SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 1998
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-13315
AVIS RENT A CAR, 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.)
900 Old Country Road, Garden City, New York 11530
(Address of principal executive offices)
(Zip Code)
(516)222-3000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by 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 |X| No |_|
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of August 4, 1998: Common Stock, $.01 par value - Class A
35,925,000 shares.
<PAGE>
AVIS RENT A CAR, INC.
INDEX
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Page
----
Condensed Consolidated Statements of
Operations for the Three and Six months ended
June 30, 1998 and 1997.............................................1
Condensed Consolidated Statements of Financial
Position as of June 30 1998
and December 31, 1997 .............................................2
Condensed Consolidated Statements of Cash
Flows for the Six months ended
June 30, 1998 and 1997.............................................3
Notes to the Condensed Consolidated
Financial Statements ..............................................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...........................................................6
PART II. Other Information
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS.................................................12
<PAGE>
AVIS RENT A CAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue ................................... $ 575,280 $ 489,633 $1,086,670 $ 945,647
---------- ---------- ---------- ----------
Direct operating .......................... 229,612 200,262 439,427 398,548
Vehicle depreciation and lease charges, net 144,032 119,568 277,394 234,131
Selling, general and administrative ....... 109,607 108,470 214,371 203,383
Interest, net ............................. 49,150 42,362 96,818 82,655
Amortization of cost in excess of
net assets acquired ..................... 2,969 1,594 5,521 2,570
---------- ---------- ---------- ----------
535,370 472,256 1,033,531 921,287
---------- ---------- ---------- ----------
Income before provision for income taxes .. 39,910 17,377 53,139 24,360
Provision for income taxes ................ 17,560 8,476 23,381 11,254
---------- ---------- ---------- ----------
Net income ................................ $ 22,350 $ 8,901 $ 29,758 $ 13,106
========== ========== ========== ==========
Earnings per share:
Basic ..................................... $ 0.62 $ 0.29 $ 0.88 $ 0.42
========== ========== ========== ==========
Diluted ................................... $ 0.61 $ 0.29 $ 0.86 $ 0.42
========== ========== ========== ==========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
1
<PAGE>
AVIS RENT A CAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
Cash and cash equivalents ........................ $ 41,445 $ 44,899
Accounts receivable, net ......................... 211,861 359,463
Prepaid expenses ................................. 41,332 47,360
Vehicles, net .................................... 3,587,834 3,018,856
Property and equipment, net ...................... 132,386 122,860
Deferred income tax assets ....................... 126,474 142,025
Cost in excess of net assets acquired, net ....... 476,955 396,040
Other assets ..................................... 191,410 147,453
----------- -----------
Total assets ................................... $ 4,809,697 $ 4,278,956
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ................................ $ 266,482 $ 329,706
Accrued liabilities .............................. 313,051 328,411
Due to affiliates, net ........................... 16,991 44,512
Current income tax liabilities ................... 5,029 9,749
Deferred income tax liabilities .................. 33,584 34,106
Public liability, property damage and
other insurance liabilities .................... 260,745 256,029
Debt ............................................. 3,278,619 2,826,422
----------- -----------
Total liabilities .............................. 4,174,501 3,828,935
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock ................................... 359 309
Additional paid-in capital ..................... 591,651 430,507
Retained earnings .............................. 58,052 28,294
Foreign currency translation adjustment ........ (14,866) (9,089)
----------- -----------
Total stockholders' equity ................... 635,196 450,021
----------- -----------
Total liabilities and stockholders' equity ... $ 4,809,697 $ 4,278,956
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
2
<PAGE>
AVIS RENT A CAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 29,758 $ 13,106
Adjustments to reconcile net income to cash provided
by operating activities .......................... 141,864 191,731
----------- -----------
Net cash provided by operating activities ...... 171,622 204,837
----------- -----------
Cash flows from investing activities:
Vehicle additions .................................. (1,919,655) (1,435,234)
