UNITED STATES
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED)FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
COMMISSION FILE NUMBER: 1-13315
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AVIS GROUP HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3347585
(State of Incorporation)(STATE OR OTHER JURISDICTION OF (I.R.S. Employer Identification No.EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
900 OLD COUNTRY ROAD
GARDEN CITY, NEW YORK 11530
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 222-3000
Not Applicable
(Former name, former address and former fiscal year,
If changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:6 SYLVAN WAY 07054
PARSIPPANY, NJ (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(973) 496-3500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
Securities registered pursuant to Section (g) of the Act:
11% SENIOR SUBORDINATED NOTES DUE 2009SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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Indicate by check mark whether the registrant:Registrant (1) has filed all reports required
to be filed byin Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrantRegistrant was
required to file such reports), and (2) has been subject to such filing
requirements, for the past 90 days.days: Yes |X|[ ] No |_|[X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's common stock was
5,537shares as of April 30, 2002.
Avis Group Holdings, Inc. meets the conditions set forth in General Instructions
H (1) (a) and (b) to Form 10-Q and is therefore filing this form with the
reduced disclosure format.
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AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEMI Financial Information
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
PAGE
----
Consolidated Statements of:
Operations for the three months ended June 30, 2001
and June 30, 2000.................................................... 1
Operations for the period March 1, 2001 (Date of Acquisition) to
June 30, 2001, the two months ended February 28, 2001 and the
six months ended June 30, 2000....................................... 2
Financial Position as of June 30, 2001
and December 31, 2000................................................ 3
Cash Flows for the period March 1, 2001 (Date of Acquisition)
to June 30, 2001, the two months ended February 28, 2001
and the six months ended June 30, 2000............................... 4
Notes to the Condensed Consolidated
Financial Statements ................................................ 5-22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................. 23-30
ITEM 3. QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES
ABOUT MARKET RISKS..................................................... 31
PART II. OTHER
ITEM 6(b). REPORTS ON FORM 8-K ................................................ 33
Financial Statements
Independent Accountants' Report 1
Consolidated Condensed Statements of Operations for the three
months ended March 31, 2002, the period March 1, 2001 (Date of
Acquisition) to March 31, 2001 and the two months ended
February 28, 2001 2
Consolidated Condensed Balance Sheets as of March 31, 2002 and
December 31, 2001 3
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 2002, the period March 1, 2001 (Date of
Acquisition) to March 31, 2001 and the two months ended
February 28, 2001 4
Notes to the Consolidated Condensed Financial Statements 6
Item 2. Management's Narrative Analysis of the Results of Operations 17
Item 3. Quantitative and Qualitative Disclosure about Market Risks 19
PART II Other Information
Item 6. Exhibits and Report on Form 8-K 20
Signatures 21
PART 1I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTSItem 1. Financial Statements
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholder of
Avis Group Holdings, Inc.
Parsippany, New Jersey
We have reviewed the accompanying consolidated condensed balance sheet of Avis
Group Holdings, Inc. and subsidiaries (successor to Avis Rent A Car System, Inc.
and subsidiaries, Avis Fleet Leasing and Management Corp., and subsidiaries and
Reserve Claims Management Co., collectively the "Predecessor Companies")
(collectively referred to as the "Company") as of March 31, 2002, and the
related consolidated condensed statements of operations and cash flows for the
three-month period ended March 31, 2002, the period March 1, 2001 (Date of
Acquisition) to March 31, 2001, and as to the Predecessor Companies the period
January 1, 2001 to February 28, 2001. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated condensed financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 2001, and the related consolidated statements of
operations, common stockholders' equity, and cash flows for the period March 1,
2001 (Date of Acquisition) to December 31, 2001 and as to the Predecessor
Companies, the consolidated related statements of operations, common
stockholders' equity and cash flows for the period January 1, 2001 to February
28, 2001 (not presented herein); and in our report dated January 23, 2002, we
expressed an unqualified opinion (and included an explanatory paragraph relating
to a change in accounting for derivative instruments and hedging activities) on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated condensed balance sheet as of December
31, 2001 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
May 7, 2002
New York, New York
AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
PREDECESSOR
COMPANIES
---------------------MARCH 1, 2001 -----------------
THREE MONTHS THREE(DATE OF ACQUISITION) TWO MONTHS
ENDED TO ENDED
JUNE 30,MARCH 31, 2002 MARCH 31, 2001 JUNE 30, 2000
----------------FEBRUARY 28, 2001
-------------- --------------------- -----------------
Revenue ...........................................................
REVENUES $ 628,893564,603 $ 666,597
------------ ------------
Cost and expenses:
Direct operating,217,996 $ 385,821
--------- --------- ---------
EXPENSES
Operating, net ............................................. 231,693 229,314223,567 78,672 173,830
Vehicle depreciation and lease charges, net ....................... 173,664 172,096162,691 55,095 111,966
Selling, general and administrative ............................... 116,540 119,536
Interest,114,931 37,575 83,229
Vehicle interest, net ..................................................... 70,476 101,96650,647 20,547 43,625
Non-vehicle interest, net 10,795 5,086 9,167
Non-vehicle depreciation and amortization ......................... 5,228 4,830
Amortization of cost in excess of net assets acquired and other
intangibles .................................................. 7,640 3,122
------------ ------------
605,241 630,864
------------ ------------
Income from continuing operations before provision6,125 4,427 6,241
--------- --------- ---------
Total expenses 568,756 201,402 428,058
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAX (4,153) 16,594 (42,237)
Provision (benefit) for income taxes .............................................. 23,652 35,733
Provision for income taxes ........................................ 13,753 16,510
------------ ------------
Income from continuing operations ................................. 9,899 19,223(1,744) 7,899 (15,783)
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS (2,409) 8,695 (26,454)
Income from discontinued operations, net of income taxestax -- -- 4,947
--------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (2,409) 8,695 (21,507)
Cumulative effect of $14,116 18,209
------------ ------------
Net income ........................................................ 9,899 37,432
Preferred stock dividends ......................................... 4,667
------------ ------------
Earnings applicable to common stockholders ........................accounting change, net of tax -- -- (7,612)
--------- --------- ---------
NET INCOME (LOSS) $ 9,899(2,409) $ 32,765
============ ============8,695 $ (29,119)
========= ========= =========
See notesNotes to the condensed consolidated financial statements.Consolidated Condensed Financial Statements.
1
AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSCONDENSED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)THOUSANDS, EXCEPT SHARE DATA)
PREDECESSOR COMPANIES
-------------------------------------
MARCH 1, 2001 TWO MONTHS SIX MONTHS
(DATE OF ACQUISITION) ENDED ENDED
TO FEBRUARY 28, JUNE 30,
JUNE 30, 2001 2001 2000
--------------------- -------------- -------------
Revenue ................................................. $ 846,889 $ 385,821 $ 1,255,473
------------ -------------- -------------
Costs and expenses:
Direct operating, net ................................... 310,365 173,830 456,008
Vehicle depreciation and lease charges, net ............. 228,759 111,966 319,328
Selling, general and administrative ..................... 154,115 83,229 234,139
Interest , net .......................................... 96,109 52,792 191,236
Non-vehicle depreciation and amortization ............... 6,785 4,154 9,613
Amortization of cost in excess of net assets acquired
and other intangibles ................................. 10,510 2,087 6,281
------------ -------------- -------------
806,643 428,058 1,216,605
------------ -------------- -------------
Income (loss) from continuing operations before provision
(benefit) for income taxes ............................ 40,246 (42,237) 38,868
Provision (benefit) for income taxes .................... 21,652 (15,783) 17,403
------------ -------------- -------------
Income (loss) from continuing operations ................ 18,594 (26,454) 21,465
Income from discontinued operation, net of
income taxes of $5,045 for the two months ended
February 28, 2001 and $29,248 for the six months
ended June 30, 2000 ................................... 4,947 35,553
Cumulative effect from prior years (through December 31,
2000) of change in accounting principle for derivative
instruments, net of income tax benefit of $3,331 ...... (7,612)
------------ -------------- -------------
Net income (loss) ....................................... 18,594 (29,119) 57,018
Preferred stock dividends ............................... 3,270 9,335
------------ -------------- -------------
Earnings (loss) applicable to common stockholders ....... $ 18,594 $ (32,389) $ 47,683
============ ============== =============
See notes to the condensed consolidated financial statements.
2
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS)
PREDECESSOR
COMPANIES
-----------------
JUNE 30, 2001 DECEMBER 31,
2000
------------- -----------------
(UNAUDITED)2002 2001
----------- ------------
ASSETS
Cash and cash equivalents ........................... $ 22,40814,500 $ 80,368
Accounts receivable,13,311
Receivables, net ............................ 375,660 508,328158,365 168,372
Prepaid expenses .................................... 58,021 47,92439,606 42,543
Deferred income taxes 555,369 548,087
Property and equipment, net ......................... 200,580 181,504208,111 203,232
Goodwill, net 1,263,496 1,271,192
Other assets ........................................ 30,330 78,972
Net145,041 146,608
----------- -----------
Total assets exclusive of discontinued operation ................ 880,300
Deferred income tax assets net ..................... 443,730 349,268
Customer lists ...................................... 19,498
Cost in excess of net assets acquired, net .......... 1,220,893 453,450under management programs 2,384,488 2,393,345
----------- -----------
Assets under management programs:
Restricted cash .................................. 154,153 167,482275,898 581,187
Vehicles, ......................................... 4,095,323 3,761,454net 3,628,153 3,470,937
Due from vehicle manufacturers 61,125 92,614
----------- -----------
4,249,476 3,928,9363,965,176 4,144,738
----------- -----------
Total assets ....................................TOTAL ASSETS $ 6,620,5966,349,664 $ 6,509,0506,538,083
=========== ===========
LIABILITIES AND COMMON STOCKHOLDERS'STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable .................................... $ 311,486 $ 283,556164,120 363,891
Accrued liabilities ................................. 330,370 263,277477,575 434,665
Due to Cendant Corporation and affiliates, net ...... 377,036 36,117499,859 514,433
Non-vehicle debt 582,058 588,259
Public liability, property damage and other insurance liabilities net ................................. 224,985 247,567
Non vehicle debt .................................... 600,788 730,333214,143 228,503
----------- -----------
Total liabilities exclusive of liabilities under management programs 1,937,755 2,129,751
----------- -----------
Liabilities under management programs:
Vehicle debt ..................................... 3,984,905 3,816,6823,766,596 3,771,341
Deferred income taxes ............................ 371,949 376,404315,595 315,905
----------- -----------
4,356,854 4,193,086
----------- -----------
Total liabilities ............................... 6,201,519 5,753,9364,082,191 4,087,246
----------- -----------
Commitments and contingencies:contingencies (Note 5)
Stockholder's equity:
Common stock, Class A Common stock ................................ 359$.01 par value--authorized 10,000 shares; issued 5,537 shares -- --
Additional paid-in-capital .......................... 156,065 593,829168,832 168,832
Retained earnings ................................... 266,953 277,460
Treasury stock ...................................... (96,538)186,897 189,306
Accumulated other comprehensive loss ...................... (3,941) (19,996)(26,011) (37,052)
----------- -----------
Total common stockholders'stockholder's equity ............... 419,077 755,114329,718 321,086
----------- -----------
Total liabilities and common stockholders' equityTOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 6,620,5966,349,664 $ 6,509,0506,538,083
=========== ===========
See notesNotes to the condensed consolidated financial statements.
3Consolidated Condensed Financial Statements.
2
AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
PREDECESSOR
COMPANIES
------------------------------------------------
THREE MONTHS MARCH 1, 2001 TWO MONTHS
SIX MONTHSENDED (DATE OF ACQUISITION) ENDED
ENDEDMARCH 31, 2002 TO MARCH 31, 2001 FEBRUARY 28, JUNE 30,
JUNE 30, 2001
2001 2000-------------------- ------------------- --------------------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:ACTIVITIES
Net income (loss) .................................................. $ 18,594(2,409) $ 8,695 $ (29,119)
$ 57,018Adjustments to arrive at income (loss) from continuing operations - - 2,665
-------------------- ------------------- ---------------------
Income (loss) from continuing operations (2,409) 8,695 (26,454)
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by (used in) operating activities:
Changes operating assets and liabilities: .......................... 7 21
Non-vehicle depreciation and amortization ....................... 17,349 7,152 21,218
Accounts receivable ............................................. (11,623) 26,476 (47,511)6,125 4,427 6,241
Net change in operating assets and liabilities, excluding the
impact of acquisitions and dispositions:
Receivables (5,541) (13,478) 10,108
Accounts payable ................................................ (18,937) (33,889) 5,983
Due to Cendant-trading accounts ................................. (38,046) (45,096) 40,859(2,453) 16,237 (30,518)
Accrued liabilities ............................................. (3,789)23,568 818 1,486 (17,492)
Other, net ...................................................... (8,681) (8,091) (24,854)
Management programs:(17,397) 8,782 (30,923)
-------------------- ------------------- ---------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES EXCLUSIVE OF
MANAGEMENT PROGRAMS 1,893 25,481 (70,060)
-------------------- ------------------- ---------------------
MANAGEMENT PROGRAMS:
Vehicle depreciation ............................................ 214,575154,750 51,436 105,928
304,800
Restricted cash ................................................. 2,351 10,978 (45,081)
Current and deferred income taxes ............................... 13,808 (17,744) 7,403
----------- --------- -----------
230,734 99,162 267,122
----------- --------- -----------
Net cash provided by operating activities ....................... 185,601 18,081 302,343
----------- --------- ------------------------------- ------------------- ---------------------
NET CASH FLOWS FROMPROVIDED BY OPERATING ACTIVITIES 156,643 76,917 35,868
-------------------- ------------------- ---------------------
INVESTING ACTIVITIES:
Management programs:
Payments for vehicle additions ............................... (1,908,093) (943,102) (2,750,798)
Vehicle deletions ............................................ 1,549,727 813,460 1,841,090
Payments for additions to propertyACTIVITIES
Property and equipment ................... (17,617)additions (10,698) (5,324) (3,278) (19,432)
Retirements of property and equipment .............................. 2,795- 315 (380) 5,522
Payment for purchase of rental car franchise licensees ............. (19,047)
Increase in net assets and preferred stock of discontinued operation (291) (35,443)
Net cash used in investing activities .............................. (392,235) (133,591) (959,061)
----------- --------- -----------(2,835) - -
-------------------- ------------------- ---------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Management programs:
Changes in vehicle debt:
Proceeds ..................................................... 916,633 132,294 677,656
Repayments ................................................... (786,470) (31,087)
----------- --------- -----------
Net increase in vehicle debt ................................. 130,163 101,207 677,656
Changes in non-vehicle debt:
Proceeds ........................................................... 140,000 86,000
Repayments ......................................................... (457,806) (77) (96,715)
----------- --------- -----------
NetUSED IN INVESTING ACTIVITIES EXCLUSIVE OF MANAGEMENT
PROGRAMS (13,533) (5,009) (3,658)
-------------------- ------------------- ---------------------
MANAGEMENT PROGRAMS:
(Increase) decrease in non-vehicle debt ................................... (317,806)restricted cash 305,289 (33,868) 10,978
Decrease in due from vehicle manufacturers 31,179 147,412 16,368
Investment in vehicles (1,190,832) (490,138) (943,102)
Payments received on investment in vehicles 706,215 353,216 813,460
-------------------- ------------------- ---------------------
(148,149) (23,378) (102,296)
-------------------- ------------------- ---------------------
NET CASH USED IN INVESTING ACTIVITIES (161,682) (28,387) (105,954)
-------------------- ------------------- ---------------------
3
AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
PREDECESSOR
COMPANIES
----------------------
THREE MONTHS MARCH 1, 2001 TWO MONTHS
ENDED (DATE OF ACQUISITION) ENDED
MARCH 31, 2002 TO MARCH 31, 2001 FEBRUARY 28, 2001
-------------- --------------------- ----------------------
FINANCING ACTIVITIES
Proceeds from borrowings - 45,000 -
Principal payments on borrowings (125) (62,039) (77)
(10,715)
DueIncrease (decrease) in due to Cendant-intercompany financing,Cendant Corporation and
affiliates, net ......................... 354,928(13,897) 97,216 (45,818)
Payments for debt issuance costs ................................... (4,231)(115) (3,621) (12)
(5,127)
Other ..............................................................Issuances of common stock - - 140
----------- --------- -----------
Net cash provided by financing activities .......................... 163,054 101,258 661,814
----------- --------- --------------------------- ------------------- ----------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES EXCLUSIVE
OF MANAGEMENT PROGRAMS (14,137) 76,556 (45,767)
---------------- ------------------- ----------------------
MANAGEMENT PROGRAMS:
Proceeds from borrowings 49,703 812,162 132,294
Principal payments on borrowings (29,456) (938,650) (31,087)
---------------- ------------------- ----------------------
20,247 (126,488) 101,207
---------------- ------------------- ----------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 6,110 (49,932) 55,440
---------------- ------------------- ----------------------
Effect of changes in net assets of discontinued operations - - 394
Effect of changes in exchange rate changesrates on cash ............................ (117)and cash
equivalents 118 (923) (11)
(175)
----------- --------- --------------------------- ------------------- ----------------------
Net increase (decrease) in cash and cash equivalents ............... (43,697)1,189 (2,325) (14,263) 4,921
Cash and cash equivalents, at beginning of period ...................13,311 66,105 80,368
31,901
----------- --------- -----------
Cash and cash equivalents at end of period .........................---------------- ------------------- ----------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,40814,500 $ 63,780 $ 66,105
$ 36,822
=========== ========= =========================== =================== ======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid .................................................Interest payments $ 108,76450,151 $ 18,301 $ 44,315
Income tax payments, net $ 199,869
=========== ========= ===========
Cash income taxes paid .............................................420 $ 8,8891,313 $ 1,962 $ 9,154
=========== ========= ===========
Businesses acquired:
Fair value of assets acquired, net of cash acquired of $182 ........ $ 21,542
Liabilities assumed ................................................ 2,495
-----------
Net cash paid for acquisitions ..................................... $ 19,047
===========
See notesNotes to the condensed consolidated financial statementsConsolidated Condensed Financial Statements.
