SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended March 31, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Old Country Road, Garden City, New York 11530
(Address of principal executive offices)
(Zip Code)
(516)222-3000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of May 8, 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 ended
March 31, 2000 and 1999..................................1
Consolidated Statements of Financial
Position as of March 31, 2000
and December 31, 1999....................................2
Consolidated Statements of Cash
Flows for the three months ended
March 31, 2000 an........................................3
Notes to the Condensed Consolidated
Financial Statements .................................4-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..............................................14-19
ITEM 3. QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES
ABOUT MARKET RISKS.........................................20
PART II. Other Information
ITEM 6(a). EXHIBITS.......................................................22
ITEM 6(b) . REPORTS ON FORM 8-K .......................................23
<PAGE>
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
-------------- -------------
<S> <C> <C>
Revenue:
Vehicle rental............................................ $ 588,876 $ 566,917
Vehicle leasing and other fee based....................... 424,157
-------------- --------------
1,013,033 566,917
-------------- --------------
Costs and expenses:
Direct operating, net..................................... 226,693 218,834
Vehicle depreciation and lease charges, net............... 400,997 153,054
Selling, general and administrative....................... 180,084 110,801
Interest, net............................................. 144,797 48,442
Non-vehicle depreciation and amortization................. 13,019 5,782
Amortization of cost in excess of
net assets acquired ................................... 11,832 3,174
-------------- --------------
977,422 540,087
-------------- --------------
Income before provision for income taxes ................. 35,611 26,830
Provision for income taxes................................ 16,025 11,644
-------------- --------------
Net income................................................ 19,586 15,186
Preferred stock dividend.................................. 4,668
-------------- --------------
Earnings applicable to common stockholders................ $ 14,918 $ 15,186
============== ==============
Earnings per share:
Basic..................................................... $ .48 $ .48
============== ==============
Diluted .................................................. $ .48 $ .47
============== ==============
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE>
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- --------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents................................ $ 60,439 $ 71,697
Cash held on deposit with financial institution.......... 107,563 93,530
Restricted cash.......................................... 217,563 253,080
Accounts receivable, net................................. 1,103,534 1,115,740
Finance lease receivables................................ 885,228 871,034
Prepaid expenses......................................... 63,206 64,316
Vehicles, net-rental .................................... 3,805,948 3,367,362
Vehicles, net-leasing.................................... 3,189,721 3,134,009
Property and equipment, net.............................. 200,995 197,827
Other assets ............................................ 118,269 115,273
Cost in excess of net assets acquired, net............... 1,777,074 1,794,390
-------------- --------------
Total assets.......................................... $ 11,529,540 $ 11,078,258
============== ==============
LIABILITIES, PREFERRED STOCK AND
COMMON STOCKHOLDERS' EQUITY
Accounts payable......................................... $ 585,191 $ 588,377
Accrued liabilities ..................................... 396,892 369,453
Due to affiliates, net................................... 79,257 59,396
Current income tax liabilities........................... 18,252 18,226
Deferred income tax liabilities, net .................... 178,881 181,256
Public liability, property damage and
other insurance liabilities, net ..................... 258,532 259,756
Vehicle debt ............................................ 7,374,393 6,969,805
Acquisition debt ........................................ 1,495,750 1,500,000
Minority interest (preferred membership interest)........ 99,305 99,305
-------------- --------------
Total liabilities ................................... 10,486,453 10,045,574
-------------- --------------
Commitments and contingencies
Class A Preferred stock ................................. 360,000 360,000
Class B Preferred stock.................................. 13,613 9,000
Class C Preferred stock.................................. 2,000 2,000
-------------- --------------
Total Preferred stock................................. 375,613 371,000
-------------- --------------
Common stockholders' equity:
Class A Common stock .................................... 359 359
Additional paid-in capital .............................. 593,152 593,106
Retained earnings........................................ 190,608 175,690
Accumulated other comprehensive loss .................... (12,813) (3,639)
Treasury stock .......................................... (103,832) (103,832)
-------------- ---------------
Total common stockholders' equity..................... 667,474 661,684
------------- --------------
Total liabilities, preferred stock and common
stockholders' equity ................................. $ 11,529,540 $ 11,078,258
============= ==============
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE>
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 19,586 $ 15,186
Adjustments to reconcile net income to net cash
provided by operating activities.................. 425,354 151,612
-------------- -------------
Net cash provided by operating activities............ 444,940 166,798
-------------- -------------
Cash flows used in investing activities:
Payments for vehicle additions ...................... (2,169,913) (1,227,481)
Vehicle deletions ................................... 1,353,147 793,349
Increase in finance lease receivables................ (28,653)
Payments for property and equipment.................. (13,999) (5,630)
Retirements of property and equipment ............... 2,186 241
Payment for purchase of rental car franchise licensee,
net ofcash acquired of $8,011 in 1999............. (1,879)
-------------- ---------------
Net cash used in investing activities ............... (857,232) (441,400)
-------------- --------------
Cash flows from financing activities:
Changes in debt:
Proceeds ......................................... 605,441 353,064
Repayments ....................................... (189,517) (21,072)
-------------- ---------------
Net increase in debt ............................. 415,924 331,992
Payments for debt issuance costs ................... (367)
Purchases of treasury stock.......................... (47,768)
Other................................................ 1,679
-------------- ---------------
Net cash provided by financing activities............ 415,557 285,903
-------------- ---------------
Effect of exchange rate changes on cash ................ (490) 19
-------------- ---------------
Net increase in cash and cash equivalents............... 2,775 11,320
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 ......... $ 168,002 $ 41,071
============== ===============
Supplemental disclosure of cash flow information:
Cash interest paid...................................... $ 118,088 $ 51,728
============== ===============
Cash income taxes paid ................................. $ 12,284 $ 2,238
============== ===============
Business acquired:
Fair value of assets acquired, net of cash acquired
of $8,011........................................... $ 30,096
Liabilities assumed..................................... 28,217
---------------
Net cash paid for acquisition........................... $ 1,879
===============
</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 condensed consolidated statements of
financial position include all of the assets and liabilities of the Company,
including the Company's recently acquired vehicle lease and vehicle management
business in the United States and Canada ("PHH North America"), and in Europe
("PHH Europe"), and of Wright Express LLC (collectively "VMS") from June 30,
1999. The condensed consolidated statements of financial position also include
all the assets and liabilities of the Company's recently acquired rental vehicle
franchisees, Motorent, Inc ("Motorent") and Rent A Car Company, Incorporated
("Rent -A-Car, Inc.") from June 30, 1999 and March 19, 1999, respectively. The
condensed 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 and Forms 8-K
filed with the Securities and Exchange Commission. Certain amounts in the prior
period have been reclassified to conform to current period presentation. All
amounts are in thousands except share data.
