UNITED STATES
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WASHINGTON, D.C. 20549FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 (MARK ONE) |X|QUARTERLY REPORT PURSUANT TO SECTION 13 OR
1515(d) OF THE
SECURITIES EXCHANGE ACT OF 1934OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the quarterly period ended June 30, 2002
COMMISSION FILE NUMBER: 1-13315AVIS GROUP HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 11-3347585 (State
(Exact name ofIncorporation) (I.R.S. Employer Identification No.) 900 OLD COUNTRY ROAD GARDEN CITY, NEW YORK 11530 (Address of Principal Executive Offices) (Zip Code)Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)11-3347585
(I.R.S. Employer Identification No.)
6 SYLVAN WAY
PARSIPPANY, NJ
(Address of principal executive offices)
07054
(Zip Code)(973) 496-3500
(Registrant's telephone number, including areacode: (516) 222-3000 Not Applicable (Former name, former address and former fiscal year, If changed since last report.) Securities registered pursuant to Sectioncode)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 2009OF THE ACT:
NoneSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NoneIndicate by check mark whether the
registrant:Registrant (1) has filed all reports required to be filedbyin Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that theregistrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements, for the past 90days.days: Yes|X|o No|_|AVIS GROUP HOLDINGS, INC. INDEX PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:ýAPPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's common stock was 5,537 shares as of July 31, 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.
Avis Group Holdings, Inc. and Subsidiaries
Page | ||||
---|---|---|---|---|
PART I | Financial Information | |||
Item 1. | Financial Statements | |||
Independent Accountants' Report | 1 | |||
Consolidated Condensed Statements | 2 | |||
Consolidated Condensed Statements of Operations for the six months ended June 30, | 3 | |||
Consolidated Condensed Balance Sheets as of June 30, 2002 and December 31, 2001 | 4 | |||
Consolidated Condensed Statements of Cash Flows for the six months ended June 30, | 5 | |||
Notes to the Consolidated Condensed | 7 | |||
Item 2. | Management's Narrative Analysis of the Results of Operations | 19 | ||
Item 3. | Quantitative and Qualitative Disclosure about Market Risks | 22 | ||
PART | Other Information | |||
Item 6. | Exhibits and Report on Form 8-K | 23 | ||
Signatures | 24 |
PART 1 - I—FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AVIS GROUP HOLDINGS, INC.
Item 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 June 30, 2002, and the related consolidated condensed statements of operations and cash flows for the three and six month period ended June 30, 2002, the period March 1, 2001 (Date of Acquisition) to June 30, 2001, and as to the Predecessor Companies for 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
August 12, 2002
New York, New York
1
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
PREDECESSOR COMPANIES
---------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 2001 JUNE 30, 2000
---------------- ---------------------
Revenue ........................................................... $ 628,893 $ 666,597
------------ ------------
Cost and expenses:
Direct operating, net ............................................. 231,693 229,314
Vehicle depreciation and lease charges, net ....................... 173,664 172,096
Selling, general and administrative ............................... 116,540 119,536
Interest, net ..................................................... 70,476 101,966
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 provision
for income taxes .............................................. 23,652 35,733
Provision for income taxes ........................................ 13,753 16,510
------------ ------------
Income from continuing operations ................................. 9,899 19,223
Income from discontinued operations, net of income taxes of $14,116 18,209
------------ ------------
Net income ........................................................ 9,899 37,432
Preferred stock dividends ......................................... 4,667
------------ ------------
Earnings applicable to common stockholders ........................ $ 9,899 $ 32,765
============ ============
(In thousands)
| Three Months Ended June 30, 2002 | Three Months Ended June 30, 2001 | |||||
---|---|---|---|---|---|---|---|
Revenues | $ | 650,631 | $ | 628,893 | |||
Expenses | |||||||
Operating, net | 256,366 | 232,168 | |||||
Vehicle depreciation and lease charges, net | 161,401 | 170,982 | |||||
Selling, general and administrative | 121,929 | 116,540 | |||||
Vehicle interest, net | 51,339 | 55,899 | |||||
Non-vehicle interest, net | 10,823 | 14,577 | |||||
Non-vehicle depreciation and amortization | 9,445 | 15,075 | |||||
Total expenses | 611,303 | 605,241 | |||||
Income before income taxes | 39,328 | 23,652 | |||||
Provision for income taxes | 16,518 | 13,753 | |||||
Net income | $ | 22,810 | $ | 9,899 | |||
See notesNotes to the condensed consolidated financial statements.
1
AVIS GROUP HOLDINGS, INC.
Consolidated Condensed Financial Statements.
2
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
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
============ ============== =============
(In thousands)
| | | Predecessor Companies | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | |||||||||
| Six Months Ended June 30, 2002 | Two Months Ended February 28, 2001 | |||||||||
Revenues | $ | 1,215,234 | $ | 846,889 | $ | 385,821 | |||||
Expenses | |||||||||||
Operating, net | 480,401 | 310,979 | 174,087 | ||||||||
Vehicle depreciation and lease charges, net | 321,251 | 225,172 | 110,117 | ||||||||
Selling, general and administrative | 236,860 | 154,115 | 83,229 | ||||||||
Vehicle interest, net | 101,986 | 76,446 | 43,625 | ||||||||
Non-vehicle interest, net | 21,618 | 19,663 | 9,167 | ||||||||
Non-vehicle depreciation and amortization | 17,943 | 20,268 | 7,833 | ||||||||
Total expenses | 1,180,059 | 806,643 | 428,058 | ||||||||
Income (loss) before income taxes | 35,175 | 40,246 | (42,237 | ) | |||||||
Provision (benefit) for income taxes | 14,774 | 21,652 | (15,783 | ) | |||||||
Income (loss) from continuing operations | 20,401 | 18,594 | (26,454 | ) | |||||||
Income from discontinued operations, net of tax | — | — | 4,947 | ||||||||
Income (loss) before cumulative effect of accounting change | 20,401 | 18,594 | (21,507 | ) | |||||||
Cumulative effect of accounting change, net of tax | — | — | (7,612 | ) | |||||||
Net income (loss) | $ | 20,401 | $ | 18,594 | $ | (29,119 | ) | ||||
See notesNotes to the condensed consolidated financial statements.
2
AVIS GROUP HOLDINGS, INC.
Consolidated Condensed Financial Statements.
3
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS)
CONDENSED BALANCE SHEETS
PREDECESSOR
COMPANIES
-----------------
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
(UNAUDITED)
ASSETS
Cash and cash equivalents ........................... $ 22,408 $ 80,368
Accounts receivable, net ............................ 375,660 508,328
Prepaid expenses .................................... 58,021 47,924
Property and equipment, net ......................... 200,580 181,504
Other assets ........................................ 30,330 78,972
Net assets 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 .......... 1,220,893 453,450
Assets under management programs:
Restricted cash .................................. 154,153 167,482
Vehicles ......................................... 4,095,323 3,761,454
----------- -----------
4,249,476 3,928,936
----------- -----------
Total assets .................................... $ 6,620,596 $ 6,509,050
=========== ===========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Accounts payable .................................... $ 311,486 $ 283,556
Accrued liabilities ................................. 330,370 263,277
Due to Cendant Corporation and affiliates, net ...... 377,036 36,117
Public liability, property damage and other insurance
liabilities, net ................................. 224,985 247,567
Non vehicle debt .................................... 600,788 730,333
Liabilities under management programs:
Vehicle debt ..................................... 3,984,905 3,816,682
Deferred income taxes ............................ 371,949 376,404
----------- -----------
4,356,854 4,193,086
----------- -----------
Total liabilities ............................... 6,201,519 5,753,936
----------- -----------
Commitments and contingencies:
Common stock
Class A Common stock ................................ 359
Additional paid-in-capital .......................... 156,065 593,829
Retained earnings ................................... 266,953 277,460
Treasury stock ...................................... (96,538)
Accumulated comprehensive loss ...................... (3,941) (19,996)
----------- -----------
Total common stockholders' equity ............... 419,077 755,114
----------- -----------
Total liabilities and common stockholders' equity $ 6,620,596 $ 6,509,050
=========== ===========
(In thousands, except share data)
| June 30, 2002 | December 31, 2001 | ||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Cash and cash equivalents | $ | 40,669 | $ | 13,311 | ||||
Receivables, net | 165,755 | 168,372 | ||||||
Prepaid expenses | 40,966 | 42,543 | ||||||
Deferred income taxes | 556,148 | 548,087 | ||||||
Property and equipment, net | 256,217 | 245,276 | ||||||
Goodwill, net | 1,254,909 | 1,271,192 | ||||||
Other assets | 145,054 | 146,608 | ||||||
Total assets exclusive of assets under management programs | 2,459,718 | 2,435,389 | ||||||
Assets under management programs: | ||||||||
Restricted cash | 9,306 | 581,187 | ||||||
Vehicles, net | 4,226,575 | 3,428,893 | ||||||
Due from vehicle manufacturers | 64,492 | 92,614 | ||||||
4,300,373 | 4,102,694 | |||||||
Total assets | $ | 6,760,091 | $ | 6,538,083 | ||||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||
Liabilities: | ||||||||
Accounts payable | $ | 245,132 | $ | 363,891 | ||||
Accrued liabilities | 447,341 | 434,665 | ||||||
Due to Cendant Corporation and affiliates, net | 514,007 | 514,433 | ||||||
Non-vehicle debt | 575,856 | 588,259 | ||||||
Public liability, property damage and other insurance liabilities | 215,877 | 228,503 | ||||||
Total liabilities exclusive of liabilities under management programs | 1,998,213 | 2,129,751 | ||||||
Liabilities under management programs: | ||||||||
Vehicle debt | 4,115,860 | 3,771,341 | ||||||
Deferred income taxes | 307,296 | 315,905 | ||||||
4,423,156 | 4,087,246 | |||||||
Commitments and contingencies (Note 6) | ||||||||
Stockholder's equity: | ||||||||
Common stock, $.01 par value—authorized 10,000 shares; issued 5,537 shares | — | — | ||||||
Additional paid-in-capital | 168,832 | 168,832 | ||||||
Retained earnings | 209,707 | 189,306 | ||||||
Accumulated other comprehensive loss | (39,817 | ) | (37,052 | ) | ||||
Total stockholder's equity | 338,722 | 321,086 | ||||||
Total liabilities and stockholder's equity | $ | 6,760,091 | $ | 6,538,083 | ||||
See notesNotes to the condensed consolidated financial statements.
