UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                  For the quarterly period ended JuneFOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

           [X]2001
(MARK ONE)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                                       OR

[ ]|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934 Commission file number(NO FEE REQUIRED)

                         COMMISSION FILE NUMBER: 1-13315

                            AVIS GROUP HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

           Delaware(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                                 11-3347585
        (State or other jurisdictionof Incorporation)            (I.R.S. Employer of incorporation or organization)                      identificationIdentification No.)

          900 Old Country Road, Garden City, New YorkOLD COUNTRY ROAD
         GARDEN CITY, NEW YORK                             11530
Address(Address of principal executive offices)Principal Executive Offices)                 (Zip Code)

       516)222-3000
                      (Registrant'sRegistrant's telephone number, including area code)code: (516) 222-3000

                                 Not Applicable
              (Former name, former address and former fiscal year,
                         ifIf changed since last report.)

           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 2009

Indicate by checkmarkcheck mark whether the registrantregistrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X|X| No ----


 Indicate the number of shares  outstanding of each of the registrant's  classes
 of common stock as of August 9 , 2000:  Common Stock,  $.01 par value - Class A
 31,131,712 shares.|_|



                            AVIS GROUP HOLDINGS, INC.

                                      INDEX

                          PART I. Financial InformationFINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

Page

            Consolidated Statements of Operations for the three
               months and six months ended June 30, 2000 and 1999..............1

            Consolidated Statements of Financial Position as of
               June 30, 2000and December 31, ..................................2

