SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 1999
[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 15, 1999: Common Stock, $.01 par value - Class A
31,129,152 shares.
<PAGE>
AVIS RENT A CAR, INC.
INDEX
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the Three
months and Six months ended June 30, 1999 and 1998
Condensed Consolidated Statements of Financial
Position as of June 30, 1999
and December 31, 1998
Condensed Consolidated Statements of Cash Flows for the Six
months ended June 30, 1999 and 1998
Notes to the Condensed Consolidated
Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 3. QUANTATIVE AND QUALITATIVE FINANCIAL DISCLOSURES
ABOUT MARKET RISKS
PART II. Other Information
ITEM 6(a). EXHIBITS
ITEM 6(b). REPORT ON FORM 8-K
<PAGE>
AVIS RENT A CAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
-------- -------- ----------- ----------
Revenue......................................... $637,457 $575,280 $ 1,204,374 $1,086,670
-------- -------- ----------- ----------
Costs and Expenses:
Direct operating, net........................... 250,773 230,253 476,938 440,684
Vehicle depreciation and lease charges, net..... 161,765 144,032 311,167 277,394
Selling, general and administrative............. 120,381 108,966 231,182 213,114
Interest, net................................... 53,817 49,150 104,362 96,818
Amortization of cost in excess of
net assets acquired ......................... 3,177 2,969 6,351 5,521
--------- -------- ----------- ----------
589,913 535,370 1,130,000 1,033,531
--------- -------- ----------- ----------
Income before provision for income taxes ....... 47,544 39,910 74,374 53,139
Provision for income taxes...................... 20,262 17,560 31,906 23,381
--------- -------- ----------- -----------
Net income...................................... $ 27,282 $ 22,350 $ 42,468 $ 29,758
========= ======== =========== ==========
Earnings per share:
Basic........................................... $ 0.87 $ 0.62 $ 1.35 $ 0.88
========= ======== =========== ==========
Diluted ........................................ $ 0.85 $ 0.61 $ 1.31 $ 0.86
========= ======== =========== ==========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
AVIS RENT A CAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents................................ $ 280,370 $ 29,751
Restricted cash.......................................... 189,680 133,284
Accounts receivable, net................................. 910,311 360,574
Finance lease receivables................................ 340,868
Prepaid expenses......................................... 62,212 42,083
Vehicles, net ........................................... 7,663,270 3,164,816
Property and equipment, net.............................. 257,114 145,045
Deferred income tax assets............................... 120,779
Cost in excess of net assets acquired, net............... 1,796,203 468,140
Other assets ............................................ 88,599 40,590
------------- ------------
Total assets.......................................... $ 11,588,627 $ 4,505,062
============= ============
LIABILITIES, PREFERRED STOCK AND
COMMON STOCKHOLDERS' EQUITY
Accounts payable........................................ $ 624,278 $ 198,481
Accrued liabilities ..................................... 352,744 326,204
Deferred income.......................................... 65,375
Due to affiliates, net................................... 79,677 22,293
Current income tax liabilities........................... 50,400 23,045
Deferred income tax liabilities ......................... 142,580 28,504
Public liability, property damage and
other insurance liabilities, net ..................... 279,324 269,209
Debt .................................................... 9,017,106 3,014,712
------------- ------------
Total liabilities ................................... 10,611,484 3,882,448
------------- ------------
Commitments and contingencies
Class A Preferred stock ................................. 360,000
Class C Preferred stock.................................. 2,000
-------------
Total Preferred stock................................. 362,000
-------------
Common stockholders' equity:
Class A Common stock .................................... 359 359
Additional paid-in capital .............................. 591,959 591,651
Retained earnings........................................ 134,683 92,215
Accumulated other comprehensive loss .................... (7,971) (10,651)
Treasury stock .......................................... (103,887) (50,960)
------------- ------------
Total common stockholders' equity..................... 615,143 622,614
------------- ------------
Total liabilities, preferred stock and common
stockholders' equity ................................. $ 11,588,627 $ 4,505,062
============= ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
AVIS RENT A CAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 42,468 $ 29,758
Adjustments to reconcile net income to net cash
provided by operating activities................. 256,701 128,901
------------- ------------
Net cash provided by operating activities........... 299,169 158,659
------------- ------------
Cash flows from investing activities:
Payments for vehicle additions ....................... (2,494,247) (1,919,655)
Vehicle deletions .................................... 1,519,474 1,382,588
Payments for property and equipment................... (17,953) (21,088)
Retirements of property and equipment ................ 1,073 2,554
Payments for purchase of rental car franchise licensees,
net of cash acquired of $11,065 in 1999............ (42,503) (232,475)
Payment for purchase of PHH Holdings, net of
cash acquired of $170,568.......................... (1,330,932)
------------- ------------
Net cash used in investing activities ................ (2,365,088) (788,076)
------------- ------------
Cash flows from financing activities:
Changes in debt:
Proceeds ......................................... 5,882,621 1,233,774
Repayments ....................................... (3,510,624) (777,708)
------------- ------------
Net increase in debt ............................. 2,371,997 456,066
Payments for debt issuance costs ................... (1,635) (3,832)
Proceeds from public offering ....................... 161,194
Purchases of treasury stock........................... (57,237)
Other................................................. 3,326
------------- ------------
Net cash provided by financing activities............. 2,316,451 613,428
------------- ------------
Effect of exchange rate changes on cash ................. 87 (428)
------------- ------------
Net increase (decrease) in cash and cash equivalents..... 250,619 (16,417)
Cash and cash equivalents at beginning of period ........ 29,751 44,899
------------- ------------
Cash and cash equivalents at end of period .............. $ 280,370 $ 28,482
============= =============
Supplemental disclosure of cash flow information:
Cash interest paid....................................... $ 107,466 $ 98,390
============= =============
Cash income taxes paid .................................. $ 5,329 $ 7,938
============= =============
Businesses acquired:
Fair value of assets acquired, net of cash of $181,633... $ 6,218,950 $ 232,765
Liabilities assumed...................................... 4,483,515 290
------------- -------------
Net assets acquired...................................... 1,735,435 $ 232,475
Less issuance of Series A and Series C Preferred
Stocks............................................... (362,000)
------------- ------------
Net cash paid for acquisitions........................... $ 1,373,435 $ 232,475
============= ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<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 include
Avis Rent A Car, Inc. and its subsidiaries (the "Company" or "Avis Rent A Car").
These consolidated financial statements reflect, in the opinion of management,
all material adjustments (which include normal recurring adjustments only)
necessary to fairly state the financial position, the results of operations and
cash flows for the periods presented. The condensed consolidated statements of
financial position include all of the assets and liabilities of the Company
including the Company's recently acquired vehicle management business in the
United States and Canada ("PHH North America"), and in Europe ("PHH Europe"),
and of Wright Express LLC (collectively "VMS") and Motorent, Inc. These
condensed consolidated statements of operations do not include the results of
operations of VMS and of Motorent, Inc., which were purchased on June 30, 1999
(see Note 4). Operating results for interim periods are not indicative of the
results that can be expected for a full year. These consolidated financial
statements should be read in conjunction with the Company's audited annual
consolidated financial statements and notes thereto, included in the Company's
annual report on Form 10-K and Forms 8-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, 1999 and 1998 by 31,188,977 and 35,925,000 weighted
average shares outstanding, respectively, and for the six months ended June 30,
1999 and 1998 by 31,529,114 and 33,687,431 weighted average shares outstanding,
respectively. Diluted earnings per share is computed by dividing net income for
the three month periods ended June 30, 1999 and 1998 by 32,237,810 and
36,730,233 weighted average shares outstanding, respectively, and for the six
months ended June 30, 1999 and 1998 by 32,380,499 and 34,680,670 weighted
average shares outstanding, respectively. Shares used in calculating diluted
earnings per share include the effects of the assumed exercise of stock options.
Note 3 - Treasury Stock
- -----------------------
At June 30, 1999 treasury stock is comprised of the following:
<TABLE>
<CAPTION>
Treasury
Stock, net Treasury
(in thousands) Shares
<S> <C> <C>
Balance, December 31, 1998....................... $ 50,960 2,672,700
Treasury stock repurchased from
January 1, to June 30, 1999................. 57,037 2,318,775
Treasury stock issued under the
Company's stock option plan................. (4,110) (195,627)
------------ ------------
$ 103,887 4,795,848
============ ============
</TABLE>
Included in treasury stock repurchased from January 1, 1999 to June 30, 1999 are
1.6 million shares repurchased from Cendant Corporation ("Cendant") at a cost of
$40.8 million.
Note 4 - Acquisitions
- ---------------------
On March 19, 1999, and June 30, 1999, the Company purchased the common stock and
franchise rights of Rent A Car Company, Incorporated, of Richmond Virginia
("Rent-A-Car, Inc.") and Motorent, Inc. of Nashville Tennessee ("Motorent") for
approximately $10.1 million and $43.7 million, respectively. These acquisitions
were financed through internally generated funds.
