-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QxnrfRPdRWqCsnILM563A98geRqwWDhl8KWeTaHU2Ed/jC7BY0L5xGDvRTVx0atE ZXMlTChj/93NQQymDdLgFA== 0000912057-02-019581.txt : 20020510 0000912057-02-019581.hdr.sgml : 20020510 ACCESSION NUMBER: 0000912057-02-019581 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIS GROUP HOLDINGS INC CENTRAL INDEX KEY: 0001040445 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 113347585 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13315 FILM NUMBER: 02641825 BUSINESS ADDRESS: STREET 1: 9 WEST 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 5162223000 MAIL ADDRESS: STREET 1: 9 WEST 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: AVIS RENT A CAR INC DATE OF NAME CHANGE: 19970604 10-Q 1 a2078568z10-q.txt 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 COMMISSION FILE NUMBER: 1-13315 ----------- AVIS GROUP HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 11-3347585 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 6 SYLVAN WAY 07054 PARSIPPANY, NJ (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (973) 496-3500 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE ----------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed in Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements, for the past 90 days: Yes [ ] No [X] APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of the Registrant's common stock was 5,537shares as of April 30, 2002. Avis Group Holdings, Inc. meets the conditions set forth in General Instructions H (1) (a) and (b) to Form 10-Q and is therefore filing this form with the reduced disclosure format. ================================================================================ AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES INDEX PAGE ---- PART I Financial Information Item 1. Financial Statements Independent Accountants' Report 1 Consolidated Condensed Statements of Operations for the three months ended March 31, 2002, the period March 1, 2001 (Date of Acquisition) to March 31, 2001 and the two months ended February 28, 2001 2 Consolidated Condensed Balance Sheets as of March 31, 2002 and December 31, 2001 3 Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2002, the period March 1, 2001 (Date of Acquisition) to March 31, 2001 and the two months ended February 28, 2001 4 Notes to the Consolidated Condensed Financial Statements 6 Item 2. Management's Narrative Analysis of the Results of Operations 17 Item 3. Quantitative and Qualitative Disclosure about Market Risks 19 PART II Other Information Item 6. Exhibits and Report on Form 8-K 20 Signatures 21 PART I - FINANCIAL INFORMATION Item 1. Financial Statements INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Stockholder of Avis Group Holdings, Inc. Parsippany, New Jersey We have reviewed the accompanying consolidated condensed balance sheet of Avis Group Holdings, Inc. and subsidiaries (successor to Avis Rent A Car System, Inc. and subsidiaries, Avis Fleet Leasing and Management Corp., and subsidiaries and Reserve Claims Management Co., collectively the "Predecessor Companies") (collectively referred to as the "Company") as of March 31, 2002, and the related consolidated condensed statements of operations and cash flows for the three-month period ended March 31, 2002, the period March 1, 2001 (Date of Acquisition) to March 31, 2001, and as to the Predecessor Companies the period January 1, 2001 to February 28, 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated condensed financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company as of December 31, 2001, and the related consolidated statements of operations, common stockholders' equity, and cash flows for the period March 1, 2001 (Date of Acquisition) to December 31, 2001 and as to the Predecessor Companies, the consolidated related statements of operations, common stockholders' equity and cash flows for the period January 1, 2001 to February 28, 2001 (not presented herein); and in our report dated January 23, 2002, we expressed an unqualified opinion (and included an explanatory paragraph relating to a change in accounting for derivative instruments and hedging activities) on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2001 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ DELOITTE & TOUCHE LLP May 7, 2002 New York, New York AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS)
PREDECESSOR COMPANIES MARCH 1, 2001 ----------------- THREE MONTHS (DATE OF ACQUISITION) TWO MONTHS ENDED TO ENDED MARCH 31, 2002 MARCH 31, 2001 FEBRUARY 28, 2001 -------------- --------------------- ----------------- REVENUES $ 564,603 $ 217,996 $ 385,821 --------- --------- --------- EXPENSES Operating, net 223,567 78,672 173,830 Vehicle depreciation and lease charges, net 162,691 55,095 111,966 Selling, general and administrative 114,931 37,575 83,229 Vehicle interest, net 50,647 20,547 43,625 Non-vehicle interest, net 10,795 5,086 9,167 Non-vehicle depreciation and amortization 6,125 4,427 6,241 --------- --------- --------- Total expenses 568,756 201,402 428,058 --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAX (4,153) 16,594 (42,237) Provision (benefit) for income taxes (1,744) 7,899 (15,783) --------- --------- --------- INCOME (LOSS) FROM CONTINUING OPERATIONS (2,409) 8,695 (26,454) Income from discontinued operations, net of tax -- -- 4,947 --------- --------- --------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (2,409) 8,695 (21,507) Cumulative effect of accounting change, net of tax -- -- (7,612) --------- --------- --------- NET INCOME (LOSS) $ (2,409) $ 8,695 $ (29,119) ========= ========= =========
