QuickLinks-- Click here to rapidly navigate through this documentUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 September 30, 2002
COMMISSION FILE NUMBER: 1-13315--------AVIS 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.) 6 SYLVAN WAY PARSIPPANY, NEW JERSEY 07054 (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: (973) 496-3500 900 OLD COUNTRY ROAD GARDEN CITY, NEW YORK 11530 (Former address) 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. TABLE OF CONTENTS 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 October 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.
Page | ||||
---|---|---|---|---|
PART I | Financial Information | |||
Item 1. | Financial Statements | |||
Independent Accountants' Report | 1 | |||
Consolidated Condensed Statements | 2 | |||
Consolidated Condensed Statements of Operations for the nine months ended September 30, 2002, the period March 1, 2001 (Date of Acquisition) to September 30, 2001 and the two months ended February 28, 2001 | 3 | |||
Consolidated Condensed Balance Sheets as of September 30, 2002 and December 31, 2001 | 4 | |||
Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, | 5 | |||
Notes to the Consolidated Condensed | 7 | |||
Item 2. | Management's Narrative Analysis of the Results of Operations | 25 | ||
Item 3. | Quantitative and Qualitative Disclosure about Market Risks | 27 | ||
Item 4. | Controls and Procedures | 27 | ||
PART | Other Information | |||
Item 6. | Exhibits and Report on Form 8-K | 28 | ||
Signatures | 29 | |||
Certifications | 30 |
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 September 30, 2002, and the related consolidated condensed statements of operations for the three and nine month period ended September 30, 2002, the period March 1, 2001 (Date of Acquisition) to September 30, 2001, and as to the Predecessor Companies for the period January 1, 2001 to February 28, 2001 and the related consolidated condensed statement of cash flows for the nine month period ended September 30, 2002, the period March 1, 2001 (Date of Acquisition) to September 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
November 1, 2002
New York, New York
1
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
PREDECESSOR COMPANIES
---------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ---------------------
Revenue ........................................................................ $ 650,368 $733,694
--------- --------
Cost and expenses:
Direct operating, net .......................................................... 238,657 259,573
Vehicle depreciation and lease charges, net .................................... 194,350 191,346
Selling, general and administrative ............................................ 122,094 121,101
Interest, net .................................................................. 70,440 86,992
Non-vehicle depreciation and amortization ...................................... 5,449 12,647
Amortization of cost in excess of net assets acquired and other intangibles .... 8,095 3,133
Unusual charges ................................................................ 60,062
--------- --------
699,147 674,792
--------- --------
Income (loss) before provision for income taxes ................................ (48,779) 58,902
Provision (benefit) for income taxes ........................................... (24,033) 30,573
--------- --------
Income (loss) from continuing operations ....................................... (24,746) 28,329
Income from discontinued operations, net of income taxes of $5,938 ............. 20,068
--------- --------
Net income (loss) .............................................................. $ (24,746) $ 48,397
========= ========
(In thousands)
| Three Months Ended September 30, 2002 | Three Months Ended September 30, 2001 | ||||||
---|---|---|---|---|---|---|---|---|
Revenues | $ | 710,556 | $ | 650,368 | ||||
Expenses | ||||||||
Operating, net | 279,231 | 239,123 | ||||||
Vehicle depreciation and lease charges, net | 178,099 | 191,592 | ||||||
Selling, general and administrative | 116,666 | 122,094 | ||||||
Vehicle interest, net | 54,241 | 57,948 | ||||||
Non-vehicle interest, net | 10,788 | 12,492 | ||||||
Non-vehicle depreciation and amortization | 9,789 | 15,836 | ||||||
Unusual charges | — | 60,062 | ||||||
Total expenses | 648,814 | 699,147 | ||||||
Income (loss) before income taxes | 61,742 | (48,779 | ) | |||||
Provision (benefit) for income taxes | 25,931 | (24,033 | ) | |||||
Income (loss) before extraordinary gains | 35,811 | (24,746 | ) | |||||
Extraordinary gains, net of tax | 274 | — | ||||||
Net income (loss) | $ | 36,085 | $ | (24,746 | ) | |||
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 CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
PREDECESSOR COMPANIES
---------------------------------
MARCH 1, 2001 TWO MONTHS NINE MONTHS
(DATE OF ACQUISITION) ENDED ENDED
TO FEBRUARY 28, SEPTEMBER 30,
SEPTEMBER 30, 2001 2001 2000
--------------------- ------------ -------------
Revenue ..................................................... $ 1,497,258 $385,821 $1,989,167
----------- -------- ----------
Costs and expenses:
Direct operating, net ....................................... 549,021 173,830 715,581
Vehicle depreciation and lease charges, net ................. 423,110 111,966 510,674
Selling, general and administrative ......................... 276,213 83,229 355,240
Interest , net .............................................. 166,547 52,792 278,228
Non-vehicle depreciation and amortization ................... 12,235 4,154 22,260
Amortization of cost in excess of net assets acquired
and other intangibles ..................................... 18,604 2,087 9,414
Unusual charges ............................................. 60,062
----------- -------- ----------
1,505,792 428,058 1,891,397
----------- -------- ----------
Income (loss) before provision (benefit) for income taxes ... (8,534) (42,237) 97,770
Provision (benefit) for income taxes ........................ (2,381) (15,783) 47,976
----------- -------- ----------
Income (loss) from continuing operations .................... (6,153) (26,454) 49,794
Income from discontinued operation, net of
income taxes of $5,045 for the two months ended
February 28, 2001 and $35,186 for the nine months
ended September 30, 2000 .................................. 4,947 55,621
----------- -------- ----------
Income (loss) before cumulative effect of accounting
change .................................................... (6,153) (21,507) 105,415
Cumulative effect of accounting change, net of income
tax benefit of $3,331 ..................................... (7,612)
----------- -------- ----------
Net income (loss) ........................................... $ (6,153) $(29,119) $ 105,415
=========== ======== ==========
(In thousands)
| | | Predecessor Companies | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to September 30, 2001 | |||||||||
| Nine Months Ended September 30, 2002 | Two Months Ended February 28, 2001 | |||||||||
Revenues | $ | 1,925,790 | $ | 1,497,258 | $ | 385,821 | |||||
Expenses | |||||||||||
Operating, net | 759,632 | 550,101 | 174,087 | ||||||||
Vehicle depreciation and lease charges, net | 499,350 | 416,765 | 110,117 | ||||||||
Selling, general and administrative | 353,526 | 276,213 | 83,229 | ||||||||
Vehicle interest, net | 156,227 | 134,392 | 43,625 | ||||||||
Non-vehicle interest, net | 32,406 | 32,155 | 9,167 | ||||||||
Non-vehicle depreciation and amortization | 27,732 | 36,104 | 7,833 | ||||||||
Unusual charges | — | 60,062 | — | ||||||||
Total expenses | 1,828,873 | 1,505,792 | 428,058 | ||||||||
Income (loss) before income taxes | 96,917 | (8,534 | ) | (42,237 | ) | ||||||
Provision (benefit) for income taxes | 40,705 | (2,381 | ) | (15,783 | ) | ||||||
Income (loss) from continuing operations | 56,212 | (6,153 | ) | (26,454 | ) | ||||||
Income from discontinued operations, net of tax | — | — | 4,947 | ||||||||
Income (loss) before extraordinary gains and cumulative effect of accounting change | 56,212 | (6,153 | ) | (21,507 | ) | ||||||
Extraordinary gains, net of tax | 274 | — | — | ||||||||
Income (loss) before cumulative effect of accounting change | 56,486 | (6,153 | ) | (21,507 | ) | ||||||
Cumulative effect of accounting change, net of tax | — | — | (7,612 | ) | |||||||
Net income (loss) | $ | 56,486 | $ | (6,153 | ) | $ | (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 CONDENSED BALANCE SHEETS
(In thousands, except share data)
| September 30, 2002 | December 31, 2001 | ||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Cash and cash equivalents | $ | 19,165 | $ | 13,311 | ||||
Receivables, net | 174,402 | 168,372 | ||||||
Prepaid expenses | 47,375 | 42,543 | ||||||
Deferred income taxes | 556,140 | 548,087 | ||||||
Property and equipment, net | 252,767 | 245,276 | ||||||
Goodwill, net | 1,252,047 | 1,271,192 | ||||||
Other assets | 159,876 | 146,608 | ||||||
Total assets exclusive of assets under management programs | 2,461,772 | 2,435,389 | ||||||
Assets under management programs: | ||||||||
Restricted cash | 255,252 | 581,187 | ||||||
Vehicles, net | 3,949,345 | 3,428,893 | ||||||
Due from vehicle manufacturers | 242,955 | 92,614 | ||||||
4,447,552 | 4,102,694 | |||||||
Total assets | $ | 6,909,324 | $ | 6,538,083 | ||||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||
Liabilities: | ||||||||
Accounts payable | $ | 226,641 | $ | 363,891 | ||||
Accrued liabilities | 433,149 | 434,665 | ||||||
Due to Cendant Corporation and affiliates, net | 538,173 | 514,433 | ||||||
Non-vehicle debt | 558,334 | 588,259 | ||||||
Public liability, property damage and other insurance liabilities | 220,857 | 228,503 | ||||||
Total liabilities exclusive of liabilities under management programs | 1,977,154 | 2,129,751 | ||||||
Liabilities under management programs: | ||||||||
Vehicle debt | 4,263,568 | 3,771,341 | ||||||
Deferred income taxes | 306,222 | 315,905 | ||||||
4,569,790 | 4,087,246 | |||||||
Commitments and contingencies (Note 8) | ||||||||
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 | 245,792 | 189,306 | ||||||
Accumulated other comprehensive loss | (52,244 | ) | (37,052 | ) | ||||
Total stockholder's equity | 362,380 | 321,086 | ||||||
Total liabilities and stockholder's equity | $ | 6,909,324 | $ | 6,538,083 | ||||
See Notes to Consolidated Condensed Financial Statements.
4
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS)
PREDECESSOR
COMPANIES
------------
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
ASSETS
Cash and cash equivalents .................................. $ 43,021 $ 80,368
Restricted cash ............................................ 43,953 41,280
Accounts receivable, net ................................... 206,176 189,662
Prepaid expenses ........................................... 57,896 47,924
Property and equipment, net ................................ 198,425 181,504
Other assets ............................................... 35,090 78,972
Net assets of discontinued operation ....................... 880,300
Deferred income tax assets, net ............................ 489,911 349,268
Customer lists ............................................. 18,392
Cost in excess of net assets acquired, net ................. 1,220,530 453,450
----------- -----------
Total assets exclusive of assets under programs ............ 2,313,394 2,302,728
----------- -----------
Assets under management programs:
Restricted cash ......................................... 151,046 126,202
Vehicles ................................................ 3,554,442 3,761,454
Due from vehicle manufacturers .......................... 590,551 318,666
----------- -----------
4,296,039 4,206,322
----------- -----------
Total assets ........................................... $ 6,609,433 $ 6,509,050
=========== ===========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Accounts payable ........................................... $ 262,096 $ 283,556
Accrued liabilities ........................................ 386,884 263,277
Due to Cendant Corporation and affiliates, net ............. 410,471 36,117
Public liability, property damage and other insurance
liabilities, net ........................................ 227,668 247,567
Non-vehicle debt ........................................... 594,594 730,333
----------- -----------
Total liabilities exclusive of liabilities under programs .. 1,881,713 1,560,850
----------- -----------
Liabilities under management programs:
Vehicle debt ............................................ 3,934,969 3,816,682
Deferred income taxes ................................... 370,765 376,404
Other ................................................... 67,933
----------- -----------
4,373,667 4,193,086
----------- -----------
Total liabilities ...................................... 6,255,380 5,753,936
----------- -----------
Commitments and contingencies:
Common stock ...............................................
