SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2000
[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 GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3347585
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
900 Old Country Road, Garden City, New York 11530
Address of principal executive offices)
(Zip Code)
516)222-3000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of August 9 , 2000: Common Stock, $.01 par value - Class A
31,131,712 shares.
<PAGE>
AVIS GROUP HOLDINGS, INC.
INDEX
PART I. Financial Information
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Page
Consolidated Statements of Operations for the three
months and six months ended June 30, 2000 and 1999..............1
Consolidated Statements of Financial Position as of
June 30, 2000and December 31, ..................................2
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999....................................3
Notes to the Condensed Consolidated Financial Statements ......4-16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OFOPERATIONS.......................................17-26
ITEM 3. QUANTATIVE AND QUALITATIVE FINANCIAL DISCLOSURES
ABOUT MARKET RISKS................................................27
PART II. Other
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............29
ITEM 6(a). EXHIBITS..........................................................29
ITEM 6(b). REPORT ON FORM 8-K ...............................................29
<PAGE>
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
(Unaudited) <TABLE> <CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------- ------------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Vehicle rental.............................. $ 666,597 $ 637,457 $ 1,255,473 $ 1,204,374
Vehicle leasing and other fee based......... 429,871 854,028
---------- ---------- -----------
1,096,468 637,457 2,109,501 1,204,374
---------- ---------- -----------
Costs and expenses:
Direct operating, net....................... 229,314 242,886 456,008 461,720
Vehicle depreciation and lease charges, net. 426,505 165,417 827,502 318,471
Selling, general and administrative......... 186,192 120,381 366,275 231,182
Interest, net............................... 161,197 51,483 305,994 99,925
Non-vehicle depreciation and amortization .. 13,440 6,569 26,459 12,351
Amortization of cost in excess of
net assets acquired ...................... 11,762 3,177 23,594 6,351
---------- ---------- ----------- -----------
1,028,410 589,913 2,005,832 1,130,000
---------- ---------- ----------- -----------
Income before provision for income taxes ... 6 8,058 47,544 103,669 74,374
Provision for income taxes.................. 30,626 20,262 46,651 31,906
---------- ---------- ----------- -----------
Net income.................................. 37,432 27,282 57,018 42,468
Preferred stock dividend.................... 4,667 9,335
---------- ---------- -----------
Earnings applicable to common stockholders.. $ 32,765 $ 27,282 $ 47,683 $ 42,468
========== ========== =========== ===========
Earnings per share:
Basic....................................... $ 1.05 $ 0.87 $ 1.53 $ 1.35
========== ========== =========== ===========
Diluted .................................... $ 1.05 $ 0.85 $ 1.52 $ 1.31
========== ========== =========== ===========
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE>
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 151,114 $ 71,697
Cash held on deposit with financial institution....... 143,610 93,530
Restricted cash....................................... 243,952 253,080
Accounts receivable, net.............................. 681,150 1,115,740
Assets held for sale, net............................. 869,222
Prepaid expenses...................................... 62,222 64,316
Finance lease receivables............................. 176,916 871,034
Vehicles, net-rental.................................. 4,148,989 3,367,362
Vehicles, net-leasing................................. 3,053,234 3,134,009
Property and equipment, net........................... 182,567 197,827
Other assets.......................................... 104,797 115,273
Cost in excess of net assets acquired, net............ 1,240,826 1,794,390
---------------- ---------------
Total assets....................................... $ 11,058,599 $ 11,078,258
================ ===============
LIABILITIES, PREFERRED STOCK AND
COMMON STOCKHOLDERS' EQUITY
Accounts payable...................................... $ 530,500 $ 588,377
Accrued liabilities .................................. 354,160 369,453
Due to affiliates, net................................ 76,659 59,396
Current income tax liabilities........................ 20,012 18,226
Deferred income tax liabilities, net ................. 161,057 181,256
Public liability, property damage and
other insurance liabilities, net .................. 257,477 259,756
Vehicle debt.......................................... 7,006,064 6,969,805
Acquisition debt ..................................... 1,491,500 1,500,000
Minority interest (preferred membership interest)..... 99,305 99,305
---------------- ---------------
Total liabilitie.................................. 9,996,734 10,045,574
---------------- ---------------
Commitments and contingencies
Preferred Stock:
Class A Preferred stock .............................. 360,000 360,000
Class B Preferred stock............................... 18,225 9,000
Class C Preferred stock............................... 2,000 2,000
---------------- ---------------
Total preferred stock.............................. 380,225 371,000
---------------- ---------------
Common stockholders' equity:
Class A Common stock ................................. 359 359
Additional paid-in capital ........................... 593,199 593,106
Retained earnings..................................... 223,373 175,690
Accumulated other comprehensive loss (31,459) (3,639)
Treasury stock ....................................... (103,832) (103,832)
----------------- ---------------
Total common stockholders' equity.................. 681,640 661,684
----------------- ---------------
Total liabilities, preferred stock and common
stockholders' equity ............................ $ 11,058,599 $ 11,078,258
================= ===============
</TABLE>
See notes to the condensed consolidatedfinancial statements.
<PAGE>
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 57,018 $ 42,468
Adjustments to reconcile net income to net cash
provided by operating activities ............... 868,101 249,395
-------------- ---------------
Net cash provided by operating activities........... 925,119 291,863
-------------- ---------------
Cash flows from investing activities:
Payments for vehicle additions ..................... (3,957,921) (2,494,247)
Vehicle deletions .................................. 2,379,842 1,526,780
Increase in finance lease receivables............... (65,906)
Payments for property and equipment................. (28,779) (17,953)
Retirements of property and equipment .............. 9,018 1,073
Payments for purchase of rental car franchise
licensee, net of cash acquired of
$11,065 in 1999 ................................. (42,503)
Payment for purchase of PHH Holdings, net of
cash acquired of $170,568 in 1999................ (1,330,932)
-------------- ---------------
Net cash used in investing activities .............. (1,663,746) (2,357,782)
-------------- ---------------
Cash flows from financing activities:
Changes in debt:
Proceeds ........................................... 1,254,649 5,882,621
Repayments ......................................... (377,470) (3,510,624)
-------------- ---------------
Net increase in debt ............................... 877,179 2,371,997
Payments for debt issuance costs .................. (7,775) (1,635)
Purchases of treasury stock......................... (57,237)
Other............................................... 3,326
-------------- ---------------
Net cash provided by financing activities........... 869,404 2,316,451
-------------- ---------------
Effect of exchange rate changes on cash .............. (1,280) 87
-------------- ---------------
Net increase in cash and cash equivalents............. 129,497 250,619
Cash and cash equivalents and cash held on deposit
with financial institution at beginning of period .. 165,227 29,751
-------------- ---------------
Cash and cash equivalents and cash held on deposit
with financial institution at end of period ........ $ 294,724 $ 280,370
============== ===============
Supplemental disclosure of cash flow information:
Cash interest paid.................................... $ 294,979 $ 107,466
============== ===============
Cash income taxes paid ............................... $ 23,134 $ 5,329
============== ===============
Businesses acquired in 1999:
Fair value of assets acquired, net of cash acquired
of $181,633......................................... $ 6,218,950
Liabilities assumed................................... 4,483,515
---------------
Net assets acquired................................... 1,735,435
Less: issuance of Series A and Series C Preferred
Stocks.............................................. (362,000)
---------------
Net cash paid for acquisitions........................ $ 1,373,435
===============
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include
Avis Group Holdings, Inc. and its subsidiaries (the "Company" or "Avis Group.").
These consolidated financial statements reflect, in the opinion of management,
all material adjustments (which include normal recurring adjustments only)
necessary to fairly state the financial position, the results of operations and
cash flows for the periods presented. The consolidated statements of financial
position include all of the assets and liabilities of the Company, including the
Company's vehicle lease and vehicle management businesses in the United States
and Canada ("PHH North America"), and in Europe ("PHH Europe") (see Note 5), and
of Wright Express LLC (collectively "VMS") which were acquired on June 30, 1999.