On June 30, 1999, the Company completed the transaction contemplated by the
agreement and plan of merger and reorganization dated as of May 22, 1999 (the
"Merger "), with PHH Corporation, a Maryland corporation and wholly-owned
subsidiary of Cendant, PHH Holdings Corporation ("PHH Holdings"), a Texas
corporation and wholly-owned subsidiary of PHH Corporation, and Avis Fleet
Leasing and Management Corporation, a Texas corporation and a wholly-owned
subsidiary of the Company (the "Acquisition Subsidiary").
Pursuant to the merger agreement, the Acquisition Subsidiary and PHH Holdings
merged on June 30, 1999 and the Acquisition Subsidiary acquired VMS for $1.8
billion and refinanced VMS indebtedness of approximately $3.5 billion (the "VMS
Acquisition"). The acquisition financing included borrowings by the Company of
$1.0 billion of term loans, the issuance by the Company of $0.5 billion of
senior subordinated notes, and the issuance by the acquisition subsidiary of
$362 million of preferred stock (see Note 5).
In connection with the VMS Acquisition, the Company received a perpetual,
royalty-free license to use a number of VMS trademarks, including the "PHH" name
and logo. PHH Corporation and PHH Holdings entered into a 5-year non-compete
agreement with Avis Rent A Car, Inc. and the Acquisition Subsidiary. The
Acquisition Subsidiary also received a limited license to use the Cendant name
in Europe and the United States for a period of up to one year. In addition, the
parties have entered into agreements under which Cendant agreed to provide the
Company with computer services and with transitional services with respect to
various administrative services, including payroll and benefits, which had
previously been provided to VMS by Cendant. In addition, the Acquisition
Subsidiary has entered into an agreement under which it will provide Cendant
with certain transitional administrative services which had previously been
provided by VMS.
The preliminary purchase cost allocation for the Company's acquisitions of
Rent-A-Car Inc., Motorent and VMS, are subject to adjustment, when additional
information concerning asset and liability valuations are obtained. The final
asset and liability fair values will differ from those set forth in the
accompanying statement of financial position at June 30, 1999. However, the
changes are not expected to have a material effect on the financial position of
the Company. The above mentioned acquisitions have been accounted for by the
purchase method. The financial statements include the operating results of
acquisitions subsequent to their dates of acquisition.
The following is the preliminary purchase cost allocation of the acquisitions
described above (in thousands):
Purchase cost....................................... $ 1,853,767
------------
Fair value of:
Assets acquired................................ 4,986,842
Liabilities assumed............................ 4,483,315
------------
Net assets.......................................... 503,527
------------
Cost in excess of net assets acquired............... $ 1,350,240
============
The following unaudited pro forma information presents the results of operations
of the Company as if the acquisition of VMS for $1.8 billion (including the
issuance of Series A and Series C Preferred) and the refinancing of VMS
indebtedness and related adjustments had taken place on January 1, 1998 (in
thousands, except share data):
<TABLE>
<CAPTION>
Three months Three months Six months Six months
Ended ended ended ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue......................................... $ 1,045,299 $ 978,364 $2,012,469 $ 1,880,744
============ ========= =========== ===========
Income before provision for income taxes........ $ 38,577 $ 39,660 $ 53,433 $ 51,752
============ ========== =========== ===========
Net income...................................... $ 19,930 $ 20,806 $ 25,927 $ 26,640
============ ========== =========== ===========
Earnings applicable to common stockholders...... $ 15,375 $ 16,251 $ 16,817 $ 17,530
============ ========== =========== ===========
Earnings per share:
Basic........................................... $ .49 $ .45 $ .53 $ .52
============ ========== ============= ===========
Diluted......................................... $ .48 $ .44 $ .52 $ .51
============ ========== ============= ===========
</TABLE>
If the acquisition of Rent-A-Car, Inc. and Motorent had occurred on January 1,
1998, they would not have had a material impact on the results of operations for
the three and six month periods ended June 30, 1999 and 1998.
<PAGE>
Note 5 - Series A, B and C Preferred Stock
- ------------------------------------------
Series A Preferred Stock
In connection with the VMS Acquisition, a total of 7,200,000 shares of Series A
Preferred have been issued and were outstanding at June 30, 1999. Holders of
Series A Preferred Stock are not entitled to preemptive rights. The Series A
Preferred Stock has an aggregate liquidation preference of $360 million or $50
per share (the "Series A Liquidation Preference"). Each share of Series A
Preferred accrues dividends at a rate per annum of 5% of the Series A
Liquidation Preference, payable in cash semi-annually in arrears. Dividends are
payable in shares of Series B Cumulative PIK Preferred Stock (see Series B
Preferred Stock below). In addition, if the Company is unable to obtain the
consent of its Shareholders to amend its charter by June 30, 2000 to Issue Class
B Common Stock (see Note 6) and Class A Common Stock issuable in exchange for
the Class B Common Stock, the dividend rate on the Series A Preferred will
increase to 12%, with retroactive effect to the date of issuance. Until the
fifth anniversary of the issuance of the Series A Preferred, these dividends may
be paid in Series B Preferred Stock at the discretion of the Company. The Series
A Preferred is also entitled to special annual dividends at a rate of 2% of the
Series A Liquidation Preference per annum, payable in cash annually on March
15th, in the event that the Acquisition Subsidiary achieves targeted
consolidated Earnings Before Income Taxes, Depreciation and Amortization
("EBITDA") levels. Upon liquidation, and after payment of all amounts owed to
all classes of capital stock ranked senior to the Series A Preferred, holders of
shares of Series A Preferred will receive the Series A Liquidation Preference of
such shares plus accrued and unpaid dividends. The Series A Preferred may be
redeemed by the Acquisition Subsidiary, in whole or in part, on or after the
fifth anniversary of the date of issuance, and must be redeemed in whole upon
the eleventh anniversary of the date of issuance for an amount per share equal
to the Series A Liquidation Preference plus accrued and unpaid dividends. In
addition, holders of the Series A Preferred may cause the Acquisition Subsidiary
to redeem their shares for cash, upon the bankruptcy or insolvency of the
Company or a change in control with respect to Avis Rent A Car, Inc. or Avis
Rent A Car System, Inc.
The holders of the Series A Preferred may convert shares of Series A Preferred
into shares of Class B Common Stock once specified levels of 12-month
consolidated EBITDA of the Acquisition Subsidiary have been reached and the
average closing price of Class A Common Stock for a specified period shall have
exceeded a performance conversion price. Such conversion shall be at a rate (the
"Performance Conversion Rate") obtained by dividing the per share Series A
Liquidation Preference by $50 (as adjusted for antidilution protection, the
"Performance Conversion Price").
On or after the fifth anniversary of the closing date of the VMS Acquisition, if
the share price of the Class A Common Stock has exceeded an amount equal to 110%
of the Performance Conversion Price for 20 trading days within a period of 30
consecutive trading days ending within five trading days of notice of conversion
given by the Acquisition Subsidiary, then the Series A Preferred will be
converted into Class B Common Stock at the Performance Conversion Rate. Upon the
bankruptcy or insolvency of the Acquisition Subsidiary or any of its
subsidiaries that constitute a Significant Subsidiary of Avis Rent A Car, Inc.,
as defined in Rule 1-02(w) of Regulation S-X (a "Significant Subsidiary"), the
Series A Preferred automatically converts into Class B Common Stock at a rate
equal to the quotient obtained by dividing: (1) the per share Series A
Liquidation Preference by (2) the average trading price per share of Class A
Common Stock for the 30 trading days immediately preceding the date of the
holder's conversion notice or the date on which the bankruptcy case commences,
as applicable (the "Series A Market Conversion Rate"). The Series A Market
Conversion Rate is subject to adjustment for antidilution protection.
Additionally, holders of Series A Preferred may convert their Series A Preferred
into Class B Common Stock at the Series A Market Conversion Rate if the
Acquisition Subsidiary: (1) fails to make a redemption payment on the Series A
Preferred or the Series B Preferred, (2) fails to pay dividends when due on
either the Series A Preferred or the Series B Preferred, (3) takes actions
requiring consents of its holders of the Series A Preferred or the Series B
Preferred without obtaining such consents or (4) issues additional shares of the
Series A Preferred or Series B Preferred, or reissues shares of either, in
violation of their terms.
Without the affirmative vote of the holders of a majority of the outstanding
shares of Series A Preferred, the Acquisition Subsidiary shall not (1)
authorize, create or issue any security ranking senior to the Series A Preferred
as to dividends or on liquidation (other than the Series C Preferred); (2) amend
its articles of incorporation or the certificate of designations for the Series
A Preferred in a manner adverse to the holders of the Series A Preferred; (3)
authorize the issuance of additional shares of Series A Preferred; or (4)
reincorporate the Acquisition Subsidiary in a jurisdiction other than Texas
prior to the second anniversary of the date of issuance of the Series A
Preferred. Holders of Series A Preferred are not entitled to voting rights,
except as required by Texas law. In those circumstances where the holders of
Series A Preferred have a right to vote, each holder of a share of Series A
Preferred shall be entitled to one vote per share.