Vehicle deletions .................................. 1,382,588 1,342,420
Additions to property and equipment ................ (21,088) (9,509)
Retirements of property and equipment .............. 2,554 2,075
Payments for purchase of licensees ................. (232,475) --
----------- -----------
Net cash used in investing activities ............ (788,076) (100,248)
----------- -----------
Cash flows from financing activities:
Changes in debt:
Proceeds ......................................... 1,233,774 188,507
Repayments ....................................... (777,708) (298,410)
----------- -----------
Net increase (decrease) in debt .................. 456,066 (109,903)
Payment for debt issuance costs .................... (3,832) --
Proceeds from public offering ...................... 161,194 --
----------- -----------
Net cash provided by (used in)
financing activities: .......................... 613,428 (109,903)
----------- -----------
Effect of exchange rate changes on cash .............. (428) (267)
----------- -----------
Net decrease in cash and cash equivalents ............ (3,454) (5,581)
Cash and cash equivalents at beginning of period ..... 44,899 29,718
----------- -----------
Cash and cash equivalents at end of period ........... $ 41,445 $ 24,137
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest ............................................. $ 98,390 $ 90,113
=========== ===========
Income taxes ......................................... $ 7,938 $ 6,187
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements includes
Avis Rent A Car, Inc. and it's subsidiaries (the "Company"). These unaudited
condensed consolidated financial statements reflect, in the opinion of
management, all material adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position, the results of
operations and cash flows for the periods presented. Operating results for
interim periods are not indicative of the results that can be expected for a
full year. These interim condensed 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 filed with the Securities and Exchange Commission. Certain amounts in the
prior period have been reclassified to conform to current period presentation.
Note 2 - Earnings Per Share
Basic earnings per share is computed by dividing net income for the three month
periods ended June 30, 1998 and 1997 by 35,925,000 and 30,925,000 weighted
average shares outstanding, respectively, and for the six month periods ended
June 30, 1998 and 1997 by 33,687,431 and 30,925,000 weighted average shares
outstanding, respectively. Diluted earnings per share is computed by dividing
net income for the three month periods ended June 30, 1998 and 1997 by
36,730,233 and 30,925,000 weighted average shares outstanding, respectively and
for the six month periods ended June 30, 1998 and 1997 by 34,680,670 and
30,925,000 weighted average shares outstanding, respectively. Shares used in
calculating diluted earnings per share, include the effects of the assumed
exercise of dilutive stock options.
Note 3 - Acquisitions
On August 20, 1997, the Company purchased The First Gray Line Corporation. The
following unaudited pro forma information presents the results of operations of
the Company as if the acquisition of The First Gray Line Corporation, the
repayment of debt with the net proceeds (after the purchase of The First Gray
Line Corporation) from the initial public offering (the "IPO") on September 24,
1997 and related adjustments had taken place on January 1, 1997. These unaudited
pro forma results are not necessarily an indication of the actual results of
operations that would have occurred had the acquisition of The First Gray Line
Corporation and the IPO actually occurred on January 1, 1997 (In thousands,
except share data).
<TABLE>
<CAPTION>
Pro forma Pro forma
Three months ended Six months ended
June 30, 1997 June 30, 1997
------------------ ----------------
<S> <C> <C>
Revenue ..................................... $ 539,102 $1,045,519
========= ==========
Income before provision for income taxes .... $ 27,370 $ 37,712
========= ==========
Net income .................................. $ 15,034 $ 20,715
========= ==========
Earnings per share:
Basic ....................................... $ .49 $ .67
========= ==========
Diluted ..................................... $ .49 $ .67
========= ==========
</TABLE>
On May 1, 1998, the Company acquired the assets of the car rental business of
Hayes Leasing Company, Inc., (the "Hayes transaction") 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,
on April 3, 1998 and May 12, 1998, the Company purchased the assets of the car
rental businesses of Amelco Leasing and of Hazqu Car Inc. and The Champ Car,
Inc. respectively, including the Avis System franchises for approximately $10
million in cash. Collectively, the Hayes Leasing Company, Inc., Amelco Leasing,
Hazqu Car Inc., and The Champ Car, Inc., acquisitions are referred to as the
"Acquisitions". If the
4
<PAGE>
Acquisitions had occurred on January 1, 1998 or January 1, 1997, 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 the Acquisitions was
approximately $83 million.
