AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
UNAUDITED
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------------
Predecessor Predecessor
Companies Companies
1997 1996 1997 1996
---------- ---------- ---------- -----------
Revenue $ 580,049 $531,478 $1,525,696 $1,419,044
---------- --------- ---------- ----------
Costs and expenses:
Direct operating 242,997 225,939 641,545 616,064
Vehicle depreciation, net 143,937 93,828 323,355 257,574
Vehicle lease charges 6,766 33,480 75,791 94,342
Selling, general and 110,256 96,290 313,639 264,332
administrative
Interest, net 49,465 42,012 117,808 115,165
Amortization of cost in
excess of net assets
acquired 1,675 1,193 4,245 3,575
---------- --------- ---------- ----------
555,096 492,742 1,476,383 1,351,052
---------- --------- ---------- ----------
Income before provision
for income taxes 24,953 38,736 49,313 67,992
Provision for income taxes 11,085 17,315 22,339 30,392
---------- --------- ---------- ----------
Net income $ 13,868 $ 21,421 $ 26,974 $ 37,600
========== ========= ========== ==========
Earnings per share $ 0.45 $ 0.69 $ 0.87 $ 1.22
========== ========= ========== ==========
See accompanying notes to the unaudited consolidated financial statements.
1
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS)
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 159,551 $ 50,886
Accounts receivable, net 400,653 311,179
Due from affiliates, net 61,807
Prepaid expenses 46,025 40,155
Vehicles, net 3,364,660 2,243,492
Property and equipment, net 117,290 98,887
Deferred income tax assets 106,500 113,660
Cost in excess of net assets acquired, 402,701 196,765
net
Other assets 119,727 14,526
---------- ----------
Total assets $4,717,107 $3,131,357
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 232,065 $ 175,535
Accrued liabilities 386,823 329,245
Due to affiliates, net 62,633
Current income tax liabilities 7,448 4,790
Deferred income tax liabilities 38,618 35,988
Public liability, property damage
and other insurance liabilities 249,866 213,785
Debt 3,285,548 2,295,474
---------- ----------
Total liabilities 4,263,001 3,054,817
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common Stock 309 85
Additional paid-in capital 430,507 74,915
Retained earnings 28,158 1,184
Foreign currency translation (4,868) 356
adjustment
---------- ----------
Total stockholders' equity 454,106 76,540
---------- ----------
Total liabilities and stockholders'
equity $4,717,107 $3,131,357
========== ==========
See accompanying notes to the unaudited consolidated financial statements.
2
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
For the Nine Months
Ended September 30,
Predecessor
Companies
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 26,974 $ 37,600
Adjustments to reconcile net income to
net cash provided by operating activities:
Vehicle depreciation 332,183 287,836
Depreciation and amortization of property
and equipment 8,382 11,634
Amortization of cost in excess of net assets
acquired 4,245 3,575
Amortization of debt issuance costs 1,630 2,363
Deferred income tax provision 11,680 21,870
Undistributed (earings) losses of associated
companies, net 130 (219)
Provision for losses on accounts receivable 2,127 1,178
Provision for public liability, property
damage and other insurance liabilities, net 19,315 16,659
Change in operating assets and liabilities:
Accounts receivable (82,985) (32,168)
Prepaid expenses 4,583 (7,361)
Other assets (73,903) 1,909
Accounts payable 79,713 1,501
Accrued liabilities (39,680) 99,962
---------- ----------
Net cash provided by operating activities 294,394 446,339
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for vehicle additions (3,169,229) (2,085,689)
Vehicle deletions 1,987,853 1,414,507
Payments for additions to property
and equipment (30,297) (23,998)
Retirements of property and equipment 18,070 2,179
Payments for purchase of Licensees (199,381) (164)
---------- ----------
Net cash used in investing activities (1,392,984) (693,165)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in debt:
Proceeds 3,195,292 594,029
Repayments (2,390,528) (271,705)
---------- ----------
Net increase in debt 804,764 322,324
Payments for debt issuance costs (28,202) (2,429)
Proceeds from initial public offering 359,316
Proceeds (payments on) from intercompany
loans 71,945 (22,142)
---------- ----------
Net cash used in financing activities 1,207,823 297,753
---------- ----------
Effect of exchange rate changes on cash (568) 256
---------- ----------
Net increase in cash and cash equivalents 108,665 51,183
Cash and cash equivalents at
beginning of period 50,886 39,081
---------- ----------
Cash and cash equivalents at end of period 159,551 90,264
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 129,802 $ 123,809
========== ==========
Income taxes $ 7,946 $ 6,179
========== ==========
See accompanying notes to the unaudited consolidated financial statements.
