EXHIBIT 99.3
AVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AUGUST 31, 1996 AND FEBRUARY 29, 1996
(In thousands)
(Unaudited)
August 31, February 29,
1996 1996
---------------------------
ASSETS
Cash and cash equivalents ........................ $ 75,683 $ 49,326
Accounts receivable, net ......................... 174,047 144,842
Due from affiliated company ...................... 114,976 75,635
Prepaid expenses ................................. 45,296 40,227
Vehicles, net .................................... 2,567,517 2,064,943
Property and equipment, net ...................... 151,854 146,429
Other assets ..................................... 154,035 176,368
Cost in excess of
fair value of net assets acquired .............. 499,143 506,683
----------- -----------
Total assets ................................ $ 3,782,551 $ 3,204,453
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ................................. $ 231,159 $ 181,920
Accrued liabilities .............................. 208,669 200,870
Current and deferred income taxes ................ 39,609 36,339
Public liability and property damage ............. 215,135 205,698
Debt ............................................. 2,488,651 2,043,143
Due to affiliated company ........................ 132,563 122,111
Redeemable preferred stock ....................... 72,416 72,409
Redeemable portion of common stock ............... 295,465 295,482
Unearned compensation ............................ (257,751) (263,024)
Participating convertible preferred stock ........ 132,000 132,000
Common stock ..................................... 290 290
Additional paid in capital ....................... 220,401 215,644
Treasury stock ................................... (102,269) (102,252)
Retained earnings ................................ 103,339 62,095
Foreign currency equity adjustment ............... 2,874 1,728
----------- -----------
Commitments and contingencies
Total liabilities and stockholders' equity .. $ 3,782,551 $ 3,204,453
=========== ===========
See accompanying notes to the consolidated financial statements.
AVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED AUGUST 31, 1996 AND
AUGUST 31, 1995
(In thousands)
(Unaudited)
Six Months Ended
-------------------------
August 31, August 31,
1996 1995
--------- ----------
Revenues ......................................... $1,069,005 $ 851,724
--------- ---------
Cost and expenses:
Direct operating ............................... 454,302 353,413
Vehicle depreciation ........................... 199,927 186,257
Vehicle lease charges .......................... 74,080 67,358
Selling, general and administrative ............ 163,559 109,460
Interest ....................................... 80,938 72,365
Unrealized foreign exchange loss ................. - 471
Amortization of unearned compensation -
Employee Stock Ownership Plan .................. 7,902 7,902
Amortization of cost in excess of fair value of net
assets acquired and other intangibles ............ 8,355 8,112
--------- ---------
Income before income taxes and preferred
stock dividends ................................ 79,942 46,386
Provision for income taxes ....................... 35,363 24,948
--------- ---------
Net income ....................................... 44,579 21,438
Preferred stock dividends ........................ (3,328) (4,384)
--------- ---------
Income available for common shares ............... $ 41,251 $ 17,054
========= =========
See accompanying notes to the consolidated financial statements.
AVIS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED AUGUST 31, 1996
(In thousands)
(Unaudited)
Participating
Convertible
Common Stock Preferred Stock
----------------- ----------------- Foreign
Additional Additional Treasury currency
Par paid-in Par paid-in stock Retained equity
value capital value capital (at cost) earnings adjustment
----- --------- ----- ---------- ---------- --------- ----------
Balance March 1, 1996 ......................... $ 290 $ 215,644 $ 98 $ 131,902 $(102,252) $ 62,095 $ 1,728
Net income for the six months ended
August 31, 1996 ............................... 44,579
Tax benefit of ESOP income tax deductions
for the six months ended August 31, 1996 ..... 4,740
Foreign currency equity adjustment for the
six months ended August 31, 1996 ............. 1,146
Payment of common and preferred stock dividends (3,328)
Change in redeemable portion of common stock .. 17
Purchase of treasury stock (1,381 shares) ..... (17)
Appropriation for amortization of discount
from redemption value of preferred stock .... (7)
------ --------- ------ --------- --------- --------- ---------
Balance August 31, 1996 ....................... $ 290 $ 220,401 $ 98 $ 131,902 $(102,269) $ 103,339 $ 2,874
====== ========= ====== ========= ========= ========= =========
See accompanying notes to the consolidated financial statements.
AVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31, 1996 AND AUGUST 31, 1995
(In thousands)
Increase (decrease) in cash and cash equivalents
(Unaudited)
Six Months Ended
--------------------------
August 31, August 31,
1996 1995
------------ ----------
Net cash provided by operating activities ............... $ 362,655 $ 232,207
Cash flows from investing activities:
Payments for vehicle additions ...................... (1,518,932) (1,066,329)
Proceeds received from vehicle sales ............... 750,245 549,648
Payments for additions to property and equipment, net (14,379) (14,962)
---------- -----------
Net cash used in investing activities ................... (783,066) (531,643)
Cash flows from financing activities:
Increase in debt and due to affiliated company ...... 452,714 318,387
Increase in deferred debt issuance costs ............ (98) (1,530)
Payment of preferred stock dividends ................ (3,328) (4,384)
Purchase of treasury stock .......................... (17) -
Increase in unearned compensation ................... (2,629) (1,092)
-------- ---------
Net cash provided by financing activities ............... 446,642 311,381
Effect of exchange rate changes on cash ................. 126 (34)
--------- ---------
Net increase in cash and cash equivalents ............... 26,357 11,911
Cash and cash equivalents at beginning of period ........ 49,326 36,643
--------- ---------
Cash and cash equivalents at end of period .............. $ 75,683 $ 48,554
========= =========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest .......................................... $ 78,717 $ 69,621
Income taxes ...................................... 5,355 3,204
Disclosure of accounting policy: For purposes of reporting cash flows, the
Company considers deposits and short-term investments with an initial maturity
of three months or less to be cash equivalents. The effect of unrealized foreign
currency revaluations on the assets and liabilities of foreign subsidiaries has
been eliminated. Changes in vehicles and vehicle related accounts are included
in the cash flows from investing activities. See accompanying notes to the
consolidated financial statements.
AVIS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization and Significant Accounting Policies
In 1987, the trust for the Employee Stock Ownership Plan (ESOP) of Avis,
Inc. (the Company) acquired all the outstanding common stock of Avis, Inc. This
transaction has been accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16. Accordingly, the purchase price has been
allocated based on the estimated fair value of the assets acquired and
liabilities assumed. The excess of the purchase price over the fair value of the
Company's net assets is included in "Cost in excess of fair value of net assets
acquired" on the consolidated balance sheet.
The Company's primary business is the rental of automobiles. The
consolidated financial statements include the accounts of all majority-owned
subsidiaries of Avis, Inc. combined with related accounts of the ESOP and Prime
Vehicles Trust. Intercompany accounts and transactions among Avis, Inc., its
subsidiaries, the ESOP and Prime Vehicles Trust (Vehicle Trust) have been
eliminated. During the year ended February 29, 1996, the Company acquired the
rights to the name and certain assets of Agency Rent A Car, Inc., a company
primarily engaged in the insurance replacement car rental business. Investments
in associated companies in which the Company has a 20 percent or greater
interest are accounted for under the equity method of accounting. Generally
accepted accounting principles require the use of estimates, which are subject
to change, in the preparation of financial statements. Certain amounts of the
prior period have been reclassified for comparability.
The unaudited interim financial statements at August 31, 1996 and for the
six months ended August 31, 1996 and 1995 have been prepared in accordance with
generally accepted accounting principles, and in the opinion of the Company
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results of the interim period.
Note 2 - Gain on Sale of Leasehold Right
In April, 1996 the Company sold a leasehold right and recognized a pre-tax
gain of approximately $4.4 million.