Class A Common stock ....................................... 359
Additional paid-in-capital ................................. 156,065 593,829
Retained earnings .......................................... 242,207 277,460
Treasury stock ............................................. (96,538)
Accumulated comprehensive loss ............................. (44,219) (19,996)
----------- -----------
Total common stockholders' equity ...................... 354,053 755,114
----------- -----------
Total liabilities and common stockholders' equity ...... $ 6,609,433 $ 6,509,050
=========== ===========
See notes to the condensed consolidated financial statements.
3
AVIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR COMPANIES
-----------------------------
MARCH 1, 2001 TWO MONTHS NINE MONTHS
(DATE OF ACQUISITION) ENDED ENDED
TO FEBRUARY 28, SEPTEMBER 30,
SEPTEMBER 30, 2001 2001 2000
------------------ ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................................................... $ (6,153) $ (29,119) $ 105,415
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Non-vehicle depreciation and amortization .............................. 30,839 6,241 31,674
Changes in operating assets and liabilities:
Accounts receivable ................................................. 6,887 10,108 (23,688)
Accounts payable .................................................... 124,495 (33,889) 46,573
Due to Cendant-trading accounts ..................................... (169,144) (45,096) 1,076,008
Accrued liabilities ................................................. 114,432 1,486 (36,342)
Other, net .......................................................... (71,064) (7,180) 33,955
----------- ----------- -----------
Net cash provided by (used in) operating activities exclusive of
management programs ................................................. 30,292 (97,449) 1,233,595
----------- ----------- -----------
Management programs:
Vehicle depreciation ................................................ 395,985 105,928 488,538
Deferred income taxes ............................................... (12,488) (17,744) (14,056)
----------- ----------- -----------
383,497 88,184 474,482
----------- ----------- -----------
Net cash provided by (used in) operating activities ................. 413,789 (9,265) 1,708,077
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Management programs:
Increase (decrease) in restricted cash ........................... (36,855) 10,978 (36,963)
Increase (decrease) in due (from) to vehicle manufacturers ....... (284,433) 16,368 (54,882)
Payments for vehicle additions ................................... (3,407,418) (943,102) (3,907,439)
Vehicle deletions ................................................ 3,057,001 813,460 2,794,366
----------- ----------- -----------
(671,705) (102,296) (1,204,918)
----------- ----------- -----------
Payments for additions to property and equipment ....................... (22,957) (3,278) (29,800)
Retirements of property and equipment .................................. 3,219 (380) 5,618
Payment for purchase of rental car franchise licensees ................. (28,261)
Decrease in net assets and preferred stock of discontinued operation ... (291) (41,566)
----------- ----------- -----------
Net cash used in investing activities, exclusive of management programs. (47,999) (3,949) (65,748)
----------- ----------- -----------
Net cash used in investing activities .................................. (719,704) (106,245) (1,270,666)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Management programs:
Changes in vehicle debt:
Proceeds ......................................................... 1,111,524 132,294 1,392,856
Repayments ....................................................... (1,025,222) (31,087) (865,804)
----------- ----------- -----------
Net increase in vehicle debt ..................................... 86,302 101,207 527,052
Changes in non-vehicle debt:
Proceeds ......................................................... 140,000 161,000
Repayments ....................................................... (457,928) (77) (1,118,328)
----------- ----------- -----------
Net decrease in non-vehicle debt ....................................... (317,928) (77) (957,328)
Increase in due to Cendant-intercompany financing, net ................. 394,950
Payments for debt issuance costs ....................................... (4,593) (12) (9,525)
Capital contribution from Cendant ...................................... 125,000
Other .................................................................. 140 271
Net cash provided by (used in) financing activities, exclusive of ----------- ----------- -----------
management programs ................................................. 197,429 51 (966,582)
----------- ----------- -----------
Net cash provided by (used in) financing activities .................... 283,731 101,258 (439,530)
----------- ----------- -----------
Effect of exchange rate changes on cash ................................ (900) (11) (390)
----------- ----------- -----------
Net decrease in cash and cash equivalents .............................. (23,084) (14,263) (2,509)
Cash and cash equivalents at beginning of period ....................... 66,105 80,368 31,901
----------- ----------- -----------
Cash and cash equivalents at end of period ............................. $ 43,021 $ 66,105 $ 29,392
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid ..................................................... $ 189,230 $ 44,315 $ 176,538
=========== =========== ===========
Cash income taxes paid ................................................. $ 11,690 $ 1,962 $ 10,625
=========== =========== ===========
Businesses acquired:
Fair value of assets acquired, net of cash acquired of $182 ............ $ 30,283
Liabilities assumed .................................................... 2,022
-----------
Net cash paid for rental car franchise licensees ....................... $ 28,261
===========
(In thousands)
| | | Predecessor Companies | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to September 30, 2001 | |||||||||||
| Nine Months Ended September 30, 2002 | Two Months Ended February 28, 2001 | |||||||||||
Operating Activities | |||||||||||||
Net income (loss) | $ | 56,486 | $ | (6,153 | ) | $ | (29,119 | ) | |||||
Adjustments to arrive at income (loss) from continuing operations | (274 | ) | — | 2,665 | |||||||||
Income (loss) from continuing operations | 56,212 | (6,153 | ) | (26,454 | ) | ||||||||
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities: | |||||||||||||
Non-vehicle depreciation and amortization | 27,732 | 36,104 | 7,833 | ||||||||||
Net change in operating assets and liabilities, excluding the impact of acquisitions and dispositions: | |||||||||||||
Receivables | 2,480 | 6,887 | 10,108 | ||||||||||
Accounts payable | 34,901 | 72,632 | (30,518 | ) | |||||||||
Accrued liabilities | (14,821 | ) | 114,432 | 1,486 | |||||||||
Other, net | (13,333 | ) | (30,273 | ) | (30,923 | ) | |||||||
Net cash provided by (used in) operating activities exclusive of management programs | 93,171 | 193,629 | (68,468 | ) | |||||||||
Management programs: | |||||||||||||
Vehicle depreciation | 478,918 | 390,720 | 104,336 | ||||||||||
Net cash provided by operating activities | 572,089 | 584,349 | 35,868 | ||||||||||
Investing Activities | |||||||||||||
Property and equipment additions | (38,243 | ) | (33,496 | ) | (5,821 | ) | |||||||
Retirements of property and equipment | 3,777 | 15,484 | 433 | ||||||||||
Payment for purchase of rental car franchise licensees | (3,099 | ) | (28,261 | ) | — | ||||||||
Net cash used in investing activities exclusive of management programs | (37,565 | ) | (46,273 | ) | (5,388 | ) | |||||||
Management programs: | |||||||||||||
Decrease (increase) in restricted cash | 325,935 | (36,855 | ) | 10,978 | |||||||||
(Increase) decrease in due from vehicle manufacturers | (150,084 | ) | (284,433 | ) | 16,368 | ||||||||
Investment in vehicles | (4,388,332 | ) | (3,396,879 | ) | (940,559 | ) | |||||||
Payments received on investment in vehicles | 3,209,581 | 3,044,736 | 812,647 | ||||||||||
(1,002,900 | ) | (673,431 | ) | (100,566 | ) | ||||||||
Net cash used in investing activities | (1,040,465 | ) | (719,704 | ) | (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 September 30, 2001 | |||||||||
| Nine Months Ended September 30, 2002 | Two Months Ended February 28, 2001 | |||||||||
Financing Activities | |||||||||||
Proceeds from borrowings | — | 140,000 | — | ||||||||
Principal payments on borrowings | (11,270 | ) | (457,928 | ) | (77 | ) | |||||
Increase (decrease) in due to Cendant Corporation and affiliates, net | 20,942 | 224,390 | (45,818 | ) | |||||||
Capital contribution from Cendant | — | 125,000 | — | ||||||||
Payments for debt issuance costs | (5,369 | ) | (4,593 | ) | (12 | ) | |||||
Issuances of common stock | — | — | 140 | ||||||||
Net cash provided by (used in) financing activities exclusive of management programs | 4,303 | 26,869 | (45,767 | ) | |||||||
Management programs: | |||||||||||
Proceeds from borrowings | 1,629,009 | 1,111,524 | 132,294 | ||||||||
Principal payments on borrowings | (1,159,281 | ) | (1,025,222 | ) | (31,087 | ) | |||||
469,728 | 86,302 | 101,207 | |||||||||
Net cash provided by financing activities | 474,031 | 113,171 | 55,440 | ||||||||
Effect of changes in net assets of discontinued operations | — | — | 394 | ||||||||
Effect of changes in exchange rates on cash and cash equivalents | 199 | (900 | ) | (11 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 5,854 | (23,084 | ) | (14,263 | ) | ||||||
Cash and cash equivalents, beginning of period | 13,311 | 66,105 | 80,368 | ||||||||
Cash and cash equivalents, end of period | $ | 19,165 | $ | 43,021 | $ | 66,105 | |||||
Supplemental disclosure of Cash Flow Information: | |||||||||||
Interest payments | $ | 185,854 | $ | 189,230 | $ | 44,315 | |||||
Income tax payments, net | $ | 7,563 | $ | 11,690 | $ | 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
NOTE 1-BASIS OF PRESENTATION
GENERAL
Prior to March 1, 2001, the
(Unless otherwise noted, all amounts are in thousands)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements includedConsolidated Condensed Financial Statements include the accounts 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 then
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 September 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 5).Company emerging as the surviving legal entity. Accordingly, the unaudited condensed consolidated
financial statementsConsolidated Condensed Financial Statements as of and for the three and nine months ended September 30, 2002, for the period from the DateMarch 1, 2001 (Date of Acquisition throughAcquisition) to September 30, 2001 and the three months ended September 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 nine months ended September 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 3)(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
September 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 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 endedinterest 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.
Restricted Cash
Restricted cash includes cash and investments that are not readily available for normal Company disbursements and which have been set aside as required under the Company's debt covenants. The restricted cash balance at December 31, 2000.
CHANGE IN ACCOUNTING PRINCIPLE FOR DERIVATIVE INSTRUMENTS2001 was held as collateral for outstanding vehicle debt that was not callable and, therefore, could not be immediately repaid. During 2002, the restricted cash was depleted through the normal purchase of vehicles. These vehicles have replaced the restricted cash as collateral for outstanding vehicle debt.
