UNITED STATES
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WASHINGTON, D.C. 20549FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 (MARK ONE) |X|QUARTERLY REPORT PURSUANT TO SECTION 13 OR
1515(d) OF THE
SECURITIES EXCHANGE ACT OF 1934OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the quarterly period ended June 30, 2002
COMMISSION FILE NUMBER: 1-13315--------AVIS GROUP HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 11-3347585 (State
(Exact name ofIncorporation) (I.R.S. Employer Identification No.) 6 SYLVAN WAY PARSIPPANY, NEW JERSEY 07054 (Address of Principal Executive Offices) (Zip Code)Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)11-3347585
(I.R.S. Employer Identification No.)
6 SYLVAN WAY
PARSIPPANY, NJ
(Address of principal executive offices)
07054
(Zip Code)(973) 496-3500
(Registrant's telephone number, including areacode: (973) 496-3500 900 OLD COUNTRY ROAD GARDEN CITY, NEW YORK 11530 (Former address) Securities registered pursuant to Sectioncode)SECURITIES REGISTERED PURSUANT TO SECTION 12(b)
of the Act: NONE Securities registered pursuant to Section (g) of the Act: 11% SENIOR SUBORDINATED NOTES DUE 2009OF THE ACT:
NoneSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NoneIndicate by check mark whether the
registrant:Registrant (1) has filed all reports required to be filedbyin Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that theregistrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements, for the past 90days.days: Yes|X|o No|_|AVIS GROUP HOLDINGS, INC. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:ýAPPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's common stock was 5,537 shares as of July 31, 2002.
Avis Group Holdings, Inc. meets the conditions set forth in General Instructions H (1) (a) and (b) to Form 10-Q and is therefore filing this form with the reduced disclosure format.
Avis Group Holdings, Inc. and Subsidiaries
Page | ||||
---|---|---|---|---|
PART I | Financial Information | |||
Item 1. | Financial Statements | |||
Independent Accountants' Report | 1 | |||
Consolidated Condensed Statements | 2 | |||
Consolidated Condensed Statements of Operations for the six months ended June 30, 2002, the period March 1, 2001 (Date of Acquisition) to | 3 | |||
Consolidated Condensed Balance Sheets as of | 4 | |||
Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2002, the period March 1, 2001 (Date of Acquisition) to | 5 | |||
Notes to the Consolidated Condensed | 7 | |||
Item 2. | Management's Narrative Analysis of the Results of Operations | 19 | ||
Item 3. | Quantitative and Qualitative Disclosure about Market Risks | 22 | ||
PART | Other Information | |||
Item 6. | Exhibits and Report on Form 8-K | 23 | ||
Signatures | 24 |
PART 1 - I—FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AVIS GROUP HOLDINGS, INC.
Item 1. Financial Statements
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholder of
Avis Group Holdings, Inc.
Parsippany, New Jersey
We have reviewed the accompanying consolidated condensed balance sheet of Avis Group Holdings, Inc. and subsidiaries (successor to Avis Rent A Car System, Inc. and subsidiaries, Avis Fleet Leasing and Management Corp., and subsidiaries and Reserve Claims Management Co., collectively the "Predecessor Companies") (collectively referred to as the "Company") as of June 30, 2002, and the related consolidated condensed statements of operations and cash flows for the three and six month period ended June 30, 2002, the period March 1, 2001 (Date of Acquisition) to June 30, 2001, and as to the Predecessor Companies for the period January 1, 2001 to February 28, 2001. These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to such consolidated condensed financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company as of December 31, 2001, and the related consolidated statements of operations, common stockholders' equity, and cash flows for the period March 1, 2001 (Date of Acquisition) to December 31, 2001 and as to the Predecessor Companies, the consolidated related statements of operations, common stockholders' equity and cash flows for the period January 1, 2001 to February 28, 2001 (not presented herein); and in our report dated January 23, 2002, we expressed an unqualified opinion (and included an explanatory paragraph relating to a change in accounting for derivative instruments and hedging activities) on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2001 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
August 12, 2002
New York, New York
1
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
PREDECESSOR COMPANIES
---------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ---------------------
Revenue ........................................................................ $ 650,368 $733,694
--------- --------
Cost and expenses:
Direct operating, net .......................................................... 238,657 259,573
Vehicle depreciation and lease charges, net .................................... 194,350 191,346
Selling, general and administrative ............................................ 122,094 121,101
Interest, net .................................................................. 70,440 86,992
Non-vehicle depreciation and amortization ...................................... 5,449 12,647
Amortization of cost in excess of net assets acquired and other intangibles .... 8,095 3,133
Unusual charges ................................................................ 60,062
--------- --------
699,147 674,792
--------- --------
Income (loss) before provision for income taxes ................................ (48,779) 58,902
Provision (benefit) for income taxes ........................................... (24,033) 30,573
--------- --------
Income (loss) from continuing operations ....................................... (24,746) 28,329
Income from discontinued operations, net of income taxes of $5,938 ............. 20,068
--------- --------
Net income (loss) .............................................................. $ (24,746) $ 48,397
========= ========
(In thousands)
| Three Months Ended June 30, 2002 | Three Months Ended June 30, 2001 | |||||
---|---|---|---|---|---|---|---|
Revenues | $ | 650,631 | $ | 628,893 | |||
Expenses | |||||||
Operating, net | 256,366 | 232,168 | |||||
Vehicle depreciation and lease charges, net | 161,401 | 170,982 | |||||
Selling, general and administrative | 121,929 | 116,540 | |||||
Vehicle interest, net | 51,339 | 55,899 | |||||
Non-vehicle interest, net | 10,823 | 14,577 | |||||
Non-vehicle depreciation and amortization | 9,445 | 15,075 | |||||
Total expenses | 611,303 | 605,241 | |||||
Income before income taxes | 39,328 | 23,652 | |||||
Provision for income taxes | 16,518 | 13,753 | |||||
Net income | $ | 22,810 | $ | 9,899 | |||
See notesNotes to the condensed consolidated financial statements.
1
AVIS GROUP HOLDINGS, INC.Consolidated Condensed Financial Statements.
2
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
PREDECESSOR COMPANIES
---------------------------------
MARCH 1, 2001 TWO MONTHS NINE MONTHS
(DATE OF ACQUISITION) ENDED ENDED
TO FEBRUARY 28, SEPTEMBER 30,
SEPTEMBER 30, 2001 2001 2000
--------------------- ------------ -------------
Revenue ..................................................... $ 1,497,258 $385,821 $1,989,167
----------- -------- ----------
Costs and expenses:
Direct operating, net ....................................... 549,021 173,830 715,581
Vehicle depreciation and lease charges, net ................. 423,110 111,966 510,674
Selling, general and administrative ......................... 276,213 83,229 355,240
Interest , net .............................................. 166,547 52,792 278,228
Non-vehicle depreciation and amortization ................... 12,235 4,154 22,260
Amortization of cost in excess of net assets acquired
and other intangibles ..................................... 18,604 2,087 9,414
Unusual charges ............................................. 60,062
----------- -------- ----------
1,505,792 428,058 1,891,397
----------- -------- ----------
Income (loss) before provision (benefit) for income taxes ... (8,534) (42,237) 97,770
Provision (benefit) for income taxes ........................ (2,381) (15,783) 47,976
----------- -------- ----------
Income (loss) from continuing operations .................... (6,153) (26,454) 49,794
Income from discontinued operation, net of
income taxes of $5,045 for the two months ended
February 28, 2001 and $35,186 for the nine months
ended September 30, 2000 .................................. 4,947 55,621
----------- -------- ----------
Income (loss) before cumulative effect of accounting
change .................................................... (6,153) (21,507) 105,415
Cumulative effect of accounting change, net of income
tax benefit of $3,331 ..................................... (7,612)
----------- -------- ----------
Net income (loss) ........................................... $ (6,153) $(29,119) $ 105,415
=========== ======== ==========
(In thousands)
| | | Predecessor Companies | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | |||||||||
| Six Months Ended June 30, 2002 | Two Months Ended February 28, 2001 | |||||||||
Revenues | $ | 1,215,234 | $ | 846,889 | $ | 385,821 | |||||
Expenses | |||||||||||
Operating, net | 480,401 | 310,979 | 174,087 | ||||||||
Vehicle depreciation and lease charges, net | 321,251 | 225,172 | 110,117 | ||||||||
Selling, general and administrative | 236,860 | 154,115 | 83,229 | ||||||||
Vehicle interest, net | 101,986 | 76,446 | 43,625 | ||||||||
Non-vehicle interest, net | 21,618 | 19,663 | 9,167 | ||||||||
Non-vehicle depreciation and amortization | 17,943 | 20,268 | 7,833 | ||||||||
Total expenses | 1,180,059 | 806,643 | 428,058 | ||||||||
Income (loss) before income taxes | 35,175 | 40,246 | (42,237 | ) | |||||||
Provision (benefit) for income taxes | 14,774 | 21,652 | (15,783 | ) | |||||||
Income (loss) from continuing operations | 20,401 | 18,594 | (26,454 | ) | |||||||
Income from discontinued operations, net of tax | — | — | 4,947 | ||||||||
Income (loss) before cumulative effect of accounting change | 20,401 | 18,594 | (21,507 | ) | |||||||
Cumulative effect of accounting change, net of tax | — | — | (7,612 | ) | |||||||
Net income (loss) | $ | 20,401 | $ | 18,594 | $ | (29,119 | ) | ||||
See notesNotes to the condensed consolidated financial statements.
2
AVIS GROUP HOLDINGS, INC.Consolidated Condensed Financial Statements.
3
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
| June 30, 2002 | December 31, 2001 | ||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Cash and cash equivalents | $ | 40,669 | $ | 13,311 | ||||
Receivables, net | 165,755 | 168,372 | ||||||
Prepaid expenses | 40,966 | 42,543 | ||||||
Deferred income taxes | 556,148 | 548,087 | ||||||
Property and equipment, net | 256,217 | 245,276 | ||||||
Goodwill, net | 1,254,909 | 1,271,192 | ||||||
Other assets | 145,054 | 146,608 | ||||||
Total assets exclusive of assets under management programs | 2,459,718 | 2,435,389 | ||||||
Assets under management programs: | ||||||||
Restricted cash | 9,306 | 581,187 | ||||||
Vehicles, net | 4,226,575 | 3,428,893 | ||||||
Due from vehicle manufacturers | 64,492 | 92,614 | ||||||
4,300,373 | 4,102,694 | |||||||
Total assets | $ | 6,760,091 | $ | 6,538,083 | ||||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||
Liabilities: | ||||||||
Accounts payable | $ | 245,132 | $ | 363,891 | ||||
Accrued liabilities | 447,341 | 434,665 | ||||||
Due to Cendant Corporation and affiliates, net | 514,007 | 514,433 | ||||||
Non-vehicle debt | 575,856 | 588,259 | ||||||
Public liability, property damage and other insurance liabilities | 215,877 | 228,503 | ||||||
Total liabilities exclusive of liabilities under management programs | 1,998,213 | 2,129,751 | ||||||
Liabilities under management programs: | ||||||||
Vehicle debt | 4,115,860 | 3,771,341 | ||||||
Deferred income taxes | 307,296 | 315,905 | ||||||
4,423,156 | 4,087,246 | |||||||
Commitments and contingencies (Note 6) | ||||||||
Stockholder's equity: | ||||||||
Common stock, $.01 par value—authorized 10,000 shares; issued 5,537 shares | — | — | ||||||
Additional paid-in-capital | 168,832 | 168,832 | ||||||
Retained earnings | 209,707 | 189,306 | ||||||
Accumulated other comprehensive loss | (39,817 | ) | (37,052 | ) | ||||
Total stockholder's equity | 338,722 | 321,086 | ||||||
Total liabilities and stockholder's equity | $ | 6,760,091 | $ | 6,538,083 | ||||
See Notes to Consolidated Condensed Financial Statements.
4
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS)
PREDECESSOR
COMPANIES
------------
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
ASSETS
Cash and cash equivalents .................................. $ 43,021 $ 80,368
Restricted cash ............................................ 43,953 41,280
Accounts receivable, net ................................... 206,176 189,662
Prepaid expenses ........................................... 57,896 47,924
Property and equipment, net ................................ 198,425 181,504
Other assets ............................................... 35,090 78,972
Net assets of discontinued operation ....................... 880,300
Deferred income tax assets, net ............................ 489,911 349,268
Customer lists ............................................. 18,392
Cost in excess of net assets acquired, net ................. 1,220,530 453,450
----------- -----------
Total assets exclusive of assets under programs ............ 2,313,394 2,302,728
----------- -----------
Assets under management programs:
Restricted cash ......................................... 151,046 126,202
Vehicles ................................................ 3,554,442 3,761,454
Due from vehicle manufacturers .......................... 590,551 318,666
----------- -----------
4,296,039 4,206,322
----------- -----------
Total assets ........................................... $ 6,609,433 $ 6,509,050
=========== ===========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Accounts payable ........................................... $ 262,096 $ 283,556
Accrued liabilities ........................................ 386,884 263,277
Due to Cendant Corporation and affiliates, net ............. 410,471 36,117
Public liability, property damage and other insurance
liabilities, net ........................................ 227,668 247,567
Non-vehicle debt ........................................... 594,594 730,333
----------- -----------
Total liabilities exclusive of liabilities under programs .. 1,881,713 1,560,850
----------- -----------
Liabilities under management programs:
Vehicle debt ............................................ 3,934,969 3,816,682
Deferred income taxes ................................... 370,765 376,404
Other ................................................... 67,933
----------- -----------
4,373,667 4,193,086
----------- -----------
Total liabilities ...................................... 6,255,380 5,753,936
----------- -----------
Commitments and contingencies:
Common stock ...............................................
Class A Common stock ....................................... 359
Additional paid-in-capital ................................. 156,065 593,829
Retained earnings .......................................... 242,207 277,460
Treasury stock ............................................. (96,538)
Accumulated comprehensive loss ............................. (44,219) (19,996)
----------- -----------
Total common stockholders' equity ...................... 354,053 755,114
----------- -----------
Total liabilities and common stockholders' equity ...... $ 6,609,433 $ 6,509,050
=========== ===========
See notes to the condensed consolidated financial statements.