3
AVIS RENT A CAR, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include Avis Rent
A Car, Inc. and subsidiaries which includes certain carved out corporate
operations of HFS Car Rental, Inc., which was formerly known as, Avis, Inc.
Avis, Inc. was acquired by HFS Incorporated ("HFS") on October 17, 1996. Prior
to October 16, 1996, Avis Rent A Car, Inc. and subsidiaries and the carved out
corporate operations of Avis , Inc. are referred to collectively as the
"Predecessor Companies". Avis Rent A Car, Inc. and the Predecessor Companies
are referred to throughout the notes as the "Company".
These unaudited consolidated financial statements reflect, in the opinion of
management, all material adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position, the results of
operations and cash flows for the periods presented. Operating results for
interim periods are not necessarily indicative of the results that can be
expected for a full year. These interim financial statements should be read in
conjunction with the Company's audited annual consolidated financial
statements and notes thereto.
NOTE 2 - CHANGES IN STOCKHOLDERS' EQUITY
On September 24, 1997, the Company effected an 85,000 to 1 common stock split
and increased its authorized shares to 100 million shares. After giving effect
to the stock split, the Company issued and sold 22,425,000 shares of its
common stock, $.01 par value, in an initial public offering and received net
proceeds of $359.3 million.
NOTE 3 - EARNINGS PER SHARE
Earnings per share is computed by dividing net income in each of the
three-months and nine-months ended September 30, 1997 and 1996 by 30,925,000
shares outstanding after the initial public offering.
NOTE 4 - ACQUISITIONS
On August 20, 1997, the Company purchased The First Gray Line Corporation. On
September 18, 1997, the Company purchased certain assets and repurchased the
franchise rights of a franchise based in Albany, New York. These acquisitions
had an aggregate purchase cost of $199.4 million. The excess purchase cost
over net assets acquired was approximately $171.8 million.
The following is the preliminary purchase cost allocation for the acquisitions
mentioned above:
Purchase cost $ 199,381
---------
Fair value of:
Assets acquired 353,832
Liabilities assumed 326,251
---------
Net assets 27,581
---------
Cost in excess of net assets acquired $ 171,800
=========
The preliminary purchase cost allocations for these acquisitions are subject
to adjustment when additional information concerning asset and liability
valuations are obtained. The final asset and liability fair values may differ
from those set forth in the accompanying unaudited statement of financial
position at September 30, 1997. However, the changes are not expected to have
a material effect on the financial position of the Company. These acquisitions
have all been accounted for by the purchase method. The financial statements
include the operating results of these acquisitions subsequent to their
respective dates of acquisition.
4
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition of The First Gray Line
Corporation had taken place on January 1, of each period. These unaudited pro
forma results are not necessarily indications of the actual results of
operations that would have occurred had the acquisition of The First Gray Line
Corporation actually been made at January 1, of each period.
