- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------- NOVEMBER 17, 2000 (NOVEMBER 11, 2000) (Date of Report (date of earliest event reported)) CENDANT CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 1-10308 06-0918165 (State or other jurisdiction (Commission File No.) (I.R.S. Employer of incorporation or organization) Identification Number) 9 WEST 57TH STREET NEW YORK, NY 10019-2601 (Address of principal executive office) (Zip code) (212) 413-1800 (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
ITEM 5. OTHER EVENTS On November 11, 2000, Cendant Corporation ("Cendant"), PHH Corporation ("we", "our", or "us") and Avis Acquisition Corp. (collectively, "the Company") entered into an Agreement and Plan of Merger ("Merger Agreement") with Avis Group Holdings, Inc. ("Avis") to acquire all of the outstanding shares of Avis, not currently owned by Cendant at a price of $33 per share in cash. The acquisition is subject to, among other things, approval of a majority of the votes cast by the shareholders of Avis who are unaffiliated with Cendant and also to customary regulatory approvals. The acquisition is expected to be completed during the first quarter of 2001, although there can be no assurance that all required approvals will be obtained by such time. The acquisition will be accounted for as a purchase. The acquisition will be made by our subsidiary. It is our intention to distribute the consumer car rental business, Avis Rent A Car, to a Cendant subsidiary not within our ownership structure. After the acquisition and the distribution of the consumer car rental business, we will own and operate the Vehicle Management and Leasing business as well as the Wright Express fuel card business. We estimate that the total amount of funds required to purchase all of the outstanding shares of Avis not currently owned by Cendant and pay related costs will be approximately $967 million. In addition, the acquisition entails the assumption of approximately $7.3 billion of net debt of Avis. The foregoing description of the Merger Agreement is qualified in its entirety by reference to the Merger Agreement incorporated herein as Exhibit 2.1. See Exhibits 99.1 and 99.2 for financial statements of Avis and pro forma financial information giving effect to the acquisition of Avis, respectively. FORWARD-LOOKING AND CAUTIONARY STATEMENTS This Form 8-K contains forward-looking statements within the meaning of the Private Litigation Reform Act of 1995. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Businesses Acquired. See Exhibit 99.1 attached hereto for Financial Statements of Avis Group Holdings, Inc. (b) Pro Forma Financial Information. See Exhibit 99.2 attached hereto for Pro Forma Financial Information giving effect to the acquisition of Avis Group Holdings, Inc. (c) Exhibits. See Exhibit Index. 1
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CENDANT CORPORATION /s/ DAVID M. JOHNSON --------------------------------------------- David M. Johnson SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER /S/ JOHN T. MCCLAIN --------------------------------------------- John T. McClain SENIOR VICE PRESIDENT, FINANCE AND CORPORATE CONTROLLER Date: November 17, 2000 2
CENDANT CORPORATION CURRENT REPORT ON FORM 8-K EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - --------------------- ----------- 2.1 Agreement and Plan of Merger by and among Cendant Corporation, PHH Corporation, Avis Acquisition Corp. and Avis Group Holdings, Inc. dated as of November 11, 2000 (incorporated by reference to Cendant Corporation's Form 10-Q dated November 14, 2000) 23.1 Consent of Deloitte & Touche LLP, Independent Auditors 99.1 Financial Statements of Business Acquired 99.2 Pro Forma Combined Condensed Financial Information (unaudited)
EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Current Report on Form 8-K under the Securities Exchange Act of 1934 of Cendant Corporation dated November 13, 2000 of our report dated January 26, 2000 (March 27, 2000 as to Note 1) relating to the consolidated financial statements of Avis Group Holdings, Inc. for the years ended December 31, 1999, 1998 and 1997 and to the incorporation by reference in Registration Statement Nos. 33-74066, 33-91658, 333-00475, 333-03237, 33-58896, 33-91656, 333-03241, 33-26875, 33-75682, 33-93322, 33-93372, 33-75684, 33-80834, 33-74068, 33-41823, 33-48175, 333-09633, 333-09655, 333-09637, 333-22003, 333-30649, 333-42503, 333-34517-2, 333-42549, 333-45183, 333-47537, 333-69505, 333-75303, 333-78475 and 333-38638 of Cendant Corporation on Form S-8 and Registration Statement Nos. 333-11035, 333-17323, 333-17411, 333-20391, 333-23063, 333-26927, 333-35707, 333-35709, 333-45155, 333-45227, 333-49405, 333-78447, 333-86469, 333-30314 and 333-34562 of Cendant Corporation on Form S-3 under the Securities Act of 1933 of our report dated January 26, 2000 (March 27, 2000 as to Note 1) appearing in the above-mentioned Current Report on Form 8-K of Cendant Corporation. /s/ Deloitte & Touche LLP New York, New York November 17, 2000
EXHIBIT 99.1 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE NO. --------------- AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) Independent Auditors' Report.............................. F-2 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997........................ F-3 Consolidated Statements of Financial Position at December 31, 1999 and 1998.............................. F-4 Consolidated Statements of Common Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997........ F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997........................ F-6 Notes to the Consolidated Financial Statements............ F7--F50 Consolidated Statements of Operations for the three months and nine months ended September 30, 2000 and 1999....... G-1 Consolidated Statements of Financial Position as of September 30, 2000 and December 31, 1999................ G-2 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999....................... G-3 Notes to the Condensed Consolidated Financial Statements.............................................. G4--G17 F-1
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Avis Group Holdings, Inc. New York, New York We have audited the accompanying consolidated statements of financial position of Avis Group Holdings, Inc. (formerly Avis Rent A Car, Inc.) and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP New York, New York January 26, 2000 (March 27, 2000 as to Note 1) F-2
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEARS ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- Revenue: Vehicle rental......................................... $2,500,746 $2,297,582 $2,046,154 Vehicle leasing........................................ 692,935 Other fee based........................................ 139,046 ---------- ---------- ---------- 3,332,727 2,297,582 2,046,154 ---------- ---------- ---------- Costs and expenses: Direct operating, net.................................. 957,270 927,930 853,767 Vehicle depreciation and lease charges, net............ 1,174,509 593,064 525,143 Selling, general and administrative.................... 582,056 436,275 413,291 Interest, net.......................................... 382,303 192,080 180,608 Minority interest...................................... 5,890 Non-vehicle depreciation and amortization.............. 34,600 24,151 16,162 Amortization of cost in excess of net assets acquired............................................. 30,182 11,854 6,860 ---------- ---------- ---------- 3,166,810 2,185,354 1,995,831 ---------- ---------- ---------- Income before provision for income taxes............... 165,917 112,228 50,323 Provision for income taxes............................. 73,332 48,707 22,850 ---------- ---------- ---------- Net income............................................. 92,585 63,521 27,473 Preferred stock dividends.............................. 9,110 ---------- ---------- ---------- Earnings applicable to common stockholders............. $ 83,475 $ 63,521 $ 27,473 ========== ========== ========== Earnings per share: Basic.................................................. $ 2.66 $ 1.86 $ .89 ========== ========== ========== Diluted................................................ $ 2.61 $ 1.82 $ .88 ========== ========== ========== See notes to the consolidated financial statements. F-3
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE AMOUNTS) DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ ASSETS Cash and cash equivalents................................... $ 71,697 $ 29,751 Cash held on deposit with financial institution............. 93,530 Restricted cash............................................. 253,080 133,284 Accounts receivable, net.................................... 1,115,740 360,574 Finance lease receivables................................... 871,034 Prepaid expenses............................................ 64,316 42,083 Vehicles, net--rental....................................... 3,367,362 3,164,816 Vehicles, net--leasing...................................... 3,134,009 Property and equipment, net................................. 197,827 145,045 Other assets................................................ 115,273 40,590 Deferred income tax assets.................................. 117,659 Cost in excess of net assets acquired, net.................. 1,794,390 463,260 ----------- ---------- Total assets................................................ $11,078,258 $4,497,062 =========== ========== LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Accounts payable............................................ $ 588,377 $ 198,481 Accrued liabilities......................................... 369,453 326,204 Due to affiliates, net...................................... 59,396 22,293 Current income tax liabilities.............................. 18,226 23,045 Deferred income tax liabilities, net........................ 181,256 28,504 Public liability, property damage and other insurance liabilities, net.......................................... 259,756 261,209 Debt........................................................ 8,469,805 3,014,712 Minority interest (preferred membership interest)........... 99,305 ----------- ---------- Total liabilities........................................... 10,045,574 3,874,448 ----------- ---------- Commitments and contingencies Preferred stock: Series A Preferred stock ($.01 par value, 7,200,000 shares authorized, issued and outstanding; $50 liquidation preference)............................................... 360,000 Series B Preferred stock accrued ($.01 par value, 5,880,217 shares authorized; $50 liquidation preference)............ 9,000 Series C Preferred stock ($.01 par value, 40,000 shares authorized, issued and outstanding; $50 liquidation preference)............................................... 2,000 ----------- Total preferred stock..................................... 371,000 ----------- Common stockholders' equity: Class A Common stock ($.01 par value, 100,000,000 shares authorized; 35,925,000 issued at December 31, 1999 and 1998)..................................................... 359 359 Additional paid-in capital.................................. 593,106 591,651 Retained earnings........................................... 175,690 92,215 Accumulated other comprehensive loss........................ (3,639) (10,651) Treasury stock (4,793,288 and 2,672,700 shares at December 31, 1999 and 1998, respectively, at cost) (103,832) (50,960) ----------- ---------- Total common stockholders' equity......................... 661,684 622,614 ----------- ---------- Total liabilities, preferred stock and common stockholders' equity.................................................... $11,078,258 $4,497,062 =========== ========== See notes to the consolidated financial statements. F-4
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ACCUMULATED ADDITIONAL OTHER COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY INCOME STOCK CAPITAL EARNINGS INCOME/(LOSS) STOCK TOTAL ------------- -------- ---------- -------- ------------- ---------- -------- Balance January 1, 1997................ $ 85 $ 74,915 $ 1,221 $ 194 $ 76,415 Net income............................. $27,473 27,473 27,473 Sale of Class A Common stock ($.01 par value) through an initial public offering of 22,425,000 shares of common stock on September 24, 1997... 224 355,592 355,816 Foreign currency translation adjustment........................... (5,761) (5,761) (5,761) Additional minimum pension charge...... (221) (221) (221) ------- ---- -------- -------- -------- ---------- -------- Comprehensive income................... $21,491 ======= Balance, December 31, 1997............. 309 430,507 28,694 (5,788) 453,722 Net income............................. $63,521 63,521 63,521 Sale of Class A Common stock ($.01 par value) through a public offering of 5,000,000 shares of common stock on March 23, 1998....................... 50 161,144 161,194 Purchases of treasury stock, 2,672,700 shares, at cost...................... $ (50,960) (50,960) Foreign currency translation adjustment........................... (3,374) (3,374) (3,374) Additional minimum pension charge...... (1,489) (1,489) (1,489) ------- ---- -------- -------- -------- ---------- -------- Comprehensive income................... $58,658 ======= Balance, December 31, 1998............. 359 591,651 92,215 (10,651) (50,960) 622,614 Net income............................. $92,585 92,585 92,585 Preferred stock dividends.............. (9,110) (9,110) Purchases of treasury stock 2,327,300 shares, at cost........................ (57,237) (57,237) Issuance of treasury stock due to exercise of stock options and other, net........ 1,455 4,365 5,820 Foreign currency translation adjustment........................... 6,199 6,199 6,199 Additional minimum pension benefit..... 813 813 813 ------- Comprehensive income................... $99,597 ======= ---- -------- -------- -------- ---------- -------- Balance, December 31, 1999............. $359 $593,106 $175,690 $ (3,639) $ (103,832) $661,684 ==== ======== ======== ======== ========== ======== See notes to the consolidated financial statements. F-5
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) YEARS ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 92,585 $ 63,521 $ 27,473 Adjustments to reconcile net income to net cash provided by operating activities: Vehicle depreciation...................................... 1,146,926 581,022 466,799 Depreciation and amortization of property and equipment... 19,558 12,890 11,791 Amortization of other non-revenue producing assets........ 45,224 23,115 11,231 Deferred income tax provision............................. 57,027 38,457 9,161 Provision for doubtful accounts receivable................ 6,137 2,961 3,208 Provision for public liability, property damage and other insurance liabilities, net.............................. (1,819) 13,687 25,574 Changes in operating assets and liabilities: Restricted cash......................................... (62,588) (26,300) (76,596) Accounts receivable..................................... (89,568) (14,045) (15,201) Prepaid expenses........................................ (6,336) 6,848 3,914 Other assets............................................ 21,654 (5,625) (8,769) Accounts payable........................................ 54,299 (23,148) (12,597) Accrued liabilities..................................... 7,795 (2,475) (84,150) Due to (from) affiliates................................ (192,951) (18,320) 53,761 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES................. 1,097,943 652,588 415,599 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for vehicle additions............................ (5,605,494) (4,303,048) (4,240,809) Vehicle deletions......................................... 4,205,221 3,610,721 3,382,177 Increase in finance lease receivables..................... (22,663) Payments for additions to property and equipment.......... (48,240) (42,933) (24,733) Retirements of property and equipment..................... (6,419) 5,603 3,971 Payments for purchase of rental car franchise licensees, net of cash acquired.................................... (45,192) (237,182) (199,381) Payment for purchase of PHH Holdings, net of cash acquired................................................ (1,325,781) Proceeds from the sale and leaseback of office building... 32,156 ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES..................... (2,816,412) (966,839) (1,078,775) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from public offerings, net......................... 161,194 359,316 Purchases of treasury stock, net............................ (53,868) (50,960) Changes in debt: Proceeds.................................................. 6,120,545 1,217,289 3,381,173 Repayments................................................ (4,307,537) (1,023,432) (3,031,885) ----------- ----------- ----------- Net increase in debt...................................... 1,813,008 193,857 349,288 Payments for debt issuance costs............................ (6,543) (4,654) (29,302) Increase in minority interest (preferred membership interest)................................................. 99,305 ----------- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES................. 1,851,902 299,437 679,302 ----------- ----------- ----------- Effect of exchange rate changes on cash..................... 2,043 (334) (945) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents and cash held on deposit with financial institutions.......... 135,476 (15,148) 15,181 Cash and cash equivalents and cash held on deposit with financial institutions at beginning of year............... 29,751 44,899 29,718 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AND CASH HELD ON DEPOSIT WITH FINANCIAL INSTITUTIONS AT END OF YEAR..................... $ 165,227 $ 29,751 $ 44,899 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest.................................................. $ 370,247 $ 209,977 $ 189,086 =========== =========== =========== Income taxes.............................................. $ 28,877 $ 13,338 $ 8,899 =========== =========== =========== Business acquired: Fair value of assets acquired, net of cash acquired....... $ 6,004,777 $ 244,501 $ 519,650 Liabilities assumed....................................... 4,271,804 7,319 320,269 ----------- ----------- ----------- Net assets acquired....................................... 1,732,973 237,182 199,381 Less issuance of Series A and Series C Preferred Stock.... 362,000 ----------- ----------- ----------- NET CASH PAID FOR ACQUISITIONS.............................. $ 1,370,973 $ 237,182 $ 199,381 =========== =========== =========== See notes to the consolidated financial statements. F-6
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Effective March 27, 2000, Avis Rent A Car, Inc. changed its name to Avis Group Holdings, Inc. The accompanying consolidated financial statements include Avis Group Holdings, Inc. (formerly Avis Rent A Car, Inc.) and subsidiaries, which was incorporated on October 17, 1996. The Company and its former parent, Avis Inc., were acquired by Cendant ("Cendant") on October 17, 1996 (the "Date of Acquisition") for approximately $806.5 million (the "Acquisition"). The purchase price was comprised of approximately $367.2 million in cash, $100.9 million of indebtedness and $338.4 million of common stock. Avis Group Holdings, Inc. (formerly Avis Rent A Car, Inc.) and subsidiaries are referred to throughout the notes to the consolidated financial statements as the "Company". On January 1, 1997, Avis, Inc., the Company's former ultimate parent, a wholly-owned subsidiary of Cendant, contributed the net assets of its corporate operations and all of its common stock ownership in Avis International, Ltd. and subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance Company and Global Excess & Reinsurance, Ltd. to the Company. Pursuant to a plan developed by Cendant prior to the Date of Acquisition, Cendant caused the Company to undertake an initial public offering ("IPO"). On September 24, 1997, the Company issued and sold 22,425,000 shares of its common stock through such IPO and received net proceeds of $359.3 million. On March 23, 1998, the Company sold 5,000,000 shares of its common stock through a public offering (the "Offering") and received net proceeds of approximately $161.2 million. In addition, in the Offering on March 23, 1998, Cendant reduced its ownership of the Company by selling 1,000,000 shares of the Company's common stock and retained the net proceeds. As a result of the IPO, the Offering on March 23, 1998, the net repurchase of 2,120,588 shares and 2,672,700 shares of treasury stock by the Company during 1999 and 1998, respectively, and the issuance of Series A and C preferred stock in connection with the VMS acquisition (see Notes 2, 14 and 15), Cendant's common stockholder's equity interest in the Company at January 1, 2000 is approximately 18 % excluding potential conversion of Preferred Stock (see Notes 14, 16 and 24). The Company has used the net proceeds from these offerings to (i) acquire certain Avis System franchises (see Note 2) and (ii) for working capital and general corporate purposes, including the repayment of certain indebtedness. A Cendant subsidiary owns and operates the reservation system as well as the telecommunications and computer processing systems which service the rental car operations for reservations, rental agreement processing, accounting and vehicle control. Cendant is reimbursed for such services at cost (see Note 5). In addition, a Cendant subsidiary charges the Company a royalty fee for the use of the Avis trade name (see Note 5). On March 19, 1999, and June 30, 1999, the Company purchased the common stock and franchise rights of Rent-A-Car Company, Incorporated, of Richmond Virginia ("Rent-A-Car, Inc.") and Motorent, Inc. of Nashville Tennessee ("Motorent") for approximately $10.1 million and $49.3 million, respectively. These acquisitions were financed through internally generated funds. On June 30, 1999, the Company completed the transaction contemplated by the Agreement and Plan of Merger and Reorganization dated as of May 22, 1999 (the "Merger Agreement"), with PHH Corporation, a Maryland corporation and wholly-owned subsidiary of Cendant, PHH Holdings Corporation ("PHH Holdings"), a Texas corporation and wholly-owned subsidiary of PHH Corporation, and Avis Fleet Leasing and Management Corporation, a Texas corporation and a wholly-owned subsidiary of the Company (the "Acquisition Subsidiary"). Pursuant to the Merger Agreement, the Acquisition Subsidiary and PHH Holdings merged on June 30, 1999 and the Acquisition Subsidiary acquired the fleet leasing and management and fuel card business of PHH corporation ("VMS") for approximately $1.8 billion and refinanced VMS indebtedness of approximately $3.5 billion (the "VMS F-7
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Acquisition"). The acquisition financing included borrowings by the Company of $1.0 billion of term loans, the issuance by the Company of $500 million of senior subordinated notes, and the issuance by the Acquisition Subsidiary of $362.0 million of preferred stock (see Notes 10, 14 and 15). PRINCIPLES OF CONSOLIDATION All material intercompany accounts and transactions have been eliminated. ACCOUNTING ESTIMATES Generally accepted accounting principles require the use of estimates, which are subject to change, in the preparation of financial statements. Significant accounting estimates used include estimates for recoverability of the cost in excess of net assets acquired, the determination of public liability, property damage and other insurance liabilities, and the realization of deferred income tax assets. However, actual results may differ. REVENUE RECOGNITION VEHICLE RENTAL REVENUE: Revenue is recognized over the period the vehicle is rented. VEHICLE LEASING REVENUE: The Company primarily leases vehicles under three standard arrangements: open-end operating leases, closed-end operating leases or open-end finance leases (direct financing leases). These leases are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for leases". Each lease is either classified as an open end or closed end operating lease or open end finance lease and are included in Vehicles, net-leasing and Finance lease receivables, respectively, on the accompanying Consolidated Statements of Financial Position. Vehicle lease terms generally range from 12 to 50 months. Amounts charged to the leases for interest on the unrecovered investment are credited to income on a level yield method, which approximates the contractual terms. OTHER FEE BASED REVENUE: Revenues from fleet management services other than leasing are recognized over the period in which services are provided and the related expenses are incurred. CASH AND CASH EQUIVALENTS The Company considers unrestricted deposits and short-term investments with an original maturity date of three months or less to be cash equivalents. CASH HELD ON DEPOSIT WITH FINANCIAL INSTITUTION Cash held on deposit with financial institution represents lease payments collected from the Company's vehicle leasing customers by one of the Company's lenders in connection with the Company's VMS Domestic Asset Based Financing Structure (see Vehicle Leasing and Other Fee Based F-8
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Debt in Note 10). Cash collected during the month by the lender, net of vehicle purchases, is settled with the Company in the early part of the following month. RESTRICTED CASH Restricted cash includes cash and short-term investments that are not readily available for normal Company disbursements. Certain amounts have been set aside as required under the Company's debt covenants and to satisfy insurance related and other commitments of the Company. FINANCE LEASE RECEIVABLES Finance Lease Receivables are leases accounted for in accordance with SFAS No. 13, "ACCOUNTING FOR LEASES", which are classified as a direct financing lease, as defined. The Company records the cost of the leased vehicle as an "investment in finance leases". Vehicles are depreciated using the straight-line method over the expected lease term. Amounts charged to the lessees for interest on the unrecovered investment are credited to income on a level yield method, which approximates the contractual terms. VEHICLES, NET Rental vehicles are stated at cost, net of accumulated depreciation, incentives and allowances. In accordance with industry practice, when vehicles are sold, gains or losses are reflected as an adjustment to depreciation. Vehicles are generally depreciated at rates ranging from 10% to 25% per annum. Manufacturers provide the Company with incentives and allowances (such as rebates and volume discounts) which are amortized to income over the holding periods of the vehicles. Leasing vehicles include vehicles which are leased to customers under either open-end or closed-end operating leases: Open-end Operating Leases--Under these leases, the minimum lease term is 12 months with a month to month renewal thereafter. In addition, resale of the vehicles upon termination of the lease is generally for the account of the lessee except for a minimum residual value, which the Company has guaranteed. The Company guarantees 16% of the original cost of the unit for the first 24 months of the lease, and then 16% of the fair market value of the unit at inception of the month to month renewals thereafter. Closed-end Operating Leases--Under these leases, the minimum lease term is for 12 months or longer. However, 24 and 36 month lease terms are the most prevalent. These leases are cancelable under certain conditions. Resale of the vehicles upon termination is for the account of the Company. Open-end finance leases provide that the resale of the vehicles upon termination of the lease, are for the account of the lessee. PROPERTY AND EQUIPMENT, NET Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful life of the assets. F-9