The consolidated statements of financial position also include all of the assets
and liabilities of Rent A Car Incorporated ("Rent-A-Car, Inc.") and Motorent,
Inc. of Nashville, Tennessee ("Motorent") rental car franchisees, which were
purchased on March 19, 1999 and June 30, 1999, respectively. The consolidated
statements of operations include the results of these operations, subsequent to
their dates of acquisition. Operating results for interim periods are not
indicative of the results that can be expected for a full year. These
consolidated financial statements should be read in conjunction with the
Company's audited annual consolidated financial statements and notes thereto,
included in the Company's annual report on Form 10-K for the year ended December
31, 1999, and the current report on Form 8-K, dated July 14, 2000, filed with
the Securities and Exchange Commission. Certain amounts in the prior period have
been reclassified to conform to current period presentation. All amounts are in
thousands except share data.
Note 2 - Cash Held on Deposit with Financial Institution
Cash held on deposit with financial institution represents lease payments
collected from the Company's vehicle leasing customers by one of the Company's
lenders in connection with the Company's domestic vehicle leasing Asset Backed
Financing Structure (see Note 7). 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 applicable to common
stockholders for the three months ended June 30, 2000 and 1999 by 31,131,712 and
31,188,977 weighted average shares outstanding, respectively, and for the six
months ended June 30, 2000 and 1999 by 31,131,712 and 31,529,114 weighted
average shares outstanding, respectively. Diluted earnings per share is computed
by dividing earnings applicable to common stockholders for the three months
ended June 30, 2000 and 1999 by 31,336,088 and 32,237,810 weighted average
shares outstanding, respectively, and for the six months ended June 30, 2000 and
1999 by 31,339,247 and 32,380,499 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 - Acquisitions
On June 30, 1999, the Company acquired VMS for $1.8 billion and refinanced VMS
indebtedness of approximately $3.5 billion (the "VMS Acquisition"). The
acquisition financing included borrowings by the Company of $1.0 billion of term
loans, the issuance by the Company of $500 million of senior subordinated notes,
and the issuance by the acquisition subsidiary of $362 million of preferred
stock.
On March 19, 1999 and June 30, 1999, the Company also purchased Rent-A-Car, Inc.
and Motorent using internally generated funds for approximately $53.8 million.
The combined purchase cost allocation for the Company's acquisitions of VMS,
Rent-A-Car, Inc. and Motorent are as follows (in
thousands):
Purchase cost....................................... $ 1,917,948
-------------
Fair value of:
Assets acquired................................ 4,797,701
Liabilities assumed............................ 4,279,041
-------------
Net assets.......................................... 518,660
-------------
Cost in excess of net assets acquired before
Reclassification............................... $ 1,399,288
=============
The above mentioned acquisitions have been accounted for by the purchase method.
The financial statements include the operating results of these acquisitions
subsequent to their dates of acquisition.
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following unaudited pro forma information presents the results of operations
of the Company as if the acquisition of VMS for $1.8 billion (including the
issuance of Series A and Series C Preferred Stock) and the refinancing of VMS
indebtedness and related adjustments had taken place on January 1, 1999 (in
thousands, except share data):
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, 1999 June 30, 1999
------------- -------------
<S> <C> <C>
Revenue......................................... $ 1,047,494 $ 2,016,317
============ ============
Income before provision for income taxes........ $ 36,745 $ 49,843
============ ============
Net income...................................... $ 18,449 $ 23,039
============ ============
Preferred stock dividends....................... $ 4,555 $ 9,110
============ ============
Earnings applicable to common stockholders...... $ 13,894 $ 13,929
============ ============
Earnings per share:
Basic........................................... $ .45 $ .44
============ ============
Diluted......................................... $ .43 $ .43
============ ============
</TABLE>
If the acquisitions of Rent-A-Car, Inc. and Motorent had occurred on January 1,
1999, they would not have had a material impact on the result of operations for
the three and six months ended June 30, 1999.
Note 5 - Assets Held For Sale, net
On June 30, 2000, the Company announced that it had signed a definitive
agreement with Banque Nationale de Paris ("BNP Paribas") to form a joint venture
company, that will own PHH Europe and, within one year, merge with BNP Paribas'
vehicle management subsidiary, Arval Service Lease S.A. ("Arval"). As part of
the agreement, BNP Paribas will acquire an 80% interest in the venture and the
Company will initally retain a 20% interest in the venture, receive $800 million
in cash and have its intercompany indebtedness with PHH Europe repaid. PHH
Europe with its operations in the United Kingdom and Germany is engaged in the
business of leasing vehicles and providing fee based services, including fuel
and maintenance cards, accident management and other vehicle services to its
customers. The Company will license PHH North America's fleet management
technology, PHH InterActive, to the joint venture and Arval and receive an
annual royalty for 10 years. Any difference between the carrying value of the
net assets of PHH Europe and the proceeds from the sale is accounted for as an
adjustment to cost in excess of net assets acquired relating to the VMS
Acquisition (see Note 4). Accordingly, the net assets of PHH Europe, including
the cost in excess of net assets acquired mentioned above, are reported as
Assets Held for Sale, Net on the accompanying Consolidated Statement of
Financial Position at June 30, 2000. On August 9, 2000, the Company completed
it's announced agreement with BNP Paribas.
At June 30, 2000 Assets Held for Sale, net consists of (in thousands):
Assets.................................... $1,895,122
Liabilities............................... 1,025,900
-----------
$ 869,222
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 6- Comprehensive Income
Comprehensive income is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net income.................................................. $ 37,432 $ 27,282 $ 57,018 $ 42,468
Foreign currency translation adjustment, net of income taxes (18,646) 2,280 (27,820) 2,680
--------- -------- ---------- --------
Comprehensive income........................................ $ 18,786 $ 29,562 $ 29,198 $ 45,148
========= ======== ========== ========
</TABLE>
Note 7- Financing and Debt
Debt outstanding at June 30, 2000 and December 31, 1999 consist of the following
(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Vehicle Rental
Commercial Paper Notes.................................................. $ 1,315,363 $ 1,026,261
Short-term notes-foreign................................................ 216,984 111,259
Series 1997-1A asset-backed Medium Term Notes due May through
October 2000 at 6.22%............................................... 533,333 800,000
Series 1997-1B asset-backed Medium Term Notes due May through
October 2002 at 6.40%............................................... 850,000 850,000
Series 1999-1 asset-backed Medium Term Notes due December 2004 through
May 2005 at 6.14%................................................... 600,000 600,000
Series 2000-1 floating rate Rental Car Asset-Backed Notes due
February 2003 through July 2003..................................... 250,000
Series 2000-2 floating rate Rental Car Asset-Backed Notes due
March 2007 through August 2007..................................... 300,000
Revolving credit facility due June 2005................................. 60,000 62,000
Other................................................................... 5,685 5,902
------------- ------------
Total Vehicle Rental Debt 4,131,365 3,455,422
------------- ------------
Vehicle Leasing and Other Fee Based
Commercial Paper Notes.................................................. 1,709,688 1,521,498
Canadian short term borrowings.......................................... 31,957 44,563
Series 1999-2 floating rate asset-backed notes, Class A-1............... 550,000 550,000
Series 1999-2 floating rate asset-backed notes, Class A-2............... 450,000 450,000
Foreign Asset Backed Securities - UK Advances (see Note 5)............. 850,443
Self-fund notes......................................................... 31,827 30,397
Wright Express Certificates of Deposit.................................. 101,227 67,482
------------- ------------
Total Vehicle Leasing and Other Fee Based Debt 2,874,699 3,514,383
------------- -----------
Total Vehicle Debt 7,006,064 6,969,805
------------- ------------
Acquisition Financing
Term A Loan Notes due June 2005........................................ 242,500 250,000
Term B Loan Notes due June 2006........................................ 374,500 375,000
Term C Loan Notes due June 2007........................................ 374,500 375,000
Senior Subordinated Notes due May 2009 at 11.00%........................ 500,000 500,000
------------- ------------
Total Acquisition Financing..................................... 1,491,500 1,500,000
------------- ------------
Total Debt...................................................... $ 8,497,564 8,469,805
============= ============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements
In connection with the VMS Acquisition and as part of the financing thereof,
Avis Group Holdings, Inc. (the "Parent") issued and sold the Senior Subordinated
Notes (see Note 7) in a transaction exempt from registration under the
Securities Act. The Senior Subordinated Notes are general unsecured obligations
of the Parent, subordinated in right of payment to all existing and future
senior indebtedness of the Company, and guaranteed by certain of the Parent's
domestic subsidiaries. Accordingly, the following condensed consolidating
financial information presents the condensed consolidating financial statements
as of June 30, 2000 and December 31, 1999 and for the three and six months ended
June 30, 2000 and 1999, respectively, of: (a) the Parent (b) the guarantor
subsidiaries (c) the non-guarantor subsidiaries (d) elimination entries
necessary to consolidate Parent with guarantor and non-guarantor subsidiaries
and (e) the Company on a consolidated basis.
