-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HRu/rUdAQI8mwsa7P93JmD6x8VKOHVsUByetiXBo3sgsNMC6NjOKGu9GoErbdVbc 411nM7JvkbW5JbJszTxtmw== /in/edgar/work/0001040445-00-000046/0001040445-00-000046.txt : 20001115 0001040445-00-000046.hdr.sgml : 20001115 ACCESSION NUMBER: 0001040445-00-000046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIS GROUP HOLDINGS INC CENTRAL INDEX KEY: 0001040445 STANDARD INDUSTRIAL CLASSIFICATION: [7510 ] IRS NUMBER: 113347585 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13315 FILM NUMBER: 766037 BUSINESS ADDRESS: STREET 1: 900 OLD COUNTRY ROAD CITY: GARDEN CITY STATE: NY ZIP: 11530 BUSINESS PHONE: 5162223000 MAIL ADDRESS: STREET 1: 900 OLD COUNTRY RD CITY: GARDEN CITY STATE: NY ZIP: 11530 FORMER COMPANY: FORMER CONFORMED NAME: AVIS RENT A CAR INC DATE OF NAME CHANGE: 19970604 10-Q 1 0001.txt THIRD QUARTER REPORT FOR AVIS GROUP HOLDINGS, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q For the quarterly period ended September 30, 2000 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission file number: 1-13315 AVIS GROUP HOLDINGS, INC. (Exact Name Of Registrant As Specified In Its Charter) DELAWARE 11-3347585 (State of Incorporation) (I.R.S. Employer Identification No.) 900 Old Country Road,Garden City, New York, 11530 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (516) 222-3000 Not Applicable (Former name, former address and former fiscal year, If changed since last report.) Indicate by check mark whether the registrant: (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 No Indicate the number of shares outstanding of each of the registrant's classes of common stock as of November 13, 2000: Common Stock, $0.1 par value - Class A 31,147,192 shares. AVIS GROUP HOLDINGS, INC. INDEX PART I. Financial Information ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: Page Consolidated Statements of: Operations for the three months and nine months ended September 30, 2000 and 1999...................................1 Financial Position as of September 30, 2000 and December 31, 1999.........................................2 Cash Flows for the nine months ended September 30, 2000 and 1999...................................3 Notes to the Condensed Consolidated Financial Statements .........................................4-17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................18-27 ITEM 3. QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS...........................................28 PART II. Other ITEM 6(a). EXHIBITS........................................................30 ITEM 6(b). REPORT ON FORM 8-K .............................................30 AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three months ended Nine months ended September 30, September 30, ------------------------ -------------------------- 2000 1999 2000 1999 ---------- ---------- ------------ ----------- Revenue: Vehicle rental.............................. $ 733,694 $ 709,555 $ 1,989,167 $ 1,913,929 Vehicle leasing and other fee based......... 396,581 413,263 1,250,609 413,263 ---------- ---------- ------------ ----------- 1,130,275 1,122,818 3,239,776 2,327,192 ---------- ---------- ------------ ----------- Costs and expenses: Direct operating, net....................... 259,573 263,123 715,581 724,843 Vehicle depreciation and lease charges, net. 446,464 442,458 1,273,966 760,929 Selling, general and administrative......... 171,478 177,119 537,753 408,301 Interest, net............................... 146,776 145,348 452,770 245,273 Non-vehicle depreciation and amortization .. 10,873 11,019 37,332 23,370 Amortization of cost in excess of net assets acquired ...................... 10,203 11,977 33,797 18,328 ---------- ---------- ------------ ----------- 1,045,367 1,051,044 3,051,199 2,181,044 ---------- ---------- ------------ ----------- Income before provision for income taxes ... 84,908 71,774 188,577 146,148 Provision for income taxes.................. 36,511 32,399 83,162 64,305 ---------- ---------- ------------ ----------- Net income.................................. 48,397 39,375 105,415 81,843 Preferred stock dividend.................... 4,783 4,555 14,118 4,555 ---------- ---------- ------------ ----------- Earnings applicable to common stockholders.. $ 43,614 $ 34,820 $ 91,297 $ 77,288 ========== ========== ============ =========== Earnings per share: Basic....................................... $ 1.40 $ 1.12 $ 2.93 $ 2.46 ========== ========== ============ =========== Diluted .................................... $ 1.36 $ 1.10 $ 2.89 $ 2.40 ========== ========== ============ ===========
See notes to the condensed consolidated financial statements. AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In thousands)
September 30, December 31, 2000 1999 ------------- ------------- (Unaudited) ASSETS Cash and cash equivalents............................. $ 57,911 $ 71,697 Cash held on deposit with financial institution....... 48,046 93,530 Restricted cash....................................... 235,799 253,080 Accounts receivable, net.............................. 884,087 1,115,740 Prepaid expenses...................................... 66,550 64,316 Finance lease receivables............................. 177,379 871,034 Vehicles, net-rental.................................. 4,009,732 3,367,362 Vehicles, net-leasing................................. 3,013,687 3,134,009 Property and equipment, net........................... 188,307 197,827 Investment in PHH/Arval joint venture................. 181,204 Other assets.......................................... 108,633 115,273 Cost in excess of net assets acquired, net............ 1,299,124 1,794,390 ------------- ------------- Total assets....................................... $ 10,270,459 $ 11,078,258 ============= ============= LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Accounts payable...................................... $ 550,179 $ 588,377 Accrued liabilities .................................. 378,077 369,453 Due to affiliates, net................................ 32,718 59,396 Current income tax liabilities........................ 25,807 18,226 Deferred income tax liabilities, net ................. 444,984 181,256 Public liability, property damage and other insurance liabilities, net .................. 256,435 259,756 Vehicle debt.......................................... 6,854,158 6,969,805 Acquisition debt ..................................... 500,000 1,500,000 Minority interest (preferred membership interest)..... 99,305 99,305 ------------- ------------- Total liabilities..................................... 9,141,663 10,045,574 ------------- ------------- Commitments and contingencies Preferred Stock of a subsidiary: Class A Preferred stock .............................. 360,000 360,000 Class B Preferred stock............................... 22,953 9,000 Class C Preferred stock............................... 2,000 2,000 ------------- ------------- Total preferred stock of a subsidiary............ 384,953 371,000 ------------- ------------- Common stockholders' equity: Class A Common stock ................................. 359 359 Additional paid-in capital ........................... 593,151 593,106 Retained earnings..................................... 266,987 175,690 Accumulated other comprehensive loss (13,157) (3,639) Treasury stock ....................................... (103,497) (103,832) ------------- ------------- Total common stockholders' equity................ 743,843 661,684 ------------- ------------- Total liabilities, preferred stock and common stockholders' equity .......................... $ 10,270,459 $ 11,078,258 ============= =============
See notes to the condensed consolidated financial statements. AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine months ended September 30, ---------------------------------- 2000 1999 ------------- ------------- Cash flows from operating activities: Net income .......................................... $ 105,415 $ 81,843 Adjustments to reconcile net income to net cash provided by operating activities ........... 1,260,561 581,623 ------------- ------------- Net cash provided by operating activities.......... 1,365,976 663,466 ------------- ------------- Cash flows from investing activities: Payments for vehicle additions .................... (5,692,115) (3,650,923) Vehicle deletions ................................. 3,677,112 2,669,166 Increase in finance lease receivables.............. (50,631) (85,569) Payments for property and equipment................ (41,011) (35,022) Retirements of property and equipment ............. 9,378 3,742 Proceeds from the sale of 80% of PHH Europe, net of cash disposed of $104,765....................... 695,684 Settlement of PHH Europe intercompany accounts..... 225,819 Dividend from the PHH/Arval Joint Venture.......... 32,426 Payments for purchase of rental car franchise licensees, net of cash acquired of $14,208 in 1999......... (45,192) Payment for purchase of PHH Holdings, net of cash acquired of $170,568 in 1999............... (1,348,530) ------------- ------------- Net cash used in investing activities ............. (1,143,338) (2,492,328) ------------- ------------- Cash flows from financing activities: Changes in debt: Proceeds .......................................... 2,442,104 2,538,000 Repayment of acquisition and other debt from the proceeds of the sale of 80% of PHH Europe........ (1,054,437) Repayments ........................................ (1,652,067) (479,452) ------------- ------------- Net (decrease) increase in debt ................... (264,400) 2,058,548 Payments for debt issuance costs ............... (17,280) (1,640) Purchases of treasury stock........................ (57,237) Other.............................................. 162 3,349 ------------- ------------- Net cash (used in) provided by financing activities (281,518) 2,003,020 ------------- ------------- Effect of exchange rate changes on cash ........... (390) 2,612 ------------- ------------- Net (decrease) increase in cash and cash equivalents (59,270) 176,770 Cash and cash equivalents and cash held on deposit with financial institution at beginning of period .... 165,227 29,751 ------------- ------------- Cash and cash equivalents and cash held on deposit with financial institution at end of period ..... $ 105,957 $ 206,521 ============= ============= Supplemental disclosure of cash flow information: Cash interest paid................................. $ 431,369 $ 173,600 ============= ============= Cash income taxes paid ............................ $ 30,499 $ 14,835 ============= ============= Business disposed in August 2000: Assets disposed.................................... $ 1,731,488 ------------- Liabilities disposed............................... 1,035,804 ------------- Proceeds received from the sale of 80% of PHH Europe, net of cash disposed of $104,765................ $ 695,684 ============= Businesses acquired in 1999: Fair value of assets acquired, net of cash acquired of $184,776...................................... $ 6,127,678 Liabilities assumed................................ 4,371,956 ------------- Net assets acquired................................ 1,755,722 Less: issuance of Series A and Series C Preferred Stocks........................................... (362,000) ------------- Net cash paid for acquisitions....................... $ 1,393,722 =============