3
AVIS GROUP HOLDINGS, INC.
Consolidated Condensed Financial Statements.
4
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
PREDECESSOR COMPANIES
---------------------------
MARCH 1, 2001 TWO MONTHS SIX MONTHS
(DATE OF ACQUISITION) ENDED ENDED
TO FEBRUARY 28, JUNE 30,
JUNE 30, 2001 2001 2000
--------------------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................. $ 18,594 $ (29,119) $ 57,018
Adjustments to reconcile net income (loss) to net cash provided
by 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)
Accounts payable ................................................ (18,937) (33,889) 5,983
Due to Cendant-trading accounts ................................. (38,046) (45,096) 40,859
Accrued liabilities ............................................. (3,789) 1,486 (17,492)
Other, net ...................................................... (8,681) (8,091) (24,854)
Management programs:
Vehicle depreciation ............................................ 214,575 105,928 304,800
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
----------- --------- -----------
CASH FLOWS FROM 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 property and equipment ................... (17,617) (3,278) (19,432)
Retirements of property and equipment .............................. 2,795 (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)
----------- --------- -----------
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)
----------- --------- -----------
Net decrease in non-vehicle debt ................................... (317,806) (77) (10,715)
Due to Cendant-intercompany financing, net ......................... 354,928
Payments for debt issuance costs ................................... (4,231) (12) (5,127)
Other .............................................................. 140
----------- --------- -----------
Net cash provided by financing activities .......................... 163,054 101,258 661,814
----------- --------- -----------
Effect of exchange rate changes on cash ............................ (117) (11) (175)
----------- --------- -----------
Net increase (decrease) in cash and cash equivalents ............... (43,697) (14,263) 4,921
Cash and cash equivalents at beginning of period ................... 66,105 80,368 31,901
----------- --------- -----------
Cash and cash equivalents at end of period ......................... $ 22,408 $ 66,105 $ 36,822
=========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid ................................................. $ 108,764 $ 44,315 $ 199,869
=========== ========= ===========
Cash income taxes paid ............................................. $ 8,889 $ 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
===========
(In thousands)
| | | Predecessor Companies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | ||||||||||
| Six Months Ended June 30, 2002 | Two Months Ended February 28, 2001 | ||||||||||
Operating Activities | ||||||||||||
Net income (loss) | $ | 20,401 | $ | 18,594 | $ | (29,119 | ) | |||||
Adjustments to arrive at income (loss) from continuing operations | — | — | 2,665 | |||||||||
Income (loss) from continuing operations | 20,401 | 18,594 | (26,454 | ) | ||||||||
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: | ||||||||||||
Non-vehicle depreciation and amortization | 17,943 | 20,268 | 7,833 | |||||||||
Net change in operating assets and liabilities, excluding the impact of acquisitions and dispositions: | ||||||||||||
Receivables | (12,664 | ) | (12,108 | ) | 10,108 | |||||||
Accounts payable | (9,766 | ) | (12,531 | ) | (30,518 | ) | ||||||
Accrued liabilities | 848 | (3,789 | ) | 1,486 | ||||||||
Other, net | (10,935 | ) | (4,082 | ) | (30,923 | ) | ||||||
Net cash provided by (used in) operating activities exclusive of management programs | 5,827 | 6,352 | (68,468 | ) | ||||||||
Management programs: | ||||||||||||
Vehicle depreciation | 312,221 | 211,602 | 104,336 | |||||||||
Net cash provided by operating activities | 318,048 | 217,954 | 35,868 | |||||||||
Investing Activities | ||||||||||||
Property and equipment additions | (24,807 | ) | (25,658 | ) | (5,821 | ) | ||||||
Retirements of property and equipment | 778 | 8,375 | 433 | |||||||||
Payment for purchase of rental car franchise licensees | (3,087 | ) | (19,047 | ) | — | |||||||
Net cash used in investing activities exclusive of management programs | (27,116 | ) | (36,330 | ) | (5,388 | ) | ||||||
Management programs: | ||||||||||||
Decrease in restricted cash | 571,881 | 5,208 | 10,978 | |||||||||
Decrease in due from vehicle manufacturers | 29,348 | 131,813 | 16,368 | |||||||||
Investment in vehicles | (2,684,823 | ) | (1,900,052 | ) | (940,559 | ) | ||||||
Payments received on investment in vehicles | 1,472,033 | 1,412,819 | 812,647 | |||||||||
(611,561 | ) | (350,212 | ) | (100,566 | ) | |||||||
Net cash used in investing activities | (638,677 | ) | (386,542 | ) | (105,954 | ) | ||||||
5
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
| | | Predecessor Companies | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | |||||||||
| Six Months Ended June 30, 2002 | Two Months Ended February 28, 2001 | |||||||||
Financing Activities | |||||||||||
Proceeds from borrowings | — | 140,000 | — | ||||||||
Principal payments on borrowings | (253 | ) | (457,806 | ) | (77 | ) | |||||
Increase (decrease) in due to Cendant Corporation and affiliates, net | (2,667 | ) | 316,882 | (45,818 | ) | ||||||
Payments for debt issuance costs | (131 | ) | (4,231 | ) | (12 | ) | |||||
Issuances of common stock | — | — | 140 | ||||||||
Net cash used in financing activities exclusive of management programs | (3,051 | ) | (5,155 | ) | (45,767 | ) | |||||
Management programs: | |||||||||||
Proceeds from borrowings | 650,431 | 916,633 | 132,294 | ||||||||
Principal payments on borrowings | (299,818 | ) | (786,470 | ) | (31,087 | ) | |||||
350,613 | 130,163 | 101,207 | |||||||||
Net cash provided by financing activities | 347,562 | 125,008 | 55,440 | ||||||||
Effect of changes in net assets of discontinued operations | — | — | 394 | ||||||||
Effect of changes in exchange rates on cash and cash equivalents | 425 | (117 | ) | (11 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 27,358 | (43,697 | ) | (14,263 | ) | ||||||
Cash and cash equivalents, beginning of period | 13,311 | 66,105 | 80,368 | ||||||||
Cash and cash equivalents, end of period | $ | 40,669 | $ | 22,408 | $ | 66,105 | |||||
Supplemental disclosure of Cash Flow Information: | |||||||||||
Interest payments | $ | 130,775 | $ | 108,764 | $ | 44,315 | |||||
Income tax payments, net | $ | 485 | $ | 8,889 | $ | 1,962 |
See notesNotes to the condensed consolidated financial statements
4
AVIS GROUP HOLDINGS, INC.
