Exhibit 99.1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
--------
Avis Group Holdings, Inc.
Consolidated Financial Statements:
Independent Auditor's Report...................................................... F-2
Consolidated Statements of Operations for the years ended December 31, 2000
1999 and 1998................................................................ F-3
Consolidated Statements of Financial Position at December 31, 2000 and 1999....... F-4
Consolidated Statements of Common Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998............................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2000,
1999 and 1998................................................................ F-6
Notes to the Consolidated Financial Statements.................................... F-7 - F-42
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Avis Group Holdings, Inc.
Garden City, New York
We have audited the accompanying consolidated statements of financial position
of Avis Group Holdings, Inc. and subsidiaries (the "Company") as of December 31,
2000 and 1999, and the related consolidated statements of operations, common
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2000
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
New York, New York
January 29, 2001
(March 2, 2001 as to Note 27)
F-2
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Years Ended December 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Revenue:
Vehicle rental ..................... $2,613,476 $2,500,746 $2,297,582
Vehicle leasing .................... 1,389,312 692,935
Other fee based .................... 240,896 139,046
---------- ---------- ----------
4,243,684 3,332,727 2,297,582
---------- ---------- ----------
Costs and expenses:
Direct operating, net .............. 965,826 957,270 927,930
Vehicle depreciation and lease
charges, net .................... 1,695,193 1,174,509 593,064
Selling, general and
administrative .................. 692,939 582,056 436,275
Interest, net ...................... 577,275 382,303 192,080
Minority interest .................. 7,208 5,890
Non-vehicle depreciation
and amortization ................ 47,279 34,600 24,151
Amortization of cost in excess of
net assets acquired ............. 42,086 30,182 11,854
---------- ---------- ----------
4,027,806 3,166,810 2,185,354
---------- ---------- ----------
Income before provision for
income taxes ..................... 215,878 165,917 112,228
Provision for income taxes ........... 95,202 73,332 48,707
---------- ---------- ----------
Net income ........................... 120,676 92,585 63,521
Preferred stock dividends ............ 18,906 9,110
---------- ---------- ----------
Earnings applicable to common
stockholders ...................... $ 101,770 $ 83,475 $ 63,521
========== ========== ==========
Earnings per share:
Basic .............................. $ 3.27 $ 2.66 $ 1.86
========== ========== ==========
Diluted ............................ $ 3.19 $ 2.61 $ 1.82
========== ========== ==========
See accompanying notes to the consolidated financial statements.
F-3
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share amounts)
December 31, December 31,
2000 1999
------------ ------------
ASSETS
Cash and cash equivalents ............................................................... $ 115,270 $ 71,697
Cash held on deposit with financial institution ......................................... 87,607 93,530
Restricted cash ......................................................................... 229,484 253,080
Accounts receivable, net ................................................................ 992,685 1,115,740
Finance lease receivables ............................................................... 159,145 871,034
Prepaid expenses ........................................................................ 63,308 64,316
Vehicles, net - rental .................................................................. 3,761,454 3,367,362
Vehicles, net - leasing ................................................................. 3,205,380 3,134,009
Property and equipment, net ............................................................. 196,758 197,827
Other assets ............................................................................ 114,587 115,273
Investment in PHH /Arval joint venture .................................................. 161,420
Cost in excess of net assets acquired, net .............................................. 1,326,736 1,794,390
------------ ------------
Total assets ............................................................................ $ 10,413,834 $ 11,078,258
============ ============
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Accounts payable ........................................................................ $ 517,299 $ 588,377
Accrued liabilities ..................................................................... 365,538 369,453
Due to affiliates, net .................................................................. 37,726 59,396
Current income tax liabilities .......................................................... 17,184 18,226
Deferred income tax liabilities, net .................................................... 459,493 181,256
Public liability, property damage and other insurance liabilities, net .................. 250,249 259,756
Debt .................................................................................... 7,522,240 8,469,805
Minority interest (preferred membership interest) ....................................... 99,305 99,305
------------ ------------
Total liabilities ....................................................................... 9,269,034 10,045,574
------------ ------------
Commitments and contingencies
Preferred stock:
Series A Preferred stock ($.01 par value, 7,200,000 shares authorized and issued at
December 31, 2000 and 1999; $50 liquidation preference) ............................... 360,000 360,000
Series B Preferred stock ($.01 par value, 5,880,217 shares authorized; 264,500 shares and
180,000 shares issued at December 31, 2000 and 1999, respectively; $50 liquidation
preference) .......................................................................... 27,686 9,000
Series C Preferred stock ($.01 par value, 40,000 shares authorized and issued at
December 31, 2000 and 1999; $50 liquidation preference) ................................ 2,000 2,000
------------ ------------
Total Preferred stock ................................................................ 389,686 371,000
------------ ------------
Common stockholders' equity:
Class A Common stock ($.01 par value, 100,000,000 shares authorized; 35,925,000 shares
issued at December 31, 2000 and 1999) .................................................. 359 359
Class B Common stock ($.01 par value, 15,000,000 shares authorized at December 31, 2000;
none issued)
Additional paid-in capital .............................................................. 593,829 593,106
Retained earnings ....................................................................... 277,460 175,690
Accumulated other comprehensive loss .................................................... (19,996) (3,639)
Treasury stock (4,456,531 and 4,793,288 shares of Class A Common stock at
December 31, 2000 and 1999, respectively, at cost) ................................... (96,538) (103,832)
------------ ------------
Total common stockholders' equity .................................................... 755,114 661,684
------------ ------------
Total liabilities, preferred stock and common stockholders' equity ...................... $ 10,413,834 $ 11,078,258
============ ============
See accompanying notes to the consolidated financial statements.
F-4
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Accumulated
Class A Additional Other
Comprehensive Common Paid-in Retained Comprehensive Treasury
Income Stock Capital Earnings Income/(Loss) Stock Total
------------- ------- ---------- ---------- ------------- --------- ----------
Balance, January 1, 1998* ............... $309 $ 430,507 $ 28,694 $ (5,788) $ 453,722
Net income .............................. $ 63,521 63,521 63,521
Sale of Class A Common Stock ($.01 par
value) through a public offering of
5,000,000 shares of common stock on
March 23, 1998 ....................... 50 161,144 161,194
Purchases of Class A Common Stock
for the treasury, 2,672,700 shares,
at cost .............................. $ (50,960) (50,960)
Foreign currency translation adjustment,
net of income taxes .................. (3,374) (3,374) (3,374)
Additional minimum pension charge,
net of income taxes .................. (1,489) (1,489) (1,489)
--------- ---- --------- --------- --------- --------- ---------
Comprehensive income .................... $ 58,658
=========
Balance, December 31, 1998 * ........... 359 591,651 92,215 (10,651) (50,960) 622,614
Net income .............................. $ 92,585 92,585 92,585
Preferred stock dividends ............... (9,110) (9,110)
Purchases of Class A Common Stock
for the treasury, 2,327,300 shares,
at cost .............................. (57,237) (57,237)
Issuance of 206,712 shares of
Class A Common Stock from the
treasury for exercise of stock options
and other, net ....................... 1,455 4,365 5,820
Foreign currency translation adjustment,
net of income taxes .................. 6,199 6,199 6,199
Additional minimum pension benefit,
net of income taxes .................. 813 813 813
---------
Comprehensive income .................... $ 99,597
========= ---- --------- --------- --------- --------- ---------
Balance, December 31, 1999 * ............ 359 593,106 175,690 (3,639) (103,832) 661,684
Net income .............................. $ 120,676 120,676 120,676
Preferred stock dividends ............... (18,906) (18,906)
Issuance of 336,757 shares of Class A
Common Stock from the treasury for
exercise of stock options and other,
net .................................. 723 7,294 8,017
Foreign currency translation adjustment,
net of income taxes .................. (15,852) (15,852) (15,852)
Additional minimum pension charge,
net of income taxes .................. (505) (505) (505)
---------
Comprehensive income .................... $ 104,319
========= ---- --------- --------- --------- --------- ---------
Balance, December 31, 2000 * ........... $359 $ 593,829 $ 277,460 $ (19,996) $ (96,538) $ 755,114
==== ========= ========= ========= ========= =========
* - Class A common stock issued: 30,925,000 shares at January 1, 1998 and
35,925,000 shares at December 31, 1998, 1999 and 2000.
Treasury stock held: 2,672,700 shares, 4,793,288 shares and 4,456,531
shares, at December 31, 1998, 1999 and, 2000, respectively.
See accompanying notes to the consolidated financial statements.
F-5
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income ......................................... $ 120,676 $ 92,585 $ 63,521
Adjustments to reconcile net income to net cash
provided by operating activities:
Vehicle depreciation ........................... 1,667,552 1,146,926 581,022
Depreciation and amortization of property and
equipment .................................... 25,321 19,558 12,890
Amortization of other non-revenue producing
assets ....................................... 64,044 45,224 23,115
Deferred income tax provision .................. 59,869 57,027 38,457
Provision for doubtful accounts receivable ..... 16,258 6,137 2,961
Provision for public liability, property
damage and other insurance liabilities, net .. (10,107) (1,819) 13,687
Changes in operating assets and liabilities:
Restricted cash .............................. (22,064) (62,588) (26,300)
Accounts receivable .......................... (210,019) (89,568) (14,045)
Prepaid expenses ............................. (3,983) (6,336) 6,848
Other assets ................................. (29,380) 21,654 (5,625)
Accounts payable ............................. 116,793 54,299 (23,148)
Accrued liabilities .......................... (23,842) 7,795 (2,475)
Due to affiliates ............................ (23,322) (192,951) (18,320)
----------- ----------- -----------
Net cash provided by operating activities ...... 1,747,796 1,097,943 652,588
----------- ----------- -----------
Cash flows from investing activities:
Payments for vehicle additions ................. (7,486,421) (5,605,494) (4,303,048)
Vehicle deletions .............................. 5,008,078 4,205,221 3,610,721
Increase in finance lease receivables .......... (32,882) (22,663)
Payments for additions to property and
equipment .................................... (56,577) (48,240) (42,933)
Retirements of property and equipment .......... 10,942 (6,419) 5,603
Proceeds from the sale of 80% of PHH Europe,
net of cash of $104,765 ...................... 695,684
Settlement of PHH Europe intercompany accounts . 225,819
Dividend from PHH/Arval joint venture .......... 32,426
Payments for purchase of rental car franchise
licensees, net ............................... (30) (45,192) (237,182)
Payment for purchase of PHH Holdings, net of
cash acquired ................................ (1,325,781)
Proceeds from the sale and leaseback of office
building ..................................... 32,156
----------- ----------- -----------
Net cash used in investing activities ........ (1,602,961) (2,816,412) (966,839)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from public offerings, net ................ 161,194
Reductions (purchases) of Class A Common Stock
(for) from the treasury ...................... 6,183 (53,868) (50,960)
Preferred stock dividends .......................... (220)
Changes in debt:
Proceeds ....................................... 2,916,012 6,120,545 1,217,289
Repayment of acquisition and other debt from the
proceeds of the sale of 80% of PHH Europe .... (1,054,437)
Repayments of debt ............................. (1,953,442) (4,307,537) (1,023,432)
----------- ----------- -----------
Net (decrease) increase in debt ................ (91,867) 1,813,008 193,857
Payments for debt issuance costs ................... (20,812) (6,543) (4,654)
Increase in minority interest (preferred
membership interest) ............................. 99,305
----------- ----------- -----------
Net cash (used in) provided by financing
activities ................................... (106,716) 1,851,902 299,437
----------- ----------- -----------
Effect of exchange rate changes on cash ............ (469) 2,043 (334)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents and cash held on deposit with
financial institution ............................ 37,650 135,476 (15,148)
Cash and cash equivalents and cash held on deposit
with financial institution at beginning of
year ........................................... 165,227 29,751 44,899
----------- ----------- -----------
Cash and cash equivalents and cash held on deposit
with financial institution at end of year ........ $ 202,877 $ 165,227 $ 29,751
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ....................................... $ 586,744 $ 370,247 $ 209,977
=========== =========== ===========
Income taxes ................................... $ 38,009 $ 28,877 $ 13,338
=========== =========== ===========
Businesses acquired:
Fair value of assets acquired, net of cash
acquired ..................................... $ 6,004,777 $ 244,501
Liabilities assumed ............................ 4,271,804 7,319
----------- -----------
Net assets acquired ............................ 1,732,973 237,182
Less issuance of Series A and Series C
Preferred stock .............................. 362,000
----------- -----------
Net cash paid for acquisitions ................. $ 1,370,973 $ 237,182
=========== ===========
Assets and liabilities contributed to joint venture:
Assets ......................................... $ 1,731,489
Liabilities .................................... 1,035,805
-----------
Proceeds received from the sale of 80% of PHH
Europe, net of cash of $104,765 .............. $ 695,684
===========
See accompanying notes to the consolidated financial statements.
F-6
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1-Summary of Significant Accounting Policies
The Company
The accompanying consolidated financial statements include Avis Group
Holdings, Inc. and subsidiaries, which was incorporated on October 17, 1996. The
Company and its former parent, Avis Inc., were acquired by Cendant Corporation
("Cendant") on October 17, 1996 (the "Date of Acquisition"). Avis Group
Holdings, Inc. and subsidiaries are referred to throughout the notes to the
consolidated financial statements as (the "Company"). On January 1, 1997, Avis,
Inc., the Company's former ultimate parent, a wholly-owned subsidiary of
Cendant, contributed the net assets of its corporate operations and all of its
common stock ownership in Avis International, Ltd. and subsidiaries, Avis
Enterprises, Inc. and subsidiaries, Pathfinder Insurance Company and Global
Excess & Reinsurance, Ltd. to the Company. Pursuant to a plan developed by
Cendant prior to the Date of Acquisition, Cendant caused the Company to
undertake an initial public offering ("IPO"). On September 24, 1997, the Company
issued and sold 22,425,000 shares of its common stock through such IPO and
received net proceeds of $359.3 million. On March 23, 1998, the Company sold
5,000,000 shares of its common stock through a public offering (the "Offering")
and received net proceeds of approximately $161.2 million. In addition, in the
Offering on March 23, 1998, Cendant reduced its ownership of the Company by
selling 1,000,000 shares of the Company's common stock and retained the net
proceeds. As a result of the IPO, the Offering on March 23, 1998, the net
repurchase of 2,120,588 shares and 2,672,700 shares of treasury stock by the
Company during the years ended December 31, 1999 and 1998, respectively, and the
issuance of Series A and C preferred stock in connection with the VMS
acquisition (see Notes 2, 15 and 16), Cendant's common stockholder's equity
interest in the Company at January 1, 2001 is approximately 18% excluding
potential conversion of Preferred Stock (see Notes 15, 17 and 25). The Company
has used the net proceeds from these offerings to (i) acquire certain Avis
System franchises (see Note 2) and (ii) for working capital and general
corporate purposes, including the repayment of certain indebtedness. A Cendant
subsidiary owns and operates the reservation system as well as the
telecommunications and computer processing systems which service the rental car
operations for reservations, rental agreement processing, accounting and vehicle
control. Cendant is reimbursed for such services at cost (see Note 6). In
addition, a Cendant subsidiary charges the Company a royalty fee for the use of
the Avis trade name (see Note 6).
On March 19, 1999, and June 30, 1999, the Company purchased the common
stock and franchise rights of Rent-A-Car Company, Incorporated, of Richmond
Virginia ("Rent-A-Car, Inc.") and Motorent, Inc. of Nashville Tennessee
("Motorent") for approximately $10.1 million and $49.3 million, respectively.
These acquisitions were financed through internally generated funds.