See notes to the condensed consolidated financial statements. AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1- Basis of Presentation The accompanying unaudited condensed consolidated financial statements include Avis Group Holdings, Inc. and its subsidiaries (the "Company" or "Avis Group."). These 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 statements 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") through August 9, 2000 (see Note 6), and of Wright Express LLC (collectively "VMS") which were acquired on June 30, 1999. The consolidated statements of financial position also include all of the assets and liabilities of Rent A Car Incorporated ("Rent-A-Car, Inc.") and Motorent, Inc. ("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 August 24, 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 8). 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 - Class B Common Stock At the Company's meeting of shareholders on May 6, 2000, the Company's shareholders approved a revision to the Company's charter to issue 15,000,000 shares of non-voting Class B Common Stock. The Class B Common Shares will be issued upon the conversion of Series A Preferred Stock or Series B Preferred Stock of PHH Leasing and Management, Inc., a subsidiary of the Company. Holders of Series A and B Preferred Stock may convert their shares into Class B Common Stock of the Company if certain financial goals are attained or upon the occurrence of certain events. The Class B Common Stock ranks (1) junior to any class or series of preferred stock of the Company and (2) pari passu with the Class A Common Stock in right of payment of dividends and upon liquidation. Note 4- Earnings Per Share Basic earnings per share is computed by dividing earnings applicable to common stockholders for the three months ended September 30, 2000 and 1999 by 31,138,079 and 31,129,164 weighted average shares outstanding, respectively, and for the nine months ended September 30, 2000 and 1999 by 31,133,834 and 31,394,335 weighted average shares outstanding, respectively. Diluted earnings per share is computed by dividing earnings applicable to common stockholders for the three months ended September 30, 2000 and 1999 by 32,150,494 and 31,760,213 weighted average shares outstanding, respectively, and for the nine months ended September 30, 2000 and 1999 by 31,609,275 and 32,172,196 weighted average shares outstanding, respectively. Shares used in calculating diluted earnings per share include the effects of the assumed exercise of stock options. AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 5 - Acquisitions On June 30, 1999, the Company acquired VMS for $1.8 billion and refinanced VMS indebtedness of approximately $3.5 billion (the "VMS Acquisition"). The acquisition financing included borrowings by the Company 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. The $1.0 billion of term loans were repaid in August 2000 in connection with the sale of 80% of PHH Europe (Note 6). On March 19, 1999 and June 30, 1999, the Company purchased Rent-A-Car, Inc. and Motorent, respectively, using internally generated funds for approximately $59.4 million. The combined purchase cost allocation for the Company's acquisitions of VMS, Rent-A-Car, Inc. and Motorent are as follows (in thousands): Purchase cost....................................... $ 1,917,949 ----------- Fair value of: Assets acquired................................ 4,806,414 Liabilities assumed............................ 4,281,177 ----------- Net assets 525,237 ----------- Cost in excess of net assets acquired............... $ 1,392,712 =========== 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. The following unaudited pro forma information presents the results of operations of the Company as if the acquisition of VMS for $1.8 billion (including the issuance of Series A and Series C Preferred Stock) and the refinancing of VMS indebtedness and related adjustments had taken place on January 1, 1999 (in thousands, except share data):
Three months Nine months ended ended September 30, 1999 September 30, 1999 ------------------- ------------------- Revenue......................................... $ 1,055,174 $ 2,945,609 ============ ============= Income before provision for income taxes........ $ 71,774 $ 121,616 ============ ============= Net income...................................... $ 39,375 $ 62,413 ============ ============= Preferred stock dividends....................... $ 4,555 $ 13,665 ============ ============= Earnings applicable to common stockholders...... $ 34,820 $ 48,748 ============ ============= Earnings per share: Basic........................................... $ 1.12 $ 1.55 ============ ============= Diluted......................................... $ 1.10 $ 1.52 ============ =============
If the acquisitions of Rent-A-Car, Inc. and Motorent had occurred on January 1, 1999, they would not have had a material impact on the results of operations for the three and nine months ended September 30, 1999. AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 6 - Formation of Joint Venture On August 9, 2000, the Company announced that it had completed its transaction with BNP Paribas ("BNP") to form a joint venture company that owns PHH Europe and, within one year, will merge with BNP's vehicle management subsidiary, Arval Service Lease S.A. ("Arval"). As part of the transaction, BNP acquired an 80% interest in the joint venture, with the Company retaining a 20% interest. The Company received $800 million in cash and had its intercompany indebtedness with PHH Europe repaid. PHH Europe, with 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. Accordingly, the Company's 20% investment in the joint venture is reported as Investment in PHH/Arval Joint Venture in the accompanying statement of financial position at September 30, 2000 and earnings of the joint venture are included in the statement of operations on the equity method. The difference between the carrying value of the net assets of PHH Europe and the proceeds from the sale have been accounted for as a reduction of cost in excess of net assets acquired relating to the VMS Acquisition. The revenue and net income of PHH Europe included in the statement of operations for the nine months ended September 30, 2000 and 1999 are (in thousands): Nine Months ended September 30, 2000 1999 ---------- -------- Revenue $ 158,939 $ 67,644 ========== ======== Net Income $ 27,589 $ 9,866 ========== ======== The revenue and net income of PHH Europe for the periods presented above includes the results of operations of PHH Europe from the date of acquisition (June 30, 1999) through July 31, 2000 (formation of Joint Venture). PHH/Arval is an unlimited liability company organized under the laws of the United Kingdom. A subsidiary of the Company which owns 20% of PHH/Arval, is liable under the laws of the United Kingdom for all the obligations of PHH/Arval upon its liquidation which remain after the assets of PHH/Arval are sold. PHH/Arval incurred a loan of approximately $800 million to complete the BNP Paribas transaction. The Company's subsidiary is liable for the loan to the extent PHH/Arval does not have sufficient assets to repay the loan upon its liquidation. A newly formed subsidiary of the Company has guaranteed its subsidiary's liability under the loan. Note 7- Comprehensive Income Comprehensive income is comprised of the following (in thousands):
Three months ended Nine months ended September 30, September 30, -------------------- ----------------------- 2000 1999 2000 1999 --------- -------- ---------- ---------- Net income.................................................. $ 48,397 $ 39,375 $ 105,415 $ 81,843 Foreign currency translation adjustment, net of income taxes 204 7,351 (27,616) 10,031 Reversal of the accumulated foreign currency translation adjustment, net of tax, related to the sale of 80% of PHH Europe (see Note 6)..................................... 18,098 18,098 --------- -------- ---------- ---------- Comprehensive income........................................ $ 66,699 $ 46,726 $ 95,897 $ 91,874 ========= ======== ========== ==========
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 8- Financing and Debt Debt outstanding at September 30, 2000 and December 31, 1999 consist of the following (in thousands):
