-----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, E6E/jfvJlMIUOqapawyYPVYZB0NAlx5d4SVZP+tNyiljIvVVL19Vhb76/6D6dV4O 6o56yQh4MW99qutdQS8vJw== 0000950136-97-000318.txt : 19970328 0000950136-97-000318.hdr.sgml : 19970328 ACCESSION NUMBER: 0000950136-97-000318 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HFS INC CENTRAL INDEX KEY: 0000891104 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 223059335 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11402 FILM NUMBER: 97564311 BUSINESS ADDRESS: STREET 1: 339 JEFFERSON RD CITY: PARSIPPANY STATE: NJ ZIP: 07054 BUSINESS PHONE: 2014289700 MAIL ADDRESS: STREET 2: 339 JEFFERSON RD CITY: PARSIPPANY STATE: NJ ZIP: 07054 FORMER COMPANY: FORMER CONFORMED NAME: HOSPITALITY FRANCHISE SYSTEMS INC DATE OF NAME CHANGE: 19940202 10-Q/A 1 AMENDED FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ Form 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 Commission File No. 1-11402 ------------ HFS Incorporated (Exact name of Registrant as specified in its charter) Delaware 22-3059335 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 6 Sylvan Way Parsippany, New Jersey 07054 (Address of principal executive office) (Zip Code) (201) 428-9700 (Registrant's telephone number, including area code) ------------ 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 and 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of each of the Registrant's classes of common stock was 128,676,074 shares of Common Stock outstanding as at November 11, 1996. PART I ITEM 1. FINANCIAL STATEMENTS HFS Incorporated and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands)
September 30, December 31, ASSETS 1996 1995 - ------------------------------------------------------------------------------------------------ CURRENT ASSETS Cash and cash equivalents $ 471,194 $ 16,109 Royalty accounts and notes receivable, net of allowance for doubtful accounts 76,975 37,326 Marketing and reservation receivables, net of allowance for doubtful accounts 36,200 22,297 Relocation receivables 136,052 51,180 Other current assets 22,625 21,304 Deferred income taxes 36,456 20,200 ----------- ----------- Total current assets 779,502 168,416 Property and equipment, net 106,233 67,892 Franchise agreements, net 594,415 517,218 Excess of cost over fair value of net assets acquired, net 1,339,836 356,754 Other assets 80,064 55,528 ----------- ----------- TOTAL ASSETS $ 2,900,050 $ 1,165,808 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable and other $ 185,012 $ 73,724 Income taxes payable 81,633 38,640 Accrued acquisition obligations 40,287 10,276 Current portion of long-term debt 29,907 2,249 ----------- ----------- Total current liabilities 336,839 124,889 Long-term debt 541,563 300,778 Other liabilities 31,259 17,150 Deferred income taxes 85,400 82,800 Commitments and contingencies Series A Adjustable Rate Preferred Stock of Century 21 -- 80,000 STOCKHOLDERS' EQUITY Preferred stock -- -- Common stock 1,237 1,025 Additional paid-in capital 1,705,541 475,562 Retained earnings 206,236 83,604 Treasury stock, at cost (8,025) -- ------------ ----------- Total stockholders' equity 1,904,989 560,191 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,900,050 $ 1,165,808 =========== =========== -See notes to consolidated financial statements-
HFS Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 -------------------------------------------- REVENUE: Franchise $ 184,027 $ 113,340 $ 424,162 $ 265,129 Other 61,773 15,909 125,848 34,602 --------- --------- --------- --------- Total revenue 245,800 129,249 550,010 299,731 --------- --------- --------- --------- EXPENSES: Marketing and reservation 55,237 44,160 130,728 110,842 Selling, general and administrative 40,232 21,867 110,588 46,117 Depreciation and amortization 17,724 8,389 41,129 21,721 Interest 7,620 6,017 22,194 16,272 Other 23,033 2,376 40,109 3,595 --------- --------- --------- --------- Total expenses 143,846 82,809 344,748 198,547 --------- --------- --------- --------- Income before income taxes 101,954 46,440 205,262 101,184 Provision for income taxes 40,884 19,321 82,630 41,820 --------- --------- --------- --------- Net income $ 61,070 $ 27,119 $ 122,632 $ 59,364 ========= ========= ========= ========= SHARE INFORMATION (fully diluted): Net income per share $ 0.44 $ 0.24 $ 0.96 $ 0.56 ========= ========= ========= ========= Weighted average common and common equivalent shares outstanding 142,942 115,758 131,684 112,056 ========= ========= ========= =========
-See notes to consolidated financial statements- HFS Incorporated and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands)
Additional Common Stock Paid In Retained Treasury Shares Amount Capital Earnings Stock Total ------------------------------------------------------------------------- Balance, January 1, 1996 102,539 $ 1,025 $ 475,562 $ 83,604 $ -- $ 560,191 Issuance of common stock 20,278 203 1,205,768 -- -- 1,205,971 Purchase of common stock -- -- -- -- (8,025) (8,025) Exercise of stock options 898 9 7,973 -- -- 7,982 Tax benefit from exercise of stock options -- -- 16,145 -- -- 16,145 Conversion of 41/2% Notes 5 -- 93 -- -- 93 Net income -- -- -- 122,632 -- 122,632 ------- ------- ----------- --------- ---------- ---------- Balance, September 30, 1996 123,720 $ 1,237 $ 1,705,541 $ 206,236 $ (8,025) $1,904,989 ======= ======= =========== ========= =========== ==========
-See notes to consolidated financial statements- HFS Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Nine Months Ended September 30, 1996 1995 ---------- ----------- Operating Activities: Net income $ 122,632 $ 59,364 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including amortization of deferred financing costs 42,524 22,680 Changes in operating assets and liabilities and other (25,777) 2,200 ----------- ----------- Net cash provided by operating activities 139,379 84,244 ---------- ----------- Investing Activities: Property and equipment additions (23,578) (5,780) Loans and investments (10,000) (13,000) Acquisition of businesses, net of cash acquired (970,885) (70,977) ----------- ------------ Net cash used in investing activities (1,004,463) (89,757) ----------- ------------ Financing Activities: Issuance of common stock, net 1,167,953 57,053 Proceeds from borrowings, net 242,025 - Purchases of treasury stock (8,025) - Redemption of Series A Preferred Stock (80,000) - Principal payments - long-term debt (1,784) (16,252) ----------- ------------ Net cash provided by financing activities 1,320,169 40,801 ---------- ----------- Net increase in cash and cash equivalents 455,085 35,288 Cash and cash equivalents, beginning of period 16,109 5,956 ---------- ----------- Cash and cash equivalents, end of period $ 471,194 $ 41,244 ========= ===========
-See notes to consolidated financial statements- HFS Incorporated and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The consolidated balance sheet of HFS Incorporated (the "Company") as of September 30, 1996, the consolidated statements of income for the three and nine months ended September 30, 1996 and 1995, the consolidated statements of cash flows for the nine months ended September 30, 1996 and 1995 and the consolidated statement of stockholders' equity for the nine months ended September 30, 1996 are unaudited and reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary for a fair presentation. There were no adjustments of an unusual nature recorded during the three and nine months ended September 30, 1996 and 1995 except that in June 1996, the Company recorded a $7.0 million pre-tax restructuring charge, related primarily to the contribution of owned Coldwell Banker brokerage offices to a newly created independent entity, National Realty Trust (the "Trust") (See Note 2). Through September 30, 1996, the Company has engaged principally in the business of franchising guest lodging facilities (lodging segment) and real estate brokerage offices (real estate segment). The principal sources of lodging segment revenue are based upon the annual gross room revenue of franchised properties. The principal sources of real estate segment revenue are based upon franchisee gross commission revenue from real estate sales and may include monthly franchisee membership fees. As a result, the Company experiences seasonal revenue patterns similar to those of the hotel and real estate industries wherein the summer months produce higher revenue than other periods of the year. Accordingly, the first and fourth quarters are traditionally weaker than the second and third quarters and interim results are not necessarily indicative of results for a full year. The consolidated financial statements include the accounts and transactions of all wholly-owned and majority owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements of the Company include the assets and liabilities of Ramada Franchise Systems, Inc., an entity controlled by the Company by virtue of its ownership of 100% of the common stock of such entity. The assets of Ramada Franchise Systems, Inc. are not available to satisfy the claims of any creditors of the Company or any of its other affiliates, except as otherwise specifically agreed by Ramada Franchise Systems, Inc. The consolidated financial statements and notes are presented as required by Form 10-Q and do not contain certain information included in the Company's annual consolidated financial statements. The December 31, 1995 consolidated balance sheet was derived from the Company's audited financial statements. This Form 10-Q should be read in conjunction with the Company's consolidated financial statements and notes thereto, incorporated by reference in the 1995 Annual Report on Form 10-K. Certain reclassifications have been made to the 1995 consolidated financial statements to conform with classifications used in 1996. 2. Acquisitions The following acquisitions were accounted for using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values. The results of operations of acquisitions completed during the nine months ended September 30, 1996 have been included in the Company's consolidated results since the respective dates of acquisition. A. ACQUISITION OF RESORT CONDOMINIUMS INTERNATIONAL, INC. - On November 12, 1996, the Company completed the acquisition of all the outstanding capital stock of Resort Condominiums International, Inc., and its affiliates ("RCI") for approximately $625 million comprised of $550 million in cash and $75 million of Company common stock. The purchase agreement provides for contingent payments of up to $200 million over the next five years. RCI, based in Indianapolis, Indiana, is the world's largest provider of timeshare exchange programs, providing services for approximately two million timeshare owners and approximately 3,000 resorts around the world. RCI is also engaged in publishing related to the timeshare industry and provides other travel-related services, integrated software systems and resort management and consulting services. B. ACQUISITION OF AVIS, INC. - On October 17, 1996, the Company completed the acquisition of all of the outstanding capital stock of Avis, Inc. ("Avis"), including payments under certain employee stock plans of Avis and the redemption of certain series of preferred stock of Avis for an aggregate $806.5 million. The purchase price was comprised of approximately $367.2 million in cash, $100.9 million in indebtedness and $338.4 million (approximately 4.6 million shares) in Company common stock. Avis, together with its subsidiaries, licensees and affiliates, operates the Avis rental car business, which the Company believes is the second largest car rental system in the world. Prior to the consummation of the acquisition, the Company announced its intention to dispose of a majority interest in the corporation which owns all company-owned Avis car rental locations (the "Operating Company") through or an initial public offering of the common stock of the Operating Company during 1997. The Operating Company will license the Avis trademark from the Company in return for a license fee based on a percentage of Operating Company revenue. C. COLDWELL BANKER - On May 31, 1996, the Company acquired by merger Coldwell Banker Corporation ("Coldwell Banker"), at the time the largest gross revenue producing residential real estate company in North America and a leading provider of corporate relocation services. The Company paid $640 million in cash for all of the outstanding capital stock of Coldwell Banker and repaid approximately $105 million of Coldwell Banker indebtedness. The aggregate purchase price for the transaction was financed through the sale of Company common stock (see Note 5). Immediately following the closing of the Coldwell Banker acquisition, the Company conveyed Coldwell Banker's 318 owned real estate brokerage offices to the Trust. The Company recorded a pre-tax restructuring charge of $7 million (approximately $4.3 million, net of tax or $0.03 per share), in the second quarter, related primarily to the contribution of net assets to the Trust. D. CENTURY 21 NON-OWNED REGIONS - During the second quarter of 1996, the Company purchased from four independent master licensees, the six U.S. previously non-owned Century 21 regions ("Century 21 NORS") consisting of more than 1,000 franchised real estate offices. The $147 million aggregate purchase price consisted of approximately $96 million in cash, $5 million in notes and $46 million (approximately 0.9 million shares) in Company common stock. E. ERA - In February 1996, the Company purchased substantially all of the assets comprising the Electronic Realty Associates ("ERA") residential real estate brokerage franchise system for approximately $40.5 million in cash. F. TRAVELODGE - In January 1996, the Company purchased the assets comprising the Travelodge hotel franchise system ("Travelodge") in North America including the Travelodge(R) and Thriftlodge(R) service marks and the franchise agreements from Forte Hotels, Inc. ("FHI") for $39.3 million. Concurrent with the Company's acquisition of the Travelodge franchise system, Motels of America, Inc., through a wholly owned subsidiary (collectively "MOA"), purchased 19 Travelodge motels from FHI for $32.3 million. MOA, a significant Company franchisee, entered into twenty year Travelodge franchise agreements. The Company financed $10 million of MOA's purchase price under a $10 million revolving credit facility, bearing interest at 14% per annum. The loan is guaranteed by a parent company of MOA and secured by approximately 80% of MOA's outstanding common stock. In addition, Chartwell Leisure Inc. ("CHRT") formerly National Lodging Corp., a former wholly owned Company subsidiary which was distributed to the Company shareholders on November 22, 1994 (the "Distribution Date"), purchased all of the common stock of FHI for $98.4 million. FHI owned or had an interest in 112 hotel and motel properties at the acquisition date. In connection with CHRT's acquisition, the Company guaranteed $75 million of CHRT borrowings under a $125 million revolving credit facility entered into by CHRT with certain banks. The Company is paid a guarantee fee of 2% per annum of the outstanding guarantee commitment by the Company pursuant to a financing agreement entered into between CHRT and the Company at the Distribution Date (the "Financing Agreement"). The Financing Agreement was modified to provide expressly for the guaranty of such CHRT borrowings. The Company and CHRT terminated or modified other agreements entered into with CHRT at the Distribution Date, including a gaming related marketing services agreement and an advisory agreement. CHRT paid the Company an advisory fee approximating $2 million in January 1996 in connection with CHRT's acquisition of FHI. Pro Forma Information: The following information reflects the comparative pro forma statements of operations of the Company for the nine months ended September 30, 1996 and 1995 assuming the following transactions occurred on January 1, 1995: (i) the August 1, 1995 acquisition of Century 21 Real Estate Corporation ("Century 21"); (ii) the acquisition by merger in May 1995 of, Central Credit Inc.; (iii) the acquisition of Avis and the issuance of the Company common stock as partial consideration for Avis; (iv) the acquisition of RCI and the issuance of the Company common stock as partial consideration for RCI; (v) the acquisition of Coldwell Banker and the related contribution of Coldwell Banker's owned real estate brokerage offices to the Trust; (vi) proceeds from an offering of the Company's common stock (See Note 5) to the extent necessary to fund the acquisition of Coldwell Banker and the related repayment of indebtedness and acquisition expenses; (vii) the 1996 acquisitions of Travelodge, ERA and the Century 21 NORS; and (viii) the February 22, 1996 issuance of $240 million of 4 3/4% convertible senior notes due 2003 (the "4 3/4% Notes", see Note 6) to the extent such proceeds were used to finance acquisitions. The acquisitions have been or will be accounted for using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed have been or will be recorded at their estimated fair values, which are subject to further refinement, based upon appraisals and other analyses with appropriate recognition given to the effect of current interest rates and income taxes. The pro forma results are not necessarily indicative of the results of operations that would have occurred had the transactions been consummated as indicated nor are they intended to indicate results that may occur in the future. The underlying pro forma information includes the amortization expense associated with the assets acquired, the reflection of the Company's financing arrangements, the elimination of redundant costs and the related income tax effects. Certain other Company acquisitions were not material and therefore were not reflected in the pro forma statements of operations. Nine Months Ended September 30, (000's, except net income per share) 1996 1995 ----------- ---------- Revenue .............................................. $ 973,383 $ 843,846 Income before income taxes ........................... 