The preliminary purchase cost allocations for the Acquisitions are subject to
adjustment when additional information concerning asset and liability valuations
are obtained. The final asset and liability fair values may differ from those
set forth in the accompanying statement of financial position at June 30, 1998.
However, the changes are not expected to have a material effect on the financial
position of the Company. The Acquisitions have been accounted for by the
purchase method. The financial statements include the operating results of these
acquisitions subsequent to their respective dates of acquisition.
Note 4 - Comprehensive Income
Comprehensive income is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income ............................ $ 22,350 $ 8,901 $ 29,758 $ 13,106
Foreign currency translation adjustment (6,413) (1,913) (5,777) (2,560)
-------- -------- -------- --------
Comprehensive income .................. $ 15,937 $ 6,988 $ 23,981 $ 10,546
======== ======== ======== ========
</TABLE>
Note 5 - Stock Options
On May 21, 1998 at the Annual Meeting of Stockholders, the shareholders approved
an amendment to the Company's 1997 Stock Option Plan (the "Plan") increasing the
maximum number of shares authorized for issuance under the Plan to 6,000,000. On
June 4, 1998, 843,000 options were granted at fair market value of the Company's
common stock on that date. At June 30, 1998, approximately 4,568,000 options are
outstanding under the Plan.
5
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
General Overview
The Company conducts vehicle rental operations through wholly-owned subsidiaries
in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina,
Australia and New Zealand. Revenue is derived principally from time and mileage
charges for vehicle rentals and, to a lesser extent, the sale of loss damage
waivers, liability insurance and other products and services.
On October 17, 1996, Cendant Corporation, Inc. ("Cendant"), formerly HFS
Incorporated, acquired the Company and its subsidiaries (the "Acquisition"). The
Acquisition was accounted for as a purchase. After the common stock issuance on
March 23, 1998 mentioned below, Cendant owned 7,500,000 shares (approximately
21%) of the Company's common stock at June 30, 1998.
On September 24, 1997, the Company issued and sold 22,425,000 shares of its
common stock in an IPO and received net proceeds of $359.3 million. The net
proceeds were used to repay amounts outstanding under the acquisition credit
facility utilized to complete the acquisition of The First Gray Line
Corporation, pay certain acquisition expenses incurred to complete The First
Gray Line acquisition and to prepay outstanding indebtedness.
Management believes that a more meaningful comparison of the results of
operations for the three and six month periods ended June 30, 1998 and 1997 is
obtained by presenting the results for the three and six months ended June 30,
1997 on a pro forma basis to give effect to the following transactions as if
they had occurred on January 1, 1997: the acquisition of The First Gray Line
Corporation; and the repayment of debt with the net proceeds (after the purchase
of The First Gray Line Corporation) from the IPO and related adjustments.
On March 23, 1998, the Company sold 5,000,000 shares of its common stock through
a public offering and received proceeds of approximately $162 million. The
Company utilized the proceeds of the common stock issuance to finance the Hayes
transaction and for working capital and general corporate purposes, including
the repayment of certain indebtedness.