Pro forma
Nine-months ended
September 30,
------------------------
1997 1996
--------- ---------
Revenue $ 1,655,439 $1,563,017
=========== ==========
Income before provision for income
taxes $ 65,247 $ 83,705
=========== ==========
Net income $ 36,147 $ 46,904
=========== ==========
Earnings per share $ 1.17 $ 1.52
=========== ==========
The above unaudited pro forma results of operations of the Company do not give
effect, for the period ended September 30, 1996 to the acquisition of the
Company by HFS and the establishment of a franchisor/franchisee relationship
and do not give effect in each period presented to the repayment of debt with
the net proceeds (after the purchase of The First Gray Line Corporation) from
the initial public offering. (See Management's Discussion and Analysis of
Financial Condition and Results of Operations.)
NOTE 5 - FINANCING AND DEBT
Debt outstanding at September 30, 1997 and December 31, 1996 consists of the
following:
September 30, December 31,
1997 1996
------------- ------------
CURRENT DEBT
Commercial paper (average rate 5.7%) $ 1,459,149
Short-term vehicle trust financing-revolving credit
facilities $1,970,000
Short-term notes - foreign at 3.89% to 13.00% in
1997 133,774 65,516
Current portion of 7.5% capital lease 40,169
Other current debt 11,443 1,060
----------- ----------
Total current debt 1,604,366 2,076,745
----------- ----------
LONG TERM DEBT
Term loan due December 2000 at 7.94%: 29,000
Medium term note due July 2000 at 6.22% 800,000
Medium term note due July 2002 at 6.40% 850,000
Vehicle manufacturer's floating rate notes
due September 1998 ($50,719 senior at 8.50% and
$16,281 subordinated at 10.00%) 67,000
Vehicle manufacturer's floating rate notes
due October 2001 ($63,731 senior at 7.16% and
$54,269 subordinated at 8.91%) 118,000
Other domestic debt 2,182 2,916
Debt of foreign subsidiaries:
Floating rate notes due February 1998 at 4.75% in
1996 2,935
Floating rate notes due August 1998 at 6.94% to
8.65% 27,878
----------- ----------
Total long-term debt 1,681,182 218,729
----------- ----------
$ 3,285,548 $2,295,474
=========== ==========
5
NOTE 6 - SEGMENT INFORMATION
Operations within major geographic areas for the three and nine-months ended
September 30, 1997 and 1996 are summarized as follows:
Three months ended Nine months
September 30, ended September 30,
--------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ------------ ----------
Revenue:
United States $ 510,406 $459,419 $1,340,674 $1,237,717
Australia/
New Zealand 30,036 33,219 98,322 99,906
Canada 32,818 33,019 67,452 66,114
Other foreign
operations 6,789 5,821 19,248 15,307
========= ======== ========== ==========
$ 580,049 $531,478 $1,525,696 $1,419,044
========= ======== ========== ==========
Income (loss) before provision
for income taxes:
United States $ 12,112 $ 26,550 $ 24,803 $ 45,991
Australia/
New Zealand 5,076 5,499 17,309 13,916
Canada 6,964 6,848 7,190 7,411
Other foreign
operations 801 (161) 11 674
========= ======== ========== ==========
$ 24,953 $ 38,736 $ 49,313 $ 67,992
========= ======== ========== ==========
NOTE 7- STOCK OPTIONS
On September 23, 1997, the Avis Rent A Car, Inc. 1997 Stock Option Plan (the
"Stock Option Plan") was adopted by the Board of Directors. Shares of common
stock totaling 4,602,977 are reserved for issuance upon the exercise of
options granted to officers, key employees, and directors of the Company
pursuant to the Stock Option Plan. As of September 30, 1997, 3,963,900 options
were granted at the fair market value of the Company's common stock on the
date of grant. Options become exercisable as to 20% of the shares covered by
such options on the first anniversary of the date of grant, with an additional
20% of the shares covered by such options on each of the four succeeding
anniversaries of the date of grant. All options granted under the Stock Option
Plan, to the extent not exercised, expire on the earliest of (i) the tenth
anniversary of the date of grant, (ii) two years following the optionee's
termination of employment on account of death, retirement or disability or
(iii) one year following the optionee's termination of employment for any
other reason.
6