See Notes to Consolidated Condensed Financial Statements. 1 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, 2002 2001 ----------- ------------ ASSETS Cash and cash equivalents $ 14,500 $ 13,311 Receivables, net 158,365 168,372 Prepaid expenses 39,606 42,543 Deferred income taxes 555,369 548,087 Property and equipment, net 208,111 203,232 Goodwill, net 1,263,496 1,271,192 Other assets 145,041 146,608 ----------- ----------- Total assets exclusive of assets under management programs 2,384,488 2,393,345 ----------- ----------- Assets under management programs: Restricted cash 275,898 581,187 Vehicles, net 3,628,153 3,470,937 Due from vehicle manufacturers 61,125 92,614 ----------- ----------- 3,965,176 4,144,738 ----------- ----------- TOTAL ASSETS $ 6,349,664 $ 6,538,083 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable 164,120 363,891 Accrued liabilities 477,575 434,665 Due to Cendant Corporation and affiliates, net 499,859 514,433 Non-vehicle debt 582,058 588,259 Public liability, property damage and other insurance liabilities 214,143 228,503 ----------- ----------- Total liabilities exclusive of liabilities under management programs 1,937,755 2,129,751 ----------- ----------- Liabilities under management programs: Vehicle debt 3,766,596 3,771,341 Deferred income taxes 315,595 315,905 ----------- ----------- 4,082,191 4,087,246 ----------- ----------- Commitments and contingencies (Note 5) Stockholder's equity: Common stock, $.01 par value--authorized 10,000 shares; issued 5,537 shares -- -- Additional paid-in-capital 168,832 168,832 Retained earnings 186,897 189,306 Accumulated other comprehensive loss (26,011) (37,052) ----------- ----------- Total stockholder's equity 329,718 321,086 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 6,349,664 $ 6,538,083 =========== ===========
See Notes to Consolidated Condensed Financial Statements. 2 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR COMPANIES --------------------- THREE MONTHS MARCH 1, 2001 TWO MONTHS ENDED (DATE OF ACQUISITION) ENDED MARCH 31, 2002 TO MARCH 31, 2001 FEBRUARY 28, 2001 -------------------- ------------------- --------------------- OPERATING ACTIVITIES Net income (loss) $ (2,409) $ 8,695 $ (29,119) Adjustments to arrive at income (loss) from continuing operations - - 2,665 -------------------- ------------------- --------------------- Income (loss) from continuing operations (2,409) 8,695 (26,454) Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: Non-vehicle depreciation and amortization 6,125 4,427 6,241 Net change in operating assets and liabilities, excluding the impact of acquisitions and dispositions: Receivables (5,541) (13,478) 10,108 Accounts payable (2,453) 16,237 (30,518) Accrued liabilities 23,568 818 1,486 Other, net (17,397) 8,782 (30,923) -------------------- ------------------- --------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS 1,893 25,481 (70,060) -------------------- ------------------- --------------------- MANAGEMENT PROGRAMS: Vehicle depreciation 154,750 51,436 105,928 -------------------- ------------------- --------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 156,643 76,917 35,868 -------------------- ------------------- --------------------- INVESTING ACTIVITIES Property and equipment additions (10,698) (5,324) (3,278) Retirements of property and equipment - 315 (380) Payment for purchase of rental car franchise licensees (2,835) - - -------------------- ------------------- --------------------- NET CASH USED IN INVESTING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS (13,533) (5,009) (3,658) -------------------- ------------------- --------------------- MANAGEMENT PROGRAMS: (Increase) decrease in restricted cash 305,289 (33,868) 10,978 Decrease in due from vehicle manufacturers 31,179 147,412 16,368 Investment in vehicles (1,190,832) (490,138) (943,102) Payments received on investment in vehicles 706,215 353,216 813,460 -------------------- ------------------- --------------------- (148,149) (23,378) (102,296) -------------------- ------------------- --------------------- NET CASH USED IN INVESTING ACTIVITIES (161,682) (28,387) (105,954) -------------------- ------------------- ---------------------
3 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS)
PREDECESSOR COMPANIES ---------------------- THREE MONTHS MARCH 1, 2001 TWO MONTHS ENDED (DATE OF ACQUISITION) ENDED MARCH 31, 2002 TO MARCH 31, 2001 FEBRUARY 28, 2001 -------------- --------------------- ---------------------- FINANCING ACTIVITIES Proceeds from borrowings - 45,000 - Principal payments on borrowings (125) (62,039) (77) Increase (decrease) in due to Cendant Corporation and affiliates, net (13,897) 97,216 (45,818) Payments for debt issuance costs (115) (3,621) (12) Issuances of common stock - - 140 ---------------- ------------------- ---------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS (14,137) 76,556 (45,767) ---------------- ------------------- ---------------------- MANAGEMENT PROGRAMS: Proceeds from borrowings 49,703 812,162 132,294 Principal payments on borrowings (29,456) (938,650) (31,087) ---------------- ------------------- ---------------------- 20,247 (126,488) 101,207 ---------------- ------------------- ---------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 6,110 (49,932) 55,440 ---------------- ------------------- ---------------------- Effect of changes in net assets of discontinued operations - - 394 Effect of changes in exchange rates on cash and cash equivalents 118 (923) (11) ---------------- ------------------- ---------------------- Net increase (decrease) in cash and cash equivalents 1,189 (2,325) (14,263) Cash and cash equivalents, beginning of period 13,311 66,105 80,368 ---------------- ------------------- ---------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,500 $ 63,780 $ 66,105 ================ =================== ====================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest payments $ 50,151 $ 18,301 $ 44,315 Income tax payments, net $ 420 $ 1,313 $ 1,962
See Notes to Consolidated Condensed Financial Statements. 4 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNLESS OTHERWISE NOTED, ALL AMOUNTS ARE IN THOUSANDS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited Consolidated Condensed Financial Statements include the accounts and transactions of Avis Group Holdings, Inc. and its subsidiaries (collectively, "the Company"). In management's opinion, the Consolidated Condensed Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. In addition, management is required to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. The Consolidated Condensed Financial Statements should be read in conjunction with the Company's Annual Report on Form 10-K dated March 29, 2002. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Avis Group Holdings, Inc. is a holding company that operates, through a wholly-owned subsidiary, Avis Rent A Car System, Inc., the second largest general use car rental brand in the world. On March 1, 2001, all the Company's common stock not then owned by Cendant Corporation ("Cendant") was acquired by a subsidiary of PHH Corporation ("PHH"), a wholly-owned subsidiary of Cendant, for approximately $994 million with the Company emerging as the surviving legal entity. The Company assumed intercompany indebtedness of $937 million through the acquisition. Simultaneous with the acquisition, the Company's fleet management and fuel card businesses were sold to PHH. The Company received proceeds of $800 million from the sale of these businesses, which were used by the Company to repay a portion of the intercompany indebtedness it assumed in connection with the acquisition. Simultaneous with the acquisition, the Company became a Cendant subsidiary not within the PHH ownership structure. Accordingly, the Consolidated Condensed Financial Statements as of and for the three months ended March 31, 2002, for the month ended March 31, 2001, and as of December 31, 2001 include the financial statements of Avis Group Holdings, Inc. and its subsidiaries. The Consolidated Condensed Financial Statements for the two months ended February 28, 2001 include the financial statements of the Company and its former fleet management and fuel card businesses, which are presented as a discontinued operation (the "Predecessor Companies"). The acquisition was accounted for using the purchase method of accounting; accordingly, the Company's assets and liabilities were adjusted to their estimated fair values as of March 1, 2001. The purchase price has been allocated among the Predecessor Companies based upon their estimated fair values as of March 1, 2001. The excess of the purchase price over the estimated fair value of the Company's assets and liabilities was allocated to goodwill and was being amortized over 40 years on a straight-line basis until the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", as discussed below. The final allocation of the purchase price is summarized as follows:
AMOUNT ----------- Cash consideration $ 937,554 Fair value of converted options 17,000 Transaction costs and expenses 40,000 ----------- Total purchase price 994,554 Book value of Cendant's existing net investment in Avis Group 408,779 ----------- Cendant's basis in Predecessor Companies. 1,403,333 Portion of basis attributable to fleet management and fuel card businesses (987,822) ----------- Cendant's basis in the Successor Company 415,511 Intercompany loan assumed by Successor Company (137,554) ----------- Cendant's adjusted basis in Successor Company 277,957 Fair value of liabilities assumed in excess of assets acquired of Successor Company 986,830 ----------- Goodwill $1,264,787 ==========
5 Pursuant to certain covenant requirements in an indenture under which the Company issued debt, the Company continues to operate and maintain its status as a separate public reporting entity. Assets used by the Company to generate revenue are classified as assets under management programs. Funding for such assets is primarily provided by secured financing arrangements, which are classified as debt under management programs. Revenues generated from these assets are used, in part, to repay the interest and principal associated with the debt. Cash inflows and outflows relating to the generation and acquisition of assets and the principal debt repayment or financing of such assets are classified as activities of the Company's management programs. CHANGES IN ACCOUNTING POLICIES BUSINESS COMBINATIONS. On July 1, 2001, the Company adopted SFAS No. 141, "Business Combinations," which prohibits the use of the pooling of interests method of accounting for all business combinations initiated after June 30, 2001. SFAS No. 141 also addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination and requires additional disclosures for material business combinations completed after such date. Upon adoption of SFAS No. 142 on January 1, 2002, intangible assets required to be reclassified to goodwill were not material. GOODWILL AND OTHER INTANGIBLE ASSETS. During first quarter 2001, all intangible assets were amortized on a straight-line basis over their estimated periods to be benefited. On January 1, 2002, the Company adopted SFAS No. 142 in its entirety. Pursuant to such adoption, the Company did not amortize any goodwill or indefinite-lived intangible assets during first quarter 2002. The Company is required to assess goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company reviewed the carrying value of all its goodwill and other intangible assets by comparing such amounts to their fair value and determined that the carrying amounts of such assets did not exceed their respective fair values. Accordingly, the initial implementation of this standard did not result in a charge and, as such, did not impact the Company's results of operations during the first quarter 2002. 2. RELATED PARTY TRANSACTIONS Expenses of the Company include the following items charged by Cendant and affiliates. These charges include allocations from Cendant for services provided to the Company, which consist of:
PREDECESSOR COMPANIES MARCH 1, 2001 ------------------ THREE MONTHS (DATE OF ACQUISITION) TWO MONTHS ENDED TO ENDED MARCH 31, 2002 MARCH 31, 2001 FEBRUARY 28, 2001 -------------- ------------------- ----------------- Royalties $ 24,276 $ 9,200 $ 16,205 Reservations 12,682 5,155 8,496 Data processing 8,265 4,484 11,395 Rent and other 13,779 672 1,456 Interest 3,399 - - -------------- ----------------- -------------- Total $ 62,401 $ 19,511 $ 37,552 ============== ================= ==============
On the Consolidated Condensed Statements of Operations, the royalty and reservation charges are included within selling, general and administration expenses, the rent and data processing expenses are included within operating expenses and interest expenses are included within non-vehicle interest, net. These charges are determined in accordance with various intercompany agreements and include certain corporate overhead allocations, which are based upon factors, such as square footage, employee salaries and computer usage time. 6 3. INTANGIBLE ASSETS Intangible assets consisted of:
MARCH 31, 2002 DECEMBER 31, 2001 ------------------------ ------------------------ GROSS GROSS CARRYING ACCUMULATED CARRYING ACCUMULATED AMOUNT AMORTIZATION AMOUNT AMORTIZATION ---------- ------------ ---------- ------------ AMORTIZED INTANGIBLE ASSETS Customer lists $ 18,952 $ 1,040 $ 18,952 $ 800 ========== ======== ========== ======== UNAMORTIZED INTANGIBLE ASSETS Goodwill $1,263,496 $1,297,774 $ 26,582 ========== ========== ========