Consolidated Condensed Financial Statements.
6
Avis Group Holdings, Inc. and Subsidiaries
NOTES TO THECONSOLIDATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1-BASIS OF PRESENTATION
GENERAL
Prior to March 1, 2001,
(Unless otherwise noted, all amounts are in thousands)
1. Summary of Significant Accounting Policies
Basis of Presentation
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"(collectively, "the Company"),.
Avis Group Holdings, Inc. is a holding company that operates through a wholly-owned subsidiary, Avis Rent A Car System, Inc.
("Vehicle Rental"), Avis Fleet Leasing and Management Corp. ("Vehicle Leasing")
and Reserve Claims Management Co.the second largest general use car rental brand in the world. On November 11, 2000,March 1, 2001, all the Company's common stock not then-owned by 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 ownedwas acquired 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 fromapproximately $994 million with the sale were used to retire acquisition indebtedness
(see Note 4).Company emerging as the surviving legal entity. Accordingly, the unaudited condensed consolidated financial
statementsConsolidated Condensed Financial Statements as of and for the three and six months ended June 30, 2002, for the period from the DateMarch 1, 2001 (Date of Acquisition throughAcquisition) to June 30, 2001 and the three months ended June 30,as of December 31, 2001 include the consolidated accountsfinancial statements of Avis Group Holdings, Inc., Avis Rent A Car System, Inc. and Reserve Claims Management
Co., (collectively referred to as the "Company" or "Successor Company"). As a
result of the sale of Vehicle Leasing to PHH Corp., theits subsidiaries. The Consolidated Condensed ConsolidatedFinancial Statements of Operations for the two months ended February 28, 2001 andinclude the three and six months ended June 30, 2000financial statements of the Predecessor present Vehicle
LeasingCompany and its former fleet management and fuel card businesses, which are presented as a discontinued operation net of the related provision for income
taxes (see Note 2)(the "Predecessor Companies"). 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):
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.
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 liabilities under management programs. Revenues generated from these assets are used, in part, to repay the year ended December 31, 2000.
CHANGE IN ACCOUNTING PRINCIPLE FOR DERIVATIVE INSTRUMENTSinterest 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
On January 1, 2001,2002, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments142 "Goodwill 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 resultedOther Intangible Assets" 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 priorits entirety. Prior to the adoption of SFAS No. 133.
The Company uses derivative financial instruments as part of its overall
strategy142, all intangible assets were amortized on a straight-line basis over their estimated periods to manage its exposurebe benefited. Subsequent to market risks associated with interest rate
risks. As a matter of policy,the adoption, the Company doesdid not use derivatives for tradingamortize any goodwill or speculative purposes.
All derivatives are recorded at fair value either asindefinite-lived intangible assets or liabilities.
Gains or losses on derivatives designated as cash flow hedges, toduring 2002.
In connection with 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 pronouncementsimplementation 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 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 results of operations during 2002.
7
2. Related Party Transactions
Expenses of the Company include the following items charged by Cendant and affiliates, which include allocations from Cendant for services provided to the Company:
| Three Months Ended June 30, 2002 | Three Months Ended June 30, 2001 | ||||
---|---|---|---|---|---|---|
Royalties | $ | 27,977 | $ | 26,610 | ||
Reservations | 16,639 | 14,031 | ||||
Data processing | 9,475 | 15,657 | ||||
Rent, corporate overhead allocations and other | 15,300 | 10,957 | ||||
Interest, net | 2,959 | 7,011 | ||||
Total | $ | 72,350 | $ | 74,266 | ||
| | | Predecessor Companies | ||||||
---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | |||||||
| Six Months Ended June 30, 2002 | Two Months Ended February 28, 2001 | |||||||
Royalties | $ | 52,253 | $ | 35,810 | $ | 16,205 | |||
Reservations | 29,321 | 19,186 | 8,496 | ||||||
Data processing | 17,740 | 20,141 | 11,395 | ||||||
Rent, corporate overhead allocations and other | 29,079 | 11,629 | 1,456 | ||||||
Interest, net | 6,358 | 7,011 | — | ||||||
Total | $ | 134,751 | $ | 93,777 | $ | 37,552 | |||
On the Consolidated Condensed Statements of Operations, the royalty and reservation charges are included within selling, general and administration expenses, the rent and other and data processing expenses are included within operating, net and interest expense is included within non-vehicle interest, net. These charges, including corporate overhead allocations, are determined in accordance with various intercompany agreements, which are based upon factors, such as square footage, employee salaries and computer usage time.
3. Restricted Cash
Restricted cash includes cash and investments that are not readily available for normal Company disbursements that have been set aside as required under the Company's debt covenants. The restricted cash balance sheet
at December 31, 2001 was held as collateral for outstanding vehicle debt that was not callable and, therefore, could not be immediately repaid. During 2002, the date, regardlessrestricted cash was depleted through the normal purchase of when thosevehicles.
4. Intangible Assets
Intangible assets were initially recognized.
6
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1-BASIS OF PRESENTATION (CONTINUED)
Duringconsisted of:
| June 30, 2002 | December 31, 2001 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||
Amortized Intangible Assets | |||||||||||||
Customer lists | $ | 18,952 | $ | 1,280 | $ | 18,952 | $ | 800 | |||||
Unamortized Intangible Assets | |||||||||||||
Goodwill | $ | 1,254,909 | $ | 1,297,774 | $ | 26,582 | |||||||
8
Customer lists are included in other assets on the fourCompany's Consolidated Condensed Balance Sheet. Amortization expense relating to customer lists during the three and six months ended June 30, 2001, the Company recorded amortization2002 was approximately $240 thousand and $480 thousand, respectively. Amortization expense relatedrelating to theseall intangible assets of $10.5 million. Duringduring 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 acquisition of the Company by Cendant onperiod March 1, 2001 (Date of Acquisition) to June 30, 2001, was approximately $2.1 million and $10.5 million, respectively, including the amortization of goodwill of $2.1 million and $10.2 million, respectively. The Company expects amortization expense on intangible assets for the remainder of 2002 to approximate $480 thousand and $1 million for each of the succeeding five years.
The changes in the carrying amount of goodwill for 2002 are as follows:
Balance as of January 1, 2002 | $ | 1,271,192 | ||
Goodwill acquired during 2002 | 1,836 | |||
Other | (18,119 | ) | ||
Balance as of June 30, 2002 | $ | 1,254,909 | ||
Had the Company sold its investment in Vehicle Leasingapplied the non-amortization provisions of SFAS No. 142 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):
| | | Predecessor Companies | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | ||||||||
| Three Months Ended June 30, 2001 | Two Months Ended February 28, 2001 | ||||||||
Reported net income (loss) | $ | 9,899 | $ | 18,594 | $ | (29,119 | ) | |||
Add back: Goodwill amortization, net of tax | 3,108 | 4,708 | 1,307 | |||||||
Pro forma net income (loss) | $ | 13,007 | $ | 23,302 | $ | (27,812 | ) | |||
5. Vehicle Debt
Vehicle debt consisted of:
| June 30, 2002 | December 31, 2001 | ||||
---|---|---|---|---|---|---|
Commercial paper notes | $ | 299,030 | $ | 119,998 | ||
Series 2001-2 auction rate rental car asset-backed notes | 385,000 | 40,000 | ||||
Series 1997-1B 6.40% asset-backed medium-term notes | 566,667 | 850,000 | ||||
Series 1998-1 6.14% asset-backed medium-term notes | 600,000 | 600,000 | ||||
Series 2000-1 floating rate rental car asset-backed notes | 250,000 | 250,000 | ||||
Series 2000-2 floating rate rental car asset-backed notes | 300,000 | 300,000 | ||||
Series 2000-3 floating rate rental car asset-backed notes | 200,000 | 200,000 | ||||
Series 2000-4 floating rate rental car asset-backed notes | 500,000 | 500,000 | ||||
Series 2001-1 floating rate rental car asset-backed notes | 750,000 | 750,000 | ||||
Other | 265,163 | 161,343 | ||||
$ | 4,115,860 | $ | 3,771,341 | |||
As of June 30, 2002, the Company's asset-backed funding arrangements under the AESOP Funding program provided for the issuance of up to $4.14 billion of debt. Amounts outstanding under the AESOP Funding program approximated $3.85 billion. As of June 30, 2002, the Company had an additional $291 million of availability under the AESOP Funding program. In addition, the Company had other outstanding vehicle debt of approximately $265 million and availability of approximately $112 million under other funding arrangements as of June 30, 2002.