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Estimated useful lives range from five to ten years for furniture, fixtures and equipment, to thirty years for buildings. Leasehold improvements are amortized over the shorter of twenty years or the remaining life of the lease. Maintenance and repairs are expensed; renewals and improvements are capitalized. When depreciable assets are retired or sold, the cost and related accumulated depreciation are removed from the accounts with any resulting gain or loss reflected in the Consolidated Statements of Operations. COST IN EXCESS OF NET ASSETS ACQUIRED, NET Cost in excess of net assets acquired is amortized over a 40 year period and is shown net of accumulated amortization of $49.9 million and $19.7 million at December 31, 1999 and 1998, respectively. IMPAIRMENT ACCOUNTING The Company reviews the recoverability of its long-lived assets, including cost in excess of net assets acquired, when events or changes in circumstances occur that indicate that the carrying value of the assets may not be recoverable. The measurement of possible impairment is based on the Company's ability to recover the carrying value of the asset from the expected future pre-tax undiscounted cash flows generated. The measurement of impairment requires management to use estimates of expected future cash flows. If an impairment loss existed, the amount of the loss would be recorded under the caption costs and expenses in the Consolidated Statements of Operations. It is reasonably possible that future events or circumstances could cause these estimates to change. PUBLIC LIABILITY, PROPERTY DAMAGE AND OTHER INSURANCE LIABILITIES, NET Insurance liabilities on the accompanying consolidated statements of financial position include additional liability insurance, personal effects protection insurance, public liability and property damage ("PLPD") and personal accident insurance claims for which the Company is self-insured. The Company is self-insured up to $1 million per claim under its automobile liability insurance program for PLPD and additional liability insurance. Costs in excess of $1 million per claim are insured under various contracts with commercial insurance carriers. The liability for claims up to $1 million is estimated based on the Company's historical loss and loss adjustment expense experience, which is adjusted for current trends. The insurance liabilities include a provision for both claims reported to the Company as well as claims incurred but not yet reported to the Company. This method is an actuarially accepted loss reserve method. Adjustments to this estimate and differences between estimates and the amounts subsequently paid are reflected in the Consolidated Statements of Operations as they occur. FOREIGN CURRENCY TRANSLATION The assets and liabilities of foreign companies are translated at year-end exchange rates. Results of operations are translated at the average rates of exchange in effect during the year. The resultant translation adjustment is included as a component of accumulated other comprehensive loss within consolidated common stockholders' equity. F-10
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES Effective September 30, 1997, the Company files a U.S. consolidated federal income tax return. The Company has adopted the calendar year as its fiscal year. The Company files separate income tax returns in states where a consolidated return is not permitted. The Company was included in the consolidated federal income tax return of Cendant through September 29, 1997. Pursuant to the regulations under the Internal Revenue Code, the Company's pro rata share of the consolidated federal income tax liability of Cendant was allocated to the Company on a separate return basis. In accordance with Statement of Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME TAXES" ("SFAS 109"), deferred income tax assets and liabilities are measured based upon the difference between the financial accounting and tax basis of assets and liabilities. PENSIONS Costs of the defined benefit plans are actuarially determined under the projected unit credit cost method and include amounts for current service and interest on projected benefit obligations and plan assets. The Company's policy is to fund at least the minimum contribution amount required by the Employee Retirement Income Security Act of 1974. ADVERTISING Advertising costs are expensed as incurred. Advertising costs were $86.7 million, $77.7 million and $65.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are used to manage exposure to market risks associated with fluctuations in interest rates. Analyses are performed on an on-going basis to determine that a high correlation exists between the characteristics of derivative instruments and the assets or transactions being hedged. As a matter of policy, derivative activities are not engaged for trading or speculative purposes. Exposure to credit-related losses exist in the event of non-performance by counterparties to certain derivative financial instruments. At December 31, 1999, the Company's identified derivative financial instruments (see Recent Accounting Pronouncements below) include interest rate swap agreements, interest rate cap and floor agreements, gasoline options and options imbedded in certain instruments (see Notes 10, 12 and 14). Interest on the Company's interest rate swap agreements, and interest rate cap and floor agreements are cash settled on a net basis for each agreement quarterly. The Company's swaption agreement is marked to market with adjustments to the swaption's fair value recorded in earnings. Gains or losses from the sale or exercise of gasoline options are recognized when the underlying option is sold. ENVIRONMENTAL COSTS The Company's operations include the storage and dispensing of gasoline. The Company accrues losses associated with the remediation of accidental fuel discharges when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are F-11
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with the presentation of the current year's consolidated financial statements. RECENT ACCOUNTING PRONOUNCEMENTS A recent pronouncement of the Financial Accounting Standards Board which is not required to be adopted at this date, is SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 133"), which is effective for the Company's consolidated financial statements for the year ending December 31, 2001. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that any entity recognize all derivatives as either assets or liabilities in the statement of financial position at fair value. Avis Rent A Car has not completed its assessment of the effect on the Company's consolidated financial statements that will result from the adoption of SFAS 133. NOTE 2--ACQUISITIONS On March 19, 1999, and June 30, 1999, the Company purchased the common stock and franchise rights of Rent-A-Car Company, Incorporated, of Richmond, Virginia ("Rent-A-Car, Inc.") and Motorent, Inc. of Nashville Tennessee ("Motorent") for approximately $10.1 million and $49.3 million, respectively. These acquisitions were financed through internally generated funds. On June 30, 1999, the Company completed the transaction contemplated by the Merger Agreement with PHH Corporation, PHH Holdings Corporation and the Acquisition Subsidiary. Pursuant to the Merger Agreement, the Acquisition Subsidiary and PHH Holdings merged on June 30, 1999 and the Acquisition Subsidiary acquired the fleet leasing and fuel card businesses of VMS for approximately $1.8 billion and refinanced VMS indebtedness of approximately $3.5 billion. The acquisition financing included borrowings by the Company of $1.0 billion of term loans, the issuance by the Company of $500 million of senior subordinated notes, and the issuance by the acquisition subsidiary of $362.0 million of preferred stock (see Notes 10,14 and 15). In connection with the VMS Acquisition, the Company received a perpetual, royalty-free license to use the VMS trademarks, including the "PHH" name and logo. PHH Corporation and PHH Holdings entered into a 5-year non-compete agreement with Avis Group Holdings, Inc. and the Acquisition Subsidiary. The Acquisition Subsidiary also received a limited license to use the Cendant name in Europe and the United States for a period of up to one year. In addition, the parties have entered into agreements under which Cendant agreed to provide the Company with computer services and with transitional services with respect to various administrative services, including payroll and benefits, which had previously been provided to VMS by Cendant. In addition, the Acquisition subsidiary has entered into an agreement under which it will provide Cendant with certain transitional administrative services which had previously been provided by VMS. F-12
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--ACQUISITIONS (CONTINUED) The preliminary purchase cost allocation for the Company's acquisitions of Rent-A-Car Inc., Motorent and VMS, are subject to adjustment, when additional information concerning asset and liability valuations are obtained. The final asset and liability fair values will differ from those set forth in the accompanying statement of financial position at December 31, 1999. However, the changes are not expected to have a material effect on the financial position of the Company. The following is the preliminary purchase cost allocation of the acquisitions described above (in thousands): Purchase cost............................................... $1,917,949 ---------- Fair value of: Assets acquired........................................... 4,810,307 Liabilities assumed....................................... (4,271,804) ---------- Net assets.................................................. 538,503 ---------- Cost in excess of net assets acquired....................... $1,379,446 ========== The following unaudited pro forma information presents the results of operations of the Company as if the acquisition of VMS for approximately $1.9 billion (including the issuance of Series A and Series C Preferred Stock) and the refinancing of VMS indebtedness and related adjustments had taken place on January 1, 1998 (in thousands, except per share data): YEARS ENDED DECEMBER 31, ------------------------- 1999 1998 ----------- ----------- Revenue.............................................. $4,144,670 $3,907,039 ========== ========== Income before provision for income taxes............. $ 141,402 $ 65,596 ========== ========== Net income........................................... $ 73,171 $ 26,916 Preferred stock dividends............................ 18,220 18,220 ---------- ---------- Earnings applicable to common stockholders........... $ 54,951 $ 8,696 ========== ========== Earnings per share: Basic................................................ $ 1.75 $ .25 ========== ========== Diluted.............................................. $ 1.72 $ .25 ========== ========== On May 1, 1998, the Company acquired the assets of the car rental business of Hayes Leasing Company, Inc., including the Avis System franchises for the cities of Austin, Fort Worth and San Antonio, and the counties of Dallas and Tarrant, Texas for approximately $86 million in cash plus the refinancing of fleet-related indebtedness, which totaled approximately $136 million for a total purchase price of approximately $222 million. In addition, during the year ended December 31, 1998, the Company purchased the assets of several other Avis System franchises for approximately $15 million in cash. If these Acquisitions had occurred on January 1, 1999 or 1998, they would not have had a material impact on the Company's results of operations. The excess purchase price over the net assets acquired for these acquisitions was approximately $90 million. F-13
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--ACQUISITIONS (CONTINUED) The following is the purchase cost allocation for the acquisition of the car rental assets of Hayes Leasing Company, Inc. and other Avis System franchises during the year ended December 31, 1998 mentioned above (in thousands): Purchase cost............................................... $237,182 -------- Fair value of: Assets acquired........................................... 153,828 Liabilities assumed....................................... (7,319) -------- Net assets.................................................. 146,509 -------- Cost in excess of net assets acquired....................... $ 90,673 ======== In 1997, the Company purchased First Gray Line and the franchise rights of another Avis System franchisee. These acquisitions had an aggregate purchase cost of approximately $199 million. The excess purchase cost over net assets acquired was approximately $168 million. The following is the purchase cost allocation for these 1997 acquisitions mentioned above (in thousands): Purchase cost............................................... $199,381 -------- Fair value of: Assets acquired........................................... 351,517 Liabilities assumed....................................... 320,269 -------- Net assets.................................................. 31,248 -------- Cost in excess of net assets acquired....................... $168,133 ======== The acquisition of the franchise rights of the additional Avis System franchisee, if it had occurred on January 1, 1997, would not have had a material impact on the results of operations of the Company. The following unaudited pro-forma information presents the results of operations of the Company, which assumes that the following transactions had occurred on January 1, 1997 (i) the acquisition of the Company by Cendant and the establishment of a franchisor/franchisee relationship, (ii) the acquisition of First Gray Line and (iii) the repayment of debt with the net proceeds (after the purchase of First Gray Line) from the IPO (in thousands, except earnings per share amounts): 1997 ---------- Revenue..................................................... $2,175,897 ========== Net income.................................................. $ 39,432 ========== Basic earnings per share.................................... $ 1.28 ========== Diluted earnings per share.................................. $ 1.26 ========== F-14
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--ACQUISITIONS (CONTINUED) The above mentioned acquisitions have been accounted for by the purchase method. The financial statements include the operating results of acquisitions subsequent to their dates of acquisition. NOTE 3--RESTRICTED CASH At December 31, 1999 and 1998, restricted cash includes an escrow amount of $90,000,000 as required under the Company's debt agreements, to provide additional credit enhancement on the Company's Medium Term Notes and Domestic Asset Backed Securities-Variable Fund Notes (see Note 10). Also included in restricted cash at December 31, 1999 is $116,244,000 related to the VMS Domestic and Foreign ABS Facilities and certain amounts which are set aside to satisfy claims under the Company's self-insurance programs and other obligations of the Company. NOTE 4--ACCOUNTS RECEIVABLE, NET Accounts receivable, net at December 31, 1999 and 1998 consist of the following (in thousands): 1999 1998 ---------- -------- Vehicle leasing and other fee based................... $ 699,006 Due from General Motors............................... 196,497 $161,377 Vehicle rentals....................................... 109,084 104,032 Vehicle related....................................... 51,282 65,586 Value added and provincial taxes...................... 28,427 Damage claims......................................... 13,715 14,710 Other................................................. 25,398 18,219 ---------- -------- 1,123,409 363,924 Less allowance for doubtful accounts.................. (7,669) (3,350) ---------- -------- $1,115,740 $360,574 ========== ======== Vehicle related amounts include receivables for vehicles sold under guaranteed repurchase contracts ("Repurchase Programs") and amounts due for incentives and allowances. Incentives and allowances are based on all of the following: the volume of vehicles to be purchased for a model year, the manufacturers' willingness to encourage the Company to retain vehicles rather than return the vehicles back to the manufacturer and the purchase of particular models not subject to repurchase under "buyback" arrangements. Incentives and allowances are amortized to income over the average holding period of the vehicles (see Notes 7 and 24). F-15
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5--DUE TO AFFILIATES, NET Due to affiliates, net at December 31, 1999 and 1998 consist of amounts due Cendant or its consolidated subsidiaries of $59.4 million and $22.3 million, respectively, for services. Non-interest bearing advances represent intercompany transactions relating primarily to royalty fees, reservation processing and data processing. Expense items of the Company include the following items from Cendant and affiliates of Cendant for the years ended December 31, 1999, 1998 and 1997 (in thousands): 1999 1998 1997 -------- -------- -------- Royalty fee................................... $100,031 $ 91,904 $ 81,846 Reservations.................................. 58,063 49,872 43,240 Data processing and other..................... 43,700 35,844 41,896 Rent.......................................... 4,639 4,648 4,927 -------- -------- -------- $206,433 $182,268 $171,909 ======== ======== ======== These charges seek to reimburse the affiliated company for the actual costs incurred. They are determined in accordance with various intercompany agreements and include certain allocations which are based upon such factors as square footage, employee salaries, computer usage time, etc. Effective January 1, 1997, Cendant charged the Company a royalty fee of 4.0% of revenue for the use of the Avis trade name. The royalty fee of 4.0% consists of a base royalty of 3.0% of the vehicle rental segment's gross revenue and a supplemental royalty of 1.0% of the vehicle rental segment's gross revenue payable quarterly in arrears, which will increase periodically to a maximum of 1.5% in 2003. The supplemental royalty or a portion thereof may be deferred if the Company does not meet certain financial targets. In addition, for the years ended December 31, 1999 and 1998, the Company was charged by Cendant approximately $4.1 million and $3.8 million for certain software developed for internal use, which has been capitalized on the accompanying Consolidated Statements of Financial Position. Under the Computer Services Agreement with Cendant, dated July 30, 1997, software developed for the Company's internal use is charged to the Company at Cendant's cost. NOTE 6--FINANCE LEASE RECEIVABLES Under these leases, the minimum lease term is 12 months with a month to month renewal thereafter. In addition, resale of the vehicles upon termination of the lease is for either the account of the lessor (PHH Europe) or the lessee (both PHH North America and PHH Europe). The net investment in leases and leased vehicles at December 31, 1999 consisted of the following (in thousands): Future minimum lease payments receivable.................... $561,157 Estimated unguaranteed residual value....................... 392,191 Less unearned income........................................ (82,314) -------- $871,034 ======== F-16
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--FINANCE LEASE RECEIVABLES (CONTINUED) At December 31, 1999, future minimum lease payments on the Company's direct financing leases are as follows (in thousands): 2000........................................................ $243,645 2001........................................................ 175,791 2002........................................................ 94,459 2003........................................................ 33,088 2004........................................................ 7,841 Thereafter.................................................. 6,333 -------- $561,157 ======== NOTE 7--VEHICLES, NET Vehicles at December 31, 1999 and 1998 consist of the following (in thousands): 1999 ----------------------- 1998 VEHICLE VEHICLE VEHICLE RENTAL LEASING RENTAL ---------- ---------- ---------- Rental vehicles.......................................... $3,683,864 $3,443,385 Vehicles under open-end operating leases................. $3,337,191 Vehicles under closed-end operating leases............... 230,693 Buses and support vehicles............................... 81,150 67,786 Vehicles held for sale................................... 19,757 40,400 21,871 ---------- ---------- ---------- 3,784,771 3,608,284 3,533,042 Less accumulated depreciation............................ (417,409) (474,275) (368,226) ---------- ---------- ---------- $3,367,362 $3,134,009 $3,164,816 ========== ========== ========== Depreciation expense recorded for rental vehicles was $644.6 million, $576.2 million and $460.6 million for the years ended December 31, 1999, 1998, and 1997, respectively. Depreciation expense recorded for leasing vehicles for the period June 30, 1999 (date of acquisition) through December 31, 1999 was $507.7 million. Rental vehicle depreciation expense for rental vehicles is stated net of amortization of certain incentives and allowances from various vehicle manufacturers of approximately $120 million, $119 million and $121 million for the years ended December 31, 1999, 1998 and 1997, respectively. Rental vehicle depreciation expense also reflects a net gain (loss) on the disposal of vehicles of $(5.4) million, $(6.8) million and $7.0 million for the years ended December 31, 1999, 1998, and 1997, respectively. F-17
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7--VEHICLES, NET (CONTINUED) At December 31, 1999, future minimum lease payments to be received on the Company's open-end and closed-end operating leases are as follows (in thousands): YEARS 2000........................................................ $1,122,002 2001........................................................ 921,121 2002........................................................ 619,250 2003........................................................ 290,897 2004........................................................ 96,987 Thereafter.................................................. 92,673 ---------- Total....................................................... $3,142,930 ========== Other fleet leasing vehicles with net carrying amounts of $233.6 million at December 31, 1999, are included in special purpose entities which are not owned by the Company. These entities do not require consolidation as they are not controlled by the Company and all risks and rewards rest with the owners. Additionally, managed vehicles totaling approximately $110.9 million at December 31, 1999, are owned by special purpose entities, which are owned by the Company. However, such assets and related liabilities have been netted in the Consolidated Statements of Financial Position since there is a two-party agreement with determinable accounts, a legal right to offset exists and the Company exercises its right of offset in settlement with client corporations received from vehicle manufacturers are partially recognized at the time of acquisition of the leased vehicle, a portion is deferred and recognized on a straight line basis over the lease term of the vehicle, and a portion is deferred and recognized at the time the vehicle is disposed of. VEHICLE SALE--LEASEBACK TRANSACTIONS During 1999, the Company entered into a sale-leaseback transaction with an independent third party ("Counterparty") in Canada. In addition, the Company is party to similar arrangements with the Counterparty resulting from transactions incurred prior to 1999. Under this arrangement, the Company sells its net investment in operating leases and leased vehicles to the Counterparty. Then, it repurchases the leased vehicles (the Counterparty retains the lease rights). Subsequently, the Company leases the vehicles under a direct financing lease to the Counterparty. The Counterparty prepays all lease payments except for an agreed-upon residual amount. These residual amounts are typically 3% to 4.5% of the total lease exposure from these transactions. The total amount of net investment in operating leases and leased vehicles sold under this agreement was $48.1 million. At December 31, 1999, the total outstanding prepaid rent and residual amounts outstanding under such agreements was $286.7 million and $16.1 million respectively. The total revenues recognized under these agreements was $60.6 million for 1999. F-18
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8--PROPERTY AND EQUIPMENT, NET Property and equipment, net at December 31, 1999 and 1998 consist of the following (in thousands): 1999 1998 -------- -------- Land.................................................... $ 28,270 $ 23,726 Buildings............................................... 8,191 8,655 Leasehold improvements.................................. 119,702 87,830 Furniture, fixtures and equipment....................... 52,823 16,869 Construction-in-progress................................ 32,975 32,236 -------- -------- 241,961 169,316 Less accumulated depreciation and amortization.......... (44,134) (24,271) -------- -------- $197,827 $145,045 ======== ======== In December 1999, VMS in the U.K. entered into a sale and lease back for an office building. The selling price of the office building was approximately $32.2 million. The period of the lease is 16 years. The gain on the sale of the office building of $16.4 million has been reflected in the Consolidated Statement of Financial Position at December 31, 1999, as a reduction of cost in excess of net assets acquired, net. NOTE 9--ACCRUED LIABILITIES Accrued liabilities at December 31, 1999 and 1998 consist of the following (in thousands): 1999 1998 -------- -------- Payroll and related costs............................... $106,209 $103,043 Taxes, other than income taxes.......................... 15,664 9,349 Rents and property related.............................. 36,270 22,241 Interest................................................ 28,866 6,140 Sales and marketing..................................... 54,749 43,704 Vehicle related......................................... 29,355 27,102 Other................................................... 98,340 114,625 -------- -------- $369,453 $326,204 ======== ======== F-19
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10--FINANCING AND DEBT Debt outstanding at December 31, 1999 and 1998 consist of the following (in thousands): 1999 1998 ---------- ---------- VEHICLE RENTAL Commercial Paper Notes...................................... $1,026,261 $ 678,377 Short-term notes-foreign.................................... 111,259 74,881 Series 1997-1A asset backed Medium Term Notes due May through October 2000 at 6.22%............................. 800,000 800,000 Series 1997-1B asset backed Medium Term Notes due May through October 2002 at 6.40%............................. 850,000 850,000 Series 1998-1 asset backed Medium Term Notes due December 2004 through May 2005 at 6.14%............................ 600,000 600,000 Revolving credit facility due June 2005..................... 62,000 Other....................................................... 5,902 11,454 ---------- ---------- TOTAL VEHICLE RENTAL DEBT................................. 3,455,422 3,014,712 ---------- ---------- VEHICLE LEASING AND OTHER FEE BASED Commercial Paper Notes...................................... 1,521,498 Canadian short term borrowings.............................. 44,563 Series 1999-2 floating rate asset-backed notes, Class A-1... 550,000 Series 1999-2 floating rate asset-backed notes, Class A-2... 450,000 Foreign Asset Backed Securities--UK Advances................ 850,443 Self-fund notes............................................. 30,397 Wright Express Certificates of Deposit...................... 67,482 ---------- TOTAL VEHICLE LEASING AND OTHER FEE BASED DEBT............ 3,514,383 ---------- ACQUISITION FINANCING Term A Loan Notes due June 2005............................. 250,000 Term B Loan Notes due June 2006............................. 375,000 Term C Loan Notes due June 2007............................. 375,000 Senior Subordinated Notes due May 2009 at 11.00%............ 500,000 ---------- TOTAL ACQUISITION FINANCING............................... 1,500,000 ---------- ---------- TOTAL DEBT................................................ $8,469,805 $3,014,712 ========== ========== VEHICLE RENTAL DEBT On July 31, 1997, the Company, through its wholly-owned subsidiary Avis Rent A Car System, Inc. ("ARACS"), entered into a domestic integrated fleet financing program that provided for financing for vehicles covered by Repurchase Programs, (the "Avis ABS Facility"). As of December 31, 1999, the availability of the domestic integrated fleet under this program is $3.75 billion. The domestic integrated fleet financing program provides for the issuance of up to $1.5 billion of asset-backed variable funding notes (the "Commercial Paper Notes") and $2.25 billion of asset backed medium term notes (the "Medium Term Notes"). The Commercial Paper Notes and the Medium Term Notes are backed by a first priority security interest in the domestic rental fleet. Additional credit enhancement was provided for the Medium Term Notes by establishing an escrow account of $90 million, which is included in F-20