On June 30, 1999, the Company completed the transaction contemplated by
the Agreement and Plan of Merger and Reorganization dated as of May 22, 1999
(the "Merger Agreement"), with PHH Corporation, a Maryland corporation and
wholly-owned subsidiary of Cendant, PHH Holdings Corporation ("PHH Holdings"), a
Texas corporation and wholly-owned subsidiary of PHH Corporation, and Avis Fleet
Leasing and Management Corporation, a Texas corporation and a wholly-owned
subsidiary of the Company (the "Acquisition Subsidiary"). Pursuant to the Merger
Agreement, the Acquisition Subsidiary and PHH Holdings merged on June 30, 1999
and the Acquisition Subsidiary acquired the fleet leasing and management and
fuel card business of PHH corporation ("VMS") for approximately $1.8 billion and
refinanced VMS indebtedness of approximately $3.5 billion (the "VMS
Acquisition"). The acquisition financing included borrowings by the Company of
$1 billion of term loans, the issuance by the Company of $500 million of senior
subordinated notes, and the issuance by the Acquisition Subsidiary of $362
million of preferred stock (see Notes 11, 15 and 16).
On August 9, 2000, the Company completed a transaction with BNP Paribas
("BNP") to form a joint venture company that owns PHH Europe. As part of the
transaction, BNP acquired an 80% interest in the joint venture, with the Company
retaining a 20% interest. The Company received $800 million in cash and had its
intercompany indebtedness with PHH Europe repaid. PHH Europe, with operations in
the United Kingdom and Germany, is engaged in the business of leasing vehicles
and providing fee based services, including fuel and maintenance cards, accident
management and other vehicle services to its customers. Accordingly, the
Company's 20% investment in the joint venture is reported as Investment in
PHH/Arval joint venture in the accompanying Consolidated Statement of Financial
Position and the earnings of the joint venture are included in the Statement of
Operations on the equity method of accounting. The difference between the
carrying value of the net assets of PHH Europe and the proceeds from the sale
have been accounted for as a reduction of cost in excess of net assets acquired
relating to the VMS Acquisition.
F-7
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cendant Merger Agreement
On November 11, 2000 Cendant and the Company entered into a definitive
agreement for Cendant to acquire all of the outstanding shares of the Company
that are not currently owned by Cendant at a price of $33.00 per share (the
"Merger Consideration"), in cash, and all outstanding and unexerised options to
purchase the common stock of the Company, (which have not elected to convert
their options to Cendant options) at the excess of the Merger Consideration over
the per share exercise price of each option. Approximately 25.9 million
outstanding shares of the Company's Class A Common Stock shares are not owned by
Cendant and approximately 7.5 million unexercised non-converted options are
outstanding.
Principles of Consolidation
All material intercompany accounts and transactions have been eliminated.
Accounting Estimates
Generally accepted accounting principles require the use of estimates,
which are subject to change, in the preparation of financial statements.
Significant accounting estimates used include estimates for recoverability of
the cost in excess of net assets acquired, the determination of public
liability, property damage and other insurance liabilities, and the realization
of deferred income tax assets. However, actual results may differ.
Revenue Recognition
Vehicle Rental Revenue:
Revenue is recognized over the period the vehicle is rented.
Vehicle Leasing Revenue:
The Company primarily leases vehicles under three standard arrangements:
open-end operating leases, closed-end operating leases or open-end finance
leases (direct financing leases). These leases are accounted for in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting
for Leases". Each lease is either classified as an open-end or closed-end
operating lease or open-end finance lease and are included in Vehicles,
net-leasing and Finance lease receivables, respectively, on the accompanying
Consolidated Statements of Financial Position. Vehicle lease terms generally
range from 36 to 72 months. Amounts charged to the leases for interest on the
unrecovered investment are credited to income on a level yield method.
Other Fee Based Revenue:
Revenue from fleet management services other than leasing are recognized
over the period in which services are provided and the related expenses are
incurred.
Cash and Cash Equivalents
The Company considers unrestricted deposits and short-term investments
with an original maturity date of three months or less to be cash equivalents.
F-8
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash Held on Deposit with Financial Institution
Cash held on deposit with financial institution represents lease payments
collected from the Company's vehicle leasing customers by one of the Company's
lenders in connection with the Company's VMS Domestic Asset Based Financing
Structure (see Vehicle Leasing and Other Fee Based Debt in Note 11). Cash
collected during the month by the lender, net of vehicle purchases, is settled
with the Company in the early part of the following month.
Restricted Cash
Restricted cash includes cash and short-term investments that are not
readily available for normal Company disbursements. Certain amounts have been
set aside as required under the Company's debt covenants and to satisfy
insurance related and other commitments of the Company.
Finance Lease Receivables
Finance Lease Receivables are leases accounted for in accordance with SFAS
No. 13, which are classified as a direct financing lease, as defined.
The Company records the cost of the leased vehicle as an "investment in
finance leases". Amounts charged to the lessees for interest on the unrecovered
investment are credited to income on a level yield method.
Vehicles, Net
Rental vehicles are stated at cost, net of accumulated depreciation,
incentives and allowances. In accordance with industry practice, when vehicles
are sold, gains or losses are reflected as an adjustment to depreciation.
Vehicles are generally depreciated at rates ranging from 11% to 28% per annum.
Manufacturers provide the Company with incentives and allowances (such as
rebates and volume discounts) which are amortized to income over the holding
periods of the vehicles.
Leasing vehicles include vehicles which are leased to customers under
either open-end or closed-end operating leases:
Open-end Operating Leases - Under these leases, the minimum lease term is
12 months with a month to month renewal thereafter. In addition, resale of
the vehicles upon termination of the lease is generally for the account of
the lessee except for a minimum residual value, which the Company has
guaranteed. The Company guarantees 16% of the original cost of the unit
for the first 24 months of the lease, and then 16% of the fair market
value of the unit at inception of the month to month renewals thereafter.
Closed-end Operating Leases - Under these leases, the minimum lease term
is 12 months or longer. However, 24 and 36 month lease terms are the most
prevalent. These leases are cancelable under certain conditions. Resale of
the vehicles upon termination is for the account of the Company.
Open-end finance leases provide that the resale of the vehicles upon
termination of the lease are for the account of the lessee.
Property and Equipment, Net
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method over
the estimated useful life of the assets. Estimated useful lives range from five
to ten years for furniture, fixtures and equipment, to thirty years for
buildings. Leasehold improvements are amortized over the shorter of twenty years
or the remaining life of the lease. Maintenance and repairs are expensed;
renewals and improvements are capitalized. When depreciable assets are retired
or sold, the cost and related accumulated depreciation are removed from the
accounts with any resulting gain or loss reflected in the Consolidated
Statements of Operations.
F-9
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cost in Excess of Net Assets Acquired, Net
Cost in excess of net assets acquired is amortized over a 40 year period
and is shown net of accumulated amortization of $85.6 million and $50.7 million
at December 31, 2000 and 1999, respectively.
Impairment Accounting
The Company reviews the recoverability of its long-lived assets, including
cost in excess of net assets acquired, when events or changes in circumstances
occur that indicate that the carrying value of the assets may not be
recoverable. The measurement of possible impairment is based on the Company's
ability to recover the carrying value of the asset from the expected future
pre-tax undiscounted cash flows generated. The measurement of impairment
requires management to use estimates of expected future cash flows. If an
impairment loss existed, the amount of the loss would be recorded under the
caption costs and expenses in the Consolidated Statements of Operations. It is
reasonably possible that future events or circumstances could cause these
estimates to change.
Public Liability, Property Damage and Other Insurance Liabilities, Net
Insurance liabilities on the accompanying Consolidated Statements of
Financial Position include additional liability insurance, personal effects
protection insurance, public liability and property damage ("PLPD") and personal
accident insurance claims for which the Company is self-insured. The Company is
self-insured up to $1 million per claim under its automobile liability insurance
program for PLPD and additional liability insurance. Costs in excess of $1
million per claim are insured under various contracts with commercial insurance
carriers. The liability for claims up to $1 million is estimated based on the
Company's historical loss and loss adjustment expense experience, which is
adjusted for current trends.
The insurance liabilities include a provision for both claims reported to
the Company as well as claims incurred but not yet reported to the Company. This
method is an actuarially accepted loss reserve method. Adjustments to this
estimate and differences between estimates and the amounts subsequently paid are
reflected in the Consolidated Statements of Operations as they occur.
Foreign Currency Translation
The assets and liabilities of foreign companies are translated at year-end
exchange rates. Results of operations are translated at the average rates of
exchange in effect during the year. The resultant translation adjustment is
included as a component of accumulated other comprehensive loss within
consolidated common stockholders' equity.
Income Taxes
The Company files a U.S. consolidated federal income tax return and has
adopted the calendar year as its fiscal year. The Company files separate income
tax returns in states where a consolidated return is not permitted. In
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"), deferred income tax assets and liabilities are
recorded for the differences between the financial accounting and tax basis of
assets and liabilities, using enacted rates in effect in the years in which the
differences are expected to reverse.
Pensions
Costs of the defined benefit plans are actuarially determined under the
projected unit credit cost method and include amounts for current service and
interest on projected benefit obligations and plan assets. The Company's policy
is to fund at least the minimum contribution amount required by the Employee
Retirement Income Security Act of 1974.
Advertising
Advertising costs are expensed as incurred. Advertising costs were $89.2
million, $86.7 million and $77.5 million for the years ended December 31, 2000,
1999 and 1998, respectively.
F-10
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Derivative Financial Instruments
Derivative financial instruments are used to manage exposure to market
risks associated with fluctuations in interest rates. Analyses are performed on
an on-going basis to determine that a high correlation exists between the
characteristics of derivative instruments and the assets or transactions being
hedged. As a matter of policy, derivative activities are not engaged for trading
or speculative purposes. Exposure to credit-related losses exist in the event of
non-performance by counterparties to certain derivative financial instruments.
At December 31, 2000, the Company's derivative financial instruments included
interest rate swap agreements, interest rate cap and floor agreements, gasoline
options and options embedded in certain interest rate swap agreements,
"Swaptions" (see Notes 11, 13, 15 and 27).
Interest on the Company's interest rate swap agreements, and interest rate
cap and floor agreements are cash settled on a net basis for each agreement
quarterly. The Company's swaption agreements and certain purchased and sold
interest rate cap agreements are marked to market with adjustments to fair value
recorded in earnings. Gains or losses from the sale or exercise of gasoline
options are recognized when the underlying option is sold.
Environmental Costs
The Company's operations include the storage and dispensing of gasoline.
The Company accrues losses associated with the remediation of accidental fuel
discharges when such losses are probable and reasonably estimatable. Accruals
for estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental remediation obligations are not
discounted to their present value.
Recent Accounting Pronouncements
A recent pronouncement of the Financial Accounting Standards Board which
is not required to be adopted at this date, is SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", ("SFAS No. 133"), which is
effective for the Company's consolidated financial statements for the year
ending December 31, 2001. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133, as
amended by SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB No.133" and SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities",
is effective for the Company as of January 1, 2001. SFAS No. 133 requires that
an entity recognize all derivatives as either assets or liabilities measured at
fair value. The accounting for changes in the fair value of a derivative depends
on the use of the derivative. Adoption of these new accounting standards will
result in cumulative after-tax reductions in net income of approximately $7.6
million and an increase in accumulated other comprehensive income of
approximately $2.4 million in the first quarter of 2001.
A recent pronouncement of the Financial Standards Board which is not
required to be adopted at this date, except for certain disclosures, is SFAS No.
140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", ("SFAS No. 140"), which is effective for the
Company's consolidated financial statements for the year ending December 31,
2001. SFAS No. 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures. The Company does not believe that SFAS No. 140 will have a material
impact on its consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
presentation of the current year's consolidated financial statements.
F-11
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 - Acquisitions
On March 19, 1999, and June 30, 1999, the Company purchased the common
stock and franchise rights of Rent-A-Car Company, Incorporated, of Richmond,
Virginia ("Rent-A-Car, Inc.") and Motorent, Inc. of Nashville Tennessee
("Motorent") for approximately $10.1 million and $49.3 million, respectively.
These acquisitions were financed through internally generated funds.
On June 30, 1999, the Company completed the transaction contemplated by
the Merger Agreement with PHH Corporation, PHH Holdings Corporation and the
Acquisition Subsidiary. Pursuant to the Merger Agreement, the Acquisition
Subsidiary and PHH Holdings merged on June 30, 1999 and the Acquisition
Subsidiary acquired the fleet leasing and management and fuel card business of
VMS for approximately $1.8 billion and refinanced VMS indebtedness of
approximately $3.5 billion. The acquisition financing included borrowings by the
Company of $1 billion of term loans, the issuance by the Company of $500 million
of senior subordinated notes, and the issuance by the Acquisition Subsidiary of
$362 million of preferred stock (see Notes 11, 15 and 16).
In connection with the VMS Acquisition, the Company received a perpetual,
royalty-free license to use the VMS trademarks, including the "PHH" name and
logo. PHH Corporation and PHH Holdings entered into a 5-year non-compete
agreement with Avis Group Holdings, Inc. and the Acquisition Subsidiary. The
Acquisition Subsidiary also received a limited license to use the Cendant name
in Europe and the United States for a period of up to one year. In addition, the
parties entered into agreements under which Cendant agreed to provide the
Company with computer services and with transitional services with respect to
various administrative services, including payroll and benefits, which had
previously been provided to VMS by Cendant. In addition, the Acquisition
Subsidiary entered into an agreement under which it will provide Cendant with
certain transitional administrative services which had previously been provided
by VMS.
The following is the purchase cost allocation of the acquisitions
described above (in thousands):
Purchase cost ............................................. $ 1,917,949
-----------
Fair value of:
Assets acquired ...................................... 4,814,319
Liabilities assumed .................................. (4,283,402)
-----------
Net assets ................................................ 530,917
-----------
Cost in excess of net assets acquired ..................... $ 1,387,032
===========
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition of VMS for approximately $1.8
billion (including the issuance of Series A and Series C Preferred Stock) and
the refinancing of VMS indebtedness and related adjustments had taken place on
January 1, 1998 (in thousands, except per share data):
Years Ended December 31,
------------------------
1999 1998
---------- ----------
Revenue $4,144,670 $3,907,039
========== ==========
Income before provision for income taxes ........... $ 141,386 $ 65,596
========== ==========
Net income ......................................... $ 73,156 $ 26,916
Preferred stock dividends .......................... 18,220 18,220
---------- ----------
Earnings applicable to common stockholders ......... $ 54,936 $ 8,696
========== ==========
Earnings per share:
Basic .............................................. $ 1.75 $ .25
========== ==========
Diluted ............................................ $ 1.72 $ .25
========== ==========
F-12
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On May 1, 1998, the Company acquired the assets of the car rental business
of Hayes Leasing Company, Inc., including the Avis System franchises for the
cities of Austin, Fort Worth and San Antonio, and the counties of Dallas and
Tarrant, Texas for approximately $86 million in cash plus the refinancing of
fleet-related indebtedness, which totaled approximately $136 million for a total
purchase price of approximately $222 million. In addition, during the year ended
December 31, 1998, the Company purchased the assets of several other Avis System
franchises for approximately $15 million in cash. If these acquisitions had
occurred on January 1, 1998, they would not have had a material impact on the
Company's results of operations. The excess purchase price over the net assets
acquired for these acquisitions was approximately $90 million.
Note 3 - Formation of Joint Venture
On August 9, 2000, the Company announced that it had completed a
transaction with BNP Paribas ("BNP") to form a joint venture company that owns
PHH Europe and, which within one year, will merge with BNP's vehicle management
subsidiary, Arval Service Lease S.A. ("Arval"). As part of the transaction, BNP
acquired an 80% interest in the joint venture, with the Company retaining a 20%
interest. The Company received $800 million in cash and had its intercompany
indebtedness with PHH Europe repaid. The Company used the sale proceeds to
retire Term Loans A, B and C of its outstanding Acquisition Financing (see Note
11).