6. Commitments and Contingencies
The Company is involved in pending litigation in the usual course of business. In the opinion of management, such litigation will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.
9
7. Comprehensive Income (Loss)
The components of comprehensive income (loss) are summarized as follows:
| Three Months Ended June 30, 2002 | Three Months Ended June 30, 2001 | ||||||
---|---|---|---|---|---|---|---|---|
Net income | $ | 22,810 | $ | 9,899 | ||||
Other comprehensive income (loss): | ||||||||
Currency translation adjustment | 3,660 | 2,239 | ||||||
Unrealized losses on cash flow hedges, net of tax | (17,466 | ) | (1,395 | ) | ||||
Total comprehensive income | $ | 9,004 | $ | 10,743 | ||||
| | | Predecessor Companies | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | |||||||||
| Six Months Ended June 30, 2002 | Two Months Ended February 28, 2001 | |||||||||
Net income (loss) | $ | 20,401 | $ | 18,594 | $ | (29,119 | ) | ||||
Other comprehensive income (loss): | |||||||||||
Currency translation adjustment | 4,451 | (1,175 | ) | (1,758 | ) | ||||||
Unrealized gains (losses) on cash flow hedges, net of tax | (5,880 | ) | (2,766 | ) | 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) | $ | 17,636 | $ | 14,653 | $ | (28,852 | ) | ||||
The after-tax components of accumulated other comprehensive income (loss) for the six months ended June 30, 2002 are as follows:
| Currency Translation Adjustments | Unrealized Losses on Cash Flows Hedges | Minimum Pension Liability Adjustment | Accumulated Other Comprehensive Loss | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, January 1, 2002 | $ | (2,469 | ) | $ | (34,583 | ) | $ | — | $ | (37,052 | ) | ||
Current period change | 4,451 | (5,880 | ) | (1,336 | ) | (2,765 | ) | ||||||
Balance June 30, 2002 | $ | 1,982 | $ | (40,463 | ) | $ | (1,336 | ) | $ | (39,817 | ) | ||
8. Subsequent Event
On July 25, 2002, the Company issued $750 million of rental car asset backed notes under its AESOP Funding Program. Approximately $500 million of such notes bear interest at a fixed rate of 3.85% and approximately $250 million of such notes bear interest at a floating rate of LIBOR plus 29 basis points.
9. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements
The following consolidating condensed financial information presents the Consolidating Condensed Balance Sheets as of June 30, 2002 and December 31, 2001, the Consolidated Condensed Statements of Operations for the three months ended June 30, 20012002 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)
The2001 and the Consolidating Condensed Consolidated Statements of Operations and Statements of Cash Flows for the six months ended June 30, 2002, the period March 1, 2001 (Date of Acquisition) to June 30, 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 threeCompany on a consolidated basis.
Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and six month periodsintercompany 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.
10
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months ended June 30, 2000
present2002
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 591,572 | $ | 59,059 | $ | — | $ | 650,631 | ||||||
Expenses | ||||||||||||||||
Operating, net | — | 227,135 | 29,231 | — | 256,366 | |||||||||||
Vehicle depreciation and lease charges, net | — | 146,991 | 14,410 | — | 161,401 | |||||||||||
Selling, general and administrative | — | 113,735 | 8,194 | — | 121,929 | |||||||||||
Vehicle interest, net | 459 | 50,544 | 336 | — | 51,339 | |||||||||||
Non-vehicle interest, net | 7,658 | 3,165 | — | — | 10,823 | |||||||||||
Non-vehicle depreciation and amortization | 240 | 8,439 | 766 | — | 9,445 | |||||||||||
Total expenses | 8,357 | 550,009 | 52,937 | — | 611,303 | |||||||||||
Income (loss) before equity in earnings of subsidiaries | (8,357 | ) | 41,563 | 6,122 | — | 39,328 | ||||||||||
Equity in earnings of subsidiaries | 26,166 | 3,550 | — | (29,716 | ) | — | ||||||||||
Income before income taxes | 17,809 | 45,113 | 6,122 | (29,716 | ) | 39,328 | ||||||||||
Provision (benefit) for income taxes | (5,001 | ) | 18,947 | 2,572 | — | 16,518 | ||||||||||
Net income | $ | 22,810 | $ | 26,166 | $ | 3,550 | $ | (29,716 | ) | $ | 22,810 | |||||
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the results of operations of Vehicle Leasing as income from discontinued
operations, net ofThree Months Ended June 30, 2001
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 570,551 | $ | 58,342 | $ | — | $ | 628,893 | ||||||
Expenses | ||||||||||||||||
Operating, net | — | 206,665 | 25,503 | — | 232,168 | |||||||||||
Vehicle depreciation and lease charges, net | — | 158,512 | 12,470 | — | 170,982 | |||||||||||
Selling, general and administrative | — | 108,548 | 7,992 | — | 116,540 | |||||||||||
Vehicle interest, net | 3,459 | 52,015 | 425 | — | 55,899 | |||||||||||
Non-vehicle interest, net | 8,350 | 6,227 | — | — | 14,577 | |||||||||||
Non-vehicle depreciation and amortization | 4,746 | 9,505 | 824 | — | 15,075 | |||||||||||
Total expenses | 16,555 | 541,472 | 47,214 | — | 605,241 | |||||||||||
Income (loss) before equity in earnings of subsidiaries | (16,555 | ) | 29,079 | 11,128 | — | 23,652 | ||||||||||
Equity in earnings of subsidiaries | 14,176 | 4,674 | — | (18,850 | ) | — | ||||||||||
Income (loss) before income taxes | (2,379 | ) | 33,753 | 11,128 | (18,850 | ) | 23,652 | |||||||||
Provision (benefit) for income taxes | (12,278 | ) | 19,577 | 6,454 | — | 13,753 | ||||||||||
Net income | $ | 9,899 | $ | 14,176 | $ | 4,674 | $ | (18,850 | ) | $ | 9,899 | |||||
11
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the related income tax provision.
