EXHIBIT 99.3
PRO FORMA FINANCIAL INFORMATION OF THE COMPANY
Index
Section I - Pro forma consolidated combining financial statements of
the Company for the PHH Merger, including the following:
The pro forma consolidated combining balance sheet of the
Company, which combines the pro forma consolidated balance
sheet of the Company with the consolidated balance sheet of
PHH Corporation as of September 30, 1996 and the related
pro forma consolidated combining statements of income for
the year ended December 31, 1995, and each of the nine
month periods ended September 30, 1995 and 1996.
Section II - Pro forma consolidated financial information of the
Company excluding the PHH Merger. Such pro forma
consolidated financial information includes the following:
The pro forma consolidated balance sheet of the Company as
of September 30, 1996 and the pro forma consolidated
statements of operations of the Company for the year ended
December 31, 1995 and each of the nine month periods ended
September 30, 1995 and 1996.
Section III - Combining historical consolidated financial statements
of the Company for the PHH Merger, including the following:
The combining historical consolidated balance sheet of the
Company, which combines the consolidated balance sheet of
the Company with the historical consolidated balance sheet
of PHH Corporation as of September 30, 1996 and the related
combining historical consolidated statements of income for
each of the years ended December 31, 1993, 1994 and 1995
and each of the nine month periods ended September 30, 1995
and 1996.
4
SECTION I
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED COMBINING FINANCIAL STATEMENTS
FOR THE PHH MERGER
On November 10, 1996, the Company entered into a definitive merger agreement
(the "PHH Merger") pursuant to which the Company will issue approximately $1.7
billion of Company common stock in exchange for all of the outstanding common
stock of PHH Corporation ("PHH"). The accompanying pro forma consolidated
combining financial statements give effect to the business combination of the
Company and PHH which will be accounted for as a pooling of interests.
Accordingly, the underlying pro forma consolidated combining balance sheet as
of September 30, 1996 and the pro forma consolidated combining statements of
income for the year ended December 31, 1995 and the nine month periods ended
September 30, 1995 and 1996 reflects the combining of the historical financial
results of PHH Corporation with the pro forma financial results of the Company
prior to the Company entering into the PHH Merger. The pro forma financial
results of the Company include all of the Company's acquisitions prior to the
PHH Merger, including the recent acquisitions of Avis, Inc. and Resort
Condominiums International, Inc. See Section II of Exhibit 99.3 herein for the
Pro Forma Consolidated Financial Statements of the Company prior to the PHH
Merger related to the aforementioned periods.
Additionally, the pro forma consolidated combining financial statements
reflect adjustments for the pooling of the Company and PHH including
reclassifications to conform accounting policies and shares issued as
consideration in connection with the PHH Merger. The Company expects to
recognize a one-time charge related to transaction and business combination
costs in connection with the PHH Merger, which is not reflected in the pro
forma consolidated combining statements of income.
The pro forma consolidated combining financial statements do not purport to
present the financial position or results of operations of the Company had the
PHH Merger occurred on the dates specified, nor are they necessarily
indicative of the operating results that may be achieved in the future.
The pro forma consolidated combining financial statements are based on certain
assumptions and adjustments described in the Pro Forma consolidated financial
information of the Company as set forth in Section II, herein and should be
read in conjunction therewith and with (i) the consolidated financial
statements and related notes of the Company included in its 1995 Annual Report
on Form 10-K (ii) the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (iii) the consolidated financial statements of PHH
Corporation included elsewhere in this report; and (iv) the financial
statements and related notes of certain of the acquired companies previously
filed in Current Reports on Form 8-K pursuant to Regulation S-X Rule 3.05,
"Financial Statements of Business Acquired or to be Acquired".
5
SECTION I
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED COMBINING BALANCE SHEET PAGE 1 OF 2
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
PRO FORMA
PRO FORMA HISTORICAL PRO FORMA COMBINED
HFS (1) PHH (2) ADJUSTMENTS COMPANIES
------------- ------------- ------------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 150,900 $ 11,450 $ - $ 162,350
Relocation receivables 136,052 666,905 - 802,957
Other accounts and notes receivable, net 148,082 442,951 - 591,033
Other current assets 83,798 58,916 - 142,714
-------------- ------------- ------------ -------------
TOTAL CURRENT ASSETS 518,832 1,180,222 - 1,699,054
-------------- ------------- ------------ -------------
Property and equipment-net 241,018 92,846 - 333,864
Franchise agreements-net 594,415 - - 594,415
Excess of cost over fair value of
net assets acquired-net 1,339,836 47,656 - 1,387,442
Intangible assets 1,168,400 - - 1,168,400
Investment in car rental operating
company-net 75,000 - - 75,000
Deferred income taxes-net 61,200 - - 61,200
Other assets 137,816 125,384 - 263,200
-------------- ------------- ---------- -------------
TOTAL 4,136,517 1,446,108 - 5,582,625
-------------- ------------- ------------ -------------
ASSETS UNDER VEHICLE MANAGEMENT
AND MORTGAGE PROGRAMS
Net investment in leases and leased vehicles - 3,285,721 - 3,285,721
Mortgage loans held for sale - 872,404 - 872,404
Mortgage servicing rights & fees - 280,344 - 280,344
-------------- ------------- ------------ -------------
TOTAL - 4,438,469 - 4,438,469
-------------- ------------- ------------ -------------
TOTAL ASSETS $ 4,136,517 $ 5,884,577 $ - $ 10,021,094
============== ============= ============ =============
- -------------
(1) Pro forma for all material transactions, excluding the PHH Merger (See
Section II).
(2) The historical PHH balance sheet is as of October 31, 1996.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by the merged
companies.
See Notes to pro forma consolidated combining financial statements.
6
SECTION I
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED COMBINING BALANCE SHEET PAGE 2 OF 2
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
PRO FORMA
PRO FORMA HISTORICAL PRO FORMA COMBINED
HFS (1) PHH (2) ADJUSTMENTS COMPANIES
-------------- ------------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and other
accrued liabilities $ 243,307 $ 418,143 $ 76,651 (A) $ 738,101
Deferred revenue - net 143,873 - - 143,873
Income taxes payable 81,633 - - 81,633
Accrued acquisition obligations 84,287 - - 84,287
Current portion of long-term debt 130,837 - - 130,837
-------------- ------------ ---------- -----------
TOTAL CURRENT LIABILITIES 683,937 418,143 76,651 1,178,731
-------------- ------------ ---------- -----------
Long-term debt 822,800 - 584,796 (B) 1,407,596
Deferred revenue 193,002 114,021 (76,651) (A) 230,372
Other non-current liabilities 32,970 - - 32,970
Deferred income taxes 85,400 - - 85,400
-------------- ------------ ---------- -----------
TOTAL 1,818,109 532,164 508,145 2,935,069
-------------- ------------ ---------- -----------
LIABILITIES UNDER VEHICLE MANAGEMENT
AND MORTGAGE PROGRAMS
Debt - 4,476,805 (584,796) (B) 3,892,009
Deferred income taxes - 221,700 - 221,700
-------------- ------------ ---------- -----------
TOTAL - 4,698,505 (584,796) 4,113,709
-------------- ------------ ---------- -----------
STOCKHOLDERS' EQUITY:
Common stock 1,293 99,820 (99,563) (C) 1,550
Additional paid-in capital 2,110,879 - 99,563 (C) 2,210,442
Retained earnings 206,236 568,400 - 774,636
Foreign currency equity adjustment - (14,312) - (14,312)
-------------- ------------- ---------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,318,408 653,908 - 2,972,316
-------------- ------------ ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,136,517 $ 5,884,577 $ - $10,021,094
============== ============ =========== ===========
- -------------
(1) Pro forma for all material transactions, excluding the PHH Merger (See
Section II).
(2) The historical PHH balance sheet is as of October 31, 1996.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by the merged
companies.
See notes to pro forma consolidated combining financial statements.
7
SECTION I
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED COMBINING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
PRO FORMA HISTORICAL PRO FORMA HISTORICAL HFS,
HFS (1) PHH (2) ADJUSTMENTS AS RESTATED
-------------- ------------- ------------- -------------
NET REVENUES
Service fees, net $ 834,038 $ - $ 203,390 (E) $ 1,037,428
Real estate services - 782,727 (532,573) (D) 250,154
Mortgage services - 173,787 - 173,787
------------ ------------ ------------ ---------------
Service fees, net 834,038 956,514 (329,183) 1,461,369
Fleet management - 1,347,870 (203,390) (E) 1,144,480
Depreciation on vehicles
under operating leases - (929,341) - (929,341)
Interest - - (159,652) (F) (159,652)
------------ ------------ ------------- ---------------
Fleet management, net - 418,529 (363,042) 55,487
------------ ------------ ------------- ---------------
Other 169,510 - - 169,510
------------ ------------ ------------ ---------------
Net revenues 1,003,548 1,375,043 (692,225) 1,686,366
------------ ------------ ------------- ---------------
EXPENSES
Selling, general and administrative 452,491 310,567 (29,692) (G) 733,366
Costs, including interest,of carrying
and reselling homes - 658,498 (532,573) (D) 97,324
(25,972) (H)
(2,629) (G)
Direct costs of mortgage services - 60,498 (30,667) (G) 29,831
------------ ------------ ------------- ---------------
Total selling, general
and administrative 452,491 1,029,563 (621,533) 860,521
Depreciation and amortization 136,319 - 62,988 (G) 199,307
Interest 53,534 212,365 (159,652) (F) 132,219
25,972 (H)
Other 33,527 - - 33,527
------------ ------------ ------------ ---------------
Total expenses 675,871 1,241,928 (692,225) 1,225,574
------------ ------------ ------------- ---------------
Income before income taxes 327,677 133,115 - 460,792
Provision for income taxes 135,243 54,995 - 190,238
------------ ------------ ------------ ---------------
Net income $ 192,434 $ 78,120 $ - $ 270,554
============ ============ ============ ===============
PER SHARE INFORMATION (FULLY DILUTED)
Net income $ 1.38 $ 1.63
============ ===============
Weighted average common and
common equivalent shares
outstanding 143,110 25,700 (I) 168,810
============ ============ ===============
- ----------------
(1) Pro forma for all material transactions, excluding the PHH Merger (See
Section II).
0
(2) The historical statement of operations of PHH is for the twelve months
ended January 31, 1996.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform ato the presentation expected to be used by the
merged companies.
See notes to pro forma consolidated combining financial statements.