Note 2 - Cash Held on Deposit with Financial Institution
Cash 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 VMS Domestic Asset Backed Financing
Structure. 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 month periods ended March 31, 2000 and 1999 by
31,131,712 and 31,873,031 weighted average shares outstanding, respectively.
Diluted earnings per share is computed by dividing earnings applicable to common
stockholders for the three month periods ended March 31, 2000 and 1999 by
31,341,244 and 32,517,570 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 $362.0 million of preferred
stock.
The preliminary purchase cost allocation for the Company's acquisition of VMS,
are subject to adjustment, when additional information concerning asset and
liability valuations are obtained. The final asset and liability fair values
will differ from those set forth in the accompanying statement of financial
position at March 31, 2000. However, the changes are not expected to have a
material effect on the financial position of the Company. The above mentioned
acquisition has been accounted for by the purchase method. The financial
statements include the operating results of this acquisition subsequent to the
date of acquisition.
The following is the preliminary purchase cost allocation of the acquisitions
described above (in thousands):
Purchase cost....................................... $ 1,917,948
-------------
Fair value of:
Assets acquired................................ 4,807,868
Liabilities assumed............................ 4,272,154
-------------
Net assets.......................................... 535,714
-------------
Cost in excess of net assets acquired............... $ 1,382,234
=============
<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):
Three months ended
March 31,
1999
----------------
Revenue............................................. $ 968,823
============
Income before provision for income taxes............ $ 13,115
============
Net income.......................................... $ 4,606
Preferred stock dividends........................... 4,555
------------
Earnings applicable to common stockholders.......... $ 51
============
Earnings per share:
Basic............................................... $ -
============
Diluted............................................. $ -
============
Note 5 - Comprehensive Income
Comprehensive income is comprised of the following (in thousands):
Three months ended
March 31,
2000 1999
---------- ---------
Net income.......................................... $ 19,586 $ 15,186
Foreign currency translation adjustment............. (9,174) 400
---------- ---------
Comprehensive income................................ $ 10,412 $ 15,586
========== =========
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 6- Financing and Debt
Debt outstanding at March 31, 2000 and December 31, 1999 consist of the
following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------------ ----------------
<S> <C> <C>
Vehicle Rental
Commercial Paper Notes $ 1,341,269 $ 1,026,261
Short-term notes-foreign 169,236 111,259
Series 1997-1A asset backed notes Medium Term Notes due May through
October 2000 at 6.22% 800,000 800,000
Series 1997-1B asset backed notes Medium Term Notes due May through
October 2002 at 6.40% 850,000 850,000
Series 1999-1 asset backed notes Medium Term Notes due December 2004 through
May 2005 at 6.14% 600,000 600,000
Revolving credit facility due June 2005 47,000 62,000
Other 5,793 5,902
------------------ ----------------
Total Vehicle Rental Debt 3,813,298 3,455,422
------------------ ----------------
Vehicle Leasing and Other Fee Based
Commercial Paper Notes 1,584,854 1,521,498
Canadian short term borrowings 28,468 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 833,292 850,443
Self-fund notes 29,969 30,397
Wright Express Certificates of Deposit 84,512 67,482
------------------ ----------------
Total Vehicle Leasing and Other Fee Based Debt 3,561,095 3,514,383
------------------ ----------------
Acquisition Financing
Term A Loan Notes due June 2005 246,250 250,000
Term B Loan Notes due June 2006 374,750 375,000
Term C Loan Notes due June 2007 374,750 375,000
Senior Subordinated Notes due May 2009 at 11.00% 500,000 500,000
------------------ ----------------
Total Acquisition Financing 1,495,750 1,500,000
------------------ ----------------
Total Debt $ 8,870,143 $ 8,469,805
================== ================
</TABLE>
Note 7 - 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 6) which were registered on September 24, 1999 with the
Securities and Exchange Commission. 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 March 31, 2000 and December 31, 1999
and for the three months ended March 31, 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 (in
thousands).
