<PAGE>
EXHIBIT 99.1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
----------------
<S> <C>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
Independent Auditors' Report.............................. F-2
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997........................ F-3
Consolidated Statements of Financial Position at
December 31, 1999 and 1998.............................. F-4
Consolidated Statements of Common Stockholders' Equity for
the years ended December 31, 1999, 1998 and 1997........ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997........................ F-6
Notes to the Consolidated Financial Statements............ F7--F50
Consolidated Statements of Operations for the three months
and nine months ended September 30, 2000 and 1999....... G-1
Consolidated Statements of Financial Position as of
September 30, 2000 and December 31, 1999................ G-2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999....................... G-3
Notes to Condensed Consolidated Financial Statements...... G4--G17
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Avis Group Holdings, Inc.
New York, New York
We have audited the accompanying consolidated statements of financial
position of Avis Group Holdings, Inc. (formerly Avis Rent A Car, Inc.) and
subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related
consolidated statements of operations, common stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
January 26, 2000
(March 27, 2000 as to Note 1)
F-2
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Vehicle rental......................................... $2,500,746 $2,297,582 $2,046,154
Vehicle leasing........................................ 692,935
Other fee based........................................ 139,046
---------- ---------- ----------
3,332,727 2,297,582 2,046,154
---------- ---------- ----------
Costs and expenses:
Direct operating, net.................................. 957,270 927,930 853,767
Vehicle depreciation and lease charges, net............ 1,174,509 593,064 525,143
Selling, general and administrative.................... 582,056 436,275 413,291
Interest, net.......................................... 382,303 192,080 180,608
Minority interest...................................... 5,890
Non-vehicle depreciation and amortization.............. 34,600 24,151 16,162
Amortization of cost in excess of net assets
acquired............................................. 30,182 11,854 6,860
---------- ---------- ----------
3,166,810 2,185,354 1,995,831
---------- ---------- ----------
Income before provision for income taxes............... 165,917 112,228 50,323
Provision for income taxes............................. 73,332 48,707 22,850
---------- ---------- ----------
Net income............................................. 92,585 63,521 27,473
Preferred stock dividends.............................. 9,110
---------- ---------- ----------
Earnings applicable to common stockholders............. $ 83,475 $ 63,521 $ 27,473
========== ========== ==========
Earnings per share:
Basic.................................................. $ 2.66 $ 1.86 $ .89
========== ========== ==========
Diluted................................................ $ 2.61 $ 1.82 $ .88
========== ========== ==========
</TABLE>
See notes to the consolidated financial statements.
F-3
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 71,697 $ 29,751
Cash held on deposit with financial institution............. 93,530
Restricted cash............................................. 253,080 133,284
Accounts receivable, net.................................... 1,115,740 360,574
Finance lease receivables................................... 871,034
Prepaid expenses............................................ 64,316 42,083
Vehicles, net--rental....................................... 3,367,362 3,164,816
Vehicles, net--leasing...................................... 3,134,009
Property and equipment, net................................. 197,827 145,045
Other assets................................................ 115,273 40,590
Deferred income tax assets.................................. 117,659
Cost in excess of net assets acquired, net.................. 1,794,390 463,260
----------- ----------
Total assets................................................ $11,078,258 $4,497,062
=========== ==========
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 588,377 $ 198,481
Accrued liabilities......................................... 369,453 326,204
Due to affiliates, net...................................... 59,396 22,293
Current income tax liabilities.............................. 18,226 23,045
Deferred income tax liabilities, net........................ 181,256 28,504
Public liability, property damage and other insurance
liabilities, net.......................................... 259,756 261,209
Debt........................................................ 8,469,805 3,014,712
Minority interest (preferred membership interest)........... 99,305
----------- ----------
Total liabilities........................................... 10,045,574 3,874,448
----------- ----------
Commitments and contingencies
Preferred stock:
Series A Preferred stock ($.01 par value, 7,200,000 shares
authorized, issued and outstanding; $50 liquidation
preference)............................................... 360,000
Series B Preferred stock accrued ($.01 par value, 5,880,217
shares authorized; $50 liquidation preference)............ 9,000
Series C Preferred stock ($.01 par value, 40,000 shares
authorized, issued and outstanding; $50 liquidation
preference)............................................... 2,000
-----------
Total preferred stock..................................... 371,000
-----------
Common stockholders' equity:
Class A Common stock ($.01 par value, 100,000,000 shares
authorized; 35,925,000 issued at December 31, 1999 and
1998)..................................................... 359 359
Additional paid-in capital.................................. 593,106 591,651
Retained earnings........................................... 175,690 92,215
Accumulated other comprehensive loss........................ (3,639) (10,651)
Treasury stock (4,793,288 and 2,672,700 shares at December
31, 1999 and 1998, respectively, at cost) (103,832) (50,960)
----------- ----------
Total common stockholders' equity......................... 661,684 622,614
----------- ----------
Total liabilities, preferred stock and common stockholders'
equity.................................................... $11,078,258 $4,497,062
=========== ==========
</TABLE>
See notes to the consolidated financial statements.