8
SECTION I
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED COMBINING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
PRO FORMA HISTORICAL PRO FORMA HISTORICAL HFS,
HFS (1) PHH (2) ADJUSTMENTS AS RESTATED
-------------- ------------- ------------- -------------
NET REVENUES
Service fees, net $ 616,268 $ - $ 150,028 (E) $ 766,296
Real estate services - 590,168 (399,717) (D) 190,451
Mortgage services - 124,144 - 124,144
------------ ------------ ------------ ---------------
Service fees, net 616,268 714,312 (249,689) 1,080,891
------------ ------------ ------------ ---------------
Fleet management - 1,003,355 (150,028) (E) 853,327
Depreciation on vehicles
under operating leases - (692,788) - (692,788)
Interest - - (117,373) (F) (117,373)
------------ ------------ ------------ ----------------
Fleet management, net - 310,567 (267,401) 43,166
------------ ------------ ------------ ---------------
Other 115,985 - - 115,985
------------ ------------ ------------ ---------------
Net revenues 732,253 1,024,879 (517,090) 1,240,042
------------ ------------ ------------ ---------------
EXPENSES
Selling, general and administrative 335,403 232,698 (22,452) (G) 545,649
Costs, including interest, of carrying
and reselling homes - 497,415 (399,717) (D) 76,266
(19,344) (H)
(2,088) (G)
Direct costs of mortgage services - 40,093 (18,981) (G) 21,112
------------ ------------ ------------ ---------------
Total selling, general and
administrative 335,403 770,206 (462,582) 643,027
------------ ------------ ------------ ---------------
Depreciation and amortization 100,632 - 43,521 (G) 144,153
Interest 41,063 154,638 (117,373) (F) 97,672
19,344 (H)
Other 22,328 - - 22,328
------------ ------------ ---------- ---------------
Total expenses 499,426 924,844 (517,090) 907,180
------------ ------------ ---------- ---------------
Income before income taxes 232,827 100,035 - 332,862
Provision for income taxes 96,094 41,397 - 137,491
------------ ------------ ---------- ---------------
Net Income $ 136,733 $ 58,638 $ - $ 195,371
============ ============ ========== ===============
PER SHARE INFORMATION (FULLY DILUTED)
Net income $ 1.00 $ 1.19
============ ===============
Weighted average common and
common equivalent shares
outstanding 140,582 25,700 (I) 166,282
============ ============ ===============
- -----------------
(1) Pro forma for all material transactions, excluding the PHH Merger (See
Section II).
(2) The historical statement of operations of PHH is for the nine months
ended October 31, 1995.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by the merged
companies.
See notes to pro forma consolidated combining financial statements.
9
SECTION I
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED COMBINING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
PRO FORMA HISTORICAL PRO FORMA HISTORICAL HFS,
HFS (1) PHH (2) ADJUSTMENTS AS RESTATED
-------------- ------------- ------------- -------------
NET REVENUES
Service fees, net $ 691,711 $ - $ 152,602 (E) $ 844,313
Real estate services - 619,431 (420,805) (D) 198,626
Mortgage services - 188,636 - 188,636
-------------- ------------ ------------- ---------------
Service fees, net 691,711 808,067 (268,203) 1,231,575
-------------- ------------ ------------- ---------------
Fleet Management - 1,042,984 (152,602) (E) 890,382
Depreciation on vehicles
under operating leases - (727,457) - (727,457)
Interest (120,404) (F) (120,404)
-------------- ------------- ------------- ----------------
Fleet management, net - 315,527 (273,006) 42,521
-------------- ------------ ------------- ---------------
Other 186,004 - - 186,004
-------------- ------------ ------------ ---------------
Net revenues 877,715 1,123,594 (541,209) 1,460,100
-------------- ------------ ------------- ---------------
EXPENSES
Selling, general and administrative 390,168 249,693 (19,808) (G) 620,053
Costs, including interest, of carrying
and reselling homes - 507,986 (420,805) (D) 62,841
(22,970) (H)
(1,370) (G)
Direct costs of mortgage services - 77,718 (38,720) (G) 38,998
-------------- ------------ ------------- ---------------
Total selling, general and
administrative 390,168 835,397 (503,673) 721,892
-------------- ------------ ------------- ---------------
Depreciation and amortization 102,208 - 59,898 (G) 162,106
Interest 36,930 169,933 (120,404) (F) 109,429
22,970 (H)
Other 16,259 - - 16,259
-------------- ------------ ------------ ---------------
Total expenses 545,565 1,005,330 (541,209) 1,009,686
-------------- ------------ ------------- ---------------
Income before income taxes 332,150 118,264 - 450,414
Provision for income taxes 137,087 48,253 - 185,340
-------------- ------------ ------------ ---------------
Net Income $ 195,063 $ 70,011 $ - $ 265,074
============== ============ ============ ===============
PER SHARE INFORMATION (FULLY DILUTED)
Net income $ 1.35 $ 1.55
============== ===============
Weighted average common and
common equivalent shares
outstanding 147,513 25,700 (I) 173,213
============== ============ ===============
- -----------------
(1) Pro forma for all material transactions, excluding the PHH Merger (See
Section II).
(2) The historical statement of operations of PHH is for the nine months
ended October 31, 1996.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by the
merged companies.
See notes to pro forma consolidated combining financial statements.
10
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED COMBINING
FINANCIAL STATEMENTS
A. OTHER CURRENT ASSETS:
The pro forma adjustment reclassifies advances from clients to accounts
payable and other accrued liabilities. This adjustment is made to conform
to the presentation expected to be used by the merged companies. This
adjustment was made to conform to the presentation expected to be used
by the merged companies.
B. Long-Term Debt:
This pro forma adjustment reclassifies the portion of long-term debt
associated with real estate services activities from Liabilities under
Vehicle Management and Mortgage Programs to Long-Term Debt. This
adjustment is made to conform to the presentation expected to be used
by the merged companies.
C. EQUITY:
The pro forma adjustment reflects a reclassification of equity in
connection with issuance of Company common stock to the PHH shareholders.
D. SERVICES FEES:
The pro forma adjustment offsets amounts billed (PHH revenue) to
client corporations with expenses incurred (PHH expense) on behalf of
client corporations. This adjustment is made to conform to the
presentation expected to be used by the merged companies.
E. FLEET MANAGEMENT:
The pro forma adjustment reclassifies service fees generated from
fee-based services provided to clients' vehicle fleets. This adjustment
is made to conform to the presentation expected to be used by the merged
companies.
F. INTEREST EXPENSE--FLEET MANAGEMENT:
The pro forma adjustment reclassifies interest expense on debt incurred
to finance vehicle leasing activities. This adjustment is made to conform
to the presentation expected to be used by the merged companies.
G. DEPRECIATION AND AMORTIZATION:
The pro forma adjustment reclassifies depreciation and amortization,
other than depreciation on vehicles under operating leases, to a separate
financial line to conform to the presentation expected to be used by the
merged companies.
H. INTEREST EXPENSE--REAL ESTATE SERVICES:
The pro forma adjustment reclassifies the interest portion of the cost of
carrying and reselling homes from selling general and administrative
expense to interest expense. This adjustment is made to conform to the
presentation expected to be used by the merged companies.
I. WEIGHTED AVERAGE SHARES:
The pro forma adjustment reflects the number of shares of Company common
stock estimated to be issued by the Company in connection with the PHH
Merger at an assumed $67.00 per share price.
11
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
EXCLUDING THE PHH MERGER
The pro forma consolidated balance sheet as of September 30, 1996 is presented
as if the following had occurred on September 30, 1996:(i) the acquisition of
Avis, Inc. ("Avis") and issuance of Company common stock (the "Avis Offering")
as partial consideration for Avis and; (ii) the acquisition of Resort
Condominiums International, Inc. and its affiliates ("RCI") and the issuance
of Company common stock as partial consideration for RCI. The Company
currently intends to undertake an initial public offering of a majority
interest in the corporation which owns all company-owned Avis car rental
locations (the "Operating Company") in 1997 and to enter into franchise,
information technology and other agreements to provide services to the
Operating Company based on terms to be determined. Accordingly, the pro forma
financial statements reflect the acquired net assets and results of operations
of the Avis rental car operating subsidiary intended to be sold as "Investment
in car rental operating company-net" and "Other revenue", respectively.
The pro forma statements of operations for the year ended December 31, 1995
and the nine months ended September 30, 1995 and 1996 are presented as if the
acquisitions of Avis and RCI and the following transactions had occurred on
January 1, 1995: (i) the May 31, 1996 acquisition of the common stock of
Coldwell Banker Corporation ("Coldwell Banker") and the related contribution
of Coldwell Banker's owned real estate brokerage offices (the "Owned Brokerage
Business") to an independent trust (the "Trust") (the "Coldwell Banker
Transaction"); (ii) the receipt of proceeds from an offering of the Company's
common stock (the "CB Offering") to the extent necessary to fund the
acquisition of Coldwell Banker and the related repayment of indebtedness and
acquisition expenses; (iii) the acquisitions of: the six non-owned Century 21
regions ("Century 21 NORS") during the second quarter of 1996, the Travelodge
franchise system ("Travelodge") on January 23, 1996 and the Electronic Realty
Associates franchise system ("ERA") on February 12, 1996 (collectively, the
"Other 1996 Acquisitions"); and (iv) the February 22, 1996 issuance of $240
million of 4 3/4% convertible senior notes due 2003 to the extent such
proceeds were used to finance the Other 1996 Acquisitions. The pro forma
statements of operations for the year ended December 31, 1995 and the nine
months ended September 30, 1995 are also presented as if the August 1, 1995
acquisition of Century 21 and the acquisition by merger (the "CCI Merger") in
May 1995 of Central Credit Inc. ("CCI") had occurred on January 1, 1995.
All of the aforementioned acquisitions have been accounted for using the
purchase method of accounting. Accordingly, assets acquired and liabilities
assumed have been recorded at their estimated fair values which are subject to
further refinement, including appraisals and other analyses, with appropriate
recognition given to the effect of current interest rates and income taxes.
Management does not expect that the final allocation of the purchase price for
the above acquisitions will differ materially from the preliminary
allocations. The Company has entered into certain immaterial transactions
which are not reflected in the pro forma statements of operations.
The pro forma consolidated financial statements do not purport to present the
financial position or results of operations of the Company had the
transactions and events assumed therein occurred on the dates specified, nor
are they necessarily indicative of the results of operations that may be
achieved in the future. In addition to the cost savings reflected in the pro
forma consolidated statements of operations, the pro forma consolidated
statements of operations do not reflect certain additional cost savings and
revenue enhancements that management believes may be realized following the
acquisitions. These savings are expected to be realized primarily through the
restructuring of franchise services of the acquired companies as well as
revenue enhancements expected through leveraging of the Company's preferred
vendor programs. No assurances can be made as to the amount of cost savings or
revenue enhancements, if any, that actually will be realized.
The pro forma consolidated financial statements are based on certain
assumptions and adjustments described in the Notes to Pro Forma Consolidated
Balance Sheet and Statements of Operations and should be read in conjunction
therewith and with (i) the consolidated financial statements and related notes
of the Company included in its 1995 Annual Report on Form 10-K; (ii) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996, June 30, 1996
12
as amended by the Form 10-Q/A and September 30, 1996; and (iii) the financial
statements and related notes of the acquired companies previously filed in
Current Reports on Form 8-K pursuant to Regulation S-X Rule 3-05, "Financial
Statements of Businesses Acquired or to be Acquired."
