EXHIBIT 99.3
PRO FORMA FINANCIAL INFORMATION (unaudited)
The following Unaudited Pro Forma Condensed Combined Balance Sheet gives effect
to the planned acquisition of Galileo International, Inc. ("Galileo"). The
following Unaudited Pro Forma Condensed Combined Statements of Operations give
effect to the planned acquisition of Galileo and the Company's March 1, 2001
acquisition of Avis Group Holdings, Inc. ("Avis"). Both transactions have been
accounted for under the purchase method of accounting.
Since the acquisition of Avis occurred prior to March 31, 2001, the financial
position of Avis has been included in the Company's historical balance sheet as
of March 31, 2001. The Unaudited Pro Forma Condensed Combined Balance Sheet
assumes the acquisition of Galileo occurred on March 31, 2001. The Unaudited Pro
Forma Condensed Combined Statements of Operations assume the acquisitions of
Avis and Galileo occurred on January 1, 2000. The unaudited pro forma financial
data is based on the historical consolidated financial statements of the
Company, Avis and Galileo under the assumptions and adjustments set forth in the
accompanying explanatory notes.
The Unaudited Pro Forma Condensed Combined Statement of Operations for the year
ended December 31, 2000 also gives effect to various significant finance-related
activities that occurred during the first quarter of 2001 (the "Financing
Activities"), which comprise the issuance of debt securities (net of debt
retirements) and equity securities, the conversion of PRIDES to CD common stock
and the issuance of zero-coupon senior convertible notes. The Unaudited Pro
Forma Condensed Combined Statement of Operations for the year ended December 31,
2000 assumes the Financing Activities occurred on January 1, 2000. In addition,
the Unaudited Pro Forma Condensed Combined Balance Sheet also gives effect to
the May 2001 issuance of zero-coupon zero-yield senior convertible notes, which
are assumed to be issued on March 31, 2001.
For purposes of developing the Unaudited Pro Forma Condensed Combined Balance
Sheet, Galileo's assets and liabilities were recorded at their estimated fair
market values and the excess purchase price was assigned to goodwill and other
identifiable intangibles. The fair market values were based on preliminary
estimates which are subject to revision upon consummation of the acquisition of
Galileo.
Since Avis was consolidated with the Company as of March 1, 2001, the results of
operations of Avis between January 1, 2001 and February 28, 2001 were combined
with the Company's results of operations to report the combined pro forma
results of operations for the three months ended March 31, 2001. The pro forma
results of the combined company were then added to Galileo's results of
operations for the three months ended March 31, 2001 and for the year ended
December 31, 2000, subject to certain pro forma adjustments, to provide the
Unaudited Pro Forma Condensed Combined Statements of Operations. All
intercompany transactions were eliminated on a pro forma basis. Historically,
Avis paid the Company for services the Company provided related to call centers
and information technology and for the use of the Company's trademarks and Avis
paid Galileo for services Galileo provided related to reservations for vehicle
rentals.
The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the
disbursement of $33 in cash to Avis stockholders for each share of Avis common
stock acquired. The Company made payments totaling approximately $994 million,
including payments of $937 million to Avis stockholders, direct expenses of $40
million related to the transaction and the net cash obligation of $17 million
related to Avis stock options settled prior to consummation. The purchase price
also included the fair value of CD common stock options exchanged with certain
fully-vested Avis stock options. The Unaudited Pro Forma Condensed Combined
Balance Sheet reflects the purchase price being funded by the issuance of $600
million in debt, with the remaining amount provided by cash.
The pro forma adjustments relating to the acquisition of Galileo assume a
combination of a disbursement of CD common stock and cash aggregating an
expected value of $33 for each share of Galileo common stock outstanding and the
conversion of Galileo stock options to CD common stock options. Cendant will pay
aggregate consideration and expenses totaling $3,052 million, including payments
of cash and stock totaling $2,895 million to Galileo stockholders, expenses of
$48 million related to the conversion of Galileo stock options to CD common
stock options and estimated transaction expenses of $109 million directly
related to the acquisition of Galileo.