F-4
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
INCOME STOCK CAPITAL EARNINGS INCOME/(LOSS) STOCK TOTAL
------------- -------- ---------- -------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997................ $ 85 $ 74,915 $ 1,221 $ 194 $ 76,415
Net income............................. $27,473 27,473 27,473
Sale of Class A Common stock ($.01 par
value) through an initial public
offering of 22,425,000 shares of
common stock on September 24, 1997... 224 355,592 355,816
Foreign currency translation
adjustment........................... (5,761) (5,761) (5,761)
Additional minimum pension charge...... (221) (221) (221)
------- ---- -------- -------- -------- ---------- --------
Comprehensive income................... $21,491
=======
Balance, December 31, 1997............. 309 430,507 28,694 (5,788) 453,722
Net income............................. $63,521 63,521 63,521
Sale of Class A Common stock ($.01 par
value) through a public offering of
5,000,000 shares of common stock on
March 23, 1998....................... 50 161,144 161,194
Purchases of treasury stock, 2,672,700
shares, at cost...................... $ (50,960) (50,960)
Foreign currency translation
adjustment........................... (3,374) (3,374) (3,374)
Additional minimum pension charge...... (1,489) (1,489) (1,489)
------- ---- -------- -------- -------- ---------- --------
Comprehensive income................... $58,658
=======
Balance, December 31, 1998............. 359 591,651 92,215 (10,651) (50,960) 622,614
Net income............................. $92,585 92,585 92,585
Preferred stock dividends.............. (9,110) (9,110)
Purchases of treasury stock 2,327,300
shares, at cost........................ (57,237) (57,237)
Issuance of treasury stock due to
exercise
of stock options and other, net........ 1,455 4,365 5,820
Foreign currency translation
adjustment........................... 6,199 6,199 6,199
Additional minimum pension benefit..... 813 813 813
-------
Comprehensive income................... $99,597
======= ---- -------- -------- -------- ---------- --------
Balance, December 31, 1999............. $359 $593,106 $175,690 $ (3,639) $ (103,832) $661,684
==== ======== ======== ======== ========== ========
</TABLE>
See notes to the consolidated financial statements.