4
AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THECONSOLIDATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1-BASIS(UNLESS OTHERWISE NOTED, ALL AMOUNTS ARE IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
GENERAL
Prior to March 1, 2001,The accompanying unaudited Consolidated Condensed Financial Statements
include the accompanying condensed consolidated financial
statements includeaccounts and transactions of Avis Group Holdings, Inc. and
its subsidiaries (the
"Predecessor" or "Predecessor Companies"), Avis Rent A Car System, Inc.
("Vehicle Rental"), Avis Fleet Leasing and Management Corp. ("Vehicle Leasing")
and Reserve Claims Management Co. On November 11, 2000, Cendant Corporation
("Cendant") entered into an Agreement and Plan of Merger with the Predecessor
(the "Cendant Merger Agreement") whereby Cendant would acquire all of the
outstanding shares of the Predecessor's Class A Common stock that were not owned
by Cendant at the price of $33.00 per share, in cash and convert certain Avis
Group Holdings, Inc. stock options to Cendant stock options which were valued at
approximately $17 million (the "Cendant Consideration"). Pursuant to the Cendant
Merger Agreement, all outstanding and unexercised options to purchase Class A
Common stock of the Predecessor were either cancelled upon the merger in
exchange for a cash payment equal to the excess of the merger consideration over
the per share exercise price of each option or converted into options to
purchase Cendant common stock. Approximately 24.9 million outstanding shares of
the Predecessor's Class A Common stock were not owned by Cendant and
approximately 6.7 million unexercised non-converted options were outstanding at
February 28, 2001. The merger was approved on February 28, 2001, by a majority
of the Predecessor's shareholders who were unaffiliated with Cendant and closed
on March 1, 2001 (the "Date of Acquisition") at a cost to Cendant of
approximately $994 million, including $40 million of transaction costs and
expenses (the "Acquisition"). Concurrent with the Acquisition, Avis Group
Holdings, Inc.'s common stock was recapitalized. As a result of the
recapitalization, 10,000 shares were authorized, of which 5,537 shares were
issued and outstanding at March 1, 2001 and June 30, 2001. These shares, which
have a par value of $0.01 per share, are 100% owned by a subsidiary of Cendant.
In addition, Avis Group Holdings, Inc. sold its investment in Vehicle Leasing to
PHH Corporation ("PHH Corp."), a wholly-owned subsidiary of Cendant for $800
million. The proceeds from the sale were used to retire acquisition indebtedness
(see Note 4). Accordingly, the unaudited condensed consolidated financial
statements for the period from the Date of Acquisition through June 30, 2001 and
the three months ended June 30, 2001 include the consolidated accounts of Avis
Group Holdings, Inc., Avis Rent A Car System, Inc. and Reserve Claims Management
Co., (collectively, referred to as the "Company" or "Successor"the Company"). As a
result of the sale of Vehicle Leasing to PHH Corp., the Condensed Consolidated
Statements of Operations for the two months ended February 28, 2001 and the
three and six months ended June 30, 2000 of the Predecessor present Vehicle
Leasing as a discontinued operation, net of the related provision for income
taxes (see Note 2). The Series A, B, and C Preferred stock, which was originally
issued by Vehicle Leasing, is excluded from the Successor Company's Condensed
Statement of Financial Position at June 30, 2001.
The Acquisition was accounted for under the purchase method. The purchase price
has been allocated among the Predecessor Companies based upon their estimated
fair values at the Date of Acquisition. Because of this purchase price
allocation, the condensed consolidated financial statements of the Predecessor
Companies are not comparable to the condensed consolidated financial statements
of the Successor Company.
The excess of the purchase price over the estimated fair value of the underlying
net assets acquired was allocated to goodwill which is being amortized over 40
years on a straight-line basis until the adoption of Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (see below).
The allocation of the excess purchase price was based upon preliminary estimates
and assumptions and is subject to revision when appraisals and integration costs
have been finalized. Accordingly, revisions to the allocation, which may be
significant, will be recorded by the Company as further adjustments to the
purchase price allocation. The preliminary allocation of the purchase price is
summarized as follows (in thousands):
AMOUNT
-----------
Cash consideration ................................................................ $ 937,554
Fair value of converted options ................................................... 17,000
Transaction costs and expenses .................................................... 40,000
-----------
Total purchase price .............................................................. 994,554
Book value of Cendant's existing net investment in Avis Group ..................... 408,957
-----------
Cendant's basis in Predecessor Companies .......................................... 1,403,511
Portion of basis attributable to Vehicle Leasing .................................. (1,000,000)
-----------
Cendant's basis in the Successor Company .......................................... 403,511
Intercompany loan assumed by Successor Company .................................... (137,554)
-----------
Cendant's adjusted basis in Successor Company ..................................... 265,957
Fair value of liabilities assumed in excess of assets acquired of Successor Company 948,705
-----------
Excess purchase price over net assets acquired .................................... $ 1,214,662
===========
5
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Certain prior period amounts have been reclassified for comparability.
In management's opinion, the condensed consolidated financial statementsConsolidated Condensed Financial
Statements contain all normal recurring adjustments necessary for a
fair presentation of interim results reported.results. The results of operations
reported for interim periods are not necessarily indicative of the
results of operations for the entire year or any subsequent interim
period. In addition, management is required to make estimates and
assumptions that affect the amounts reported and related disclosures.
Estimates, by their nature, are based on judgment and available
information. Accordingly, actual results could differ from those
estimates. The condensed
consolidated financial statementsConsolidated Condensed Financial Statements should be
read in conjunction with the Predecessor'sCompany's Annual Report on Form 10-K dated
March 29, 2002.
Certain reclassifications have been made to prior period amounts to
conform to the current period presentation.
Avis Group Holdings, Inc. is a holding company that operates, through a
wholly-owned subsidiary, Avis Rent A Car System, Inc., the second
largest general use car rental brand in the world. On March 1, 2001,
all the Company's common stock not then owned by Cendant Corporation
("Cendant") was acquired by a subsidiary of PHH Corporation ("PHH"), a
wholly-owned subsidiary of Cendant, for approximately $994 million with
the Company emerging as the surviving legal entity. The Company assumed
intercompany indebtedness of $937 million through the acquisition.
Simultaneous with the acquisition, the Company's fleet management and
fuel card businesses were sold to PHH. The Company received proceeds of
$800 million from the sale of these businesses, which were used by the
Company to repay a portion of the intercompany indebtedness it assumed
in connection with the acquisition. Simultaneous with the acquisition,
the Company became a Cendant subsidiary not within the PHH ownership
structure. Accordingly, the Consolidated Condensed Financial Statements
as of and for the yearthree months ended March 31, 2002, for the month
ended March 31, 2001, and as of December 31, 2000.
CHANGE IN ACCOUNTING PRINCIPLE FOR DERIVATIVE INSTRUMENTS
On January 1, 2001 include the financial
statements of Avis Group Holdings, Inc. and its subsidiaries. The
Consolidated Condensed Financial Statements for the two months ended
February 28, 2001 include the financial statements of the Company adoptedand
its former fleet management and fuel card businesses, which are
presented as a discontinued operation (the "Predecessor Companies").
The acquisition was accounted for using the provisionspurchase method of
accounting; accordingly, the Company's assets and liabilities were
adjusted to their estimated fair values as of March 1, 2001. The
purchase price has been allocated among the Predecessor Companies based
upon their estimated fair values as of March 1, 2001. The excess of the
purchase price over the estimated fair value of the Company's assets
and liabilities was allocated to goodwill and was being amortized over
40 years on a straight-line basis until the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133") as amended. SFAS No. 133, establishes
accounting and reporting standards for derivative instruments, including
freestanding and embedded derivatives, and for hedging activities. The Company
has recorded all such derivatives at fair value at January 1, 2001.
The adoption of SFAS No. 133 resulted in the recognition of a non-cash charge of
$12.5 million ($7.6 million, after tax) in the Condensed Consolidated Statement
of Operations for the two months ended February 28, 2001 to account for the
cumulative effect of the accounting change relating to derivatives not
qualifying as hedges prior to that date. The Company also recognized a
cumulative-effect-type adjustment in the amount of $2.4 million in accumulated
comprehensive loss attributable to derivatives designated as cash flow like
hedges prior to the adoption of SFAS No. 133.
The Company uses derivative financial instruments as part of its overall
strategy to manage its exposure to market risks associated with interest rate
risks. As a matter of policy, the Company does not use derivatives for trading
or speculative purposes.
All derivatives are recorded at fair value either as assets or liabilities.
Gains or losses on derivatives designated as cash flow hedges, to the extent
effective, are recorded in other comprehensive income (loss). Any
ineffectiveness in these cash flow hedges is reported in earnings. Amounts
accumulated in other comprehensive income are reclassified into earnings in the
same period during which the hedged item affects earnings. Gains and losses on
derivatives not designated as hedging instruments are recognized currently in
earnings.
RECENT ACCOUNTING STANDARDS
Recent pronouncements of the Financial Accounting Standards Board which are not
required to be adopted at this date is Statement of Financial Accounting
Standards ("SFAS") SFAS No. 141 "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets"., as discussed below. The final allocation of the
purchase price is summarized as follows:
AMOUNT
-----------
Cash consideration $ 937,554
Fair value of converted options 17,000
Transaction costs and expenses 40,000
-----------
Total purchase price 994,554
Book value of Cendant's existing net investment in Avis Group 408,779
-----------
Cendant's basis in Predecessor Companies. 1,403,333
Portion of basis attributable to fleet management and fuel card businesses (987,822)
-----------
Cendant's basis in the Successor Company 415,511
Intercompany loan assumed by Successor Company (137,554)
-----------
Cendant's adjusted basis in Successor Company 277,957
Fair value of liabilities assumed in excess of assets acquired of Successor Company 986,830
-----------
Goodwill $1,264,787
==========
5
Pursuant to certain covenant requirements in an indenture under which
the Company issued debt, the Company continues to operate and maintain
its status as a separate public reporting entity.
Assets used by the Company to generate revenue are classified as assets
under management programs. Funding for such assets is primarily
provided by secured financing arrangements, which are classified as
debt under management programs. Revenues generated from these assets
are used, in part, to repay the interest and principal associated with
the debt. Cash inflows and outflows relating to the generation and
acquisition of assets and the principal debt repayment or financing of
such assets are classified as activities of the Company's management
programs.
CHANGES IN ACCOUNTING POLICIES
BUSINESS COMBINATIONS. On July 1, 2001, the Company adopted SFAS No.
141, requires"Business Combinations," which prohibits the use of the purchasepooling of
interests method of accounting for all business combinations initiated
after June 30, 2001, thereby prohibiting2001. SFAS No. 141 also addresses the useinitial
recognition and measurement of the pooling-of-interests method,goodwill and additional disclosures regarding the
primary reasons forother intangible assets
acquired in a business combination the allocation of the purchase price
paid to the assets acquired and liabilities assumed by major balance sheet
caption and other information about goodwill and intangible assets when the
amount of these assets are material. Additionally, this statement provides new
criteria, which applies torequires additional disclosures
for material business combinations completed after June 30, 2001,
to determine which acquiredsuch date. Upon
adoption of SFAS No. 142 on January 1, 2002, intangible assets shouldrequired
to be recognized separately
from goodwill. Thosereclassified to goodwill were not material.
GOODWILL AND OTHER INTANGIBLE ASSETS. During first quarter 2001, all
intangible assets recognized separately from goodwill,
will bewere amortized on a straight-line basis over their
estimated useful lives.periods to be benefited. On January 1, 2002, the Company
adopted SFAS No. 142 requires thatin its entirety. Pursuant to such adoption, the
Company did not amortize any goodwill and certainor indefinite-lived intangible
assets acquired in
transactions completed after June 30, 2001, no longer be subject to amortization
over their estimated useful lives.during first quarter 2002. The Company will beis required to assess
thesegoodwill and indefinite-lived intangible assets for potential impairment
periodically, andannually, or more frequently if circumstances indicate a possible impairment.impairment may
have occurred.
The statement also requiresCompany reviewed the Company to continue to amortize goodwill and certain intangible assets existing
at June 30, 2001 through December 31, 2001. The provisionscarrying value of the statement are
required to be applied in fiscal years beginning after December 15, 2001 to all its goodwill and other
intangible assets recognizedby comparing such amounts to their fair value and
determined that the carrying amounts of such assets did not exceed
their respective fair values. Accordingly, the initial implementation
of this standard did not result in a charge and, as such, did not
impact the Company's balance sheet
atresults of operations during the date, regardless of when those assets were initially recognized.
6
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1-BASIS OF PRESENTATION (CONTINUED)
During the four months ended June 30, 2001, the Company recorded amortization
expense related to these assets of $10.5 million. During the two months ended
February 28, 2001, and the years ended December 31, 2000 and December 31, 1999
amortization expense related to the intangible assets of the predecessor company
excluding the discontinued operation was $2.1 million, $12.5 million, and $12.6
million, respectively.
NOTE 2-DISCONTINUED OPERATION
In connection with the acquisitionfirst quarter
2002.
2. RELATED PARTY TRANSACTIONS
Expenses of the Company include the following items charged by Cendant
on March 1, 2001,and affiliates. These charges include allocations from Cendant for
services provided to the Company, sold its investment in Vehicle Leasing for $800 million to PHH Corp.