Shares of Series A Preferred are freely transferable. Shares of Series A
Preferred reacquired in any manner will be retired and may not be reissued as
shares of Series A Preferred.
Series B Preferred Stock
Series B Cumulative PIK Preferred Stock (the "Series B Preferred") will be
issued as dividends to the Series A Preferred holders by the Acquisition
Subsidiary. No shares of Series B Preferred were outstanding as of June 30,
1999. Holders of the Series B Preferred are not entitled to preemptive rights.
The Series B Preferred has a liquidation preference of $50 per share (the
"Series B Liquidation Preference"). Each share of Series B Preferred acrue
dividends at a rate per annum of 5% of the Series B Liquidation Preference,
payable in cash semi-annually in arrears. In addition, if the Company is unable
to obtain the consent of its shareholders to amend its charter by June 30, 2000
to issue Class B Common Stock and Class A Common Stock issuable in exchange for
the Class B Common Stock, the dividend rate on the Series B Preferred will
increase to 12%, with retroactive effect to the date of issuance. Until the
fifth anniversary of the date of issuance of the Series B Preferred, dividends
may, at the discretion of the Acquisition Subsidiary be paid in kind;
thereafter, dividends must be paid in cash. Upon liquidation, and after payment
of all amounts owed to all classes of capital stock ranked senior to the Series
B Preferred, holders of shares of Series B Preferred will receive the Series B
Liquidation Preference of such shares plus accrued and unpaid dividends.
The Series B Preferred has the same ranking as the Series A Preferred. The
Series B Preferred may be redeemed by the Acquisition Subsidiary, in whole or in
part, on or after the fifth anniversary of the date of issuance, and must be
redeemed in whole upon the eleventh anniversary of the date of issuance for an
amount per share equal to the Series B Liquidation Preference plus accrued and
unpaid dividends.
Additionally, holders of Series B Preferred may convert their Series B Preferred
into Class B Common Stock at the Series B Market Conversion Rate (defined below)
if the Acquisition Subsidiary: (1) fails to make a redemption payment on the
Series A Preferred or the Series B Preferred, (2) fails to pay dividends when
due on either the Series A Preferred or the Series B Preferred, (3) takes
actions requiring the consents of the holders of the Series A Preferred or the
Series B Preferred without obtaining such consents or (4) issues additional
shares of the Series A Preferred or Series B Preferred, or reissues shares of
either, in violation of their terms. The Series B Preferred also automatically
converts into Class B Common Stock at the Series B Market Conversion Rate upon
the bankruptcy or insolvency of the Acquisition Subsidiary or any of its
Significant Subsidiaries.
The Series B Market Conversion Rate ("Series B Market Conversion Rate") equals
the quotient obtained by dividing : (1) the per share Series B Liquidation
Preference by (2) the average trading price per share of the Company's Common
Stock for the 30 trading days immediately preceding the date of the holder's
conversion notice or the date on which the bankruptcy case commences, as
applicable. The Market Conversion Rate is subject to customary adjustment under
certain circumstances.
Holders of Series B Preferred will have voting rights analogous to those of the
holders of the Series A Preferred. Shares of Series B Preferred are freely
transferable. Shares of Series B Preferred reacquired in any manner will be
retired and may not be reissued as shares of Series B Preferred.
Series C Preferred Stock
A total of 40,000 shares of Series C Preferred were outstanding at June 30,
1999, in connection with the VMS Acquisition. Holders of the Series C Preferred
are not entitled to preemptive rights. The Series C Preferred has an aggregate
liquidation preference of $2,000,000 or $50 per share (the "Series C Liquidation
Preference"). Each share of Series C Preferred accrues dividends at 11% per
annum, payable in cash semi-annually in arrears. An escrow account in the amount
of $1,000,000 has been established to cover future dividend payments. Upon
liquidation, and after payment of amounts, if any, owed to all classes of
capital stock ranked senior to the Series C Preferred, holders of shares of
Series C Preferred will receive the Series C Liquidation Preference of such
shares plus accrued and unpaid dividends. The Series C Preferred ranks senior to
the Series A Preferred, the Series B Preferred and the Class A Common Stock in
right of payment of the dividends. The Series C Preferred may be redeemed by the
Acquisition Subsidiary, in whole or in part, on or after the fifth anniversary
of the date of issuance, and must be redeemed in whole upon the seventh
anniversary of the date of issuance, in each case for an amount per share equal
to the Series C Liquidation Preference plus accrued and unpaid dividends.
Holders of Series C Preferred are not entitled to voting rights, except under
certain circumstances. Without the affirmative vote of the holders of a majority
of the outstanding shares of Series C Preferred, the Acquisition Subsidiary may
not take certain specified actions that would adversely affect the rights of the
holders of the Series C Preferred. Shares of Series C Preferred reacquired in
any manner will be retired and may not be reissued as shares of Series C
Preferred.
Note 6 - Class B Common Stock
- -----------------------------
In the event that Avis Rent A Car obtains the consent of its shareholders to
amend its charter by June 30, 2000 to issue Class B Common Stock, Avis Rent A
Car will authorize and reserve for issuance shares of Class B Common Stock to be
issued upon the conversion of the Series A Preferred or the Series B Preferred.
The Class B Common Stock will rank (1) junior to any class or series of
preferred stock of the Company and (2) pari passu with the Class A Common Stock
in right of payment of dividends and on liquidation. The Class B Common Stock
will be nonvoting.
At any time that the beneficial ownership by Cendant, together with any
affiliate of Cendant (Cendant and such affiliates, the "Cendant Affiliates"), of
the Class A Common stock is less than 20% of the voting power of the outstanding
shares of Class A Common Stock, the Cendant Affiliates shall have the right to
convert shares of Class B Common Stock into Class A Common Stock on a
share-for-share basis in an amount such that the ownership by the Cendant
Affiliates of the Class A Common Stock does not exceed 20% of the voting power
of the outstanding shares of Class A Common Stock after giving effect to such
conversion.
The Cendant Affiliates shall have the right to convert the Class B Common Stock
into shares of Class A Common Stock on a share-for-share basis upon the
occurrence of (1) a bankruptcy or insolvency of the Company and (2) a Preferred
Stock Change of Control, other than any Preferred Stock Change of Control that
is caused solely by the sale by the Cendant Affiliates of its shares of Class A
Common Stock or Class B Common Stock.
Upon the transfer, sale or disposition for value to any person other than the
Cendant Affiliates, each share of Class B Common Stock shall be automatically
exchanged for the Class A Common Stock on a share-for-share basis.
Other than upon conversion of the Series A Preferred or the Series B Preferred,
no additional shares of Class B Common Stock may be issued. Shares of Class B
Common Stock shall be freely transferable. Shares of Class B Common Stock
reacquired in any manner shall be retired and may not be reissued as shares of
Class B Common Stock.
In connection with the VMS Acquisition, the Company entered into a registration
rights agreement pursuant to which Cendant and certain transferees of Class B
Common Stock and Class A Common Stock converted from the Class B Common stock
held by Cendant (the "Holders") will have the right to require the Company to
register all or part of the Class A Common Stock owned by such Holders under the
Securities Act of 1933 as amended (the "Securities Act") (an "Acquisition Demand
Registration"). However, the Company may postpone giving effect to an
Acquisition Demand Registration for a period of up to 30 days if the Company
believes such registration might have a material adverse effect on any plan or
proposal by the Company with respect to any financing, acquisition,
recapitalizaiton, reorganization or other material transaction or the Company is
in possession of material non-public information that, if publicly disclosed,
could result in a material disruption of a major corporate development or
transaction then pending or in progress or in other material adverse
consequences to the Company. In addition, the Holders have the right to
participate in any registrations by the Company of Class A Common Stock (an
"Acquisition Piggyback Registration"). The Holders will pay all out-of-pocket
expenses incurred in connection with any Acquisition Registration, and the
Company will pay all out-of-pocket expenses incurred in connection with any
Acquisition Demand Piggyback Registration, except for underwriting discounts,
commissions and expenses attributable to the shares of Class A Common Stock sold
by such holders.
Note 7 - Comprehensive Income
- -----------------------------
Comprehensive income is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income.................................................. $27,282 $22,350 $ 42,468 $29,758
Foreign currency translation adjustment..................... 2,280 (3,912) 2,680 (3,524)
-------- -------- ----------- --------
Comprehensive income........................................ $29,562 $18,438 $ 45,148 $26,234
======== ======== =========== ========
</TABLE>
Note 8- Retirement Benefits
- ---------------------------
Effective January 1, 1999, the Company curtailed its defined benefit plans to
its eligible salaried and hourly employees as of June 30, 1985. The Company
recognized a non-recurring $7.5 million pre-tax gain as a result of the
curtailment which was recorded in January 1999 and is included in Direct
Operating expense on the accompanying Statement of Operations for the six months
ended June 30, 1999.