The revenue and net income of PHH Europe included in the Consolidated
Statements of Operations for the years ended December 31, 2000 and 1999 are (in
thousands):
2000 1999
---------- --------
Revenue $ 158,939 $139,399
========== ========
Net Income $ 27,589 $ 30,969
========== ========
The revenue and net income of PHH Europe for the periods presented above
includes the results of operations of PHH Europe from the date of acquisition
(June 30, 1999) through July 31, 2000 (formation of the PHH/Arval joint
venture).
PHH/Arval is an unlimited liability company organized under the laws of
the United Kingdom. A subsidiary of the Company which owns 20% of PHH/Arval, is
liable under the laws of the United Kingdom for all the obligations of PHH/Arval
upon its liquidation which remain after the assets of PHH/Arval are sold.
PHH/Arval incurred a loan of approximately $800 million to complete the BNP
Paribas transaction. The Company's subsidiary is liable for the loan to the
extent PHH/Arval does not have sufficient assets to repay the loan upon its
liquidation. A newly formed subsidiary of the Company has guaranteed its
subsidiary's liability under the loan.
Note 4 - Restricted Cash
At December 31, 2000 and 1999, restricted cash includes an escrow amount
of $113,342,000 and $90,000,000, respectively, as required under the Company's
debt agreements, to provide additional credit enhancement on the Company's
Medium Term Notes and floating rate Rental Car Asset Backed Notes (see Note 11).
Also included in restricted cash at December 31, 2000 and 1999 is $62,002,000
and $116,244,000, respectively, related to the VMS Domestic ABS Facilities and
certain amounts which are set aside to satisfy claims under the Company's
self-insurance programs and other obligations of the Company.
F-13
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5 - Accounts Receivable, Net
Accounts receivable, net at December 31, 2000 and 1999 consist of the
following (in thousands):
2000 1999
----------- -----------
Vehicle leasing and other fee based services ... $ 467,551 $ 699,006
Due from General Motors ........................ 257,906 196,497
Vehicle rentals ................................ 139,726 109,084
Vehicle related ................................ 79,688 51,282
Value added and provincial taxes ............... 7,330 28,427
Damage claims .................................. 15,996 13,715
Other .......................................... 34,649 25,398
----------- -----------
1,002,846 1,123,409
Less allowance for doubtful accounts ........... (10,161) (7,669)
----------- -----------
$ 992,685 $ 1,115,740
=========== ===========
Vehicle related amounts include receivables for vehicles sold under
guaranteed repurchase contracts ("Repurchase Programs") and amounts due for
incentives and allowances. Incentives and allowances are based on all of the
following: the volume of vehicles to be purchased for a model year, the
manufacturers' willingness to encourage the Company to retain vehicles rather
than return the vehicles back to the manufacturers and the purchase of
particular models not subject to repurchase under "buyback" arrangements.
Incentives and allowances are amortized to income over the average holding
period of the vehicles (see Note 8).
Note 6 - Due to Affiliates, Net
Due to affiliates, net at December 31, 2000 and 1999 consists of
non-interest bearing advances due Cendant or its consolidated subsidiaries of
$37.7 million and $59.4 million, respectively, for services. Non-interest
bearing advances represents intercompany transactions relating primarily to
royalty fees, reservation processing and data processing. In addition, at
December 31, 2000, due to affiliates, net includes certain expenses incurred in
connection with the Cendant acquisition of the Company (see Note 1), which will
be paid by the acquiror.
Expense items of the Company include the following items from Cendant and
affiliates of Cendant for the years ended December 31, 2000, 1999 and 1998 (in
thousands):
2000 1999 1998
-------- -------- --------
Royalty fee .......................... $104,538 $100,031 $ 91,904
Reservations ......................... 55,976 58,063 49,872
Data processing and other ............ 53,106 43,700 35,844
Rent ................................. 5,265 4,639 4,648
-------- -------- --------
$218,885 $206,433 $182,268
======== ======== ========
These charges seek to reimburse the affiliated company for the actual
costs incurred. They are determined in accordance with various intercompany
agreements and include certain allocations which are based upon such factors as
square footage, employee salaries, computer usage time, etc. Effective January
1, 1997, Cendant charged the Company a royalty fee of 4.0% of revenue for the
use of the Avis trade name. The royalty fee of 4.0% consists of a base royalty
of 3.0% of the vehicle rental segment's gross revenue and a supplemental royalty
of 1.0% of the vehicle rental segment's gross revenue payable quarterly in
arrears, which will increase periodically to a maximum of 1.5% in 2003. The
supplemental royalty or a portion thereof may be deferred if the Company does
not meet certain financial targets.
In addition, for the years ended December 31, 2000, 1999 and 1998, the
Company was charged by Cendant approximately $5.3 million, $4.1 million and $3.8
million, respectively, for certain software developed for internal use, which
has been capitalized on the accompanying Consolidated Statements of Financial
Position. Under the Computer Services Agreement with Cendant dated July 30,
1997, software developed for the Company's internal use is charged to the
Company at Cendant's cost.
F-14
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7 - Finance Lease Receivables
Under these leases, the minimum lease term is 12 months with a month to
month renewal thereafter. In addition, resale of the vehicles upon termination
of the lease is for the account of either the lessor (PHH Europe) or the lessee
(both North America and PHH Europe). The net investment in leases and leased
vehicles at December 31, 2000 and 1999 consists of the following (in thousands):
2000 1999
--------- ---------
Future minimum lease payments receivable ......... $ 176,029 $ 561,157
Estimated unguaranteed residual value ............ 392,191
Less unearned income ............................. (16,884) (82,314)
--------- ---------
$ 159,145 $ 871,034
========= =========
At December 31, 2000, future minimum lease payments on the Company's
direct financing leases are as follows (in thousands):
2001 .................................................. $ 63,181
2002 .................................................. 52,458
2003 .................................................. 35,920
2004 .................................................. 17,843
2005 .................................................. 5,216
Thereafter ............................................ 1,411
--------
$176,029
========
Note 8-Vehicles, Net
Vehicles, net at December 31, 2000 and 1999 consist of the following (in
thousands):
2000 1999
-------------------------- --------------------------
Vehicle Vehicle Vehicle Vehicle
Rental Leasing Rental Leasing
----------- ----------- ----------- -----------
Rental vehicles .......................... $ 4,098,992 $ 3,683,864
Vehicles under open-end operating leases . $ 4,309,248 $ 3,337,191
Vehicles under closed-end operating leases 215,551 230,693
Buses and support vehicles ............... 80,903 81,150
Vehicles held for sale ................... 47,535 28,656 19,757 40,400
----------- ----------- ----------- -----------
4,227,430 4,553,455 3,784,771 3,608,284
Less accumulated depreciation ............ (465,976) (1,348,075) (417,409) (474,275)
----------- ----------- ----------- -----------
$ 3,761,454 $ 3,205,380 $ 3,367,362 $ 3,134,009
=========== =========== =========== ===========
Depreciation expense for rental vehicles was $656.4 million, $644.6
million and 576.2 million for the years ended December 31, 2000, 1999 and 1998,
respectively. Depreciation expense for leasing vehicles was $1,012.8 million for
the year ended December 31, 2000. Depreciation expense for leasing vehicles for
the period June 30, 1999 (date of acquisition) through December 31, 1999 was
$507.7 million. Depreciation expense for rental vehicles is stated net of
amortization of certain incentives and allowances from various vehicle
manufacturers of approximately $128.6 million, $120 million and $119 million for
the years ended December 31, 2000, 1999 and 1998, respectively. Depreciation
expense for rental vehicles also reflects a net loss on the disposal of vehicles
of $2.2 million, $5.4 million and $ 6.8 million for the years ended December 31,
2000, 1999 and 1998, respectively.
F-15
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2000, future minimum lease payments to be received on the
Company's open-end and closed-end operating leases are as follows (in
thousands):
Years
- -----
2001 ........................................................... $1,069,925
2002 ........................................................... 889,635
2003 ........................................................... 630,251
2004 ........................................................... 341,857
2005 ........................................................... 136,971
Thereafter ..................................................... 140,767
----------
Total .......................................................... $3,209,406
==========
Other fleet leasing vehicles with net carrying amounts of $183.4 million
and $233.6 million at December 31, 2000 and 1999, respectively, are included in
special purpose entities which are not owned by the Company. These entities do
not require consolidation as they are not controlled by the Company and all
risks and rewards rest with the owners. Additionally, receivables related to
managed vehicles totaling approximately $120.7 million and $110.9 million at
December 31, 2000 and 1999, respectively, are owned by special purpose entities,
which are owned by the Company. However, such assets and related liabilities
have been netted in the Consolidated Statements of Financial Position since
there is a two-party agreement with determinable amounts, a legal right to
offset exists which the Company has exercised. The Company receives monies from
vehicle manufacturers which is deferred and recognized on a straight line basis
over the estimated life of the vehicles.
Vehicle Sale-Leaseback Transactions
During the years ended December 31, 2000 and 1999, the Company entered
into sale-leaseback transactions with an independent third party
("Counterparty") in Canada. In addition, the Company is party to similar
arrangements with the Counterparty resulting from transactions incurred prior to
1999. Under these arrangements, the Company sells its interest in operating
leases and its vehicles under operating leases to the Counterparty. Then, it
repurchases the leased vehicles (the Counterparty retains the lease rights).
Subsequently, the Company leases the vehicles under a direct financing lease to
the Counterparty. The Counterparty prepays all lease payments except for an
agreed-upon residual amount. These residual amounts are typically 3% to 8% of
the total lease payments. The residual amounts represent the total exposure to
the Company from these transactions. The total amount of net investment in
operating leases and leased vehicles sold under these agreements was $184.6
million and $48.1 million as of December 31, 2000 and 1999, respectively. At
December 31, 2000 and 1999, the total outstanding prepaid rent and residual
amounts outstanding under such agreements was $317.8 million and $21.5 million,
and $286.7 million and $16.1 million, respectively. The total revenues
recognized under these agreements was $128.8 million and $60.6 million for the
years ended December 31, 2000 and 1999, respectively.
Note 9-Property and Equipment, Net
Property and equipment at December 31, 2000 and 1999 consist of the
following (in thousands):
2000 1999
--------- ---------
Land ............................................... $ 22,862 $ 28,270
Buildings .......................................... 10,532 8,191
Leasehold improvements ............................. 142,788 119,702
Furniture, fixtures and equipment .................. 39,453 52,823
Construction-in-progress ........................... 37,451 32,975
--------- ---------
253,086 241,961
Less accumulated depreciation and amortization ..... (56,328) (44,134)
--------- ---------
$ 196,758 $ 197,827
========= =========
In December 1999, VMS in the U.K. entered into a sale and lease back for
an office building. The selling price of the office building was approximately
$32.2 million. The period of the lease is 16 years. The gain on the sale of the
office building of $16.4 million has been reflected in the Consolidated
Statement of Financial Position at December 31, 1999, as a reduction of cost in
excess of net assets acquired, net.
F-16
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10-Accrued Liabilities
Accrued liabilities at December 31, 2000 and 1999 consist of the following
(in thousands):
2000 1999
-------- --------
Payroll and related costs .................... $ 99,743 $106,209
Taxes, other than income taxes ............... 15,103 15,664
Rents and property related ................... 26,211 36,270
Interest ..................................... 64,126 28,866
Sales and marketing .......................... 49,253 54,749
Vehicle related .............................. 11,159 29,355
Other ........................................ 99,943 98,340
-------- --------
$365,538 $369,453
======== ========
Note 11-Financing and Debt
Debt outstanding at December 31, 2000 and 1999 consist of the following
(in thousands):
2000 1999
---------- ----------
Vehicle Rental
Commercial Paper Notes ............................................... $ 919,800 $1,026,261
Short-term notes-foreign ............................................. 196,882 111,259
Series 1997-1A asset-backed Medium Term Notes at 6.22% ............... 800,000
Series 1997-1B asset-backed Medium Term Notes due May 2002 through
October 2002 at 6.40% ............................................ 850,000 850,000
Series 1998-1 asset-backed Medium Term Notes due December 2004 through
May 2005 at 6.14% ................................................ 600,000 600,000
Series 2000-1 floating rate Rental Car Asset-Backed Notes due
February 2003 through July 2003 .................................. 250,000
Series 2000-2 floating rate Rental Car Asset-Backed Notes due
March 2007 through August 2007 .................................. 300,000
Series 2000-3 floating rate Rental Car Asset-Backed Notes due
May 2003 through October 2003 ................................... 200,000
Series 2000-4 floating rate Rental Car Asset-Backed Notes due
June 2005 through November 2005 ................................ 500,000
Revolving credit facility due June 2005 .............................. 225,000 62,000
Other ................................................................ 5,332 5,902
---------- ----------
Total Vehicle Rental Debt .................................... 4,047,014 3,455,422
---------- ----------
Vehicle Leasing and Other Fee Based Services
Commercial Paper Notes ............................................... 1,781,188 1,521,498
Canadian short term borrowings ....................................... 14,026 44,563
Series 1999-2 floating rate asset-backed notes, Class A-1 ............ 550,000 550,000
Series 1999-2 floating rate asset-backed notes, Class A-2 ............ 450,000 450,000
Foreign Asset Backed Securities - UK Advances (see Note 3) .......... 850,443
Self-fund notes ...................................................... 41,137 30,397
Wright Express Certificates of Deposit ............................... 138,875 67,482
---------- ----------
Total Vehicle Leasing and Other Fee Based Services Debt ...... 2,975,226 3,514,383
---------- ----------
Total Vehicle Debt ........................................... 7,022,240 6,969,805
---------- ----------
Acquisition Financing
Term A Loan Notes due June 2005 (see Note 3) ........................ 250,000
Term B Loan Notes due June 2006 (see Note 3) ........................ 375,000
Term C Loan Notes due June 2007 (see Note 3) ........................ 375,000
Senior Subordinated Notes due May 2009 at 11.00% ..................... 500,000 500,000
---------- ----------
Total Acquisition Financing Debt ............................. 500,000 1,500,000
---------- ----------
Total Debt ................................................... $7,522,240 $8,469,805
========== ==========
F-17
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Vehicle Rental Debt
On July 31, 1997, the Company, through its wholly-owned subsidiary Avis
Rent A Car System, Inc. ("ARACS"), entered into a domestic integrated fleet
financing program that provided for financing for vehicles covered by Repurchase
Programs, (the "Avis ABS Facility"). As of December 31, 2000, the availability
under this financing program is $4.2 billion. The Avis ABS Facility provides for
the issuance of up to $1.5 billion of asset-backed variable funding notes (the
"Commercial Paper Notes") and $2.7 billion of asset backed medium term notes
(the "Medium Term Notes"). The Commercial Paper Notes and the Medium Term Notes
are backed by a first priority security interest in the domestic rental fleet.
Additional credit enhancement is provided for the Medium Term Notes by an escrow
account of $113 million and $90 million, which is included in "Restricted Cash"
(see Note 4) on the accompanying Consolidated Statements of Financial Position
at December 31, 2000 and 1999, respectively. The weighted average interest rates
on the Commercial Paper Notes were 6.6%, and 6.4% at December 31, 2000 and 1999,
respectively. The interest rates on the Series 2000-1, 2000-2, 2000-3 and 2000-4
floating rate asset-backed notes at December 31, 2000 were 6.9%, 7.0%, 6.9% and
6.9%, respectively.
