SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended September 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 suchreports), 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 November 15, 1999: Common Stock, $.01 par value - Class A
31,130,212 shares.
<PAGE>
AVIS RENT A CAR, INC.
INDEX
PART I. Financial Information
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of
Operations for the Three months and Nine months ended
September 30, 1999 and 1998
Consolidated Statements of Financial
Position as of September 30, 1999
and December 31, 1998
Consolidated Statements of Cash Flows for the Nine months
ended September 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. QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES
ABOUT MARKET RISKS
PART II. Other Information
ITEM 6(a) EXHIBITS
ITEM 6(b) REPORTS ON FORM 8-K
<PAGE>
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue:
Vehicle rental.................................. $ 709,555 $652,385 $ 1,913,929 $ 1,739,055
Vehicle leasing and other fee based............. 410,993 410,993
----------- -------- ----------- -----------
1,120,548 652,385 2,324,922 1,739,055
----------- -------- ----------- -----------
Costs and Expenses:
Direct operating, net........................... 266,777 263,618 735,801 697,407
Vehicle depreciation and lease charges, net..... 436,535 166,788 747,702 444,182
Selling, general and administrative............. 177,118 109,210 408,300 322,324
Interest, net................................... 145,348 51,149 245,273 143,781
Non-vehicle depreciation and amortization....... 11,019 5,748 23,370 16,829
Amortization of cost in excess of
net assets acquired ......................... 11,977 3,166 18,328 8,687
----------- -------- ----------- -----------
1,048,774 599,679 2,178,774 1,633,210
----------- -------- ----------- -----------
Income before provision for income taxes ....... 71,774 52,706 146,148 105,845
Provision for income taxes...................... 32,399 22,568 64,305 45,949
----------- -------- ----------- -----------
Net income...................................... 39,375 30,138 81,843 59,896
Preferred stock dividend........................ 4,555 4,555
----------- -------- ----------- -----------
Earnings applicable to common stockholders...... $ 34,820 $ 30,138 $ 77,288 $ 59,896
=========== ======== =========== ===========
Earnings per share:
Basic........................................... $ 1.12 $ 0.85 $ 2.46 $ 1.74
=========== ======== =========== ===========
Diluted ........................................ $ 1.10 $ 0.83 $ 2.40 $ 1.70
========== ======== =========== ==========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ----------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents................................ $ 83,004 $ 29,751
Cash on deposit with financial institution............... 123,517
Restricted cash.......................................... 190,294 133,284
Accounts receivable, net................................. 1,177,729 360,574
Finance lease receivables................................ 956,005
Prepaid expenses......................................... 53,958 42,083
Vehicles, net ........................................... 6,479,170 3,164,816
Property and equipment, net.............................. 197,616 145,045
Deferred income tax assets............................... 120,779
Cost in excess of net assets acquired, net............... 1,836,566 468,140
Other assets ............................................ 105,547 40,590
-------------- ----------------
Total assets.......................................... $ 11,203,406 $ 4,505,062
============== ================
LIABILITIES, PREFERRED STOCK AND
COMMON STOCKHOLDERS' EQUITY
Accounts payable........................................ $ 500,163 $ 198,481
Accrued liabilities ..................................... 415,765 326,204
Deferred income.......................................... 43,148
Due to affiliates, net................................... 43,048 22,293
Current income tax liabilities........................... 54,989 23,045
Deferred income tax liabilities, net .................... 123,365 28,504
Public liability, property damage and
other insurance liabilities, net ..................... 282,817 269,209
Debt .................................................... 8,716,227 3,014,712
-------------- ----------------
Total liabilities ................................... 10,179,522 3,882,448
-------------- ----------------
Commitments and contingencies
Class A Preferred stock ................................. 360,000
Class B Preferred stock.................................. 4,500
Class C Preferred stock.................................. 2,000
--------------
Total Preferred stock................................. 366,500
--------------
Common stockholders' equity:
Class A Common stock .................................... 359 359
Additional paid-in capital .............................. 592,006 591,651
Retained earnings........................................ 169,503 92,215
Accumulated other comprehensive loss .................... (620) (10,651)
Treasury stock .......................................... (103,864) (50,960)
-------------- ----------------
Total common stockholders' equity..................... 657,384 622,614
-------------- ----------------
Total liabilities, preferred stock and common
stockholders' equity ................................. $ 11,203,406 $ 4,505,062
============== ================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 81,843 $ 59,896
Adjustments to reconcile net income to net cash
provided by operating activities................ 592,582 390,08
Net cash provided by operating activities............ 674,425 449,985
------------- ---------------
Cash flows from investing activities:
Payments for vehicle additions ....................... (6,687,379) (2,904,178)
Vehicle deletions .................................... 5,694,663 2,197,359
Decrease in finance lease receivables................. (85,569)
Payments for property and equipment................... (35,022) (34,280)
Retirements of property and equipment ................ 3,742 4,494
Payments for purchase of rental car franchise licensees,
net of cash acquired of $14,208 in 1999........... (45,192) (232,843)
Payment for purchase of PHH Holdings, net of
cash acquired of $170,568.......................... (1,348,530)
------------- ---------------
Net cash used in investing activities ................ (2,503,287) (969,448)
------------- ---------------
Cash flows from financing activities:
Changes in debt:
Proceeds ......................................... 2,538,000 1,253,383
Repayments ....................................... (479,452) (842,559)
------------- ---------------
Net increase in debt ............................. 2,058,548 410,824
Payments for debt issuance costs .................... (1,640) (3,949)
Proceeds from public offering ....................... 161,194
Purchases of treasury stock........................... (57,237) (28,687)
Other................................................. 3,349
------------- ---------------
Net cash provided by financing activities............. 2,003,020 539,382
------------- ---------------
Effect of exchange rate changes on cash ................. 2,612 (437)
------------- ---------------
Net increase in cash and cash equivalents................ 176,770 19,482
Cash and cash equivalents at beginning of period ........ 29,751 44,899
------------- ---------------
Cash and cash equivalents at end of period .............. $ 206,521 $ 64,381
============= ===============
Supplemental disclosure of cash flow information:
Cash interest paid....................................... $ 173,600 $ 154,414
============= ===============
Cash income taxes paid .................................. $ 14,835 $ 10,261
============= ===============
Businesses acquired:
Fair value of assets acquired, net of cash acquired
of $184,776 in 1999.................................. $ 6,127,678 $ 239,743
Liabilities assumed...................................... 4,371,956 6,900
------------- ---------------
Net assets acquired...................................... 1,755,722 232,843
Less issuance of Series A and Series C Preferred
Stock................................................ 362,000
------------- ---------------
Net cash paid for acquisitions........................... $ 1,393,722 $ 232,843
============= ===============
</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 lease and 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. The condensed consolidated statements of operations include the results of
operations of VMS and of Motorent, Inc., subsequent to their dates of
acquisition on June 30, 1999. 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. All amounts are in
thousands except share data.
Note 2 - Cash Held on Deposit with Financial Institution
Cash on deposit with financial institution represents lease payments collected
from the Company's vehicle leasing customers by one of the Company's lenders in
connection with the Company's VMS Domestic Asset Based Financing Structure (see
Note 9). Cash collected during the month by the lender net of vehicle purchases
is settled with the Company in the early part of the following month.
Note 3- Earnings Per Share
Basic earnings per share is computed by dividing earnings available to common
stockholders for the three month periods ended September 30, 1999 and 1998 by
31,129,164 and 35,607,527 weighted average shares outstanding, respectively, and
for the nine months ended September 30, 1999 and 1998 by 31,394,335 and
34,334,496 weighted average shares outstanding, respectively. Diluted earnings
per share is computed by dividing earnings available to common stockholders for
the three month periods ended September 30, 1999 and 1998 by 31,760,213 and
36,179,780 weighted average shares outstanding, respectively, and for the nine
months ended September 30, 1999 and 1998 by 32,172,196 and 35,221,833 weighted
average shares outstanding, respectively. Shares used in calculating diluted
earnings per share include the effects of the assumed exercise of stock options.