            Consolidated Statements of Cash Flows for the six months
               ended June 30, 2000 and 1999....................................3
PAGE ---- Consolidated Statements of: Operations for the three months ended June 30, 2001 and June 30, 2000.................................................... 1 Operations for the period March 1, 2001 (Date of Acquisition) to June 30, 2001, the two months ended February 28, 2001 and the six months ended June 30, 2000....................................... 2 Financial Position as of June 30, 2001 and December 31, 2000................................................ 3 Cash Flows for the period March 1, 2001 (Date of Acquisition) to June 30, 2001, the two months ended February 28, 2001 and the six months ended June 30, 2000............................... 4 Notes to the Condensed Consolidated Financial Statements ................................................ 5-22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................. 23-30 ITEM 3. QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS..................................................... 31 PART II. OTHER ITEM 6(b). REPORTS ON FORM 8-K ................................................ 33
PART 1 - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
PREDECESSOR COMPANIES --------------------- THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, 2001 JUNE 30, 2000 ---------------- --------------------- Revenue ........................................................... $ 628,893 $ 666,597 ------------ ------------ Cost and expenses: Direct operating, net ............................................. 231,693 229,314 Vehicle depreciation and lease charges, net ....................... 173,664 172,096 Selling, general and administrative ............................... 116,540 119,536 Interest, net ..................................................... 70,476 101,966 Non-vehicle depreciation and amortization ......................... 5,228 4,830 Amortization of cost in excess of net assets acquired and other intangibles .................................................. 7,640 3,122 ------------ ------------ 605,241 630,864 ------------ ------------ Income from continuing operations before provision for income taxes .............................................. 23,652 35,733 Provision for income taxes ........................................ 13,753 16,510 ------------ ------------ Income from continuing operations ................................. 9,899 19,223 Income from discontinued operations, net of income taxes of $14,116 18,209 ------------ ------------ Net income ........................................................ 9,899 37,432 Preferred stock dividends ......................................... 4,667 ------------ ------------ Earnings applicable to common stockholders ........................ $ 9,899 $ 32,765 ============ ============
See notes to the Condensed Consolidated Financial Statements ......4-16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS.......................................17-26 ITEM 3. QUANTATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS................................................27 PART II. Other ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............29 ITEM 6(a). EXHIBITS..........................................................29 ITEM 6(b). REPORT ON FORM 8-K ...............................................29condensed consolidated financial statements. 1 AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)(IN THOUSANDS) (UNAUDITED)
Three months ended Six months ended JunePREDECESSOR COMPANIES ------------------------------------- MARCH 1, 2001 TWO MONTHS SIX MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, JUNE 30, JuneJUNE 30, -------------------------- ------------------------------2001 2001 2000 1999 2000 1999 ---------- ---------- ----------- -------------------------------- -------------- ------------- Revenue: Vehicle rental..............................Revenue ................................................. $ 666,597846,889 $ 637,457385,821 $ 1,255,473 $ 1,204,374 Vehicle leasing and other fee based......... 429,871 854,028 ---------- ---------- ----------- 1,096,468 637,457 2,109,501 1,204,374 ---------- ---------- ----------------------- -------------- ------------- Costs and expenses: Direct operating, net....................... 229,314 242,886net ................................... 310,365 173,830 456,008 461,720 Vehicle depreciation and lease charges, net. 426,505 165,417 827,502 318,471net ............. 228,759 111,966 319,328 Selling, general and administrative......... 186,192 120,381 366,275 231,182administrative ..................... 154,115 83,229 234,139 Interest net............................... 161,197 51,483 305,994 99,925, net .......................................... 96,109 52,792 191,236 Non-vehicle depreciation and amortization .. 13,440 6,569 26,459 12,351............... 6,785 4,154 9,613 Amortization of cost in excess of net assets acquired ...................... 11,762 3,177 23,594 6,351 ---------- ---------- ----------- ----------- 1,028,410 589,913 2,005,832 1,130,000 ---------- ---------- ----------- -----------and other intangibles ................................. 10,510 2,087 6,281 ------------ -------------- ------------- 806,643 428,058 1,216,605 ------------ -------------- ------------- Income (loss) from continuing operations before provision (benefit) for income taxes ... 6 8,058 47,544 103,669 74,374............................ 40,246 (42,237) 38,868 Provision (benefit) for income taxes.................. 30,626 20,262 46,651 31,906 ---------- ---------- ----------- -----------taxes .................... 21,652 (15,783) 17,403 ------------ -------------- ------------- Income (loss) from continuing operations ................ 18,594 (26,454) 21,465 Income from discontinued operation, net of income taxes of $5,045 for the two months ended February 28, 2001 and $29,248 for the six months ended June 30, 2000 ................................... 4,947 35,553 Cumulative effect from prior years (through December 31, 2000) of change in accounting principle for derivative instruments, net of income tax benefit of $3,331 ...... (7,612) ------------ -------------- ------------- Net income.................................. 37,432 27,282income (loss) ....................................... 18,594 (29,119) 57,018 42,468 Preferred stock dividend.................... 4,667dividends ............................... 3,270 9,335 ---------- ---------- ----------------------- -------------- ------------- Earnings (loss) applicable to common stockholders..stockholders ....... $ 32,76518,594 $ 27,282(32,389) $ 47,683 ============ ============== =============
See notes to the condensed consolidated financial statements. 2 AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS)
PREDECESSOR COMPANIES ----------------- JUNE 30, 2001 DECEMBER 31, 2000 ------------- ----------------- (UNAUDITED) ASSETS Cash and cash equivalents ........................... $ 42,468 ========== ==========22,408 $ 80,368 Accounts receivable, net ............................ 375,660 508,328 Prepaid expenses .................................... 58,021 47,924 Property and equipment, net ......................... 200,580 181,504 Other assets ........................................ 30,330 78,972 Net assets of discontinued operation ................ 880,300 Deferred income tax assets, net ..................... 443,730 349,268 Customer lists ...................................... 19,498 Cost in excess of net assets acquired, net .......... 1,220,893 453,450 Assets under management programs: Restricted cash .................................. 154,153 167,482 Vehicles ......................................... 4,095,323 3,761,454 ----------- ----------- 4,249,476 3,928,936 ----------- ----------- Total assets .................................... $ 6,620,596 $ 6,509,050 =========== =========== Earnings per share: Basic....................................... $ 1.05 $ 0.87 $ 1.53 $ 1.35 ========== ========== =========== =========== DilutedLIABILITIES AND COMMON STOCKHOLDERS' EQUITY Accounts payable .................................... $ 1.05311,486 $ 0.85283,556 Accrued liabilities ................................. 330,370 263,277 Due to Cendant Corporation and affiliates, net ...... 377,036 36,117 Public liability, property damage and other insurance liabilities, net ................................. 224,985 247,567 Non vehicle debt .................................... 600,788 730,333 Liabilities under management programs: Vehicle debt ..................................... 3,984,905 3,816,682 Deferred income taxes ............................ 371,949 376,404 ----------- ----------- 4,356,854 4,193,086 ----------- ----------- Total liabilities ............................... 6,201,519 5,753,936 ----------- ----------- Commitments and contingencies: Common stock Class A Common stock ................................ 359 Additional paid-in-capital .......................... 156,065 593,829 Retained earnings ................................... 266,953 277,460 Treasury stock ...................................... (96,538) Accumulated comprehensive loss ...................... (3,941) (19,996) ----------- ----------- Total common stockholders' equity ............... 419,077 755,114 ----------- ----------- Total liabilities and common stockholders' equity $ 1.526,620,596 $ 1.31 ========== ==========6,509,050 =========== ===========
See notes to the condensed consolidated financial statements. AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In thousands)
June 30, December 31, 2000 1999 ---------------- --------------- (Unaudited) ASSETS Cash and cash equivalents............................. $ 151,114 $ 71,697 Cash held on deposit with financial institution....... 143,610 93,530 Restricted cash....................................... 243,952 253,080 Accounts receivable, net.............................. 681,150 1,115,740 Assets held for sale, net............................. 869,222 Prepaid expenses...................................... 62,222 64,316 Finance lease receivables............................. 176,916 871,034 Vehicles, net-rental.................................. 4,148,989 3,367,362 Vehicles, net-leasing................................. 3,053,234 3,134,009 Property and equipment, net........................... 182,567 197,827 Other assets.......................................... 104,797 115,273 Cost in excess of net assets acquired, net............ 1,240,826 1,794,390 ---------------- --------------- Total assets....................................... $ 11,058,599 $ 11,078,258 ================ =============== LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Accounts payable...................................... $ 530,500 $ 588,377 Accrued liabilities .................................. 354,160 369,453 Due to affiliates, net................................ 76,659 59,396 Current income tax liabilities........................ 20,012 18,226 Deferred income tax liabilities, net ................. 161,057 181,256 Public liability, property damage and other insurance liabilities, net .................. 257,477 259,756 Vehicle debt.......................................... 7,006,064 6,969,805 Acquisition debt ..................................... 1,491,500 1,500,000 Minority interest (preferred membership interest)..... 99,305 99,305 ---------------- --------------- Total liabilitie.................................. 9,996,734 10,045,574 ---------------- --------------- Commitments and contingencies Preferred Stock: Class A Preferred stock .............................. 360,000 360,000 Class B Preferred stock............................... 18,225 9,000 Class C Preferred stock............................... 2,000 2,000 ---------------- --------------- Total preferred stock.............................. 380,225 371,000 ---------------- --------------- Common stockholders' equity: Class A Common stock ................................. 359 359 Additional paid-in capital ........................... 593,199 593,106 Retained earnings..................................... 223,373 175,690 Accumulated other comprehensive loss (31,459) (3,639) Treasury stock ....................................... (103,832) (103,832) ----------------- --------------- Total common stockholders' equity.................. 681,640 661,684 ----------------- --------------- Total liabilities, preferred stock and common stockholders' equity ............................ $ 11,058,599 $ 11,078,258 ================= ===============
See notes to the condensed consolidatedfinancial statements.3 AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)(IN THOUSANDS) (UNAUDITED)
Six months ended JunePREDECESSOR COMPANIES --------------------------- MARCH 1, 2001 TWO MONTHS SIX MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, JUNE 30, -------------------------------------------JUNE 30, 2001 2001 2000 1999 -------------- ------------------------------------ ----------- ----------- Cash flows from operating activities: CASH FLOWS FROM OPERATING ACTIVITIES: Net income .........................................(loss) .................................................. $ 57,01818,594 $ 42,468(29,119) $ 57,018 Adjustments to reconcile net income (loss) to net cash provided by operating activities ............... 868,101 249,395 -------------- ---------------activities: Changes operating assets and liabilities: .......................... 7 21 Non-vehicle depreciation and amortization ....................... 17,349 7,152 21,218 Accounts receivable ............................................. (11,623) 26,476 (47,511) Accounts payable ................................................ (18,937) (33,889) 5,983 Due to Cendant-trading accounts ................................. (38,046) (45,096) 40,859 Accrued liabilities ............................................. (3,789) 1,486 (17,492) Other, net ...................................................... (8,681) (8,091) (24,854) Management programs: Vehicle depreciation ............................................ 214,575 105,928 304,800 Restricted cash ................................................. 2,351 10,978 (45,081) Current and deferred income taxes ............................... 13,808 (17,744) 7,403 ----------- --------- ----------- 230,734 99,162 267,122 ----------- --------- ----------- Net cash provided by operating activities........... 925,119 291,863 -------------- --------------- Cash flows from investing activities:activities ....................... 185,601 18,081 302,343 ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Payments for vehicle additions ..................... (3,957,921) (2,494,247)............................... (1,908,093) (943,102) (2,750,798) Vehicle deletions .................................. 2,379,842 1,526,780 Increase in finance lease receivables............... (65,906)............................................ 1,549,727 813,460 1,841,090 Payments for additions to property and equipment................. (28,779) (17,953)equipment ................... (17,617) (3,278) (19,432) Retirements of property and equipment .............. 9,018 1,073 Payments.............................. 2,795 (380) 5,522 Payment for purchase of rental car franchise licensee,licensees ............. (19,047) Increase in net assets and preferred stock of cash acquired of $11,065 in 1999 ................................. (42,503) Payment for purchase of PHH Holdings, net of cash acquired of $170,568 in 1999................ (1,330,932) -------------- ---------------discontinued operation (291) (35,443) Net cash used in investing activities .............. (1,663,746) (2,357,782) -------------- --------------- Cash flows from financing activities:.............................. (392,235) (133,591) (959,061) ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Changes in vehicle debt: Proceeds ........................................... 1,254,649 5,882,621..................................................... 916,633 132,294 677,656 Repayments ......................................... (377,470) (3,510,624) -------------- ---------------................................................... (786,470) (31,087) ----------- --------- ----------- Net increase in vehicle debt ............................... 877,179 2,371,997................................. 130,163 101,207 677,656 Changes in non-vehicle debt: Proceeds ........................................................... 140,000 86,000 Repayments ......................................................... (457,806) (77) (96,715) ----------- --------- ----------- Net decrease in non-vehicle debt ................................... (317,806) (77) (10,715) Due to Cendant-intercompany financing, net ......................... 354,928 Payments for debt issuance costs .................. (7,775) (1,635) Purchases of treasury stock......................... (57,237) Other............................................... 3,326 -------------- ---------------................................... (4,231) (12) (5,127) Other .............................................................. 140 ----------- --------- ----------- Net cash provided by financing activities........... 869,404 2,316,451 -------------- ---------------activities .......................... 163,054 101,258 661,814 ----------- --------- ----------- Effect of exchange rate changes on cash .............. (1,280) 87 -------------- ---------------............................ (117) (11) (175) ----------- --------- ----------- Net increase (decrease) in cash and cash equivalents............. 129,497 250,619equivalents ............... (43,697) (14,263) 4,921 Cash and cash equivalents and cash held on deposit with financial institution at beginning of period .. 165,227 29,751 -------------- ---------------................... 66,105 80,368 31,901 ----------- --------- ----------- Cash and cash equivalents and cash held on deposit with financial institution at end of period ................................. $ 294,72422,408 $ 280,370 ============== =============== Supplemental disclosure of cash flow information:66,105 $ 36,822 =========== ========= =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid....................................paid ................................................. $ 294,979108,764 $ 107,466 ============== ===============44,315 $ 199,869 =========== ========= =========== Cash income taxes paid ............................................................................ $ 23,1348,889 $ 5,329 ============== ===============1,962 $ 9,154 =========== ========= =========== Businesses acquired in 1999:acquired: Fair value of assets acquired, net of cash acquired of $181,633.........................................$182 ........ $ 6,218,95021,542 Liabilities assumed................................... 4,483,515 --------------- Net assets acquired................................... 1,735,435 Less: issuance of Series A and Series C Preferred Stocks.............................................. (362,000) ---------------assumed ................................................ 2,495 ----------- Net cash paid for acquisitions........................acquisitions ..................................... $ 1,373,435 ===============19,047 ===========
See notes to the condensed consolidated financial statements.statements 4 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1- Basis of Presentation The(UNAUDITED) NOTE 1-BASIS OF PRESENTATION GENERAL Prior to March 1, 2001, the accompanying unaudited condensed consolidated financial statements include Avis Group Holdings, Inc. and its subsidiaries (the "Company""Predecessor" or "Avis Group.""Predecessor Companies"), Avis Rent A Car System, Inc. ("Vehicle Rental"), Avis Fleet Leasing and Management Corp. ("Vehicle Leasing") and Reserve Claims Management Co. On November 11, 2000, Cendant Corporation ("Cendant") entered into an Agreement and Plan of Merger with the Predecessor (the "Cendant Merger Agreement") whereby Cendant would acquire all of the outstanding shares of the Predecessor's Class A Common stock that were not owned by Cendant at the price of $33.00 per share, in cash and convert certain Avis Group Holdings, Inc. stock options to Cendant stock options which were valued at approximately $17 million (the "Cendant Consideration"). Pursuant to the Cendant Merger Agreement, all outstanding and unexercised options to purchase Class A Common stock of the Predecessor were either cancelled upon the merger in exchange for a cash payment equal to the excess of the merger consideration over the per share exercise price of each option or converted into options to purchase Cendant common stock. Approximately 24.9 million outstanding shares of the Predecessor's Class A Common stock were not owned by Cendant and approximately 6.7 million unexercised non-converted options were outstanding at February 28, 2001. The merger was approved on February 28, 2001, by a majority of the Predecessor's shareholders who were unaffiliated with Cendant and closed on March 1, 2001 (the "Date of Acquisition") at a cost to Cendant of approximately $994 million, including $40 million of transaction costs and expenses (the "Acquisition"). Concurrent with the Acquisition, Avis Group Holdings, Inc.'s common stock was recapitalized. As a result of the recapitalization, 10,000 shares were authorized, of which 5,537 shares were issued and outstanding at March 1, 2001 and June 30, 2001. These shares, which have a par value of $0.01 per share, are 100% owned by a subsidiary of Cendant. In addition, Avis Group Holdings, Inc. sold its investment in Vehicle Leasing to PHH Corporation ("PHH Corp."), a wholly-owned subsidiary of Cendant for $800 million. The proceeds from the sale were used to retire acquisition indebtedness (see Note 4). Accordingly, the unaudited condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include normal recurring adjustments only) necessary to fairly state the financial position, the results of operations and cash flows for the periods presented. The consolidated statementsperiod from the Date of financial position include all of the assets and liabilities of the Company, including the Company's vehicle lease and vehicle management businesses in the United States and Canada ("PHH North America"), and in Europe ("PHH Europe") (see Note 5), and of Wright Express LLC (collectively "VMS") which were acquired onAcquisition through June 30, 1999. The consolidated statements of financial position also include all of the assets2001 and liabilities of Rent A Car Incorporated ("Rent-A-Car, Inc.") and Motorent, Inc. of Nashville, Tennessee ("Motorent") rental car franchisees, which were purchased on March 19, 1999 and June 30, 1999, respectively. The consolidated statements of operations include the results of these operations, subsequent to their dates of acquisition. Operating results for interim periods are not indicative of the results that can be expected for a full year. These consolidated financial statements should be read in conjunction with the Company's audited annual consolidated financial statements and notes thereto, included in the Company's annual report on Form 10-K for the year ended December 31, 1999, and the current report on Form 8-K, dated July 14, 2000, filed with the Securities and Exchange Commission. Certain