3
AVIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR COMPANIES
-----------------------------
MARCH 1, 2001 TWO MONTHS NINE MONTHS
(DATE OF ACQUISITION) ENDED ENDED
TO FEBRUARY 28, SEPTEMBER 30,
SEPTEMBER 30, 2001 2001 2000
------------------ ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................................................... $ (6,153) $ (29,119) $ 105,415
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Non-vehicle depreciation and amortization .............................. 30,839 6,241 31,674
Changes in operating assets and liabilities:
Accounts receivable ................................................. 6,887 10,108 (23,688)
Accounts payable .................................................... 124,495 (33,889) 46,573
Due to Cendant-trading accounts ..................................... (169,144) (45,096) 1,076,008
Accrued liabilities ................................................. 114,432 1,486 (36,342)
Other, net .......................................................... (71,064) (7,180) 33,955
----------- ----------- -----------
Net cash provided by (used in) operating activities exclusive of
management programs ................................................. 30,292 (97,449) 1,233,595
----------- ----------- -----------
Management programs:
Vehicle depreciation ................................................ 395,985 105,928 488,538
Deferred income taxes ............................................... (12,488) (17,744) (14,056)
----------- ----------- -----------
383,497 88,184 474,482
----------- ----------- -----------
Net cash provided by (used in) operating activities ................. 413,789 (9,265) 1,708,077
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Management programs:
Increase (decrease) in restricted cash ........................... (36,855) 10,978 (36,963)
Increase (decrease) in due (from) to vehicle manufacturers ....... (284,433) 16,368 (54,882)
Payments for vehicle additions ................................... (3,407,418) (943,102) (3,907,439)
Vehicle deletions ................................................ 3,057,001 813,460 2,794,366
----------- ----------- -----------
(671,705) (102,296) (1,204,918)
----------- ----------- -----------
Payments for additions to property and equipment ....................... (22,957) (3,278) (29,800)
Retirements of property and equipment .................................. 3,219 (380) 5,618
Payment for purchase of rental car franchise licensees ................. (28,261)
Decrease in net assets and preferred stock of discontinued operation ... (291) (41,566)
----------- ----------- -----------
Net cash used in investing activities, exclusive of management programs. (47,999) (3,949) (65,748)
----------- ----------- -----------
Net cash used in investing activities .................................. (719,704) (106,245) (1,270,666)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Management programs:
Changes in vehicle debt:
Proceeds ......................................................... 1,111,524 132,294 1,392,856
Repayments ....................................................... (1,025,222) (31,087) (865,804)
----------- ----------- -----------
Net increase in vehicle debt ..................................... 86,302 101,207 527,052
Changes in non-vehicle debt:
Proceeds ......................................................... 140,000 161,000
Repayments ....................................................... (457,928) (77) (1,118,328)
----------- ----------- -----------
Net decrease in non-vehicle debt ....................................... (317,928) (77) (957,328)
Increase in due to Cendant-intercompany financing, net ................. 394,950
Payments for debt issuance costs ....................................... (4,593) (12) (9,525)
Capital contribution from Cendant ...................................... 125,000
Other .................................................................. 140 271
Net cash provided by (used in) financing activities, exclusive of ----------- ----------- -----------
management programs ................................................. 197,429 51 (966,582)
----------- ----------- -----------
Net cash provided by (used in) financing activities .................... 283,731 101,258 (439,530)
----------- ----------- -----------
Effect of exchange rate changes on cash ................................ (900) (11) (390)
----------- ----------- -----------
Net decrease in cash and cash equivalents .............................. (23,084) (14,263) (2,509)
Cash and cash equivalents at beginning of period ....................... 66,105 80,368 31,901
----------- ----------- -----------
Cash and cash equivalents at end of period ............................. $ 43,021 $ 66,105 $ 29,392
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid ..................................................... $ 189,230 $ 44,315 $ 176,538
=========== =========== ===========
Cash income taxes paid ................................................. $ 11,690 $ 1,962 $ 10,625
=========== =========== ===========
Businesses acquired:
Fair value of assets acquired, net of cash acquired of $182 ............ $ 30,283
Liabilities assumed .................................................... 2,022
-----------
Net cash paid for rental car franchise licensees ....................... $ 28,261
===========
(In thousands)
| | | Predecessor Companies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | ||||||||||
| Six Months Ended June 30, 2002 | Two Months Ended February 28, 2001 | ||||||||||
Operating Activities | ||||||||||||
Net income (loss) | $ | 20,401 | $ | 18,594 | $ | (29,119 | ) | |||||
Adjustments to arrive at income (loss) from continuing operations | — | — | 2,665 | |||||||||
Income (loss) from continuing operations | 20,401 | 18,594 | (26,454 | ) | ||||||||
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: | ||||||||||||
Non-vehicle depreciation and amortization | 17,943 | 20,268 | 7,833 | |||||||||
Net change in operating assets and liabilities, excluding the impact of acquisitions and dispositions: | ||||||||||||
Receivables | (12,664 | ) | (12,108 | ) | 10,108 | |||||||
Accounts payable | (9,766 | ) | (12,531 | ) | (30,518 | ) | ||||||
Accrued liabilities | 848 | (3,789 | ) | 1,486 | ||||||||
Other, net | (10,935 | ) | (4,082 | ) | (30,923 | ) | ||||||
Net cash provided by (used in) operating activities exclusive of management programs | 5,827 | 6,352 | (68,468 | ) | ||||||||
Management programs: | ||||||||||||
Vehicle depreciation | 312,221 | 211,602 | 104,336 | |||||||||
Net cash provided by operating activities | 318,048 | 217,954 | 35,868 | |||||||||
Investing Activities | ||||||||||||
Property and equipment additions | (24,807 | ) | (25,658 | ) | (5,821 | ) | ||||||
Retirements of property and equipment | 778 | 8,375 | 433 | |||||||||
Payment for purchase of rental car franchise licensees | (3,087 | ) | (19,047 | ) | — | |||||||
Net cash used in investing activities exclusive of management programs | (27,116 | ) | (36,330 | ) | (5,388 | ) | ||||||
Management programs: | ||||||||||||
Decrease in restricted cash | 571,881 | 5,208 | 10,978 | |||||||||
Decrease in due from vehicle manufacturers | 29,348 | 131,813 | 16,368 | |||||||||
Investment in vehicles | (2,684,823 | ) | (1,900,052 | ) | (940,559 | ) | ||||||
Payments received on investment in vehicles | 1,472,033 | 1,412,819 | 812,647 | |||||||||
(611,561 | ) | (350,212 | ) | (100,566 | ) | |||||||
Net cash used in investing activities | (638,677 | ) | (386,542 | ) | (105,954 | ) | ||||||
5
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
| | | Predecessor Companies | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | |||||||||
| Six Months Ended June 30, 2002 | Two Months Ended February 28, 2001 | |||||||||
Financing Activities | |||||||||||
Proceeds from borrowings | — | 140,000 | — | ||||||||
Principal payments on borrowings | (253 | ) | (457,806 | ) | (77 | ) | |||||
Increase (decrease) in due to Cendant Corporation and affiliates, net | (2,667 | ) | 316,882 | (45,818 | ) | ||||||
Payments for debt issuance costs | (131 | ) | (4,231 | ) | (12 | ) | |||||
Issuances of common stock | — | — | 140 | ||||||||
Net cash used in financing activities exclusive of management programs | (3,051 | ) | (5,155 | ) | (45,767 | ) | |||||
Management programs: | |||||||||||
Proceeds from borrowings | 650,431 | 916,633 | 132,294 | ||||||||
Principal payments on borrowings | (299,818 | ) | (786,470 | ) | (31,087 | ) | |||||
350,613 | 130,163 | 101,207 | |||||||||
Net cash provided by financing activities | 347,562 | 125,008 | 55,440 | ||||||||
Effect of changes in net assets of discontinued operations | — | — | 394 | ||||||||
Effect of changes in exchange rates on cash and cash equivalents | 425 | (117 | ) | (11 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 27,358 | (43,697 | ) | (14,263 | ) | ||||||
Cash and cash equivalents, beginning of period | 13,311 | 66,105 | 80,368 | ||||||||
Cash and cash equivalents, end of period | $ | 40,669 | $ | 22,408 | $ | 66,105 | |||||
Supplemental disclosure of Cash Flow Information: | |||||||||||
Interest payments | $ | 130,775 | $ | 108,764 | $ | 44,315 | |||||
Income tax payments, net | $ | 485 | $ | 8,889 | $ | 1,962 |
See notesNotes to the condensed consolidated financial statements
4
AVIS GROUP HOLDINGS, INC.
Consolidated Condensed Financial Statements.
6
Avis Group Holdings, Inc. and Subsidiaries
NOTES TO THECONSOLIDATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION
GENERAL
Prior to March 1, 2001, the
(Unless otherwise noted, all amounts are in thousands)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements includedConsolidated Condensed Financial Statements include the accounts and transactions of Avis Group Holdings, Inc. and its subsidiaries (the "Predecessor" or "Predecessor Companies"(collectively, "the Company"),.
Avis Group Holdings, Inc. is a holding company that operates through a wholly-owned subsidiary, Avis Rent A Car System, Inc.
("Vehicle Rental"), Avis Fleet Leasing and Management Corp. ("Vehicle Leasing")
and Reserve Claims Management Co.the second largest general use car rental brand in the world. On November 11, 2000,March 1, 2001, all the Company's common stock not then-owned by Cendant Corporation ("Cendant") entered into an Agreement and Plan of Merger with the Predecessor
(the "Cendant Merger Agreement") whereby Cendant would acquire all of the
outstanding shares of the Predecessor's Class A Common stock that were not ownedwas acquired by Cendant at the price of $33.00 per share, in cash and convert certain Avis
Group Holdings, Inc. stock options to Cendant stock options which were then
valued at approximately $17 million (the "Cendant Consideration"). Pursuant to
the Cendant Merger Agreement, all outstanding and unexercised options to
purchase Class A Common stock of the Predecessor were either cancelled upon the
merger in exchange for a cash payment equal to the excess of the merger
consideration over the per share exercise price of each option or converted into
options to purchase Cendant common stock. Approximately 24.9 million outstanding
shares of the Predecessor's Class A Common stock were not owned by Cendant and
approximately 6.7 million unexercised non-converted options were outstanding at
February 28, 2001. The merger was approved on February 28, 2001, by a majority
of the Predecessor's shareholders who were unaffiliated with Cendant and closed
on March 1, 2001 (the "Date of Acquisition") at a cost to Cendant of
approximately $994 million, including $40 million of transaction costs and
expenses (the "Acquisition"). Concurrent with the Acquisition, Avis Group
Holdings, Inc.'s common stock was recapitalized. As a result of the
recapitalization, 10,000 shares were authorized, of which 5,537 shares were
issued and outstanding at March 1, 2001 and September 30, 2001. These shares,
which have a par value of $0.01 per share, are 100% owned by a subsidiary of
Cendant. In addition, Avis Group Holdings, Inc. sold its investment in Vehicle
Leasing to PHH Corporation ("PHH Corp."), a wholly-owned subsidiary of Cendant for $800 million. The proceeds fromapproximately $994 million with the sale were used to retire acquisition
indebtedness (see Note 5).Company emerging as the surviving legal entity. Accordingly, the unaudited condensed consolidated
financial statementsConsolidated Condensed Financial Statements as of and for the three and six months ended June 30, 2002, for the period from the DateMarch 1, 2001 (Date of Acquisition through
SeptemberAcquisition) to June 30, 2001 and the three months ended September 30,as of December 31, 2001 include the consolidated accountsfinancial statements of Avis Group Holdings, Inc., Avis Rent A Car System, Inc. and Reserve Claims Management Co., (collectively referred to as the "Company" or
"Successor Company"). As a result of the sale of Vehicle Leasing to PHH Corp.,
theits subsidiaries. The Consolidated Condensed ConsolidatedFinancial Statements of Operations for the two months ended February 28, 2001 andinclude the three and nine months ended September 30, 2000financial statements of the Predecessor present Vehicle LeasingCompany and its former fleet management and fuel card businesses, which are presented as a discontinued operation net of the
related provision for income taxes (see Note 3)(the "Predecessor Companies"). The Series A, B, and C
Preferred stock, which was originally issued by Vehicle Leasing, is excluded
from the Successor Company's Condensed Statement of Financial Position at
September 30, 2001.
The Acquisition was accounted for under the purchase method. The purchase price
has been allocated among the Predecessor Companies based upon their estimated
fair values at the Date of Acquisition. Because of this purchase price
allocation, the condensed consolidated financial statements of the Predecessor
Companies are not comparable to the condensed consolidated financial statements
of the Successor Company.
The excess of the purchase price over the estimated fair value of the underlying
net assets acquired was allocated to goodwill, which is being amortized over 40
years on a straight-line basis until the adoption of Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (see below).
The allocation of the excess purchase price was based upon preliminary estimates
and assumptions and is subject to revision when appraisals and integration costs
have been finalized. Accordingly, revisions to the allocation will be recorded
by the Company as further adjustments to the purchase price allocation. The
preliminary allocation of the purchase price is summarized as follows (in
thousands):
In management's opinion, the condensed consolidated financial statementsConsolidated Condensed Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported.results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. In addition, management is required to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. The condensed
consolidated financial statementsConsolidated Condensed Financial Statements should be read in conjunction with the Predecessor'sCompany's Annual Report on Form 10-K dated March 29, 2002.
Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
Pursuant to certain covenant requirements in an indenture under which the Company issued debt, the Company continues to operate and maintain its status as a separate public reporting entity.
Assets used by the Company to generate revenue are classified as assets under management programs. Funding for such assets is primarily provided by secured financing arrangements, which are classified as liabilities under management programs. Revenues generated from these assets are used, in part, to repay the year ended December 31, 2000.
CHANGE IN ACCOUNTING PRINCIPLE FOR DERIVATIVE INSTRUMENTSinterest and principal associated with the debt. Cash inflows and outflows relating to the generation and acquisition of assets and the principal debt repayment or financing of such assets are classified as activities of the Company's management programs.
Changes in Accounting Policies
On January 1, 2001,2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS No. 133") as amended. SFAS No. 133, established accounting
and reporting standards for derivative instruments, including freestanding and
embedded derivatives, and hedging activities. The Company has recorded all such
derivatives at fair value at January 1, 2001.
The adoption of SFAS No. 133 resulted in the recognition of a non-cash charge of
$12.5 million ($7.6 million, after tax) in the Condensed Consolidated Statement
of Operations for the two months ended February 28, 2001 to account for the
cumulative effect of the accounting change relating to derivatives not
qualifying as hedges prior to that date. The Company also recognized a
cumulative-effect-type adjustment in the amount of $2.4 million in accumulated
comprehensive loss in the Condensed Consolidated Balance Sheet attributable to
derivatives designated as cash flow like hedges prior to the adoption of SFAS
No. 133.
The Company uses derivative financial instruments as part of its overall
strategy to manage its exposure to market risks associated with interest rate
risks. As a matter of policy, the Company does not use derivatives for trading
or speculative purposes.
All derivatives are recorded at fair value either as assets or liabilities.
Gains or losses on derivatives designated in cash flow hedges, to the extent the
hedge is effective, are recorded in other comprehensive income (loss). Any
ineffectiveness resulting from these cash flow hedges is reported currently in
earnings. Amounts accumulated in other comprehensive income are reclassified
into earnings in the same period during which the hedged item affects earnings.
Gains and losses on derivatives not designated as hedging instruments are
recognized currently in earnings.
RECENT ACCOUNTING STANDARDS
Recent pronouncements of the Financial Accounting Standards Board which are not
required to be adopted at this date include Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" ("SFAS No. 141"), SFAS No.
142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"), and SFAS No. 144
"Accounting forin its entirety. Prior to the Impairment or Disposal of Long Lived Assets" ("SFAS No.
144").
SFAS No. 141 requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001 and requires additional
disclosures for material business combinations completed after such date. This
standard also addresses financial accounting and reporting for goodwill and
other intangible assets acquired in a business combination acquisition. On July
1, 2001, the Company adopted the provisions relating to acquisitions made
subsequent to June 30, 2001, as required. The provisions regarding the
classification of previously acquired intangible asset will be adopted
simultaneously with the provisionsadoption of SFAS No. 142, all intangible assets were amortized on January 1, 2002, as
required.
6
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION (CONTINUED)
RECENT ACCOUNTING STANDARDS (CONTINUED)a straight-line basis over their estimated periods to be benefited. Subsequent to the adoption, the Company did not amortize any goodwill or indefinite-lived intangible assets during 2002.