<PAGE>
AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
Investments in subsidiaries are accounted using the equity method for purposes
of the consolidating presentation. The principle elimination entries eliminate
investments in subsidiaries and intercompany balances and transactions. Separate
financial statements and other disclosures with respect to the subsidiary
guarantors have not been made because management believes that such information
is not material to holders of the Senior Subordinated Notes.
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the Three Months Ended March 31, 2000
(in thousands)
-------------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue $ 560,229 $ 452,804 $ 1,013,033
------------- --------------- ---------------
Costs and expenses:
Direct operating, net............................ 196,868 29,825 226,693
Vehicle depreciation and lease charges, net...... 131,338 269,659 400,997
Selling, general and administrative.............. 132,460 47,624 180,084
Interest, net.................................... $ 40,042 43,802 60,953 144,797
Non-vehicle depreciation and amortization........ 8,658 4,361 13,019
Amortization of cost in excess of net
assets acquired............................... 10,270 1,562 11,832
------------ ------------- --------------- ---------------
40,042 523,396 413,984 977,422
------------ ------------- --------------- ---------------
(40,042) 36,833 38,820 35,611
Equity in earnings of subsidiaries............... 44,051 29,555 $ (73,606)
------------ ------------- --------------- -------------- ---------------
Income before provision for income taxes......... 4,009 66,388 38,820 (73,606) 35,611
Provision for income taxes....................... (15,577) 22,337 9,265 16,025
------------ ------------- --------------- -------------- ---------------
Net income................................... $ 19,586 $ 44,051 $ 29,555 $ (73,606) $ 19,586
============ ============= =============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Operations
For the Three Months Ended March 31, 1999
(in thousands)
-----------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue $ 507,570 $ 59,347 $ 566,917
------------- --------------- ---------------
Costs and expenses:
Direct operating, net............................ 191,583 27,251 218,834
Vehicle depreciation and lease charges, net...... 137,894 15,160 153,054
Selling, general and administrative.............. 102,750 8,051 110,801
Interest, net.................................... $ 3,459 44,090 893 48,442
Non-vehicle depreciation and amortization........ 5,214 568 5,782
Amortization of cost in excess of net
assets acquired............................... 3,127 47 3,174
------------ ------------- --------------- ---------------
3,459 484,658 51,970 540,087
------------ ------------- --------------- ---------------
(3,459) 22,912 7,377 26,830
Equity in earnings of subsidiaries............... 17,434 4,987 $ (22,421)
------------ ------------- --------------- -------------- ---------------
Income before provision for income taxes......... 13,975 27,899 7,377 (22,421) 26,830
Provision (benefit) for income taxes........... (1,211) 10,465 2,390 11,644
------------ ------------- --------------- -------------- ---------------
Net income................................... $ 15,186 $ 17,434 $ 4,987 $ (22,421) $ 15,186
============ ============= =============== ============== ===============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 7 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Financial Position
March 31, 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........................ $ 49 $ 12,973 $ 47,417 $ 60,439
Cash held on deposit with financial institution.. 107,563 107,563
Restricted cash.................................. 217,563 217,563
Accounts receivable, net......................... 246,922 856,612 1,103,534
Finance lease receivables........................ 885,228 885,228
Due from affiliates, net......................... 26,681 147,016 (173,697)
Prepaid expenses................................. 50,754 12,452 63,206
Vehicles, net rental............................. (82,488) 3,888,436 3,805,948
Vehicles, net leasing............................ 35,582 3,154,139 3,189,721
Property and equipment, net...................... 166,495 34,500 200,995
Investment in subsidiaries....................... 2,146,058 1,323,046 $ (3,469,104)
Other assets..................................... 999 73,720 43,550 118,269
Cost in excess of net assets acquired, net....... 1,583,672 193,402 1,777,074
----------- ------------ -------------- -------------- ---------------
Total assets..................................... $ 2,173,787 $ 3,557,692 $ 9,267,165 $ (3,469,104) $ 11,529,540
=========== ============ ============== ============== ===============
LIABILITIES, PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Accounts payable................................. $ 204,914 $ 380,277 $ 585,191
Accrued liabilities.............................. $ 24,477 362,764 9,651 396,892
Due to affiliates, net........................... 79,257 79,257
Current income tax liabilities................... 17,945 307 18,252
Deferred income tax liabilities, net............. (60,914) 162,022 77,773 178,881
Public liability, property damage and other
insurance liabilities, net.................... 203,122 55,410 258,532
Debt............................................. 1,542,750 5,997 7,321,396 8,870,143
Minority interest (preferred membership interest) 99,305 99,305
Preferred stock.................................. 375,613 375,613
Common stockholders' equity...................... 667,474 2,146,058 1,323,046 $ (3,469,104) 667,474
----------- ------------ -------------- -------------- ---------------
Total liabilities, preferred stock and
common stockholders' equity................... $ 2,173,787 $ 3,557,692 $ 9,267,165 $ (3,469,104) $ 11,529,540
=========== ============ ============== ============== ===============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 7 - 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
Finance lease receivables........................ 871,034 871,034
Prepaid expenses................................. 41,282 23,034 64,316
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 7 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Cash Flows
For the Three Months Ended March 31, 2000
(in thousands)
----------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 19,586 $ 44,051 $ 29,555 $ (73,606) $ 19,586
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:............ 43,710 79,760 301,884 425,354
----------- ------------ -------------- -------------- ---------------
Net cash provided by operating activities... 63,296 123,811 331,439 (73,606) 444,940
----------- ------------ -------------- -------------- ---------------
Cash flows from investing activities:
Payments for vehicle additions................... (11,101) (2,158,812) (2,169,913)
Vehicle deletions................................ (97,938) 1,451,085 1,353,147
Decrease in finance lease receivables............ (28,653) (28,653)
Payments for property and equipment.............. (11,075) (2,924) (13,999)
Retirements of property and equipment............ 955 1,231 2,186
Investment in subsidiaries....................... (44,051) (29,555) 73,606
----------- ------------ -------------- -------------- ---------------
Net cash used in investing activities........ (44,051) (148,714) (738,073) 73,606 (857,232)
----------- ------------ -------------- -------------- ---------------
Cash flows from financing activities:
Net increase in (repayment of) debt.............. (19,250) (4,308) 439,482 415,924
Payments for debt issuance costs................. (367) (367)
----------- ------------ -------------- -------------- ---------------
Net cash provided by (used in) financing (19,250) (4,308) 439,115 415,557
activities.................................