September 30, December 31, 2000 1999 -------------- ------------------ Vehicle Rental Commercial Paper Notes.......................................................... $ 872,474 $ 1,026,261 Short-term notes-foreign........................................................ 207,969 111,259 Series 1997-1A asset-backed Medium Term Notes due May through October 2000 at 6.22%....................................................... 133,333 800,000 Series 1997-1B asset-backed Medium Term Notes due May through October 2002 at 6.40%....................................................... 850,000 850,000 Series 1998-1 asset-backed Medium Term Notes due December 2004 through May 2005 at 6.14%........................................................... 600,000 600,000 Series 2000-1 floating rate Rental Car Asset-Backed Notes due February 2003 through July 2003............................................. 250,000 Series 2000-2 floating rate Rental Car Asset-Backed Notes due March 2007 through August 2007.............................................. 300,000 Series 2000-3 floating rate Rental Car Asset-Backed Notes due May 2003 through October 2003............................................... 200,000 Series 2000-4 floating rate Rental Car Asset-Backed Notes due June 2005 through November 2005............................................ 500,000 Revolving credit facility due June 2005......................................... 105,000 62,000 Other........................................................................... 5,574 5,902 -------------- ------------------ Total Vehicle Rental Debt 4,024,350 3,455,422 -------------- ------------------ Vehicle Leasing and Other Fee Based Commercial Paper Notes.......................................................... 1,663,688 1,521,498 Canadian short term borrowings.................................................. 29,793 44,563 Series 1999-2 floating rate asset-backed notes, Class A-1....................... 550,000 550,000 Series 1999-2 floating rate asset-backed notes, Class A-2....................... 450,000 450,000 Foreign Asset Backed Securities - UK Advances (see Note 6)..................... 850,443 Self-fund notes................................................................. 27,435 30,397 Wright Express Certificates of Deposit.......................................... 108,892 67,482 -------------- ------------------ Total Vehicle Leasing and Other Fee Based Debt 2,829,808 3,514,383 -------------- ------------------ Total Vehicle Debt 6,854,158 6,969,805 -------------- ------------------ Acquisition Financing Term A Loan Notes due June 2005................................................ 250,000 Term B Loan Notes due June 2006................................................ 375,000 Term C Loan Notes due June 2007................................................ 375,000 Senior Subordinated Notes due May 2009 at 11.00%................................ 500,000 500,000 -------------- ------------------ Total Acquisition Financing................................................. 500,000 1,500,000 -------------- ------------------ Total Debt.................................................................. $ 7,354,158 $ 8,469,805 ============== ==================
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9 - Guarantor and Non-Guarantor Condensed Financial Statements In connection with the VMS Acquisition and as part of the financing thereof, Avis Group Holdings, Inc. (the "Parent") issued and sold the Senior Subordinated Notes (see Note 8) in a transaction exempt from registration under the Securities Act. The Senior Subordinated Notes are general unsecured obligations of the Parent, subordinated in right of payment to all existing and future senior indebtedness of the Company, and guaranteed by certain of the Parent's domestic subsidiaries. Accordingly, the following condensed consolidating financial information presents the condensed consolidating financial statements as of September 30, 2000 and December 31, 1999 and for the three and nine months ended September 30, 2000 and 1999, respectively, of: (a) the Parent (b) the guarantor subsidiaries (c) the non-guarantor subsidiaries (d) elimination entries necessary to consolidate Parent with guarantor and non-guarantor subsidiaries and (e) the Company on a consolidated basis. Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The 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 believes that such information is not material to holders of the Senior Subordinated Notes.
Condensed Consolidating Statements of Operations For the nine months ended September 30, 2000 (in thousands) --------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- -------------- --------------- ------------- -------------- Revenue $ 1,868,530 $ 1,371,246 $ 3,239,776 -------------- --------------- -------------- Costs and expenses: Direct operating, net............................ 631,687 83,894 715,581 Vehicle depreciation and lease charges, net...... 432,631 841,335 1,273,966 Selling, general and administrative.............. 394,090 143,663 537,753 Interest, net.................................... $ 105,499 162,150 185,121 452,770 Non-vehicle depreciation and amortization........ 25,780 11,552 37,332 Amortization of cost in excess of net assets acquired.............................. 30,222 3,575 33,797 ---------- -------------- --------------- -------------- 105,499 1,676,560 1,269,140 3,051,199 ---------- -------------- --------------- -------------- (105,499) 191,970 102,106 188,577 Equity in earnings of subsidiaries............... 171,726 82,010 $ (253,736) ---------- -------------- --------------- -------------- -------------- Income before provision for income taxes......... 66,227 273,980 102,106 (253,736) 188,577 Provision (benefit) for income taxes........... (39,188) 102,254 20,096 83,162 ---------- -------------- --------------- -------------- -------------- Net income................................... $ 105,415 $ 171,726 $ 82,010 $ (253,736) $ 105,415 ========== ============== =============== ============== ==============
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
Condensed Consolidating Statements of Operations For the nine months ended September 30, 1999 (in thousands) --------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- -------------- --------------- -------------- ------------- Revenue $ 1,759,631 $ 567,561 $ 2,327,192 -------------- --------------- ------------- Costs and expenses: Direct operating, net............................ 638,371 86,472 724,843 Vehicle depreciation and lease charges, net...... 457,863 303,066 760,929 Selling, general and administrative.............. $ (464) 361,640 47,125 408,301 Interest, net.................................... 10,376 161,704 73,193 245,273 Non-vehicle depreciation and amortization........ 17,871 5,499 23,370 Amortization of cost in excess of net assets acquired............................... 13,210 5,118 18,328 ---------- -------------- --------------- ------------- 9,912 1,650,659 520,473 2,181,044 ---------- -------------- --------------- ------------- (9,912) 108,972 47,088 146,148 Equity in earnings of subsidiaries............... 88,387 40,300 $ (128,687) ---------- -------------- --------------- -------------- ------------- Income before provision for income taxes......... 78,475 149,272 47,088 (128,687) 146,148 Provision (benefit) for income taxes........... (3,368) 60,885 6,788 64,305 ---------- -------------- --------------- -------------- ------------- Net income................................... $ 81,843 $ 88,387 $ 40,300 $ (128,687) $ 81,843 ========== ============== =============== ============== =============
Condensed Consolidating Statements of Operations For the three months ended September 30, 2000 (in thousands) --------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- -------------- --------------- -------------- ------------- Revenue $ 688,604 $ 441,671 $ 1,130,275 -------------- --------------- ------------- Costs and expenses: Direct operating, net............................ 229,974 29,599 259,573 Vehicle depreciation and lease charges, net...... 167,571 278,893 446,464 Selling, general and administrative.............. 123,807 47,671 171,478 Interest, net.................................... $ 25,250 61,728 59,798 146,776 Non-vehicle depreciation and amortization........ 8,466 2,407 10,873 Amortization of cost in excess of net assets acquired.............................. 9,686 517 10,203 ---------- -------------- --------------- ------------- 25,250 601,232 418,885 1,045,367 ---------- -------------- --------------- ------------- (25,250) 87,372 22,786 84,908 Equity in earnings of subsidiaries............... 64,268 19,983 $ (84,251) ---------- -------------- --------------- -------------- ------------- Income before provision for income taxes......... 39,018 107,355 22,786 (84,251) 84,908 Provision (benefit) for income taxes........... (9,379) 43,087 2,803 36,511 ---------- -------------- --------------- -------------- ------------- Net income................................... $ 48,397 $ 64,268 $ 19,983 $ (84,251) $ 48,397 ========= ============== =============== ============== =============
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
Condensed Consolidating Statements of Operations For the three months ended September 30, 1999 (in thousands) --------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- -------------- --------------- -------------- ------------- Revenue $ 673,194 $ 449,624 $ 1,122,818 -------------- --------------- ------------- Costs and expenses: Direct operating, net............................ 231,267 31,856 263,123 Vehicle depreciation and lease charges, net...... 168,938 273,520 442,458 Selling, general and administrative.............. $ (464) 147,190 30,393 177,119 Interest, net.................................... 3,458 70,585 71,305 145,348 Non-vehicle depreciation and amortization........ 6,780 4,239 11,019 Amortization of cost in excess of net assets acquired.............................. 6,955 5,022 11,977 ---------- -------------- --------------- ------------- 2,994 631,715 416,335 1,051,044 ---------- -------------- --------------- ------------- (2,994) 41,479 33,289 71,774 Equity in earnings of subsidiaries............... 41,422 30,926 $ (72,348) ---------- -------------- --------------- -------------- ------------- Income before provision for income taxes......... 38,428 72,405 33,289 (72,348) 71,774 Provision (benefit) for income taxes........... (947) 30,983 2,363 32,399 ---------- -------------- --------------- -------------- ------------- Net income................................... $ 39,375 $ 41,422 $ 30,926 $ (72,348) $ 39,375 ========== ============== =============== ============== =============