Note 4 - Treasury Stock
At September 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 September 30, 1999...................... 57,037 2,318,775
Treasury stock issued under the
Company's stock option plan........................... (4,133) (196,687)
--------------- ------------
$ 103,864 4,794,788
=============== ============
</TABLE>
Included in treasury stock repurchased from January 1, 1999 to September 30,
1999 are 1.6 million shares repurchased from Cendant Corporation ("Cendant") at
a cost of $40.8 million.
Note 5 - Acquisitions
On March 19, 1999, and June 30, 1999, the Company purchased the common stock and
franchise rights of Rent A Car Company, Incorporated, of Richmond Virginia
("Rent-A-Car, Inc.") and Motorent, Inc. of Nashville Tennessee ("Motorent") for
approximately $10.1 million and $49.3 million, respectively. These acquisitions
were financed through internally generated funds.
On June 30, 1999, the Company completed the transaction contemplated by the
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").
<PAGE>
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 $500 million of
senior subordinated notes, and the issuance by the acquisition subsidiary of
$362.0 million of preferred stock (see Notes 6 and 9).
In connection with the VMS Acquisition, the Company received a perpetual,
royalty-free license to use the VMS trademarks, including the "PHH" name and
logo. PHH Corporation and PHH Holdings entered into a 5-year non-compete
agreement with Avis 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 September 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....................................... $ 1,920,918
------------
Fair value of:
Assets acquired................................ 4,890,565
Liabilities assumed............................ 4,371,956
------------
Net assets.......................................... 518,609
------------
Cost in excess of net assets acquired............... $ 1,402,309
============
The following unaudited pro forma information presents the results of operations
of the Company as if the acquisition of VMS for $1.8 billion (including the
issuance of Series A and Series C Preferred Stock) and the refinancing of VMS
indebtedness and related adjustments had taken place on January 1, 1998 (in
thousands, except share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue......................................... $ 1,120,548 $ 1,062,960 $ 3,136,865 $ 2,945,160
============ =========== =========== ============
Income before provision for income taxes........ $ 71,774 $ 41,614 $ 119,302 $ 75,229
============ =========== =========== ============
Net income...................................... $ 39,375 $ 21,614 $ 61,008 $ 35,552
Preferred stock dividends....................... 4,555 4,555 13,665 13,665
------------ ----------- ----------- ------------
Earnings applicable to common stockholders...... $ 34,820 $ 17,059 $ 47,343 $ 21,887
============ =========== =========== ============
Earnings per share:
Basic........................................... $ 1.12 $ .48 $ 1.51 $ .64
============ =========== =========== ============
Diluted......................................... $ 1.10 $ .47 $ 1.47 $ .62
============ =========== =========== ============
</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 nine months ended September 30, 1999 and 1998.
<PAGE>
Note 6 - 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 September 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. Until June 30,
2004, dividends may be paid at the discretion of the Acquisition Subsidiary in
shares of Series B Cumulative PIK Preferred Stock (see Series B Preferred Stock
below). In addition, if the Company is unable to obtain the consent of its
Shareholders to amend its charter by June 30, 2000 to Issue Class B Common Stock
(see Note 7) 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. 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 of control with respect to the Company
or the Acquisition Subsidiary.
The holders of the Series A Preferred may convert shares of Series A Preferred
into shares of Class B Common Stock 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 Acquisition Subsidiary has the
right to convert all of the shares of the Series A Preferred 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 the Company, as defined in Rule 1-02(w) of Regulation
S-X (a "Significant Subsidiary"), the Series A Preferred automatically converts
into Class B Common Stock 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 or written consent of the holders of a majority of
the outstanding shares of Series A Preferred, the Acquisition Subsidiary shall
not (1) authorize, create or issue any security ranking senior to the Series A
Preferred as to dividends or on liquidation (other than the Series C Preferred);
(2) amend its articles of incorporation or the certificate of designation for
the Series A Preferred in a manner adverse to the holders of the Series A
Preferred; (3) authorize the issuance of additional shares of Series A
Preferred; or (4) reincorporate the Acquisition Subsidiary in a jurisdiction
other than Texas prior to the second anniversary of the date of issuance of the
Series A Preferred. Holders of Series A Preferred are not entitled to voting
rights, except as required by Texas law. In those circumstances where the
holders of Series A Preferred have a right to vote, each holder of a share of
Series A Preferred shall be entitled to one vote per share.
Shares of Series A Preferred are freely transferable. Shares of Series A
Preferred reacquired in any manner will be retired and may not be reissued as
shares of Series A Preferred.
<PAGE>
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. As of September 30, 1999, 90,000 shares of Series B Preferred were
outstanding. Holders of the Series B Preferred are not entitled to preemptive
rights. The Series B Preferred has a liquidation preference of $50 per share
(the "Series B Liquidation Preference"). Each share of Series B Preferred
accrues dividends at a rate per annum of 5% of the Series B Liquidation
Preference, payable in cash semi-annually in arrears. In addition, if the
Company is unable to obtain the consent of its shareholders to amend its charter
by June 30, 2000 to issue Class B Common Stock 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 September 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, which is included in "Restricted Cash", has been established to
cover future dividend payments. Upon liquidation, and after payment of amounts,
if any, owed to all classes of capital stock ranked senior to the Series C
Preferred, holders of shares of Series C Preferred will receive the Series C
Liquidation Preference of such shares plus accrued and unpaid dividends. The
Series C Preferred ranks senior to the Series A Preferred, the Series B
Preferred and the Class A Common Stock in right of payment of dividends. The
Series C Preferred may be redeemed by the Acquisition Subsidiary, in whole or in
part, on or after 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 or written consent of the
holders of a majority of the outstanding shares of Series C Preferred, the
Acquisition Subsidiary may not take certain specified actions that would
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.
<PAGE>
Note 7 - 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 aggregate number of all of the
outstanding shares of Class A Common Stock, the Cendant Affiliates shall have
the right to convert shares of Class B Common Stock into Class A Common Stock on
a share-for-share basis in an amount such that the ownership by the Cendant
Affiliates of the Class A Common Stock does not exceed 20% of the aggregate
number of all of the outstanding shares of Class A Common Stock after giving
effect to such conversion.
The Cendant Affiliates shall have the right to convert the Class B Common Stock
into shares of Class A Common Stock on a share-for-share basis upon the
occurrence of (1) the bankruptcy or insolvency of the Company and (2) a
Preferred Stock Change of Control, other than any Preferred Stock Change of
Control that is caused solely by the sale by the Cendant Affiliates of its
shares of Class A Common Stock or Class B Common Stock.
Upon the transfer, sale or disposition for value to any person other than the
Cendant Affiliates, each share of Class B Common Stock shall be automatically
exchanged for the Class A Common Stock on a share-for-share basis.
Other than upon conversion of the Series A Preferred or the Series B Preferred,
no additional shares of Class B Common Stock may be issued. Shares of Class B
Common Stock shall be freely transferable. Shares of Class B Common Stock
reacquired in any manner shall be retired and may not be reissued as shares of
Class B Common Stock.