Note 9- Financing and Debt
- --------------------------
Debt outstanding at June 30, 1999 and December 31, 1998 consist of the following
(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Commercial Paper Notes $ 1,463,996 $ 678,377
Short-term notes-foreign 169,940 74,881
Wright Express Federal Funds 21,957
Wright Express Certificates of Deposits 49,651
Current portion of long-term debt -other 512 1,085
Current portion of long-term debt - acquisition financing 8,500
------------ -----------
Total Current Debt 1,714,556 754,343
------------ -----------
Fleet Financing
Interim Domestic Asset Backed Securities -Variable Funding Notes 2,735,508
Interim Foreign Asset Backed Securities -UK Advances 720,000
Series 1997-1A asset backed notes due July 2000 at 6.22% 800,000 800,000
Series 1997-1B asset backed notes due July 2002 at 6.40% 850,000 850,000
Series 1998-1 asset backed notes due February 2005 at 6.14% 600,000 600,000
Self funded notes 26,853
Other 5,689 10,369
------------ -----------
Total fleet debt 5,738,050 2,260,369
------------ -----------
Acquisition financing
Senior Subordinated Notes due May 2009 at 11.00% 500,000
Term A Loan Notes due June 2005 242,500
Term B Loan Notes due June 2006 374,500
Term C Loan Notes due June 2007 374,500
Revolving Credit Facility due June 2005 73,000
------------ -----------
Total acquisition financing 1,564,500
-----------
------------
Total Debt $ 9,017,106 $ 3,014,712
============ ===========
</TABLE>
Commercial Paper Notes, Series 1997-1A, 1997-1B and 1998-1 Asset Backed Notes
On July 31, 1997, the Company through Avis Rent A Car System, Inc. ("ARACS")
entered into a domestic integrated fleet financing program (the "Avis ABS
Facility") that provides for up to $3.65 billion in financing for vehicles
covered by Repurchase Programs, with up to 25% of the facility available for
vehicles not covered by Repurchase Programs. As of June 30, 1999, the domestic
integrated fleet financing program is $3.75 billion. The domestic integrated
fleet financing program provides for the issuance of up to $1.5 billion of
asset-backed variable funding notes (the "Commercial Paper Notes") and $2.25
billion of asset-backed medium term notes (The "Medium Term Notes"). The
Commercial Paper Notes and the Medium Term Notes are backed by a first priority
security interest in the Company's fleet. Additional credit enhancement was
provided for the Medium Term Notes by establishing an escrow account in the
amount of $90 million, which is included in "Restricted Cash".
The weighted average interest rate on commercial paper borrowings was 5.0% and
5.7% for the six months ended June 30, 1999 and 1998, respectively.
Average commercial paper borrowings was $1,001 million and $737 million for the
six months ended June 30, 1999 and 1998, respectively.
Short-Term Notes Foreign
The weighted average interest rates of the short-term notes-foreign as of June
30, 1999 and 1998 was 5.2% and 5.5%, respectively.
Certificates of Deposit
At June 30, 1999, scheduled maturities of certificates of deposit of $49,651 are
all less than one year. The interest rates range from 5.09% to 5.5%.
Federal Funds Payable
Federal Funds Payable consists of federal funds purchased and is generally
repaid within one to ten business days from the transaction date. At June 30,
1999, federal funds payable consist of three separate agreements totaling
$21,957, bearing interest at rates of 5.875% and 6.375%.
Asset Backed Securities, Senior Subordinated Notes and Term Notes
In connection with the VMS Acquisition (see Note 4), Avis Rent A Car, Inc. :
(A) Refinanced the VMS existing fleet debt with the proceeds of $2,735,507
domestic and $720,000 foreign asset-backed securities issued pursuant to an
offering of asset-backed securities (the "Interim VMS ABS Offering"), under
certain fleet financing facilities and together with the Avis ABS
facilities.
The domestic securities comprising the Interim VMS ABS Offering are issued
by a bankruptcy remote special purpose entity (the "Domestic ABS Issuer")
and placed initially with a single multi-seller commercial paper conduit,
and thereafter may be syndicated to one or more other bank sponsored
conduits (collectively the "CP Conduits").
The CP Conduits will acquire Domestic Variable funding notes ("VFNs"),
Domestic Preferred Membership Interests and U.K. Advances using the
proceeds of commercial paper issuances. In addition, from time to time, the
Domestic ABS Issuer may issue medium-term notes secured by the Domestic ABS
Assets, using the proceeds of any such offerings to reduce the amount of
Domestic VFNs then outstanding.
The interest rate is variable and is based on commercial paper notes plus a
weighted average margin of approximately 45 basis points.
The rate in effect at June 30, 1999 for the domestic and foreign
asset-backed securities were 5.39% and 5.43 %, respectively.
(B) Issued $500,000 of Senior Subordinated Notes due May 1, 2009 with an
interest rate of 11% (the "Senior Subordinated Notes"). The Senior
Subordinated Notes are subordinated in the right of payment to all existing
and future senior indebtedness of the Company and are unconditionally
guaranteed on a senior subordinated basis by ARACS and other domestic
subsidiary of the Company that guarantees the Senior Credit Facility (as
defined). Interest is payable semi-annually commencing November 1, 1999.
(C) At June 30, 1999, the Company had outstanding the following term
loans:
Term Loans A, B, and C bear interest at either Chase Manhattan Bank's
("Chase") alternate base rate or the Eurodollar rate (at the Company's
option) plus the applicable margin. The applicable margin for each type of
loan is as follows:
ABR Loans Eurodollar Loans
--------- ----------------
Revolving Loans 1.75% 2.75%
Term A Loan 1.75% 2.75%
Term B Loan 2.25% 3.25%
Term C Loan 2.50% 3.50%
The Term A, B, and C Loans mature on June 30, 2005, 2006 and 2007,
respectively, and require repayments of principal in quarterly installments.
Revolving Credit Facility
Under the terms of the Revolving Credit Facility, the Company had outstanding
$73,000 as of June 30, 1999 at a variable interest rate with terms identical to
the Term A Loan.
Self-Fund Notes
Self-fund notes represent loans made by customers to purchase leased vehicles.
Repayment of these notes is matched to payments on the underlying lease
including the disposal of the vehicles at maturity. Interest can be fixed or
floating, depending on the underlying leases. The average interest rate at June
30, 1999, was 5.5%.
The agreements with the Company's lenders include a number of significant
covenants that, among other things, restrict its ability to dispose of non-fleet
assets, incur additional indebtedness, create liens, prohibit the payment of
dividends, enter into certain investments or acquisitions, repurchase or redeem
capital stock, engage in mergers or consolidations or engage in certain
transactions with affiliates and otherwise restrict corporate activities.
Certain of these agreements also require the Company to maintain specific
financial ratios. At June 30, 1999, the Company was in compliance with all such
covenants related to these agreements.
Note 10 - Guarantor and Non-Guarantor Condensed Financial Statements
- ---------------------------------------------------------------------
In connection with the VMS Acquisition and as part of the financing thereof,
Avis Rent A Car, Inc. (the "Parent") issued and sold the Senior Subordinated
Notes (see Note 9) in a transaction exempt from registration under the
Securities Act. The Senior Subordinated Notes are general unsecured obligations
of the Parent, subordinated in right of payment to all existing and future
senior indebtedness of the Company, and guaranteed by certain of the Parent's
domestic subsidiaries. Accordingly, the following condensed consolidating
financial information presents the condensed consolidating financial statements
as of December 31, 1998 and June 30, 1999 and for the three and six months ended
June 30, 1999 and 1998, respectively, of: (a); the Parent (b) the guarantor
subsidiaries; (c) the non-guarantor subsidiaries; (d) elimination entries
necessary to consolidate Parent with guarantor and non-guarantor subsidiaries;
and (e) the Company on a consolidated basis.
Investments in subsidiaries are accounted using the equity method for purposes
of the consolidating presentation. The principle elimination entries eliminate
investments in subsidiaries and intercompany balances and transactions (in
thousands):
Separate financial statements and other disclosures with respect to the
subsidiary guarantors have not been made because management has determined that
such information is not material to holders of the Senior Subordinated Notes.
Note 10 - Guarantor and Non-Guarantor Condensed Financial Statements Continued
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the Six Months Ended June 30, 1999
Non- Avis Rent
Avis Rent Guarantor Guarantor A Car, Inc.