On June 30, 1999, the Company entered into a $1.35 billion secured credit
facility (the "Credit Facility") which is guaranteed by certain of it's
subsidiaries. The Credit Facility consists of (i) $1 billion of Term Loans (see
Acquisition Financing below), (ii) a revolving credit facility of up to $350
million which is available on a revolving basis until June 30, 2005 in order to
finance the working capital needs of the Company in the ordinary course of
business (with up to $75 million of such amount available for the issuance of
standby letters of credit to support workers' compensation and other insurance
and bonding requirements of ARACS, the Company and its subsidiaries in the
ordinary course of business, and a 364 day standby letter of credit facility of
up to $225 million available to fund (a) any shortfall in certain payments owing
to AESOP Leasing, a subsidiary of ARACS pursuant to fleet agreements and (b)
maturing Commercial Paper Notes if such Commercial Paper Notes cannot be repaid
through the issuance of additional Commercial Paper Notes or draws under the
liquidity facility supporting the Commercial Paper Notes). Revolving Loans bear
interest at either Chase Manhattan Bank's ("Chase") alternate base rate ("ABR")
plus 0.75% or the Euro dollar rate plus 1.75% (at the Company's option). For the
years ended December 31, 2000 and 1999, the weighted average interest rate on
the Company's Revolving Loans was 9.6% and 8.9%, respectively. The average
interest rate on the revolving credit facility at December 31, 2000, and 1999,
was 8.5% and 10.3%, respectively. Upon the closing of the PHH/Arval transaction
and the retirement of the term loans (see Note 3), the revolving credit portion
of this facility was amended to increase the facility to $450 million. At
December 31, 2000 and 1999, the Company had issued letters of credit of $27.1
million and $29.2 million under the revolving credit facility and $150 million
under the $225 million standby letter of credit facility, respectively. As of
December 31, 2000, under the terms of the Revolving Credit Facility, the Company
had outstanding $225 million at a variable interest rate with terms identical to
the Term A Loan Notes (see Acquisition Financing below).
The Credit Facility is secured by the tangible and intangible assets of
the Company (including, without limitation, its intellectual property, its
rights under the Master License Agreement and related agreements, real property
and all of the capital stock or equivalent equity ownership interests of the
Company and each of its direct and indirect domestic subsidiaries and 65% of the
Company first-tier foreign subsidiaries), except for those assets which are
subject to a negative pledge or as to which the agents for the Credit Facility
shall determine in their sole discretion that the costs of obtaining such a
security interest are excessive in relation to the value of the security to be
afforded thereby.
The weighted-average interest rates of the short-term notes-foreign as of
December 31, 2000 and 1999 were 6.4% and 5.8%, respectively.
Vehicle Leasing and Other Fee Based Debt
In connection with the VMS Acquisition (see Note 2), Avis Group Holdings,
Inc. refinanced the VMS existing fleet debt with the proceeds of approximately
$2.7 billion domestic and $720 million foreign asset-backed securities issued
pursuant to an offering of asset-backed securities (the "Interim VMS ABS
Offering"), under certain fleet financing facilities and together with the Avis
ABS Facility. The domestic securities comprising the Interim VMS ABS Offering
are issued by a bankruptcy remote special purpose entity (the "Domestic ABS
Issuer") and placed initially with a single multi-seller commercial paper
conduit, and thereafter may be syndicated to one or more other bank sponsored
conduits (collectively the "CP Conduits"). The CP Conduits will acquire Domestic
Variable Funding Notes ("VFNs"), Domestic Preferred Membership Interests and
U.K. Advances using the proceeds of commercial paper issuances. In addition,
from time to time, the Domestic ABS Issuer may issue medium-term notes secured
by the Domestic ABS Assets, using the proceeds of any such offerings to reduce
the amount of Domestic VFNs then outstanding.
F-18
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On October 28, 1999, $1 billion of 7 and 12 year Medium Term Notes
("MTN's") were issued to replace a like amount of Domestic VFN's. This facility
consists of two classes of floating rate asset-backed notes: Class A-1 notes,
which total $550 million and Class A-2 notes, which total $450 million. Interest
rates are reset monthly at LIBOR plus 32 basis points and LIBOR plus 35 basis
points for the class A-1 and Class A-2 notes, respectively . The Class A-1 notes
have an average expected life of 2 years and commence amortizing in March 2001
and have a final stated maturity of October 2006. The average interest rate on
the Company's Class A-1 and Class A-2 notes was 6.9%, 5.7% and 7.0% and 5.8% at
December 31, 2000 and 1999, respectively. The Class A-2 notes have an average
expected life of 3 years and commence amortizing when the Class A-1 notes are
repaid in full. The Class A-2 notes have a final stated maturity of October
2011. Both classes of notes are rated AAA by Standard and Poors and Aaa by
Moody's. In addition to the floating rate asset-backed notes, the Company may
issue up to $1.75 billion Variable Funding Investor Notes to a group of
multi-seller commercial paper conduits. The Domestic VFN agreement expires in
October 2001 and is renewable annually. The blended interest rate in effect at
December 31, 2000 for the domestic asset-backed securities (including program
fees from 32 to 35 basis points) is 6.71%. The Company has also issued two
series of Senior Preferred Membership Interests (see Note 12), which total $99.3
million, at a rate (including program fees of 70 basis points) of 6.67% at
December 31, 2000.
At December 31, 1999, VMS-U.K. had $856 million asset-backed facility (the
"U.K. ABS Facility"), which was supported by the leased vehicles and fuel card
receivables of the various VMS-U.K entities. VMS-U.K. was funded through a group
of multi-seller commercial paper conduits. The interest rate was variable and
was based on commercial paper notes plus a weighted average margin of
approximately 45 basis points. As of December 31, 1999, there was approximately
$850.4 million outstanding at a blended rate of 6.66%. This facility was repaid
and terminated in connection with the formation of the PHH/Arval joint venture
(see Note 3).
Self-Fund Notes
Self-fund notes represent loans made by customers to purchase leased
vehicles. Repayment of these notes is matched to payments on the underlying
lease including the disposal of the vehicles at maturity. Interest can be fixed
or floating, depending on the underlying leases. The average interest rate at
December 31, 2000 was 7.6%. The loans are repayable at expiration of the various
lease terms. At December 31, 2000 self-funded notes expire between 2003 and
2013.
Wright Express Certificates of Deposit
At December 31, 2000, scheduled maturities of certificates of deposit of
$138.9 million are all less than one year. The interest rates range from 5.48%
to 7.20%.
Acquisition Financing
In connection with the VMS Acquisition in June 1999, (see Notes 1 and 2 ),
the Company borrowed $1 billion of term loans, consisting of $250 million ("Term
A Loan"), $375 million ("Term B Loan") and $375 million ("Term C Loan"), under
the credit facility described previously. On August 9, 2000 the Company retired
Term Loans A, B, and C from the proceeds of the sale of PHH Europe and the
repayment of PHH Europe's intercompany indebtedness (see Note 3).
Interest expense on Term Loan A, B, and C for the years ended December 31,
2000 and 1999 was $57.7 million and $44.4 million, respectively, with an
weighted average interest rate of 9.6% and 8.9%, respectively. The weighted
average interest rate on the Company's Term Loans A, B, and C at December 31,
1999 was 8.9%, 9.4% and 9.6%, respectively.
In addition, the Company issued $500 million of Senior Subordinated Notes
due May 1, 2009 with an interest rate of 11% (the "Senior Subordinated Notes").
The Senior Subordinated Notes are subordinated in the right of payment to all
existing and future senior indebtedness of the Company and are unconditionally
guaranteed on a senior subordinated basis by ARACS and other domestic
subsidiaries of the Company that guarantees the Senior Credit Facility (as
defined). Interest is payable semi-annually commencing November 1, 1999.
F-19
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The agreements with the Company's lenders include a number of significant
covenants that, among other things, restrict its ability to dispose of non-fleet
assets, incur additional indebtedness, create liens, prohibit the payment of
dividends, enter into certain investments or acquisitions, repurchase or redeem
capital stock, engage in mergers or consolidations or engage in certain
transactions with affiliates and otherwise restrict corporate activities.
Certain of these agreements also require the Company to maintain specified
financial ratios. As of December 31, 2000, the Company was in compliance with
all such covenants related to these agreements.
Mandatory maturities of long-term obligations, including current
maturities, for each of the next five years ending December 31, and thereafter,
are as follows (in thousands):
2001.......................................................... $ 303,936
2002.......................................................... 1,247,772
2003.......................................................... 784,526
2004.......................................................... 104,482
2005.......................................................... 1,226,938
Thereafter.................................................... 803,815
Other Credit Facilities
At December 31, 2000, in addition to the credit facilities previously
described, the Company had credit facilities available to support various
international and other operations. At December 31, 2000, the total available
under these facilities was $329.8 million of which $138.0 million was unused and
available. Amounts unused under these facilities require an annual fee of 0.2%
to 0.4% of the unused portion. In addition, the Company had available letters of
credit/overdraft agreements in place, renewable annually at the Company's option
and the bank's discretion. At December 31, 2000, the Company had $46.1 million
available, against which there are outstanding Letters of Credit totaling $29.9
million. The collateral for certain of these agreements consists of a pledge of
certain cash balances, in the amount of $25.0 million, which are included in
"Restricted Cash" on the accompanying Consolidated Statements of Financial
position. At December 31, 2000 the Company had $105.6 million of performance
bonds placed with various Airport Authorities, and State Regulatory agencies to
support its operations.
Derivative Financial Instruments
The Company has derivative financial instruments at December 31, 2000 that
are sensitive to fluctuations in interest rates and gasoline prices (see Notes 1
and 27). The following derivative financial instruments agreements have been
entered into by the Company:
To reduce the risk from interest rate fluctuations under its asset backed
debt agreements, the Company has entered into domestic and foreign interest rate
cap and interest rate floor agreements with maturity dates ranging from July
2003 to May 2010. At December 31, 2000, the domestic and foreign interest rate
cap and interest rate floor agreements have notional values of $1 billion and
$278 million, respectively. The agreements established the domestic and foreign
interest rate ceiling (ranging from 6.08% to 7.5%) and floor (5%) on the
asset-backed vehicle financings.
The Company was party to thirteen and twenty five interest rate swap
agreements at December 31, 2000 and 1999, respectively, to reduce the impact of
changes in interest rates on certain outstanding debt obligations. These
agreements effectively changed the Company's interest rate exposure on $298
million and $842.2 million of its outstanding debt from variable interest rates
to average fixed rates of 4.8% and 5.3% at December 31, 2000 and 1999,
respectively. The variable interest rates for certain of these interest rate
swap agreements are either reset daily, monthly, or quarterly based upon various
indices, including 30 day commercial paper, 1 month and 3 month LIBOR and 1
month and 3 month Canadian Bankers Acceptances. Interest is cash settled on a
net basis for each agreement either monthly, quarterly or semi-annually. The
interest rate swap agreements will terminate between February 2001 and April
2005. Under a swap agreement terminating in August 2003, the counterparty has
the right to terminate the agreement in August 2001. Under a Swap Agreement
terminating in May 2005, the counterparty has the right to terminate the
agreement in June 2001. The differential to be paid or received is recognized
ratably as interest rates change over the life of the agreements as an
adjustment to interest expense.
F-20
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The net interest differential charged (credited) to interest expense for
the years ended December 31, 2000 and 1999 was $4,109,000 and ($773,000),
respectively. The Company is exposed to credit risk in the event of
non-performance by counterparties to its interest rate swap agreements. Credit
risk is limited by entering into such agreements with institutions with high
credit ratings. Therefore, the Company does not anticipate that non-performance
by counterparties will occur. Notwithstanding this, the Company monitors
counterparty credit ratings at least quarterly through reviewing independent
credit agency reports.
Both current and potential exposure are evaluated, as necessary, by
obtaining replacement cost information from alternative dealers. Potential loss
to the Company from credit risk on these agreements is limited to amounts
receivable, if any.
Depending on market fundamentals of the price of gasoline and other
conditions, the Company may purchase put options to reduce or eliminate the risk
of gasoline price declines. Put options purchased by the Company effectively
establish a minimum sales transaction fee for the volume of gasoline purchased
on the Company's programs. An increase in the value of the options is highly
correlated to a decrease in the average price of gasoline purchased by the
Company's cardholders. Put options permit the Company to participate in price
increases above the option price. The cost of an option is charged to operations
in the month the options expire. Gains and losses from the sale or exercise of
options are recognized when the underlying option is sold. At December 31, 2000,
the total contract amount of such options was 26.5 million gallons of gasoline
and the unamortized cost of these options was $821,000 and is included in other
assets in the accompanying Consolidated Statements of Financial Position.
Note 12 - Minority Interest (Preferred Membership Interest)
In connection with the issuance of the Vehicle Leasing ABS Facility (see
Note 11), the Company has issued two Series 1999-2 Senior Preferred Membership
Interests ("PMI's") of which $99.3 million were outstanding at a distribution
rate of 6.67% and 6.97% at December 31, 2000 and 1999, respectively. The PMI's
represent an equity interest in one of the Company's domestic vehicle leasing
subsidiaries and accordingly, are reported as minority interest (preferred
membership interest), on the Company's Consolidated Statements of Financial
Position at December 31, 2000 and 1999. The holders of the Preferred Membership
Interests are entitled to receive dividends based upon the funding costs of the
multi-seller commercial paper conduits, plus a program fee of 0.70% per annum.
The dividend periods correspond to the same interest periods as the 1999-2
floating rate asset-backed notes. For the years ended December 31, 2000 and
1999, the Company accrued approximately $7.2 million and $5.9 million of
distributions, respectively, which are reflected in the Company's Consolidated
Statements of Operations as minority interest.
Note 13 - Fair Value of Financial Instruments
The net interest receivable and the estimated fair value of the Company's
interest rate swaps, caps and floors, swaption agreement and gasoline put
options represent assets of approximately $1.4 million and $13.2 million,
respectively, at December 31, 2000 (see Notes 1 and 27). At December 31, 1999,
the net interest receivable and estimated fair value of the Company's interest
rate swap agreements represent assets of approximately $763 thousand and $15.2
million, respectively.
For instruments including cash and cash equivalents, restricted cash,
accounts receivable, and accounts payable, the carrying amounts approximate fair
value because of the short maturity of these instruments. The fair value of
floating-rate debt approximates carrying value because these instruments
re-price frequently at current market prices. At December 31, 2000 and 1999, the
fair value of the Medium Term Notes, Asset Backed Securities and Senior
Subordinated Notes exceeds (is less than), the carrying value by approximately
$29.1 million and ($27.7) million, respectively.
At December 31, 2000 the Company had $389.7 million of preferred stock
which approximates fair value. The Company believes that it is not practicable
to estimate the current fair value of the amounts due to affiliates, net,
because of the related party nature of the instruments (See Note 15).
F-21
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14 - Income Taxes
The provision for income taxes for the years ended December 31, 2000, 1999
and 1998 consist of the following (in thousands):
2000 1999 1998
-------- ------- -------
Current:
Federal ............................ $ 733 $ 800
State .............................. 5,534 $ 2,010 980
Foreign ............................ 29,066 14,295 8,470
-------- ------- -------
35,333 16,305 10,250
-------- ------- -------
Deferred:
Federal ............................ 59,798 42,095 33,200
State .............................. 3,075 3,596 3,520
Foreign ............................ (3,004) 11,336 1,737
-------- ------- -------
59,869 57,027 38,457
-------- ------- -------
Provision for income taxes ............ $ 95,202 $73,332 $48,707
======== ======= =======
The effective income tax rates vary from the statutory U.S. federal income
tax rate due to the following (dollar amounts in thousands):
Years Ended December 31,
-----------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Statutory U.S. federal income tax provision/tax rate.... $75,557 35.0% $58,071 35.0% $39,280 35.0%
Tax effect of foreign operations and dividends ......... 1,952 .9 2,628 1.6 2,677 2.4
Amortization of cost in excess of net assets
acquired
and other intangibles ............................... 11,661 5.4 8,190 4.9 3,351 3.0
State income taxes, net of federal tax benefit ......... 5,596 2.6 3,644 2.2 2,925 2.6
Other non-deductible business expenses ................. 436 .2 799 0.5 474 0.4
------- ---- ------- ---- ------- ----
Effective income tax provision/tax rate ................ $95,202 44.1% $73,332 44.2% $48,707 43.4%
======= ==== ======= ==== ======= ====
In accordance with SFAS 109, the net deferred income tax liabilities at
December 31, 2000 and 1999 include the following (in thousands):
2000 1999
--------- ---------
Gross deferred income tax assets:
Accrued liabilities .................................. $ 271,442 $ 241,631
Net operating loss carryforwards ..................... 110,940 138,392
Alternative minimum income tax credit carryforwards .. 4,932 4,199
--------- ---------
387,314 384,222
--------- ---------
Gross deferred income tax liabilities:
PHH Europe joint venture ............................. (262,365)
Tax depreciation in excess of book depreciation ...... (559,067) (546,938)
Prepaids and other ................................... (25,375) (18,540)
--------- ---------
(846,807) (565,478)
--------- ---------
Net deferred income tax liabilities .................. $(459,493) $(181,256)
========= =========
The Company has included in net deferred income tax liabilities and common
stockholders' equity, a (decrease) increase of ($10.5) million, $4.6 million,
and $3.1 million related to the income tax effects of the Foreign Currency
Translation Adjustment and Minimum Pension Liability for the years ended
December 31, 2000, 1999, and 1998, respectively.