amounts in the prior period have been reclassified to conform to current period presentation. All amounts are in thousands except share data. Note 2 - Cash Held on Deposit with Financial Institution Cash held on deposit with financial institution represents lease payments collected from the Company's vehicle leasing customers by one of the Company's lenders in connection with the Company's domestic vehicle leasing Asset Backed Financing Structure (see Note 7). Cash collected during the month by the lender net of vehicle purchases is settled with the Company in the early part of the following month. Note 3- Earnings Per Share Basic earnings per share is computed by dividing earnings applicable to common stockholders for the three months ended June 30, 20002001 include the consolidated accounts of Avis Group Holdings, Inc., Avis Rent A Car System, Inc. and 1999 by 31,131,712Reserve Claims Management Co., (collectively referred to as the "Company" or "Successor Company"). As a result of the sale of Vehicle Leasing to PHH Corp., the Condensed Consolidated Statements of Operations for the two months ended February 28, 2001 and 31,188,977 weighted average shares outstanding, respectively,the three and for the six months ended June 30, 2000 of the Predecessor present Vehicle Leasing as a discontinued operation, net of the related provision for income taxes (see Note 2). The Series A, B, and 1999C Preferred stock, which was originally issued by 31,131,712 and 31,529,114 weighted average shares outstanding, respectively. Diluted earnings per shareVehicle Leasing, is computed by dividing earnings applicable to common stockholders forexcluded from the three months endedSuccessor Company's Condensed Statement of Financial Position at June 30, 2000 and 1999 by 31,336,088 and 32,237,810 weighted average shares outstanding, respectively, and2001. The Acquisition was accounted for under the six months ended June 30, 2000 and 1999 by 31,339,247 and 32,380,499 weighted average shares outstanding, respectively. Shares used in calculating diluted earnings per share includepurchase method. The purchase price has been allocated among the effectsPredecessor 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 assumed exercisePredecessor Companies are not comparable to the condensed consolidated financial statements of stock options. Note 4 - Acquisitions On June 30, 1999, the CompanySuccessor Company. The excess of the purchase price over the estimated fair value of the underlying net assets acquired VMS for $1.8 billionwas 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 refinanced VMS indebtedness of approximately $3.5 billion (the "VMS Acquisition")Other Intangible Assets" (see below). The acquisition financing included borrowingsallocation of the excess purchase price was based upon preliminary estimates and assumptions and is subject to revision when appraisals and integration costs have been finalized. Accordingly, revisions to the allocation, which may be significant, will be recorded by the Company as further adjustments to the purchase price allocation. The preliminary allocation of $1.0 billion of term loans, the issuance by the Company of $500 million of senior subordinated notes, and the issuance by the acquisition subsidiary of $362 million of preferred stock. On March 19, 1999 and June 30, 1999, the Company also purchased Rent-A-Car, Inc. and Motorent using internally generated funds for approximately $53.8 million. The combined purchase cost allocation for the Company's acquisitions of VMS, Rent-A-Car, Inc. and Motorent areprice is summarized as follows (in thousands): Purchase cost....................................... $ 1,917,948 ------------- Fair value of: Assets acquired................................ 4,797,701 Liabilities assumed............................ 4,279,041 ------------- Net assets.......................................... 518,660 ------------- Cost in excess of net assets acquired before Reclassification............................... $ 1,399,288 ============= The above mentioned acquisitions have been accounted for by the purchase method. The financial statements include the operating results of these acquisitions subsequent to their dates of acquisition.
AMOUNT ----------- Cash consideration ................................................................ $ 937,554 Fair value of converted options ................................................... 17,000 Transaction costs and expenses .................................................... 40,000 ----------- Total purchase price .............................................................. 994,554 Book value of Cendant's existing net investment in Avis Group ..................... 408,957 ----------- Cendant's basis in Predecessor Companies .......................................... 1,403,511 Portion of basis attributable to Vehicle Leasing .................................. (1,000,000) ----------- Cendant's basis in the Successor Company .......................................... 403,511 Intercompany loan assumed by Successor Company .................................... (137,554) ----------- Cendant's adjusted basis in Successor Company ..................................... 265,957 Fair value of liabilities assumed in excess of assets acquired of Successor Company 948,705 ----------- Excess purchase price over net assets acquired .................................... $ 1,214,662 ===========
5 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)(CONTINUED) (UNAUDITED) Certain prior period amounts have been reclassified for comparability. In management's opinion, the condensed consolidated financial statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The following unaudited pro forma information presentsresults 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 statements should be read in conjunction with the Predecessor's Annual Report on Form 10-K for the year ended December 31, 2000. CHANGE IN ACCOUNTING PRINCIPLE FOR DERIVATIVE INSTRUMENTS On January 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133") as amended. SFAS No. 133, establishes accounting and reporting standards for derivative instruments, including freestanding and embedded derivatives, and for hedging activities. The Company has recorded all such derivatives at fair value at January 1, 2001. The adoption of SFAS No. 133 resulted in the recognition of a non-cash charge of $12.5 million ($7.6 million, after tax) in the Condensed Consolidated Statement of Operations for the two months ended February 28, 2001 to account for the cumulative effect of the accounting change relating to derivatives not qualifying as hedges prior to that date. The Company also recognized a cumulative-effect-type adjustment in the amount of $2.4 million in accumulated comprehensive loss attributable to derivatives designated as ifcash flow like hedges prior to the acquisitionadoption of VMSSFAS 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 $1.8 billion (includingtrading or speculative purposes. All derivatives are recorded at fair value either as assets or liabilities. Gains or losses on derivatives designated as cash flow hedges, to the issuanceextent effective, are recorded in other comprehensive income (loss). Any ineffectiveness in these cash flow hedges is reported in earnings. Amounts accumulated in other comprehensive income are reclassified into earnings in the same period during which the hedged item affects earnings. Gains and losses on derivatives not designated as hedging instruments are recognized currently in earnings. RECENT ACCOUNTING STANDARDS Recent pronouncements of Series Athe Financial Accounting Standards Board which are not required to be adopted at this date is Statement of Financial Accounting Standards ("SFAS") SFAS No. 141 "Business Combinations" and Series C Preferred Stock)SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 requires the refinancinguse of VMS indebtedness and related adjustments had taken place on January 1, 1999 (in thousands, except share data):
Three months Six months ended ended June 30, 1999 June 30, 1999 ------------- ------------- Revenue......................................... $ 1,047,494 $ 2,016,317 ============ ============ Income before provision for income taxes........ $ 36,745 $ 49,843 ============ ============ Net income...................................... $ 18,449 $ 23,039 ============ ============ Preferred stock dividends....................... $ 4,555 $ 9,110 ============ ============ Earnings applicable to common stockholders...... $ 13,894 $ 13,929 ============ ============ Earnings per share: Basic........................................... $ .45 $ .44 ============ ============ Diluted......................................... $ .43 $ .43 ============ ============
If the acquisitionspurchase method of Rent-A-Car, Inc. and Motorent had occurred on January 1, 1999, they would not have had a material impact on the result of operationsaccounting for the three and six months endedall business combinations initiated after June 30, 1999. Note 5 - Assets Held For Sale, net On2001, thereby prohibiting the use of the pooling-of-interests method, and additional disclosures regarding the primary reasons for a business combination, the allocation of the purchase price paid to the assets acquired and liabilities assumed by major balance sheet caption and other information about goodwill and intangible assets when the amount of these assets are material. Additionally, this statement provides new criteria, which applies to business combinations completed after June 30, 2000, the Company announced2001, to determine which acquired intangible assets should be recognized separately from goodwill. Those intangible assets, recognized separately from goodwill, will be amortized over their estimated useful lives. SFAS No. 142 requires that it had signed a definitive agreement with Banque Nationale de Paris ("BNP Paribas")goodwill and certain intangible assets, acquired in transactions completed after June 30, 2001, no longer be subject to form a joint venture company, that will own PHH Europe and, within one year, merge with BNP Paribas' vehicle management subsidiary, Arval Service Lease S.A. ("Arval"). As part of the agreement, BNP Paribas will acquire an 80% interest in the venture and the Company will initally retain a 20% interest in the venture, receive $800 million in cash and have its intercompany indebtedness with PHH Europe repaid. PHH Europe with its operations in the United Kingdom and Germany is engaged in the business of leasing vehicles and providing fee based services, including fuel and maintenance cards, accident management and other vehicle services to its customers.amortization over their estimated useful lives. The Company will license PHH North America's fleet management technology, PHH InterActive,be required to assess these assets for potential impairment periodically, and more frequently if circumstances indicate a possible impairment. The statement also requires the joint ventureCompany to continue to amortize goodwill and Arval and receive an annual royalty for 10 years. Any difference between the carrying value of the netcertain intangible assets of PHH Europe and the proceeds from the sale is accounted for as an adjustment to cost in excess of net assets acquired relating to the VMS Acquisition (see Note 4). Accordingly, the net assets of PHH Europe, including the cost in excess of net assets acquired mentioned above, are reported as Assets Held for Sale, Net on the accompanying Consolidated Statement of Financial Positionexisting at June 30, 2000. On August 9, 2000,2001 through December 31, 2001. The provisions of the Company completed it's announced agreement with BNP Paribas. At June 30, 2000 Assets Held for Sale, net consistsstatement are required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized in the Company's balance sheet at the date, regardless of (in thousands): Assets.................................... $1,895,122 Liabilities............................... 1,025,900 ----------- $ 869,222when those assets were initially recognized. 6 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)(CONTINUED) (UNAUDITED) NOTE 1-BASIS OF PRESENTATION (CONTINUED) During the four months ended June 30, 2001, the Company recorded amortization expense related to these assets of $10.5 million. During the two months ended February 28, 2001, and the years ended December 31, 2000 and December 31, 1999 amortization expense related to the intangible assets of the predecessor company excluding the discontinued operation was $2.1 million, $12.5 million, and $12.6 million, respectively. NOTE 2-DISCONTINUED OPERATION In connection with the acquisition of the Company by Cendant on March 1, 2001, the Company sold its investment in Vehicle Leasing for $800 million to PHH Corp. (see Note 6-1). No gain or loss was recognized on the sale. Summarized financial data of the discontinued operation of the Predecessor is as follows (in thousands):
VEHICLE LEASING ---------------------------------------------------- TWO MONTHS SIX MONTHS THREE MONTHS ENDED ENDED ENDED FEBRUARY 28, 2001 JUNE 30, 2000 JUNE 30, 2000 ----------------- ------------- ------------- Revenue .............................................................. $ 255,548 $ 854,028 $ 429,871 ============ ============ ============ Income before provision for income taxes and cumulative effect of change in accounting principle, net of income tax benefit $ 9,992 $ 64,801 $ 32,325 Provision for income taxes ........................................... 5,045 29,248 14,116 ------------ ------------ ------------ Net income ........................................................... $ 4,947 $ 35,553 $ 18,209 ============ ============ ============
Income before provision for income taxes and cumulative effect of change in accounting principle, net of income tax benefit for the two months ended February 28, 2001, the six and three months ended June 30, 2000, include certain intercompany charges from the Predecessor Companies. These charges seek to reimburse the Predecessor Companies for the costs it had incurred on behalf of Vehicle Leasing as follows (in thousands):
TWO MONTHS SIX MONTHS THREE MONTHS ENDED ENDED ENDED FEBRUARY 28, 2001 JUNE 30, 2000 JUNE 30, 2000 ----------------- ------------- ------------- Interest on intercompany loans ........................................ $ 342 $ 6,387 $ 3,053 Employee benefits costs ............................................... 963 2,825 1,397 ------------ ------------ ------------ $ 1,305 $ 9,212 $ 4,450 ============ ============ ============
Net assets of the discontinued operation consist of the following (in thousands):
DECEMBER 31, 2000 ----------------- Cash ........................................................ $ 122,509 Accounts receivable, net .................................... 643,502 Vehicles, net ............................................... 3,205,380 Cost in excess of net assets acquired ....................... 873,286 Other assets ................................................ 289,675 ---------- Total assets .......................................... 5,134,352 ---------- Accounts payable and accrued liabilities .................... 456,784 Deferred income taxes ....................................... 432,357 Debt ........................................................ 2,975,225 ---------- Total liabilities ...................................... 3,864,366 ---------- Preferred stock classes A, B, and C ......................... 389,686 ---------- Net assets of discontinued operation ................... $ 880,300 ==========
7 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 3-COMPREHENSIVE INCOME (LOSS) Comprehensive Income Comprehensive income (loss) is comprised of the following (in thousands):
Three months ended Six months ended JunePREDECESSOR COMPANIES MARCH 1, 2001 ---------------------------------- (DATE OF ACQUISITION) TWO MONTHS SIX MONTHS TO ENDED ENDED JUNE 30, June2001 FEBRUARY 28, 2001 JUNE 30, 2000 --------------------- --------------------- 2000 1999 2000 1999 --------- -------- ---------- ------------------------- ------------- Net income..................................................income (loss) ..................................................... $ 37,432 $ 27,28218,594 $(29,119) $ 57,018 $ 42,468 Foreign currency translation adjustment, net of income taxes (18,646) 2,280.......... (1,175) (1,775) (27,820) 2,680 ---------Cumulative effect from change in accounting principle for derivative instruments, net of income taxes ........................ 1,229 (Losses) gains on derivative instruments, net of income taxes ......... (2,766) 813 -------- ------------------ -------- Comprehensive income........................................income (loss) ........................................... $ 18,786 $ 29,56214,653 $(28,852) $ 29,198 $ 45,148 ========= ======== ================== ========
Note 7- Financing and DebtNOTE 4-FINANCING AND DEBT Debt outstanding at June 30, 2000 and December 31, 1999 consistconsists of the following (in thousands):
JunePREDECESSOR COMPANIES ------------- JUNE 30, DecemberDECEMBER 31, 2001 2000 1999 ----------------------- ------------ Vehicle RentalVEHICLE DEBT Commercial Paper Notes..................................................Notes .................................................... $ 1,315,363129,985 $ 1,026,261919,800 Short-term notes-foreign................................................ 216,984 111,259notes-foreign .................................................. 214,920 196,882 Series 1997-1A asset-backed Medium Term Notes due May through October 2000 at 6.22%............................................... 533,333 800,000 Series 1997-1B1997-A-2 asset-backed Medium Term Notes due May through October 2002 at 6.40%............................................... ................................................. 850,000 850,000 Series 1999-11998-1 asset-backed Medium Term Notes due December 2004 through May 2005 at 6.14%................................................... ..................................................... 600,000 600,000 Series 2000-1 floating rate Rental Car Asset-Backed Notes due February 2003 through July 2003.....................................2003 ....................................... 250,000 250,000 Series 2000-2 floating rate Rental Car Asset-Backed Notes due March 2007 through August 2007.....................................2007 ....................................... 300,000 Revolving credit facility due June 2005................................. 60,000 62,000 Other................................................................... 5,685 5,902 ------------- ------------ Total Vehicle Rental Debt 4,131,365 3,455,422 ------------- ------------ Vehicle Leasing and Other Fee Based Commercial Paper Notes.................................................. 1,709,688 1,521,498 Canadian short term borrowings.......................................... 31,957 44,563300,000 Series 1999-22000-3 floating rate asset-backed notes, Class A-1............... 550,000 550,000Rental Car Asset-Backed Notes due May 2003 through October 2003 ........................................ 200,000 200,000 Series 1999-22000-4 floating rate asset-backed notes, Class A-2............... 450,000 450,000 Foreign Asset Backed Securities - UK Advances (see Note 5)............. 850,443 Self-fund notes......................................................... 31,827 30,397 Wright Express Certificates of Deposit.................................. 101,227 67,482 ------------- ------------ Total Vehicle Leasing and Other Fee Based Debt 2,874,699 3,514,383 ------------- ----------- Total Vehicle Debt 7,006,064 6,969,805 ------------- ------------ Acquisition Financing Term A LoanRental Car Asset-Backed Notes due June 2005........................................ 242,500 250,000 Term B Loan2005 through November 2005 ...................................... 500,000 500,000 Series 2001-1 floating rate Rental Car Asset-Backed Notes due June 2006........................................ 374,500 375,000 Term C LoanNovember 2003 through April 2004 ..................................... 750,000 Series 2001-2 auction rate Rental Car Asset-Backed Notes due June 2007........................................ 374,500 375,000May 2007 ..... 190,000 ---------- ---------- TOTAL VEHICLE DEBT ................................................ 3,984,905 3,816,682 ---------- ---------- NON-VEHICLE DEBT Senior Subordinated Notes due May 2009 at 11.00%........................ .......................... 595,690 500,000 500,000 ------------- ------------ Total Acquisition Financing..................................... 1,491,500 1,500,000 ------------- ------------ Total Debt...................................................... $ 8,497,564 8,469,805 ============= ============Revolving credit facility due June 2005 ................................... 225,000 Other ..................................................................... 5,098 5,333 ---------- ---------- TOTAL NON-VEHICLE DEBT ............................................ 600,788 730,333 ---------- ---------- TOTAL DEBT ........................................................ $4,585,693 $4,547,015 ========== ==========
