Galileo International Reports Second Quarter Economic Earnings Per Share Of $0.80

Galileo International, Inc. (NYSE: GLC), today reported that second quarter economic earnings per share grew 5.6 percent to $0.80 per diluted share, compared to economic earnings of $0.76 per diluted share, for the same quarter last year(1). Reported earnings in the second quarter were $44.0 million, or $0.50 per diluted share, compared to $43.2 million, or $0.47 per diluted share, last year. Total revenue grew 5.2 percent to $447.6 million for the quarter. Operating income declined 4.4 percent to $90.4 million, from $94.6 million for the same period in 2000, due to increased investments to maintain and grow the business. Galileo’s operating margin was 20.2 percent for the quarter.

“Our broad global presence and our ability to control costs, which is so important in a slowing economic environment, have enabled us to maintain healthy margins and deliver our sixteenth consecutive quarter of economic earnings per share growth,” said James E. Barlett, chairman, president and CEO. “With Cendant’s pending acquisition of Galileo moving closer to completion, the combination of our solid operating results and Cendant’s strong second quarter performance hold the promise of even greater benefits to our shareholders.”*

For the quarter ended June 30, 2001, total revenues were $447.6 million, a 5.2 percent increase year over year. Electronic global distribution services (EGDS) revenues increased 4.8 percent to $424.5 million from $405.2 million in the same period last year. EGDS revenue growth was driven mainly by the January 2001 airline booking fee increase. Information and network services revenues grew a strong 14.6 percent to $23.1 million for the quarter, reflecting an increase in revenue primarily from hosting services, development services and new revenue from the company’s network services subsidiary Quantitude.

The company experienced solid bookings growth in several countries around the world, however, overall global booking volumes fell 2.6 percent to 87.7 million compared to the prior year.

Strong bookings in the Middle East, Africa and Asia Pacific regions continued to drive international bookings growth, as volumes outside the U.S. grew 0.3 percent overall in the second quarter. The company experienced solid growth in the United Kingdom and double-digit air bookings growth in several other countries, including China, Japan and New Zealand. The international bookings growth comes despite the effect of a change in airline behavior that resulted in an increased number of cancellations of waitlist and other non-ticketed bookings, which reduced the net billable segments in the quarter. This change in airline behavior, primarily in Europe and the Middle East, was first reported in the third quarter of 2000. Excluding the effect of this change in airline behavior, international bookings would have grown approximately 2.5 percent in the second quarter.

Booking volumes in the U.S. declined 7.1 percent during the quarter, primarily due to weaker travel demand resulting from the slowdown in the U.S. economy and the impact of a shift in bookings to Internet travel sites, where Galileo has less presence. Cendant has indicated to the company that increasing Galileo’s Internet presence is a critical priority.

“While the slowdown in travel in the U.S. continues to impact our top-line results, our ability to adapt to the changing market conditions while continuing to make prudent investments in our business has enabled us to once again deliver growth to our investors,” said Cheryl Ballenger, executive vice president and CFO. “To drive further top-line growth through the economic downturn we will continue to aggressively pursue new account wins while delivering exceptional products and services to our existing customers.”*

Operating Expenses

Total operating expenses grew 8.0 percent year over year in the second quarter to $357.2 million from $330.8 million.

Cost of operations expenses grew 6.3 percent for the quarter, primarily due to higher wages consistent with higher staffing levels in Galileo’s technical operations and its Quantitude subsidiary; incremental operating expenses related to the April acquisition of Galileo’s distribution company in Australia, New Zealand and the South Pacific (Galileo Southern Cross); and higher depreciation expenses.

Total commissions, selling and administrative expenses increased 9.5 percent in the second quarter, primarily due to higher subscriber incentive payments. Higher distributor commission payments resulting directly from higher revenues in countries managed by national distribution companies were offset by commission savings resulting from the company’s acquisition of Galileo Southern Cross. Also contributing to the increase were expenses related to the company’s pursuit of strategic alternatives.

Non-Operating Expenses

Galileo’s second quarter results include other non-operating expense of $2.9 million, primarily related to the write-off of one of its technology investments. Overall, Galileo’s investment portfolio has performed well and this investment has brought strategic benefits to Galileo through the use of its innovative technologies.