13
SECTION II
HFS INCORPORATED AND SUBSIDIARIES PAGE 1 OF 2
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
HISTORICAL
-------------------------------------
PRO FORMA ADJUSTMENTS
--------------------------
HFS AVIS (1) RCI AVIS (A) RCI (B) PRO FORMA
----------- --------- --------- ---------- ------------ ----------
ASSETS
Current assets
Cash and cash equivalents $ 471,194 $ - $ 89,070 $ (367,166) $ (42,198) $ 150,900
Marketable securities - - 184,599 - (184,599) -
Relocation receivables 136,052 - - - - 136,052
Other accounts and notes
receivable, net 113,175 1,800 33,107 - - 148,082
Other current assets 59,081 1,881 22,836 - - 83,798
----------- --------- --------- ---------- ----------- -----------
TOTAL CURRENT ASSETS 779,502 3,681 329,612 (367,166) (226,797) 518,832
----------- --------- --------- ----------- ------------ -----------
Property and equipment-net 106,233 33,828 87,785 58,172 (45,000) 241,018
Franchise agreements-net 594,415 - - - - 594,415
Excess of cost over fair value of
net assets acquired-net 1,339,836 - - - - 1,339,836
Intangible assets - 499,143 - 127,426 541,831 1,168,400
Investment in car rental
operating company-net - (127,384) - 202,384 - 75,000
Deferred income taxes-net - - - 5,200 56,000 61,200
Other assets 80,064 59,633 40,936 (9,614) (33,203) 137,816
----------- --------- --------- ----------- ------------ -----------
TOTAL ASSETS $ 2,900,050 $ 468,901 $ 458,333 $ 16,402 $ 292,831 $ 4,136,517
=========== ========= ========= =========== =========== ===========
Note: Certain reclassifications have been made to the historical results of HFS
to conform with the Company's pro forma classification.
(1) See Consolidated Historical Balance Sheet of Avis, Inc. as adjusted as of
August 31, 1996.
See notes to pro forma consolidated balance sheet and statements of operations.
14
SECTION II
HFS INCORPORATED AND SUBSIDIARIES PAGE 2 OF 2
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
HISTORICAL
-------------------------------------
PRO FORMA ADJUSTMENTS
--------------------------
HFS AVIS (1) RCI AVIS (A) RCI (B) PRO FORMA
----------- --------- --------- ---------- ------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other
accrued liabilities $ 160,357 $ 1,954 $ 80,996 $ - $ - $ 243,307
Deferred revenue 24,655 - 119,218 - - 143,873
Income taxes payable 81,633 182 - (182) - 81,633
Accrued acquisition obligations 40,287 - - 44,000 - 84,287
Current portion of long-term debt 29,907 - - 100,930 - 130,837
----------- --------- --------- --------- --------- -------------
TOTAL CURRENT LIABILITIES 336,839 2,136 200,214 144,748 - 683,937
----------- --------- --------- --------- --------- -------------
Long-term debt 534,264 - 3,536 - 285,000 822,800
Deferred revenue 7,299 - 185,703 - - 193,002
Other non-current liabilities 31,259 - 1,711 - - 32,970
Deferred income taxes 85,400 - - - - 85,400
Preferred stock - Avis, Inc. - 72,416 - (72,416) - -
Redeemable portion of
common stock-ESOP - 295,465 - (295,465) - -
Unearned compensation-ESOP - (257,751) - 257,751 - -
STOCKHOLDERS' EQUITY
Participating convertible
preferred stock - 132,000 - (132,000) - -
Common stock 1,237 290 - (244) 10 1,293
Additional paid-in capital 1,705,541 220,401 16,189 117,972 50,776 2,110,879
Retained earnings 206,236 103,339 37,459 (103,339) (37,459) 206,236
Treasury stock (8,025) (102,269) - 102,269 8,025 -
Net unrealized gain on available
for sale of securities - - 13,521 - (13,521) -
Foreign currency equity adjustment - 2,874 - (2,874) - -
----------- --------- --------- ---------- --------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,904,989 356,635 67,169 (18,216) 7,831 2,318,408
----------- --------- --------- ---------- --------- -------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 2,900,050 $ 468,901 $ 458,333 $ 16,402 $ 292,831 $ 4,136,517
=========== ========= ========= ========== ========= =============
- --------------
Note: Certain reclassifications have been made to the historical results of
HFS to conform with the Company's pro forma classification.
(1) See Consolidated Historical Balance Sheet of Avis, Inc. as adjusted as of
August 31, 1996.
See notes to pro forma consolidated balance sheet and statements of operations.
15
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED HISTORICAL BALANCE SHEET
AS OF AUGUST 31, 1996
(IN THOUSANDS)
HISTORICAL RECLASSIFICATION AVIS,
AVIS ADJUSTMENT AS ADJUSTED
--------------- ---------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 75,683 $ (75,683) $ -
Accounts and notes
receivable, net 174,047 (172,247) 1,800
Vehicles, net 2,567,517 (2,567,517) -
Due from affiliated company 114,976 (114,976) -
Other current assets 45,296 (43,415) 1,881
Deferred income taxes 68,667 (68,667) -
-------------- -------------- -------------
Total current assets 3,046,186 (3,042,505) 3,681
-------------- --------------- -------------
Property and equipment-net 151,854 (118,026) 33,828
Intangible assets-Avis 499,143 - 499,143
Investment in car rental
operating company-net - (127,384) (127,384)
Other assets 85,368 (25,735) 59,633
-------------- --------------- -------------
Total $ 3,782,551 $ (3,313,650) $ 468,901
============== =============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other $ 444,867 $ (442,731) $ 2,136
-------------- --------------- -------------
Long-term debt 2,488,651 (2,488,651) -
Public liability and property damage 215,135 (215,135) -
Due to affiliated company 132,563 (132,563) -
Other non-current liabilities
Deferred income taxes 34,570 (34,570) -
Preferred stock-Avis, Inc. 72,416 - 72,416
Redeemable portion of common
stock - ESOP 295,465 - 295,465
Unearned compensation - ESOP (257,751) - (257,751)
Stockholders' Equity
Participating convertible
preferred stock 132,000 - 132,000
Common stock 290 - 290
Additional paid-in capital 220,401 - 220,401
Retained earnings 103,339 - 103,339
Treasury stock (102,269) - (102,269)
Foreign currency equity adjustment 2,874 - 2,874
-------------- --------------- -------------
Total stockholders' equity 356,635 - 356,635
-------------- --------------- -------------
Total $ 3,782,551 $ (3,313,650) $ 468,901
============== =============== =============
- --------------
Note: The reclassification adjustment made to the historical balance sheet of
Avis, Inc. is to present the historical net assets of car rental
operations as "investment in car rental subsidiary-net".
See notes to pro forma consolidated balance sheet and statements of operations.
16
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
-------------------------------
ACQUIRED PRO FORMA
HFS (1) COMPANIES ADJUSTMENTS PRO FORMA
------------ ------------- ------------- ---------------
NET REVENUES
Service fees, net $ 229,671 $ 1,130,675 $ 25,950 (C) $ 834,038
(535,207) (D)
(17,051) (E)
Other 43,541 91,312 (4,421) 169,510
- - 39,078 (F)
------------ ------------- ------------ ---------------
Net revenues 273,212 1,221,987 (491,651) 1,003,548
------------ ------------- ------------- ---------------
EXPENSES
Selling, general and
administrative 82,426 957,758 (66,317) (G) 452,491
(521,376) (H)
Depreciation and amortization 30,857 66,522 38,940 (I) 136,319
Interest 21,789 12,553 19,192 (J) 53,534
Other 3,235 31,891 (1,599) 33,527
------------ ------------- ------------- ---------------
Total expenses 138,307 1,068,724 (531,160) 675,871
------------ ------------- ------------- ---------------
Income before income taxes
and extraordinary loss 134,905 153,263 39,509 327,677
Provision for income taxes 55,175 56,368 23,700 (K) 135,243
------------ ------------- ------------ ---------------
Income before extraordinary loss 79,730 96,895 15,809 192,434
Extraordinary loss - 2,027 (2,027) -
------------ ------------- ------------- ---------------
Net income $ 79,730 $ 94,868 $ 17,836 $ 192,434
============ ============= ============ ===============
PER SHARE INFORMATION
(FULLY DILUTED)
Net income $ .73 $ 1.38
============ ===============
Weighted average common and
common equivalent shares
outstanding 115,654 27,456 (L) 143,110
============ ============ ===============
- -----------------
Note: Certain reclassifications have been made to the historical results of
HFS and acquired companies to conform with the Company's pro forma
classification.
The historical statement of income has been adjusted to reclassify $139,771
of marketing and reservations expenses against related service fees.
See notes to pro forma consolidated balance sheet and statements of
operations.
17
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF ACQUIRED COMPANIES
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
--------------------------------------------------------
AVIS (1) COLDWELL OTHER TOTAL
AS ADJUSTED RCI BANKER ACQUISITIONS HISTORICAL
----------- ---------- ---------- ------------ ----------
NET REVENUES
Service fees, net $ 21,608 $ 295,183 $ 679,137 $ 134,747 $ 1,130,675
Other 41,200 - 20,264 29,848 91,312
----------- ---------- ---------- ----------- -----------
Net revenues 62,808 295,183 699,401 164,595 1,221,987
----------- ---------- ---------- ----------- -----------
EXPENSES
Selling, general
and administrative 7,205 205,637 616,182 128,734 957,758
Depreciation and
amortization 19,683 15,931 22,425 8,483 66,522
Interest 461 536 5,329 6,227 12,553
Other 410 16,724 - 14,757 31,891
----------- ---------- ---------- ----------- -----------
Total expenses 27,759 238,828 643,936 158,201 1,068,724
----------- ---------- ---------- ----------- -----------
Income before
income taxes and
extraordinary loss 35,049 56,355 55,465 6,394 153,263
Provision for
income taxes 23,977 4,464 24,385 3,542 56,368
----------- ---------- ---------- ----------- -----------
Income before
extraordinary loss 11,072 51,891 31,080 2,852 96,895
Extraordinary loss - - 2,027 - 2,027
----------- ---------- ---------- ----------- -----------
Net income $ 11,072 $ 51,891 $ 29,053 $ 2,852 $ 94,868
=========== ========== ========== =========== ===========
- --------------
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's pro forma
classification.
(1) The historical financial statement of operations of Avis, as adjusted,
has been adjusted to present only the historical results of operations
intended to be retained by the Company. See Historical Consolidated
Statement of Operations of Avis, Inc., as Adjusted, for the year ended
February 29, 1996.
See notes to pro forma consolidated balance sheet and statements of
operations.
18
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
OF AVIS, INC., AS ADJUSTED
FOR THE YEAR ENDED FEBRUARY 29, 1996
(IN THOUSANDS)
ADJUSTMENTS
-----------------------------------
RENTAL CAR AVIS,
HISTORICAL RECLASSIFICATION SUBSIDIARY AS ADJUSTED
-------------- ---------------- ------------- ---------------
REVENUES $ 1,716,677 $ -- $ (1,653,869) $ 62,808
EXPENSES
Selling, general and
administrative 1,119,888 (16,865) (1,095,818) 7,205
Depreciation and
amortization 411,796 16,404 (408,517) 19,683
Interest 149,534 461 (149,534) 461
Other 410 -- -- 410
------------- ------------- ------------ -------------
Total expenses 1,681,628 -- (1,653,869) 27,759
------------- ------------- ------------- -------------
Income before income taxes 35,049 -- -- 35,049
Provision for income taxes 23,977 -- -- 23,977
------------- ------------- ------------ -------------
Net income $ 11,072 $ -- $ -- $ 11,072
============= ============= ============ =============
- ---------------
See notes to pro forma consolidated balance sheet and statements of operations.