8 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 8 - Guarantor(CONTINUED) (UNAUDITED) NOTE 4-FINANCING AND DEBT (CONTINUED) On March 2, 2001, one of the Company's vehicle rental financing subsidiaries issued $750 million of Series 2001-1 Floating Rate Rental Car Asset Backed Notes ("Series 2001-1 Notes"). The Series 2001-1 Notes are secured by the Company's vehicles. Anticipated principal repayment on the Series 2001-1 Notes commence in November 2003 through April 2004. The interest rate with respect to the Series 2001-1 Notes is equal to LIBOR plus 20 basis points per annum. The Series 2001-1 Notes are guaranteed under a Surety Bond issued by MBIA and Non-Guarantor Condensed Financial Statementsare rated AAA by Standard and Poor's rating services and Aaa by Moody's Investor Service, Inc. The Series 2001-1 Notes rank pari pasu with the Company's variable funding notes and the medium term notes. On May 17, 2001, one of the Company's vehicle rental financing subsidiaries issued $125 million of Series 2001-2 Auction Rate Notes (the "Series 2001-2 Notes"). The Series 2001-2 Notes are secured by the Company's vehicles. The series 2001-2 Notes were issued in four classes, Class A-1, A-2, A-3 and A-4 with initial issuances of $95 million, $10 million, $10 million and $10 million, respectively. Subsequent to the initial issuance of $125 million auction rate notes, the Company issued $65 million of additional notes which brought the total outstanding series 2001-2 notes to $190 million at June 30, 2001. The Company may issue up to $125 million of Auction Rate Notes per class or $500 million in total. The interest rate on each class will be a market derived rate determined by auction with auctions expected to occur every 35 days. Anticipated principal repayment on the Series 2001-2 Notes is May 2007. The 2001-2 Notes are guaranteed under a Surety Bond issued by Ambac and are rated AAA by Standard & Poor's Ratings Services and Aaa by Moody's Investors Service, Inc. The Series 2001-2 Notes rank pari passu with the Company's variable funding notes and medium term notes. In connection with the VMSacquisition by Cendant, on March 1, 2001, a fair value of $604.5 million was assigned to the Company's 11% Senior Subordinated Notes due May 2009 ("Senior Subordinated Notes") of which $8.2 million has been accreted to the Condensed Consolidated Statement of Operations since the date of acquisition along with principal repayments of $650,000. The fair value of the notes as of June 30, 2001 was $595.7 million and includes a call premium of $27.5 million if the notes are redeemed during the twelve month period beginning on May 1, 2004. NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS In connection with the Vehicle Leasing Acquisition on June 30, 1999 and as part of the financing thereof, Avis Group Holdings, Inc. (the "Parent")the Predecessor issued and sold the Senior Subordinated Notes (see Note 7)5) in a transaction exempt from registration under the Securities Act. The Senior Subordinated Notes are general unsecured obligations of the Parent,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 of the Parent'sAvis Group Holdings, Inc. domestic subsidiaries. Vehicle Leasing and its subsidiaries were released as guarantors under this financing agreement upon Vehicle Leasing's sale to PHH Corp. on March 1, 2001 (see Notes 1 and 2). Accordingly, the following condensed consolidating financial information presents the condensed consolidating financial statementsCondensed Consolidating Statements of Financial Position as of June 30, 20002001 and December 31, 19992000 and the results of operations for the three andperiod March 1, 2001 (Date of Acquisition) to June 30, 2001, six months ended June 30, 20002001, the two months ended February 28, 2001, and 1999, respectively, of: (a) the Parent (b) the guarantor subsidiaries (c) the non-guarantor subsidiaries (d) elimination entries necessary to consolidate Parent with guarantorthree months ended June 30, 2001 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 principle elimination entries eliminate investments in subsidiaries and intercompany balances and transactions (in thousands): Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been made because management beleives that such information is not material to holders of the Senior Subordinated Notes.
Condensed Consolidating Statements of Operations For the six months ended June 30, 2000 (in thousands) --------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------ --------------- -------------- ---------------- Revenue $ 1,179,926 $ 929,575 $ 2,109,501 ------------ --------------- ---------------- Costs and expenses: Direct operating, net............................ 401,713 54,295 456,008 Vehicle depreciation and lease charges, net...... 265,060 562,442 827,502 Selling, general and administrative.............. 270,283 95,992 366,275 Interest, net.................................... $ 80,249 100,422 125,323 305,994 Non-vehicle depreciation and amortization........ 17,314 9,145 26,459 Amortization of cost in excess of net assets acquired............................... 20,536 3,058 23,594 ---------- ------------ --------------- ---------------- 80,249 1,075,328 850,255 2,005,832 ---------- ------------ --------------- ---------------- (80,249) 104,598 79,320 103,669 Equity in earnings of subsidiaries............... 107,458 62,027 $ (169,485) ---------- ------------ --------------- -------------- ---------------- Income before provision for income taxes......... 27,209 166,625 79,320 (169,485) 103,669 Provision (benefit) for income taxes........... (29,809) 59,167 17,293 46,651 ---------- ------------ --------------- -------------- ---------------- Net income................................... $ 57,018 $ 107,458 $ 62,027 $ (169,485) $ 57,018 ========== ============ =============== ============== ================
June 30, 2000. 9 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 8 - Guarantor(CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) The Condensed Consolidated Statements of Operations for the two months ended February 28, 2001 and Non-Guarantor Condensed Financial Statements (Continued)the three and six month periods ended June 30, 2000 present the results of operations of Vehicle Leasing as income from discontinued operations, net of the related income tax provision.
Condensed Consolidating Statements of Operations For the six months ended JuneAVIS GROUP HOLDINGS, INC CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1999 (in thousands) --------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated2001 (IN THOUSANDS) ------------------------------------------------------------------------------ NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- -------------------------- ------------ ------------ -------------- Revenue ....................................... $570,551 $ 1,086,43758,342 $ 117,937 $ 1,204,374 ------------ -------------- ---------------628,893 -------- --------- -------- Costs and expenses: Direct operating, net............................ 407,104 54,616 461,720net ......................... 206,190 25,503 231,693 Vehicle depreciation and lease charges, net...... 288,925 29,546 318,471net ... 161,095 12,569 173,664 Selling, general and administrative.............. 214,450 16,732 231,182administrative ........... 108,548 7,992 116,540 Interest, net....................................net ................................. $ 6,918 91,119 1,888 99,92511,809 58,242 425 70,476 Non-vehicle depreciation and amortization........ 11,091 1,260 12,351amortization ..... 4,547 681 5,228 Amortization of cost in excess of net assets acquired............................... 6,255 96 6,351 ------------- ------------- -------------- -------------- 6,918 1,018,944 104,138 1,130,000 ------------- ------------- -------------- -------------- (6,918) 67,493 13,799 74,374acquired and other intangibles ...... 4,746 2,850 44 7,640 -------- -------- --------- -------- 16,555 541,472 47,214 605,241 -------- -------- --------- -------- (16,555) 29,079 11,128 23,652 Equity in earnings of subsidiaries............... 46,965 9,374 $ (56,339) ------------- ------------- -------------- ------------ --------------subsidiaries ............ 28,021 9,528 $(37,549) -------- -------- --------- -------- -------- Income before provision for income taxes......... 40,047 76,867 13,799 (56,339) 74,374taxes ...... 11,466 38,607 11,128 (37,549) 23,652 Provision (benefit) for income taxes........... (2,421) 29,902 4,425 31,906 ------------- ------------- -------------- ------------ --------------taxes .................... 1,567 10,586 1,600 13,753 -------- -------- --------- -------- -------- Net income...................................income .................................... $ 42,4689,899 $ 46,96528,021 $ 9,3749,528 $(37,549) $ (56,339) $ 42,468 ============= ============= ============== ============ ==============9,899 ======== ======== ========= ======== ========
Condensed Consolidating Statements of Operations For the three months ended JuneAVIS GROUP HOLDINGS, INC CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR COMPANIES) THREE MONTHS ENDED JUNE 30, 2000 (in thousands)(IN THOUSANDS) --------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated -------------NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------- -------------------------- ------------ --------------- Revenue ............................................. $ 619,697 $ 476,771 $ 1,096,468 ------------ ------------- ---------------608,411 $58,186 $666,597 --------- ------- ------- Costs and expenses: Direct operating, net............................net ............................... 204,842 24,472 229,314 Vehicle depreciation and lease charges, net...... 133,722 292,783 426,505net ......... 158,175 13,921 172,096 Selling, general and administrative.............. 137,826 48,366 186,192administrative ................. 111,700 7,836 119,536 Interest, net....................................net ....................................... $ 40,207 56,620 64,370 161,19760,941 818 101,966 Non-vehicle depreciation and amortization........ 8,656 4,784 13,440amortization ........... 4,161 669 4,830 Amortization of cost in excess of net assets acquired............................... 10,266 1,496 11,762 ------------- ------------ ------------- ---------------acquired and other intangibles ............ 3,078 44 3,122 --------- --------- ------- -------- 40,207 551,932 436,271 1,028,410 ------------- ------------ ------------- ---------------542,897 47,760 630,864 --------- --------- ------- ------ (40,207) 67,765 40,500 68,05865,514 10,426 35,733 Equity in earnings of subsidiaries............... 63,407subsidiaries .................. 63,406 32,472 $ (95,879) ------------- ------------ ------------- -------------- ---------------(95,878) --------- --------- ------- ----------- -------- Income from continuing operations before (benefit) provision for income taxes......... 23,200 100,237 40,500 (95,879) 68,058 Provision (benefit)taxes ....................... 23,199 97,986 10,426 (95,878) 35,733 (Benefit) provision for income taxes...........taxes ................ (14,233) 36,831 8,028 30,626 ------------- ------------ $ 32,472 $ (95,879)28,698 2,045 16,510 --------- --------- ------- ----------- -------- Income from continuing operations ................... 37,432 69,288 8,381 (95,878) 19,223 Income (loss) from discontinued operation, net of income taxes ...................................... (5,882) 24,091 18,209 --------- --------- ------- ----------- -------- Net income ........................................ $ 37,432 ============= ============ ============= ============== ===============$ 63,406 $32,472 $ (95,878) $ 37,432 ========= ========= ======= =========== ========
10 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)(CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidating Statements of Operations For the three months ended JuneAVIS GROUP HOLDINGS, INC CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE PERIOD MARCH 1, 2001 (DATE OF ACQUISITION) TO JUNE 30, 1999 (in thousands)2001 (IN THOUSANDS) -------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations ConsolidatedNON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ -------------- ------------- ------------------------- ------------ -------------- Revenue $ 578,867767,986 $ 58,59078,903 $ 637,457 -------------- ------------- --------------846,889 ----------- ------------ ------------ Costs and expenses: Direct operating, net............................ 215,521 27,365 242,886net............................... 275,749 34,616 310,365 Vehicle depreciation and lease charges, net...... 151,031 14,386 165,417net......... 210,001 18,758 228,759 Selling, general and administrative.............. 111,700 8,681 120,381administrative................. 143,494 10,621 154,115 Interest, net....................................net....................................... $ 3,459 47,029 995 51,48316,246 79,002 861 96,109 Non-vehicle depreciation and amortization........ 5,877 692 6,569amortization........... 5,887 898 6,785 Amortization of cost in excess of net assets acquired............................... 3,128 49 3,177acquired and other intangibles............ 6,574 3,878 58 10,510 ----------- ----------- ------------ -------------- ------------- -------------- 3,459 534,286 52,168 589,913 ------------ -------------- ------------- -------------- (3,459) 44,581 6,422 47,54422,820 718,011 65,812 806,643 ----------- ----------- ------------ ------------ Equity in earnings of subsidiaries............... 29,531 4,387subsidiaries.................. 39,223 10,739 $ (33,918)(49,962) ----------- ----------- ------------ -------------- ------------- -------------- -------------------------- ------------ Income before (benefit) provision for income taxes......... 26,072 48,968 6,422 (33,918) 47,544 Provision (benefit)taxes . 16,403 60,714 13,091 (49,962) 40,246 (Benefit) provision for income taxes........... (1,210) 19,437 2,035 20,262taxes................ (2,191) 21,491 2,352 21,652 ----------- ----------- ------------ ------------ ------------ Net income.......................................... $ 18,594 $ 39,223 $ 10,739 $ (49,962) $ 18,594 =========== =========== ============ ============ ============
AVIS GROUP HOLDINGS, INC CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR COMPANIES) TWO MONTHS ENDED FEBRUARY 28, 2001 (IN THOUSANDS) ------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ -------------- ------------- ------------- -------------- Revenue ...................................................... $ 344,496 $ 41,325 $ 385,821 -------- --------- --------- Costs and expenses: Direct operating, net ........................................ 154,490 19,340 173,830 Vehicle depreciation and lease charges, net .................. 102,490 9,476 111,966 Selling, general and administrative .......................... 77,866 5,363 83,229 Interest, net ................................................ $ 11,473 40,375 944 52,792 Non-vehicle depreciation and amortization .................... 3,707 447 4,154 Amortization of cost in excess of net assets acquired ........................................... 2,060 27 2,087 --------- -------- --------- --------- 11,473 380,988 35,597 428,058 --------- -------- --------- --------- (11,473) (36,492) 5,728 (42,237) Equity (loss) in earnings of subsidiaries .................... (21,907) 10,898 $ 11,009 Income (loss) from continuing operations before (benefit) provision for income taxes ...................... (33,380) (25,594) 5,728 11,009 (42,237) (Benefit) provision for income taxes ......................... (4,261) (12,716) 1,194 (15,783) --------- -------- --------- -------- --------- Income (loss) from continuing operations ..................... (29,119) (12,878) 4,534 11,009 (26,454) (Loss) income from discontinued operations, net of income taxes .............................................. (6,358) 11,305 4,947 Cumulative effect from prior years (through December 31, 2000) of change in accounting principle for derivative instruments, net of income tax benefit .................... (2,671) (4,941) (7,612) --------- -------- --------- -------- --------- Net income...................................(loss) income ............................................ $ 27,282(29,119) $(21,907) $ 29,53110,898 $ 4,38711,009 $ (33,918) $ 27,282 ============ ============== ============= ============= ==============(29,119) ========= ======== ========= ======== =========
11 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)(CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidating Statements of Financial Position JuneAVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR COMPANIES) SIX MONTHS ENDED JUNE 30, 2000 (in thousands)(IN THOUSANDS) ---------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations ConsolidatedNON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ----------- ------------ ------------- ------------------------- -------------- --------------- ASSETS CashRevenue ........................................... $ 1,134,360 $ 121,113 $ 1,255,473 ----------- ------------ ------------ Costs and cash equivalents........................expenses: Direct operating, net.............................. 401,713 54,295 456,008 Vehicle depreciation and lease charges, net........ 289,510 29,818 319,328 Selling, general and administrative................ 217,692 16,447 234,139 Interest, net...................................... $ 30 $ 39,204 $ 111,880 $ 151,114 Cash held on deposit with financial institution.. 143,610 143,610 Restricted cash.................................. 243,952 243,952 Accounts receivable, net......................... 241,968 439,182 681,150 Assets held for sale, net........................ 429,393 439,829 869,222 Prepaid expenses................................. 52,714 9,508 62,222 Finance lease receivables........................ 176,916 176,916 Vehicles, net-rental............................. (72,180) 4,221,169 4,148,989 Vehicles, net-leasing............................ (5,213) 3,058,447 3,053,234 Property80,249 109,720 1,267 191,236 Non-vehicle depreciation and equipment, net...................... 167,069 15,498 182,567 Investment in subsidiaries....................... 2,192,807 1,362,888 $ (3,555,695) Other assets..................................... 1,000 67,516 36,281 104,797 Costamortization.......... 8,252 1,361 9,613 Amortization of cost in excess of net assets acquired, net................................ 1,237,308 3,518 1,240,826acquired................................. 6,192 89 6,281 ----------- ----------- ------------ ------------- ------------- -------------- --------------- Total assets.....................................------------ 80,249 1,033,079 103,277 1,216,605 ----------- ----------- ------------ ------------ (80,249) 101,281 17,836 38,868 Equity in earnings of subsidiaries................. 107,458 62,027 $ 2,193,837(169,485) ----------- ----------- ------------ ----------- ------------ Income from continuing operations before (benefit) provision for income taxes ..................... 27,209 163,308 17,836 (169,485) 38,868 (Benefit) provision for income taxes............... (29,809) 43,218 3,994 17,403 ----------- ----------- ------------ ----------- ------------ Income from continuing operations.................. 57,018 120,090 13,842 (169,485) 21,465 Income (loss) from discontinued operation, net of income taxes.................................... (12,632) 48,185 35,553 ----------- ----------- ------------ ----------- ------------ Net income......................................... $ 3,520,66757,018 $ 8,899,790107,458 $ (3,555,695)62,027 $ 11,058,599(169,485) $ 57,018 =========== =========== ============ ============= ============= ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable................................. $ 294,681 $ 235,819 $ 530,500 Accrued liabilities.............................. $ 5,773 303,352 45,035 354,160 Due (from) to affiliates, net.................... 34,328 (82,846) 125,177 76,659 Current income tax liabilities................... 46,084 (26,072) 20,012 Deferred income tax liabilities, net............. (79,404) 174,682 65,779 161,057 Public liability, property damage and other insurance liabilities, net.................... 203,711 53,766 257,477 Debt............................................. 1,551,500 7,970 6,938,094 8,497,564 Minority interest (preferred membership interest) 99,305 99,305 Preferred stock.................................. 380,225 380,225 Common stockholders' equity...................... 681,640 2,192,808 1,362,887 $ (3,555,695) 681,640 ------------ ------------- ------------- -------------- --------------- Total liabilities, preferred stock and common stockholders' equity.................... $ 2,193,837 3,520,667 $ 8,899,790 $ (3,555,695) 11,058,599=========== ============ ============= ============= ============== ===============
12 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)(CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidating Statements of Financial Position December 31, 1999 (in thousands) ---------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations ConsolidatedAVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION JUNE 30, 2001 (IN THOUSANDS) ------------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------- ------------------------- ------------ -------------- --------------- ASSETS Cash and cash equivalents........................equivalents .................... $ 54305 $ 42,1844,627 $ 29,45917,476 $ 71,697 Cash held on deposit with financial institution.. 93,530 93,530 Restricted cash.................................. 253,080 253,08022,408 Accounts receivable, net......................... (9) 210,962 904,787 1,115,740net ..................... (12) 169,620 206,052 375,660 Prepaid expenses................................. 41,282 23,034 64,316 Finance lease receivables........................ 871,034 871,034 Vehicles, net-rental............................. (75,581) 3,442,943 3,367,362 Vehicles, net-leasing............................ 55,704 3,078,305 3,134,009expenses ............................. 49,491 8,530 58,021 Property and equipment, net...................... 161,651 36,176 197,827net .................. 184,683 15,897 200,580 Investment in subsidiaries....................... 2,121,275 1,272,000 $ (3,393,275)consolidated subsidiaries ...... 762,718 611,537 $(1,374,255) Other assets..................................... 1,000 78,863 35,410 115,273assets ................................. (2,580) 32,910 30,330 Deferred income tax assets, net .............. 182,559 261,795 (624) 443,730 Intangible assets - customer lists ........... 19,498 19,498 Cost in excess of net assets acquired, net................................ 1,595,529 198,861 1,794,390 ------------ ------------- -------------- -------------- ---------------net ... 756,951 461,231 2,711 1,220,893 Management programs: Restricted cash ........................... 1 154,152 154,153 Vehicles, net ............................. (72,004) 4,167,327 4,095,323 ----------- ----------- ---------- (72,003) 4,321,479 4,249,476 ----------- ----------- ----------- ----------- ---------- Total assets.....................................assets ................................. $ 2,122,3201,722,019 $ 3,382,5941,668,401 $ 8,966,619 $ (3,393,275) $ 11,078,258 ============ ============= ============== ============== ===============4,604,431 $(1,374,255) $6,620,596 =========== =========== =========== =========== ========== LIABILITIES AND STOCKHOLDERS'STOCKHOLDER'S EQUITY Accounts payable.................................payable and accrued liabilities ..... $ 273,10210,151 $ 315,275428,508 $ 588,377 Accrued liabilities..............................203,197 $ 16,774 366,602 (13,923) 369,453641,856 Due (from) to Cendant Corporation and affiliates, net.................... (84,266) (119,494) 263,156 59,396 Current income tax liabilities................... 17,910 316 18,226 Deferred income tax liabilities, net............. (42,982) 144,893 79,345 181,256net 697,101 (33,108) (286,957) 377,036 Public liability, property damage and other insurance liabilities, net.................... 206,111 53,645 259,756 Debt............................................. 1,562,000 10,305 6,897,500 8,469,805 Minority interest (preferred membership interest) 99,305 99,305 Preferred stock.................................. 371,000 371,000net ................ 171,810 53,175 224,985 Non-vehicle debt ............................. 595,690 5,098 600,788 Management programs: Vehicle debt .............................. 3,984,905 3,984,905 Deferred income taxes ..................... 333,375 38,574 371,949 ----------- ----------- ---------- 333,375 4,023,479 4,356,854 ----------- ----------- ----------- ----------- ---------- Common stockholders' equity...................... 670,794 2,112,165 1,272,000 $ (3,393,275) 661,684 ------------ ------------- -------------- -------------- ---------------stockholder's equity .................. 419,077 762,718 611,537 (1,374,255) 419,077 ----------- ----------- ----------- ----------- ---------- Total liabilities preferred stock and common stockholders' equity....................stockholder's equity ... $ 2,122,3201,722,019 $ 3,382,5941,668,401 $ 8,966,619 $ (3,393,275) $ 11,078,258 ============ ============= ============== ============== ===============4,604,431 $(1,374,255) $6,620,596 =========== =========== =========== =========== ==========