A Car, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- -------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,086,437 $ 117,937 $ $ 1,204,374
- -------
--------------- -------------- --------------- ------------ ------------
Direct operating, net............................ 421,062 55,876 476,938
Vehicle depreciation and lease charges, net...... 281,621 29,546 311,167
Selling, general and administrative.............. 214,450 16,732 231,182
Interest, net.................................... $ 6,918 95,556 1,888 104,362
Amortization of cost in excess of net
assets acquired............................... 6,255 96 6,351
--------------- -------------- --------------- ------------ ------------
6,918 1,018,944 104,138 1,130,000
--------------- -------------- --------------- ------------ ------------
(6,918) 67,493 13,799 74,374
Equity in earnings of subsidiaries............... 46,965 9,374 (56,339)
--------------- -------------- --------------- ------------ ------------
Income before provision for income taxes......... 40,047 76,867 13,799 (56,339) 74,374
Provision for income taxes....................... (2,421) 29,902 4,425 31,906
--------------- -------------- --------------- ------------ ------------
Net income................................... $ 42,468 $ 46,965 $ 9,374 $ (56,339) $ 42,468
=============== ============== =============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the Six Months Ended June 30, 1998
Non- Avis Rent
Avis Rent Guarantor Guarantor A Car, Inc.
A Car, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- -------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ $ 975,294 $ 111,376 $ $ 1,086,670
- -------
--------------- -------------- --------------- ------------ ------------
Direct operating, net............................ 389,323 51,361 440,684
Vehicle depreciation and lease charges, net...... 248,580 28,814 277,394
Selling, general and administrative.............. 196,641 16,473 213,114
Interest, net.................................... 6,916 88,234 1,668 96,818
Amortization of cost in excess of net
assets acquired............................... 5,449 72 5,521
--------------- -------------- --------------- ------------ ------------
6,916 928,227 98,388 1,033,531
--------------- -------------- --------------- ------------ ------------
(6,916) 47,067 12,988 53,139
Equity in earnings of subsidiaries............... 34,253 8,473 (42,726)
--------------- -------------- --------------- ------------ ------------
Income before provision for income taxes......... 27,337 55,540 12,988 (42,726) 53,139
Provision for income taxes....................... (2,421) 21,287 4,515 23,381
--------------- -------------- --------------- ------------ ------------
Net income................................... $ 29,758 $ 34,253 $ 8,473 $ (42,726) $ 29,758
=============== ============== =============== ============ ============
</TABLE>
Note 10 - Guarantor and Non -Guarantor Condensed Financial Statements Continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the Three Months Ended June 30, 1999
Non- Avis Rent
Avis Rent Guarantor Guarantor A Car, Inc.
A Car, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- -------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ 578,867 $ 58,590 $ $ 637,457
- -------
--------------- -------------- --------------- ------------ ------------
Direct operating, net............................ 222,716 28,057 250,773
Vehicle depreciation and lease charges, net...... 147,379 14,386 161,765
Selling, general and administrative.............. 111,700 8,681 120,381
Interest, net.................................... $ 3,459 49,363 995 53,817
Amortization of cost in excess of net
assets acquired............................... 3,128 49 3,177
--------------- -------------- --------------- ------------ ------------
3,459 534,286 52,168 589,913
--------------- -------------- --------------- ------------ ------------
(3,459) 44,581 6,422 47,544
Equity in earnings of subsidiaries............... 29,531 4,387 (33,918)
--------------- -------------- --------------- ------------ ------------
Income before provision for income taxes......... 26,072 48,968 6,422 (33,918) 47,544
Provision for income taxes....................... (1,210) 19,437 2,035 20,262
--------------- -------------- --------------- ------------ ------------
Net income................................... $ 27,282 $ 29,531 $ 4,387 $ (33,918) $ 27,282
=============== ============== =============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the Three Months Ended June 30, 1998
Non- Avis Rent
Avis Rent Guarantor Guarantor A Car, Inc.
A Car, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- -------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ $ 520,354 $ 54,926 $ $ 575,280
- -------
--------------- -------------- --------------- ------------ ------------
Direct operating, net............................ 204,941 25,312 230,253
Vehicle depreciation and lease charges, net...... 129,645 14,387 144,032
Selling, general and administrative.............. 100,557 8,409 108,966
Interest, net.................................... 3,457 44,809 884 49,150
Amortization of cost in excess of net
assets acquired............................... 2,928 41 2,969
--------------- -------------- --------------- ------------ ------------
3,457 482,880 49,033 535,370
--------------- -------------- --------------- ------------ ------------
(3,457) 37,474 5,893 39,910
Equity in earnings of subsidiaries............... 24,597 4,414 (29,011)
--------------- -------------- --------------- ------------ ------------
Income before provision for income taxes......... 21,140 41,888 5,893 (29,011) 39,910
Provision for income taxes....................... (1,210) 17,291 1,479 17,560
--------------- -------------- --------------- ------------ ------------
Net income................................... $ 22,350 $ 24,597 $ 4,414 $ (29,011) $ 22,350
=============== ============== =============== ============ ============
</TABLE>
Note 10 - Guarantor and Non-Guarantor Condensed Financial Statements Continued
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Financial Position
June 30, 1999
Non- Avis Rent
Avis Rent Guarantor Guarantor A Car, Inc.
A Car, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 15,359 $ 67,177 $ 197,834 $ 280,370
Restricted cash.................................. 189,680 189,680
Accounts receivable, net......................... 3,952 221,870 684,489 910,311
Finance lease receivables........................ 43,123 297,745 340,868
Due from affiliates, net......................... 1,404,419 (205,897) (1,198,522)
Prepaid expenses................................. 49,108 13,104 62,212
Vehicles, net.................................... (44,079) 7,707,349 7,663,270
Property and equipment, net...................... 174,367 82,747 257,114
Investment in subsidiaries....................... 982,919 693,948 134,020 $ (1,810,887)
Other assets..................................... 1,001 62,285 25,313 88,599
Cost in excess of net assets
Acquired, net................................ 518,948 1,277,255 1,796,203
--------------- ------------- -------------- ------------- ------------
Total assets..................................... $ 2,407,650 $ 1,580,850 $ 9,411,014 $ (1,810,887) $11,588,627
=============== ============= ============== ============= ============
LIABILITIES, PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Accounts payable................................. $ 233,282 $ 390,996 $ 624,278
Accrued liabilities, net......................... $ 1,063 327,806 23,875 352,744
Deferred income.................................. 24,445 40,930 65,375
Due to affiliates................................ 231,550 (380,179) 228,306 79,677
Current income tax liabilities................... (9,172) 59,572 50,400
Deferred income tax liabilities.................. (13,106) 114,911 40,775 142,580
Public liability, property damage and other
insurance liabilities, net.................... 223,674 55,650 279,324
Debt............................................. 1,573,000 63,164 7,380,942 9,017,106
Preferred stock.................................. 362,000 362,000
Common stockholders' equity...................... 615,143 982,919 827,968 $ (1,810,887) 615,143
------------------ ------------- -------------- ------------- ------------
Total liabilities, preferred stock and
common stockholders' equity................... $ 2,407,650 $ 1,580,850 $ 9,411,014 $ (1,810,887) $ 11,588,627
=============== ============= ============== ============= ============
</TABLE>
Note 10 - Guarantor and Non-Guarantor Condensed Financial Statements Continued
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Financial Position
December 31, 1998
Non- Avis Rent
Avis Rent A Guarantor Guarantor A Car, Inc.
A Car, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 11 $ 9,776 $ 19,964 $ 29,751
Restricted cash.................................. 2,000 131,284 133,284
Accounts receivable, net......................... 136,112 224,462 360,574
Prepaid expenses................................. 34,666 7,417 42,083
Vehicles, net.................................... (73,213) 3,238,029 3,164,816
Property and equipment, net...................... 129,090 15,955 145,045
Investment in subsidiaries....................... 533,274 422,146 $ (955,420)
Other assets..................................... 38,127 2,463 40,590
Deferred income tax assets....................... 9,686 111,093 120,779
Cost in excess of net assets
acquired, net................................ 465,321 2,819 468,140
--------------- ------------- -------------- -------------- -----------
Total assets..................................... $ 542,971 $ 1,275,118 $ 3,642,393 $ (955,420) $ 4,505,062
=============== ============= ============== ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................. $ 112,220 $ 86,261 $ 198,481
Accrued liabilities, net......................... $ 969 277,018 48,217 326,204
Due to affiliates, net........................... (80,612) 112,605 (9,700) 22,293
Current income tax liabilities................... 19,413 3,632 23,045
Deferred income tax liabilities.................. 28,504 28,504
Public liability, property damage and other
insurance liabilities, net.................... 218,811 50,398 269,209
Debt............................................. 1,777 3,012,935 3,014,712
Stockholders' equity............................. 622,614 533,274 422,146 $ (955,420) 622,614
=============== ============= ============== ============= ===========
Total liabilities and stockholders' equity....... $ 542,971 $ 1,275,118 $ 3,642,393 $ (955,420) $ 4,505,062
=============== ============= ============== ============= ============
</TABLE>
Note 10 - Guarantor and Non-Guarantor Condensed Financial Statements Continued
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 1999
Non- Avis Rent
Avis Rent Guarantor Guarantor A Car, Inc.