Amortization expense relating to intangible assets was $240,000 and $80,000 for the first quarter 2002 and the period March 1, 2001 (Date of Acquisition) to March 31, 2001, respectively. Amortization expense relating to goodwill was approximately $2.8 million and $2.0 million for the period March 1, 2001 (Date of Acquisition) to March 31, 2001 and for the two months ended February 28, 2001, respectively. The Company expects amortization expense on intangible assets for the remainder of 2002 to approximate $720,000 and $1 million for each of the succeeding five years. Intangible assets are included as a component of other assets on the balance sheet. The changes in the carrying amount of goodwill for the first quarter 2002 are as follows:
Balance as of January 1, 2002 $1,271,192 Goodwill acquired during 2002 1,584 Other (9,280) ---------- Balance as of March 31, 2002 $1,263,496 ==========
Had the Company applied the non-amortization provisions of SFAS No. 142 for the period March 1, 2001 (Date of Acquisition) to March 31, 2001 and the two months ended February 28, 2001, net income (loss) would have been as follows:
PREDECESSOR MARCH 1, 2001 COMPANIES (DATE OF ----------------- ACQUISITION) TWO MONTHS TO ENDED MARCH 31, 2001 FEBRUARY 28, 2001 -------------- ----------------- Reported net income (loss) $ 8,695 $ (29,119) Add back: Goodwill amortization 2,814 1,903 ---------- ---------- Pro forma net income (loss) $ 11,509 $ (27,216) ========== ==========
4. VEHICLE DEBT As of March 31, 2002, the Company's asset backed funding arrangements under the AESOP Funding program provided for the issuance of up to $4.45 billion of debt. Amounts outstanding under the AESOP Funding program approximated $3.6 billion. As of March 31, 2002, the Company had an additional $850 million of availability under the AESOP Funding program. In addition, the Company has other outstanding vehicle debt of approximately $167 million and availability of approximately $172 million under other funding arrangements as of March 31, 2002. 5. COMMITMENTS AND CONTINGENCIES Parent Company Litigation Cendant is involved in litigation asserting claims associated with the accounting irregularities discovered in former CUC business units outside of the principal common stockholder class action litigation. Cendant does not believe that it is feasible to predict or determine the final outcome or resolution of these unresolved proceedings. An adverse outcome from such unresolved proceedings could be material with respect to earnings in any given reporting period. However, Cendant does not believe that the impact of such unresolved proceedings should result in a material liability to Cendant in relation to its consolidated financial position or liquidity. The Company is involved in pending litigation in the usual course of business. In the opinion of management, such other litigation will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 7 6. STOCKHOLDER'S EQUITY The components of comprehensive income (loss) are summarized as follows:
PREDECESSOR COMPANIES MARCH 1, 2001 ----------------- THREE MONTHS (DATE OF ACQUISITION) TWO MONTHS ENDED TO ENDED MARCH 31, 2002 MARCH 31, 2001 FEBRUARY 28, 2001 --------------- --------------------- ----------------- Net income (loss) $ (2,409) $ 8,695 $ (29,119) Other comprehensive income (loss): Currency translation adjustment 791 (3,414) (1,758) Unrealized gains (losses) on cash flow hedges, net of tax 11,586 (1,371) 561 Minimum pension liability adjustment (1,336) - - Cumulative effect from change in accounting policy for derivative instruments, net of tax - - 1,464 ------------ --------------- ------------ Total comprehensive income (loss) $ 8,632 $ 3,910 $ (28,852) ============ =============== ============ The after-tax components of accumulated other comprehensive income (loss) for the three months ended March 31, 2002 are as follows: UNREALIZED MINIMUM ACCUMULATED CURRENCY GAINS (LOSSES) PENSION OTHER TRANSLATION ON CASH FLOWS LIABILITY COMPREHENSIVE ADJUSTMENTS HEDGES ADJUSTMENT GAIN (LOSS) ----------- -------------- ----------- -------------- Balance, January 1, 2002 $ (2,469) $ (34,583) $ - $(37,052) Current period change 791 11,586 (1,336) 11,041 ----------- ------------ --------- --------- Balance, March 31, 2002 $ (1,678) $ (22,997) $ (1,336) $(26,011) =========== ============ ========= =========
7. GUARANTOR AND NON-GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS The following consolidating condensed financial information presents the Consolidating Condensed Balance Sheets as of March 31, 2002 and December 31, 2001 and the Consolidating Condensed Statements of Operations and Statements of Cash Flows for the three months ended March 31, 2002, the period March 1, 2001 (Date of Acquisition) to March 31, 2001, and as to the Predecessor Companies for the two months ended February 28, 2001 of (a) Avis Group Holdings, Inc. ("the Parent"); (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; (d) elimination entries necessary to consolidate the Parent with the guarantor and non-guarantor subsidiaries; and (e) the Company on a consolidated basis. Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been provided as management believes the following information is sufficient. 8 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002
NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ---------------- REVENUES $ -- $ 507,415 $ 57,188 $ -- $ 564,603 --------- --------- --------- --------- --------- EXPENSES Operating, net -- 195,292 28,275 -- 223,567 Vehicle depreciation and lease charges, net -- 145,565 17,126 -- 162,691 Selling, general and administrative -- 107,594 7,337 -- 114,931 Vehicle interest, net 459 49,980 208 -- 50,647 Non-vehicle interest, net 7,657 3,138 -- -- 10,795 Non-vehicle depreciation and amortization 239 5,202 684 -- 6,125 --------- --------- --------- --------- --------- Total expenses 8,355 506,771 53,630 -- 568,756 --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF SUBSIDIARIES (8,355) 644 3,558 -- (4,153) Equity in earnings of subsidiaries 1,571 2,064 -- (3,635) -- --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (6,784) 2,708 3,558 (3,635) (4,153) Provision (benefit) for income taxes (4,375) 1,137 1,494 -- (1,744) --------- --------- --------- --------- --------- NET INCOME (LOSS) $ (2,409) $ 1,571 $ 2,064 $ (3,635) $ (2,409) ========= ========= ========= ========= =========
AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE PERIOD MARCH 1, 2001 (DATE OF ACQUISITION) TO MARCH 31, 2001
NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ -------------- REVENUES $ -- $197,435 $ 20,561 $ -- $217,996 -------- -------- -------- -------- -------- EXPENSES Operating, net -- 69,559 9,113 -- 78,672 Vehicle depreciation and lease charges, net -- 48,906 6,189 -- 55,095 Selling, general and administrative -- 34,946 2,629 -- 37,575 Vehicle interest, net 1,154 18,957 436 -- 20,547 Non-vehicle interest, net 3,283 1,803 -- -- 5,086 Non-vehicle depreciation and amortization 1,828 2,368 231 -- 4,427 -------- -------- -------- -------- -------- Total expenses 6,265 176,539 18,598 -- 201,402 -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF SUBSIDIARIES (6,265) 20,896 1,963 -- 16,594 Equity in earnings of subsidiaries 11,488 1,029 -- (12,517) -- -------- -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 5,223 21,925 1,963 (12,517) 16,594 Provision (benefit) for income taxes (3,472) 10,437 934 -- 7,899 -------- -------- -------- -------- -------- NET INCOME $ 8,695 $ 11,488 $ 1,029 $(12,517) $ 8,695 ======== ======== ======== ======== ========
9 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (PREDECESSOR COMPANIES) FOR THE TWO MONTHS ENDED FEBRUARY 28, 2001
NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ -------------- REVENUES $ -- $ 344,496 $ 41,325 $ -- $ 385,821 --------- --------- --------- --------- --------- EXPENSES Operating, net -- 154,490 19,340 -- 173,830 Vehicle depreciation and lease charges, net -- 102,490 9,476 -- 111,966 Selling, general and administrative -- 77,866 5,363 -- 83,229 Vehicle interest, net 2,306 40,375 944 -- 43,625 Non-vehicle interest, net 9,167 -- -- -- 9,167 Non-vehicle depreciation and amortization -- 5,767 474 -- 6,241 --------- --------- --------- --------- --------- Total expenses 11,473 380,988 35,597 -- 428,058 --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE EQUITY IN EARNINGS (LOSSES) OF SUBSIDIARIES (11,473) (36,492) 5,728 -- (42,237) Equity in earnings (losses) of subsidiaries (25,645) 9,950 -- 15,695 -- --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (37,118) (26,542) 5,728 15,695 (42,237) Provision (benefit) for income taxes (7,999) (9,926) 2,142 -- (15,783) --------- --------- --------- --------- --------- INCOME (LOSS) FROM CONTINUING OPERATIONS (29,119) (16,616) 3,586 15,695 (26,454) Income (loss) from discontinued operations, net of tax -- (6,358) 11,305 -- 4,947 --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (29,119) (22,974) 14,891 15,695 (21,507) Cumulative effect of accounting change, net of tax -- (2,671) (4,941) -- (7,612) --------- --------- --------- --------- --------- NET INCOME (LOSS) $ (29,119) $ (25,645) $ 9,950 $ 15,695 $ (29,119) ========= ========= ========= ========= =========
10 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED BALANCE SHEET MARCH 31, 2002
NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- -------------- ------------- ------------ --------------- ASSETS Cash and cash equivalents $ 10 $ 4,228 $ 10,262 $ -- $ 14,500 Receivables, net -- 129,964 28,401 -- 158,365 Prepaid expenses -- 32,417 7,189 -- 39,606 Due from affiliate (347,045) 218,967 128,078 -- -- Deferred income taxes 216,944 338,737 (312) -- 555,369 Property and equipment, net -- 195,583 12,528 -- 208,111 Investment in consolidated subsidiaries 693,309 631,939 -- (1,325,248) -- Goodwill 815,959 444,563 2,974 -- 1,263,496 Other assets 15,780 36,704 92,557 -- 145,041 ----------- ----------- ----------- ----------- ----------- Total assets exclusive of assets under management programs 1,394,957 2,033,102 281,677 (1,325,248) 2,384,488 ----------- ----------- ----------- ----------- ----------- Assets under management programs: Restricted cash -- 319 275,579 -- 275,898 Vehicles, net -- (87,382) 3,715,535 -- 3,628,153 Due from vehicle manufacturers -- 3,765 57,360 -- 61,125 ----------- ----------- ----------- ----------- ----------- -- (83,298) 4,048,474 -- 3,965,176 ----------- ----------- ----------- ----------- ----------- TOTAL ASSETS $ 1,394,957 $ 1,949,804 $ 4,330,151 $(1,325,248) $ 6,349,664 =========== =========== =========== =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable $ (15,114) $ 150,440 $ 28,794 $ -- $ 164,120 Accrued liabilities 122,887 325,614 29,074 -- 477,575 Due to Cendant Corporation and affiliates, net 380,000 290,589 (170,730) -- 499,859 Non-vehicle debt 577,466 4,592 -- -- 582,058 Public liability, property damage and other insurance liabilities -- 147,029 67,114 -- 214,143 ----------- ----------- ----------- ----------- ----------- Total liabilities exclusive of liabilities under management programs 1,065,239 918,264 (45,748) -- 1,937,755 ----------- ----------- ----------- ----------- ----------- Liabilities under management programs: Vehicle debt -- 60,521 3,706,075 -- 3,766,596 Deferred income taxes -- 277,710 37,885 -- 315,595 ----------- ----------- ----------- ----------- ----------- -- 338,231 3,743,960 -- 4,082,191 ----------- ----------- ----------- ----------- ----------- Stockholder's equity 329,718 693,309 631,939 (1,325,248) 329,718 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,394,957 $ 1,949,804 $ 4,330,151 $(1,325,248) $ 6,349,664 =========== =========== =========== =========== ===========
11 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED BALANCE SHEET DECEMBER 31, 2001
NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------- ------------ ------------ --------------- ASSETS Cash and cash equivalents $ 18 $ 5,210 $ 8,083 $ -- $ 13,311 Receivables, net -- 142,386 25,986 -- 168,372 Prepaid expenses -- 34,569 7,974 -- 42,543 Deferred income tax 221,741 326,332 14 -- 548,087 Property and equipment, net -- 190,319 12,913 -- 203,232 Investment in consolidated subsidiaries 677,401 628,280 -- (1,305,681) -- Goodwill, net 825,234 443,000 2,958 -- 1,271,192 Other assets 16,020 34,791 95,797 -- 146,608 ----------- ----------- ----------- ----------- ----------- Total assets exclusive of assets under management programs 1,740,414 1,804,887 153,725 (1,305,681) 2,393,345 ----------- ----------- ----------- ----------- ----------- Assets under management programs: Restricted cash -- 9,457 571,730 -- 581,187 Vehicles, net -- (88,822) 3,559,759 -- 3,470,937 Due from vehicle manufacturers -- 7,855 84,759 -- 92,614 ----------- ----------- ----------- ----------- ----------- -- (71,510) 4,216,248 -- 4,144,738 ----------- ----------- ----------- ----------- ----------- TOTAL ASSETS $ 1,740,414 $ 1,733,377 $ 4,369,973 $(1,305,681) $ 6,538,083 =========== =========== =========== =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable $ -- $ 151,379 $ 212,512 $ -- $ 363,891 Accrued liabilities 109,143 300,337 25,185 -- 434,665 Due to Cendant Corporation and affiliates, net 726,645 63,214 (275,426) -- 514,433 Non-vehicle debt 583,540 4,719 -- -- 588,259 Public liability, property damage and other insurance liabilities -- 166,432 62,071 -- 228,503 ----------- ----------- ----------- ----------- ----------- Total liabilities exclusive of liabilities under management programs 1,419,328 686,081 24,342 -- 2,129,751 ----------- ----------- ----------- ----------- ----------- Liabilities under management programs: Vehicle debt -- 86,004 3,685,337 -- 3,771,341 Deferred income taxes -- 283,891 32,014 -- 315,905 ----------- ----------- ----------- ----------- ----------- -- 369,895 3,717,351 -- 4,087,246 ----------- ----------- ----------- ----------- ----------- Stockholder's equity 321,086 677,401 628,280 (1,305,681) 321,086 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,740,414 $ 1,733,377 $ 4,369,973 $(1,305,681) $ 6,538,083 =========== =========== =========== =========== ===========
12 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002
AVIS GROUP NON- HOLDINGS, INC. PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED ------------ ------------- ------------- ------------ -------------- OPERATING ACTIVITIES Net income (loss) $ (2,409) $ 1,571 $ 2,064 $ (3,635) $ (2,409) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities exclusive of management programs (1,423) (15,987) 21,712 -- 4,302 ----------- ----------- ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS (3,832) (14,416) 23,776 (3,635) 1,893 ----------- ----------- ----------- ----------- ----------- MANAGEMENT PROGRAMS: Vehicle depreciation -- 145,070 9,680 -- 154,750 ----------- ----------- ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,832) 130,654 33,456 (3,635) 156,643 ----------- ----------- ----------- ----------- ----------- INVESTING ACTIVITIES Property and equipment additions -- (10,465) (233) -- (10,698) Retirements of property and equipment -- (2) 2 -- -- Payment for purchase of rental car franchise licensees -- (2,835) -- -- (2,835) Investment in subsidiaries (1,571) (2,064) -- 3,635 -- ----------- ----------- ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS (1,571) (15,366) (231) 3,635 (13,533) ----------- ----------- ----------- ----------- ----------- MANAGEMENT PROGRAMS: Decrease in restricted cash -- 9,138 296,151 -- 305,289 Decrease in due from vehicle manufacturers -- 4,090 27,089 -- 31,179 Investment in vehicles -- (3,637) (1,187,195) -- (1,190,832) Payments received on investment in vehicles -- (129,019) 835,234 -- 706,215 ----------- ----------- ----------- ----------- ----------- -- (119,428) (28,721) -- (148,149) ----------- ----------- ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (1,571) (134,794) (28,952) 3,635 (161,682) ----------- ----------- ----------- ----------- ----------- FINANCING ACTIVITIES Net decrease in non-vehicle debt -- (125) -- -- (125) Increase (decrease) in due to Cendant Corporation and affiliates, net 5,394 3,400 (22,691) -- (13,897) Payments for debt issuance costs -- (115) -- -- (115) ----------- ----------- ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS 5,394 3,160 (22,691) -- (14,137) ----------- ----------- ----------- ----------- ----------- MANAGEMENT PROGRAMS: Net increase in vehicle debt -- -- 20,247 -- 20,247 ----------- ----------- ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,394 3,160 (2,444) -- 6,110 ----------- ----------- ----------- ----------- ----------- Effect of changes in exchange rates on cash and cash equivalents -- -- 118 -- 118 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (9) (980) 2,178 -- 1,189 Cash and cash equivalents, beginning of period 18 5,210 8,083 -- 13,311 ----------- ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9 $ 4,230 $ 10,261 $ -- $ 14,500 =========== =========== =========== =========== ===========
13 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS FOR THE PERIOD MARCH 1, 2001(DATE OF ACQUISITION) TO MARCH 31, 2001
AVIS GROUP NON- HOLDINGS, INC. PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED ----------- ----------- --------- ------------ --------------- OPERATING ACTIVITIES Net income $ 8,695 $ 11,488 $ 1,029 $ (12,517) $ 8,695 Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs (81,697) 95,426 3,057 -- 16,786 --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS (73,002) 106,914 4,086 (12,517) 25,481 --------- --------- --------- --------- --------- MANAGEMENT PROGRAMS: Vehicle depreciation -- 47,411 4,025 -- 51,436 --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (73,002) 154,325 8,111 (12,517) 76,917 --------- --------- --------- --------- --------- INVESTING ACTIVITIES Property and equipment additions -- (5,205) (119) -- (5,324) Retirements of property and equipment -- 172 143 -- 315 Investment in subsidiaries (11,488) (1,029) -- 12,517 -- --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS (11,488) (6,062) 24 12,517 (5,009) --------- --------- --------- --------- --------- MANAGEMENT PROGRAMS: Increase in restricted cash -- -- (33,868) -- (33,868) Decrease in due from vehicle -- 15,980 131,432 -- 147,412 manufacturers Investment in vehicles -- (17,490) (472,648) -- (490,138) Payments received on investment in vehicles -- (38,398) 391,614 -- 353,216 --------- --------- --------- --------- --------- -- (39,908) 16,530 -- (23,378) --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (11,488) (45,970) 16,554 12,517 (28,387) --------- --------- --------- --------- --------- FINANCING ACTIVITIES Net decrease in non-vehicle debt (17,000) (39) -- -- (17,039) Increase (decrease) in due to Cendant Corporation and affiliates, net 101,574 (94,448) 90,090 -- 97,216 Payments for debt issuance costs -- (3,621) -- -- (3,621) --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS 84,574 (98,108) 90,090 -- 76,556 --------- --------- --------- --------- --------- MANAGEMENT PROGRAMS: Net decrease in vehicle debt -- -- (126,488) -- (126,488) --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 84,574 (98,108) (36,398) -- (49,932) --------- --------- --------- --------- --------- Effect of changes in exchange rates on cash and cash equivalents -- -- (923) -- (923) --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 84 10,247 (12,656) -- (2,325) Cash and cash equivalents, beginning of period 141 36,745 29,219 -- 66,105 --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 225 $ 46,992 $ 16,563 $ -- $ 63,780 ========= ========= ========= ========= =========