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10--FINANCING AND DEBT (CONTINUED) "Restricted Cash" (see Note 3) on the accompanying Consolidated Statements of Financial Position at December 31, 1999 and 1998, respectively. The weighted average interest rates on the Commercial Paper Notes were 5.3% and 5.5% for the years ended December 31, 1999 and 1998. Average borrowings in the Commercial Paper Notes during the years ended December 31, 1999 and 1998 was $1,079.3 million and $809.7 million, respectively. On June 30, 1999, the Company entered into a $1.35 billion secured credit facility (the "Credit Facility") which is guaranteed by certain of it's subsidiaries. This facility replaced a similar facility that ARAC had entered into on July 31, 1997. The Credit Facility consists of (i) $1 billion of Term Loans (see Acquisition Financing below), (ii) a revolving credit facility of up to $350 million which is available on a revolving basis until June 30, 2005 in order to finance the working capital needs of the Company in the ordinary course of business (with up to $75 million of such amount available for the issuance of standby letters of credit to support workers' compensation and other insurance and bonding requirements of ARACS, the Company and its subsidiaries in the ordinary course of business, and a 364 day standby letter of credit facility of up to $225 million available to fund (a) any shortfall in certain payments owing to AESOP Leasing, a subsidiary of ARACS pursuant to fleet agreements and (b) maturing Commercial Paper Notes if such Commercial Paper Notes cannot be repaid through the issuance of additional Commercial Paper Notes or draws under the liquidity facility supporting the Commercial Paper Notes). At December 31, 1999 and 1998, the Company had issued letters of credit of $29.2 million and $31.9 million under the revolving credit facility and $150 million and $150 million under the $225 million standby letter of credit facility, respectively. Under the terms of the Revolving Credit Facility, the Company had outstanding $62 million as of December 31, 1999 at a variable interest rate with terms identical to the Term A Loan Notes (see Acquisition Financing below). The Credit Facility is secured by the tangible and intangible assets of the Company (including, without limitation, its intellectual property, its rights under the Master License Agreement and related agreements, real property and all of the capital stock or equivalent equity ownership interests of the Company and each of its direct and indirect domestic subsidiaries and 65% of the Company first-tier foreign subsidiaries), except for those assets which are subject to a negative pledge or as to which the agents for the Credit Facility shall determine in their sole discretion that the costs of obtaining such a security interest are excessive in relation to the value of the security to be afforded thereby. The weighted-average interest rates of the short-term notes-foreign as of December 31, 1999 and 1998 were 5.8% and 6.0%, respectively. VEHICLE LEASING AND OTHER FEE BASED DEBT In connection with the VMS Acquisition (see Note 2), Avis Group Holdings, Inc. refinanced the VMS existing fleet debt with the proceeds of $2,735,507 domestic and $720,000 foreign asset-backed securities issued pursuant to an offering of asset-backed securities (the "Interim VMS ABS Offering"), under certain fleet financing facilities and together with the Avis ABS Facility. The domestic securities comprising the Interim VMS ABS Offering are issued by a bankruptcy remote special purpose entity (the "Domestic ABS Issuer") and placed initially with a single multi-seller commercial paper conduit, and thereafter may be syndicated to one or more other bank sponsored conduits (collectively the "CP Conduits"). The CP Conduits will acquire Domestic Variable Funding Notes ("VFNs"), Domestic Preferred Membership Interests and U.K. Advances using the proceeds of commercial paper issuances. In addition, from time to time, the Domestic ABS Issuer may issue medium-term notes secured by the F-21
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10--FINANCING AND DEBT (CONTINUED) Domestic ABS Assets, using the proceeds of any such offerings to reduce the amount of Domestic VFNs then outstanding. On October 28, 1999, $1 billion of 7 and 12 year Medium Term Notes ("MTN's") were issued to replace a like amount of Domestic VFN's. This facility consists of two classes of floating rate asset-backed notes; Class A-1 notes, which total $550 million and Class A-2 notes, which total $450 million. Both classes of notes have an interest rate, which is reset monthly at LIBOR plus 32 basis points for the Class A-1 notes and LIBOR plus 35 basis points for the Class A-2 notes. The Class A-1 notes have an average expected life of 2 years and commence amortizing in March 2001 and have a final stated maturity of October 2006. The Class A-2 notes have an average expected life of 3 years and commence amortizing when the Class A-1 notes are repaid in full. The Class A-2 notes have a final stated maturity of October 2011. Both classes of notes are rated AAA by Standard and Poors and Aaa by Moody's. In addition to the floating rate asset-backed notes, the Company may issue up to $1.75 billion Variable Funding Investor Notes to a group of multi seller commercial paper conduits. The Domestic VFN agreement expires in June 2000 and is renewable annually. The blended interest rate in effect (including program fees from 32 to 35 basis points) at December 31, 1999 for the domestic asset-backed securities is 6.71%. The Company has also issued two series of Senior Preferred Membership Interests (see Note 11), which total $99.3 million at a rate (including program fees of 70 basis points) of 6.97 % at December 31, 1999. VMS-U.K. currently has a $856 million asset-backed facility (the "U.K. ABS Facility"), which is supported by the leased vehicles and fuel card receivables of the various VMS-U.K entities. VMS-U.K. is funded through a group of multi-seller commercial paper conduits. The interest rate is variable and is based on commercial paper notes plus a weighted average margin of approximately 45 basis points. As of December 31, 1999, there was approximately $850 million outstanding at a blended rate of 6.66%. This facility expires in December 2000 and is renewable annually. SELF-FUND NOTES Self-fund notes represent loans made by customers to purchase leased vehicles. Repayment of these notes is matched to payments on the underlying lease including the disposal of the vehicles at maturity. Interest can be fixed or floating, depending on the underlying leases. The average interest rate at December 31, 1999 was 5.1%. The loans are repayable at expiration of the various lease terms. At December 31, 1999 self-funded notes expire between 2003 and 2013. WRIGHT EXPRESS CERTIFICATES OF DEPOSIT At December 31, 1999, scheduled maturities of certificates of deposit of $67.5 million are all less than one year. The interest rates range from 5.2% to 6.25%. ACQUISITION FINANCING In connection with the VMS Acquisition (see Notes 1 and 2 ), the Company entered into $1 billion of term loans, consisting of $250 million ("Term A Loan"), $375 million ("Term B Loan") and $375 F-22
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10--FINANCING AND DEBT (CONTINUED) million ("Term C Loan"), under the credit facility described previously. These amounts are outstanding as of December 31, 1999 and accrue interest as follows: Term Loans A, B, C and Revolving Loans bear interest at either Chase Manhattan Bank's ("Chase") alternate base rate ("ABR") or the Eurodollar rate (at the Company's option) plus the applicable margin. As of December 31, 1999, the applicable margin and interest rate for each type of loan is as follows: WEIGHTED AVERAGE DECEMBER 31, 1999 ABR LOANS EURODOLLAR LOANS INTEREST RATE --------- ---------------- ----------------- Revolving Loans.................... 1.75% 2.75% 8.20% Term A Loan........................ 1.75% 2.75% 8.41% Term B Loan........................ 2.25% 3.25% 8.92% Term C Loan........................ 2.50% 3.50% 9.16% The agreements with the Company's lenders include a number of significant covenants that, among other things, restrict its ability to dispose of non-fleet assets, incur additional indebtedness, create liens, prohibit the payment of dividends, enter into certain investments or acquisitions, repurchase or redeem capital stock, engage in mergers or consolidations or engage in certain transactions with affiliates and otherwise restrict corporate activities. Certain of these agreements also require the Company to maintain specified financial ratios. As of December 31, 1999, the Company was in compliance with all such covenants related to these agreements. In addition, the Company issued $500 million of Senior Subordinated Notes due May 1, 2009 with an interest rate of 11% (the "Senior Subordinated Notes"). The Senior Subordinated Notes are subordinated in the right of payment to all existing and future senior indebtedness of the Company and are unconditionally guaranteed on a senior subordinated basis by ARACS and other domestic subsidiaries of the Company that guarantees the Senior Credit Facility (as defined). Interest is payable semi-annually commencing November 1, 1999. Mandatory maturities of long-term obligations, including current maturities, for each of the next five years ending December 31, and thereafter, are as follows (in thousands): 2000........................................................ $ 828,104 2001........................................................ 387,795 2002........................................................ 1,189,964 2003........................................................ 251,644 2004........................................................ 359,631 Thereafter.................................................. 1,831,164 OTHER CREDIT FACILITIES At December 31, 1999, in addition to the credit facilities previously described, the Company had credit facilities available to support various international and other operations. At December 31, 1999, the total available under these facilities was $625.8 million of which $393.0 million was unused and available. Amounts unused under these facilities require an annual fee of 0.2% to 0.4% of the unused portion. In addition, the Company had available letters of credit/overdraft agreements in place, F-23
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10--FINANCING AND DEBT (CONTINUED) renewable annually at the Company's option and the bank's discretion. At December 31, 1999, the Company had $45.1 million available, against which there are outstanding Letters of Credit totaling $27.6 million. The collateral for certain of these agreements consists of a pledge of certain cash balances, in the amount of $25 million, which are included in "Restricted Cash" on the accompanying Consolidated Statements of Financial position. DERIVATIVE FINANCIAL INSTRUMENTS The Company has derivative financial instruments at December 31, 1999 that are sensitive to fluctuations in interest rates and gasoline prices. The following derivative instruments agreements have been entered into by the Company: To reduce the risk from interest rate fluctuations under its asset based debt agreements, the Company has entered into domestic and foreign interest rate cap and interest rate floor agreements with durations of 10 and 5 years, respectively. The interest rate cap and interest rate floor agreements have notional values of $672.8 million and $436.2 million and $591.7 million and $591.7 million, respectively. The agreements established the domestic and foreign interest rate ceiling and floor on the asset-backed vehicle financing of 6.13% and 5.0% and 6.3% and 5.5%, respectively. The Company was party to twenty five and four interest rate swap agreements at December 31, 1999 and 1998, respectively, to reduce the impact of changes in interest rates on certain outstanding debt obligations. These agreements effectively change the Company's interest rate exposure on $842.2 million and $288.6 million of its outstanding debt from a weighted average variable interest rate to an average fixed rate of 5.3% and 4.8% at December 31, 1999 and 1998, respectively. The variable interest rates for certain of these interest rate swap agreements are either reset quarterly or monthly based upon various indices, including 30 day commercial paper, 3 month LIBOR and 3 month Canadian Bankers Acceptances. Interest is cash settled on a net basis for each agreement quarterly. The interest rate swap agreements will terminate between May 2000 and May 2005. Under certain of the swap agreements terminating in August 2003, the counter-party has the right to terminate one of the agreements in August 2000 and one agreement in August 2001. Under a Swap Agreement terminating in May 2005, the counterparty has the right to terminate the agreement in June 2001. The differential to be paid or received is recognized ratably as interest rates change over the life of the agreements as an adjustment to interest expense. The net interest differential (credited) charged to interest expense for the periods ended December 31, 1999, 1998 and 1997 was ($773,000), $53,000, and $909,000, respectively. The Company is exposed to credit risk in the event of non-performance by counterparties to its interest rate swap agreements. Credit risk is limited by entering into such agreements with institutions with high credit ratings. Therefore, the Company does not anticipate that non-performance by counterparties will occur. Notwithstanding this, the Company monitors counterparty credit ratings at least quarterly through reviewing independent credit agency reports. Both current and potential exposure are evaluated, as necessary, by obtaining replacement cost information from alternative dealers. Potential loss to the Company from credit risk on these agreements is limited to amounts receivable, if any. Depending on market fundamentals of the price of gasoline and other conditions, the Company may purchase put options to reduce or eliminate the risk of gasoline price declines. Put options F-24
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10--FINANCING AND DEBT (CONTINUED) purchased by the Company effectively establish a minimum sales transaction fee for the volume of gasoline purchased on the Company's programs. An increase in the value of the options is highly correlated to a decrease in the average price of gasoline purchased by the Company's cardholders. Put options permit the Company to participate in price increases above the option price. The cost of an option is amortized in the month the options expire. Gains and losses from the sale or exercise of options are recognized when the underlying option is sold. At December 31, 1999, the total contract amount of such options was 31.1 million gallons of gasoline and the unamortized cost of these options was $313 thousand and is included in other assets in the accompanying Consolidated Statements of Financial position. NOTE 11--MINORITY INTEREST (PREFERRED MEMBERSHIP INTEREST) In connection with the issuance of the Vehicle Leasing ABS Facility (see Note 10), the Company has issued two Series 1999-2 Senior Preferred Membership Interests ("PMI's") of which $99.3 million are outstanding at a distribution rate of 6.97% at December 31, 1999. The PMI's represent an equity interest in one of the Company's domestic vehicle leasing subsidiaries and accordingly, are reported as minority interest (preferred membership interest), on the accompanying Consolidated Statements of Financial Position at December 31, 1999. The holders of the Preferred Membership Interest are entitled to receive dividends based upon the funding costs of the multi-seller commercial paper conduits, plus a program fee of 0.70% per annum. The dividend periods correspond to the same interest periods as the 1999-2 floating rate asset-backed notes. For the year ended December 31, 1999, the Company accrued approximately $5.9 million of distributions, which are reflected in the accompanying Consolidated Statements of Operations as minority interest. NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS The net interest receivable and the estimated fair value of the Company's interest rate swaps, caps and floors, swaption agreement and gasoline put options represent assets of approximately $763 thousand and $15.2 million, respectively, at December 31, 1999. At December 31, 1998, the net interest receivable and estimated fair value of the Company's interest rate swap agreements represent assets of approximately $268 thousand and $885 thousand, respectively. For instruments including cash and cash equivalents, restricted cash, accounts receivable, and accounts payable, the carrying amount approximates fair value because of the short maturity of these instruments. The fair value of floating-rate debt approximates carrying value because these instruments re-price frequently at current market prices. At December 31, 1999 and 1998, the fair value of the Medium Term Notes, Asset Backed Securities and Senior Subordinated Notes is (less than), exceeds the carrying value by approximately $(27.7) million and $44.5 million, respectively. At December 31, 1999 the Company had $371 million of preferred stock which approximates fair value. The Company believes that it is not practicable to estimate the current fair value of the amounts due to affiliates, net, because of the related party nature of the instruments. F-25
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13--INCOME TAXES The provision for income taxes for the years ended December 31, 1999, 1998 and 1997 consist of the following (in thousands): 1999 1998 1997 -------- -------- -------- Current: Federal........................................ $ 800 State.......................................... $ 2,010 980 $ 1,013 Foreign........................................ 14,295 8,470 12,676 ------- ------- ------- 16,305 10,250 13,689 ------- ------- ------- Deferred: Federal........................................ 42,095 33,200 12,463 State.......................................... 3,596 3,520 410 Foreign........................................ 11,336 1,737 (3,712) ------- ------- ------- 57,027 38,457 9,161 ------- ------- ------- Provision for income taxes....................... $73,332 $48,707 $22,850 ======= ======= ======= The effective income tax rates for the years ended December 31, 1999, 1998 and 1997 vary from the statutory U.S. federal income tax rate due to the following (dollar amounts in thousands): 1999 1998 1997 ------------------- ------------------- ------------------- Statutory U.S. federal income tax provision/tax rate......................................... $58,071 35.0% $39,280 35.0% $17,613 35.0% Tax effect of foreign operations and dividends.................................... 2,628 1.6 2,677 2.4 1,436 2.9 Amortization of cost in excess of net assets acquired and other intangibles............... 8,190 4.9 3,351 3.0 2,369 4.7 State income taxes, net of federal tax benefit...................................... 3,644 2.2 2,925 2.6 924 1.8 Other non-deductible business expenses......... 799 0.5 474 0.4 508 1.0 ------- ---- ------- ---- ------- ---- Effective income tax provision/tax rate........ $73,332 44.2% $48,707 43.4% $22,850 45.4% ======= ==== ======= ==== ======= ==== F-26
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13--INCOME TAXES (CONTINUED) In accordance with SFAS 109, the net deferred income tax (liabilities) assets at December 31, 1999 and 1998, include the following (in thousands): 1999 1998 --------- --------- GROSS DEFERRED INCOME TAX ASSETS: Accrued liabilities......................................... $ 241,631 $ 230,575 Net operating loss carryforwards............................ 138,392 118,437 Alternative minimum income tax credit carryforwards......... 4,199 3,825 --------- --------- 384,222 352,837 --------- --------- GROSS DEFERRED INCOME TAX LIABILITIES: Tax depreciation in excess of book depreciation............. (546,938) (247,090) Prepaids and other.......................................... (18,540) (16,592) --------- --------- (565,478) (263,682) --------- --------- Net deferred income tax (liabilities) assets................ $(181,256) $ 89,155 ========= ========= In connection with the adoption of SFAS No. 130, "REPORTING COMPREHENSIVE INCOME" ("SFAS 130"), the Company has included in net deferred income tax (liabilities) assets and common stockholders' equity, an increase of $4.6 million, $3.1 million, and $3.8 million related to the income tax effects of the Foreign Currency Translation Adjustment and Minimum Pension Liability for the years ended December 31, 1999, 1998, and 1997, respectively. The Company has alternative minimum tax net operating loss carryforwards of $211.9 million. The federal net operating loss carryforward is $370.9 million which expires as follows: 2000, $11.6 million; 2001, $7.1 million; 2004, $93.1 million; 2007, $67.7 million; 2008, $41.1 million; 2009, $18.3 million; 2010, $1.1 million; 2017, $83.7 million; 2018, $1 million and 2019, $46.2 million. Deferred income taxes were not provided on accumulated earnings of foreign subsidiaries of $99,164,000 at December 31, 1999 because such accumulated undistributed earnings are considered to be permanently reinvested. If these amounts were not considered permanently reinvested, additional deferred income taxes of approximately $45,133,000 would have been provided at December 31, 1999. NOTE 14--PREFERRED STOCK (IN THOUSANDS) SERIES A SERIES B SERIES C PREFERRED PREFERRED PREFERRED STOCK STOCK STOCK TOTAL --------- --------- --------- -------- Issuance of Preferred Stock Series A and Series C on June 30, 1999 in connection with the acquisition of VMS (see Notes 1&2)................................. $360,000 $2,000 $362,000 Preferred Stock Dividends accrued..................... $9,000 9,000 -------- ------ ------ -------- Balance December 31, 1999............................. $360,000 $9,000 $2,000 $371,000 ======== ====== ====== ======== F-27
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14--PREFERRED STOCK (IN THOUSANDS) (CONTINUED) SERIES A PREFERRED STOCK In connection with the VMS Acquisition (see Notes 1 and 2), a total of 7,200,000 shares of Series A Preferred Stock of the Acquisition Subsidiary have been issued and were outstanding at December 31, 1999. Holders of Series A Preferred Stock are not entitled to preemptive rights. The Series A Preferred Stock has an aggregate liquidation preference of $360 million or $50 per share (the "Series A Liquidation Preference"). Each share of Series A Preferred accrues dividends at a rate per annum of 5% of the Series A Liquidation Preference, payable in cash semi-annually in arrears. Until June 30, 2004, dividends may be paid at the discretion of the Acquisition Subsidiary in shares of Series B Cumulative PIK Preferred Stock (see Series B Preferred Stock below). In addition, if the Company is unable to obtain the consent of its Shareholders to amend its charter by June 30, 2000 to issue Class B Common Stock of the Company and Class A Common Stock of the Company issuable in exchange for the Class B Common Stock of the Company, the dividend rate on the Series A Preferred will increase to 12%, with retroactive effect to the date of issuance. The Series A Preferred is also entitled to special annual dividends at a rate of 2% of the Series A Liquidation Preference per annum, payable in cash annually on March 15th, in the event that the Acquisition Subsidiary achieves targeted consolidated Earnings Before Income Taxes, Depreciation and Amortization ("EBITDA") levels. Upon liquidation, and after payment of all amounts owed to all classes of capital stock ranked senior to the Series A Preferred, holders of shares of Series A Preferred will receive the Series A Liquidation Preference of such shares plus accrued and unpaid dividends. The Series A Preferred may be redeemed by the Acquisition Subsidiary, in whole or in part, on or after the fifth anniversary of the date of issuance, June 30, 2004, and must be redeemed in whole upon the eleventh anniversary of the date of issuance for an amount per share equal to the Series A Liquidation Preference plus accrued and unpaid dividends. In addition, holders of the Series A Preferred may cause the Acquisition Subsidiary to redeem their shares for cash, upon the bankruptcy or insolvency of the Company or a change of control with respect to the Company or the Acquisition Subsidiary. The holders of the Series A Preferred may convert shares of Series A Preferred into shares of Class B Common Stock of the Company once specified levels of 12-month consolidated EBITDA of the Acquisition Subsidiary have been reached and the average closing price of Class A Common Stock of the Company for a specified period shall have exceeded a performance conversion price. Such conversion shall be at a rate (the "Performance Conversion Rate") obtained by dividing the per share Series A Liquidation Preference by $50 (as adjusted for antidilution protection, the "Performance Conversion Price"). On or after the fifth anniversary of the closing date of the VMS Acquisition, June 30, 1999, if the share price of the Class A Common Stock of the Company has exceeded an amount equal to 110% of the Performance Conversion Price for 20 trading days within a period of 30 consecutive trading days ending within five trading days of notice of conversion given by the Acquisition Subsidiary, then the Acquisition Subsidiary has the right to convert all of the shares of the Series A Preferred into Class B Common Stock of the Company at the Performance Conversion Rate. Upon the bankruptcy or insolvency of the Acquisition Subsidiary or any of its subsidiaries that constitute a Significant Subsidiary of the Company, as defined in Rule 1-02(w) of Regulation S-X (a "Significant Subsidiary"), the Series A Preferred automatically converts into Class B Common Stock of the Company at a rate equal to the quotient obtained by dividing: (1) the per share Series A Liquidation Preference by (2) the average F-28
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14--PREFERRED STOCK (IN THOUSANDS) (CONTINUED) trading price per share of Class A Common Stock of the Company for the 30 trading days immediately preceding the date of the holder's conversion notice or the date on which the bankruptcy case commences, as applicable (the "Series A Market Conversion Rate"). The Series A Market Conversion Rate is subject to adjustment for antidilution protection. Additionally, holders of Series A Preferred may convert their Series A Preferred into Class B Common Stock of the Company at the Series A Market Conversion Rate if the Acquisition Subsidiary: (1) fails to make a redemption payment on the Series A Preferred or the Series B Preferred, (2) fails to pay dividends when due on either the Series A Preferred or the Series B Preferred, (3) takes actions requiring consents of its holders of the Series A Preferred or the Series B Preferred without obtaining such consents or (4) issues additional shares of the Series A Preferred or Series B Preferred, or reissues shares of either, in violation of their terms. Without the affirmative vote or written consent of the holders of a majority of the outstanding shares of Series A Preferred, the Acquisition Subsidiary shall not (1) authorize, create or issue any security ranking senior to the Series A Preferred as to dividends or on liquidation (other than the Series C Preferred); (2) amend its articles of incorporation or the certificate of designation for the Series A Preferred in a manner adverse to the holders of the Series A Preferred; (3) authorize the issuance of additional shares of Series A Preferred; or (4) reincorporate the Acquisition Subsidiary in a jurisdiction other than Texas prior to the second anniversary of the date of issuance of the Series A Preferred. Holders of Series A Preferred are not entitled to voting rights, except as required by Texas law. In those circumstances where the holders of Series A Preferred have a right to vote, each holder of a share of Series A Preferred shall be entitled to one vote per share. Shares of Series A Preferred are freely transferable. Shares of Series A Preferred reacquired in any manner will be retired and may not be reissued as shares of Series A Preferred. SERIES B PREFERRED STOCK Series B Cumulative PIK Preferred Stock (the "Series B Preferred") will be issued as dividends to the Series A Preferred holders by the Acquisition Subsidiary. Holders of the Series B Preferred are not entitled to preemptive rights. The Series B Preferred has a liquidation preference of $50 per share (the "Series B Liquidation Preference"). Each share of Series B Preferred accrues dividends at a rate per annum of 5% of the Series B Liquidation Preference, payable in cash semi-annually in arrears. In addition, if the Company is unable to obtain the consent of its shareholders to amend its charter by June 30, 2000 to issue Class B Common Stock of the Company and Class A Common Stock of the Company issuable in exchange for the Class B Common Stock of the Company, the dividend rate on the Series B Preferred will increase to 12%, with retroactive effect to the date of issuance. Until the fifth anniversary of the date of issuance of the Series B Preferred, dividends may, at the discretion of the Acquisition Subsidiary be paid in kind; thereafter, dividends must be paid in cash. Upon liquidation, and after payment of all amounts owed to all classes of capital stock ranked senior to the Series B Preferred, holders of shares of Series B Preferred will receive the Series B Liquidation Preference of such shares plus accrued and unpaid dividends. The Series B Preferred has the same ranking as the Series A Preferred. The Series B Preferred may be redeemed by the Acquisition Subsidiary, in whole or in part, on or after the fifth anniversary of the date of issuance, January 30, 2005, and must be redeemed in whole upon the eleventh anniversary F-29