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
----------- ------------ ------------ ------------ --------------
Revenue $ 767,986 $ 78,903 $ 846,889
----------- ------------ ------------
Costs and expenses:
Direct operating, net............................... 275,749 34,616 310,365
Vehicle depreciation and lease charges, net......... 210,001 18,758 228,759
Selling, general and administrative................. 143,494 10,621 154,115
Interest, net....................................... $ 16,246 79,002 861 96,109
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
----------- ----------- ------------ ------------
Equity in earnings of subsidiaries.................. 39,223 10,739 $ (49,962)
----------- ----------- ------------ ------------ ------------
Income before (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.......................................... $ 18,594 $ 39,223 $ 10,739 $ (49,962) $ 18,594
=========== =========== ============ ============ ============
AVIS GROUP HOLDINGS, INC
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(PREDECESSOR COMPANIES)
TWO MONTHS ENDED FEBRUARY 28, 2001
(IN THOUSANDS)
-------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ --------------
Revenue ...................................................... $ 344,496 $ 41,325 $ 385,821
-------- --------- ---------
Costs and expenses:
Direct 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, net ................................................ $ 11,473 40,375 944 52,792
Non-vehicle depreciation and amortization .................... 3,707 447 4,154
Amortization of cost in excess of net
assets acquired ........................................... 2,060 27 2,087
--------- -------- --------- ---------
11,473 380,988 35,597 428,058
--------- -------- --------- ---------
(11,473) (36,492) 5,728 (42,237)
Equity (loss) in earnings of subsidiaries .................... (21,907) 10,898 $ 11,009
Income (loss) from continuing operations before
(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 (15,783)
--------- -------- --------- -------- ---------
Income (loss) from continuing operations ..................... (29,119) (12,878) 4,534 11,009 (26,454)
(Loss) income from discontinued operations, net of
income taxes .............................................. (6,358) 11,305 4,947
Cumulative effect from prior years (through December 31, 2000)
of change in accounting principle for derivative
instruments, net of income tax benefit .................... (2,671) (4,941) (7,612)
--------- -------- --------- -------- ---------
Net (loss) income ............................................ $ (29,119) $(21,907) $ 10,898 $ 11,009 $ (29,119)
========= ======== ========= ======== =========
11
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
(PREDECESSOR COMPANIES)
SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
----------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------ --------------
Revenue ........................................... $ 1,134,360 $ 121,113 $ 1,255,473
----------- ------------ ------------
Costs 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 cost in excess of net
assets acquired................................. 6,192 89 6,281
----------- ----------- ------------ ------------
80,249 1,033,079 103,277 1,216,605
----------- ----------- ------------ ------------
(80,249) 101,281 17,836 38,868
Equity in earnings of subsidiaries................. 107,458 62,027 $ (169,485)
----------- ----------- ------------ ----------- ------------
Income from continuing operations before (benefit)
provision for 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
----------- ----------- ------------ ----------- ------------
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......................................... $ 57,018 $ 107,458 $ 62,027 $ (169,485) $ 57,018
=========== =========== ============ =========== ============
12
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 FINANCIAL POSITION
JUNE 30, 2001
(IN THOUSANDS)
-------------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ --------------
ASSETS
Cash and cash equivalents .................... $ 305 $ 4,627 $ 17,476 $ 22,408
Accounts receivable, net ..................... (12) 169,620 206,052 375,660
Prepaid expenses ............................. 49,491 8,530 58,021
Property and equipment, net .................. 184,683 15,897 200,580
Investment in consolidated subsidiaries ...... 762,718 611,537 $(1,374,255)
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 4,249,476
----------- ----------- ----------- ----------- ----------
Total assets ................................. $ 1,722,019 $ 1,668,401 $ 4,604,431 $(1,374,255) $6,620,596
=========== =========== =========== =========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities ..... $ 10,151 $ 428,508 $ 203,197 $ 641,856
Due to Cendant Corporation and affiliates, net 697,101 (33,108) (286,957) 377,036
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
----------- ----------- ----------- ----------- ----------
Common stockholder's equity .................. 419,077 762,718 611,537 (1,374,255) 419,077
----------- ----------- ----------- ----------- ----------
Total liabilities and stockholder's equity ... $ 1,722,019 $ 1,668,401 $ 4,604,431 $(1,374,255) $6,620,596
=========== =========== =========== =========== ==========
13
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 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:
Net income (loss) ...................................... $ 18,594 $ 39,223 $ 10,739 $ (49,962) $ 18,594
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: ........ 338,443 85,375 (256,811) 167,007
--------- ----------- ----------- --------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 357,037 124,598 (246,072) (49,962) 185,601
--------- ----------- ----------- --------- -----------
CASH FLOWS FROM 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 property and equipment ....... (17,146) (471) (17,617)
Retirements of property and equipment .................. 2,750 45 2,795
Payment for purchase of rental car franchise licensees . (18,748) (299) (19,047)
Investment in subsidiaries ............................. (39,223) (10,739) 49,962
--------- ----------- ----------- --------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES ........... (39,223) (273,663) (129,311) 49,962 (392,235)
--------- ----------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Management programs:
Net (decrease) increase in vehicle debt ............ (8,744) 138,907 130,163
Net decrease in non-vehicle debt ....................... (317,650) (156) (317,806)
Due to Cendant intercompany financing, net ............. 130,078 224,850 354,928
Payments for debt issuance costs ....................... (4,231) (4,231)
--------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (317,650) 116,947 363,757 163,054
--------- ----------- ----------- -----------
Effect of exchange rate changes on cash ................ (117) (117)
--------- ----------- ----------- --------- -----------
Net increase (decrease) in cash and cash equivalents ... 164 (32,118) (11,743) (43,697)
Cash and cash equivalents at beginning of period ....... 141 36,745 29,219 66,105
--------- ----------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 305 $ 4,627 $ 17,476 $ $ 22,408
========= =========== =========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid ................................. $ 108,764
===========
Cash income taxes paid ............................. $ 8,889
===========
15
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
(PREDECESSOR COMPANIES)
FOR THE TWO MONTHS ENDED FEBRUARY 28, 2001
(IN THOUSANDS)
-----------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................................... $ (29,119) $ (21,907) $ 10,898 $ 11,009 $ (29,119)
Adjustments to reconcile net income to net cash
(used in) provided by operating activities: ........ (84,860) 86,236 45,824 47,200
--------- --------- --------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (113,979) 64,329 56,722 11,009 18,081
--------- --------- --------- --------- ---------
CASH FLOWS FROM 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 property and equipment ....... (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)
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 21,907 (93,095) (51,394) (11,009) (133,591)
CASH FLOWS FROM FINANCING ACTIVITIES:
Management programs:
Net increase (decrease) in vehicle debt ............ 92,000 (2) 9,209 101,207
Net decrease in non-vehicle debt ....................... (77) (77)
Payments for debt issuance costs ....................... (12) (12)
Other .................................................. 140 140
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 92,140 (91) 9,209 101,258
--------- --------- --------- ---------
Effect of exchange rate changes on cash ................ (11) (11)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents ... 68 (28,857) 14,562 (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
=========
16
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