Note 3 - Vehicles
Vehicles are stated at cost, net of accumulated depreciation as follows (in
thousands):
August August
31, 1996 31, 1995
---------- -----------
Vehicles ............................... $ 2,946,820 $ 2,435,234
Accumulated depreciation ............... (379,303) (307,896)
----------- -----------
$ 2,567,517 $ 2,127,338
=========== ===========
Included in vehicles are vehicles acquired under long-term capital leases
of $21,496,000 and $38,693,000 (net of accumulated depreciation of $63,437,000
and $46,240,000) at August 31, 1996 and August 31, 1995, respectively.
Vehicles also include vehicles held for sale as follows (in thousands):
August August
31, 1996 31, 1995
-------- ---------
Vehicles held for sale ..................... $ 26,572 $ 23,873
Accumulated depreciation ................... (4,145) (3,693)
-------- --------
$ 22,427 $ 20,180
======== ========
Depreciation expense recorded for vehicles was $199,927,000 and
$186,257,000, net of a gain on disposal of vehicles of $31,109,000 and
$9,461,000 for the six months ended August 31, 1996 and August 31, 1995,
respectively.
Note 4 - Income Taxes
The provision (benefit) for income taxes is comprised of the following (in
thousands):
Six Months Ended
------------------------
August 31, August 31,
1996 1995
--------- ---------
Current:
State ......................................... $ 1,092 $ 704
Foreign ....................................... 2,852 3,789
-------- --------
3,944 4,493
-------- --------
Deferred:
Federal ....................................... 27,255 17,106
Foreign ....................................... 4,164 3,349
-------- --------
31,419 20,455
-------- --------
Provision for income taxes ....................... 35,363 24,948
Less: Federal tax benefit of ESOP income tax
deductions credited to stockholders'
equity under SFAS No. 109 .............. (4,740) (6,482)
-------- --------
$ 30,623 $ 18,466
======== ========
The Company derives an income tax deduction for dividend distributions to
the ESOP. The ESOP repays the same amount to the Company to reduce the ESOP debt
due to the Company.
The effective income tax rate varies from the federal statutory income tax
rate due to the following:
Six Months Ended
------------------------
August 31 August 31
1996 1995
--------- --------
Statutory U.S. federal income tax rate ............... 35.0% 35.0%
Tax effect of foreign operations .................... 4.9 5.6
Amortization of cost in excess of net
assets acquired and other intangibles .............. 2.7 4.8
Foreign dividends and withholding tax ................ 0.5 7.0
State income taxes, net of federal
tax benefit ........................................ 0.9 1.0
Other ................................................ 0.2 0.4
----- ------
Provision for income taxes ....................... 44.2 53.8
----- ------
Tax benefit of ESOP income tax
deductions credited to stockholders'
equity under SFAS No. 109 (5.9) (14.0)
------ -------
Effective income tax rate ....... .................... 38.3% 39.8%
====== =======
Note 5 - Subsequent Event
On October 17, 1996, HFS Incorporated ("HFS") completed the acquisition of
all of the outstanding capital stock of the Company, including payments under
certain employee stock plans of the Company and the redemption of certain series
of preferred stock of the Company for an aggregate $806.5 million. The purchase
price was comprised of approximately $367.2 million in cash, $100.9 million in
indebtedness and $338.4 million (approximately 4.6 million shares) in HFS common
stock.
Note 6 - Litigation
On May 22, 1996 a complaint was filed in the United States District Court
for Eastern District of North Carolina against Avis Rent A Car System, Inc.
(ARACS) and one of its licensees, New Hanover Rent-A-Car, Inc. (New Hanover)
alleging discrimination by New Hanover in the rental of automobiles based on
race. Plaintiff seeks an unspecified amount of compensatory and punitive damages
and a permanent injunction barring ARACS and New Hanover from continuing to
engage in illegally discriminatory conduct. ARACS has asserted claims for
indemnification against New Hanover and intends to vigorously defend the
complaint. ARACS believes that it has meritorious defenses against the
complaint. In the opinion of management, the ultimate liability, if any,
resulting from this matter will not have a material adverse effect on the
Company's consolidated financial position.