19
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF OTHER ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
CENTURY CENTURY 21
CCI (1) 21 (1) NORS TRAVELODGE ERA TOTAL
--------- --------- ----------- ----------- --------- -----
NET REVENUES
Service fees, net $ - $ 60,506 $ 29,021 $ 18,361 $ 26,859 $ 134,747
Other 3,326 10,164 403 79 15,876 29,848
--------- --------- ----------- ----------- --------- ---------
Net revenues 3,326 70,670 29,424 18,440 42,735 164,595
--------- --------- ----------- ----------- --------- ---------
EXPENSES
Selling, general
and administrative - 57,241 25,763 15,604 30,126 128,734
Depreciation and
amortization 529 5,217 578 8 2,151 8,483
Interest - 2,904 54 - 3,269 6,227
Other 1,917 2,751 - - 10,089 14,757
--------- --------- ----------- ----------- --------- ---------
Total expenses 2,446 68,113 26,395 15,612 45,635 158,201
--------- --------- ----------- ----------- --------- ---------
Income (loss) before
income taxes 880 2,557 3,029 2,828 (2,900) 6,394
Provision for income taxes 313 2,097 - 1,132 - 3,542
--------- --------- ----------- ----------- --------- ---------
Net income (loss) $ 567 $ 460 $ 3,029 $ 1,696 $ (2,900) $ 2,852
========= ========= =========== =========== =========== =========
- ---------------
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's pro forma
classification.
(1) Reflects results of operations for the period from January 1, 1995 to
the respective dates of acquisition.
See notes to pro forma consolidated balance sheet and statement of operations.
20
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1996
------------- -------------
NET REVENUES
Service fees, net $ 616,268 $ 691,711
Other 115,985 186,004
------------- -------------
Net revenues 732,253 877,715
------------- -------------
EXPENSES
Selling, general and administrative 335,403 390,168
Depreciation and amortization 100,632 102,208
Interest 41,063 36,930
Other 22,328 16,259
------------- -------------
Total expenses 499,426 545,565
------------- -------------
Income before income taxes 232,827 332,150
Provision for income taxes 96,094 137,087
------------- -------------
Net income $ 136,733 $ 195,063
============= =============
PER SHARE INFORMATION (FULLY DILUTED)
Net income $ 1.00 $ 1.35
============= ============
Weighted average common and common
equivalent shares outstanding 140,582 147,513
============== =============
See notes to pro forma consolidated balance sheet and statements of operations.
21
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
---------------------------
ACQUIRED PRO FORMA
HFS (1) COMPANIES ADJUSTMENTS PRO FORMA
---------- ----------- -------------- ------------
NET REVENUES
Service fees, net $ 159,792 $ 862,148 $ 19,508 (C) $ 616,268
(411,795) (D)
(13,385) (E)
Other 30,869 53,318 31,798 (F) 115,985
---------- ----------- ------------ ----------
Net revenues 190,661 915,466 (373,874) 732,253
---------- ----------- ------------- ----------
EXPENSES
Selling, general
and administrative 49,472 730,298 (50,773) (G) 335,403
(393,594) (H)
Depreciation and amortization 21,721 52,566 26,345 (I) 100,632
Interest 16,272 8,135 16,656 (J) 41,063
Other 2,012 21,018 (702) 22,328
---------- ----------- ------------- ----------
Total expenses 89,477 812,017 (402,068) 499,426
---------- ----------- ------------- ----------
Income before income taxes
and extraordinary loss 101,184 103,449 28,194 232,827
Provision for income taxes 41,820 43,250 11,024 (K) 96,094
---------- ----------- ------------ ----------
Income before extraordinary loss 59,364 60,199 17,170 136,733
Extraordinary loss - 2,027 (2,027) -
---------- ----------- ------------- ----------
Net income $ 59,364 $ 58,172 $ 19,197 $ 136,733
========== =========== ============ ==========
PER SHARE INFORMATION
(FULLY DILUTED)
Net income $ .56 $ 1.00
========== ==========
Weighted average common and
common equivalent shares
outstanding 112,056 28,526 (L) 140,582
========== ============ ==========
- -----------------
(1) The historical statement of income has been adjusted to reclassify
$109,070 of marketing and reservation expenses against related service
fees.
Note: Certain reclassifications have been made to the historical results of
HFS and acquired companies to conform with the Company's pro forma
classification.
See notes to pro forma consolidated balance sheet and statements of operations.
22
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF ACQUIRED COMPANIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
--------------------------------------------------------
AVIS (1) COLDWELL OTHER TOTAL
AS ADJUSTED RCI BANKER ACQUISITIONS HISTORICAL
----------- ---------- ---------- ------------ -----------
NET REVENUES
Service fees, net $ 13,358 $ 222,627 $ 513,483 $ 112,680 $ 862,148
Other 21,652 - 3,972 27,694 53,318
---------- ---------- ---------- ----------- -----------
Net revenues 35,010 222,627 517,455 140,374 915,466
---------- ---------- ---------- ----------- -----------
EXPENSES
Selling, general
and administrative 7,106 154,227 458,785 110,180 730,298
Depreciation and
amortization 14,253 12,698 17,272 8,343 52,566
Interest - 402 2,958 4,775 8,135
Other - 6,570 1,944 12,504 21,018
---------- ---------- ---------- ----------- -----------
Total expenses 21,359 173,897 480,959 135,802 812,017
---------- ---------- ---------- ----------- -----------
Income before
income taxes and
extraordinary loss 13,651 48,730 36,496 4,572 103,449
Provision for
income taxes 21,644 1,940 16,422 3,244 43,250
---------- ---------- ---------- ----------- -----------
Income (loss) before
extraordinary loss (7,993) 46,790 20,074 1,328 60,199
Extraordinary loss - - 2,027 - 2,027
---------- ---------- ---------- ----------- -----------
Net income (loss) $ (7,993) $ 46,790 $ 18,047 $ 1,328 $ 58,172
=========== ========== ========== =========== ===========
- --------------
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's pro forma
classification.
(1) The historical financial statement of operations of Avis, as adjusted,
has been adjusted to present only the historical results of operations
intended to be retained by the Company. See Historical Consolidated
Statement of Operations of Avis, Inc., as Adjusted, for the nine months
ended August 31, 1995.
See notes to pro forma consolidated balance sheet and statements of operations.
23
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
OF AVIS, INC. AS ADJUSTED
FOR THE NINE MONTHS ENDED AUGUST 31, 1995
(IN THOUSANDS)
RENTAL CAR
SUBSIDIARY AVIS
HISTORICAL ADJUSTMENT AS ADJUSTED
------------ ------------- ------------
REVENUES $ 1,190,189 $ (1,155,179) $ 35,010
------------ ------------- -----------
EXPENSES
Selling, general and administrative 766,509 (759,403) 7,106
Depreciation and amortization 304,339 (290,086) 14,253
Interest 105,379 (105,379) -
Other 311 (311) -
------------ ------------- -----------
Total expenses 1,176,538 (1,155,179) 21,359
------------ ------------- -----------
Income before income taxes 13,651 - 13,651
Provision for income taxes 21,644 - 21,644
------------ ------------ -----------
Net loss $ (7,993) $ - $ (7,993)
============= ============ ============
- ---------------
See notes to pro forma consolidated balance sheet and statements of operations.
24
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF OTHER ACQUISITIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
CENTURY CENTURY 21
CCI (1) 21 (1) NORS TRAVELODGE ERA TOTAL
--------- --------- ----------- ----------- --------- -----
NET REVENUES
Service fees, net $ - $ 60,506 $ 20,750 $ 13,476 $ 17,948 $ 112,680
Other 3,326 10,164 288 59 13,857 27,694
--------- --------- ----------- ----------- --------- ---------
Net revenues 3,326 70,670 21,038 13,535 31,805 140,374
--------- --------- ----------- ----------- --------- ---------
EXPENSES
Selling, general
and administrative - 57,241 18,421 11,503 23,015 110,180
Depreciation and
amortization 529 5,217 413 6 2,178 8,343
Interest - 2,904 38 - 1,833 4,775
Other 1,917 2,751 - - 7,836 12,504
--------- --------- ----------- ----------- --------- ---------
Total expenses 2,446 68,113 18,872 11,509 34,862 135,802
--------- --------- ----------- ----------- --------- ---------
Income (loss) before
income taxes 880 2,557 2,166 2,026 (3,057) 4,572
Provision for income taxes 313 2,097 - 834 - 3,244
--------- --------- ----------- ----------- --------- ---------
Net income (loss) $ 567 $ 460 $ 2,166 $ 1,192 $ (3,057) $ 1,328
========= ========= =========== =========== =========== =========
- ---------------
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's pro forma
classification.
(1) Reflects results of operations for the period from January 1, 1995 to
the respective dates of acquisition.
See notes to pro forma consolidated balance sheet and statement of operations.
25
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
-----------------------------
ACQUIRED PRO FORMA
HFS (1) COMPANIES ADJUSTMENTS PRO FORMA
---------- ------------ --------------- -------------
NET REVENUES
Service fees, net $ 346,127 $ 584,215 $ 11,835 (C) $ 691,711
(235,625) (D)
(14,841) (E)
Other 81,733 78,084 26,187 (F) 186,004
---------- ----------- ------------ ----------
Net revenues 427,860 662,299 (212,444) 877,715
---------- ----------- ------------- ----------
EXPENSES
Selling, general
and administrative 148,287 525,245 (56,001) (G) 390,168
(227,363) (H)
Depreciation and amortization 41,129 37,041 24,038 (I) 102,208
Interest 22,194 4,993 9,743 (J) 36,930
Other 10,988 5,616 (345) 16,259
---------- ----------- ------------- ----------
Total expenses 222,598 572,895 (249,928) 545,565
---------- ----------- ------------- ----------
Income before income taxes 205,262 89,404 37,484 332,150
Provision for income taxes 82,630 21,904 32,553 (K) 137,087
---------- ----------- ------------ ----------
Net income $ 122,632 $ 67,500 $ 4,931 $ 195,063
========== =========== ============ =========
PER SHARE INFORMATION
(FULLY DILUTED)
Net income $ .96 - - $ 1.35
========== ==========
Weighted average common and
common equivalent shares
outstanding 131,684 - 15,829 (L) 147,513
========== ============ ==========
- ---------------
(1) The historical statement of income has been adjusted to reclassify
$122,150 of marketing and reservation expenses against related service
fees.
Note: Certain reclassifications have been made to the historical results of
HFS and acquired companies to conform with the Company's pro forma
classification.
See notes to pro forma consolidated balance sheet and statement of operations.