14 AVIS GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (PREDECESSOR COMPANIES) FOR THE TWO MONTHS ENDED FEBRUARY 28, 2001
AVIS GROUP NON- HOLDINGS, INC. PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED ---------- ----------- ----------- ------------ ------------- OPERATING ACTIVITIES Net income (loss) $ (29,119) $ (25,645) $ 9,950 $ 15,695 $ (29,119) Adjustments to arrive at income (loss) from continuing operations -- 9,029 (6,364) -- 2,665 --------- --------- --------- --------- --------- Income (loss) from continuing operations (29,119) (16,616) 3,586 15,695 (26,454) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities exclusive of management programs 425 75,609 (119,640) -- (43,606) --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS (28,694) 58,993 (116,054) 15,695 (70,060) --------- --------- --------- --------- --------- MANAGEMENT PROGRAMS: Vehicle depreciation -- 97,909 8,019 -- 105,928 --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (28,694) 156,902 (108,035) 15,695 35,868 --------- --------- --------- --------- --------- INVESTING ACTIVITIES Property and equipment additions -- (2,948) (330) -- (3,278) Retirements of property and equipment -- (400) 20 -- (380) Investment in subsidiaries 25,645 (9,950) -- (15,695) -- --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS 25,645 (13,298) (310) (15,695) (3,658) --------- --------- --------- --------- --------- MANAGEMENT PROGRAMS: Decrease in restricted cash -- -- 10,978 -- 10,978 Decrease in due from vehicle manufacturers -- -- 16,368 -- 16,368 Investment in vehicles -- (1,843) (941,259) -- (943,102) Payments received on investment in vehicles -- (82,138) 895,598 -- 813,460 --------- --------- --------- --------- --------- -- (83,981) (18,315) -- (102,296) --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 25,645 (97,279) (18,625) (15,695) (105,954) --------- --------- --------- --------- --------- FINANCING ACTIVITIES Net decrease in non-vehicle debt -- (77) -- -- (77) Increase (decrease) in due to Cendant Corporation and affiliates, net (89,023) 43,123 82 -- (45,818) Payments for debt issuance costs -- (12) -- -- (12) Repurchases of common stock 140 -- -- -- 140 --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES EXCLUSIVE OF MANAGEMENT PROGRAMS (88,883) 43,034 82 -- (45,767) --------- --------- --------- --------- --------- MANAGEMENT PROGRAMS: Net increase (decrease) in vehicle debt 92,000 (2) 9,209 -- 101,207 --------- --------- --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 3,117 43,032 9,291 -- 55,440 --------- --------- --------- --------- --------- Effect of changes in net assets of discontinued operations -- (131,512) 131,906 -- 394 --------- --------- --------- --------- --------- Effect of changes in exchange rates on cash and cash equivalents -- -- (11) -- (11) --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 68 (28,857) 14,526 -- (14,263) Cash and cash equivalents, beginning of period 73 65,602 14,693 -- 80,368 --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 141 $ 36,745 $ 29,219 $ -- $ 66,105 ========= ========= ========= ========= =========
15 Item 2. Management's Narrative Analysis of the Results of Operations THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES THERETO INCLUDED ELSEWHERE HEREIN. UNLESS OTHERWISE NOTED, ALL DOLLAR AMOUNTS ARE IN THOUSANDS AND PRESENTED BEFORE TAXES (AS APPROPRIATE). We are the second largest general use car rental brand in the world. On March 1, 2001, all of our outstanding common stock not then owned by Cendant Corporation ("Cendant") was acquired by a subsidiary of PHH Corporation ("PHH"), a wholly-owned subsidiary of Cendant, for approximately $994 million and we emerged as the surviving legal entity. At such time, our fleet management and fuel card businesses were sold to PHH and, therefore, are presented as a discontinued operation in the accompanying Consolidated Condensed Financial Statements. Accordingly, we are now a wholly-owned subsidiary of Cendant. RESULTS OF OPERATIONS The acquisition of us by Cendant resulted in significant changes to the valuation of certain of our assets, liabilities and stockholder's equity. The periods prior to the acquisition have been designated "Predecessor Companies" and the period subsequent to the acquisition has been designated "Successor Company". The results of the Predecessor Companies and the Successor Company have been combined for the three months ended March 31, 2001 since we believe that separate discussions for the two months ended February 28, 2001 and the one month ended March 31, 2001 are not meaningful in terms of our operating results or comparisons to the prior period. Our comparative results of operations, excluding our former fleet management and fuel card businesses, for the three months ended March 31, 2002 and 2001 comprised the following:
2002 2001 CHANGE --------- --------- --------- Revenues $ 564,603 $ 603,817 $ (39,214) --------- --------- --------- Expenses, excluding non-vehicle interest 557,961 615,207 (57,246) Non-vehicle interest, net 10,795 14,253 (3,458) --------- --------- --------- Total expenses 568,756 629,460 (60,704) --------- --------- --------- Loss before income taxes (4,153) (25,643) 21,490 Benefit from income taxes (1,744) (7,884) 6,140 --------- --------- --------- Loss from continuing operations $ (2,409) $ (17,759) $ 15,350 ========= ========= =========