(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.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6-SEGMENT INFORMATION
The Company previously operated in two segments, vehicle leasing and vehicle
rental. Subsequent toSTATEMENT OF OPERATIONS
For the sale of Vehicle Leasing onPeriod March 1, 2001 (Date of Acquisition) to June 30, 2001
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 767,986 | $ | 78,903 | $ | — | $ | 846,889 | ||||||
Expenses | ||||||||||||||||
Operating, net | — | 276,363 | 34,616 | — | 310,979 | |||||||||||
Vehicle depreciation and lease charges, net | — | 206,553 | 18,619 | — | 225,172 | |||||||||||
Selling, general and administrative | — | 143,494 | 10,621 | — | 154,115 | |||||||||||
Vehicle interest, net | 4,612 | 70,973 | 861 | — | 76,446 | |||||||||||
Non-vehicle interest, net | 11,634 | 8,029 | — | — | 19,663 | |||||||||||
Non-vehicle depreciation and amortization | 6,574 | 12,599 | 1,095 | — | 20,268 | |||||||||||
Total expenses | 22,820 | 718,011 | 65,812 | — | 806,643 | |||||||||||
Income (loss) before equity in earnings of subsidiaries | (22,820 | ) | 49,975 | 13,091 | — | 40,246 | ||||||||||
Equity in earnings of subsidiaries | 25,759 | 6,022 | — | (31,781 | ) | — | ||||||||||
Income before income taxes | 2,939 | 55,997 | 13,091 | (31,781 | ) | 40,246 | ||||||||||
Provision (benefit) for income taxes | (15,655 | ) | 30,238 | 7,069 | — | 21,652 | ||||||||||
Net income | $ | 18,594 | $ | 25,759 | $ | 6,022 | $ | (31,781 | ) | $ | 18,594 | |||||
12
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Predecessor Companies)
For the Company
operatesTwo Months Ended February 28, 2001
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 344,496 | $ | 41,325 | $ | — | $ | 385,821 | |||||||
Expenses | |||||||||||||||||
Operating, net | — | 154,747 | 19,340 | — | 174,087 | ||||||||||||
Vehicle depreciation and lease charges, net | — | 100,718 | 9,399 | — | 110,117 | ||||||||||||
Selling, general and administrative | — | 77,866 | 5,363 | — | 83,229 | ||||||||||||
Vehicle interest, net | 2,306 | 40,375 | 944 | — | 43,625 | ||||||||||||
Non-vehicle interest, net | 9,167 | — | — | — | 9,167 | ||||||||||||
Non-vehicle depreciation and amortization | — | 7,282 | 551 | — | 7,833 | ||||||||||||
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 in earnings (losses) of subsidiaries | (25,645 | ) | 9,950 | — | 15,695 | — | |||||||||||
Income (loss) before income taxes | (37,118 | ) | (26,542 | ) | 5,728 | 15,695 | (42,237 | ) | |||||||||
Provision (benefit) for income taxes | (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 discontinued operations, net of 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 of accounting change, net of tax | — | (2,671 | ) | (4,941 | ) | — | (7,612 | ) | |||||||||
Net income (loss) | $ | (29,119 | ) | $ | (25,645 | ) | $ | 9,950 | $ | 15,695 | $ | (29,119 | ) | ||||
13
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
June 30, 2002
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 98 | $ | 7,887 | $ | 32,684 | $ | — | $ | 40,669 | ||||||
Receivables, net | — | 135,094 | 30,661 | — | 165,755 | |||||||||||
Prepaid expenses | — | 33,109 | 7,857 | — | 40,966 | |||||||||||
Due from affiliate | (328,977 | ) | 178,602 | 150,375 | — | — | ||||||||||
Deferred income taxes | 218,280 | 336,241 | 1,627 | — | 556,148 | |||||||||||
Property and equipment, net | — | 241,383 | 14,834 | — | 256,217 | |||||||||||
Investment in consolidated subsidiaries | 707,986 | 644,419 | — | (1,352,405 | ) | — | ||||||||||
Goodwill | 806,809 | 444,667 | 3,433 | — | 1,254,909 | |||||||||||
Other assets | 15,541 | 34,113 | 95,400 | — | 145,054 | |||||||||||
Total assets exclusive of assets under management programs | 1,419,737 | 2,055,515 | 336,871 | (1,352,405 | ) | 2,459,718 | ||||||||||
Assets under management programs: | ||||||||||||||||
Restricted cash | — | 174 | 9,132 | — | 9,306 | |||||||||||
Vehicles, net | — | (97,824 | ) | 4,324,399 | — | 4,226,575 | ||||||||||
Due from vehicle manufacturers | — | 5,399 | 59,093 | — | 64,492 | |||||||||||
— | (92,251 | ) | 4,392,624 | — | 4,300,373 | |||||||||||
Total assets | $ | 1,419,737 | $ | 1,963,264 | $ | 4,729,495 | $ | (1,352,405 | ) | $ | 6,760,091 | |||||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||||||||||
Liabilities: | ||||||||||||||||
Accounts payable | $ | (16,459 | ) | $ | 166,744 | $ | 94,847 | $ | — | $ | 245,132 | |||||
Accrued liabilities | 107,466 | 306,005 | 33,870 | — | 447,341 | |||||||||||
Due to Cendant Corporation and affiliates, net | 418,617 | 275,723 | (180,333 | ) | — | 514,007 | ||||||||||
Non-vehicle debt | 571,391 | 4,465 | — | — | 575,856 | |||||||||||
Public liability, property damage and other insurance liabilities | — | 144,141 | 71,736 | — | 215,877 | |||||||||||
Total liabilities exclusive of liabilities under management programs | 1,081,015 | 897,078 | 20,120 | — | 1,998,213 | |||||||||||
Liabilities under management programs: | ||||||||||||||||
Vehicle debt | — | 80,490 | 4,035,370 | — | 4,115,860 | |||||||||||
Deferred income taxes | — | 277,710 | 29,586 | — | 307,296 | |||||||||||
— | 358,200 | 4,064,956 | — | 4,423,156 | ||||||||||||
Stockholder's equity | 338,722 | 707,986 | 644,419 | (1,352,405 | ) | 338,722 | ||||||||||
Total liabilities and stockholder's equity | $ | 1,419,737 | $ | 1,963,264 | $ | 4,729,495 | $ | (1,352,405 | ) | $ | 6,760,091 | |||||
14
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 2001
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 18 | $ | 5,210 | $ | 8,083 | $ | — | $ | 13,311 | ||||||
Receivables, net | — | 142,386 | 25,986 | — | 168,372 | |||||||||||
Prepaid expenses | — | 34,569 | 7,974 | — | 42,543 | |||||||||||
Deferred income tax | 221,741 | 326,332 | 14 | — | 548,087 | |||||||||||
Property and equipment, net | — | 230,429 | 14,847 | — | 245,276 | |||||||||||
Investment in consolidated subsidiaries | 677,401 | 628,280 | — | (1,305,681 | ) | — | ||||||||||
Goodwill | 825,234 | 443,000 | 2,958 | — | 1,271,192 | |||||||||||
Other assets | 16,020 | 34,791 | 95,797 | — | 146,608 | |||||||||||
Total assets exclusive of assets under management programs | 1,740,414 | 1,844,997 | 155,659 | (1,305,681 | ) | 2,435,389 | ||||||||||
Assets under management programs: | ||||||||||||||||
Restricted cash | — | 9,457 | 571,730 | — | 581,187 | |||||||||||
Vehicles, net | — | (128,932 | ) | 3,557,825 | — | 3,428,893 | ||||||||||
Due from vehicle manufacturers | — | 7,855 | 84,759 | — | 92,614 | |||||||||||
— | (111,620 | ) | 4,214,314 | — | 4,102,694 | |||||||||||
Total assets | $ | 1,740,414 | $ | 1,733,377 | $ | 4,369,973 | $ | (1,305,681 | ) | $ | 6,538,083 | |||||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||||||||||
Liabilities: | ||||||||||||||||
Accounts payable | $ | — | $ | 151,379 | $ | 212,512 | $ | — | $ | 363,891 | ||||||
Accrued liabilities | 109,143 | 300,337 | 25,185 | — | 434,665 | |||||||||||
Due to Cendant Corporation and affiliates, net | 726,645 | 63,214 | (275,426 | ) | — | 514,433 | ||||||||||
Non-vehicle debt | 583,540 | 4,719 | — | — | 588,259 | |||||||||||
Public liability, property damage and other insurance liabilities | — | 166,432 | 62,071 | — | 228,503 | |||||||||||
Total liabilities exclusive of liabilities under management programs | 1,419,328 | 686,081 | 24,342 | — | 2,129,751 | |||||||||||
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 | $ | 1,740,414 | $ | 1,733,377 | $ | 4,369,973 | $ | (1,305,681 | ) | $ | 6,538,083 | |||||
15
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2002
| Parent | Guarantor | Non- Guarantor | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Activities | |||||||||||||||||
Net income | $ | 20,401 | $ | 27,737 | $ | 5,614 | $ | (33,351 | ) | $ | 20,401 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs | (27,692 | ) | (6,266 | ) | 19,384 | — | (14,574 | ) | |||||||||
Net cash provided by (used in) operating activities exclusive of management programs | (7,291 | ) | 21,471 | 24,998 | (33,351 | ) | 5,827 | ||||||||||
Management programs: | |||||||||||||||||
Vehicle depreciation | — | 291,352 | 20,869 | — | 312,221 | ||||||||||||
Net cash provided by (used in) operating activities | (7,291 | ) | 312,823 | 45,867 | (33,351 | ) | 318,048 | ||||||||||
Investing Activities | |||||||||||||||||
Property and equipment additions | — | (23,278 | ) | (1,529 | ) | — | (24,807 | ) | |||||||||
Retirements of property and equipment | — | 89 | 689 | — | 778 | ||||||||||||
Payment for purchase of rental car franchise licensees | — | (2,835 | ) | (252 | ) | — | (3,087 | ) | |||||||||
Investment in subsidiaries | (27,737 | ) | (5,614 | ) | — | 33,351 | — | ||||||||||
Net cash used in investing activities exclusive of management programs | (27,737 | ) | (31,638 | ) | (1,092 | ) | 33,351 | (27,116 | ) | ||||||||
Management programs: | |||||||||||||||||
Decrease in restricted cash | — | 9,283 | 562,598 | — | 571,881 | ||||||||||||
Decrease in due from vehicle manufacturers | — | 2,456 | 26,892 | — | 29,348 | ||||||||||||
Investment in vehicles | — | (57,042 | ) | (2,627,781 | ) | — | (2,684,823 | ) | |||||||||
Payments received on investment in vehicles | — | (248,886 | ) | 1,720,919 | — | 1,472,033 | |||||||||||