F-5
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 92,585 $ 63,521 $ 27,473
Adjustments to reconcile net income to net cash provided by
operating activities:
Vehicle depreciation...................................... 1,146,926 581,022 466,799
Depreciation and amortization of property and equipment... 19,558 12,890 11,791
Amortization of other non-revenue producing assets........ 45,224 23,115 11,231
Deferred income tax provision............................. 57,027 38,457 9,161
Provision for doubtful accounts receivable................ 6,137 2,961 3,208
Provision for public liability, property damage and other
insurance liabilities, net.............................. (1,819) 13,687 25,574
Changes in operating assets and liabilities:
Restricted cash......................................... (62,588) (26,300) (76,596)
Accounts receivable..................................... (89,568) (14,045) (15,201)
Prepaid expenses........................................ (6,336) 6,848 3,914
Other assets............................................ 21,654 (5,625) (8,769)
Accounts payable........................................ 54,299 (23,148) (12,597)
Accrued liabilities..................................... 7,795 (2,475) (84,150)
Due to (from) affiliates................................ (192,951) (18,320) 53,761
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 1,097,943 652,588 415,599
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for vehicle additions............................ (5,605,494) (4,303,048) (4,240,809)
Vehicle deletions......................................... 4,205,221 3,610,721 3,382,177
Increase in finance lease receivables..................... (22,663)
Payments for additions to property and equipment.......... (48,240) (42,933) (24,733)
Retirements of property and equipment..................... (6,419) 5,603 3,971
Payments for purchase of rental car franchise licensees,
net of cash acquired.................................... (45,192) (237,182) (199,381)
Payment for purchase of PHH Holdings, net of cash
acquired................................................ (1,325,781)
Proceeds from the sale and leaseback of office building... 32,156
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES..................... (2,816,412) (966,839) (1,078,775)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offerings, net......................... 161,194 359,316
Purchases of treasury stock, net............................ (53,868) (50,960)
Changes in debt:
Proceeds.................................................. 6,120,545 1,217,289 3,381,173
Repayments................................................ (4,307,537) (1,023,432) (3,031,885)
----------- ----------- -----------
Net increase in debt...................................... 1,813,008 193,857 349,288
Payments for debt issuance costs............................ (6,543) (4,654) (29,302)
Increase in minority interest (preferred membership
interest)................................................. 99,305
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES................. 1,851,902 299,437 679,302
----------- ----------- -----------
Effect of exchange rate changes on cash..................... 2,043 (334) (945)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents and
cash held on deposit with financial institutions.......... 135,476 (15,148) 15,181
Cash and cash equivalents and cash held on deposit with
financial institutions at beginning of year............... 29,751 44,899 29,718
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AND CASH HELD ON DEPOSIT WITH
FINANCIAL INSTITUTIONS AT END OF YEAR..................... $ 165,227 $ 29,751 $ 44,899
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................. $ 370,247 $ 209,977 $ 189,086
=========== =========== ===========
Income taxes.............................................. $ 28,877 $ 13,338 $ 8,899
=========== =========== ===========
Business acquired:
Fair value of assets acquired, net of cash acquired....... $ 6,004,777 $ 244,501 $ 519,650
Liabilities assumed....................................... 4,271,804 7,319 320,269
----------- ----------- -----------
Net assets acquired....................................... 1,732,973 237,182 199,381
Less issuance of Series A and Series C Preferred Stock.... 362,000
----------- ----------- -----------
NET CASH PAID FOR ACQUISITIONS.............................. $ 1,370,973 $ 237,182 $ 199,381
=========== =========== ===========
</TABLE>
See notes to the consolidated financial statements.
F-6
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Effective March 27, 2000, Avis Rent A Car, Inc. changed its name to Avis
Group Holdings, Inc. The accompanying consolidated financial statements include
Avis Group Holdings, Inc. (formerly Avis Rent A Car, Inc.) and subsidiaries,
which was incorporated on October 17, 1996. The Company and its former parent,
Avis Inc., were acquired by Cendant ("Cendant") on October 17, 1996 (the "Date
of Acquisition") for approximately $806.5 million (the "Acquisition"). The
purchase price was comprised of approximately $367.2 million in cash, $100.9
million of indebtedness and $338.4 million of common stock. Avis Group Holdings,
Inc. (formerly Avis Rent A Car, Inc.) and subsidiaries are referred to
throughout the notes to the consolidated financial statements as the "Company".