In connection with the VMS Acquisition, the Company entered into a registration
rights agreement pursuant to which Cendant and certain transferees of Class B
Common Stock and Class A Common Stock converted from the Class B Common stock
held by Cendant (the "Holders") will have the right to require the Company to
register all or part of the Class A Common Stock owned by such Holders under the
Securities Act of 1933 as amended (the "Securities Act") (an "Acquisition Demand
Registration"). However, the Company may postpone giving effect to an
Acquisition Demand Registration for a period of up to 30 days if the Company
believes such registration might have a material adverse effect on any 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 8 - Comprehensive Income
Comprehensive income is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income.................................................. $ 39,375 $ 30,138 $ 81,843 $ 59,896
Foreign currency translation adjustment..................... 7,351 (527) 10,031 (4,051
--------- --------- ---------- ---------
Comprehensive income........................................ $ 46,726 $ 29,611 $ 91,874 $ 55,845
========= ========= ========== =========
</TABLE>
<PAGE>
Note 9- Financing and Debt
Debt outstanding at September 30, 1999 and December 31, 1998 consist of the
following (in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
Vehicle Rental
Commercial Paper Notes $1,082,565 $ 678,377
Short-term notes-foreign 183,424 74,881
Series 1997-1A asset backed notes due May through October 2000 at 6.22% 800,000 800,000
Series 1997-1B asset backed notes due May through October 2002 at 6.40% 850,000 850,000
Series 1998-1 asset backed notes due December 2004 through May 2005 at 6.14% 600,000 600,000
Revolving credit facility due June 2005 115,000
Other 14,601 11,454
---------------- -----------------
Total Vehicle Rental Debt 3,645,590 3,014,712
---------------- -----------------
Vehicle Leasing and Other Fee Based
Interim Domestic Asset Backed Securities -Variable Funding Notes 2,719,169
Interim Foreign Asset Backed Securities -UK Advances 780,173
Self fund notes 8,402
Wright Express Certificates of Deposit 61,140
Wright Express Federal Funds Payable 1,753
----------------
Total Vehicle Leasing and Other Fee Based Debt 3,570,637
----------------
Acquisition Financing
Term A Loan Notes due June 2005 250,000
Term B Loan Notes due June 2006 375,000
Term C Loan Notes due June 2007 375,000
Senior Subordinated Notes due May 2009 at 11.00% 500,000
----------------
Total Acquisition Financing 1,500,000
---------------- ----------------
Total Debt $8,716,227 $ 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 September 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 5.14% and
5.65% for the nine months ended September 30, 1999 and 1998, respectively.
Average commercial paper borrowings was $1,100 million and $805 million for the
nine months ended September 30, 1999 and 1998, respectively.
Short-Term Notes Foreign
The weighted average interest rates of the short-term notes-foreign as of
September 30, 1999 and 1998 was 4.99% and 6.21%, respectively.
Certificates of Deposit
At September 30, 1999, scheduled maturities of certificates of deposit of
$61,140 are all less than one year. The interest rates range from 5.15% to
6.10%.
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 September
30, 1999, federal funds payable consist of three separate agreements totaling
$1,753, bearing interest at rates of 5.43% and 5.55%.
<PAGE>
Asset Backed Securities, Senior Subordinated Notes and Term Notes
In connection with the VMS Acquisition (see Note 5), 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"). (See Note 13)
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 September 30, 1999 for the domestic and foreign
asset-backed securities were 5.80% and 5.78%, respectively. (See footnote
13 to the condensed consolidated financial statements).
(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 September 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:
Weighted Average
ABR Loans Eurodollar Loans Interest Rate
Revolving Loans 1.75% 2.75% 8.03%
Term A Loan 1.75% 2.75% 8.24%
Term B Loan 2.25% 3.25% 8.75%
Term C Loan 2.50% 3.50% 9.01%
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
$115,000 as of September 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
September 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 September 30, 1999, the Company was in compliance with all
such covenants related to these agreements.
<PAGE>
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. These securities were subsequently registered on September 24,
1999. The Senior Subordinated Notes are general unsecured obligations of the
Parent, subordinated in right of payment to all existing and future senior
indebtedness of the Company, and guaranteed by certain of the Parent's domestic
subsidiaries. Accordingly, the following condensed consolidating financial
information presents the condensed consolidating financial statements as of
December 31, 1998 and September 30, 1999 and for the three and nine months ended
September 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. Separate
financial statements and other disclosures with respect to the subsidiary
guarantors have not been made because management believes that such information
is not material to holders of the Senior Subordinated Notes (in thousands).
Note 10 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the Nine Months Ended September 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 $ 1,759,631 $ 565,291 $ 2,324,922
------------ -------------- --------------
Costs and expenses:
Direct operating, net............................ 649,329 86,472 735,801
Vehicle depreciation and lease charges, net...... 446,906 300,796 747,702
Selling, general and administrative.............. $ (464) 361,639 47,125 408,300
Interest, net.................................... 10,376 161,704 73,193 245,273
Non-vehicle depreciation and amortization........ 17,871 5,499 23,370
Amortization of cost in excess of net
assets acquired............................... 13,210 5,118 18,328
-------------- ------------ -------------- --------------
9,912 1,650,659 518,203 2,178,774
-------------- ------------- -------------- --------------
(9,912) 108,972 47,088 146,148
Equity in earnings of subsidiaries............... 88,387 40,300 $ (128,687)
-------------- ------------ -------------- ------------- --------------
Income before provision for income taxes......... 78,475 149,272 47,088 (128,687) 146,148
Provision for income taxes....................... (3,368) 60,885 6,788 64,305
-------------- ------------ -------------- ------------- --------------
Net income................................... $ 81,843 $ 88,387 $ 40,300 $ (128,687) $ 81,843
============== ============ ============== ============= ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the Nine Months Ended September 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 $ 1,560,484 $ 178,571 $ 1,739,055
------------ -------------- --------------
Costs and expenses:
Direct operating, net............................ 616,281 81,126 697,407
Vehicle depreciation and lease charges, net...... 397,526 46,656 444,182
Selling, general and administrative.............. 297,546 24,778 322,324
Interest, net.................................... $ 10,377 130,086 3,318 143,781
Non-vehicle depreciation and amortization........ 15,111 1,718 16,829
Amortization of cost in excess of net
assets acquired............................... 8,575 112 8,687
-------------- ------------ -------------- --------------
10,377 1,465,125 157,708 1,633,210
-------------- ------------ -------------- --------------
(10,377) 95,359 20,863 105,845
Equity in earnings of subsidiaries............... 66,640 12,941 $ (79,581)
-------------- ------------ -------------- ------------- --------------
Income before provision for income taxes......... 56,263 108,300 20,863 (79,581) 105,845
Provision for income taxes....................... (3,633) 41,660 7,922 45,949
-------------- ------------ -------------- ------------- --------------
Net income................................... $ 59,896 $ 66,640 $ 12,941 $ (79,581) $ 59,896
============== ============ ============== ============= ==============
</TABLE>
Note 10 - Guarantor and Non -Guarantor Condensed Financial Statements
(Continued)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the Three Months Ended September 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 $ 673,194 $ 447,354 $ 1,120,548
------------ ------------- --------------
Costs and expenses:
Direct operating, net............................ 234,921 31,856 266,777
Vehicle depreciation and lease charges, net...... 165,285 271,250 436,535
Selling, general and administrative.............. $ (464) 147,189 30,393 177,118
Interest, net.................................... 3,458 70,585 71,305 145,348
Non-vehicle depreciation and amortization........ 6,780 4,239 11,019
Amortization of cost in excess of net
assets acquired............................... 6,955 5,022 11,977
--------------- ------------ -------------- --------------
2,994 631,715 414,065 1,048,774
--------------- ------------ ------------- --------------
(2,994) 41,479 33,289 71,774
Equity in earnings of subsidiaries............... 41,422 30,926 $ (72,348)
--------------- ------------ ------------- -------------- --------------
Income before provision for income taxes......... 38,428 72,405 33,289 (72,348) 71,774
Provision for income taxes....................... (947) 30,983 2,363 32,399
--------------- ------------ ------------- -------------- --------------
Net income................................... $ 39,375 $ 41,422 $ 30,926 $ (72,348) $ 39,375
=============== ============ ============= ============== ==============
</TABLE>
<PAGE>
Note 10 - Guarantor and Non -Guarantor Condensed Financial Statements
(Continued)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the Three Months Ended September 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 $ 585,190 $ 67,195 $ 652,385
------------ ------------- --------------
Costs and expenses:
Direct operating, net............................ 232,664 30,954 263,618
Vehicle depreciation and lease charges, net...... 148,946 17,842 166,788
Selling, general and administrative.............. 100,905 8,305 109,210