(see Note 1). No gain or loss was recognized on the sale.
Summarized financial data of the discontinued operation of the Predecessor is as
follows (in thousands):
VEHICLE LEASING
----------------------------------------------------
TWO MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED
FEBRUARY 28, 2001 JUNE 30, 2000 JUNE 30, 2000
----------------- ------------- -------------
Revenue .............................................................. $ 255,548 $ 854,028 $ 429,871
============ ============ ============
Income before provision for income taxes and cumulative
effect of change in accounting principle, net of income tax benefit $ 9,992 $ 64,801 $ 32,325
Provision for income taxes ........................................... 5,045 29,248 14,116
------------ ------------ ------------
Net income ........................................................... $ 4,947 $ 35,553 $ 18,209
============ ============ ============
Income before provision for income taxes and cumulative effect of change in
accounting principle, net of income tax benefit for the two months ended
February 28, 2001, the six and three months ended June 30, 2000, include certain
intercompany charges from the Predecessor Companies. These charges seek to
reimburse the Predecessor Companies for the costs it had incurred on behalf of
Vehicle Leasing as follows (in thousands):
TWO MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED
FEBRUARY 28, 2001 JUNE 30, 2000 JUNE 30, 2000
----------------- ------------- -------------
Interest on intercompany loans ........................................ $ 342 $ 6,387 $ 3,053
Employee benefits costs ............................................... 963 2,825 1,397
------------ ------------ ------------
$ 1,305 $ 9,212 $ 4,450
============ ============ ============
Net assets of the discontinued operationwhich consist of the following (in
thousands):
DECEMBER 31, 2000
-----------------
Cash ........................................................ $ 122,509
Accounts receivable, net .................................... 643,502
Vehicles, net ............................................... 3,205,380
Cost in excess of net assets acquired ....................... 873,286
Other assets ................................................ 289,675
----------
Total assets .......................................... 5,134,352
----------
Accounts payable and accrued liabilities .................... 456,784
Deferred income taxes ....................................... 432,357
Debt ........................................................ 2,975,225
----------
Total liabilities ...................................... 3,864,366
----------
Preferred stock classes A, B, and C ......................... 389,686
----------
Net assets of discontinued operation ................... $ 880,300
==========
7
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3-COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of the following (in thousands):of:
PREDECESSOR
COMPANIES
MARCH 1, 2001 ----------------------------------------------------
THREE MONTHS (DATE OF ACQUISITION) TWO MONTHS
SIX MONTHSENDED TO ENDED
ENDED
JUNE 30,MARCH 31, 2002 MARCH 31, 2001 FEBRUARY 28, 2001
JUNE 30, 2000
----------------------------------- ------------------- ----------------- -------------
Net income (loss) .....................................................Royalties $ 18,594 $(29,119)24,276 $ 57,018
Foreign currency translation adjustment, net of income taxes .......... (1,175) (1,775) (27,820)
Cumulative effect from change in accounting principle for
derivative instruments, net of income taxes ........................ 1,229
(Losses) gains on derivative instruments, net of income taxes ......... (2,766) 813
-------- -------- --------
Comprehensive income (loss) ...........................................9,200 $ 14,653 $(28,852)16,205
Reservations 12,682 5,155 8,496
Data processing 8,265 4,484 11,395
Rent and other 13,779 672 1,456
Interest 3,399 - -
-------------- ----------------- --------------
Total $ 29,198
======== ======== ========62,401 $ 19,511 $ 37,552
============== ================= ==============
NOTE 4-FINANCING AND DEBT
Debt outstanding consistsOn the Consolidated Condensed Statements of Operations, the following (in thousands):royalty and
reservation charges are included within selling, general and
administration expenses, the rent and data processing expenses are
included within operating expenses and interest expenses are included
within non-vehicle interest, net. These charges are determined in
accordance with various intercompany agreements and include certain
corporate overhead allocations, which are based upon factors, such as
square footage, employee salaries and computer usage time.
6
3. INTANGIBLE ASSETS
Intangible assets consisted of:
PREDECESSOR
COMPANIES
-------------
JUNE 30,MARCH 31, 2002 DECEMBER 31, 2001
2000------------------------ ------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
---------- ------------ ---------- ------------
VEHICLE DEBT
Commercial Paper Notes ....................................................
AMORTIZED INTANGIBLE ASSETS
Customer lists $ 129,98518,952 $ 919,800
Short-term notes-foreign .................................................. 214,920 196,882
Series 1997-A-2 asset-backed Medium Term Notes due May through
October1,040 $ 18,952 $ 800
========== ======== ========== ========
UNAMORTIZED INTANGIBLE ASSETS
Goodwill $1,263,496 $1,297,774 $ 26,582
========== ========== ========
Amortization expense relating to intangible assets was $240,000 and
$80,000 for the first quarter 2002 at 6.40% ................................................. 850,000 850,000
Series 1998-1 asset-backed Medium Term Notes due December 2004 through
May 2005 at 6.14% ..................................................... 600,000 600,000
Series 2000-1 floating rate Rental Car Asset-Backed Notes due
February 2003 through July 2003 ....................................... 250,000 250,000
Series 2000-2 floating rate Rental Car Asset-Backed Notes due
March 2007 through August 2007 ....................................... 300,000 300,000
Series 2000-3 floating rate Rental Car Asset-Backed Notes due
May 2003 through October 2003 ........................................ 200,000 200,000
Series 2000-4 floating rate Rental Car Asset-Backed Notes due
June 2005 through November 2005 ...................................... 500,000 500,000
Series 2001-1 floating rate Rental Car Asset-Backed Notes due
November 2003 through April 2004 ..................................... 750,000
Series 2001-2 auction rate Rental Car Asset-Backed Notes due May 2007 ..... 190,000
---------- ----------
TOTAL VEHICLE DEBT ................................................ 3,984,905 3,816,682
---------- ----------
NON-VEHICLE DEBT
Senior Subordinated Notes due May 2009 at 11.00% .......................... 595,690 500,000
Revolving credit facility due June 2005 ................................... 225,000
Other ..................................................................... 5,098 5,333
---------- ----------
TOTAL NON-VEHICLE DEBT ............................................ 600,788 730,333
---------- ----------
TOTAL DEBT ........................................................ $4,585,693 $4,547,015
========== ==========
8
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4-FINANCING AND DEBT (CONTINUED)
On March 2, 2001, one of the Company's vehicle rental financing subsidiaries
issued $750 million of Series 2001-1 Floating Rate Rental Car Asset Backed Notes
("Series 2001-1 Notes"). The Series 2001-1 Notes are secured by the Company's
vehicles. Anticipated principal repayment on the Series 2001-1 Notes commence in
November 2003 through April 2004. The interest rate with respect to the Series
2001-1 Notes is equal to LIBOR plus 20 basis points per annum. The Series 2001-1
Notes are guaranteed under a Surety Bond issued by MBIA and are rated AAA by
Standard and Poor's rating services and Aaa by Moody's Investor Service, Inc.
The Series 2001-1 Notes rank pari pasu with the Company's variable funding notes and the medium term notes.
On May 17, 2001, one of the Company's vehicle rental financing subsidiaries
issued $125 million of Series 2001-2 Auction Rate Notes (the "Series 2001-2
Notes"). The Series 2001-2 Notes are secured by the Company's vehicles. The
series 2001-2 Notes were issued in four classes, Class A-1, A-2, A-3 and A-4
with initial issuances of $95 million, $10 million, $10 million and $10 million,
respectively. Subsequent to the initial issuance of $125 million auction rate
notes, the Company issued $65 million of additional notes which brought the
total outstanding series 2001-2 notes to $190 million at June 30, 2001. The
Company may issue up to $125 million of Auction Rate Notes per class or $500
million in total. The interest rate on each class will be a market derived rate
determined by auction with auctions expected to occur every 35 days. Anticipated
principal repayment on the Series 2001-2 Notes is May 2007. The 2001-2 Notes are
guaranteed under a Surety Bond issued by Ambac and are rated AAA by Standard &
Poor's Ratings Services and Aaa by Moody's Investors Service, Inc. The Series
2001-2 Notes rank pari passu with the Company's variable funding notes and
medium term notes.
In connection with the acquisition by Cendant, onperiod March 1, 2001 a fair value(Date
of $604.5 millionAcquisition) to March 31, 2001, respectively. Amortization expense
relating to goodwill was assigned to the Company's 11% Senior Subordinated Notes due
May 2009 ("Senior Subordinated Notes") of which $8.2 million has been accreted
to the Condensed Consolidated Statement of Operations since the date of
acquisition along with principal repayments of $650,000. The fair value of the
notes as of June 30, 2001 was $595.7approximately $2.8 million and includes a call premium of
$27.5$2.0 million if the notes are redeemed during the twelve month period beginning
on May 1, 2004.
NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS
In connection with the Vehicle Leasing Acquisition on June 30, 1999 and as part
of the financing thereof, the Predecessor issued and sold the Senior
Subordinated Notes (see Note 5) in a transaction exempt from registration under
the Securities Act. The Senior Subordinated Notes are unsecured obligations of
Avis Group Holdings, Inc. The notes are subordinated in right of payment to all
existing and future senior indebtedness of the Company, and are guaranteed by
certain Avis Group Holdings, Inc. domestic subsidiaries. Vehicle Leasing and its
subsidiaries were released as guarantors under this financing agreement upon
Vehicle Leasing's sale to PHH Corp. on March 1, 2001 (see Notes 1 and 2).
Accordingly, the following condensed consolidating financial information
presents the Condensed Consolidating Statements of Financial Position as of June
30, 2001 and December 31, 2000 and the results of operations
for the period March 1, 2001 (Date of Acquisition) to June 30,March 31, 2001
six months ended June 30,
2001, the two months ended February 28, 2001, and the three months ended June
30, 2001 and June 30, 2000.
9
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The Condensed Consolidated Statements of Operations for the two months ended February 28, 2001, respectively. The
Company expects amortization expense on intangible assets for the
remainder of 2002 to approximate $720,000 and $1 million for each of
the succeeding five years. Intangible assets are included as a
component of other assets on the balance sheet.
The changes in the carrying amount of goodwill for the first quarter
2002 are as follows:
Balance as of January 1, 2002 $1,271,192
Goodwill acquired during 2002 1,584
Other (9,280)
----------
Balance as of March 31, 2002 $1,263,496
==========
Had the Company applied the non-amortization provisions of SFAS No. 142
for the period March 1, 2001 (Date of Acquisition) to March 31, 2001
and the threetwo months ended February 28, 2001, net income (loss) would
have been as follows:
PREDECESSOR
MARCH 1, 2001 COMPANIES
(DATE OF -----------------
ACQUISITION) TWO MONTHS
TO ENDED
MARCH 31, 2001 FEBRUARY 28, 2001
-------------- -----------------
Reported net income (loss) $ 8,695 $ (29,119)
Add back: Goodwill amortization 2,814 1,903
---------- ----------
Pro forma net income (loss) $ 11,509 $ (27,216)
========== ==========
4. VEHICLE DEBT
As of March 31, 2002, the Company's asset backed funding arrangements
under the AESOP Funding program provided for the issuance of up to
$4.45 billion of debt. Amounts outstanding under the AESOP Funding
program approximated $3.6 billion. As of March 31, 2002, the Company
had an additional $850 million of availability under the AESOP Funding
program. In addition, the Company has other outstanding vehicle debt of
approximately $167 million and six month periods ended June 30, 2000
presentavailability of approximately $172
million under other funding arrangements as of March 31, 2002.
5. COMMITMENTS AND CONTINGENCIES
Parent Company Litigation
Cendant is involved in litigation asserting claims associated with the
accounting irregularities discovered in former CUC business units
outside of the principal common stockholder class action litigation.
Cendant does not believe that it is feasible to predict or determine
the final outcome or resolution of these unresolved proceedings. An
adverse outcome from such unresolved proceedings could be material with
respect to earnings in any given reporting period. However, Cendant
does not believe that the impact of such unresolved proceedings should
result in a material liability to Cendant in relation to its
consolidated financial position or liquidity.
The Company is involved in pending litigation in the usual course of
business. In the opinion of management, such other litigation will not
have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
7
6. STOCKHOLDER'S EQUITY
The components of Vehicle Leasingcomprehensive income (loss) are summarized as
income from discontinued
operations,follows:
PREDECESSOR
COMPANIES
MARCH 1, 2001 -----------------
THREE MONTHS (DATE OF ACQUISITION) TWO MONTHS
ENDED TO ENDED
MARCH 31, 2002 MARCH 31, 2001 FEBRUARY 28, 2001
--------------- --------------------- -----------------
Net income (loss) $ (2,409) $ 8,695 $ (29,119)
Other comprehensive income (loss):
Currency translation adjustment 791 (3,414) (1,758)
Unrealized gains (losses) on cash flow
hedges, net of tax 11,586 (1,371) 561
Minimum pension liability adjustment (1,336) - -
Cumulative effect from change in accounting
policy for derivative instruments, net of
tax - - 1,464
------------ --------------- ------------
Total comprehensive income (loss) $ 8,632 $ 3,910 $ (28,852)
============ =============== ============
The after-tax components of accumulated other comprehensive income
(loss) for the three months ended March 31, 2002 are as follows:
UNREALIZED MINIMUM ACCUMULATED
CURRENCY GAINS (LOSSES) PENSION OTHER
TRANSLATION ON CASH FLOWS LIABILITY COMPREHENSIVE
ADJUSTMENTS HEDGES ADJUSTMENT GAIN (LOSS)
----------- -------------- ----------- --------------
Balance, January 1, 2002 $ (2,469) $ (34,583) $ - $(37,052)
Current period change 791 11,586 (1,336) 11,041
----------- ------------ --------- ---------
Balance, March 31, 2002 $ (1,678) $ (22,997) $ (1,336) $(26,011)
=========== ============ ========= =========
7. GUARANTOR AND NON-GUARANTOR CONSOLIDATING CONDENSED FINANCIAL
STATEMENTS
The following consolidating condensed financial information presents
the Consolidating Condensed Balance Sheets as of March 31, 2002 and
December 31, 2001 and the Consolidating Condensed Statements of
Operations and Statements of Cash Flows for the three months ended
March 31, 2002, the period March 1, 2001 (Date of Acquisition) to March
31, 2001, and as to the Predecessor Companies for the two months ended
February 28, 2001 of (a) Avis Group Holdings, Inc. ("the Parent"); (b)
the guarantor subsidiaries; (c) the non-guarantor subsidiaries; (d)
elimination entries necessary to consolidate the Parent with the
guarantor and non-guarantor subsidiaries; and (e) the Company on a
consolidated basis.
Investments in subsidiaries are accounted for using the equity method
for purposes of the related income tax provision.consolidating presentation. The principal
elimination entries relate to investments in subsidiaries and
intercompany balances and transactions. Separate financial statements
and other disclosures with respect to the subsidiary guarantors have
not been provided as management believes the following information is
sufficient.