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
Condensed Consolidating Statements of Financial Position September 30, 2000 (in thousands) --------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- -------------- --------------- ------------- -------------- ASSETS Cash and cash equivalents........................ $ 72 $ 32,676 $ 25,163 $ 57,911 Cash held on deposit with financial institution.. 48,046 48,046 Restricted cash.................................. 235,799 235,799 Accounts receivable, net......................... 57 252,848 631,182 884,087 Prepaid expenses................................. 52,920 13,630 66,550 Finance lease receivables........................ 177,379 177,379 Vehicles, net-rental............................. (65,275) 4,075,007 4,009,732 Vehicles, net-leasing............................ (712) 3,014,399 3,013,687 Property and equipment, net...................... 173,567 14,740 188,307 Investment in subsidiaries....................... 2,262,144 1,038,669 $ (3,300,813) Investment in PHH/Arval joint venture............ 181,204 181,204 Other assets..................................... 1,000 51,646 55,987 108,633 Cost in excess of net assets acquired, net................................ 1,295,773 3,351 1,299,124 ---------- -------------- --------------- ------------- -------------- Total assets..................................... $2,263,273 $ 3,013,316 $ 8,294,683 $ (3,300,813) $ 10,270,459 ========== ============== =============== ============= ============== LIABILITIES , PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Accounts payable................................. $ 250,552 $ 299,627 $ 550,179 Accrued liabilities.............................. $ 18,629 315,562 43,886 378,077 Due (from) to affiliates, net.................... 984,364 (925,326) (26,320) 32,718 Current income tax liabilities................... 25,807 25,807 Deferred income tax liabilities, net............. (88,563) 492,063 41,484 444,984 Public liability, property damage and other insurance liabilities, net.................... 201,758 54,677 256,435 Debt............................................. 605,000 5,803 6,743,355 7,354,158 Minority interest (preferred membership interest) 99,305 99,305 Preferred stock.................................. 384,953 384,953 Common stockholders' equity...................... 743,843 2,262,144 1,038,669 $ (3,300,813) 743,843 ---------- -------------- --------------- ------------- -------------- Total liabilities, preferred stock and common stockholders' equity.................... 2,263,273 $ 3,013,316 $ 8,294,683 $ (3,300,813) $10,270,459 ========== ============== =============== ============= ==============
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9 - 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 Consolidated ---------- -------------- --------------- ------------- -------------- ASSETS Cash and cash equivalents........................ $ 54 $ 42,184 $ 29,459 $ 71,697 Cash held on deposit with financial institution.. 93,530 93,530 Restricted cash.................................. 253,080 253,080 Accounts receivable, net......................... (9) 210,962 904,787 1,115,740 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 3,134,009 Property and equipment, net...................... 161,651 36,176 197,827 Investment in subsidiaries....................... 2,121,275 1,272,000 $ (3,393,275) Other assets..................................... 1,000 78,863 35,410 115,273 Cost in excess of net assets acquired, net................................ 1,595,529 198,861 1,794,390 ---------- -------------- --------------- ------------- -------------- Total assets..................................... $2,122,320 $ 3,382,594 $ 8,966,619 $ (3,393,275) $11,078,258 ========== ============== =============== ============= ============== LIABILITIES, PREFERRED STOCK AND COMMONSTOCKHOLDERS' EQUITY Accounts payable................................. $ 273,102 $ 315,275 $ 588,377 Accrued liabilities.............................. $ 16,774 366,602 (13,923) 369,453 Due (from) to 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 79,345 181,256 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.................................. 371,000 371,000 Common stockholders' equity...................... 670,794 2,112,165 1,272,000 $ (3,393,275) 661,684 ---------- ------------- --------------- ------------- -------------- Total liabilities, preferred stock and common stockholders' equity.................... $2,122,320 $ 3,382,594 $ 8,966,619 $ (3,393,275) $11,078,258 ========== ============= =============== ============= ==============
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows For the nine months ended September 30, 2000 (in thousands) -------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------- --------------- --------------- ------------- Cash flows from operating activities: Net income....................................... $ 105,415 $ 171,726 $ 82,010 $ (253,736) $ 105,415 Adjustments to reconcile net income to net cash provided by (used in) operating activities:.. 1,023,167 (619,384) 856,778 1,260,561 ----------- ------------- --------------- --------------- ------------- Net cash provided by (used in) operating activities 1,128,582 (447,658) 938,788 (253,736) 1,365,976 ----------- ------------- --------------- --------------- ------------- Cash flows from investing activities: Payments for vehicle additions................... (68,238) (5,623,877) (5,692,115) Vehicle deletions................................ (422,647) 4,099,759 3,677,112 Increase in finance lease receivables............ (50,631) (50,631) Payments for property and equipment.............. (34,142) (6,869) (41,011) Retirements of property and equipment............ 6,188 3,190 9,378 Proceeds from the sale of 80% of PHH Europe, net of cash disposed of $104,765...................... 800,960 (105,276) 695,684 Settlement of PHH Europe intercompany accounts... 225,819 225,819 Dividend from the PHH/Arval joint venture........ 32,426 32,426 Investment in subsidiaries....................... (171,726) (82,010) 253,736 ----------- ------------- --------------- --------------- ------------- Net cash (used in) provided by investing activities (171,726) 458,356 (1,683,704) 253,736 (1,143,338) ----------- ------------- --------------- --------------- ------------- Cash flows from financing activities: Net increase in (repayment of) debt.............. 97,437 (4,502) 697,102 790,037 Repayment of acquisition and other debt from the proceeds of the sale of 80% of PHH Europe.... (1,054,437) (15,704) (1,576) (1,054,437) Payments for debt issuance costs ................ (17,280) Other ........................................... 162 162 ----------- ------------- --------------- ------------- Net cash (used in) provided by financing activities................................... (956,838) (20,206) 695,526 (281,518) ----------- ------------- --------------- ------------- Effect of exchange rate changes on cash.......... (390) (390) --------------- ------------- Net (decrease) increase in cash and cash equivalents 18 (9,508) (49,780) (59,270) Cash and cash equivalents at beginning of period. 54 42,184 122,989 165,227 ----------- ------------- --------------- --------------- ------------- Cash and cash equivalents at end of period.. $ 72 $ 32,676 $ 73,209 $ $ 105,957 =========== ============= =============== =============== ============= Supplemental disclosure of cash flow information: Cash interest paid........................... $ 431,369 ============= Cash income taxes paid....................... $ 30,499 ============= Business disposed: Assets disposed.............................. $ 1,731,488 Liabilities disposed......................... 1,035,804 ------------- Proceeds received from the sale of 80% of PHH Europe, net of cash disposed of $104,765... $ 695,684 =============
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Unaudited) Note 9 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows For the nine months ended September 30, 1999 -------------------------------------------------------------------------- Non- Avis Group Guarantor Guarantor Holdings, Inc. Parent Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------- --------------- -------------- ------------- Cash flows from operating activities: Net income....................................... $ 81,843 $ 88,387 $ 40,300 $ (128,687) $ 81,843 Adjustments to reconcile net income to net cash (used in) provided by operating activities:...... (225,193) 502,204 304,612 581,623 ----------- ------------- --------------- -------------- ------------- Net cash (used in) provided by operating activities................................. (143,350) 590,591 344,912 (128,687) 663,466 ----------- ------------- --------------- -------------- ------------- Cash flows form investing activities: Payments for vehicle additions................... (3,755,658) (3,650,923) 104,735 Vehicle deletions................................ (428,000) 3,097,166 2,669,166 Decrease in finance lease receivables............ (46,226) (39,343) (85,569) Payments for property and equipment............. (29,476) (5,546) (35,022) Retirements of property and equipment............ 2,248 1,494 3,742 Investment in subsidiaries....................... ( 98,418) (40,300) 138,718 Payment for purchase of rental car franchise licensees, net of cash acquired of $14,208........................... (44,934) (258) (45,192) Payment for purchase of PHH Holdings, net of cash acquired of $170,568.......................... (1,348,530) (1,348,530) ----------- ------------- --------------- -------------- ------------- Net cash used in investing activities....... (1,446,948) (481,953) (702,145) 138,718 (2,492,328) ----------- ------------ --------------- -------------- ------------- Cash flows from financing activities: Net increase in (repayment of) debt.............. 1,615,000 (98,356) 541,904 2,058,548 Payments for debt issuance costs................. 