Interest, net.................................... $ 3,461 46,038 1,650 51,149
Non-vehicle depreciation and amortization........ 5,219 529 5,748
Amortization of cost in excess of net
assets acquired............................... 3,126 40 3,166
-------------- ------------ ------------- --------------
3,461 536,898 59,320 599,679
-------------- ------------ ------------- --------------
(3,461) 48,292 7,875 52,706
Equity in earnings of subsidiaries............... 32,387 4,468 $ (36,855)
-------------- ------------ ------------- -------------- --------------
Income before provision for income taxes......... 28,926 52,760 7,875 (36,855) 52,706
Provision for income taxes...................... (1,212) 20,373 3,407 22,568
-------------- ------------ ------------- -------------- --------------
Net income................................... $ 30,138 $ 32,387 $ 4,468 $ (36,855) $ 30,138
============== ============ ============= ============== ==============
</TABLE>
Note 10 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Financial Position
September 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........................ $ 378 $ 11,333 $ 71,293 $ 83,004
Cash held in trust............................... 123,517 123,517
Restricted cash.................................. 190,294 190,294
Accounts receivable, net......................... 12 240,948 936,769 1,177,729
Finance lease receivables........................ 46,226 909,779 956,005
Due from affiliates, net......................... (1,308,373) 1,779,879 (471,506)
Prepaid expenses................................. 37,300 16,658 53,958
Vehicles, net.................................... (68,206) 6,547,376 6,479,170
Property and equipment, net...................... 131,009 66,607 197,616
Investment in subsidiaries....................... 2,066,466 858,148 $ (2,924,614)
Cost in excess of net assets
Acquired, net................................ 1,063,771 772,795 1,836,566
Other assets..................................... 1,810 86,000 17,737 105,547
--------------- ------------- -------------- -------------- ------------
Total assets..................................... $ 760,293 $ 4,186,408 $ 9,181,319 $ (2,924,614) $ 11,203,406
=============== ============= ============== ============== ============
LIABILITIES, PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Accounts payable................................. $ 215,383 $ 284,780 $ 500,163
Accrued liabilities.............................. $ (4,649) 393,408 27,006 415,765
Deferred income.................................. 17,930 25,218 43,148
Due to affiliates................................ 43,550 (502) 43,048
Current income tax liabilities................... (7,388) 62,377 54,989
Deferred income tax liabilities, net............. (11,992) 103,234 32,123 123,365
Public liability, property damage and other
insurance liabilities, net.................... 224,190 58,627 282,817
Debt............................................. 115,000 767,685 7,833,542 8,716,227
Preferred stock.................................. 366,500 366,500
Common stockholders' equity...................... 661,934 2,061,916 858,148 $ (2,924,614) 657,384
--------------- ------------- -------------- ------------- ------------
Total liabilities, preferred stock and
common stockholders' equity................... $ 760,293 $ 4,186,408 $ 9,181,319 $ (2,924,614) $ 11,203,406
=============== ============= ============== ============= ============
</TABLE>
<PAGE>
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>
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)
Deferred income tax assets....................... 9,686 111,093 120,779
Cost in excess of net assets
acquired, net................................ 465,321 2,819 468,140
Other assets..................................... 38,127 2,463 40,590
=============== ============= ============== ============== ===========
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.............................. $ 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, net............. 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>
<PAGE>
Note 10 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Cash Flows
For the Nine Months Ended September 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....................................... $ 81,843 $ 88,387 $ 40,300 $ (128,687) $ 81,843
Adjustments to reconcile net income to net cash (used
in)
provided by operating activities:............ (225,193) 513,163 304,612 592,582
------------- -------------- ------------ ------------ ------------
Net cash (used in) provided by operating activities (143,350) 601,550 344,912 (128,687) 674,425
------------- -------------- ------------ ------------ ------------
Cash flows form investing activities:
Payments for vehicle additions................... 61,612 (6,748,991) (6,687,379)
Vehicle deletions................................ (395,836) 6,090,499 5,694,663
Decrease in finance lease receivables............ (46,226) (39,343) (85,569)
Payments for property and equipment.............. (29,476) (5,546) (35,022)
Retirements of property and equipment............ 2,248 1,494 3,742
Investment in subsidiaries....................... (98,418) (40,300) 138,718
Payment for purchase of rental car franchise
licensees, net of cash acquired of $14,208.... (44,934) (258) (45,192)
Payment for purchase of PHH Holdings, net of cash
acquired of $170,568.......................... (1,348,530) (1,348,530)
------------- -------------- ------------ ------------ -----------
Net cash used in investing activities....... (1,446,948) (492,912) (702,145) 138,718 (2,503,287)
------------- -------------- ------------ ------------ ------------
Cash flows from financing activities:
Net increase in (repayment of) debt.............. 1,615,000 (98,356) 541,904 2,058,548
Payments for debt issuance costs................. 19,522 (14,662) (6,500) (1,640)
Purchases of treasury stock...................... (57,237) (57,237)
Other............................................ 3,349 3,349
Cash dividends................................... 5,926 (5,926)
------------- -------------- ------------ ------------ ------------
Net cash provided by (used in) financing 1,580,634 (107,092) 529,478 2,003,020
activities....................................
------------- -------------- ------------ ------------ ------------
Effect of exchange rate changes on cash.......... 10,031 11 2,601 (10,031) 2,612
------------- -------------- ------------ ------------ ------------
Net increase in cash and cash equivalents........ 367 1,557 174,846 176,770
Cash and cash equivalents at beginning of period. 11 9,776 19,964 29,751
------------- -------------- ------------ ------------ ------------
Cash and cash equivalents at end of period.. $ 378 $ 11,333 $ 194,810 $ - $ 206,521
============= ============== ============ ============ ============
Businesses acquired:
Fair value of assets acquired, net of cash of
$184,776.................................... $ 6,127,678
Liabilities assumed.............................. 4,371,956
------------
Net assets acquired.............................. 1,755,722
Less issuance of Series A and Series C Preferred Stock 362,000
============
Net cash paid for acquisitions............... $ 1,393,722
============
</TABLE>
<PAGE>
Note 10 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 1998
Non- Avis Rent A
Avis Rent A Guarantor Guarantor Car, Inc.
Car, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 59,896 $ 66,640 $ 12,941 $ (79,581) $ 59,896
Adjustments to reconcile net income to net cash (used
in)
provided by operating activities:.............. (125,763) 486,847 29,005 390,089
------------- -------------- ------------ ------------ ------------
Net cash (used in) provided by operating activities ( 65,867) 553,487 41,946 (79,581) 449,985
------------- -------------- ------------ ------------ ------------
Cash flows from investing activities:
Payments for vehicle additions................... 33,029 (2,937,207) (2,904,178)
Vehicle deletions................................ (91,695) 2,289,054 2,197,359
Payments for property and equipment.............. (32,314) (1,966) (34,280)
Retirements of property and equipment............ 4,429 65 4,494
Investment in subsidiaries....................... (56,695) (107,942) 164,637
Payment for purchase of rental car franchise licensees (222,874) (9,969) (232,843)
------------- -------------- ------------ ------------ ------------
Net cash used in investing activities....... (56,695) (417,367) (660,023) 164,637 (969,448)
------------- -------------- ------------- ------------ ------------
Cash flows from financing activities:
Net increase in debt............................. (115,768) 526,592 410,824
Payments for debt issuance costs................. (3,949) (3,949)
Proceeds from public offering................... 161,194 161,194
Purchases of treasury stock...................... (28,687) (28,687)
Capital contributions to subsidiaries............ 95,001 ( 95,001)
------------- ---------------------------- ------------ ------------
Net cash provided by (used in) financing 132,507 (119,717) 621,593 (95,001) 539,382
activities....................................
------------- -------------- ------------ ------------ ------------
Effect of exchange rate changes on cash.......... (9,945) (437) 9,945 (437)
------------- ------------- ------------ ------------ ------------
Net increase in cash and cash equivalents........ 16,403 3,079 19,482
Cash and cash equivalents at beginning of period. 11 27,199 17,689 44,899
============= ============== ============ ============ ============
Cash and cash equivalents at end of period...... $ 11 $ 43,602 $ 20,768 $ - $ 64,381
============= ============== ============ ============ ============
Businesses acquired:
Fair value of assets acquired.................... $ 239,743
Liabilities assumed.............................. 6,900
------------
Net assets acquired.............................. 232,843
============
Cash paid for acquisitions....................... $ 232,843
============
</TABLE>
Note 11 - Segment Information
Prior to the purchase of VMS on June 30, 1999 (see Note 5), the Company operated
in one industry segment; the rental car business. As of July 1, 1999, the
Company began operating in two business segments as follows:
Vehicle Rental The Company rents vehicles to business and
leisure customers.