Approximately $2,330 million of the merger consideration is expected to be
funded through the issuance of CD common stock, with the remainder being
financed by debt issuances. The Unaudited Pro Forma Condensed Combined
Statements of Operations reflect incremental interest expense based upon an
assumed rate of 7.5% for any new debt issuances. In addition, Cendant's
assumption of Galileo's debt of approximately $620 million is reflected in the
Unaudited Pro Forma Condensed Combined Balance Sheet.
The unaudited pro forma financial information has been prepared assuming that
the price of CD common stock is $19 on the date of the acquisition of Galileo,
which reflects the market value of CD common stock on the date the planned
acquisition of Galileo was announced. The purchase price may change based on
fluctuations in the price of CD common stock, but is subject to a collar as
described in Notes (k) and (p) to the Unaudited Pro Forma Condensed Combined
Statements of Operations for the three months ended March 31, 2001 and for the
year ended December 31, 2000, respectively.
In August 2000, Avis contributed its European vehicle management and leasing
business ("PHH Europe") to a newly formed joint venture in exchange for cash,
settlement of intercompany debt and a 20% interest in the venture (the "PHH
Europe Transaction"). The accompanying Supplemental Unaudited Pro Forma
Condensed Combined Statement of Operations of Avis for the year ended December
31, 2000 has been adjusted to reflect the PHH Europe Transaction.
In connection with various acquisitions, the Company intends to review acquired
operations, which may result in a plan to realign or reorganize certain of those
operations. The cost of implementing such a plan, if it were to occur, have not
been reflected in the accompanying pro forma financial information. The impact
of a potential realignment could increase or decrease the amount of goodwill and
intangible assets and the related amortization in the accompanying pro forma
financial information. The Unaudited Pro Forma Condensed Combined Statements of
Operations exclude any benefits that might result from the acquisitions due to
synergies that may be derived or from the elimination of duplicate efforts.
The Company's management believes that the assumptions used provide a reasonable
basis on which to present the unaudited pro forma financial information. The
Company has completed other acquisitions and dispositions which are not
significant and, accordingly, have not been included in the accompanying
unaudited pro forma financial information. The unaudited pro forma financial
information may not be indicative of the financial position or results of
operations that would have occurred if the acquisition of Avis, the planned
acquisition of Galileo and the Financing Activities had been in effect on the
dates indicated or which might be obtained in the future.
The unaudited pro forma financial information should be read in conjunction with
the historical consolidated financial statements and accompanying notes thereto
for the Company, Avis and Galileo, which have been incorporated by reference or
included herein. Certain reclassifications have been made to the historical
amounts of Galileo to conform with the Company's classification.
2
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2001
(IN MILLIONS)
PURCHASE
HISTORICAL HISTORICAL AND OTHER COMBINED
CENDANT GALILEO ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 2,092 $ 11 $ 986 (a) $ 3,089
Receivables, net 1,380 271 - 1,651
Other current assets 1,030 52 - 1,082
-------- ------- ------- --------
Total current assets 4,502 334 986 5,822
Property and equipment, net 1,508 373 22 (c) 1,903
Stockholder litigation settlement trust 600 - - 600
Deferred income taxes 1,358 - - 1,358
Franchise agreements, net 1,514 - - 1,514
Goodwill, net 4,950 300 2,313 (c) 7,563
Other intangibles, net 764 455 308 (c) 1,527
Other assets 1,738 81 14 (b) 1,833
-------- ------- ------- --------
Total assets exclusive of assets under programs 16,934 1,543 3,643 22,120