6
<PAGE>
Three Months Ended June 30, 1998 Compared to Pro Forma Three Months Ended June
30, 1997
The following table sets forth for the periods indicated, certain items in the
Company's condensed consolidated statement of operations (dollars in thousands):
<TABLE>
<CAPTION>
Actual Pro forma
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
---------------------- ----------------------
Percentage Percentage
of Revenue of Revenue
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Revenue ............................ $575,280 100.0% $539,102 100.0%
-------- ----- -------- -----
Costs and expenses:
Direct operating ................. 229,612 39.9 222,053 41.2
Vehicle depreciation and
lease charges, net ............. 144,032 25.0 132,854 24.6
Selling, general and
administrative ................. 109,607 19.1 107,207 19.9
Interest, net .................... 49,150 8.6 46,937 8.7
Amortization of cost in
acquired ....................... 2,969 0.5 2,681 0.5
-------- ----- -------- -----
535,370 93.1 511,732 94.9
-------- ----- -------- -----
Income before provision for
income taxes .................... 39,910 6.9 27,370 5.1
Provision for income taxes ......... 17,560 3.0 12,336 2.3
======== ===== ======== =====
Net income ......................... $ 22,350 3.9% $ 15,034 2.8%
======== ===== ======== =====
</TABLE>
Revenue
Revenue increased 6.7%, from $539.1 million to $575.3 million, compared to the
same period in 1997. The revenue increase reflected a 6.6% increase in the
number of rental transactions and a 0.1% increase in revenue per rental
transaction. The revenue increase resulted from greater overall market demand.
Costs and Expenses
Total costs and expenses increased 4.6%, from $511.7 million to $535.4 million,
compared to the same period in 1997. Direct operating expenses increased 3.4%,
from $222.1 million to $229.6 million, compared to the same period in 1997. As a
percentage of revenue, direct operating expenses declined to 39.9%, from 41.2 %
for the corresponding period in 1997. Operating efficiencies were derived
primarily from lower vehicle insurance costs (0.4% of revenue), lower airport
commissions (1.4% of revenue), and lower computer services costs (0.5% of
revenue). These were partially offset by higher vehicle damage costs (0.5% of
revenue) and higher compensation costs (0.6% of revenue).
Vehicle depreciation and lease charges increased 8.4%, from $132.9 million to
$144.0 million, compared to the same period in 1997. As a percentage of revenue,
vehicle depreciation and lease charges were 25.0% of revenue, as compared to
24.6% of revenue for the corresponding period in 1997. The change reflected a
4.4% increase in the average rental fleet combined with a higher monthly cost
per vehicle. In addition, the net proceeds received in excess of book value from
the disposition of used vehicles was $1.7 million lower (0.3% of revenue) in the
1998 second quarter compared to the same period in 1997. This was primarily due
to favorable market conditions for the sale of certain model vehicles during
1997.
Selling, general and administrative expenses increased 2.2%, from $107.2 million
to $109.6 million, compared to the same period in 1997. The increase was due to
higher reservation costs and higher royalty fees.
7
<PAGE>
Interest expense increased 4.7%, from $46.9 million to $49.2 million, compared
to the same period in 1997, due to higher borrowings required to finance the
growth of the rental fleet.
The provision for income taxes for the three months ended June 30, 1998
increased 42.3%, from $12.3 million to $17.6 million, compared to the same
period in 1997. The effective income tax rate was 44.0%, down from 45.1% for the
corresponding period in 1997. The effective tax rate reflects differences
between foreign income tax rates and the U.S. federal statutory income tax rate,
taxes on the repatriation of foreign earnings, and foreign withholding taxes on
dividends paid to the Company.
Net income increased 48.7%, from $15.0 million to $22.4 million, compared to the
same period in 1997. The increase reflects higher revenue, decreased costs and
expenses as a percentage of revenue and a lower effective income tax rate.