Investments in subsidiaries are accounted for using the equity method for
purposes of the consolidating presentation. The principle elimination entries
eliminate investments in subsidiaries and intercompany balances and transactions
(in thousands):
Separate financial statements and other disclosures with respect to the
subsidiary guarantors have not been made because management beleives that such
information is not material to holders of the Senior Subordinated Notes.
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the six months ended June 30, 2000
(in thousands)
---------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,179,926 $ 929,575 $ 2,109,501
------------ --------------- ----------------
Costs and expenses:
Direct operating, net............................ 401,713 54,295 456,008
Vehicle depreciation and lease charges, net...... 265,060 562,442 827,502
Selling, general and administrative.............. 270,283 95,992 366,275
Interest, net.................................... $ 80,249 100,422 125,323 305,994
Non-vehicle depreciation and amortization........ 17,314 9,145 26,459
Amortization of cost in excess of net
assets acquired............................... 20,536 3,058 23,594
---------- ------------ --------------- ----------------
80,249 1,075,328 850,255 2,005,832
---------- ------------ --------------- ----------------
(80,249) 104,598 79,320 103,669
Equity in earnings of subsidiaries............... 107,458 62,027 $ (169,485)
---------- ------------ --------------- -------------- ----------------
Income before provision for income taxes......... 27,209 166,625 79,320 (169,485) 103,669
Provision (benefit) for income taxes........... (29,809) 59,167 17,293 46,651
---------- ------------ --------------- -------------- ----------------
Net income................................... $ 57,018 $ 107,458 $ 62,027 $ (169,485) $ 57,018
========== ============ =============== ============== ================
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the six months ended June 30, 1999
(in thousands)
---------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,086,437 $ 117,937 $ 1,204,374
------------ -------------- ---------------
Costs and expenses:
Direct operating, net............................ 407,104 54,616 461,720
Vehicle depreciation and lease charges, net...... 288,925 29,546 318,471
Selling, general and administrative.............. 214,450 16,732 231,182
Interest, net.................................... $ 6,918 91,119 1,888 99,925
Non-vehicle depreciation and amortization........ 11,091 1,260 12,351
Amortization of cost in excess of net
assets acquired............................... 6,255 96 6,351
------------- ------------- -------------- --------------
6,918 1,018,944 104,138 1,130,000
------------- ------------- -------------- --------------
(6,918) 67,493 13,799 74,374
Equity in earnings of subsidiaries............... 46,965 9,374 $ (56,339)
------------- ------------- -------------- ------------ --------------
Income before provision for income taxes......... 40,047 76,867 13,799 (56,339) 74,374
Provision (benefit) for income taxes........... (2,421) 29,902 4,425 31,906
------------- ------------- -------------- ------------ --------------
Net income................................... $ 42,468 $ 46,965 $ 9,374 $ (56,339) $ 42,468
============= ============= ============== ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the three months ended June 30, 2000
(in thousands)
---------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue $ 619,697 $ 476,771 $ 1,096,468
------------ ------------- ---------------
Costs and expenses:
Direct operating, net............................ 204,842 24,472 229,314
Vehicle depreciation and lease charges, net...... 133,722 292,783 426,505
Selling, general and administrative.............. 137,826 48,366 186,192
Interest, net.................................... $ 40,207 56,620 64,370 161,197
Non-vehicle depreciation and amortization........ 8,656 4,784 13,440
Amortization of cost in excess of net
assets acquired............................... 10,266 1,496 11,762
------------- ------------ ------------- ---------------
40,207 551,932 436,271 1,028,410
------------- ------------ ------------- ---------------
(40,207) 67,765 40,500 68,058
Equity in earnings of subsidiaries............... 63,407 32,472 $ (95,879)
------------- ------------ ------------- -------------- ---------------
Income before provision for income taxes......... 23,200 100,237 40,500 (95,879) 68,058
Provision (benefit) for income taxes........... (14,233) 36,831 8,028 30,626
------------- ------------ $ 32,472 $ (95,879) $ 37,432
============= ============ ============= ============== ===============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the three months ended June 30, 1999
(in thousands)
--------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Revenue $ 578,867 $ 58,590 $ 637,457
-------------- ------------- --------------
Costs and expenses:
Direct operating, net............................ 215,521 27,365 242,886
Vehicle depreciation and lease charges, net...... 151,031 14,386 165,417
Selling, general and administrative.............. 111,700 8,681 120,381
Interest, net.................................... $ 3,459 47,029 995 51,483
Non-vehicle depreciation and amortization........ 5,877 692 6,569
Amortization of cost in excess of net
assets acquired............................... 3,128 49 3,177
------------ -------------- ------------- --------------
3,459 534,286 52,168 589,913
------------ -------------- ------------- --------------
(3,459) 44,581 6,422 47,544
Equity in earnings of subsidiaries............... 29,531 4,387 $ (33,918)
------------ -------------- ------------- -------------- --------------
Income before provision for income taxes......... 26,072 48,968 6,422 (33,918) 47,544
Provision (benefit) for income taxes........... (1,210) 19,437 2,035 20,262
------------ -------------- ------------- ------------- --------------
Net income................................... $ 27,282 $ 29,531 $ 4,387 $ (33,918) $ 27,282
============ ============== ============= ============= ==============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Financial Position
June 30, 2000
(in thousands)
----------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 30 $ 39,204 $ 111,880 $ 151,114
Cash held on deposit with financial institution.. 143,610 143,610
Restricted cash.................................. 243,952 243,952
Accounts receivable, net......................... 241,968 439,182 681,150
Assets held for sale, net........................ 429,393 439,829 869,222
Prepaid expenses................................. 52,714 9,508 62,222
Finance lease receivables........................ 176,916 176,916
Vehicles, net-rental............................. (72,180) 4,221,169 4,148,989
Vehicles, net-leasing............................ (5,213) 3,058,447 3,053,234
Property and equipment, net...................... 167,069 15,498 182,567
Investment in subsidiaries....................... 2,192,807 1,362,888 $ (3,555,695)
Other assets..................................... 1,000 67,516 36,281 104,797
Cost in excess of net assets
acquired, net................................ 1,237,308 3,518 1,240,826
------------ ------------- ------------- -------------- ---------------
Total assets..................................... $ 2,193,837 $ 3,520,667 $ 8,899,790 $ (3,555,695) $ 11,058,599
============ ============= ============= ============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................. $ 294,681 $ 235,819 $ 530,500
Accrued liabilities.............................. $ 5,773 303,352 45,035 354,160
Due (from) to affiliates, net.................... 34,328 (82,846) 125,177 76,659
Current income tax liabilities................... 46,084 (26,072) 20,012
Deferred income tax liabilities, net............. (79,404) 174,682 65,779 161,057
Public liability, property damage and other
insurance liabilities, net.................... 203,711 53,766 257,477
Debt............................................. 1,551,500 7,970 6,938,094 8,497,564
Minority interest (preferred membership interest) 99,305 99,305
Preferred stock.................................. 380,225 380,225
Common stockholders' equity...................... 681,640 2,192,808 1,362,887 $ (3,555,695) 681,640
------------ ------------- ------------- -------------- ---------------
Total liabilities, preferred stock and
common stockholders' equity.................... $ 2,193,837 3,520,667 $ 8,899,790 $ (3,555,695) 11,058,599
============ ============= ============= ============== ===============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Financial Position
December 31, 1999
(in thousands)
----------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 54 $ 42,184 $ 29,459 $ 71,697
Cash held on deposit with financial institution.. 93,530 93,530
Restricted cash.................................. 253,080 253,080
Accounts receivable, net......................... (9) 210,962 904,787 1,115,740
Prepaid expenses................................. 41,282 23,034 64,316
Finance lease receivables........................ 871,034 871,034