F-22
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has alternative minimum tax net operating loss carryforwards
of $182.2 million. The federal net operating loss carryforward is $297.1 million
which expires as follows: 2004, $48.2 million; 2007, $67.7 million; 2008, $41.1
million; 2009, $18.3 million; 2010, $1.1 million; 2017, $83.7 million; 2018,
$1.0 million and 2019, $36.0 million.
Deferred income taxes were not provided on $92 million of accumulated
undistributed earnings of foreign subsidiaries at December 31, 2000 because such
earnings are considered to be permanently reinvested. If this amount was not
considered permanently reinvested, additional deferred income taxes of
approximately $43 million would have been provided at December 31, 2000.
Note 15 - Preferred Stock (in thousands)
Series A Series B Series C
Preferred Preferred Preferred
Stock Stock Stock Total
------------ ---------- ---------- --------
Issuance of Preferred Stock Series A and Series C on
June 30, 1999 in connection with the acquisition of
VMS (see Notes 1 and 2) ........................... $360,000 $2,000 $362,000
Preferred Stock Dividends (180,000 shares) ........... $ 9,000 9,000
-------- ------- ------ --------
Balance December 31, 1999 ............................ 360,000 9,000 2,000 371,000
Preferred Stock Dividends (373,725 shares) ........... 18,686 18,686
-------- ------- ------ --------
Balance December 31, 2000 ............................ $360,000 $27,686 $2,000 $389,686
======== ======= ====== ========
Series A Preferred Stock
In connection with the VMS Acquisition (see Notes 1 and 2), a total of
7,200,000 shares of Series A Preferred Stock (the "Series A Preferred") of the
Acquisition Subsidiary were issued and outstanding at December 31, 2000 and
1999. Holders of Series A Preferred Stock are not entitled to preemptive rights.
The Series A Preferred Stock has an aggregate liquidation preference of $360
million or $50 per share (the "Series A Liquidation Preference"). Each share of
Series A Preferred accrues dividends at a rate per annum of 5% of the Series A
Liquidation Preference, payable in cash semi-annually in arrears. Until June 30,
2004, dividends may be paid at the discretion of the Acquisition Subsidiary in
shares of Series B Cumulative PIK Preferred Stock (see Series B Preferred Stock
below). The Series A Preferred is also entitled to special annual dividends at a
rate of 2% of the Series A Liquidation Preference per annum, payable in cash
annually on March 15th, in the event that the Acquisition Subsidiary achieves
targeted consolidated Earnings Before Income Taxes, Depreciation and
Amortization ("EBITDA") levels. Upon liquidation, and after payment of all
amounts owed to all classes of capital stock ranked senior to the Series A
Preferred, holders of shares of Series A Preferred will receive the Series A
Liquidation Preference of such shares plus accrued and unpaid dividends.
The Series A Preferred may be redeemed by the Acquisition Subsidiary, in
whole or in part, on or after the fifth anniversary of the date of issuance,
June 30, 2004, and must be redeemed in whole upon the eleventh anniversary of
the date of issuance for an amount per share equal to the Series A Liquidation
Preference plus accrued and unpaid dividends. In addition, holders of the Series
A Preferred may cause the Acquisition Subsidiary to redeem their shares for
cash, upon the bankruptcy or insolvency of the Company or a change of control
with respect to the Company or the Acquisition Subsidiary (see Note 1).
The holders of the Series A Preferred may convert shares of Series A
Preferred into shares of Class B Common Stock of the Company once specified
levels of 12-month consolidated EBITDA of the Acquisition Subsidiary have been
reached and the average closing price of Class A Common Stock of the Company for
a specified period shall have exceeded a performance conversion price. Such
conversion shall be at a rate (the "Performance Conversion Rate") obtained by
dividing the per share Series A Liquidation Preference by $50 (as adjusted for
antidilution protection, the "Performance Conversion Price").
F-23
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On or after the fifth anniversary of the closing date of the VMS
Acquisition, June 30, 1999, if the share price of the Class A Common Stock of
the Company has exceeded an amount equal to 110% of the Performance Conversion
Price for 20 trading days within a period of 30 consecutive trading days ending
within five trading days of notice of conversion given by the Acquisition
Subsidiary, then the Acquisition Subsidiary has the right to convert all of the
shares of the Series A Preferred into Class B Common Stock of the Company at the
Performance Conversion Rate. Upon the bankruptcy or insolvency of the
Acquisition Subsidiary or any of its subsidiaries that constitute a Significant
Subsidiary of the Company, as defined in Rule 1-02(w) of Regulation S-X (a
"Significant Subsidiary"), the Series A Preferred automatically converts into
Class B Common Stock of the Company at a rate equal to the quotient obtained by
dividing: (1) the per share Series A Liquidation Preference by (2) the average
trading price per share of Class A Common Stock of the Company for the 30
trading days immediately preceding the date of the holder's conversion notice or
the date on which the bankruptcy case commences, as applicable (the "Series A
Market Conversion Rate"). The Series A Market Conversion Rate is subject to
adjustment for antidilution protection.
Additionally, holders of Series A Preferred may convert their Series A
Preferred into Class B Common Stock of the Company at the Series A Market
Conversion Rate if the Acquisition Subsidiary: (1) fails to make a redemption
payment on the Series A Preferred or the Series B Preferred, (2) fails to pay
dividends when due on either the Series A Preferred or the Series B Preferred,
(3) takes actions requiring consents of its holders of the Series A Preferred or
the Series B Preferred without obtaining such consents or (4) issues additional
shares of the Series A Preferred or Series B Preferred, or reissues shares of
either, in violation of their terms.
Without the affirmative vote or written consent of the holders of a
majority of the outstanding shares of Series A Preferred, the Acquisition
Subsidiary shall not (1) authorize, create or issue any security ranking senior
to the Series A Preferred as to dividends or on liquidation (other than the
Series C Preferred); (2) amend its articles of incorporation or the certificate
of designation for the Series A Preferred in a manner adverse to the holders of
the Series A Preferred; (3) authorize the issuance of additional shares of
Series A Preferred; or (4) reincorporate the Acquisition Subsidiary in a
jurisdiction other than Texas prior to the second anniversary of the date of
issuance of the Series A Preferred. Holders of Series A Preferred are not
entitled to voting rights, except as required by Texas law. In those
circumstances where the holders of Series A Preferred have a right to vote, each
holder of a share of Series A Preferred shall be entitled to one vote per share.
Shares of Series A Preferred are freely transferable. Shares of Series A
Preferred reacquired in any manner will be retired and may not be reissued as
shares of Series A Preferred.
Series B Preferred Stock
Series B Cumulative PIK Preferred Stock (the "Series B Preferred") will be
issued as dividends to the Series A Preferred holders by the Acquisition
Subsidiary. Holders of the Series B Preferred are not entitled to preemptive
rights. The Series B Preferred has a liquidation preference of $50 per share
(the "Series B Liquidation Preference"). Each share of Series B Preferred
accrues dividends at a rate per annum of 5% of the Series B Liquidation
Preference. Until the fifth anniversary of the date of issuance of the Series B
Preferred, dividends may, at the discretion of the Acquisition Subsidiary be
paid in kind; thereafter, dividends must be paid in cash, semi-annually in
arrears. Upon liquidation, and after payment of all amounts owed to all classes
of capital stock ranked senior to the Series B Preferred, holders of shares of
Series B Preferred will receive the Series B Liquidation Preference of such
shares plus accrued and unpaid dividends.
The Series B Preferred has the same ranking as the Series A Preferred. The
Series B Preferred may be redeemed by the Acquisition Subsidiary, in whole or in
part, on or after the fifth anniversary of the date of issuance, January 30,
2005, and must be redeemed in whole upon the eleventh anniversary of the date of
issuance for an amount per share equal to the Series B Liquidation Preference
plus accrued and unpaid dividends.
Additionally, holders of Series B Preferred may convert their Series B
Preferred into Class B Common Stock of the Company at the Series B Market
Conversion Rate (defined below) if the Acquisition Subsidiary: (1) fails to make
a redemption payment on the Series A Preferred or the Series B Preferred, (2)
fails to pay dividends when due on either the Series A Preferred or the Series B
Preferred, (3) takes actions requiring the consents of the holders of the Series
A Preferred or the Series B Preferred without obtaining such consents or (4)
issues additional shares of the Series A Preferred or Series B Preferred, or
reissues shares of either, in violation of their terms. The Series B Preferred
also automatically converts into Class B Common Stock of the Company at the
Series B Market Conversion Rate upon the bankruptcy or insolvency of the
Acquisition Subsidiary or any of its Significant Subsidiaries.
F-24
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Series B Market Conversion Rate ("Series B Market Conversion Rate")
equals the quotient obtained by dividing : (1) the per share Series B
Liquidation Preference by (2) the average trading price per share of the
Company's Common Stock for the 30 trading days immediately preceding the date of
the holder's conversion notice or the date on which the bankruptcy case
commences, as applicable. The Market Conversion Rate is subject to customary
adjustment under certain circumstances.
Holders of Series B Preferred will have voting rights analogous to those
of the holders of the Series A Preferred. Shares of Series B Preferred are
freely transferable. Shares of Series B Preferred reacquired in any manner will
be retired and may not be reissued as shares of Series B Preferred.
Series C Preferred Stock
In connection with the VMS Acquisition (see Notes 1 and 2), a total of
40,000 shares of Series C Preferred of the Acquisition Subsidiary were issued
and outstanding at December 31, 2000 and 1999. Holders of the Series C Preferred
are not entitled to preemptive rights. The Series C Preferred has an aggregate
liquidation preference of $2,000,000 or $50 per share (the "Series C Liquidation
Preference"). Each share of Series C Preferred accrues dividends at 11% per
annum, payable in cash semi-annually in arrears. An escrow account in the amount
of $1,000,000, which is included in "Restricted Cash", has been established to
cover future dividend payments. Upon liquidation, and after payment of amounts,
if any, owed to all classes of capital stock ranked senior to the Series C
Preferred, holders of shares of Series C Preferred will receive the Series C
Liquidation Preference of such shares plus accrued and unpaid dividends. The
Series C Preferred ranks senior to the Series A Preferred, the Series B
Preferred and the Class A Common Stock in right of payment of dividends. The
Series C Preferred may be redeemed by the Acquisition Subsidiary, in whole or in
part, on or after June 30, 2004, the fifth anniversary of the date of issuance,
and must be redeemed in whole upon June 30, 2006, the seventh anniversary of the
date of issuance, in each case for an amount per share equal to the Series C
Liquidation Preference plus accrued and unpaid dividends.
Holders of Series C Preferred are not entitled to voting rights, except
under certain circumstances. Without the affirmative vote or written consent of
the holders of a majority of the outstanding shares of Series C Preferred, the
Acquisition Subsidiary may not take certain specified actions that would
adversely affect the rights of the holders of the Series C Preferred. Shares of
Series C Preferred reacquired in any manner will be retired and may not be
reissued as shares of Series C Preferred.
Preferred Stock of the Company
In addition, the Company has authorized the issuance of 20 million shares
of Preferred Stock, par value $.01 of which none has been issued at December 31,
2000 and 1999.
Note 16 - Class B Common Stock
At the May 16, 2000 annual meeting, the Company's shareholders voted to
amend the Company's charter and authorized the issuance of 15,000,000 shares of
non-voting Class B Common stock ($.01 par value), to be issued upon the
conversion of the Series A Preferred Stock or the Series B Preferred stock of
the acquisition subsidiary. The Class B Common stock will rank (1) junior to any
class or series of preferred stock of the Company and (2) pari passu with the
Class A Common stock in right of payment of dividends and on liquidation.
At any time that the beneficial ownership by Cendant, together with any
affiliate of Cendant (Cendant and such affiliates, the "Cendant Affiliates"), of
the Class A Common stock is less than 20% of the aggregate number of all of the
outstanding shares of Class A Common stock, the Cendant Affiliates shall have
the right to convert shares of Class B Common stock into Class A Common stock on
a share-for-share basis in an amount such that the ownership by the Cendant
Affiliates of the Class A Common stock does not exceed 20% of the aggregate
number of all of the outstanding shares of Class A Common stock after giving
effect to such conversion.
The Cendant Affiliates shall have the right to convert the Class B Common
stock into shares of Class A Common stock on a share-for-share basis upon the
occurrence of: (1) the bankruptcy or insolvency of the Company and (2) a
Preferred Stock Change of Control, other than any Preferred Stock Change of
Control that is caused solely by the sale by the Cendant Affiliates of its
shares of Class A Common stock or Class B Common stock.
F-25
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Upon the transfer, sale or disposition for value to any person other than
the Cendant Affiliates, each share of Class B Common stock shall be
automatically exchanged for the Class A Common stock on a share-for-share basis.
Other than upon conversion of the Series A Preferred or the Series B
Preferred, no additional shares of Class B Common stock may be issued. Shares of
Class B Common stock shall be freely transferable. Shares of Class B Common
stock reacquired in any manner shall be retired and may not be reissued as
shares of Class B Common stock.
In connection with the VMS Acquisition, the Company entered into a
registration rights agreement pursuant to which Cendant and certain transferees
of Class B Common stock and Class A Common stock converted from the Class B
Common stock held by Cendant (the "Holders") will have the right to require the
Company to register all or part of the Class A Common stock owned by such
Holders under the Securities Act of 1933 as amended (the "Securities Act") (an
"Acquisition Demand Registration"). However, the Company may postpone giving
effect to an Acquisition Demand Registration for a period of up to 30 days if
the Company believes such registration might have a material adverse effect on
any plan or proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction or the Company is
in possession of material non-public information that, if publicly disclosed,
could result in a material disruption of a major corporate development or
transaction then pending or in progress or in other material adverse
consequences to the Company. In addition, the Holders have the right to
participate in any registrations by the Company of Class A Common stock (an
"Acquisition Piggyback Registration"). The Holders will pay all out-of-pocket
expenses incurred in connection with any Acquisition Registration, and the
Company will pay all out-of-pocket expenses incurred in connection with any
Acquisition Demand Piggyback Registration, except for underwriting discounts,
commissions and expenses attributable to the shares of Class A Common stock sold
by such holders.