Six Months Ended June 30, 1998 Compared to Pro Forma Six Months Ended June 30,
1997
The following table sets forth for the periods indicated, certain items in the
Company's condensed consolidated statement of operations (dollars in thousands):
<TABLE>
<CAPTION>
Actual Pro forma
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
----------------------- ----------------------
Percentage Percentage
of Revenue of Revenue
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue ............................ $1,086,670 100.0% $1,045,519 100.0%
---------- ----- ---------- -----
Costs and expenses:
Direct operating ................. 439,427 40.4 442,552 42.3
Vehicle depreciation and
lease charges, net ............. 277,394 25.6 260,894 25.0
Selling, general and
administrative ................. 214,371 19.7 207,695 19.9
Interest, net .................... 96,818 8.9 91,921 8.8
Amortization of cost in
excess of net assets acquired .. 5,521 0.5 4,745 0.4
---------- ----- ---------- -----
1,033,531 95.1 1,007,807 96.4
---------- ----- ---------- -----
Income before provision for
income taxes .................... 53,139 4.9 37,712 3.6
Provision for income taxes ......... 23,381 2.2 16,997 1.6
========== ===== ========== =====
Net income ......................... $ 29,758 2.7% $ 20,715 2.0%
========== ===== ========== =====
</TABLE>
Revenue
Revenue increased 3.9%, from $1,045.5 million to $1,086.7 million, compared to
the same period in 1997. The revenue increase reflected a 3.8% increase in the
number of rental transactions and a 0.1% increase in revenue per rental
transaction. The revenue increase resulted from greater overall market demand.
8
<PAGE>
Costs and Expenses
Total costs and expenses increased 2.6%, from $1,007.8 million to $1,033.5
million, compared to the same period in 1997. Direct operating expenses
decreased 0.7%, from $442.6 million to $439.4 million, compared to the same
period in 1997. As a percentage of revenue, direct operating expenses declined
to 40.4%, from 42.3% for the corresponding period in 1997. Operating
efficiencies were derived primarily from lower vehicle insurance costs (0.5% of
revenue), lower airport commissions (1.3% of revenue), and lower computer
services costs (0.4% of revenue); and were partially offset by higher
compensation costs (0.5% of revenue).
Vehicle depreciation and lease charges increased 6.3%, from $260.9 million to
$277.4 million, compared to the same period in 1997. As a percentage of revenue,
vehicle depreciation and lease charges were 25.6% of revenue, as compared to
25.0% of revenue for the corresponding period in 1997. The change reflected a
2.3% increase in the average rental fleet combined with a higher monthly cost
per vehicle. In addition, the net proceeds received in excess of book value from
the disposition of used vehicles was $4.9 million lower (0.5% of revenue) in the
first six months of 1998 compared to the same period in 1997. This was primarily
due to favorable market conditions for the sale of certain model vehicles during
1997.
Selling, general and administrative expenses increased 3.2%, from $207.7 million
to $214.4 million, compared to the same period in 1997. The increase was due to
higher reservation costs and higher general and administrative expenses.
Interest expense increased 5.3%, from $91.9 million to $96.8 million, compared
to the same period in 1997, due to higher borrowings required to finance the
growth of the rental fleet.
The provision for income taxes for the six months ended June 30, 1998 increased
to $23.4 million, from $17.0 million for the same period in 1997. The effective
income tax rate was 44.0%, down from 45.1% for the corresponding period in 1997.
The effective tax rate reflects differences between foreign income tax rates and
the U.S. federal statutory income tax rate, taxes on the repatriation of foreign
earnings, and foreign withholding taxes on dividends paid to the Company.
Net income increased 43.7%, from $20.7 million to $29.8 million, compared to the
same period in 1997. The increase reflects higher revenue, decreased costs and
expenses as a percentage of revenue and a lower effective income tax rate.
Liquidity and Capital Resources
The Company's operations are funded by cash provided by operating activities and
by financing arrangements maintained by the Company in the markets in which it
operates. The Company's primary use of funds is for the acquisition of new
vehicles. For the three and six months ended June 30, 1998, the Company's
expenditures for new vehicles were approximately $1.35 billion and $2.1 billion,
respectively, and proceeds from the disposition of used vehicles were
approximately $700 million and $1.4 billion, respectively. In 1998 the Company
expects its expenditures for new vehicles (net of proceeds from the disposition
of used vehicles) to be higher than in 1997. The financing requirements for
vehicles typically reaches an annual peak in the third calendar quarter, as
fleet levels build up in response to increased rental demand during that period.
The typical low point for cash requirements occurs during the end of the fourth
quarter and the beginning of the first quarter, coinciding with lower levels of
fleet and rental demand. The Company has established methods for disposition of
its used vehicles.