8
AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
AVIS GROUP HOLDINGS, INC
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS)
------------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------------- ------------ ------------ ------------ ------------------------------
Revenue ....................................... $570,551REVENUES $ 58,342-- $ 628,893
--------507,415 $ 57,188 $ -- $ 564,603
--------- --------
Costs and expenses:
Direct operating,--------- --------- --------- ---------
EXPENSES
Operating, net ......................... 206,190 25,503 231,693-- 195,292 28,275 -- 223,567
Vehicle depreciation and lease charges, net ... 161,095 12,569 173,664-- 145,565 17,126 -- 162,691
Selling, general and administrative ........... 108,548 7,992 116,540
Interest,-- 107,594 7,337 -- 114,931
Vehicle interest, net ................................. $ 11,809 58,242 425 70,476459 49,980 208 -- 50,647
Non-vehicle interest, net 7,657 3,138 -- -- 10,795
Non-vehicle depreciation and amortization ..... 4,547 681 5,228
Amortization of cost in excess of net
assets acquired and other intangibles ...... 4,746 2,850 44 7,640
-------- --------239 5,202 684 -- 6,125
--------- --------
16,555 541,472 47,214 605,241
-------- -------- --------- --------
(16,555) 29,079 11,128 23,652--------- --------- ---------
Total expenses 8,355 506,771 53,630 -- 568,756
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF
SUBSIDIARIES (8,355) 644 3,558 -- (4,153)
Equity in earnings of subsidiaries ............ 28,021 9,528 $(37,549)
-------- --------1,571 2,064 -- (3,635) --
--------- -------- --------
Income before provision--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (6,784) 2,708 3,558 (3,635) (4,153)
Provision (benefit) for income taxes ...... 11,466 38,607 11,128 (37,549) 23,652
Provision for income taxes .................... 1,567 10,586 1,600 13,753
-------- --------(4,375) 1,137 1,494 -- (1,744)
--------- -------- --------
Net income ....................................--------- --------- --------- ---------
NET INCOME (LOSS) $ 9,899(2,409) $ 28,0211,571 $ 9,528 $(37,549)2,064 $ 9,899
======== ========(3,635) $ (2,409)
========= ======== ================= ========= ========= =========
AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF
OPERATIONS FOR THE PERIOD MARCH 1, 2001 (DATE OF
ACQUISITION) TO MARCH 31, 2001
AVIS GROUP HOLDINGS, INC
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(PREDECESSOR COMPANIES)
THREE MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
---------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ---------------
Revenue ............................................. $ 608,411 $58,186 $666,597
--------- ------- -------
Costs and expenses:
Direct operating, net ............................... 204,842 24,472 229,314
Vehicle depreciation and lease charges, net ......... 158,175 13,921 172,096
Selling, general and administrative ................. 111,700 7,836 119,536
Interest, net ....................................... $ 40,207 60,941 818 101,966
Non-vehicle depreciation and amortization ........... 4,161 669 4,830
Amortization of cost in excess of net
assets acquired and other intangibles ............ 3,078 44 3,122
--------- --------- ------- --------
40,207 542,897 47,760 630,864
--------- --------- ------- ------
(40,207) 65,514 10,426 35,733
Equity in earnings of subsidiaries .................. 63,406 32,472 $ (95,878)
--------- --------- ------- ----------- --------
Income from continuing operations before (benefit)
provision for income taxes ....................... 23,199 97,986 10,426 (95,878) 35,733
(Benefit) provision for income taxes ................ (14,233) 28,698 2,045 16,510
--------- --------- ------- ----------- --------
Income from continuing operations ................... 37,432 69,288 8,381 (95,878) 19,223
Income (loss) from discontinued operation, net of
income taxes ...................................... (5,882) 24,091 18,209
--------- --------- ------- ----------- --------
Net income ........................................ $ 37,432 $ 63,406 $32,472 $ (95,878) $ 37,432
========= ========= ======= =========== ========
10
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 1, 2001 (DATE OF ACQUISITION) TO JUNE 30, 2001
(IN THOUSANDS)
--------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ --------------
RevenueREVENUES $ 767,986-- $197,435 $ 78,90320,561 $ 846,889
----------- ------------ ------------
Costs and expenses:
Direct operating, net............................... 275,749 34,616 310,365-- $217,996
-------- -------- -------- -------- --------
EXPENSES
Operating, net -- 69,559 9,113 -- 78,672
Vehicle depreciation and lease charges, net......... 210,001 18,758 228,759net -- 48,906 6,189 -- 55,095
Selling, general and administrative................. 143,494 10,621 154,115
Interest, net....................................... $ 16,246 79,002 861 96,109administrative -- 34,946 2,629 -- 37,575
Vehicle interest, net 1,154 18,957 436 -- 20,547
Non-vehicle interest, net 3,283 1,803 -- -- 5,086
Non-vehicle depreciation and amortization........... 5,887 898 6,785
Amortization of cost in excess of net
assets acquired and other intangibles............ 6,574 3,878 58 10,510
----------- ----------- ------------ ------------
22,820 718,011 65,812 806,643
----------- ----------- ------------ ------------amortization 1,828 2,368 231 -- 4,427
-------- -------- -------- -------- --------
Total expenses 6,265 176,539 18,598 -- 201,402
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE EQUITY IN EARNINGS
OF SUBSIDIARIES (6,265) 20,896 1,963 -- 16,594
Equity in earnings of subsidiaries.................. 39,223 10,739 $ (49,962)
----------- ----------- ------------ ------------ ------------
Income beforesubsidiaries 11,488 1,029 -- (12,517) --
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 5,223 21,925 1,963 (12,517) 16,594
Provision (benefit) provision for income taxes . 16,403 60,714 13,091 (49,962) 40,246
(Benefit) provision for income taxes................ (2,191) 21,491 2,352 21,652
----------- ----------- ------------ ------------ ------------
Net income..........................................(3,472) 10,437 934 -- 7,899
-------- -------- -------- -------- --------
NET INCOME $ 18,5948,695 $ 39,22311,488 $ 10,7391,029 $(12,517) $ (49,962) $ 18,594
=========== =========== ============ ============ ============8,695
======== ======== ======== ======== ========
AVIS GROUP HOLDINGS, INC9
AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(PREDECESSOR COMPANIES)
FOR THE TWO MONTHS ENDED FEBRUARY 28, 2001
(IN THOUSANDS)
-------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ --------------
Revenue ......................................................REVENUES $ -- $ 344,496 $ 41,325 $ -- $ 385,821
--------
--------- --------- Costs and expenses:
Direct operating,--------- --------- ---------
EXPENSES
Operating, net ........................................-- 154,490 19,340 -- 173,830
Vehicle depreciation and lease charges, net ..................-- 102,490 9,476 -- 111,966
Selling, general and administrative ..........................-- 77,866 5,363 -- 83,229
Interest,Vehicle interest, net ................................................ $ 11,4732,306 40,375 944 52,792-- 43,625
Non-vehicle interest, net 9,167 -- -- -- 9,167
Non-vehicle depreciation and amortization .................... 3,707 447 4,154
Amortization of cost in excess of net
assets acquired ........................................... 2,060 27 2,087-- 5,767 474 -- 6,241
--------- -------- --------- --------- --------- ---------
Total expenses 11,473 380,988 35,597 -- 428,058
--------- -------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE EQUITY IN EARNINGS
(LOSSES) OF SUBSIDIARIES (11,473) (36,492) 5,728 -- (42,237)
Equity (loss) in earnings (losses) of subsidiaries .................... (21,907) 10,898 $ 11,009
Income (loss) from continuing operations before(25,645) 9,950 -- 15,695 --
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (37,118) (26,542) 5,728 15,695 (42,237)
Provision (benefit) provision for income taxes ...................... (33,380) (25,594) 5,728 11,009 (42,237)
(Benefit) provision for income taxes ......................... (4,261) (12,716) 1,194(7,999) (9,926) 2,142 -- (15,783)
--------- -------- --------- -------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS (29,119) (16,616) 3,586 15,695 (26,454)
Income (loss) from continuing operations ..................... (29,119) (12,878) 4,534 11,009 (26,454)
(Loss) income from discontinued operations,
net of income taxes ..............................................tax -- (6,358) 11,305 -- 4,947
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (29,119) (22,974) 14,891 15,695 (21,507)
Cumulative effect from prior years (through December 31, 2000)
of change in accounting principle for derivative
instruments,change, net
of income tax benefit ....................-- (2,671) (4,941) -- (7,612)
--------- -------- --------- -------- --------- Net (loss) income ............................................--------- ---------
NET INCOME (LOSS) $ (29,119) $(21,907) $ 10,898(25,645) $ 11,0099,950 $ 15,695 $ (29,119)
========= ======== ========= ================= ========= =========
1110
AVIS GROUP HOLDINGS, INC. NOTES TO THEAND SUBSIDIARIES
CONSOLIDATING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)BALANCE SHEET
MARCH 31, 2002
AVIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(PREDECESSOR COMPANIES)
SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
----------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------------------- ------------- ------------ ------------ -----------------------------
Revenue ...........................................ASSETS
Cash and cash equivalents $ 1,134,36010 $ 121,1134,228 $ 1,255,473
----------- ------------ ------------
Costs10,262 $ -- $ 14,500
Receivables, net -- 129,964 28,401 -- 158,365
Prepaid expenses -- 32,417 7,189 -- 39,606
Due from affiliate (347,045) 218,967 128,078 -- --
Deferred income taxes 216,944 338,737 (312) -- 555,369
Property and expenses:
Direct operating, net.............................. 401,713 54,295 456,008
Vehicle depreciation and lease charges, net........ 289,510 29,818 319,328
Selling, general and administrative................ 217,692 16,447 234,139
Interest, net...................................... $ 80,249 109,720 1,267 191,236
Non-vehicle depreciation and amortization.......... 8,252 1,361 9,613
Amortization of costequipment, net -- 195,583 12,528 -- 208,111
Investment in excess of netconsolidated subsidiaries 693,309 631,939 -- (1,325,248) --
Goodwill 815,959 444,563 2,974 -- 1,263,496
Other assets acquired................................. 6,192 89 6,28115,780 36,704 92,557 -- 145,041
----------- ----------- ------------ ------------
80,249 1,033,079 103,277 1,216,605
----------- ----------- ------------ ------------
(80,249) 101,281 17,836 38,868
Equity in earnings-----------
Total assets exclusive of subsidiaries................. 107,458 62,027 $ (169,485)assets under management
programs 1,394,957 2,033,102 281,677 (1,325,248) 2,384,488
----------- ----------- ------------ ----------- ------------
Income----------- -----------
Assets under management programs:
Restricted cash -- 319 275,579 -- 275,898
Vehicles, net -- (87,382) 3,715,535 -- 3,628,153
Due from continuing operations before (benefit)
provision forvehicle manufacturers -- 3,765 57,360 -- 61,125
----------- ----------- ----------- ----------- -----------
-- (83,298) 4,048,474 -- 3,965,176
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $ 1,394,957 $ 1,949,804 $ 4,330,151 $(1,325,248) $ 6,349,664
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable $ (15,114) $ 150,440 $ 28,794 $ -- $ 164,120
Accrued liabilities 122,887 325,614 29,074 -- 477,575
Due to Cendant Corporation and affiliates, net 380,000 290,589 (170,730) -- 499,859
Non-vehicle debt 577,466 4,592 -- -- 582,058
Public liability, property damage and other
insurance liabilities -- 147,029 67,114 -- 214,143
----------- ----------- ----------- ----------- -----------
Total liabilities exclusive of liabilities under
management programs 1,065,239 918,264 (45,748) -- 1,937,755
----------- ----------- ----------- ----------- -----------
Liabilities under management programs:
Vehicle debt -- 60,521 3,706,075 -- 3,766,596
Deferred income taxes ..................... 27,209 163,308 17,836 (169,485) 38,868
(Benefit) provision for income taxes............... (29,809) 43,218 3,994 17,403-- 277,710 37,885 -- 315,595
----------- ----------- ------------ ----------- ------------
Income from continuing operations.................. 57,018 120,090 13,842 (169,485) 21,465
Income (loss) from discontinued operation, net of
income taxes.................................... (12,632) 48,185 35,553
----------- ----------- ------------ -----------
------------
Net income.........................................-- 338,231 3,743,960 -- 4,082,191
----------- ----------- ----------- ----------- -----------
Stockholder's equity 329,718 693,309 631,939 (1,325,248) 329,718
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 57,0181,394,957 $ 107,4581,949,804 $ 62,0274,330,151 $(1,325,248) $ (169,485) $ 57,0186,349,664
=========== =========== ============ =========== ======================= ===========
1211
AVIS GROUP HOLDINGS, INC. NOTES TO THEAND SUBSIDIARIES
CONSOLIDATING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)BALANCE SHEET
DECEMBER 31, 2001
AVIS GROUP HOLDINGS, INC.
CONDENSED
CONSOLIDATING STATEMENT OF FINANCIAL POSITION
JUNE 30, 2001
(IN THOUSANDS)
-------------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------- ------------ ------------ ------------ -----------------------------
ASSETS
Cash and cash equivalents .................... $ 30518 $ 4,6275,210 $ 17,4768,083 $ 22,408
Accounts receivable,-- $ 13,311
Receivables, net ..................... (12) 169,620 206,052 375,660-- 142,386 25,986 -- 168,372
Prepaid expenses ............................. 49,491 8,530 58,021-- 34,569 7,974 -- 42,543
Deferred income tax 221,741 326,332 14 -- 548,087
Property and equipment, net .................. 184,683 15,897 200,580-- 190,319 12,913 -- 203,232
Investment in consolidated subsidiaries ...... 762,718 611,537 $(1,374,255)677,401 628,280 -- (1,305,681) --
Goodwill, net 825,234 443,000 2,958 -- 1,271,192
Other assets ................................. (2,580) 32,910 30,330
Deferred income tax assets, net .............. 182,559 261,795 (624) 443,730
Intangible assets - customer lists ........... 19,498 19,498
Cost in excess of net assets acquired, net ... 756,951 461,231 2,711 1,220,893
Management programs:
Restricted cash ........................... 1 154,152 154,153
Vehicles, net ............................. (72,004) 4,167,327 4,095,323
----------- ----------- ----------
(72,003) 4,321,479 4,249,47616,020 34,791 95,797 -- 146,608
----------- ----------- ----------- ----------- ---------------------
Total assets .................................exclusive of assets under management
programs 1,740,414 1,804,887 153,725 (1,305,681) 2,393,345
----------- ----------- ----------- ----------- -----------
Assets under management programs:
Restricted cash -- 9,457 571,730 -- 581,187
Vehicles, net -- (88,822) 3,559,759 -- 3,470,937
Due from vehicle manufacturers -- 7,855 84,759 -- 92,614
----------- ----------- ----------- ----------- -----------
-- (71,510) 4,216,248 -- 4,144,738
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $ 1,722,0191,740,414 $ 1,668,4011,733,377 $ 4,604,431 $(1,374,255) $6,620,5964,369,973 $(1,305,681) $ 6,538,083
=========== =========== =========== =========== =====================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued$ -- $ 151,379 $ 212,512 $ -- $ 363,891
Accrued liabilities ..... $ 10,151 $ 428,508 $ 203,197 $ 641,856109,143 300,337 25,185 -- 434,665
Due to Cendant Corporation and affiliates, net 697,101 (33,108) (286,957) 377,036726,645 63,214 (275,426) -- 514,433
Non-vehicle debt 583,540 4,719 -- -- 588,259
Public liability, property damage and other
insurance liabilities net ................ 171,810 53,175 224,985
Non-vehicle debt ............................. 595,690 5,098 600,788
Management programs:
Vehicle debt .............................. 3,984,905 3,984,905
Deferred income taxes ..................... 333,375 38,574 371,949
----------- ----------- ----------
333,375 4,023,479 4,356,854-- 166,432 62,071 -- 228,503
----------- ----------- ----------- ----------- ----------
Common stockholder's equity .................. 419,077 762,718 611,537 (1,374,255) 419,077-----------
Total liabilities exclusive of liabilities under
management programs 1,419,328 686,081 24,342 -- 2,129,751
----------- ----------- ----------- ----------- ----------
Total liabilities and stockholder's-----------
Liabilities under management programs:
Vehicle debt -- 86,004 3,685,337 -- 3,771,341
Deferred income taxes -- 283,891 32,014 -- 315,905
----------- ----------- ----------- ----------- -----------
-- 369,895 3,717,351 -- 4,087,246
----------- ----------- ----------- ----------- -----------
Stockholder's equity ...321,086 677,401 628,280 (1,305,681) 321,086
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,722,0191,740,414 $ 1,668,4011,733,377 $ 4,604,431 $(1,374,255) $6,620,5964,369,973 $(1,305,681) $ 6,538,083
=========== =========== =========== =========== =====================
1312
AVIS GROUP HOLDINGS, INC. NOTES TOAND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)THREE MONTHS ENDED MARCH 31, 2002
AVIS GROUP HOLDINGS, INC.