Six-Month Earnings

For the six months ended June 30, 2001, total revenues grew 5.5 percent to $913.5 million. Electronic global distribution revenues grew 4.9 percent, while information services revenues grew a strong 17.2 percent to $46.4 million. Total operating expenses grew 11.4 percent, before one-time items in 2000, due to higher wages, consistent with higher staffing levels; subscriber incentive payments; and intangible amortization resulting from the acquisitions of TRIP.com, Galileo UK and Galileo Southern Cross. For the six-month period, economic earnings per share, excluding one-time items, grew 5.2 percent to $1.66 from $1.58.

Balance Sheet/Cash Flow

Galileo’s balance sheet remains solid and its cash flow is strong. In the second quarter, cash flow from operations was used primarily to make capital investments to grow the business, acquire Galileo Southern Cross and repurchase Galileo shares.

Capital expenditures, including internally developed software, were $52.4 million for the quarter. This capital investment was made primarily to enhance the technological platform of Galileo’s computer systems, to purchase subscriber equipment and to purchase equipment related to the build out of Quantitude’s TCP/IP network.

Total depreciation and amortization expense was $61.9 million, including $32.3 million in amortization of intangible assets relating to mergers and acquisitions.

Acquisition by Cendant*

On June 18, 2001, Galileo announced that it signed a definitive agreement to be acquired by Cendant Corporation for stock and cash worth an estimated value of $33 per share, or approximately $2.9 billion. 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.

On July 6, Cendant filed its form S-4 with the Securities and Exchange Commission and on July 13, Galileo announced that it set August 30, 2001 as the date of its special meeting of stockholders to consider and vote on adoption of the Agreement and Plan of Merger. Stockholders of record at the close of business on July 23, 2001 are entitled to vote at the special meeting.

“Galileo is a great company with a great future as a unit of Cendant Corporation,” said Barlett. “We’ve dedicated a significant amount of time pursuing strategic alternatives and are very pleased with the speed with which we’ve been able to satisfy several of our merger conditions. We look forward to closing this acquisition in the third quarter to further enhance shareholder value and to build an even stronger partnership with our agency customers and travel suppliers.”

Share Repurchase

Galileo repurchased 471,000 shares between April 1 and June 15, 2001, at which time the company terminated its share repurchase program pursuant to its merger agreement with Cendant Corporation. As of June 15, 2001, Galileo had repurchased approximately $73 million in shares of its common stock under its $250 million stock repurchase program, which was authorized by its Board of Directors in April 2000.

Dividend Suspended

In accordance with the company’s merger agreement with Cendant Corporation, Galileo suspended payment of its regular quarterly cash dividend.

Business Highlights

· Galileo strengthened its travel agency customer offerings through the sponsorship of their membership in the THOR Hotel Rate Program. Inclusion in this dynamic membership program will enable agents in Galileo's 43,000 travel agency locations around the world to access and book from more than 13,000 hotels worldwide at rates that have been discounted up to 65 percent.

· Quantitude made significant progress on its network build out during the second quarter, executing on its accelerated schedule of completing its U.S. network by mid-year. In addition, Quantitude continues to make progress migrating Galileo’s endpoints to its network backbone.

· The company continues to deliver cost effective solutions to its airline customers. Galileo extended its industry leadership in Europe by implementing electronic ticketing for American Airlines, Alitalia and US Airways in the United Kingdom and Germany; and United Airlines and British Airways in Sweden, Norway and Denmark. To date, Galileo’s reservation systems now include 29 airlines that offer electronic ticketing in 25 countries.

· Galileo was rated one of the best places to work for IT professionals by Computerworld Magazine. Galileo was ranked 41 out of 100 companies in its ‘Top 100 Best Places to Work in IT’ list, and was the only GDS company on the list.

Outlook*

Galileo expects third quarter revenue growth to improve slightly over its second quarter performance and that it will deliver low single digit economic EPS growth in the quarter. The company believes the difficult economic environment in the U.S. will continue to affect travel demand. Galileo is cautious in its outlook but believes that its broad global presence will help offset weakness in the U.S. While the continued slowdown in travel will affect top line growth, Galileo expects to continue its disciplined expense control to grow its business profitably.