Vehicles, net-rental............................. (75,581) 3,442,943 3,367,362
Vehicles, net-leasing............................ 55,704 3,078,305 3,134,009
Property and equipment, net...................... 161,651 36,176 197,827
Investment in subsidiaries....................... 2,121,275 1,272,000 $ (3,393,275)
Other assets..................................... 1,000 78,863 35,410 115,273
Cost in excess of net assets
acquired, net................................ 1,595,529 198,861 1,794,390
------------ ------------- -------------- -------------- ---------------
Total assets..................................... $ 2,122,320 $ 3,382,594 $ 8,966,619 $ (3,393,275) $ 11,078,258
============ ============= ============== ============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................. $ 273,102 $ 315,275 $ 588,377
Accrued liabilities.............................. $ 16,774 366,602 (13,923) 369,453
Due (from) to affiliates, net.................... (84,266) (119,494) 263,156 59,396
Current income tax liabilities................... 17,910 316 18,226
Deferred income tax liabilities, net............. (42,982) 144,893 79,345 181,256
Public liability, property damage and other
insurance liabilities, net.................... 206,111 53,645 259,756
Debt............................................. 1,562,000 10,305 6,897,500 8,469,805
Minority interest (preferred membership interest) 99,305 99,305
Preferred stock.................................. 371,000 371,000
Common stockholders' equity...................... 670,794 2,112,165 1,272,000 $ (3,393,275) 661,684
------------ ------------- -------------- -------------- ---------------
Total liabilities, preferred stock and
common stockholders' equity.................... $ 2,122,320 $ 3,382,594 $ 8,966,619 $ (3,393,275) $ 11,078,258
============ ============= ============== ============== ===============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Cash Flows
For the six months ended June 30, 2000
(in thousands)
--------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Net income....................................... $ 57,018 $ 107,458 $ 62,027 $ (169,485) $ 57,018
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:.... 60,916 246,846 560,339 868,101
---------- ------------ ------------- ------------- ---------------
Net cash provided by (used in) operating activities 117,934 354,304 622,366 (169,485) 925,119
---------- ------------ ------------- ------------- ---------------
Cash flows from investing activities:
Payments for vehicle additions................... (23,363) (3,934,558) (3,957,921)
Vehicle deletions................................ (246,667) 2,626,509 2,379,842
Increase in finance lease receivables............ (1) (65,905) (65,906)
Payments for property and equipment.............. (22,615) (6,164) (28,779)
Retirements of property and equipment............ 5,923 3,095 9,018
Investment in subsidiaries....................... (107,458) (62,027) 169,485
---------- ------------ ------------- ------------- ---------------
Net cash (used in) provided by investing activities (107,458) (348,750) (1,377,023) 169,485 (1,663,746)
---------- ------------ ------------- ------------- ---------------
Cash flows from financing activities:
Net increase in (repayment of) debt.............. (10,500) (2,335) 890,014 877,179
Payments for debt issuance costs................. (6,199) (1,576) (7,775)
---------- ------------ ------------- ---------------
Net cash (used in) provided by financing (10,500) (8,534) 888,438 869,404
activities....................................
---------- ------------ ------------- ---------------
Effect of exchange rate changes on cash.......... (1,280) (1,280)
------------- ---------------
Net (decrease) increase in cash and cash equivalents (24) (2,980) 132,501 129,497
Cash and cash equivalents at beginning of period. 54 42,184 122,989 165,227
---------- ------------ ------------- ------------- ---------------
Cash and cash equivalents at end of period.. $ 30 $ 39,204 $ 255,490 $ $ 294,724
========== ============ ============= ============= ===============
Supplemental disclosure of cash flow information:
Cash interest paid........................... $ 294,979
===============
Cash income taxes paid....................... $ 23,134
===============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 8 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Cash Flows
For the six months ended June 30, 1999
------------------------------------------------------------------------
Non-
Guarantor Guarantor Avis Group
Parent Subsidiaries Subsidiaries Eliminations Holdings, Inc.
----------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 42,468 $ 46,965 $ 9,374 $ (56,339) $ 42,468
Adjustments to reconcile net income to net cash
(used in) provided by operating activities....... (166,712) 303,990 112,117 249,395
---------- ------------- ------------- ------------ --------------
Net cash (used in) provided by operating activities (124,244) 350,955 121,491 (56,339) 291,863
---------- ------------- ------------- ------------ --------------
Cash flows form investing activities:
Payments for vehicle additions................... 89,213 (2,583,460) (2,494,247)
Vehicle deletions................................ (252,063) 1,778,843 1,526,780
Payments for property and equipment............. (16,761) (1,192) (17,953)
Retirements of property and equipment............ 1,056 17 1,073
Investment in subsidiaries....................... (46,965) (9,374) 56,339
Payment for purchase of rental car franchise
licensees, net of cash acquired of $11,065..... (42,503) (42,503)
Payment for purchase of PHH Holdings, net of cash
acquired of $170,568........................... (1,330,932) (1,330,932)
----------- ------------- ------------- ------------ --------------
Net cash used in investing activities.......... (1,377,897) (230,432) (805,792) 56,339 (2,357,782)
----------- ------------- ------------- ------------ --------------
Cash flows from financing activities:
Net increase in (repayment of) debt.............. 1,573,000 (67,953) 866,950 2,371,997
Payments for debt issuance costs................. (1,600) (35) (1,635)
Purchases of treasury stock...................... (57,237) (57,237)
Other............................................ 3,326 3,326
Cash dividends................................... 4,866 (4,866)
----------- ------------- ------------- --------------
Net cash provided by (used in) financing
activities.................................. 1,517,489 (63,122) 862,084 2,316,451
----------- ------------- ------------- --------------
Effect of exchange rate changes on cash.......... 87 87
------------- --------------
Net increase in cash and cash equivalents........ 15,348 57,401 177,870 250,619
Cash and cash equivalents at beginning of period. 11 9,776 19,964 29,751
----------- ------------- ------------- ------------ --------------
Cash and cash equivalents at end of period...... $ 15,359 $ 67,177 $ 197,834 $ $ 280,370
=========== ============= ============= ============ ==============
Cash interest paid............................... $ 107,466
==============
Cash income taxes paid........................... $ 5,329
==============
Business acquired in 1999:
Fair value of assets acquired, net of cash acquired $ 6,218,950
of $181,633...................................
Liabilities assumed.............................. 4,483,515
--------------
Net assets acquired.............................. 1,735,435
Less: issuance of Series A and Series C Preferred
Stocks........................................ (362,000)
--------------
Net cash paid for acquisitions................... $ 1,373,435
==============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 9 - Segment Information
Prior to the purchase of VMS on June 30, 1999 (see Note 4), 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 andother fee
based services The Company leases vehicles to
customers under closed-end and
open-end leases. Fee based services
include fuel and maintenance cards,
accident management and various
other vehicle services which enable
customers to effectively manage
costs and enhance productivity.
Prior to the purchase of VMS on June 30, 1999, the Company operated in four
geographic areas: the United States, Australia/New Zealand, Canada and Other
Foreign Operations principally in Puerto Rico, the U.S. Virgin Islands and
Argentina. As a result of the VMS acquisition, the Company added an additional
geographic area; the United Kingdom (see Note 5). Revenue generated from each of
the Company's business segments is recorded in the country in which vehicle
rental, vehicle leasing and other fee based services are provided.
The accounting policies of each geographic area are the same as those described
in the summary of significant accounting policies (see Note 1 of the notes
audited annual 1999 consolidated financial statements).
EBITDA represents net income, plus non-vehicle interest expense (acquisition
interest), non-vehicle depreciation and amortization, amortization of cost in
excess of net assets acquired and income taxes. Corporate represents primarily
acquisition interest, of cost in excess of net assets acquired and amortization
of deferred financing fees.