13 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)(CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidating StatementsAVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION (PREDECESSOR COMPANIES) DECEMBER 31, 2000 (IN THOUSANDS) ----------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------ ------------ --------------- ASSETS Cash and cash equivalents........................ $ 73 $ 65,602 $ 14,693 $ 80,368 Accounts receivable, net......................... 156 172,255 335,917 508,328 Prepaid expenses................................. 39,014 8,910 47,924 Property and equipment, net...................... 167,256 14,248 181,504 Investment in consolidated subsidiaries.......... 2,276,599 (826) $ (2,275,773) Other assets..................................... 1,064 55,304 22,604 78,972 Net assets of discontinued operation............. (883,464) 2,086,932 (323,168) 880,300 Deferred income taxes............................ 96,680 249,201 3,387 349,268 Cost in excess of net assets acquired, net....... 450,922 2,528 453,450 Management programs: Restricted cash............................... 167,482 167,482 Vehicles, net................................. (50,804) 3,812,258 3,761,454 ----------- ------------ ------------- (50,804) 3,979,740 3,928,936 ------------ ----------- ------------ ------------ ------------- Total assets..................................... $ 1,491,108 $ 3,234,856 $ 4,058,859 $ (2,275,773) $ 6,509,050 ============ =========== ============ ============ ============= LIABILITIES AND COMMON STOCKHOLDER'S EQUITY Accounts payable and accrued liabilities......... $ 10,994 $ 383,754 $ 152,085 $ 546,833 Due to Cendant Corporation and affiliates, net... 36,117 36,117 Public liability, property damage and other insurance liabilities, net.................... 194,373 53,194 247,567 Non-vehicle debt................................. 725,000 5,333 730,333 Management programs: Vehicle debt.................................. 3,816,682 3,816,682 Deferred income taxes......................... 338,680 37,724 376,404 ----------- ------------ ----------- 338,680 3,854,406 4,193,086 ------------ ----------- ------------ ------------ ----------- Common stockholder's equity...................... 755,114 2,276,599 (826) $ (2,275,773) 755,114 ------------ ----------- ------------ ------------ ----------- Total liabilities and common stockholder's equity $ 1,491,108 $ 3,234,856 $ 4,058,859 $ (2,275,773) $ 6,509,050 ============ =========== ============ ============ ===========
14 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE PERIOD MARCH 1, 2001 (DATE OF ACQUISITION) TO JUNE 30, 2001 (IN THOUSANDS) -------------------------------------------------------------------- AVIS GROUP NON- HOLDINGS, INC. PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED --------- ----------- ----------- ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ...................................... $ 18,594 $ 39,223 $ 10,739 $ (49,962) $ 18,594 Adjustments to reconcile net income to net cash provided by (used in) operating activities: ........ 338,443 85,375 (256,811) 167,007 --------- ----------- ----------- --------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 357,037 124,598 (246,072) (49,962) 185,601 --------- ----------- ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Payments for vehicle additions ..................... (49,032) (1,859,061) (1,908,093) Vehicle deletions .................................. (180,748) 1,730,475 1,549,727 Payments for additions to property and equipment ....... (17,146) (471) (17,617) Retirements of property and equipment .................. 2,750 45 2,795 Payment for purchase of rental car franchise licensees . (18,748) (299) (19,047) Investment in subsidiaries ............................. (39,223) (10,739) 49,962 --------- ----------- ----------- --------- ----------- NET CASH (USED IN) INVESTING ACTIVITIES ........... (39,223) (273,663) (129,311) 49,962 (392,235) --------- ----------- ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Net (decrease) increase in vehicle debt ............ (8,744) 138,907 130,163 Net decrease in non-vehicle debt ....................... (317,650) (156) (317,806) Due to Cendant intercompany financing, net ............. 130,078 224,850 354,928 Payments for debt issuance costs ....................... (4,231) (4,231) --------- ----------- ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (317,650) 116,947 363,757 163,054 --------- ----------- ----------- ----------- Effect of exchange rate changes on cash ................ (117) (117) --------- ----------- ----------- --------- ----------- Net increase (decrease) in cash and cash equivalents ... 164 (32,118) (11,743) (43,697) Cash Flows For the six months ended Juneand cash equivalents at beginning of period ....... 141 36,745 29,219 66,105 --------- ----------- ----------- --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 305 $ 4,627 $ 17,476 $ $ 22,408 ========= =========== =========== ========= =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid ................................. $ 108,764 =========== Cash income taxes paid ............................. $ 8,889 ===========
15 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (PREDECESSOR COMPANIES) FOR THE TWO MONTHS ENDED FEBRUARY 28, 2001 (IN THOUSANDS) ----------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ...................................... $ (29,119) $ (21,907) $ 10,898 $ 11,009 $ (29,119) Adjustments to reconcile net income to net cash (used in) provided by operating activities: ........ (84,860) 86,236 45,824 47,200 --------- --------- --------- --------- --------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (113,979) 64,329 56,722 11,009 18,081 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Payments for vehicle additions ..................... (1,843) (941,259) (943,102) Vehicle deletions .................................. (82,138) 895,598 813,460 Payments for additions to property and equipment ....... (2,948) (330) (3,278) Retirements of property and equipment .................. (400) 20 (380) Increase (decrease) in net assets and preferred stock of discontinued operations ............................. 5,132 (5,423) (291) Investment in subsidiaries ............................. 21,907 (10,898) (11,009) --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 21,907 (93,095) (51,394) (11,009) (133,591) CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Net increase (decrease) in vehicle debt ............ 92,000 (2) 9,209 101,207 Net decrease in non-vehicle debt ....................... (77) (77) Payments for debt issuance costs ....................... (12) (12) Other .................................................. 140 140 --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 92,140 (91) 9,209 101,258 --------- --------- --------- --------- Effect of exchange rate changes on cash ................ (11) (11) --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents ... 68 (28,857) 14,562 (14,263) Cash and cash equivalents at beginning of period ....... 73 65,602 14,693 80,368 --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 141 $ 36,745 $ 29,219 $ -- $ 66,105 ========= ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid ................................. $ 44,315 ========= Cash income taxes paid ............................. $ 1,962 =========
16 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (PREDECESSOR COMPANIES) SIX MONTHS ENDED JUNE 30, 2000 (in thousands) -------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated ----------(IN THOUSANDS) ----------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------- ------------------------- ------------ --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................................income ............................................. $ 57,018 $ 107,458107,459 $ 62,027 $ (169,485)$(169,486) $ 57,018 Adjustments to reconcile net income to net cash provided by (used in) operating activities:.... 60,916 246,846 560,339 868,101 ---------- ------------ ------------- ------------- --------------- Net cash provided by (used in) operating activities 117,934 354,304 622,366 ....... 60,915 847,033 (662,624) 1 245,325 --------- ----------- ----------- --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 117,933 954,492 (600,597) (169,485) 925,119 ---------- ------------ ------------- ------------- --------------- Cash flows from investing activities:302,343 --------- ----------- ----------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Payments for vehicle additions................... (23,363) (3,934,558) (3,957,921)additions ..................... (7,841) (2,742,957) (2,750,798) Vehicle deletions................................ (246,667) 2,626,509 2,379,842 Increase in finance lease receivables............ (1) (65,905) (65,906)deletions .................................. (271,269) 2,112,359 1,841,090 Payments for additions for property and equipment.............. (22,615) (6,164) (28,779)equipment ...... (18,352) (1,080) (19,432) Retirements of property and equipment............ 5,923 3,095 9,018equipment .................. 5,145 377 5,522 (Decrease) increase in net assets and preferred stock of discontinued operations ............................ (602,073) 566,630 (35,443) Investment in subsidiaries.......................subsidiaries ............................. (107,458) (62,027) 169,485 ---------- ------------ ------------- ------------- --------------- Net cash (used in) provided by investing activities--------- ----------- ----------- --------- --------- NET CASH (USED IN) INVESTING ACTIVITIES ........... (107,458) (348,750) (1,377,023)(956,417) (64,671) 169,485 (1,663,746) ---------- ------------ ------------- ------------- --------------- Cash flows from financing activities:(959,061) --------- ----------- ----------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Net increase in (repayment of) debt..............vehicle debt ........ 677,656 677,656 Net decrease in non-vehicle debt ....................... (10,500) (2,335) 890,014 877,179(215) (10,715) Payments for debt issuance costs................. (6,199) (1,576) (7,775) ---------- ------------ ------------- --------------- Net cash (used in) provided by financingcosts ....................... (5,127) (5,127) --------- ----------- ----------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (10,500) (8,534) 888,438 869,404 activities.................................... ---------- ------------ ------------- ---------------(5,342) 677,656 661,814 --------- ----------- ----------- --------- Effect of exchange rate changes on cash.......... (1,280) (1,280) ------------- ---------------cash ................ (175) (175) --------- ----------- ----------- --------- Net (decrease) increase in cash and cash equivalents (24) (2,980) 132,501 129,497... (25) (7,267) 12,213 4,921 Cash and cash equivalents at beginning of period.period ....... 54 42,184 122,989 165,227 ---------- ------------ ------------- ------------- --------------- Cash and cash equivalents at end of period..24,797 7,050 31,901 --------- ----------- ----------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 3029 $ 39,20417,530 $ 255,49019,263 $ $ 294,724 ========== ============ ============= ============= =============== Supplemental disclosure of cash flow information:36,822 ========= =========== =========== ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid...........................paid ................................. $ 294,979 ===============199,869 ========= Cash income taxes paid.......................paid ............................. $ 23,134 ===============9,154 =========
17 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 8 - Guarantor(CONTINUED) (UNAUDITED) NOTE 6-SEGMENT INFORMATION The Company previously operated in two segments, vehicle leasing and Non-Guarantor Condensed Financial Statements (Continued)vehicle rental. Subsequent to the sale of Vehicle Leasing on March 1, 2001, the Company operates in one industry segment, the vehicle rental business. The Company's vehicle rental business rents vehicles to business and leisure travelers, and is divided into four main geographic areas: the United States, Australia/New Zealand, Canada, and other Foreign Operations. Revenue generated from vehicle rental operations is recorded in the country in which a vehicle is rented. EBITDA represents net income, plus, non-vehicle related interest expense, non-vehicle depreciation and amortization and income taxes from vehicle rental operations (in thousands).
Condensed Consolidating Statements of Cash Flows For the six months ended JuneGEOGRAPHIC AREAS THREE MONTHS ENDED JUNE 30, 19992001 ------------------------------------------------------------------------ Non- Guarantor Guarantor Avis Group Parent Subsidiaries Subsidiaries Eliminations Holdings, Inc.AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ----------- ---------- --------- -------- ------------- ------------- ------------ -------------- Cash flows from operating activities:Revenue ...................................... $ 570,552 $ 24,093 $ 26,101 $ 8,147 $ 628,893 =========== ======== ========= ======== =========== Interest, net ................................ $ 68,873 $ 90 $ 1,282 $ 231 $ 70,476 =========== ======== ========= ======== =========== EBITDA ....................................... $ 42,901 $ 3,499 $ 4,122 $ 1,295 $ 51,817 Non-fleet interest ........................... (9,570) (9,570) Intercompany interest ........................ (5,007) (5,007) Non-vehicle depreciation and amortization .... (12,126) (267) (313) (162) (12,868) Corporate allocations ........................ (720) (720) ----------- -------- --------- -------- ----------- Income before provision for income taxes ..... 15,478 3,232 3,809 1,133 23,652 Provision for income taxes ................... 12,151 203 1,119 280 13,753 ----------- -------- --------- -------- ----------- Net income.......................................income ................................... $ 42,4683,327 $ 46,9653,029 $ 9,3742,690 $ (56,339)853 $ 42,468 Adjustments to reconcile9,899 =========== ======== ========= ======== =========== Vehicles, net income to net cash (used in) provided by operating activities....... (166,712) 303,990 112,117 249,395 ---------- ------------- ------------- ------------ -------------- Net cash (used in) provided by operating activities (124,244) 350,955 121,491 (56,339) 291,863 ---------- ------------- ------------- ------------ -------------- Cash flows form investing activities: Payments................................ $ 3,739,826 $ 47,495 $ 274,287 $ 33,715 $ 4,095,323 =========== ======== ========= ======== =========== Debt ......................................... $ 4,370,773 $ 15,867 $ 190,911 $ 8,142 $ 4,585,693 =========== ======== ========= ======== =========== Total assets ................................. $ 6,154,458 $ 78,458 $ 321,763 $ 65,917 $ 6,620,596 =========== ======== ========= ======== =========== Capital expenditures for vehicle additions................... 89,213 (2,583,460) (2,494,247) Vehicle deletions................................ (252,063) 1,778,843 1,526,780 Payments forvehicles and property and equipment............. (16,761) (1,192) (17,953) Retirements of property and equipment............ 1,056 17 1,073 Investment in subsidiaries....................... (46,965) (9,374) 56,339 Payment for purchase of rental car franchise licensees, net of cash acquired of $11,065..... (42,503) (42,503) Payment for purchase of PHH Holdings, net of cash acquired of $170,568........................... (1,330,932) (1,330,932) ----------- ------------- ------------- ------------ -------------- Net cash used in investing activities.......... (1,377,897) (230,432) (805,792) 56,339 (2,357,782) ----------- ------------- ------------- ------------ -------------- Cash flows from financing activities: Net increase in (repayment of) debt.............. 1,573,000 (67,953) 866,950 2,371,997 Payments for debt issuance costs................. (1,600) (35) (1,635) Purchases of treasury stock...................... (57,237) (57,237) Other............................................ 3,326 3,326 Cash dividends................................... 4,866 (4,866) ----------- ------------- ------------- -------------- Net cash provided by (used in) financing activities.................................. 1,517,489 (63,122) 862,084 2,316,451 ----------- ------------- ------------- -------------- Effect of exchange rate changes on cash.......... 87 87 ------------- -------------- Net increase in cash and cash equivalents........ 15,348 57,401 177,870 250,619 Cash and cash equivalents at beginning of period. 11 9,776 19,964 29,751 ----------- ------------- ------------- ------------ -------------- Cash and cash equivalents at end of period......equipment ............................ $ 15,3591,291,851 $ 67,1776,941 $ 197,834128,442 $ 3,014 $ 280,3701,430,248 =========== ============= ============= ============ ============== Cash interest paid............................... $ 107,466 ============== Cash income taxes paid........................... $ 5,329 ============== Business acquired in 1999: Fair value of assets acquired, net of cash acquired $ 6,218,950 of $181,633................................... Liabilities assumed.............................. 4,483,515 -------------- Net assets acquired.............................. 1,735,435 Less: issuance of Series A and Series C Preferred Stocks........................................ (362,000) -------------- Net cash paid for acquisitions................... $ 1,373,435 ====================== ========= ======== ===========
18 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9 - Segment Information Prior to the purchase of VMS on June 30, 1999 (see Note 4), the Company operated in one industry segment; the rental car business. As of July 1, 1999, the Company began operating in two business segments as follows: Vehicle Rental The Company rents vehicles to business and leisure customers Vehicle Leasing andother fee based services The Company leases vehicles to customers under closed-end and open-end leases. Fee based services include fuel and maintenance cards, accident management and various other vehicle services which enable customers to effectively manage costs and enhance productivity. Prior to the purchase of VMS on June 30, 1999, the Company operated in four geographic areas: the United States, Australia/New Zealand, Canada and Other Foreign Operations principally in Puerto Rico, the U.S. Virgin Islands and Argentina. As a result of the VMS acquisition, the Company added an additional geographic area; the United Kingdom (see Note 5). Revenue generated from each of the Company's business segments is recorded in the country in which vehicle rental, vehicle leasing and other fee based services are provided. The accounting policies of each geographic area are the same as those described in the summary of significant accounting policies (see Note 1 of the notes audited annual 1999 consolidated financial statements). EBITDA represents net income, plus non-vehicle interest expense (acquisition interest), non-vehicle depreciation and amortization, amortization of cost in excess of net assets acquired and income taxes. Corporate represents primarily acquisition interest, of cost in excess of net assets acquired and amortization of deferred financing fees. The operations within major business segments and major geographic areas for the three and six months ended June 30, 2000 and 1999 are summarized as follows: Business Segments - -----------------(CONTINUED) (UNAUDITED) NOTE 6-SEGMENT INFORMATION (CONTINUED)
Six months ended JuneGEOGRAPHIC AREAS THREE MONTHS ENDED JUNE 30, 2000 -------------------------------------------------------------- Vehicle Leasing And other Vehicle Fee Based Rental Services Corporate Consolidated ------------- --------------- -------------- --------------(PREDECESSOR COMPANIES) ------------------------------------------------------------------------- AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ----------- ---------- -------- ---------- ------------ Revenue.......................................... Revenue ........................................... $ 1,255,473608,410 $ 854,02825,486 $ 2,109,501 ============= =============== ============== EBITDA...........................................24,670 $ 131,9588,031 $ 93,392666,597 =========== ======== ======== ======== =========== Interest and minority interest expense, net ....... $ 20399,969 $ 225,553 ============= =============== ============== ==============86 $ 1,794 $ 117 $ 101,966 =========== ======== ======== ======== =========== EBITDA ............................................ $ 76,868 $ 4,483 $ 3,776 $ 1,469 $ 86,596 Non-fleet interest ................................ (35,998) (35,998) Non-vehicle depreciation and amortization ......... (14,132) (299) (297) (137) (14,865) Income (loss) before provision for income taxes..taxes and income from discontinued operations, net of ----------- -------- -------- -------- ----------- provision for income taxes ..................... 26,738 4,184 3,479 1,332 35,733 ----------- -------- -------- -------- ----------- Provision for income taxes ........................ 14,465 830 864 351 16,510 ----------- -------- -------- -------- ----------- Income from continuing operations ................. 12,273 3,354 2,615 981 19,223 ----------- -------- -------- -------- ----------- Income from discontinued operations, net of provision for income taxes of $14,116 .......... 7,975 962 9,272 18,209 ----------- -------- -------- -------- ----------- Net income ........................................ $ 110,74020,248 $ 79,8483,354 $ (86,919)3,577 $ 103,669 ============= =============== ============== ============== Total assets.....................................10,253 $ 5,647,09337,432 =========== ======== ======== ======== =========== Capital expenditures for vehicles and property and equipment ................................. $ 5,411,5061,082,868 $ 11,058,599 ============= =============== ==============3,736 $ 99,003 $ 2,234 $ 1,187,841 =========== ======== ======== ======== ===========
Business Segments - -----------------