On January 1, 1997, Avis, Inc., the Company's former ultimate parent, a
wholly-owned subsidiary of Cendant, contributed the net assets of its corporate
operations and all of its common stock ownership in Avis International, Ltd. and
subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance
Company and Global Excess & Reinsurance, Ltd. to the Company. Pursuant to a plan
developed by Cendant prior to the Date of Acquisition, Cendant caused the
Company to undertake an initial public offering ("IPO"). On September 24, 1997,
the Company issued and sold 22,425,000 shares of its common stock through such
IPO and received net proceeds of $359.3 million. On March 23, 1998, the Company
sold 5,000,000 shares of its common stock through a public offering (the
"Offering") and received net proceeds of approximately $161.2 million. In
addition, in the Offering on March 23, 1998, Cendant reduced its ownership of
the Company by selling 1,000,000 shares of the Company's common stock and
retained the net proceeds. As a result of the IPO, the Offering on March 23,
1998, the net repurchase of 2,120,588 shares and 2,672,700 shares of treasury
stock by the Company during 1999 and 1998, respectively, and the issuance of
Series A and C preferred stock in connection with the VMS acquisition (see Notes
2, 14 and 15), Cendant's common stockholder's equity interest in the Company at
January 1, 2000 is approximately 18 % excluding potential conversion of
Preferred Stock (see Notes 14, 16 and 24). The Company has used the net proceeds
from these offerings to (i) acquire certain Avis System franchises (see Note 2)
and (ii) for working capital and general corporate purposes, including the
repayment of certain indebtedness. A Cendant subsidiary owns and operates the
reservation system as well as the telecommunications and computer processing
systems which service the rental car operations for reservations, rental
agreement processing, accounting and vehicle control. Cendant is reimbursed for
such services at cost (see Note 5). In addition, a Cendant subsidiary charges
the Company a royalty fee for the use of the Avis trade name (see Note 5).
On March 19, 1999, and June 30, 1999, the Company purchased the common stock
and franchise rights of Rent-A-Car Company, Incorporated, of Richmond Virginia
("Rent-A-Car, Inc.") and Motorent, Inc. of Nashville Tennessee ("Motorent") for
approximately $10.1 million and $49.3 million, respectively. These acquisitions
were financed through internally generated funds.
On June 30, 1999, the Company completed the transaction contemplated by the
Agreement and Plan of Merger and Reorganization dated as of May 22, 1999 (the
"Merger Agreement"), with PHH Corporation, a Maryland corporation and
wholly-owned subsidiary of Cendant, PHH Holdings Corporation ("PHH Holdings"), a
Texas corporation and wholly-owned subsidiary of PHH Corporation, and Avis Fleet
Leasing and Management Corporation, a Texas corporation and a wholly-owned
subsidiary of the Company (the "Acquisition Subsidiary"). Pursuant to the Merger
Agreement, the Acquisition Subsidiary and PHH Holdings merged on June 30, 1999
and the Acquisition Subsidiary acquired the fleet leasing and management and
fuel card business of PHH corporation ("VMS") for approximately $1.8 billion and
refinanced VMS indebtedness of approximately $3.5 billion (the "VMS
F-7
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Acquisition"). The acquisition financing included borrowings by the Company of
$1.0 billion of term loans, the issuance by the Company of $500 million of
senior subordinated notes, and the issuance by the Acquisition Subsidiary of
$362.0 million of preferred stock (see Notes 10, 14 and 15).
PRINCIPLES OF CONSOLIDATION
All material intercompany accounts and transactions have been eliminated.
ACCOUNTING ESTIMATES
Generally accepted accounting principles require the use of estimates, which
are subject to change, in the preparation of financial statements. Significant
accounting estimates used include estimates for recoverability of the cost in
excess of net assets acquired, the determination of public liability, property
damage and other insurance liabilities, and the realization of deferred income
tax assets. However, actual results may differ.
REVENUE RECOGNITION
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 open end or closed end
operating lease or open end finance lease and are included in Vehicles,
net-leasing and Finance lease receivables, respectively, on the accompanying
Consolidated Statements of Financial Position. Vehicle lease terms generally
range from 12 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:
Revenues from fleet management services other than leasing are recognized
over the period in which services are provided and the related expenses are
incurred.
CASH AND CASH EQUIVALENTS
The Company considers unrestricted deposits and short-term investments with
an original maturity date of three months or less to be cash equivalents.
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 Based Financing
Structure (see Vehicle Leasing and Other Fee Based
F-8
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Debt in Note 10). 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.
RESTRICTED CASH
Restricted cash includes cash and short-term investments that are not
readily available for normal Company disbursements. Certain amounts have been
set aside as required under the Company's debt covenants and to satisfy
insurance related and other commitments of the Company.