The operations within major business segments and major geographic areas for
the three and six months ended June 30, 2000 and 1999 are summarized as follows:
Business Segments
-----------------
<TABLE>
<CAPTION>
Six months ended
June 30, 2000
--------------------------------------------------------------
Vehicle
Leasing
And other
Vehicle Fee Based
Rental Services Corporate Consolidated
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue.......................................... $ 1,255,473 $ 854,028 $ 2,109,501
============= =============== ==============
EBITDA........................................... $ 131,958 $ 93,392 $ 203 $ 225,553
============= =============== ============== ==============
Income (loss) before provision for income taxes.. $ 110,740 $ 79,848 $ (86,919) $ 103,669
============= =============== ============== ==============
Total assets..................................... $ 5,647,093 $ 5,411,506 $ 11,058,599
============= =============== ==============
</TABLE>
Business Segments
-----------------
<TABLE>
<CAPTION>
Six months ended
June 30, 1999
-------------------------------------------------------------
Vehicle
Leasing
And other
Vehicle Fee Based
Rental Services Corporate Consolidated
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue.......................................... $ 1,204,374 $ 1,204,374
============= ==============
EBITDA........................................... $ 94,511 $ (1,435) $ 93,076
============= ============== ==============
Income (loss) before provision for income taxes.. $ 75,809 $ (1,435) $ 74,374
============= ============== ==============
Total assets..................................... $ 6,644,851 $ 4,949,008 $ 11,593,859
============= ============== ==============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 9 - Segment Information (Continued)
Business Segments
-----------------
<TABLE>
<CAPTION>
Three months ended
June 30, 2000
-------------------------------------------------------------
Vehicle
Leasing
And other
Vehicle Fee Based
Rental Services Corporate Consolidated
------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue.......................................... $ 666,597 $ 429,871 $ 1,096,468
============= =============== =============
EBITDA........................................... $ 82,515 $ 46,743 $ 129,258
============= =============== =============
Income (loss) before provision for income taxes.. $ 71,814 $ 39,899 $ (43,655) $ 68,058
============= =============== ============== =============
Total assets..................................... $ 5,647,093 $ 5,411,506 $ 11,058,599
============= =============== =============
</TABLE>
Business Segments
-----------------
<TABLE>
<CAPTION>
Three months ended
June 30, 1999
-------------------------------------------------------------
Vehicle
Leasing
And other
Vehicle Fee Based
Rental Services Corporate Consolidated
------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue.......................................... $ 637,457 $ 637,457
============= =============
EBITDA........................................... $ 58,029 $ (739) $ 57,290
============= ============== =============
Income (loss) before provision for income taxes.. $ 48,283 $ (739) $ 47,544
============= ============== =============
Total assets..................................... $ 6,644,851 $ 4,949,008 $ 11,593,859
============= =============== =============
</TABLE>
Geographic Areas
----------------
<TABLE>
<CAPTION>
Six months ended June 30, 200
----------------------------------------------------------------------------------
Other
United United Australia/ Foreign
States Kingdom New Zealand Canada Operations Consolidated
----------- ----------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................................... $ 1,821,997 $ 132,256 $ 60,559 $ 74,491 $ 20,198 $ 2,109,501
=========== =========== ============== ============ =========== =============
EBITDA........................................... $ 164,973 $ 37,110 $ 12,401 $ 8,884 $ 2,185 $ 225,553
=========== =========== ============== ============ =========== =============
Income before provision for income taxes......... $ 54,689 $ 27,337 $ 11,781 $ 8,074 $ 1,788 $ 103,669
=========== =========== ============== ============ =========== =============
Total assets..................................... $10,051,081 $ 424,005 $ 84,406 $ 434,442 $ 64,665 $11,058,599
=========== =========== ============== ============ =========== =============
</TABLE>
Geographic Areas
----------------
<TABLE>
<CAPTION>
Six months ended June 30, 1999
----------------------------------------------------------------------------------
Other
United United Australia/ Foreign
States Kingdom New Zealand Canada Operations Consolidated
----------- ----------- -------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................................... $ 1,087,217 $ 61,063 $ 41,297 $ 14,797 $ 1,204,374
=========== ============= ============ =========== =============
EBITDA........................................... $ 80,962 $ 12,902 $ 3,076 $ (3,864) $ 93,076
=========== ============= ============ =========== =============
Income (loss) before provision for income taxes.. $ 63,798 $ 12,258 $ 2,593 $ (4,275) $ 74,374
=========== ============= ============ =========== =============
Total assets..................................... $ 9,768,851 $ 1,285,719 $ 89,291 $ 339,415 $ 110,583 $ 11,593,859
=========== =========== ============= ============ =========== =============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 9 - Segment Information (Continued)
Geographic Areas
----------------
<TABLE>
<CAPTION>
Three months ended June 30, 2000
----------------------------------------------------------------------------------
Other
United United Australia/ Foreign
States Kingdom New Zealand Canada Operations Consolidated
----------- ----------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................................... $ 956,857 $ 64,540 $ 25,486 $ 39,933 $ 9,652 $ 1,096,468
=========== =========== ============= ============ =========== =============
EBITDA........................................... $ 100,806 $ 17,218 $ 4,482 $ 5,763 $ 989 $ 129,258
=========== =========== ============= ============ =========== =============
Income before provision for income taxes......... $ 45,518 $ 12,207 $ 4,183 $ 5,358 $ 792 $ 68,058
=========== =========== ============= ============ =========== =============
Total assets..................................... $10,051,081 $ 424,005 $ 84,406 $ 434,442 $ 64,665 $11,058,599
=========== =========== ============= ============ =========== =============
</TABLE>
Geographic Areas
----------------
<TABLE>
<CAPTION>
Three months ended June 30, 1999
----------------------------------------------------------------------------------
Other
United United Australia/ Foreign
States Kingdom New Zealand Canada Operations Consolidated
----------- ----------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................................... $ 578,604 $ 27,399 $ 23,893 $ 7,561 $ 637,457
=========== ============== ============ =========== =============
EBITDA........................................... $ 51,507 $ 4,878 $ 2,666 $ (1,761) $ 57,290
=========== ============== ============ =========== =============
Income (loss) before provision for income taxes.. $ 42,593 $ 4,515 $ 2,422 $ (1,986) $ 47,544
=========== ============== ============ =========== =============
Total assets..................................... $ 9,768,851 $ 1,285,719 $ 89,291 $ 339,415 $ 110,583 $11,593,859
=========== =========== ============== ============ =========== =============
</TABLE>
Note 10 - Retirement Benefits
Effective January 1, 1999, the Company curtailed its defined benefit plans to
its eligible salaried and hourly employees as of June 30, 1985. The Company
recognized a non-recurring $7.5 million pre-tax gain as a result of the
curtailment which was recorded in January 1999 and is included in Direct
Operating Expenses on the accompanying Statement of Operations for the three
months and six months ended June 30, 1999.
Note 11 - Subsequent Event
On July 20, 2000, one of the Company's vehicle financing subsidiaries issued
$200 million of Series 2000-3 Floating Rate Rental Car Asset-Backed Notes. The
Notes are secured by the Company's vehicles. Anticipated principal repayment on
the Notes commence May 2003 through October 2003 . The interest rate with
respect to the Series 2000-3 Notes will be equal to Libor plus 19 basis points.
<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 rental 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' business includes providing vehicles on lease and other
vehicle related services, such as vehicle acquisition, title and registration,
vehicle remarketing and fleet management consultation. VMS' principal feebased
products are fuel, vehicle maintenance and accident management services.
Management believes that a more meaningful comparison is made when the
historical results of operations for the six months and three months ended June
30, 2000 are compared to the pro-forma results of operations for the six months
and three months ended June 30, 1999, which give effect to the VMS acquisition,
as if it had occurred on January 1, 1999.
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.
Revenue
Vehicle Rental Revenue:
Revenue is recognized over the period the vehicle is rented.
Vehicle Leasing Revenue:
The Company primarily leases vehicles under three standard
arrangements: open-end operating leases, closed-end operating leases or open-end
finance leases (direct financing leases). These leases are accounted for in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 13,
"Accounting for leases". Each lease is either classified as an operating lease
or direct financing lease and are included in Vehicles, net-leasing and Finance
Lease Receivables, respectively, on the accompanying Statement of Financial
Position. Lease terms range from 12 months to 50 months. Amounts charged to the
leases for interest on the unrecovered investment are credited to income on a
level yield method, which approximates the contractual terms.
Other Fee Based Revenue:
Revenue from fleet management services other than leasing are
recognized over the period in which services are provided and the related
expenses are incurred.
Costs and Expenses
Vehicle rental expenses include:
o Direct operating expenses (primarily field operations' wages
and related benefits, concessions and commissions paid to
airport authorities, vehicle insurance premiums and other costs
relating to the operation of rental locations and the rental
fleet).
o Depreciation and lease charges relating to the rental fleet (including net
gains or losses upon disposition of vehicles).
o Selling, general and administrative expenses (including payments to
Cendant under the Master License Agreement, reservation costs, advertising
and marketing costs, and commissions paid to airlines and travel
agencies).
o Interest expense (primarily relating to the financing of the rental fleet)
VMS' vehicle leasing and other fee based services expenses include:
o Depreciation and lease charges relating to the fleet (including net gains
or losses upon disposition of vehicles).
o Selling, general and administrative expenses (including wages and related
benefits, information processing and information services costs).
o Interest expense (relating primarily to VMS' leased fleet).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Unaudited)
Net income
Vehicle rental profitability is primarily a function of the number of rental
transactions, pricing of rental transactions and utilization of the rental
fleet.