CONDENSED
CONSOLIDATING STATEMENT OF FINANCIAL POSITION
(PREDECESSOR COMPANIES)
DECEMBER 31, 2000
(IN THOUSANDS)
-----------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ---------------
ASSETS
Cash and cash equivalents........................ $ 73 $ 65,602 $ 14,693 $ 80,368
Accounts receivable, net......................... 156 172,255 335,917 508,328
Prepaid expenses................................. 39,014 8,910 47,924
Property and equipment, net...................... 167,256 14,248 181,504
Investment in consolidated subsidiaries.......... 2,276,599 (826) $ (2,275,773)
Other assets..................................... 1,064 55,304 22,604 78,972
Net assets of discontinued operation............. (883,464) 2,086,932 (323,168) 880,300
Deferred income taxes............................ 96,680 249,201 3,387 349,268
Cost in excess of net assets acquired, net....... 450,922 2,528 453,450
Management programs:
Restricted cash............................... 167,482 167,482
Vehicles, net................................. (50,804) 3,812,258 3,761,454
----------- ------------ -------------
(50,804) 3,979,740 3,928,936
------------ ----------- ------------ ------------ -------------
Total assets..................................... $ 1,491,108 $ 3,234,856 $ 4,058,859 $ (2,275,773) $ 6,509,050
============ =========== ============ ============ =============
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities......... $ 10,994 $ 383,754 $ 152,085 $ 546,833
Due to Cendant Corporation and affiliates, net... 36,117 36,117
Public liability, property damage and other
insurance liabilities, net.................... 194,373 53,194 247,567
Non-vehicle debt................................. 725,000 5,333 730,333
Management programs:
Vehicle debt.................................. 3,816,682 3,816,682
Deferred income taxes......................... 338,680 37,724 376,404
----------- ------------ -----------
338,680 3,854,406 4,193,086
------------ ----------- ------------ ------------ -----------
Common stockholder's equity...................... 755,114 2,276,599 (826) $ (2,275,773) 755,114
------------ ----------- ------------ ------------ -----------
Total liabilities and common stockholder's equity $ 1,491,108 $ 3,234,856 $ 4,058,859 $ (2,275,773) $ 6,509,050
============ =========== ============ ============ ===========
14
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC.
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 1, 2001 (DATE OF ACQUISITION) TO JUNE 30, 2001
(IN THOUSANDS)
--------------------------------------------------------------------
AVIS GROUP
NON- HOLDINGS, INC.
PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
--------- ----------- ----------------------- ------------- ------------- ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:ACTIVITIES
Net income (loss) ...................................... $ 18,594(2,409) $ 39,2231,571 $ 10,7392,064 $ (49,962)(3,635) $ 18,594(2,409)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities exclusive of
management programs (1,423) (15,987) 21,712 -- 4,302
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES EXCLUSIVE OF MANAGEMENT
PROGRAMS (3,832) (14,416) 23,776 (3,635) 1,893
----------- ----------- ----------- ----------- -----------
MANAGEMENT PROGRAMS:
Vehicle depreciation -- 145,070 9,680 -- 154,750
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (3,832) 130,654 33,456 (3,635) 156,643
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Property and equipment additions -- (10,465) (233) -- (10,698)
Retirements of property and equipment -- (2) 2 -- --
Payment for purchase of rental car
franchise licensees -- (2,835) -- -- (2,835)
Investment in subsidiaries (1,571) (2,064) -- 3,635 --
----------- ----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES
EXCLUSIVE OF MANAGEMENT PROGRAMS (1,571) (15,366) (231) 3,635 (13,533)
----------- ----------- ----------- ----------- -----------
MANAGEMENT PROGRAMS:
Decrease in restricted cash -- 9,138 296,151 -- 305,289
Decrease in due from vehicle
manufacturers -- 4,090 27,089 -- 31,179
Investment in vehicles -- (3,637) (1,187,195) -- (1,190,832)
Payments received on investment in
vehicles -- (129,019) 835,234 -- 706,215
----------- ----------- ----------- ----------- -----------
-- (119,428) (28,721) -- (148,149)
----------- ----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,571) (134,794) (28,952) 3,635 (161,682)
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Net decrease in non-vehicle debt -- (125) -- -- (125)
Increase (decrease) in due to Cendant
Corporation and affiliates, net 5,394 3,400 (22,691) -- (13,897)
Payments for debt issuance costs -- (115) -- -- (115)
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES EXCLUSIVE OF MANAGEMENT
PROGRAMS 5,394 3,160 (22,691) -- (14,137)
----------- ----------- ----------- ----------- -----------
MANAGEMENT PROGRAMS:
Net increase in vehicle debt -- -- 20,247 -- 20,247
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 5,394 3,160 (2,444) -- 6,110
----------- ----------- ----------- ----------- -----------
Effect of changes in exchange rates on cash
and cash equivalents -- -- 118 -- 118
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (9) (980) 2,178 -- 1,189
Cash and cash equivalents, beginning of
period 18 5,210 8,083 -- 13,311
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9 $ 4,230 $ 10,261 $ -- $ 14,500
=========== =========== =========== =========== ===========
13
AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 1, 2001(DATE OF ACQUISITION) TO MARCH 31, 2001
AVIS GROUP
NON- HOLDINGS, INC.
PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
----------- ----------- --------- ------------ ---------------
OPERATING ACTIVITIES
Net income $ 8,695 $ 11,488 $ 1,029 $ (12,517) $ 8,695
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities: ........ 338,443 85,375 (256,811) 167,007activities exclusive of management
programs (81,697) 95,426 3,057 -- 16,786
--------- ----------- ----------- --------- -------------------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 357,037 124,598 (246,072) (49,962) 185,601EXCLUSIVE OF MANAGEMENT
PROGRAMS (73,002) 106,914 4,086 (12,517) 25,481
--------- ----------- ----------- --------- -------------------- --------- ---------
MANAGEMENT PROGRAMS:
Vehicle depreciation -- 47,411 4,025 -- 51,436
--------- --------- --------- --------- ---------
NET CASH FLOWS FROMPROVIDED BY (USED IN) OPERATING
ACTIVITIES (73,002) 154,325 8,111 (12,517) 76,917
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Management programs:
Payments for vehicle additions ..................... (49,032) (1,859,061) (1,908,093)
Vehicle deletions .................................. (180,748) 1,730,475 1,549,727
Payments for additions to propertyACTIVITIES
Property and equipment ....... (17,146) (471) (17,617)additions -- (5,205) (119) -- (5,324)
Retirements of property and equipment .................. 2,750 45 2,795
Payment for purchase of rental car franchise licensees . (18,748) (299) (19,047)-- 172 143 -- 315
Investment in subsidiaries ............................. (39,223) (10,739) 49,962(11,488) (1,029) -- 12,517 --
--------- ----------- ----------- --------- -------------------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES ........... (39,223) (273,663) (129,311) 49,962 (392,235)EXCLUSIVE OF MANAGEMENT
PROGRAMS (11,488) (6,062) 24 12,517 (5,009)
--------- ----------- ----------- --------- -------------------- --------- ---------
MANAGEMENT PROGRAMS:
Increase in restricted cash -- -- (33,868) -- (33,868)
Decrease in due from vehicle -- 15,980 131,432 -- 147,412
manufacturers
Investment in vehicles -- (17,490) (472,648) -- (490,138)
Payments received on investment in
vehicles -- (38,398) 391,614 -- 353,216
--------- --------- --------- --------- ---------
-- (39,908) 16,530 -- (23,378)
--------- --------- --------- --------- ---------
NET CASH FLOWS FROMPROVIDED BY (USED IN) INVESTING
ACTIVITIES (11,488) (45,970) 16,554 12,517 (28,387)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Management programs:
Net (decrease) increase in vehicle debt ............ (8,744) 138,907 130,163ACTIVITIES
Net decrease in non-vehicle debt ....................... (317,650) (156) (317,806)
Due(17,000) (39) -- -- (17,039)
Increase (decrease) in due to Cendant
intercompany financing,Corporation and affiliates, net ............. 130,078 224,850 354,928101,574 (94,448) 90,090 -- 97,216
Payments for debt issuance costs ....................... (4,231) (4,231)-- (3,621) -- -- (3,621)
--------- ----------- ----------- -------------------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES EXCLUSIVE OF MANAGEMENT
PROGRAMS 84,574 (98,108) 90,090 -- 76,556
--------- --------- --------- --------- ---------
MANAGEMENT PROGRAMS:
Net decrease in vehicle debt -- -- (126,488) -- (126,488)
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (317,650) 116,947 363,757 163,05484,574 (98,108) (36,398) -- (49,932)
--------- ----------- ----------- -------------------- --------- --------- ---------
Effect of changes in exchange rate changesrates on
cash ................ (117) (117)and cash equivalents -- -- (923) -- (923)
--------- ----------- ----------- --------- -------------------- --------- ---------
Net increase (decrease) in cash and cash
equivalents ... 164 (32,118) (11,743) (43,697)84 10,247 (12,656) -- (2,325)
Cash and cash equivalents, at beginning of
period ....... 141 36,745 29,219 -- 66,105
--------- ----------- ----------- --------- -------------------- --------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD ......... $ 305225 $ 4,62746,992 $ 17,47616,563 $ -- $ 22,40863,780
========= =========== =========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid ................................. $ 108,764
===========
Cash income taxes paid ............................. $ 8,889
==================== ========= =========
1514
AVIS GROUP HOLDINGS, INC. NOTES TO THEAND SUBSIDIARIES
CONSOLIDATING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC.
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
(PREDECESSOR COMPANIES)
FOR THE TWO MONTHS ENDED FEBRUARY 28, 2001
(IN THOUSANDS)
-----------------------------------------------------------------------
NON-
AVIS GROUP
GUARANTOR GUARANTORNON- HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIESGUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
------------------- ----------- ----------- ------------ ------------ ------------ ---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:ACTIVITIES
Net income (loss) ...................................... $ (29,119) $ (21,907)(25,645) $ 10,8989,950 $ 11,00915,695 $ (29,119)
Adjustments to arrive at income (loss) from
continuing operations -- 9,029 (6,364) -- 2,665
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (29,119) (16,616) 3,586 15,695 (26,454)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
provided by operating activities: ........ (84,860) 86,236 45,824 47,200activities exclusive of
management programs 425 75,609 (119,640) -- (43,606)
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) PROVIDED BY OPERATING
ACTIVITIES (113,979) 64,329 56,722 11,009 18,081EXCLUSIVE OF MANAGEMENT
PROGRAMS (28,694) 58,993 (116,054) 15,695 (70,060)
--------- --------- --------- --------- ---------
MANAGEMENT PROGRAMS:
Vehicle depreciation -- 97,909 8,019 -- 105,928
--------- --------- --------- --------- ---------
NET CASH FLOWS FROMPROVIDED BY (USED IN) OPERATING
ACTIVITIES (28,694) 156,902 (108,035) 15,695 35,868
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Management programs:
Payments for vehicle additions ..................... (1,843) (941,259) (943,102)
Vehicle deletions .................................. (82,138) 895,598 813,460
Payments for additions to propertyACTIVITIES
Property and equipment .......additions -- (2,948) (330) -- (3,278)
Retirements of property and equipment ..................-- (400) 20 -- (380)
Increase (decrease) in net assets and preferred stock of
discontinued operations ............................. 5,132 (5,423) (291)
Investment in subsidiaries ............................. 21,907 (10,898) (11,009)25,645 (9,950) -- (15,695) --
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 21,907 (93,095) (51,394) (11,009) (133,591)EXCLUSIVE OF MANAGEMENT
PROGRAMS 25,645 (13,298) (310) (15,695) (3,658)
--------- --------- --------- --------- ---------
MANAGEMENT PROGRAMS:
Decrease in restricted cash -- -- 10,978 -- 10,978
Decrease in due from vehicle
manufacturers -- -- 16,368 -- 16,368
Investment in vehicles -- (1,843) (941,259) -- (943,102)
Payments received on investment in
vehicles -- (82,138) 895,598 -- 813,460
--------- --------- --------- --------- ---------
-- (83,981) (18,315) -- (102,296)
--------- --------- --------- --------- ---------
NET CASH FLOWS FROMPROVIDED BY (USED IN) INVESTING
ACTIVITIES 25,645 (97,279) (18,625) (15,695) (105,954)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Management programs:
Net increase (decrease) in vehicle debt ............ 92,000 (2) 9,209 101,207ACTIVITIES
Net decrease in non-vehicle debt .......................-- (77) -- -- (77)
Increase (decrease) in due to Cendant
Corporation and affiliates, net (89,023) 43,123 82 -- (45,818)
Payments for debt issuance costs .......................-- (12) -- -- (12)
Other ..................................................Repurchases of common stock 140 -- -- -- 140
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 92,140 (91)EXCLUSIVE OF MANAGEMENT
PROGRAMS (88,883) 43,034 82 -- (45,767)
--------- --------- --------- --------- ---------
MANAGEMENT PROGRAMS:
Net increase (decrease) in vehicle debt 92,000 (2) 9,209 101,258-- 101,207
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,117 43,032 9,291 -- 55,440
--------- --------- --------- --------- ---------
Effect of changes in net assets of
discontinued operations -- (131,512) 131,906 -- 394
--------- --------- --------- --------- ---------
Effect of changes in exchange rate changesrates on cash
................and cash equivalents -- -- (11) -- (11)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents ... 68 (28,857) 14,56214,526 -- (14,263)
Cash and cash equivalents, at beginning of
period ....... 73 65,602 14,693 -- 80,368
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD ............. $ 141 $ 36,745 $ 29,219 $ -- $ 66,105
=========
========= ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid ................................. $ 44,315
=========
Cash income taxes paid ............................. $ 1,962
=========
1615
AVIS GROUP HOLDINGS, INC.
NOTES TOItem 2. Management's Narrative Analysis of the Results of Operations
THE CONDENSEDFOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5-GUARANTOR AND NON-GUARANTOR
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC.
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
(PREDECESSOR COMPANIES)
SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
-----------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 57,018 $ 107,459 $ 62,027 $(169,486) $ 57,018
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: ....... 60,915 847,033 (662,624) 1 245,325
--------- ----------- ----------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 117,933 954,492 (600,597) (169,485) 302,343
--------- ----------- ----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Management programs:
Payments for vehicle additions ..................... (7,841) (2,742,957) (2,750,798)
Vehicle deletions .................................. (271,269) 2,112,359 1,841,090
Payments for additions for property and equipment ...... (18,352) (1,080) (19,432)
Retirements of property and equipment .................. 5,145 377 5,522
(Decrease) increase in net assets and preferred stock of
discontinued operations ............................ (602,073) 566,630 (35,443)
Investment in subsidiaries ............................. (107,458) (62,027) 169,485
--------- ----------- ----------- --------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES ........... (107,458) (956,417) (64,671) 169,485 (959,061)
--------- ----------- ----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Management programs:
Net increase in (repayment of) vehicle debt ........ 677,656 677,656
Net decrease in non-vehicle debt ....................... (10,500) (215) (10,715)
Payments for debt issuance costs ....................... (5,127) (5,127)
--------- ----------- ----------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (10,500) (5,342) 677,656 661,814
--------- ----------- ----------- ---------
Effect of exchange rate changes on cash ................ (175) (175)
--------- ----------- ----------- ---------
Net (decrease) increase in cash and cash equivalents ... (25) (7,267) 12,213 4,921
Cash and cash equivalents at beginning of period ....... 54 24,797 7,050 31,901
--------- ----------- ----------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 29 $ 17,530 $ 19,263 $ $ 36,822
========= =========== =========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid ................................. $ 199,869
=========
Cash income taxes paid ............................. $ 9,154
=========
17
AVIS GROUP HOLDINGS, INC.AND ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6-SEGMENT INFORMATION
The Company previously operatedTHERETO INCLUDED ELSEWHERE
HEREIN. UNLESS OTHERWISE NOTED, ALL DOLLAR AMOUNTS ARE IN THOUSANDS AND
PRESENTED BEFORE TAXES (AS APPROPRIATE).