— | (294,189 | ) | (317,372 | ) | — | (611,561 | ) | ||||||||||
Net cash used in investing activities | (27,737 | ) | (325,827 | ) | (318,464 | ) | 33,351 | (638,677 | ) | ||||||||
Financing Activities | |||||||||||||||||
Net decrease in non-vehicle debt | — | (253 | ) | — | — | (253 | ) | ||||||||||
Increase (decrease) in due to Cendant Corporation and affiliates, net | 35,108 | 16,065 | (53,840 | ) | — | (2,667 | ) | ||||||||||
Payments for debt issuance costs | — | (131 | ) | — | — | (131 | ) | ||||||||||
Net cash provided by (used in) financing activities exclusive of management programs | 35,108 | 15,681 | (53,840 | ) | — | (3,051 | ) | ||||||||||
Management programs: | |||||||||||||||||
Net increase in vehicle debt | — | — | 350,613 | — | 350,613 | ||||||||||||
Net cash provided by financing activities | 35,108 | 15,681 | 296,773 | — | 347,562 | ||||||||||||
Effect of changes in exchange rates on cash and cash equivalents | — | — | 425 | — | 425 | ||||||||||||
Net increase in cash and cash equivalents | 80 | 2,677 | 24,601 | — | 27,358 | ||||||||||||
Cash and cash equivalents, beginning of period | 18 | 5,210 | 8,083 | — | 13,311 | ||||||||||||
Cash and cash equivalents, end of period | $ | 98 | $ | 7,887 | $ | 32,684 | $ | — | $ | 40,669 | |||||||
16
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Period March 1, 2001 (Date of Acquisition) to June 30, 2001
| Parent | Guarantor | Non- Guarantor | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Activities | |||||||||||||||||
Net income | $ | 18,594 | $ | 25,759 | $ | 6,022 | $ | (31,781 | ) | $ | 18,594 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs | (118,194 | ) | 130,934 | (24,982 | ) | — | (12,242 | ) | |||||||||
Net cash provided by (used in) operating activities exclusive of management programs | (99,600 | ) | 156,693 | (18,960 | ) | (31,781 | ) | 6,352 | |||||||||
Management programs: | |||||||||||||||||
Vehicle depreciation | — | 195,458 | 16,144 | — | 211,602 | ||||||||||||
Net cash provided by (used in) operating activities | (99,600 | ) | 352,151 | (2,816 | ) | (31,781 | ) | 217,954 | |||||||||
Investing Activities | |||||||||||||||||
Property and equipment additions | — | (24,781 | ) | (877 | ) | — | (25,658 | ) | |||||||||
Retirements of property and equipment | — | 8,169 | 206 | — | 8,375 | ||||||||||||
Payment for purchase of rental car franchise licensees | — | (18,748 | ) | (299 | ) | — | (19,047 | ) | |||||||||
Investment in subsidiaries | (25,759 | ) | (6,022 | ) | — | 31,781 | — | ||||||||||
Net cash used in investing activities exclusive of management programs | (25,759 | ) | (41,382 | ) | (970 | ) | 31,781 | (36,330 | ) | ||||||||
Management programs: | |||||||||||||||||
Decrease in restricted cash | — | — | 5,208 | — | 5,208 | ||||||||||||
(Increase) decrease in due from vehicle manufacturers | — | (3,443 | ) | 135,256 | — | 131,813 | |||||||||||
Investment in vehicles | — | (41,397 | ) | (1,858,655 | ) | — | (1,900,052 | ) | |||||||||
Payments received on investment in vehicles | — | (182,724 | ) | 1,595,543 | — | 1,412,819 | |||||||||||
— | (227,564 | ) | (122,648 | ) | — | (350,212 | ) | ||||||||||
Net cash used in investing activities | (25,759 | ) | (268,946 | ) | (123,618 | ) | 31,781 | (386,542 | ) | ||||||||
Financing Activities | |||||||||||||||||
Net decrease in non-vehicle debt | (317,650 | ) | (156 | ) | — | — | (317,806 | ) | |||||||||
Increase (decrease) in due to Cendant Corporation and affiliates, net | 443,173 | (102,192 | ) | (24,099 | ) | — | 316,882 | ||||||||||
Payments for debt issuance costs | — | (4,231 | ) | — | — | (4,231 | ) | ||||||||||
Net cash provided by (used in) financing activities exclusive of management programs | 125,523 | (106,579 | ) | (24,099 | ) | — | (5,155 | ) | |||||||||
Management programs: | |||||||||||||||||
Net (decrease) increase in vehicle debt | — | (8,744 | ) | 138,907 | — | 130,163 | |||||||||||
Net cash provided by (used in) financing activities | 125,523 | (115,323 | ) | 114,808 | — | 125,008 | |||||||||||
Effect of changes in exchange rates on cash a cash equivalents | — | — | (117 | ) | — | (117 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | 164 | (32,118 | ) | (11,743 | ) | — | (43,697 | ) | |||||||||
Cash and cash equivalents, beginning of period | 141 | 36,745 | 29,219 | — | 66,105 | ||||||||||||
Cash and cash equivalents, end of period | $ | 305 | $ | 4,627 | $ | 17,476 | $ | — | $ | 22,408 | |||||||
17
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Predecessor Companies)
For the Two Months Ended February 28, 2001
| Parent | Guarantor | Non- Guarantor | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Activities | |||||||||||||||||
Net income (loss) | $ | (29,119 | ) | $ | (25,645 | ) | $ | 9,950 | $ | 15,695 | $ | (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) operating activities exclusive of management programs | 425 | 77,124 | (119,563 | ) | — | (42,014 | ) | ||||||||||
Net cash provided by (used in) operating activities exclusive of management programs | (28,694 | ) | 60,508 | (115,977 | ) | 15,695 | (68,468 | ) | |||||||||
Management programs: | |||||||||||||||||
Vehicle depreciation | — | 96,394 | 7,942 | — | 104,336 | ||||||||||||
Net cash provided by (used in) operating activities | (28,694 | ) | 156,902 | (108,035 | ) | 15,695 | 35,868 | ||||||||||
Investing Activities | |||||||||||||||||
Property and equipment additions | — | (5,169 | ) | (652 | ) | — | (5,821 | ) | |||||||||
Retirements of property and equipment | — | 165 | 268 | — | 433 | ||||||||||||
Investment in subsidiaries | 25,645 | (9,950 | ) | — | (15,695 | ) | — | ||||||||||
Net cash provided by (used in) investing activities exclusive of management programs | 25,645 | (14,954 | ) | (384 | ) | (15,695 | ) | (5,388 | ) | ||||||||
Management programs: | |||||||||||||||||
Decrease in restricted cash | — | — | 10,978 | — | 10,978 | ||||||||||||
Decrease in due from vehicle manufacturers | — | — | 16,368 | — | 16,368 | ||||||||||||
Investment in vehicles | — | 378 | (940,937 | ) | — | (940,559 | ) | ||||||||||
Payments received on investment in vehicles | — | (82,703 | ) | 895,350 | — | 812,647 | |||||||||||
— | (82,325 | ) | (18,241 | ) | — | (100,566 | ) | ||||||||||
Net cash provided by (used in) investing activities | 25,645 | (97,279 | ) | (18,625 | ) | (15,695 | ) | (105,954 | ) | ||||||||
Financing Activities | |||||||||||||||||
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 | ) | ||||||||||
Issuances of common stock | 140 | — | — | — | 140 | ||||||||||||
Net cash provided by (used in) financing activities exclusive of management programs | (88,883 | ) | 43,034 | 82 | — | (45,767 | ) | ||||||||||
Management programs: | |||||||||||||||||
Net increase (decrease) in vehicle debt | 92,000 | (2 | ) | 9,209 | — | 101,207 | |||||||||||
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 rates on cash and cash equivalents | — | — | (11 | ) | — | (11 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | 68 | (28,857 | ) | 14,526 | — | (14,263 | ) | ||||||||||
Cash and cash equivalents, beginning of period | 73 | 65,602 | 14,693 | — | 80,368 | ||||||||||||
Cash and cash equivalents, end of period | $ | 141 | $ | 36,745 | $ | 29,219 | $ | — | $ | 66,105 | |||||||
18
Item 2. Management's Narrative Analysis of the Results of Operations
The following discussion should be read in one industry segment,conjunction with our Consolidated Condensed Financial Statements and accompanying Notes thereto included elsewhere herein. Unless otherwise noted, all dollar amounts are in thousands and presented before taxes (as appropriate).
We are the vehiclesecond largest general use car rental business. The Company's
vehicle rental business rents vehicles to business 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 recordedbrand in the country in
whichworld. On March 1, 2001, all of our outstanding common stock not then-owned by Cendant Corporation ("Cendant") was acquired by a vehicle is rented. EBITDA represents net income, plus, non-vehicle
related interest expense, non-vehicle depreciationsubsidiary of PHH Corporation ("PHH"), a wholly-owned subsidiary of Cendant, for approximately $994 million and amortizationwe emerged as the surviving legal entity. At such time, our fleet management and income
taxes from vehicle rental operations (in thousands).
RESULTS OF OPERATIONS
The acquisition of us by Cendant resulted in significant changes to the valuation of certain of our assets, liabilities and Canada. Consistent with its historical risk management policies,stockholder's equity. The periods prior to 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 six months ended June 30, 2001 since we believe that separate discussions for the two months ended February 28, 2001 and the four months ended June 30, 2001 no ineffectiveness was recognized on these
hedges. Amounts accumulatedare not meaningful in other comprehensive income (loss) are
reclassified into earnings as interest is accrued onterms of our operating results or comparisons to 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 reportingprior period.