7
Changes in Accounting Policies
On January 1, 2001,2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS No. 133") as amended. SFAS No. 133, established accounting
and reporting standards for derivative instruments, including freestanding and
embedded derivatives, and hedging activities. The Company has recorded all such
derivatives at fair value at January 1, 2001.
The adoption of SFAS No. 133 resulted in the recognition of a non-cash charge of
$12.5 million ($7.6 million, after tax) in the Condensed Consolidated Statement
of Operations for the two months ended February 28, 2001 to account for the
cumulative effect of the accounting change relating to derivatives not
qualifying as hedges prior to that date. The Company also recognized a
cumulative-effect-type adjustment in the amount of $2.4 million in accumulated
comprehensive loss in the Condensed Consolidated Balance Sheet attributable to
derivatives designated as cash flow like hedges prior to the adoption of SFAS
No. 133.
The Company uses derivative financial instruments as part of its overall
strategy to manage its exposure to market risks associated with interest rate
risks. As a matter of policy, the Company does not use derivatives for trading
or speculative purposes.
All derivatives are recorded at fair value either as assets or liabilities.
Gains or losses on derivatives designated in cash flow hedges, to the extent the
hedge is effective, are recorded in other comprehensive income (loss). Any
ineffectiveness resulting from these cash flow hedges is reported currently in
earnings. Amounts accumulated in other comprehensive income are reclassified
into earnings in the same period during which the hedged item affects earnings.
Gains and losses on derivatives not designated as hedging instruments are
recognized currently in earnings.
RECENT ACCOUNTING STANDARDS
Recent pronouncements of the Financial Accounting Standards Board which are not
required to be adopted at this date include Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" ("SFAS No. 141"), SFAS No.
142, "Goodwill and Other Intangible Assets" (", in its entirety. In connection with the adoption of SFAS No. 142"), and142, the Company has not amortized any goodwill or indefinite-lived intangible assets during 2002. Prior to the adoption of SFAS No. 144
"Accounting142, all intangible assets were amortized on a straight-line basis over their estimated periods to be benefited. Therefore, the results of operations for 2001 reflect the Impairment or Disposalamortization of Long Lived Assets" ("SFAS No.
144").
SFAS No. 141 requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001 and requires additional
disclosures for material business combinations completed after such date. This
standard also addresses financial accounting and reporting for goodwill and otherindefinite lived intangible assets, acquired inwhile the results of operations for 2002 do not reflect such amortization (see Note 5—Intangible Assets for a business combination acquisition. On July
1,pro forma disclosure depicting the Company's results of operations during 2001 after applying the Company adopted the provisions relating to acquisitions made
subsequent to June 30, 2001, as required. The provisions regarding the
classification of previously acquired intangible asset will be adopted
simultaneously with thenon-amortization provisions of SFAS No. 142 on January 1, 2002, as
required.
6
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION (CONTINUED)
RECENT ACCOUNTING STANDARDS (CONTINUED)142).
In connection with the implementation of SFAS No. 142, addresses financial accounting and reporting for intangible assets
acquired outside of a business combination. The standard also addresses
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. Thethe Company will beis required to assess goodwill and otherindefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate a potential impairment. On July 1, 2001,impairment may have occurred. The Company reviewed the Company
adopted the provisions requiring thatcarrying value of all its goodwill and certain other intangible assets acquired after June 30, 2001by 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. The Company will perform its annual impairment test during fourth quarter of 2002.
Stock-Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company currently measures its stock-based compensation using the intrinsic value approach under Accounting Principles Board ("APB") Opinion No. 25. Accordingly, the Company does not recognize compensation expense upon the issuance of its stock options because the option terms are fixed and the exercise price equals the market price of the underlying Cendant common stock on the grant date. The Company complies with the provision of SFAS No. 123 by providing pro forma disclosures of net income and related per share data giving consideration to the fair value method provisions of SFAS No. 123.
On January 1, 2003, the Company plans to adopt the fair value method of accounting for stock-based compensation provisions of SFAS No. 123, which is considered by the Financial Accounting Standards Board ("FASB") to be amortized.the preferable accounting method for stock-based employee compensation. Subsequent to adoption of the fair value method provisions of SFAS No. 123, the Company will expense all future employee stock options (and similar awards) over the vesting period based on the fair value of the award on the date of grant. The Company does not expect its results of operations to be impacted in the current year from this prospective change in accounting policy based on the current accounting guidance related to this adoption, which is currently under review by the FASB.
The impact of recording compensation expense at fair value in prior periods have been included in the pro forma disclosures, as required by SFAS No. 123, provided in the Company's Annual Report on Form 10-K filed on March 29, 2002. Prior period compensation expense is not necessarily indicative of future compensation expense that would be recorded by the Company upon its adoption of the fair value method provisions of SFAS No. 123. Future expense may vary based upon factors such as the number of options granted by the Company and the then-current fair market value of such options.
8
Recently Issued Accounting Pronouncements
During April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Such standard requires any gain or loss on extinguishments of debt to be presented as a component of continuing operations (unless specific criteria is met) whereas SFAS No. 4 required that such gains and losses be classified as an extraordinary item in determining net income. Upon adoption of SFAS No. 145, the Company expects to reclassify its extraordinary gains or losses on the extinguishments of debt to continuing operations. The Company will adopt these provisions on January 1, 2003.
During June 2002, the remainingFASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Such standard requires costs associated with exit or disposal activities (including restructurings), to be recognized when the costs are incurred, rather than at a date of commitment to an exit or disposal plan. SFAS No. 146 nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146, a liability related to an exit or disposal activity is not recognized until such liability has actually been incurred whereas under EITF Issue No. 94-3 a liability was recognized at the time of a commitment to an exit or disposal plan. The provisions of this standard on January 1, 2002, as required.
Transition-related impairment losses, if any, resulting form the initial
assessmentare effective for disposal activities initiated after December 31, 2002.
2. Related Party Transactions
Expenses of goodwill and certain other intangible assets will be recognized by 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 September 30, 2002 | Three Months Ended September 30, 2001 | ||||
---|---|---|---|---|---|---|
Royalties | $ | 31,017 | $ | 27,495 | ||
Reservations | 14,050 | 14,487 | ||||
Data processing | 8,819 | 15,433 | ||||
Rent, corporate overhead allocations and other | 14,783 | 11,906 | ||||
Interest, net | 3,321 | 4,128 | ||||
Total | $ | 71,990 | $ | 73,449 | ||
| | | Predecessor Companies | ||||||
---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to September 30, 2001 | |||||||
| Nine Months Ended September 30, 2002 | Two Months Ended February 28, 2001 | |||||||
Royalties | $ | 83,270 | $ | 63,305 | $ | 16,205 | |||
Reservations | 43,371 | 33,673 | 8,496 | ||||||
Data processing | 26,559 | 35,574 | 11,395 | ||||||
Rent, corporate overhead allocations and other | 43,862 | 23,535 | 1,456 | ||||||
Interest, net | 9,679 | 11,139 | — | ||||||
Total | $ | 206,741 | $ | 167,226 | $ | 37,552 | |||
9
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 a cumulative effect of accounting change as of January 1, 2002.
The Company is currently evaluatingsquare footage, employee salaries and computer usage time.
3. Unusual Charges
During the impact of adopting the remaining
provisions on its financial position and results of operations.
Based upon a preliminary assessment of previously acquired goodwill and certain
other intangible assets that will no longer be amortized upon the adoption of
SFAS No. 142, the Company expects that the related reduction to amortization
expense during the seventhree months ended September 30, 2001, the two months ended
February 28, 2001 and the nine months ended September 30, 2000 would approximate
$18.6 million, $2 million, and $9.2 million, respectively.
SFAS No. 144 addresses financial accounting and reporting for the impairment of
disposal of long-lived assets. This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", and replaces the accounting and reporting provisions of APB
Opinion No. 30, "Reporting Results of Operations - Reporting the Effect of
Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" as it relates to the disposal of a segment of
a business. SFAS No. 144 requires the use of a single accounting model for
long-lived assets to be disposed of by sale, including discontinued operations,
by requiring those long-lived assets to be measured at the lower of carrying
amount or fair value less cost to sell. The impairment recognition and
measurement provisions of SFAS No. 121 were retained for all long-lived assets
to be held and used with the exception of goodwill. The Company will adopt this
standard on January 1, 2002.
NOTE 2-UNUSUAL CHARGES
During the third quarter 2001,incurred unusual charges of $60.1$60 million were recorded as
a result ofrelated to the September 11, 2001 terrorist attacks on the World Trade Center
("Terrorist Attacks").attacks. The unusual charges include 1) an asset impairment loss
arisingprimarily resulted from the returnrationalization of Regular Program vehicles, $43.8 million, 2) a reserve
for anticipated decline in market value on the sale of Non-Program vehicles,
$5.8 million, 3) a reserve for the cancellation of marketing programs, $0.9
million, 4) a reserve for severance costs, $0.5 millionCompany's fleet and 5) other costs, $9.1
million, principally related to redundancies caused by the Terrorist Attacks.
The asset impairment loss of $43.8 million relates to the disposal of Program
Vehicles under repurchase programs. Prices under these repurchase programs are
based on either 1) a specified percentage of original vehicle costs, depending
on the month the vehicle is returned to the manufacturers or 2) the original
capitalized cost less a set depreciation amount. Unlike Program Vehicles, the
resale of Non-Program Vehicles is determined by current market conditions. Due
to the excessive number of vehicles being returned by Avis and other car rental companies subsequent to the Terrorist Attacks, the Company has experienced a
sharp decline in the resale value of these Non-Program vehicles. A reserve in
the amount of $5.8 million was established anticipating losses on the disposal
of Non-Program vehicles. As of September 30, 2001, a reserve of $35 million
remains for those Program Vehicles which have not been disposed. The remaining
vehicles will be disposed of as soon as possible.
Also included in the unusual charge were costs of commissions payable to
agencies for advertising placement. Prior to the Terrorist Attacks, the Company
had committed to a level of advertising placement commissions based on
anticipated advertising spending. As a result of the Terrorist Attacks, the
Company has significantly curtailed its advertising spending, it remains,
however, obligated to pay commissions based on budgeted advertising spending. As
of September 30, 2001, the entire amount of advertising placement commission had
been paid. In addition, the Company has initiated a formal plan to terminate
certain employees at field locations and at corporate headquarters. As of
September 30, 2001, the Company had accrued $0.5 million for severance and other
related costs for employees so notified. The Company expects all affected
employees will be terminated prior to December 31, 2001. Other costs of $9.1
million associated with the Terrorist Attacks have been classified within the
Statement of Operations to the Unusual Charge. Amounts classified comprise $7.2
million of estimated payroll costs for underutilized employees (the majority of
which have been terminated) and $1.9 million of minimum airport commission
guarantees.
7
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3-DISCONTINUED OPERATIONoperations.