-------- ------- ------- --------
Assets under management and mortgage programs
Relocation receivables 329 - - 329
Mortgage loans held for sale 917 - - 917
Mortgage servicing rights 1,667 - - 1,667
Vehicle-related, net 7,747 - - 7,747
-------- ------- ------- --------
10,660 - - 10,660
-------- ------- ------- --------
TOTAL ASSETS $ 27,594 $ 1,543 $ 3,643 $ 32,780
======== ======= ======= ========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and other current liabilities $ 2,258 $ 287 $ - $ 2,545
Current portion of long-term debt 267 188 1,000 (a) 1,455
Deferred income 1,046 - - 1,046
Deferred income taxes 227 - 82 (c) 309
-------- ------- ------- --------
Total current liabilities 3,798 475 1,082 5,355
Long-term debt 3,903 434 674 (d) 5,011
Stockholder litigation settlement 2,850 - - 2,850
Other liabilities 706 143 - 849
-------- ------- ------- --------
Total liabilities exclusive of liabilities under programs 11,257 1,052 1,756 14,065
-------- ------- ------- --------
Liabilities under management and mortgage programs
Debt 9,589 - - 9,589
Deferred income taxes 1,030 - - 1,030
-------- ------- ------- --------
10,619 - - 10,619
-------- ------- ------- --------
Mandatorily redeemable preferred interest in a subsidiary 375 - - 375
-------- ------- ------- --------
Stockholders' equity 5,343 491 1,887 (e) 7,721
-------- ------- ------- --------
Total liabilities and stockholders' equity $ 27,594 $ 1,543 $ 3,643 $ 32,780
======== ======= ======= ========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Balance Sheet.
3
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2001
(DOLLARS IN MILLIONS)
The accompanying Unaudited Pro Forma Condensed Combined Balance Sheet was
prepared to reflect the planned acquisition of Galileo, which will be accounted
for under the purchase method of accounting, and the issuance of zero-coupon
zero-yield senior convertible notes. The purchase price of $3,052 (including
$109 of estimated expenses directly attributable to the acquisition of Galileo
and $48 of the estimated fair value of CD common stock options issued in
exchange for Galileo stock options) was based on acquiring 100% of the Galileo
common stock outstanding at $33 per share.
(a) Represents debt associated with the May 2001 issuance of the zero-coupon
zero-yield senior convertible notes for gross proceeds of $1,000 (net
proceeds of $986).
(b) Represents deferred financing costs of $14 associated with the May 2001
issuance of the zero-coupon zero-yield senior convertible notes.
(c) Represents the excess of the cost over the preliminary estimate of the fair
value of the identifiable net assets acquired, calculated as follows:
Calculation of acquisition goodwill
Cash consideration $ 674
Issuance of CD common stock 2,330
Preliminary estimate of fair value of CD common stock options issued in exchange for
Galileo stock options 48
-------
Total purchase price 3,052
-------
Preliminary estimate of fair value of identifiable net assets acquired
Book value of Galileo 491
Elimination of Galileo goodwill (300)
Preliminary estimate of adjustments to fair value of identifiable intangible assets 308
Preliminary estimate of adjustment to fair value of computer software 22
Deferred tax liability on fair value adjustments and transaction costs (82)
-------
Preliminary estimate of fair value of identifiable net assets acquired 439
-------
Acquisition goodwill $ 2,613
=======
Calculation of acquisition goodwill adjustment
Acquisition goodwill $ 2,613
Historical Galileo goodwill (300)
-------
Acquisition goodwill adjustment $ 2,313
=======
(d) Represents the issuance of $674 of debt to finance a portion of the
acquisition price ($565) and to pay fees directly associated with the
acquisition of Galileo ($109).
(e) Represents the issuance of CD common stock valued at $2,330 in exchange for
outstanding shares of Galileo common stock, the issuance of CD common stock
options valued at $48 in exchange for Galileo stock options and the
elimination of Galileo equity balances aggregating $491.