----------- ------------ -------------- -------------- ---------------
Effect of exchange rate changes on cash.......... (490) (490)
----------- ------------ -------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (5) (29,211) 31,991 2,775
Cash and cash equivalents at beginning of period. 54 42,184 122,989 165,227
----------- ------------ -------------- -------------- ---------------
Cash and cash equivalents at end of period.. $ 49 $ 12,973 $ 154,980 $ $ 168,002
=========== ============ ============== ============== ===============
Supplemental disclosure of cash flow information:
Cash interest paid........................... $ 118,088
===============
Cash income taxes paid....................... $ 12,284
===============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued
(Unaudited)
Note 7 - Guarantor and Non-Guarantor Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
Condensed
Consolidating Statements of Cash Flows
For the Three Months Ended March 31, 1999
(in thousands)
----------------------------------------------------------------------------
Non- Avis Group
Guarantor Guarantor Holdings, Inc.
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 15,186 $ 17,434 $ 4,987 $ (22,421) $ 15,186
Adjustments to reconcile net income to net cash (used
in)provided by operating activities:.............. 48,337 (30,954) 134,229 151,612
----------- ------------ -------------- -------------- ---------------
Net cash (used in) provided by operating activities 63,523 (13,520) 139,216 (22,421) 166,798
----------- ------------ -------------- -------------- ---------------
Cash flows from investing activities:
Payments for vehicle additions................... 20,081 (1,247,562) (1,227,481)
Vehicle deletions................................ 31,799 761,550 793,349
Payments for property and equipment.............. (5,167) (463) (5,630)
Retirements of property and equipment............ 201 40 241
Investment in subsidiaries....................... (17,434) (4,987) 22,421
Payment for purchase of rental car franchise licensee (1,879) (1,879)
----------- ------------ -------------- -------------- ---------------
Net cash (provided) used in investing activities (17,434) 40,048 (486,435) 22,421 (441,400)
----------- ------------ -------------- -------------- ---------------
Cash flows from financing activities:
Net increase in debt............................. (22,460) 354,452 331,992
Proceeds from public offering................... (47,768) (47,768)
Other............................................ 1,679 1,679
Cash dividends................................... 4,866 (4,866)
----------- ------------ -------------- -------------- ---------------
Net cash provided by (used in) financing (46,089) (17,594) 349,586 285,903
activities....................................
----------- ------------ -------------- -------------- ---------------
Effect of exchange rate changes on cash.......... 19 19
----------- ------------ -------------- -------------- ---------------
Net increase in cash and cash equivalents........ 8,934 2,386 11,320
Cash and cash equivalents at beginning of period. 11 9,776 19,964 29,751
----------- ------------ -------------- -------------- ---------------
Cash and cash equivalents at end of period...... $ 11 $ 18,710 $ 22,350 $ - $ 41,071
=========== ============ ============== ============== ===============
Supplemental disclosure of cash flow information:
Cash interest paid........................... $ 51,728
===============
Cash income taxes paid....................... $ 2,238
===============
Business acquired:
Fair value of assets acquired, net of cash
acquired of $8,011........................... $ 30,096
Liabilities assumed.............................. 28,217
---------------
Net cash paid for acquisitions................... $ 1,879
===============
</TABLE>
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 8 - 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 and
other fee based services The Company leases vehicles to customers
under closed end and open end leases. Fee
based services include fuel and
maintenance 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. As a result of the VMS acquisition, the Company added an
additional geographic area; the United Kingdom. Revenue generated from each of
the Company's business segments is recorded in the country in which rental,
vehicle leasing and other fee based services are provided. The accounting
policies of each geographic area are the same as those described in the summary
of significant accounting policies (see Note 1 of the notes to the audited
annual consolidated financial statements). EBITDA represents net income, plus
non-vehicle interest expense (acquisition interest), non-vehicle depreciation
and amortization, and income taxes. Corporate represents primarily acquisition
related interest, amortization of net assets acquired and amortization of
deferred financing fees. The operations within major business segments and major
geographic areas for the three months ended March 31, 2000 and 1999 are
summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
Business Segments March 31, 2000 March 31, 1999
------------------------------------------------------ -------------------
Vehicle
Leasing
And other
Vehicle Fee Based Vehicle
Rental Services Corporate Consolidated Rental
----------- ------------- ---------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Revenue.......................................... $ 588,876 $ 424,157 $ 1,013,033 $ 566,917
=========== ============= ============ ===================
EBITDA........................................... $ 49,442 $ 46,649 $ 204 $ 96,295 $ 35,786
=========== ============= ========== ============ ===================
Income (loss) before provision for income taxes.. $ 38,925 $ 39,949 $ ( 43,263) $ 35,611 $ 26,830
=========== ============= ========== ============ ===================
Total assets..................................... $ 5,342,650 $ 6,186,890 $ 11,529,540 $ 4,809,084
=========== ============= ============ ===================
</TABLE>
<TABLE>
<CAPTION>
Geographic Areas Three Months Ended March 31, 2000
- ---------------- ---------------------------------------------------------------------------------
Other