In connection with the implementation of SFAS No. 142, addresses financial accounting and reporting for intangible assets
acquired outside of a business combination. The standard also addresses
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. Thethe Company will beis required to assess goodwill and otherindefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate a potential impairment. On July 1, 2001,impairment may have occurred. The Company reviewed the Company
adopted the provisions requiring thatcarrying value of all its goodwill and certain other intangible assets acquired after June 30, 2001by comparing such amounts to their fair value and determined that the carrying amounts of such assets did not be amortized. The Company will adoptexceed their respective fair values. Accordingly, the remaining provisionsinitial implementation of this standard did not result in a charge and, as such, did not impact the Company's results of operations during 2002.
7
2. Related Party Transactions
Expenses of the Company include the following items charged by Cendant and affiliates, which include allocations from Cendant for services provided to the Company:
| Three Months Ended June 30, 2002 | Three Months Ended June 30, 2001 | ||||
---|---|---|---|---|---|---|
Royalties | $ | 27,977 | $ | 26,610 | ||
Reservations | 16,639 | 14,031 | ||||
Data processing | 9,475 | 15,657 | ||||
Rent, corporate overhead allocations and other | 15,300 | 10,957 | ||||
Interest, net | 2,959 | 7,011 | ||||
Total | $ | 72,350 | $ | 74,266 | ||
| | | Predecessor Companies | ||||||
---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | |||||||
| Six Months Ended June 30, 2002 | Two Months Ended February 28, 2001 | |||||||
Royalties | $ | 52,253 | $ | 35,810 | $ | 16,205 | |||
Reservations | 29,321 | 19,186 | 8,496 | ||||||
Data processing | 17,740 | 20,141 | 11,395 | ||||||
Rent, corporate overhead allocations and other | 29,079 | 11,629 | 1,456 | ||||||
Interest, net | 6,358 | 7,011 | — | ||||||
Total | $ | 134,751 | $ | 93,777 | $ | 37,552 | |||
On the Consolidated Condensed Statements of Operations, the royalty and reservation charges are included within selling, general and administration expenses, the rent and other and data processing expenses are included within operating, net and interest expense is included within non-vehicle interest, net. These charges, including corporate overhead allocations, are determined in accordance with various intercompany agreements, which are based upon factors, such as square footage, employee salaries and computer usage time.
3. Restricted Cash
Restricted cash includes cash and investments that are not readily available for normal Company disbursements that have been set aside as required under the Company's debt covenants. The restricted cash balance at December 31, 2001 was held as collateral for outstanding vehicle debt that was not callable and, therefore, could not be immediately repaid. During 2002, the restricted cash was depleted through the normal purchase of vehicles.
4. Intangible Assets
Intangible assets consisted of:
| June 30, 2002 | December 31, 2001 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||
Amortized Intangible Assets | |||||||||||||
Customer lists | $ | 18,952 | $ | 1,280 | $ | 18,952 | $ | 800 | |||||
Unamortized Intangible Assets | |||||||||||||
Goodwill | $ | 1,254,909 | $ | 1,297,774 | $ | 26,582 | |||||||
8
Customer lists are included in other assets on January 1,the Company's Consolidated Condensed Balance Sheet. Amortization expense relating to customer lists during the three and six months ended June 30, 2002 as required.
Transition-related impairment losses, if any, resulting form the initial
assessment of goodwillwas approximately $240 thousand and certain other$480 thousand, respectively. Amortization expense relating to all intangible assets will be recognized by
the Company as a cumulative effect of accounting change as of January 1, 2002.
The Company is currently evaluating the impact of adopting the remaining
provisions on its financial position and results of operations.
Based upon a preliminary assessment of previously acquired goodwill and certain
other intangible assets that will no longer be amortized upon the adoption of
SFAS No. 142, the Company expects that the related reduction to amortization
expense during the seven months ended September 30, 2001, the two months ended February 28, 2001 and the nine months ended Septemberperiod March 1, 2001 (Date of Acquisition) to June 30, 2000 would approximate
$18.6 million, $22001, was approximately $2.1 million and $9.2$10.5 million, respectively, including the amortization of goodwill of $2.1 million and $10.2 million, respectively. SFAS No. 144 addresses financial accounting and reportingThe Company expects amortization expense on intangible assets for the impairmentremainder of disposal2002 to approximate $480 thousand and $1 million for each of long-lived assets. This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", and replacessucceeding five years.
The changes in the accounting and reporting provisions of APB
Opinion No. 30, "Reporting Results of Operations - Reporting the Effect of
Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" as it relates to the disposal of a segment of
a business. SFAS No. 144 requires the use of a single accounting model for
long-lived assets to be disposed of by sale, including discontinued operations,
by requiring those long-lived assets to be measured at the lower of carrying amount or fair value less cost to sell. The impairment recognition and
measurementof goodwill for 2002 are as follows:
Balance as of January 1, 2002 | $ | 1,271,192 | ||
Goodwill acquired during 2002 | 1,836 | |||
Other | (18,119 | ) | ||
Balance as of June 30, 2002 | $ | 1,254,909 | ||
Had the Company applied the non-amortization provisions of SFAS No. 121 were retained for all long-lived assets
to be held and used with the exception of goodwill. The Company will adopt this
standard on January 1, 2002.
NOTE 2-UNUSUAL CHARGES
During the third quarter 2001, unusual charges of $60.1 million were recorded as
a result of the September 11, 2001 terrorist attacks on the World Trade Center
("Terrorist Attacks"). The unusual charges include 1) an asset impairment loss
arising from the return of Regular Program vehicles, $43.8 million, 2) a reserve
for anticipated decline in market value on the sale of Non-Program vehicles,
$5.8 million, 3) a reserve142 for the cancellationthree months ended June 30, 2001 and for the period March 1, 2001 (Date of marketing programs, $0.9
million, 4) a reserve for severance costs, $0.5 millionAcquisition) to June 30, 2001 and 5) other costs, $9.1
million, principally related to redundancies caused by the Terrorist Attacks.
The asset impairment loss of $43.8 million relates to the disposal of Program
Vehicles under repurchase programs. Prices under these repurchase programs are
based on either 1) a specified percentage of original vehicle costs, depending
on the month the vehicle is returned to the manufacturers or 2) the original
capitalized cost less a set depreciation amount. Unlike Program Vehicles, the
resale of Non-Program Vehicles is determined by current market conditions. Due
to the excessive number of vehicles being returned by Avis and other car rental
companies subsequent to the Terrorist Attacks, the Company has experienced a
sharp decline in the resale value of these Non-Program vehicles. A reserve in
the amount of $5.8 million was established anticipating losses on the disposal
of Non-Program vehicles.two months ended February 28, 2001, net income (loss) would have been as follows:
| | | Predecessor Companies | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | ||||||||
| Three Months Ended June 30, 2001 | Two Months Ended February 28, 2001 | ||||||||
Reported net income (loss) | $ | 9,899 | $ | 18,594 | $ | (29,119 | ) | |||
Add back: Goodwill amortization, net of tax | 3,108 | 4,708 | 1,307 | |||||||
Pro forma net income (loss) | $ | 13,007 | $ | 23,302 | $ | (27,812 | ) | |||
5. Vehicle Debt
Vehicle debt consisted of:
| June 30, 2002 | December 31, 2001 | ||||
---|---|---|---|---|---|---|
Commercial paper notes | $ | 299,030 | $ | 119,998 | ||
Series 2001-2 auction rate rental car asset-backed notes | 385,000 | 40,000 | ||||
Series 1997-1B 6.40% asset-backed medium-term notes | 566,667 | 850,000 | ||||
Series 1998-1 6.14% asset-backed medium-term notes | 600,000 | 600,000 | ||||
Series 2000-1 floating rate rental car asset-backed notes | 250,000 | 250,000 | ||||
Series 2000-2 floating rate rental car asset-backed notes | 300,000 | 300,000 | ||||
Series 2000-3 floating rate rental car asset-backed notes | 200,000 | 200,000 | ||||
Series 2000-4 floating rate rental car asset-backed notes | 500,000 | 500,000 | ||||
Series 2001-1 floating rate rental car asset-backed notes | 750,000 | 750,000 | ||||
Other | 265,163 | 161,343 | ||||
$ | 4,115,860 | $ | 3,771,341 | |||
As of SeptemberJune 30, 2001, a reserve2002, the Company's asset-backed funding arrangements under the AESOP Funding program provided for the issuance of $35 million
remains for those Program Vehicles which have not been disposed. The remaining
vehicles will be disposedup to $4.14 billion of as soon as possible.
Also included indebt. Amounts outstanding under the unusual charge were costsAESOP Funding program approximated $3.85 billion. As of commissions payable to
agencies for advertising placement. Prior to the Terrorist Attacks,June 30, 2002, the Company had committed to a levelan additional $291 million of advertising placement commissions based on
anticipated advertising spending. As a result ofavailability under the Terrorist Attacks, the
Company has significantly curtailed its advertising spending, it remains,
however, obligated to pay commissions based on budgeted advertising spending. As
of September 30, 2001, the entire amount of advertising placement commission had
been paid.AESOP Funding program. In addition, the Company has initiatedhad other outstanding vehicle debt of approximately $265 million and availability of approximately $112 million under other funding arrangements as of June 30, 2002.
6. Commitments and Contingencies
The Company is involved in pending litigation in the usual course of business. In the opinion of management, such litigation will not have a formal plan to terminate
certain employeesmaterial adverse effect on the Company's consolidated financial position, results of operations or cash flows.
9
7. Comprehensive Income (Loss)
The components of comprehensive income (loss) are summarized as follows:
| Three Months Ended June 30, 2002 | Three Months Ended June 30, 2001 | ||||||
---|---|---|---|---|---|---|---|---|
Net income | $ | 22,810 | $ | 9,899 | ||||
Other comprehensive income (loss): | ||||||||
Currency translation adjustment | 3,660 | 2,239 | ||||||
Unrealized losses on cash flow hedges, net of tax | (17,466 | ) | (1,395 | ) | ||||
Total comprehensive income | $ | 9,004 | $ | 10,743 | ||||
| | | Predecessor Companies | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | March 1, 2001 (Date of Acquisition) to June 30, 2001 | |||||||||
| Six Months Ended June 30, 2002 | Two Months Ended February 28, 2001 | |||||||||
Net income (loss) | $ | 20,401 | $ | 18,594 | $ | (29,119 | ) | ||||
Other comprehensive income (loss): | |||||||||||
Currency translation adjustment | 4,451 | (1,175 | ) | (1,758 | ) | ||||||
Unrealized gains (losses) on cash flow hedges, net of tax | (5,880 | ) | (2,766 | ) | 561 | ||||||
Minimum pension liability adjustment | (1,336 | ) | — | — | |||||||
Cumulative effect from change in accounting policy for derivative instruments, net of tax | — | — | 1,464 | ||||||||
Total comprehensive income (loss) | $ | 17,636 | $ | 14,653 | $ | (28,852 | ) | ||||
The after-tax components of accumulated other comprehensive income (loss) for the six months ended June 30, 2002 are as follows:
| Currency Translation Adjustments | Unrealized Losses on Cash Flows Hedges | Minimum Pension Liability Adjustment | Accumulated Other Comprehensive Loss | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, January 1, 2002 | $ | (2,469 | ) | $ | (34,583 | ) | $ | — | $ | (37,052 | ) | ||
Current period change | 4,451 | (5,880 | ) | (1,336 | ) | (2,765 | ) | ||||||
Balance June 30, 2002 | $ | 1,982 | $ | (40,463 | ) | $ | (1,336 | ) | $ | (39,817 | ) | ||
8. Subsequent Event
On July 25, 2002, the Company issued $750 million of rental car asset backed notes under its AESOP Funding Program. Approximately $500 million of such notes bear interest at field locationsa fixed rate of 3.85% and approximately $250 million of such notes bear interest at corporate headquarters. Asa floating rate of SeptemberLIBOR plus 29 basis points.
9. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements
The following consolidating condensed financial information presents the Consolidating Condensed Balance Sheets as of June 30, 2002 and December 31, 2001, the Consolidated Condensed Statements of Operations for the three months ended June 30, 2002 and June 30, 2001 and the Company had accrued $0.5 million for severance and other
related costs for employees so notified. The Company expects all affected
employees will be terminated prior to December 31, 2001. Other costs of $9.1
million associated with the Terrorist Attacks have been classified within the
StatementConsolidating Condensed Statements of Operations toand Statements of Cash Flows for the Unusual Charge. Amounts classified comprise $7.2
million of estimated payroll costs for underutilized employees (the majority of
which have been terminated) and $1.9 million of minimum airport commission
guarantees.
7
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3-DISCONTINUED OPERATION
In connection withsix months ended June 30, 2002, the acquisition of the Company by Cendant onperiod March 1, 2001 (Date of Acquisition) to June 30, 2001, and as to the Predecessor Companies for the two months ended February 28, 2001 of (a) Avis Group Holdings, Inc. ("the Parent"); (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; (d) elimination entries necessary to consolidate the Parent with the guarantor and non-guarantor subsidiaries; and (e) the Company sold its investmenton a consolidated basis.
Investments in Vehicle Leasingsubsidiaries are accounted for $800using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been provided as management believes the following information is sufficient.