4. Acquisition Related
In connection with the acquisition of the Company by Cendant on March 1, 2001, the Company soldrecorded purchase accounting adjustments for costs associated with exiting activities. The recognition of such costs and the corresponding utilization are summarized by category as follows:
| Costs | Cash Payments | Other Reductions | Balance at December 31, 2001 | Cash Payments | Other Additions | Balance at September 30, 2002 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Personnel related | $ | 35,925 | $ | (19,444 | ) | $ | — | $ | 16,481 | $ | (18,569 | ) | $ | 10,212 | $ | 8,124 | |||||
Asset fair value adjustments | 19,480 | — | (18,674 | ) | 806 | — | (806 | ) | — | ||||||||||||
Facility related | 7,692 | (136 | ) | — | 7,556 | (1,768 | ) | — | 5,788 | ||||||||||||
Total | $ | 63,097 | $ | (19,580 | ) | $ | (18,674 | ) | $ | 24,843 | $ | (20,337 | ) | $ | 9,406 | $ | 13,912 | ||||
The Company closed its investmentheadquarters, relocated employees and abandoned assets and involuntarily terminated employees in Vehicle Leasing for $800 millionconnection with such relocation. The Company formally communicated the termination of employment and paid severance to PHH Corp.
(see Note 1). No gain or loss was recognizedapproximately 475 employees, representing a wide range of employee groups, and as of September 30, 2002, the Company had terminated all such employees. The majority of the remaining personnel related costs are expected to be paid by the end of fourth quarter 2002.
5. Intangible Assets
Intangible assets consisted of:
| September 30, 2002 | December 31, 2001 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||
Amortized Intangible Assets | |||||||||||||
Customer lists | $ | 18,952 | $ | 1,520 | $ | 18,952 | $ | 800 | |||||
Unamortized Intangible Assets | |||||||||||||
Goodwill | $ | 1,252,047 | $ | 1,297,774 | $ | 26,582 | |||||||
Customer lists are included in other assets on the sale.
Summarized financial data ofCompany's Consolidated Condensed Balance Sheet. Amortization expense relating to customer lists during the discontinued operation ofthree and nine months ended September 30, 2002 was approximately $240 thousand and $720 thousand, respectively.
10
Amortization expense relating to all intangible assets during the Predecessor is as
follows (in thousands):
The changes in the carrying amount of goodwill for 2002 are redeemed during the twelve month period beginning
on May 1, 2004.
On September 5, 2001,as follows:
Balance as of January 1, 2002 | $ | 1,271,192 | ||
Goodwill acquired during 2002 | 1,849 | |||
Other | (20,994 | ) | ||
Balance as of September 30, 2002 | $ | 1,252,047 | ||
Had the Company elected to terminateapplied the Revolving Credit
Facility.
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS
In connection with the Vehicle Leasing acquisition on June 30, 1999 and as partnon-amortization provisions of the financing thereof, the Predecessor issued and sold the Senior
Subordinated Notes (see Note 5) in a transaction exempt from registration under
the Securities Act. The Senior Subordinated Notes are unsecured obligations of
Avis Group Holdings, Inc. The notes are subordinated in right of payment to all
existing and future senior indebtedness of the Company, and are guaranteed by
certain Avis Group Holdings, Inc. domestic subsidiaries. Vehicle Leasing and its
subsidiaries were released as guarantors under this financing agreement upon
Vehicle Leasing's sale to PHH Corp. on March 1, 2001 (see Notes 1 and 2).
Accordingly, the following condensed consolidating financial information
presents the results of operationsSFAS No. 142 for the three months ended September 30, 2001, and September 30, 2000, the results of operations and cash flows for the period March 1, 2001 (Date of Acquisition) to September 30, 2001 and the two months ended February 28, 2001, net income (loss) would have been as follows:
| | | Predecessor Companies | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to September 30, 2001 | ||||||||
| Three Months Ended September 30, 2001 | Two Months Ended February 28, 2001 | ||||||||
Reported net loss | $ | (24,746 | ) | $ | (6,153 | ) | $ | (29,119 | ) | |
Add back: Goodwill amortization, net of tax | 7,803 | 18,031 | 1,307 | |||||||
Pro forma net income (loss) | $ | (16,943 | ) | $ | 11,878 | $ | (27,812 | ) | ||
6. Non-Vehicle Debt
Non-vehicle debt consisted of:
| September 30, 2002 | December 31, 2001 | ||||
---|---|---|---|---|---|---|
11% senior subordinated notes | $ | 553,986 | $ | 583,541 | ||
Other | 4,348 | 4,718 | ||||
$ | 558,334 | $ | 588,259 | |||
11
The change in the balance of the 11% senior subordinated notes reflects the redemption of $10.0 million in face value of these notes, with a carrying value of $11.4 million, for $10.9 million in cash and $18.2 million related to the amortization of a premium. In connection with such redemption, the Company recorded an extraordinary gain of approximately $470 thousand ($274 thousand, after tax).
7. Vehicle Debt
Vehicle debt consisted of:
| September 30, 2002 | December 31, 2001 | ||||
---|---|---|---|---|---|---|
Commercial paper notes | $ | — | $ | 119,998 | ||
Series 2002-2 variable funding rental car asset-backed notes | 110,000 | — | ||||
Series 2001-2 auction rate rental car asset-backed notes | 400,000 | 40,000 | ||||
Series 1997-1B 6.40% asset-backed medium-term notes | 141,667 | 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 | ||||
Series 2002-1 3.85% asset-backed medium term notes | 499,775 | — | ||||
Series 2002-1 floating rate rental car asset-backed notes | 250,000 | — | ||||
Other | 262,126 | 161,343 | ||||
$ | 4,263,568 | $ | 3,771,341 | |||
As of September 30, 2002, the Company's asset-backed funding arrangements under the AESOP Funding program provided for the issuance of up to $4.69 billion of debt. Amounts outstanding under the AESOP Funding program approximated $4 billion. As of September 30, 2002, the Company had $690 million of availability under the AESOP Funding program. In addition, the Company had other outstanding vehicle debt of approximately $262 million and availability of approximately $127 million under other funding arrangements as of September 30, 2002.
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 $250 million of such notes bear interest at a floating rate of LIBOR plus 29 basis points.
In September 2002, the Company issued $110 million of variable funding rental car asset-backed notes under the AESOP Funding program and repaid all amounts outstanding in commercial paper notes.
8. 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. Stock Plans
During third quarter 2002, the Cendant's Board of Directors accelerated the vesting of certain options previously granted with exercise prices greater than or equal to $15.1875. Cendant's senior executive officers were not eligible for this modification. In connection with such action, approximately
12
3 million options, which were scheduled to become exercisable substantially between September 2002 and January 2004, became exercisable as of August 27, 2002. In addition, the post-employment exercise period for the modified options was reduced from one year to thirty days. However, if the employee remains employed by the Company through the date on which the option was originally scheduled to become vested, the post-employment exercise period will be one year.
In accordance with the provisions of the FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion No. 25)," there is no charge associated with this modification since none of the modified options had intrinsic value because the market price of the underlying Cendant common stock on August 27, 2002 was less than the exercise price of the modified options.
10. Comprehensive Income (Loss)
The components of comprehensive income (loss) are summarized as follows:
| Three Months Ended September 30, 2002 | Three Months Ended September 30, 2001 | ||||||
---|---|---|---|---|---|---|---|---|
Net income (loss) | $ | 36,085 | $ | (24,746 | ) | |||
Other comprehensive income (loss): | ||||||||
Currency translation adjustment | (2,618 | ) | (2,197 | ) | ||||
Unrealized losses on cash flow hedges, net of tax | (9,875 | ) | (38,082 | ) | ||||
Minimum pension liability adjustments | 66 | — | ||||||
Total comprehensive income (loss) | $ | 23,658 | $ | (65,025 | ) | |||
| | | Predecessor Companies | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to September 30, 2001 | |||||||||
| Nine Months Ended September 30, 2002 | Two Months Ended February 28, 2001 | |||||||||
Net income (loss) | $ | 56,486 | $ | (6,153 | ) | $ | (29,119 | ) | |||
Other comprehensive income (loss): | |||||||||||
Currency translation adjustment | 1,833 | (3,371 | ) | (1,758 | ) | ||||||
Unrealized gains (losses) on cash flow hedges, net of tax | (15,755 | ) | (40,848 | ) | 561 | ||||||
Minimum pension liability adjustment | (1,270 | ) | — | — | |||||||
Cumulative effect from change in accounting policy for derivative instruments, net of tax | — | — | 1,464 | ||||||||
Total comprehensive income (loss) | $ | 41,294 | $ | (50,372 | ) | $ | (28,852 | ) | |||
The after-tax components of accumulated other comprehensive income (loss) for the nine months ended September 30, 20002002 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 | 1,833 | (15,755 | ) | (1,270 | ) | (15,192 | ) | ||||||
Balance September 30, 2002 | $ | (636 | ) | $ | (50,338 | ) | $ | (1,270 | ) | $ | (52,244 | ) | |
13
The increase in unrealized losses on cash flow hedges, net of tax, for the three months ended September 30, 2002 is primarily the result of the effect of the decrease in interest rates during the period
11. Subsequent Events
During October 2002, the Company redeemed approximately $18 million of its 11% senior subordinated notes with a face value of approximately $16 million for approximately $17 million in cash.
On October 28, 2002, the Company entered into an agreement to acquire the licensing rights and vehicles of a domestic licensee for approximately $13 million.
12. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements
The following consolidating condensed financial information presents the financial
positionConsolidating Condensed Balance Sheets as of September 30, 20012002 and December 31, 2000.
10
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The Unaudited2001, the Consolidated Condensed Consolidating Statements of Operations for the three months ended September 30, 2002 and September 30, 2001 and the Consolidating Condensed Statements of Operations and Statements of Cash Flows for the nine months ended September 30, 2002, the period March 1, 2001 (Date of Acquisition) to September 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 Company 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 intercompany balances and transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been provided as management believes the following information is sufficient.