Total revenue decreased 6.5% primarily due to a reduction in car rental transaction volume, which resulted primarily from the residual effect of reduced commercial air travel due to the September 11th terrorist attacks. Total expenses decreased 9.6% principally due to a decrease in operating expenses caused by our ability to right-size our operations in anticipation of reduced car rental transaction volume and a decrease in vehicle interest expense due to a corresponding reduction in average fleet size and vehicle debt supporting such fleet. Our overall effective tax rate was 42.0% and 30.7% for the three months ended March 31, 2002 and 2001, respectively. The higher tax rate for the three months ended March 31, 2002 was primarily due to a decrease in the pre-tax loss and the elimination of non-deductible goodwill amortization expense. As a result of the above-mentioned items, loss from continuing operations decreased $15 million, or 86%, in the first quarter 2002. 16 Forward-looking Statements Forward-looking statements in our public filings or other public statements are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "project", "estimates", "plans", "may increase", "may fluctuate" and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are generally forwardlooking in nature and not historical facts. You should understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements: o the impacts of the September 11, 2001 terrorist attacks on New York City and Washington, D.C. on the travel industry in general, and our travel business in particular, are not fully known at this time, but are expected to include negative impacts on financial results due to reduced demand for travel in the near term; other attacks, acts of war; or measures taken by governments in response thereto may negatively affect the travel industry, our financial results and could also result in a disruption in our business; o the effect of economic conditions and interest rate changes on the economy on a national, regional or international basis and the impact thereof on our business; o the effects of a decline in travel, due to political instability, adverse economic conditions or otherwise, on our business; o the effects of changes in current interest rates; o competition in the car rental industry and the financial resources of, and products available to, competitors; o our failure to provide fully integrated disaster recovery technology solutions in the event of a disaster; o our ability to integrate and operate successfully as an acquired and merged business, including the compatibility of the operating systems, and the degree to which our existing administrative and back-office functions and costs are complementary or redundant; o our ability to obtain financing on acceptable terms to finance our growth strategy and to operate within the limitations imposed by financing arrangements and to maintain our credit ratings; o our ability to obtain external financing in the event we are unable to obtain financing from Cendant; o competitive and pricing pressures in the car rental industry; o changes in vehicle manufacturer repurchase arrangements in the event that used vehicle values decrease; o and changes in laws and regulations, including changes in accounting standards and privacy policy regulation. Other factors and assumptions not identified above were also involved in the derivation of these forward looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 17 Item 3. Quantitative and Qualitative Disclosure About Market Risks As previously discussed in our 2001 Annual Report on Form 10-K, we assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values, and cash flows based on a hypothetical 10% change (increase and decrease) in interest rates. We used March 31, 2002 market rates to perform a sensitivity analysis separately for each of our market risk exposures. The estimates assume instantaneous, parallel shifts in interest rate yield curves. We have determined, through such analyses, that the impact of a 10% change in interest rates on our earnings, fair values and cash flows would not be material. 18 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS See Exhibit Index (B) REPORTS ON FORM 8-K None 19 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AVIS GROUP HOLDINGS, INC. By: /s/ F. ROBERT SALERNO ------------------------------------- F. Robert Salerno PRESIDENT AND CHIEF OPERATING OFFICER Date: May 10, 2002 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN W. CHIDSEY Executive Vice President and Director May 10, 2002 - ------------------------- (John W. Chidsey) /s/ F. ROBERT SALERNO President, Chief Operating Officer and May 10, 2002 - ------------------------- Director (Principal Executive Officer) (F. Robert Salerno) /s/ KURT FREUDENBERG Senior Vice President and Controller May 10, 2002 - ------------------------- (Principal Financial Officer) (Kurt Freudenberg) 20 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------- 3.1 Certificate of Incorporation of Avis Rent A Car, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-1, Registration No. 333-46737, dated February 23, 1998). 3.2 By-Laws of Avis Group Holdings, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-1, Registration No. 333-46737, dated February 23, 1998). 12 Statement Re: Computation of Ratio of Earnings to Fixed Charges. 21 EX-12 3 a2078568zex-12.txt EXHIBIT 12 EXHIBIT 12 AVIS GROUP HOLDINGS, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
PREDECESSOR COMPANIES MARCH 1, 2001 ----------------- THREE MONTHS (DATE OF ACQUISITION) TWO MONTHS ENDED TO ENDED MARCH 31, 2002 MARCH 31, 2001 FEBRUARY 28, 2001 -------------- --------------------- ----------------- EARNINGS AVAILABLE TO COVER FIXED CHARGES: Income (loss) before income taxes $ (4,153) $ 16,594 $(42,237) Plus: Fixed charges 72,062 28,958 59,419 Less: Capitalization of interest 3 3 4 -------- -------- -------- Earnings available to cover fixed charges $ 67,912 $ 45,555 $ 17,186 ======== ======== ======== FIXED CHARGES:(a) Interest, including amortization of deferred financing costs $ 62,106 $ 25,382 $ 52,134 Interest portion of rental payment 9,956 3,576 7,285 -------- -------- -------- Total fixed charges $ 72,062 $ 28,958 $ 59,419 ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES $ 0.94x $ 1.57x $ 0.29x ======== ======== ========
- ----------- (a) Consists of interest expense on all indebtedness (including amortization of deferred financing costs) and the portion of operating lease rental expense that is representative of the interest factor. -----END PRIVACY-ENHANCED MESSAGE-----