VMS' profitability is primarily a function of the number of fee-based
transactions, leased vehicle volume and pricing.
Corporate
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 are shown separately in a column entitled
"Corporate".
The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's financial position and
results of operations:
RESULTS OF OPERATIONS
Historical Results of Operations for the Six Months Ended June 30, 2000 Compared
to Pro-forma Results of Operations for the Six Months Ended June 30, 1999
The following table sets forth for the periods indicated, certain items in the
Company's condensed consolidated statement of operations (in thousands):
<TABLE>
<CAPTION>
Historical Pro-forma
Six Months ended June 30, 2000 Six Months ended June 30, 1999
--------------------------------------------------- -------------------------------------------------
Vehicle Vehicle
Leasing Total Leasing Total
and Other Avis Group and Other Avis Group
Vehicle Fee Based Holdings, Vehicle Fee Based Holdings,
Rental Services Corporate Inc. Rental Services Corporate Inc.
----------- ----------- --------- ------------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Vehicle Rental......... $ 1,255,473 $ 1,255,473 $1,204,374 $ 1,204,374
Vehicle Leasing........ $ 707,158 707,158 $ 687,931 687,931
Other fee based........ 146,870 146,870 124,012 124,012
----------- ----------- ------------- ----------- ------------ -----------
Total Revenue: 1,255,473 854,028 2,109,501 1,204,374 811,943 2,016,317
----------- ----------- ------------- ----------- ------------ -----------
Costs and expenses:
Direct operating....... 456,008 456,008 461,720 461,720
Vehicle depreciation and
lease charges,net...... 319,328 508,174 827,502 318,471 514,837 833,308
Selling, general and
administrative....... 235,598 130,880 $ (203) 366,275 231,182 128,519 359,701
Interest, net............ 112,581 121,582 234,163 99,925 94,450 $ 1,000 195,375
----------- ----------- --------- ------------- ------------ ------------ ---------- -----------
1,123,515 760,636 (203) 1,883,948 1,111,298 737,806 1,000 1,850,104
----------- ----------- --------- ------------- ------------ ------------ ---------- -----------
EBITDA................... 131,958 93,392 203 225,553 93,076 74,137 (1,000) 166,213
Interest - acquisition
debt................. 71,831 71,831 68,758 68,758
Amortization of cost in excess
of net assets acquired... 6,281 3,509 13,804 23,594 6,351 3,997 13,246 23,594
Non-vehicle depreciation and
amortization......... 14,937 10,035 1,487 26,459 12,351 11,038 629 24,018
----------- ----------- --------- ------------- ------------ ------------ ---------- -----------
Income before provision for
income taxes.......... $110,740 $ 79,848 $(86,919) 103,669 $ 74,374 $ 59,102 $ (83,633) 49,843
=========== =========== ========= =========== =========== ==========
Provision for income taxes 46,651 26,804
------------- -----------
Net $ 57,018 $ 23,039
income................... ============= ===========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Unaudited)
VEHICLE RENTAL
Revenue
Revenue increased 4.2%, from $1,204.4 million to $1,255.5 million, compared to
the same period in 1999. The increase reflects an increase in the overall market
demand (2.5%) and the impact of two acquisitions completed in 1999: Rent-A-Car
Company, Inc. on March 19, 1999 and Motorent, Inc. on June 30, 1999 (1.7%
combined). The revenue increase reflects a 3.6% increase in the number of rental
transactions and a 0.6% increase in revenue per rental transaction.
Total Costs and Expenses
Total costs and expenses (including amortization of cost in excess of net assets
acquired and non-vehicle depreciation and amortization) increased 1.3%, from
$1,130.0 million to $1,144.7 million, compared to the same period in 1999.
Direct operating expenses decreased 1.2%, from $461.7 million to $456.0 million,
compared to the same period in 1999. As a percentage of revenue, direct
operating expenses declined to 36.3 %, from 38.3% for the corresponding period
in 1999. The reduction was due primarily to lower maintenance and damage costs
(0.5% of revenue), lower airport commissions (1.9% of revenue), lower vehicle
insurance costs (0.2% of revenue), and other operating cost savings (0.7%),
partially offset by higher compensation costs (0.7% of revenue). 1999 results
included a one-time $7.5 million gain (0.6% of revenue), resulting from the
curtailment of the Company's Defined Benefit Plans.
Vehicle depreciation and lease charges increased 0.3%, from $318.5 million to
$319.3 million, compared to the same period in 1999. As a percentage of revenue,
vehicle depreciation and lease charges were 25.4% of revenue, as compared to
26.4% of revenue for the corresponding period in 1999. The change reflected a
1.8% increase in the average rental fleet combined with a lower cost per
vehicle.
Selling, general and administrative expenses increased 1.9%, from $231.2 million
to $235.6 million, compared to the same period in 1999. The increase was due to
higher royalty fees ($3.3 million), higher marketing expenses ($2.0 million),
and higher travel agency commissions expenses ($2.9 million), partially offset
by lower general and administrative expenses ($3.5 million).
Fleet related interest expense increased 12.7%, from $99.9 million to $112.6
million, compared to the same period in 1999, due to higher borrowings required
to finance the growth of the rental fleet and higher average interest rates.
Income before provision for income taxes increased 48.9%, from $74.4 million to
$110.7 million, compared to the same period in 1999. The increase reflects
higher revenue and lower costs and expenses as a percentage of revenue.
VEHICLE LEASING AND OTHER FEE BASED SERVICES
Revenue
VMS' revenue increased 5.2%, from $811.9 million to $854.0 million, compared to
the same period in 1999. The increase consists of a 2.8% or $19.2 million
increase in vehicle leasing revenue and a 18.4% or $22.9 million increase in
other fee based revenue, compared to the same period in 1999.
The increase in vehicle leasing revenue reflects a 2.1% increase in leased units
and an increase in interest charges billed back to customers due to higher
interest rates.
The increase in other fee based revenue reflects solid growth in the three major
fee based product lines: fuel, maintenance and accident management. Fuel revenue
increased 32.1% reflecting an increase in outstanding fuel cards and higher fuel
prices. Accident Management continued its strong growth as total revenue
increased 17.8%.
Total Costs and Expenses
Total costs and expenses (including amortization of cost in excess of net assets
acquired and non-vehicle depreciation and amortization) increased 2.8%, from
$752.8 million to $774.2 million, compared to the same period in 1999. The
increase was mainly due to $27.1 million of higher interest expense, resulting
from higher interest rates, which for the most part, was billed back to
customers.
Income before provision for income taxes increased 35.1%, from $59.1 million to
$79.8 million, compared to the same period in 1999. The increase reflects higher
revenue and lower costs and expenses as a percentage of revenue.
CORPORATE
Corporate expenses primarily include interest expense and amortization of
deferred financing costs related to the Company's Senior Subordinated Notes and
Term loans which provided financing for the VMS acquisition (see Acquisition
Financing contained in Note 7 of the notes to the condensed consolidated
financial statements).
Corporate expenses increased 3.9%, from $83.6 million to $86.9 million, compared
to the same period in 1999, mainly due to $3.1 million increase in interest
expense caused by higher interest rates.
TOTAL AVIS GROUP HOLDINGS, INC.
Provision for Income Taxes
The Company's consolidated provision for income increased 74.0%, from $26.8
million to $46.7 million, compared to the same period in 1999. The effective
income tax rate for the period ended June 30, 2000 was 45.0%, down from 53.8%
for the corresponding period in 1999. The decrease in the effective income tax
rate was due primarily to an increase in income before provision for income
taxes. 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 147.5 %, from $23.0 million to $57.0 million,
compared to the same period in 1999. The increase reflects higher revenue,
decreased costs and expenses as a percentage of revenue and a lower effective
income tax rate.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Unaudited)
RESULTS OF OPERATIONS
Historical Results of Operations for the Three Months Ended June 30, 2000
Compared to Pro-forma Results of Operations for the Three
Months Ended June 30, 1999
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>
Historical Pro-forma
Three Months ended June 30, 2000 Three Months ended June 30, 1999
------------------------------------------------- --------------------------------------------------
Vehicle Vehicle
Leasing Total Leasing Total
and Other Avis Group and Other Avis Group
Vehicle Fee Based Holdings, Vehicle Fee Based Holdings,
Rental Services Corporate Inc. Rental Services Corporate Inc.