291,551 191,253 Net income per share (primary) ....................... $ 1.18 $ .83 Weighted average common equivalent shares (primary)... 147,470 139,315 Net income per share (fully diluted) ................. $ 1.18 $ .82 Weighted average common and common equivalent shares outstanding (fully diluted) ................ 148,194 141,807 3. Income Taxes The effective income tax rate is based on estimated annual taxable income and other factors. 4. Earnings per Share Earnings per share for the three and nine months ended September 30, 1996 and 1995 are based upon the weighted average number of common and common equivalent shares outstanding during the respective periods. The 4 3/4% Notes, issued February 22, 1996, are antidilutive for the three and nine months ended September 30, 1996 and, accordingly, are not included in the computation of earnings per share for 1996. For purposes of calculating earnings per share, the $150 million 4 1/2% convertible senior notes are assumed to be converted and, accordingly, interest expense, including amortization of deferred financing costs (net of taxes) has been added back to net income. 5. Stockholders' Equity A. Authorized Shares - On January 22, 1996, the Company's shareholders approved an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of common stock to 300 million. B. Public Offering - On May 9, 1996, the Company sold an aggregate 19.4 million shares of Company common stock pursuant to a public offering (the "Offering"). A majority of the net proceeds from the Offering of $1.2 billion financed the acquisition of Coldwell Banker and the balance was principally used as partial consideration in the subsequent acquisition of Avis. 6. Debt On February 22, 1996, the Company completed the public offering of the 4 3/4% Notes, which are convertible at the option of the holder at any time prior to maturity into 14.993 shares of the Company's common stock per $1,000 principal amount of the 4 3/4% Notes, representing a conversion price of $66.70 per share. The 4 3/4% Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 3, 1998 at redemption prices decreasing from 103.393% of principal at March 3, 1998 to 100% of principal at March 3, 2003. However, on or after March 3, 1998 and prior to March 3, 2000, the 4 3/4% Notes will not be redeemable at the option of the Company unless the closing price of the Company's common stock shall have exceeded $93.38 per share (subject to adjustment upon the occurrence of certain events) for 20 trading days within a period of 30 consecutive trading days ending within five days prior to redemption. Interest on the 4 3/4% Notes is payable semi-annually commencing September 1, 1996. On October 2, 1996, the Company replaced an existing $300 million revolving credit facility with $1 billion in revolving credit facilities consisting of (i) a $500 million, five year revolving credit facility (the "Five Year Credit Facility") and (ii) a $500 million, 364 day revolving credit facility (the "364 Day Revolving Credit Facility" (collectively the "Revolving Credit Facilities"). The Company may renew the 364 Day Revolving Credit Facility on an annual basis for an additional 364 days up to a maximum aggregate term of five years upon receiving lender approval. The Revolving Credit Facilities, at the option of the Company, bear interest based on competitive bids of lenders participating in the facilities, at the prime rate or at LIBOR plus a margin approximating 25 basis points. 7. Recent Events A. PENDING ACQUISITION OF PHH CORPORATION ("PHH") - On November 10, 1996, the Company entered into a definitive merger agreement (the "Merger Agreement") pursuant to which the Company will issue approximately $1.7 billion of Company common stock in exchange for all of the outstanding common stock of PHH. Pursuant to the terms of the Merger Agreement, the number of Company shares to be issued may range from 21.3 to 28.7 million, based upon the average share price of the Company's common stock over a period of 20 trading days ending five days prior to the date of the vote by PHH shareholders on approval of the transaction. PHH is the world's largest provider of corporate relocation services and also provides mortgage banking and vehicle management services. Consummation of the transaction is subject to customary regulatory approvals and the approval of the shareholders of each company. The transaction, which is expected to close in early 1997, will be accounted for as a pooling of interests. B. PURCHASE OF MINORITY INTEREST- Effective October 29, 1996 (the "Effective Date"), the Company amended the Subscription and Stockholders Agreement dated as of August 1, 1995 among C21 Holding Corp., the Company and a group of former executives of Century 21 Real Estate Corporation (the "Former Management") pursuant to which the Company owns 87.5% of C21 Holding Corp. and the Former Management owns 12.5% of C21 Holding Corp. Such amendment provides for the acceleration of the Company's option to purchase the 12.5% ownership from the Former Management approximately 90 days from the Effective Date at fair market value as of the Effective Date. The Company is in the process of determining the fair market value of C21 Holding Corp. and expects to complete such purchase in the first quarter of 1997. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL OVERVIEW HFS Incorporated (the "Company") provides services to various businesses in consumer industries businesses. The Company began 1996 as the world's largest franchisor of lodging facilities and real estate brokerage offices. In 1996, the Company continued to pursue its strategy of adding franchise brands to its existing franchise infrastructure with several acquisitions, including the acquisition of Coldwell Banker Corporation ("Coldwell Banker"), at the time the largest gross revenue producing residential real estate company in North America and a leading provider of relocation services. The Company expanded its consumer services business to include the car rental industry with its October 17, 1996 acquisition of Avis, Inc. ("Avis"), which the Company believes is the second largest car rental system in the world. On November 12, 1996, the Company continued its expansion by acquiring Resort Condominiums International, Inc. ("RCI") which is the world's largest provider of timeshare exchange programs. See "Liquidity and Capital Resources - Acquisitions". On November 11, 1996, the Company entered into a definitive merger agreement with PHH Corporation ("PHH"), pursuant to which PHH will become a subsidiary of the Company. PHH is the world's largest provider of corporate relocation services and also provides mortgage banking and vehicle management services. See "Liquidity and Capital Resources - Pending Acquisition". The Company continues to pursue acquisitions and other strategic transactions within its existing industry segments as well as other franchise or franchisable businesses and other consumer services businesses. RESULTS OF OPERATIONS -- REVENUE OVERVIEW Company revenue increased 90% ($116.6 million) to $245.8 million in the third quarter of 1996 compared to $129.2 million in the third quarter of 1995. Approximately $78.9 million of the increase represented incremental revenue from the Company's real estate segment including revenue generated from the CENTURY 21(R), Electronic Realty Associates (ERA(R)) and Coldwell Banker(R) franchise systems which were acquired in August 1995, February 1996 and May 1996, respectively. Preferred vendor revenue also increased $10.4 million representing a 241% increase over such revenue in the third quarter of 1995. Company revenue increased 84% ($250.3 million) to $550.0 million during the nine months ended September 30, 1996 compared to the same period in 1995. The lodging and real estate segments each contributed to the revenue increase. The real estate segment, which was not established until the third quarter of 1995, generated $187.4 million of revenue for the nine months ended September 30, 1996 compared to $22.8 million for the same period in the prior year. 3Q96 vs. 3Q95 Lodging Franchise Fees The royalty portion of lodging franchise fees increased $5.4 million (11%), in the third quarter of 1996 compared to the same period in 1995. Room growth through the sale of franchise agreements and the acquisitions of the Knights Inn(R) and Travelodge(R) franchise systems in August 1995 and January 1996, respectively, contributed to the increase. Excluding these acquisitions, the Company added 24,859 rooms, net of terminations, during the twelve months ended September 30, 1996. Real Estate Franchise Fees The real estate segment contributed $74.4 million of franchise fees for the third quarter of 1996 including $36.6 million from the CENTURY 21 franchise system, acquired in August 1995, $5.6 million from the ERA franchise system, acquired on February 12, 1996 and $32.2 million from the Coldwell Banker franchise system, acquired on May 31, 1996. Franchise fees of acquired real estate segment franchise systems increased $54.9 million for the quarter ended September 30, 1996 compared to the same period in 1995, due to such real estate segment acquisitions. Other Other revenue is primarily comprised of revenue from preferred vendor arrangements and relocation service revenue. Preferred vendor fees consist of revenue generated from vendors seeking access to the Company's franchisees and franchisees' customers. Preferred vendor revenue increased $10.4 million (241%) from the third quarter of 1995 to the third quarter of 1996. The Company acquired relocation service businesses in connection with the acquisitions of the CENTURY 21, ERA and Coldwell Banker franchise systems. Relocation service fees approximated $28.9 million in the third quarter of 1996, compared to $3.7 million in the third quarter of 1995, including $25.0 million from Coldwell Banker Relocation Services, Inc., ("CBRS") acquired by the Company on May 31, 1996. Year-to-date 1996 vs. 1995 Lodging Franchise Fees Lodging segment franchise fees and the royalty portion of franchise fees increased $30.1 million (12%) and $17.4 million (15%), respectively, in the nine months ended September 30, 1996 compared to the same period in 1995. The increase in lodging segment franchise fees is primarily attributable to room growth through the sale of franchise agreements and the acquisition of the Knights Inn and Travelodge franchise systems. Real Estate Franchise Fees The real estate segment contributed $148.4 million of franchise fees for the nine months ended September 30, 1996 including approximately $91.3 million, $13.4 million and $43.7 million from the Century 21, ERA and Coldwell Banker franchise systems, respectively. Franchise fees of the aforementioned acquired real estate segment franchise systems increased $128.9 million for the nine months ended September 30, 1996 compared to the same period in 1995 due to such real estate segment acquisitions. Other Other revenue is substantially comprised of fees from preferred vendor arrangements, which increased $26.6 million (200%) from the first nine months of 1995 to the same period in 1996 and relocation services fees of $44.1 million from businesses acquired in connection with the Company's real estate segment acquisitions, including $32.7 million from CBRS. RESULTS OF OPERATIONS - EXPENSES AND INCOME 3Q96 VS 3Q95 Income before income taxes increased $55.5 million (120%) resulting from a $116.6 (90%) increase in revenue as discussed above in "Results of Operations - Revenue Overview", net of a $61.0 million (74%) of increased expenses. Operating profits (pre-tax income plus interest expense) for all segments increased $57.1 million or 109% during the same comparable period. Interest expense for the third quarter of 1996 increased $1.6 million as a result of the issuance of $240 million 4 3/4% Convertible Senior Notes ("4 3/4% Notes") in February 1996. The increase in interest expense was offset in part by the decrease in the Company's weighted average effective interest rate from 6.7% in the third quarter 1995 to 5.6% in the third quarter of 1996 as a result of the issuance of the 4-3/4% Notes. LODGING SEGMENT Operating profits increased 15% to $43.1 million from 1995 to 1996. A $16.8 million (17%) increase in revenue was offset by an $11.2 million (18.0%) increase in expenses. The increase in expenses primarily consisted of a $9.2 million increase in marketing expenditures corresponding with marketing fees collected from lodging franchisees and a $1.2 million increase in depreciation and amortization expenses related to goodwill associated with the January 1996 and August 1995 acquisitions of the Travelodge and the Knights Inn franchise systems, respectively. Selling, general and administrative ("SG&A") expenses increased only $0.7 million as a result of economies achieved as the Company's corporate infrastructure benefited both its lodging and recently acquired real estate segment businesses. REAL ESTATE SEGMENT Third quarter 1996 operating profits of $46.7 million included the results of operations of the Company's three real estate brands compared to third quarter 1995 operating profits of $9.6 million, when only Century 21 contributed to operations. Revenue improved $65.7 million to $86.7 million and expenses increased $28.5 million to $40.0 million. Expenses consisted primarily of $24.5 million of SG&A and $9.3 million of depreciation and amortization primarily related to goodwill and franchise agreements associated with recently acquired franchise systems. OTHER SEGMENT Other segment operating profits increased $14.2 million (261%) to $19.7 million from 1995 to 1996. The increase in other segment operating profits was substantially generated from the corporate relocation service businesses acquired as part of the August 1995 and May 1996 acquisitions of Century 21 and Coldwell Banker, respectively. YEAR-TO-DATE 1996 VS. 1995 Income before income taxes increased $104.1 million (103%) for the nine months ended September 30, 1996 versus the comparable period in 1995. This increase resulted from the $36.7 increase in revenue discussed above in "Results of Operations -Revenue Overview" net of a $146.2 million (74%) increase in expenses. Operating profits increased $110.0 million (94%) during the same comparable period. Interest expense for the nine months ended September 30, 1996 increased $5.9 million due to the issuance of the 4 3/4% Notes in February 1996. Interest expense was offset in part by the decrease in the Company's weighted average effective interest rate from 6.0% in the first nine months of 1995 to 5.7% in the nine months ended September 30, 1996 as a result of the issuance of the 4 3/4% Notes. LODGING SEGMENT Operating profits increased 15% to $111.0 million from 1995 to 1996. A $36.7 million (14%) increase in revenue was offset by a $22.3 million (14%) increase in expenses. The increase in expenses primarily consisted of a $13.1 million increase in marketing expenditures corresponding with increased marketing fees collected from lodging franchisees and $3.1 million of depreciation and amortization primarily corresponding with goodwill and franchise agreements associated with the January 1996 Travelodge franchise system acquisition. The $5.8 million increase in SG&A expenses consisted of $3.9 million of franchise sales related expenses associated with system growth. REAL ESTATE SEGMENT Operating profits of $81.4 million included the results of operations for Century 21 for the full period and ERA and Coldwell Banker from their respective February and May 1996 acquisition dates. Operating profits for the comparable 1995 period included $9.6 million of operating profits generated from Century 21 since the Company's August 1, 1995 acquisition date of the franchise system. The 1996 operating profits resulted from $178.3 million of revenue and $96.9 million of expenses. Included in expenses were $61.4 million of SG&A primarily associated with Century 21 operations since the Coldwell Banker franchise system was acquired