26
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF ACQUIRED COMPANIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
HISTORICAL
------------------------------------------------------------
OTHER
AVIS (1) COLDWELL 1996 (2) TOTAL
AS ADJUSTED RCI BANKER (2) ACQUISITIONS HISTORICAL
-------------- ---------- ----------- ------------ ----------
NET REVENUES
Service fees, net $ 26,871 $ 251,516 $ 295,478 $ 10,350 $ 584,215
Other 72,366 - 4,067 1,651 78,084
---------- ---------- ----------- ----------- -----------
Net revenues 99,237 251,516 299,545 12,001 662,299
---------- ---------- ----------- ----------- -----------
EXPENSES
Selling, general and
administrative 20,173 181,489 312,348 11,235 525,245
Depreciation and
amortization 14,247 13,352 9,021 421 37,041
Interest - 345 3,155 1,493 4,993
Other - 4,340 512 764 5,616
---------- ---------- ----------- ----------- -----------
Total expenses 34,420 199,526 325,036 13,913 572,895
---------- ---------- ----------- ----------- -----------
Income (loss) before
income taxes 64,817 51,990 (25,491) (1,912) 89,404
Provision (benefit) for
income taxes 29,966 2,370 (10,432) - 21,904
---------- ---------- ------------ ----------- -----------
Net income (loss) $ 34,851 $ 49,620 $ (15,059) $ (1,912) $ 67,500
========== ========== ============ ============ ===========
- ---------------
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification.
(1) The historical financial statements of operations of Avis, as adjusted,
has been adjusted to include the historical results of Avis operations
intended to be retained by the Company and the operating results of the
Avis Car rental subsidiary, included in Other Revenue. See Historical
Consolidated Statement of Operations of Avis, Inc., as Adjusted for the
nine months ended August 31, 1996.
(2) Reflects results of operations for the period from January 1, 1996 to
the respective dates of acquisition.
See notes to pro forma consolidated balance sheet and statement of operations.
27
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
OF AVIS, INC., AS ADJUSTED
FOR THE NINE MONTHS ENDED AUGUST 31, 1996
(IN THOUSANDS)
RENTAL CAR
SUBSIDIARY AVIS
HISTORICAL ADJUSTMENT AS ADJUSTED
------------- ------------- -------------
REVENUES $ 1,490,709 $ (1,391,472) $ 99,237
------------- ------------- ------------
EXPENSES
Selling, general and administrative 975,769 (955,596) 20,173
Depreciation and amortization 333,147 (318,900) 14,247
Interest 116,958 (116,958) -
Other 18 (18) -
------------- -------------- -------------
Total expenses 1,425,892 (1,391,472) 34,420
------------- -------------- -------------
Income before income taxes 64,817 - 64,817
Provision for income taxes 29,966 - 29,966
------------- ------------- -------------
Net income $ 34,851 $ - $ 34,851
============= ============= =============
- ---------------
See notes to pro forma consolidated balance sheet and statements of operations.
28
SECTION II
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
OF OTHER 1996 ACQUISITIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
CENTURY 21
NORS (1) TRAVELODGE (1) ERA (1) TOTAL
----------- -------------- ----------- ------------
NET REVENUES
Service fees, net $ 6,668 $ 688 $ 2,994 $ 10,350
Other 449 - 1,202 1,651
---------- -------------- ---------- ------------
Net revenues 7,117 688 4,196 12,001
---------- -------------- ---------- ------------
EXPENSES
Selling, general
and administrative 7,566 552 3,117 11,235
Depreciation
and amortization 285 - 136 421
Interest 2 - 1,491 1,493
Other - - 764 764
---------- -------------- ---------- ------------
Total expenses 7,853 552 5,508 13,913
---------- -------------- ---------- ------------
Income (loss) before
income taxes (736) 136 (1,312) (1,912)
Provision for
income taxes - - - -
---------- -------------- ---------- ------------
Net income (loss) $ (736) $ 136 $ (1,312) $ (1,912)
=========== ============== =========== =============
- ---------------
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification.
(1) Reflects results of operations for the period from January 1, 1996 to
the respective date of acquisition.
See notes to pro forma consolidated balance sheet and statements of operations.
29
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND
STATEMENTS OF OPERATIONS
A. ACQUISITION OF AVIS:
The purchase price for Avis has been allocated to assets acquired and
liabilities assumed at their estimated fair values. Pro forma adjustments
consist of the elimination of certain acquired assets and assumed
liabilities, net of the fair value ascribed to such assets and
liabilities.
The Company acquired Avis for the following consideration ($000's):
Cash consideration (i) $ 367,166
Issuance of approximately 4.6 million shares of Company
common stock 338,419
Issuance of note to ESOP 100,930
-------------
TOTAL PRO FORMA ACQUISITION COST 806,515
-------------
Fair value of net assets acquired:
Historical book value of acquired company 356,635
Elimination of net assets (liabilities) not acquired or assumed:
Other assets (9,614)
Preferred stock - Avis 72,416
Intangible assets - Avis (499,143)
Redeemable portion of common stock - ESOP 295,465
Unearned compensation - ESOP (257,751)
Fair value adjustments to assets acquired and liabilities assumed:
Deferred income tax asset, net (ii) 5,200
Property and equipment 58,172
Investment in car rental operating company 202,384
Accrued acquisition obligations (44,000)
Other 182
-------------
FAIR VALUE OF IDENTIFIABLE NET ASSETS ACQUIRED 179,946
-------------
Intangible assets-Avis (iii) $ 626,569
=============
(i) The cash consideration of the pro forma acquisition cost was financed
by the Second Quarter 1996 Offering.
(ii) The pro forma adjustment to deferred income taxes recorded in
connection with the acquisition results from differences in the fair
values of assets acquired and liabilities assumed and their respective
income tax bases.
(iii) The Company has not completed the valuation of identifiable intangible
assets.
30
A. ACQUISITION OF AVIS (CONTINUED)
The pro forma adjustments include the elimination of Avis stockholders'
equity and the issuance of approximately 4.6 million shares of the
Company's common stock to finance the acquisition.
STOCKHOLDERS' EQUITY
-------------------------------------------------
ISSUANCE OF ELIMINATION OF ADJUSTMENT TO
COMPANY STOCKHOLDERS' STOCKHOLDERS'
COMMON STK. EQUITY EQUITY
-------------- -------------- --------------
Participating convertible preferred stock $ - $ 132,000 $ (132,000)
Common stock 46 290 (244)
Additional paid-in capital 338,373 220,401 117,972
Retained earnings - 103,339 (103,339)
Treasury stock - (102,269) 102,269
Foreign currency equity adjustment - 2,874 (2,874)
---------- ------------ ------------
$ 338,419 $ 356,635 $ (18,216)
========== ============ =============
B. ACQUISITION OF RCI:
The purchase price for RCI has been allocated to assets acquired and
liabilities assumed at their estimated fair values. Pro forma adjustments
consist of the elimination of certain acquired assets and assumed
liabilities, net of the fair value ascribed to such assets and
liabilities.
The Company acquired RCI for the following consideration ($000's):
Cash (i) $ 265,000
Borrowings under the Company's Revolving Credit Facilities 285,000
Issuance of approximately one million shares of Company
common stock (ii) 75,000
-------------------------------
Total pro forma acquisition cost $ 625,000
Fair value of net assets acquired is as follows:
Historical book value of RCI $ 67,169
Fair value adjustments to assets acquired and liabilities assumed:
Property and equipment (45,000)
Other non-current assets 5,000
Deferred income taxes - non -current (iii) 56,000
------------------------------
Fair value of net assets acquired 83,169
-------------
Intangible assets - RCI (iv) $ 541,831
=============
(i) Cash consideration is comprised of $185 million in marketable
securities, $38 million in notes not acquired and $42 million of
acquired RCI cash.
(ii) The number of shares of Company common stock issued in
connection with the acquisition was calculated using a $75.0375
per share stock price.
(iii) The pro forma adjustment to deferred income taxes recorded is
the fair value of unearned income liabilities assumed and the
respective income tax basis.
(iv) The Company has not completed the valuation of identifiable
intangible assets.
31
B. ACQUISITION OF RCI (continued)
STOCKHOLDERS' EQUITY
------------------------------------------------
ISSUANCE OF ELIMINATION OF ADJUSTMENT TO
COMPANY STOCKHOLDERS' STOCKHOLDERS'
COMMON STK. EQUITY EQUITY
------------- -------------- -------------
Common stock $ 10 $ - $ 10
Additional paid-in capital 66,965 (16,189) 50,776
Retained earnings - (37,459) (37,459)
Treasury stock 8,025 - 8,025
Net unrealized gain on available for
sale of securities - (13,521) (13,521)
---------- ------------- -------------
$ 75,000 $ (67,169) $ 7,831
========== ============= ============
The pro forma adjustments include the elimination of RCI stockholders'
equity and the issuance of approximately one million shares of the
Company's common stock as partial consideration for RCI.
C. SERVICE FEE REVENUE:
The pro forma adjustment reflects the elimination of franchise revenue
associated with discontinued Century 21 international based operations,
the elimination of franchise revenue paid by the Century 21 NORS to
Century 21 under sub-franchise agreements and the addition of franchise
fees to be received under franchise contracts with owned brokerage
offices upon contribution of the Owned Brokerage Business to the Trust.
Pro forma adjustments to franchise revenue consists of the following:
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1995 1996
------------------ ----------- -----------
Eliminate:
Discontinued operations $ (57) $ (34) $ -
Century 21 revenue included as
Century 21 NORS SG&A (4,500) (3,375) (1,003)
Add:
Franchise fees from Owned Brokerage Business 30,507 22,917 12,838
---------- ---------- ----------
Total $ 25,950 $ 19,508 $ 11,835
========== ========== ==========
D. SERVICE FEE REVENUE:
The pro forma adjustment reflect the elimination of revenue generated
from Coldwell Banker's 318 formerly owned brokerage offices. The Company
contributed the net assets of the Owned Brokerage Business to the Trust
upon consummation of the Coldwell Banker acquisition. The free cash flow
of the Trust will be expended at the discretion of the trustees to
enhance the growth of funds available for advertising and promotion.
E. SERVICE FEE REVENUE:
The pro forma adjustment reflects the elimination of revenue
associated with investment income generated from RCI cash and marketable
securities which were used by the Company as partial consideration for
the RCI acquisition.
32
F. OTHER REVENUE:
The pro forma adjustment is comprised of the following:
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
ADJUSTMENTS TO RENTAL CAR OPERATIONS: 1995 1995 1996
------------------- ----------- ------------
Elimination of historical expense associated with:
Long-term incentive compensation plans $ 4,700 $ - $ 9,302
Unfavorable vehicle leases 33,411 30,478 15,488
Depreciation and amortization 31,869 23,208 26,120
Addition of pro forma expenses associated with:
Depreciation and amortization of property,
equipment and other intangibles (22,898) (17,174) (17,174)
Increased financing costs (8,004) (4,714) (1,549)
------------- ---------- -----------
Total adjustments to rental car operations 39,078 31,798 32,187
OTHER ADJUSTMENT:
Elimination of historical interest income
related to cash consideration portion
of Avis Acquisition (i) - - (6,000)
------------ ---------- ------------
Total $ 39,078 $ 31,798 $ 26,187
============ ========== ===========
(i) The pro forma adjustment eliminates historical interest income on the
portion of cash generated from the Second Quarter 1996 Offering which
was used as consideration in the Avis Acquisition.
G. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:
The pro forma adjustments eliminate redundant costs associated with the
restructuring of franchise services and other businesses and the
resulting termination of certain functions and positions in connection
with company acquisitions. Adjustments are comprised of the following
($000's):
For the year ended December 31, 1995:
CENTURY COLDWELL CENTURY 21
21 RCI BANKER NORS TRAVELODGE ERA TOTAL
--------- -------- ------- ----------- ----------- --------- --------
Payroll and related $ 10,885 $ 1,198 $10,682 $ 7,706 $ 1,110 $ 7,236 $ 38,817
Professional 2,693 1,000 1,500 1,486 154 387 7,220
Occupancy 3,628 - - 2,754 186 1,172 7,740
Franchise fees (Note B) - - - 4,500 - - 4,500
Other 3,128 2,900 (1,517) 2,326 167 1,036 8,040
-------- -------- -------- ----------- --------- --------- --------
Total $ 20,334 $ 5,098 $10,665 $ 18,772 $ 1,617 $ 9,831 $ 66,317
======== ======== ======= =========== ========= ========= ========
33
For the nine months ended September 30, 1995:
CENTURY COLDWELL CENTURY 21
21 RCI BANKER NORS TRAVELODGE ERA TOTAL
--------- -------- ------- ----------- ----------- --------- -----
Payroll and related $ 10,885 $ 914 $ 9,830 $ 5,354 $ 502 $ 1,526 $ 29,011
Professional 2,693 750 1,573 1,063 70 - 6,149
Occupancy 3,628 - - 1,944 84 666 6,322
Franchise fees (Note B) - - - 3,375 - - 3,375
Other 3,128 1,275 (1,072) 1,528 74 983 5,916
-------- -------- -------- ----------- --------- --------- --------
Total $ 20,334 $ 2,939 $10,331 $ 13,264 $ 730 $ 3,175 $ 50,773
======== ======== ======= =========== ========= ========= ========
For the nine months ended September 30, 1996:
COLDWELL CENTURY 21
RCI BANKER NORS TRAVELODGE ERA TOTAL
-------- -------- ---------- ----------- ---------- ---------
Payroll and related $ 880 $ 5,462 $ 2,425 $ 25 $ 222 $ 9,014
Stock option expense - 40,801 - - - 40,801
Professional 750 1,055 705 4 - 2,514
Occupancy - - 604 4 102 710
Franchise fees (Note B) - - 1,003 - - 1,003
Other 1,333 (604) 1,069 4 157 1,959
------- -------- --------- ----------- ---------- ---------
Total $ 2,963 $46,714 $ 5,806 $ 37 $ 481 $ 56,001
======= ======= ========= =========== ========== =========
H. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:
The pro forma adjustment reflects the elimination of expenses associated
with Coldwell Banker's formerly owned brokerage offices (See Note D).
I. DEPRECIATION AND AMORTIZATION:
The pro forma adjustment for depreciation and amortization is comprised
of ($000's):
For the year ended December 31, 1995:
CCI CENTURY COLDWELL OTHER 1996
MERGER 21 RCI AVIS BANKER ACQUISITIONS TOTAL
-------- --------- ------ -------- -------- ------------ -----
Elimination of historical
expense $ (529) $ (5,217) $(14,193) $(19,683) $(22,425) $ (2,737) $(64,784)
Property, equipment and
furniture and fixtures 100 534 4,623 12,400 1,295 - 18,952
Information data base 375 - - - - - 375
Intangible assets 289 3,669 27,211 20,327 25,877 7,024 84,397
------- -------- -------- ------- ------- --------- --------
Total $ 235 $ (1,014) $ 17,641 $13,044 $ 4,747 $ 4,287 $ 38,940
======= ========= ======== ======= ======= ========= ========
34
For the nine months ended September 30, 1995:
CCI CENTURY COLDWELL OTHER 1996
MERGER 21 RCI AVIS BANKER ACQUISITIONS TOTAL
-------- --------- ------ -------- -------- ------------ -----
Elimination of historical
expense $ (529) $ (5,217) $(12,698) $(14,253) $(17,272) $ (2,597) $(52,566)
Property, equipment and
furniture and fixtures 100 534 3,467 9,300 972 - 14,373
Information data base 375 - - - - - 375
Intangible assets 289 3,669 20,285 15,246 19,408 5,266 64,163
------- -------- -------- ------- ------- --------- --------
Total $ 235 $ (1,014) $ 11,054 $10,293 $ 3,108 $ 2,669 $ 26,345
======= ========= ======== ======= ======= ========= ========
For the nine months ended September 30, 1996:
COLDWELL OTHER 1996
RCI AVIS BANKER ACQUISITIONS TOTAL
--------- --------- ----------- -------------- -----------
Elimination of historical
expense $(13,352) $(14,247) $ (9,021) $ (421) $ (37,041)
Property, equipment and
furniture and fixtures 3,467 9,300 540 - 13,307
Intangible assets 20,285 15,246 10,775 1,466 47,772
------- ------- ---------- ----------- ----------
Total $10,400 $10,299 $ 2,294 $ 1,045 $ 24,038
======= ======= ========== =========== ==========
CCI Merger
The estimated fair values of CCI's information data base, property and
equipment and excess of cost over fair value of net assets acquired are
$7.5 million, $1.0 million and $33.8 million, respectively, and are
amortized on a straight-line basis over the periods to be benefited which
are ten , five and forty years, respectively. The benefit periods
associated with the excess cost over fair value of net assets acquired
were determined based on CCI's position as the dominant provider of
gambling patron credit information services since 1956, its ability to
generate operating profits and expansion of its customer base and the
longevity of the casino gaming industry.
Century 21
The estimated fair values of Century 21 property and equipment, franchise
agreements and excess cost over fair value of net assets acquired are
$5.5 million, $33.5 million and $140.0 million, respectively, and are
amortized on a straight-line basis over the periods to be benefited which
are seven, twelve and forty years, respectively. The benefit periods
associated with the excess cost over fair value of net assets acquired
were determined based on Century 21's position as the world's largest
franchisor of residential real estate brokerage offices, the most
recognized brand name in the residential real estate brokerage industry
and the longevity of the residential real estate brokerage business.
RCI
The fair value of RCI's property and equipment is estimated at
approximately $37 million and is amortized on a straight line basis over
the estimated useful lives, ranging from seven to thirty years.
RCI's intangible assets consist of customer lists and excess of cost over
fair value of net assets acquired. The estimated fair value of such
intangible assets is approximately $542 million and is amortized on a
straight-line basis over the periods to be benefited. The excess of cost
over fair value of net assets acquired was determined to have a benefit
period of forty years, which was based on RCI being a leading provider of
services to the timeshare industry, which includes being the world's
largest provider of timeshare exchange programs.
35
Avis
The estimated fair value of Avis' property and equipment intended to be
retained by the Company, is $92 million, comprised primarily of a
reservation system and related assets. Such property and equipment is
amortized on a straight-line basis over the estimated benefit periods
ranging from five to eight years. The estimated fair values of Avis'
intangible assets, comprised principally of excess of cost over fair
value of net assets acquired, are $627 million and are amortized on a
straight-line basis over the respective assets benefit periods which
range between ten to forty years.
The excess of cost over fair value of net assets acquired was determined
to have a benefit period of forty years, which was based on Avis'
position as the second largest car rental system in the world, the
recognition of its brand name in the car rental industry and the
longevity of the car rental business.
Coldwell Banker
The estimated fair value of Coldwell Banker's property and equipment
(excluding land) of $16.7 million, is amortized on a straight-line basis
over the estimated benefit periods ranging from five to twenty-five
years. The estimated fair value of Coldwell Banker's intangible assets,
comprised of franchise agreements and excess of cost over fair value of
net assets acquired, is $768.4 million and is amortized on a
straight-line basis over the periods to be benefited. The excess of cost
over fair value of net assets acquired was determined to have a benefit
period of forty years, which was based on Coldwell Banker's position as
the largest gross revenue producing real estate company in North
American, the recognition of its brand name in the real estate brokerage
industry and the longevity of the real estate brokerage business.
Other 1996 Acquisitions
The estimated fair values of Other 1996 Acquisitions franchise agreements
aggregate $61.0 million and are being amortized on a straight line basis
over the periods to be benefited, which range from twelve to thirty
years. The estimated fair values of Other Acquisitions excess of cost
over fair value of net assets acquired aggregate $164.2 million and are
each being amortized on a straight line basis over the periods to
benefited which are forty years.
J. INTEREST EXPENSE:
For the Year Ended For the Nine Months Ended
December 31, September 30,
1995 1995 1996
------------------ ----------- -----------
Elimination of historical interest expense of:
Century 21 $ (2,904) $ (2,904) $ -
Other 1996 Acquisitions (3,323) (1,871) (1,493)
RCI (536) (402) (345)
Reversal of Coldwell Banker (5,329) (2,958) (3,155)
Century 21 2,835 2,835 -
RCI 17,955 13,466 13,466
Minority interest - preferred dividends 1,796 1,796 -
4 3/4% Notes to finance Other 1996 Acquisitions 8,698 6,694 1,270
---------- ---------- ----------
Total $ 19,192 $ 16,656 $ 9,743
========== ========== ==========
36
Century 21
The pro forma adjustment reflects the recording of interest expense on $60
million of borrowings under the Company's revolving credit facility at
an interest rate 6.3%. Borrowings represent the amount necessary to
finance the initial cash purchase price net of $10.2 million of acquired
cash.
Coldwell Banker
The pro forma adjustment reflects the reversal of interest expense
relating to the following ($000's):
For the Year Ended For the Nine Months Ended
December 31, September 30,
1995 1995 1996
------------------ ----------- -----------
Expense associated with the Owned
Brokerage Business $ 138 $ 72 $ (179)
Expense associated with revolving credit
facility borrowings which will be repaid
with proceeds from offering 5,191 2,886 3,334
----------- ----------- -----------
Total $ 5,329 $ 2,958 $ 3,155
=========== =========== ===========
RCI
The pro forma adjustment reflects the recording of interest expense on
$285 million of borrowings under the Company's revolving credit
facilities at an interest rate of 6.3%. Borrowings represent the amount
used as partial consideration in the RCI acquisition.
Minority interest - preferred dividends:
The pro forma adjustment represents dividends on the redeemable Series A
Adjustable Rate Preferred Stock of Century 21.
4-3/4% Notes
The pro forma adjustment reflects interest expense and amortization of
deferred financing costs related to the February 22, 1996 issuance of the
4-3/4% Notes to the extent that such proceeds were used to finance the
Other 1996 Acquisitions.