Six months ended JuneFOR THE PERIOD MARCH 1, 2001 GEOGRAPHIC AREAS (DATE OF ACQUISITION) TO JUNE 30, 1999 ------------------------------------------------------------- Vehicle Leasing And other Vehicle Fee Based Rental Services Corporate Consolidated ------------- -------------- --------------2001 ---------------------------------------------------------------------------- AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ----------- ---------- --------- ---------- ------------- Revenue.......................................... Revenue .......................................... $ 1,204,374767,987 $ 1,204,374 ============= ============== EBITDA...........................................34,271 $ 94,51133,284 $ (1,435)11,347 $ 93,076 ============= ============== ==============846,889 =========== ======== ========= ======== =========== Interest, net .................................... $ 93,826 $ 163 $ 1,792 $ 328 $ 96,109 =========== ======== ========= ======== =========== EBITDA ........................................... $ 64,795 $ 6,289 $ 4,783 $ 2,057 $ 77,924 Non-fleet interest ............................... (14,656) (14,656) Intercompany interest ............................ (5,007) (5,007) Non-vehicle depreciation and amortization ........ (16,319) (354) (411) (211) (17,295) Corporate allocations ............................ (720) (720) ----------- -------- --------- -------- ----------- Income (loss) before provision for income taxes..taxes ......... 28,093 5,935 4,372 1,846 40,246 ----------- -------- --------- -------- ----------- Provision for income taxes ....................... 19,300 744 1,178 430 21,652 ----------- -------- --------- -------- ----------- Net income ....................................... $ 75,8098,793 $ (1,435)5,191 $ 74,374 ============= ============== ==============3,194 $ 1,416 $ 18,594 =========== ======== ========= ======== =========== Vehicles, net .................................... $ 3,739,826 $ 47,495 $ 274,287 $ 33,715 $ 4,095,323 =========== ======== ========= ======== =========== Debt ............................................. $ 4,370,773 $ 15,867 $ 190,911 $ 8,142 $ 4,585,693 =========== ======== ========= ======== =========== Total assets.....................................assets ..................................... $ 6,644,8516,154,458 $ 4,949,00878,458 $ 11,593,859 ============= ============== ==============321,763 $ 65,917 $ 6,620,596 =========== ======== ========= ======== =========== Capital expenditures for vehicles and property and equipment ................................ $ 1,761,127 $ 10,017 $ 150,340 $ 4,226 $ 1,925,710 =========== ======== ========= ======== ===========
19 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9 - Segment Information (Continued) Business Segments - -----------------(CONTINUED) (UNAUDITED) NOTE 6-SEGMENT INFORMATION (CONTINUED)
Three months ended June 30, 2000 ------------------------------------------------------------- Vehicle Leasing And other Vehicle Fee Based Rental Services Corporate Consolidated ------------- --------------- -------------- ------------- Revenue.......................................... $ 666,597 $ 429,871 $ 1,096,468 ============= =============== ============= EBITDA........................................... $ 82,515 $ 46,743 $ 129,258 ============= =============== ============= Income (loss) before provision for income taxes.. $ 71,814 $ 39,899 $ (43,655) $ 68,058 ============= =============== ============== ============= Total assets..................................... $ 5,647,093 $ 5,411,506 $ 11,058,599 ============= =============== =============
Business Segments - -----------------
Three months ended June 30, 1999 ------------------------------------------------------------- Vehicle Leasing And other Vehicle Fee Based Rental Services Corporate Consolidated ------------- --------------- -------------- ------------- Revenue.......................................... $ 637,457 $ 637,457 ============= ============= EBITDA........................................... $ 58,029 $ (739) $ 57,290 ============= ============== ============= Income (loss) before provision for income taxes.. $ 48,283 $ (739) $ 47,544 ============= ============== ============= Total assets..................................... $ 6,644,851 $ 4,949,008 $ 11,593,859 ============= =============== =============
Geographic Areas - ----------------
Six months ended June 30, 200 ---------------------------------------------------------------------------------- Other United United Australia/ Foreign States Kingdom New Zealand Canada Operations ConsolidatedGEOGRAPHIC AREAS TWO MONTHS ENDED FEBRUARY 28, 2001 (PREDECESSOR COMPANIES) ---------------------------------------------------------------------------- AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ----------- ----------- ------------- ------------ --------------------- --------- ---------- ------------- Revenue..........................................Revenue ........................................... $ 1,821,997344,496 $ 132,25621,547 $ 60,55913,241 $ 74,4916,537 $ 20,198385,821 =========== ======== ========= ======= =========== Interest and minority interest expense, net ....... $ 2,109,50151,062 $ 297 $ 1,188 $ 245 $ 52,792 =========== ======== ========= ======= =========== ============== ============ =========== ============= EBITDA...........................................EBITDA ............................................ $ 164,973(30,517) $ 37,1104,885 $ 12,401576 $ 8,8841,341 $ 2,185 $ 225,553 =========== =========== ============== ============ =========== ============= Income(23,715) Non-fleet interest ................................ (8,667) (8,667) Non-vehicle depreciation and amortization ......... (9,370) (187) (203) (95) (9,855) (Loss) income from continuing operations before ----------- -------- --------- ------- ----------- provision for income taxes.........taxes ..................... (48,554) 4,698 373 1,246 (42,237) ----------- -------- --------- ------- ----------- (Benefit) provision for income taxes .............. (16,977) 1,127 (206) 273 (15,783) ----------- -------- --------- ------- ----------- (Loss) income from continuing operations .......... (31,577) 3,571 579 973 (26,454) ----------- -------- --------- ------- ----------- Income from discontinued operations, net of provision for income taxes of $5,045 ........... 4,947 4,947 Cumulative effect of change in accounting principle, net of (benefit) for income taxes of $3,331 ...................................... (7,552) (60) (7,612) ----------- -------- --------- ------- ----------- Net (loss) income ................................. $ 54,689(34,182) $ 27,3373,571 $ 11,781519 $ 8,074973 $ 1,788(29,119) =========== ======== ========= ======= =========== Capital expenditures for vehicles and property and equipment .................................. $ 103,6691,272,297 $ 9,254 $ 147,545 $ 8,211 $ 1,437,307 =========== ======== ========= ======= =========== ============== ============ =========== ============= Total assets..................................... $10,051,081 $ 424,005 $ 84,406 $ 434,442 $ 64,665 $11,058,599 =========== =========== ============== ============ =========== =============
Geographic Areas - ----------------
Six months ended JuneGEOGRAPHIC AREAS SIX MONTHS ENDED JUNE 30, 1999 ---------------------------------------------------------------------------------- Other United United Australia/ Foreign States Kingdom New Zealand Canada Operations Consolidated2000 (PREDECESSOR COMPANIES) ---------------------------------------------------------------------------- AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ----------- ----------- -------------- ------------ --------------------- --------- ---------- ------------- Revenue..........................................Revenue .......................................... $ 1,087,2171,134,360 $ 61,06360,559 $ 41,29744,023 $ 14,79716,531 $ 1,204,3741,255,473 =========== ============= ==================== ========= ======== =========== ============= EBITDA...........................................Interest and minority interest expense, net ...... $ 80,962187,706 $ 12,902354 $ 3,0762,858 $ (3,864)318 $ 93,076191,236 =========== ============= ==================== ========= ======== =========== =============EBITDA ........................................... $ 120,294 $ 12,401 $ 5,113 $ 2,589 $ 140,397 Non-fleet interest ............................... (71,831) (71,831) Non-vehicle depreciation and amortization ........ (28,204) (620) (598) (276) (29,698) Income (loss)from continuing operations before ----------- -------- --------- -------- ----------- provision for income taxes..taxes .................... 20,259 11,781 4,515 2,313 38,868 ----------- -------- --------- -------- ----------- Provision for income taxes ....................... 13,409 2,628 813 553 17,403 ----------- -------- --------- -------- ----------- Income from continuing operations ................ 6,850 9,153 3,702 1,760 21,465 ----------- -------- --------- -------- ----------- Income from discontinued operations, net of provision for income taxes of $29,248 ......... 14,480 1,808 19,265 35,553 ----------- -------- --------- -------- ----------- Net income ....................................... $ 63,79821,330 $ 12,2589,153 $ 2,5935,510 $ (4,275)21,025 $ 74,37457,018 =========== ============= ==================== ========= ======== =========== ============= Total assets.....................................Capital expenditures for vehicles and property and equipment ................................ $ 9,768,8512,515,897 $ 1,285,71923,378 $ 89,291218,589 $ 339,41512,366 $ 110,583 $ 11,593,8592,770,230 =========== ======== ========= ======== =========== ============= ============ =========== =============
20 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9 - Segment Information (Continued) Geographic Areas - ----------------(CONTINUED) (UNAUDITED) NOTE 7-DERIVATIVES The Company's operations are primarily funded through a combination of asset-backed floating rate notes and commercial paper programs in the United States and Canada. Consistent with its historical risk management policies, the Company uses interest rate swaps and caps to hedge interest rate risks on its debt and to create a mix of fixed and floating rate debt. Certain interest rate swaps have been designated as cash flow hedges of interest rate risk on the Company's floating rate medium-term notes. Certain cash flow hedge contracts extend into 2004. For the two months ended February 28, 2001 and the four months ended June 30, 2001, no ineffectiveness was recognized on these hedges. Amounts accumulated in other comprehensive income (loss) are reclassified into earnings as interest is accrued on the hedged transactions. Over the next 12 months, net losses of approximately $4.5 million are expected to be reclassified from other comprehensive income (loss) into earnings. The amounts accumulated in other comprehensive income (loss) will fluctuate based on changes in the fair value of the Company's derivatives at each reporting period. For the two months ended February 28, 2001 and the four months ended June 30, 2001, there were no amounts reclassified into earnings because of the discontinuation of any hedging relationships. The majority of the Company's interest rate swaps and caps have not been designated as hedges for accounting purposes. However, these derivatives are being used to economically hedge interest rate risk exposures on the Company's floating rate notes and commercial paper programs. For the two months ended February 28, 2001 and the four months ended June 30, 2001, the net loss recognized on these derivatives was $869,000 and $3,496,000, respectively. These amounts have been included in interest, net. NOTE 8-RELATED PARTY TRANSACTIONS Related party charges include allocations from Cendant for services provided to the Company, which consist of (in thousands):
Three months ended JuneMARCH 1, 2001 TWO MONTHS SIX MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, JUNE 30, JUNE 30, 2001 2001 2000 ---------------------------------------------------------------------------------- Other United United Australia/ Foreign States Kingdom New Zealand Canada Operations Consolidated ----------- ----------- ---------------------------------- ------------ ----------- ------------- Revenue..........................................Royalties ..................... $35,810 $16,205 $ 956,857 $ 64,540 $ 25,486 $ 39,933 $ 9,652 $ 1,096,468 =========== =========== ============= ============ =========== ============= EBITDA........................................... $ 100,806 $ 17,218 $ 4,482 $ 5,763 $ 989 $ 129,258 =========== =========== ============= ============ =========== ============= Income before provision for income taxes......... $ 45,518 $ 12,207 $ 4,183 $ 5,358 $ 792 $ 68,058 =========== =========== ============= ============ =========== =============50,219 Reservations .................. 19,186 8,496 28,483 Data processing ............... 20,141 11,395 21,012 Rent and other ................ 11,629 1,456 4,036 Interest ...................... 7,011 ------- ------- -------- Total assets..................................... $10,051,081 $ 424,005 $ 84,406 $ 434,442 $ 64,665 $11,058,599 =========== =========== ============= ============ =========== =============......................... $93,777 $37,552 $103,750 ======= ======= ========
Geographic Areas - ----------------
Three months ended JunePREDECESSOR COMPANIES ------------ THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, 1999 ---------------------------------------------------------------------------------- Other United United Australia/ Foreign States Kingdom New Zealand Canada Operations Consolidated ----------- ----------- -------------JUNE 30, 2001 2000 ------------ ----------- ------------------------- Royalties .............................. $26,610 $26,664 Reservations ........................... 14,655 14,939 Data processing ........................ 15,657 12,124 Rent and other ......................... 10,833 2,199 Interest ............................... 7,011 ------- ------- Total .................................. $74,766 $55,926 ======= =======
21 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 8-RELATED PARTY TRANSACTIONS (CONTINUED) The amounts due to (from) Cendant Corporation and affiliates, net at June 30, 2001 and December 31, 2000 consist of the following balances (in thousands):
PREDECESSOR COMPANIES JUNE 30, DECEMBER 31, 2001 2000 -------- ------------ Revenue..........................................Due from Cendant, short term funding and trading, net . $(127,912) $36,117 Due to Cendant-working capital ........................ 143,633 Due to Cendant-long term .............................. 380,000 Due from other Cendant affiliates, net ................ (18,685) --------- ------- Total due to Cendant Corporation and affiliates, net .. $ 578,604 $ 27,399 $ 23,893 $ 7,561 $ 637,457 =========== ============== ============ =========== ============= EBITDA........................................... $ 51,507 $ 4,878 $ 2,666 $ (1,761) $ 57,290 =========== ============== ============ =========== ============= Income (loss) before provision for income taxes.. $ 42,593 $ 4,515 $ 2,422 $ (1,986) $ 47,544 =========== ============== ============ =========== ============= Total assets..................................... $ 9,768,851 $ 1,285,719 $ 89,291 $ 339,415 $ 110,583 $11,593,859 =========== =========== ============== ============ =========== =============377,036 $36,117 ========= =======
Note 10 - Retirement Benefits Effective January 1, 1999,In connection with the Acquisition, Avis Acquisition Corp. ("Acquisition Corp."), a wholly-owned subsidiary of PHH Corp., borrowed $937 million from PHH Corp., a wholly-owned subsidiary of Cendant. Concurrent with the Acquisition, Acquisition Corp. was merged into Avis Group Holdings, Inc. with the Company curtailedbecoming the surviving entity Immediately after the Acquisition, Avis Group Holdings, Inc. sold all of the stock of Fleet Leasing to PHH Corp. for $800 million. The proceeds of the sale were used by Avis Group Holdings, Inc. to reduce its defined benefit plansnote payable to PHH Corp. from $937 million to $137 million. Following such sale, the stock of Avis Group Holdings, Inc. acquired in the Acquisition was dividended by PHH Corporation to Cendant Finance Holding Corporation ("CFHC") and, through a series of internal transfers, to Cendant Car Holdings, LLC. The note payable to PHH Corp. remaining due from Avis, in the amount of $137 million, was transferred by PHH Corp. to CFHC, where it remains. During the quarter ended June 30, 2001, the Company repaid its eligible salaried and hourly employees asoutstanding borrowings under the Revolving Credit Facility (see Note 5). Subsequent to the repayment, the Company relies on Cendant to fund its working capital needs. The intercompany borrowings bear interest at a market rate based on LIBOR. On June 29, 2001, Cendant made a capital contribution to the Company by forgiving $125 million of intercompany debt. As of June 30, 1985. The Company recognized a non-recurring $7.52001, $143.6 million pre-tax gain as a resultof borrowings are related to working capital and $380 million is long-term in nature and are related to the acquisition of the curtailment which was recorded in January 1999 and is included in Direct Operating Expenses on the accompanying Statement of Operations for the three months and six months endedCompany by Cendant. These borrowings are not expected to be repaid before December 31, 2001. On June 30, 1999. Note 11 - Subsequent Event On July 20, 2000,29, 2001, one of the Company's vehicle financing subsidiaries issued $200amended its loan agreements to allow Cendant to borrow $155 million of Series 2000-3 Floating Rate Rental Car Asset-Backed Notes.its restricted cash. In turn, Cendant provided a demand note to this subsidiary and secured the demand note with letters of credit. The Notes are secured byloan to Cendant is included in due from Cendant, short-term funding and trading, net. NOTE 9-INCOME TAXES Subsequent to the Date of Acquisition, the Company's vehicles. Anticipated principal repaymentincome taxes are included in the consolidated federal income tax return of Cendant. In addition, the Company files consolidated and combined state income tax returns with Cendant in jurisdictions where required. The provision for income taxes is computed as if the Company filed its federal and state income tax returns on the Notes commence May 2003 through October 2003 . The interest rate with respect to the Series 2000-3 Notes will be equal to Libor plus 19 basis points.a stand-alone basis. 22 ITEM 2:AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) General Overview(UNAUDITED) ITEM 2: GENERAL OVERVIEW The following discussion and analysis of continuing results of operations includes the vehicle rental operations and the vehicle leasing and other fee based services operations ("Vehicle Management Services or VMS") of the Company.Company (see Notes 1 and 2 to the condensed consolidated financial statements contained herein). The Company conducts vehicle rental operations through wholly-owned subsidiaries in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina, Australia and New Zealand. Vehicle rental revenue is derived principally from time and mileage charges for vehicle rentals and, to a lesser extent, the sale of loss damage waivers, liability insurance and other products and services. VMS conducts operations principally in the United States, Canada, the United Kingdom and Germany. VMS' business includes providing vehicles on lease and other vehicle related services, such as vehicle acquisition, title and registration, vehicle remarketing and fleet management consultation. VMS' principal feebased products are fuel, vehicle maintenance and accident management services. Management believes that a more meaningful comparison is made when the historicalvehicle rental pro-forma results of operations for the six months and three months ended June 30, 20002001 are compared to the pro-forma results of operations for the six months and three months ended June 30, 1999, which2000. These pro-forma statements give effect to the VMS acquisition,Acquisition of the Company by Cendant (see Note 1 of the Notes to the Condensed Consolidated Financial Statements contained herein), and the retirement of Term Loans A, B, and C in the amount of $991.5 million from the proceeds of the sale of the vehicle leasing operations in Europe and the repayment of intercompany indebtedness, including the related interest expense, as if itthey had occurred on January 1, 1999.2000. Management evaluates the Company's performance based upon a modified earnings before non-vehicle interest, income taxes, non-vehicle depreciation and amortization calculations. For this purpose, Adjusted EBITDA is presented since it isdefined as earnings before non-vehicle interest, income taxes and non-vehicle depreciation and amortization, adjusted to exclude certain items, which are of a widely accepted indicator of funds available to service debt, although it isnon-recurring or unusual nature and are not a measure of liquiditymeasured in assessing segment performance or of financial performance under generally accepted accounting principles ("GAAP"). The Company believes that EBITDA, while providing useful information, shouldare not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. Revenue Vehicle Rental Revenue:segment specific. REVENUE Revenue is recognized over the period the vehicle is rented. Vehicle Leasing Revenue: The Company primarily leases vehicles under three standard arrangements: open-end operating leases, closed-end operating leases or open-end finance leases (direct financing leases). These leases are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for leases". Each lease is either classified as an operating lease or direct financing lease and are included in Vehicles, net-leasing and Finance Lease Receivables, respectively, on the accompanying Statement of Financial Position. Lease terms range from 12 months to 50 months. Amounts charged to the leases for interest on the unrecovered investment are credited to income on a level yield method, which approximates the contractual terms. Other Fee Based Revenue: Revenue from fleet management services other than leasing are recognized over the period in which services are provided and the related expenses are incurred. Costs and ExpensesCOSTS 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 DepreciationVehicle depreciation and lease charges relating to the rental fleet (including net gains or losses upon disposition of vehicles).fleet. o Selling, general and administrative expenses (including payments to Cendant under the Master License Agreement, reservation costs, advertising and marketing costs, and commissions paid to airlines and travel agencies). o Interest expense (primarily relating to the financing of the rental fleet) VMS' vehicle leasing and other fee based services expenses include: o Depreciation and lease charges relating to the fleet (including net gains or losses upon disposition of vehicles). o Selling, general and administrative expenses (including wages and related benefits, information processing and information services costs)services). o Interest expense (relating primarily to VMS' leased fleet). MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) Net incomeVehicle 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. VMS' profitability is primarily a function of the number of fee-based transactions, leased vehicle volumeCORPORATE Expenses included are interest on non-vehicle debt and pricing. Corporate Expenses associated with the VMS acquisition, which are primarily interest expense, amortization of cost in excess of net assets acquired and amortization of deferred financing costs are shown separately in a column entitled "Corporate".other intangible assets. The following discussion and analysis provides information that management believes to be relevant to understanding the Company's financial position and results of operations: 23 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Historical Results of Operations for the Six Months Ended June(CONTINUED) (UNAUDITED) RESULTS OF OPERATIONS PRO-FORMA RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 Compared to Pro-forma Results of Operations for the Six Months Ended June2001 COMPARED TO PRO-FORMA RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 19992000. The following table sets forth for the periods indicated, certain items in the Company's condensed consolidated statement of operations (in thousands):