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14--PREFERRED STOCK (IN THOUSANDS) (CONTINUED) of the date of issuance for an amount per share equal to the Series B Liquidation Preference plus accrued and unpaid dividends. Additionally, holders of Series B Preferred may convert their Series B Preferred into Class B Common Stock of the Company at the Series B Market Conversion Rate (defined below) if the Acquisition Subsidiary: (1) fails to make a redemption payment on the Series A Preferred or the Series B Preferred, (2) fails to pay dividends when due on either the Series A Preferred or the Series B Preferred, (3) takes actions requiring the consents of the holders of the Series A Preferred or the Series B Preferred without obtaining such consents or (4) issues additional shares of the Series A Preferred or Series B Preferred, or reissues shares of either, in violation of their terms. The Series B Preferred also automatically converts into Class B Common Stock of the Company at the Series B Market Conversion Rate upon the bankruptcy or insolvency of the Acquisition Subsidiary or any of its Significant Subsidiaries. The Series B Market Conversion Rate ("Series B Market Conversion Rate") equals the quotient obtained by dividing : (1) the per share Series B Liquidation Preference by (2) the average trading price per share of the Company's Common Stock for the 30 trading days immediately preceding the date of the holder's conversion notice or the date on which the bankruptcy case commences, as applicable. The Market Conversion Rate is subject to customary adjustment under certain circumstances. Holders of Series B Preferred will have voting rights analogous to those of the holders of the Series A Preferred. Shares of Series B Preferred are freely transferable. Shares of Series B Preferred reacquired in any manner will be retired and may not be reissued as shares of Series B Preferred. SERIES C PREFERRED STOCK A total of 40,000 shares of Series C Preferred of the Acquisition Subsidiary were outstanding at December 31, 1999, in connection with the VMS Acquisition (see Notes 1 and 2). Holders of the Series C Preferred are not entitled to preemptive rights. The Series C Preferred has an aggregate liquidation preference of $2,000,000 or $50 per share (the "Series C Liquidation Preference"). Each share of Series C Preferred accrues dividends at 11% per annum, payable in cash semi-annually in arrears. An escrow account in the amount of $1,000,000, which is included in "Restricted Cash", has been established to cover future dividend payments. Upon liquidation, and after payment of amounts, if any, owed to all classes of capital stock ranked senior to the Series C Preferred, holders of shares of Series C Preferred will receive the Series C Liquidation Preference of such shares plus accrued and unpaid dividends. The Series C Preferred ranks senior to the Series A Preferred, the Series B Preferred and the Class A Common Stock in right of payment of dividends. The Series C Preferred may be redeemed by the Acquisition Subsidiary, in whole or in part, on or after June 30, 2004, the fifth anniversary of the date of issuance, and must be redeemed in whole upon June 30, 2006, the seventh anniversary of the date of issuance, in each case for an amount per share equal to the Series C Liquidation Preference plus accrued and unpaid dividends. Holders of Series C Preferred are not entitled to voting rights, except under certain circumstances. Without the affirmative vote or written consent of the holders of a majority of the outstanding shares of Series C Preferred, the Acquisition Subsidiary may not take certain specified actions that would F-30
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14--PREFERRED STOCK (IN THOUSANDS) (CONTINUED) adversely affect the rights of the holders of the Series C Preferred. Shares of Series C Preferred reacquired in any manner will be retired and may not be reissued as shares of Series C Preferred. PREFERRED STOCK OF THE COMPANY In addition, the Company has authorized the issuance of 20 million shares of Preferred Stock, par value $.01 of which none has been issued at December 31, 1999 and 1998. NOTE 15--CLASS B COMMON STOCK In the event that the Company obtains the consent of its shareholders to amend its charter by June 30, 2000 to issue Class B Common Stock, the Company will authorize and reserve for issuance shares of Class B Common Stock to be issued upon the conversion of the Series A Preferred or the Series B Preferred of the Acquisition Subsidiary. The Class B Common Stock will rank (1) junior to any class or series of preferred stock of the Company and (2) PARI PASSU with the Class A Common Stock in right of payment of dividends and on liquidation. The Class B Common Stock will be nonvoting. At any time that the beneficial ownership by Cendant, together with any affiliate of Cendant (Cendant and such affiliates, the "Cendant Affiliates"), of the Class A Common stock is less than 20% of the aggregate number of all of the outstanding shares of Class A Common Stock, the Cendant Affiliates shall have the right to convert shares of Class B Common Stock into Class A Common Stock on a share-for-share basis in an amount such that the ownership by the Cendant Affiliates of the Class A Common Stock does not exceed 20% of the aggregate number of all of the outstanding shares of Class A Common Stock after giving effect to such conversion. The Cendant Affiliates shall have the right to convert the Class B Common Stock into shares of Class A Common Stock on a share-for-share basis upon the occurrence of (1) the bankruptcy or insolvency of the Company and (2) a Preferred Stock Change of Control, other than any Preferred Stock Change of Control that is caused solely by the sale by the Cendant Affiliates of its shares of Class A Common Stock or Class B Common Stock. Upon the transfer, sale or disposition for value to any person other than the Cendant Affiliates, each share of Class B Common Stock shall be automatically exchanged for the Class A Common Stock on a share-for-share basis. Other than upon conversion of the Series A Preferred or the Series B Preferred, no additional shares of Class B Common Stock may be issued. Shares of Class B Common Stock shall be freely transferable. Shares of Class B Common Stock reacquired in any manner shall be retired and may not be reissued as shares of Class B Common Stock. In connection with the VMS Acquisition, the Company entered into a registration rights agreement pursuant to which Cendant and certain transferees of Class B Common Stock and Class A Common Stock converted from the Class B Common stock held by Cendant (the "Holders") will have the right to require the Company to register all or part of the Class A Common Stock owned by such Holders under the Securities Act of 1933 as amended (the "Securities Act") (an "Acquisition Demand Registration"). However, the Company may postpone giving effect to an Acquisition Demand Registration for a period of up to 30 days if the Company believes such registration might have a material adverse effect on any F-31
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15--CLASS B COMMON STOCK (CONTINUED) plan or proposal by the Company with respect to any financing, acquisition, recapitalization, reorganization or other material transaction or the Company is in possession of material non-public information that, if publicly disclosed, could result in a material disruption of a major corporate development or transaction then pending or in progress or in other material adverse consequences to the Company. In addition, the Holders have the right to participate in any registrations by the Company of Class A Common Stock (an "Acquisition Piggyback Registration"). The Holders will pay all out-of-pocket expenses incurred in connection with any Acquisition Registration, and the Company will pay all out-of-pocket expenses incurred in connection with any Acquisition Demand Piggyback Registration, except for underwriting discounts, commissions and expenses attributable to the shares of Class A Common Stock sold by such holders. F-32
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16--TREASURY STOCK At December 31, 1999 and 1998, treasury stock is comprised of the following: 1999 1998 -------------------------- -------------------------- TREASURY TREASURY STOCK, NET TREASURY STOCK, NET TREASURY (IN THOUSANDS) SHARES (IN THOUSANDS) SHARES -------------- --------- -------------- --------- Balance, beginning of year.................... $ 50,960 2,672,700 Common stock repurchased...................... 57,237 2,327,300 $50,960 2,672,700 Treasury stock issued under the Company's stock option plan, and other................ (4,365) (206,712) -------- --------- ------- --------- $103,832 4,793,288 $50,960 2,672,700 ======== ========= ======= ========= On September 1, 1998, the Board of Directors authorized the Company to repurchase up to 1,500,000 shares of the outstanding common stock at market prices. On September 23, 1998, the Board of Directors authorized the Company to purchase up to 3,500,000 additional shares of outstanding common stock. Of the total treasury shares repurchased during the year ended December 31, 1999, 1,614,200 were repurchased from Cendant at an aggregate cost of $40.8 million. No shares were repurchased from Cendant during 1998. As of December 31, 1999, the acquisition of these treasury shares reduced Cendant's ownership in the Company's common stock to approximately 18%. (See Notes 1, 2 and 24.) NOTE 17--RETIREMENT BENEFITS The Company, through its subsidiary ARACS, sponsors non-contributory defined benefit plans covering certain employees hired prior to December 31, 1983 who were age 25 or above on January 1, 1985. ARACS also contributes to union sponsored pension plans. Through ARACS, the Company sponsors two Voluntary Investment Savings Plans under a "qualified cash or deferred arrangement" under Section 401(k) of the Internal Revenue Code covering its union and non-union employees. For the years ended December 31, 1999, 1998 and 1997, the Company's cost of these plans was $3.0 million, $1.6 million and $1.8 million, respectively. Included in the non-union Investment Savings Plan, ARACS makes a defined contribution for full-time employees. The contributions were determined at 2% of each covered employee's compensation through December 31, 1998 and were increased to 3% of each covered employee's compensation with effect from January 1, 1999. Employer contributions for the years ended December 31, 1999, 1998 and 1997 amounted to $5.0 million, $2.3 million and $2.1 million, respectively. The vehicle rental defined benefit plan for its Salaried and Hourly Employees as of June 30, 1985, provides benefits based upon years of credited service, highest average compensation and social security benefits. Annual retirement benefits, at age 65, are equal to 1 1/2% of the participating employee's final average compensation (average compensation during the highest five consecutive years of employment in the ten years prior to retirement) less 1 1/2% of the Social Security benefits for each year of service up to a maximum of 35 years. In addition, the plan provides for reduced benefits before age 65 and for a joint and survivor annuity option. Effective January 1, 1999, the Company curtailed its defined benefit Retirement Plan for Employees as of June 30, 1985. The Company recognized a F-32
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17--RETIREMENT BENEFITS (CONTINUED) $7,500,000 pre-tax gain as a result of the curtailment during the first quarter of fiscal year ending December 31, 1999. The Company also sponsors several foreign pension plans. The most significant of these are the United Kingdom and Canadian defined benefit pension plans. The status of the Company's defined benefit plans at December 31, 1999 and 1998, including the plans to its Salaried and Hourly Employees as of June 1985, the Bargaining Plan, the Non-Qualified F-33
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17--RETIREMENT BENEFITS (CONTINUED) Defined Benefit Plan, the Motorent Plan (terminated on September 30, 1999) the United Kingdom Plan and the Canadian Defined Benefit Plan are as follows (in thousands): 1999 1998 -------- -------- CHANGE IN BENEFIT OBLIGATION Benefit obligations at beginning of year.................... $125,251 $106,887 Benefit obligations assumed from acquisitions............. 30,820 Service cost.............................................. 1,588 2,809 Interest cost............................................. 6,611 6,922 Plan participants' contributions.......................... 562 182 Amendments................................................ (19,395) 635 Actuarial (1oss)gain...................................... (11,735) 11,014 Benefits paid............................................. (15,819) (2,798) Foreign currency translation loss......................... (997) (400) -------- -------- Benefit obligations at end of year.......................... 116,886 125,251 -------- -------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year.............. 101,449 89,816 Fair value of plan assets acquired from acquisitions...... 25,682 Actual return on plan assets.............................. 8,107 9,060 Plan participants' contributions.......................... 562 182 Employer contributions.................................... 7,022 5,908 Benefits paid............................................. (15,891) (2,798) Foreign currency translation loss......................... (614) (719) -------- -------- Fair value of plan assets at end of year.................... 126,317 101,449 -------- -------- Funded status............................................. 9,431 (23,802) Unrecognized net accrual gain (loss)...................... (6,003) 16,307 Unrecognized prior service cost........................... 1,276 1,703 Unrecognized transition asset............................. (2,237) (2,251) -------- -------- Prepaid (accrued) benefit cost.............................. $ 2,467 $ (8,043) ======== ======== AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION Prepaid benefit cost........................................ $ 7,320 $ 1,752 Accrued benefit liability................................... (9,122) (14,340) Intangible asset............................................ 2,761 1,704 Accumulated other comprehensive income...................... 1,508 2,841 -------- -------- Net amount recognized....................................... $ 2,467 $ (8,043) ======== ======== The fair value of plan assets for funded plans with accumulated benefit obligations in excess of plan assets amounted to $55.7 million as of December 31, 1999. F-34
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17--RETIREMENT BENEFITS (CONTINUED) Net pension costs of the non-qualified defined benefit plans for the years ended December 31, 1999, 1998 and 1997, include the following components (in thousands): 1999 1998 1997 -------- -------- -------- Service cost--benefits earned during the year............... $ 1,588 $ 2,809 $ 3,446 Interest cost on projected benefit obligation............... 6,611 6,922 6,956 Return on assets--expected gain on plan assets.............. (8,664) (7,786) (6,804) Recognized actuarial gain................................... 21 Net amortization of prior service cost...................... 17 70 35 Contributions to union plans and other...................... 2,910 3,894 3,021 Amortization of gain........................................ 127 Amortization of unrecognized net assets at transition....... (122) (123) (132) ------- ------- ------- Net pension cost............................................ $ 2,488 $ 5,786 $ 6,522 ======= ======= ======= At December 31, 1999 and 1998, the measurement of the projected benefit obligation was based upon the following assumptions weighted average interest rates: 1999 1998 -------- -------- Discount rate............................................... 6.67% 6.00% Compensation increase for continuing plans.................. 3.85% 4.72% Long-term return on plan assets............................. 8.45% 8.77% The U.S. plans' assets are invested in corporate bonds, U.S. government securities and common stock mutual funds. The Canadian plan's assets are invested in Canadian stocks, bonds, mutual funds, real estate and money market funds. The UK plan's assets are invested in equity securities, fixed interest securities and cash. NOTE 18--EARNINGS PER SHARE ("EPS") Basic EPS for the years ended December 31, 1999, 1998 and 1997 was calculated using 31,330,536, 34,172,249 and 30,925,000 weighted-average shares outstanding. Diluted EPS for the years ended December 31, 1999, 1998 and 1997 was calculated as follows (in thousands, except share amounts): 1999 1998 1997 ---------- ---------- ---------- DILUTED EPS Earnings available to common stockholders................ $ 83,475 $ 63,521 $ 27,473 ========== ========== ========== Weighted average common shares outstanding............... 31,330,536 34,172,249 30,925,000 Plus: Dilutive effect of the assumed exercise of stock options................................................ 655,033 780,308 256,134 ---------- ---------- ---------- Adjusted weighted average shares outstanding............. 31,985,569 34,952,557 31,181,134 ========== ========== ========== Diluted EPS.............................................. $ 2.61 $ 1.82 $ 0.88 ========== ========== ========== F-35
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19--STOCK OPTION PLAN On September 23, 1997, the Avis Group Holdings, Inc. 1997 Stock Option Plan (the "Stock Option Plan") was adopted by the Board of Directors under which 4,620,977 shares of Common Stock were reserved for issuance upon the exercise of options granted to officers, key employees, independent contractors and non-employee Directors of the Company and its designated subsidiaries. On September 23, 1997, 3,953,900 options were granted at $17.00 per share, the fair market value of the Company's common stock on the date of grant. On May 21, 1998, at the Annual Meeting of Stockholders, the shareholders approved an amendment to the Company's Stock Option Plan, increasing the maximum number of shares authorized for issuance under the Stock Option Plan to 6,000,000. On November 8, 1999, the Board of Directors increased the maximum number of shares authorized for issuance under the Stock Option Plan to 7,500,000. At December 31, 1999 and 1998, approximately 6,933,613 and 4,443,100, respectively, options are outstanding under the Stock Option Plan. The primary purpose of the Stock Option Plan is to provide additional incentive to officers, key employees, independent contractors and non-employee directors of the Company and to strengthen their commitment to the Company and its subsidiaries. Each non-employee director of the Company received an initial automatic grant of an option to purchase 50,000 shares of Common Stock under the Stock Option Plan. Subsequently elected non-employee directors will receive a like grant under the Stock Option Plan upon election or appointment to the Board of Directors. The exercise price of each option under the Stock Option Plan may not be less than the fair market value of a share of Common Stock on the date the option is granted. Options held by an optionee will generally become exercisable as to 20% of the shares covered by such options on the first anniversary of the date of grant and with respect to an additional 20% of the shares covered by such options on each of the four succeeding anniversaries of the date of grant if the optionee continues to be employed or retained as an independent contractor by the Company, on each such date. All options held by an optionee will become fully exercisable (to the extent not already exercisable) if a "change of control transaction" (as defined in the Stock Option Plan) occurs. Shares of Common Stock acquired upon the exercise of the options may be subject to restrictions on transfer which will be set forth in the agreement evidencing the grant of the option. Unless otherwise determined by the Compensation Committee of the Board of Directors, all options granted under the Stock Option 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, disability or (iii) one year following the termination of optionee's employment for any other reason. Grants of options under the Stock Option Plan are subject to an annual per-participant maximum grant of shares of Common Stock. Generally, the Board of Directors of the Company may amend or terminate the Stock Option Plan, provided that (i) no such amendment or termination may adversely affect the rights of any participant without the consent of such participant and (ii) to the extent required by any law, regulation or stock exchange rule, no amendment shall be effective without the approval of the Company's stockholders. The Company makes no recognition of the options in the financial statements until they are exercised. The Company applies Accounting Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" and related Interpretations in accounting for its plans and does not recognize compensation expense for its stock-based compensation plans. The Company has adopted only the F-36
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19--STOCK OPTION PLAN (CONTINUED) disclosure provisions of Statement of Financial Accounting Standard No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS 123"). The following is a summary of stock option activity for the years ended December 31, 1999 and 1998 and for the period September 23, 1997 through December 31, 1997: WEIGHTED AVERAGE EXERCISE SHARES PRICE --------- -------- Granted September 23, 1997 (inception of the stock option plan).................................................. 3,953,900 $17.00 Forfeited............................................ (78,200) $17.00 --------- ------ Outstanding at December 31, 1997......................... 3,875,700 $17.00 Granted.............................................. 1,452,000 $23.47 Forfeited............................................ (869,600) $19.32 --------- ------ Outstanding at December 31, 1998......................... 4,458,100 $18.65 Granted.............................................. 2,799,900 $25.41 Exercised............................................ (198,187) $17.00 Forfeited............................................ (126,200) $19.92 --------- ------ Outstanding at December 31, 1999......................... 6,933,613 $21.41 ========= ====== Exercisable Options December 31, 1999........................................ 1,493,263 $17.87 ========= ====== Pro forma disclosures are provided for the years ended December 31, 1999, 1998 and 1997 as if the Company adopted the cost recognition requirements under SFAS 123. The weighted average fair value of each option granted (estimated on the date of grant using the Black-Scholes option-pricing model) is $12.95, $11.73 and $9.80 for 1999, 1998 and 1997, respectively, using the following assumptions: 1999 1998 1997 -------- -------- -------- Expected volatility.................................. 40.0% 40.0% 45.0% Risk-free interest rate.............................. 6.0 6.0 5.7 Expected option life in years........................ 6.5 6.5 7.5 The weighted-average remaining contractual life of the stock options is 7.7 years, 7.3 and 9.6 years at December 31, 1999, 1998 and 1997, respectively. Had compensation expense been recognized for the years ended December 31, 1999 and 1998 and for the period September 23, 1997 through December 31, 1997, grants for stock-based compensation plans in accordance with provisions of SFAS 123, the F-37
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19--STOCK OPTION PLAN (CONTINUED) Company would have recorded net income and earnings per share as follows (in thousands, except per share data): 1999 1998 1997 ---------------------- ---------------------- ---------------------- PRO PRO PRO AS REPORTED FORMA AS REPORTED FORMA AS REPORTED FORMA ----------- -------- ----------- -------- ----------- -------- Earnings applicable to common stockholders.......................... $83,475 $74,563 $63,521 $58,656 $27,473 $26,436 ======= ======= ======= ======= ======= ======= Basic earnings per share................ $ 2.66 $ 2.38 $ 1.86 $ 1.72 $ .89 $ .85 ======= ======= ======= ======= ======= ======= Diluted earnings per share.............. $ 2.61 $ 2.33 $ 1.82 $ 1.68 $ .88 $ .85 ======= ======= ======= ======= ======= ======= NOTE 20--LEASES, AIRPORT CONCESSION FEES AND COMMITMENTS The Company is committed to make rental payments under noncancelable operating leases relating principally to vehicle rental facilities and equipment. Under certain leases, the Company is obligated to pay certain additional costs, such as property taxes, insurance and maintenance. Airport concession agreements usually require a guaranteed minimum amount plus contingent fees, which are generally based on a percentage of revenues. Operating lease payments and net airport concession fees charged to expense for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands): YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Minimum fees.................................. $176,780 $147,034 $122,015 Contingent fees............................... 93,264 89,456 87,937 -------- -------- -------- 270,044 236,490 209,952 Sublease rentals.............................. (5,881) (4,701) (4,741) -------- -------- -------- $264,163 $231,789 $205,211 ======== ======== ======== Future minimum rental commitments under noncancelable operating leases amounted to approximately $725.1 million at December 31, 1999. The minimum rental payments due in each of the next five years ending December 31st, and thereafter, are as follows (in thousands): 2000........................................................ $138,180 2001........................................................ 116,921 2002........................................................ 96,665 2003........................................................ 69,351 2004........................................................ 52,603 Thereafter.................................................. 251,384 At December 31, 1999, future minimum rental commitments include $70.6 million due to a subsidiary of Cendant, related to the Company's corporate headquarters and Virginia Beach processing facility. F-38
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20--LEASES, AIRPORT CONCESSION FEES AND COMMITMENTS (CONTINUED) In addition to the Company's lease commitments, the Company has outstanding purchase commitments of approximately $2.1 billion at December 31, 1999, which relate principally to vehicle purchases. NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS In connection with the VMS Acquisition and as part of the financing thereof, Avis Group Holdings, Inc. (the "Parent") issued and sold the Senior Subordinated Notes (see Note 10) in a transaction exempt from registration under the Securities Act. These securities were subsequently registered on September 24, 1999. The Senior Subordinated Notes are general unsecured obligations of the Parent, subordinated in right of payment to all existing and future senior indebtedness of the Company, and guaranteed by certain of the Parent's domestic subsidiaries. Accordingly, the following condensed consolidating financial information presents the condensed consolidating financial statements as of December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and 1997, respectively, of: (a) the Parent; (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; (d) elimination entries necessary to consolidate Parent with guarantor and non-guarantor subsidiaries; and (e) the Company on a consolidated basis (in thousands). F-39
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principle elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been made because management believes that such information is not material to holders of the Senior Subordinated Notes. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS) -------------------------------------------------------------------- AVIS GROUP NON- HOLDINGS, GUARANTOR GUARANTOR INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Revenue.................................... $2,329,525 $1,003,202 $3,332,727 ---------- ---------- ---------- Costs and expenses: Direct operating, net...................... 843,787 113,483 957,270 Vehicle depreciation and lease charges, net...................................... 604,767 569,742 1,174,509 Selling, general and administrative........ 486,295 95,761 582,056 Interest, net.............................. $85,797 186,746 109,760 382,303 Minority interest.......................... 5,890 5,890 Non-vehicle depreciation and amortization............................. 16,586 18,014 34,600 Amortization of cost in excess of net assets acquired.......................... 26,969 3,213 30,182 ------- ---------- ---------- ---------- 85,797 2,165,150 915,863 3,166,810 ------- ---------- ---------- ---------- (85,797) 164,375 87,339 165,917 Equity in earnings of subsidiaries......... 144,878 69,842 $(214,720) ------- ---------- ---------- --------- ---------- Income before provision for income taxes... 59,081 234,217 87,339 (214,720) 165,917 Provision (benefit) for income taxes....... (33,504) 89,339 17,497 73,332 ------- ---------- ---------- --------- ---------- Net income............................... $92,585 $ 144,878 $ 69,842 $(214,720) $ 92,585 ======= ========== ========== ========= ========== F-38