Vehicle Leasing and
other fee based services The Company leases vehicles to customers under
closed end and open end leases. Fee based
services include fuel and maintenance card,
accident management and various other vehicle
services which enable customers to effectively
manage costs and enhance productivity.
<PAGE>
Prior to the purchase of VMS on June 30, 1999, the Company operated in four
geographic areas: the United States, Australia/New Zealand, Canada and Other
Foreign Operations. As a result of the VMS acquisition, the Company added an
additional geographic area; the United Kingdom. Revenue generated from each of
the Company's business segments is recorded in the country in which rental,
vehicle leasing and other fee based services are provided. The accounting
policies of each geographic area are the same as those described in the summary
of significant accounting policies (see Note 1). EBITDA represents net income,
plus non-vehicle interest expense (acquisition interest), non-vehicle
depreciation and amortization, and income taxes. Corporate represents primarily
acquisition related interest, amortization of net assets acquired and
amortization of deferred financing fees. The operations within major business
segments and major geographic areas for the three and nine months ended
September 30, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
Business Segments Three Months Ended September 30, 1999
- -----------------
----------------------------------------------------------------
Vehicle
Leasing
And other
Vehicle Fee Based
Rental Services Corporate Consolidated
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue.......................................... $ 709,555 $ 410,993 $ 1,120,548
============= ============== ==============
EBITDA........................................... $ 81,976 $ 47,875 $ 464 $ 130,315
============= ============== ============== ==============
Income (loss) before provision for income taxes.. $ 71,721 $ 42,512 $ (42,459) $ 71,774
============= ============== ============== ==============
Total assets..................................... $ 5,310,484 $ 5,892,922 $11,203,406
============= ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
-----------------------------------------------------------------
Vehicle
Rental
-------------
<S> <C>
Revenue.......................................... $ 652,385
=============
EBITDA........................................... $ 61,620
=============
Income before provision for income taxes......... $ 52,706
=============
Total assets..................................... $4,742,572
=============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Geographic Areas Three Months Ended September 30, 1999
- ----------------
----------------------------------------------------------------------------------
Other
United United Australia/ Foreign
States Kingdom New Zealand Canada Operations Consolidated
---------- ------------ ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................................... $ 965,691 $ 62,322 $ 30,016 $ 50,796 $ 11,723 $ 1,120,548
========== ============ ============== =========== =========== ============
EBITDA........................................... $ 94,405 $ 19,651 $ 5,664 $ 11,531 $ (936) $ 130,315
========== ============ ============== =========== =========== ===========
Income (loss) before provision for income taxes. $ 41,685 $ 14,986 $ 5,330 $ 11,084 $ (1,311) $ 71,774
========== ============ ============== =========== =========== ============
Total assets..................................... $9,394,750 $ 1,328,149 $ 99,610 $ 317,679 $ 63,218 $11,203,406
=========== ============ ============== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
---------------------------------------------------------------------
Other
United Australia/ Foreign
States New Zealand Canada Operations Consolidated
----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................................... $ 585,230 $ 25,655 $ 34,980 $ 6,520 $ 652,385
=========== ============= ============ =========== =============
EBITDA........................................... $ 50,916 $ 5,072 $ 7,929 $ (2,297) $ 61,620
=========== ============= ============ =========== =============
Income before provision for income taxes......... $ 42,661 $ 4,799 $ 7,704 $ (2,458) $ 52,706
=========== ============= ============ =========== =============
Total assets..................................... $4,400,269 $ 93,675 $ 204,384 $ 44,244 $4,742,572
=========== ============= ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
Business Segments Nine Months Ended September 30, 1999
- ----------------- ----------------------------------------------------------------
Vehicle
Leasing
And other
Vehicle Fee Based
Rental Services Corporate Consolidated
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue.......................................... $ 1,913,929 $ 410,993 $ 2,324,922
============= ============== ==============
EBITDA........................................... $ 175,052 $ 47,875 $ 464 $ 223,391
============= ============== ============== ==============
Income (loss) before provision for income taxes.. $ 146,095 $ 42,512 $ (42,459) $ 146,148
============= ============== ============== ==============
Total assets..................................... $ 5,310,484 $ 5,892,922 $11,203,406
============= ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------------------------------------
Vehicle
Rental
-------------
<S> <C>
Revenue.......................................... $ 1,739,055
=============
EBITDA........................................... $ 131,361
=============
Income before provision for income taxes......... $ 105,845
=============
Total assets..................................... $ 4,742,572
=============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Geographic Areas Nine Months Ended September 30, 1999
- ---------------- ----------------------------------------------------------------------------------
Other
United United Australia/ Foreign
States Kingdom New Zealand Canada Operations Consolidated
----------- ------------ ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................................... $2,052,908 $ 62,322 $ 91,079 $ 92,093 $ 26,520 $ 2,324,922
=========== ============ ============= ============ =========== ============
EBITDA........................................... $ 175,367 $ 19,651 $ 18,566 $ 14,607 $ (4,800) $ 223,391
========== ============ ============= ============ =========== ============
Income (loss) before provision for income taxes.. $ 105,483 $ 14,986 $ 17,588 $ 13,677 $ (5,586) $ 146,148
========== ============ ============= ============ =========== ============
Total assets..................................... $9,394,750 $1,328,149 $ 99,610 $317,679 $ 63,218 $11,203,406
=========== ============ ============= ============ =========== ============
</TABLE>
<TABLE>
Nine Months Ended September 30, 1998
---------------------------------------------------------------------
Other
United Australia/ Foreign
States New Zealand Canada Operations Consolidated
----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenue.......................................... $1,560,721 $ 85,409 $ 72,809 $ 20,116 $ 1,739,055
=========== ============= ============= =========== =============
EBITDA........................................... $ 110,575 $ 18,186 $ 9,193 $ (6,593) $ 131,361
=========== ============= ============= =========== =============
Income before provision for income taxes......... $ 87,162 $ 17,280 $ 8,519 $ (7,116) $ 105,845
=========== ============= ============= =========== =============
Total assets..................................... $4,400,269 $ 93,675 $ 204,384 $ 44,244 $ 4,742,572
=========== ============= ============= =========== =============
</TABLE>
Note 12 - 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 nine
months ended September 30, 1999.
Note 13 - Subsequent Event
On October 28, 1999, the Company refinanced the U.S. portion of the Interim VMS
ABS facility with a permanent facility. The permanent VMS ABS facility consists
of two classes of floating rate asset-backed notes; class A-1 notes which total
$550.0 million and class A-2 notes which total $450.0 million. Both classes of
notes have an interest rate which is reset monthly at LIBOR plus 32 basis points
for the Class A-1 notes and 35 basis points for the class A-2. The class A-1
notes are required to be repaid commencing in March, 2001 through October, 2006.
The class A-2 notes commence repayment when the class A-1 notes are repaid in
full and are due and payable in October, 2011. Both classes of notes are
rated AAA by Standard & Poors and Aaa by Moody's. In addition, the Company
may issue up to $1,750.0 million of Variable Funding Investor Notes to a
group of multi-seller commercial paper conduits. At closing, there was
$1,363.2 million outstanding at a blended interest rate of 6.0% The Company
also issued on October 28, 1999 two series of Senior Preferred Membership
Interests totaling $255.9 million at a rate of 6.6%
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
General Overview
The following discussion and analysis of results of operations includes the
vehicle rental operations and the vehicle leasing and other fee based services
operations ("Vehicle Management Services or VMS") of the Company.
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. Vehicle 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. VMS
conducts operations principally in the United States, Canada, the United Kingdom
and Germany. VMS' vehicle management services include leases and services
clients require to lease a vehicle, such as vehicle acquisition, title and
registration, vehicle remarketing and fleet management consultation, (including
fleet, policy and vehicle recommendation). VMS' principal fee-based products are
fuel card services, maintenance card services and accident management services.
Management believes that a more meaningful comparison of the results of
operations for the periods presented below is obtained by presenting the results
on a pro-forma basis to give effect to the VMS acquisition, as if it had
occurred on January 1, 1998.
EBITDA is presented since it is a widely accepted indicator of funds available
to service debt, although it is not a measure of liquidity or of financial
performance under generally accepted accounting principles ("GAAP"). The Company
believes that EBITDA, while providing useful information, should not be
considered in isolation or as an alternative to net income or cash flows as
determined under GAAP.