4
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL AVIS
HISTORICAL AVIS PURCHASE ADJUSTED
CENDANT JAN 1- FEB 28, 2001 ADJUSTMENTS CENDANT
---------- ------------------- ----------- --------
REVENUES
Membership and service fees, net $ 1,076 $ 27 $ (34) (A) $ 1,069
Vehicle-related 398 594 - 992
Global distribution services - - - -
Other 12 20 - (B) 32
------- ----- ----- -------
Net revenues 1,486 641 (34) 2,093
EXPENSES
Operating 451 174 (34) (A) 591
Vehicle depreciation, lease charges and interest, net 181 284 - 465
Selling, general and administrative 411 115 - 526
Non-vehicle depreciation and amortization 101 23 2 (D) 126
Other charges, net 204 - - 204
Non-vehicle interest, net 60 78 1 (C) 139
Other, net - - - -
------- ----- ----- -------
Total expenses 1,408 674 (31) 2,051
------- ----- ----- -------
Net gain on dispositions of businesses 435 - - 435
------- ----- ----- -------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST
AND EQUITY IN HOMESTORE.COM 513 (33) (3) 477
Provision (benefit) for income taxes 205 (10) (2) (E) 193
Minority interest, net of tax 13 - - 13
Losses related to equity in Homestore.com, net of tax 18 - - 18
------- ----- ----- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ 277 $ (23) $ (1) $ 253
======= ===== ===== =======
CD COMMON STOCK INCOME PER SHARE
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Basic $ 0.32 $ 0.29
Diluted 0.30 0.28
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 790 790
Diluted 830 830
MOVE.COM COMMON STOCK INCOME PER SHARE
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Basic $ 10.41 $ 10.41
Diluted 10.13 10.13
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2 2
Diluted 3 3
GALILEO
HISTORICAL PURCHASE COMBINED
GALILEO ADJUSTMENTS PRO FORMA
---------- ----------- ---------
REVENUES
Membership and service fees, net $ - $ - $ 1,069
Vehicle-related - - 992
Global distribution services 443 (3)(F) 440
Other 23 - 55
----- ---- -------
Net revenues 466 (3) 2,556
EXPENSES
Operating 104 (3)(F) 692
Vehicle depreciation, lease charges and interest, net - - 465
Selling, general and administrative 191 - 717
Non-vehicle depreciation and amortization 67 (4)(G) 189
Other charges, net - - 204
Non-vehicle interest, net 10 13 (H) 162
Other, net 4 - 4
----- ---- -------
Total expenses 376 6 2,433
----- ---- -------
Net gain on dispositions of businesses - 435
----- ---- -------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST
AND EQUITY IN HOMESTORE.COM 90 (9) 558
Provision (benefit) for income taxes 40 (3)(I) 230
Minority interest, net of tax - - 13
Losses related to equity in Homestore.com, net of tax - - 18
----- ---- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ 50 $ (6) $ 297
===== ==== =======
CD COMMON STOCK INCOME PER SHARE
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Basic $ 0.30 (K)
Diluted 0.29 (K)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 123 (J) 913
Diluted 123 (J) 953
MOVE.COM COMMON STOCK INCOME PER SHARE
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Basic $ 10.41
Diluted 10.13
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2
Diluted 3
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS.
5
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following pro forma adjustments relate to the acquisition of Avis and the
Financing Activities.
(a) Represents the elimination of amounts paid by Avis to the Company for
services provided related to call centers and information technology and
for the use of trademarks.
(b) Represents the elimination of the Company's earnings attributable to its
investment in Avis for which the combined effect is zero.
(c) Represents interest expense on debt issued to finance the acquisition of
Avis ($7), net of the amortization of the fair value adjustment on acquired
debt ($4) and the reversal of Avis' amortization of debt-related costs
($2).
(d) Represents the amortization of goodwill generated on the excess of fair
value over the net assets acquired on a straight-line basis over 40 years,
net of the reversal of Avis' amortization of pre-acquisition goodwill and
other identifiable intangibles resulting from the allocation of purchase
price on a straight-line basis over 20 years.
(e) Represents the income tax effect of the purchase adjustments and other pro
forma adjustments at an estimated statutory rate of 38.5% (not including
adjustments for non-deductible goodwill).
The following pro forma adjustments relate to the acquisition of Galileo.
(f) Represents the elimination of amounts paid by Avis to Galileo for services
provided related to reservations for vehicle rentals.