We are the second largest general use car rental brand in two segments, vehicle leasing and vehicle
rental. Subsequent to the sale of Vehicle Leasing onworld. On March 1,
2001, all of our outstanding common stock not then owned by Cendant Corporation
("Cendant") was acquired by a subsidiary of PHH Corporation ("PHH"), a
wholly-owned subsidiary of Cendant, for approximately $994 million and we
emerged as the Company
operates in one industry segment, the vehicle rental business. The Company's
vehicle rental business rents vehiclessurviving legal entity. At such time, our fleet management and
fuel card businesses were sold to businessPHH and, leisure travelers, and is
divided into four main geographic areas: the United States, Australia/New
Zealand, Canada, and other Foreign Operations.
Revenue generated from vehicle rental operations is recordedtherefore, are presented as a
discontinued operation in the countryaccompanying Consolidated Condensed Financial
Statements. Accordingly, we are now a wholly-owned subsidiary of Cendant.
RESULTS OF OPERATIONS
The acquisition of us by Cendant resulted in which a vehicle is rented. EBITDA represents net income, plus, non-vehicle
related interest expense, non-vehicle depreciationsignificant changes to the
valuation of certain of our assets, liabilities and amortization and income
taxes from vehicle rental operations (in thousands).
GEOGRAPHIC AREAS THREE MONTHS ENDED JUNE 30, 2001
------------------------------------------------------------------------
AUSTRALIA/ OTHER
UNITED NEW FOREIGN
STATES ZEALAND CANADA OPERATIONS CONSOLIDATED
----------- ---------- --------- -------- -------------
Revenue ...................................... $ 570,552 $ 24,093 $ 26,101 $ 8,147 $ 628,893
=========== ======== ========= ======== ===========
Interest, net ................................ $ 68,873 $ 90 $ 1,282 $ 231 $ 70,476
=========== ======== ========= ======== ===========
EBITDA ....................................... $ 42,901 $ 3,499 $ 4,122 $ 1,295 $ 51,817
Non-fleet interest ........................... (9,570) (9,570)
Intercompany interest ........................ (5,007) (5,007)
Non-vehicle depreciation and amortization .... (12,126) (267) (313) (162) (12,868)
Corporate allocations ........................ (720) (720)
----------- -------- --------- -------- -----------
Income before provision for income taxes ..... 15,478 3,232 3,809 1,133 23,652
Provision for income taxes ................... 12,151 203 1,119 280 13,753
----------- -------- --------- -------- -----------
Net income ................................... $ 3,327 $ 3,029 $ 2,690 $ 853 $ 9,899
=========== ======== ========= ======== ===========
Vehicles, net ................................ $ 3,739,826 $ 47,495 $ 274,287 $ 33,715 $ 4,095,323
=========== ======== ========= ======== ===========
Debt ......................................... $ 4,370,773 $ 15,867 $ 190,911 $ 8,142 $ 4,585,693
=========== ======== ========= ======== ===========
Total assets ................................. $ 6,154,458 $ 78,458 $ 321,763 $ 65,917 $ 6,620,596
=========== ======== ========= ======== ===========
Capital expenditures for vehicles and property
and equipment ............................ $ 1,291,851 $ 6,941 $ 128,442 $ 3,014 $ 1,430,248
=========== ======== ========= ======== ===========
18
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6-SEGMENT INFORMATION (CONTINUED)
GEOGRAPHIC AREAS THREE MONTHS ENDED JUNE 30, 2000
(PREDECESSOR COMPANIES)
-------------------------------------------------------------------------
AUSTRALIA/ OTHER
UNITED NEW FOREIGN
STATES ZEALAND CANADA OPERATIONS CONSOLIDATED
----------- ---------- -------- ---------- ------------
Revenue ........................................... $ 608,410 $ 25,486 $ 24,670 $ 8,031 $ 666,597
=========== ======== ======== ======== ===========
Interest and minority interest expense, net ....... $ 99,969 $ 86 $ 1,794 $ 117 $ 101,966
=========== ======== ======== ======== ===========
EBITDA ............................................ $ 76,868 $ 4,483 $ 3,776 $ 1,469 $ 86,596
Non-fleet interest ................................ (35,998) (35,998)
Non-vehicle depreciation and amortization ......... (14,132) (299) (297) (137) (14,865)
Income before provision for income taxes and
income from discontinued operations, net of ----------- -------- -------- -------- -----------
provision for income taxes ..................... 26,738 4,184 3,479 1,332 35,733
----------- -------- -------- -------- -----------
Provision for income taxes ........................ 14,465 830 864 351 16,510
----------- -------- -------- -------- -----------
Income from continuing operations ................. 12,273 3,354 2,615 981 19,223
----------- -------- -------- -------- -----------
Income from discontinued operations, net of
provision for income taxes of $14,116 .......... 7,975 962 9,272 18,209
----------- -------- -------- -------- -----------
Net income ........................................ $ 20,248 $ 3,354 $ 3,577 $ 10,253 $ 37,432
=========== ======== ======== ======== ===========
Capital expenditures for vehicles and property
and equipment ................................. $ 1,082,868 $ 3,736 $ 99,003 $ 2,234 $ 1,187,841
=========== ======== ======== ======== ===========
FOR THE PERIOD MARCH 1, 2001
GEOGRAPHIC AREAS (DATE OF ACQUISITION) TO JUNE 30, 2001
----------------------------------------------------------------------------
AUSTRALIA/ OTHER
UNITED NEW FOREIGN
STATES ZEALAND CANADA OPERATIONS CONSOLIDATED
----------- ---------- --------- ---------- -------------
Revenue .......................................... $ 767,987 $ 34,271 $ 33,284 $ 11,347 $ 846,889
=========== ======== ========= ======== ===========
Interest, net .................................... $ 93,826 $ 163 $ 1,792 $ 328 $ 96,109
=========== ======== ========= ======== ===========
EBITDA ........................................... $ 64,795 $ 6,289 $ 4,783 $ 2,057 $ 77,924
Non-fleet interest ............................... (14,656) (14,656)
Intercompany interest ............................ (5,007) (5,007)
Non-vehicle depreciation and amortization ........ (16,319) (354) (411) (211) (17,295)
Corporate allocations ............................ (720) (720)
----------- -------- --------- -------- -----------
Income before provision for income taxes ......... 28,093 5,935 4,372 1,846 40,246
----------- -------- --------- -------- -----------
Provision for income taxes ....................... 19,300 744 1,178 430 21,652
----------- -------- --------- -------- -----------
Net income ....................................... $ 8,793 $ 5,191 $ 3,194 $ 1,416 $ 18,594
=========== ======== ========= ======== ===========
Vehicles, net .................................... $ 3,739,826 $ 47,495 $ 274,287 $ 33,715 $ 4,095,323
=========== ======== ========= ======== ===========
Debt ............................................. $ 4,370,773 $ 15,867 $ 190,911 $ 8,142 $ 4,585,693
=========== ======== ========= ======== ===========
Total assets ..................................... $ 6,154,458 $ 78,458 $ 321,763 $ 65,917 $ 6,620,596
=========== ======== ========= ======== ===========
Capital expenditures for vehicles and property
and equipment ................................ $ 1,761,127 $ 10,017 $ 150,340 $ 4,226 $ 1,925,710
=========== ======== ========= ======== ===========
19
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6-SEGMENT INFORMATION (CONTINUED)
GEOGRAPHIC AREAS TWO MONTHS ENDED FEBRUARY 28, 2001
(PREDECESSOR COMPANIES)
----------------------------------------------------------------------------
AUSTRALIA/ OTHER
UNITED NEW FOREIGN
STATES ZEALAND CANADA OPERATIONS CONSOLIDATED
----------- ---------- --------- ---------- -------------
Revenue ........................................... $ 344,496 $ 21,547 $ 13,241 $ 6,537 $ 385,821
=========== ======== ========= ======= ===========
Interest and minority interest expense, net ....... $ 51,062 $ 297 $ 1,188 $ 245 $ 52,792
=========== ======== ========= ======= ===========
EBITDA ............................................ $ (30,517) $ 4,885 $ 576 $ 1,341 $ (23,715)
Non-fleet interest ................................ (8,667) (8,667)
Non-vehicle depreciation and amortization ......... (9,370) (187) (203) (95) (9,855)
(Loss) income from continuing operations before ----------- -------- --------- ------- -----------
provision for income taxes ..................... (48,554) 4,698 373 1,246 (42,237)
----------- -------- --------- ------- -----------
(Benefit) provision for income taxes .............. (16,977) 1,127 (206) 273 (15,783)
----------- -------- --------- ------- -----------
(Loss) income from continuing operations .......... (31,577) 3,571 579 973 (26,454)
----------- -------- --------- ------- -----------
Income from discontinued operations, net of
provision for income taxes of $5,045 ........... 4,947 4,947
Cumulative effect of change in accounting
principle, net of (benefit) for income taxes
of $3,331 ...................................... (7,552) (60) (7,612)
----------- -------- --------- ------- -----------
Net (loss) income ................................. $ (34,182) $ 3,571 $ 519 $ 973 $ (29,119)
=========== ======== ========= ======= ===========
Capital expenditures for vehicles and property
and equipment .................................. $ 1,272,297 $ 9,254 $ 147,545 $ 8,211 $ 1,437,307
=========== ======== ========= ======= ===========
GEOGRAPHIC AREAS SIX MONTHS ENDED JUNE 30, 2000
(PREDECESSOR COMPANIES)
----------------------------------------------------------------------------
AUSTRALIA/ OTHER
UNITED NEW FOREIGN
STATES ZEALAND CANADA OPERATIONS CONSOLIDATED
----------- ---------- --------- ---------- -------------
Revenue .......................................... $ 1,134,360 $ 60,559 $ 44,023 $ 16,531 $ 1,255,473
=========== ======== ========= ======== ===========
Interest and minority interest expense, net ...... $ 187,706 $ 354 $ 2,858 $ 318 $ 191,236
=========== ======== ========= ======== ===========
EBITDA ........................................... $ 120,294 $ 12,401 $ 5,113 $ 2,589 $ 140,397
Non-fleet interest ............................... (71,831) (71,831)
Non-vehicle depreciation and amortization ........ (28,204) (620) (598) (276) (29,698)
Income from continuing operations before ----------- -------- --------- -------- -----------
provision for income taxes .................... 20,259 11,781 4,515 2,313 38,868
----------- -------- --------- -------- -----------
Provision for income taxes ....................... 13,409 2,628 813 553 17,403
----------- -------- --------- -------- -----------
Income from continuing operations ................ 6,850 9,153 3,702 1,760 21,465
----------- -------- --------- -------- -----------
Income from discontinued operations, net of
provision for income taxes of $29,248 ......... 14,480 1,808 19,265 35,553
----------- -------- --------- -------- -----------
Net income ....................................... $ 21,330 $ 9,153 $ 5,510 $ 21,025 $ 57,018
=========== ======== ========= ======== ===========
Capital expenditures for vehicles and property
and equipment ................................ $ 2,515,897 $ 23,378 $ 218,589 $ 12,366 $ 2,770,230
=========== ======== ========= ======== ===========
20
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7-DERIVATIVESstockholder's equity. The
Company's operations are primarily funded through a combination of
asset-backed floating rate notes and commercial paper programs inperiods prior to the United
States and Canada. Consistent with its historical risk management policies, the
Company uses interest rate swaps and caps to hedge interest rate risks on its
debt and to create a mix of fixed and floating rate debt.
Certain interest rate swapsacquisition have been designated as cash flow hedges"Predecessor Companies"
and the period subsequent to the acquisition has been designated "Successor
Company". The results of interest
rate risk on the Company's floating rate medium-term notes. Certain cash flow
hedge contracts extend into 2004. ForPredecessor Companies and the Successor Company
have been combined for the three months ended March 31, 2001 since we believe
that separate discussions for the two months ended February 28, 2001 and the fourone
month ended March 31, 2001 are not meaningful in terms of our operating results
or comparisons to the prior period.
Our comparative results of operations, excluding our former fleet management and
fuel card businesses, for the three months ended June 30,March 31, 2002 and 2001
no ineffectiveness was recognized on these
hedges. Amounts accumulated in other comprehensive income (loss) are
reclassified into earnings as interest is accrued oncomprised the hedged transactions.
Over the next 12 months, net losses of approximately $4.5 million are expected
to be reclassified from other comprehensive income (loss) into earnings. The
amounts accumulated in other comprehensive income (loss) will fluctuate based on
changes in the fair value of the Company's derivatives at each reporting period.
For the two months ended February 28, 2001 and the four months ended June 30,
2001, there were no amounts reclassified into earnings because of the
discontinuation of any hedging relationships.
The majority of the Company's interest rate swaps and caps have not been
designated as hedges for accounting purposes. However, these derivatives are
being used to economically hedge interest rate risk exposures on the Company's
floating rate notes and commercial paper programs. For the two months ended
February 28, 2001 and the four months ended June 30, 2001, the net loss
recognized on these derivatives was $869,000 and $3,496,000, respectively. These
amounts have been included in interest, net.
NOTE 8-RELATED PARTY TRANSACTIONS
Related party charges include allocations from Cendant for services provided to
the Company, which consist of (in thousands):following:
MARCH 1,2002 2001 TWO MONTHS SIX MONTHS
(DATE OF ACQUISITION) ENDED ENDED
TO FEBRUARY 28, JUNE 30,
JUNE 30, 2001 2001 2000
---------------------- ------------ -----------CHANGE
--------- --------- ---------
Royalties ..................... $35,810 $16,205Revenues $ 50,219
Reservations .................. 19,186 8,496 28,483
Data processing ............... 20,141 11,395 21,012
Rent and other ................ 11,629 1,456 4,036
Interest ...................... 7,011
------- ------- --------
Total ......................... $93,777 $37,552 $103,750
======= ======= ========
PREDECESSOR
COMPANIES
------------
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2001 2000
------------ ------------
Royalties .............................. $26,610 $26,664
Reservations ........................... 14,655 14,939
Data processing ........................ 15,657 12,124
Rent and other ......................... 10,833 2,199
Interest ............................... 7,011
------- -------
Total .................................. $74,766 $55,926
======= =======
21
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8-RELATED PARTY TRANSACTIONS (CONTINUED)
The amounts due to (from) Cendant Corporation and affiliates, net at June 30,
2001 and December 31, 2000 consist of the following balances (in thousands):
PREDECESSOR
COMPANIES
JUNE 30, DECEMBER 31,
2001 2000
-------- ------------
Due from Cendant, short term funding and trading, net . $(127,912) $36,117
Due to Cendant-working capital ........................ 143,633
Due to Cendant-long term .............................. 380,000
Due from other Cendant affiliates, net ................ (18,685)564,603 $ 603,817 $ (39,214)
--------- -------
Total due to Cendant Corporation and affiliates, net .. $ 377,036 $36,117
========= =======
In connection with the Acquisition, Avis Acquisition Corp. ("Acquisition
Corp."), a wholly-owned subsidiary of PHH Corp., borrowed $937 million from PHH
Corp., a wholly-owned subsidiary of Cendant. Concurrent with the Acquisition,
Acquisition Corp. was merged into Avis Group Holdings, Inc. with the Company
becoming the surviving entity Immediately after the Acquisition, Avis Group
Holdings, Inc. sold all of the stock of Fleet Leasing to PHH Corp. for $800
million. The proceeds of the sale were used by Avis Group Holdings, Inc. to
reduce its note payable to PHH Corp. from $937 million to $137 million.