in May 1995 and a $5 million restructuring charge associated with the contribution of Coldwell Banker's former owned brokerage business assets to National Realty Trust (the "Trust") an independent entity governed by an independent Board of Trustees. Expenses also included $6.5 million of depreciation and amortization primarily related to goodwill and franchise agreements associated with the Century 21, ERA and Coldwell Banker franchise system acquisitions. OTHER SEGMENT Other segment operating profits increased $23.8 million (211%) to $35.0 million from 1995 to 1996. The increase in other segment operating profits was substantially generated from the corporate relocation service business acquired as part of the August 1995 and May 1996 acquisitions of Century 21 and Coldwell Banker, respectively. LIQUIDITY AND CAPITAL RESOURCES Pending Acquisition On November 10 1996, the Company entered into a definitive merger agreement (the "Merger Agreement") pursuant to which the Company will issue $1.7 billion of Company common stock in exchange for all of the outstanding common stock of PHH. Pursuant to the terms of the Merger Agreement, the number of Company shares to be issued may range from 21.3 million to 28.7 million, based upon the average share price of the Company's common stock over a period of 20 trading days ending five days prior to the date of the vote by PHH shareholders on approval of the transaction. PHH is the world's largest provider of corporate relocation services and also provides mortgage banking and vehicle management services. Consummation of the transaction is subject to customary regulatory approvals and the approval of the shareholders of each company. The transaction is expected to close in early 1997. Acquisitions RCI - On November 12, 1996, the Company completed the acquisition of all the outstanding capital stock of Resort Condominiums International, Inc. and its affiliates ("RCI") for approximately $625 million comprised of $550 million in cash and $75 million of Company common stock plus future contingent payments of up to $200 million over the next five years. RCI, based in Indianapolis Indiana, is the world's largest provider of timeshare exchange programs, providing services for approximately two million timeshare owners and approximately 3,000 resorts around the world. RCI is also engaged in publishing related to the timeshare industry and provides other travel-related services, integrated software systems and resort management and consulting services. AVIS - On October 17, 1996, the Company completed the acquisition of all of the outstanding capital stock of Avis Inc. ("Avis"), including payments under certain employee stock plans of Avis and the redemption of certain series of preferred stock of Avis for $806.5 million. The purchase price was comprised of approximately $367.2 million in cash, $100.9 million in indebtedness and $338.4 million (approximately 4.6 million shares) in Company common stock. Avis, together with its subsidiaries, licensees and affiliates, operates the Avis System, which the Company believes to be the second largest car rental system in the world. Prior to the consummation of the acquisition, the Company announced that it would dispose of a majority interest in the corporation which owns all company-owned Avis car rental locations (the "Operating Company") through or an initial public offering of the common stock of the Operating Company during 1997. The Operating Company will license the Avis trademark from the Company in return for a license fee based on a percentage of the Operating Company revenue. COLDWELL BANKER - On May 31, 1996, the Company acquired by merger Coldwell Banker (the "Merger") for $640 million of cash plus repayment of approximately $105 million of indebtedness. At the effective date of the Merger, Coldwell Banker had 2,164 franchised brokerage offices and owned 318 residential real estate brokerage offices ("Owned Brokerage Business") in the United States, Canada and Puerto Rico, representing the third largest real estate brokerage system in the United States. The Company financed the Coldwell Banker transaction with approximately $1.2 billion of proceeds from a public offering of approximately 19.4 million common shares (the "Offering") in the second quarter of 1996. Immediately following the closing of the Merger, the Company conveyed the Owned Brokerage Business to a newly created independent trust (the "Trust"). The Company recorded a $7 million pre-tax restructuring charge related primarily to the contribution of the Owned Brokerage Business to the Trust. CENTURY 21 NON-OWNED REGIONS - During the second quarter of 1996, the Company completed the acquisition of the six U.S. Century 21 regions which were licensed to four independent master licensees. The aggregate purchase price consisted of approximately $96 million of cash, $5 million of notes and $46 million (approximately 0.9 million shares) of the Company's common stock. These regions represent more than 1,000 CENTURY 21 franchised real estate offices in the United States and the acquisitions result in the Company receiving royalty fees of up to 6% of franchisee gross commissions generated by such offices compared to less than 1% previously received under the master licensing agreements. The cash portion of the aggregate purchase price was financed with proceeds from the issuance of the 4 3/4% Notes. ERA - On February 12, 1996, the Company purchased substantially all of the assets comprising the ERA residential real estate brokerage franchise system for approximately $40.5 million which was financed by borrowings under the Company's revolving credit facility. CENTURY 21 - On August 1, 1995, a majority-owned Company subsidiary, C21 Holding Corp. ("Holding"), acquired Century 21 from Metropolitan Life Insurance Company ("MetLife") for an aggregate purchase price of $245 million plus expenses. In February 1996, the Company paid the $30 million contingent portion of the purchase price of Century 21 and redeemed $80 million of Century 21 redeemable preferred stock issued to MetLife prior to the acquisition. The Company financed these payments with proceeds from the 4 3/4% Notes. Effective October 29, 1996 (the "Effective Date"), the Company amended the Subscription and Stockholders Agreement dated as of August 1, 1995 among C21 Holding Corp., the Company and a group of former executives of Century 21 Real Estate Corporation (the "Former Management") pursuant to which the Company owns 87.5% of C21 Holding Corp. and the Former Management owns 12.5% of C21 Holding Corp. Such amendment provides for the acceleration of the Company's option to purchase the 12.5% ownership from the Former Management approximately 90 days from the Effective Date at fair market value as of the Effective Date. The Company is in the process of determining the fair market value of C21 Holding Corp. and expects to complete such purchase in the first quarter of 1997. TRAVELODGE - On January 23, 1996, the Company purchased the assets comprising the Travelodge hotel franchise system in North America, including the Travelodge and Thriftlodge(R) service marks and franchise agreements, from Forte Hotels, Inc. ("FHI") for $39.3 million. The Company financed the acquisition with borrowings under its revolving credit facility and repaid the borrowings with proceeds from the 4 3/4% Notes. Concurrent with the Company's acquisition of the Travelodge franchise system, Motels of America, Inc., through a wholly owned subsidiary (collectively "MOA"), purchased 20 Travelodge motels from FHI for $32.3 million. MOA, a significant Company franchisee, entered into twenty year Travelodge franchise agreements. The Company financed $10 million of MOA's purchase price under a $10 million revolving credit facility, bearing interest at 14% per annum. The loan is guaranteed by the parent company of MOA and secured by approximately 80% of MOA's outstanding common stock. In addition, Chartwell Leisure, Inc. ("CHRT") formerly National Lodging Corp. a former wholly owned Company subsidiary which was distributed to the Company sharesholders in November 1994, purchased all of the common stock of FHI for $98.4 million. FHI owned or had an interest in 112 hotel and motel properties at the acquisition date. In connection with CHRT's acquisition, the Company guaranteed $75 million of CHRT borrowings under a $125 million revolving credit facility entered into by CHRT with certain banks. The Company is paid a guarantee fee of 2% per annum of outstanding guarantee commitment by the Company pursuant to a Financing Agreement. Concurrent with the acquisition of the Travelodge franchise system and CHRT's acquisition of FHI, the marketing and advisory agreements between the Company and CHRT were terminated. The corporate services agreement was modified to provide that the Company is to provide financial and other corporate administrative support and advisory services through September 1996 and thereafter advisory services through January 2019 for a fee of $1.5 million per year. CHRT paid a $2.0 million advisory fee to the Company in connection with CHRT's acquisition of FHI. Financing The Company believes that it has excellent liquidity and access to liquidity through various sources. The Company has generated significant positive cash flow from operations in every quarter since its public offering in December 1992. The Company has also demonstrated its ability to access equity and public debt markets and financial institutions to generate capital for strategic acquisitions. Indicative of the Company's creditworthiness, Standard & Poors Corporation and Duff and Phelps assigned an "A" credit rating to the Company's $540 million of publicly issued debt. The Company generated $139.4 million of cash flow from operations during the nine months ended September 30, 1996, representing a $55.2 million (65%) increase from the nine months ended September 30, 1995. On October 2, 1996, the Company replaced an existing $300 million revolving credit facility with a $1 billion of revolving credit facilities consisting of (i) a $500 million, five year revolving credit facility (the "Five Year Credit Facility") and (ii) a $500 million, 364 day revolving credit facility (the "364 Day Revolving Credit Facility" (collectively the "Revolving Credit Facilities"). The Company may renew the 364 Day Revolving Credit Facility on an annual basis for an additional 364 days up to a maximum aggregate term of five years upon receiving lender approval. The Revolving Credit Facilities, at the option of the Company, bear interest based on competitive bids of lenders participating in the facilities, at the prime rate or at LIBOR plus a margin approximating 25 basis points. The Company completed an offering of 19.4 million shares of common stock in the second quarter of 1996 which yielded net proceeds to the Company after expenses of approximately $1.2 billion. Approximately $ 755 million of the proceeds were used to finance the acquisition of Coldwell Banker and repay $75 million of outstanding borrowings under the Company's existing credit facility. The remaining $331 million of proceeds were used as partial consideration for the October 17, 1996 acquisition of Avis. The Company filed a shelf registration statement with the Securities and Exchange Commission effective August 29, 1996, for the aggregate issuance of up to $1 billion of debt and equity securities. These securities may be offered from time to time, together or separately, based on terms to be determined at the time of sale. The proceeds may be used for general corporate purposes, which may include future acquisitions. Working capital at September 30, 1996 approximated $438 million including the remaining $331 million of excess proceeds from the Offering. Excluding the excess proceeds of the Offering, working capital increased $63 million at September 30, 1996 from December 31, 1995. The increase in working capital is attributable to cash generated from operations and the seasonal increase in lodging segment royalty receivables. Additionally, included in working capital at September 30, 1996 is $136 million in relocation receivables relating to the Company's relocation services business acquired as part of the acquisitions of Century 21 and Coldwell Banker. Outstanding relocation receivables are guaranteed by client corporations and accordingly are, in the opinion of the Company, subject to minimal risk. Long-term debt consists of $540 million of publicly issued debt including the 4 3/4% Notes, $150 million of 4 1/2% convertible senior notes due 1999 and $150 million of 5 7/8% senior notes due December 1998. Interest on the publicly issued debt is paid semi-annually. Long-term debt increased from $300.8 million at December 31, 1995 to $539.8 million at September 30, 1996, due to the issuance of the 4 3/4% Notes. The weighted average stated interest rate on long-term debt at September 30, 1996 was 5.0% compared to the weighted average stated interest rate of 5.2% at December 31, 1995. On October 17, 1996, the acquisition date, Avis had $2.5 billion of outstanding borrowings associated with Avis fleet and other financing arrangements with banks, vehicle manufacturer finance companies and other financial institutions with a weighted average interest rate of approximately 6.3%. Avis may borrow up to $4 billion on such facilities. Approximately $2.2 billion of available borrowings are secured by Avis' fleet of vehicles and are non-recourse to the Company. The remaining available borrowings are unsecured. The most significant Avis financing arrangement is a $2.5 billion, 364-day revolving credit facility which bears interest at LIBOR plus 0.63%. Capital expenditures approximating $23.6 million during the nine months ended September 30, 1996 consisted of approximately $14.7 million of software development and the acquisition of computer equipment primarily associated with a new transactional data base and reporting system for the real estate segment and $3.2 million of additions and modifications to the hotel brands' central reservation systems, which will be reimbursed by collections of reservation fees from the Company's lodging franchisees. Also included in capital expenditures is $5.7 million of improvements principally associated with the purchase of a building in 1995, whiich is now the Company's new headquarters. The Company believes that based upon its analysis of its financial position, its cash flow during the past twelve months and the expected results of operations in the future, operating cash flow, available funding under the revolving credit facility and issuances of securities in the capital markets, if appropriate, will be adequate to fund operations, investments and acquisitions for the next twelve months. Impact of New Accounting Pronouncement In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which is effective for the Company in financial statements issued after January 1, 1997. The Company does not expect the adoption of SFAS 125 to have a material impact on the financial condition or results of operations. Part II - OTHER INFORMATION Item 5. OTHER INFORMATION HFS INCORPORATED AND SUBSIDIARIES PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF HFS The pro forma consolidated balance sheet as of September 30, 1996 is presented as if the following had occurred on September 30, 1996: (i) the acquisition of Avis, Inc. ("Avis") and the November 1996 issuance of HFS common stock (the "Avis Offering") as partial consideration for Avis and; (ii) the acquisition of Resort Condominiums International, Inc. and its affiliates ("RCI") and the issuance of HFS common stock as partial consideration for RCI. HFS currently intends to undertake an initial public offering of a majority interest in the corporation which owns all company-owned Avis car rental locations (the "Car Rental Operating Company") in 1997, the proceeds of which will be used to pay down indebtedness of the Car Rental Operating Company and to enter into franchise, information technology and other agreements to provide services to the Car Rental Operating Company based on terms to be determined. Accordingly, the pro forma financial statements reflect the acquired net assets and results of operations of the Avis rental car operating subsidiary intended to be sold as "Investment in car rental operating company -net" and "Equity in earnings in car rental operating company", respectively. The pro forma consolidated statements of operations for the year ended December 31, 1995 and the nine months ended September 30, 1995 and 1996 are presented as if the acquisitions of Avis and RCI and the following transactions had occurred on January 1, 1995: (i) the May 31, 1996 acquisition of the common stock of Coldwell Banker Corporation ("Coldwell Banker") and the related contribution of Coldwell Banker's owned real estate brokerage offices (the "Owned Brokerage Business") to a newly created independent trust (the "Trust") (the "Coldwell Banker Transaction"); (ii) the receipt of proceeds from an offering of HFS' common stock (the "Second Quarter 