United United Australia/ Foreign
States Kingdom New Zealand Canada Operations Consolidated
----------- ------------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................................... $ 865,140 $ 67,716 $ 35,073 $ 34,558 $ 10,546 $ 1,013,033
=========== ============= ============ ============ =========== =============
EBITDA........................................... $ 67,921 $ 19,892 $ 5,575 $ 2,052 $ 855 $ 96,295
=========== ============= ============ ============ =========== =============
Income before provision for income taxes......... $ 12,926 $ 15,130 $ 5,278 $ 1,647 $ 630 $ 35,611
=========== ============= ============ ============ =========== =============
Total assets..................................... $9,589,025 $ 1,467,106 $ 105,066 $ 307,786 $ 60,557 $11,529,540
=========== ============= ============ ============ =========== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------------------------------------------
Other
United Australia/ Foreign
States New Zealand Canada Operations Consolidated
----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue.......................................... $ 508,613 $ 33,664 $ 17,404 $ 7,236 $ 566,917
=========== ============ ============= ============ =============
EBITDA........................................... $ 29,455 $ 8,024 $ 410 $ (2,103) $ 35,786
=========== ============ ============= ============ =============
Income (loss) before provision for income taxes.. $ 21,205 $ 7,743 $ 171 $ (2,289) $ 26,830
=========== ============ ============= ============ =============
Total assets..................................... $4,495,426 $ 92,690 $ 164,744 $ 56,224 $ 4,809,084
=========== ============ ============= ============ =============
</TABLE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 9 - 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 nonrecurring $7.5 million pre-tax gain as a result of the
curtailment which was recorded in January 1999 and is included in Direct
Operating expense on the accompanying Statement of Operations for the three
months ended March 31, 1999.
Note 10 - Subsequent Events
On April 18, 2000, the Company announced that it is negotiating an 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 Avis
will retain a 20% stake in the venture, receive $800 million in cash and have
its intercompany indebtedness with PHH Europe repaid. The Company will
license PHH North America's fleet management technology, PHH InterActive, to
the joint venture and Arval, and receive an annual royalty. Any
difference between the carrying value of the net assets of PHH Europe and
the proceeds from the sale will be treated as an adjustment to cost in excess of
net assets acquired relating to the VMS Acquisition (see Note 4). The
transaction is expected to close in the second quarter of 2000.
On May 1, 2000, one of the Company's vehicle financing subsidiaries issued $250
million of Series 2000-1 Floating Rate Rental Car Asset Backed 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.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
General Overview
The following discussion and analysis of results of operations includes the
vehicle rental operations and the vehicle leasing and other fee based services
operations ("Vehicle Management Services or VMS") of the Company.
The Company conducts vehicle rental operations through wholly-owned subsidiaries
in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina,
Australia and New Zealand. Vehicle revenue is derived principally from time and
mileage charges for vehicle rentals and, to a lesser extent, the sale of loss
damage waivers, liability insurance and other products and services. VMS
conducts operations principally in the United States, Canada, the United Kingdom
and Germany. VMS' vehicle management services include leases and services
clients require to lease a vehicle, such as vehicle acquisition, title and
registration, vehicle remarketing and fleet management consultation, (including
fleet, policy and vehicle recommendation). VMS' principal fee-based products are
fuel card services, maintenance card services and accident management services.
Management believes that a more meaningful comparison is made when the
historical results of operations for the three months ended March 31, 2000 are
compared to the pro-forma results of operations for the three months ended March
31, 1990, 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.
Revenues:
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 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.
Expenses:
(i) Vehicle rental expenses consist primarily of:
o Direct operating expenses (primarily wages and related benefits,
concessions and commissions paid to airport authorities, vehicle
insurance premiums and other costs relating to the operation of the
rental fleet);
o Depreciation and lease charges relating to the rental fleet
(including netgains or losses upon disposition of vehicles).
o Selling, general and administrative expenses (including payments
to Cendant under the Master License Agreement, the Computer
Services Agreement), reservation costs and other advertising
and marketing costs, and commissions paid to airlines and
travel agencies and
o Interest expense, including those relating to the financing of
its rental fleet.
(ii) VMS' vehicle leasing and other fee based services expenses consist
primarily of:
o Depreciation and lease charges relating to the fleet (including net
gains orlosses upon the disposition of vehicles);
o Selling, general and administrative expenses includes wages and
related benefits information processing and information services
costs and
o Interest expense relating primarily to VMS' leased fleet.
Net income:
Vehicle rental profitability is primarily a function of the number of rental
transactions and pricing of Avis' rental transactions and the utilization of
Avis' rental fleet.
VMS' profitability and cash flows are primarily a function of the volume of
fee-based transactions, leased vehicle volume and pricing.
Corporate:
Represents expenses associated with the VMS acquisition, which are primarily
interest expense, amortization of cost in excess of net assets acquired and
amortization of deferred financing costs.