Following such sale, the stock of Avis Group Holdings, Inc. acquired in the
Acquisition was dividended by PHH Corporation to Cendant Finance Holding
Corporation ("CFHC") and, through a series of internal transfers, to Cendant Car
Holdings, LLC. The note payable to PHH Corp. remaining due from Avis, in the
amount of $137 million, was transferred by PHH Corp. to CFHC, where it remains.
During the quarter ended June 30, 2001, the Company repaid its outstanding
borrowings under the Revolving Credit Facility (see Note 5). Subsequent to the
repayment, the Company relies on Cendant to fund its working capital needs. The
intercompany borrowings bear interest at a market rate based on LIBOR. On June
29, 2001, Cendant made a capital contribution to the Company by forgiving $125
million of intercompany debt. As of June 30, 2001, $143.6 million of borrowings
are related to working capital and $380 million is long-term in nature and are
related to the acquisition of the Company by Cendant. These borrowings are not
expected to be repaid before December 31, 2001.
On June 29, 2001, one of the Company's vehicle financing subsidiaries amended
its loan agreements to allow Cendant to borrow $155 million of its restricted
cash. In turn, Cendant provided a demand note to this subsidiary and secured the
demand note with letters of credit. The loan to Cendant is included in due from
Cendant, short-term funding and trading, net.
NOTE 9-INCOME TAXES
Subsequent to the Date of Acquisition, the Company's income taxes are included
in the consolidated federal income tax return of Cendant. In addition, the
Company files consolidated and combined state income tax returns with Cendant in
jurisdictions where required. The provision for income taxes is computed as if
the Company filed its federal and state income tax returns on a stand-alone
basis.
22
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
ITEM 2:
GENERAL OVERVIEW
The following discussion and analysis of continuing results of operations
includes the vehicle rental operations of the Company (see Notes 1 and 2 to the
condensed consolidated financial statements contained herein).
The Company conducts vehicle rental operations through wholly-owned subsidiaries
in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina,
Australia and New Zealand. Vehicle rental revenue is derived principally from
time and mileage charges for vehicle rentals and, to a lesser extent, the sale
of loss damage waivers, liability insurance and other products and services.
Management believes that a more meaningful comparison is made when the vehicle
rental pro-forma results of operations for the six and three months ended June
30, 2001 are compared to the pro-forma results of operations for the six and
three months ended June 30, 2000. These pro-forma statements give effect to the
Acquisition of the Company by Cendant (see Note 1 of the Notes to the Condensed
Consolidated Financial Statements contained herein), and the retirement of Term
Loans A, B, and C in the amount of $991.5 million from the proceeds of the sale
of the vehicle leasing operations in Europe and the repayment of intercompany
indebtedness, including the related interest expense, as if they had occurred on
January 1, 2000.
Management evaluates the Company's performance based upon a modified earnings
before non-vehicle interest, income taxes, non-vehicle depreciation and
amortization calculations. For this purpose, Adjusted EBITDA is defined as
earnings before non-vehicle interest, income taxes and non-vehicle depreciation
and amortization, adjusted to exclude certain items, which are of a
non-recurring or unusual nature and are not measured in assessing segment
performance or are not segment specific.
REVENUE
Revenue is recognized over the period the vehicle is rented.
COSTS AND EXPENSES
Vehicle rental expenses include:
o Direct operating expenses (primarily field operations' wages
and related benefits, concessions and commissions paid to
airport authorities, vehicle insurance premiums and other
costs relating to the operation of rental locations and the
rental fleet).
o Vehicle depreciation and lease charges relating to the rental
fleet.
o Selling, general and administrative (including wages and
related benefits, information processing and information
services).
o Vehicle interest.
NET INCOME
Vehicle rental profitability is primarily a function of the number of rental
transactions, pricing of rental transactions and utilization of the rental
fleet.
CORPORATE
Expenses included are interest on non-vehicle debt and amortization of cost in
excess of net assets acquired and other intangible assets.
The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's financial position and
results of operations:
23
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
RESULTS OF OPERATIONS
PRO-FORMA RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED
TO PRO-FORMA RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000.
The following table sets forth for the periods indicated, certain items in the
Company's condensed consolidated statement of operations (in thousands):
PRO-FORMA PRO-FORMA
SIX MONTHS ENDED JUNE 30, 2001 SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------- ---------------------------------------
VEHICLE VEHICLE
RENTAL CORPORATE TOTAL RENTAL CORPORATE TOTAL
----------- ----------- ----------- ---------- ----------- -----------
Revenue ............................ $ 1,232,710 $ 1,232,710 $ 1,255,473 $ 1,255,473
----------- ----------- ---------- -----------
Costs and expenses:
Direct operating ................. 484,195 484,195 456,008 456,008
Vehicle depreciation and
lease charges, net .......... 340,725 340,725 319,328 319,328
Selling, general and
administrative .............. 237,345 237,345 234,343 234,343
Vehicle--------- ---------
Expenses, excluding non-vehicle interest 557,961 615,207 (57,246)
Non-vehicle interest, net ........... 115,935 115,935 107,170 107,170
----------- ----------- ---------- -----------
1,178,200 1,178,200 1,116,849 1,116,849
----------- ----------- ---------- -----------
Adjusted EBITDA .................... 54,510 54,510 138,624 138,624
Interest on non-vehicle debt ....... 7,713 $ 17,046 24,759 5,411 $ 20,942 26,353
Interest on intercompany debt ...... 3,541 1,466 5,007
Amortization of cost in excess of
net assets acquired .......... 6,023 9,691 15,714 6,281 9,433 15,714
Non-vehicle depreciation and
amortization ................. 10,939 10,939 9,613 9,613
----------- ----------- ----------- ---------- ----------- -----------
Income (loss)10,795 14,253 (3,458)
--------- --------- ---------
Total expenses 568,756 629,460 (60,704)
--------- --------- ---------
Loss before provision
(benefit) for income taxes ... $ 26,294 $ (28,203) (1,909) $ 117,319 $ (30,375) 86,944
=========== =========== ========== ===========
(Benefit) provision for(4,153) (25,643) 21,490
Benefit from income taxes (1,027) 39,560
----------- -----------
Net (loss) income ..................(1,744) (7,884) 6,140
--------- --------- ---------
Loss from continuing operations $ (882)(2,409) $ 47,384
=========== ===========(17,759) $ 15,350
========= ========= =========
VEHICLE RENTAL
REVENUE
RevenueTotal revenue decreased 1.8%, from $1,255.5 million to $1,232.7 million, compared to
the same period in 2000. The revenue decrease reflects a 2.7% decrease in the
number of rental transactions partially offset by a 0.9% increase in revenue per
rental transaction.
COSTS AND EXPENSES
Total costs and expenses (including interest on non-vehicle debt, interest on
intercompany debt, amortization of cost in excess of net assets acquired and
non-vehicle depreciation and amortization) increased 6.0%, from $1,138.2 million
to $1,206.4 million, compared to the same period in 2000.
Direct operating expenses increased 6.2%, from $456.0 million to $484.2 million,
compared to the same period in 2000. As a percentage of revenue, direct
operating expenses were to 39.3%, as compared to 36.3% for the corresponding
period in 2000. The increase was due6.5% primarily to higher maintenance and damage
costs (1.0% of revenue), higher computer services costs (1.0% of revenue), and
higher facilities costs (0.4% of revenue).
24
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
Vehicle depreciation and lease charges increased 6.7%, from $319.3 million to
$340.7 million, compared to the same period in 2000. As a percentage of revenue,
vehicle depreciation and lease charges were 27.6%, as compared to 25.4% for the
corresponding period in 2000. The change reflected a 0.9% increase in the
average rental fleet combined with a higher average cost per vehicle.
Selling, general and administrative expenses increased 1.3%, from $234.3 million
to $237.3 million, compared to the same period in 2000 due to a higher general
corporate overhead allocation ($8.3 million) and higher general and
administrative expenses ($3.5 million), partially offset by lower marketing and
advertising spending.
Vehicle related interest expense increased 8.1%,reduction in car rental
transaction volume, which resulted primarily from $107.2 million to $115.9
million, comparedthe residual effect of reduced
commercial air travel due to the same period in 2000September 11th terrorist attacks.
Total expenses decreased 9.6% principally due to higher borrowings required
to finance the growth of the rental fleet and higher average interest rates.
With the completion of the Avis acquisition on March 1, 2001, selected debt
previously funded by third party providers is now being funded by Cendant
Corporate. This change gives rise to the interest variance related to
intercompany debt.
Non-vehicle depreciation and amortization increased 13.5%, from $9.6 million to
$10.9 million, compared to the same period in 2000. The increase reflects higher
amortization of airport related leasehold improvements and equipment.
PROVISION FOR INCOME TAXES
The Company's consolidated provision for income taxes decreased from $39.6
million to a benefit of $1.0 million, compared to the same period in 2000. The
effective income tax rate for the six months ended June 30, 2001 was 53.8%, up
from a provision of 45.5% for the corresponding period in 2000. The increase in
the effective income tax rate was due primarily to a decrease in income before
provision for income taxesoperating
expenses caused by our ability to right-size our operations in relationanticipation of
reduced car rental transaction volume and a decrease in vehicle interest expense
due to non-deductible goodwill. Thea corresponding reduction in average fleet size and vehicle debt
supporting such fleet.
Our overall effective tax rate reflects differences between foreign income tax rateswas 42.0% and the U.S.
federal statutory income tax rate, taxes on the repatriation of foreign
earnings, and foreign withholding taxes on dividends paid to the Company.
NET INCOME
Net income decreased from a profit of $47.4 million in 2000 to a loss of $0.9
million in 2001 as a result of a decrease in revenue combined with an increase
in direct operating expenses, vehicle depreciation and take lease charges, and
vehicle interest.
25
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
HISTORICAL RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001
COMPARED TO PRO-FORMA RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,
2000.
The following table sets forth30.7% for the periods indicated, certain items in the
Company's condensed consolidated statement of operations (in thousands):
HISTORICAL PRO-FORMA
THREE MONTHS ENDED JUNE 30, 2001 THREE MONTHS ENDED JUNE 30, 2000
-------------------------------------- -------------------------------------
VEHICLE VEHICLE
RENTAL CORPORATE TOTAL RENTAL CORPORATE TOTAL
-------- --------- -------- -------- --------- --------
Revenue: .................................... $628,893 $ 628,893 $666,597 $666,597
-------- -------- -------- --------
Costs and expenses:
Direct operating .......................... 231,693 231,693 229,315 229,315
Vehicle depreciation and
lease charges, net ...................... 173,664 173,664 172,096 172,096
Selling, general and
administrative .......................... 116,540 116,540 119,535 119,535
Vehicle interest, net ..................... 55,899 55,899 59,666 59,666
-------- -------- -------- --------
577,796 577,796 580,612 580,612
-------- -------- -------- --------
Adjusted EBITDA ............................. 51,097 51,097 85,985 85,985
Interest on non-vehicle debt ................ 2,686 $ 6,884 9,570 2,803 $ 9,875 12,678
Interest on intercompany debt ............... 3,541 1,466 5,007
Amortization of cost in excess of
net assets acquired ..................... 2,894 4,746 7,640 3,122 4,518 7,640
Non-vehicle depreciation and
amortization ............................ 5,228 5,228 4,830 4,830
-------- --------- -------- -------- --------- --------
Income (loss) before provision
for income taxes ........................ $ 36,748 $ (13,096) 23,652 $ 75,230 $ (14,393) 60,837
======== ========= ======== =========
Provision for income taxes .................. 13,753 27,681
-------- --------
Net income .................................. $ 9,899 $ 33,156
======== ========
VEHICLE RENTAL
REVENUE
Revenue decreased 5.7%, from $666.6 million to $628.9 million, compared to the
same period in 2000.three months ended
March 31, 2002 and 2001, respectively. The revenue decrease reflects a 5.7% decrease in the number
of rental transactions.
COSTS AND EXPENSES
Total costs and expenses (including interest on non-vehicle debt, interest on
intercompany debt, amortization of cost in excess of net assets acquired and
non-vehicle depreciation and amortization) increased 0.1%, from $591.4 million
to $592.1 million, compared to the same period in 2000.
Direct operating expenses increased 1.1%, from $229.3 million to $231.7 million,
compared to the same period in 2000. As a percentage of revenue, direct
operating expenses were 36.8%, as compared to 34.4% for the corresponding period
in 2000. The increase was due primarily to higher computer services costs (0.9%
of revenue) and higher salary and wage expense (0.6% of revenue).
Vehicle depreciation and lease charges increased 0.9%, from $172.1 million to
$173.7 million, compared to the same period in 2000. As a percentage of revenue,
vehicle depreciation and lease charges were 27.6% of revenue, as compared to
25.8% of revenue for the corresponding period in 2000. The change reflected a
3.9% decrease in the average rental fleet offset by a higher cost per vehicle.
Selling, general and administrative expenses decreased 2.5%, from $119.5 million
to $116.5 million, compared to the same period in 2000 due primarily to lower
marketing and advertising spending ($10.2 million), partially offset by a higher
general corporate overhead allocation ($8.2 million).
26
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
Vehicle related interest expense decreased 6.4%, from $59.7 million to $55.9
million, compared to the same period in 2000, due to lower borrowings resulting
from a decline in the rental fleet and lower average interest rates.
With the completion of the Avis acquisition on March 1, 2001, selected debt
previously funded by third party providers is now being funded by Cendant
Corporate. This change gives rise to the interest variance related to
intercompany debt.
Non-vehicle depreciation and amortization increased 8.3%, from $4.8 million to
$5.2 million, compared to the same period in 2000. The increase reflects higher
amortization of airport related leasehold improvements and equipment.
PROVISION FOR INCOME TAXES
The Company's consolidated provision for income taxes decreased from $27.7
million to $13.8 million, compared to the same period in 2000. The effective
income tax rate for the three months
ended June 30, 2001March 31, 2002 was 58.2%, up from
45.5% for the corresponding period in 2000. The increase in the effective income
tax rate wasprimarily due primarily to a decrease in income before provision for income
taxes in relation to non-deductible goodwill. The effective tax rate reflects
differences between foreign income tax ratesthe pre-tax loss and the
U.S. federal statutory
income tax rate, taxes on the repatriationelimination of foreign earnings, and foreign
withholding taxes on dividends paid to the Company.
NET INCOME
Net income decreased from a profit of $33.2 million for the three
months ended June 30, 2000 to a profit of $9.9 million for the three months
ended June 30, 2001, asnon-deductible goodwill amortization expense.
As a result of a decreasethe above-mentioned items, loss from continuing operations
decreased $15 million, or 86%, in revenue combined with
increasesthe first quarter 2002.
16
Forward-looking Statements
Forward-looking statements in direct operating expenses, vehicle depreciationour public filings or other public statements are
subject to known and lease chargesunknown risks, uncertainties and non-vehicle depreciationother factors which may
cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These forward-looking statements were based on
various factors and amortization charges.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operationswere derived utilizing numerous important assumptions and
other important factors that could cause actual results to differ materially
from those in the forward-looking statements. Forward-looking statements include
the information concerning our future financial performance, business strategy,
projected plans and objectives.