A Car, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- -------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from operating activities:
Net income....................................... $ 42,468 $ 37,591 $ 9,374 $ (46,965) $ 42,468
Adjustments to reconcile net income to net cash
provided by......................................
operating activities:........................ 3,856 298,413 (45,568) 256,701
--------------- -------------- --------------- ------------ ------------
Net cash provided by (used in)operating
activities....................................... 46,324 336,004 (36,194) (46,965) 299,169
--------------- -------------- --------------- ------------ ------------
Cash flows form investing activities:............
Payments for vehicle additions................... 89,213 (2,583,460) (2,494,247)
Vehicle deletions................................ (259,369) 1,778,843 1,519,474
Payments for additions to property and equipment. (16,761) (1,192) (17,953)
Retirements of property and equipment............ 1,056 17 1,073
Investment in subsidiaries....................... (49,645) 49,645
Payment for purchase of licensees, net of cash
acquired of $11,065........................... (42,503) (42,503)
Payment for purchase of PHH Holdings, net of cash
acquired of $170,568.......................... (1,330,932) (1,330,932)
--------------- -------------- --------------- ------------ ------------
Net cash used in investing activities....... (1,380,577) (228,364) (805,792) 49,645 (2,365,088)
--------------- -------------- --------------- ------------ ------------
Cash flows from financing activities:
Net increase in (repayment of) debt.............. 1,573,000 (67,953) 866,950 2,371,997
Payments for debt issuance costs................. (1,600) (35) (1,635)
Purchase of treasury stock....................... (57,237) (57,237)
Other............................................ 3,326 3,326
Cash dividends................................... 4,866 (4,866)
--------------- -------------- --------------- ------------ ------------
Net cash provided by (used in) financing
activities.................................... 1,517,489 (63,122) 862,084 2,316,451
--------------- -------------- --------------- ------------ ------------
Effect of exchange rate changes on cash.......... 2,680 87 (2,680) 87
--------------- -------------- --------------- ------------ ------------
Net increase in cash and cash equivalents........ 185,916 44,518 20,185 250,619
Cash and cash equivalents at beginning of period. 11 9,776 19,964 29,751
=============== ============== =============== ============ ============
Cash and cash equivalents at end of period...... $ 185,927 $ 54,294 $ 40,149 $ $ 280,370
=============== ============== =============== ============ ============
</TABLE>
Note 10 - Guarantor and Non-Guarantor Condensed Financial Statements Continued
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 1998
Avis Rent
Avis Rent A Non- A Car, Inc.
Car, Inc. Guarantor Guarantor Eliminations Consolidated
--------------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from operating activities:
Net income....................................... $ 29,758 $ 25,778 $ 8,473 $ (34,251) $ 29,758
Adjustments to reconcile net income to net cash
provided by......................................
operating activities:........................ (156,701) 276,735 8,867 128,901
--------------- -------------- -------------- ------------- -----------
Net cash provided by (used in) operating activities (126,943) 302,513 17,340 (34,251) 158,659
--------------- -------------- -------------- ------------- -----------
Cash flows form investing activities:............
Payments for vehicle additions................... 70,072 (1,989,727) (1,919,655)
Vehicle deletions................................ (84,739) 1,467,327 1,382,588
Payments for additions to property and equipment. (19,874) (1,214) (21,088)
Retirements of property and equipment............ 2,365 189 2,554
Investment in subsidiaries....................... (31,126) 31,126
Payment for purchase of licensees............... (222,506) (9,969) (232,475)
--------------- -------------- -------------- ------------- -----------
Net cash used in investing activities....... (31,126) (254,682) (533,394) 31,126 (788,076)
--------------- -------------- -------------- ------------- -----------
Cash flows from financing activities:
Net increase in debt............................. (54,507) 510,573 456,066
Payments for debt issuance costs................. (3,832) (3,832)
Proceeds from public offering................... 161,194 161,194
--------------- -------------- -------------- -------------- -----------
Net cash provided by (used in) financing
activities.................................... 161,194 (58,339) 510,573 613,428
--------------- -------------- -------------- -------------- -----------
Effect of exchange rate changes on cash.......... (3,125) (428) 3,125 (428)
--------------- -------------- -------------- -------------- -----------
Net decrease in cash and cash equivalents........ (10,508) (5,909) (16,417)
Cash and cash equivalents at beginning of period. 11 27,199 17,689 44,899
=============== ============== ============== ============== ===========
Cash and cash equivalents at end of period...... $ 11 $ 16,691 $ 11,780 $ - $ 28,482
=============== ============== ============== ============== ===========
</TABLE>
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 charges for
vehicle rentals and, to a lesser extent, the sale of loss damage waivers,
liability insurance and other products and services.
The results of operations discussion and analysis below do not include the
results of operations of VMS which the Company acquired on June 30, 1999 (see
Note 4 - to the condensed consolidated financial statements included in Item 1
above).
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
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>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
------------------------------ --------------------------------
Percentage Percentage
of Revenue of Revenue
--------------- -------------- ------------------ -------------
<S> <C> <C> <C> <C>
Revenue............................... $ 637,457 100.0% $ 575,280 100.0%
--------------- -------------- ------------------ -------------
Directoperating.................. 250,773 39.3 230,253 40.0
Vehicle depreciation and
lease charges, net............. 161,765 25.4 144,032 25.0
Selling, general and
administrative................. 120,381 18.9 108,966 18.9
Interest, net.................... 53,817 8.4 49,150 8.6
Amortization of cost in excess
of net assets acquired........ 3,177 0.5 2,969 0.5
--------------- -------------- ------------------ -------------
589,913 92.5 535,370 93.0
--------------- -------------- ------------------ -------------
Income before provision for
income taxes....................... 47,544 7.5 39,910 7.0
Provision for income taxes............ 20,262 3.2 17,560 3.1
=============== ============== ================== =============
Net income............................ $ 27,282 4.3% $ 22,350 3.9%
=============== ============== ================== =============
</TABLE>
Revenue
Revenue increased 10.8%, from $575.3 million to $637.5 million, compared to the
same period in 1998. The increase in revenue is due primarily to overall market
demand (9.3%) and the acquisition of the Hayes Leasing Company, Inc. on May 1,
1998 (1.5%). The revenue increase reflected an 8.2% increase in the number of
rental transactions and a 2.4% increase in revenue per rental transaction.
Costs and Expenses
Total costs and expenses increased 10.2%, from $535.4 million to $589.9 million,
compared to the same period in 1998. Direct operating expenses increased 8.9%,
from $230.3 million to $250.8 million, compared to the same period in 1998. As a
percentage of revenue, direct operating expenses declined to 39.3%, from 40.0 %
for the corresponding period in 1998. Operating efficiencies were derived
primarily from lower vehicle insurance costs (0.8% of revenue), and lower
airport commissions (0.8% of revenue). These were partially offset by higher
computer services costs (0.5% of revenue) and higher compensation costs (0.3% of
revenue).
<PAGE>
Vehicle depreciation and lease charges increased 12.3%, from $144.0 million to
$161.8 million, compared to the same period in 1998. As a percentage of revenue,
vehicle depreciation and lease charges were 25.4% of revenue, as compared to
25.0% of revenue for the corresponding period in 1998. The change reflected a
9.4% increase in the average rental fleet combined with a higher monthly cost
per vehicle.
Selling, general and administrative expenses increased 10.5%, from $109.0
million to $120.4 million, compared to the same period in 1998. The increase was
due to higher reservation costs, higher royalty fees, and higher general and
administrative expenses.
Interest expense increased 9.5%, from $49.2 million to $53.8 million, compared
to the same period in 1998, due to higher borrowings required to finance the
growth of the rental fleet, partially offset by lower average interest rates.
The provision for income taxes for the three months ended June 30, 1999
increased 15.4%, from $17.6 million to $20.3 million, compared to the same
period in 1998. The effective income tax rate was 42.6%, down from 44.0% for the
corresponding period in 1998. 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 22.1%, from $22.4 million to $27.3 million, compared to the
same period in 1998. 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, 1999 Compared to Six Months Ended June 30, 1998
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>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
------------------------------ --------------------------------
Percentage Percentage
of Revenue of Revenue
--------------- -------------- ------------------ -------------
<S> <C> <C> <C> <C>
Revenue.............................. $1,204,374 100.0% $ 1,086,670 100.0%
--------------- -------------- ------------------ -------------
Costs and expenses:
Direct operating................. 476,938 39.6 440,684 40.6
Vehicle depreciation and
lease charges, net............. 311,167 25.8 277,394 25.5
Selling, general and
administrative................ 231,182 19.2 213,114 19.6
Interest, net.................... 104,362 8.7 96,818 8.9
Amortization of cost in
excess of net assets acquired 6,351 0.5 5,521 0.5
--------------- -------------- ------------------ -------------
1,130,000 93.8 1,033,531 95.1
--------------- -------------- ------------------ -------------
Income before provision for
income taxes................... 74,374 6.2 53,139 4.9
Provision for income taxes............ 31,906 2.7 23,381 2.2
=============== ============== ================== =============
Net income............................ $ 42,468 3.5% $ 29,758 2.7%
=============== ============== ================== =============
</TABLE>
Revenue
Revenue increased 10.8%, from $1,086.7 million to $1,204.4 million, compared to
the same period in 1998. The increase in revenue is due primarily to overall
market demand (8.1%) and the acquisition of the Hayes Leasing Company, Inc. on
May 1, 1998 (2.7%). The revenue increase reflected a 9.5% increase in the number
of rental transactions and a 1.2% increase in revenue per rental transactions.