1996 Offering") to the extent necessary to fund (a) the acquisition of Coldwell Banker and the related repayment of indebtedness and acquisition expenses and (b) the cash consideration portion in the Avis acquisition; (iii) the acquisitions of: the six non-owned Century 21 regions ("Century 21 NORS") during the second quarter of 1996, the Travelodge franchise system ("Travelodge") on January 23, 1996 and the Electronic Realty Associates franchise system ("ERA") on February 12, 1996 (collectively, the "Other 1996 Acquisitions"); and (iv) the February 22, 1996 issuance of $240 million of 4 3/4% convertible senior notes due 2003 to the extent such proceeds were used to finance the Other 1996 Acquisitions. The pro forma consolidated statements of operations for the year ended December 31, 1995 and the nine months ended September 30, 1995 are also presented as if the August 1, 1995 acquisition of Century 21 and the acquisition by merger (the "CCI Merger") in May 1995 of Central Credit Inc. ("CCI") had occurred on January 1, 1995. All of the aforementioned acquisitions have been accounted for using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed have been recorded at their estimated fair values which are subject to further refinement, including appraisals and other analyses, with appropriate recognition given to the effect of current interest rates and income taxes. Management does not expect that the final allocation of the purchase price for the above acquisitions will differ materially from the preliminary allocations. HFS has entered into certain immaterial transactions which are not reflected in the pro forma consolidated statements of operations. The pro forma consolidated financial statements do not purport to present the financial position or results of operations of HFS had the transactions and events assumed therein occurred on the dates specified, nor are they necessarily indicative of the results of operations that may be achieved in the future. The pro forma consolidated statements of operations do not reflect cost savings and revenue enhancements that management believes may be realized following the acquisitions. These cost savings are expected to be realized primarily through the restructuring of operations as well as revenue enhancements expected to be realized through leveraging of HFS's preferred alliance programs. No assurances can be made as to the amount of cost savings or revenue enhancements, if any, that actually will be realized. The pro forma consolidated financial statements are based on certain assumptions and adjustments described in the Notes to Pro Forma Consolidated Balance Sheet and Statements of Operations and should be read in conjunction therewith and with (i) the consolidated financial statements and related notes of the Company included in its 1995 Annual Report on Form 10-K (ii) the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996; and (iii) the financial statements and related notes of certain of the acquired companies previously filed in Current Reports on Form 8-K pursuant to Regulation S-X Rule 3.05, "Financial Statements of Businesses Acquired or to be Acquired". HFS INCORPORATED AND SUBSIDIARIES PAGE 1 OF 2 PRO FORMA CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (IN THOUSANDS)
HISTORICAL ----------------------------------------- PRO FORMA ADJUSTMENTS AVIS, ------------------------- HFS AS ADJUSTED (1) RCI AVIS (A) RCI (B) PRO FORMA ------------ --------------- ---------- ------------ ----------- ------------ ASSETS Current assets Cash and cash equivalents........... $ 471,194 $ -- $ 89,070 $(410,742) $ (48,771) $ 100,751 Marketable securities . -- -- 184,599 -- (184,599) -- Relocation receivables........... 136,052 -- -- -- -- 136,052 Other accounts and notes receivable, net................... 113,175 1,800 33,107 -- -- 148,082 Other current assets .. 59,081 1,881 22,836 -- 29,000 112,798 ------------ --------------- ---------- ------------ ----------- ------------ TOTAL CURRENT ASSETS .... 779,502 3,681 329,612 (410,742) (204,370) 497,683 ------------ --------------- ---------- ------------ ----------- ------------ Property and equipment--net......... 106,233 33,828 87,785 58,172 (32,125) 253,893 Franchise agreements--net........ 1,027,711 -- -- -- -- 1,027,711 Excess of cost over fair value of net assets acquired-net ... 906,540 -- -- -- 443,845 1,350,385 Intangible assets....... -- 499,143 -- 327,426 100,000 926,569 Investment in car rental operating company--net........... -- 72,616 -- 2,384 -- 75,000 Deferred income taxes--net............. -- -- -- 5,200 -- 5,200 Other assets............ 80,064 59,633 40,936 (9,614) (31,630) 139,389 ------------ --------------- ---------- ------------ ----------- ------------ TOTAL ASSETS............. $2,900,050 $668,901 $458,333 $ (27,174) $ 275,720 $4,275,830 ============ =============== ========== ============ =========== ============
- ------------ (1) The consolidated historical balance sheet of Avis Inc., as adjusted is as of August 31, 1996. See Consolidated Historical Balance Sheet of Avis, Inc., as adjusted, as of August 31, 1996. Note: Certain reclassifications have been made to the historical HFS, Avis and RCI consolidated balance sheets to conform to HFS's pro forma classification. See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES PAGE 2 OF 2 PRO FORMA CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (IN THOUSANDS)
HISTORICAL ---------------------------------------- PRO FORMA ADJUSTMENTS AVIS, ----------------------- HFS AS ADJUSTED (1) RCI AVIS (A) RCI (B) PRO FORMA ------------ --------------- ---------- ----------- ---------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and other accrued liabilities....................... $ 160,357 $ 201,954 $ 76,328 $ -- $ -- $ 438,639 Deferred revenue................... 24,655 -- 119,218 -- -- 143,873 Income taxes payable............... 81,633 182 -- (182) -- 81,633 Accrued acquisition obligations ... 40,287 -- -- 18,000 10,557 68,844 Current portion of long-term debt . 29,907 -- -- 100,930 -- 130,837 ------------ --------------- ---------- ----------- ---------- ----------- TOTAL CURRENT LIABILITIES............ 336,839 202,136 195,546 118,748 10,557 863,826 ------------ --------------- ---------- ----------- ---------- ----------- Long-term debt...................... 541,563 -- 3,536 -- 285,000 830,099 Deferred revenue.................... 7,299 -- 185,703 -- -- 193,002 Other non-current liabilities ...... 23,960 -- 1,711 -- 20,000 45,671 Deferred income taxes............... 85,400 -- -- -- (43,000) 42,400 Preferred stock--Avis, Inc.......... -- 72,416 -- (72,416) -- -- Redeemable portion of common stock--ESOP........................ -- 295,465 -- (295,465) -- -- Unearned compensation--ESOP......... -- (257,751) -- 257,751 -- -- STOCKHOLDERS' EQUITY Participating convertible preferred stock.............................. -- 132,000 -- (132,000) -- --- Common stock--issued and outstanding; HFS Historical, 123,720 and Pro Forma, 129,289 .... 1,237 290 -- (244) 10 1,293 Additional paid-in capital ......... 1,705,541 220,401 6,392 100,396 60,573 2,093,303 Retained earnings .................. 206,236 103,339 34,864 (103,339) (34,864) 206,236 Treasury stock...................... (8,025) (102,269) -- 102,269 8,025 -- Net unrealized gain on available for sale securities................ -- -- 20,784 -- (20,784) -- Foreign currency equity adjustment -- 2,874 9,797 (2,874) (9,797) -- ------------ --------------- ---------- ----------- ---------- ----------- TOTAL STOCKHOLDERS' EQUITY........... 1,904,989 356,635 71,837 (35,792) 3,163 2,300,832 ------------ --------------- ---------- ----------- ---------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $2,900,050 $ 668,901 $458,333 $ (27,174) $275,720 $4,275,830 ============ =============== ========== =========== ========== ===========
- ------------ (1) The consolidated historical balance sheet of Avis, Inc., as adjusted is as of August 31, 1996. See Consolidated Historical Balance Sheet of Avis, Inc., as adjusted, as of August 31, 1996. Note: Certain reclassifications have been made to the historical HFS Avis and RCI consolidated balance sheets to conform to HFS's pro forma classification. See notes to pro forma consolidated balance sheet and statements of operations. CONSOLIDATED HISTORICAL BALANCE SHEET OF AVIS, INC., AS ADJUSTED AS OF AUGUST 31, 1996 (IN THOUSANDS)
HISTORICAL RECLASSIFICATION AVIS, AVIS ADJUSTMENT AS ADJUSTED ------------- ---------------- ------------- ASSETS Current assets Cash and cash equivalents....................... $ 75,683 $ (75,683) $ -- Accounts and notes receivable, net.............. 174,047 (172,247) 1,800 Vehicles, net................................... 2,567,517 (2,567,517) -- Due from affiliated company..................... 114,976 (114,976) -- Other current assets ........................... 45,296 (43,415) 1,881 Deferred income taxes........................... 68,667 (68,667) -- ------------- ---------------- ------------- TOTAL CURRENT ASSETS............................. 3,046,186 (3,042,505) 3,681 ------------- ---------------- ------------- Property and equipment-net....................... 151,854 (118,026) 33,828 Intangible assets--Avis.......................... 499,143 -- 499,143 Investment in car rental operating company--net . -- 72,616 72,616 Other assets .................................... 85,368 (25,735) 59,633 ------------- ---------------- ------------- TOTAL............................................ $3,782,551 $(3,113,650) $ 668,901 ============= ================ ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and other ..................... $ 444,867 $ (242,731) $ 202,136 ------------- ---------------- ------------- Long-term debt .................................. 2,488,651 (2,488,651) -- Public liability and property damage............. 215,135 (215,135) -- Due to affiliated company........................ 132,563 (132,563) -- Other non-current liabilities Deferred income taxes........................... 34,570 (34,570) -- Preferred stock--Avis, Inc. .................... 72,416 -- 72,416 Redeemable portion of common stock--ESOP ....... 295,465 -- 295,465 Unearned compensation--ESOP..................... (257,751) -- (257,751) STOCKHOLDERS' EQUITY Participating convertible preferred stock ...... 132,000 -- 132,000 Common stock.................................... 290 -- 290 Additional paid-in capital...................... 220,401 -- 220,401 Retained earnings............................... 103,339 -- 103,339 Treasury stock ................................. (102,269) -- (102,269) Foreign currency equity adjustment.............. 2,874 -- 2,874 ------------- ---------------- ------------- TOTAL STOCKHOLDERS' EQUITY....................... 356,635 -- 356,635 ------------- ---------------- ------------- TOTAL............................................ $3,782,551 $(3,113,650) $ 668,901 ============= ================ =============
- ------------ Note: The reclassification adjustment made to the historical consolidated balance sheet of Avis, Inc. is to present the historical net assets of car rental operations as "Investment in car rental operating company -net" as a result of HFS' plan to undertake an initial public offering of a majority interest in the corporation which owns all company owned Avis car rental operations. See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL ------------------------- ACQUIRED PRO FORMA HFS COMPANIES ADJUSTMENTS PRO FORMA ----------- ------------ --------------- ------------ NET REVENUES Service fees ....................... $369,442 $1,113,624 $ 25,950 (C) $1,061,202 (535,207)(D) 87,393 (F) Other .............................. 43,541 67,163 (4,421)(D) 89,232 (17,051)(E) Equity in loss of car rental operating company ................. -- -- (5,272)(F) (5,272) ----------- ------------ ------------- ------------ Net revenues ...................... 412,983 1,180,787 (448,608) 1,145,162 ----------- ------------ ------------- ------------ EXPENSES Marketing and reservation........... 143,965 130,366 274,331 Selling, general and administrative (N)................. 78,232 843,878 (4,500)(G) 396,234 (521,376)(H) Depreciation and amortization ..... 30,857 64,784 35,126 (I) 130,767 Interest ........................... 21,789 12,553 18,389 (J) 52,731 Other .............................. 3,235 17,143 (1,599)(K) 18,779 ----------- ------------ ------------- ------------ Total expenses .................... 278,078 1,068,724 (473,960) 872,842 ----------- ------------ ------------- ------------ Income before income taxes .......... 134,905 112,063 25,352 272,320 Provision for income taxes .......... 55,175 36,491 20,729 (L) 112,395 ----------- ------------ ------------- ------------ Net income .......................... $ 79,730 $ 75,572 $ 4,623 $ 159,925 =========== ============ ============= ============ PER SHARE INFORMATION (PRIMARY) Net income (N) ..................... $ .74 $ 1.15 =========== ============ Weighted average common and common equivalent shares outstanding .... 113,817 28,681 (M) 142,498 =========== ============= ============ PER SHARE INFORMATION (FULLY DILUTED) Net income (N)...................... $ .73 $ 1.14 =========== ============ Weighted average common and common equivalent shares outstanding .... 115,654 28,681 (M) 144,335 =========== ============= ============
- ------------ Note: Certain reclassifications have been made to the historical results of HFS and acquired companies to conform to HFS's pro forma classification. See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES HISTORICAL CONSOLIDATING STATEMENT OF INCOME OF ACQUIRED COMPANIES FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)
HISTORICAL ------------------------------------------------------ AVIS, (1) COLDWELL OTHER TOTAL AS ADJUSTED RCI BANKER ACQUISITIONS HISTORICAL ------------- ---------- ----------- -------------- ------------ NET REVENUES Service fees ....................... $ 21,608 $278,132 $679,137 $134,747 $1,113,624 Other .............................. -- 17,051 20,264 29,848 67,163 ------------- ---------- ----------- -------------- ------------ Net revenues ...................... 21,608 295,183 699,401 164,595 1,180,787 ------------- ---------- ----------- -------------- ------------ EXPENSES Marketing and reservation........... -- 130,366 -- -- 130,366 Selling, general and administrative...................... 7,205 91,757 616,182 128,734 843,878 Depreciation and amortization ..... 19,683 14,193 22,425 8,483 64,784 Interest ........................... 461 536 5,329 6,227 12,553 Other .............................. 410 1,976 -- 14,757 17,143 ------------- ---------- ----------- -------------- ------------ Total expenses .................... 27,759 238,828 643,936 158,201 1,068,724 ------------- ---------- ----------- -------------- ------------ Income (loss) before income taxes .. (6,151) 56,355 55,465 6,394 112,063 Provision for income taxes .......... 4,100 4,464 24,385 3,542 36,491 ------------- ---------- ----------- -------------- ------------ Net income (loss) ................... $(10,251) $ 51,891 $ 31,080 $ 2,852 $ 75,572 ============= ========== =========== ============== ============
- ------------ (1) The historical consolidated statement of income of Avis, as adjusted, has been adjusted to present only the historical operating results intended to be retained by HFS. The historical consolidated statement of income of Avis, Inc., as adjusted is for the year ended February 29, 1996. See Historical Consolidated Statement of Income of Avis, Inc., as Adjusted, for the year ended February 29, 1996. Note: Certain reclassifications have been made to the historical results of acquired companies to conform to HFS's pro forma classification. See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES HISTORICAL CONSOLIDATED STATEMENT OF INCOME OF AVIS, INC., AS ADJUSTED FOR THE YEAR ENDED FEBRUARY 29, 1996 (IN THOUSANDS)
ADJUSTMENTS -------------------------------- ELIMINATION OF CAR RENTAL OPERATING AVIS, HISTORICAL RECLASSIFICATION COMPANY AS ADJUSTED ------------- ---------------- -------------- ------------- REVENUES........................... $1,716,677 $(21,608) $(1,695,069) $ -- Service fees ..................... -- 21,608 -- 21,608 ------------- ---------------- -------------- ------------- Net revenues .................... 1,716,677 -- (1,695,069) 21,608 ------------- ---------------- -------------- ------------- EXPENSES Selling, general and admnistrative ................... 1,119,888 (16,865) (1,095,818) 7,205 Depreciation and amortization ... 411,796 16,404 (408,517) 19,683 Interest ......................... 149,534 461 (149,534) 461 Other ............................ 410 -- -- 410 ------------- ---------------- -------------- ------------- Total expenses .................. 1,681,628 -- (1,653,869) 27,759 ------------- ---------------- -------------- ------------- Income (loss) before income taxes 35,049 -- (41,200) (6,151) Provision for income taxes ........ 23,977 -- (19,877) 4,100 ------------- ---------------- -------------- ------------- Net income (loss) ................. $ 11,072 $ -- $ (21,323) $(10,251) ============= ================ ============== =============