Statements preceded by, followed by or that otherwise include the words
"believes", "expects", "anticipates", "intends", "project", "estimates",
"plans", "may increase", "may fluctuate" and similar expressions or future or
conditional verbs such as "will", "should", "would", "may" and "could" are
generally forwardlooking in nature and not historical facts. You should
understand that the following important factors and assumptions could affect our
future results and could cause actual results to differ materially from those
expressed in such forward-looking statements:
o the impacts of the September 11, 2001 terrorist attacks on New
York City and Washington, D.C. on the travel industry in
general, and our travel business in particular, are not fully
known at this time, but are expected to be fundedinclude negative
impacts on financial results due to reduced demand for travel
in the near term; other attacks, acts of war; or measures
taken by cash provided bygovernments in response thereto may negatively affect
the travel industry, our financial results and could also
result in a disruption in our business;
o the effect of economic conditions and interest rate changes on
the economy on a national, regional or international basis and
the impact thereof on our business;
o the effects of a decline in travel, due to political
instability, adverse economic conditions or otherwise, on our
business;
o the effects of changes in current interest rates;
o competition in the car rental industry and the financial
resources of, and products available to, competitors;
o our failure to provide fully integrated disaster recovery
technology solutions in the event of a disaster;
o our ability to integrate and operate successfully as an
acquired and merged business, including the compatibility of
the operating activitiessystems, and the degree to which our existing
administrative and back-office functions and costs are
complementary or redundant;
o our ability to obtain financing on acceptable terms to finance
our growth strategy and to operate within the limitations
imposed by financing arrangements maintained by the Companyand to maintain our credit
ratings;
o our ability to obtain external financing in the marketsevent we are
unable to obtain financing from Cendant;
o competitive and pricing pressures in which it operates. The Company's primary usethe car rental industry;
o changes in vehicle manufacturer repurchase arrangements in the
event that used vehicle values decrease;
o and changes in laws and regulations, including changes in
accounting standards and privacy policy regulation.
Other factors and assumptions not identified above were also involved in the
derivation of funds will be for the
acquisition of new vehiclesthese forward looking statements, and the repaymentfailure of indebtedness. For the four
months ended June 30, 2001, the Company's expenditures for new vehicles were
approximately $1.9 billion and proceeds from the disposition of used vehicles
were approximately $1.5 billion. For 2001, management expects the Company's
expenditures for new vehicles (net of proceeds from the disposition of used
vehicles)such other
assumptions to be higher than in 2000. Since the late 1980's, the Company has
acquired vehicles relatedrealized as well as other factors may also cause actual
results to its vehicle rental operations primarily pursuantdiffer materially from those projected. Most of these factors are
difficult to manufacturer repurchase programs. Repurchase prices under the repurchase
programs are based on either (1) a specified percentage of original vehicle cost
determined by the month the vehicle is returned to the manufacturer or (2) the
original capitalization cost less a set daily depreciation amount (the
"Repurchase Programs"). Repurchase Programs limit residual risk with respect to
vehicles purchased under the programs. This enables management to better
estimate depreciation expense in advance.
Historically, the Company's financing requirements for rental vehicles have
typically reached an annual peak during the second and third calendar quarters,
as fleet levels build in response to increased rental demand during that period.
The typical low point for cash requirements occurs during the end of the fourth
quarter and the beginning of the first quarter, coinciding with lower levels of
vehicle and rental demand. Management expects that this pattern will continue.
Management expects that cash flows from operations and funds from available
credit facilities will be sufficient to meet the Company's anticipated cash
requirements for operating purposes for the next twelve months. Trade
receivables, from vehicle rental operations, also provide liquidity with
approximately 11.2 days of daily sales outstanding.
The Company's vehicle rental operations made capital investments for property
improvements totaling $20.7 million and $19.4 million for the six months ended
June 30, 2001 and 2000, respectively.
The Company has an interest rate management policy, including a target mix for
average fixed rate and floating rate indebtedness on a consolidated basis.
However, an increase in interest rates may have a material adverse impact on the
Company's profitability.
27
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
VEHICLE RENTAL ABS FACILITY
To support vehicle rental operations, the Company has a domestic integrated
financing program that as of June 30, 2001 provides for up to $4.45 billion in
financing for vehicles covered by Repurchase Programs, with up to 25% of the
asset-backed securities facility ("ABS Facility") available for vehicles not
covered by Repurchase Programs. The ABS Facility provides for the issuance of up
to $0.5 billion of asset-backed variable funding notes (the "Variable Funding
Notes") and $3.95 billion of asset-backed medium term notes under the ABS
Facility (the "Medium Term Notes"). The Variable Funding Notes and the Medium
Term Notes are indirectly secured by, among other things, a first priority
security interest in the Company's rental fleet.
The Variable Funding Notes support the issuance by a special purpose company of
commercial paper notes that are rated A-1 by Standard & Poor's Ratings Services
("S&P") and P-1 by Moody's Investors Service, Inc. ("Moody's"). The Medium Term
Notes are guaranteed under a surety bond issued by either MBIA or AMBAC
Assurance and as a result are rated AAA by S&P and Aaa by Moody's. At June 30,
2001, the Company had approximately $3.77 billion of debt outstanding under the
ABS Facility and had approximately $680 million of additional credit available
for rental vehicle purchases.
Based on current market conditions and the Company's current banking
relationships, management expects to fund maturities of the Medium Term Notes
either by the issuance of new medium term notes or an increase in the
outstanding principal amount of the Variable Funding Notes depending on market
conditions at the time the Medium Term Notes mature. However, management cannot
be sure that this will occur.
On March 2, 2001, one of the Company's vehicle rental financing subsidiaries
issued $750 million of Series 2001-1 Floating Rate Rental Car Asset Backed Notes
("Series 2001-1 Notes"). The Series 2001-1 Notes are secured by the Company's
vehicles. Anticipated principal repayment on the Series 2001-1 Notes commence on
November 2003 through April 2004. The interest rate with respect to the Series
2001-1 Notes is equal to LIBOR plus 20 basis points per annum. The Series 2001-1
Notes are guaranteed under a Surety Bond issued to MBIApredict accurately and are rated AAA by
Standard an Poors and Aaa by Moody's. The Series 2001-1 Notes rank pari pasugenerally beyond our control.
You should consider the areas of risk described above in connection with the Company's variable funding notes and the medium term notes.
On May 17, 2001, one of the Company's vehicle rental financing subsidiaries
issued $125 million of Series 2001-2 Auction Rate Notes (the "Series 2001-2
Notes"). The Series 2001-2 Notes are secured by the Company's vehicles. The
Series 2001-2 Notes were issued in four classes, Class A-1, A-2, A-3, and A-4
with initial issuances of $95 million, $10 million, $10 million and $10 million,
respectively. Subsequent to the initial issuance of $125 million auction rate
notes, the Company issued $65 million of additonal notes which brought the total
outstanding series 2001-2 notes to $190 million at June 30, 2001. The Company
may issue up to $125 million of Auction Rate Notes per class or $500 million in
total. The interest rate on each class will be a market derived rate determined
by auction with auctions expected to occur every 35 days. Anticipated principal
repayment on the Series 2001-2 Notes is May 2007. The 2001-2 Notes are
guaranteed under a Suerty Bond issued by Ambac and are rated AAA by Standard &
Poor's Rating Services and Aaa by Moody' Investors Service, Inc. The Series
2001-2 Notes rank pari passu with the Company's Variable Funding Notes and
Medium Term Notes.
REVOLVING CREDIT FACILITY
The Company is party to a Revolving Credit Facility which provides borrowings up
to $450 million which may be used for credit enhancement for the Company's ABS
commercial paper program and for general corporate purposes. At June 30, 2001,
due to letters of credit outstanding, $368.7 million was available under this
facility. This facility expires in June 30, 2005.
During the quarter, the Company repaid its outstanding borrowings under the
Revolving Credit Facility. The Company presently relies on Cendant to fund its
working capital needs. The intercompany borrowings bear interest at a market
rate based on LIBOR. On June 29, 2001, Cendant made a capital contribution to
the Company by forgiving $125 million of intercompany debt. As of June 30, 2001,
$143.6 million of borrowings are related to working capital and $380 million are
long-term in nature and are related to the acquisition of the Company by
Cendant.
28
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
OTHER FACILITIES
Borrowings for the Company's other international operations consist mainly of
loans obtained from local and international banks. All borrowings for
international operations are in the local currencies of the countries in which
those operations are conducted. The Company guarantees only the borrowings of
its car rental subsidiaries in Argentina and Puerto Rico which had combined
outstanding debt of $8.1 million at June 30, 2001. At June 30, 2001, the total
debt for the Company's other international operations was approximately $214.9
million. The impact on the Company's liquidity and financial condition due to
the exchange rate fluctuations of the Company's foreign operations is not
expected to be material.
PARENT COMPANY TRANSACTION
On June 29, 2001, one of the Company's vehicle financing subsidiaries amended
its loan agreements to allow Cendant to borrow $155 million of its restricted
cash. In turn, Cendant provided a demand note to the subsidiary and secured the
demand note with letters of credit.
RECENT ACCOUNTING STANDARDS
Recent pronouncements of the Financial Accounting Standards Board which are not
required to be adopted at this date is Statement of Financial Accounting
Standards ("SFAS") SFAS No. 141 "Business Combinations" and SFAS No. 142
"Goodwill and Other Intangible Assets".
SFAS No. 141 requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001, thereby prohibiting the use
of the pooling-of-interests method, and additional disclosures regarding the
primary reasons for a business combination, the allocation of the purchase price
paid to the assets acquired and liabilities assumed by major balance sheet
caption and other information about goodwill and intangible assets when the
amount of these assets are material. Additionally, this statement provides new
criteria, which applies to business combinations completed after June 30, 2001,
to determine which acquired intangible assets should be recognized separately
from goodwill. Those intangible assets, recognized separately from goodwill,
will be amortized over their estimated useful lives.
SFAS No. 142 requires that goodwill and certain intangible assets, acquired in
transactions completed after June 30, 2001, no longer be subject to amortization
over their estimated useful lives. The Company will be required to assess these
assets for potential impairment periodically, and more frequently if
circumstances indicate a possible impairment. The statement also requires the
Company to continue to amortize goodwill and certain intangible assets existing
at June 30, 2001 through December 31, 2001. The provisions of the statement are
required to be applied in fiscal years beginning after December 15, 2001 to all
goodwill and other intangible assets recognized in the Company's balance sheet
at the date, regardless of when those assets were initially recognized.
During the four months ended June 30, 2001, the Company recorded amortization
expense related to these assets of $10.5 million. During the two months ended
February 28, 2001, and the years ended December 31, 2000 and December 31, 1999
amortization expense related to the intangible assets of the predecessor company
excluding the discontinued operation was $2.1 million, $12.5 million, and $12.6
million, respectively.
The estimated impact on net income for 2002 with respect to goodwill and certain
other intangible assets that will no longer be subject to amortization is
expected to be $32.5 million ($31.8 million, after tax) based upon existing
goodwill and other intangible assets as of June 30, 2001.
SEASONALITY
The Company's vehicle rental business is seasonal, with decreased travel in
winter months and heightened activity in spring and summer. To accommodate
increased demand, the Company increases its available fleet during the second
and third quarters. Certain of the Company's operating expenses are fixed and
cannot be reduced during periods of decreased rental demand. In certain
geographic markets, the impact of seasonality has been reduced by emphasizing
leisure or business travel in the off-peak season.
INFLATION
The increased acquisition cost of vehicles is the primary inflationary factor
affecting the Company's operations. Many of the Company's other operating
expenses are inflation sensitive, with increases in inflation generally
resulting in increased costs of operations. The effect of inflation-driven cost
increases on the Company's overall operating costs is not expected to be greater
for the Company than for its competitors.
FORWARD LOOKING INFORMATION
Certain matters discussed in this report that are not historical facts areany
forward-looking statements that aremay be made pursuantby us and our businesses generally.
Except for our ongoing obligations to disclose material information under the
federal securities laws, we undertake no obligation to release publicly any
revisions to any forward-looking statements, to report events or to report the
occurrence of unanticipated events unless required by law. For any
forward-looking statements contained in any document, we claim the protection of
the safe harbor provisions
offor forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
Forward-looking
statements involve risks17
Item 3. Quantitative and uncertainties including the impact of competitive
products and pricing, changing market conditions; and other risks which were
detailed from time to timeQualitative Disclosure About Market Risks
As previously discussed in the Company's publicly-filed documents, including
itsour 2001 Annual Report on Form 10-K, we assess our
market risk based on changes in interest rates utilizing a sensitivity
analysis. The sensitivity analysis measures the potential loss in earnings,
fair values, and cash flows based on a hypothetical 10% change (increase and
decrease) in interest rates. We used March 31, 2002 market rates to perform a
sensitivity analysis separately for the period ended December 31, 2000. Actual
results may differ materially from those projected. These forward-looking
statements represent the Company's judgement aseach of the date of this report.
29
ITEM 3: QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS
QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKour market risk exposures. The
Company has derivative financial instruments at June 30, 2001 that are
sensitive to changes on its debt obligations and on itsestimates assume instantaneous, parallel shifts in interest rate swap
agreements. The following derivative instruments' agreementsyield
curves. We have been entered
into bydetermined, through such analyses, that the Company:
(a) In order to reduce its risk fromimpact of a 10%
change in interest rate fluctuations under its
asset backed debt, one of the Company's vehicle rental financing
subsidiaries has entered into six domestic interest rate cap agreements
with durations of up to 6 years. The agreements have a notional value of
$2.5 billion,rates on our earnings, fair values and establishes the domestic interest rate ceiling on
asset-backed vehicle financing of either 7% or 7.5%. Offsetting interest
rate cap agreements with a notional value of $2.5 billion have been sold
in order to reduce the cost of acquiring the cap agreements.
(b) The Company has also entered into eight U.S. and foreign interest rate
swap agreements. Swap agreements which effectively convert floating rates
of interest to fixed rates of interest on the Company's debt have an
aggregate notional value of $2.3 billion and terminate through November
2004.
30cash flows would not
be material.
18
SignaturesPART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
See Exhibit Index
(B) REPORTS ON FORM 8-K
None
19
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the CompanyRegistrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Avis Group Holdings, Inc.
--------------------------
(Registrant)
Dated: August 14, 2001AVIS GROUP HOLDINGS, INC.
By: /s/ Kevin M. Sheehan
----------------------------------------F. ROBERT SALERNO
-------------------------------------
F. Robert Salerno
PRESIDENT AND CHIEF OPERATING OFFICER
Date: May 10, 2002
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOHN W. CHIDSEY Executive Vice President and Director May 10, 2002
- -------------------------
(John W. Chidsey)
/s/ F. ROBERT SALERNO President, Chief Operating Officer and May 10, 2002
- ------------------------- Director (Principal FinancialExecutive Officer)
Dated: August 14, 2001 By:(F. Robert Salerno)
/s/ Kurt Freudenberg
----------------------------------------KURT FREUDENBERG Senior Vice President and Controller (principal accounting officer)
31May 10, 2002
- ------------------------- (Principal Financial Officer)
(Kurt Freudenberg)
20
ITEM: 6(b) REPORTS ON FORM 8-K
On April 2, 2001,EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------
3.1 Certificate of Incorporation of Avis Rent A Car, Inc.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 333-46737, dated
February 23, 1998).
3.2 By-Laws of Avis Group Holdings, Inc. entered into a supplemental
indenture which released Avis Fleet Leasing and Management Corp. and its
subsidiaries as guarantors under(Incorporated by
reference to the Company's indentureRegistration Statement on Form S-1,
Registration No. 333-46737, dated June 30, 1999
which was entered into in connection with the issuanceFebruary 23, 1998).
12 Statement Re: Computation of its 11% Senior
Subordinated Notes due 2009 (original principal valueRatio of $500 million).
32Earnings to Fixed
Charges.
21