Note 17 - Treasury Stock
At December 31, 2000 and 1999, Class A Common Stock held in treasury
consist of the following (dollars in thousands):
2000 1999
---------------------------- ---------------------------------
Treasury Treasury Treasury Treasury
Stock, net Shares Stock, net Shares
------------ ----------- -------------- --------------
Balance, beginning of year ................................. $ 103,832 4,793,288 $ 50,960 2,672,700
Treasury stock repurchased ................................. 57,237 2,327,300
Treasury stock issued under the Company's stock option plan,
and other issuances .................................... (7,294) (336,757) (4,365) (206,712)
--------- ---------- --------- ----------
Balance, end of year ....................................... $ 96,538 4,456,531 $ 103,832 4,793,288
========= ========== ========= ==========
On September 1, 1998, the Board of Directors authorized the Company to
repurchase up to 1.5 million shares of the outstanding common stock at market
prices. On September 23, 1998, the Board of Directors authorized the Company to
purchase up to 3.5 million additional shares of outstanding common stock. Of the
total treasury shares repurchased during the year ended December 31, 1999,
1,614,200 shares were repurchased from Cendant at an aggregate cost of $40.8
million. No shares were repurchased from Cendant during the year ended December
31, 2000. As of December 31, 2000, the acquisition of these treasury shares
reduced Cendant's ownership in the Company's common stock to approximately 18%.
(See Notes 1, 2 and 25.)
Note 18 - Retirement Benefits
The Company, through its subsidiary ARACS, sponsors non-contributory
defined benefit plans covering certain employees hired prior to December 31,
1983 who were age 25 or older on January 1, 1985. ARACS also contributes to
union sponsored pension plans.
Through ARACS, the Company sponsors two Voluntary Investment Savings Plans
under a "qualified cash or deferred arrangement" under Section 401(k) of the
Internal Revenue Code covering its union and non-union employees. For the years
ended December 31, 2000, 1999 and 1998, the Company's cost of these plans was
$3.6 million, $3.0 million and $1.6 million, respectively.
F-26
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Included in the non-union Investment Savings Plan, ARACS makes a defined
contribution for full-time employees. The contribution was set at 2% of each
covered employee's compensation through December 31, 1998 and was increased to
3% of each covered employee's compensation effective January 1, 1999. Employer
contributions for the years ended December 31, 2000, 1999 and 1998 amounted to
$7.2 million, $5.0 million and $2.3 million, respectively.
ARACS' defined benefit retirement plan for salaried and hourly employees
as of June 30, 1985, provides benefits based upon years of credited service,
highest average compensation and social security benefits. Annual retirement
benefits, at age 65, are equal to 1 1/2% of the participating employee's final
average compensation (average compensation during the highest five consecutive
years of employment in the ten years prior to retirement) less 1 1/2% of the
Social Security benefits for each year of service up to a maximum of 35 years.
In addition, the plan provides for reduced benefits before age 65 and for a
joint and survivor annuity option. Effective January 1, 1999, the Company
curtailed its defined benefit retirement plan for salaried and hourly employees
as of June 30, 1985. The Company recognized a $7.5 million pre-tax gain as a
result of the curtailment during the first quarter of fiscal year ended December
31, 1999.
The Company also sponsors several foreign pension plans. The most
significant of these are the Canadian and United Kingdom defined benefit plans
(see Notes 1 and 3).
The status of the Company's defined benefit plans at December 31, 2000 and
1999, including the plans to its salaried and hourly employees as of June 1985,
the Bargaining Plan, the Non-Qualified Defined Benefit Plan, the Motorent Plan
(terminated on September 30, 1999) the United Kingdom Plan (in 1999, see Note 3)
and the Canadian Defined Benefit Plan are as follows (in thousands):
2000 1999
--------- ---------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ................................. $ 116,886 $ 125,251
Benefit obligation assumed from acquisition .......................... 30,820
Reduction of benefit obligation due to the disposition of a subsidiary (28,620)
Service cost ......................................................... 1,042 1,588
Interest cost ........................................................ 6,124 6,611
Plan participants' contributions ..................................... 295 562
Amendments ........................................................... 990 (19,395)
Actuarial gain (loss) ................................................ 1,796 (11,735)
Benefits paid ........................................................ (3,672) (15,819)
Foreign currency translation loss .................................... (1,706) (997)
--------- ---------
Benefit obligation at end of year ....................................... 93,135 116,886
--------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year .......................... 126,317 101,449
Fair value of plan assets assumed from acquisitions .................. 25,682
Reduction of plan assets due to the disposition of a subsidiary ...... (23,945)
Actual return on plan assets ......................................... 3,215 8,107
Plan participants' contributions ..................................... 295 562
Employer contributions ............................................... 3,891 7,022
Benefits paid ........................................................ (3,672) (15,891)
Foreign currency translation loss .................................... (2,657) (614)
--------- ---------
Fair value of plan assets at end of year ................................ 103,444 126,317
--------- ---------
Funded status ........................................................ 10,309 9,431
Unrecognized net accrual gain (loss) ................................. 2,384 (6,003)
Unrecognized prior service cost ...................................... 2,198 1,276
Unrecognized transition asset ........................................ (2,115) (2,237)
--------- ---------
Prepaid benefit cost ................................................... $ 12,776 $ 2,467
========= =========
AMOUNTS RECOGNIZED IN THE STATEMENTS OF FINANCIAL POSITION:
Prepaid benefit cost .................................................... $ 15,188 $ 7,320
Accrued benefit liability ............................................... (8,325) (9,122)
Intangible asset ........................................................ 3,577 2,761
Accumulated other comprehensive loss .................................... 2,336 1,508
--------- ---------
Net amount recognized ................................................... $ 12,776 $ 2,467
========= =========
The fair value of plan assets for funded plans with accumulated benefit
obligations in excess of plan assets amounted to $6.7 million as of December 31,
2000.
F-27
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net pension costs of the non-qualified defined benefit plan for the years
ended December 31, 2000, 1999 and 1998, include the following components (in
thousands):
2000 1999 1998
------- ------- -------
Service cost-benefits earned during the year ........ $ 1,042 $ 1,588 $ 2,809
Interest cost on projected benefit obligation ....... 6,124 6,611 6,922
Return on asset-expected gain on plan assets ........ (8,617) (8,664) (7,786)
Recognized actuarial loss ........................... 59 21
Net amortization of prior service cost .............. 69 17 70
Contributions to union plans and other .............. 3,128 2,910 3,894
Amortization of loss ................................ 36 127
Amortization of unrecognized net assets at transition (123) (122) (123)
------- ------- -------
Net pension cost .................................... $ 1,718 $ 2,488 $ 5,786
======= ======= =======
At December 31, 2000 and 1999, the measurement of the projected benefit
obligation was based upon the following weighted average interest rate
assumptions:
2000 1999
------- ------
Discount rate ........................... 6.99% 6.67%
Compensation increase ................... 4.50% 3.85%
Long-term return on plan assets.......... 8.90% 8.45%
The U.S. plans' assets are invested in corporate bonds, U.S. government
securities and common stock mutual funds. The Canadian plan's assets are
invested in Canadian stocks, bonds, mutual funds, real estate and money market
funds.
Note 19 - Earnings Per Share ("EPS")
Basic EPS for the years ended December 31, 2000, 1999 and 1998 was
calculated using 31,154,448, 31,330,536 and 34,172,249 weighted average shares
outstanding, respectively. Diluted EPS for the years ended December 31, 2000,
1999 and 1998 was calculated as follows (in thousands, except share and per
share amounts):
2000 1999 1998
----------- ----------- -----------
Diluted EPS
Earnings applicable to common stockholders ................... $ 101,770 $ 83,475 $ 63,521
=========== =========== ===========
Weighted average common shares outstanding ................... 31,154,448 31,330,536 34,172,249
Plus: Dilutive effect of the assumed exercise of stock options 715,553 655,033 780,308
----------- ----------- -----------
Adjusted weighted average shares outstanding ................. 31,870,001 31,985,569 34,952,557
=========== =========== ===========
Diluted EPS .................................................. $ 3.19 $ 2.61 $ 1.82
=========== =========== ===========
Note 20 - Stock Option Plan
The Company's Board of Directors adopted the 1997 Stock Option Plan and
the 2000 Incentive Compensation Plan ("the Stock Option Plans"). The Company's
shareholders approved these Stock Option Plans in September 23, 1997 and May 16,
2000, respectively. The maximum shares authorized for issuance under the Stock
Option Plans are 9 million.
F-28
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The exercise price of each option under the Stock Option Plans may not be
less than the fair market value of a share of Common Stock on the date the
option is granted. Options held by an optionee vest evenly over 5 years (1997
Stock Option Plan) and 3 years (2000 Stock Option Plan). All options held by an
optionee will become fully exercisable (to the extent not already exercisable)
if a "change of control transaction" (as defined in the Stock Option Plans)
occurs (see Notes 1 and 27 - Merger Agreement). Shares of Common Stock acquired
upon the exercise of the options may be subject to restrictions on transfer
which will be set forth in the agreement evidencing the grant of the option.
Unless otherwise determined by the Compensation Committee of the Board of
Directors, all options granted under the Stock Option Plans, to the extent not
exercised, expire on the earliest of (i) the tenth anniversary of the date of
grant, (ii) two years following the optionee's termination of employment on
account of death, retirement, disability or (iii) one year following the
termination of optionee's employment for any other reason. Grants of options
under the Stock Option Plans are subject to an annual per-participant maximum
grant of shares of Common Stock.
Generally, the Board of Directors of the Company may amend or terminate
the Stock Option Plans, provided that (i) no such amendment or termination may
adversely affect the rights of any participant without the consent of such
participant and (ii) to the extent required by any law, regulation or stock
exchange rule. No amendment shall be effective without the approval of the
Company's stockholders.
The Company makes no recognition of the options in the financial
statements until they are exercised. The Company applies Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its plans and does not recognize compensation
expense for its stock-based compensation plans. The Company has adopted the
disclosure provisions only of Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123").
The following is a summary of stock option activity for the years ended
December 31, 2000, 1999 and 1998:
Weighted
Average
Exercise
Shares Price
---------- ---------
Outstanding at January 1, 1998 ..................... 3,875,700 $17.00
Granted ......................................... 1,452,000 $23.47
Forfeited ....................................... (869,600) $19.32
---------- ------
Outstanding at December 31, 1998 ................... 4,458,100 $18.65
Granted ......................................... 2,799,900 $25.41
Exercised ....................................... (198,187) $17.00
Forfeited ....................................... (126,200) $19.92
---------- ------
Outstanding at December 31, 1999 ................... 6,933,613 $21.41
Granted ......................................... 1,411,502 $24.22
Exercised ....................................... (336,757) $18.36
Forfeited ....................................... (460,482) $27.01
---------- ------
Outstanding at December 31, 2000 ................... 7,547,876 $21.73
========== ======
At December 31, 2000, options outstanding and options that were
exercisable were as follows:
Outstanding Weighted-Average Exercisable
Range of as of Remaining as of Weighted-Average
Exercise December 31, Contractual Weighted-Average December 31, Exercise
Prices 2000 Life Exercise Price 2000 Price
- --------------- ------------- ---------------- ---------------- ------------ -----------------
$14.75 - $18.44 2,769,273 5.1 $17.00 1,910,033 $17.00
$18.44 - $22.13 1,766,158 8.9 $19.58 252,000 $21.37
$22.13 - $25.81 682,200 6.4 $23.96 357,000 $23.96
$25.81 - $29.50 1,698,380 8.0 $27.42 400,580 $27.55
$29.50 - $33.19 631,865 9.6 $30.78 0 $ 0.00
--------- ------ --------- ------
7,547,876 $21.73 2,919,613 $19.68
========= ====== ========= ======
F-29
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Management believes that all the stock options outstanding as of December
31, 2000 will be exercised on March 1, 2001 as provided in the Cendant Merger
Agreement, and therefore, the expected remaining option life of outstanding
options at December 31, 2000 is estimated to be 3 months (see Notes 1 and 27).
Pro forma disclosures are provided for the years ended December 31, 2000,
1999 and 1998 as if the Company adopted the cost recognition requirements under
SFAS 123. The weighted average fair value of each option granted (estimated on
the date of grant using the Black-Scholes option-pricing model) is $10.22,
$12.95 and $11.73 for years ended December 31, 2000, 1999 and 1998,
respectively, using the following assumptions:
2000 1999 1998
------ ------ ------
Expected volatility ........................ 17.3% 40.0% 40.0%
Risk-free interest rate .................... 6.3% 6.0% 6.0%
Expected option life in years .............. 0.3 6.5 6.5
The weighted-average remaining contractual life of the stock options is
7.1, 7.7 and 7.3 years at December 31, 2000, 1999 and 1998, respectively. Had
compensation expense been recognized for the years ended December 31, 2000, 1999
and 1998, grants for stock-based compensation plans in accordance with
provisions of SFAS 123, the Company would have recorded net income and earnings
per share as follows (in thousands, except per share data):
2000 1999 1998
-------------------------- -------------------------- --------------------------
As Pro As Pro As Pro
reported forma reported forma reported forma
---------- ---------- ---------- ---------- ---------- ----------
Earnings applicable to common
stockholders ........... $ 101,770 $ 90,988 $ 83,475 $ 74,563 $ 63,521 $ 58,656
========== ========== ========== ========== ========== ==========
Basic earnings per share .... $ 3.27 $ 2.92 $ 2.66 $ 2.38 $ 1.86 $ 1.72
========== ========== ========== ========== ========== ==========
Diluted earnings per share .. $ 3.19 $ 2.86 $ 2.61 $ 2.33 $ 1.82 $ 1.68
========== ========== ========== ========== ========== ==========
Note 21-Leases, Airport Concession Fees and Commitments
The Company is committed to make rental payments under noncancelable
operating leases relating principally to vehicle rental facilities and
equipment. Under certain leases, the Company is obligated to pay certain
additional costs, such as property taxes, insurance and maintenance. Airport
concession agreements usually require a guaranteed minimum amount plus
contingent fees, which are generally based on a percentage of revenue.
Operating lease payments and net airport concession fees charged to
expense for the years ended December 31, 2000, 1999 and 1998 are as follows (in
thousands):
2000 1999 1998
--------- --------- ---------
Minimum fees ................ $ 188,123 $ 176,780 $ 147,034
Contingent fees ............. 98,628 93,264 89,456
--------- --------- ---------
286,751 270,044 236,490
Sublease rentals ............ (6,298) (5,881) (4,701)
--------- --------- ---------
$ 280,453 $ 264,163 $ 231,789
========= ========= =========
F-30
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Future minimum rental commitments under noncancelable operating leases
amounted to approximately $745.2 million at December 31, 2000. The minimum
rental payments due in each of the next five years ending December 31, and
thereafter, are as follows (in thousands):
2001............................................ $ 149,692
2002............................................ 130,531
2003............................................ 102,163
2004............................................ 75,300
2005............................................ 46,866
Thereafter...................................... 240,606
At December 31, 2000, future minimum rental commitments include $66.1
million due to a subsidiary of Cendant, related to the Company's corporate
headquarters and Virginia Beach processing facility.
In addition to the Company's lease commitments, the Company has
outstanding purchase commitments of approximately $1.5 billion at December 31,
2000, which relate principally to vehicle purchases.
Note 22 - Guarantor and Non-Guarantor Condensed Consolidating Financial
Statements
The Company issued and sold the Senior Subordinated Notes (see Note 11).
These securities were subsequently registered on September 24, 1999. The Senior
Subordinated Notes are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior indebtedness
of the Company, and guaranteed by certain of its domestic subsidiaries.
Accordingly, the following condensed consolidating financial information
presents the condensed consolidating financial statements as of December 31,
2000 and 1999 and for the years ended December 31, 2000, 1999 and 1998,
respectively, 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 on a consolidated basis (in thousands).
Investments in subsidiaries are accounted for using the equity method for
purposes of the consolidating presentation. The principle elimination entries
eliminate investments in subsidiaries and intercompany balances and
transactions. Separate financial statements and other disclosures with respect
to the subsidiary guarantors have not been made because management believes that
such information is not material to holders of the Senior Subordinated Notes.