For the two months ended February 28, 2001 and the four months ended
Three 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 ended2002 vs. Three Months Ended June 30, 2001
Our comparative results of operations, excluding our former fleet management and fuel card businesses, comprised 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):
| 2002 | 2001 | Change | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 650,631 | $ | 628,893 | $ | 21,738 | ||||
Expenses, excluding non-vehicle interest | 600,480 | 590,664 | 9,816 | |||||||
Non-vehicle interest, net | 10,823 | 14,577 | (3,754 | ) | ||||||
Total expenses | 611,303 | 605,241 | 6,062 | |||||||
Income before income taxes | 39,328 | 23,652 | 15,676 | |||||||
Provision for income taxes | 16,518 | 13,753 | 2,765 | |||||||
Income from continuing operations | $ | 22,810 | $ | 9,899 | $ | 12,911 | ||||
Total revenue increased 3.5% primarily due to (from) Cendant Corporationa 4.1% increase in vehicle rental revenue per day, which was due principally to strong pricing in our leisure business.
Total expenses increased 1.0% primarily due to higher commission-related expenses associated with higher revenues, the launch of an advertising campaign during the second quarter of 2002 and affiliates, net at June 30,
2001 and December 31, 2000 consist of the following balances (in thousands):
Non-vehicle interest, net decreased 25.8% primarily 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,decrease in interest rates and the salerepayment of loss damage waivers, liability insuranceall amounts outstanding under a revolving credit facility during 2001.
Our overall effective tax rate was 42.0% and other products and services.
Management believes that a more meaningful comparison is made when the vehicle
rental pro-forma results of operations58.1% for the six and three months ended June 30, 2002 and 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.respectively. 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 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) before provision
(benefit) for income taxes ... $ 26,294 $ (28,203) (1,909) $ 117,319 $ (30,375) 86,944
=========== =========== ========== ===========
(Benefit) provision for income taxes (1,027) 39,560
----------- -----------
Net (loss) income .................. $ (882) $ 47,384
=========== ===========
VEHICLE RENTAL
REVENUE
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 due 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%, from $107.2 million to $115.9
million, compared to the same period in 2000 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 taxes in relation to non-deductible goodwill. The effective
tax rate reflects differences between foreign income tax rates 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 forth 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. 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, 20012002 was 58.2%, upprimarily due to the elimination of goodwill amortization expense.
As a result of the above-mentioned items, income from 45.5% for the corresponding period in 2000. The increasecontinuing operations increased $12.9 million, or 130%, in the effective income
tax rate wassecond quarter 2002.
19
Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001
Our comparative results of operations, excluding our former fleet management and fuel card businesses comprised the following:
| 2002 | 2001 | Change | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 1,215,234 | $ | 1,232,710 | $ | (17,476 | ) | |||
Expenses, excluding non-vehicle interest | 1,158,441 | 1,205,871 | (47,430 | ) | ||||||
Non-vehicle interest, net | 21,618 | 28,830 | (7,212 | ) | ||||||
Total expenses | 1,180,059 | 1,234,701 | (54,642 | ) | ||||||
Income (loss) before income taxes | 35,175 | (1,991 | ) | 37,166 | ||||||
Provision for income taxes | 14,774 | 5,869 | 8,905 | |||||||
Income (loss) from continuing operations | $ | 20,401 | $ | (7,860 | ) | $ | 28,261 | |||
Total revenue decreased 1.4% primarily due to a reduction in car rental transaction volume, which resulted primarily from the residual effect of reduced commercial air travel due to the September 11th terrorist attacks.
Total expenses decreased 4.4% primarily due to a decrease in income before provision for income
taxes in relationoperating expenses derived from our ability to non-deductible goodwill. The effective tax rate reflects
differences between foreign income tax rates 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 $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,reduce our operating expenses as a result of a decrease in revenue combined with
increases in direct operating expenses, vehiclereduced car rental transaction volume during the first quarter of 2002. Vehicle depreciation and lease charges and non-vehicle depreciationvehicle interest expense also decreased due to a corresponding reduction in average fleet size and amortization charges.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations are expectedthe related decrease in average vehicle debt supporting such fleet.
Non-vehicle interest, net decreased 25.0% primarily due to be funded by cash provided by operating
activities and by financing arrangements maintained by the Companya decrease in the
markets in which it operates. The Company's primary use of funds will be for the
acquisition of new vehiclesinterest rates and the repayment of indebtedness. Forall amounts outstanding under a revolving credit facility during 2001.
The provision for income taxes for the foursix months ended June 30, 2001,2002 reflects our overall effective tax rate of 42.0% for 2002. The increase in 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)provision was primarily due to be higher than in 2000. Since the late 1980's, the Company has
acquired vehicles relatedreporting pretax income in 2002 versus a pretax loss of $42.2 million for the two months ended February 28, 2001 at an effective tax rate of 37.4% offset by a pre-tax income of $40.2 million for the period March 1, 2001 (Date of Acquisition) to its vehicle rental operations primarily pursuant to
manufacturer repurchase programs. Repurchase prices underJune 30, 2001 at an effective tax rate of 53.8% and the repurchase
programs are based on either (1)elimination of goodwill amortization expense.
As 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 endresult 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 flowsabove-mentioned items, income from continuing 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 $19.4increased $28 million for the six months ended June 30, 20012002.
Forward-Looking Statements
Forward-looking statements in our public filings or other public statements are subject to known and 2000, respectively.
The Company has an interest rate management policy, including a target mix for
average fixed rateunknown risks, uncertainties and floating rate indebtednessother 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 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 programvarious factors and were derived utilizing numerous important assumptions and other important factors that as of June 30, 2001 provides for upcould cause actual results 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 interestdiffer materially from those in the Company's rental fleet.
The Variable Funding Notes supportforward-looking statements. Forward-looking statements include the issuanceinformation concerning our future financial performance, business strategy, projected plans and objectives.
Statements preceded by, a special purpose company of
commercial paper notesfollowed 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 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 MBIA and are rated AAA by
Standard an Poors and Aaa by Moody's. 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 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-termgenerally forwardlooking in nature and are relatednot 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:
20
Other factors and assumptions not identified above were also involved in the derivation of $8.1 million at June 30, 2001. At June 30, 2001,these forward looking statements, and the total
debt for the Company'sfailure of such 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
expectedassumptions to be material.
PARENT COMPANY TRANSACTION
On June 29, 2001, one of the Company's vehicle financing subsidiaries amended
its loan agreementsrealized as well as other factors may also cause actual results 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
amountdiffer materially from those projected. Most of these assetsfactors are material. Additionally, this statement provides new
criteria, which appliesdifficult to business combinations completed after June 30, 2001,
to determine which acquired intangible assetspredict accurately and are generally beyond our control.
You 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, acquiredconsider the areas of risk described above 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 2002connection 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 risks and uncertainties including the impact of competitive
products and pricing, changing market conditions; and other risks which were
detailed from time to time
21
Item 3. Quantitative And Qualitative Disclosure About Market Risks
As previously discussed in the Company's publicly-filed documents, including
itsour 2001 Annual Report on Form 10-K, forwe assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the period ended December 31, 2000. Actual
results may differ materially from those projected. These forward-looking
statements represent the Company's judgement as of the date of this report.
29
ITEM 3: QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS
QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISK
The Company has derivative financial instruments atpotential loss in earnings, fair values, and cash flows based on a hypothetical 10% change (increase and decrease) in interest rates. We used June 30, 2001 that are
sensitive2002 market rates to changes on its debt obligations and on itsperform a sensitivity analysis separately for each of our market risk exposures. The estimates 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 from interest rate fluctuations under its
asset backed debt, oneimpact 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, 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 sold10% change 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 billionour earnings, fair values and terminate through November
2004.
30
Signaturescash flows would not be material.
22
Item 6. Exhibits and Reports on Form 8-K
See Exhibit Index
None
23
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. | ||||
By: | /s/ F. ROBERT SALERNO F. Robert Salerno President and Chief Operating Officer Date: August 14, 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 (John W. Chidsey) | Chief Executive Officer | August 14, 2002 | ||
/s/ F. ROBERT SALERNO (F. Robert Salerno) | President, Chief Operating Officer and Director (Principal Executive Officer) | August 14, 2002 | ||
/s/ KURT FREUDENBERG (Kurt Freudenberg) | Senior Vice President and Controller (Principal Financial Officer) | August 14, 2002 |
24
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. (Incorporated by reference to the Company's Registration Statement on Form S-1, Registration No. 333-46737, dated February 23, 1998). | |
12 | Statement Re: Computation of Ratio of Earnings to Fixed Charges. |