Historical Pro-forma Six Months ended JunePRO-FORMA PRO-FORMA SIX MONTHS ENDED JUNE 30, 2001 SIX MONTHS ENDED JUNE 30, 2000 Six Months ended June 30, 1999 --------------------------------------------------- ------------------------------------------------- Vehicle Vehicle Leasing Total Leasing Total and Other Avis Group and Other Avis Group Vehicle Fee Based Holdings, Vehicle Fee Based Holdings, Rental Services Corporate Inc. Rental Services Corporate Inc.------------------------------------------- --------------------------------------- VEHICLE VEHICLE RENTAL CORPORATE TOTAL RENTAL CORPORATE TOTAL ----------- ----------- --------- ------------- ----------- ------------ ---------- ----------- ----------- Revenue: Vehicle Rental.........Revenue ............................ $ 1,232,710 $ 1,232,710 $ 1,255,473 $ 1,255,473 $1,204,374 $ 1,204,374 Vehicle Leasing........ $ 707,158 707,158 $ 687,931 687,931 Other fee based........ 146,870 146,870 124,012 124,012 ----------- ----------- ------------- ----------- ------------ ----------- Total Revenue: 1,255,473 854,028 2,109,501 1,204,374 811,943 2,016,317 ----------- ----------- ------------- ----------- ---------------------- ----------- Costs and expenses: Direct operating.......operating ................. 484,195 484,195 456,008 456,008 461,720 461,720 Vehicle depreciation and lease charges,net...... net .......... 340,725 340,725 319,328 508,174 827,502 318,471 514,837 833,308319,328 Selling, general and administrative....... 235,598 130,880 $ (203) 366,275 231,182 128,519 359,701 Interest, net............ 112,581 121,582 234,163 99,925 94,450 $ 1,000 195,375administrative .............. 237,345 237,345 234,343 234,343 Vehicle interest, net ........... 115,935 115,935 107,170 107,170 ----------- ----------- --------- ------------- ------------ ------------ ---------- ----------- 1,123,515 760,636 (203) 1,883,948 1,111,298 737,806 1,000 1,850,1041,178,200 1,178,200 1,116,849 1,116,849 ----------- ----------- --------- ------------- ------------ ------------ ---------- ----------- EBITDA................... 131,958 93,392 203 225,553 93,076 74,137 (1,000) 166,213Adjusted EBITDA .................... 54,510 54,510 138,624 138,624 Interest - acquisition debt................. 71,831 71,831 68,758 68,758on non-vehicle debt ....... 7,713 $ 17,046 24,759 5,411 $ 20,942 26,353 Interest on intercompany debt ...... 3,541 1,466 5,007 Amortization of cost in excess of net assets acquired...acquired .......... 6,023 9,691 15,714 6,281 3,509 13,804 23,594 6,351 3,997 13,246 23,5949,433 15,714 Non-vehicle depreciation and amortization......... 14,937 10,035 1,487 26,459 12,351 11,038 629 24,018amortization ................. 10,939 10,939 9,613 9,613 ----------- ----------- --------- ------------- ------------ ----------------------- ---------- ----------- ----------- Income (loss) before provision (benefit) for income taxes ... $ 26,294 $ (28,203) (1,909) $ 117,319 $ (30,375) 86,944 =========== =========== ========== =========== (Benefit) provision for income taxes.......... $110,740 $ 79,848 $(86,919) 103,669 $ 74,374 $ 59,102 $ (83,633) 49,843 =========== =========== ========= =========== =========== ========== Provision for income taxes 46,651 26,804 -------------(1,027) 39,560 ----------- ----------- Net (loss) income .................. $ 57,018(882) $ 23,039 income................... =============47,384 =========== ===========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) VEHICLE RENTAL REVENUE Revenue Revenue increased 4.2%decreased 1.8%, from $1,204.4$1,255.5 million to $1,255.5$1,232.7 million, compared to the same period in 1999. The increase reflects an increase in the overall market demand (2.5%) and the impact of two acquisitions completed in 1999: Rent-A-Car Company, Inc. on March 19, 1999 and Motorent, Inc. on June 30, 1999 (1.7% combined).2000. The revenue increasedecrease reflects a 3.6% increase2.7% decrease in the number of rental transactions andpartially offset by a 0.6%0.9% increase in revenue per rental transaction. Total Costs and ExpensesCOSTS 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 1.3%6.0%, from $1,130.0$1,138.2 million to $1,144.7$1,206.4 million, compared to the same period in 1999.2000. Direct operating expenses decreased 1.2%increased 6.2%, from $461.7$456.0 million to $456.0$484.2 million, compared to the same period in 1999.2000. As a percentage of revenue, direct operating expenses declinedwere to 36.3 %, from 38.3%39.3%, as compared to 36.3% for the corresponding period in 1999.2000. The reductionincrease was due primarily to lowerhigher maintenance and damage costs (0.5%(1.0% of revenue), lower airport commissions (1.9% of revenue), lower vehicle insurancehigher computer services costs (0.2%(1.0% of revenue), and other operating cost savings (0.7%), partially offset by higher compensationfacilities costs (0.7%(0.4% of revenue). 1999 results included a one-time $7.5 million gain (0.6% of revenue), resulting from the curtailment of the Company's Defined Benefit Plans.24 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) Vehicle depreciation and lease charges increased 0.3%6.7%, from $318.5$319.3 million to $319.3$340.7 million, compared to the same period in 1999.2000. As a percentage of revenue, vehicle depreciation and lease charges were 25.4% of revenue,27.6%, as compared to 26.4% of revenue25.4% for the corresponding period in 1999.2000. The change reflected a 1.8%0.9% increase in the average rental fleet combined with a lowerhigher average cost per vehicle. Selling, general and administrative expenses increased 1.9%1.3%, from $231.2$234.3 million to $235.6$237.3 million, compared to the same period in 1999. The increase was2000 due to a higher royalty feesgeneral corporate overhead allocation ($3.38.3 million), and higher marketinggeneral and administrative expenses ($2.0 million), and higher travel agency commissions expenses ($2.93.5 million), partially offset by lower generalmarketing and administrative expenses ($3.5 million). Fleetadvertising spending. Vehicle related interest expense increased 12.7%8.1%, from $99.9$107.2 million to $112.6$115.9 million, compared to the same period in 1999,2000 due to higher borrowings required to finance the growth of the rental fleet and higher average interest rates. Income before provision for income taxesWith the completion of the Avis acquisition on March 1, 2001, selected debt previously funded by third party providers is now being funded by Cendant Corporate. This change gives rise to the interest variance related to intercompany debt. Non-vehicle depreciation and amortization increased 48.9%13.5%, from $74.4$9.6 million to $110.7$10.9 million, compared to the same period in 1999.2000. The increase reflects higher revenueamortization of airport related leasehold improvements and lower costs and expenses as a percentage of revenue. VEHICLE LEASING AND OTHER FEE BASED SERVICES Revenue VMS' revenue increased 5.2%,equipment. PROVISION FOR INCOME TAXES The Company's consolidated provision for income taxes decreased from $811.9$39.6 million to $854.0a benefit of $1.0 million, compared to the same period in 1999. The increase consists of a 2.8% or $19.2 million increase in vehicle leasing revenue and a 18.4% or $22.9 million increase in other fee based revenue, compared to the same period in 1999. The increase in vehicle leasing revenue reflects a 2.1% increase in leased units and an increase in interest charges billed back to customers due to higher interest rates. The increase in other fee based revenue reflects solid growth in the three major fee based product lines: fuel, maintenance and accident management. Fuel revenue increased 32.1% reflecting an increase in outstanding fuel cards and higher fuel prices. Accident Management continued its strong growth as total revenue increased 17.8%. Total Costs and Expenses Total costs and expenses (including amortization of cost in excess of net assets acquired and non-vehicle depreciation and amortization) increased 2.8%, from $752.8 million to $774.2 million, compared to the same period in 1999. The increase was mainly due to $27.1 million of higher interest expense, resulting from higher interest rates, which for the most part, was billed back to customers. Income before provision for income taxes increased 35.1%, from $59.1 million to $79.8 million, compared to the same period in 1999. The increase reflects higher revenue and lower costs and expenses as a percentage of revenue. CORPORATE Corporate expenses primarily include interest expense and amortization of deferred financing costs related to the Company's Senior Subordinated Notes and Term loans which provided financing for the VMS acquisition (see Acquisition Financing contained in Note 7 of the notes to the condensed consolidated financial statements). Corporate expenses increased 3.9%, from $83.6 million to $86.9 million, compared to the same period in 1999, mainly due to $3.1 million increase in interest expense caused by higher interest rates. TOTAL AVIS GROUP HOLDINGS, INC. Provision for Income Taxes The Company's consolidated provision for income increased 74.0%, from $26.8 million to $46.7 million, compared to the same period in 1999.2000. The effective income tax rate for the periodsix months ended June 30, 20002001 was 45.0%53.8%, downup from 53.8%a provision of 45.5% for the corresponding period in 1999.2000. The decreaseincrease in the effective income tax rate was due primarily to an increasea decrease in income before provision for income taxes.taxes in relation to non-deductible goodwill. The effective tax rate reflects differences between foreign income tax rates and the U.S. federal statutory income tax rate, taxes on the repatriation of foreign earnings, and foreign withholding taxes on dividends paid to the Company. NET INCOME Net Income Consolidated net income increased 147.5 %,decreased from $23.0a profit of $47.4 million in 2000 to $57.0a loss of $0.9 million compared to the same period in 1999. The increase reflects higher revenue, decreased costs and expenses2001 as a percentageresult of a decrease in revenue combined with an increase in direct operating expenses, vehicle depreciation and a lower effective income tax rate.take lease charges, and vehicle interest. 25 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited)(CONTINUED) (UNAUDITED) HISTORICAL RESULTS OF OPERATIONS Historical Results of Operations for the Three Months Ended JuneFOR THE THREE MONTHS ENDED JUNE 30, 2000 Compared to Pro-forma Results of Operations for the Three Months Ended June2001 COMPARED TO PRO-FORMA RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 19992000. The following table sets forth for the periods indicated, certain items in the Company's condensed consolidated statement of operations (dollars in(in thousands):
Historical Pro-forma Three Months ended JuneHISTORICAL PRO-FORMA THREE MONTHS ENDED JUNE 30, 2001 THREE MONTHS ENDED JUNE 30, 2000 Three Months ended June 30, 1999 ------------------------------------------------- -------------------------------------------------- Vehicle Vehicle Leasing Total Leasing Total and Other Avis Group and Other Avis Group Vehicle Fee Based Holdings, Vehicle Fee Based Holdings, Rental Services Corporate Inc. Rental Services Corporate Inc.-------------------------------------- ------------------------------------- VEHICLE VEHICLE RENTAL CORPORATE TOTAL RENTAL CORPORATE TOTAL -------- --------- ------------ ---------- ------------- ---------- ------------- ---------- -------------------- -------- --------- -------- Revenue: Vehicle Rental................................................. $628,893 $ 666,597 $ 666,597 $ 637,457 $ 637,457 Vehicle Leasing............ $ 356,050 356,050 $ 346,411 346,411 Other fee based............ 73,821 73,821 63,626 63,626 --------- ------------ ------------- ---------- ------------- ------------ Total Revenue: 666,597 429,871 1,096,468 637,457 410,037 1,047,494 --------- ------------ ------------- ---------- ------------- ------------628,893 $666,597 $666,597 -------- -------- -------- -------- Costs and expenses: Direct operating........... 229,314 229,314 242,886 242,886operating .......................... 231,693 231,693 229,315 229,315 Vehicle depreciation and lease charges, net.......net ...................... 173,664 173,664 172,096 254,409 426,505 165,417 259,441 424,858172,096 Selling, general and administrative........... 120,203 65,989 186,192 120,381 64,948 185,329administrative .......................... 116,540 116,540 119,535 119,535 Vehicle interest, net ..................... 55,899 55,899 59,666 59,666 -------- -------- -------- -------- 577,796 577,796 580,612 580,612 -------- -------- -------- -------- Adjusted EBITDA ............................. 51,097 51,097 85,985 85,985 Interest net.............. 62,469 62,730 125,199 51,483 47,354on non-vehicle debt ................ 2,686 $ 500 99,337 --------- ------------ ---------- ------------- ---------- ------------- ---------- ------------ 584,082 383,128 967,210 580,167 371,743 500 952,410 --------- ------------- ---------- ------------- ---------- ------------- ---------- ------------ EBITDA....................... 82,515 46,743 129,258 57,290 38,294 (500) 95,0846,884 9,570 2,803 $ 9,875 12,678 Interest - acquisition debt.. $ 35,998 35,998 34,297 34,297on intercompany debt ............... 3,541 1,466 5,007 Amortization of cost in excess of net assets acquired.......acquired ..................... 2,894 4,746 7,640 3,122 1,727 6,913 11,762 3,177 1,971 6,614 11,7624,518 7,640 Non-vehicle depreciation and amortization............... 7,579 5,117 744 13,440 6,569 5,397 314 12,280 ---------- ------------ ---------- ------------- ---------- ------------- ---------- ------------amortization ............................ 5,228 5,228 4,830 4,830 -------- --------- -------- -------- --------- -------- Income (loss) before provision for income taxes..............taxes ........................ $ 71,81436,748 $ 39,899(13,096) 23,652 $ (43,655)75,230 $ 68,058 $ 47,544 $ 30,926 $(41,725) 36,745 ========== ============ ========== ========== ============= ==========(14,393) 60,837 ======== ========= ======== ========= Provision for income taxes... 30,626 18,296 ------------- ------------ Netincome....................taxes .................. 13,753 27,681 -------- -------- Net income .................................. $ 37,4329,899 $ 18,449 ============= ============33,156 ======== ========
VEHICLE RENTAL REVENUE Revenue Revenue increased 4.6%decreased 5.7%, from $637.5$666.6 million to $666.6$628.9 million, compared to the same period in 1999. The increase reflects overall market demand (3.0%) and the impact of two acquisitions completed in 1999: Rent-A-Car Company, Inc. on March 19, 1999 and Motorent, Inc. on June 30, 1999 (1.6% combined).2000. The revenue increasedecrease reflects a 4.4% increase5.7% decrease in the number of rental transactions and a 0.1% increase in revenue per rental transaction. Total Costs and Expensestransactions. COSTS AND EXPENSES Total costs and expenses (including interest on non-vehicle debt, interest on intercompany debt, amortization of cost in excess of net assets acquired and non-vehicle depreciation and amortization) increased 0.8%0.1%, from $589.9$591.4 million to $594.8$592.1 million, compared to the same period in 1999.2000. Direct operating expenses decreased 5.6%increased 1.1%, from $242.9$229.3 million to $229.3$231.7 million, compared to the same period in 1999.2000. As a percentage of revenue, direct operating expenses declinedwere 36.8%, as compared to 34.4%, from 38.1% for the corresponding period in 1999.2000. The reductionincrease was due primarily from lower maintenance and damageto higher computer services costs (0.7%(0.9% of revenue), lower airport commissions (1.9% and higher salary and wage expense (0.6% of revenue). Vehicle depreciation and lease charges increased 0.9%, from $172.1 million to $173.7 million, compared to the same period in 2000. As a percentage of revenue, vehicle depreciation and lease charges were 27.6% of revenue, as compared to 25.8% of revenue for the corresponding period in 2000. The change reflected a 3.9% decrease in the average rental fleet offset by a higher cost per vehicle. Selling, general and administrative expenses decreased 2.5%, from $119.5 million to $116.5 million, compared to the same period in 2000 due primarily to lower facility expense (0.4%)marketing and other operating cost savings (0.7%)advertising spending ($10.2 million), partially offset by a higher general corporate overhead allocation ($8.2 million). 26 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited)(CONTINUED) (UNAUDITED) Vehicle depreciation and lease charges increased 4.0%related interest expense decreased 6.4%, from $165.4$59.7 million to $172.1$55.9 million, compared to the same period in 1999. As2000, due to lower borrowings resulting from a percentagedecline in the rental fleet and lower average interest rates. With the completion of revenue, vehiclethe Avis acquisition on March 1, 2001, selected debt previously funded by third party providers is now being funded by Cendant Corporate. This change gives rise to the interest variance related to intercompany debt. Non-vehicle depreciation and lease charges were 25.8% of revenue, as compared to 25.9% of revenue for the corresponding period in 1999. The change reflected a 3.5% increase in the average rental fleet combined with a higher cost per vehicle. Selling, general and administrative expenses decreased 0.1%amortization increased 8.3%, from $120.4$4.8 million to $120.2$5.2 million, compared to the same period in 1999.2000. The decrease was due to lower generalincrease reflects higher amortization of airport related leasehold improvements and administrative expenses ($2.8 million) and lower reservation fees ($1.0 million), partially offset by higher royalty fees ($1.8 million) and higher travel agency commissions ($2.0 million). Fleet related interest expense increased 21.3%,equipment. PROVISION FOR INCOME TAXES The Company's consolidated provision for income taxes decreased from $51.5$27.7 million to $62.5$13.8 million, compared to the same period in 1999, due to higher borrowings required to finance the growth of the rental fleet and higher average interest rates. Income before provision for income taxes increased 51.0%, from $47.5 million to $71.8 million, compared to the same period in 1999. The increase reflects higher revenue and lower costs and expenses as a percentage of revenue. VEHICLE LEASING AND OTHER FEE BASED SERVICES Revenue VMS' revenues increased 4.8%, from $410.0 million to $429.9 million, compared to the same period in 1999. The increase consists of a $9.6 million increase in vehicle leasing revenue and a 16% or $10.2 million increase in other fee based revenue. The increase in vehicle leasing revenue reflects a 1.8 % increase in leased units and an increase in interest charges billed back to customers due to higher interest rates. The increase in other fee based revenue reflects solid growth in the three major fee based product lines: fuel, maintenance and accident management. Fuel revenue increased 29.9% reflecting an increase in outstanding fuel cards and higher fuel prices. Accident Management continued its strong growth as total revenue increased 26.2 %. Total Cost and Expenses Total costs and expenses (including amortization of cost in excess of net assets acquired and non-vehicle depreciation and amortization) increased 2.9%, from $379.1 million to $390.0 million, compared to the same period in 1999. The increase was mainly due to $15.4 million of higher interest expense, resulting from higher interest rates, which for the most part, was billed back to customers. Income before provision for income taxes increased 29.0%, from $30.9 million to $39.9 million, compared to the same period in 1999. The increase reflects higher revenue and lower costs and expenses as a percentage of revenue. CORPORATE Corporate expenses primarily include interest expense and amortization of deferred financing costs related to the Company's Senior Subordinated Notes and Term loans which provided financing for the VMS acquisition (see Note 7 of the notes to the condensed consolidated financial statements). Corporate expenses increased 4.6%, from $41.7 million to $43.7 million, compared to the same period in 1999, mainly due to $1.7 million increase in interest expense caused by higher interest rates. TOTAL AVIS GROUP HOLDINGS, INC. Provision for Income Taxes The Company's consolidated provision for income taxes increased 67.4%, from $18.3 million to $30.6 million, compared to the same period in 1999.2000. The effective income tax rate for the three months ended June 30, 2001 was 45.0%58.2%, downup from 49.8%45.5% for the corresponding period in 1999.2000. The decreaseincrease in the effective income tax rate was due primarily to an increasea decrease in income before provision for income taxes.taxes in relation to non-deductible goodwill. The effective tax rate reflects differences between foreign income tax rates and the U.S. federal statutory income tax rate, taxes on the repatriation of foreign earnings, and foreign withholding taxes on dividends paid to the Company. NET INCOME Net Income Consolidated net income increased 102.9%,decreased from $18.4a profit of $33.2 million for the three months ended June 30, 2000 to $37.4a profit of $9.9 million compared tofor the same period in 1999. The increase reflects higher revenue, decreased costs and expensesthree months ended June 30, 2001, as a percentageresult of a decrease in revenue combined with increases in direct operating expenses, vehicle depreciation and a lower effective income tax rate. Liquiditylease charges and Capital Resourcesnon-vehicle depreciation and amortization charges. LIQUIDITY AND CAPITAL RESOURCES The Company's operations are expected to be funded by cash provided by operating activities and by financing arrangements maintained by the Company in the markets in which it operates. The Company's primary use of funds will be for the acquisition of new vehicles and the repayment of the VMS acquisition indebtedness. For the sixfour months ended June 30, 2000,2001, the Company's expenditures for new vehicles were approximately $4.0$1.9 billion and proceeds from the disposition of used vehicles were approximately $2.4$1.5 billion. For 2000,2001, management expects the Company's expenditures for new vehicles (net of proceeds from the disposition of used vehicles) to be higher than in 1999.2000. Since the late 1980's, the Company has acquired vehicles related to its vehicle rental operations primarily pursuant to manufacturer repurchase programs. Repurchase prices under the repurchase programs are based on either (1) a specified percentage of original vehicle cost determined by the month the vehicle is returned to the manufacturer or (2) the original capitalization cost less a set daily depreciation amount (the "Repurchase Programs"). Repurchase Programs limit residual risk with respect to vehicles purchased under the programs. This enables management to better estimate depreciation expense in advance. VMS has historically not participated in Repurchase Programs and the Company does not expect it to do so in the future. Generally, customers with open-end leases, which make up approximately 85% of VMS' lease portfolio, bear the residual risk with respect to their vehicles. For closed-end leases, which make up approximately 15% of VMS' lease portfolio, VMS bears the residual risk. The Company has established methods for disposition of used vehicles that are not covered by Repurchase Programs. Historically, the Company's financing requirements for rental vehicles have typically reached an annual peak during the second and third calendar quarters, as fleet levels build in response to increased rental demand during that period. The typical low point for cash requirements occurs during the end of the fourth quarter and the beginning of the first quarter, coinciding with lower levels of vehicle and rental demand. Management expects that this pattern will continue with the addition of VMS, whose cash requirements have historically been relatively consistent over the course of a given year.continue. Management expects that cash flows from operations and funds from available credit facilities will be sufficient to meet the Company's anticipated cash requirements for operating purposes for the next twelve months. Trade receivables, from vehicle rental operations, also provide liquidity with approximately 1111.2 days of daily sales outstanding. The CompanyCompany's vehicle rental operations made capital investments for property improvements totaling $28.8$20.7 million and $19.4 million for the six months ended June 30, 2000.2001 and 2000, respectively. The Company has an interest rate management policy, including a target mix for average fixed rate and floating rate indebtedness on a consolidated basis. However, an increase in interest rates may have a material adverse impact on the Company's profitability. Vehicle Rental27 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) VEHICLE RENTAL ABS FacilityFACILITY To support vehicle rental operations, the Company has a domestic integrated financing program that as of June 30, 20002001 provides for up to $4.0$4.45 billion in financing for vehicles covered by Repurchase Programs, with up to 25% of the asset-backed securities facility ("ABS"ABS Facility") Facility available for vehicles not covered by Repurchase Programs. The ABS Facility provides for the issuance of up to $1.5$0.5 billion of asset backedasset-backed variable funding notes (the "Variable Funding Notes") and $2.5$3.95 billion of asset-backed medium term notes are outstanding under the ABS Facility (the "Medium Term Notes"). The Variable Funding Notes and the Medium Term Notes are indirectly secured by, among other things, a first priority security interest in the Company's rental fleet. The Variable Funding Notes support the issuance by a special purpose company of commercial paper notes that are rated A-1 by Standard & Poor's Ratings Services ("S&P") and P-1 by Moody's Investors Service, Inc. ("Moody's"). The Medium Term Notes are guaranteed under a surety bond issued by either MBIA andor AMBAC Assurance and as a result are rated AAA by S&P and Aaa by Moody's. At June 30, 2000,2001, the Company had approximately $3.8$3.77 billion of debt outstanding under the ABS Facility and had approximately $175$680 million of additional credit available for rental vehicle purchases. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) Based on current market conditions and the Company's current banking relationships, management expects to fund maturities of the Medium Term Notes either by the issuance of new medium term notes or an increase in the outstanding principal amount of the Variable Funding Notes depending on market conditions at the time the Medium Term Notes mature. However, management cannot be sure that this will occur. On May 1, 2000,March 2, 2001, one of the Company's vehicle rental financing subsidiaries issued $250$750 million of Series 2000-12001-1 Floating Rate Rental Car Asset-BackedAsset Backed Notes (Series 2000-1 Notes)("Series 2001-1 Notes"). The notesSeries 2001-1 Notes are secured by the Company's vehicles. Anticipated principal repayment on the Series 2001-1 Notes commence on FebruaryNovember 2003 through July 2003.April 2004. The interest rate with respect to the Series 2000-12001-1 Notes will beis equal to LIBOR plus 1920 basis points per annum. The Series 2000-12001-1 Notes are guaranteed under a Surety Bond issued to MBIA and are rated AAA by Standard an Poors and Aaa by Moody's. The Series 2001-1 Notes rank pari pasu with the Company's variable funding notes and the medium term notes. On May 17, 2001, one of the Company's vehicle rental financing subsidiaries issued $125 million of Series 2001-2 Auction Rate Notes (the "Series 2001-2 Notes"). The Series 2001-2 Notes are secured by the Company's vehicles. The Series 2001-2 Notes were issued in four classes, Class A-1, A-2, A-3, and A-4 with initial issuances of $95 million, $10 million, $10 million and $10 million, respectively. Subsequent to the initial issuance of $125 million auction rate notes, the Company issued $65 million of additonal notes which brought the total outstanding series 2001-2 notes to $190 million at June 30, 2001. The Company may issue up to $125 million of Auction Rate Notes per class or $500 million in total. The interest rate on each class will be a market derived rate determined by auction with auctions expected to occur every 35 days. Anticipated principal repayment on the Series 2001-2 Notes is May 2007. The 2001-2 Notes are guaranteed under a Suerty Bond issued by AMBACAmbac and are rated AAA by Standards and PoorStandard & Poor's Rating Services and Aaa by Moody's.Moody' Investors Service, Inc. The Series 2000-12001-2 Notes rank pari pasupassu with the Company's Variable Funding NoteNotes and the Medium Term Notes described above. On May 22, 2000, one ofNotes. REVOLVING CREDIT FACILITY The Company is party to a Revolving Credit Facility which provides borrowings up to $450 million which may be used for credit enhancement for the Company's vehicle rental financing subsidiaries issued $300 million of Series 2000-2 Floating Rate Rental Car Asset Backed Notes (Series 2000-2 Notes). These notes were issued as a paired series with the Series 1997-1A Asset-Backed Medium Term Notes, with the proceeds from this series used to fund the scheduled amortization of the Series 1997-1A notes. The notes are secured by the Company's vehicles. Anticipated principal repayment on the Notes commence on March 2007 through August 2007. The interest rate with respect to the Series 2000-2 Notes will be equal to LIBOR plus 34 basis points per annum. The Series 2000-2 Notes are guaranteed under a Suerty Bond issued by AMBAC and are rated AAA by Standards and Poor and Aaa by Moody's. The Series 2000-2 Notes rank pari pasu with the Variable Funding Note and the Medium Term Notes described above. Vehicle Leasing ABS Facilities VMS-U.S currently has a $3.0 billion lease financing program (the "Vehicle Leasing ABS Facility") supported by the leases and vehicles owned by VMS-U.S. The Vehicle Leasing ABS facility consists of two classes of floating rate asset-backed notes; Class A-1 notes, which total $550 million and Class A-2, which total $450 million. Both classes of notes have an interest rate, which is reset monthly at LIBOR plus 32 basis points for the Class A-1 notes and 35 basis points for the Class A-2 notes. The Class A-1 notes have an average expected life of 2 years and commence amortizing on March 2001 with a final stated maturity of October 2006. The Class A-2 notes have an average expected life of 3 years and commence amortizing when the Class A-2 are repaid in full. The Class A-2 notes have a final stated maturity of October 2011. Both classes of notes are rated AAA by S&P and Aaa by Moody's. In addition to the floating rate asset-backed notes, the Company may issue up to $1.75 billion Variable Funding Investor Notes to a group of multi-seller commercial paper conduits.program and for general corporate purposes. At June 30, 2000,2001, due to letters of credit outstanding, $368.7 million was available under this facility. This facility expires in June 30, 2005. During the quarter, the Company had two series of Preferred Membership Interestrepaid its outstanding which total $99.3 million. Preferred Membership Interest are financial instruments issued byborrowings under the Revolving Credit Facility. The Company presently relies on Cendant to fund its working capital needs. The intercompany borrowings bear interest at a market rate based on LIBOR. On June 29, 2001, Cendant made a capital contribution to the Company to third parties in connection with the VMS vehicle financing. VMS-U.K. currently has a $838by forgiving $125 million asset-backed facility (the "U.K. ABS Facility") which is supported by the leases, vehicles and fuel card receivables of the various VMS-U.K. entities. The U.K. ABS Facility is funded through a group of multi-seller commercial paper conduits.intercompany debt. As of June 30, 2000 there was $7952001, $143.6 million outstanding under this facility, which is includedof borrowings are related to working capital and $380 million are long-term in Assets Held for Sale, net onnature and are related to the accompanying Statementacquisition of Financial Position (see Note 5).the Company by Cendant. 28 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) OTHER FACILITIES Borrowings for the Company's other international operations consist mainly of loans obtained from local and international banks. All borrowings for international operations are in the local currencies of the countries in which those operations are conducted. The Company guarantees only the borrowings of its subsidiarycar rental subsidiaries in Argentina and Puerto Rico which had combined outstanding debt of $2.8$8.1 million at June 30, 2000.2001. At June 30, 2000,2001, the total debt for the Company's other international operations iswas approximately $270$214.9 million. The impact on the Company's liquidity and financial condition due to the exchange rate fluctuations of the Company's foreign operations is not expected to be material. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) Acquisition Financing The CompanyPARENT COMPANY TRANSACTION On June 29, 2001, one of the Company's vehicle financing subsidiaries amended its loan agreements to allow Cendant to borrow $155 million of its restricted cash. In turn, Cendant provided a demand note to the subsidiary and secured the demand note with letters of credit. RECENT ACCOUNTING STANDARDS Recent pronouncements of the Financial Accounting Standards Board which are not required to be adopted at this date is partyStatement of Financial Accounting Standards ("SFAS") SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby prohibiting the use of the pooling-of-interests method, and additional disclosures regarding the primary reasons for a business combination, the allocation of the purchase price paid to a credit agreement (the " Credit Facility") which provides for up to $1.35 billion of borrowings in the form of (1) A Revolving Credit Facility inassets acquired and liabilities assumed by major balance sheet caption and other information about goodwill and intangible assets when the amount of upthese assets are material. Additionally, this statement provides new criteria, which applies to $350.0 million, (2)business combinations completed after June 30, 2001, to determine which acquired intangible assets should be recognized separately from goodwill. Those intangible assets, recognized separately from goodwill, will be amortized over their estimated useful lives. SFAS No. 142 requires that goodwill and certain intangible assets, acquired in transactions completed after June 30, 2001, no longer be subject to amortization over their estimated useful lives. The Company will be required to assess these assets for potential impairment periodically, and more frequently if circumstances indicate a $250.0 million Term A Loan, (3) a $375.0 million Term B Loanpossible impairment. The statement also requires the Company to continue to amortize goodwill and (4) a $375.0 million Term C Loan. Upon consummationcertain intangible assets existing at June 30, 2001 through December 31, 2001. The provisions of the VMS Acquisition, Avis borrowedstatement are required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized in the Company's balance sheet at the date, regardless of when those assets were initially recognized. During the four months ended June 30, 2001, the Company recorded amortization expense related to these assets of $10.5 million. During the two months ended February 28, 2001, and the years ended December 31, 2000 and December 31, 1999 amortization expense related to the intangible assets of the predecessor company excluding the discontinued operation was $2.1 million, $12.5 million, and $12.6 million, respectively. The estimated impact on net income for 2002 with respect to goodwill and certain other intangible assets that will no longer be subject to amortization is expected to be $32.5 million ($31.8 million, after tax) based upon existing goodwill and other intangible assets as of June 30, 1999, the full $1.0 billion under the Term A Loan, Term B Loan and Term C Loan and $73.0 million under the Revolving Credit Facility. As of June 30, 2000, there is $60.0 million outstanding under the Revolving Credit Facility, $242.5 million under Term Loan A and $374.5 million outstanding under each of Term Loans B and C. The loans under the Credit Facility bear interest at variable rates at fixed margin, above either Chase Manhattan Bank's alternative base rate or the Eurodollar rate. The Credit Facility is guaranteed by each U.S subsidiary of Avis Group Holdings, Inc., but excluding any insurance subsidiaries, banking subsidiaries, and securitization or other vehicle financing subsidiaries. All borrowings by the Company under the Credit Facility are secured by a first-priority perfected lien on substantially all of the tangible and intangible assets of the Company and each guarantor under the Credit Facility excluding assets that secure the ABS Facilities, and by a pledge of all the capital stock of each of Avis Group Holdings, Inc.'s U.S. subsidiaries and 65% of the capital stock of its first tier non-U.S. subsidiaries. In addition, in connection with the VMS acquisition, the Company issued Senior Subordinated Notes (the "Notes") which mature in 2009. Avis Group Holdings, Inc.'s obligation under the Notes are subordinate and junior in right of payment in all existing and future senior indebtedness of the Company, including all indebtedness under the New Credit Facility. The obligations of the Company under the Notes and the Indenture are guaranteed on a senior subordinated basis by each of the Company's U.S. subsidiaries, other than its banking subsidiaries, insurance subsidiaries and securitization and other vehicle financing subsidiaries which have not guaranteed senior indebtedness of the Company. The Credit Facility and the Indenture contain numerous financing and operating covenants that limit the discretion of the Company's management with respect to certain business matters. Under terms of the credit agreement with the Company's lenders, approximately $800 million of the net proceeds from the sale of PHH Europe will be used to reduce the Company's acquisition financing (see Note 5). These covenants place significant restrictions on, among other things, the ability of the Company and certain of its subsidiaries to incur additional indebtedness, pay dividends and other distributions, prepay subordinated indebtedness, create liens or other encumbrances, make capital expenditures, make certain investments or acquisitions, engage in certain transactions with affiliates, sell or otherwise dispose of assets and merge with other entities and otherwise restrict corporate activities. The Credit Facility and the Indenture contain customary events of default. As of June 30, 2000, the Company was in compliance with all such covenants. Seasonality2001. SEASONALITY The Company's vehicle rental business is seasonal, with decreased travel in winter months and heightened activity in spring and summer. To accommodate increased demand, the Company increases its available fleet during the second and third quarters. Since VMS' business is generally not seasonal, these patterns of seasonality are expected to continue. Certain of the Company's operating expenses are fixed and cannot be reduced during periods of decreased rental demand. In certain geographic markets, the impact of seasonality has been reduced by emphasizing leisure or business travel in the off-peak season. InflationINFLATION The increased acquisition cost of vehicles is the primary inflationary factor affecting the Company's operations. Many of the Company's other operating expenses are inflation sensitive, with increases in inflation generally resulting in increased costs of operations. The effect of inflation-driven cost increases on the Company's overall operating costs is not expected to be greater for the Company than for its competitors. Recent Accounting Standards A recent pronouncement of the Financial Accounting Standards Board which is not required to be adopted at this date, is Statement of Financial Accounting Standards ("SFAS") No. 133 - "Accounting for Derivative Instruments and Hedging Activities", ("SFAS 133") which is effective for the Company's consolidated financial statements for the year ending December 31, 2001. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position at fair value. The adoption of SFAS 133 is not expected to have a material effect on the Company's consolidated financial statements. Forward Looking InformationFORWARD LOOKING INFORMATION Certain matters discussed in this report that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of 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 in the Company's publicly-filed documents, including its Annual Report on Form 10-K for the period ended December 31, 1999.2000. Actual results may differ materially from those projected. These forward-looking statements represent the Company's judgement as of the date of this report. 29 ITEM 3: QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS Quantitative and Qualitative Financial Disclosures About Market RiskQUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISK The Company has derivative financial instruments at June 30, 20002001 that are sensitive to changes on its debt obligations and on its interest rate swap agreements. The following derivative instruments' agreements have been entered into by the Company: (a) In order to reduce its risk from interest rate fluctuations under its asset backed debt, one of the CompanyCompany's vehicle rental financing subsidiaries has entered into six domestic interest rate cap and interest rate floor agreements with durationdurations of 10 years, respectively.up to 6 years. The agreements have a notional value of $2.5 billion, and establishes the domestic interest rate cap and interest rate floor agreements have notional values of $526.9 million and $366.6 million, respectively. The agreements established the domestic and foreign interest rate ceiling and floor on asset-backed vehicle financing of 6.13% and 5.0%, respectively.either 7% or 7.5%. Offsetting interest rate cap agreements with a notional value of $2.5 billion have been sold in order to reduce the cost of acquiring the cap agreements. (b) The Company has also entered in U.Sinto eight U.S. and Foreign Interest Rateforeign interest rate swap agreements. Swap Agreements,agreements which effectively convert floating rates of interest to fixed rates of interest. At June 30, 2000, these swap agreementsinterest on the Company's debt have an aggregate notional value of $1,410.5 million$2.3 billion and terminate through May 2005. (c) Depending on market fundamentals of the price of gasoline and other conditions, the Company may purchase put options to reduce or eliminate the risk of gasoline price declines. Put options purchased by the Company effectively establish a minimum sales transaction fee for the volume of gasoline purchased on the Company's programs. An increase in the value of the options is highly correlated to decreases in the average price of gasoline purchased by the Company's cardholders. Put options permit the Company to participate in price increases above the option price. The cost of an option is amortized in the month the option expires. Gains from the sale or exercise of options are recognized when the underlying option is sold. At JuneNovember 2004. 30 2000, the total contract amount of such options was 25.7 million gallons of gasoline and the unamortized cost of options was $277 thousand and is included in other assets in the Company's consolidated statement of financial position. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Avis Group Holdings, Inc. -------------------------- (Registrant) Dated: August 9, 200014, 2001 By: /s/ Kevin M. Sheehan ----------------------------- President-Corporate and Business Affairs and Chief---------------------------------------- Executive Vice President (Principal Financial Officer (principal financial officer)Officer) Dated: August 9, 200014, 2001 By: /s/ Timothy M. Shanley -----------------------------Kurt Freudenberg ---------------------------------------- Senior Vice President and Controller (principal accounting officer) Part II. Other Information ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of the Company's stockholder's was held on May 16, 2000. The following matters were submitted to a vote of the stockholders as was described in the Company's Proxy Statement, which was filed together with the Company's Annual Report on Form 10-K dated April 14, 2000: 1) To elect eleven directors for a one-year term and until their successors are duly elected and qualified; 2) To ratify the appointment of Deloitte & Touche LLP as the auditors of the Company's financial statements for the year ending December 31 2000; 3) To approve the amendment to the Company's Amended and Restated Certificate of Incorporation to (I) reclassify the Company's 100,000,000 shares of authorized Common Stock as a Class A Common Stock and (ii) authorize 15,000,000 shares of non-voting Class B Common Stock which may be converted into Class A Common Stock under certain circumstances; 4) To approve the Company's 2000 Incentive Compensation Plan ITEM: 6(a) EXHIBITS SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Exhibits filed with Form 10-Q for the quarter ended June 30, 2000 under the Securities Exchange Act of 1934. AVIS GROUP HOLDINGS, INC. Commission file number 1-13315 EXHIBIT INDEX Exhibit No. Description Page No - -------- ---------------------------------------- -------- 27 Financial Data Schedule for 28 the Six months ended June 30, 2000 ITEM: 6(b) CURRENT REPORTREPORTS ON FORM 8-K On July 14, 2000,April 2, 2001, Avis Group Holdings, Inc. entered into a supplemental indenture which released Avis Fleet Leasing and Management Corp. and its subsidiaries as guarantors under the Company filed a Form 8-K thatCompany's indenture dated June 30, 1999 which was entered into in connection with the approvalissuance of it's Boardits 11% Senior Subordinated Notes due 2009 (original principal value of Director's and it's stockholders, giving notification that it had reclassified its existing Common Stock as Class A Common Stock.$500 million). 32