--------- ------------ ---------- ------------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Vehicle Rental............. $ 666,597 $ 666,597 $ 637,457 $ 637,457
Vehicle Leasing............ $ 356,050 356,050 $ 346,411 346,411
Other fee based............ 73,821 73,821 63,626 63,626
--------- ------------ ------------- ---------- ------------- ------------
Total Revenue: 666,597 429,871 1,096,468 637,457 410,037 1,047,494
--------- ------------ ------------- ---------- ------------- ------------
Costs and expenses:
Direct operating........... 229,314 229,314 242,886 242,886
Vehicle depreciation and
lease charges, net....... 172,096 254,409 426,505 165,417 259,441 424,858
Selling, general and
administrative........... 120,203 65,989 186,192 120,381 64,948 185,329
Interest, net.............. 62,469 62,730 125,199 51,483 47,354 $ 500 99,337
--------- ------------ ---------- ------------- ---------- ------------- ---------- ------------
584,082 383,128 967,210 580,167 371,743 500 952,410
--------- ------------- ---------- ------------- ---------- ------------- ---------- ------------
EBITDA....................... 82,515 46,743 129,258 57,290 38,294 (500) 95,084
Interest - acquisition debt.. $ 35,998 35,998 34,297 34,297
Amortization of cost in excess
of net assets acquired....... 3,122 1,727 6,913 11,762 3,177 1,971 6,614 11,762
Non-vehicle depreciation and
amortization............... 7,579 5,117 744 13,440 6,569 5,397 314 12,280
---------- ------------ ---------- ------------- ---------- ------------- ---------- ------------
Income before provision for
income taxes.............. $ 71,814 $ 39,899 $ (43,655) $ 68,058 $ 47,544 $ 30,926 $(41,725) 36,745
========== ============ ========== ========== ============= ==========
Provision for income taxes... 30,626 18,296
------------- ------------
Netincome.................... $ 37,432 $ 18,449
============= ============
</TABLE>
VEHICLE RENTAL
Revenue
Revenue increased 4.6%, from $637.5 million to $666.6 million, compared to the
same period in 1999. The increase reflects overall market demand (3.0%) and the
impact of two acquisitions completed in 1999: Rent-A-Car Company, Inc. on March
19, 1999 and Motorent, Inc. on June 30, 1999 (1.6% combined). The revenue
increase reflects a 4.4% increase in the number of rental transactions and a
0.1% increase in revenue per rental transaction.
Total Costs and Expenses
Total costs and expenses (including amortization of cost in excess of net assets
acquired and non-vehicle depreciation and amortization) increased 0.8%, from
$589.9 million to $594.8 million, compared to the same period in 1999. Direct
operating expenses decreased 5.6%, from $242.9 million to $229.3 million,
compared to the same period in 1999. As a percentage of revenue, direct
operating expenses declined to 34.4%, from 38.1% for the corresponding period in
1999. The reduction was due primarily from lower maintenance and damage costs
(0.7% of revenue), lower airport commissions (1.9% of revenue), lower facility
expense (0.4%) and other operating cost savings (0.7%).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Unaudited)
Vehicle depreciation and lease charges increased 4.0%, from $165.4 million to
$172.1 million, compared to the same period in 1999. As a percentage of revenue,
vehicle depreciation and lease charges were 25.8% of revenue, as compared to
25.9% of revenue for the corresponding period in 1999. The change reflected a
3.5% increase in the average rental fleet combined with a higher cost per
vehicle.
Selling, general and administrative expenses decreased 0.1%, from $120.4 million
to $120.2 million, compared to the same period in 1999. The decrease was due to
lower general and administrative expenses ($2.8 million) and lower reservation
fees ($1.0 million), partially offset by higher royalty fees ($1.8 million) and
higher travel agency commissions ($2.0 million).
Fleet related interest expense increased 21.3%, from $51.5 million to $62.5
million, compared to the same period in 1999, due to higher borrowings required
to finance the growth of the rental fleet and higher average interest rates.
Income before provision for income taxes increased 51.0%, from $47.5 million to
$71.8 million, compared to the same period in 1999. The increase reflects higher
revenue and lower costs and expenses as a percentage of revenue.
VEHICLE LEASING AND OTHER FEE BASED SERVICES
Revenue
VMS' revenues increased 4.8%, from $410.0 million to $429.9 million, compared to
the same period in 1999. The increase consists of a $9.6 million increase in
vehicle leasing revenue and a 16% or $10.2 million increase in other fee based
revenue.
The increase in vehicle leasing revenue reflects a 1.8 % increase in leased
units and an increase in interest charges billed back to customers due to higher
interest rates.
The increase in other fee based revenue reflects solid growth in the three major
fee based product lines: fuel, maintenance and accident management. Fuel revenue
increased 29.9% reflecting an increase in outstanding fuel cards and higher fuel
prices. Accident Management continued its strong growth as total revenue
increased 26.2 %.
Total Cost and Expenses
Total costs and expenses (including amortization of cost in excess of net assets
acquired and non-vehicle depreciation and amortization) increased 2.9%, from
$379.1 million to $390.0 million, compared to the same period in 1999. The
increase was mainly due to $15.4 million of higher interest expense, resulting
from higher interest rates, which for the most part, was billed back to
customers.
Income before provision for income taxes increased 29.0%, from $30.9 million to
$39.9 million, compared to the same period in 1999. The increase reflects higher
revenue and lower costs and expenses as a percentage of revenue.
CORPORATE
Corporate expenses primarily include interest expense and amortization of
deferred financing costs related to the Company's Senior Subordinated Notes and
Term loans which provided financing for the VMS acquisition (see Note 7 of the
notes to the condensed consolidated financial statements).
Corporate expenses increased 4.6%, from $41.7 million to $43.7 million, compared
to the same period in 1999, mainly due to $1.7 million increase in interest
expense caused by higher interest rates.
TOTAL AVIS GROUP HOLDINGS, INC.
Provision for Income Taxes
The Company's consolidated provision for income taxes increased 67.4%, from
$18.3 million to $30.6 million, compared to the same period in 1999. The
effective income tax rate was 45.0%, down from 49.8% for the corresponding
period in 1999. The decrease in the effective income tax rate was due primarily
to an increase in income before provision for income taxes. 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 102.9%, from $18.4 million to $37.4 million,
compared to the same period in 1999. The increase reflects higher revenue,
decreased costs and expenses as a percentage of revenue and a lower effective
income tax rate.
Liquidity and Capital Resources
The Company's operations are expected to be funded by cash provided by operating
activities and by financing arrangements maintained by the Company in the
markets in which it operates. The Company's primary use of funds will be for the
acquisition of new vehicles and the repayment of the VMS acquisition
indebtedness. For the six months ended June 30, 2000, the Company's expenditures
for new vehicles were approximately $4.0 billion and proceeds from the
disposition of used vehicles were approximately $2.4 billion. For 2000,
management expects the Company's expenditures for new vehicles (net of proceeds
from the disposition of used vehicles) to be higher than in 1999. Since the late
1980's, the Company has acquired vehicles related to its vehicle 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 (the "Repurchase Programs"). 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 the Company does not
expect it 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. For closed-end leases, which make up
approximately 15% of VMS' lease portfolio, VMS bears the residual risk. The
Company has established methods for disposition of used vehicles that are not
covered by Repurchase Programs.
Historically, the Company's financing requirements for rental 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. Trade
receivables, from vehicle rental operations, also provide liquidity with
approximately 11 days of daily sales outstanding.
The Company made capital investments for property improvements totaling $28.8
million for the six months ended June 30, 2000.
The Company 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.
Vehicle Rental ABS Facility
To support vehicle rental operations, the Company has a domestic integrated
financing program that as of June 30, 2000 provides for up to $4.0 billion in
financing for vehicles covered by Repurchase Programs, with up to 25% of the
asset-backed securities ("ABS") Facility available for vehicles not covered by
Repurchase Programs. The ABS Facility provides for the issuance of up to $1.5
billion of asset backed variable funding notes (the "Variable Funding Notes")
and $2.5 billion of asset-backed medium term notes are outstanding under the 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 the Company's rental 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 AMBAC Assurance and
as a result are rated AAA by S&P and Aaa by Moody's. At June 30, 2000, the
Company had approximately $3.8 billion of debt outstanding under the ABS
Facility and had approximately $175 million of additional credit available for
rental vehicle purchases.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Unaudited)
Based on current market conditions and the Company's 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.