14
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2002
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 631,805 | $ | 78,751 | $ | — | $ | 710,556 | ||||||
Expenses | ||||||||||||||||
Operating, net | — | 247,030 | 32,201 | — | 279,231 | |||||||||||
Vehicle depreciation and lease charges, net | — | 160,453 | 17,646 | — | 178,099 | |||||||||||
Selling, general and administrative | — | 107,475 | 9,191 | — | 116,666 | |||||||||||
Vehicle interest, net | 9,459 | 43,766 | 1,016 | — | 54,241 | |||||||||||
Non-vehicle interest, net | 7,582 | 3,206 | — | — | 10,788 | |||||||||||
Non-vehicle depreciation and amortization | 241 | 8,846 | 702 | — | 9,789 | |||||||||||
Total expenses | 17,282 | 570,776 | 60,756 | — | 648,814 | |||||||||||
Income (loss) before equity in earnings of subsidiaries | (17,282 | ) | 61,029 | 17,995 | — | 61,742 | ||||||||||
Equity in earnings of subsidiaries | 41,450 | 10,437 | — | (51,887 | ) | — | ||||||||||
Income before income taxes | 24,168 | 71,466 | 17,995 | (51,887 | ) | 61,742 | ||||||||||
Provision (benefit) for income taxes | (11,643 | ) | 30,016 | 7,558 | — | 25,931 | ||||||||||
Income before extraordinary gains | 35,811 | 41,450 | 10,437 | (51,887 | ) | 35,811 | ||||||||||
Extraordinary gains, net of tax | 274 | — | — | — | 274 | |||||||||||
Net income | $ | 36,085 | $ | 41,450 | $ | 10,437 | $ | (51,887 | ) | $ | 36,085 | |||||
15
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2001
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 575,914 | $ | 74,454 | $ | — | $ | 650,368 | |||||||
Expenses | |||||||||||||||||
Operating, net | — | 208,192 | 30,931 | — | 239,123 | ||||||||||||
Vehicle depreciation and lease charges, net | — | 174,038 | 17,554 | — | 191,592 | ||||||||||||
Selling, general and administrative | — | 113,750 | 8,344 | — | 122,094 | ||||||||||||
Vehicle interest, net | 3,459 | 52,792 | 1,697 | — | 57,948 | ||||||||||||
Non-vehicle interest, net | 7,657 | 4,835 | — | — | 12,492 | ||||||||||||
Non-vehicle depreciation and amortization | 5,037 | 9,949 | 850 | — | 15,836 | ||||||||||||
Unusual charges | — | 60,062 | — | 60,062 | |||||||||||||
Total expenses | 16,153 | 623,618 | 59,376 | — | 699,147 | ||||||||||||
Income (loss) before equity in earnings (losses) of subsidiaries | (16,153 | ) | (47,704 | ) | 15,078 | — | (48,779 | ) | |||||||||
Equity in earnings (losses) of subsidiaries | (20,320 | ) | 7,649 | — | 12,671 | — | |||||||||||
Income (loss) before income taxes | (36,473 | ) | (40,055 | ) | 15,078 | 12,671 | (48,779 | ) | |||||||||
Provision (benefit) for income taxes | (11,727 | ) | (19,735 | ) | 7,429 | — | (24,033 | ) | |||||||||
Net income (loss) | $ | (24,746 | ) | $ | (20,320 | ) | $ | 7,649 | $ | 12,671 | $ | (24,746 | ) | ||||
16
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2002
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 1,730,792 | $ | 194,998 | $ | — | $ | 1,925,790 | ||||||
Expenses | ||||||||||||||||
Operating, net | — | 669,925 | 89,707 | — | 759,632 | |||||||||||
Vehicle depreciation and lease charges, net | — | 450,263 | 49,087 | — | 499,350 | |||||||||||
Selling, general and administrative | — | 328,804 | 24,722 | — | 353,526 | |||||||||||
Vehicle interest, net | 10,377 | 144,290 | 1,560 | — | 156,227 | |||||||||||
Non-vehicle interest, net | 22,897 | 9,509 | — | — | 32,406 | |||||||||||
Non-vehicle depreciation and amortization | 720 | 24,765 | 2,247 | — | 27,732 | |||||||||||
Total expenses | 33,994 | 1,627,556 | 167,323 | — | 1,828,873 | |||||||||||
Income (loss) before equity in earnings of subsidiaries | (33,994 | ) | 103,236 | 27,675 | — | 96,917 | ||||||||||
Equity in earnings of subsidiaries | 69,187 | 16,051 | — | (85,238 | ) | — | ||||||||||
Income before income taxes | 35,193 | 119,287 | 27,675 | (85,238 | ) | 96,917 | ||||||||||
Provision (benefit) for income taxes | (21,019 | ) | 50,100 | 11,624 | — | 40,705 | ||||||||||
Income before extraordinary gains | 56,212 | 69,187 | 16,051 | (85,238 | ) | 56,212 | ||||||||||
Extraordinary gains, net of tax | 274 | — | — | — | 274 | |||||||||||
Net income | $ | 56,486 | $ | 69,187 | $ | 16,051 | $ | (85,238 | ) | $ | 56,486 | |||||
17
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Period March 1, 2001 (Date of Acquisition) to September 30, 2001
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 1,343,901 | $ | 153,357 | $ | — | $ | 1,497,258 | |||||||
Expenses | |||||||||||||||||
Operating, net | — | 484,554 | 65,547 | — | 550,101 | ||||||||||||
Vehicle depreciation and lease charges, net | — | 380,592 | 36,173 | — | 416,765 | ||||||||||||
Selling, general and administrative | — | 257,307 | 18,906 | — | 276,213 | ||||||||||||
Vehicle interest, net | 8,071 | 123,704 | 2,617 | — | 134,392 | ||||||||||||
Non-vehicle interest, net | 19,291 | 12,864 | — | — | 32,155 | ||||||||||||
Non-vehicle depreciation and amortization | 11,611 | 22,548 | 1,945 | — | 36,104 | ||||||||||||
Unusual charges | — | 60,062 | — | — | 60,062 | ||||||||||||
Total expenses | 38,973 | 1,341,631 | 125,188 | — | 1,505,792 | ||||||||||||
Income (loss) before equity in earnings of subsidiaries | (38,973 | ) | 2,270 | 28,169 | — | (8,534 | ) | ||||||||||
Equity in earnings of subsidiaries | 16,280 | 20,310 | — | (36,590 | ) | — | |||||||||||
Income (loss) before income taxes | (22,693 | ) | 22,580 | 28,169 | (36,590 | ) | (8,534 | ) | |||||||||
Provision (benefit) for income taxes | (16,540 | ) | 6,300 | 7,859 | — | (2,381 | ) | ||||||||||
Net income (loss) | $ | (6,153 | ) | $ | 16,280 | $ | 20,310 | $ | (36,590 | ) | $ | (6,153 | ) | ||||
18
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Predecessor Companies)
For the Two 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 | ) | ||||
19
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
September 30, 2002
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 161 | $ | 6,482 | $ | 12,522 | $ | — | $ | 19,165 | ||||||
Receivables, net | — | 147,578 | 26,824 | — | 174,402 | |||||||||||
Prepaid expenses | — | 38,447 | 8,928 | — | 47,375 | |||||||||||
Due from affiliate | (323,393 | ) | 95,005 | 228,388 | — | — | ||||||||||
Deferred income taxes | 216,944 | 337,575 | 1,621 | — | 556,140 | |||||||||||
Property and equipment, net | — | 238,885 | 13,882 | — | 252,767 | |||||||||||
Investment in consolidated subsidiaries | 747,447 | 773,006 | — | (1,520,453 | ) | — | ||||||||||
Goodwill | 804,035 | 444,667 | 3,345 | — | 1,252,047 | |||||||||||
Other assets | 15,301 | 39,980 | 104,595 | — | 159,876 | |||||||||||
Total assets exclusive of assets under management programs | 1,460,495 | 2,121,625 | 400,105 | (1,520,453 | ) | 2,461,772 | ||||||||||
Assets under management programs: | ||||||||||||||||
Restricted cash | — | 218 | 255,034 | — | 255,252 | |||||||||||
Vehicles, net | — | (97,934 | ) | 4,047,279 | — | 3,949,345 | ||||||||||
Due from vehicle manufacturers | — | 9,457 | 233,498 | — | 242,955 | |||||||||||
— | (88,259 | ) | 4,535,811 | — | 4,447,552 | |||||||||||
Total assets | $ | 1,460,495 | $ | 2,033,366 | $ | 4,935,916 | $ | (1,520,453 | ) | $ | 6,909,324 | |||||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||||||||||
Liabilities: | ||||||||||||||||
Accounts payable | $ | (18,802 | ) | $ | 187,976 | $ | 57,467 | $ | — | $ | 226,641 | |||||
Accrued liabilities | 120,047 | 286,333 | 26,769 | — | 433,149 | |||||||||||
Due to Cendant Corporation and affiliates, net | 442,884 | 274,642 | (179,353 | ) | — | 538,173 | ||||||||||
Non-vehicle debt | 553,986 | 4,348 | — | — | 558,334 | |||||||||||
Public liability, property damage and other insurance liabilities | — | 145,605 | 75,252 | — | 220,857 | |||||||||||
Total liabilities exclusive of liabilities under management programs | 1,098,115 | 898,904 | (19,865 | ) | — | 1,977,154 | ||||||||||
Liabilities under management programs: | ||||||||||||||||
Vehicle debt | — | 109,305 | 4,154,263 | — | 4,263,568 | |||||||||||
Deferred income taxes | — | 277,710 | 28,512 | — | 306,222 | |||||||||||
— | 387,015 | 4,182,775 | — | 4,569,790 | ||||||||||||
Stockholder's equity | 362,380 | 747,447 | 773,006 | (1,520,453 | ) | 362,380 | ||||||||||
Total liabilities and stockholder's equity | $ | 1,460,495 | $ | 2,033,366 | $ | 4,935,916 | $ | (1,520,453 | ) | $ | 6,909,324 | |||||
20
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, net | 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 | |||||
21
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2002
| Parent | Guarantor | Non- Guarantor | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Activities | |||||||||||||||||
Net income | $ | 56,486 | $ | 69,187 | $ | 16,051 | $ | (85,238 | ) | $ | 56,486 | ||||||
Adjustments to arrive at income from continuing operations | (274 | ) | — | — | — | (274 | ) | ||||||||||
Income from continuing operations | 56,212 | 69,187 | 16,051 | (85,238 | ) | 56,212 | |||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs | (32,548 | ) | (71,742 | ) | 141,249 | — | 36,959 | ||||||||||
Net cash provided by (used in) operating activities exclusive of management programs | 23,664 | (2,555 | ) | 157,300 | (85,238 | ) | 93,171 | ||||||||||
Management programs: | |||||||||||||||||
Vehicle depreciation | — | 444,725 | 34,193 | — | 478,918 | ||||||||||||
Net cash provided by operating activities | 23,664 | 442,170 | 191,493 | (85,238 | ) | 572,089 | |||||||||||
Investing Activities | |||||||||||||||||
Property and equipment additions | — | (36,380 | ) | (1,863 | ) | — | (38,243 | ) | |||||||||
Retirements of property and equipment | — | 2,974 | 803 | — | 3,777 | ||||||||||||
Payment for purchase of rental car franchise licensees | — | (2,835 | ) | (264 | ) | — | (3,099 | ) | |||||||||
Investment in subsidiaries | (69,187 | ) | (16,051 | ) | — | 85,238 | — | ||||||||||
Net cash used in investing activities exclusive of management programs | (69,187 | ) | (52,292 | ) | (1,324 | ) | 85,238 | (37,565 | ) | ||||||||
Management programs: | |||||||||||||||||
Decrease in restricted cash | — | 9,239 | 316,696 | — | 325,935 | ||||||||||||
Increase in due from vehicle manufacturers | — | (1,602 | ) | (148,482 | ) | — | (150,084 | ) | |||||||||
Investment in vehicles | — | (131,724 | ) | (4,256,608 | ) | — | (4,388,332 | ) | |||||||||
Payments received on investment in vehicles | — | (350,194 | ) | 3,559,775 | — | 3,209,581 | |||||||||||
— | (474,281 | ) | (528,619 | ) | — | (1,002,900 | ) | ||||||||||
Net cash used in investing activities | (69,187 | ) | (526,573 | ) | (529,943 | ) | 85,238 | (1,040,465 | ) | ||||||||
Financing Activities | |||||||||||||||||
Net decrease in non-vehicle debt | (10,900 | ) | (370 | ) | — | — | (11,270 | ) | |||||||||