(g) Represents the amortization of goodwill generated on the estimated excess
of fair value over the net assets acquired on a straight-line basis over 40
years ($16) and the amortization of the estimated identifiable intangibles
on a straight-line basis with lives ranging from 5 to 20 years ($11), net
of the reversal of Galileo's amortization of pre-acquisition goodwill and
other identifiable intangibles ($31).
(h) Represents interest expense relating to the assumed issuance of debt used
to finance a portion of the acquisition of Galileo. Assuming interest rates
changed by .125%, the related interest expense and pre-tax impact on
earnings would be $0.2.
(i) Represents the income tax effect of the purchase adjustments and other pro
forma adjustments at an estimated statutory rate of 38.5% (not including
adjustments for non-deductible goodwill).
(j) Represents the issuance of 123 million shares of CD common stock used to
fund a portion of the acquisition of Galileo.
(k) The purchase price is subject to a collar for fluctuations in the price of
CD common stock between $17 and $20. The total purchase price is fixed for
price fluctuations between $17 and $20, but the number of shares of CD
common stock to be issued will change to equal $2,330 in value. The impact
on earnings per share is approximately $.002 for each dollar movement
between $17 and $20. The impact for fluctuations outside the collar would
result only from changes in the annual goodwill amortization as the number
of shares of CD common stock to be issued is fixed outside the collar. The
related impact on earnings per share would be less than $.002 for each
dollar movement outside the collar. The earnings per share reflected herein
is based on an estimated price of CD common stock of $19, which reflects
the market value of CD common stock on the date the planned acquisition of
Galileo was announced.
6
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
AVIS
HISTORICAL ADJUSTED PURCHASE
CENDANT AVIS(*) ADJUSTMENTS
------------ ---------- ----------------
REVENUES
Membership and service fees, net $4,512 $ 155 $ (173)(a)
Vehicle-related -- 3,783 --
Global distribution services -- -- --
Other 147 151 (39)(b)
------- ------- -------
Net revenues 4,659 4,089 (212)
EXPENSES
Operating 1,426 966 (173)(a)
Vehicle depreciation, lease charges
and interest, net -- 1,671 --
Selling, general and administrative 1,508 637 --
Non-vehicle depreciation and
amortization 352 74 16(c)
Other charges, net 111 -- --
Non-vehicle interest, net 148 482 6(e)
Other, net -- -- --
------- ------- -------
Total expenses 3,545 3,830 (151)
------- ------- -------
Net loss on dispositions of businesses (8) -- (35)(e)
--------- ------- -------
Income before income taxes, minority
interest and equity in Homestore.com 1,106 259 (96)
Provision for income taxes 362 117 (30)(f)
Minority interest, net of tax 84 7 --
-------- ------- -------
Income before extraordinary loss and
cumulative effect of accounting
change $ 660 $ 135 $ (66)
======== ======= =======
CD COMMON STOCK INCOME PER SHARE
INCOME BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE
Basic $ 0.92
Diluted 0.89
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 724
Diluted 762
MOVE.COM COMMON STOCK LOSS PER
SHARE
LOSS BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE
Basic $(1.76)
Diluted (1.76)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 3
Diluted 3
OTHER GALILEO
PRO FORMA ADJUSTED HISTORICAL PURCHASE COMBINED
ADJUSTMENTS CENDANT GALILEO ADJUSTMENTS PRO FORMA
--------------- ---------- ------------ ------------- --------------
REVENUES
Membership and service fees, net $ -- $ 4,494 $ -- $ -- $ 4,494
Vehicle-related -- 3,783 -- -- 3,783
Global distribution services -- -- 1,561 (12)(k) 1,549
Other -- 259 82 -- 341
------- ------- ------- ------- -------
Net revenues -- 8,536 1,643 (12) 10,167
EXPENSES
Operating -- 2,219 368 (12)(i) 2,575
Vehicle depreciation, lease charges
and interest, net -- 1,671 -- -- 1,671
Selling, general and administrative -- 2,145 678 -- 2,823
Non-vehicle depreciation and
amortization -- 442 241 2(l) 685
Other charges, net -- 111 28 -- 139
Non-vehicle interest, net 54(g,i) 690 45 51(m) 786
Other, net -- -- 17 -- 17