Expenses:
(i) Vehicle rental expenses consist primarily of:
- Direct operating expenses (primarily wages and related
benefits, concessions and commissions paid to airport
authorities, vehicl insurance premiums and other costs relating
to the operation of the rental fleet);
- Depreciation and lease charges relating to the rental fleet
(including net gains or losses upon disposition of vehicles).
- Selling, general and administrative expenses (including payments to
Cendant under the Master License Agreement, the Computer Services
Agreement), reservation costs and other advertising and marketing
costs, and commissions paid to airlines and travel agencies and
- Interest expense, including those relating to the financing of its
rental fleet.
(ii) VMS' vehicle leasing and other fee based services expenses
consistprimarily of:
- Depreciation and lease charges relating to the fleet (including
net gains or losses upon the disposition of vehicles);
- Selling, general and administrative expenses includes wages
and related benefits, information processing and information
services costs and
- Interest expense relating primarily to VMS' leased fleet.
Net income:
Vehicle rental profitability is primarily a function of the number of rental
transactions and pricing of Avis' rental transactions and the utilization of
Avis' rental fleet.
VMS' profitability and cash flows are primarily a function of the volume of
fee-based transactions, leased vehicle volume and pricing.
Corporate:
Represents expenses associated with the VMS acquisition, which are primarily
interest expense, amortization of cost in excess of net assets acquired and
amortization of deferred financing costs.
The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's financial position and
results of operations
<PAGE>
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 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 September 30, 1999 Three Months Ended September 30, 1998
Pro-Forma
----------------------------------------------- ----------------------------------------------------
Vehicle Leasing VehicleLeasing
And Other And Other
Vehicle Fee Based Vehicle Fee Based
Rental Services Corporate Total Rental Services Corporate Total
--------- ------------- ---------- ---------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Vehicle Rental............. $ 709,555 $ 709,555 $ 652,385 $ 652,385
Vehicle Leasing............ $ 345,364 345,364 $ 347,986 347,986
Other fee based............ 65,629 65,629 62,589 62,589
--------- ------------- ---------- ---------- ------------- ------------
Total Revenue: 709,555 410,993 1,120,548 652,385 410,575 1,062,960
--------- ------------- ---------- ---------- ------------- ------------
Costs and expenses:
Direct operating........... 266,777 266,777 263,618 263,618
Vehicle depreciation and
lease charges, net....... 183,207 253,328 436,535 166,788 263,235 430,023
Selling, general and
administrative........... 119,519 58,063 $ (464) 177,118 109,210 57,069 166,279
Interest, net............. 58,076 51,727 109,803 51,149 51,550 $ 500 103,199
--------- -------------- ---------- ---------- ---------- ------------- ----------- ------------
627,579 363,118 (464) 990,233 590,765 371,854 500 963,119
--------- -------------- ---------- ---------- ---------- ------------- ----------- ------------
EBITDA........................ 81,976 47,875 464 130,315 61,620 38,721 (500) 99,841
Interest - acquisition debt 35,545 35,545 35,545 35,545
Amortization of cost in excess
of net assets acquired..... 3,335 1,578 7,064 11,977 3,166 2,564 6,078 11,808
Non-vehicle depreciation and
amortization.............. 6,920 3,785 314 11,019 5,748 4,812 314 10,874
--------- ------------- ---------- ---------- ---------- -------------- ----------- ------------
Income before provision for
income taxes............... $ 71,721 $ 42,512 $ (42,459) 71,774 $ 52,706 $ 31,345 $ (42,437) 41,614
========= ============= ========== ========== ========== ============= =========== ------------
Provision for income taxes.... 32,399 20,000
---------- ------------
Net income.................... $ 39,375 $ 21,614
========== ============
</TABLE>
VEHICLE RENTAL:
Revenue
Revenue increased 8.8%, from $652.4 million to $709.6 million, compared to the
same period in 1998. The increase in revenue is due primarily to overall market
demand (7.2%) and the acquisition of Motorent, Inc. on June 30, 1999 (1.6%). The
revenue increase reflected an 8.1% increase in the number of rental transactions
and a 0.6% increase in revenue per rental transaction.
Costs and Expenses
Total costs and expenses increased 6.4%, from $599.7 million to $637.8 million,
compared to the same period in 1998. Direct operating expenses increased 1.2%,
from $263.6 million to $266.8 million, compared to the same period in 1998. As a
percentage of revenue, direct operating expenses declined to 37.6%, from 40.4%
for the corresponding period in 1998. Operating efficiencies were derived
primarily from lower vehicle insurance costs (0.8% of revenue), lower airport
commissions (0.7% of revenue), lower damage expenses (0.5%), lower vehicle
registration costs (0.4%), and lower compensation costs (0.4%).
Vehicle depreciation and lease charges increased 9.8%, from $166.8 million to
$183.2 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
25.6% of revenue for the corresponding period in 1998. The change reflected a
5.7% increase in the average rental fleet combined with a higher monthly cost
per vehicle.
Selling, general and administrative expenses increased 9.4%, from $109.2 million
to $119.5 million, compared to the same period in 1998. The increase was due to
higher reservation costs, higher royalty fees, and higher marketing expenses.
Interest expense increased 13.5%, from $51.1 million to $58.1 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.
Income before provision for income taxes increased 36.1%, from $52.7 million to
$71.7 million, compared to the same period in 1998. The increase reflects higher
revenue and decreased costs and expenses as a percentage of revenue.
<PAGE>
VEHICLE LEASING AND OTHER FEE BASED SERVICES:
Revenues:
VMS' revenues for the three-month period ended September 30, 1999, totaled
$411.0 million and increased $418 thousand against the comparable period ended
September 30, 1998. Vehicles under management grew 1% to 790,000, however,
Vehicle Leasing Revenues decreased due principally to a sale-leaseback
arrangement with a third party. Under this arrangement, the Company sold certain
vehicles to a third party, retaining servicing responsibility, and then
repurchased the vehicles and leased them under a direct financing lease (the
"Canadian lease Securitization").
Vehicle Leasing Revenues decreased .8% in the three-month period ended September
30, 1999 to $345.4 million from $348.0 million for the comparable period in
1998. Leased asset unit growth totaled 3.9% to 361,000 units driven principally
by a 29% growth rate in Europe. Gross Asset Revenues decreased principally due
to a Canadian lease Securitization of $116 million completed on June 30, 1999
which resulted in lower revenues for the quarter.
Other Fee Based Revenues increased 4.9% in the three-month period ended
September 30, 1999, from $62.6 million in 1998 to $65.6 million in the
comparable period in 1999. VMS realized solid growth in the three major fee
based product lines of Fuel, Maintenance and Accident Management. Fuel revenues
increased 10.5% driven by solid growth by Wright Express. Maintenance revenues
increased 4.9% as growth was realized by both North America and Europe. Accident
Management continued its strong growth as total revenues increased 22% based on
a 28.2% increase in units. This increase in revenues was partially offset by a
decline in Other Fee Based Revenues due principally to a decrease centered in
Europe for certain products which have been de-emphasized.
Cost and Expenses:
Total expenses decreased 2.8% for the three month period ended September 30,
1999, to $368.5 million from $379.2 million in the comparable 1998 period. The
decrease was due principally to lower vehicle depreciation and lease expenses
which represented 61.6% and 64.1% of revenue for the three months ended
September 30, 1999 and 1998, respectively. Vehicle depreciation decreased $9.9
million to $253.3 million. The decrease was due to the Canadian lease
securitization which resulted in a $9.6 million decrease in depreciation expense
and lower used car losses of $3.7 million which are reflected as adjustments to
depreciation. These savings were partially offset by increases in depreciation
expense in Europe and the United States due to unit increases and higher costs
for the units.
Total selling general and administrative expenses increased 1.7% to $58.1
million. The increase resulted from higher transaction volumes across all
major product lines.
Interest expense increased $177 thousand to $51.7 million for the three-month
period ended September 30, 1999 over the comparable 1998 period. The increase is
due to higher rates, most of which would have been passed through to clients.
