212.0
Term loan 34.4 34.4
Other 0.7 0.7
------------ ------------
622.1 647.1
Less current portion of long-term debt 187.7 212.7
------------ ------------
Long-term debt $ 434.4 $ 434.4
============ ============
As of March 31, 2001, the effective interest rate for amounts
outstanding under the two credit agreements was 5.7%.
NOTE 5 - 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 has 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
7
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.
For the quarter ended March 31, 2001, the Company accounted for a
$0.7 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 $0.4 million is included
as a separate component of Stockholders' Equity.
The Company also accounted for a $0.8 million net derivative loss
on cash flow hedges in accordance with Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). The after tax effect of $0.5
million is included as a separate component of Stockholders' Equity.
During 2000, the Board of Directors authorized an additional
$250.0 million share repurchase program. The Company began purchasing
shares under this program in June 2000, after completion of a $750.0
million program which had been authorized in 1999. Repurchased shares
are held in treasury for the purpose of providing available shares for
possible resale in future public or private offerings, and for other
general corporate purposes. The purchases are funded through the
Company's available working capital and borrowing facilities. The
amount, timing and price of any repurchases of the Company's Common
Stock depend on market conditions and other factors. For the quarter
ended March 31, 2001, the Company repurchased 686,399 of its shares in
the open market at a total cost of $15.0 million. As of March 31,
2001, the Company held a total of 17,607,118 shares in treasury.
Comprehensive income for the quarter ended March 31, 2000 was
$46.8 million, comprised of net income of $47.4 million, unrealized
holding gains on securities of $0.3 million, and foreign currency
translation adjustments of $(0.9) million.
NOTE 6 - INTEREST IN EQUANT
At March 31, 2001, the Company owned 1,106,564 non-marketable
depository certificates representing beneficial ownership of common
stock of Equant N.V. ("Equant"), a telecommunications company
affiliated with Societe Internationale de Telecommunications
8
Aeronautiques ("SITA"). 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 an agreement to
exchange all of its Equant shares for France Telecom shares. As a
result, each of the Company's depository certificates are expected to
represent the right to receive the economic benefit of approximately
.4545 France Telecom shares. France Telecom is listed on the New York
Stock Exchange under the ticker: FTE. This merger is expected to be
completed by June 30, 2001, at which time the Company will have the
option to participate in an orderly resale process.
The Company's carrying value of these depository certificates was
nominal at March 31, 2001 and December 31, 2000. Any future disposal
of such depository certificates may result in significant gains to the
Company.
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
Quarter Ended
(In millions) March 31,
--------------------------
2001 2000
Cash paid for: ---- ----
Interest $ 9.8 $ 13.5
Income taxes 0.7 0.6
9