The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's financial position and
results of operations:
RESULTS OF OPERATIONS
Historical Results of Operations for the Three Months Ended March 31, 2000
Compared to the Pro-forma Results of Operations for the
Three Months Ended March 31, 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 March 31, 2000 Three Months Ended March 31, 1999
------------------------------------------------- -----------------------------------------------
Vehicle Leasing VehicleLeasing
And Other And Other
Vehicle Fee Based Vehicle Fee Based
Rental Services Corporate Total Rental Services Corporate Total
---------- --------------- ---------- ---------- ---------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Vehicle Rental........... $ 588,876 $ 588,876 $ 566,917 $ 566,917
Vehicle Leasing.......... $ 351,108 351,108 $ 341,520 341,520
Other fee based.......... 73,049 73,049 60,386 60,386
---------- --------------- ----------- ---------- -------------- ---------
Total Revenue: 588,876 424,157 1,013,033 566,917 401,906 968,823
---------- --------------- ----------- ---------- -------------- ---------
Costs and expenses:
Direct operating......... 226,693 226,693 218,834 218,834
Vehicle depreciation an
lease charges, net...... 147,232 253,765 400,997 153,054 255,396 408,450
Selling, general and
administrative.......... 115,397 64,891 $ (204) 180,084 110,801 63,571
Interest, net............ 50,112 58,852 108,964 48,442 47,096 $ 500 96,038
--------- --------------- ---------- ----------- ---------- -------------- --------- ---------
539,434 377,508 (204) 916,738 531,131 366,063 500 897,694
--------- --------------- ---------- ----------- ---------- -------------- --------- ---------
EBITDA........................ 49,442 46,649 204 96,295 35,786 35,843 (500) 71,129
Interest - acquisition debt... 35,833 35,833 34,461 34,461
Amortization of cost in excess
of net assets acquired........ 3,159 1,782 6,891 11,832 3,174 2,026 6,615 11,815
Non-vehicle depreciation and
amortization............ 7,358 4,918 743 13,019 5,782 5,641 315 11,738
---------- --------------- ---------- ----------- ---------- -------------- --------- ---------
Income before provision for
income taxes............... $ 38,925 $ 39,949 (43,263) 35,611 $ 26,830 $ 28,176 $ (41,891) 13,115
========== =============== ========== =========== ========== ============== =========
Provision for income taxes.... 16,025 8,509
----------- ---------
Net income.................... $ 19,586 $ 4,606
=========== =========
</TABLE>
VEHICLE RENTAL:
Revenue
Revenue increased 3.9%, from $566.9 million to $588.9 million, compared to the
same period in 1999. The increase in revenue is due primarily to overall market
demand (2.0%) and the acquisitions of the stock of Motorent, Inc. on June 30,
1999, and Rent-A-Car Company, Inc. on March 19, 1999 (1.9% combined). The
revenue increase reflected a 2.6% increase in the number of rental transactions
and a 1.3% increase in revenue per rental transaction.
<PAGE>
Costs and Expenses
Total costs and expenses increased 1.8%, from $540.1 million to $550.0 million,
compared to the same period in 1999. Direct operating expenses increased 3.6%,
from $218.8 million to $226.7 million, compared to the same period in 1999. As a
percentage of revenue, direct operating expenses declined to 38.5%, from 38.6%
for the corresponding period in 1999. Operating efficiencies were derived
primarily from lower vehicle insurance costs (0.4% of revenue), lower airport
commissions (1.9% of revenue), and were partially offset by higher compensation
costs (1.2% of revenue). 1999 included a one-time $7.5 million credit (1.3% of
revenue), resulting from the curtailment of the Company's Defined Benefit Plan.
Vehicle depreciation and lease charges decreased 3.8%, from $153.1million to
$147.2 million, compared to the same period in 1999. As a percentage of revenue,
vehicle depreciation and lease charges were 25.0% of revenue, as compared to
27.0% of revenue for the corresponding period in 1999. The change reflected no
increase in the average rental fleet combined with a lower monthly cost per
vehicle.
Selling, general and administrative expenses increased 4.1%, from $110.8 million
to $115.4 million, compared to the same period in 1999. The increase was due to
higher royalty fees ($1.5 million), higher marketing expenses ($1.7 million),
and higher travel agency commission expenses ($0.9 million).
Fleet related interest expense increased 3.4%, from $48.4 million to $50.1
million, compared to the same period in 1999, due to higher average interest
rates.
Income before provision for income taxes increased 45.1%, from $26.8 million to
$38.9 million, compared to the same period in 1999. The increase reflects higher
revenue and decreased costs and expenses as a percentage of revenue.
VEHICLE LEASING AND OTHER FEE BASED SERVICES:
Revenues:
VMS' revenues for the three-month period ended March 31, 2000, totaled $424.2
million and increased $22.3 million against the comparable period ended March
31, 1999. The increase was the result of a $9.6 million increase in Vehicle
Leasing Revenue and a $12.6 million increase in Other Fee Based Revenue.
Vehicle Leasing Revenues increased 2.8% in the three-month period ended March
31, 2000 to $351.1 million from $341.5 million for the comparable period in
1999. This increase in Leasing Revenue was due to a 1.6% increase in leased
units compared to the same time last year and an increase in interest rates that
is passed on to clients.
Other Fee Based Revenues increased 21% in the three-month period ended March 31,
2000, from $60.4 million in 1999 to $73.0 million in the comparable period in
2000. VMS realized solid growth in the three major fee based product lines of
Fuel, Maintenance and Accident Management. Fuel revenues increased 37.1% driven
by solid growth by Wright Express. Accident Management continued its strong
growth as total revenues increased 10%.