The Company also makes capital investments for property improvements and
non-revenue earning equipment. Capital investments for property improvements and
non-revenue earning equipment were $12.1 million and $21.1 million for the three
months and six months ended June 30, 1998, respectively, compared to $4.7
million and $9.5 million for the same periods in 1997. The Company's customer
receivables also provide liquidity with approximately 11 days of daily sales
outstanding.
The Company's fleet financing program provides for borrowings up to $ 3.75
billion, comprised of $2.25 billion of asset-backed medium term notes (the
"Medium Term Notes") and the issuance of up to $1.5 billion of asset-backed
variable
9
<PAGE>
funding notes (the "Commercial Paper Notes"). The Medium Term Notes and the
Commercial Paper Notes are backed by, among other things, a first priority
security interest in the vehicles.
Avis Rent A Car System, Inc. ("ARACS"), a wholly-owned subsidiary of the
Company, is party to a $350 million secured credit agreement that provides for
(i) a revolving credit facility which is available until December 31, 2001 to
finance the general corporate needs of ARACS and (ii) a standby letter of credit
facility available on a revolving basis until April 20, 1999 to fund (a) any
shortfall in certain payments owing 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 June 30, 1998, the Company had approximately $1.05
billion of additional credit available.
The Company expects that cash flows from operations and funds from available
credit facilities will be sufficient to enable the Company to meet its
anticipated operating cash requirements for the next twelve months. On a
long-term basis, the Company expects to fund maturities of the Medium Term Notes
by the issuance of similar medium term notes on terms to be determined based on
market conditions at the time the Medium Term Notes mature.
Borrowings for the Company's international operations consist mainly of loans
obtained from local and international banks. All borrowings for international
operations are in the local currencies of the countries in which those
operations are conducted. At June 30, 1998, the total debt for the Company's
international operations was $145.3 million, all of which was due in less than
12 months. At June 30, 1998, the impact on the Company's liquidity and financial
condition due to exchange rate fluctuations of its foreign operations is not
material.
Seasonality
Car rental is a seasonal business, with decreased travel in winter months and
heightened activity in spring and summer. To accommodate increased demand, the
Company increases its available fleet during the second and third quarters.
Certain of the Company's operating expenses are fixed and cannot be reduced
during periods of decreased rental demand. In certain geographic markets, the
impact of seasonality has been reduced by emphasizing leisure or business travel
in the off-peak season.
Recent Accounting Standards
Recent pronouncements of the Financial Accounting Standards Board which are not
required to be adopted at this date, include Statement of Financial Accounting
Standards ("SFAS") No. 132 - "Employer's Disclosures about Pensions and Other
Post Retirement Benefits," ("SFAS 132") and 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, 1998 and for the year ending December 31, 2000, respectively. SFAS 132
revises employers' disclosures about pension and other post retirement benefit
plans and does not change the measurement or recognition of pension or other
post retirement benefit plans. This Statement standardizes the disclosure
requirements for pension and other post retirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures. 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 an entity recognize all derivatives as either assets or liabilities in the
statement of financial position at fair value.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued a Statement of Position ("SOP") No. 98-5,
"Accounting for Start-Up Costs". The SOP requires that all start-up costs should
be expensed as incurred, unless the costs incurred were to acquire or develop
tangible assets or to acquire intangible assets from a third party. The SOP is
effective for fiscal years beginning after December 15, 1998.
The adoption of SFAS 132, SFAS 133 and the SOP will not have a material effect
on the Company's consolidated financial statements.
10
<PAGE>
Year 2000
The Company has evaluated the effect on its information systems, primarily
computer software programs, to properly recognize and process date-sensitive
information related to the Year 2000. An assessment indicates that ensuring the
Company is Year 2000 compliant will involve a mix of purchasing new systems,
modifying existing systems and confirming vendor compliance. The Company
currently anticipates that incremental capital expenditures associated with the
Year 2000 will not have a material impact on the Company's operations. The
Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 issue. There can be no guarantee that the systems of other
companies on which the Company's systems rely will be converted timely and would
not have an adverse effect on the Company's systems.