19,522 (14,662) (6,500) (1,640) Purchases of treasury stock...................... ( 57,237) (57,237) Other............................................ 3,349 3,349 Cash dividends................................... 5,926 (5,926) ----------- ------------- --------------- ------------ Net cash provided by (used in) financing activities................................... 1,580,634 (107,092) 529,478 2,003,020 ----------- ------------- --------------- ------------ Effect of exchange rate changes on cash.......... 10,031 11 2,601 (10,031) 2,612 ----------- ------------- --------------- -------------- ------------ Net increase in cash and cash equivalents........ 367 1,557 174,846 176,770 Cash and cash equivalents at beginning of period. 11 9,776 19,964 29,751 ----------- ------------- --------------- -------------- ------------ Cash and cash equivalents at end of period...... $ 378 $ 11,333 $ 194,810 $ - $ 206,521 =========== ============= =============== ============== ============ Supplemental disclosure of cash flow information: Cash interest paid $ 173,600 ============ Cash income taxes paid $ 14,835 ============ Fair value of assets acquired, net of cash acquired of $184,776.......................... $ 6,127,678 Liabilities assumed.............................. 4,371,956 ------------ Net assets acquired.............................. 1,755,722 Less: issuance of Series A and Series C Preferred Stocks........................................ (362,000) ------------ Net cash paid for acquisitions................... $ 1,393,722 ============
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 10 - Segment Information Prior to the purchase of VMS on June 30, 1999 (Note 5), 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 and other 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, and the subsequent sale of 80% of PHH Europe on August 9, 2000 (Note 6) 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 to the 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, amortization 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 nine months ended September 30, 2000 and 1999 are summarized as follows:
Nine months ended September 30, 2000 -------------------------------------------------------------- Vehicle Leasing And other Vehicle Fee Based Business Segments Rental Services Corporate Consolidated ------------- --------------- -------------- -------------- Revenue.......................................... $ 1,989,167 $ 1,250,609 $ 3,239,776 ============= =============== ============== EBITDA........................................... $ 221,887 $ 127,175 $ 3,516 $ 352,578 ============= =============== ============== ============== Income (loss) before provision for income taxes.. $ 190,213 $ 109,821 $ (111,457) $ 188,577 ============= =============== ============== ============== Total assets..................................... $ 4,693,064 $ 5,577,395 $10,270,459 ============= =============== ==============
Nine months ended September 30, 1999 -------------------------------------------------------------- Vehicle Leasing And other Vehicle Fee Based Business Segments Rental Services Corporate Consolidated ------------- --------------- -------------- -------------- Revenue.......................................... $ 1,913,929 $ 413,263 $ 2,327,192 ============= =============== ============== EBITDA........................................... $ 175,052 $ 47,875 $ 464 $ 223,391 ============= ============== ============== ============== Income (loss) before provision for income taxes.. $ 146,095 $ 42,512 $ (42,459) $ 146,148 ============= ============= ============== ============== Total assets..................................... $ 5,299,525 $ 5,884,054 $ 11,183,579 ============= =============== ==============
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 10 - Segment Information (Continued)
Three months ended September 30, 2000 ------------------------------------------------------------- Vehicle Leasing And other Vehicle Fee Based Business Segments Rental Services Corporate Consolidated ------------- --------------- -------------- -------------- Revenue.......................................... $ 733,694 $ 396,581 $ 1,130,275 ============= =============== ============== EBITDA........................................... $ 89,929 $ 35,038 $ 2,058 $ 127,025 ============= =============== ============== ============== Income (loss) before provision for income taxes.. $ 79,473 $ 31,228 $ (25,793) $ 84,908 ============= =============== ============== ============== Total assets..................................... $ 4,693,064 $ 5,577,395 $ 10,270,459 ============= =============== ==============
Three months ended September 30, 1999 -------------------------------------------------------------- Vehicle Leasing And other Vehicle Fee Based Business Segments Rental Services Corporate Consolidated ------------- -------------- -------------- -------------- Revenue.......................................... $ 709,555 $ 413,263 $ 1,122,818 ============= ============== ============== EBITDA........................................... $ 81,976 $ 47,875 $ 464 $ 130,315 ============= ============== ============== ============== Income (loss) before provision for income taxes.. $ 71,721 $ 42,512 $ (42,459) $ 71,774 ============ ============== ============== ============== Total assets..................................... $ 5,299,525 $ 5,884,054 $ 11,183,579 ============= ============== ==============
Nine months ended September 30, 2000 -------------------------------------------------------------------------------- Other United United Australia/ Foreign Geographic Areas States Kingdom New Zealand Canada Operations Consolidated - ---------------- ----------- ------------ ------------- ----------- ----------- ------------ Revenue.......................................... $ 2,838,165 $ 154,714 $ 87,978 $ 129,698 $ 29,221 $3,239,776 =========== ============ = ============ =========== =========== ============ EBITDA........................................... $ 266,427 $ 42,177 $ 17,033 $ 23,150 $ 3,791 $ 352,578 =========== ============ ============== =========== =========== ============ Income before provision for income taxes......... $ 116,475 $ 30,810 $ 16,122 $ 21,938 $ 3,232 $ 188,577 =========== ============ ============== =========== =========== ============ Total assets..................................... $ 9,545,417 $ 181,204 $ 107,446 $ 376,922 $ 59,470 $10,270,459 =========== ============ ============== =========== =========== ============
Nine months ended September 30, 1999 --------------------------------------------------------------------------------- Other United United Australia/ Foreign Geographic Areas States Kingdom New Zealand Canada Operations Consolidated - ---------------- ----------- ------------ -------------- ----------- ----------- ------------ Revenue.......................................... $2,052,908 $ 64,592 $ 91,079 $ 92,093 $ 26,520 $ 2,327,192 =========== ============ ============== =========== =========== ============ EBITDA........................................... $ 175,367 $ 19,651 $ 18,566 $ 14,607 $ (4,800) $ 223,391 =========== ============== ============== =========== =========== ============ Income (loss) before provision for income taxes.. $ 105,483 $ 14,986 $ 17,588 $ 13,677 $ (5,586) $ 146,148 =========== ============ ============== ============ ========== ============ Total assets..................................... $ 9,374,964 $ 1,328,108 $ 99,610 $ 317,679 $ 63,218 $ 11,183,579 =========== ============ ============== ============ ========== ============
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 10 - Segment Information (Continued)
Three months ended September 30, 2000 --------------------------------------------------------------------------------- Other United United Australia/ Foreign Geographic Areas States Kingdom New Zealand Canada Operations Consolidated - ---------------- ----------- ------------ -------------- ----------- ----------- ------------ Revenue.......................................... $1,016,168 $ 22,458 $ 27,419 $ 55,207 $ 9,023 $ 1,130,275 =========== ============ ============== =========== =========== ============ EBITDA........................................... $ 101,454 $ 5,067 $ 4,632 $ 14,266 $ 1,606 $ 127,025 =========== ============ ============== =========== =========== ============ Income before provision for income taxes......... $ 61,786 $ 3,473 $ 4,341 $ 13,864 $ 1,444 $ 84,908 =========== ============ ============== =========== =========== ============ Total assets..................................... $9,545,417 $ 181,204 $ 107,446 $ 376,922 $ 59,470 $10,270,459 =========== ============ ============== =========== =========== ============
Three months ended September 30, 1999 --------------------------------------------------------------------------------- Other United United Australia/ Foreign Geographic Areas States Kingdom New Zealand Canada Operations Consolidated - ---------------- ----------- ------------ -------------- ----------- ----------- ------------ Revenue.......................................... $ 965,691 $ 64,592 $ 30,016 $ 50,796 $ 11,723 $ 1,122,818 =========== ============ ============== =========== =========== ============ EBITDA........................................... $ 94,405 $ 19,651 $ 5,664 $ 11,531 $ (936) $ 130,315 =========== ============ ============== =========== =========== ============ Income (loss) before provision for income taxes.. $ 41,685 $ 14,986 $ 5,330 $ 11,084 $ (1,311) $ 71,774 =========== ============ ============== =========== =========== ============ Total assets..................................... $ 9,374,964 $1,328,108 $ 99,610 $ 317,679 $ 63,218 $11,183,579 =========== ============ ============== =========== =========== ============