Avis Group Holdings, Inc.
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 2000
(in thousands)
-----------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- -------------- ------------ ------------ --------------
Revenue ................................... $2,465,667 $1,778,017 $4,243,684
---------- ---------- ----------
Costs and expenses:
Direct operating, net ..................... 842,266 123,560 965,826
Vehicle depreciation and lease charges, net 588,857 1,106,336 1,695,193
Selling, general and administrative ....... 522,250 170,689 692,939
Interest, net ............................. $ 122,708 222,189 232,378 577,275
Minority interest ......................... 7,208 7,208
Non-vehicle depreciation and amortization . 33,789 13,490 47,279
Amortization of cost in excess of net
assets acquired ........................ 38,466 3,620 42,086
----------- ---------- ---------- ----------
122,708 2,247,817 1,657,281 4,027,806
----------- ---------- ---------- ----------
(122,708) 217,850 120,736 215,878
Equity in earnings of subsidiaries ........ 197,805 98,230 $(296,035)
----------- ---------- ---------- --------- ----------
Income before provision for income taxes .. 75,097 316,080 120,736 (296,035) 215,878
Income tax (benefit) provision ............ (45,579) 118,275 22,506 95,202
----------- ---------- ---------- --------- ----------
Net income ............................ $ 120,676 $ 197,805 $ 98,230 $(296,035) $ 120,676
=========== ========== ========== ========= ==========
F-31
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 22 - Guarantor and Non-Guarantor Condensed Consolidating Financial
Statements continued)
Avis Group Holdings, Inc.
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 1999
(in thousands)
------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ ---------------
Revenue ................................... $ 2,329,525 $1,003,202 $3,332,727
----------- ---------- ----------
Costs and expenses:
Direct operating, net ..................... 843,787 113,483 957,270
Vehicle depreciation and lease charges, net 604,767 569,742 1,174,509
Selling, general and administrative ....... 486,295 95,761 582,056
Interest, net ............................. $ 85,797 186,746 109,760 382,303
Minority interest ......................... 5,890 5,890
Non-vehicle depreciation and amortization . 16,586 18,014 34,600
Amortization of cost in excess of net
assets acquired ........................ 26,969 3,213 30,182
----------- ----------- ---------- ----------
85,797 2,165,150 915,863 3,166,810
----------- ----------- ---------- ----------
(85,797) 164,375 87,339 165,917
Equity in earnings of subsidiaries ........ 144,878 69,842 $(214,720)
----------- ----------- ---------- --------- ----------
Income before provision for income taxes .. 59,081 234,217 87,339 (214,720) 165,917
Income tax (benefit) provision ............ (33,504) 89,339 17,497 73,332
----------- ----------- ---------- --------- ----------
Net income ............................ $ 92,585 $ 144,878 $ 69,842 $(214,720) $ 92,585
=========== =========== ========== ========= ==========
Avis Group Holdings, Inc.
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 1998
(in thousands)
------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ ---------------
Revenue ................................... $2,061,967 $ 235,615 $2,297,582
---------- --------- ----------
Costs and expenses:
Direct operating, net ..................... 826,370 101,560 927,930
Vehicle depreciation and lease charges, net 531,830 61,234 593,064
Selling, general and administrative ....... 402,917 33,358 436,275
Interest, net ............................. $ 13,836 174,016 4,228 192,080
Non-vehicle depreciation and amortization . 21,848 2,303 24,151
Amortization of cost in excess of net
assets acquired ........................ 11,702 152 11,854
----------- ---------- --------- ----------
13,836 1,968,683 202,835 2,185,354
----------- ---------- --------- ----------
(13,836) 93,284 32,780 112,228
Equity in earnings of subsidiaries ........ 72,514 23,700 $ (96,214)
----------- ---------- --------- --------- ----------
Income before provision for income taxes .. 58,678 116,984 32,780 (96,214) 112,228
Income tax (benefit) provision ............ (4,843) 44,470 9,080 48,707
----------- ---------- --------- --------- ----------
Net income ............................ $ 63,521 $ 72,514 $ 23,700 $ (96,214) $ 63,521
=========== ========== ========= ========= ==========
F-32
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 22 - Guarantor and Non-Guarantor Condensed Consolidating Financial
Statements (Continued)
Avis Group Holdings, Inc.
Condensed Consolidating Statement of Financial Position
December 31, 2000
(in thousands)
------------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------- -------------- --------------- ---------------
ASSETS
Cash and cash equivalents ....................... $ 73 $ 85,563 $ 29,634 $ 115,270
Cash held on deposit with financial institution . 87,607 87,607
Restricted cash ................................. 229,484 229,484
Accounts receivable, net ........................ 156 233,678 758,851 992,685
Finance lease receivables ....................... 159,145 159,145
Prepaid expenses ................................ 49,763 13,545 63,308
Vehicles, net ................................... (51,221) 7,018,055 6,966,834
Property and equipment, net ..................... 182,014 14,744 196,758
Investment in consolidated subsidiaries ......... 2,276,596 1,019,585 $ (3,296,181)
Other assets .................................... 1,064 69,252 44,271 114,587
Investment in PHH/Arval joint venture ........... 161,420 161,420
Cost in excess of net assets
acquired, net ............................... 1,323,481 3,255 1,326,736
------------ ----------- ----------- ------------ ------------
Total assets .................................... $ 2,277,889 $ 3,073,535 $ 8,358,591 $ (3,296,181) $ 10,413,834
============ =========== =========== ============ ============
LIABILITIES, PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities ........ $ 10,991 $ 601,577 $ 270,269 $ 882,837
Due to (from) affiliates ........................ 883,464 (953,329) 107,591 37,726
Current income tax liabilities .................. 50,541 (33,357) 17,184
Deferred income tax liabilities, net ............ (96,680) 491,698 64,475 459,493
Public liability, property damage and other
insurance liabilities, net ................... 197,055 53,194 250,249
Debt ............................................ 725,000 19,712 6,777,528 7,522,240
Minority interest (preferred membership interest) 99,305 99,305
Preferred stock ................................. 389,686 389,686
Common stockholders' equity ..................... 755,114 2,276,595 1,019,586 $ (3,296,181) 755,114
------------ ----------- ----------- ------------ ------------
Total liabilities, preferred stock and
common stockholders' equity .................. $ 2,277,889 $ 3,073,535 $ 8,358,591 $ (3,296,181) $ 10,413,834
============ =========== =========== ============ ============
F-33
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 22 - Guarantor and Non-Guarantor Condensed Consolidating Financial
Statements (Continued)
Avis Group Holdings, Inc.
Condensed Consolidating Statement of Financial Position
December 31, 1999
(in thousands)
-------------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------- -------------- -------------- ---------------
ASSETS
Cash and cash equivalents ....................... $ 54 $ 42,184 $ 29,459 $ 71,697
Cash held on deposit with financial institution . 93,530 93,530
Restricted cash ................................. 253,080 253,080
Accounts receivable, net ........................ (9) 210,962 904,787 1,115,740
Finance lease receivables ....................... 871,034 871,034
Prepaid expenses ................................ 41,282 23,034 64,316
Vehicles, net ................................... (19,877) 6,521,248 6,501,371
Property and equipment, net ..................... 161,651 36,176 197,827
Investment in subsidiaries ...................... 2,121,275 1,272,000 $ (3,393,275)
Other assets .................................... 1,000 78,863 35,410 115,273
Cost in excess of net assets
acquired, net ............................... 1,595,529 198,861 1,794,390
------------ ----------- ---------- ------------ -----------
Total assets .................................... $ 2,122,320 $ 3,382,594 $8,966,619 $ (3,393,275) $11,078,258
============ =========== ========== ============ ===========
LIABILITIES, PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities ........ $ 16,774 $ 639,704 $ 301,352 $ 957,830
Due to (from) affiliates ....................... (84,266) (119,494) 263,156 59,396
Current income tax liabilities .................. 17,910 316 18,226
Deferred income tax liabilities, net ............ (42,982) 144,893 79,345 181,256
Public liability, property damage and other
insurance liabilities, net ................... 206,111 53,645 259,756
Debt ............................................ 1,562,000 10,305 6,897,500 8,469,805
Minority interest (preferred membership interest) 99,305 99,305
Preferred stock ................................. 371,000 371,000
Common stockholders' equity ..................... 670,794 2,112,165 1,272,000 $ (3,393,275) 661,684
------------ ----------- ---------- ------------ -----------
Total liabilities, preferred stock and
common stockholders' equity .................. $ 2,122,320 $ 3,382,594 $8,966,619 $ (3,393,275) $11,078,258
============ =========== ========== ============ ===========
F-34
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 22 - Guarantor and Non-Guarantor Condensed Consolidating Financial
Statements (Continued)
Avis Group Holdings, Inc.
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2000
(in thousands)
----------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ --------------
Cash flows from operating activities:
Net income ......................................... $ 120,676 $ 197,805 $ 98,230 $ (296,035) $ 120,676
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: ...... 908,185 (429,941) 1,148,876 1,627,120
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities ................................... 1,028,861 (232,136) 1,247,106 (296,035) 1,747,796
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Payments for vehicle additions ..................... (68,749) (7,417,672) (7,486,421)
Vehicle deletions .................................. (576,414) 5,584,492 5,008,078
Increase in finance lease receivables .............. (32,882) (32,882)
Payments for additions to property and equipment ... (48,651) (7,926) (56,577)
Retirements of property and equipment .............. 7,796 3,146 10,942
Proceeds from the sale of 80% of PHH Europe, net of
cash of $104,765 ................................. 800,960 (105,276) 695,684
Settlement of PHH Europe intercompany accounts ..... 225,819 225,819
Dividend from the PHH/Arval joint venture .......... 32,426 32,426
Payment for purchase of licensee ................... (30) (30)
Investment in subsidiaries ......................... (197,805) (98,230) 296,035
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities .................................. (197,805) 274,957 (1,976,148) 296,035 (1,602,961)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net increase in (repayment of) debt ................ 217,437 9,407 735,726 962,570
Repayment of acquisition and other debt from the
proceeds of the sale of 80% of PHH Europe ........ (1,054,437) (1,054,437)
Payments for debt issuance costs ................... (8,849) (11,963) (20,812)
Other .............................................. 5,963 5,963
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities .................................... (831,037) 558 723,763 (106,716)
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on cash ............ (469) (469)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 19 43,379 (5,748) 37,650
Cash and cash equivalents at beginning of year ..... 54 42,184 122,989 165,227
----------- ----------- ----------- ----------- -----------
Cash, cash equivalents and cash held on deposit with
financial institution at end of year ............ 73 $ 85,563 $ 117,241 $ $ 202,877
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ........................................... $ 586,744
===========
Income taxes ....................................... $ 38,009
===========
Assets and liabilities contributed to joint venture:
Assets ............................................. $ 1,731,489
Liabilities ........................................ 1,035,805
-----------
Proceeds from the sale of 80% of PHH Europe, net of
cash of $104,765 ................................ $ 695,684
===========
F-35
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 22 - Guarantor and Non-Guarantor Condensed Consolidating Financial
Statements (Continued)
Avis Group Holdings, Inc.
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 1999
(in thousands)
----------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ --------------
Cash flows from operating activities:
Net income ........................................... $ 92,585 $ 144,878 $ 69,842 $ (214,720) $ 92,585
Adjustments to reconcile net income to net cash (used
in) provided by operating activities: .............. (151,328) 686,840 469,846 1,005,358
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by operating activities (58,743) 831,718 539,688 (214,720) 1,097,943
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Payments for vehicle additions ....................... 87,291 (5,692,785) (5,605,494)
Vehicle deletions .................................... (465,991) 4,671,212 4,205,221
Increase in finance lease receivables ................ (117,407) 94,744 (22,663)
Payments for additions to property and equipment ..... (38,798) (9,442) (48,240)
Retirements of property and equipment ................ (20,478) 14,059 (6,419)
Investment in subsidiaries ........................... (144,878) (69,842) 214,720
Payment for purchase of rental car franchise
licensees, net of cash acquired .................... (44,934) (258) (45,192)
Payment for purchase of PHH Holdings, net of cash
acquired ........................................... (1,325,781) (1,325,781)
Proceeds from sale and leaseback of UK office building 32,156 32,156
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities ............. (1,470,659) (670,159) (890,314) 214,720 (2,816,412)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Purchases of treasury stock .......................... (53,868) (53,868)
Net increase in (repayment of) debt .................. 1,562,000 (117,759) 368,767 1,813,008
Payments for debt issuance costs ..................... 21,313 (16,453) (11,403) (6,543)
Increase in minority interest (preferred
membership interest) ............................... 99,305 99,305
Cash dividends ....................................... 5,926 (5,926)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities ....................................... 1,529,445 (128,286) 450,743 1,851,902
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on cash .............. (865) 2,908 2,043
----------- ----------- ----------- ----------- -----------
Net increase in cash and cash equivalents and cash
held on deposit with financial institutions ........ 43 32,408 103,025 135,476
Cash and cash equivalents and cash held on deposit
with financial institution at beginning of year .... 11 9,776 19,964 29,751
----------- ----------- ----------- ----------- -----------
Cash, cash equivalents and cash held on deposit with
financial institution at end of year .............. $ 54 $ 42,184 $ 122,989 $ $ 165,227
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................. $ 370,247
===========
Income taxes ......................................... $ 28,877
===========
Businesses acquired:
Fair value of assets acquired, net of cash acquired .. $ 6,004,777
Liabilities assumed .................................. 4,271,804
-----------
Net assets acquired .................................. 1,732,973
Less issuance of Series A and Series C Preferred Stock 362,000
-----------
Net cash paid for acquisitions ..................... $ 1,370,973
===========
F-36
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 22 - Guarantor and Non-Guarantor Condensed Consolidating Financial
Statements (Continued)
Avis Group Holdings, Inc.
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 1998
(in thousands)
----------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ --------------
Cash flows from operating activities:
Net income .......................................... $ 63,521 $ 72,514 $ 23,700 $ (96,214) $ 63,521
Adjustments to reconcile net income to net cash (used
in) provided by operating activities: ............. (101,241) 593,335 96,973 589,067
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by operating activities (37,720) 665,849 120,673 (96,214) 652,588
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Payments for vehicle additions ...................... 49,363 (4,352,411) (4,303,048)
Vehicle deletions ................................... (218,228) 3,828,949 3,610,721
Payments for additions to property and equipment .... (39,691) (3,242) (42,933)
Retirements of property and equipment ............... 4,965 638 5,603
Investment in subsidiaries .......................... (72,514) (131,677) 204,191
Payment for purchase of licensees ................... (227,213) (9,969) (237,182)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities ............ (72,514) (562,481) (536,035) 204,191 (966,839)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from pubic offerings net ................... 161,194 161,194
Purchases of treasury stock ......................... (50,960) (50,960)
Net (decrease) increase in debt ..................... (116,137) 309,994 193,857
Payments for debt issuance costs .................... (4,654) (4,654)
Capital contribution in Argentina ................... 1,000 (1,000)
Investment in AESOP Leasing LP. ..................... 110,000 (110,000)
Cash dividends ...................................... (3,023) 3,023
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities ...................................... 110,234 (120,791) 417,971 (107,977) 299,437
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on cash ............. (334) (334)
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (17,423) 2,275 (15,148)
Cash and cash equivalents at beginning of period .... 11 27,199 17,689 44,899
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period ........ $ 11 $ 9,776 $ 19,964 $ $ 29,751
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................ $ 209,977
===========
Income taxes ........................................ $ 13,338
===========
Businesses acquired:
Fair value of assets acquired, net of cash acquired . $ 244,501
Liabilities assumed ................................. 7,319
-----------
Net cash paid for acquisitions .................... $ 237,182
===========
F-37
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 23 - Segment Information
The Company is a services and information provider whose mission is to
create a business which provides a full array of automotive, transportation and
vehicle management solutions. The Company allocates resources, assesses
performance and operates in one comprehensive business, the automotive business.