- ------------ Note: The reclassification adjustment made to the historical consolidated statement of income of Avis, Inc. is to present information technology services as "Service fees." The elimination of the car rental operating company is presented as a result of HFS's plan to undertake an initial public offering of a majority interest of 75 percent in the corporation which owns all company-owned Avis car rental operations (the "IPO Company"). HFS intends to substantially replace results of car rental operations with license fees from the IPO Company. See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS OF OTHER ACQUISITIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)
CENTURY 21 CCI (1) CENTURY 21 (1) NORS TRAVELODGE ERA (2) TOTAL ------- -------------- ------------ ------------ ----------- ----------- NET REVENUES Service fees ..................... $ -- $60,506 $29,021 $18,361 $26,859 $134,747 Other ............................ 3,326 10,164 403 79 15,876 29,848 ------- -------------- ------------ ------------ ----------- ----------- Net revenues .................... 3,326 70,670 29,424 18,440 42,735 164,595 ------- -------------- ------------ ------------ ----------- ----------- EXPENSES Selling, general and administrative .................. -- 57,241 25,763 15,604 30,126 128,734 Depreciation and amortization ... 529 5,217 578 8 2,151 8,483 Interest ......................... -- 2,904 54 -- 3,269 6,227 Other............................. 1,917 2,751 -- -- 10,089 14,757 ------- -------------- ------------ ------------ ----------- ----------- Total expenses .................. 2,446 68,113 26,395 15,612 45,635 158,201 ------- -------------- ------------ ------------ ----------- ----------- Income (loss) before income taxes 880 2,557 3,029 2,828 (2,900) 6,394 Provision for income taxes ........ 313 2,097 -- 1,132 -- 3,542 ------- -------------- ------------ ------------ ----------- ----------- Net income (loss) ................. $ 567 $ 460 $ 3,029 $ 1,696 $ (2,900) $ 2,852 ======= ============== ============ ============ =========== ===========
- ------------ (1) Reflects results of operations for the period from January 1, 1995 to the respective dates of acquisition. (2) Reflects the historical statement of operations of Electronic Realty Associates Inc. ("ERA Inc."). The financial statements which were audited for the year ended December 31, 1995 were those of Electronic Realty Associates LP ("ERA LP") which differ from the ERA Inc. financial statements. The difference is primarily attributable to (i) the home warranty business which was acquired by HFS but is excluded from the audited financial statements of ERA LP; and (ii) an intercompany charge to ERA LP by ERA Inc. Net revenues, total expenses and net loss of ERA LP for the year ended December 31, 1995 were $39.4 million, $47.3 million and $7.9 million, respectively. Note: Certain reclassifications have been made to the historical results of acquired companies to conform to HFS's pro forma classification. See notes to pro forma consolidated balance sheet and statement of operations. HFS INCORPORATED AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1996 ---------- ---------- NET REVENUES Service fees ................................................... $786,407 $889,473 Other .......................................................... 62,535 81,451 ---------- ---------- Equity in earnings (loss) of car rental operating company ..... (5,096) 2,459 Net revenues .................................................. 843,846 973,383 ---------- ---------- EXPENSES Marketing and reservation....................................... 202,846 238,018 Selling, general and administrative ............................ 289,332 289,822 Depreciation and amortization .................................. 97,972 99,703 Interest ....................................................... 40,115 36,930 Other .......................................................... 22,328 17,359 ---------- ---------- Total expenses ................................................ 652,593 681,832 ---------- ---------- Income before income taxes ...................................... 191,253 291,551 Provision for income taxes ...................................... 78,935 120,331 ---------- ---------- Net income (N) .................................................. $112,318 $171,220 ========== ========== PER SHARE INFORMATION (PRIMARY) Net income...................................................... $ .83 $ 1.18 ========== ========== Weighted average common and common equivalent shares outstanding ................................................... 139,315 147,470 ========== ========== PER SHARE INFORMATION (FULLY DILUTED) Net income ..................................................... $ .82 $ 1.18 ========== ========== Weighted average common and common equivalent shares outstanding ................................................... 141,807 148,194 ========== ==========
See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL ----------------------- ACQUIRED PRO FORMA HFS COMPANIES ADJUSTMENTS PRO FORMA ---------- ----------- -------------- ----------- NET REVENUES Service fees............................ $268,862 $848,763 $ 19,508 (C) $786,407 (411,795)(D) 61,069 (F) Other .................................. 30,869 45,051 (13,385)(E) 62,535 Equity in loss of car rental operating company ............................... -- -- (5,096) (F) (5,096) ---------- ----------- -------------- ----------- Net revenues .......................... 299,731 893,814 (349,699) 843,846 ---------- ----------- -------------- ----------- EXPENSES Marketing and reservation .............. 110,842 92,004 -- 202,846 Selling, general and administrative (N)..................................... 47,700 638,601 (3,375)(G) 289,332 (393,594)(H) Depreciation and amortization .......... 21,721 52,566 23,685 (I) 97,972 Interest ............................... 16,272 8,135 15,708 (J) 40,115 Other .................................. 2,012 21,018 (702)(K) 22,328 ---------- ----------- -------------- ----------- Total expenses ........................ 198,547 812,324 (358,278) 652,593 ---------- ----------- -------------- ----------- Income before income taxes .............. 101,184 81,490 8,579 191,253 Provision for income taxes .............. 41,820 21,624 15,491 (L) 78,935 ---------- ----------- -------------- ----------- Net income (loss)........................ $ 59,364 $ 59,866 $ (6,912) $112,318 ========== =========== ============== =========== PER SHARE INFORMATION (PRIMARY) Net income (N) ......................... $ .57 $ .83 ========== =========== Weighted average common and common equivalent shares outstanding ......... 109,564 29,751 (M) 139,315 ========== ============== =========== PER SHARE INFORMATION (FULLY DILUTED) Net income (N).......................... $ .56 $ .82 ========== =========== Weighted average common and common equivalent shares outstanding ......... 112,056 29,751 (M) 141,807 ========== ============== ===========
- ------------ Note: Certain reclassifications have been made to the historical results of HFS and acquired companies to conform to HFS's pro forma classification. See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS OF ACQUIRED COMPANIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (IN THOUSANDS)
HISTORICAL ----------------------------------------------------- AVIS, (1) COLDWELL OTHER TOTAL AS ADJUSTED RCI BANKER ACQUISITIONS HISTORICAL ------------- ---------- ---------- -------------- ------------ NET REVENUES Service fees ........................ $13,358 $209,242 $513,483 $112,680 $848,763 Other ............................... -- 13,385 3,972 27,694 45,051 ------------- ---------- ---------- -------------- ------------ Net revenues ....................... 13,358 222,627 517,455 140,374 893,814 ------------- ---------- ---------- -------------- ------------ EXPENSES Marketing and reservation ........... -- 92,004 -- -- 92,004 Selling, general and administrative 7,106 62,530 458,785 110,180 638,601 Depreciation and amortization ...... 14,253 12,698 17,272 8,343 52,566 Interest ............................ -- 402 2,958 4,775 8,135 Other ............................... -- 6,570 1,944 12,504 21,018 ------------- ---------- ---------- -------------- ------------ Total expenses ..................... 21,359 174,204 480,959 135,802 812,324 ------------- ---------- ---------- -------------- ------------ Income (loss) before income taxes ... (8,001) 48,423 36,496 4,572 81,490 Provision for income taxes ........... 18 1,940 16,422 3,244 21,624 ------------- ---------- ---------- -------------- ------------ Net income (loss) .................... $(8,019) $ 46,483 $ 20,074 $ 1,328 $ 59,866 ============= ========== ========== ============== ============
- ------------ (1) The historical consolidated statement of operations of Avis, as adjusted, has been adjusted to present only the historical operating results intended to be retained by HFS. The historical consolidated statement of operations of Avis, Inc., as adjusted, is for the nine months ended August 31, 1995. See Historical Consolidated Statement of Operations of Avis, Inc., as Adjusted, for the nine months ended August 31, 1995. Note: Certain reclassifications have been made to the historical results of acquired companies to conform to HFS's pro forma classification. See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS OF AVIS, INC. AS ADJUSTED FOR THE NINE MONTHS ENDED AUGUST 31, 1995 (IN THOUSANDS)
ADJUSTMENT --------------------------------- ELIMINATION OF CAR RENTAL OPERATING AVIS, HISTORICAL RECLASSIFICATION COMPANY AS ADJUSTED ------------ ---------------- --------------- ------------- REVENUES ............................. $1,190,189 $(13,358) $(1,176,831) $ -- Service fees......................... -- 13,358 -- 13,358 ------------ ---------------- --------------- ------------- Net revenues........................ 1,190,189 (1,176,831) 13,358 ------------ ---------------- --------------- ------------- EXPENSES Selling, general and administrative 766,509 -- (759,403) 7,106 Depreciation and amortization ...... 304,339 -- (290,086) 14,253 Interest ............................ 105,379 -- (105,379) -- Other ............................... 311 -- (311) -- ------------ ---------------- --------------- ------------- Total expenses ..................... 1,176,538 -- (1,155,179) 21,359 ------------ ---------------- --------------- ------------- Income (loss) before income taxes ... 13,651 -- (21,652) (8,001) Provision for income taxes ........... 21,644 -- 21,626 18 ------------ ---------------- --------------- ------------- Net loss ............................. $ (7,993) $ -- $ (26) $(8,019) ============ ================ =============== =============
- ------------ Note: The reclassification adjustment made to the historical consolidated statement of income of Avis, Inc. is to present information technology services as "Service fees." The elimination of the car rental operating company is presented as a result of HFS's plan to undertake an initial public offering of a majority interest of 75% in the corporation which owns all company-owned Avis car rental operations (the "IPO Company"). HFS intends to substantially replace results of car rental operations with license fees from the IPO Company. See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS OF OTHER ACQUISITIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (IN THOUSANDS)
CENTURY CENTURY 21 CCI (1) 21 (1) NORS TRAVELODGE ERA TOTAL ------- --------- ------------ ------------ ---------- ---------- NET REVENUES Service fees .................... $ -- $60,506 $20,750 $13,476 $17,948 $112,680 Other ........................... 3,326 10,164 288 59 13,857 27,694 ------- --------- ------------ ------------ ---------- ---------- Net revenues ................... 3,326 70,670 21,038 13,535 31,805 140,374 ------- --------- ------------ ------------ ---------- ---------- EXPENSES Selling, general and administrative ................. -- 57,241 18,421 11,503 23,015 110,180 Depreciation and amortization .. 529 5,217 413 6 2,178 8,343 Interest ........................ -- 2,904 38 -- 1,833 4,775 Other ........................... 1,917 2,751 -- -- 7,836 12,504 ------- --------- ------------ ------------ ---------- ---------- Total expenses ................. 2,446 68,113 18,872 11,509 34,862 135,802 ------- --------- ------------ ------------ ---------- ---------- Income (loss) before income taxes............................ 880 2,557 2,166 2,026 (3,057) 4,572 Provision for income taxes ...... 313 2,097 -- 834 -- 3,244 ------- --------- ------------ ------------ ---------- ---------- Net income (loss) ................ $ 567 $ 460 $ 2,166 $ 1,192 $(3,057) $ 1,328 ======= ========= ============ ============ ========== ==========
- ------------ (1) Reflects results of operations for the period from January 1, 1995 to the respective dates of acquisition. Note: Certain reclassifications have been made to the historical results of acquired companies to conform to HFS's pro forma classification. See notes to pro forma consolidated balance sheet and statement of operations. HFS INCORPORATED AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL ----------------------- ACQUIRED PRO FORMA HFS COMPANIES ADJUSTMENTS PRO FORMA ---------- ----------- --------------- ----------- NET REVENUES Service fees........................... $468,277 $569,204 $ 11,835 (C) $889,473 (235,625)(D) 75,782 (F) Other ................................. 81,733 20,559 (6,000)(F) 81,451 (14,841)(E) Equity in earnings of car rental operating company .................... -- -- 2,459 (F) 2,459 ---------- ----------- --------------- ----------- Net revenues ......................... 550,010 589,763 (166,390) 973,383 ---------- ----------- --------------- ----------- EXPENSES Marketing and reservation ............. 130,728 107,290 -- 238,018 Selling, general and administrative (N)................................... 139,709 419,280 (41,804)(G) 289,822 (227,363)(H) Depreciation and amortization ......... 41,129 37,041 21,533 (I) 99,703 Interest .............................. 22,194 4,993 9,743 (J) 36,930 Other ................................. 10,988 6,716 (345)(K) 17,359 ---------- ----------- --------------- ----------- Total expenses ....................... 344,748 575,320 (238,236) 681,832 ---------- ----------- --------------- ----------- Income before income taxes ............. 205,262 14,443 71,846 291,551 Provision for income taxes ............. 82,630 (7,966) 45,667 (L) 120,331 ---------- ----------- --------------- ----------- Net income (N) ......................... $122,632 $ 22,409 $ 26,179 $171,220 ========== =========== =============== =========== PER SHARE INFORMATION (PRIMARY) Net income (N)......................... $ .96 $ 1.18 ========== =========== Weighted average common and common equivalent shares outstanding......... 130,960 16,510 (M) 147,470 ========== =============== =========== PER SHARE INFORMATION (FULLY DILUTED) Net income (N)......................... $ .96 $ 1.18 ========== =========== Weighted average common and common equivalent shares outstanding ........ 131,684 16,510 (M) 148,194 ========== =============== ===========
- ------------ Note: Certain reclassifications have been made to the historical results of HFS and acquired companies to conform to HFS's pro forma classification. See notes to pro forma consolidated balance sheet and statement of operations. HFS INCORPORATED AND SUBSIDIARIES HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS OF ACQUIRED COMPANIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS)
HISTORICAL ------------------------------------------------------ OTHER AVIS, (1) COLDWELL 1996 (2) TOTAL AS ADJUSTED RCI BANKER (2) ACQUISITIONS HISTORICAL ------------- ---------- ----------- -------------- ------------ NET REVENUES Service fees......................... $26,871 $236,505 $295,478 $10,350 $569,204 Other ............................... -- 14,841 4,067 1,651 20,559 ------------- ---------- ----------- -------------- ------------ Net revenues ....................... 26,871 251,346 299,545 12,001 589,763 ------------- ---------- ----------- -------------- ------------ EXPENSES Marketing and reservation ........... -- 107,290 -- -- 107,290 Selling, general and administrative . 20,173 75,524 312,348 11,235 419,280 Depreciation and amortization ...... 14,247 13,352 9,021 421 37,041 Interest ............................ -- 345 3,155 1,493 4,993 Other ............................... -- 5,440 512 764 6,716 ------------- ---------- ----------- -------------- ------------ Total expenses ..................... 34,420 201,951 325,036 13,913 575,320 ------------- ---------- ----------- -------------- ------------ Income (loss) before income taxes ... (7,549) 49,395 (25,491) (1,912) 14,443 Provision (benefit) for income taxes 96 2,370 (10,432) -- (7,966) ------------- ---------- ----------- -------------- ------------ Net income (loss) .................... $(7,645) $ 47,025 $(15,059) $(1,912) $ 22,409 ============= ========== =========== ============== ============