The Company is utilizing both internal and external resources to reprogram or
replace, and test the software for Year 2000 modifications. The Company
currently believes that its information systems will be Year 2000 compliant by
the end of the first quarter in 1999.
Forward Looking Information
Certain matters discussed in this report that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve risks and uncertainties including the impact of competitive
products and pricing, changing market conditions, and other risks which were
detailed from time to time in the Company's publicly-filed documents, including
its Annual Report on Form 10-K for the period ended December 31, 1997. Actual
results may differ materially from those projected. These forward-looking
statements represent the Company's judgement as of the date of this report.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1998 annual meeting of shareholders was held on May 21, 1998.
(b) The meeting involved election of directors (See (c) below for voting
results).
(c) Three proposals were voted upon and approved. The results of the voting
are as follows:
1. With respect to Proposal No. 1 for the election of nominees to
the Board of Directors of the Company, the following persons
received the number of votes set opposite their respective names:
Directors Number of Votes Votes Withheld
--------- --------------- --------------
R. Craig Hoenshell 32,872,743 21,622
F. Robert Salerno 32,872,743 21,622
Stephen P. Holmes 32,872,743 21,622
Michael P. Monaco 32,872,743 21,622
W. Alun Cathcart 32,872,643 21,722
Leonard S. Coleman 32,872,643 21,722
Martin L. Edelman 32,872,643 21,722
Deborah L. Harmon 32,872,643 21,722
Michael P. Kennedy 32,872,643 21,722
Michael L. Tarnopol 32,872,643 21,722
2. With respect to Proposal No. 2 to approve and adopt an
amendment to the Corporation's 1997 Stock Option Plan increasing the
maximum number of shares authorized for issuance under the Plan to
6,000,000:
FOR AGAINST ABSTAINED
--- ------- ---------
29,798,275 3,082,444 13,646
3. With respect to Proposal No. 3 for the appointment of Deloitte
& Touche LLP as independent auditors:
FOR AGAINST ABSTAINED
--- ------- ---------
32,867,341 15,273 11,751
12
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Avis Rent A Car, Inc.
---------------------
(Registrant)
Dated: August 11, 1998 By: /s/ Kevin M. Sheehan
-----------------------------------
Executive Vice President and
Chief Financial Officer
(principal financial officer)
Dated: August 11, 1998 By: /s/ Timothy M. Shanley
-----------------------------------
Vice President and Controller
(principal accounting officer)
13
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
filed with
Form 10 - Q
for the quarter ended
June 30, 1998
under
THE SECURITIES EXCHANGE ACT OF 1934
AVIS RENT A CAR, INC.
Commission file number 1-13315
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------- ----------- --------
27 Financial Data Schedule for 15
the Six months ended June 30, 1998
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Registrant's
Unaudited Condensed Consolidated Statement of Operations and Unaudited Condensed
Consolidated Statement of Financial Position for the six months ended June 30,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 41,445
<SECURITIES> 0
<RECEIVABLES> 212,602
<ALLOWANCES> (741)
<INVENTORY> 3,587,834
<CURRENT-ASSETS> 0
<PP&E> 149,258
<DEPRECIATION> (16,872)
<TOTAL-ASSETS> 4,809,697
<CURRENT-LIABILITIES> 0
<BONDS> 3,278,619
0
0
<COMMON> 359
<OTHER-SE> 634,837
<TOTAL-LIABILITY-AND-EQUITY> 4,809,697
<SALES> 1,086,670
<TOTAL-REVENUES> 1,086,670
<CGS> 0
<TOTAL-COSTS> 929,668
<OTHER-EXPENSES> 5,521
<LOSS-PROVISION> 1,524
<INTEREST-EXPENSE> 96,818
<INCOME-PRETAX> 53,139
<INCOME-TAX> 23,381
<INCOME-CONTINUING> 29,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,758
<EPS-PRIMARY> .88
<EPS-DILUTED> .86
</TABLE>