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS) -------------------------------------------------------------------- AVIS GROUP NON- HOLDINGS, GUARANTOR GUARANTOR INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Revenue.................................... $2,061,967 $235,615 $2,297,582 ---------- -------- ---------- Costs and expenses: Direct operating, net...................... 826,370 101,560 927,930 Vehicle depreciation and lease charges, net...................................... 531,830 61,234 593,064 Selling, general and administrative........ 402,917 33,358 436,275 Interest, net.............................. $ 13,836 174,016 4,228 192,080 Non-vehicle depreciation and amortization............................. 21,848 2,303 24,151 Amortization of cost in excess of net assets acquired.......................... 11,702 152 11,854 -------- ---------- -------- ---------- 13,836 1,968,683 202,835 2,185,354 -------- ---------- -------- ---------- (13,836) 93,284 32,780 112,228 Equity in earnings of subsidiaries......... 72,514 23,700 $(96,214) -------- ---------- -------- -------- ---------- Income before provision for income taxes... 58,678 116,984 32,780 (96,214) 112,228 Provision (benefit) for income taxes....... (4,843) 44,470 9,080 48,707 -------- ---------- -------- -------- ---------- Net income............................... $ 63,521 $ 72,514 $ 23,700 $(96,214) $ 63,521 ======== ========== ======== ======== ========== CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) -------------------------------------------------------------------- AVIS GROUP NON- HOLDINGS, GUARANTOR GUARANTOR INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Revenue.................................... $1,804,477 $241,677 $2,046,154 ---------- -------- ---------- Costs and expenses: Direct operating, net...................... 744,355 109,412 853,767 Vehicle depreciation and lease charges, net...................................... 459,963 65,180 525,143 Selling, general and administrative........ $ 8,073 370,635 34,583 413,291 Interest, net.............................. 5,765 169,983 4,860 180,608 Non-vehicle depreciation and amortization............................. 13,818 2,344 16,162 Amortization of cost in excess of net assets acquired.......................... 6,728 132 6,860 -------- ---------- -------- ---------- 13,838 1,765,482 216,511 1,995,831 -------- ---------- -------- ---------- (13,838) 38,995 25,166 50,323 Equity in earnings of subsidiaries......... 36,468 16,203 $(52,671) -------- ---------- -------- -------- ---------- Income before provision for income taxes... 22,630 55,198 25,166 (52,671) 50,323 Provision (benefit) for income taxes (4,843) 18,730 8,963 22,850 -------- ---------- -------- -------- ---------- Net income................................. $ 27,473 $ 36,468 $ 16,203 $(52,671) $ 27,473 ======== ========== ======== ======== ========== F-39
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 1999 (IN THOUSANDS) ------------------------------------------------------------------------ NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ -------------- ASSETS Cash and cash equivalents.............. $ 54 $ 42,184 $ 29,459 $ 71,697 Cash held on deposit with financial institution.......................... 93,530 93,530 Restricted cash........................ 253,080 253,080 Accounts receivable, net............... (9) 210,962 904,787 1,115,740 Finance lease receivables.............. 871,034 871,034 Prepaid expenses....................... 41,282 23,034 64,316 Vehicles, net-rental................... (75,581) 3,442,943 3,367,362 Vehicles, net-leasing.................. 55,704 3,078,305 3,134,009 Property and equipment, net............ 161,651 36,176 197,827 Investment in subsidiaries............. 2,121,275 1,272,000 $(3,393,275) Other assets........................... 1,000 78,863 35,410 115,273 Cost in excess of net assets acquired, net.................................. 1,595,529 198,861 1,794,390 ---------- ---------- ---------- ----------- ----------- Total assets........................... $2,122,320 $3,382,594 $8,966,619 $(3,393,275) $11,078,258 ========== ========== ========== =========== =========== LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Accounts payable....................... $ 273,102 $ 315,275 $ 588,377 Accrued liabilities.................... $ 16,774 366,602 (13,923) 369,453 Due (from) to affiliates............... (84,266) (119,494) 263,156 59,396 Current income tax liabilities......... 17,910 316 18,226 Deferred income tax liabilities, net... (42,982) 144,893 79,345 181,256 Public liability, property damage and other insurance liabilities, net..... 206,111 53,645 259,756 Debt................................... 1,562,000 10,305 6,897,500 8,469,805 Minority interest (preferred membership interest)............................ 99,305 99,305 Preferred stock........................ 371,000 371,000 Common stockholders' equity............ 670,794 2,112,165 1,272,000 $(3,393,275) 661,684 ---------- ---------- ---------- ----------- ----------- Total liabilities, preferred stock and common stockholders' equity.......... $2,122,320 $3,382,594 $8,966,619 $(3,393,275) $11,078,258 ========== ========== ========== =========== =========== F-40
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 1998 (IN THOUSANDS) -------------------------------------------------------------------- AVIS GROUP NON- HOLDINGS, GUARANTOR GUARANTOR INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ ASSETS Cash and cash equivalents................. $ 11 $ 9,776 $ 19,964 $ 29,751 Restricted cash........................... 2,000 131,284 133,284 Accounts receivable, net.................. 136,112 224,462 360,574 Prepaid expenses.......................... 34,666 7,417 42,083 Vehicles, net-rental...................... (73,213) 3,238,029 3,164,816 Property and equipment, net............... 129,090 15,955 145,045 Investment in subsidiaries................ 533,274 422,146 $(955,420) Other assets.............................. 38,127 2,463 40,590 Deferred income tax assets................ 9,686 107,973 117,659 Cost in excess of net assets acquired, net..................................... 460,441 2,819 463,260 -------- ---------- ---------- --------- ---------- Total assets............................ $542,971 $1,267,118 $3,642,393 $(955,420) $4,497,062 ======== ========== ========== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable.......................... $ 112,220 $ 86,261 $ 198,481 Accrued liabilities....................... $ 969 277,018 48,217 326,204 Due (from) to affiliates, net............. (80,612) 112,605 (9,700) 22,293 Current income tax liabilities............ 19,413 3,632 23,045 Deferred income tax liabilities, net...... 28,504 28,504 Public liability, property damage and other insurance liabilities, net........ 210,811 50,398 261,209 Debt...................................... 1,777 3,012,935 3,014,712 Stockholders' equity...................... 622,614 533,274 422,146 $(955,420) 622,614 -------- ---------- ---------- --------- ---------- Total liabilities and stockholders' equity.................................. $542,971 $1,267,118 $3,642,393 $(955,420) $4,497,062 ======== ========== ========== ========= ========== F-41
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS) ------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................ $ 92,585 $ 144,878 $ 69,842 $(214,720) $ 92,585 Adjustments to reconcile net income to net cash (used in) provided by operating activities:............... (151,326) 686,838 469,846 1,005,358 ----------- --------- ----------- --------- ----------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES... (58,741) 831,716 539,688 (214,720) 1,097,943 ----------- --------- ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for vehicle additions........................ 87,291 (5,692,785) (5,605,494) Vehicle deletions..................................... (465,991) 4,671,212 4,205,221 Increase in finance lease receivables................. (117,407) 94,744 (22,663) Payments for additions to property and equipment...... (38,798) (9,442) (48,240) Retirements of property and equipment................. (20,478) 14,059 (6,419) Investment in subsidiaries............................ (141,241) (69,840) 211,081 Payment for purchase of rental car franchise licensees, net of cash acquired..................... (44,934) (258) (45,192) Payment for purchase of PHH Holdings, net of cash acquired............................................ (1,325,781) (1,325,781) Proceeds from sale and leaseback of UK office building............................................ 32,156 32,156 ----------- --------- ----------- --------- ----------- NET CASH USED IN INVESTING ACTIVITIES................. (1,467,022) (670,157) (890,314) 211,081 (2,816,412) ----------- --------- ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of treasury stock......................... (53,868) (53,868) Net increase in (repayment of) debt................. 1,562,000 (117,759) 368,767 1,813,008 Payments for debt issuance costs.................... 21,313 (16,453) (11,403) (6,543) Increase in minority interest (preferred membership interest)......................................... 99,305 99,305 Cash dividends...................................... 5,926 (5,926) ----------- --------- ----------- --------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES... 1,529,445 (128,286) 450,743 1,851,902 ----------- --------- ----------- --------- ----------- Effect of exchange rate changes on cash............. (3,639) (865) 2,908 3,639 2,043 ----------- --------- ----------- --------- ----------- Net increase in cash and cash equivalents and cash held on deposit with financial institutions....... 43 32,408 103,025 135,476 Cash and cash equivalents and cash held on deposit with financial institutions at beginning of year.............................................. 11 9,776 19,964 29,751 ----------- --------- ----------- --------- ----------- CASH AND CASH EQUIVALENTS AND CASH HELD ON DEPOSIT WITH FINANCIAL INSTITUTIONS AT END OF YEAR.......... $ 54 $ 42,184 $ 122,989 $ $ 165,227 =========== ========= =========== ========= =========== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest.......................................... $ 370,247 =========== Income taxes...................................... $ 28,877 =========== BUSINESSES ACQUIRED: Fair value of assets acquired, net of cash acquired.......................................... $ 6,004,777 Liabilities assumed................................. 4,271,804 ----------- Net assets acquired................................. 1,732,973 Less issuance of Series A and Series C Preferred Stock............................................. 362,000 ----------- NET CASH PAID FOR ACQUISITIONS........................ $ 1,370,973 =========== F-42
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS) --------------------------------------------------------------------- AVIS GROUP NON- HOLDINGS, GUARANTOR GUARANTOR INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............................................. $ 63,521 $ 72,514 $ 23,700 $ (96,214) $ 63,521 Adjustments to reconcile net income to net cash (used in) provided by operating activities:................. (101,241) 593,335 96,973 589,067 --------- --------- ----------- --------- ----------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES....... (37,720) 665,849 120,673 (96,214) 652,588 --------- --------- ----------- --------- ----------- CASH FLOWS FORM INVESTING ACTIVITIES: Payments for vehicle additions.......................... 49,363 (4,352,411) (4,303,048) Vehicle deletions....................................... (218,228) 3,828,949 3,610,721 Payments for additions to property and equipment........ (39,691) (3,242) (42,933) Retirements of property and equipment................... 4,965 638 5,603 Investment in subsidiaries.............................. (72,514) (131,677) 204,191 Payment for purchase of rental car franchise licensees, net of cash acquired.................................. (227,213) (9,969) (237,182) --------- --------- ----------- --------- ----------- NET CASH USED IN INVESTING ACTIVITIES..................... (72,514) (562,481) (536,035) 204,191 (966,839) --------- --------- ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from pubic offerings net....................... 161,194 161,194 Purchases of treasury stock............................. (50,960) (50,960) Net (decrease) increase in debt......................... (116,137) 309,994 193,857 Payments for debt issuance costs........................ (4,654) (4,654) Capital contribution in Argentina....................... 1,000 (1,000) Investment in AESOP Leasing LP.......................... 110,000 (110,000) Cash dividends.......................................... (3,023) 3,023 --------- --------- ----------- --------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... 110,234 (120,791) 417,971 (107,977) 299,437 --------- --------- ----------- --------- ----------- Effect of exchange rate changes on cash................. (334) (334) --------- --------- ----------- --------- ----------- Net (decrease) increase in cash and cash equivalents.... (17,423) 2,275 (15,148) Cash and cash equivalents at beginning of year.......... 11 27,199 17,689 44,899 --------- --------- ----------- --------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................. $ 11 $ 9,776 $ 19,964 $ $ 29,751 ========= ========= =========== ========= =========== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest.............................................. $ 209,977 =========== Income taxes.......................................... $ 13,338 =========== BUSINESSES ACQUIRED: Fair value of assets acquired, net of cash acquired..... $ 244,501 Liabilities assumed..................................... 7,319 ----------- NET CASH PAID FOR ACQUISITIONS............................ $ 237,182 =========== F-43
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) --------------------------------------------------------------------- AVIS GROUP NON- HOLDINGS, GUARANTOR GUARANTOR INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................... $ 27,473 $ 36,468 $ 16,203 $ (52,671) $ 27,473 Adjustments to reconcile net income to net cash (used in) provided by operating activities:.............. (350,310) 909,073 (170,637) 388,126 --------- --------- ----------- --------- ----------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES.... (322,837) 945,541 (154,434) (52,671) 415,599 --------- --------- ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for vehicle additions....................... (73,731) (4,167,078) (4,240,809) Vehicle deletions.................................... (287,267) 3,669,444 3,382,177 Payments for additions to property and equipment..... (19,588) (5,145) (24,733) Retirements of property and equipment................ 3,814 157 3,971 Investment in subsidiaries........................... (36,468) (207,603) 244,071 Payment for purchase of rental car franchise licensees, net of cash acquired.................... (199,381) (199,381) --------- --------- ----------- --------- ----------- NET CASH USED IN INVESTING ACTIVITIES.................. (36,468) (783,756) (502,622) 244,071 (1,078,775) --------- --------- ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from public offerings, net.................. 359,316 359,316 Net (decrease) increase in debt...................... (116,231) 465,519 349,288 Payments for debt issuance costs..................... (29,302) (29,302) Investment in AESOP Leasing LP....................... 191,400 (191,400) --------- --------- ----------- --------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.... 359,316 (145,533) 656,919 (191,400) 679,302 --------- --------- ----------- --------- ----------- Effect of exchange rate changes on cash.............. (945) (945) --------- --------- ----------- --------- ----------- Net increase (decrease) in cash and cash equivalents........................................ 11 16,252 (1,082) 15,181 Cash and cash equivalents at beginning of year....... 10,947 18,771 29,718 --------- --------- ----------- --------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR............... $ 11 $ 27,199 $ 17,689 $ $ 44,899 ========= ========= =========== ========= =========== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest........................................... $ 189,086 =========== Income taxes....................................... $ 8,899 =========== BUSINESSES ACQUIRED: Fair value of assets acquired, net of cash acquired........................................... $ 519,650 Liabilities assumed.................................. 320,269 ----------- NET CASH PAID FOR ACQUISITIONS......................... $ 199,381 =========== F-44
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 22--SEGMENT INFORMATION Prior to the purchase of VMS on June 30, 1999 (see Note 2), the Company operated in one industry segment; the rental car business. As of July 1, 1999, the Company began operating in two business segments as follows: Vehicle rental................. The Company rents vehicles to business and leisure customers Vehicle leasing and other fee based services............... The Company leases vehicles to customers under closed-end and open-end leases. Fee based services include fuel and maintenance cards, accident management and various other vehicle services which enable customers to effectively manage costs and enhance productivity Prior to the purchase of VMS on June 30, 1999, the Company operated in four geographic areas: the United States, Australia/New Zealand, Canada and Other Foreign Operations. As a result of the VMS acquisition, the Company added an additional geographic area; the United Kingdom. Revenue generated from each of the Company's business segments is recorded in the country in which rental, vehicle leasing and other fee based services are provided. The accounting policies of each segment and geographic area are the same as those described in the summary of significant accounting policies (see Note 1). EBITDA represents net income, plus non-vehicle interest expense (acquisition interest), non- vehicle depreciation and amortization, and income taxes. Corporate represents primarily acquisition related interest, amortization of net assets acquired and amortization of deferred financing fees related to the VMS acquisition. The operations within major business segments and major geographic areas for the years ended December 31, 1999, 1998 and 1997, are summarized as follows (in thousands): F-45
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 22--SEGMENT INFORMATION (CONTINUED) BUSINESS SEGMENTS YEAR ENDED DECEMBER 31, 1999 YEARS ENDED DECEMBER 31, --------------------------------------------------- ------------------------- VEHICLE 1998 1997 LEASING AND OTHER VEHICLE FEE BASED VEHICLE VEHICLE RENTAL SERVICES CORPORATE CONSOLIDATED RENTAL RENTAL ---------- ---------- ---------- ------------ ----------- ----------- Revenue............... $2,500,746 $ 831,981 $ 3,332,727 $2,297,582 $2,046,154 ========== ========== =========== ========== ========== Interest expense, net................. $ 210,579 $ 99,763 $ 71,961 $ 382,303 $ 192,080 $ 180,608 ========== ========== ========== =========== ========== ========== EBITDA................ $ 201,648 $ 99,961 $ 1,051 $ 302,660 $ 148,233 $ 73,345 ========== ========== ========== =========== ========== ========== Non-vehicle depreciation and amortization........ $ 39,190 $ 11,141 $ 14,451 $ 64,782 $ 36,005 $ 23,022 ========== ========== ========== =========== ========== ========== Income (loss) before provision for income taxes............... $ 162,458 $ 88,820 $ (85,361) $ 165,917 $ 112,228 $ 50,323 ========== ========== ========== =========== ========== ========== Income tax expense.... $ 50,536 $ 22,367 $ 429 $ 73,332 $ 48,707 $ 22,850 ========== ========== ========== =========== ========== ========== Finance lease receivables......... $ 871,034 $ 871,034 ========== =========== Vehicles, net......... $3,367,362 $3,134,009 $ 6,501,371 $3,164,816 $3,018,856 ========== ========== =========== ========== ========== Debt and minority interest (preferred membership interest)........... $3,393,422 $3,613,688 $1,562,000 $ 8,569,110 $3,014,712 $2,826,422 ========== ========== ========== =========== ========== ========== Total assets.......... $4,885,928 $6,107,019 $ 85,311 $11,078,258 $4,497,062 $4,274,657 ========== ========== ========== =========== ========== ========== Capital expenditures for vehicles and property and equipment........... $4,814,597 $ 839,137 $ 5,653,734 $4,345,981 $4,265,542 ========== ========== =========== ========== ========== F-46
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 22--SEGMENT INFORMATION (CONTINUED) GEOGRAPHIC AREAS YEAR ENDED DECEMBER 31, 1999 --------------------------------------------------------------------------- AUSTRALIA/ OTHER UNITED UNITED NEW FOREIGN STATES KINGDOM ZEALAND CANADA OPERATIONS CONSOLIDATED ---------- ---------- ---------- -------- ---------- ------------ Revenue........................... $2,910,712 $ 130,298 $124,263 $127,619 $39,835 $ 3,332,727 ========== ========== ======== ======== ======= =========== Interest expense, net............. $ 342,320 $ 27,343 $ 655 $ 8,778 $ 3,207 $ 382,303 ========== ========== ======== ======== ======= =========== EBITDA............................ $ 219,333 $ 46,927 $ 25,450 $ 18,670 $(7,720) $ 302,660 ========== ========== ======== ======== ======= =========== Non-vehicle depreciation and amortization.................... $ 43,465 $ 17,805 $ 1,303 $ 1,528 $ 681 $ 64,782 ========== ========== ======== ======== ======= =========== Income (loss) before provision for income taxes.................... $ 104,170 $ 29,122 $ 24,147 $ 17,142 $(8,664) $ 165,917 ========== ========== ======== ======== ======= =========== Income tax expense................ $ 57,224 $ 4,259 $ 5,652 $ 4,939 $ 1,258 $ 73,332 ========== ========== ======== ======== ======= =========== Finance lease receivables......... $ 129,188 $ 725,740 $ 16,106 $ 871,034 ========== ========== ======== =========== Vehicles, net..................... $5,937,503 $ 168,476 $ 75,238 $224,704 $95,450 $ 6,501,371 ========== ========== ======== ======== ======= =========== Debt and minority interest (preferred membership interest)....................... $7,545,835 $ 850,443 $ 5,433 $148,022 $19,377 $ 8,569,110 ========== ========== ======== ======== ======= =========== Total assets...................... $9,159,879 $1,416,598 $107,341 $317,298 $77,142 $11,078,258 ========== ========== ======== ======== ======= =========== Capital expenditures for vehicles and property and equipment...... $5,040,195 $ 42,668 $ 88,429 $436,065 $46,377 $ 5,653,734 ========== ========== ======== ======== ======= =========== F-47
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 22--SEGMENT INFORMATION (CONTINUED) GEOGRAPHIC AREAS YEAR ENDED DECEMBER 31, 1998 -------------------------------------------------------------- AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ---------- ---------- -------- ---------- ------------ Revenue................................ $2,061,967 $115,790 $ 92,402 $27,423 $2,297,582 ========== ======== ======== ======= ========== Interest expense, net.................. $ 184,869 $ 633 $ 5,587 $ 991 $ 192,080 ========== ======== ======== ======= ========== EBITDA................................. $ 121,803 $ 20,118 $ 5,984 $ 328 $ 148,233 ========== ======== ======== ======= ========== Non-vehicle depreciation and amortization......................... $ 33,186 $ 1,210 $ 909 $ 700 $ 36,005 ========== ======== ======== ======= ========== Income (loss) before provision for income taxes......................... $ 88,617 $ 18,908 $ 5,075 $ (372) $ 112,228 ========== ======== ======== ======= ========== Income tax expense..................... $ 38,395 $ 5,925 $ 3,641 $ 746 $ 48,707 ========== ======== ======== ======= ========== Vehicles, net.......................... $2,942,760 $ 72,609 $118,078 $31,369 $3,164,816 ========== ======== ======== ======= ========== Debt................................... $2,930,154 $ 15,881 $ 56,977 $11,700 $3,014,712 ========== ======== ======== ======= ========== Total assets........................... $4,192,961 $ 98,361 $148,230 $57,510 $4,497,062 ========== ======== ======== ======= ========== Capital expenditures for vehicles and property and equipment............... $3,988,072 $ 87,310 $244,891 $25,708 $4,345,981 ========== ======== ======== ======= ========== YEAR ENDED DECEMBER 31, 1997 -------------------------------------------------------------- AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ---------- ---------- -------- ---------- ------------ Revenue................................ $1,801,278 $132,309 $ 85,021 $27,546 $2,046,154 ========== ======== ======== ======= ========== Interest expense, net.................. $ 173,269 $ 1,192 $ 5,343 $ 804 $ 180,608 ========== ======== ======== ======= ========== EBITDA................................. $ 37,331 $ 25,551 $ 8,150 $ 2,313 $ 73,345 ========== ======== ======== ======= ========== Non-vehicle depreciation and amortization......................... $ 20,186 $ 1,457 $ 931 $ 448 $ 23,022 ========== ======== ======== ======= ========== Income before provision for income taxes................................ $ 16,601 $ 24,094 $ 7,219 $ 2,409 $ 50,323 ========== ======== ======== ======= ========== Income tax expense..................... $ 11,957 $ 6,088 $ 3,902 $ 903 $ 22,850 ========== ======== ======== ======= ========== Vehicles, net.......................... $2,821,297 $ 67,818 $100,985 $28,756 $3,018,856 ========== ======== ======== ======= ========== Debt................................... $2,744,714 $ 19,637 $ 50,741 $11,330 $2,826,422 ========== ======== ======== ======= ========== Total assets........................... $3,988,117 $ 99,001 $133,178 $54,361 $4,274,657 ========== ======== ======== ======= ========== Capital expenditures for vehicles and property and equipment............... $3,915,299 $ 85,748 $239,276 $25,219 $4,265,542 ========== ======== ======== ======= ========== F-48
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 23--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) QUARTERS ENDED (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) -------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1999 1999 1999 1999 ----------- ----------- ------------- ------------ Revenue...................................... $ 566,917 $ 637,457 $1,122,818 $1,005,535 Cost and expenses............................ 540,087 589,913 1,051,044 985,766 ---------- ---------- ---------- ---------- Income before provision for income taxes..... 26,830 47,544 71,774 19,769 Provision for income taxes................... 11,644 20,262 32,399 9,027 ---------- ---------- ---------- ---------- Net income................................... 15,186 27,282 39,375 10,742 Preferred dividends.......................... 4,555 4,555 ---------- ---------- ---------- ---------- Earnings applicable to common stockholders... $ 15,186 $ 27,282 $ 34,820 $ 6,187 ========== ========== ========== ========== Earnings per share: Basic........................................ $ .48 $ .87 $ 1.12 $ .20 ========== ========== ========== ========== Diluted...................................... $ .47 $ .85 $ 1.10 $ .20 ========== ========== ========== ========== Shares of common stock used in computing earnings per share:........................ Basic........................................ 31,873,031 31,188,977 31,129,164 31,130,973 ========== ========== ========== ========== Diluted...................................... 32,517,570 32,237,810 31,760,213 31,426,681 ========== ========== ========== ========== QUARTERS ENDED (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) -------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1998 1998 1998 1998 ----------- ----------- ------------- ------------ Revenue...................................... $511,390 $575,280 $652,385 $558,527 Cost and expenses............................ 498,161 535,370 599,679 552,144 ---------- ---------- ---------- ---------- Income before provision for income taxes..... 13,229 39,910 52,706 6,383 Provision for income taxes................... 5,821 17,560 22,568 2,758 ---------- ---------- ---------- ---------- Net income................................... $ 7,408 $ 22,350 $ 30,138 $ 3,625 ========== ========== ========== ========== Earnings per share: Basic........................................ $ .24 $ .62 $ .85 $ .11 ========== ========== ========== ========== Diluted...................................... $ .23 $ .61 $ .83 $ .11 ========== ========== ========== ========== Shares of Common Stock used in computing earnings per share: Basic........................................ 31,425,000 35,925,000 35,608,000 33,690,798 ========== ========== ========== ========== Diluted...................................... 32,561,483 36,730,233 36,180,000 34,068,603 ========== ========== ========== ========== F-49