Note 11 - Retirement Benefits Effective January 1, 1999, the Company curtailed its defined benefit plans to its eligible salaried and hourly employees as of June 30, 1985. The Company recognized a non-recurring $7.5 million pre-tax gain as a result of the curtailment which was recorded in January 1999 and is included in Direct Operating Expenses on the accompanying Statement of Operations for the nine months ended September 30, 1999. Note 12 - Cendant Purchase Offer Cendant Corporation ("Cendant") and Avis Group Holdings, Inc., on November 13, 2000 announced that they have entered into a definitive agreement for Cendant to acquire all of the outstanding shares of Avis Group that are not currently owned by Cendant at a price of $33.00 per share in cash. Approximately 25.6 million outstanding shares of Avis Group Class A Common Stock, and options to purchase an additional approximately 7.9 million Avis Group shares, are not owned by Cendant. Accordingly, the transaction has an equity value of approximately, $935 million, net of option proceeds. The shares will be acquired at a price of $33.00 per share in a cash merger pursuant to which Avis Group will be merged with an indirect wholly owned subsidiary of Cendant. Upon completion of the transaction, Avis Group will become a subsidiary of Cendant. The merger is conditioned upon, among other things, approval of a majority of the votes cast by Avis Group stockholders who are unaffilitated with Cendant and customary regulatory approvals. The transaction is expected to close in the first quarter of 2001. AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) ITEM 2: General Overview The following discussion and analysis of 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. 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. On August 9, 2000, the Company closed its transaction with BNP Paribas creating a joint venture that owns PHH Europe. BNP Paribas acquired an 80 percent interest in the joint venture for $800 million in cash and repayment of PHH Europe's intercompany indebtedness to Avis. The Company repaid over $1 billion of debt with the proceeds from the transaction and retained a 20% interest in the joint venture. Subsequent to the transaction, the operating results of PHH Europe are accounted for on the equity method. Management believes that a more meaningful comparison is made when the historical results of operations for the nine months and three months ended September 30, 2000 are compared to the pro-forma results of operations for the nine months ended September 30, 1999, which give effect to the VMS acquisition (see Note 5 to the Condensed Consolidated Financial Statements contained herein), as if it had occurred on January 1, 1999. As a result of the BNP Paribas transaction, (Note 6) management also believes that a more meaningful comparison is made when presenting the results of operations for PHH Europe on one line called "Earnings of PHH Europe" for all periods presented. Therefore all revenue, costs and expenses, EBITDA, amortization of cost in excess of net assets acquired and non-vehicle depreciation and amortization for the Vehicle Leasing and other Fee Based Services segment excludes PHH Europe's results of operations for all periods presented. EBITDA is presented since it is a widely accepted indicator of funds available to service debt, although it is not a measure of liquidity or of financial performance under generally accepted accounting principles ("GAAP"). The Company believes that EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. Revenue Vehicle Rental 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 generally terms range from 12 months to 50 months. Amounts charged to theleases 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 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 Depreciation and lease charges relating to the rental fleet (including net gains or losses upon disposition of vehicles). 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). AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) 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). o Interest expense (relating primarily to VMS' leased fleet). 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 volume 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". The following discussion and analysis provides information that management believes to be relevant to understanding the Company's financial position and results of operations: RESULTS OF OPERATIONS Pro-forma Results of Operations for the Nine Months ended September 30, 2000 Compared to Pro-forma Results of Operations for the nine Months ended September 30, 1999 The following table sets forth for the periods indicated, certain items in the Company's condensed consolidated statement of operations (in thousands):
Pro-forma Pro-forma Nine Months ended September 30, 2000 Nine Months ended September 30, 1999 ------------------------------------------------- ------------------------------------------------- Vehicle Leasing Total Vehicle 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. ---------- --------------- --------- ------------ ----------- -------------- --------- ----------- Revenue: Vehicle Rental.............. $1,989,167 $ 1,989,167 $ 1,913,929 $1,913,929 Vehicle Leasing............. $ 979,029 979,029 $ 946,021 946,021 Other fee-based............. 112,641 112,641 85,659 85,659 ---------- --------------- ------------ ----------- -------------- ----------- Total Revenue............... 1,989,167 1,091,670 3,080,837 1,913,929 1,031,680 2,945,609 ---------- --------------- ------------ ----------- -------------- ----------- Costs and expenses: Direct operating............ 715,581 715,581 724,845 724,845 Vehicle depreciation and lease charges, net........ 510,674 739,297 1,249,971 505,330 739,655 1,244,985 Selling, general and administrative............ 357,919 127,392 $ (3,516) 481,795 350,701 118,026 (463) 468,264 Interest, net............... 183,106 139,802 322,908 158,001 105,321 1,000 264,322 ---------- --------------- --------- ----------- ----------- -------------- --------- ----------- 1,767,280 1,006,491 (3,516) 2,770,255 1,738,877 963,002 537 2,702,416 ---------- --------------- -------- ----------- ----------- -------------- --------- ----------- EBITDA......................... 221,887 85,179 3,516 310,582 175,052 68,678 (537) 243,193 Interest - acquisition debt.... (92,872) (92,872) (104,303) (104,303) Amortization of cost in excess 4 of net assets acquired......... (9,414) (852) (20,103) (30,369) (9,686) (1,036) (20,310) (31,032) Non-vehicle depreciation and amortization................ (22,260) (4,995) (1,998) (29,253) (19,271) (6,015) (943) (26,229) Earnings of PHH Europe......... 30,489 30,489 39,987 39,987 ---------- ------------- --------- ----------- ----------- -------------- --------- ----------- Income before provision for income taxes................ $190,213 $ 109,821 $(111,457) 188,577 $ 146,095 $ 101,614 $(126,093) 121,616 ========== ============= ========= ----------- =========== ============= ========= ========== Provision for income taxes 83,162 59,203 ----------- ---------- Net income.................... $ 105,415 $ 62,413 =========== ==========
AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) VEHICLE RENTAL Revenue Revenue increased 3.9%, from $1,913.9 million to $1,989.2 million, compared to the same period in 1999. The increase reflects an increase in the overall market demand (2.8%) 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 (1.1 % combined). The revenue increase reflects a 3.5% increase in the number of rental transactions and a 0.4% increase in revenue per rental transaction. Costs and Expenses Total costs and expenses (including amortization of cost in excess of net assets acquired and non-vehicle depreciation and amortization) increased 1.8%, from $1,767.8 million to $1,799.0 million, compared to the same period in 1999. Direct operating expenses decreased 1.3%, from $724.8 million to $715.6 million, compared to the same period in 1999. As a percentage of revenue, direct operating expenses declined to 36.0%, from 37.9% for the corresponding period in 1999. The reduction was due primarily to lower maintenance and damage costs (0.3% of revenue), lower airport commissions (1.7% of revenue), lower vehicle insurance costs (0.2% of revenue), and other operating cost savings (0.8%), partially offset by higher compensation costs (0.6 % of revenue). 1999 results included a one-time $7.5 million gain (0.4% of revenue), resulting from the curtailment of the Company's Defined Benefit Plans. Vehicle depreciation and lease charges increased 1.1%, from $505.3 million to $510.7 million, compared to the same period in 1999. As a percentage of revenue, vehicle depreciation and lease charges were 25.7% of revenue, as compared to 26.4% of revenue for the corresponding period in 1999. The change reflected a 2.9% increase in the average rental fleet combined with a lower cost per vehicle. Selling, general and administrative expenses increased 2.1%, from $350.7 million to $357.9 million, compared to the same period in 1999. The increase was due to higher royalty fees ($5.0 million), and higher travel agency commissions expenses ($4.4 million), partially offset by lower general and administrative expenses ($2.2 million). Fleet related interest expense increased 15.9%, from $158.0 million to $183.1 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. Non-vehicle depreciation and amortization increased 15.5%, from $19.3 million to $22.3 million, compared to the same period in 1999. The increase reflects an increase in the amortization of airport related leaseheld improvements and equipment. Income before provision for income taxes increased 30.2%, from $146.1 million to $190.2 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' revenue increased 5.8%, from $1,031.7 million to $1,091.7 million, compared to the same period in 1999. The increase consists of a 3.5% or $33.0 million increase in vehicle leasing revenue and a 31.5% or $27.0 million increase in other fee based revenue, compared to the same period in 1999. The increase in vehicle leasing revenue reflects an increase in interest charges billed 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 42.6% reflecting an increase in outstanding fuel cards and higher fuel prices. Accident Management continued its strong growth with a 15.6% increase in revenue. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) Costs and Expenses Total costs and expenses (excluding the results of PHH Europe, but including amortization of cost in excess of net assets acquired and non-vehicle depreciation and amortization) increased 4.4%, from $970.1 million to $1,012.3 million, compared to the same period in 1999. The increase was primarily due to $34.5 million of higher interest expense, resulting from higher interest rates, of which a substantial portion was billed back to customers. Selling, general and administrative increased 7.9%, from $118.0 million to $127.4 million, compared to the same period in 1999. The increase is due to higher payroll and related costs to support the increased fee-based revenue. Earnings of PHH Europe have decreased due to the completion of the transaction with BNP Paribas on August 9, 2000 creating a joint venture that owns PHH Europe. BNP Paribas acquired an 80 percent interest in the joint venture for $800 million in cash and repayment of intercompany indebtedness to Avis (the "BNP Transaction"). Subsequent to the BNP Transaction the Company accounts for its remaining 20% investment on the equity method. Income before provision for income taxes including the results of PHH Europe increased 8.1%, from $101.6 million to $109.8 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 8 of the notes to the condensed consolidated financial statements). Corporate expenses decreased 11.6%, from $126.1 million to $111.5 million, compared to the same period in 1999, mainly due to $11.4 million decrease in interest expense resulting from the repayment of $1.0 billion in Acquisition Term loans with the proceeds from the BNP Transaction. TOTAL AVIS GROUP HOLDINGS, INC. Provision for Income Taxes The Company's consolidated provision for income increased 40.5%, from $59.2 million to $83.2 million, compared to the same period in 1999. The effective income tax rate for the period ended September 30, 2000 was 44.1%, down from 48.7% for the corresponding period in 1999. The decrease in the effective income tax rate was due primarily to an increase in income before provision for income taxes in relation to non-deductible goodwill an a reduction in non-deductible goodwill due to the completion of the BNP Paribas transaction. 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 Consolidated net income increased 68.9%, from $62.4 million to $105.4 million, compared to the same period in 1999. The increase reflects higher revenue, decreased costs and expenses as a percentage of revenue and a lower effective income tax rate. AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) RESULTS OF OPERATIONS Pro-forma Results of Operations for the Three Months ended September 30, 2000 Compared to Pro-forma Results of Operations for the Three Months ended September 30, 1999 The following table sets forth for the periods indicated, certain items in the Company's condensed consolidated statement of operations (in thousands):
Pro-Forma Pro-Forma Three Months ended September 30, 2000 Three Months ended September 30, 1999 ------------------------------------------------ ------------------------------------------------- Vehicle Leasing Total Vehicle 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. ---------- --------------- --------- ----------- ----------- ------------- ----------- ---------- Revenue: Vehicle Rental.............. $ 733,694 $ 733,694 $ 709,555 $ 709,555 Vehicle Leasing............. $ 334,283 334,283 $ 314,869 314,869 Other fee-based............. 39,282 39,282 30,750 30,750 ---------- --------------- ----------- ----------- ------------- ---------- Total Revenue............... 733,694 373,565 1,107,259 709,555 345,619 1,055,174 ---------- --------------- ----------- ----------- ------------- ---------- Costs and expenses: Direct operating............ 259,573 259,573 263,125 263,125 Vehicle depreciation and lease charges, net........ 191,346 251,378 442,724 186,859 244,028 430,887 Selling, general and administrative............ 122,321 43,276 $ (2,058) 163,539 119,519 37,690 $ (463) 156,746 Interest, net............... 70,525 49,162 119,687 58,076 37,232 95,308 ---------- --------------- --------- ----------- ----------- ------------- ----------- ---------- 643,765 343,816 (2,058) 985,523 627,579 318,950 (463) 946,066 ---------- --------------- --------- ----------- ----------- ------------- ----------- ---------- EBITDA......................... 89,929 29,749 2,058 121,736 81,976 26,669 463 109,108 Interest - acquisition debt.... (21,041) (21,041) (35,545) (35,545) Amortization of cost in excess of net assets acquired......... (3,133) (302) (6,299) (9,734) (3,335) (204) (7,064) (10,603) Non-vehicle depreciation and 14 amortization................ 7,323) (1,895) (511) (9,729) (6,920) (1,030) (314) (8,264) Earnings of PHH Europe......... 3,676 3,676 17,078 17,078 ---------- --------------- --------- ----------- ----------- ------------- ----------- ---------- Income before provision for income taxes................ $ 79,473 $ 31,228 $(25,793) 84,908 $ 71,721 $ 42,513 $ (42,460) 71,774 ========= ============= ========= =========== ============ =========== Provision for income taxes..... 36,511 32,399 ----------- ---------- Net income..................... $ 48,397 $ 39,375 =========== ==========
VEHICLE RENTAL Revenue Revenue increased 3.4%, from $709.6 million to $733.7 million, compared to the same period in 1999. The revenue increase primarily reflects a 3.4 % increase in the number of rental transactions. Costs and Expenses Total costs and expenses (including amortization of cost in excess of net assets acquired and non-vehicle depreciation and amortization) increased 2.6%, from $637.8 million to $654.2 million, compared to the same period in 1999. Direct operating expenses decreased 1.3%, from $263.1 million to $259.6 million, compared to the same period in 1999. As a percentage of revenue, direct operating expenses declined to 35.4%, from 37.1% for the corresponding period in 1999. The reduction was due primarily from lower maintenance and damage costs (0.2% of revenue), lower airport commissions (1.5% of revenue), lower vehicle insurance costs (0.3% of revenue), and other operating cost savings (0.5% of revenue), partially offset by higher compensation costs (0.6% of revenue), and higher computer services costs (0.3% of revenue). AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) Vehicle depreciation and lease charges increased 2.4%, from $186.9 million to $191.3 million, compared to the same period in 1999. As a percentage of revenue, vehicle depreciation and lease charges were 26.1% of revenue, as compared to 26.3% of revenue for the corresponding period in 1999. The change reflected a 5.1% increase in the average rental fleet combined with a lower cost per vehicle. Selling, general and administrative expenses increased 2.3%, from $119.5 million to $122.3 million, compared to the same period in 1999. The decrease was due to higher general and administrative expenses ($1.3 million), higher royalty fees ($1.7 million), higher travel agency commissions ($1.4 million), and was partially offset by lower marketing costs ($1.7 million). Fleet related interest expense increased 21.4%, from $58.1 million to $70.5 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 10.8%, from $71.7 million to $79.5 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 8.1%, from $345.6 million to $373.6 million, compared to the same period in 1999. The increase consists of a $19.4 million increase in vehicle leasing revenue and a 27.7% or $8.5 million increase in other fee-based revenue. The increase in vehicle leasing revenue reflects an increase in interest charges due to higher interest rates and increased depreciation charges on the lease portfolio, both of which are billed back to customers. The increase in other fee-based revenue reflects growth in the three major fee-based product lines: fuel, maintenance and accident management. Fuel revenue increased 39.6%, reflecting an increase in outstanding fuel cards and higher fuel prices. Accident Management continued its strong growth as total revenue increased 9.7%. Cost and Expenses Total costs and expenses (excluding the results of PHH Europe, but including amortization of cost in excess of net assets acquired and non-vehicle depreciation and amortization) increased 8.1%, from $320.2 million to $346.0 million, compared to the same period in 1999. The increase was mainly due to $11.9 million of higher interest expense and 7.3% higher depreciation charges resulting from higher interest rates, which are primarily billed back to customers. Selling, general and administrative expenses increased 14.8%, from $37.7 million to $43.3 million, compared to the same period in 1999. The increase is due primarily to higher payroll and related costs to support the increased fee-based revenue. Income before provision for income taxes decreased 26.5%, from $42.5 million to $31.2 million, compared to the same period in 1999. Excluding the earning of PHH Europe, income before the provision for income taxes increased 4.4%. 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 8 of the notes to the condensed consolidated financial statements). Corporate expenses decreased 39.3%, from $42.5 million to $25.8 million, compared to the same period in 1999, mainly due to $14.5 million decrease in interest expense resulting from the repayment of $1.0 billion in Acquisition Term loans with the proceeds from the BNP Transaction. AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) TOTAL AVIS GROUP HOLDINGS, INC. Provision for Income Taxes The Company's consolidated provision for income taxes increased 12.7%, from $32.4 million to $36.5 million, compared to the same period in 1999. The effective income tax rate was 43.0%, down from 45.1 % for the corresponding period in 1999. The decrease in the effective income tax rate was due primarily to an increase in income before provision for income taxes as well as an element of a reduction in certain non-deductible goodwill due to the completion of the BNP Paribas transaction. 