On May 1, 2000, one of the Company's vehicle rental financing subsidiaries
issued $250 million of Series 2000-1 Floating Rate Rental Car Asset-Backed Notes
(Series 2000-1 Notes). The notes are secured by the Company's vehicles.
Anticipated principal repayment on the Notes commence on February 2003 through
July 2003. The interest rate with respect to the Series 2000-1 Notes will be
equal to LIBOR plus 19 basis points per annum. The Series 2000-1 Notes are
guaranteed under a Suerty Bond issued by AMBAC and are rated AAA by Standards
and Poor and Aaa by Moody's. The Series 2000-1 Notes rank pari pasu with the
Variable Funding Note and the Medium Term Notes described above.
On May 22, 2000, one of the Company's vehicle rental financing subsidiaries
issued $300 million of Series 2000-2 Floating Rate Rental Car Asset Backed Notes
(Series 2000-2 Notes). These notes were issued as a paired series with the
Series 1997-1A Asset-Backed Medium Term Notes, with the proceeds from this
series used to fund the scheduled amortization of the Series 1997-1A notes. The
notes are secured by the Company's vehicles. Anticipated principal repayment on
the Notes commence on March 2007 through August 2007. The interest rate with
respect to the Series 2000-2 Notes will be equal to LIBOR plus 34 basis points
per annum. The Series 2000-2 Notes are guaranteed under a Suerty Bond issued by
AMBAC and are rated AAA by Standards and Poor and Aaa by Moody's. The Series
2000-2 Notes rank pari pasu with the Variable Funding Note and the Medium Term
Notes described above.
Vehicle Leasing ABS Facilities
VMS-U.S currently has a $3.0 billion lease financing program (the "Vehicle
Leasing ABS Facility") supported by the leases and vehicles owned by VMS-U.S.
The Vehicle Leasing ABS facility consists of two classes of floating rate
asset-backed notes; Class A-1 notes, which total $550 million and Class A-2,
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 have an average expected
life of 2 years and commence amortizing on March 2001 with a final stated
maturity of October 2006. The Class A-2 notes have an average expected life of 3
years and commence amortizing when the Class A-2 are repaid in full. The Class
A-2 notes have a final stated maturity of October 2011. Both classes of notes
are rated AAA by S&P and Aaa by Moody's. In addition to the floating rate
asset-backed notes, the Company may issue up to $1.75 billion Variable Funding
Investor Notes to a group of multi-seller commercial paper conduits.
At June 30, 2000, the Company had two series of Preferred Membership Interest
outstanding, which total $99.3 million. Preferred Membership Interest are
financial instruments issued by the Company to third parties in connection with
the VMS vehicle financing.
VMS-U.K. currently has a $838 million asset-backed facility (the "U.K. ABS
Facility") which is supported by the leases, vehicles and fuel card receivables
of the various VMS-U.K. entities. The U.K. ABS Facility is funded through a
group of multi-seller commercial paper conduits. As of June 30, 2000 there was
$795 million outstanding under this facility, which is included in Assets Held
for Sale, net on the accompanying Statement of Financial Position (see Note 5).
Borrowings for the Company's other 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, which had outstanding debt of $2.8 million at June
30, 2000. At June 30, 2000, the total debt for the Company's other international
operations is approximately $270 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Unaudited)
Acquisition Financing
The Company is party to a credit agreement (the " 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. As of June 30, 2000, there is $60.0
million outstanding under the Revolving Credit Facility, $242.5 million under
Term Loan A and $374.5 million outstanding under each of Term Loans B and C. The
loans under the Credit Facility bear interest at variable rates at fixed margin,
above either Chase Manhattan Bank's alternative base rate or the Eurodollar
rate. The Credit Facility is guaranteed by each U.S subsidiary of Avis Group
Holdings, Inc., but excluding any insurance subsidiaries, banking subsidiaries,
and securitization or other vehicle financing subsidiaries. All borrowings by
the Company under the 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 Credit Facility excluding assets that secure the
ABS Facilities, and by a pledge of all the capital stock of each of Avis Group
Holdings, Inc.'s U.S. subsidiaries and 65% of the capital stock of its first
tier non-U.S. subsidiaries. In addition, in connection with the VMS acquisition,
the Company issued Senior Subordinated Notes (the "Notes") which mature in 2009.
Avis Group Holdings, 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 are 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 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. Under terms of the credit agreement
with the Company's lenders, approximately $800 million of the net proceeds from
the sale of PHH Europe will be used to reduce the Company's acquisition
financing (see Note 5).
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 Credit Facility and the
Indenture contain customary events of default. As of June 30, 2000, the Company
was in compliance with all such covenants.
Seasonality
The Company's vehicle 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.
Inflation
The increased acquisition cost of vehicles is the primary inflationary factor
affecting the Company's operations. Many of the Company's other operating
expenses are inflation sensitive, with increases in inflation generally
resulting in increased costs of operations. The effect of inflation-driven cost
increases on the Company's overall operating costs is not expected to be greater
for the Company than for its competitors.
Recent Accounting Standards
A recent pronouncement of the Financial Accounting Standards Board which is 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.
Forward Looking Information
Certain matters discussed in this report that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve risks and uncertainties including the impact of competitive
products and pricing, changing market conditions; and other risks which were
detailed from time to time in the Company's publicly-filed documents, including
its Annual Report on Form 10-K for the period ended December 31, 1999. 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 June 30, 2000 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 asset
backed debt, the Company has entered into domestic interest rate cap and
interest rate floor agreements with duration of 10 years, respectively. The
domestic interest rate cap and interest rate floor agreements have notional
values of $526.9 million and $366.6 million, respectively. The agreements
established the domestic and foreign interest rate ceiling and floor on
asset-backed vehicle financing of 6.13% and 5.0%, respectively.
(b) The Company has also entered in U.S and Foreign Interest Rate Swap
Agreements, which effectively convert floating to fixed rates of interest.
At June 30, 2000, these swap agreements have an aggregate notional value of
$1,410.5 million and terminate through May 2005.
(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 option expires. Gains from the
sale or exercise of options are recognized when the underlying option is
sold. At June 30, 2000, the total contract amount of such options was 25.7
million gallons of gasoline and the unamortized cost of options was $277
thousand 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 Group Holdings, Inc.
--------------------------
(Registrant)
Dated: August 9, 2000 By: /s/ Kevin M. Sheehan
-----------------------------
President-Corporate and Business
Affairs and Chief Financial Officer
(principal financial officer)
Dated: August 9, 2000 By: /s/ Timothy M. Shanley
-----------------------------
Vice President and Controller
(principal accounting officer)
<PAGE>
Part II. Other Information
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the Company's stockholder's was held on May 16, 2000. The
following matters were submitted to a vote of the stockholders as was described
in the Company's Proxy Statement, which was filed together with the Company's
Annual Report on Form 10-K dated April 14, 2000:
1) To elect eleven directors for a one-year term and until their successors
are duly elected and qualified;
2) To ratify the appointment of Deloitte & Touche LLP as the auditors of the
Company's financial statements for the year ending
December 31, 2000;
3) To approve the amendment to the Company's Amended and Restated Certificate
of Incorporation to (I) reclassify the Company's 100,000,000 shares of
authorized Common Stock as a Class A Common Stock and (ii) authorize
15,000,000 shares of non-voting Class B Common Stock which may be converted
into Class A Common Stock under certain circumstances;
4) To approve the Company's 2000 Incentive Compensation Plan
ITEM: 6(a) EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Exhibits filed with Form 10-Q for the quarter ended June 30, 2000 under the
Securities Exchange Act of 1934.
AVIS GROUP HOLDINGS, INC.
Commission file number 1-13315
EXHIBIT INDEX
Exhibit
No. Description Page No
-------- ---------------------------------------- --------
27 Financial Data Schedule for 28
the Six months ended June 30, 2000
ITEM: 6(b) CURRENT REPORT ON FORM 8-K
On July 14, 2000, the Company filed a Form 8-K that with the approval of it's
Board of Director's and it's stockholders, giving notification that it had
reclassified its existing Common Stock as Class A Common Stock.