<PAGE>
Costs and Expenses
Total costs and expenses increased 9.3%, from $1,033.5 million to $1,130.0
million, compared to the same period in 1998. Direct operating expenses
increased 8.2%, from $440.7 million to $476.9 million, compared to the same
period in 1998. As a percentage of revenue, direct operating expenses declined
to 39.6%, from 40.6% for the corresponding period in 1998. Direct operating
expense included a one-time $7.5 million credit (0.6% of revenue), resulting
from the curtailment of the Company's Deferred Benefit Plan. Operating
efficiencies were derived primarily from lower vehicle insurance costs (0.4% of
revenue), and lower airport commissions (0.9% of revenue) and were partially
offset by higher compensation costs (0.5% of revenue), and higher computer
services costs (0.4% of revenues).
Vehicle depreciation and lease charges increased 12.1%, from $277.4 million to
$311.2 million, compared to the same period in 1998. As a percentage of revenue,
vehicle depreciation and lease charges were 25.8% of revenue, as compared to
25.5% of revenue for the corresponding period in 1998. The change reflected a
9.6% increase in the average rental fleet combined with a higher monthly cost
per vehicle.
Selling, general and administrative expenses increased 8.5%, from $213.1 million
to $231.2 million, compared to the same period in 1998. The increase was due to
higher reservation costs, higher general and administrative expenses, and higher
royalty fees.
Interest expense increased 7.8%, from $96.8 million to $104.4 million, compared
to the same period in 1998, due to higher borrowings required to finance the
growth of the rental fleet, partially offset by lower average interest rates.
The provision for income taxes for the six months ended June 30, 1999, increased
to $31.9 million, from $23.4 million for the same period in 1998. The effective
income tax rate was 42.9%, down from 44.0% for the corresponding period in 1998.
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 42.7%, from $29.8 million to $42.5 million, compared to the
same period in 1998. 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 expected to be 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 will be for the
acquisition of new vehicles and the repayment of acquisition indebitness. For
the six months ended June 30 1999, pro forma for the VMS Acquisition, the
Company's expenditures for new vehicles would have been approximately $4.9
billion and proceeds from the disposition of used vehicles would have been
approximately $3.2 billion. For 1999, management expects the Company's
expenditures for new vehicles (net of proceeds from the disposition of used
vehicles) to be higher than in 1998. Since the late 1980's, Avis has acquired
vehicles related to its car rental operations primarily pursuant to Repurchase
Programs. Repurchase prices under the Repurchase Programs are based on either
(1) a specified percentage of original vehicle cost determined by the month the
vehicle is returned to the manufacturer or (2) the original capitalization cost
less a set daily depreciation amount. These Repurchase Programs limit residual
risk with respect to vehicles purchased under the programs. This enables
management to better estimate depreciation expense in advance. VMS has
historically not participated in Repurchase Programs and management does not
expect to do so in the future. Generally, customers with open-end leases, which
make up approximately 85% of VMS' lease portfolio, bear the residual risk with
respect to their vehicles, whereas with respect to closed-end leases, which made
up approximately 15% of VMS' lease portfolio, VMS bears such residual risk. Avis
and VMS have established methods for disposition of used vehicles that are not
covered by Repurchase Programs.
Historically, Avis' financing requirements for vehicles have typically reached
an annual peak during the second and third calendar quarters, as fleet levels
build 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 vehicle and
rental demand. Management expects that this pattern will continue with the
addition of VMS, whose cash requirements have historically been relatively
consistent over the course of a given year.
Management expects that cash flows from operations and funds from available
credit facilities will be sufficient to meet the Company's anticipated cash
requirements for operating purposes for the next twelve months. Customer
receivables also provide liquidity with approximately 10 days of daily sales
outstanding.
Pro forma for the VMS Acquisition, the Company would have made capital
investments for property improvements totaling $49.4 million for the six months
ended June 30 1999, and $60.8 million for the six months ended June 30, 1998.
Management has an interest rate management policy, including a target mix for
average fixed rate and floating rate indebtedness on a consolidated basis.
However, an increase in interest rates may have a material adverse impact on the
Company's profitability.
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. The Company will guarantee only the borrowings of its
subsidiary in Argentina. At June 30, 1999, the total debt for the Company's
international operations is approximately $900 million. The impact on the
Company's liquidity and financial condition due to the exchange rate
fluctuations of the Company's foreign operations is not expected to be material.
Avis Rent A Car, Inc. is party to a credit agreement (the "New Credit Facility")
which provides for up to $1.35 billion of borrowings in the form of (1) A
Revolving Credit Facility in the amount of up to $350.0 million, (2) a $250.0
million Term A Loan, (3) a $375.0 million Term B Loan and (4) a $375.0 million
Term C Loan. Upon consummation of the VMS Acquisition, Avis borrowed as of June
30, 1999, the full $1.0 billion under the Term A Loan, Term B Loan and Term C
Loan and $73.0 million under the Revolving Credit Facility. The loans under the
New Credit Facility bear interest at variable rates at fixed margin, above
either The Chase Manhattan Bank's alternative base rate or the Eurodollar rate.
The New Credit Facility is guaranteed by each U.S subsidiary of Avis Rent A Car,
Inc., but excluding any insurance subsidiaries, banking subsidiaries, and
securitization or other vehicle financing subsidiaries. All borrowings by the
Company under the New Credit Facility are secured by a first-priority perfected
lien on substantially all of the tangible and intangible assets of the Company
and each guarantor under the New Credit Facility excluding assets that secure
the ABS Facilities, and by a pledge of all the capital stock of each of Avis
Rent A Car, Inc.'s U.S. subsidiaries and 65% of the capital stock of its first
tier non-U.S. subsidiaries.
The Senior Subordinated Notes (the "Notes") will mature in 2009. Avis Rent A
Car, Inc.'s obligation under the Notes are subordinate and junior in right of
payment in all existing and future senior indebtedness of the Company, including
all indebtedness under the New Credit Facility. The obligations of the Company
under the Notes and the Indenture will be guaranteed on a senior subordinated
basis by each of the Company's U.S. subsidiaries, other than its banking
subsidiaries, insurance subsidiaries and securitization and other vehicle
financing subsidiaries which have not guaranteed senior indebtedness of the
Company. The New Credit Facility and the Indenture contain numerous financing
and operating covenants that limit the discretion of the Company's management
with respect to certain business matters. These covenants place significant
restrictions on, among other things, the ability of the Company and certain of
its subsidiaries to incur additional indebtedness, pay dividends and other
distributions, prepay subordinated indebtedness, create liens or other
encumbrances, make capital expenditures, make certain investments or
acquisitions, engage in certain transactions with affiliates, sell or otherwise
dispose of assets and merge with other entities and otherwise restrict corporate
activities. The New Credit Facility and the Indenture contain customary events
of default.
The Avis ABS Facility
Avis, which comprises all of the operations of the company other than VMS
related operations, has a domestic integrated financing program that as of June
30, 1999 provides for up to $3.75 billion in financing for vehicles covered by
Repurchase Programs, with up to 25% of the Avis ABS Facility available for
vehicles not covered by Repurchase Programs. The Avis ABS Facility provides for
the issuance of up to $1.5 billion of asset backed variable funding notes (the
"Variable Funding Notes") and $2.25 billion of asset-backed medium term notes
are outstanding under the Avis ABS Facility (the "Medium Term Notes"). The
Variable Funding Notes and the Medium Term Notes are indirectly secured by,
among other things, a first priority security interest in Avis's fleet. The
Variable Funding Notes support the issuance by a special purpose company of
commercial paper notes that are rated A-1 by Standard & Poor's Ratings Services
("S&P") and P-1 by Moody's Investors Service, Inc. ("Moody's"). The Medium Term
Notes are guaranteed under a surety bond issued by MBIA and as a result are
rated AAA by S&P and Aaa by Moody's. At June 30, 1999, Avis had approximately
$3.7 billion of debt outstanding under the Avis ABS Facility. At June 30, 1999,
Avis had approximately $34 million of additional credit available for vehicle
purchases.