- ------------ (1) The historical financial statement of income of Avis, as adjusted, has been adjusted to include the historical operating results of Avis intended to be retained by HFS and the operating results of the Avis Car rental subsidiary, included in Other Revenue. The historical consolidated statement of income of Avis, Inc., as adjusted is for the nine months ended August 31, 1996. See Historical Consolidated Statement of Operations of Avis, Inc., as Adjusted for the nine months ended August 31, 1996. (2) Reflects results of operations for the period from January 1, 1996 to the respective dates of acquisition. Note: Certain reclassifications have been made to the historical results of acquired companies to conform to HFS's classification. See notes to pro forma consolidated balance sheet and statement of operations. HFS INCORPORATED AND SUBSIDIARIES HISTORICAL CONSOLIDATED STATEMENT OF INCOME OF AVIS, INC., AS ADJUSTED FOR THE NINE MONTHS ENDED AUGUST 31, 1996 (IN THOUSANDS)
ADJUSTMENTS ---------------------------------- ELIMINATION OF CAR RENTAL OPERATING AVIS, HISTORICAL RECLASSIFICATIONS COMPANY AS ADJUSTED ------------ ----------------- --------------- ------------- REVENUES ............................ $1,490,709 (26,871) $(1,463,838) $ -- Service fees........................ -- 26,871 26,871 ------------ ----------------- --------------- ------------- Net revenues....................... 1,490,709 -- (1,463,838) 26,871 ------------ ----------------- --------------- ------------- EXPENSES Selling, general and administrative 975,769 -- (955,596) 20,173 Depreciation and amortization ..... 333,147 -- (318,900) 14,247 Interest ........................... 116,958 -- (116,958) -- Other .............................. 18 -- (18) -- ------------ ----------------- --------------- ------------- Total expenses .................... 1,425,892 -- (1,391,472) 34,420 ------------ ----------------- --------------- ------------- Income (loss) before income taxes .. 64,817 -- (72,366) (7,549) Provision for income taxes .......... 29,966 -- (29,870) 96 ------------ ----------------- --------------- ------------- Net income (loss).................... $ 34,851 -- $ (42,496) $(7,645) ============ ================= =============== =============
- ------------ Note: The reclassification adjustment made to the historical consolidated statement of income of Avis, Inc. is to present information technology services as "Service fees." The elimination of the car rental operating company is presented as a result of HFS's plan to undertake an initial public offering of a majority interest of 75 percent in the corporation which owns all company-owned Avis car rental operations (the "IPO Company"). HFS intends to substantially replace results of car rental operations with license fees from the IPO Company. See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS OF OTHER 1996 ACQUISITIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS)
CENTURY 21 NORS (1) TRAVELODGE (1) ERA (1) TOTAL ------------ -------------- ---------- --------- NET REVENUES Service fees........................ $6,668 $688 $ 2,994 $10,350 Other .............................. 449 -- 1,202 1,651 ------------ -------------- ---------- --------- Net revenues ...................... 7,117 688 4,196 12,001 ------------ -------------- ---------- --------- EXPENSES Selling, general and administrative 7,566 552 3,117 11,235 Depreciation and amortization ..... 285 -- 136 421 Interest ........................... 2 -- 1,491 1,493 Other .............................. -- -- 764 764 ------------ -------------- ---------- --------- Total expenses .................... 7,853 552 5,508 13,913 ------------ -------------- ---------- --------- Income (loss) before income taxes .. (736) 136 (1,312) (1,912) Provision for income taxes .......... -- -- -- -- ------------ -------------- ---------- --------- Net income (loss) ................... $ (736) $136 $(1,312) $(1,912) ============ ============== ========== =========
- ------------ (1) Reflects results of operations for the period from January 1, 1996 to the respective date of acquisition. Note: Certain reclassifications have been made to the historical results of Other 1996 Acquisitions to conform to HFS's classification. See notes to pro forma consolidated balance sheet and statements of operations. HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS A. ACQUISITION OF AVIS: At the time HFS acquired Avis, it had developed and announced a plan (the "Plan") to do the following: 1. Retain certain assets acquired, including the reservation system, franchise agreements, trademarks and tradenames and certain liabilities. 2. Segregate the assets used in the car rental operations in a separate subsidiary ("Car Rental Operating Company") and to dispose of approximately 75% interest in Car Rental Operating Company within one year through an initial public offering (IPO) of Car Rental Operating Company. 3. Enter into a license agreement with Car Rental Operating Company for use of the trademarks and tradename and other franchise services. Based on the Plan, the purchase price for Avis has been allocated to the assets and liabilities acquired by HFS, including its investment in Car Rental Operating Company based on their estimated fair values. The amount allocated to Car Rental Operating Company was based on the estimated valuation of the Car Rental Operating Company including the effect of royalty, reservation and information technology agreements with HFS. Under the plan, the Car Rental Operating Company will sell approximately a 75% interest at an assumed price of $225 million thereby diluting HFS' interest to 25%. All of the proceeds from the IPO will be retained by the Car Rental Operating Company. Pro forma adjustments consist of the elimination of certain acquired assets and assumed liabilities, net of the fair value ascribed to such assets and liabilities. The Company acquired Avis for the following consideration ($000's):
Cash consideration (i) ........................................... $ 410,742 Issuance of approximately 4.6 million shares HFS common stock .... 320,843 ESOP liability (ii) .............................................. 100,930 ----------- TOTAL PRO FORMA ACQUISITION COST.................................. 832,515 ----------- Fair value of net assets acquired: Historical book value of acquired company........................ 356,635 Elimination of net assets (liabilities) not acquired or assumed: Other assets.................................................... (9,614) Preferred stock--Avis........................................... 72,416 Intangible assets--Avis......................................... (499,143) Redeemable portion of common stock--ESOP........................ 295,465 Unearned compensation--ESOP..................................... (257,751) Fair value adjustments to assets acquired and liabilities assumed: Deferred income tax asset, net (iii)............................ 5,200 Property and equipment (iv) .................................... 58,172 Investment in Car Rental Operating Company (v).................. 2,384 Accrued acquisition obligations (vi)............................ (18,000) Other........................................................... 182 ----------- FAIR VALUE OF IDENTIFIABLE NET ASSETS ACQUIRED.................... 5,946 ----------- Intangible assets--Avis (vii).................................... $ 826,569 ===========
HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) A. ACQUISITION OF AVIS: (Continued) In connection with the Company's fair value allocation of net assets to the Car Rental Operating Company, the estimated net worth of the Car Rental Operating Company was valued at $75 million. Such net worth and corresponding company investment in the Car Rental Operating Company was allocated as follows:
Historical net book value of car rental operating company................................................. $72,616 Fair value adjustments to car rental operating company .. 2,384 --------- $75,000 =========
The condensed balance sheet of the Car Rental Operating Company including fair value adjustments at September 30, 1996 is as follows:
Vehicles.............................................. $ 2,567,517 Property and equipment................................ 101,000 Deferred tax asset.................................... 102,000 Excess of cost over fair value of net assets acquired............................................. 154,000 Debt.................................................. (2,488,651) Property liability and property damage................ (215,135) Other, net............................................ (145,731) ------------- Stockholder's equity.................................. $ 75,000 =============
HFS' investment in Car Rental Operating Company of $75 million represents the estimated value of its 100% interest in the Car Rental Operating Company at the date of acquisition and is accounted for under the equity method since HFS' control is temporary based on the planned IPO of the Car Rental Operating Company. Upon completion of the IPO, the value of the Car Rental Operating Company is expected to increase to $300 million (with the $225 million of IPO proceeds retained by the Car Rental Operating Company) with HFS' interest at 25% equal to $75 million, its current investment balance. If the results of the IPO do not confirm the preliminary purchase price allocation for the investment in the Car Rental Operating Company, then such investment will be adjusted with a corresponding adjustment to Excess of cost over fair value of net assets acquired. - ------------ (i) Cash consideration of $367.2 million was financed by the Second Quarter 1996 Offering. Cash consideration also includes: (a) a cash payment of $17.6 million made to General Motors Corporation ("GM"), representing the amount by which the value attributable under the Stock Purchase Agreement to the HFS Common Stock received by GM in the Avis Acquisition exceeded the proceeds realized upon the subsequent sale of such HFS Common Stock; and (b) payment of a $26 million bank facility termination fee by the Company in connection with the Avis acquisition. (ii) The ESOP liability bears interest at LIBOR plus 20 basis points for a period commencing on the acquisition date to maturity which is primarily the earlier of three days after the sale of Company shares issued to the ESOP or the first anniversary of the acquisition. (iii) The pro forma adjustment to deferred income taxes recorded in connection with the acquisition results from differences in the fair values of assets acquired and liabilities assumed and their respective income tax bases. (iv) The adjustment to property and equipment is primarily attributable to the values ascribed to reservation equipment and related assets and to the Avis headquarters office in excess of historical cost. (v) The adjustment to investment in car rental operating company reflects the net effect of push-down accounting adjustments which result in a $75 million fair value of the car rental operating company. HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) A. ACQUISITION OF AVIS: (Continued) (vi) Accrued acquisition obligations consist of professional fees ($3.7 million), investment banker fees ($8.0 million) and filing fees and other ($6.3 million). (vii) Intangible assets retained by HFS consist of the following:
(IN MILLIONS) ------------- Avis trademark ........................................ $400.0 Reservation system and customer database .............. 109.0 Excess of cost over fair value of net assets acquired 317.6 ------------- $826.6 =============
The pro forma adjustments include the elimination of Avis stockholders' equity and the issuance of approximately 4.6 million shares of HFS's common stock to finance the acquisition.
STOCKHOLDERS' EQUITY ----------------------------------------------- ($000'S) ----------------------------------------------- ISSUANCE OF ELIMINATON OF ADJUSTMENT TO HFS STOCKHOLDERS' STOCKHOLDERS' COMMON STK. EQUITY EQUITY ------------- --------------- --------------- Participating convertible preferred stock.................................... $ -- $(132,000) $(132,000) Common stock.............................. 46 (290) (244) Additional paid-in capital................ 320,797 (220,401) 100,396 Retained earnings......................... -- (103,339) (103,339) Treasury stock............................ -- 102,269 102,269 Foreign currency equity adjustment ....... -- (2,874) (2,874) ------------- --------------- --------------- $320,843 $(356,635) $ (35,792) ============= =============== ===============
B. ACQUISITION OF RCI: The purchase price for RCI has been allocated to assets acquired and liabilities assumed at their estimated fair values. Pro forma adjustments consist of the elimination of certain acquired assets and assumed liabilities, net of the fair value ascribed to such assets and liabilities. HFS acquired RCI for the following consideration (000's):
Cash consideration paid by HFS (i) ................................ $ 285,000 Issuance of approximately one million shares of HFS common stock . 75,000 ----------- HFS investment in RCI ............................................. $360,000 Existing cash and securities retained by RCI shareholders (ii) ... 265,000 ----------- Total consideration received by RCI shareholder ................... 625,000 ----------- Fair value of net assets acquired: Historical book value of RCI ...................................... 71,837 Elimination of cash and securities retained by RCI shareholder (ii) ............................................................. (265,000) Fair value adjustment to assets acquired and liabilities assumed: Deferred income taxes--current (iv) .............................. 29,000 Property and equipment (iii) ..................................... (32,125) Deferred income taxes--non-current (iv) .......................... 43,000 Customer lists ................................................... 100,000 Accrued acquisition obligations: --current........................................................ (10,557) --non-current.................................................... (20,000) ----------- Fair value of net liabilities assumed .............................. (83,845) ---------- Excess of cost over fair value on net assets acquired ............. $443,845 ==========
HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) B. ACQUISITION OF RCI: (Continued) - ------------ (i) Cash consideration paid by HFS was financed with borrowings under HFS's Revolving Credit Facilities. (ii) Prior to the closing of the RCI acquisition, the former shareholder of RCI retained, in the form of a dividend, cash and securities from the RCI business comprised of $48.8 million in cash, $184.6 million in short-term securities and $31.6 million in long-term securities. (iii) Primarily comprised of write-off of $24.1 million of capitalized costs associated with an information technology project terminated as of the acquisition date and an $8 million write-down of building and building improvements based upon fair market appraisals. (iv) The pro forma adjustment to deferred income taxes reflects deferred tax assets that will be recognized upon termination of RCI's Subchapter S Corporation status for the temporary differences between fair value of unearned income liabilities assumed and the respective income tax bases. Prior to the acquisition, RCI was a Subchapter S Corporation for tax purposes, therefore it had not recorded any tax liabilities. (v) HFS has recorded liabilities for charges to be incurred in connection with the restructuring of RCI operations. At the date of acquisition, November 12, 1996, HFS had formulated a preliminary plan that would result in the consolidation of facilities, involuntary termination and relocation of employees, and elimination of duplicative operating and overhead activities. The plan is in the early stages and is expected to be substantially complete in late 1997. The accrued acquisition liability recorded as part of the purchase price allocation consists of $9.9 million of personnel related costs, $6.9 million of facility related costs, $6.2 million of transaction costs and $7.5 million of other costs. In connection with the restructuring, HFS expects the reduction of approximately 250 employees. (vi) Excess of cost over fair value of net assets acquired for pro forma balance sheet purposes is derived from the net book value of RCI at September 30, 1996. This differs from the excess of cost over fair value of net assets acquired determined at date of acquisition which is derived from the net book value at such date. The excess of cost over fair value of net assets acquired at date of acquisition of $477.7 million is used as the basis for adjustments in the pro forma statements of income (see Note I) for the year ended December 31, 1995 and nine month periods ended September 30, 1995 and 1996, respectively.