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 Consolidated net income increased 22.8%, from $39.4 million to $48.4 million, compared to the same period in 1999. The increase reflects higher revenue, decreased costs and expenses as a percentage of revenue and a lower effective income tax rate. 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 nine months ended September 30, 2000, the Company's expenditures for new vehicles were approximately $5.7 billion and proceeds from the disposition of used vehicles were approximately $3.7 billion. For 2000, management expects the Company's expenditures for new vehicles (net of proceeds from the disposition of used vehicles) to be higher than in 1999. 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 94% of VMS' lease portfolio, bear the residual risk with respect to their vehicles. For closed-end leases, which make up approximately 6% 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 including VMS, whose cash requirements have historically been relatively consistent over the course of a given year. 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 12 days of daily sales outstanding. The Company made capital investments for property improvements totaling $41.0 million for the nine months ended September 30, 2000. 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 Rental ABS Facility To support vehicle rental operations, the Company has a domestic integrated financing program that as of September 30, 2000 provides for up to $4.3 billion in financing for vehicles covered by Repurchase Programs, with up to 15% of the asset-backed securities ("ABS") Facility available for vehicles not covered by Repurchase Programs. The ABS Facility provides for the issuance of up to $1.5 billion of asset-backed variable funding notes (the "Variable Funding Notes") and $2.8 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. AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) 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 and AMBAC Assurance and as a result are rated AAA by S&P and Aaa by Moody's. At September 30, 2000, the Company had approximately $3.7 billion of debt outstanding under the ABS Facility and had approximately $625 million of additional credit available for rental vehicle purchases. Based on current market conditions and the Company's current banking relationships, management expects to fund maturities of the Medium Term Notes either by the issuance of new medium term notes or an increase in the outstanding principal amount of the Variable Funding Notes depending on market conditions at the time the Medium Term Notes mature. However, management cannot be sure that this will occur. On July 20, 2000, one of the Company's vehicle rental financing subsidiaries issued $200 million of Series 2000-3 Floating Rate Rental Car Asset-Backed Notes (Series 2000-3 Notes). The notes are secured by the Company's vehicles. Anticipated principal repayment on the Notes commence in May 2003 through October 2003. The interest rate with respect to the Series 2000-3 Notes is equal to LIBOR plus 19 basis points per annum. The Series 2000-3 Notes are guaranteed under a Surety Bond issued by MBIA and are rated AAA by Standard and Poors and Aaa by Moody's. The Series 2000-3 Notes rank pari pasu with the Variable Funding Note and the Medium Term Notes described above. On August 21, 2000, one of the Company's vehicle rental financing subsidiaries issued $500 million of Series 2000-4 Floating Rate Rental Car Asset Backed Notes (Series 2000-4 Notes). The notes are secured by the Company's vehicles. Anticipated principal repayment on the Notes commence on June 2005 through November 2005. The interest rate with respect to the Series 2000-4 Notes is equal to LIBOR plus 25 basis points per annum. The Series 2000-4 Notes are guaranteed under a Surety Bond issued by MBIA and are rated AAA by Standard and Poors and Aaa by Moody's. The Series 2000-4 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 LIBOR plus 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. At September 30, 2000 the Company had two series of Preferred Membership Interest outstanding which total $99.3 million. Preferred Membership Interest are financial instruments issued by the Company to third parties in connection with VMS vehicle financing. 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 Rent A Car subsidiary in Argentina and Puerto Rico which had outstanding debt of $10.4 million at September 30, 2000. In addition, the Company has guaranteed two facilities of its' Canadian Leasing Operation; A $(Canadian) 25 million warehousing facility of which the Company has guaranteed up to $(Canadian) 25 million of residual losses; and the guarantee of a $(Canadian) 5 million overdraft facility. At September 30, 2000 the total debt for the Company's other international operations was approximately $254 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. AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) Acquisition Financing The Company is party 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 in the amount of up to $350.0 million, (2) a $250.0 million Term A Loan, (3) a $375.0 million Term B Loan and (4) a $375.0 million Term C Loan. Upon consummation of the VMS Acquisition, Avis borrowed 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. The loans under the Credit Facility bear interest at variable rates at fixed margins 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, 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. 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 September 30, 2000, the Company was in compliance with all such covenants. On August 9, 2000, the Company completed a transaction disposing of 80% of its interest in PHH Europe (see Note 6). The proceeds from the transaction were used to repay Term Loan A, B and C. These amounts cannot be reborrowed. Concurrently with the closing, an amendment to the Credit Facility became effective. This amendment further restricted the Company's covenants required under the Credit Facility and increased the amount available under the Revolving Credit Facility to $450 million As of September 30, 2000 there was $105 million outstanding under the Revolving Credit Facility. 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. Inflation The increased acquisition cost of vehicles is the primary inflationary factor affecting the Company's operations. Many of the Company's other operating expenses are inflation sensitive, with increases in inflation generally resulting in increased costs of operations. The effect of inflation-driven cost increases on the Company's overall operating costs is not expected to be greater for the Company than for its competitors. AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Unaudited) 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 impact of the adoption of SFAS 133 on the Company's consolidated financial statements has not yet been determined, however it is not expected to have a material effect. Forward 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. Actual results may differ materially from those projected. These forward-looking statements represent the Company's judgement as of the date of this report. ITEM 3: QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS Quantitative and Qualitative Financial Disclosures About Market Risk The Company has derivative financial instruments at September 30, 2000 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, the Company has entered into domestic interest rate cap and interest rate floor agreements with a duration of up to 10 years, respectively. The domestic interest rate cap and interest rate floor agreements have notional values of $1,059.5 million and $314.8 million, respectively. The agreements established the average domestic and foreign interest rate ceiling and floor on asset-backed vehicle financing of 6.68% and 5.00%, respectively. (b) The Company has also entered into U.S. and foreign interest rate swap agreements. Swap agreements which effectively convert floating rates of interest to fixed rates of interest on the Company's debt have an aggregate notional value of $295.0 million and terminate through October 2001. Swap agreements which effectively convert floating rates of interest to fixed rates on interest on the Company's debt have an aggregate notional value of $600.0 million 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 September 30, 2000, the total contract amount of such options was 51.7 million gallons of gasoline and the unamortized cost of options was $1.3 million 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: November 13, 2000 By: /s/ Kevin M. Sheehan ------------------------------------- President-Corporate and Business Affairs and Chief Financial Officer (principal financial officer) Dated: November 13, 2000 By: /s/ Timothy M. Shanley -------------------------------------- Vice President and Controller (principal accounting officer) Part II. Other Information ITEM: 6(a) EXHIBITS SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Exhibits filed with Form 10-Q for the quarter ended September 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 31 the Nine months ended September 30, 2000 ITEM: 6(b) CURRENT REPORT ON FORM 8-K On August 24, 2000, the Company filed a form 8-K that gave notification of : o The sale of 80% of PHH Europe to PNB Paribas for $800 million in cash, the settlement of intercompany indebtedness owed to the Company by PHH Europe, and the creation of a joint venture in which the Company initially retained a 20% interest. o The Board of Directors approval authorizing the Company to repurchase up to 100 million of its Class A Common Stock. EX-27 2 0002.txt FDS 9/30 FINANCIALS
5 0001040445 Avis Group Holdings, Inc. 9-Mos Dec-31-2000 Jul-01-2000 Sep-30-2000 105,957 0 892,341 8,254 7,023,419 0 241,466 53,519 10,270,459 0 7,354,158 384,953 0 359 743,484 10,270,459 0 3,239,776 0 2,574,900 0 12,089 464,210 188,577 83,162 105,415 0 0 0 105,415 2.93 2.89
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