10
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months ended June 30, 2002
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 591,572 | $ | 59,059 | $ | — | $ | 650,631 | ||||||
Expenses | ||||||||||||||||
Operating, net | — | 227,135 | 29,231 | — | 256,366 | |||||||||||
Vehicle depreciation and lease charges, net | — | 146,991 | 14,410 | — | 161,401 | |||||||||||
Selling, general and administrative | — | 113,735 | 8,194 | — | 121,929 | |||||||||||
Vehicle interest, net | 459 | 50,544 | 336 | — | 51,339 | |||||||||||
Non-vehicle interest, net | 7,658 | 3,165 | — | — | 10,823 | |||||||||||
Non-vehicle depreciation and amortization | 240 | 8,439 | 766 | — | 9,445 | |||||||||||
Total expenses | 8,357 | 550,009 | 52,937 | — | 611,303 | |||||||||||
Income (loss) before equity in earnings of subsidiaries | (8,357 | ) | 41,563 | 6,122 | — | 39,328 | ||||||||||
Equity in earnings of subsidiaries | 26,166 | 3,550 | — | (29,716 | ) | — | ||||||||||
Income before income taxes | 17,809 | 45,113 | 6,122 | (29,716 | ) | 39,328 | ||||||||||
Provision (benefit) for income taxes | (5,001 | ) | 18,947 | 2,572 | — | 16,518 | ||||||||||
Net income | $ | 22,810 | $ | 26,166 | $ | 3,550 | $ | (29,716 | ) | $ | 22,810 | |||||
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2001
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 570,551 | $ | 58,342 | $ | — | $ | 628,893 | ||||||
Expenses | ||||||||||||||||
Operating, net | — | 206,665 | 25,503 | — | 232,168 | |||||||||||
Vehicle depreciation and lease charges, net | — | 158,512 | 12,470 | — | 170,982 | |||||||||||
Selling, general and administrative | — | 108,548 | 7,992 | — | 116,540 | |||||||||||
Vehicle interest, net | 3,459 | 52,015 | 425 | — | 55,899 | |||||||||||
Non-vehicle interest, net | 8,350 | 6,227 | — | — | 14,577 | |||||||||||
Non-vehicle depreciation and amortization | 4,746 | 9,505 | 824 | — | 15,075 | |||||||||||
Total expenses | 16,555 | 541,472 | 47,214 | — | 605,241 | |||||||||||
Income (loss) before equity in earnings of subsidiaries | (16,555 | ) | 29,079 | 11,128 | — | 23,652 | ||||||||||
Equity in earnings of subsidiaries | 14,176 | 4,674 | — | (18,850 | ) | — | ||||||||||
Income (loss) before income taxes | (2,379 | ) | 33,753 | 11,128 | (18,850 | ) | 23,652 | |||||||||
Provision (benefit) for income taxes | (12,278 | ) | 19,577 | 6,454 | — | 13,753 | ||||||||||
Net income | $ | 9,899 | $ | 14,176 | $ | 4,674 | $ | (18,850 | ) | $ | 9,899 | |||||
11
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Six Months ended June 30, 2002
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 1,098,987 | $ | 116,247 | $ | — | $ | 1,215,234 | ||||||
Expenses | ||||||||||||||||
Operating, net | — | 422,895 | 57,506 | — | 480,401 | |||||||||||
Vehicle depreciation and lease charges, net | — | 289,810 | 31,441 | — | 321,251 | |||||||||||
Selling, general and administrative | — | 221,329 | 15,531 | — | 236,860 | |||||||||||
Vehicle interest, net | 918 | 100,524 | 544 | — | 101,986 | |||||||||||
Non-vehicle interest, net | 15,315 | 6,303 | — | — | 21,618 | |||||||||||
Non-vehicle depreciation and amortization | 479 | 15,919 | 1,545 | — | 17,943 | |||||||||||
Total expenses | 16,712 | 1,056,780 | 106,567 | — | 1,180,059 | |||||||||||
Income (loss) before equity in earnings of subsidiaries | (16,712 | ) | 42,207 | 9,680 | — | 35,175 | ||||||||||
Equity in earnings of subsidiaries | 27,737 | 5,614 | — | (33,351 | ) | — | ||||||||||
Income before income taxes | 11,025 | 47,821 | 9,680 | (33,351 | ) | 35,175 | ||||||||||
Provision (benefit) for income taxes | (9,376 | ) | 20,084 | 4,066 | — | 14,774 | ||||||||||
Net income | $ | 20,401 | $ | 27,737 | $ | 5,614 | $ | (33,351 | ) | $ | 20,401 | |||||
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Period March 1, 2001 (Date of Acquisition) to June 30, 2001
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 767,986 | $ | 78,903 | $ | — | $ | 846,889 | ||||||
Expenses | ||||||||||||||||
Operating, net | — | 276,363 | 34,616 | — | 310,979 | |||||||||||
Vehicle depreciation and lease charges, net | — | 206,553 | 18,619 | — | 225,172 | |||||||||||
Selling, general and administrative | — | 143,494 | 10,621 | — | 154,115 | |||||||||||
Vehicle interest, net | 4,612 | 70,973 | 861 | — | 76,446 | |||||||||||
Non-vehicle interest, net | 11,634 | 8,029 | — | — | 19,663 | |||||||||||
Non-vehicle depreciation and amortization | 6,574 | 12,599 | 1,095 | — | 20,268 | |||||||||||
Total expenses | 22,820 | 718,011 | 65,812 | — | 806,643 | |||||||||||
Income (loss) before equity in earnings of subsidiaries | (22,820 | ) | 49,975 | 13,091 | — | 40,246 | ||||||||||
Equity in earnings of subsidiaries | 25,759 | 6,022 | — | (31,781 | ) | — | ||||||||||
Income before income taxes | 2,939 | 55,997 | 13,091 | (31,781 | ) | 40,246 | ||||||||||
Provision (benefit) for income taxes | (15,655 | ) | 30,238 | 7,069 | — | 21,652 | ||||||||||
Net income | $ | 18,594 | $ | 25,759 | $ | 6,022 | $ | (31,781 | ) | $ | 18,594 | |||||
12
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Predecessor Companies)
For the Two Months Ended February 28, 2001
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | 344,496 | $ | 41,325 | $ | — | $ | 385,821 | |||||||
Expenses | |||||||||||||||||
Operating, net | — | 154,747 | 19,340 | — | 174,087 | ||||||||||||
Vehicle depreciation and lease charges, net | — | 100,718 | 9,399 | — | 110,117 | ||||||||||||
Selling, general and administrative | — | 77,866 | 5,363 | — | 83,229 | ||||||||||||
Vehicle interest, net | 2,306 | 40,375 | 944 | — | 43,625 | ||||||||||||
Non-vehicle interest, net | 9,167 | — | — | — | 9,167 | ||||||||||||
Non-vehicle depreciation and amortization | — | 7,282 | 551 | — | 7,833 | ||||||||||||
Total expenses | 11,473 | 380,988 | 35,597 | — | 428,058 | ||||||||||||
Income (loss) before equity in earnings (losses) of subsidiaries | (11,473 | ) | (36,492 | ) | 5,728 | — | (42,237 | ) | |||||||||
Equity in earnings (losses) of subsidiaries | (25,645 | ) | 9,950 | — | 15,695 | — | |||||||||||
Income (loss) before income taxes | (37,118 | ) | (26,542 | ) | 5,728 | 15,695 | (42,237 | ) | |||||||||
Provision (benefit) for income taxes | (7,999 | ) | (9,926 | ) | 2,142 | — | (15,783 | ) | |||||||||
Income (loss) from continuing operations | (29,119 | ) | (16,616 | ) | 3,586 | 15,695 | (26,454 | ) | |||||||||
Income (loss) from discontinued operations, net of tax | — | (6,358 | ) | 11,305 | — | 4,947 | |||||||||||
Income (loss) before cumulative effect of accounting change | (29,119 | ) | (22,974 | ) | 14,891 | 15,695 | (21,507 | ) | |||||||||
Cumulative effect of accounting change, net of tax | — | (2,671 | ) | (4,941 | ) | — | (7,612 | ) | |||||||||
Net income (loss) | $ | (29,119 | ) | $ | (25,645 | ) | $ | 9,950 | $ | 15,695 | $ | (29,119 | ) | ||||
13
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
June 30, 2002
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 98 | $ | 7,887 | $ | 32,684 | $ | — | $ | 40,669 | ||||||
Receivables, net | — | 135,094 | 30,661 | — | 165,755 | |||||||||||
Prepaid expenses | — | 33,109 | 7,857 | — | 40,966 | |||||||||||
Due from affiliate | (328,977 | ) | 178,602 | 150,375 | — | — | ||||||||||
Deferred income taxes | 218,280 | 336,241 | 1,627 | — | 556,148 | |||||||||||
Property and equipment, net | — | 241,383 | 14,834 | — | 256,217 | |||||||||||
Investment in consolidated subsidiaries | 707,986 | 644,419 | — | (1,352,405 | ) | — | ||||||||||
Goodwill | 806,809 | 444,667 | 3,433 | — | 1,254,909 | |||||||||||
Other assets | 15,541 | 34,113 | 95,400 | — | 145,054 | |||||||||||
Total assets exclusive of assets under management programs | 1,419,737 | 2,055,515 | 336,871 | (1,352,405 | ) | 2,459,718 | ||||||||||
Assets under management programs: | ||||||||||||||||
Restricted cash | — | 174 | 9,132 | — | 9,306 | |||||||||||
Vehicles, net | — | (97,824 | ) | 4,324,399 | — | 4,226,575 | ||||||||||
Due from vehicle manufacturers | — | 5,399 | 59,093 | — | 64,492 | |||||||||||
— | (92,251 | ) | 4,392,624 | — | 4,300,373 | |||||||||||
Total assets | $ | 1,419,737 | $ | 1,963,264 | $ | 4,729,495 | $ | (1,352,405 | ) | $ | 6,760,091 | |||||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||||||||||
Liabilities: | ||||||||||||||||
Accounts payable | $ | (16,459 | ) | $ | 166,744 | $ | 94,847 | $ | — | $ | 245,132 | |||||
Accrued liabilities | 107,466 | 306,005 | 33,870 | — | 447,341 | |||||||||||
Due to Cendant Corporation and affiliates, net | 418,617 | 275,723 | (180,333 | ) | — | 514,007 | ||||||||||
Non-vehicle debt | 571,391 | 4,465 | — | — | 575,856 | |||||||||||
Public liability, property damage and other insurance liabilities | — | 144,141 | 71,736 | — | 215,877 | |||||||||||
Total liabilities exclusive of liabilities under management programs | 1,081,015 | 897,078 | 20,120 | — | 1,998,213 | |||||||||||
Liabilities under management programs: | ||||||||||||||||
Vehicle debt | — | 80,490 | 4,035,370 | — | 4,115,860 | |||||||||||
Deferred income taxes | — | 277,710 | 29,586 | — | 307,296 | |||||||||||
— | 358,200 | 4,064,956 | — | 4,423,156 | ||||||||||||
Stockholder's equity | 338,722 | 707,986 | 644,419 | (1,352,405 | ) | 338,722 | ||||||||||
Total liabilities and stockholder's equity | $ | 1,419,737 | $ | 1,963,264 | $ | 4,729,495 | $ | (1,352,405 | ) | $ | 6,760,091 | |||||
14
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 2001
| Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Avis Group Holdings, Inc. Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 18 | $ | 5,210 | $ | 8,083 | $ | — | $ | 13,311 | ||||||
Receivables, net | — | 142,386 | 25,986 | — | 168,372 | |||||||||||
Prepaid expenses | — | 34,569 | 7,974 | — | 42,543 | |||||||||||
Deferred income tax | 221,741 | 326,332 | 14 | — | 548,087 | |||||||||||
Property and equipment, net | — | 230,429 | 14,847 | — | 245,276 | |||||||||||
Investment in consolidated subsidiaries | 677,401 | 628,280 | — | (1,305,681 | ) | — | ||||||||||
Goodwill | 825,234 | 443,000 | 2,958 | — | 1,271,192 | |||||||||||
Other assets | 16,020 | 34,791 | 95,797 | — | 146,608 | |||||||||||
Total assets exclusive of assets under management programs | 1,740,414 | 1,844,997 | 155,659 | (1,305,681 | ) | 2,435,389 | ||||||||||
Assets under management programs: | ||||||||||||||||
Restricted cash | — | 9,457 | 571,730 | — | 581,187 | |||||||||||
Vehicles, net | — | (128,932 | ) | 3,557,825 | — | 3,428,893 | ||||||||||
Due from vehicle manufacturers | — | 7,855 | 84,759 | — | 92,614 | |||||||||||
— | (111,620 | ) | 4,214,314 | — | 4,102,694 | |||||||||||
Total assets | $ | 1,740,414 | $ | 1,733,377 | $ | 4,369,973 | $ | (1,305,681 | ) | $ | 6,538,083 | |||||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||||||||||
Liabilities: | ||||||||||||||||
Accounts payable | $ | — | $ | 151,379 | $ | 212,512 | $ | — | $ | 363,891 | ||||||
Accrued liabilities | 109,143 | 300,337 | 25,185 | — | 434,665 | |||||||||||
Due to Cendant Corporation and affiliates, net | 726,645 | 63,214 | (275,426 | ) | — | 514,433 | ||||||||||
Non-vehicle debt | 583,540 | 4,719 | — | — | 588,259 | |||||||||||
Public liability, property damage and other insurance liabilities | — | 166,432 | 62,071 | — | 228,503 | |||||||||||
Total liabilities exclusive of liabilities under management programs | 1,419,328 | 686,081 | 24,342 | — | 2,129,751 | |||||||||||
Liabilities under management programs: | ||||||||||||||||
Vehicle debt | — | 86,004 | 3,685,337 | — | 3,771,341 | |||||||||||
Deferred income taxes | — | 283,891 | 32,014 | — | 315,905 | |||||||||||
— | 369,895 | 3,717,351 | — | 4,087,246 | ||||||||||||
Stockholder's equity | 321,086 | 677,401 | 628,280 | (1,305,681 | ) | 321,086 | ||||||||||
Total liabilities and stockholder's equity | $ | 1,740,414 | $ | 1,733,377 | $ | 4,369,973 | $ | (1,305,681 | ) | $ | 6,538,083 | |||||
15
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2002
| Parent | Guarantor | Non- Guarantor | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Activities | |||||||||||||||||
Net income | $ | 20,401 | $ | 27,737 | $ | 5,614 | $ | (33,351 | ) | $ | 20,401 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs | (27,692 | ) | (6,266 | ) | 19,384 | — | (14,574 | ) | |||||||||
Net cash provided by (used in) operating activities exclusive of management programs | (7,291 | ) | 21,471 | 24,998 | (33,351 | ) | 5,827 | ||||||||||
Management programs: | |||||||||||||||||
Vehicle depreciation | — | 291,352 | 20,869 | — | 312,221 | ||||||||||||
Net cash provided by (used in) operating activities | (7,291 | ) | 312,823 | 45,867 | (33,351 | ) | 318,048 | ||||||||||
Investing Activities | |||||||||||||||||
Property and equipment additions | — | (23,278 | ) | (1,529 | ) | — | (24,807 | ) | |||||||||
Retirements of property and equipment | — | 89 | 689 | — | 778 | ||||||||||||
Payment for purchase of rental car franchise licensees | — | (2,835 | ) | (252 | ) | — | (3,087 | ) | |||||||||
Investment in subsidiaries | (27,737 | ) | (5,614 | ) | — | 33,351 | — | ||||||||||
Net cash used in investing activities exclusive of management programs | (27,737 | ) | (31,638 | ) | (1,092 | ) | 33,351 | (27,116 | ) | ||||||||
Management programs: | |||||||||||||||||
Decrease in restricted cash | — | 9,283 | 562,598 | — | 571,881 | ||||||||||||
Decrease in due from vehicle manufacturers | — | 2,456 | 26,892 | — | 29,348 | ||||||||||||
Investment in vehicles | — | (57,042 | ) | (2,627,781 | ) | — | (2,684,823 | ) | |||||||||
Payments received on investment in vehicles | — | (248,886 | ) | 1,720,919 | — | 1,472,033 | |||||||||||
— | (294,189 | ) | (317,372 | ) | — | (611,561 | ) | ||||||||||
Net cash used in investing activities | (27,737 | ) | (325,827 | ) | (318,464 | ) | 33,351 | (638,677 | ) | ||||||||
Financing Activities | |||||||||||||||||
Net decrease in non-vehicle debt | — | (253 | ) | — | — | (253 | ) | ||||||||||
Increase (decrease) in due to Cendant Corporation and affiliates, net | 35,108 | 16,065 | (53,840 | ) | — | (2,667 | ) | ||||||||||
Payments for debt issuance costs | — | (131 | ) | — | — | (131 | ) | ||||||||||
Net cash provided by (used in) financing activities exclusive of management programs | 35,108 | 15,681 | (53,840 | ) | — | (3,051 | ) | ||||||||||
Management programs: | |||||||||||||||||
Net increase in vehicle debt | — | — | 350,613 | — | 350,613 | ||||||||||||
Net cash provided by financing activities | 35,108 | 15,681 | 296,773 | — | 347,562 | ||||||||||||
Effect of changes in exchange rates on cash and cash equivalents | — | — | 425 | — | 425 | ||||||||||||
Net increase in cash and cash equivalents | 80 | 2,677 | 24,601 | — | 27,358 | ||||||||||||
Cash and cash equivalents, beginning of period | 18 | 5,210 | 8,083 | — | 13,311 | ||||||||||||
Cash and cash equivalents, end of period | $ | 98 | $ | 7,887 | $ | 32,684 | $ | — | $ | 40,669 | |||||||
16