Income before provision for income taxes of $42.5 million for the three months
ended September 30, 1999 was 35.6% higher than the $31.3 million reported in the
comparable period in 1998. The increase in profitability was due mainly to
higher net revenues from the asset business represented by Vehicle Leasing
Revenue less Vehicle Depreciation and Interest.
Corporate:
Corporate expenses principally include interest expense and the amortization of
deferred financing costs on the Company's Senior Subordinated Notes and its Term
loans which were financed on June 30, 1999, in connection with the VMS
acquisition (see Note 5 to the financial statements).
Income Taxes:
The Company's consolidated provision for income taxes for the three months ended
September 30, 1999 increased 62.0%, from $20.0 million to $32.4 million,
compared to the same period in 1998. The effective income tax rate was 45.1%,
down from 48.1% for the corresponding period in 1998. The effective rate
decrease is due to primarily to an increase in income before provision for
income taxes and a decrease in the taxation of foreign operations. 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:
Consolidated net income increased 82.2%, from $21.6 million to $39.4 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.
<PAGE>
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 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>
Nine Months Ended September 30, 1999 Nine Months Ended September 30, 1998
Pro-Forma Pro-Forma
-------------------------------------------------- ---------------------------------------------------
Vehicle Leasing Vehicle Leasing
And Other And Other
Vehicle Fee Based Vehicle Fee Based
Rental Services Corporate Total Rental Services Corporate Total
----------- ------------- ---------- ----------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Vehicle Rental............. $ 1,913,929 $ 1,913,929 $ 1,739,055 $ 1,739,055
Vehicle Leasing............ $ 1,034,650 1,034,650 $ 1,033,386 1,033,386
Other fee based............ 188,286 188,286 172,719 172,719
----------- ------------- ----------- ------------ ------------ -----------
Total Revenue: 1,913,929 1,222,936 3,136,865 1,739,055 1,206,105 2,945,160
----------- ------------- ----------- ------------ ------------ -----------
Costs and expenses:
Direct operating........... 735,801 735,801 697,407 697,407
Vehicle depreciation and
lease charges, net....... 494,374 768,165 1,262,539 444,182 767,154 1,211,336
Selling, general and
amdinistrative........... 350,701 186,582 $ (464) 536,819 322,324 167,468 489,792
Interest, net.............. 158,001 146,177 1,000 305,178 143,781 153,248 $ 1,500 298,529
----------- ------------- ---------- ----------- ------------ ------------ ---------- -----------
1,738,877 1,100,924 536 2,840,337 1,607,694 1,087,870 1,500 2,697,064
----------- ------------- ---------- ----------- ------------ ------------ ---------- ----------
EBITDA....................... 175,052 122,012 (536) 296,528 131,361 118,235 (1,500) 248,096
Interest - acquisition debt 106,635 106,635 106,635 106,635
Amortization of cost in
excess of net assets acquired 9,686 5,575 20,294 35,555 8,687 6,899 19,027 34,613
Non-vehicle depreciation and
amortization............... 19,271 14,823 941 35,036 16,829 13,849 941 31,619
----------- ------------- ---------- ----------- ------------ ------------ ---------- -----------
Income before provision for
income taxes.............. $ 146,095 $ 101,614 $(128,406) 119,303 $ 105,845 $ 97,487 $(128,103) 75,229
=========== ============= ========== ----------- ============ =========== ========== -----------
Provision for income taxes... 58,294 39,676
----------- ===========
Net income................... $ 61,009 $ 35,553
=========== ===========
</TABLE>
VEHICLE RENTAL:
Revenue
Revenue increased 10.1%, from $1,739.1 million to $1,913.9 million, compared to
the same period in 1998. The increase in revenue is due primarily to overall
market demand (7.8%) and the acquisitions of Motorent, Inc. on June 30, 1999
(2.2% combined) and Hayes Leasing Company on May 1, 1998. The revenue increase
reflected a 9.0% increase in the number of rental transactions and a 1.0%
increase in revenue per rental transactions.
Costs and Expenses
Total costs and expenses increased 8.2%, from $1,633.2 million to $1,767.8
million, compared to the same period in 1998. Direct operating expenses
increased 5.5%, from $697.4 million to $735.8 million, compared to the same
period in 1998. As a percentage of revenue, direct operating expenses declined
to 38.4%, from 40.1% for the corresponding period in 1998. Direct operating
expense included a one-time $7.5 million credit (0.4% of revenue), resulting
from the curtailment of the Company's Deferred Benefit Plan. Operating
efficiencies were derived primarily from lower vehicle insurance costs (0.6% of
revenue), and lower airport commissions (0.9% of revenue) and were partially
offset by higher compensation costs (0.3% of revenue).
Vehicle depreciation and lease charges increased 11.3%, from $444.2 million to
$494.4 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
8.3% increase in the average rental fleet combined with a higher monthly cost
per vehicle.
Selling, general and administrative expenses increased 8.8%, from $322.3 million
to $350.7 million, compared to the same period in 1998. The increase was due to
higher reservation costs, higher general and administrative expenses, higher
marketing expenses and higher royalty fees.
<PAGE>
Interest expense increased 9.9%, from $143.8 million to $158.0 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.
Income before provision for income taxes increased 38.0%, from $105.8 million to
$146.1 million, compared to the same period in 1998. The increase reflects
higher revenue and decreased costs and expenses as a percentage of revenue.
VEHICLE LEASING AND OTHER FEE BASED SERVICES:
Revenues:
VMS' revenues increased 1.4% for the nine-month period ended September 30, 1999,
from $1,206.1 million to $1,222.9 million. Total vehicles under management grew
to approximately 800,000 units and total fuel cards exceeded 3.9 million cards.
Vehicle Leasing Revenues remained substantially unchanged, however, Fee Based
Revenue increased 9.0% to $188.3 million due to growth in the major fee based
products.
Vehicle Leasing Revenues totaled $1.03 billion, which is substantially unchanged
to the comparable period in 1998. Vehicle Leasing Revenues were negatively
impacted by lower revenues due to a Canadian lease Securitization completed in
June 30, 1999 which removed assets from the books.
Other Fee Based Revenue Growth was driven by growth in the three major product
lines: Fuel, Maintenance and Accident Management. Total revenues increased $15.6
million to $188.3 million. Fuel Revenues increased 8.6%, Maintenance Revenues
increased 6.8%, and Accident Management Revenues increased 19.7% as all three
products realized unit growth.
Cost and Expenses:
Total expenses increased 1.1% for the nine period ended September 30, 1999, to
$1,121.3 million from $1,108.6 million in the prior year. The increase was due
principally to higher selling, general and administrative expenses which
represented 15.3% and 13.9% of revenue for the nine months ended September 30,
1999 and 1998, respectively.
Total selling, general and administrative expenses increased 11.4% from $167.5
million in 1998 to $186.6 million in 1999. The increase resulted from higher
unit counts and transaction volumes in all of the segments. The largest increase
was realized in Europe due in part to conversion costs relating to a transition
to a new fuel platform.
Vehicle Depreciation Expense increased from $767.2 million in 1998 to $768.2
million in 1999. The increase resulted from a $12.3 million increase due to
increased units and higher capitalized costs offset by a $1.7 million decrease
in used car losses and lower depreciation due to the Canadian Lease
Securitization of $9.6 million.
Amortization of costs in excess of net assets acquired decreased due to the
acquisition of VMS by the Company on June 30, 1999.
Non-vehicle Depreciation and Amortization increased $1.0 million from $13.8
million in 1998 to $14.8 million in 1999, due primarily to depreciation for
systems work which was completed.
Income before provision for income taxes of $101.6 million for the nine months
ended September 30, 1999 was 4.2% higher than the $97.5 million reported in the
comparable period in 1998. The increase in profitability was due mainly to
higher revenue, lower interest expense offset by higher selling, general and
administrative expenses.
Corporate:
Corporate expenses principally include interest expense and the amortization of
deferred financing costs on the Company's Senior Subordinated Notes and its Term
loans which were financed on June 30,1999 in connection with the VMS acquisition
(see Note 5).