Cost and Expenses:
Total cost and expenses increased 2.8% for the three-month period ended March
31, 2000, to $384.2 million from $373.7 million in the comparable 1999 period.
The increase in cost and expenses was due principally to higher interest expense
of $11.8 million increasing from $47.1 million to $58.9 million for the
comparable period in 1999. This increase was primarily due to higher interest
rates, most of which would have been passed through to clients
Income before provision for income taxes of $39.9 million for the three months
ended March 31, 2000 was 41.8% higher than the $28.2 million reported in the
comparable period in 1999. The increase in profitability was due mainly to
higher Other Fee Based Revenues
Corporate:
Corporate expenses principally include interest expense and the amortization of
deferred financing costs on the Company's Senior Subordinated Notes and its Term
loans which were financed on June 30, 1999, in connection with the VMS
acquisition (see Note 6 of the notes to the condensed consolidated financial
statements). The increase in corporate expense for the three-month period ended
March 31 2000 compared to the comparable three-month period in 1999, is
principally due to an increase in interest rates on the Company's acquisition
financing.
<PAGE>
Income Taxes:
The Company's consolidated provision for income taxes for the three months ended
March 31, 2000 increased 88.3% from $8.5 million to $16.0 million, compared to
the same period in 1999. The effective income tax rate was 45.0%, down from
64.9% for the corresponding period in 1999. The effective rate decrease is due
to 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 325.2%, from $4.6 million to $19.6 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 acquisition indebtedness. For
the three months ended March 31, 2000, the Company's expenditures for new
vehicles were approximately $2.2 billion and proceeds from the disposition of
used vehicles were approximately $1.4 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, Avis has
acquired vehicles related to its car rental operations primarily pursuant to
manufacturer repurchase programs. Repurchase prices under the repurchase
programs are based on either (1) a specified percentage of original vehicle cost
determined by the month the vehicle is returned to the manufacturer or (2) the
original capitalization cost less a set daily depreciation amount ("Repurchase
Programs"). These Repurchase Programs limit residual risk with respect to
vehicles purchased under the programs. This enables management to better
estimate depreciation expense in advance. VMS has historically not participated
in Repurchase Programs and management does not expect to do so in the future.
Generally, customers with open-end leases, which make up approximately 85% of
VMS' lease portfolio, bear the residual risk with respect to their vehicles,
whereas with respect to closed-end leases, which made up approximately 15% of
VMS' lease portfolio, VMS bears such residual risk. Avis and VMS have
established methods for disposition of used vehicles that are not covered by
Repurchase Programs.
Historically, Avis' financing requirements for vehicles have typically reached
an annual peak during the second and third calendar quarters, as fleet levels
build in response to increased rental demand during that period. The typical low
point for cash requirements occurs during the end of the fourth quarter and the
beginning of the first quarter, coinciding with lower levels of vehicle and
rental demand. Management expects that this pattern will continue with the
addition of VMS, whose cash requirements have historically been relatively
consistent over the course of a given year.
Management expects that cash flows from operations and funds from available
credit facilities will be sufficient to meet the Company's anticipated cash
requirements for operating purposes for the next twelve months. The car rental
trade receivables also provide liquidity with approximately 11 days of daily
sales outstanding.
The Company made capital investments for property improvements totaling $14.0
million for the three months ended March 31, 2000.
Management has an interest rate management policy, including a target mix for
average fixed rate and floating rate indebtedness on a consolidated basis.
However, an increase in interest rates may have a material adverse impact on the
Company's profitability.
The Vehicle Rental ABS Facility
Avis car rental options, has a domestic integrated financing program that as of
March 31, 2000 provides for up to $3.75 billion in financing for vehicles
covered by Repurchase Programs, with up to 25% of the Avis asset-backed
securities ("ABS") Facility available for vehicles not covered by Repurchase
Programs. The Avis ABS Facility provides for the issuance of up to $1.5 billion
of asset backed variable funding notes (the "Variable Funding Notes") and $2.25
billion of asset-backed medium term notes are outstanding under the Avis ABS
Facility (the "Medium Term Notes"). The Variable Funding Notes and the Medium
Term Notes are indirectly secured by, among other things, a first priority
security interest in Avis's fleet.
The Variable Funding Notes support the issuance by a special purpose company of
commercial paper notes that are rated A-1 by Standard & Poor's Ratings Services
("S&P") and P-1 by Moody's Investors Service, Inc. ("Moody's"). The Medium Term
Notes are guaranteed under a surety bond issued by MBIA and as a result are
rated AAA by S&P and Aaa by Moody's. At March 31, 2000, Avis had approximately
$3.6 billion of debt outstanding under the Avis ABS Facility and had
approximately $159 million of additional credit available for rental vehicle
purchases.
Based on current market conditions and Avis' current banking relationships,
management expects to fund maturities of the Medium Term Notes either by the
issuance of new medium term notes or an increase in the outstanding principal
amount of the Variable Funding Notes depending on market conditions at the time
the Medium Term Notes mature. However, management cannot be sure that this will
occur.
On May 1, 2000, one of the Company's vehicle 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 200-1 Notes rank pari pasu with the Variable Funding Note
and the Medium Term Notes described above.
The 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 and have 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 March
31, 2000, the Company has also issued two series of Senior Preferred Membership
Interest, which total $99.3 million.