Increase (decrease) in due to Cendant Corporation and affiliates, net | 56,566 | 91,414 | (127,038 | ) | — | 20,942 | |||||||||||
Payments for debt issuance costs | — | (5,369 | ) | — | — | (5,369 | ) | ||||||||||
Net cash provided by (used in) financing activities exclusive of management programs | 45,666 | 85,675 | (127,038 | ) | — | 4,303 | |||||||||||
Management programs: | |||||||||||||||||
Net increase in vehicle debt | — | — | 469,728 | — | 469,728 | ||||||||||||
Net cash provided by financing activities | 45,666 | 85,675 | 342,690 | — | 474,031 | ||||||||||||
Effect of changes in exchange rates on cash and cash equivalents | — | — | 199 | — | 199 | ||||||||||||
Net increase in cash and cash equivalents | 143 | 1,272 | 4,439 | — | 5,854 | ||||||||||||
Cash and cash equivalents, beginning of period | 18 | 5,210 | 8,083 | — | 13,311 | ||||||||||||
Cash and cash equivalents, end of period | $ | 161 | $ | 6,482 | $ | 12,522 | $ | — | $ | 19,165 | |||||||
22
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Period March 1, 2001 (Date of Acquisition) to September 30, 2001
| Parent | Guarantor | Non- Guarantor | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Activities | |||||||||||||||||
Net income (loss) | $ | (6,153 | ) | $ | 16,280 | $ | 20,310 | $ | (36,590 | ) | $ | (6,153 | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities exclusive of management programs | (113,533 | ) | 190,955 | 122,360 | — | 199,782 | |||||||||||
Net cash provided by (used in) operating activities exclusive of management programs | (119,686 | ) | 207,235 | 142,670 | (36,590 | ) | 193,629 | ||||||||||
Management programs: | |||||||||||||||||
Vehicle depreciation | — | 361,225 | 29,495 | — | 390,720 | ||||||||||||
Net cash provided by (used in) operating activities | (119,686 | ) | 568,460 | 172,165 | (36,590 | ) | 584,349 | ||||||||||
Investing Activities | |||||||||||||||||
Property and equipment additions | — | (32,073 | ) | (1,423 | ) | — | (33,496 | ) | |||||||||
Retirements of property and equipment | — | 12,522 | 2,962 | — | 15,484 | ||||||||||||
Payment for purchase of rental car franchise licensees | — | (27,837 | ) | (424 | ) | — | (28,261 | ) | |||||||||
Investment in subsidiaries | (16,280 | ) | (20,310 | ) | — | 36,590 | — | ||||||||||
Net cash provided by (used in) investing activities exclusive of management programs | (16,280 | ) | (67,698 | ) | 1,115 | 36,590 | (46,273 | ) | |||||||||
Management programs: | |||||||||||||||||
Increase in restricted cash | — | — | (36,855 | ) | — | (36,855 | ) | ||||||||||
(Increase) decrease in due from vehicle manufacturers | — | 6,485 | (290,918 | ) | — | (284,433 | ) | ||||||||||
Investment in vehicles | — | (77,521 | ) | (3,319,358 | ) | — | (3,396,879 | ) | |||||||||
Payments received on investment in vehicles | — | (343,706 | ) | 3,388,442 | — | 3,044,736 | |||||||||||
— | (414,742 | ) | (258,689 | ) | — | (673,431 | ) | ||||||||||
Net cash used in investing activities | (16,280 | ) | (482,440 | ) | (257,574 | ) | 36,590 | (719,704 | ) | ||||||||
Financing Activities | |||||||||||||||||
Net decrease in non-vehicle debt | (317,650 | ) | (278 | ) | — | — | (317,928 | ) | |||||||||
Increase (decrease) in due to Cendant Corporation and affiliates, net | 328,675 | (79,498 | ) | (24,787 | ) | — | 224,390 | ||||||||||
Payments for debt issuance costs | — | (4,593 | ) | — | — | (4,593 | ) | ||||||||||
Capital contribution from Cendant | 125,000 | — | — | — | 125,000 | ||||||||||||
Net cash provided by (used in) financing activities exclusive of management programs | 136,025 | (84,369 | ) | (24,787 | ) | — | 26,869 | ||||||||||
Management programs: | |||||||||||||||||
Net (decrease) increase in vehicle debt | — | (8,743 | ) | 95,045 | — | 86,302 | |||||||||||
Net cash provided by (used in) financing activities | 136,025 | (93,112 | ) | 70,258 | — | 113,171 | |||||||||||
Effect of changes in exchange rates on cash a cash equivalents | — | — | (900 | ) | — | (900 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | 59 | (7,092 | ) | (16,051 | ) | — | (23,084 | ) | |||||||||
Cash and cash equivalents, beginning of period | 141 | 36,745 | 29,219 | — | 66,105 | ||||||||||||
Cash and cash equivalents, end of period | $ | 200 | $ | 29,653 | $ | 13,168 | $ | — | $ | 43,021 | |||||||
23
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 | |||||||
24
Item 2. Management's Narrative Analysis of the Results of Operations
The following discussion should be read in 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 second largest general use car rental brand in the world. On March 1, 2001, all of our outstanding common stock not then-owned by Cendant Corporation ("Cendant") was acquired by a subsidiary of PHH Corporation ("PHH"), a wholly-owned subsidiary of Cendant, for approximately $994 million and we emerged as the surviving legal entity. At such time, our fleet management and fuel card businesses were sold to PHH and, therefore, are presented as a discontinued operation in the accompanying Consolidated Condensed Financial Statements. Accordingly, we are now a wholly-owned subsidiary of Cendant.
RESULTS OF OPERATIONS
The acquisition of us by Cendant resulted in significant changes to the valuation of certain of our assets, liabilities and stockholder's equity. The periods prior to the acquisition have been designated "Predecessor Companies" and the threeperiod subsequent to the acquisition has been designated "Successor Company". The results of the Predecessor Companies and the Successor Company have been combined for the nine month periodsmonths ended September 30, 2000 present the results of operations of Vehicle Leasing as
income from discontinued operations, net of the related income tax provision.
Three Months Ended September 30, 2002 vs. Three Months Ended September 30, 2001
Our comparative results of operations, excluding our former fleet management and fuel card businesses, comprised the following:
| 2002 | 2001 | Change | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 710,556 | $ | 650,368 | $ | 60,188 | ||||
Expenses, excluding non-vehicle interest and unusual charges | 638,026 | 626,593 | 11,433 | |||||||
Unusual charges | — | 60,062 | (60,062 | ) | ||||||
Non-vehicle interest, net | 10,788 | 12,492 | (1,704 | ) | ||||||
Total expenses | 648,814 | 699,147 | (50,333 | ) | ||||||
Income (loss) before income taxes | 61,742 | (48,779 | ) | 110,521 | ||||||
Provision (benefit) for income taxes | 25,931 | (24,033 | ) | 49,964 | ||||||
Income (loss) from continuing operations | $ | 35,811 | $ | (24,746 | ) | $ | 60,557 | |||
Total revenue increased 9.3% primarily due to a 6.2% increase in vehicle rental revenue per day and an increase in rental transactions during the month of September 2002 compared with September 2001.
Expenses, excluding non-vehicle interest and unusual charges, increased 1.8% primarily due to higher commission-related expenses associated with higher revenues.
Non-vehicle interest, net decreased 13.6% primarily due the termination of our revolving credit facility in September 2001. Such facility was recognized on these hedges. Amounts accumulatedreplaced with intercompany funding from Cendant at variable interest rates, which have decreased in other comprehensive2002.
The provision for income (loss) are reclassified into earnings as interest is accrued ontaxes for the hedged
transactions. For the twothree months ended February 28, 2001September 30th reflects our overall effective tax rate of 42.0% for 2002 and 49.3% for 2001. The increase in the sevenprovision was primarily due to our pretax income in 2002 versus a pretax loss for the three months ended September 30, 2001 approximately $0.4 million and $(7.7) million,
respectively, of net income (loss) has been reclassified from other
comprehensive loss into earnings. Overthat included the next 12 months, net losses of
approximately $48.3 million are expected to be reclassified from other
comprehensive income (loss) into earnings. The impact of these charges will have
the desirednegative effect of fixing the interest rate paid on certain debt instruments.
The amounts accumulated in other comprehensivegoodwill amortization.
As a result of the above-mentioned items, income (loss) will fluctuate
based on changesfrom continuing operations increased $60.6 million in the fair valuethird quarter of the Company's derivatives at each
reporting period. For the two months ended February 28, 2001 and the seven
months ended2002.
25
Nine Months Ended September 30, 2001, there were no amounts reclassified into
earnings resulting from the discontinuation of any hedging relationships.
19
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8-DERIVATIVES (CONTINUED)
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 seven months ended2002 vs. Nine Months Ended September 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 $869,000following:
| 2002 | 2001 | Change | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 1,925,790 | $ | 1,883,079 | $ | 42,711 | ||||
Expenses, excluding non-vehicle interest and unusual charges | 1,796,467 | 1,832,466 | (35,999 | ) | ||||||
Unusual charges | — | 60,062 | (60,062 | ) | ||||||
Non-vehicle interest, net | 32,406 | 41,322 | (8,916 | ) | ||||||
Total expenses | 1,828,873 | 1,933,850 | (104,977 | ) | ||||||
Income (loss) before income taxes | 96,917 | (50,771 | ) | 147,688 | ||||||
Provision (benefit) for income taxes | 40,705 | (18,164 | ) | 58,869 | ||||||
Income (loss) from continuing operations | $ | 56,212 | $ | (32,607 | ) | $ | 88,819 | |||
Total revenue increased 2.3% primarily due to a 3.5% increase in vehicle rental revenue per day and $2.8 million, respectively.
These amounts have been recorded asan increase in rental transactions during the month of September 2002 compared with September 2001.
Expenses, excluding non-vehicle interest and unusual charges decreased 2.0% primarily due to our ability to control operating expenses in response to a component ofdecline in travel offset slightly by higher commission expenses corresponding to the increase in revenue.
Non-vehicle interest, net ondecreased 21.6% primarily due to the Company's Condensed Consolidated Statementstermination of Operations.
NOTE 9-RELATED PARTY TRANSACTIONS
Related party charges include allocationsour revolving credit facility in September 2001. Such facility was replaced with intercompany funding from Cendant for services provided to
the Company,at variable interest rates, which consist of (in thousands):
The provision for income taxes is computed as iffor the Company
filed its federalnine months ended September 30th reflects our overall effective tax rate of 42.0% for 2002 and state income tax returns on a stand-alone basis.