K. INCOME TAXES:
The pro forma adjustment to income taxes is comprised of ($000's):
For the Year Ended For the Nine Months Ended
December 31, September 30,
1995 1995 1996
------------------ ----------- -----------
Reversal of historical (provision) benefit of:
Company $ (55,175) $ (41,820) $ (82,630)
CCI (313) (313) -
Century 21 (2,097) (2,097) -
RCI (4,464) (1,940) (2,370)
Avis (23,977) (21,644) (29,966)
Coldwell Banker (24,385) (16,422) 10,432
Travelodge (1,132) (834) -
Pro forma provision 135,243 96,094 137,087
---------- ---------- ----------
Total $ 23,700 $ 11,024 $ 32,553
========== ========== ==========
37
The pro forma effective tax rates are approximately 1% higher than the
Company's historical effective tax rates due to non-deductible excess of cost
over fair value of net assets acquired to be recorded in connection with the
acquisitions of Avis and RCI.
L. WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:
The pro forma adjustment to weighted average shares consists of the
following (000's):
For The Year Ended For the Nine Months Ended
December 31, September 30,
1995 1995 1996
------------------ ----------- -----------
CCI 896 1,180 -
Century 21 2,334 3,120 -
Avis Offering 4,569 4,569 4,569
RCI 1,000 1,000 1,000
Second Quarter 1996 Offering - Coldwell Banker 12,838 12,838 7,122
Second Quarter 1996 Offering - Avis 4,896 4,896 2,720
Century 21 NORS 923 923 418
----------- ----------- -----------
Total 27,456 28,526 15,829
=========== =========== ===========
The unaudited Pro Forma Consolidated Statements of Operations are
presented as if the acquisitions took place at the beginning of the
periods presented; thus, the stock issuances referred to above are
considered outstanding as of the beginning of the period for purposes of
per share calculations.
38
SECTION III
HFS Incorporated and Subsidiaries
COMBINING HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PHH MERGER
On November 10, 1996, the Company entered into a definitive merger agreement
(the "PHH Merger") pursuant to which the Company will issue approximately $1.7
billion of Company common stock in exchange for all of the outstanding common
stock of PHH Corporation ("PHH"). The accompanying combining consolidated
financial statements give effect to the business combination of the Company
and PHH which will be accounted for as a pooling of interests. Accordingly,
the underlying consolidated combining balance sheet as of September 30, 1996
and the consolidated combining statements of income for each of the years
ended December 31, 1993, 1994 and 1995, and each of the nine month periods
ended September 30, 1995 and 1996, reflects the combining of the historical
financial results of PHH Corporation with and into the historical consolidated
financial results of the Company. The Company expects to recognize a one-time
charge related to transaction and business combination costs in connection with
the PHH Merger, which is not reflected in the combining statements of income.
Additionally, the combining historical consolidated financial statements
reflect adjustments for the pooling of the Company and PHH including
reclassifications to conform accounting policies and shares issued as
consideration in connection with the PHH merger.
The pro forma consolidated financial statements are based on certain
assumptions and adjustments described in the Notes to Pro Forma Consolidated
Balance Sheet and Statements of Operations and should be read in conjunction
therewith and with (i) the consolidated financial statements and related
notes of the Company included in its 1995 Annual Report on Form 10-K (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996; and (iii) the consolidated financial statements of PHH Corporation
included elsewhere in this report.
39
SECTION III
HFS INCORPORATED AND SUBSIDIARIES
COMBINING CONSOLIDATED
BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
PAGE 1 OF 2
HISTORICAL
------------------------------- PRO FORMA COMBINED
HFS PHH (1) ADJUSTMENTS COMPANIES
-------------- ------------- ------------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 471,194 $ 11,450 $ - $ 482,644
Relocation receivables 136,052 666,905 - 802,957
Other accounts and notes receivable, net 113,175 442,951 - 556,126
Other current assets 59,081 58,916 - 117,997
-------------- ------------- ------------- -------------
TOTAL CURRENT ASSETS 779,502 1,180,222 - 1,959,724
-------------- ------------- ------------- -------------
Property and equipment-net 106,233 92,846 - 199,079
Franchise agreements-net 594,415 - - 594,415
Excess of cost over fair value of
net assets acquired-net 1,339,836 47,656 - 1,387,492
Other assets 80,064 125,384 - 205,448
-------------- ------------- ------------- -------------
TOTAL 2,900,050 1,446,108 - 4,346,158
-------------- ------------- ------------- -------------
ASSETS UNDER VEHICLE MANAGEMENT AND
MORTGAGE PROGRAMS
Net investment in leases and leased vehicles - 3,285,721 - 3,285,721
Mortgage loans held for sale - 872,404 - 872,404
Mortgage servicing rights & fees - 280,344 - 280,344
-------------- ------------- ------------- -------------
TOTAL - 4,438,469 - 4,438,469
-------------- ------------- ------------- -------------
TOTAL ASSETS $ 2,900,050 $ 5,884,577 $ - $ 8,784,627
============== ============= ============= =============
- -------------
(1) The historical PHH balance sheet is as of October 31, 1996.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by
the merged companies.
See notes to combining consolidated financial statements.
40
PAGE 2 OF 2
SECTION III
HFS INCORPORATED AND SUBSIDIARIES
COMBINING CONSOLIDATED
BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
HISTORICAL
------------------------------- PRO FORMA COMBINED
HFS PHH (1) ADJUSTMENTS COMPANIES
-------------- ------------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and other
accrued liabilities $ 160,357 $ 418,143 $ 76,651 (A) $ 655,151
Deferred revenue - net 24,655 - - 24,655
Income taxes payable 81,633 - - 81,633
Accrued acquisition obligations 40,287 - - 40,287
Current portion of long-term debt 29,907 - - 29,907
-------------- ------------- ------------- -------------
TOTAL CURRENT LIABILITIES 336,839 418,143 76,651 831,633
-------------- ------------- ------------- -------------
Long-term debt 534,264 - 584,796 (B) 1,119,060
Deferred revenue 7,299 114,021 (76,651) (A) 44,669
Other non-current liabilities 31,259 - - 31,259
Deferred income taxes 85,400 - - 85,400
-------------- ------------- ------------- -------------
TOTAL 995,061 532,164 584,796 2,112,021
-------------- ------------- ------------- -------------
LIABILITIES UNDER VEHICLE MANAGEMENT AND MORTGAGE PROGRAMS
Debt - 4,476,805 (584,796) 3,892,009
Deferred income taxes - 221,700 - 221,700
-------------- ------------- ------------- -------------
Total - 4,698,505 (584,796) 4,113,709
-------------- ------------- ------------- -------------
STOCKHOLDERS' EQUITY
Common stock 1,237 99,820 (99,563) (C) 1,494
Additional paid-in capital 1,705,541 - 99,563 (C) 1,805,104
Retained earnings 206,236 568,400 - 774,636
Treasury stock (8,025) - - (8,025)
Foreign currency equity adjustment - (14,312) - (14,312)
-------------- -------------- ------------- --------------
TOTAL STOCKHOLDERS' EQUITY 1,904,989 653,908 - 2,558,897
-------------- ------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,900,050 $ 5,884,577 $ - $ 8,784,627
============== ============= ============= =============
- -------------
(1) The historical PHH balance sheet is as of October 31, 1996.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by the
merged companies.
See notes to combining consolidated financial statements.
41
SECTION III
HFS INCORPORATED AND SUBSIDIARIES
COMBINING CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
------------------------------- PRO FORMA COMBINED
HFS (1) PHH (2) ADJUSTMENTS COMPANIES
-------------- ------------- ------------- -------------
NET REVENUES
Service fees, net $ 128,489 $ - $ 188,060 (E) $ 316,549
Real estate services - 824,872 (602,965) (D) 221,907
Mortgage services - 150,414 - 150,414
------------ ------------ ------------- ---------------
Service fees, net 128,489 975,286 (414,905) 688,870
------------ ------------ ------------- ---------------
Fleet management - 1,140,557 (188,060) (E) 952,497
Depreciation on vehicles
under operating leases - (790,864) - (790,864)
Interest - - (111,939) (F) (111,939)
------------ ------------ ------------- ----------------
Fleet management, net - 349,693 (299,999) 49,694
------------ ------------ ------------- ---------------
Other 11,881 - - 11,881
------------ ------------ ------------ ---------------
Net revenues 140,370 1,324,979 (714,904) 750,445
------------ ------------ ------------ ---------------
EXPENSES
Selling, general and administrative 40,315 293,161 (20,147) (G) 313,329
Costs, including interest, of carrying
and reselling homes - 728,634 (602,965) (D) 84,981
(36,113) (H)
(4,575) (G)
Direct costs of mortgage services - 56,557 (30,080) (G) 26,477
------------ ------------ ------------- ---------------
Total selling, general and
administrative 40,315 1,078,352 (693,880) 424,787
Depreciation and amortization 19,153 - 54,802 (G) 73,955
Interest 20,234 139,684 (111,939) (F) 84,092
36,113 (H)
------------ ------------ ------------- ---------------
Total expenses 79,702 1,218,036 (714,904) 582,834
------------ ------------ ------------- ---------------
Income before income taxes and
extraordinary loss 60,668 106,943 - 167,611
Provision for income taxes 26,345 43,917 - 70,262
------------ ------------ ------------- ---------------
Income before extraordinary loss 34,323 63,026 - 97,349
Extraordinary loss 12,845 - - 12,845
------------ ------------ ------------- ---------------
Net income $ 21,478 $ 63,026 $ - $ 84,504
============ ============ ============= ===============
PER SHARE INFORMATION
(FULLY DILUTED)
Net income $ .21 $ .67
============ ===============
Weighted average common and
common equivalent shares
outstanding 100,228 25,700 (I) 125,928
============ ============= ===============
- ----------------
(1) The historical statement of income has been adjusted to reclassify
$116,700 of marketing and reservation expenses against related service
fees.
(2) The historical statement of operations of PHH is for the twelve months
ended January 31, 1994.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by the
merged companies.
See notes to combining consolidated financial statements.
42
SECTION III
HFS INCORPORATED AND SUBSIDIARIES
COMBINING CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
------------------------------- PRO FORMA COMBINED
HFS (1) PHH (2) ADJUSTMENTS COMPANIES
-------------- ------------- ------------- -------------
NET REVENUES
Service fees, net $ 152,976 $ - $ 202,031 (E) $ 355,007
Real estate services - 705,146 (478,726) (D) 226,420
Mortgage services - 127,551 - 127,551
------------ ------------ ------------ ---------------
Service fees, net 152,976 832,697 (276,695) 708,978
------------ ------------ ------------ ---------------
Fleet management - 1,225,815 (202,031) (E) 1,023,784
Depreciation on vehicles
under operating leases - (849,523) - (849,523)
Interest (126,721) (F) (126,721)
------------ ------------- ------------ ----------------
Fleet management, net - 376,292 (328,752) 47,540
------------ ------------ ------------- ---------------
Other 29,303 - - 29,303
------------ ------------ ------------ ---------------
Net revenues 182,279 1,208,989 (605,447) 785,821
------------ ------------ ------------ ---------------
EXPENSES
Selling, general and administrative 46,018 295,345 (26,230) (G) 315,133
Costs, including interest, of carrying
and reselling homes - 595,900 (478,726) (D) 93,422
(19,993) (H)
(3,759) (G)
Direct costs of mortgage services - 41,221 (20,284) (G) 20,937
------------ ------------ ------------- ---------------
Total selling, general and
administrative 46,018 932,466 (548,992) 429,492
Depreciation and amortization 23,723 - 50,273 (G) 73,996
Interest 18,685 159,765 (126,721) (F) 71,722
19,993 (H)
Other 3,210 - - 3,210
------------ ------------ ------------ ---------------
Total expenses 91,636 1,092,231 (605,447) 578,420
------------ ------------ ------------- ---------------
Income before income taxes 90,643 116,758 - 207,401
Provision for income taxes 37,154 47,714 - 84,868
------------ ------------ ------------ ---------------
Net income $ 53,489 $ 69,044 $ - $ 122,533
============ ============ ============ ===============
PER SHARE INFORMATION
(FULLY DILUTED)
Net income $ .53 $ .97
============ ===============
Weighted average common and
common equivalent shares
outstanding 100,874 25,700 (I) 126,574
============ ============= ===============
- -----------------
(1) The historical statement of income has been adjusted to reclassify
$130,268 of marketing and reservation expenses against related service
fees.