VMS-U.K. currently has $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 March 31, 2000 there was $833 million outstanding under
this facility.
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. At March 31, 2000, the total debt for the Company's
international operations is approximately $1.1 billion. 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.
Acquisition Financing
Avis Group Holdings, Inc. is party to a credit agreement (the "New Credit
Facility") which provides for up to $1.35 billion of borrowings in the form of
(1) A Revolving Credit Facility in the amount of up to $350.0 million, (2) a
$250.0 million Term A Loan, (3) a $375.0 million Term B Loan and (4) a $375.0
million Term C Loan. Upon consummation of the VMS Acquisition, Avis borrowed as
of June 30, 1999, the full $1.0 billion under the Term A Loan, Term B Loan and
Term C Loan and $73.0 million under the Revolving Credit Facility. As of March
31, 2000, there is $47.0 million outstanding under the Revolving Credit
Facility, $246.2 million under Term Loan A and $374.7 million outstanding under
each of Term Loans B and C. The loans under the New Credit Facility bear
interest at variable rates at fixed margin, above either The Chase Manhattan
Bank's alternative base rate or the Eurodollar rate. The New Credit Facility is
guaranteed by each U.S subsidiary of Avis Group Holdings, Inc., but excluding
any insurance subsidiaries, banking subsidiaries, and securitization or other
vehicle financing subsidiaries. All borrowings by the Company under the New
Credit Facility are secured by a first-priority perfected lien on substantially
all of the tangible and intangible assets of the Company and each guarantor
under the New Credit Facility excluding assets that secure the ABS Facilities,
and by a pledge of all the capital stock of each of Avis Group Holdings, Inc.'s
U.S. subsidiaries and 65% of the capital stock of its first tier non-U.S.
subsidiaries. The Senior Subordinated Notes (the "Notes") will mature in 2009.
Avis 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 will be guaranteed
on a senior subordinated basis by each of the Company's U.S. subsidiaries, other
than its banking subsidiaries, insurance subsidiaries and securitization and
other vehicle financing subsidiaries which have not guaranteed senior
indebtedness of the Company. The New Credit Facility and the Indenture contain
numerous financing and operating covenants that limit the discretion of the
Company's management with respect to certain business matters.
<PAGE>
These covenants place significant restrictions on, among other things, the
ability of the Company and certain of its subsidiaries to incur additional
indebtedness, pay dividends and other distributions, prepay subordinated
indebtedness, create liens or other encumbrances, make capital expenditures,
make certain investments or acquisitions, engage in certain transactions with
affiliates, sell or otherwise dispose of assets and merge with other entities
and otherwise restrict corporate activities. The New Credit Facility and the
Indenture contain customary events of default. As of March 31, 2000, the Company
was in compliance with all such covenants.
Seasonality
The Company's car rental business is seasonal, with decreased travel in winter
months and heightened activity in spring and summer. To accommodate increased
demand, the Company increases its available fleet during the second and third
quarters. Since VMS' business is generally not seasonal, these patterns of
seasonality are expected to continue. Certain of the Company's operating
expenses are fixed and cannot be reduced during periods of decreased rental
demand. In certain geographic markets, the impact of seasonality has been
reduced by emphasizing leisure or business travel in the off-peak season.
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 are not
required to be adopted at this date, is Statement of Financial Accounting
Standards ("SFAS") No. 133 - "Accounting for Derivative Instruments and Hedging
Activities", ("SFAS 133") which is effective for the Company's consolidated
financial statements for the year ending December 31, 2001. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position at fair value. The adoption
of SFAS 133 is not expected to have a material effect on the Company's
consolidated financial statements.
Forward Looking Information
Certain matters discussed in this report that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve risks and uncertainties including the impact of competitive
products and pricing, changing market conditions, the ability of the Company and
its vendors to complete the necessary actions to achieve a Year 2000 conversion
for its computer systems and applications, and other risks which were detailed
from time to time in the Company's publicly-filed documents, including its
Annual Report on Form 10-K for the period ended December 31, 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 March 31, 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 and foreign interest
rate cap and interest rate floor agreements with durations of 10 and 5
years, respectively. The domestic and foreign interest rate cap and
interest rate floor agreements have notional values of $597.2 million and
$698.1 million and $442.1 million and $522.1 million, respectively. The
agreements established the domestic and foreign interest rate ceiling and
floor on the asset-backed vehicle financing of 6.13% and 5.0% and 6.47% and
5.5%, 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 March 31, 2000, these swap agreements have an aggregate notional value
of $912 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 options expire. Gains from the
sale or exercise of options are recognized when the underlying option is
sold. At March 31, 2000, the total contract amount of such options was 37.5
million gallons of gasoline and the unamortized cost of options was $391
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: May 9, 2000 By: /s/ Kevin M. Sheehan
--------------------------
President-Corporate and Business
Affairs and Chief Financial Officer
(principal financial officer)
Dated: May 9, 2000 By: /s/ Timothy M. Shanley
--------------------------
Vice President and Controller
(principal accounting officer)
<PAGE>
Part II. Other Information
ITEM: 6(a) EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Exhibits filed with Form 10-Q for the quarter ended March 31, 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 24
the Three months ended March 31, 2000
ITEM: 6(b) REPORTS ON FORM 8-K
On March 31, 2000, the Company filed a Form 8-K(A), changing its name from Avis
Rent A Car, Inc. to Avis Group Holdings, Inc effective as of March 27, 2000.
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