21
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2:
GENERAL OVERVIEW
On November 11, 2000, we entered into a merger agreement with Cendant
Corporation.35.8% for 2001. The merger was approved on February 28, 2001 by a majority of our
shareholders who were unaffiliated with Cendant and closed on March 1, 2001. In
addition, we sold our investment in our Avis Fleet Leasing and Management Corp.,
subsidiaries to PHH Corporation, a wholly-owned subsidiary of Cendant, for $800
million. The proceeds from the sale were used to retire acquisition
indebtedness. As such, the following discussion and analysis of continuing
results of operations includes our Rent A Car System, Inc. and Reserve Claims
Management Co. subsidiaries.
We conduct vehicle rental operations through wholly-owned subsidiariesincrease 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,provision was primarily due to our reporting pretax income in 2002 versus a lesser extent, the sale
ofpretax loss damage waivers, liability insurance and other products and services.
We evaluate our performance based upon a modified earnings before non-vehicle
interest, income taxes, non-vehicle depreciation and amortization calculations.
For this purpose, Adjusted EBITDA is defined as earnings before non-vehicle
interest, income taxes and non-vehicle depreciation and amortization, adjusted
to exclude certain items, which are of a non-recurring or unusual nature and are
not measured in assessing segment performance or are not segment specific.
REVENUE
Revenue is recognized over the period the vehicle is rented.
COSTS AND EXPENSES
Vehicle rental expenses include:
o Direct operating expenses (primarily field operations' wages and
related benefits, concessions and commissions paid to airport
authorities, vehicle insurance premiums and other costs relating to
the operation of rental locations and the rental fleet).
o Vehicle depreciation and lease charges relating to the rental fleet.
o Selling, general and administrative (including wages and related
benefits, information processing and information services).
o Vehicle interest.
NET INCOME
Vehicle rental profitability is primarily a function of the number of rental
transactions, pricing of rental transactions and utilization of the rental
fleet.
CORPORATE
Expenses included are interest on non-vehicle debt and amortization of cost in
excess of net assets acquired and other intangible assets.
The following discussion and analysis provides information that management
believes to be relevant to understanding the our financial position and results
of operations:
22
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
PRO-FORMA RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
COMPARED TO PRO-FORMA RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2000.
We believe that a more meaningful comparison is made when the vehicle rental
pro-forma results of operations for the nine months ended September 30, 2001 and
historical results forthat included the three months ended September 30, 2001 are compared to
the pro-forma results of operations for the nine and three months ended
September 30, 2000. These pro-forma statements givenegative effect to the acquisition of
us by Cendant, and the retirement of term loans 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.
PRO-FORMA PRO-FORMA
NINE MONTHS ENDED SEPTEMBER 30, 2001 NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------- ------------------------------------
VEHICLE VEHICLE
RENTAL CORPORATE TOTAL RENTAL CORPORATE TOTAL
----------- --------- ----------- ----------- --------- ----------
Revenue ............................ $ 1,883,079 $ 1,883,079 $ 1,989,167 $1,989,167
----------- ----------- ----------- ----------
Costs and expenses:
Direct operating ................. 722,855 722,855 715,581 715,581
Vehicle depreciation and
lease charges, net ............. 535,077 535,077 510,674 510,674
Selling, general and
administrative ................. 359,436 359,436 355,444 $ (1,294) 354,150
Vehicle interest, net ............ 173,882 173,882 175,534 175,534
Unusual charges .................. 60,062 60,062
----------- ----------- ----------- -------- ----------
1,851,312 1,851,312 1,757,233 (1,294) 1,755,939
----------- ----------- ----------- -------- ----------
Adjusted EBITDA .................... 31,767 31,767 231,934 1,294 233,228
Interest on non-vehicle debt ....... 7,813 $ 24,703 32,516 14,678 35,512 50,190
Interest on intercompany debt ...... 8,276 1,466 9,742
Amortization of cost in excess of
net assets acquired ............ 9,080 14,762 23,842 9,414 14,475 23,889
Non-vehicle depreciation and
amortization ................... 16,389 16,389 8,048 8,048
----------- -------- ----------- ----------- -------- ----------
Income (loss) before provision
(benefit) for income taxes ..... $ (9,791) $(40,931) (50,722) $ 199,794 $(48,693) 151,101
=========== ======== =========== ========
(Benefit) provision for income
taxes ......................... (14,151) 68,751
----------- ----------
Net (loss) income .................. $ (36,571) $ 82,350
=========== ==========
VEHICLE RENTAL
REVENUE
Revenue decreased 5.3%, from $1,989.2 million to $1,883.1 million, compared to
the same period in 2000. The revenue decrease reflects a 5.5% decrease in the
number of rental transactions partially offset by a 0.2% 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 5.2%, from $1,838.1 million
to $1,933.8 million, compared to the same period in 2000.
23
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Direct operating expenses increased 1.0%, from $715.6 million to $722.9 million,
compared to the same period in 2000. As a percentage of revenue, direct
operating expenses were 38.4%, as compared to 36.0% for the corresponding period
in 2000. The increase was due primarily to higher salary & wages (0.6% of
revenue), higher maintenance and damage costs (0.5% of revenue) and higher
facilities costs (0.4% of revenue).
Vehicle depreciation and lease charges increased 4.8%, from $510.7 million to
$535.1 million, compared to the same period in 2000. As a percentage of revenue,
vehicle depreciation and lease charges were 28.4%, as compared to 25.7% for the
corresponding period in 2000. The change reflected a 6.3% increase in the
average cost per vehicle partially offset by a 1.1% decline in the average
rental fleet.
Selling, general and administrative expenses increased 1.5%, from $354.2 million
to $359.4 million, compared to the same period in 2000 due to a higher general
corporate overhead allocation ($16.5 million) and higher general and
administrative expenses ($9.6 million), partially offset by lower marketing and
advertising spending.
Vehicle related interest expense decreased 0.9%, from $175.5 million to $173.9
million, compared to the same period in 2000 due to lower borrowings required
for a smaller rental fleet coupled with lower average interest rates.
Unusual charges of $60.1 million ($39 million after tax) in September 2001
reflects the estimated impact toour results of operations associated with
reduced travel due to the aftermath of the September 11, 2001 terrorist attacks
at the World Trade Center (the "Terrorist Attacks").
With the completion of Cendant's acquisition of us on March 1, 2001, selected
debt previously funded by third party providers is now being funded by Cendant.
Accordingly, we now incur interest charges on intercompany debt.
Non-vehicle depreciation and amortization increased 103.6%, from $8.0 million to
$16.4 million, compared to the same period in 2000. The increase reflects higher
amortization of airport related leasehold improvements and equipment.
UNUSUAL CHARGES
The unusual charges of $60.1 million that were recorded during third quarter
2001 included 1) an asset impairment loss arising from the return of Regular
Program vehicles, $43.8 million, 2) a reserve for anticipated decline in market
value on the sale of Non-Program vehicles, $5.8 million, 3) a reserve for the
cancellation of marketing programs, $0.9 million, 4) a reserve for severance
costs, $0.5 million and 5) other costs, $9.1 million, principally related to the
redundancies caused by the Terrorist Attacks.
The asset impairment loss of $43.8 million relates to the disposal of Program
Vehicles under repurchase programs. Prices under these repurchase programs are
based on either 1) a specified percentage of original vehicle costs, depending
on the month the vehicle is returned to the manufacturers or 2) the original
capitalized cost less a set depreciation amount. Unlike Program Vehicles, the
resale of Non-Program Vehicles is determined by current market conditions. Due
to the excessive number of vehicles being returned by Avis and other car rental
companies subsequent to the Terrorist Attacks, we have experienced a sharp
decline in the resale value of these Non-Program vehicles. A reserve in the
amount of $5.8 million was established anticipating losses on the disposal of
Non-Program vehicles. As of September 30, 2001, a reserve of $35 million remains
for those Program Vehicles which we have yet to dispose of. The remaining
vehicles will be disposed of as soon as possible.
Also included in the unusual charge were costs of commissions payable to
agencies for advertising placement. Prior to the Terrorist Attacks, we had
committed to a level of advertising placement commissions based on anticipated
advertising spending.goodwill amortization.
As a result of the Terrorist Attacks, we have
significantly curtailed our advertising spending, however, we remain obligated
to pay commissions based on budgeted advertising spending. As of September 30,
2001, the entire amount of advertising placement commission had been paid. In
addition, we have initiated a formal plan to terminate certain employees at
field locations and at corporate headquarters. As of September 30, 2001, we had
accrued $0.5 million for severance and related costs for employees so notified.
We expect all affected employees will be terminated prior to December 31, 2001.
Other costs of $9.1 million associated with the Terrorist Attacks have been
classified within the Statement of Operations to the Unusual Charge. Amounts
classified comprise $7.2 million of estimated payroll costs for underutilized
employees (the majority or which have been terminated) and $1.9 million of
minimum airport commission guarantees.
24
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
PROVISION FOR INCOME TAXES
Our consolidated provision forabove-mentioned items, income taxes decreased from $68.8 million to a
benefit of $14.1 million, compared to the same period in 2000. The effective
income tax rate for the nine months ended September 30, 2001 was a benefit of
27.9%, down from a 45.5% provision for the corresponding period in 2000. The
27.9% tax benefit reflects a pre-tax loss of $50.7 million for the period and is
less than the statutory rate of 35% primarily due to the non-deductibility of
goodwill. The 45.5% tax provision reflects a pre-tax profit of $151.1 million
for the period in 2000 and is greater than the statutory rate of 35% due to the
non-deductibility of 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 that have been paid to us.
NET INCOME
Net income decreased from a profit of $82.4continuing operations increased $88.8 million for the nine months ended September 30, 20002002.
Forward-Looking Statements
Forward-looking statements in our public filings or other public statements are subject to a loss of $36.6 million for the nine months ended
September 30, 2001 as a result of the above-mentioned items.
HISTORICAL RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
COMPARED TO PRO-FORMA RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2000.
Statements preceded by, followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "project", "estimates", "plans", "may increase", "may fluctuate" and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are generally forwardlooking in nature and not historical facts. You should understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:
26
Other factors and assumptions not identified above were also involved in the derivation of funds will be for the acquisition of new
vehiclesthese forward looking statements, and the repaymentfailure of indebtedness. For the nine months ended September
30, 2001, our expenditures for new vehicles were approximately $4.4 billion and
proceeds from the disposition of used vehicles were approximately $3.9 billion.
For 2001, we expect our expenditures for new vehicles (net of proceeds from the
disposition of used vehicles)such other assumptions to be higher than in 2000. Since the late 1980's,
we have acquired vehicles relatedrealized as well as other factors may also cause actual results to our vehicle rental operations primarily
pursuantdiffer materially from those projected. Most of these factors are difficult to manufacturer repurchase programs. Repurchase prices under the
repurchase programs are based on either (1) a specified percentage of original
vehicle cost determined by the month the vehicle is returned to the manufacturer
or (2) the original capitalization cost less a set daily depreciation amount
(the "Repurchase Programs"). Repurchase Programs limit residual risk with
respect to vehicles purchased under the programs. This enables us to better
estimate depreciation expense in advance.