Income Taxes:
The Company's consolidated provision for income taxes for the nine months ended
September 30, 1999 increased 46.9%, to $58.3 million from $39.7 million,
compared to the same period in 1998. The effective income tax rate was 48.9%,
down from 52.7% for the corresponding period in 1998. The decrease in the
effective tax rate is due primarily to an increase in income before provision
for income taxes and a decrease in the taxation of foreign operations. 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.
Consolidated net income increased 71.6%, from $35.6 million to $61.0 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.
<PAGE>
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 indebtedness. For
the nine months ended September 30 1999, pro forma for the VMS Acquisition, the
Company's expenditures for new vehicles would have been approximately $6.3
billion and proceeds from the disposition of used vehicles would have been
approximately $4.3 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 manufacturer
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 ("Repurchase
Programs"). 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. The car rental
trade receivables also provide liquidity with approximately 12 days of daily
sales outstanding.
Pro forma for the VMS Acquisition, the Company would have made capital
investments for property improvements totaling $42.4 million for the nine months
ended September 30 1999, and $54.1 million for the nine months ended September
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 guarantees only the borrowings of its
subsidiary in Argentina. At September 30, 1999, the total debt for the Company's
international operations is approximately $998.0 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 ($115 million at
September 30, 1999). 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.
<PAGE>
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 Vehicle Rental ABS Facility
Avis car rental options, has a domestic integrated financing program that as of
September 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 September 30, 1999, Avis had
approximately $3.3 billion of debt outstanding under the Avis ABS Facility. At
September 30, 1999, Avis had approximately $417 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. On October 28, 1999, the Company
refinanced the U.S. portion of the Interim VMS ABS facility with a permanent
facility. The permanent VMS ABS facility consists of two classes of floating
rate asset-backed notes; class A-1 notes which total $550 million and class A-2
notes which total $450 million. Both classes of notes have an interest rate
which is reset monthly at LIBOR plus 32 basis points for the class A-1 notes
and 35 basis points for the class A-2 notes. The class A-1 notes are required
to be repaid commencing in March, 2001 through October, 2006. The class A-2
notes commence repayment when the class A-1 notes are repaid in full
and are due and payable in October, 2011. Both classes of notes are rated AAA by
Standard & Poors and Aaa by Moody's. In addition, the Company may issue up to
$1,750 million of Variable Funding Investor Notes to a group of multi-seller
commercial paper conduits. At closing, there was $1,363.2 million outstanding
at a blendd interest rate of 6.0% The Company also issued on October 28,
1999 two series of Senior Preferred Membership Interests totaling $255.9 million
at a rate of 6.6%.
Seasonality
The Company's car rental business is seasonal, 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. 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 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.
<PAGE>
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 believes its mission critical
systems are Year 2000 ready.
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 , vehicle leasing 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 $26.5
million including $3.0 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 $13.5 million in 1999 and
$1.6 million in 2000. Costs of hardware and software remediation were
approximately $8.9 million for the nine months ended September 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.
<PAGE>
(iv) Possible Consequences from Year 2000 Problems
The Company believes that completed and planned modifications and
conversions of its internal systems and equipment has made it Year 2000
ready. 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: QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS
Quantitative and Qualitative Financial Disclosures About Market Risk
The Company has derivative financial instruments at September 30, 1999 that are
sensitive to changes on its debt obligations and on its interest rate swap
agreements. The following derivative instruments agreements have been entered
into by the Company:
(a) In order to reduce its risk from interest rate fluctuations under its
interim asset based debt agreements (Notes 9 and 13), the Company has
entered into domestic and foreign interest rate cap and interest rate floor
agreements with durations of 10 and 5 years, respectively. The interest
rate cap and interest rate floor agreements have matching notional values
of $US 526,362 and Pounds Sterling 436,134, respectively. The agreements
established the domestic and foreign interest rate ceiling and floor on the
asset based vehicle financing of 5.675% and 6.30% and 5.0% and 5.5%,
respectively.
(b) The Company has also entered into U.S. and foreign Interest Rate Swap
Agreements, which terminate between November 1999 and April 2005, with
notional values of $855,073 as of September 30, 1999.
(c) Depending on market fundamentals of the price of gasoline and other
conditions, the Company may purchase put options to reduce or eliminate the
risk of gasoline price declines. Put options purchased by the Company
effectively establish a minimum sales transaction fee for the volume of
gasoline purchased on the Company's programs. An increase in the value of
the options is highly correlated to decreases in the average price of
gasoline purchased by the Company's cardholders. Put options permit the
Company to participate in price increases above the option price. The cost
of an option is amortized in the month the options expire. Gains from the
sale or exercise of options are recognized when the underlying option is
sold. At September 30, 1999, the total contract amount of such options was
14.9 million gallons of gasoline and the unamortized cost of options was
$140,000 and is included in other assets in the Company's consolidated
statement of financial position.
<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: November 15, 1999 By: /s/ Kevin M. Sheehan
------------------------------------
President-Corporate and Business
Affairs and Chief Financial Officer
(principal financial officer)
Dated: November 15, 1999 By: /s/ Timothy M. Shanley
------------------------------------
Vice President and Controller
(principal accounting officer)
<PAGE>
Part II. Other Informatio
ITEM: 6(a) EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Exhibits filed with Form 10-Q for the quarter ended September 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 36
the Nine months ended September 30, 1999
ITEM: 6(b) REPORTS 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 the 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 $1.0 billion
in bank facilities, $500.0 million of high yield securities and $360.0 million
in preferred stock.
On July 15, 1999, the Company filed a Form 8-K which announced that on June 30,
1999, Avis Fleet Leasing and Management Corporation, a Texas Corporation and a
wholly-owned subsidiary of Avis Rent A Car, Inc., merged under Texas law into
PHH Holdings Corporation, a Texas corporation . Pursuant to the merger both PHH
Holdings and Avis Fleet survived as subsidiaries of their respective parent
companies and Avis Fleet acquired the stock of the subsidiaries of PHH Holdings
which operate vehicle management and fuel card businesses in the United States,
Canada and Europe under the PHH and Wright Express names and all of the
property, rights and assets of such businesses. As consideration for such stock,
Avis Fleet paid $1.438 billion in cash and issued 7,200,000 shares of its Series
A Preferred Stock and 40,000 shares of its Series C Preferred Stock with a
liquidation preference of $362 million to PHH Corporation, an indirect
subsidiary of Cendant and the parent of PHH Holdings.
On August 6, 1999, the Company filed on Form 8-K management's discussion and
analysis of the VMS Historical Financial Statements as well as a discussion of
the liquidity and capital resources requirements of Avis Rent A Car and its
subsidiaries, including VMS (collectively "New Avis") and certain other matters,
which were initially filed in the July 15, 1999 Form 8-K. These included Audited
Combined Financial Statements as of December 31, 1998 and 1997 and for the years
ended December 31, 1998, 1997 and 1996, as well as unaudited Condensed Combined
Financial Statements as of March 31, 1999 and for the three months ended March
31, 1999 and 1998.
On August 11, 1999, the Company filed on Form 8-KA an amendment to the July 15,
1999, Form 8-K filing in which the "Certificate of Designation of Powers,
Preferences and Special Rights of Series A Cumulative Participating Redeemable
Convertible Preferred Stock and Qualifications, Limitations, and Restrictions,
thereof of Avis Fleet Leasing and Management Corporation was re-filed to include
certain information inadvertently omitted from the original filing.
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 206,521
<SECURITIES> 0
<RECEIVABLES> 1,181,702
<ALLOWANCES> 3,973
<INVENTORY> 6,479,170
<CURRENT-ASSETS> 0
<PP&E> 225,628
<DEPRECIATION> 28,012
<TOTAL-ASSETS> 11,203,406
<CURRENT-LIABILITIES> 0
<BONDS> 8,716,227
366,500
0
<COMMON> 359
<OTHER-SE> 657,025
<TOTAL-LIABILITY-AND-EQUITY> 11,203,406
<SALES> 2,324,922
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,887,739
<OTHER-EXPENSES> 41,698
<LOSS-PROVISION> 4,064
<INTEREST-EXPENSE> 245,273
<INCOME-PRETAX> 146,148
<INCOME-TAX> 64,305
<INCOME-CONTINUING> 81,843
<DISCONTINUED> 0
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<NET-INCOME> 81,843
<EPS-BASIC> 2.46
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