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Period March 1, 2001 (Date of Acquisition) to June 30, 2001
| Parent | Guarantor | Non- Guarantor | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Activities | |||||||||||||||||
Net income | $ | 18,594 | $ | 25,759 | $ | 6,022 | $ | (31,781 | ) | $ | 18,594 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs | (118,194 | ) | 130,934 | (24,982 | ) | — | (12,242 | ) | |||||||||
Net cash provided by (used in) operating activities exclusive of management programs | (99,600 | ) | 156,693 | (18,960 | ) | (31,781 | ) | 6,352 | |||||||||
Management programs: | |||||||||||||||||
Vehicle depreciation | — | 195,458 | 16,144 | — | 211,602 | ||||||||||||
Net cash provided by (used in) operating activities | (99,600 | ) | 352,151 | (2,816 | ) | (31,781 | ) | 217,954 | |||||||||
Investing Activities | |||||||||||||||||
Property and equipment additions | — | (24,781 | ) | (877 | ) | — | (25,658 | ) | |||||||||
Retirements of property and equipment | — | 8,169 | 206 | — | 8,375 | ||||||||||||
Payment for purchase of rental car franchise licensees | — | (18,748 | ) | (299 | ) | — | (19,047 | ) | |||||||||
Investment in subsidiaries | (25,759 | ) | (6,022 | ) | — | 31,781 | — | ||||||||||
Net cash used in investing activities exclusive of management programs | (25,759 | ) | (41,382 | ) | (970 | ) | 31,781 | (36,330 | ) | ||||||||
Management programs: | |||||||||||||||||
Decrease in restricted cash | — | — | 5,208 | — | 5,208 | ||||||||||||
(Increase) decrease in due from vehicle manufacturers | — | (3,443 | ) | 135,256 | — | 131,813 | |||||||||||
Investment in vehicles | — | (41,397 | ) | (1,858,655 | ) | — | (1,900,052 | ) | |||||||||
Payments received on investment in vehicles | — | (182,724 | ) | 1,595,543 | — | 1,412,819 | |||||||||||
— | (227,564 | ) | (122,648 | ) | — | (350,212 | ) | ||||||||||
Net cash used in investing activities | (25,759 | ) | (268,946 | ) | (123,618 | ) | 31,781 | (386,542 | ) | ||||||||
Financing Activities | |||||||||||||||||
Net decrease in non-vehicle debt | (317,650 | ) | (156 | ) | — | — | (317,806 | ) | |||||||||
Increase (decrease) in due to Cendant Corporation and affiliates, net | 443,173 | (102,192 | ) | (24,099 | ) | — | 316,882 | ||||||||||
Payments for debt issuance costs | — | (4,231 | ) | — | — | (4,231 | ) | ||||||||||
Net cash provided by (used in) financing activities exclusive of management programs | 125,523 | (106,579 | ) | (24,099 | ) | — | (5,155 | ) | |||||||||
Management programs: | |||||||||||||||||
Net (decrease) increase in vehicle debt | — | (8,744 | ) | 138,907 | — | 130,163 | |||||||||||
Net cash provided by (used in) financing activities | 125,523 | (115,323 | ) | 114,808 | — | 125,008 | |||||||||||
Effect of changes in exchange rates on cash a cash equivalents | — | — | (117 | ) | — | (117 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | 164 | (32,118 | ) | (11,743 | ) | — | (43,697 | ) | |||||||||
Cash and cash equivalents, beginning of period | 141 | 36,745 | 29,219 | — | 66,105 | ||||||||||||
Cash and cash equivalents, end of period | $ | 305 | $ | 4,627 | $ | 17,476 | $ | — | $ | 22,408 | |||||||
17
Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Predecessor Companies)
For the Two Months Ended February 28, 2001
| Parent | Guarantor | Non- Guarantor | Eliminations | Avis Group Holdings, Inc. Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Activities | |||||||||||||||||
Net income (loss) | $ | (29,119 | ) | $ | (25,645 | ) | $ | 9,950 | $ | 15,695 | $ | (29,119 | ) | ||||
Adjustments to arrive at income (loss) from continuing operations | — | 9,029 | (6,364 | ) | — | 2,665 | |||||||||||
Income (loss) from continuing operations | (29,119 | ) | (16,616 | ) | 3,586 | 15,695 | (26,454 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities exclusive of management programs | 425 | 77,124 | (119,563 | ) | — | (42,014 | ) | ||||||||||
Net cash provided by (used in) operating activities exclusive of management programs | (28,694 | ) | 60,508 | (115,977 | ) | 15,695 | (68,468 | ) | |||||||||
Management programs: | |||||||||||||||||
Vehicle depreciation | — | 96,394 | 7,942 | — | 104,336 | ||||||||||||
Net cash provided by (used in) operating activities | (28,694 | ) | 156,902 | (108,035 | ) | 15,695 | 35,868 | ||||||||||
Investing Activities | |||||||||||||||||
Property and equipment additions | — | (5,169 | ) | (652 | ) | — | (5,821 | ) | |||||||||
Retirements of property and equipment | — | 165 | 268 | — | 433 | ||||||||||||
Investment in subsidiaries | 25,645 | (9,950 | ) | — | (15,695 | ) | — | ||||||||||
Net cash provided by (used in) investing activities exclusive of management programs | 25,645 | (14,954 | ) | (384 | ) | (15,695 | ) | (5,388 | ) | ||||||||
Management programs: | |||||||||||||||||
Decrease in restricted cash | — | — | 10,978 | — | 10,978 | ||||||||||||
Decrease in due from vehicle manufacturers | — | — | 16,368 | — | 16,368 | ||||||||||||
Investment in vehicles | — | 378 | (940,937 | ) | — | (940,559 | ) | ||||||||||
Payments received on investment in vehicles | — | (82,703 | ) | 895,350 | — | 812,647 | |||||||||||
— | (82,325 | ) | (18,241 | ) | — | (100,566 | ) | ||||||||||
Net cash provided by (used in) investing activities | 25,645 | (97,279 | ) | (18,625 | ) | (15,695 | ) | (105,954 | ) | ||||||||
Financing Activities | |||||||||||||||||
Net decrease in non-vehicle debt | — | (77 | ) | — | — | (77 | ) | ||||||||||
Increase (decrease) in due to Cendant Corporation and affiliates, net | (89,023 | ) | 43,123 | 82 | — | (45,818 | ) | ||||||||||
Payments for debt issuance costs | — | (12 | ) | — | — | (12 | ) | ||||||||||
Issuances of common stock | 140 | — | — | — | 140 | ||||||||||||
Net cash provided by (used in) financing activities exclusive of management programs | (88,883 | ) | 43,034 | 82 | — | (45,767 | ) | ||||||||||
Management programs: | |||||||||||||||||
Net increase (decrease) in vehicle debt | 92,000 | (2 | ) | 9,209 | — | 101,207 | |||||||||||
Net cash provided by financing activities | 3,117 | 43,032 | 9,291 | — | 55,440 | ||||||||||||
Effect of changes in net assets of discontinued operations | — | (131,512 | ) | 131,906 | — | 394 | |||||||||||
Effect of changes in exchange rates on cash and cash equivalents | — | — | (11 | ) | — | (11 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | 68 | (28,857 | ) | 14,526 | — | (14,263 | ) | ||||||||||
Cash and cash equivalents, beginning of period | 73 | 65,602 | 14,693 | — | 80,368 | ||||||||||||
Cash and cash equivalents, end of period | $ | 141 | $ | 36,745 | $ | 29,219 | $ | — | $ | 66,105 | |||||||
18
Item 2. Management's Narrative Analysis of the Results of Operations
The following discussion should be read in conjunction with our Consolidated Condensed Financial Statements and accompanying Notes thereto included elsewhere herein. Unless otherwise noted, all dollar amounts are in thousands and presented before taxes (as appropriate).
We are the second largest general use car rental brand in the world. On March 1, 2001, all of our outstanding common stock not then-owned by Cendant Corporation ("Cendant") was acquired by a subsidiary of PHH Corporation ("PHH"), a wholly-owned subsidiary of Cendant, for approximately $994 million and we emerged as the surviving legal entity. At such time, our fleet management and fuel card businesses were sold to PHH Corp.
(see Note 1). No gain or loss was recognized on the sale.
Summarized financial data of theand, therefore, are presented as a discontinued operation in the accompanying Consolidated Condensed Financial Statements. Accordingly, we are now a wholly-owned subsidiary of Cendant.
RESULTS OF OPERATIONS
The acquisition of us by Cendant resulted in significant changes to the valuation of certain of our assets, liabilities and stockholder's equity. The periods prior to the acquisition have been designated "Predecessor Companies" and the period subsequent to the acquisition has been designated "Successor Company". The results of the Predecessor is as
follows (in thousands):
Three Months Ended June 30, 2002 vs. Three Months Ended June 30, 2001
Our comparative results of operations, excluding our former fleet management and fuel card businesses, comprised the following:
| 2002 | 2001 | Change | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 650,631 | $ | 628,893 | $ | 21,738 | ||||
Expenses, excluding non-vehicle interest | 600,480 | 590,664 | 9,816 | |||||||
Non-vehicle interest, net | 10,823 | 14,577 | (3,754 | ) | ||||||
Total expenses | 611,303 | 605,241 | 6,062 | |||||||
Income before income taxes | 39,328 | 23,652 | 15,676 | |||||||
Provision for income taxes | 16,518 | 13,753 | 2,765 | |||||||
Income from continuing operations | $ | 22,810 | $ | 9,899 | $ | 12,911 | ||||
Total revenue increased 3.5% primarily due to reimburse the Predecessor Companies for the costs it had incurred on behalf of
Vehicle Leasing as follows (in thousands):
Total expenses increased 1.0% primarily due to higher commission-related expenses associated with higher revenues, the launch of Series 2001-1 Floating Rate Rental Car Asset Backed Notes
("Series 2001-1 Notes"), which are secured byan advertising campaign during the Company's vehicles.
Anticipated principalsecond quarter of 2002 and severance costs related to the relocation of our information technology operations from Garden City, New York to Parsippany, New Jersey.
Non-vehicle interest, net decreased 25.8% primarily due to a decrease in interest rates and the repayment on the Series 2001-1 Notes commence in November
2003 and continue through April 2004. The Series 2001-1 Notes bear interest at a
rate of LIBOR plus 20 basis points per annum. The Series 2001-1 Notes are
guaranteedall amounts outstanding under a Surety Bond issued by MBIArevolving credit facility during 2001.
Our overall effective tax rate was 42.0% and are rated AAA by Standard and
Poor's rating services and Aaa by Moody's Investor Service, Inc. The Series
2001-1 Notes rank pari pasu with the Company's Variable Funding Notes and Medium
Term Notes.
9
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-FINANCING AND DEBT (CONTINUED)
On May 17, 2001, one of the Company's vehicle rental financing subsidiaries
issued $125 million of Series 2001-2 Auction Rate Notes (the "Series 2001-2
Notes"), which are secured by the Company's vehicles. The Series 2001-2 Notes
were issued in four classes, Class A-1, A-2, A-3 and A-4 with initial issuances
of $95 million, $10 million, $10 million and $10 million, respectively.
Subsequent to the initial issuance of $125 million of auction rate notes, the
Company issued $145 million of additional notes and repaid principal of $115
million, which brought the total outstanding Series 2001-2 Notes to $155 million
at September 30, 2001. The Company may issue up to $125 million of Auction Rate
Notes per class or $500 million in total. The interest rate on each class will
be a market derived rate determined by auction with auctions expected to occur
every 35 days. Anticipated principal repayment on the Series 2001-2 Notes is May
2007. The Series 2001-2 Notes are guaranteed under a Surety Bond issued by Ambac
and are rated AAA by Standard & Poor's Ratings Services and Aaa by Moody's
Investors Service, Inc. The Series 2001-2 Notes rank pari passu with the
Company's variable funding notes and medium term notes.
In connection with the acquisition by Cendant on March 1, 2001, a fair value of
$604.5 million was assigned to the Company's 11% Senior Subordinated Notes due
May 2009 ("Senior Subordinated Notes") of which $14.2 million has been accreted
to the Condensed Consolidated Statement of Operations since the date of
acquisition along with principal repayments of $650,000. The fair value of the
notes as of September 30, 2001 was $589.6 million and includes a call premium of
$27.5 million if the notes are redeemed during the twelve month period beginning
on May 1, 2004.
On September 5, 2001, the Company elected to terminate the Revolving Credit
Facility.
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS
In connection with the Vehicle Leasing acquisition on June 30, 1999 and as part
of the financing thereof, the Predecessor issued and sold the Senior
Subordinated Notes (see Note 5) in a transaction exempt from registration under
the Securities Act. The Senior Subordinated Notes are unsecured obligations of
Avis Group Holdings, Inc. The notes are subordinated in right of payment to all
existing and future senior indebtedness of the Company, and are guaranteed by
certain Avis Group Holdings, Inc. domestic subsidiaries. Vehicle Leasing and its
subsidiaries were released as guarantors under this financing agreement upon
Vehicle Leasing's sale to PHH Corp. on March 1, 2001 (see Notes 1 and 2).
Accordingly, the following condensed consolidating financial information
presents the results of operations58.1% for the three months ended SeptemberJune 30, 2002 and 2001, and Septemberrespectively. The lower tax rate for the three months ended June 30, 2000,2002 was primarily due to the elimination of goodwill amortization expense.
As a result of the above-mentioned items, income from continuing operations increased $12.9 million, or 130%, in the second quarter 2002.
19
Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001
Our comparative results of operations, excluding our former fleet management and cash flowsfuel card businesses comprised the following:
| 2002 | 2001 | Change | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 1,215,234 | $ | 1,232,710 | $ | (17,476 | ) | |||
Expenses, excluding non-vehicle interest | 1,158,441 | 1,205,871 | (47,430 | ) | ||||||
Non-vehicle interest, net | 21,618 | 28,830 | (7,212 | ) | ||||||
Total expenses | 1,180,059 | 1,234,701 | (54,642 | ) | ||||||
Income (loss) before income taxes | 35,175 | (1,991 | ) | 37,166 | ||||||
Provision for income taxes | 14,774 | 5,869 | 8,905 | |||||||
Income (loss) from continuing operations | $ | 20,401 | $ | (7,860 | ) | $ | 28,261 | |||
Total revenue decreased 1.4% primarily due to a reduction in car rental transaction volume, which resulted primarily from the residual effect of reduced commercial air travel due to the September 11th terrorist attacks.
Total expenses decreased 4.4% primarily due to a decrease in operating expenses derived from our ability to reduce our operating expenses as a result of reduced car rental transaction volume during the first quarter of 2002. Vehicle depreciation and lease charges and vehicle interest expense also decreased due to a corresponding reduction in average fleet size and the related decrease in average vehicle debt supporting such fleet.
Non-vehicle interest, net decreased 25.0% primarily due to a decrease in interest rates and the repayment of all amounts outstanding under a revolving credit facility during 2001.