STOCKHOLDERS' EQUITY ---------------------------------------------- ISSUANCE OF ELIMINATION OF ADJUSTMENT TO COMPANY STOCKHOLDERS' STOCKHOLDERS' COMMON STK. EQUITY EQUITY ------------- -------------- --------------- Common stock......................................... $ 10 $ -- $ 10 Additional paid-in capital........................... 66,965 (6,392) 60,573 Retained earnings.................................... -- (34,864) (34,864) Treasury stock....................................... 8,025 -- 8,025 Net unrealized gain on available for sale securities.......................................... -- (20,784) (20,784) Foreign currency equity adjustment................... -- (9,797) (9,797) ------------- -------------- --------------- $75,000 $(71,837) $ 3,163 ============= ============== ===============
The pro forma adjustments include the elimination of RCI stockholders' equity and the issuance of approximately one million shares of HFS's common stock as partial consideration for RCI. HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) C. SERVICE FEE REVENUE: The pro forma adjustment reflects the elimination of franchise revenue associated with discontinued Century 21 international based operations, the elimination of franchise revenue paid by the Century 21 NORS to Century 21 under sub-franchise agreements (offset against SG&A expense--see Note G) and the addition of franchise fees to be received under franchise contracts with owned brokerage offices upon contribution of the Owned Brokerage Business to the Trust. Pro forma adjustments to franchise revenue consists of the following:
FOR THE NINE MONTHS FOR THE YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1995 1995 1996 ------------------ --------- --------- Eliminate: Discontinued operations...................... $ (57) $ (34) $ -- Century 21 revenue included as Century 21 NORS SG&A................................... (4,500) (3,375) (1,003) Add: Franchise fees from Owned Brokerage Business..................................... 30,507 22,917 12,838 ------------------ --------- --------- Total....................................... $25,950 $19,508 $11,835 ================== ========= =========
The Franchise fees from the Owned Brokerage Business, which is based on the franchise contracts with the Trust, is calculated at a net of approximately 5.7% of gross commissions earned by the Owned Brokerage Business on sales of real estate properties. Gross commissions earned by the Owned Brokerage Business were $535.2 million, $411.8 million and $235.6 million for the year ended December 31, 1995, for the nine months ended September 30, 1995 and for the five months ended May 31, 1996 (January 1 through date of acquisition). D. OWNED BROKERAGE BUSINESS REVENUE: The pro forma adjustment reflects the elimination of revenue generated from Coldwell Banker's 318 formerly owned brokerage offices. HFS contributed the net assets of the Owned Brokerage Business to the Trust upon consummation of the Coldwell Banker acquisition. The free cash flow of the Trust will be expended at the discretion of the trustees to enhance the growth of funds available for advertising and promotion. E. OTHER REVENUE: The pro forma adjustment reflects the elimination of revenue associated with investment income generated from RCI cash and marketable securities which were issued in the form of a dividend to the former shareholder prior to consummation of the RCI acquisition. HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) F. CAR RENTAL OPERATING COMPANY OPERATIONS: The pro forma adjustments are comprised of the following:
FOR THE YEAR FOR THE NINE MONTHS ENDED ENDED SEPTEMBER 30, DECEMBER 31, ---------------------------------------------- 1995 1995 1996 ---------------------- ---------------------- ---------------------- Historical income before taxes from Car Rental Operating Company............................. $ 41,200 $ 21,652 $ 72,366 ADJUSTMENTS TO CAR RENTAL OPERATING COMPANY: Elimination of historical expense associated with: Long-term incentive compensation plans eliminated in connection with the Avis Acquisition ................................. $ 4,700 -- $ 9,302 Depreciation and amortization ................ 31,869 $ 23,208 26,120 Addition of pro forma expenses associated with: Depreciation and amortization (i) ............ (18,279) (13,709) (13,709) Increased financing costs (ii) ................ (8,004) 10,286 (4,714) 4,785 (1,549) 20,164 ---------- ---------- ---------- HFS SERVICE FEE ADJUSTMENT: Service fees from franchised locations (iii) (18,366) (13,180) (14,748) Reservation and information technology services (iv) ............................... (9,700) (6,700) (9,800) Gross royalty payment to HFS from Avis (v) ... (59,327) (41,189) (51,234) (87,393) (61,069) (75,782) ---------- ---------- ---------- ---------- ---------- ---------- Adjusted income (loss) before taxes from car rental operating company ..................... (35,907) (34,632) 16,748 Provision (benefit) for income taxes ......... (14,820) (14,249) 6,912 ---------- ---------- ---------- Adjusted net income (loss) from car rental operating company ............................ (21,087) (20,383) 9,836 HFS ownership percentage ...................... 25% 25% 25% ---------- ---------- ---------- HFS' equity in earnings (loss) in car rental operating company ............................ $ (5,272) $ (5,096) $ 2,459 ========== ========== ========== (OTHER REVENUE ADJUSTMENT): Elimination of historical interest income related to cash consideration portion of Avis Acquisition (vi)........................ $ -- $ -- $ 6,000 ========== ========== ==========
- ------------ (i) The estimated fair value of Avis property and equipment intended to be retained by the car rental company is $101.0 million, comprised primarily of furniture, fixtures, and leasehold improvements, which is amortized on a straight-line basis over the estimated useful lives, which average seven years. Excess of cost over fair value of net assets acquired by the Car Rental Operating Company is valued at $154 million and is amortized on a straight line basis over a benefit period of 40 years. (ii) As a result of the merger between the Company and Avis, approximately $1 billion of tax-advantaged debt was repaid and replaced by a similar amount of non tax-advantaged debt. This resulted in an increase in interest rates, due to the loss of tax benefits from ESOP financing which were passed through from various lenders to Avis ($000's):
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, --------------------- 1995 1995 1996 ------------------ ---------- ---------- Add current facilities ... $ 129,472 $ 95,047 $ 97,854 Reverse former facilities (121,468) (90,333) (96,305) ------------------ ---------- ---------- Increased financing cost . $ 8,004 $ 4,714 $ 1,549 ================== ========== ==========
HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) F. CAR RENTAL OPERATING COMPANY OPERATIONS: (Continued) (iii) Reflects historical franchise fee revenue from third parties. (iv) Subsequent to the IPO, HFS will retain and operate the telecommunications and computer processing system which services the Avis Car Rental Operating Company for reservations, rental agreement processing, accounting and fleet control. Pursuant to a planned contractual agreement with the Car Rental Operating Company, HFS will charge the Car Rental Operating cost plus thirty-five percent for services provided. The adjustment is calculated as follows:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, -------------------- 1995 1995 1996 ------------------ --------- --------- Reservation and information technology costs incurred ................................... $27,714 $19,143 $28,000 Markup percentage (cost plus 35%)............ 35% 35% 35% ------------------ --------- --------- HFS Service Fees ............................ $ 9,700 $ 6,700 $ 9,800 ================== ========= =========
(v) In connection with the Company's plan to dispose of approximately 75% of the Car Rental Operating Company, the Company will enter into franchise, information technology and other agreements to provide services to the Car Rental Operating Company based on terms to be determined. The royalty payment to be made to HFS from the Car Rental Operating Company for use of the Avis trademarks and tradename is calculated at 3.5% of the revenues generated by the Car Rental Operating Company which is the net royalty percentage the Company expects to receive as a result of a planned contractual arrangement with the Avis Car Rental Operating Company subsequent to the IPO. Such payments are calculated as follows ($000's):
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, -------------------------- 1995 1995 1996 ------------------ ------------ ------------ Revenues generated by Car Rental Operating Company................................... $1,695,069 $1,176,831 $1,463,838 Royalty percentage......................... 3.5% 3.5% 3.5% ------------------ ------------ ------------ Royalty payment to HFS..................... $ 59,327 $ 41,189 $ 51,234 ================== ============ ============
(vi) The pro forma adjustment eliminates historical interest income on the portion of cash generated from the Second Quarter 1996 Offering which was used as consideration in the Avis Acquisition. G. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: The pro forma adjustments reflects the elimination of royalty payments made by the Century 21 NORS to Century 21 under subfranchise agreements (offset against service fee revenue--See Note C) and the payment of Coldwell Banker stock options as a result of change in control provisions in connection with the acquisition of Coldwell Banker by HFS.
FOR THE NINE MONTH ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------ 1995 1995 1996 ------------------ -------- -------- Franchise fees ....... $4,500 $3,375 $ 1,003 Stock option expense -- -- 40,801 ------------------ -------- -------- Total................ $4,500 $3,375 $41,804 ================== ======== ========
HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) H. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: The pro forma adjustment reflects the elimination of expenses associated with Coldwell Banker's formerly owned brokerage offices (See Note D). The majority of Owned Brokerage Business expenses are directly attributable to the business. Based on the Company's due diligence of Coldwell Banker Corporation and subsidiaries ("CB Consolidated") the Company determined that common expenses were allocated to the owned brokerage business based on a reasonable allocation method. Such allocations were based on the ratio of number of employees, the amount of space occupied and revenue generated relative to CB Consolidated in the aggregate and multiplied by corresponding common costs as appropriate to determine allocable expenses. I. DEPRECIATION AND AMORTIZATION: The pro forma adjustment for depreciation and amortization is comprised of ($000's): For the year ended December 31, 1995:
CCI CENTURY MERGER 21 RCI -------- ----------- ----------- Elimination of historical expense.................. $(529) $ (5,217) $(14,193) Property, equipment and furniture and fixtures .. 100 534 7,294 Information data base .... 375 -- -- Intangible assets......... 289 4,540 21,942 -------- ----------- ----------- Total.................... $ 235 $ (143) $ 15,043 ======== =========== ===========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
COLDWELL OTHER 1996 AVIS BANKER ACQUISITIONS TOTAL ----------- ----------- -------------- ----------- Elimination of historical expense.................. $(19,683) $(22,425) $(2,737) $(64,784) Property, equipment and furniture and fixtures .. 5,909 1,156 189 15,182 Information data base .... -- -- -- 375 Intangible assets......... 29,594 20,387 7,601 84,353 ----------- ----------- -------------- ----------- Total.................... $ 15,820 $ (882) $ 5,053 $ 35,126 =========== =========== ============== ===========
For the nine months ended September 30, 1995:
CCI CENTURY MERGER 21 RCI -------- ----------- ----------- Elimination of historical expense.................. $(529) $ (5,217) $(12,698) Property, equipment and furniture and fixtures .. 100 534 5,471 Information data base .... 375 -- -- Intangible assets......... 289 4,540 16,456 -------- ----------- ----------- Total.................... $ 235 $ (143) $ 9,229 ======== =========== ===========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
COLDWELL OTHER 1996 AVIS BANKER ACQUISITIONS TOTAL ----------- ----------- -------------- ----------- Elimination of historical expense.................. $(14,253) $(17,272) $(2,597) $(52,566) Property, equipment and furniture and fixtures .. 4,432 867 -- 11,404 Information data base .... -- -- -- 375 Intangible assets......... 22,196 15,290 5,701 64,472 ----------- ----------- -------------- ----------- Total.................... $ 12,375 $ (1,115) $ 3,104 $ 23,685 =========== =========== ============== ===========
For the nine months ended September 30, 1996:
COLDWELL OTHER 1996 RCI AVIS BANKER ACQUISITIONS TOTAL ----------- ----------- ---------- -------------- ----------- Elimination of historical expense.................. $(13,352) $(14,247) $(9,021) $ (421) $(37,041) Property, equipment and furniture and fixtures .. 5,471 4,432 482 -- 10,385 Intangible assets......... 16,456 22,196 8,495 1,042 48,189 ----------- ----------- ---------- -------------- ----------- Total.................... $ 8,575 $ 12,381 $ (44) $ 621 $ 21,533 =========== =========== ========== ============== ===========
HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) I. DEPRECIATION AND AMORTIZATION: (Continued) CCI Merger The estimated fair values of CCI's information data base, property and equipment and excess of cost over fair value of net assets acquired are $7.5 million, $1.0 million and $33.8 million, respectively, and are amortized on a straight-line basis over the periods to be benefited which are ten, five and forty years, respectively. The benefit periods associated with the excess cost over fair value of net assets acquired were determined based on CCI's position as the dominant provider of gambling patron credit information services since 1956, its ability to generate operating profits and expansion of its customer base and the longevity of the casino gaming industry. Century 21 The estimated fair values of Century 21 property and equipment, franchise agreements and excess cost over fair value of net assets acquired are $5.5 million, $33.5 million and $199.7 million, respectively, and are amortized on a straight-line basis over the periods to be benefited which are seven, twelve and forty years, respectively. The benefit periods associated with the excess cost over fair value of net assets acquired were determined based on Century 21's position as the world's largest franchisor of residential real estate brokerage offices, the most recognized brand name in the residential real estate brokerage industry and the longevity of the residential real estate brokerage business. RCI The fair value of RCI's property and equipment is estimated at approximately $55.7 million and is amortized on a straight line basis over the estimated useful lives, ranging from seven to thirty years. RCI's intangible assets consist of customer lists and excess of cost over fair value of net assets acquired. The estimated fair value of RCI's customer lists are approximately $100 million and are amortized on a straight-line basis over the period to be benefited which is ten years. The fair value ascribed to customer lists is determined based on the historical renewal rates of RCI members. The fair value of excess of cost over fair value of net assets acquired is estimated at approximately $477.7 million and is determined to have a benefit period of forty years, which is based on RCI being a leading provider of services to the timeshare industry, which includes being the world's largest provider of timeshare exchange programs. Avis The estimated fair value of Avis' property and equipment intended to be retained by HFS is $96.0 million, comprised primarily of reservation equipment and related assets and to the Avis Headquarters office in excess of historical cost. Such property and equipment is amortized on a straight-line basis over the estimated benefit periods ranging from five to thirty years. Avis's intangible assets recorded by HFS (not applicable to car rental operating subsidiary) are comprised of the Avis trademark, a reservation system and customer data base, and excess of cost over fair value of net assets acquired. The estimated fair value of the Avis trademark is approximately $400 million and is amortized on a straight line basis over a benefit period of 40 years. The estimated fair value of the reservation system and customer data base are approximately 95.0 million and 14.0 million, respectively and are amortized on a straight line basis over the periods to be benefited which are 10 years and 6.5 years, respectively. The excess of cost over fair value of net assets acquired applicable to the allocated portion of the business to be retained by HFS is estimated at approximately $317.6 million and is determined to have a HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) I. DEPRECIATION AND AMORTIZATION: (Continued) benefit period of forty years, which is based on Avis' position as the second largest car rental system in the world, the recognition of its brand name in the car rental industry and the longevity of the car rental business. Coldwell Banker The estimated fair value of Coldwell Banker's property and equipment (excluding land) of $15.7 million, is amortized on a straight-line basis over the estimated benefit periods ranging from five to twenty-five years. Coldwell Banker's intangible assets are comprised of franchise agreements and excess of cost over fair value of net assets acquired. The franchise agreements with the brokerage offices comprising the Trust are valued independently of all other franchise agreements with Coldwell Banker affiliates. Franchise agreements within the Trust and independent of the Trust are valued at $218.5 million and $218.7 million, respectively and are amortized on a straight line basis over the respective benefit periods of forty years and thirty-five years, respectively. The benefit period associated with Trust franchise agreements was based upon a long history of gross commission sustained by the Trust. The benefit period associated with the Coldwell Banker affiliates' franchise agreements was based upon the historical profitability of such agreements and historical renewal rates. The excess of cost over fair value of net assets acquired is estimated at approximately $347.0 million and is determined to have a benefit period of forty years, which is based on Coldwell Banker's position as the largest gross revenue producing real estate company in North America, the recognition of its brand name in the real estate brokerage industry and the longevity of the real estate brokerage business. Other 1996 Acquisitions The estimated fair values of Other 1996 Acquisitions franchise agreements aggregate $61.0 million and are being amortized on a straight line basis over the periods to be benefited, which range from twelve to thirty years. The estimated fair values of Other Acquisitions excess of cost over fair value of net assets acquired aggregate $187.4 million and are each being amortized on a straight line basis over the periods to be benefited, which are forty years. J. INTEREST EXPENSE:
FOR THE NINE MONTHS FOR THE YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1995 1995 1996 ------------------ ---------- --------- Elimination of historical interest expense of: Century 21.................................... $(2,904) $(2,904) $ -- Other 1996 Acquisitions....................... (3,323) (1,871) (1,493) RCI........................................... (536) (402) (345) Reversal of Coldwell Banker.................... (5,329) (2,958) (3,155) Century 21..................................... 2,135 2,135 -- RCI............................................ 17,955 13,466 13,466 Minority interest--preferred dividends ........ 1,796 1,796 -- 4 3/4%Notes to finance Other 1996 Acquisitions.................................. 8,595 6,446 1,270 ------------------ ---------- --------- Total........................................ $18,389 $15,708 $ 9,743 ================== ========== =========
Century 21 The pro forma adjustment reflects the recording of interest expense on $70 million of borrowings under HFS's revolving credit facility at an interest rate of approximately 6.0% which is the variable rate in effect on the date of borrowing. Borrowings represent the amount necessary to finance the initial cash purchase price net. HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) J. INTEREST EXPENSE: (Continued) Coldwell Banker The pro forma adjustment reflects the reversal of historical interest expense relating to the following ($000's):
FOR THE NINE FOR THE YEAR ENDED MONTHS ENDED DECEMBER 31, SEPTEMBER 30, 1995 1995 1996 ------------------ -------- -------- Expense associated with the Owned Brokerage Business (i) .................................... $ 138 $ 72 $ (179) Expense associated with revolving credit facility borrowings which will be repaid with proceeds from offering (ii)............................... 5,191 2,886 3,334 ------------------ -------- -------- Total............................................ $5,329 $2,958 $3,155 ================== ======== ========
(i) HFS paid substantially all outstanding debt of Coldwell Banker Corporation and subsidiaries ("CB Consolidated") at the consummation date of the acquisition. Therefore, a determination as to the reasonableness of allocated CB Consolidated interest to the Owned Brokerage Business is unnecessary. (ii) At the date of acquisition, HFS repaid $105 million of Coldwell Banker indebtedness which represented borrowings under a revolving credit facility at a variable rate of interest (LIBOR plus a margin ranging from .5% to 1.25%). RCI The pro forma adjustment reflects the recording of interest expense on $285 million of borrowings under HFS's revolving credit facilities at an interest rate of 6.3% which is the variable rate in effect on the date of borrowing. Borrowings represent the amount used as partial consideration in the RCI acquisition. Minority interest - Preferred dividends: The pro forma adjustment represents dividends on the redeemable Series A Adjustable Rate Preferred Stock of Century 21. 4 3/4% Notes The pro forma adjustment reflects interest expense and amortization of deferred financing costs related to the February 22, 1996 issuance of the 4 3/4% Notes (5.0% effective interest rate) to the extent that such proceeds were used to finance the Acquisitions of ERA ($37.6 million), Travelodge ($39.3 million), and Century 21 NORS ($95.0 million). Effect of a 1/8% variance in variable interest rates As mentioned above, interest expense was incurred on borrowings under the Company's revolving credit facility which partially funded the acquisitions of Century 21 and RCI. The Company recorded interest expense using the variable interest rate in effect on the respective borrowing dates. The HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) J. INTEREST EXPENSE: (Continued) effect on pro forma net income assuming a 1/8% variance in the variable interest rate used to calculate interest expense is as follows ($000's):
CENTURY 21 RCI TOTAL ------------ ------ ------- Year Ended December 31, 1995......... $26 $209 $235 Nine Months Ended September 30, 1995................................ 26 157 183 Nine Months Ended September 30, 1996................................ -- 157 157
- ------------ The pro forma net income effects of a 1/8% variance in the interest rate has no impact on earnings per share for all periods presented. K. OTHER EXPENSES: The pro forma adjustment eliminates charitable contributions made by the former stockholder of RCI and accounting, legal and other administrative expenses allocated to CCI, all of which would not have been incurred by the Company. Such expenses are summarized as follows ($000's):
FOR THE NINE FOR THE YEAR MONTHS ENDED ENDED DECEMBER 31, 1995 1995 1996 ----------------- ------ ------ RCI Charitable Contributions $1,200 $303 $345 CCI Administrative Expenses . 399 399 -- ----------------- ------ ------ $1,599 $702 $345 ================= ====== ======
L. INCOME TAXES: The pro forma adjustment to income taxes is comprised of ($000's):
FOR THE NINE MONTHS FOR THE YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1995 1995 1996 ------------------ ----------- ----------- Reversal of historical (provision) benefit of: Company....................................... $(55,175) $(41,820) $(82,630) CCI........................................... (313) (313) -- Century 21.................................... (2,097) (2,097) -- RCI........................................... (4,464) (1,940) (2,370) Avis.......................................... (4,100) (18) (96) Coldwell Banker............................... (24,385) (16,422) 10,432 Travelodge.................................... (1,132) (834) -- Pro forma provision............................ 112,395 78,935 120,331 ------------------ ----------- ----------- Total........................................ $ 20,729 $ 15,491 $ 45,667 ================== =========== ===========
The pro forma effective tax rates are approximately 1% higher than HFS's historical effective tax rates due to non-deductible excess of cost over fair value of net assets required to be recorded in connection with the acquisitions of Avis and RCI. The pro forma provisions for taxes were computed using pro forma pre-tax amounts and the provisions of Statement of Financial Accounting Standards No. 109. HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) M. WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING: The pro forma adjustment to weighted average shares consists of the following (000's):
FOR THE NINE ISSUANCE FOR THE YEAR ENDED MONTHS ENDED PRICE PER DECEMBER 31, SEPTEMBER 30, SHARE 1995 1995 1996 ----------- ------------------ -------- ------- CCI (including dilutive impact of warrants)(1) . $15.30 896 1,180 -- Century 21 (2) ................................. $49.88 2,334 3,120 -- Avis Offering (3) .............................. $74.06 4,569 4,569 4,569 RCI (4) ........................................ $75.00 1,000 1,000 1,000 Second Quarter 1996 Offering--Coldwell Banker (5) ........................................... $59.99 12,838 12,838 7,122 Second Quarter 1996 Offering--Avis (6) ........ $59.99 6,121 6,121 3,401 Century 21 NORS (7) ............................ $49.83 923 923 418 ------------------ -------- ------- Total.......................................... 28,681 29,751 16,510 ================== ======== =======
(1) Date of Acquisition, May 11, 1995 (2) Date of Acquisition, August 1, 1995 (3) Date of Acquisition, October 17, 1996 (4) Date of Acquisition, November 12, 1996 (5) Date of Acquisition, May 31, 1996 (6) Date of Acquisition, October 17, 1996 (7) Date of Acquisition, April 3, 1996 The unaudited Pro Forma Consolidated Statements of Operations are presented as if the acquisitions took place at the beginning of the periods presented; thus, the stock issuances and warrants assumed referred to above are considered outstanding as of the beginning of the period for purposes of per share calculations. N. ESTIMATED SELLING GENERAL AND ADMINISTRATIVE COST SAVINGS: In connection with its acquisitions, HFS developed related business plans to restructure each of the respective acquired companies which will result in future cost savings subsequent to the acquisitions. HFS restructuring plans in each case were developed prior to the consummation of the respective acquisitons and were implemented concurrent with the consummation of the acquistions. Restructuring plans included the involuntary termination and relocation of employees, the consolidation and closing of facilities and the elimination of duplicative operating and overhead activities. Pursuant to HFS' specific restructuring plans, certain selling, general and administrative expenses may not be incurred subsequent to each acquisition that existed prior to consummation. In addition, there are incremental costs in the conduct of activities of the acquired companies prior to the acquistions that may not be incurred subsequent to consummation and have no future economic benefit to HFS. The estimated cost savings that HFS believes would have been attained had its acquisitions occurred on January 1, 1995 and the related impact of such cost savings on pro forma net income and net income per share are not reflected in the pro forma consolidated statements of income, but are presented below ($000's): HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) N. ESTIMATED SELLING GENERAL AND ADMINISTRATIVE COST SAVINGS: (Continued) For the year ended December 31, 1995:
CENTURY COLDWELL 21 RCI BANKER --------- -------- ---------- Payroll and related............ $10,885 $1,198 $10,682 Professional........ 2,693 1,000 1,500 Occupancy........... 3,628 -- -- Other............... 3,128 2,900 (1,517) --------- -------- ---------- Total.............. $20,334 $5,098 $10,665 ========= ======== ==========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
CENTURY 21 NORS TRAVELODGE ERA TOTAL ------------ ------------ -------- --------- Payroll and related............ $ 7,706 $1,110 $7,236 $38,817 Professional........ 1,486 154 387 7,220 Occupancy........... 2,754 186 1,172 7,740 Other............... 2,326 167 1,036 8,040 ------------ ------------ -------- --------- Total.............. $14,272 $1,617 $9,831 $61,817 ============ ============ ======== =========
For the nine months ended September 30, 1995:
CENTURY COLDWELL 21 RCI BANKER --------- -------- ---------- Payroll and related............ $10,885 $ 914 $ 9,830 Professional........ 2,693 750 1,573 Occupancy........... 3,628 -- -- Other............... 3,128 1,275 (1,072) --------- -------- ---------- Total.............. $20,334 $2,939 $10,331 ========= ======== ==========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
CENTURY 21 NORS TRAVELODGE ERA TOTAL ------------ ------------ -------- --------- Payroll and related............ $5,354 $502 $1,526 $29,011 Professional........ 1,063 70 -- 6,149 Occupancy........... 1,944 84 666 6,322 Other............... 1,528 74 983 5,916 ------------ ------------ -------- --------- Total.............. $9,889 $730 $3,175 $47,398 ============ ============ ======== =========
For the nine months ended September 30, 1996:
COLDWELL CENTURY 21 RCI BANKER NORS -------- ---------- ------------ Payroll and related............ $ 880 $5,462 $2,425 Professional........ 750 1,055 705 Occupancy........... -- -- 604 Other............... 1,333 (604) 1,069 -------- ---------- ------------ Total.............. $2,963 $5,913 $4,803 ======== ========== ============
(RESTUBBED TABLE CONTINUED FROM ABOVE)
TRAVELODGE ERA TOTAL ------------ ------ -------- Payroll and related............ $25 $222 $ 9,014 Professional........ 4 -- 2,514 Occupancy........... 4 102 710 Other............... 4 157 1,959 ------------ ------ -------- Total.............. $37 $481 $14,197 ============ ====== ========
HFS INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS--(CONTINUED) N. ESTIMATED SELLING GENERAL AND ADMINISTRATIVE COST SAVINGS: (Continued) The impact on pro forma net income and net income per share of the estimated SG&A cost savings are as follows:
FOR THE NINE-MONTH FOR THE YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, ------------------ ---------------------- 1995 1995 1996 ------------------ ---------- ---------- Income before taxes, as reported .... $272,320 $191,253 $291,551 SG&A adjustments ..................... 61,817 47,398 14,197 Income before taxes, as adjusted .... 334,137 238,651 305,748 Income taxes ......................... 137,908 98,497 126,190 ------------------ ---------- ---------- Net income, as adjusted .............. $196,229 $140,154 $179,558 ================== ========== ========== Net income per share (primary): As adjusted ......................... $ 1.41 $ 1.03 $ 1.24 ================== ========== ========== As reported ......................... $ 1.15 $ .83 $ 1.18 ================== ========== ========== Net income per share (fully diluted): As adjusted ......................... $ 1.39 $ 1.01 $ 1.23 ================== ========== ========== As reported ......................... $ 1.14 $ .82 $ 1.18 ================== ========== ==========
O. ACCRUED ACQUISITION LIABILITIES: The Company has recorded liabilities for charges to be incurred in connection with the restructuring of acquired Century 21, Century 21 NORS, ERA and Coldwell Banker operations. These acquisitions were consummated in 1995 and 1996 and resulted in the consolidation of facilities, involuntary termination and relocation of employees, and elimination of duplicative operating and overhead activities. The following table provides details of these charges by type. At September 30, 1996 the Company was substantially complete with its restructuring Plan.
CENTURY 21 COLDWELL CENTURY 21 NORS ERA BANKER ------------ ------------ --------- ---------- Personnel related ... $12,647 $1,720 $ 8,000 $4,237 Facility related .... 16,511 2,293 1,558 5,491 Other costs .......... 990 711 501 211 ------------ ------------ --------- ---------- Total................. $30,148 $4,724 $10,059 $9,939 ============ ============ ========= ========== Terminated employees 325
Personnel related charges include termination benefits such as severance, wage continuation, medical and other benefits. Facility related costs include contract and lease terminations, temporary storage and relocation costs associated with assets to be disposed of, and other charges incurred in the consolidation of excess office space. Through September 30, 1996 approximately $25.6 million, $2.5 million, $4.6 million and $2.9 million were paid by Century 21, Century 21 NORS, ERA and Coldwell Banker, respectively and charged against the restructuring liability. P. TRUST CONTRIBUTION Included in HFS historical SG&A for the nine months ended September 30, 1996, is a $5 million charge associated with the Company's contribution of the Owned Brokerage Business to the Trust. The charge represents the fair value of the Owned Brokerage Business based upon a valuation which considered earnings, cash flow, assets and business prospects of the contributed business. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HFS Incorporated By: /s/ Michael P. Monaco Michael P. Monaco Vice Chairman Date: March 26, 1997 And Chief Financial Officer (Principal Financial Officer And Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----