(2) The historical statement of operations of PHH is for the twelve months
ended January 31, 1995.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by the
merged companies.
See notes to combining consolidated financial statement.
43
SECTION III
HFS INCORPORATED AND SUBSIDIARIES
COMBINING CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
------------------------------- PRO FORMA COMBINED
HFS (1) PHH (2) ADJUSTMENTS COMPANIES
-------------- ------------- ------------- -------------
NET REVENUES
Service fees, net $ 229,671 $ - $ 203,390 (E) $ 433,061
Real estate services - 782,727 (532,573) (D) 250,154
Mortgage services - 173,787 - 173,787
------------ ------------ ------------- ---------------
Service fees, net 229,671 956,514 (329,183) 857,002
------------ ------------ ------------- ---------------
Fleet management - 1,347,870 (203,390) (E) 1,144,480
Depreciation on vehicles
under operating leases - (929,341) - (929,341)
Interest (159,652) (F) (159,652)
------------ ------------- ------------- ----------------
Fleet management, net - 418,529 (363,042) 55,487
------------ ------------ ------------- ---------------
Other 43,541 - - 43,541
------------ ------------ ------------ ---------------
Net revenues 273,212 1,375,043 (692,225) 956,030
------------ ------------ ------------ ---------------
EXPENSES
Selling, general and administrative 82,426 310,567 (29,692) (G) 363,301
Costs, including interest, of carrying
and reselling homes - 658,498 (532,573) (D) 97,324
(25,972) (H)
(2,629) (G)
Direct costs of mortgage services - 60,498 (30,667) (G) 29,831
------------ ------------ ------------ ---------------
Total selling, general and
administrative 82,426 1,029,563 (621,533) 490,456
Depreciation and amortization 30,857 - 62,988 (G) 93,845
Interest 21,789 212,365 (159,652) (F) 100,474
25,972 (H)
Other 3,235 - - 3,235
------------ ------------ ------------ ---------------
Total expenses 138,307 1,241,928 (692,225) 688,010
------------ ------------ ------------- ---------------
Income before income taxes 134,905 133,115 - 268,020
Provision for income taxes 55,175 54,995 - 110,170
------------ ------------ ------------ ---------------
Net income $ 79,730 $ 78,120 $ - $ 157,850
============ ============ ============ ===============
PER SHARE INFORMATION
(FULLY DILUTED)
Net income $ .73 $ 1.15
============ ===============
Weighted average common and
common equivalent shares
outstanding 115,654 25,700 (I) 141,354
============ ============= ===============
- -----------------
(1) The historical statement of income has been adjusted to reclassify
$139,771 of marketing and reservation expenses against related service
fees.
(2) The historical statement of operations of PHH is for the twelve months
ended January 31, 1996.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by the
merged companies.
See notes to combining consolidated financial statements.
44
SECTION III
HFS INCORPORATED AND SUBSIDIARIES
COMBINING CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO FORMA
------------------------------- PRO FORMA HISTORICAL HFS,
HFS (1) PHH (2) ADJUSTMENTS AS RESTATED
-------------- ------------- ------------- ----------------
NET REVENUES
Service fees, net $ 159,792 $ - $ 150,028 (E) $ 309,820
Real estate services - 590,168 (399,717) (D) 190,451
Mortgage services - 124,144 - 124,144
------------ ------------- ------------ ---------------
Service fees, net 159,792 714,312 (249,689) 624,415
------------ ------------- ------------ ---------------
Fleet management - 1,003,355 (150,028) (E) 853,327
Depreciation on vehicles
under operating leases - (692,788) - (692,788)
Interest (117,373) (F) (117,373)
------------ ------------ ------------ ----------------
Fleet management, net - 310,567 (267,401) 43,166
------------ ------------ ------------ ----------------
Other 30,869 - - 30,869
------------ ------------ ------------ ----------------
Net revenues 190,661 1,024,879 (517,090) 698,450
------------ ------------ ------------ ----------------
EXPENSES
Selling, general and administrative 49,472 232,698 (22,452) (G) 259,718
Costs, including interest, of carrying
and reselling homes - 497,415 (399,717) (D) 76,266
(19,344) (H)
(2,088) (G)
Direct costs of mortgage services - 40,093 (18,981) (G) 21,112
------------ ------------ ------------ ---------------
Total selling, general and
administrative 49,472 770,206 (462,582) 357,096
Depreciation and amortization 21,721 - 43,521 (G) 65,242
Interest 16,272 154,638 (117,373) (F) 72,881
19,344 (H)
Other 2,012 - - 2,012
------------ ------------ ------------ ---------------
Total expenses 89,477 924,844 (517,090) 497,231
------------ ------------ ------------ ---------------
Income before income taxes 101,184 100,035 - 201,219
Provision for income taxes 41,820 41,397 - 83,217
------------ ------------ ------------ ---------------
Net income $ 59,364 $ 58,638 $ - $ 118,002
============ ============ ============ ===============
PER SHARE INFORMATION
(FULLY DILUTED)
Net income $ .56 $ .88
============ ===============
Weighted average common and
common equivalent shares
outstanding 112,056 25,700 (I) 137,756
============ ============ ===============
- -----------------
(1) The historical statement of income has been adjusted to reclassify
$109,070 of marketing and reservation expenses against related service
fees.
(2) The historical statement of operations of PHH is for the nine months
ended October 31, 1995.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by the
merged companies.
See notes to combining consolidated financial statements.
45
SECTION III
HFS INCORPORATED AND SUBSIDIARIES
COMBINING CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO FORMA
------------------------------- PRO FORMA HISTORICAL HFS,
HFS (1) PHH (2) ADJUSTMENTS AS RESTATED
-------------- ------------- ------------- -------------
NET REVENUES
Service fees, net $ 346,127 $ - $ 152,602 (E) $ 498,729
Real estate services - 619,431 (420,805) (D) 198,626
Mortgage services - 188,636 - 188,636
------------ ------------ ------------ ---------------
Service fees, net 346,127 808,067 (268,203) 885,991
------------ ------------ ------------- ---------------
Fleet management - 1,042,984 (152,602) (E) 890,382
Depreciation on vehicles
under operating leases - (727,457) - (727,457)
Interest (120,404) (F) (120,404)
------------ ------------- ------------- ----------------
Fleet management, net - 315,527 (273,006) 42,521
------------ ------------ ------------- ---------------
Other 81,733 - - 81,733
------------ ------------ ------------ ---------------
Net revenues 427,860 1,123,594 (541,209) 1,010,245
------------ ------------ ------------- ---------------
EXPENSES
Selling, general and administrative 148,287 249,693 (19,808) (G) 378,172
Costs, including interest, of carrying
and reselling homes - 507,986 (420,805) (D) 62,841
(22,970) (H)
(1,370) (G)
Direct costs of mortgage services - 77,718 (38,720) (G) 38,998
------------ ------------ ------------- ---------------
Total selling, general and
administrative 148,287 835,397 (503,673) 480,011
Depreciation and amortization 41,129 - 59,898 (G) 101,027
Interest 22,194 169,933 (120,404) (F) 94,693
22,970 (H)
Other 10,988 - - 10,988
------------ ------------ ------------ ---------------
Total expenses 222,598 1,005,330 (541,209) 686,719
------------ ------------ ------------- ---------------
Income before income taxes 205,262 118,264 - 323,526
Provision for income taxes 82,630 48,253 - 130,883
------------ ------------ ------------- ---------------
Net income $ 122,632 $ 70,011 $ - $ 192,643
============ ============ ============= ===============
PER SHARE INFORMATION
(FULLY DILUTED)
Net income $ .96 $ 1.25
============ ===============
Weighted average common and
common equivalent shares
outstanding 131,684 25,700 (I) 157,384
============ ============= ===============
- -----------------
(1) The historical statement of income has been adjusted to reclassify
$122,150 of marketing and reservation expenses against related service
fees.
(2) The historical statement of operations of PHH is for the nine months
ended October 31, 1996.
Note: Certain reclassifications have been made to the historical results of
HFS and PHH to conform to the presentation expected to be used by the
merged companies.
See notes to combining consolidated financial statements.
46
HFS Incorporated and Subsidiaries
NOTES TO PRO FORMA CONSOLIDATING COMBINING
FINANCIAL STATEMENTS
A. OTHER CURRENT ASSETS:
The pro forma adjustment reclassifies advances from clients to accounts
payable and other accrued liabilities. This adjustment is made to conform
to the presentation expected to be used by the merged companies.
B. LONG-TERM DEBT:
This pro forma adjustment reclassifies the portion of long-term debt
associated with real estate services activities from Liabilities under
vehicle management and mortgage programs to Long-term debt. This
adjustment was made to conform to the presentation expected to be used
by the merged companies.
C. EQUITY:
The pro forma adjustment reflects a reclassification of equity in
connection with issuance of Company common stock to the PHH shareholders.
D. SERVICES FEES:
The pro forma adjustment offsets amounts billed (PHH revenue) to client
corporations with expenses incurred (PHH expense) on behalf of client
corporations. This adjustment is made to conform to the presentation
expected to be used by the merged companies.
E. FLEET MANAGEMENT:
The pro forma adjustment reclassifies service fees generated from
fee-based services provided to clients' vehicle fleets. This adjustment
is made to conform to the presentation expected to be used by the
merged companies.
F. INTEREST EXPENSE - FLEET MANAGEMENT:
The pro forma adjustment reclassifies interest expense on debt incurred
to finance vehicle leasing activities. This adjustment is made to
conform to the presentation expected to be used by the merged companies.
G. DEPRECIATION AND AMORTIZATION:
The pro forma adjustment reclassifies depreciation and amortization,
other than depreciation on vehicles under operating leases, to a separate
financial line to conform to the presentation expected to be used by the
merged companies.
H. INTEREST EXPENSE - REAL ESTATE SERVICES:
The pro forma adjustment reclassifies the interest portion of the cost of
carrying and reselling homes from selling general and administrative
expense to interest expense. This adjustment is made to conform to the
presentation expected to be used by the merged companies.
I. WEIGHTED AVERAGE SHARES:
The pro forma adjustment reflects the number of shares of Company common
stock estimated to be issued by the Company in connection with the PHH
Merger at an assumed $67.00 per share price.
47