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 24--RELATED PARTY TRANSACTIONS The Company and Avis Europe, plc cooperate jointly in marketing and promotional activities, the exchange of reservations, the honoring of charge cards and vouchers, and the transfer of the related billings. Two members of the Company's board of directors are executive officers of Cendant and one of these two Cendant executive officers also serves on the board of Avis Europe Limited, the parent company of Avis Europe, plc. The Company is affiliated with Cendant, which at January 1, 2000, owned approximately 18% of the common stockholders' equity of the Company, excluding potential conversion of Preferred Stock (see Notes 14 and 16). For the years ended December 31, 1999, 1998 and 1997, the Company earned vehicle rental revenues of approximately $63.6 million $62.1 million and $2.2 million, respectively, from Cendant and its subsidiary companies, of which approximately $1.1 million and $745 thousand was outstanding and is included in accounts receivable on the accompanying consolidated statements of financial position at December 31, 1999 and 1998, respectively. The Company purchased approximately $106.4 million, $90.4 million and $90.1 million in 1999, 1998 and 1997, respectively, of goods and services from these affiliated companies. NOTE 25--LITIGATION From time to time, the Company is subject to routine litigation incidental to its business. The Company maintains insurance policies that cover most of the actions brought against the Company. The Company is not currently involved in any legal proceeding which it believes would have a material adverse effect upon its financial position or results of operations. F-50
AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenue: Vehicle rental .............................. $ 733,694 $ 709,555 $1,989,167 $1,913,929 Vehicle leasing and other fee based ......... 396,581 413,263 1,250,609 413,263 ---------- ---------- ---------- ---------- 1,130,275 1,122,818 3,239,776 2,327,192 ---------- ---------- ---------- ---------- Costs and expenses: Direct operating, net ....................... 259,573 263,123 715,581 724,843 Vehicle depreciation and lease charges, net . 446,464 442,458 1,273,966 760,929 Selling, general and administrative ......... 171,478 177,119 537,753 408,301 Interest, net ............................... 146,776 145,348 452,770 245,273 Non-vehicle depreciation and amortization ... 10,873 11,019 37,332 23,370 Amortization of cost in excess of net assets acquired ...................... 10,203 11,977 33,797 18,328 ---------- ---------- ---------- ---------- 1,045,367 1,051,044 3,051,199 2,181,044 ---------- ---------- ---------- ---------- Income before provision for income taxes .... 84,908 71,774 188,577 146,148 Provision for income taxes .................. 36,511 32,399 83,162 64,305 ---------- ---------- ---------- ---------- Net income .................................. 48,397 39,375 105,415 81,843 Preferred stock dividend .................... 4,783 4,555 14,118 4,555 ---------- ---------- ---------- ---------- Earnings applicable to common stockholders .. $ 43,614 $ 34,820 $ 91,297 $ 77,288 ========== ========== ========== ========== Earnings per share: Basic ....................................... $ 1.40 $ 1.12 $ 2.93 $ 2.46 ========== ========== ========== ========== Diluted ..................................... $ 1.36 $ 1.10 $ 2.89 $ 2.40 ========== ========== ========== ========== See notes to the condensed consolidated financial statements. G-1
AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ (UNAUDITED) ASSETS Cash and cash equivalents ....................... $ 57,911 $ 71,697 Cash held on deposit with financial institution . 48,046 93,530 Restricted cash ................................. 235,799 253,080 Accounts receivable, net ........................ 884,087 1,115,740 Prepaid expenses ................................ 66,550 64,316 Finance lease receivables ....................... 177,379 871,034 Vehicles, net-rental ............................ 4,009,732 3,367,362 Vehicles, net-leasing ........................... 3,013,687 3,134,009 Property and equipment, net ..................... 188,307 197,827 Investment in PHH/Arval joint venture ........... 181,204 Other assets .................................... 108,633 115,273 Cost in excess of net assets acquired, net ...... 1,299,124 1,794,390 ------------ ------------ Total assets ................................. $ 10,270,459 $ 11,078,258 ============ ============ LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Accounts payable ................................ $ 550,179 $ 588,377 Accrued liabilities ............................. 378,077 369,453 Due to affiliates, net .......................... 32,718 59,396 Current income tax liabilities .................. 25,807 18,226 Deferred income tax liabilities, net ............ 444,984 181,256 Public liability, property damage and other insurance liabilities, net ............. 256,435 259,756 Vehicle debt .................................... 6,854,158 6,969,805 Acquisition debt ................................ 500,000 1,500,000 Minority interest (preferred membership interest) 99,305 99,305 ------------ ------------ Total liabilities ............................ 9,141,663 10,045,574 ------------ ------------ Commitments and contingencies Preferred Stock of a subsidiary: Class A Preferred stock ......................... 360,000 360,000 Class B Preferred stock ......................... 22,953 9,000 Class C Preferred stock ......................... 2,000 2,000 ------------ ------------ Total preferred stock of a subsidiary ........ 384,953 371,000 ------------ ------------ Common stockholders' equity: Class A Common stock ............................ 359 359 Additional paid-in capital ...................... 593,151 593,106 Retained earnings ............................... 266,987 175,690 Accumulated other comprehensive loss ............ (13,157) (3,639) Treasury stock .................................. (103,497) (103,832) ------------ ------------ Total common stockholders' equity ............ 743,843 661,684 ------------ ------------ Total liabilities, preferred stock and common stockholders' equity ........................ $ 10,270,459 $ 11,078,258 ============ ============ See notes to the condensed consolidated financial statements. G-2
AVIS GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................. $ 105,415 $ 81,843 Adjustments to reconcile net income to net cash provided by operating activities .................... 1,260,561 581,623 ----------- ----------- Net cash provided by operating activities ................. 1,365,976 663,466 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for vehicle additions ............................ (5,692,115) (3,650,923) Vehicle deletions ......................................... 3,677,112 2,669,166 Increase in finance lease receivables ..................... (50,631) (85,569) Payments for property and equipment ....................... (41,011) (35,022) Retirements of property and equipment ..................... 9,378 3,742 Proceeds from the sale of 80% of PHH Europe, net of cash disposed of $104,765 ................................ 695,684 Settlement of PHH Europe intercompany accounts ............ 225,819 Dividend from the PHH/Arval Joint Venture ................. 32,426 Payments for purchase of rental car franchise licensees, net of cash acquired of $14,208 in 1999 .................. (45,192) Payment for purchase of PHH Holdings, net of cash acquired of $170,568 in 1999 ........................ (1,348,530) ----------- Net cash used in investing activities ..................... (1,143,338) (2,492,328) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Changes in debt: Proceeds .................................................. 2,442,104 2,538,000 Repayment of acquisition and other debt from the proceeds of the sale of 80% of PHH Europe ......................... (1,054,437) Repayments ................................................ (1,652,067) (479,452) ----------- ----------- Net (decrease) increase in debt ........................... (264,400) 2,058,548 Payments for debt issuance costs ........................ (17,280) (1,640) Purchases of treasury stock ............................... (57,237) Other ..................................................... 162 3,349 ----------- ----------- Net cash (used in) provided by financing activities ....... (281,518) 2,003,020 ----------- ----------- Effect of exchange rate changes on cash ..................... (390) 2,612 ----------- ----------- Net (decrease) increase in cash and cash equivalents ....... (59,270) 176,770 Cash and cash equivalents and cash held on deposit with financial institution at beginning of period .............. 165,227 29,751 ----------- ----------- Cash and cash equivalents and cash held on deposit with financial institution at end of period .................... $ 105,957 $ 206,521 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid .......................................... $ 431,369 $ 173,600 =========== =========== Cash income taxes paid ...................................... $ 30,499 $ 14,835 =========== =========== Business disposed in August 2000: Assets disposed ............................................. $ 1,731,488 ----------- Liabilities disposed ........................................ 1,035,804 ----------- Proceeds received from the sale of 80% of PHH Europe, net of cash disposed of $104,765 ................................ $ 695,684 =========== Businesses acquired in 1999: Fair value of assets acquired, net of cash acquired of $184,776 ............................................... $ 6,127,678 Liabilities assumed ......................................... 4,371,956 ----------- Net assets acquired ......................................... 1,755,722 Less: issuance of Series A and Series C Preferred Stocks .................................................. (362,000) ----------- Net cash paid for acquisitions .............................. $ 1,393,722 =========== See notes to the condensed consolidated inancial statements. G-3
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include Avis Group Holdings, Inc. and its subsidiaries (the "Company" or "Avis Group."). These consolidated financial statements reflect, in the opinion of management, all material adjustments (which include normal recurring adjustments only) necessary to fairly state the financial position, the results of operations and cash flows for the periods presented. The consolidated statements of financial position include all of the assets and liabilities of the Company, including the Company's vehicle lease and vehicle management businesses in the United States and Canada ("PHH North America"), and in Europe ("PHH Europe") through August 9, 2000 (see Note 6), and of Wright Express LLC (collectively "VMS") which were acquired on June 30, 1999. The consolidated statements of financial position also include all of the assets and liabilities of Rent A Car Incorporated ("Rent-A-Car, Inc.") and Motorent, Inc. ("Motorent"), rental car franchisees which were purchased on March 19, 1999 and June 30, 1999, respectively. The consolidated statements of operations include the results of these operations, subsequent to their dates of acquisition. Operating results for interim periods are not indicative of the results that can be expected for a full year. These consolidated financial statements should be read in conjunction with the Company's audited annual consolidated financial statements and notes thereto, included in the Company's annual report on Form 10-K for the year ended December 31, 1999, and the current report on Form 8-K, dated August 24, 2000, filed with the Securities and Exchange Commission. Certain amounts in the prior period have been reclassified to conform to current period presentation. All amounts are in thousands except share data. NOTE 2 - CASH HELD ON DEPOSIT WITH FINANCIAL INSTITUTION Cash held on deposit with financial institution represents lease payments collected from the Company's vehicle leasing customers by one of the Company's lenders in connection with the Company's domestic vehicle leasing Asset Backed Financing Structure (see Note 8). Cash collected during the month by the lender net of vehicle purchases is settled with the Company in the early part of the following month. NOTE 3 - CLASS B COMMON STOCK At the Company's meeting of shareholders on May 6, 2000, the Company's shareholders approved a revision to the Company's charter to issue 15,000,000 shares of non-voting Class B Common Stock. The Class B Common Shares will be issued upon the conversion of Series A Preferred Stock or Series B Preferred Stock of PHH Leasing and Management, Inc., a subsidiary of the Company. Holders of Series A and B Preferred Stock may convert their shares into Class B Common Stock of the Company if certain financial goals are attained or upon the occurrence of certain events. The Class B Common Stock ranks (1) junior to any class or series of preferred stock of the Company and (2) PARI PASSU with the Class A Common Stock in right of payment of dividends and upon liquidation. NOTE 4- EARNINGS PER SHARE Basic earnings per share is computed by dividing earnings applicable to common stockholders for the three months ended September 30, 2000 and 1999 by 31,138,079 and 31,129,164 weighted average shares outstanding, respectively, and for the nine months ended September 30, 2000 and 1999 by 31,133,834 and 31,394,335 weighted average shares outstanding, respectively. Diluted earnings per share is computed by dividing earnings applicable to common stockholders for the three months ended September 30, 2000 and 1999 by 32,150,494 and 31,760,213 weighted average shares outstanding, respectively, and for the nine months ended September 30, 2000 and 1999 by 31,609,275 and 32,172,196 weighted average shares outstanding, respectively. Shares used in calculating diluted earnings per share include the effects of the assumed exercise of stock options. G-4
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5 - ACQUISITIONS On June 30, 1999, the Company acquired VMS for $1.8 billion and refinanced VMS indebtedness of approximately $3.5 billion (the "VMS Acquisition"). The acquisition financing included borrowings by the Company of $1.0 billion of term loans, the issuance by the Company of $500 million of senior subordinated notes, and the issuance by the acquisition subsidiary of $362 million of preferred stock. The $1.0 billion of term loans were repaid in August 2000 in connection with the sale of 80% of PHH Europe (Note 6). On March 19, 1999 and June 30, 1999, the Company purchased Rent-A-Car, Inc. and Motorent, respectively, using internally generated funds for approximately $59.4 million. The combined purchase cost allocation for the Company's acquisitions of VMS, Rent-A-Car, Inc. and Motorent are as follows (in thousands): Purchase cost ....................... $1,917,949 ---------- Fair value of: Assets acquired .................. 4,806,414 Liabilities assumed .............. 4,281,177 ---------- Net assets .......................... 525,237 ---------- Cost in excess of net assets acquired $1,392,712 ========== The above mentioned acquisitions have been accounted for by the purchase method. The financial statements include the operating results of these acquisitions subsequent to their dates of acquisition. The following unaudited pro forma information presents the results of operations of the Company as if the acquisition of VMS for $1.8 billion (including the issuance of Series A and Series C Preferred Stock) and the refinancing of VMS indebtedness and related adjustments had taken place on January 1, 1999 (in thousands, except share data): Three months Nine months ended ended September 30, 1999 September 30, 1999 ------------------ ------------------ Revenue .................................. $ 1,055,174 $2,945,609 ============ ========== Income before provision for income taxes . $ 71,774 $ 121,616 ============ ========== Net income ............................... $ 39,375 $ 62,413 ============ ========== Preferred stock dividends ................ $ 4,555 $ 13,665 ============ ========== Earnings applicable to common stockholders $ 34,820 $ 48,748 ============ ========== Earnings per share: Basic .................................... $ 1.12 $ 1.55 ============ ========== Diluted .................................. $ 1.10 $ 1.52 ============ ========== If the acquisitions of Rent-A-Car, Inc. and Motorent had occurred on January 1, 1999, they would not have had a material impact on the results of operations for the three and nine months ended September 30, 1999. G-5
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 6 - FORMATION OF JOINT VENTURE On August 9, 2000, the Company announced that it had completed its transaction with BNP Paribas ("BNP") to form a joint venture company that owns PHH Europe and, within one year, will merge with BNP's vehicle management subsidiary, Arval Service Lease S.A. ("Arval"). As part of the transaction, BNP acquired an 80% interest in the joint venture, with the Company retaining a 20% interest. The Company received $800 million in cash and had its intercompany indebtedness with PHH Europe repaid. PHH Europe, with operations in the United Kingdom and Germany, is engaged in the business of leasing vehicles and providing fee based services, including fuel and maintenance cards, accident management and other vehicle services to its customers. Accordingly, the Company's 20% investment in the joint venture is reported as Investment in PHH/Arval Joint Venture in the accompanying statement of financial position at September 30, 2000 and earnings of the joint venture are included in the statement of operations on the equity method. The difference between the carrying value of the net assets of PHH Europe and the proceeds from the sale have been accounted for as a reduction of cost in excess of net assets acquired relating to the VMS Acquisition. The revenue and net income of PHH Europe included in the statement of operations for the nine months ended September 30, 2000 and 1999 are (in thousands): Nine Months ended September 30, --------------------- 2000 1999 Revenue $158,939 $ 67,644 ======== ======== Net Income $ 27,589 $ 9,866 ======== ======== The revenue and net income of PHH Europe for the periods presented above includes the results of operations of PHH Europe from the date of acquisition (June 30, 1999) through July 31, 2000 (formation of Joint Venture). PHH/Arval is an unlimited liability company organized under the laws of the United Kingdom. A subsidiary of the Company which owns 20% of PHH/Arval, is liable under the laws of the United Kingdom for all the obligations of PHH/Arval upon its liquidation which remain after the assets of PHH/Arval are sold. PHH/Arval incurred a loan of approximately $800 million to complete the BNP Paribas transaction. The Company's subsidiary is liable for the loan to the extent PHH/Arval does not have sufficient assets to repay the loan upon its liquidation. A newly formed subsidiary of the Company has guaranteed its subsidiary's liability under the loan. NOTE 7- COMPREHENSIVE INCOME Comprehensive income is comprised of the following (in thousands): Three months ended Nine months ended September 30, September 30, ---------------------------------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Net income ................................................. $ 48,397 $ 39,375 $ 105,415 $ 81,843 Foreign currency translation adjustment, net of income taxes 204 7,351 (27,616) 10,031 Reversal of the accumulated foreign currency translation adjustment, net of tax, related to the sale of 80% of PHH Europe (see Note 6) ..................................... 18,098 18,098 --------- --------- --------- --------- Comprehensive income ....................................... $ 66,699 $ 46,726 $ 95,897 $ 91,874 ========= ========= ========= ========= G-6
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 8- FINANCING AND DEBT Debt outstanding at September 30, 2000 and December 31, 1999 consist of the following (in thousands): September 30, December 31, 2000 1999 ------------- ------------ VEHICLE RENTAL Commercial Paper Notes ............................................... $ 872,474 $1,026,261 Short-term notes-foreign ............................................. 207,969 111,259 Series 1997-1A asset-backed Medium Term Notes due May through October 2000 at 6.22% ............................................ 133,333 800,000 Series 1997-1B asset-backed Medium Term Notes due May through October 2002 at 6.40% ............................................ 850,000 850,000 Series 1998-1 asset-backed Medium Term Notes due December 2004 through May 2005 at 6.14% ................................................ 600,000 600,000 Series 2000-1 floating rate Rental Car Asset-Backed Notes due February 2003 through July 2003 .................................. 250,000 Series 2000-2 floating rate Rental Car Asset-Backed Notes due March 2007 through August 2007 .................................. 300,000 Series 2000-3 floating rate Rental Car Asset-Backed Notes due May 2003 through October 2003 ................................... 200,000 Series 2000-4 floating rate Rental Car Asset-Backed Notes due June 2005 through November 2005 ................................ 500,000 Revolving credit facility due June 2005 .............................. 105,000 62,000 Other ................................................................ 5,574 5,902 ---------- ---------- TOTAL VEHICLE RENTAL DEBT .................................... 4,024,350 3,455,422 ---------- ---------- VEHICLE LEASING AND OTHER FEE BASED Commercial Paper Notes ............................................... 1,663,688 1,521,498 Canadian short term borrowings ....................................... 29,793 44,563 Series 1999-2 floating rate asset-backed notes, Class A-1 ............ 550,000 550,000 Series 1999-2 floating rate asset-backed notes, Class A-2 ............ 450,000 450,000 Foreign Asset Backed Securities - UK Advances (see Note 6) .......... 850,443 Self-fund notes ...................................................... 27,435 30,397 Wright Express Certificates of Deposit ............................... 108,892 67,482 ---------- ---------- TOTAL VEHICLE LEASING AND OTHER FEE BASED DEBT ............... 2,829,808 3,514,383 ---------- ---------- TOTAL VEHICLE DEBT ........................................... 6,854,158 6,969,805 ---------- ---------- ACQUISITION FINANCING Term A Loan Notes due June 2005 ..................................... 250,000 Term B Loan Notes due June 2006 ..................................... 375,000 Term C Loan Notes due June 2007 ..................................... 375,000 Senior Subordinated Notes due May 2009 at 11.00% ..................... 500,000 500,000 ---------- ---------- TOTAL ACQUISITION FINANCING .................................. 500,000 1,500,000 ---------- ---------- TOTAL DEBT ................................................... $7,354,158 $8,469,805 ========== ========== G-7
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS In connection with the VMS Acquisition and as part of the financing thereof, Avis Group Holdings, Inc. (the "Parent") issued and sold the Senior Subordinated Notes (see Note 8) in a transaction exempt from registration under the Securities Act. The Senior Subordinated Notes are general unsecured obligations of the Parent, subordinated in right of payment to all existing and future senior indebtedness of the Company, and guaranteed by certain of the Parent's domestic subsidiaries. Accordingly, the following condensed consolidating financial information presents the condensed consolidating financial statements as of September 30, 2000 and December 31, 1999 and for the three and nine months ended September 30, 2000 and 1999, respectively, of: (a) the Parent (b) the guarantor subsidiaries (c) the non-guarantor subsidiaries (d) elimination entries necessary to consolidate Parent with guarantor and non-guarantor subsidiaries and (e) the Company on a consolidated basis. Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principle elimination entries eliminate investments in subsidiaries and intercompany balances and transactions (in thousands): Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been made because management believes that such information is not material to holders of the Senior Subordinated Notes. CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS) ------------------------------------------------------------------------------ NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------- Revenue ....................................... $ 1,868,530 $ 1,371,246 $ 3,239,776 ----------- ----------- ----------- Costs and expenses: Direct operating, net ......................... 631,687 83,894 715,581 Vehicle depreciation and lease charges, net .................................. 432,631 841,335 1,273,966 Selling, general and administrative ........... 394,090 143,663 537,753 Interest, net ................................. $ 105,499 162,150 185,121 452,770 Non-vehicle depreciation and amortization .................................. 25,780 11,552 37,332 Amortization of cost in excess of net assets acquired ............................ 30,222 3,575 33,797 ----------- ----------- ----------- ----------- 105,499 1,676,560 1,269,140 3,051,199 ----------- ----------- ----------- ----------- (105,499) 191,970 102,106 188,577 Equity in earnings of subsidiaries ............ 171,726 82,010 $ (253,736) ----------- ----------- ----------- ----------- ----------- Income before provision for income taxes ...... 66,227 273,980 102,106 (253,736) 188,577 Provision (benefit) for income taxes (39,188) 102,254 20,096 83,162 ----------- ----------- ----------- ----------- ----------- Net income ................................ $ 105,415 $ 171,726 $ 82,010 $ (253,736) $ 105,415 =========== =========== =========== =========== =========== G-8
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (IN THOUSANDS) ------------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------- Revenue ................................... $ 1,759,631 $ 567,561 $ 2,327,192 ----------- ----------- ----------- Costs and expenses: Direct operating, net ..................... 638,371 86,472 724,843 Vehicle depreciation and lease charges, net 457,863 303,066 760,929 Selling, general and administrative ....... $ (464) 361,640 47,125 408,301 Interest, net ............................. 10,376 161,704 73,193 245,273 Non-vehicle depreciation and amortization . 17,871 5,499 23,370 Amortization of cost in excess of net assets acquired ........................ 13,210 5,118 18,328 ----------- ----------- ----------- ----------- 9,912 1,650,659 520,473 2,181,044 ----------- ----------- ----------- ----------- (9,912) 108,972 47,088 146,148 Equity in earnings of subsidiaries ........ 88,387 40,300 $ (128,687) ----------- ----------- ----------- ----------- ----------- Income before provision for income taxes .. 78,475 149,272 47,088 (128,687) 146,148 Provision (benefit) for income taxes .... (3,368) 60,885 6,788 64,305 ----------- ----------- ----------- ----------- ----------- Net income ............................ $ 81,843 $ 88,387 $ 40,300 $ (128,687) $ 81,843 =========== =========== =========== =========== =========== CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS) ------------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------- Revenue ................................... $ 688,604 $ 441,671 $ 1,130,275 ----------- ----------- ----------- Costs and expenses: Direct operating, net ..................... 229,974 29,599 259,573 Vehicle depreciation and lease charges, net 167,571 278,893 446,464 Selling, general and administrative ....... 123,807 47,671 171,478 Interest, net ............................. $ 25,250 61,728 59,798 146,776 Non-vehicle depreciation and amortization . 8,466 2,407 10,873 Amortization of cost in excess of net assets acquired ........................ 9,686 517 10,203 ----------- ----------- ----------- ----------- 25,250 601,232 418,885 1,045,367 ----------- ----------- ----------- ----------- (25,250) 87,372 22,786 84,908 Equity in earnings of subsidiaries ........ 64,268 19,983 $ (84,251) ----------- ----------- ----------- ----------- ----------- Income before provision for income taxes .. 39,018 107,355 22,786 (84,251) 84,908 Provision (benefit) for income taxes .... (9,379) 43,087 2,803 36,511 ----------- ----------- ----------- ----------- ----------- Net income ............................ $ 48,397 $ 64,268 $ 19,983 $ (84,251) $ 48,397 =========== =========== =========== =========== =========== G-9
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (IN THOUSANDS) ------------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------- Revenue ................................... $ 673,194 $ 449,624 $ 1,122,818 ----------- ----------- ----------- Costs and expenses: Direct operating, net ..................... 231,267 31,856 263,123 Vehicle depreciation and lease charges, net 168,938 273,520 442,458 Selling, general and administrative ....... $ (464) 147,190 30,393 177,119 Interest, net ............................. 3,458 70,585 71,305 145,348 Non-vehicle depreciation and amortization . 6,780 4,239 11,019 Amortization of cost in excess of net assets acquired ........................ 6,955 5,022 11,977 ----------- ----------- ----------- ----------- 2,994 631,715 416,335 1,051,044 ----------- ----------- ----------- ----------- (2,994) 41,479 33,289 71,774 Equity in earnings of subsidiaries ........ 41,422 30,926 $ (72,348) ----------- ----------- ----------- ----------- ----------- Income before provision for income taxes .. 38,428 72,405 33,289 (72,348) 71,774 Provision (benefit) for income taxes ...... (947) 30,983 2,363 32,399 ----------- ----------- ----------- ----------- ----------- Net income ............................ $ 39,375 $ 41,422 $ 30,926 $ (72,348) $ 39,375 =========== =========== =========== =========== =========== G-10