The provision for income taxes for the six months ended June 30, 2002 reflects our overall effective tax rate of 42.0% for 2002. The increase in the provision was primarily due to the Company reporting pretax income in 2002 versus a pretax loss of $42.2 million for the two months ended February 28, 2001 at an effective tax rate of 37.4% offset by a pre-tax income of $40.2 million for the period March 1, 2001 (Date of Acquisition) to SeptemberJune 30, 2001 the two months ended
February 28, 2001at an effective tax rate of 53.8% and the nine months ended September 30, 2000 andelimination of goodwill amortization expense.
As a result of the financial
position as of September 30, 2001 and December 31, 2000.
10
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The Unaudited Condensed Consolidating Statements of Operationsabove-mentioned items, income from continuing operations increased $28 million for the twosix months ended February 28, 2001 and the three and nine month periods ended
September 30, 2000 present the results of operations of Vehicle Leasing as
income from discontinued operations, net of the related income tax provision.
AVIS GROUP HOLDINGS, INC
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- ------------ ------------ --------------
Revenue .............................................. $ 575,914 $74,454 $ 650,368
--------- ------- ---------
Costs and expenses:
Direct operating, net ................................ 207,726 30,931 238,657
Vehicle depreciation and lease charges, net .......... 176,676 17,674 194,350
Selling, general and administrative .................. 113,750 8,344 122,094
Interest, net ........................................ $ 11,116 57,627 1,697 70,440
Non-vehicle depreciation and amortization ............ 4,763 686 5,449
Amortization of cost in excess of net
assets acquired and other intangibles ............. 5,037 3,014 44 8,095
Unusual charges ...................................... 60,062 60,062
--------- --------- ------- ---------
16,153 623,618 59,376 699,147
--------- --------- ------- ---------
(16,153) (47,704) 15,078 (48,779)
Equity (loss) in earnings of subsidiaries ............ (17,308) 9,493 $ 7,815
--------- --------- ------- -------- ---------
Income (loss) before provision (benefit) for income
taxes ............................................. (33,461) (38,211) 15,078 7,815 (48,779)
Provision (benefit) for income taxes ................. (8,715) (20,903) 5,585 (24,033)
--------- --------- ------- -------- ---------
Net income (loss) .................................... $ (24,746) $ (17,308) $ 9,493 $ 7,815 $ (24,746)
========= ========= ======= ======== =========
AVIS GROUP HOLDINGS, INC
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(PREDECESSOR COMPANIES)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- ------------ ------------ --------------
Revenue .............................................. $ 658,053 $75,641 $ 733,694
--------- ------- ---------
Costs and expenses:
Direct operating, net ................................ 229,975 29,598 259,573
Vehicle depreciation and lease charges, net .......... 173,196 18,150 191,346
Selling, general and administrative .................. 112,293 8,808 121,101
Interest, net ........................................ $ 25,250 60,067 1,675 86,992
Non-vehicle depreciation and amortization ............ 11,985 662 12,647
Amortization of cost in excess of net
Assets acquired and other intangibles ............. 3,090 43 3,133
--------- --------- ------- ---------
25,250 590,606 58,936 674,792
--------- --------- ------- ---------
(25,250) 67,447 16,705 58,902
Equity in earnings of subsidiaries ................... 64,268 19,983 $(84,251)
--------- --------- ------- -------- ---------
Income before provision (benefit) for income taxes ... 39,018 87,430 16,705 (84,251) 58,902
Provision (benefit) for income taxes ................. (9,379) 34,909 5,043 30,573
--------- --------- ------- -------- ---------
Income from continuing operations .................... 48,397 52,521 11,662 (84,251) 28,329
Income (loss) from discontinued operation, net of
income taxes ...................................... 11,747 8,321 20,068
--------- --------- ------- -------- ---------
Net income ........................................ $ 48,397 $ 64,268 $19,983 $(84,251) $ 48,397
========= ========= ======= ======== =========
11
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 1, 2001 (DATE OF ACQUISITION) TO SEPTEMBER 30, 2001
(IN THOUSANDS)
-------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ --------------
Revenue .............................................. $ 1,343,901 $ 153,357 $ 1,497,258
----------- --------- -----------
Costs and expenses:
Direct operating, net ................................ 483,474 65,547 549,021
Vehicle depreciation and lease charges, net .......... 386,678 36,432 423,110
Selling, general and administrative .................. 257,307 18,906 276,213
Interest, net ........................................ $ 27,362 136,568 2,617 166,547
Non-vehicle depreciation and amortization ............ 10,651 1,584 12,235
Amortization of cost in excess of net
assets acquired and other intangibles ............. 11,611 6,891 102 18,604
Unusual charges ...................................... 60,062 60,062
----------- ----------- --------- -----------
38,973 1,341,631 125,188 1,505,792
----------- ----------- --------- -----------
(38,973) 2,270 28,169 (8,534)
Equity in earnings of subsidiaries ................... 21,914 20,232 $(42,146)
----------- ----------- --------- -------- -----------
Income (loss) before provision (benefit) for income
taxes ............................................. (17,059) 22,502 28,169 (42,146) (8,534)
Provision (benefit) for income taxes ................. (10,906) 588 7,937 (2,381)
----------- ----------- --------- -------- -----------
Net income (loss) .................................... $ (6,153) $ 21,914 $ 20,232 $(42,146) $ (6,153)
=========== =========== ========= ======== ===========
AVIS GROUP HOLDINGS, INC
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(PREDECESSOR COMPANIES)
FOR THE TWO MONTHS ENDED FEBRUARY 28, 2001
(IN THOUSANDS)
-------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ --------------
Revenue .............................................. $ 344,496 $ 41,325 $ 385,821
----------- --------- -----------
Costs and expenses:
Direct operating, net ................................ 154,490 19,340 173,830
Vehicle depreciation and lease charges, net .......... 102,490 9,476 111,966
Selling, general and administrative .................. 77,866 5,363 83,229
Interest, net ........................................ $ 11,473 40,375 944 52,792
Non-vehicle depreciation and amortization ............ 3,707 447 4,154
Amortization of cost in excess of net
Assets acquired ................................... 2,060 27 2,087
----------- ----------- --------- -----------
11,473 380,988 35,597 428,058
----------- ----------- --------- -----------
(11,473) (36,492) 5,728 (42,237)
Equity (loss) in earnings of subsidiaries ............ (21,907) 10,898 $ 11,009
----------- ----------- --------- -------- -----------
Income (loss) before provision (benefit) for income
taxes ............................................. (33,380) (25,594) 5,728 11,009 (42,237)
----------- ----------- --------- -------- -----------
Provision (benefit) for income taxes ................ (4,261) (12,716) 1,194 (15,783)
----------- ----------- --------- -------- -----------
Income (loss) from continuing operations ............. (29,119) (12,878) 4,534 11,009 (26,454)
Income (loss) from discontinued operations, net of
income taxes ...................................... (6,358) 11,305 4,947
----------- ----------- --------- -------- -----------
Income (loss) before cumulative effect of accounting
change ............................................ (29,119) (19,236) 15,839 11,009 (21,507)
Cumulative effect of accounting change, net of income
tax benefit ....................................... (2,671) (4,941) (7,612)
----------- ----------- --------- -------- -----------
Net income (loss) .................................... $ (29,119) $ (21,907) $ 10,898 $ 11,009 $ (29,119)
=========== =========== ========= ======== ===========
12
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(PREDECESSOR COMPANIES)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
--------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ --------------
Revenue .......................................... $ 1,792,413 $196,754 $1,989,167
----------- -------- ----------
Costs and expenses:
Direct operating, net ............................ 631,688 83,893 715,581
Vehicle depreciation and lease charges, net ...... 462,706 47,968 510,674
Selling, general and administrative .............. 329,985 25,255 355,240
Interest, net .................................... $ 105,500 169,787 2,941 278,228
Non-vehicle depreciation and amortization ........ 20,237 2,023 22,260
Amortization of cost in excess of net
assets acquired ............................... 9,282 132 9,414
---------- ----------- -------- ----------
105,500 1,623,685 162,212 1,891,397
---------- ----------- -------- ----------
(105,500) 168,728 34,542 97,770
Equity in earnings of subsidiaries ............... 171,727 82,010 $(253,737)
---------- ----------- -------- --------- ----------
Income before provision (benefit) for income taxes 66,227 250,738 34,542 (253,737) 97,770
---------- ----------- -------- --------- ----------
Provision (benefit) for income taxes ............. (39,188) 78,127 9,037 47,976
---------- ----------- -------- --------- ----------
Income from continuing operations ................ 105,415 172,611 25,505 (253,737) 49,794
Income (loss) from discontinued operation, net of
income taxes .................................. (885) 56,506 55,621
---------- ----------- -------- --------- ----------
Net income ....................................... $ 105,415 $ 171,726 $ 82,011 $(253,737) $ 105,415
========== =========== ======== ========= ==========
13
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, 2001
(IN THOUSANDS)
--------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ --------------
ASSETS
Cash and cash equivalents ......................... $ 200 $ 29,653 $ 13,168 $ 43,021
Restricted cash ................................... 621 43,332 43,953
Accounts receivable, net .......................... (12) 180,268 25,920 206,176
Prepaid expenses .................................. 50,416 7,480 57,896
Property and equipment, net ....................... 185,670 12,755 198,425
Investment in consolidated subsidiaries ........... 705,132 (448,517) 448,517 $(705,132)
Other assets ...................................... 14,134 20,956 35,090
Deferred income tax assets, net ................... 190,278 295,200 4,433 489,911
Customer lists .................................... 18,392 18,392
Cost in excess of net assets acquired, net ........ 756,511 461,411 2,608 1,220,530
----------- ----------- ----------- --------- ----------
Total assets exclusive of assets under management
programs ....................................... 1,671,122 768,235 579,169 (705,132) 2,313,394
----------- ----------- ----------- --------- ----------
Assets under management programs:
Restricted cash ................................ 151,046 151,046
Vehicles ....................................... (82,431) 3,636,873 3,554,442
Due from vehicle manufacturers ................. (693) 591,244 590,551
----------- ----------- ----------
(83,124) 4,379,163 4,296,039
----------- ----------- ----------- --------- ----------
Total assets ...................................... $ 1,671,122 $ 685,111 $ 4,958,332 $(705,132) $6,609,433
=========== =========== =========== ========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities .......... $ 22,877 $ 476,186 $ 149,917 $ 648,980
Due to Cendant Corporation and affiliates, net .... 704,576 (318) (293,787) 410,471
Public liability, property damage and other
insurance liabilities, net ..................... 171,118 56,550 227,668
Non-vehicle debt .................................. 589,616 4,978 594,594
----------- ----------- ----------- ----------
Total liabilities exclusive of liabilities under
management programs ............................ 1,317,069 651,964 (87,320) 1,881,713
----------- ----------- ----------- ----------
Liabilities under management programs:
Vehicle debt ................................... 3,934,969 3,934,969
Deferred income taxes .......................... 333,461 37,304 370,765
Other .......................................... 67,933 67,933
----------- ----------- ----------
401,394 3,972,273 4,373,667
----------- ----------- ----------- --------- ----------
Total liabilities ................................. 1,317,069 1,053,358 3,884,953 6,255,380
----------- ----------- ----------- --------- ----------
Common stockholder's equity ....................... 354,053 (368,247) 1,073,379 (705,132) 354,053
----------- ----------- ----------- --------- ----------
Total liabilities and common stockholder's equity . $ 1,671,122 $ 685,111 $ 4,958,332 $(705,132) $6,609,433
=========== =========== =========== ========= ==========
14
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION
(PREDECESSOR COMPANIES)
DECEMBER 31, 2000
(IN THOUSANDS)
--------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ --------------
ASSETS
Cash and cash equivalents .......................... $ 73 $ 65,602 $ 14,693 $ 80,368
Restricted cash .................................... 41,280 41,280
Accounts receivable, net ........................... 156 162,589 26,917 189,662
Prepaid expenses ................................... 39,014 8,910 47,924
Property and equipment, net ........................ 167,256 14,248 181,504
Investment in consolidated subsidiaries ............ 2,276,599 (826) $(2,275,773)
Other assets ....................................... 1,064 55,304 22,604 78,972
Net assets of discontinued operation ............... (883,464) 2,086,932 (323,168) 880,300
Deferred income taxes .............................. 96,680 249,201 3,387 349,268
Cost in excess of net assets acquired, net ......... 450,922 2,528 453,450
----------- ----------- ----------- ----------- ----------
Total assets exclusive of assets under management
programs ........................................ 1,491,108 3,275,994 (188,601) (2,275,773) 2,302,728
----------- ----------- ----------- ----------- ----------
Assets under management programs:
Restricted cash ................................. 126,202 126,202
Vehicles ........................................ (50,804) 3,812,258 3,761,454
Due from vehicle manufacturers .................. 9,666 309,000 318,666
----------- ----------- ----------- ----------
(41,138) 4,247,460 4,206,322
----------- ----------- ----------- ----------- ----------
Total assets ....................................... $ 1,491,108 $ 3,234,856 $ 4,058,859 $(2,275,773) $6,509,050
=========== =========== =========== =========== ==========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities ........... $ 10,994 $ 383,754 $ 152,085 $ 546,833
Due to Cendant Corporation and affiliates, net ..... 36,117 36,117
Public liability, property damage and other
insurance liabilities, net ...................... 194,373 53,194 247,567
Non-vehicle debt ................................... 725,000 5,333 730,333
----------- ----------- ----------- ----------
Total assets exclusive of assets under management
programs ........................................ 735,994 619,577 205,279 1,560,850
----------- ----------- ----------- ----------
Liabilities under management programs:
Vehicle debt .................................... 3,816,682 3,816,682
Deferred income taxes ........................... 338,680 37,724 376,404
----------- ----------- ----------
338,680 3,854,406 4,193,086
----------- ----------- ----------- ----------
Total liabilities .................................. 735,994 958,257 4,059,685 5,753,936
----------- ----------- ----------- ----------
Common stockholders' equity ........................ 755,114 2,276,599 (826) $(2,275,773) 755,114
----------- ----------- ----------- ----------- ----------
Total liabilities and common stockholders' equity .. $ 1,491,108 $ 3,234,856 $ 4,058,859 $(2,275,773) $6,509,050
=========== =========== =========== =========== ==========
15
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 1, 2001 (DATE OF ACQUISITION) TO SEPTEMBER 30, 2001
(IN THOUSANDS)
------------------------------------------------------------------------
AVIS GROUP
NON- HOLDINGS, INC.
PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
--------- --------- ----------- ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................... $ (6,153) $ 21,914 $ 20,232 $(42,146) $ (6,153)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
exclusive of management programs ....................... (75,546) 13,884 98,107 36,445
--------- --------- ----------- -------- -----------
Net cash provided by (used in) operating activities
exclusive of management programs ....................... (81,699) 35,798 118,339 (42,146) 30,292
--------- --------- ----------- -------- -----------
Management programs:
Vehicle depreciation ................................. 366,231 29,754 395,985
Deferred income taxes ................................ (98,628) 86,855 (715) (12,488)
--------- --------- ----------- -----------
(98,628) 453,086 29,039 383,497
--------- --------- ----------- -------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . (180,327) 488,884 147,378 (42,146) 413,789
--------- --------- ----------- -------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Management programs:
Decrease in restricted cash .......................... (36,855) (36,855)
Increase (decrease) in due (from) to vehicle
manufacturers ...................................... 6,485 (290,918) (284,433)
Payments for vehicle additions ....................... (87,510) (3,319,908) (3,407,418)
Vehicle deletions .................................... (331,887) 3,388,888 3,057,001
--------- ----------- -----------
(412,912) (258,793) (671,705)
--------- ----------- -----------
Payments for additions to property and equipment .......... (22,084) (873) (22,957)
Retirements of property and equipment ..................... 703 2,516 3,219
Payment for purchase of rental car franchise licensees .... (27,837) (424) (28,261)
Investment in subsidiaries ................................ (21,914) (20,232) 42,146
--------- --------- ----------- -------- -----------
Net cash provided by (used in) investing activities
exclusive of management programs ....................... (21,914) (69,450) 1,219 42,146 (47,999)
--------- --------- ----------- -------- -----------
NET CASH USED IN INVESTING ACTIVITIES ............... (21,914) (482,362) (257,574) 42,146 (719,704)
--------- --------- ----------- -------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Management programs:
Net (decrease) increase in vehicle debt ................ (8,743) 95,045 86,302
--------- --------- ----------- -----------
Net decrease in non-vehicle debt .......................... (317,650) (278) (317,928)
Increase in due to Cendant - intercompany financing,
net .................................................... 394,950 394,950
Payments for debt issuance costs .......................... (4,593) (4,593)
Capital contribution from Cendant ......................... 125,000 125,000
--------- --------- ----------- -----------
Net cash provided by (used in) financing activities
exclusive of management programs ....................... 202,300 (4,871) 197,429
--------- --------- ----------- -----------
NET CASH PROVIDED (USED IN) BY FINANCING
ACTIVITIES ......................................... 202,300 (13,614) 95,045 283,731
--------- --------- ----------- -----------
Effect of exchange rate changes on cash ................... (900) (900)
--------- --------- ----------- -------- -----------
Net increase (decrease) in cash and cash equivalents ...... 59 (7,092) (16,051) (23,084)
Cash and cash equivalents at beginning of period .......... 141 36,745 29,219 66,105
--------- --------- ----------- -------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 200 $ 29,653 $ 13,168 $ $ 43,021
========= ========= =========== ======== ===========
16
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(PREDECESSOR COMPANIES)
FOR THE TWO MONTHS ENDED FEBRUARY 28, 2001
(IN THOUSANDS)
----------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................... $ (29,119) $ (21,907) $ 10,898 $11,009 $ (29,119)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
exclusive of management programs ...................... (84,192) (22,321) 38,183 (68,330)
--------- --------- --------- ------- ---------
Net cash provided by (used in) operating activities
exclusive of management programs ...................... (113,311) (44,228) 49,081 11,009 (97,449)
--------- --------- --------- ------- ---------
Management programs:
Vehicle depreciation .................................. 97,909 8,019 105,928
Deferred income taxes ................................. (668) 10,648 (27,724) (17,744)
--------- --------- --------- ------- ---------
(668) 108,557 (19,705) 88,184
--------- --------- --------- ------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ... (113,979) 64,329 29,376 11,009 (9,265)
--------- --------- --------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Management programs:
Increase in restricted cash ........................... 10,978 10,978
Increase in due from vehicle manufacturers ............ 16,368 16,368
Payments for vehicle additions ........................ (1,843) (941,259) (943,102)
Vehicle deletions ..................................... (82,138) 895,598 813,460
--------- --------- ---------
(83,981) (18,315) (102,296)
--------- --------- --------- ---------
Payments for additions to property and equipment .......... (2,948) (330) (3,278)
Retirements of property and equipment ..................... (400) 20 (380)
Increase (decrease) in net assets and preferred stock of
discontinued operation ................................. 5,132 (5,423) (291)
Investment in subsidiaries ................................ 21,907 (10,898) (11,009)
--------- --------- --------- ------- ---------
Net cash provided by (used in) investing activities
exclusive of management programs ...................... 21,907 (9,114) (5,733) (11,009) (3,949)
--------- --------- --------- ------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ... 21,907 (93,095) (24,048) (11,009) (106,245)
--------- --------- --------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Management programs:
Net increase (decrease) in vehicle debt ............... 92,000 (2) 9,209 101,207
--------- --------- --------- ---------
Net decrease in non-vehicle debt .......................... (77) (77)
Payments for debt issuance costs .......................... (12) (12)
Other ..................................................... 140 140
Net cash provided by (used in) financing activities --------- --------- --------- ---------
exclusive of management programs ...................... 140 (89) 51
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES .......................................... 92,140 (91) 9,209 101,258
--------- --------- --------- ---------
Effect of exchange rate changes on cash ................... (11) (11)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents ...... 68 (28,857) 14,526 (14,263)
Cash and cash equivalents at beginning of period .......... 73 65,602 14,693 80,368
--------- --------- --------- ------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $ 141 $ 36,745 $ 29,219 $ -- $ 66,105
========= ========= ========= ======= =========
17
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(PREDECESSOR COMPANIES)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
-----------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 105,415 $ 171,726 $ 82,011 $(253,737) $ 105,415
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
exclusive of management programs ..................... 1,067,357 981,983 (921,161) 1 1,128,180
----------- ----------- ----------- --------- -----------
Net cash provided by (used in) operating activities
exclusive of management programs ..................... 1,172,772 1,153,709 (839,150) (253,736) 1,233,595
----------- ----------- ----------- --------- -----------
Management programs:
Vehicle depreciation ................................. 454,721 33,817 488,538
Deferred income taxes ................................ (44,300) 33,934 (3,690) (14,056)
----------- ----------- ----------- -----------
(44,300) 488,655 30,127 474,482
----------- ----------- ----------- --------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .. 1,128,472 1,642,364 (809,023) (253,736) 1,708,077
----------- ----------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Management programs:
Decrease in restricted cash .......................... (36,963) (36,963)
Decrease in due from vehicle manufacturers ........... (8,608) (46,274) (54,882)
Payments for vehicle additions ....................... (51,696) (3,855,743) (3,907,439)
Vehicle deletions .................................... (437,550) 3,231,916 2,794,366
----------- ----------- -----------
(497,854) (707,064) (1,204,918)
----------- ----------- -----------
Payments for additions for property and equipment ........ (28,465) (1,335) (29,800)
Retirements of property and equipment .................... 5,420 198 5,618
Increase (decrease) in net assets and preferred stock of
discontinued operations .............................. (1,036,387) 994,821 (41,566)
Investment in subsidiaries ............................... (171,726) (82,010) 253,736
----------- ----------- ----------- --------- -----------
Net cash provided by (used in) investing activities
exclusive of management programs ..................... (171,726) (1,141,442) 993,684 253,736 (65,748)
----------- ----------- ----------- --------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . (171,726) (1,639,296) 286,620 253,736 (1,270,666)
----------- ----------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Management programs:
Net increase in vehicle debt ......................... 527,052 527,052
----------- -----------
Net decrease in non-vehicle debt ......................... (957,000) (328) (957,328)
Payments for debt issuance costs ......................... (9,525) (9,525)
Purchase of treasury stock ............................... 271 271
----------- ----------- ----------- -----------
Net cash used in financing activities
exclusive of management programs ..................... (956,729) (9,853) (966,582)
----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .. (956,729) (9,853) 527,052 (439,530)
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash .................. (390) (390)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ..... 17 (6,785) 4,259 (2,509)
Cash and cash equivalents at beginning of period ......... 54 24,797 7,050 31,901
----------- ----------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 71 $ 18,012 $ 11,309 $ $ 29,392
=========== =========== =========== ========= ===========
18
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7-SEGMENT INFORMATION
Prior to the Acquisition, the Company operated in two segments, vehicle leasing
and vehicle rental. Subsequent to the sale of Vehicle Leasing on March 1, 2001,
the Company operates in one industry segment, the vehicle rental business.
EBITDA represents net income, plus non-vehicle related interest expense,
non-vehicle depreciation and amortization, unusual charges, corporate
allocations and income taxes from vehicle rental operations (in thousands).
Provided below is a reconciliation of EBIDTA to income (loss) before income
taxes.
PREDECESSOR
COMPANIES
-------------
THREE MONTHS
THREE MONTHS ENDED
ENDED SEPTEMBER 30,
SEPTEMBER 30, 2001 2000
------------------ -------------
EBITDA ........................................... $ 38,381 $ 84,169
Non-fleet interest ............................... (7,758) (23,291)
Intercompany interest ............................ (4,735)
Non-vehicle depreciation and amortization ........ (13,544) (1,976)
Unusual charges .................................. (60,062)
Corporate allocations ............................ (1,061)
--------- --------
Income (loss) before provision for income taxes .. $ (48,779) $ 58,902
========= ========
PREDECESSOR COMPANIES
-------------------------------
MARCH 1, 2001 TWO MONTHS NINE MONTHS
(DATE OF ACQUISITION) ENDED ENDED
TO FEBRUARY 28, SEPTEMBER 30,
SEPTEMBER 30, 2001 2001 2000
--------------------- ------------ -------------
EBITDA ........................................... $ 116,304 $(23,715) $224,566
Interest, net .................................... (22,413) (12,281) (95,122)
Intercompany interest ............................ (9,742)
Non-vehicle depreciation and amortization ........ (30,839) (6,241) (31,674)
Unusual charges .................................. (60,062)
Corporate allocations ............................ (1,782)
--------- -------- --------
Income (loss) before provision for income taxes .. $ (8,534) $(42,237) $ 97,770
========= ======== ========
NOTE 8-DERIVATIVES
The Company's operations are primarily funded through a combination of
asset-backed floating rate notes and commercial paper programs in the United
States and Canada. Consistent with its historical risk management policies, the
Company uses interest rate swaps and caps to hedge interest rate risks on its
debt and to create a mixed portfolio of fixed and floating rate debt.
Certain interest rate swaps have been designated as cash flow hedges of interest
rate risk on the Company's floating rate medium-term notes. Certain cash flow
hedge contracts extend into 2004. For the two months ended February 28, 2001 and
the seven months ended September 30, 2001, no material ineffectiveness was
recognized on these hedges. Amounts accumulated in other comprehensive income
(loss) are reclassified into earnings as interest is accrued on the hedged
transactions. For the two months ended February 28, 2001 and the seven months
ended September 30, 2001, approximately $0.4 million and $(7.7) million,
respectively, of net income (loss) has been reclassified from other
comprehensive loss into earnings. Over the next 12 months, net losses of
approximately $48.3 million are expected to be reclassified from other
comprehensive income (loss) into earnings. The impact of these charges will have
the desired effect of fixing the interest rate paid on certain debt instruments.
The amounts accumulated in other comprehensive income (loss) will fluctuate
based on changes in the fair value of the Company's derivatives at each
reporting period. For the two months ended February 28, 2001 and the seven
months ended September 30, 2001, there were no amounts reclassified into
earnings resulting from the discontinuation of any hedging relationships.
19
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8-DERIVATIVES (CONTINUED)
The majority of the Company's interest rate swaps and caps have not been
designated as hedges for accounting purposes. However, these derivatives are
being used to economically hedge interest rate risk exposures on the Company's
floating rate notes and commercial paper programs. For the two months ended
February 28, 2001 and the seven months ended September 30, 2001, the net loss
recognized on these derivatives was $869,000 and $2.8 million, respectively.
These amounts have been recorded as a component of interest, net on the
Company's Condensed Consolidated Statements of Operations.
NOTE 9-RELATED PARTY TRANSACTIONS
Related party charges include allocations from Cendant for services provided to
the Company, which consist of (in thousands):
PREDECESSOR
COMPANIES
-------------
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
------------- -------------
Royalties .......... $ 27,495 $29,347
Reservations ....... 14,487 14,743
Data processing .... 15,433 12,009
Rent and other ..... 11,906 3,280
Interest ........... 4,129
-------- -------
Total .............. $ 73,450 $59,379
======== =======
PREDECESSOR COMPANIES
-------------------------------
MARCH 1, 2001 TWO MONTHS NINE MONTHS
(DATE OF ACQUISITION) ENDED ENDED
TO FEBRUARY 28, SEPTEMBER 30,
SEPTEMBER 30, 2001 2001 2000
-------------------- ------------ -------------
Royalties .......... $ 63,305 $16,205 $ 79,566
Reservations ....... 33,673 8,496 43,226
Data processing .... 35,574 11,395 33,021
Rent and other ..... 23,535 1,456 7,316
Interest ........... 11,139
-------- ------- --------
Total .............. $167,226 $37,552 $163,129
======== ======= ========
20
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9-RELATED PARTY TRANSACTIONS (CONTINUED)
The amounts due to Cendant Corporation and affiliates, net at September 30, 2001
and December 31, 2000 consisted of the following balances (in thousands):
PREDECESSOR
COMPANIES
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
Due (from) to Cendant, short term funding and trading, net .. $(132,387) $36,117
Due to Cendant-working capital .............................. 181,904
Due to Cendant-long term .................................... 380,000
Due from other Cendant affiliates, net ...................... (19,046)
--------- -------
Total due to Cendant Corporation and affiliates, net ........ $ 410,471 $36,117
========= =======
In connection with the Acquisition, Avis Acquisition Corp. ("Acquisition
Corp."), a wholly-owned subsidiary of PHH Corp., borrowed $937 million from PHH
Corp. Concurrent with the Acquisition, Acquisition Corp. was merged into Avis
Group Holdings, Inc. with Avis Group Holdings, Inc. becoming the surviving
entity. Immediately after the Acquisition, Avis Group Holdings, Inc. sold all of
the stock of Vehicle Leasing to PHH Corp. for $800 million. The proceeds of the
sale were used by Avis Group Holdings, Inc. to reduce its note payable to PHH
Corp. from $937 million to $137 million. Following such sale, the stock of Avis
Group Holdings, Inc. acquired in the Acquisition was dividended by PHH Corp. to
Cendant Finance Holding Corporation ("CFHC") and, through a series of internal
transfers, to Cendant Car Holdings, LLC. The note payable to PHH Corp. remaining
due from Avis Group Holdings, Inc. in the amount of $137 million was transferred
by PHH Corp. to CFHC, where it remains.
During the quarter ended June 30, 2001, the Company repaid its outstanding
borrowings under its then existing Revolving Credit Facility (see Note 5).
Subsequent2002.
Forward-Looking Statements
Forward-looking statements in our public filings or other public statements are subject to the repayment, Cendant provides the Company funding for certain of
its working capital needs. The intercompany borrowings bear interest at a market
rateknown and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on LIBOR. On June 29, 2001, Cendant made a capital contributionvarious factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the Companyforward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives.
Statements preceded by, forgiving $125 million of intercompany debt. As of September 30,
2001, $182 million of borrowingsfollowed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "project", "estimates", "plans", "may increase", "may fluctuate" and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are related to working capital and $380 million
are long-termgenerally forwardlooking in nature and are related to the Acquisition. These borrowings are
not expected to be repaid before December 31, 2001.
On June 29, 2001, one of the Company's vehicle financing subsidiaries amended
its loan agreements to allow Cendant to borrow $155 million of its restricted
cash. In turn, Cendant provided a demand note to this subsidiary and secured the
demand note with letters of credit. The loan to Cendant is included in due
(from) to Cendant, short-term funding and trading, net.
NOTE 10-INCOME TAXES
Subsequent to the Date of Acquisition, the Company continues to file its own
consolidated federal income tax return. In addition, the Company files
consolidated and combined state income tax returns with Cendant in jurisdictions
where required. The provision for income taxes is computed as if the Company
filed its federal and state income tax returns on a stand-alone basis.