------- ------- ------- ------- -------
Total expenses 54 7,278 1,377 41 8,696
------- ------- ------- ------- -------
Net loss on dispositions of businesses -- (43) -- -- (43)
------- ------- ------- ------- -------
Income before income taxes, minority
interest and equity in Homestore.com (54) 1,215 266 (53) 1,428
Provision for income taxes (20)(f) 429 117 (13)(n) 533
Minority interest, net of tax (66)(h) 25 -- -- 25
------- ------- ------- ------- -------
Income before extraordinary loss and
cumulative effect of accounting
change $ 32 $ 761 $ 149 $ (40) $ 870
======= ======= ======= ======= =======
CD COMMON STOCK INCOME PER SHARE
INCOME BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE
Basic $ 0.92 $ 0.92(p)
Diluted 0.90 0.89 (p)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 107(j) 831 123(o) 954
Diluted 107(j) 869 123(o) 992
MOVE.COM COMMON STOCK LOSS PER
SHARE
LOSS BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE
Basic $ (1.76) $ (1.76)
Diluted (1.76) (1.76)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 3 3
Diluted 3 3
- ----------
(*) See Supplemental Unaudited Condensed Combined Statement of Operations and
Notes included herein.
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS.
7
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following pro forma adjustments relate to the acquisition of Avis and the
Financing Activities.
(a) Represents the elimination of amounts paid by Avis to the Company for
services provided related to call centers and information technology and
for the use of trademarks.
(b) Represents the elimination of the Company's earnings attributable to its
investment in Avis.
(c) Represents the amortization of goodwill generated on the excess of fair
value over the net assets acquired on a straight-line basis over 40 years,
net of the reversal of Avis' amortization of pre-acquisition goodwill and
other identifiable intangibles resulting from the allocation of purchase
price on a straight-line basis over 20 years.
(d) Represents interest expense on debt issued to finance the acquisition of
Avis ($44), net of amortization of the fair value adjustment on acquired
debt ($25) and the reversal of Avis' amortization of debt related costs
($13).
(e) Represents the reversal of a gain of $35 million recorded by the Company,
which represents the recognition of a portion of its previously recorded
deferred gain from the 1999 sale of its fleet business due to the
disposition of PHH Europe by Avis in August 2000.
(f) Represents the income tax effect of the purchase adjustments and other pro
forma adjustments at an estimated statutory rate of 37.5% (not including
adjustments for non-deductible goodwill), except Note (e) above where the
tax effect was approximately 2%, which represented the rate at which taxes
were provided on the related gain.
(g) Represents interest expense relating to the issuance of the zero-coupon
senior convertible notes, medium-term notes, borrowing under a $650 million
term loan agreement and the repayment of an existing term loan, net of
interest expense allocated to the acquisition of Avis (See Note (d) above).
(h) Represents the reduction in preferred stock dividends resulting from the
conversion of the PRIDES to CD common stock.
(i) No adjustment has been made to reduce interest expense for interest income
on the incremental cash of $1,587 raised through the Financing Activities.
Assuming the incremental cash was invested at 5%, which represents the
Company's current rate for cash investments, interest expense would have
been reduced by $79. Additionally, income before extraordinary loss and
cumulative effect of accounting change and income per share before
extraordinary loss and cumulative effect of accounting change would have
improved by $49 and $0.06, respectively.
(j) Represents the issuance of CD common stock of 61 million shares and 46
million shares relating to the conversion of PRIDES to CD common stock and
the issuance of CD common stock, respectively.
The following pro forma adjustments relate to the acquisition of Galileo.
(k) Represents the elimination of amounts paid by Avis to Galileo for services
provided related to reservations for vehicle rentals.