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS) -------------------------------------------------- NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ----------- ------------ ------------ ASSETS Cash and cash equivalents ................................... $ 72 $ 32,676 $ 25,163 Cash held on deposit with financial institution ............. 48,046 Restricted cash ............................................. 235,799 Accounts receivable, net .................................... 57 252,848 631,182 Prepaid expenses ............................................ 52,920 13,630 Finance lease receivables ................................... 177,379 Vehicles, net-rental ........................................ (65,275) 4,075,007 Vehicles, net-leasing ....................................... (712) 3,014,399 Property and equipment, net ................................. 173,567 14,740 Investment in subsidiaries .................................. 2,262,144 1,038,669 Investment in PHH/Arval joint venture ....................... 181,204 Other assets ................................................ 1,000 51,646 55,987 Cost in excess of net assets acquired, net ........................................... 1,295,773 3,351 ----------- ----------- ----------- Total assets ................................................ $ 2,263,273 $ 3,013,316 $ 8,294,683 =========== =========== =========== LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Accounts payable ............................................ $ 250,552 $ 299,627 Accrued liabilities ......................................... $ 18,629 315,562 43,886 Due (from) to affiliates, net ............................... 984,364 (925,326) (26,320) Current income tax liabilities .............................. 25,807 25,807 Deferred income tax liabilities, net ........................ (88,563) 492,063 41,484 Public liability, property damage and other insurance liabilities, net ............................... 201,758 54,677 Debt ........................................................ 605,000 5,803 6,743,355 Minority interest (preferred membership interest) ........... 99,305 99,305 Preferred stock ............................................. 384,953 Common stockholders' equity ................................. 743,843 2,262,144 1,038,669 ----------- ----------- ----------- Total liabilities, preferred stock and common stockholders' equity ............................... $ 2,263,273 $ 3,013,316 $ 8,294,683 =========== =========== =========== ----------------------------- AVIS GROUP HOLDINGS, INC. ELIMINATIONS CONSOLIDATED ------------ ------------- ASSETS Cash and cash equivalents ................................... $ 57,911 Cash held on deposit with financial institution ............. 48,046 Restricted cash ............................................. 235,799 Accounts receivable, net .................................... 884,087 Prepaid expenses ............................................ 66,550 Finance lease receivables ................................... 177,379 Vehicles, net-rental ........................................ 4,009,732 Vehicles, net-leasing ....................................... 3,013,687 Property and equipment, net ................................. 188,307 Investment in subsidiaries .................................. $(3,300,813) Investment in PHH/Arval joint venture ....................... 181,204 Other assets ................................................ 108,633 Cost in excess of net assets acquired, net ........................................... 1,299,124 ----------- ----------- Total assets ................................................ $(3,300,813 $10,270,459 =========== =========== LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Accounts payable ............................................ $ 550,179 Accrued liabilities ......................................... 378,077 Due (from) to affiliates, net ............................... 32,718 Current income tax liabilities .............................. Deferred income tax liabilities, net ........................ 444,984 Public liability, property damage and other insurance liabilities, net ............................... 256,435 Debt ........................................................ 7,354,158 Minority interest (preferred membership interest) ........... Preferred stock ............................................. 384,953 Common stockholders' equity ................................. $(3,300,813) 743,843 ----------- ----------- Total liabilities, preferred stock and common stockholders' equity ............................... $(3,300,813) $10,270,459 =========== =========== G-11
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 1999 (IN THOUSANDS) ---------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------ ASSETS Cash and cash equivalents ................................. $ 54 $ 42,184 $ 29,459 $ 71,697 Cash held on deposit with financial institution ........... 93,530 93,530 Restricted cash ........................................... 253,080 253,080 Accounts receivable, net .................................. (9) 210,962 904,787 1,115,740 Prepaid expenses .......................................... 41,282 23,034 64,316 Finance lease receivables ................................. 871,034 871,034 Vehicles, net-rental ...................................... (75,581) 3,442,943 3,367,362 Vehicles, net-leasing ..................................... 55,704 3,078,305 3,134,009 Property and equipment, net ............................... 161,651 36,176 197,827 Investment in subsidiaries ................................ 2,121,275 1,272,000 $(3,393,275) Other assets .............................................. 1,000 78,863 35,410 115,273 Cost in excess of net assets acquired, net ......................................... 1,595,529 198,861 1,794,390 ----------- ----------- ----------- ----------- ----------- Total assets .............................................. $ 2,122,320 $ 3,382,594 $ 8,966,619 $(3,393,275) $11,078,258 =========== =========== =========== =========== =========== LIABILITIES, PREFERRED STOCK AND COMMONSTOCKHOLDERS' EQUITY Accounts payable .......................................... $ 273,102 $ 315,275 $ 588,377 Accrued liabilities ....................................... $ 16,774 366,602 (13,923) 369,453 Due (from) to affiliates, net ............................. (84,266) (119,494) 263,156 59,396 Current income tax liabilities ............................ 17,910 316 18,226 Deferred income tax liabilities, net ...................... (42,982) 144,893 79,345 181,256 Public liability, property damage and other insurance liabilities, net ............................. 206,111 53,645 259,756 Debt ...................................................... 1,562,000 10,305 6,897,500 8,469,805 Minority interest (preferred membership interest) ......... 99,305 99,305 Preferred stock ........................................... 371,000 371,000 Common stockholders' equity ............................... 670,794 2,112,165 1,272,000 $(3,393,275) 661,684 ----------- ----------- ----------- ----------- ----------- Total liabilities, preferred stock and common stockholders' equity ............................. $ 2,122,320 $ 3,382,594 $ 8,966,619 $(3,393,275) $11,078,258 =========== =========== =========== =========== =========== G-12
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS) ------------------------------------------------------------------------ NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .............................................. $ 105,415 $ 171,726 $ 82,010 $ (253,736) $ 105,415 Adjustments to reconcile net income to net cash provided by (used in) operating activities: ......... 1,023,167 (619,384) 856,778 1,260,561 ----------- ----------- ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . 1,128,582 (447,658) 938,788 (253,736) 1,365,976 ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for vehicle additions .......................... (68,238) (5,623,877) (5,692,115) Vehicle deletions ....................................... (422,647) 4,099,759 3,677,112 Increase in finance lease receivables ................... (50,631) (50,631) Payments for property and equipment ..................... (34,142) (6,869) (41,011) Retirements of property and equipment ................... 6,188 3,190 9,378 Proceeds from the sale of 80% of PHH Europe, net of cash disposed of $104,765 ........................... 800,960 (105,276) 695,684 Settlement of PHH Europe intercompany accounts .......... 225,819 225,819 Dividend from the PHH/Arval joint venture ............... 32,426 32,426 Investment in subsidiaries .............................. (171,726) (82,010) 253,736 ----------- ----------- ----------- ----------- ----------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (171,726) 458,356 (1,683,704) 253,736 (1,143,338) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in (repayment of) debt ..................... 97,437 (4,502) 697,102 790,037 Repayment of acquisition and other debt from the proceeds of the sale of 80% of PHH Europe ........... (1,054,437) (1,054,437) Payments for debt issuance costs ........................ (15,704) (1,576) (17,280) Other ................................................... 162 162 ----------- ----------- ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ........................................ (956,838) (20,206) 695,526 (281,518) ----------- ----------- ----------- ----------- Effect of exchange rate changes on cash ................. (390) (390) ----------- ----------- Net (decrease) increase in cash and cash equivalents .... 18 (9,508) (49,780) (59,270) Cash and cash equivalents at beginning of period ........ 54 42,184 122,989 165,227 ----------- ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 72 $ 32,676 $ 73,209 $ $ 105,957 =========== =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid .................................. $ 431,369 =========== Cash income taxes paid .............................. $ 30,499 =========== BUSINESS DISPOSED: Assets disposed ..................................... $ 1,731,488 Liabilities disposed ................................ 1,035,804 ----------- Proceeds received from the sale of 80% of PHH Europe, net of cash disposed of $104,765 ................... $ 695,684 =========== G-13
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 ------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------- ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................... $ 81,843 $ 88,387 $ 40,300 $ (128,687) $ 81,843 Adjustments to reconcile net income to net cash (used in) provided by operating activities: ...... (225,193) 502,204 304,612 581,623 ----------- ----------- ----------- ----------- ----------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES . (143,350) 590,591 344,912 (128,687) 663,466 ----------- ----------- ----------- ----------- ----------- CASH FLOWS FORM INVESTING ACTIVITIES: Payments for vehicle additions ....................... 104,735 (3,755,658) (3,650,923) Vehicle deletions .................................... (428,000) 3,097,166 2,669,166 Decrease in finance lease receivables ................ (46,226) (39,343) (85,569) Payments for property and equipment ................. (29,476) (5,546) (35,022) Retirements of property and equipment ................ 2,248 1,494 3,742 Investment in subsidiaries ........................... (98,418) (40,300) 138,718 Payment for purchase of rental car franchise licensees, net of cash acquired of $14,208 ........ (44,934) (258) (45,192) Payment for purchase of PHH Holdings, net of cash acquired of $170,568 .............................. (1,348,530) (1,348,530) ----------- ----------- ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES ........... (1,446,948) (481,953) (702,145) 138,718 (2,492,328) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in (repayment of) debt .................. 1,615,000 (98,356) 541,904 2,058,548 Payments for debt issuance costs ..................... 19,522 (14,662) (6,500) (1,640) Purchases of treasury stock .......................... (57,237) (57,237) Other ................................................ 3,349 3,349 Cash dividends ....................................... 5,926 (5,926) -- ----------- ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ...................................... 1,580,634 (107,092) 529,478 2,003,020 ----------- ----------- ----------- ----------- Effect of exchange rate changes on cash .............. 10,031 11 2,601 (10,031) 2,612 ----------- ----------- ----------- ----------- ----------- Net increase in cash and cash equivalents ............ 367 1,557 174,846 176,770 Cash and cash equivalents at beginning of period ..... 11 9,776 19,964 29,751 ----------- ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .......... $ 378 $ 11,333 $ 194,810 $ -- $ 206,521 =========== =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid ................................ $ 173,600 =========== Cash income taxes paid ............................ $ 14,835 =========== BUSINESS ACQUIRED: Fair value of assets acquired, net of cash acquired of $184,776 ....................................... $ 6,127,678 Liabilities assumed .................................. $ 4,371,956 ----------- Net assets acquired .................................. 1,755,722 Less: issuance of Series A and Series C Preferred Stocks ............................................ (362,000) ----------- NET CASH PAID FOR ACQUISITIONS ....................... $ 1,393,722 =========== G-14
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 10 - SEGMENT INFORMATION Prior to the purchase of VMS on June 30, 1999 (Note 5), the Company operated in one industry segment; the rental car business. As of July 1, 1999, the Company began operating in two business segments as follows: Vehicle Rental The Company rents vehicles to business and leisure customers Vehicle Leasing and other fee based services The Company leases vehicles to customers under closed-end and open-end leases. Fee based services include fuel and maintenance cards, accident management and various other vehicle services which enable customers to effectively manage costs and enhance productivity. Prior to the purchase of VMS on June 30, 1999, the Company operated in four geographic areas: the United States, Australia/New Zealand, Canada and Other Foreign Operations principally in Puerto Rico, the U.S. Virgin Islands and Argentina. As a result of the VMS acquisition, and the subsequent sale of 80% of PHH Europe on August 9, 2000 (Note 6) the Company added an additional geographic area; the United Kingdom (see Note 5). Revenue generated from each of the Company's business segments is recorded in the country in which vehicle rental, vehicle leasing and other fee based services are provided. The accounting policies of each geographic area are the same as those described in the summary of significant accounting policies (see Note 1 of the notes to the audited annual 1999 consolidated financial statements). EBITDA represents net income, plus non-vehicle interest expense (acquisition interest), non-vehicle depreciation and amortization, amortization of cost in excess of net assets acquired and income taxes. Corporate represents primarily acquisition interest, amortization of cost in excess of net assets acquired and amortization of deferred financing fees. The operations within major business segments and major geographic areas for the three and nine months ended September 30, 2000 and 1999 are summarized as follows: NINE MONTHS ENDED SEPTEMBER 30, 2000 ------------------------------------------------------------- VEHICLE LEASING AND OTHER VEHICLE FEE BASED BUSINESS SEGMENTS RENTAL SERVICES CORPORATE CONSOLIDATED ------------ ----------- ----------- ------------ Revenue ......................................... $ 1,989,167 $ 1,250,609 $ 3,239,776 =========== =========== =========== EBITDA .......................................... $ 221,887 $ 127,175 $ 3,516 $ 352,578 =========== =========== =========== =========== Income (loss) before provision for income taxes . $ 190,213 $ 109,821 $ (111,457) $ 188,577 =========== =========== =========== =========== Total assets .................................... $ 4,693,064 $ 5,577,395 $10,270,459 =========== =========== =========== NINE MONTHS ENDED SEPTEMBER 30, 1999 ------------------------------------------------------------- VEHICLE LEASING AND OTHER VEHICLE FEE BASED RENTAL SERVICES CORPORATE CONSOLIDATED ------------ ----------- ----------- ------------ BUSINESS SEGMENTS Revenue ......................................... $ 1,913,929 $ 413,263 $ 2,327,192 =========== =========== =========== EBITDA .......................................... $ 175,052 $ 47,875 $ 464 $ 223,391 =========== =========== =========== =========== Income (loss) before provision for income taxes . $ 146,095 $ 42,512 $ (42,459) $ 146,148 =========== =========== =========== Total assets .................................... $ 5,299,525 $ 5,884,054 $11,183,579 =========== =========== =========== G-15
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 10 - SEGMENT INFORMATION (CONTINUED) THREE MONTHS ENDED SEPTEMBER 30, 2000 ------------------------------------------------------------- VEHICLE LEASING AND OTHER VEHICLE FEE BASED BUSINESS SEGMENTS RENTAL SERVICES CORPORATE CONSOLIDATED ------------- ------------ ----------- ------------ Revenue ......................................... $ 733,694 $ 396,581 $ 1,130,275 =========== =========== =========== EBITDA .......................................... $ 89,929 $ 35,038 $ 2,058 $ 127,025 =========== =========== =========== =========== Income (loss) before provision for income taxes . $ 79,473 $ 31,228 $ (25,793) $ 84,908 =========== =========== =========== Total assets .................................... $ 4,693,064 $ 5,577,395 $10,270,459 =========== =========== =========== THREE MONTHS ENDED SEPTEMBER 30, 1999 ------------------------------------------------------------- VEHICLE LEASING AND OTHER VEHICLE FEE BASED BUSINESS SEGMENTS RENTAL SERVICES CORPORATE CONSOLIDATED ------------- ------------ ----------- ------------ Revenue ......................................... $ 709,555 $ 413,263 $ 1,122,818 =========== =========== =========== EBITDA .......................................... $ 81,976 $ 47,875 $ 464 $ 130,315 =========== =========== =========== =========== Income (loss) before provision for income taxes . $ 71,721 $ 42,512 $ (42,459) $ 71,774 =========== =========== =========== =========== Total assets .................................... $ 5,299,525 $ 5,884,054 $11,183,579 =========== =========== =========== NINE MONTHS ENDED SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------- OTHER UNITED UNITED AUSTRALIA/ FOREIGN GEOGRAPHIC AREAS STATES KINGDOM NEW ZEALAND CANADA OPERATIONS CONSOLIDATED - ---------------- ----------- ----------- ----------- ------------ ----------- ----------- Revenue ................................ $ 2,838,165 $ 154,714 $ 87,978 $ 129,698 $ 29,221 $ 3,239,776 =========== =========== =========== =========== =========== =========== EBITDA ................................. $ 266,427 $ 42,177 $ 17,033 $ 23,150 $ 3,791 $ 352,578 =========== =========== =========== =========== =========== =========== Income before provision for income taxes $ 116,475 $ 30,810 $ 16,122 $ 21,938 $ 3,232 $ 188,577 =========== =========== =========== =========== =========== =========== Total assets ........................... $ 9,545,417 $ 181,204 $ 107,446 $ 376,922 $ 59,470 $10,270,459 =========== =========== =========== =========== =========== =========== NINE MONTHS ENDED SEPTEMBER 30, 1999 -------------------------------------------------------------------------------------- OTHER UNITED UNITED AUSTRALIA/ FOREIGN GEOGRAPHIC AREAS STATES KINGDOM NEW ZEALAND CANADA OPERATIONS CONSOLIDATED - ---------------- ----------- ----------- ----------- ------------ ----------- ------------- Revenue ................................. $ 2,052,908 $ 64,592 $ 91,079 $ 92,093 $ 26,520 $ 2,327,192 =========== =========== =========== =========== =========== =========== EBITDA .................................. $ 175,367 $ 19,651 $ 18,566 $ 14,607 $ (4,800) $ 223,391 =========== =========== =========== =========== =========== =========== Income (loss) before provision for income taxes ............................... $ 105,483 $ 14,986 $ 17,588 $ 13,677 $ (5,586) $ 146,148 =========== =========== =========== =========== =========== =========== Total assets ............................ $ 9,374,964 $ 1,328,108 $ 99,610 $ 317,679 $ 63,218 $11,183,579 =========== =========== =========== =========== =========== =========== G-16
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 10 - SEGMENT INFORMATION (CONTINUED) THREE MONTHS ENDED SEPTEMBER 30, 2000 ---------------------------------------------------------------------------------------- OTHER UNITED UNITED AUSTRALIA/ FOREIGN GEOGRAPHIC AREAS STATES KINGDOM NEW ZEALAND CANADA OPERATIONS CONSOLIDATED - ---------------- ----------- ----------- ----------- ------------ ----------- ------------- Revenue ................................ $ 1,016,168 $ 22,458 $ 27,419 $ 55,207 $ 9,023 $ 1,130,275 =========== =========== =========== =========== =========== =========== EBITDA ................................. $ 101,454 $ 5,067 $ 4,632 $ 14,266 $ 1,606 $ 127,025 =========== =========== =========== =========== =========== =========== Income before provision for income taxes $ 61,786 $ 3,473 $ 4,341 $ 13,864 $ 1,444 $ 84,908 =========== =========== =========== =========== =========== =========== Total assets ........................... $ 9,545,417 $ 181,204 $ 107,446 $ 376,922 $ 59,470 $10,270,459 =========== =========== =========== =========== =========== =========== THREE MONTHS ENDED SEPTEMBER 30, 1999 -------------------------------------------------------------------------------------- OTHER UNITED UNITED AUSTRALIA/ FOREIGN GEOGRAPHIC AREAS STATES KINGDOM NEW ZEALAND CANADA OPERATIONS CONSOLIDATED - ---------------- ----------- ----------- ----------- ------------ ----------- ------------- Revenue ................................. $ 965,691 $ 64,592 $ 30,016 $ 50,796 $ 11,723 $ 1,122,818 =========== =========== =========== =========== =========== =========== EBITDA .................................. $ 94,405 $ 19,651 $ 5,664 $ 11,531 $ (936) $ 130,315 =========== =========== =========== =========== =========== =========== Income (loss) before provision for income taxes ................................ $ 41,685 $ 14,986 $ 5,330 $ 11,084 $ (1,311) $ 71,774 =========== =========== =========== =========== =========== =========== Total assets ............................ $ 9,374,964 $ 1,328,108 $ 99,610 $ 317,679 $ 63,218 $11,183,579 =========== =========== =========== =========== =========== =========== NOTE 11 - RETIREMENT BENEFITS Effective January 1, 1999, the Company curtailed its defined benefit plans to its eligible salaried and hourly employees as of June 30, 1985. The Company recognized a non-recurring $7.5 million pre-tax gain as a result of the curtailment which was recorded in January 1999 and is included in Direct Operating Expenses on the accompanying Statement of Operations for the nine months ended September 30, 1999. NOTE 12 - CENDANT PURCHASE OFFER Cendant Corporation ("Cendant") and Avis Group Holdings, Inc., on November 13, 2000 announced that they have entered into a definitive agreement for Cendant to acquire all of the outstanding shares of Avis Group that are not currently owned by Cendant at a price of $33.00 per share in cash. Approximately 25.6 million outstanding shares of Avis Group Class A Common Stock, and options to purchase an additional approximately 7.9 million Avis Group shares, are not owned by Cendant. Accordingly, the transaction has an equity value of approximately, $935 million, net of option proceeds. The shares will be acquired at a price of $33.00 per share in a cash merger pursuant to which Avis Group will be merged with an indirect wholly owned subsidiary of Cendant. Upon completion of the transaction, Avis Group will become a subsidiary of Cendant. The merger is conditioned upon, among other things, approval of a majority of the votes cast by Avis Group stockholders who are unaffilitated with Cendant and customary regulatory approvals. The transaction is expected to close in the first quarter of 2001. G-17
EXHIBIT 99.2 PRO FORMA FINANCIAL INFORMATION The following Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2000 and the Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 1999 and for the nine months ended September 30, 2000 give effect to the planned acquisition of Avis Group Holdings, Inc. (Avis) (the Acquisition) to be accounted for under the purchase method of accounting. The Unaudited Pro Forma Condensed Combined Financial Statements are based on the historical Consolidated Financial Statements of Cendant Corporation (Cendant) and Avis under the assumptions and adjustments set forth in the accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements. The Unaudited Pro Forma Condensed Combined Balance Sheet assumes that the Acquisition was consummated on September 30, 2000 and the Unaudited Pro Forma Condensed Combined Statements of Operations assumes the Acquisition was consummated on January 1, 1999. Pro forma adjustments to Cendant's historical results of operations for the year ended December 31, 1999 have been included to reflect its October 2000 plan to spin-off its individual membership business as it has not yet been reflected in Cendant's historical financial statements. This spin-off has been treated as a discontinued operation in accordance with generally accepted accounting principles. Avis currently pays Cendant for services Cendant provides related to call centers and information technology and for the use of Cendant trademarks. All intercompany transactions have been eliminated on a pro forma basis. Cendant currently retains an equity investment from its 18% ownership in Avis common stock (5.5 million shares) and we also own over 99% ($383 million) of the preferred stock of Avis. In addition, Cendant has recorded a deferred gain liability, proportionate to our common ownership percentage of Avis, relating to a sale of our PHH Fleet business to Avis on June 30, 1999. Accordingly, the historical statement of operations for the year ended December 31, 1999 includes the results of operations for the PHH Fleet business as follows: January 1, 1999-June 30, 1999 is reflected as part of Cendant historical and July 1, 1999-December 31, 1999 as part of Avis Historical. In August, 2000, Avis contributed its European vehicle management and leasing business (PHH Europe) to a newly formed a joint venture in exchange for cash, settlement of intercompany debt and a 20% interest in the venture (the PHH Europe Transaction). The accompanying Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1999 for Avis and Cendant have been adjusted to reflect the PHH Europe Transaction assuming it occurred (including accounting for the retained interest as an equity investment) at July 1, 1999 for Avis and January 1, 1999 for Cendant. The accompanying Avis statement of operations for the nine months ended September 30, 2000 has also been adjusted to reflect the PHH Europe Transaction. The Pro Forma adjustments are based on the Agreement and Plan of Merger which provides for Avis stockholders to receive $33 in cash for each share of Avis common stock. Cendant, through its wholly-owned subsidiary PHH Corporation (PHH), will make payments totaling $967 million, including payments to Avis shareholders ($937 million), inclusive of the net cash obligation related to Avis stock options expected to be cancelled prior to the consummation, and estimated expenses of the transaction ($30 million). The Pro Forma Condensed Combined Financial Statements reflect $690 million of the purchase price will be financed from new borrowings available to Cendant through its wholly-owned subsidiary, PHH, and $277 million will be provided from Cendant's available cash. The actual funding for the Acquisition and the corresponding interest rate for the debt will be determined subsequent to the filing of this Form 8-K but before the expected closing date of the proposed acquisition. In addition, actual funding could include proceeds from the potential issuance of Cendant's CD common stock. The amount of borrowings and the related interest rates will be determined based upon the then market conditions and may differ from the amounts reflected in the accompanying pro forma financial statements. In addition, Cendant will assume approximately $7.3 billion of net debt of Avis ($6.7 billion of which relates to vehicle financing).