Historically, our financing requirements for rental vehicles have typically
reached an annual peak during the second and third calendar quarters, as fleet
levels build in response to increased rental demand during that period. The
typical low point for cash requirements occurs during the end of the fourth
quarter and the beginning of the first quarter, coinciding with lower levels of
vehicle and rental demand. We expect that this pattern will continue.
We expect that cash flows from operations and funds from available credit
facilities will be sufficient to meet our anticipated cash requirements for
operating purposes for the next twelve months. Trade receivables, from vehicle
rental operations, also provide liquidity with approximately 12.2 days of daily
sales outstanding.
Our vehicle rental operations made capital investments for property improvements
totaling $26.2 million and $29.8 million for the nine months ended September 30,
2001 and 2000, respectively.
We have an interest rate management policy, including a target mix for average
fixed rate and floating rate indebtedness on a consolidated basis. An increase
in interest rates would be unlikely to have a material adverse impact on our
profitability.
VEHICLE RENTAL ABS FACILITY
To support vehicle rental operations, we have a domestic integrated financing
program that as of September 30, 2001 provides for up to $4.45 billion in
financing for vehicles covered by Repurchase Programs, with up to 25% of the
asset-backed securities facility ("ABS Facility") available for vehicles not
covered by Repurchase Programs. The ABS Facility provides for the issuance of up
to $0.5 billion of asset-backed variable funding notes (the "Variable Funding
Notes") and $3.95 billion of asset-backed medium term notes under the ABS
Facility (the "Medium Term Notes"). The Variable Funding Notes and the Medium
Term Notes are indirectly secured by, among other things, a first priority
security interest in our rental fleet.
The Variable Funding Notes support the issuance by a special purpose company of
commercial paper notes that are rated A-1 by Standard & Poor's Ratings Services
("S&P") and P-1 by Moody's Investors Service, Inc. ("Moody's"). The Medium Term
Notes are guaranteed under a surety bond issued by either MBIA or AMBAC
Assurance and as a result are rated AAA by S&P and Aaa by Moody's.
On March 2, 2001, one of the 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 our vehicles. Anticipated
principal repayment on the Series 2001-1 Notes commence on November 2003 through
April 2004. The interest rate with respect to the Series 2001-1 Notes is equal
to LIBOR plus 20 basis points per annum. The Series 2001-1 Notes are guaranteed
under a Surety Bond issued to MBIApredict accurately and are rated AAA by Standard an Poors and
Aaa by Moody's. The Series 2001-1 Notes rank pari pasugenerally beyond our control.
You should consider the areas of risk described above in connection with our Variable Funding
Notes and the Medium Term Notes.
27
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On May 17, 2001, one of the 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 our 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
$145 million of additonal notes and repaid principal of $115 million, which
brought the total outstanding series 2001-2 notes to $155 million at September
30, 2001. We may issue up to $125 million of Auction Rate Notes per class or
$500 million in total. The interest rate on each class will be a market derived
rate determined by auction with auctions expected to occur every 35 days.
Anticipated principal repayment on the Series 2001-2 Notes is May 2007. The
2001-2 Notes are guaranteed under a Surety Bond issued by Ambac and are rated
AAA by Standard & Poor's Rating Services and Aaa by Moody' Investors Service,
Inc. The Series 2001-2 Notes rank pari passu with our Variable Funding Notes and
Medium Term Notes.
At September 30, 2001, we had approximately $3.75 billion of debt outstanding
under the ABS Facility and had approximately $700 million of additional credit
available for rental vehicle purchases. Based on current market conditions and
our current banking relationships, we expect 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, we cannot be sure
that this will occur.
REVOLVING CREDIT FACILITY/CENDANT INTERCOMPANY
We were party to a Revolving Credit Facility which provided borrowings up to
$450 million which were used for credit enhancement for our ABS commercial paper
program and for general corporate purposes. Although this facility did not
expire until June 30, 2005, we elected to terminate it on September 5, 2001.
We repaid our outstanding borrowings under the Revolving Credit Facility as of
June 30, 2001. We currently draw on a working capital line provided by Cendant
to fund its working capital needs. The borrowings bear interest at a market rate
based on LIBOR. On June 29, 2001, Cendant made a capital contribution to us by
forgiving $125 million of intercompany debt. As of September 30, 2001, $182
million of borrowings are related to working capital needs. Additionally, we
have long-term debt with Cendant of $380 million that is related to Cendant's
acquisition of us.
OTHER FACILITIES
Borrowings for our international operations consist mainly of loans obtained
from local and international banks. All borrowings for international operations
are in the local currencies of the countries in which those operations are
conducted. We guarantee only the borrowings of our car rental subsidiaries in
Argentina and Puerto Rico which had combined outstanding debt of $4.6 million at
September 30, 2001. At September 30, 2001, the total debt for our international
operations was approximately $175.7 million. The impact on our liquidity and
financial condition due to the exchange rate fluctuations of our foreign
operations is not expected to be material.
PARENT COMPANY TRANSACTION
On June 29, 2001, one of our vehicle financing subsidiaries amended its loan
agreements to allow Cendant to borrow $155 million of its restricted cash. In
turn, Cendant provided a demand note to the subsidiary and secured the demand
note with letters of credit.
RECENT ACCOUNTING STANDARDS
Recent pronouncements of the Financial Accounting Standards Board which are not
required to be adopted at this date include Statement of Financial Accounting
Standards ("SFAS") No. 141 "Business Combinations" ("SFAS No. 141"), SFAS No.
142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"), and SFAS No. 144
"Accounting for the Impairment or Disposal of Long Lived Assets" ("SFAS No.
144").
SFAS No. 141 requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001 and requires additional
disclosures for material business combinations completed after such date. This
standard also addresses financial accounting and reporting for goodwill and
other intangible assets acquired in a business combination at acquisition. On
July 1, 2001, we adopted the provisions relating to acquisitions made subsequent
to June 30, 2001, as required. The provisions regarding the classification of
previously acquired intangible asset will be adopted simultaneously with the
provisions of SFAS No. 142 on January 1, 2002, as required.
28
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SFAS No. 142 addresses financial accounting and reporting for intangible assets
acquired outside of a business combination. The standard also addresses
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. We will be required to assess goodwill and
other intangible assets for impairment annually, or more frequently if
circumstances indicate a potential impairment. On July 1, 2001, we adopted the
provisions requiring that goodwill and certain other intangible assets acquired
after June 30, 2001 not be amortized. We will adopt the remaining provisions of
this standard on January 1, 2002, as required. Transition-related impairment
losses, if any resulting form the initial assessment of goodwill and certain
other intangible assets will be recognized by us as a cumulative effect of
accounting change as of January 1, 2002. We are currently evaluating the impact
of adopting the remaining provisions on its financial position and results of
operations. Based upon a preliminary assessment of previously acquired goodwill
and certain other intangible assets that will no longer be amortized upon the
adoption of SFAS No. 142, we expect that the related reduction to amortization
expense during the seven months ended September 30, 2001, the two months ended
February 28, 2001 and the nine months ended September 30, 2000 would approximate
$18.6 million, $2 million, and $92 million, respectively.
SFAS No. 144 addresses financial accounting and reporting for the impairment of
disposal of long-lived assets. This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of,", and replaces the accounting and reporting provisions of APB
Opinion No. 30, "Reporting Results of Operations - Reporting the Effect of
Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" as it relates to the disposal of a segment of
a business. SFAS No. 144 requires the use of a single accounting model for
long-lived assets to be disposed of by sale, including discontinued operations,
by requiring those long-lived assets to be measured at the lower of carrying
amount or fair value less cost to sell. The impairment recognition and
measurement provisions of SFAS No 121 were retained for all long-lived assets to
be held and used with the exception of goodwill. We will adopt this standard on
January 1, 2002.
SEASONALITY
Our vehicle rental business is seasonal, with decreased travel in winter months
and heightened activity in spring and summer. To accommodate increased demand,
we increased our available fleet during the second and third quarters. Certain
of our 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 our operations. Many of our 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 us than for our
competitors.
FORWARD LOOKING INFORMATION
Certain matters discussed in this report that are not historical facts are 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
Item 3. Quantitative And Qualitative Disclosure About Market Risks
As previously discussed in our publicly-filed documents, including its2001 Annual Report on Form 10-K, we assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values, and cash flows based on a hypothetical 10% change (increase and decrease) in interest rates. We used September 30, 2002 market rates to perform a sensitivity analysis separately for each of our market risk exposures. The estimates assume instantaneous, parallel shifts in interest rate yield curves. We have determined, through such analyses, that the period ended December 31, 2000. Actual results may
differ materially from those projected. These forward-looking statements
representimpact of a 10% change in interest on our judgmentearnings, fair values and cash flows would not be material.
Item 4. Controls and Procedures
27
Item 6. Exhibits and terminate through November
2004.
30
SignaturesReports on Form 8-K
(a) Exhibits
See Exhibit Index
(b) Reports on Form 8-K
None
28
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: November 4, 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 | November 4, 2002 | ||
/s/ F. ROBERT SALERNO (F. Robert Salerno) | President, Chief Operating Officer and Director (Principal Executive Officer) | November 4, 2002 | ||
/s/ KURT FREUDENBERG (Kurt Freudenberg) | Senior Vice President and Controller (Principal Financial Officer) | November 4, 2002 |
29
I, John W. Chidsey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Avis Group Holdings, Inc.
-------------------------
(Registrant)
Dated:;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2001 By: /s/ Kevin M. Sheehan
------------------------------------4, 2002
/s/ John W. Chidsey
Chief Executive Vice President
(Principal Financial Officer)
Dated: November 14, 2001 By: /s/Officer
30
I, Kurt Freudenberg, ------------------------------------
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Avis Group Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 4, 2002
/s/ Kurt Freudenberg
Senior Vice President and Controller
(Principal Accounting Officer)
31
ITEM: 6 EXHIBITS AND REPORTS ON FORM 8-K
ITEM NO. 6 (A)
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- --------------------------------------------------------------------
2.0 PLAN OF ACQUISITION
2.02 Agreement and Plan of Merger dated November 11, 2000 by and among
Cendant Corporation, PHH Corporation, Avis Acquisition Corp., and
Avis Group Holdings, Inc. (9)
2.03 Establishment of Arval/PHH Holdings, a joint venture company in the
United Kingdom,
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). | |
10.3 | Series 2002-2 Supplement dated as of September 12, 2002 to the Amended and Restated Based Indenture dated as of July 30, 1997 among AESOP Funding L.L.C., Avis Rent A Car System, Inc., JPMorgan Chase Bank, Certain CP Conduit Purchasers, Certain Funding Agents, Certain APA Banks and The Bank of New York, as trustee. | |
12 | Statement Re: Computation of Ratio of Earnings to Fixed Charges. |