21
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2:
GENERAL OVERVIEW
On November 11, 2000, we entered into a merger agreement with Cendant
Corporation. The merger was approved on February 28, 2001 by a majority of our
shareholders who were unaffiliated with Cendant and closed on March 1, 2001. In
addition, we sold our investment in our Avis Fleet Leasing and Management Corp.,
subsidiaries to PHH Corporation, a wholly-owned subsidiary of Cendant, for $800
million. The proceeds from the sale were used to retire acquisition
indebtedness. As such,historical facts. You should understand that the following discussionimportant factors and analysis of continuingassumptions could affect our future results of operations includes our Rent A Car System, Inc. and Reserve Claims
Management Co. subsidiaries.
We conduct vehicle rental operations through wholly-owned subsidiariescould cause actual results to differ materially from those expressed in the
United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina,
Australia and New Zealand. Vehicle rental revenue is derived principally from
time and mileage charges for vehicle rentals and, to a lesser extent, the sale
of loss damage waivers, liability insurance and other products and services.
We evaluate our performance based upon a modified earnings before non-vehicle
interest, income taxes, non-vehicle depreciation and amortization calculations.
For this purpose, Adjusted EBITDA is definedsuch forward-looking statements:
20
Other factors and assumptions not identified above were also involved in the derivation of funds will be for the acquisition of new
vehiclesthese forward looking statements, and the repaymentfailure of indebtedness. For the nine months ended September
30, 2001, our expenditures for new vehicles were approximately $4.4 billion and
proceeds from the disposition of used vehicles were approximately $3.9 billion.
For 2001, we expect our expenditures for new vehicles (net of proceeds from the
disposition of used vehicles)such other assumptions to be higher than in 2000. Since the late 1980's,
we have acquired vehicles relatedrealized as well as other factors may also cause actual results to our vehicle rental operations primarily
pursuantdiffer materially from those projected. Most of these factors are difficult to manufacturer repurchase programs. Repurchase prices under the
repurchase programs are based on either (1) a specified percentage of original
vehicle cost determined by the month the vehicle is returned to the manufacturer
or (2) the original capitalization cost less a set daily depreciation amount
(the "Repurchase Programs"). Repurchase Programs limit residual risk with
respect to vehicles purchased under the programs. This enables us to better
estimate depreciation expense in advance.
Historically, our financing requirements for rental vehicles have typically
reached an annual peak during the second and third calendar quarters, as fleet
levels build in response to increased rental demand during that period. The
typical low point for cash requirements occurs during the end of the fourth
quarter and the beginning of the first quarter, coinciding with lower levels of
vehicle and rental demand. We expect that this pattern will continue.
We expect that cash flows from operations and funds from available credit
facilities will be sufficient to meet our anticipated cash requirements for
operating purposes for the next twelve months. Trade receivables, from vehicle
rental operations, also provide liquidity with approximately 12.2 days of daily
sales outstanding.
Our vehicle rental operations made capital investments for property improvements
totaling $26.2 million and $29.8 million for the nine months ended September 30,
2001 and 2000, respectively.
We have an interest rate management policy, including a target mix for average
fixed rate and floating rate indebtedness on a consolidated basis. An increase
in interest rates would be unlikely to have a material adverse impact on our
profitability.
VEHICLE RENTAL ABS FACILITY
To support vehicle rental operations, we have a domestic integrated financing
program that as of September 30, 2001 provides for up to $4.45 billion in
financing for vehicles covered by Repurchase Programs, with up to 25% of the
asset-backed securities facility ("ABS Facility") available for vehicles not
covered by Repurchase Programs. The ABS Facility provides for the issuance of up
to $0.5 billion of asset-backed variable funding notes (the "Variable Funding
Notes") and $3.95 billion of asset-backed medium term notes under the ABS
Facility (the "Medium Term Notes"). The Variable Funding Notes and the Medium
Term Notes are indirectly secured by, among other things, a first priority
security interest in our rental fleet.
The Variable Funding Notes support the issuance by a special purpose company of
commercial paper notes that are rated A-1 by Standard & Poor's Ratings Services
("S&P") and P-1 by Moody's Investors Service, Inc. ("Moody's"). The Medium Term
Notes are guaranteed under a surety bond issued by either MBIA or AMBAC
Assurance and as a result are rated AAA by S&P and Aaa by Moody's.
On March 2, 2001, one of the vehicle rental financing subsidiaries issued $750
million of Series 2001-1 Floating Rate Rental Car Asset Backed Notes ("Series
2001-1 Notes"). The Series 2001-1 Notes are secured by our vehicles. Anticipated
principal repayment on the Series 2001-1 Notes commence on November 2003 through
April 2004. The interest rate with respect to the Series 2001-1 Notes is equal
to LIBOR plus 20 basis points per annum. The Series 2001-1 Notes are guaranteed
under a Surety Bond issued to MBIApredict accurately and are rated AAA by Standard an Poors and
Aaa by Moody's. The Series 2001-1 Notes rank pari pasugenerally beyond our control.
You should consider the areas of risk described above in connection with our Variable Funding
Notes and the Medium Term Notes.
27
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On May 17, 2001, one of the vehicle rental financing subsidiaries issued $125
million of Series 2001-2 Auction Rate Notes (the "Series 2001-2 Notes"). The
Series 2001-2 Notes are secured by our vehicles. The Series 2001-2 Notes were
issued in four classes, Class A-1, A-2, A-3, and A-4 with initial issuances of
$95 million, $10 million, $10 million and $10 million, respectively. Subsequent
to the initial issuance of $125 million auction rate notes, the Company issued
$145 million of additonal notes and repaid principal of $115 million, which
brought the total outstanding series 2001-2 notes to $155 million at September
30, 2001. We may issue up to $125 million of Auction Rate Notes per class or
$500 million in total. The interest rate on each class will be a market derived
rate determined by auction with auctions expected to occur every 35 days.
Anticipated principal repayment on the Series 2001-2 Notes is May 2007. The
2001-2 Notes are guaranteed under a Surety Bond issued by Ambac and are rated
AAA by Standard & Poor's Rating Services and Aaa by Moody' Investors Service,
Inc. The Series 2001-2 Notes rank pari passu with our Variable Funding Notes and
Medium Term Notes.
At September 30, 2001, we had approximately $3.75 billion of debt outstanding
under the ABS Facility and had approximately $700 million of additional credit
available for rental vehicle purchases. Based on current market conditions and
our current banking relationships, we expect to fund maturities of the Medium
Term Notes either by the issuance of new medium term notes or an increase in the
outstanding principal amount of the Variable Funding Notes depending on market
conditions at the time the Medium Term Notes mature. However, we cannot be sure
that this will occur.
REVOLVING CREDIT FACILITY/CENDANT INTERCOMPANY
We were party to a Revolving Credit Facility which provided borrowings up to
$450 million which were used for credit enhancement for our ABS commercial paper
program and for general corporate purposes. Although this facility did not
expire until June 30, 2005, we elected to terminate it on September 5, 2001.
We repaid our outstanding borrowings under the Revolving Credit Facility as of
June 30, 2001. We currently draw on a working capital line provided by Cendant
to fund its working capital needs. The borrowings bear interest at a market rate
based on LIBOR. On June 29, 2001, Cendant made a capital contribution to us by
forgiving $125 million of intercompany debt. As of September 30, 2001, $182
million of borrowings are related to working capital needs. Additionally, we
have long-term debt with Cendant of $380 million that is related to Cendant's
acquisition of us.
OTHER FACILITIES
Borrowings for our international operations consist mainly of loans obtained
from local and international banks. All borrowings for international operations
are in the local currencies of the countries in which those operations are
conducted. We guarantee only the borrowings of our car rental subsidiaries in
Argentina and Puerto Rico which had combined outstanding debt of $4.6 million at
September 30, 2001. At September 30, 2001, the total debt for our international
operations was approximately $175.7 million. The impact on our liquidity and
financial condition due to the exchange rate fluctuations of our foreign
operations is not expected to be material.
PARENT COMPANY TRANSACTION
On June 29, 2001, one of our vehicle financing subsidiaries amended its loan
agreements to allow Cendant to borrow $155 million of its restricted cash. In
turn, Cendant provided a demand note to the subsidiary and secured the demand
note with letters of credit.
RECENT ACCOUNTING STANDARDS
Recent pronouncements of the Financial Accounting Standards Board which are not
required to be adopted at this date include Statement of Financial Accounting
Standards ("SFAS") No. 141 "Business Combinations" ("SFAS No. 141"), SFAS No.
142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"), and SFAS No. 144
"Accounting for the Impairment or Disposal of Long Lived Assets" ("SFAS No.
144").
SFAS No. 141 requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001 and requires additional
disclosures for material business combinations completed after such date. This
standard also addresses financial accounting and reporting for goodwill and
other intangible assets acquired in a business combination at acquisition. On
July 1, 2001, we adopted the provisions relating to acquisitions made subsequent
to June 30, 2001, as required. The provisions regarding the classification of
previously acquired intangible asset will be adopted simultaneously with the
provisions of SFAS No. 142 on January 1, 2002, as required.
28
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SFAS No. 142 addresses financial accounting and reporting for intangible assets
acquired outside of a business combination. The standard also addresses
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. We will be required to assess goodwill and
other intangible assets for impairment annually, or more frequently if
circumstances indicate a potential impairment. On July 1, 2001, we adopted the
provisions requiring that goodwill and certain other intangible assets acquired
after June 30, 2001 not be amortized. We will adopt the remaining provisions of
this standard on January 1, 2002, as required. Transition-related impairment
losses, if any resulting form the initial assessment of goodwill and certain
other intangible assets will be recognized by us as a cumulative effect of
accounting change as of January 1, 2002. We are currently evaluating the impact
of adopting the remaining provisions on its financial position and results of
operations. Based upon a preliminary assessment of previously acquired goodwill
and certain other intangible assets that will no longer be amortized upon the
adoption of SFAS No. 142, we expect that the related reduction to amortization
expense during the seven months ended September 30, 2001, the two months ended
February 28, 2001 and the nine months ended September 30, 2000 would approximate
$18.6 million, $2 million, and $92 million, respectively.
SFAS No. 144 addresses financial accounting and reporting for the impairment of
disposal of long-lived assets. This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of,", and replaces the accounting and reporting provisions of APB
Opinion No. 30, "Reporting Results of Operations - Reporting the Effect of
Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" as it relates to the disposal of a segment of
a business. SFAS No. 144 requires the use of a single accounting model for
long-lived assets to be disposed of by sale, including discontinued operations,
by requiring those long-lived assets to be measured at the lower of carrying
amount or fair value less cost to sell. The impairment recognition and
measurement provisions of SFAS No 121 were retained for all long-lived assets to
be held and used with the exception of goodwill. We will adopt this standard on
January 1, 2002.
SEASONALITY
Our vehicle rental business is seasonal, with decreased travel in winter months
and heightened activity in spring and summer. To accommodate increased demand,
we increased our available fleet during the second and third quarters. Certain
of our operating expenses are fixed and cannot be reduced during periods of
decreased rental demand. In certain geographic markets, the impact of
seasonality has been reduced by emphasizing leisure or business travel in the
off-peak season.
INFLATION
The increased acquisition cost of vehicles is the primary inflationary factor
affecting our operations. Many of our other operating expenses are inflation
sensitive, with increases in inflation generally resulting in increased costs of
operations. The effect of inflation-driven cost increases on the Company's
overall operating costs is not expected to be greater for us than for our
competitors.
FORWARD LOOKING INFORMATION
Certain matters discussed in this report that are not historical facts are forward-looking statements that aremay be made pursuantby us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor provisions
offor forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve risks and uncertainties including the impact of competitive
products and pricing, changing market conditions; and other risks which were
detailed from time to time
21
Item 3. Quantitative And Qualitative Disclosure About Market Risks
As previously discussed in our publicly-filed documents, including its2001 Annual Report on Form 10-K, we assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values, and cash flows based on a hypothetical 10% change (increase and decrease) in interest rates. We used June 30, 2002 market rates to perform a sensitivity analysis separately for the period ended December 31, 2000. Actual results may
differ materially from those projected. These forward-looking statements
representeach of our judgment as of the date of this report.
29
AVIS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKSmarket risk exposures. The Company has derivative financial instruments at September 30, 2001 that are
sensitive toestimates assume instantaneous, parallel shifts in interest rate changes on its debt obligations and on its interest
rate swap agreements. The following derivative instrument agreementsyield curves. We have been
entered into bydetermined, through such analyses, that the Company:
(a) In order to reduce its risk from interest rate increases under its asset
backed debt, oneimpact of the Company's vehicle rental financing subsidiaries
has entered into six domestic interest rate cap agreements with durations
of up to 6 years. The agreements have a notional value of $2.5 billion,
and establishes the domestic interest rate ceiling on asset-backed vehicle
financing of either 7% or 7.5%. Offsetting interest rate cap agreements
with a notional value of $2.5 billion have been sold by us10% change in order to
reduce the cost of acquiring the cap agreements.
(b) The Company has also entered into eight U.S. and foreign interest rate
swap agreements. Swap agreements which effectively convert floating rates
of interest to fixed rates of interest on the Company's debt have an
aggregate notional value of $2.25 billionour earnings, fair values and terminate through November
2004.
30
Signaturescash flows would not be material.
22
Item 6. Exhibits and Reports on Form 8-K
See Exhibit Index
None
23
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the CompanyRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Avis Group Holdings, Inc.
-------------------------
(Registrant)
Dated: November 14, 2001 By: /s/ Kevin M. Sheehan
------------------------------------
Executive Vice President
(Principal Financial Officer)
Dated: November 14, 2001 By: /s/ Kurt Freudenberg
------------------------------------
Senior Vice
AVIS GROUP HOLDINGS, INC. | ||||
By: | /s/ F. ROBERT SALERNO F. Robert Salerno President and Chief Operating Officer Date: August 14, 2002 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and Controller
(Principal Accounting Officer)
31
ITEM: 6 EXHIBITS AND REPORTS ON FORM 8-K
ITEM NO. 6 (A)
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- --------------------------------------------------------------------
2.0 PLAN OF ACQUISITION
2.02 Agreement and Plan of Merger dated November 11, 2000 by and among
Cendant Corporation, PHH Corporation, Avis Acquisition Corp., and
Avis Group Holdings, Inc. (9)
2.03 Establishment of Arval/PHH Holdings, a joint venture company in the United Kingdom,capacities and on the dates indicated.
Signature | Title | Date | ||
---|---|---|---|---|
/s/ JOHN W. CHIDSEY (John W. Chidsey) | Chief Executive Officer | August 14, 2002 | ||
/s/ F. ROBERT SALERNO (F. Robert Salerno) | President, Chief Operating Officer and Director (Principal Executive Officer) | August 14, 2002 | ||
/s/ KURT FREUDENBERG (Kurt Freudenberg) | Senior Vice President and Controller (Principal Financial Officer) | August 14, 2002 |
24
Exhibit No. | Description | |
---|---|---|
3.1 | Certificate of Incorporation of Avis Rent A Car, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-1, Registration No. 333-46737, dated February 23, 1998). | |
3.2 | By-Laws of Avis Group Holdings, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-1, Registration No. 333-46737, dated February 23, 1998). | |
12 | Statement Re: Computation of Ratio of Earnings to Fixed Charges. |