For purposes of developing the Unaudited Pro Forma Condensed Combined Balance Sheet, Avis' assets and liabilities have been recorded at their estimated fair market values and the excess purchase price has been assigned to goodwill. These fair market values are based on preliminary estimates. Cendant has not performed appraisals, evaluations or other studies of the fair value of Avis' assets and liabilities. Accordingly, the pro forma adjustments may be subject to revision once the appraisals, evaluations and other studies of the fair value of Avis' assets and liabilities are complete. Subsequent to the Acquisition, Cendant intends to implement a plan to realign and reorganize certain ARAC operations. The costs of implementing the plan, which may be substantial, have not been reflected in the accompanying pro forma financial statements. The impact of this realignment could increase or decrease the amount of goodwill and intangible assets, net, and related amortization of goodwill in the accompanying pro forma financial statements. The Unaudited Pro Forma Condensed Combined Statements of Operations exclude any benefits that may result from the Acquisition due to synergies that may be derived or from the elimination of duplicate efforts. Management believes that the assumptions used provide a reasonable basis on which to present the unaudited pro forma condensed combined results. Cendant has completed or announced other acquisitions and dispositions which are not significant and accordingly have not been included in the accompanying pro forma financial statements. The Unaudited Pro Forma Condensed Combined Financial Statements may not be indicative of the results that would have occurred if the Acquisition had been in effect on the dates indicated or which may be obtained in the future. The Unaudited Pro Forma Condensed Combined Financial Statements should be read in conjunction with the historical Consolidated Financial Statements and accompanying notes for Cendant and Avis.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET SEPTEMBER 30, 2000 (IN MILLIONS) HISTORICAL PRO FORMA PRO FORMA CENDANT AVIS ADJUSTMENTS COMBINED -------- -------- ----------- ---------- ASSETS Current Assets Cash and cash equivalents $ 1,215 $ 106 $ (277)(a) $ 1,044 Deferred income taxes 1,293 -- 36 (b) 1,329 Receivables and other current assets 1,397 1,179 (33)(f) 2,543 -------- -------- -------- -------- Total current assets 3,905 1,285 (274) 4,916 Vehicles, net-rental -- 4,010 -- 4,010 Property and equipment, net 1,242 188 -- 1,430 Goodwill, net 3,000 1,299 201(c) 4,500 Other assets 3,421 475 (514)(c) 3,382 -------- -------- -------- -------- Total assets exclusive of assets under programs 11,568 7,257 (587) 18,238 Assets under management and mortgage programs 3,018 3,014 -- 6,032 -------- -------- -------- -------- TOTAL ASSETS $ 14,586 $ 10,271 $ (587) $ 24,270 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and other current liabilities $ 1,532 $ 1,365 $ (33)(f) $ 2,864 Stockholder litigation settlement and related costs 2,886 -- -- 2,886 -------- -------- -------- -------- Total current liabilities 4,418 1,365 (33) 5,750 Vehicle debt -- 3,920 -- 3,920 Long-term debt 2,074 605 -- 2,679 Deferred income and other noncurrent liabilities 884 323 (115)(c) 1,092 -------- -------- -------- -------- Total liabilities exclusive of liabilities under management and mortgage programs 7,376 6,213 (148) 13,441 Liabilities under management and mortgage programs Debt 2,143 2,830 690(d) 5,663 Deferred income taxes 321 -- -- 321 -------- -------- -------- -------- 2,464 2,830 690 5,984 Preferred membership interest -- 99 -- 99 Mandatorily redeemable preferred interest in a subsidiary holding debt 1,681 -- -- 1,681 Mandatorily redeemable preferred interest in a subsidiary 375 -- -- 375 Commitments and contingencies Stockholders' equity Preferred stock -- 385 (385)(e) -- Common stock 9 -- -- 9 Move.com common stock -- -- -- -- Additional paid-in capital 4,571 593 (593)(e) 4,571 Retained earnings 1,883 267 (267)(e) 1,883 Accumulated other comprehensive loss (204) (13) 13 (e) (204) Treasury stock (3,569) (103) 103 (e) (3,569) -------- -------- -------- -------- Total stockholders' equity 2,690 1,129 (1,129) 2,690 -------- -------- -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,586 $ 10,271 $ (587) $ 24,270 ======== ======== ======== ======== Note: Certain reclassifications have been made to the historical results of Avis to conform with Cendant's classifications. See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) The accompanying Unaudited Pro Forma Condensed Combined Balance Sheet was prepared to reflect the planned Acquisition of Avis, which will be accounted for under the purchase method of accounting, as if it occurred on September 30, 2000. The purchase price of $967 (including expenses directly attributable to the Acquisition of $30) was based on acquiring 100 percent of the Avis common and preferred shares outstanding, which were not already owned by Cendant as of the assumed acquisition date, and the purchase price as set forth in the Agreement and Plan of Merger dated as of November 11, 2000 of $33 per share. The following is a summary of estimated adjustments in the Unaudited Pro Forma Condensed Combined Balance Sheet: (a) Represents available cash expected to be used to fund the Acquisition. (b) Represents the estimated tax benefit from the exercise of Avis stock options ($24) and deferred tax asset ($12) resulting from the difference between book and tax basis for transaction costs associated with the Acquisition. (c) Estimated adjustments to goodwill representing the excess of the cost over the fair value of the net assets acquired: Calculation of acquisition goodwill: Cash consideration $ 967 Fair value of identifiable net assets acquired: Book value of Avis 1,129 Tax benefit related to the estimated payment of the net cash obligation from the cancellation of Avis stock options 24 Elimination of Avis goodwill (1,299) Deferred income tax assets 12 -------------- Fair value of identifiable net assets acquired (134) -------------- Cendant's basis in its current ownership of Avis (common and preferred equity investment of $514 net of deferred gain of $115) 399 -------------- Acquisition goodwill $ 1,500 ============== Calculation of goodwill acquisition adjustment: Acquisition goodwill $ 1,500 Avis goodwill (1,299) -------------- Goodwill acquisition adjustment $ 201 ============== (d) Represents estimated acquisition borrowings for the purchase of outstanding shares. (e) The elimination of the equity balances of Avis. (f) Elimination of balances between Cendant and Avis related to current business relationships.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) HISTORICAL ADJUSTED PRO FORMA PRO FORMA CENDANT AVIS(1) ADJUSTMENTS COMBINED -------- -------- ----------- ---------- REVENUES Service fees, net $ 2,852 $ 113 $ (207)(a) $ 2,758 Vehicle rental -- 1,989 -- 1,989 Vehicle leasing and other fees -- 111 -- 111 Other 110 5 (31)(b) 84 ------- ------- ------- ------- Net revenues 2,962 2,218 (238) 4,942 EXPENSES Direct operating 994 716 (166)(a) 1,544 Vehicle depreciation and lease charges -- 511 -- 511 Selling, general, and administrative 804 482 -- 1,286 Interest, net 85 229 10(c) 324 Depreciation and amortization 244 56 4(d) 304 Other charges Restructuring and unusual 89 -- -- 89 Litigation settlement (21) -- -- (21) Investigation related 15 -- -- 15 ------- ------- ------- ------- Total expenses 2,210 1,994 (152) 4,052 Net loss on disposition of businesses (7) -- (35)(e) (42) ------- ------- ------- ------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 745 224 (121) 848 Provision (benefit) for income taxes 234 105 (31)(f) 308 Minority interest 61 -- -- 61 ------- ------- ------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS $ 450 $ 119 $ (90) $ 479 ======= ======= ======= ======= CENDANT COMMON STOCK INCOME PER SHARE INCOME PER SHARE FROM CONTINUING OPERATIONS: Basic $ 0.63 -- -- $ 0.67 Diluted $ 0.61 -- -- $ 0.64 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 722 -- -- 722 Diluted 763 -- -- 763 MOVE.COM COMMON STOCK LOSS PER SHARE LOSS PER SHARE FROM CONTINUING OPERATIONS: Basic $ (1.22) -- -- $ (1.22) Diluted $ (1.22) -- -- $ (1.22) WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 4 -- -- 4 Diluted 4 -- -- 4 (1) See Supplemental Unaudited Pro Forma Condensed Statement of Operations of Avis, included elsewhere herein. See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) The following is a summary of the estimated adjustments in the Unaudited Pro Forma Condensed Combined Statement of Operations: (a) Elimination of amounts paid by Avis to Cendant ($166) for services related to call centers and information technology and for the use of trademarks and interest cost ($41) on the acquisition financing computed based on PHH's estimated cost of debt of 8% (rates which are currently available), based upon varying financing vehicles for the total borrowings of $690. For every 1/8% (0.125 basis points) change in the assumed interest rate for the borrowings, there would be a corresponding effect of approximately $.5 (less than $.001 per share) on the pro forma combined net earnings. (b) Elimination of Cendant's earnings attributable to its investment in Avis. (c) The reduction of interest income ($10) from the use of existing cash to fund a portion of the transaction. Interest income is based on Cendant's current rate for cash investments of 5 percent. For every 1/8% change in the assumed interest rate on invested cash, there would be a corresponding effect of approximately $.2 (less than $.001 per share) on the pro forma combined net earnings. (d) Amortization of goodwill generated on the excess of fair value over the net assets acquired on a straight line basis over 40 years, net of reversal of Avis' amortization of pre-acquisition goodwill. (e) Reversal of a $35 gain recorded by Cendant, which represents the recognition of a portion of its previously recorded deferred gain from the sale of its fleet business due to the PHH Europe Transaction. (f) Represents the income tax effect of the pro forma adjustments at an estimated statutory rate of 37.5% (not including adjustments for non-deductible goodwill), except item e, where the tax effect was approximately 2% (the rate at which taxes were provided on the related gain).
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) PRO FORMA ADJUSTMENTS --------------------- HISTORICAL ADJUSTED DISCONTINUED PHH EUROPE PRO FORMA CENDANT AVIS(1) OPERATIONS(2) TRANSACTION(3) ACQUISITION COMBINED ---------- -------- ------------- -------------- ----------- --------- REVENUES Service fees, net $ 5,183 $ 63 $ (895) $ (79) $ (263)(a) $ 4,009 Vehicle rental -- 2,501 -- -- -- 2,501 Vehicle leasing and other fees 30 76 -- (1) -- 105 Other 189 7 -- 8 (g) (41)(b) 163 ------- ------- ------- ------- ------- ------- Net revenues 5,402 2,647 (895) (72) (304) 6,778 EXPENSES Direct operating 1,795 957 (208) (26) (208)(a) 2,310 Vehicle depreciation and lease charges -- 667 -- -- -- 667 Selling, general, and administrative 1,688 540 (552) (22) -- 1,654 Interest, net 199 241 (2) (41)(h) 14(c) 411 Depreciation and amortization 371 54 (24) (10) 5(d) 396 Other charges: Litigation settlement 2,894 -- -- -- -- 2,894 Investigation related 21 -- -- -- -- 21 Merger-related costs and other unusual 110 -- (85) -- -- 25 Termination of proposed acquisition 7 -- -- -- -- 7 ------- ------- ------- ------- ------- ------- Total expenses 7,085 2,459 (871) (99) (189) 8,385 Net gain on dispositions of businesses 1,109 -- (142) -- (881)(e) 86 ------- ------- ------- ------- ------- ------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST (574) 188 (166) 27 (996) (1,521) Provision (benefit) for income taxes (406) 90 (62) 11 (56)(f) (423) Minority interest 61 -- -- -- -- 61 ------- ------- ------- ------- ------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS $ (229) $ 98 $ (104) $ 16 $ (940) $(1,159) ======= ======= ======= ======= ======= ======= INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS: Basic $ (0.30) $ (1.54) Diluted $ (0.30) $ (1.54) WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 751 751 Diluted 751 751 (1) See Supplemental Unaudited Pro Forma Condensed Statement of Operations of Avis, included elsewhere herein. (2) Represents the adjustment required to reflect Cendant's individual membership business as discontinued operations. (3) Reflects the results of PHH Europe operations for the period from January 1, 1999 to the date of disposition by Cendant (June 30, 1999) as adjusted for equity in earnings from the retained investment, net of amortization of the excess cost over assets acquired and the reduction in interest expense resulting from the $1,053 in proceeds from the PHH Europe Transaction for the period from January 1, 1999 to June 30, 1999 (see notes g and h in the notes to Unaudited Pro Forma Condensed Combined Financial Statements) See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) The following is a summary of estimated adjustments in the Unaudited Pro Forma Condensed Combined Statement of Operations: (a) Elimination of amounts paid by Avis to Cendant ($208) for services related to call centers and information technology and for the use of trademarks and interest cost ($55) on the acquisition financing computed based on PHH's estimated cost of debt of 8% (rates which are currently available), based upon varying financing vehicles for the total borrowings of $690. For every 1/8% (0.125 basis points) change in the assumed interest rate for the borrowings, there would be a corresponding effect of approximately $1 (less than $.001 per share) on the pro forma combined net earnings. (b) Elimination of Cendant's earnings attributable to its investment in Avis. (c) The reduction of interest income ($14) from the use of existing cash to fund a portion of the transaction. Interest income is based on Cendant's current rate for cash investments of 5 percent. For every 1/8% change in the assumed interest rate on invested cash, there would be a corresponding effect of approximately $.2 (less than $.001 per share) on the pro forma combined net earnings. (d) Amortization of goodwill generated on the excess of cost over fair value of the net assets acquired on a straight line basis over 40 years, net of reversal of Avis' amortization of pre-acquisition goodwill. (e) Reversal of an $881 gain recorded by Cendant on the sale of PHH Fleet Leasing business to Avis on June 30, 1999. (f) Represents the income tax effect of the pro forma adjustments at an estimated statutory rate of 37.5% (not including adjustments for non-deductible goodwill), except item (e), where the tax effect was approximately 2% (the rate at which taxes were provided on the related gain) (g) Represents the fleet management technology fee income and the equity in the earnings of the joint venture formed pursuant to the PHH Europe Transaction for the period January 1, 1999 to June 30, 1999. (h) Interest reduction as a result of the retirement of 7 3/4% term loans related to the application of proceeds of $1,053 from the PHH Europe Transaction.
AVIS SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION The accompanying Unaudited Pro Forma Condensed Statements of Operations were prepared to reflect the historical consolidated financial statements of Avis adjusted to reflect the PHH Europe Transaction as set forth in the accompanying Notes to the Avis Supplemental Unaudited Pro Forma Condensed Statements of Operations. Avis will receive an annual license fee in connection with the PHH Europe Transaction for the license of the PHH fleet management technology, PHH interactive. Avis utilized the proceeds of the PHH Europe Transaction to reduce Avis' indebtedness and pay transaction costs.
SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN MILLIONS) HISTORICAL PHH EUROPE PRO FORMA ADJUSTED AVIS TRANSACTION(a) ADJUSTMENTS AVIS ---------- -------------- ----------- -------- REVENUES Service fees, net $ 199 $ (86) $ -- $ 113 Vehicle rental 1,989 -- -- 1,989 Vehicle leasing and other fees 123 (12) -- 111 Other -- -- 5(b) 5 ------ ------ ------ ------ Net revenues 2,311 (98) 5 2,218 EXPENSES Direct operating 716 -- -- 716 Vehicle depreciation and lease charges 511 -- -- 511 Selling, general, and administrative 538 (56) -- 482 Interest, net 287 -- (58)(c) 229 Depreciation and amortization 71 (12) (3)(d) 56 Other charges Restructuring and unusual -- -- -- -- Litigation settlement -- -- -- -- Investigation related -- -- -- -- ------ ------ ------ ------ Total expenses 2,123 (68) (61) 1,994 Net gain on disposition of businesses -- -- -- -- ------ ------ ------ ------ INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 188 (30) 66 224 Provision (benefit) for income taxes 83 (3) 25(e) 105 Minority interest -- -- -- -- ------ ------ ------ ------ INCOME (LOSS) FROM CONTINUING OPERATIONS $ 105 $ (27) $ 41 $ 119 ====== ====== ====== ====== Note: Certain reclassifications have been made to the historical results of Avis to conform with Cendant's classifications. See accompanying Notes to Supplemental Unaudited Pro Forma Condensed Financial Statements.
SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN MILLIONS) HISTORICAL PHH EUROPE PRO FORMA ADJUSTED AVIS TRANSACTION(a) ADJUSTMENTS AVIS ---------- -------------- ----------- -------- REVENUES Service fees, net $ 139 $ (76) $ -- $ 63 Vehicle rental 2,501 -- -- 2,501 Vehicle leasing and other fees 85 (9) -- 76 Other -- -- 7(b) 7 ------ ------ ------ ------ Net revenues 2,725 (85) 7 2,647 EXPENSES Direct operating 957 -- -- 957 Vehicle depreciation and lease charges 667 -- -- 667 Selling, general, and administrative 582 (42) -- 540 Interest, net 288 -- (47)(c) 241 Depreciation and amortization 65 (8) (3)(d) 54 Other charges Litigation settlement -- -- -- -- Investigation related -- -- -- -- Merger-related costs and other unusual -- -- -- -- Termination of proposed acquisition -- -- -- -- ------ ------ ------ ------ Total expenses 2,559 (50) (50) 2,459 Net gain on disposition of businesses -- -- -- -- ------ ------ ------ ------ INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 166 (35) 57 188 Provision (benefit) for income taxes 73 (4) 21(e) 90 Minority interest -- -- -- -- ------ ------ ------ ------ INCOME (LOSS) FROM CONTINUING OPERATIONS $ 93 $ (31) $ 36 $ 98 ====== ====== ====== ====== Note: Certain reclassifications have been made to the historical results of Avis to conform with Cendant's classifications. See accompanying Notes to Supplemental Unaudited Pro Forma Condensed Financial Statements.
NOTES TO SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (IN MILLIONS) The following is a summary of estimated adjustments to the Avis Pro Forma Financial Statements: (a) Represents the adjustment to remove the results of operations of PHH Europe for the period July 1, 1999 to December 31, 1999 and for the nine months ended September 30, 2000. (b) Fleet management technology fee income and the equity in the earnings of the joint venture formed pursuant to the PHH Europe Transaction for the period July 1, 1999 to December 31, 1999 and for the nine months ended September 30, 2000, net of amortization of the excess of cost over the assets acquired. (c) Interest reduction as a result of the retirement of acquisition debt and revolving credit facilities related to the application of proceeds of $1,053 from the PHH Europe Transaction. (d) Decrease in amortization expense relating to goodwill generated from the PHH Europe Transaction, net of reversal of PHH Europe goodwill. (e) Represents the income tax effect of the pro forma adjustments at an estimated statutory rate of 39% (not including adjustments for non-deductible goodwill).
CENDANT CORPORATION TO ACQUIRE OUTSTANDING AVIS GROUP SHARES FOR $33.00 PER SHARE IN CASH NEW YORK AND GARDEN CITY, NY, NOVEMBER 13, 2000- Cendant Corporation (NYSE: CD) and Avis Group Holdings, Inc. (NYSE: AVI) today announced that they have entered into a definitive agreement for Cendant to acquire all of the outstanding shares of Avis Group that are not currently owned by Cendant at a price of $33.00 per share in cash. Approximately 25.6 million outstanding shares of Avis Group common stock, and options to purchase an additional approximately 7.9 million Avis Group shares, are not owned by Cendant. Accordingly, the transaction has an equity value of approximately $935 million, net of option proceeds. The shares will be acquired at a price of $33.00 per share in a cash merger pursuant to which Avis Group will be merged with an indirect wholly owned subsidiary of Cendant. Upon completion of the transaction, Avis Group will become a subsidiary of Cendant. The merger is conditioned upon, among other things, approval of a majority of the votes cast by Avis Group stockholders who are unaffiliated with Cendant and customary regulatory approvals. The transaction is expected to close in the first quarter of 2001. "We expect this transaction to be immediately accretive to Cendant's earnings," said Cendant Chairman, President and Chief Executive Officer, Henry R. Silverman. "Additionally we look forward to the combination with Avis Group to enhance both our off-line and online travel strategies." "We're very pleased that our successful business strategy has now resulted in a substantial increase in shareholder value - approximately 74% over the past year," said Avis Group Chairman and Chief Executive Officer A. Barry Rand. "Over the past 12 months, we have successfully transformed Avis Group into the leading comprehensive vehicle management solutions provider with award-winning technology. We have substantially strengthened our balance sheet and significantly improved our free cash flow, while attaining our 13th consecutive quarter of EPS growth above 20%. Now, we look forward to combining with Cendant, a company with significant financial strength and broad travel industry assets." ABOUT AVIS GROUP HOLDINGS, INC. Avis Group Holdings, Inc. is one of the world's leading service and information providers for comprehensive automotive transportation and vehicle management solutions. Avis Group operates Avis Rent A Car, the world's second largest general-use car rental business, with locations in the United States, Canada, Australia, New Zealand and the Latin American Caribbean region; PHH Arval, one of the world's leading vehicle management companies; and Wright Express, the world's largest fleet card provider. For additional information and news concerning Avis Group, please log onto the Avis web site at www.avis.com or call Company News on Call (800-758-5804, access code #078975).
ABOUT CENDANT CORPORATION Cendant Corporation is a global provider of real estate, travel and direct marketing related consumer and business services. The Company's core competencies include building franchise systems, providing outsourcing solutions and direct marketing. As a franchiser, Cendant is among the world's leading franchisers of real estate brokerage offices, hotels, rental car agencies, and tax preparation services. As a provider of outsourcing solutions, Cendant is a major provider of mortgage services to consumers, the global leader in employee relocation, and the world's largest vacation exchange service. In direct marketing, Cendant provides access to insurance, travel, shopping, auto, and other services primarily to customers of its affinity partners. Other business units include NCP, the UK's largest private car park operator, and WizCom, an information technology services provider. Headquartered in New York, NY, the Company has approximately 28,000 employees and operates in over 100 countries. More information about Cendant, its companies, brands and current SEC filings may be obtained by visiting the Company's Web site at www.cendant.com or by calling877-4INFO-CD (877-446-3623). STATEMENTS ABOUT FUTURE RESULTS MADE IN THIS RELEASE MAY CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND THE CURRENT ECONOMIC ENVIRONMENT. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS. IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS ARE SPECIFIED IN FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 FOR AVIS GROUP AND IN FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 FOR CENDANT. Media Contacts: Investor Contacts: Cendant Corporation Cendant Corporation Elliot Bloom Denise Gillen 212-413-1833 212-413-1832 Sam Levenson 212-413-1834 Avis Group Holdings, Inc. Avis Group Holdings, Inc. David Fluhrer Elizabeth Logler 516-222-3230 516-222-4795