Based on current market conditions and Avis' current banking relationships,
management expects to fund maturities of the Medium Term Notes either by the
issuance of new medium term notes or an increase in the outstanding principal
amount of the Variable Funding Notes depending on market conditions at the time
the Medium Term Notes mature. However, management cannot be sure that this will
occur.
The Interim VMS ABS Facility
VMS currently has an interim $3.6 billion vehicle financing program (the
"Interim VMS ABS Facility" and, together with the Avis ABS Facility, the "ABS
Facilities") supported by leases and vehicles owned by VMS and to initially
consist of (1) up to $2.5 billion of variable funding asset-backed notes
supported by U.S. leases and vehicles, (2) up to $236 million of asset-backed
preferred membership interests supported by U.S. leases and vehicles and (3) an
advance of up to $829 million under an asset-backed facility to PHH United
Kingdom guaranteed by various PHH United Kingdom entities and supported by all
of the assets of such entities, each of which will be placed with one or more
multi-seller commercial paper conduits. The Company intends to refinance the
Interim VMS ABS Facility through the issuance of medium-term notes and bank
conduits.
Seasonality
The Company's car rental business is seasonal, with decreased travel in winter
months and heightened activity in spring and summer. To accomodate increased
demand, the Company increases its available fleet during the second and third
quarters. Since VMS' business is generally not seasonal, these patterns of
seasonality are expected to continue. Certain of the Company's operating
expenses are fixed and cannot be reducedduring periods of decreased rental
demand. In certain geographic markets, theimpact of seasonality has been
reduced by emphasizing leisure or business travelin the off-peak season.
Recent Accounting Standards
A recent pronouncement of the Financial Accounting Standards Board which are not
required to be adopted at this date, is Statement of Financial Accounting
Standards ("SFAS") No. 133 - "Accounting for Derivative Instruments and Hedging
Activities", ("SFAS 133") which is effective for the Company's consolidated
financial statements for the year ending December 31, 2001. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position at fair value. The adoption
of SFAS 133 is not expected to have a material effect on the Company's
consolidated financial statements.
Year 2000 Readiness Disclosure
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. Consequently, these software and computer
systems need to be either reprogrammed, upgraded or replaced in order to
properly function when Year 2000 arrives.
The Company's state of readiness, contingency plans, Year 2000 costs and
possible consequences from Year 2000 problems are as follows:
(i) State of Readiness
The Company has implemented a comprehensive plan to address the Year 2000
requirements in its mission critical systems. Mission critical systems are
those whose failure poses a risk of disruption to the Company's ability to
provide vehicle reservations, rental services and vehicle management
services. The Company's comprehensive plan includes (i) the identification
of all mission critical systems and the inventory of all hardware and
software affected by the Year 2000; (ii) assessment of these systems
including prioritization; (iii) modification, upgrading and replacement of
the affected systems; and (iv) testing of the systems. The Company is using
both internal and external sources to implement its plan. The Company has
completed the remediation of its mission critical systems including the
modification, upgrading and replacement of the affected systems. The
Company has completed the testing of substantially all of these mission
critical systems. The Company currently believes its mission critical
systems will be Year 2000 compliant by the end of the summer of 1999.
Much of the Company's technology, including technology associated with its
mission critical systems, is purchased from third parties. The Company is
dependent on those third parties to assess the impact of Year 2000 on the
technology they have supplied and to take any necessary corrective action.
The Company is monitoring the progress of these third parties and
conducting tests to determine whether they have accurately assessed the
problem and taken corrective action.
(ii) Contingency Plans
Based upon the progress of its comprehensive plan, the Company expects that
it will not experience a disruption of its operations as a result of the
change to the Year 2000. However, there can be no assurance that the third
parties who have supplied technology used in the Company's mission critical
systems will be successful in taking corrective action in a timely manner.
The Company is developing contingency plans with respect to certain key
technology used in its mission critical systems, which are intended to
enable the Company to continue to operate. The contingency plans include
performing certain processes manually; repairing systems and changing
suppliers if necessary, although there can be no assurance that these
contingency plans will successfully avoid service disruption in the
reservation and rental of vehicles. The Company believes, that due to the
widespread nature of potential Year 2000 issues, the contingency planning
process is ongoing, which will require further modifications as the Company
obtains additional information regarding (1) the Company's internal systems
and equipment during the remediation and testing phases of its Year 2000
comprehensive plan; and (2) the status of third parties Year 2000
readiness.
(iii) Year 2000 Costs
Total costs of hardware and software remediation are expected to be $26.2
million including $2.7 million related to VMS. Costs of hardware and
software remediation were approximately $3.0 million in 1997, $8.4 million
in 1998 and are estimated to be approximately $12.8 million in 1999 and
$2.0 million in 2000. Costs of hardware and software remediation were
approximately $5.2 million for the six months ended June 30, 1999. These
estimates include the costs of certain equipment and software for which
planned replacement was accelerated due to Year 2000 requirements. In
addition, they reflected the cost of redeploying certain internal resources
to address the Year 2000 requirements. This estimate assumes that third
party suppliers have accurately assessed the compliance of their products
and that they will successfully correct the issue in non-compliant
products. Because of the complexity of correcting the Year 2000 issue,
actual costs may vary from these estimates. The Company expects to finance
these costs through internally generated cash flow and existing credit
facilities.
(iv) Possible Consequences from Year 2000 Problems
The Company believes that completed and planned modifications and
conversions of its internal systems and equipment will allow it to be Year
2000 compliant in a timely manner. There can be no assurance, however, that
the Company's internal systems or equipment or those of third parties on
which the Company relies will be Year 2000 compliant in a timely manner or
that the Company's or third parties' contingency plans will mitigate the
effects of any non-compliance. The failure of the systems or equipment of
the Company or third parties (which the Company believes is the most
reasonably likely worst case scenario) could effect vehicle reservation and
rental operations and could have a material adverse effect on the Company's
business or consolidated financial statements.
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, the ability of the Company and
its vendors to complete the necessary actions to achieve a Year 2000 conversion
for its computer systems and applications, 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, 1998. Actual
results may differ materially from those projected. These forward-looking
statements represent the Company's judgement as of the date of this report.
<PAGE>
ITEM 3: QUANTATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS
Quantitative and Qualitative Financial Disclosures About Market Risk
The Company has derivative financial instruments at June 30, 1999 that are
sensitive to changes in interest rates on its debt obligations and on its
interest rate swap agreements. There have been no material changes to the
Company's derivative financial instruments for the quarter ended June 30, 1999.
However, in connection with the VMS Acquisition and in order to reduce the risks
from interest rate fluctuations, the Company has entered into a domestic 10 year
interest rate cap agreement and a foreign five year agreement on notional
amounts of US $526,361,951 and LBS Sterling 436,134,125, respectively.
The agreements limit the domestic and foreign interest rate exposure to 5.675%
and 6.50% respectively.
<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 15, 1999 By: /s/ Kevin M. Sheehan
-----------------------------------
President-Corporate and Business
Affairs and Chief Financial Officer
(principal financial officer)
Dated: August 15, 1999 By: /s/ Timothy M. Shanley
-----------------------------------
Vice President and Controller
(principal accounting officer)
<PAGE>
Part II. Other Information
ITEM: 6(a) EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Exhibits filed with Form 10-Q for the quarter ended June 30, 1999 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
the Six months ended June 30, 1999 28
ITEM: 6(b) REPORT ON FORM 8-K
On May 25, 1999, the Company filed a Form 8-K, which included a News Release
announcing that Avis Rent A Car, Inc. had signed an agreement with Cendant
Corporation to acquire PHH and Wright Express vehicle management and fuel card
businesses for $1.8 billion. The transaction was funded through a combination of
debt and preferred stock consisting of approximately $1 billion in bank
facilities, $500 million of high yield securities and $360 million in preferred
stock.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 280,370
<SECURITIES> 0
<RECEIVABLES> 914,265
<ALLOWANCES> (3,954)
<INVENTORY> 7,663,270
<CURRENT-ASSETS> 0
<PP&E> 288,709
<DEPRECIATION> (31,595)
<TOTAL-ASSETS> 11,588,627
<CURRENT-LIABILITIES> 0
<BONDS> 9,017,106
0
362,000
<COMMON> 359
<OTHER-SE> 614,784
<TOTAL-LIABILITY-AND-EQUITY> 11,588,627
<SALES> 1,204,374
<TOTAL-REVENUES> 1,204,374
<CGS> 0
<TOTAL-COSTS> 1,017,663
<OTHER-EXPENSES> 6,351
<LOSS-PROVISION> 1,624
<INTEREST-EXPENSE> 104,362
<INCOME-PRETAX> 74,374
<INCOME-TAX> 31,906
<INCOME-CONTINUING> 42,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,468
<EPS-BASIC> 1.35
<EPS-DILUTED> 1.31
</TABLE>