For the benefit of the reader, the Company has further defined this business
into the following:
Vehicle rental............... The Company rents vehicles to business and
leisure customers
Vehicle leasing and other fee
based services............ The Company leases vehicles to customers under
closed-end and open-end leases. Fee based
services include fuel and maintenance cards,
accident management and various other vehicle
services which enable customers to manage costs
effectively and enhance productivity
Prior to the purchase of VMS on June 30, 1999, the Company operated in
four geographic areas: the United States, Australia/New Zealand, Canada and
Other Foreign Operations. As a result of the VMS acquisition, the Company added
an additional geographic area, the United Kingdom. Revenue is recorded in the
country in which rental, vehicle leasing and other fee based services are
provided. EBITDA represents net income, plus non-vehicle interest expense
(acquisition interest), non-vehicle depreciation and amortization, and income
taxes. Corporate represents primarily acquisition related interest, amortization
of cost in excess of net assets acquired and amortization of deferred financing
fees related to the VMS acquisition. The operations of the automotive segment
(by business line) and major geographic areas for the years ended December 31,
2000, 1999 and 1998, are summarized as follows (in thousands):
Year Ended December 31, 2000
-----------------------------------------------------
Vehicle
Leasing
And other
Vehicle Fee Based
Rental Services Corporate Consolidated
----------- ----------- ----------- -----------
Revenue ......................................... $ 2,613,476 $ 1,630,208 $ 4,243,684
=========== =========== ===========
Interest and minority interest expense, net ..... $ 250,554 $ 228,057 $ 105,872 $ 584,483
=========== =========== =========== ===========
EBITDA .......................................... $ 245,791 $ 159,056 $ 6,268 $ 411,115
=========== =========== =========== ===========
Non-vehicle depreciation and amortization ....... $ 41,538 $ 20,429 $ 27,398 $ 89,365
=========== =========== =========== ===========
Income (loss) before provision for income taxes . $ 204,253 $ 138,627 $ (127,002) $ 215,878
=========== =========== =========== ===========
Income tax expense .............................. $ 89,139 $ 44,168 $ (38,105) $ 95,202
=========== =========== =========== ===========
Finance lease receivables ....................... $ 159,145 $ 159,145
=========== ===========
Vehicles, net ................................... $ 3,761,454 $ 3,205,380 $ 6,966,834
=========== =========== ===========
Debt and minority interest (preferred membership
interest) ................................... $ 3,822,014 $ 3,074,531 $ 725,000 $ 7,621,545
=========== =========== =========== ===========
Total assets .................................... $ 5,419,802 $ 5,784,319 $ (790,287) $10,413,834
=========== =========== =========== ===========
Capital expenditures for vehicles and property
and equipment ............................... $ 5,367,151 $ 2,175,847 $ 7,542,998
=========== =========== ===========
F-38
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 23 - Segment Information (Continued)
Years Ended December 31,
-------------------------------------------------------------------
1999 1998
----------------------------------------------------- ------------
Vehicle
Leasing
And other
Vehicle Fee Based Vehicle
Rental Services Corporate Consolidated Rental
----------- ----------- ----------- ------------ -----------
Revenue ......................................... $ 2,500,746 $ 831,981 $ 3,332,727 $ 2,297,582
=========== =========== =========== ===========
Interest and minority interest expense, net ..... $ 210,579 $ 105,653 $ 71,961 $ 388,193 $ 192,080
=========== =========== =========== =========== ===========
EBITDA .......................................... $ 201,648 $ 99,961 $ 1,051 $ 302,660 $ 148,233
=========== =========== =========== =========== ===========
Non-vehicle depreciation and amortization ....... $ 39,190 $ 11,141 $ 14,451 $ 64,782 $ 36,005
=========== =========== =========== =========== ===========
Income (loss) before provision for income taxes . $ 162,458 $ 88,820 $ (85,361) $ 165,917 $ 112,228
=========== =========== =========== =========== ===========
Income tax expense .............................. $ 50,536 $ 22,367 $ 429 $ 73,332 $ 48,707
=========== =========== =========== =========== ===========
Finance lease receivables ....................... $ 871,034 $ 871,034
=========== ===========
Vehicles, net ................................... $ 3,367,362 $ 3,134,009 $ 6,501,371 $ 3,164,816
=========== =========== =========== ===========
Debt and minority interest (preferred membership
interest) ................................... $ 3,393,422 $ 3,613,688 $ 1,562,000 $ 8,569,110 $ 3,014,712
=========== =========== =========== =========== ===========
Total assets .................................... $ 4,885,928 $ 6,107,019 $ 85,311 $11,078,258 $ 4,497,062
=========== =========== =========== =========== ===========
Capital expenditures for vehicles and property
and equipment ............................... $ 4,814,597 $ 839,137 $ 5,653,734 $ 4,345,981
=========== =========== =========== ===========
Geographic Areas Year Ended December 31, 2000
----------------------------------------------------------------------------------
Australia/ Other
United United New Foreign
States Kingdom Zealand Canada Operations Consolidated
----------- ----------- ----------- ----------- ----------- ------------
Revenue ...................................... $ 3,768,767 $ 154,714 $ 118,215 $ 164,987 $ 37,001 $ 4,243,684
=========== =========== =========== =========== =========== ===========
Interest and minority interest expense, net .. $ 533,114 $ 34,199 $ 587 $ 12,795 $ 3,788 $ 584,483
=========== =========== =========== =========== =========== ===========
EBITDA ....................................... $ 313,303 $ 42,177 $ 24,043 $ 26,570 $ 5,022 $ 411,115
=========== =========== =========== =========== =========== ===========
Non-vehicle depreciation and amortization .... $ 74,559 $ 11,367 $ 1,100 $ 1,640 $ 699 $ 89,365
=========== =========== =========== =========== =========== ===========
Income before provision for income taxes .... $ 132,946 $ 30,810 $ 22,869 $ 24,930 $ 4,323 $ 215,878
=========== =========== =========== =========== =========== ===========
Income tax expense ........................... $ 78,245 $ 2,718 $ 5,127 $ 8,201 $ 911 $ 95,202
=========== =========== =========== =========== =========== ===========
Finance lease receivables .................... $ 137,644 $ 21,501 $ 159,145
=========== =========== ===========
Vehicles, net ................................ $ 6,619,239 $ 79,433 $ 230,048 $ 38,114 $ 6,966,834
=========== =========== =========== =========== ===========
Debt and minority interest (preferred
membership interest) ..................... $ 7,392,561 $ 39,171 $ 175,191 $ 14,622 $ 7,621,545
=========== =========== =========== =========== ===========
Total assets ................................. $ 9,761,133 $ 161,420 $ 125,965 $ 332,837 $ 32,479 $10,413,834
=========== =========== =========== =========== =========== ===========
Capital expenditures for vehicles and property
and equipment ............................ $ 6,249,573 $ 351,621 $ 97,371 $ 793,786 $ 50,647 $ 7,542,998
=========== =========== =========== =========== =========== ===========
F-39
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 23 - Segment Information (Continued)
Geographic Areas Year Ended December 31, 1999
-------------------------------------------------------------------------
Australia/ Other
United United New Foreign
States Kingdom Zealand Canada Operations Consolidated
---------- ---------- --------- -------- ---------- ------------
Revenue ........................................ $2,910,712 $ 130,298 $ 124,263 $127,619 $ 39,835 $ 3,332,727
========== ========== ========= ======== ======== ===========
Interest and minority interest expense, net .... $ 348,210 $ 27,343 $ 655 $ 8,778 $ 3,207 $ 388,193
========== ========== ========= ======== ======== ===========
EBITDA ......................................... $ 219,333 $ 46,927 $ 25,450 $ 18,670 $ (7,720) $ 302,660
========== ========== ========= ======== ======== ===========
Non-vehicle depreciation and amortization ...... $ 43,465 $ 17,805 $ 1,303 $ 1,528 $ 681 $ 64,782
========== ========== ========= ======== ======== ===========
Income (loss) before provision for income taxes $ 104,170 $ 29,122 $ 24,147 $ 17,142 $ (8,664) $ 165,917
========== ========== ========= ======== ======== ===========
Income tax expense ............................. $ 57,224 $ 4,259 $ 5,652 $ 4,939 $ 1,258 $ 73,332
========== ========== ========= ======== ======== ===========
Finance lease receivables ...................... $ 129,188 $ 725,740 $ 16,106 $ 871,034
========== ========== ======== ===========
Vehicles, net .................................. $5,937,503 $ 168,476 $ 75,238 $224,704 $ 95,450 $ 6,501,371
========== ========== ========= ======== ======== ===========
Debt and minority interest (preferred
membership interest) ....................... $7,545,835 $ 850,443 $ 5,433 $148,022 $ 19,377 $ 8,569,110
========== ========== ========= ======== ======== ===========
Total assets ................................... $9,159,879 $1,416,598 $ 107,341 $317,298 $ 77,142 $11,078,258
========== ========== ========= ======== ======== ===========
Capital expenditures for vehicles and property
and equipment .............................. $5,040,195 $ 42,668 $ 88,429 $436,065 $ 46,377 $ 5,653,734
========== ========== ========= ======== ======== ===========
Geographic Areas Year Ended December 31, 1998
--------------------------------------------------------------------
Australia/ Other
United New Foreign
States Zealand Canada Operations Consolidated
---------- ---------- ---------- ---------- ------------
Revenue ........................................ $2,061,967 $ 115,790 $ 92,402 $ 27,423 $2,297,582
========== ========== ========== ========== ==========
Interest expense, net .......................... $ 184,869 $ 633 $ 5,587 $ 991 $ 192,080
========== ========== ========== ========== ==========
EBITDA ......................................... $ 121,803 $ 20,118 $ 5,984 $ 328 $ 148,233
========== ========== ========== ========== ==========
Non-vehicle depreciation and amortization ...... $ 33,186 $ 1,210 $ 909 $ 700 $ 36,005
========== ========== ========== ========== ==========
Income (loss) before provision for income taxes $ 88,617 $ 18,908 $ 5,075 $ (372) $ 112,228
========== ========== ========== ========== ==========
Income tax expense ............................. $ 38,395 $ 5,925 $ 3,641 $ 746 $ 48,707
========== ========== ========== ========== ==========
Vehicles, net .................................. $2,942,760 $ 72,609 $ 118,078 $ 31,369 $3,164,816
========== ========== ========== ========== ==========
Debt ........................................... $2,930,154 $ 15,881 $ 56,977 $ 11,700 $3,014,712
========== ========== ========== ========== ==========
Total assets ................................... $4,192,961 $ 98,361 $ 148,230 $ 57,510 $4,497,062
========== ========== ========== ========== ==========
Capital expenditures for vehicles and property
and equipment .............................. $3,988,072 $ 87,310 $ 244,891 $ 25,708 $4,345,981
========== ========== ========== ========== ==========
F-40
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 24-Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data for the years ended December 31, 2000
and 1999 are as follows (in thousands except share and per share amounts):
Quarters Ended
---------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
----------- ----------- ----------- -----------
Revenue .................................. $ 1,013,033 $ 1,096,468 $ 1,130,275 $ 1,003,908
Costs and expenses ....................... 977,422 1,028,410 1,045,367 976,607
----------- ----------- ----------- -----------
Income before provision for income taxes . 35,611 68,058 84,908 27,301
Provision for income taxes ............... 16,025 30,626 36,511 12,040
----------- ----------- ----------- -----------
Net income ............................... 19,586 37,432 48,397 15,261
----------- ----------- ----------- -----------
Preferred dividends ...................... 4,668 4,667 4,785 $ 4,786
----------- ----------- ----------- -----------
Earnings applicable to common stockholders $ 14,918 $ 32,765 $ 43,612 $ 10,475
=========== =========== =========== ===========
Earnings per share:
Basic .................................... $ 0.48 $ 1.05 $ 1.40 $ .34
=========== =========== =========== ===========
Diluted .................................. $ 0.48 $ 1.05 $ 1.36 $ .32
=========== =========== =========== ===========
Shares of common stock used in computing
earnings per share:
Basic .................................... 31,131,712 31,131,712 31,138,079 31,216,290
=========== =========== =========== ===========
Diluted .................................. 31,341,244 31,336,088 32,150,494 32,652,178
=========== =========== =========== ===========
Quarters Ended
---------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
----------- ----------- ----------- -----------
Revenue .................................. $ 566,917 $ 637,457 $ 1,122,818 $ 1,005,535
Costs and expenses ....................... 540,087 589,913 1,051,044 985,766
----------- ----------- ----------- -----------
Income before provision for income taxes . 26,830 47,544 71,774 19,769
Provision for income taxes ............... 11,644 20,262 32,399 9,027
----------- ----------- ----------- -----------
Net income ............................... 15,186 27,282 39,375 10,742
Preferred dividends ...................... 4,555 4,555
----------- ----------- ----------- -----------
Earnings applicable to common stockholders $ 15,186 $ 27,282 $ 34,820 $ 6,187
=========== =========== =========== ===========
Earnings per share:
Basic .................................... $ .48 $ .87 $ 1.12 $ .20
=========== =========== =========== ===========
Diluted .................................. $ .47 $ .85 $ 1.10 $ .20
=========== =========== =========== ===========
Shares of common stock used in computing
earnings per share:
Basic .................................... 31,873,031 31,188,977 31,129,164 31,130,973
=========== =========== =========== ===========
Diluted .................................. 32,517,570 32,237,810 31,760,213 31,426,681
=========== =========== =========== ===========
Note 25 - Related Party Transactions
The Company and Avis Europe, plc cooperate jointly in marketing and
promotional activities, the exchange of reservations, the honoring of charge
cards and vouchers, and the transfer of the related billings. One member of the
Company's board of directors is an executive officer of Cendant and also serves
on the board of Avis Europe Limited, the parent company of Avis Europe, plc.
F-41
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company is affiliated with Cendant, which at December 31, 2000, owned
approximately 18% of the common stockholders' equity of the Company, excluding
potential conversion of Preferred Stock (see Notes 6, 15, 16 and 17). For the
years ended December 31, 2000, 1999 and 1998, the Company earned vehicle rental
revenue of approximately $61.3 million $63.6 million and $62.1million,
respectively, from Cendant and its subsidiary companies, of which approximately
$1.6 million and $1.1 million was outstanding and is included in accounts
receivable on the accompanying Consolidated Statements of Financial Position at
December 31, 2000 and 1999, respectively. The Company purchased approximately
$114.3 million, $106.4 million and $90.4 million in 2000, 1999, and 1998,
respectively, of goods and services from these affiliated companies.
Note 26 - Litigation
From time to time, the Company is subject to routine litigation incidental
to its business. The Company maintains insurance policies that cover most of the
actions brought against the Company. The Company is not currently involved in
any legal proceeding which it believes would have a material adverse effect upon
its financial position or results of operations.
Note 27 - Subsequent Events
Cendant Merger Agreement
The Cendant Merger Agreement was approved on February 28, 2001, by a
majority of Avis Group Holding's, Inc. shareholders who are unaffiliated with
Cendant. The merger has received customary regulatory approvals and closed on
March 1, 2001. Costs associated with the acquisition of the Company will be paid
by the acquiror.
Issuance of Asset Backed Notes
Under its domestic integrated fleet financing program (see Note 11), the
Company issued $750 million of Series 2001-1 Floating Rate Rental Car Asset
Backed Notes on March 2, 2001 (the "Notes"). The interest rate on the notes will
be at LIBOR plus 20 basis points with principal repayments due from November
2003 through April 2004. The proceeds of the notes will be used to retire
existing debt.
F-42