(l) Represents the amortization of goodwill generated on the excess of fair
value over the net assets acquired on a straight-line basis over 40 years
($65) and the amortization of the estimated identifiable intangibles on a
straight-line basis with lives ranging from 5 to 20 years ($46), net of the
reversal of Galileo's amortization of pre-acquisition goodwill and other
identifiable intangibles ($109).
(m) Represents interest expense relating to the assumed issuance of debt used
to fund the acquisition of Galileo. Assuming interest rates changed by
.125%, the related interest expense and pre-tax impact on earnings would be
$0.8.
(n) Represents the income tax effect of the purchase adjustments and other pro
forma adjustments at an estimated statutory rate of 37.5% (not including
adjustments for non-deductible goodwill).
(o) Represents the issuance of 123 million shares of CD common stock used to
fund a portion of the acquisition of Galileo.
(p) The purchase price is subject to a collar for fluctuations in the price of
CD common stock between $17 and $20. The total purchase price is fixed for
price fluctuations between $17 and $20, but the number of shares of CD
common stock to be issued will change to equal $2,330 in value. The impact
on earnings per share is approximately $.006 for each dollar movement
between $17 and $20. The impact for fluctuations outside the collar would
result only from changes in the annual goodwill amortization as the number
of shares of CD common stock to be issued is fixed outside the collar. The
related impact on earnings per share would be less than $.007 for each
dollar movement outside the collar. The earnings per share reflected herein
is based on an estimated price of CD common stock of $19, which reflects
the market value of CD common stock on the date the planned acquisition of
Galileo was announced.
8
SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN MILLIONS)
The following unaudited pro forma financial information was prepared to reflect
the historical consolidated financial statements of Avis, excluding the PHH
Europe Transaction. Avis will receive an annual license fee in connection with
the PHH Europe Transaction from the joint venture for the license of the PHH
fleet management technology, PHH interactive. Avis utilized the proceeds of the
PHH Europe Transaction to reduce their indebtedness and to pay transaction
costs.
HISTORICAL SALE OF PRO FORMA ADJUSTED
AVIS PHH EUROPE(A) ADJUSTMENTS AVIS
----------- --------------- ------------- ----------
REVENUES
Service fees, net $ 241 $ (86) $ -- $ 155
Vehicle rental 2,467 -- -- 2,467
Vehicle leasing and other fees 1,389 (73) -- 1,316
Other 146 -- 5(b) 151
------ ----- ------ ------
Net revenues 4,243 (159) 5 4,089
EXPENSES
Operating 966 -- -- 966
Vehicle depreciation and lease charges 1,695 (24) -- 1,671
Selling, general and administrative 693 (56) -- 637
Interest, net 577 (37) (58)(c) 482
Depreciation and amortization 89 (12) (3)(d) 74
------ ----- ------ ------
Total expenses 4,020 (129) (61) 3,830
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY
INTEREST 223 (30) 66 259
Provision (benefit) for income taxes 95 (3) 25(e) 117
Minority interest 7 -- -- 7
------ ------- ------ ------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 121 $ (27) $ 41 $ 135
====== ======= ====== ======
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS.
9
NOTES TO SUPPLEMENTAL UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN MILLIONS)
(a) Represents adjustments to pro forma the results of operations of PHH
Europe, assuming that the PHH Europe Transaction occurred on January 1,
2000.
(b) Represents fleet management technology fee income and the equity in the
earnings of the joint venture formed pursuant to the PHH Europe
Transaction, net of the amortization of the excess of cost over the
assets acquired.
(c) Represents a reduction in interest expense resulting from the retirement
of acquisition debt and revolving credit facilities related to the
application of proceeds of $1,053 from the PHH Europe Transaction.
(d) Represents a decrease in amortization expense relating to goodwill
generated from the PHH Europe Transaction, net of the reversal of PHH
Europe goodwill.
(e) Represents the income tax effect of the pro forma adjustments at an
estimated statutory rate of 39% (not including adjustments for
non-deductible goodwill).
10