FINANCE LEASE RECEIVABLES
Finance Lease Receivables are leases accounted for in accordance with SFAS
No. 13, "ACCOUNTING FOR LEASES", which are classified as a direct financing
lease, as defined.
The Company records the cost of the leased vehicle as an "investment in
finance leases". Vehicles are depreciated using the straight-line method over
the expected lease term. Amounts charged to the lessees for interest on the
unrecovered investment are credited to income on a level yield method, which
approximates the contractual terms.
VEHICLES, NET
Rental vehicles are stated at cost, net of accumulated depreciation,
incentives and allowances. In accordance with industry practice, when vehicles
are sold, gains or losses are reflected as an adjustment to depreciation.
Vehicles are generally depreciated at rates ranging from 10% to 25% per annum.
Manufacturers provide the Company with incentives and allowances (such as
rebates and volume discounts) which are amortized to income over the holding
periods of the vehicles.
Leasing vehicles include vehicles which are leased to customers under either
open-end or closed-end operating leases:
Open-end Operating Leases--Under these leases, the minimum lease term is 12
months with a month to month renewal thereafter. In addition, resale of the
vehicles upon termination of the lease is generally for the account of the
lessee except for a minimum residual value, which the Company has
guaranteed. The Company guarantees 16% of the original cost of the unit for
the first 24 months of the lease, and then 16% of the fair market value of
the unit at inception of the month to month renewals thereafter.
Closed-end Operating Leases--Under these leases, the minimum lease term is
for 12 months or longer. However, 24 and 36 month lease terms are the most
prevalent. These leases are cancelable under certain conditions. Resale of
the vehicles upon termination is for the account of the Company.
Open-end finance leases provide that the resale of the vehicles upon
termination of the lease, are for the account of the lessee.
PROPERTY AND EQUIPMENT, NET
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method over
the estimated useful life of the assets.
F-9
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimated useful lives range from five to ten years for furniture, fixtures and
equipment, to thirty years for buildings. Leasehold improvements are amortized
over the shorter of twenty years or the remaining life of the lease. Maintenance
and repairs are expensed; renewals and improvements are capitalized. When
depreciable assets are retired or sold, the cost and related accumulated
depreciation are removed from the accounts with any resulting gain or loss
reflected in the Consolidated Statements of Operations.
COST IN EXCESS OF NET ASSETS ACQUIRED, NET
Cost in excess of net assets acquired is amortized over a 40 year period and
is shown net of accumulated amortization of $49.9 million and $19.7 million at
December 31, 1999 and 1998, respectively.
IMPAIRMENT ACCOUNTING
The Company reviews the recoverability of its long-lived assets, including
cost in excess of net assets acquired, when events or changes in circumstances
occur that indicate that the carrying value of the assets may not be
recoverable. The measurement of possible impairment is based on the Company's
ability to recover the carrying value of the asset from the expected future
pre-tax undiscounted cash flows generated. The measurement of impairment
requires management to use estimates of expected future cash flows. If an
impairment loss existed, the amount of the loss would be recorded under the
caption costs and expenses in the Consolidated Statements of Operations. It is
reasonably possible that future events or circumstances could cause these
estimates to change.
PUBLIC LIABILITY, PROPERTY DAMAGE AND OTHER INSURANCE LIABILITIES, NET
Insurance liabilities on the accompanying consolidated statements of
financial position include additional liability insurance, personal effects
protection insurance, public liability and property damage ("PLPD") and personal
accident insurance claims for which the Company is self-insured. The Company is
self-insured up to $1 million per claim under its automobile liability insurance
program for PLPD and additional liability insurance. Costs in excess of $1
million per claim are insured under various contracts with commercial insurance
carriers. The liability for claims up to $1 million is estimated based on the
Company's historical loss and loss adjustment expense experience, which is
adjusted for current trends.
The insurance liabilities include a provision for both claims reported to
the Company as well as claims incurred but not yet reported to the Company. This
method is an actuarially accepted loss reserve method. Adjustments to this
estimate and differences between estimates and the amounts subsequently paid are
reflected in the Consolidated Statements of Operations as they occur.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of foreign companies are translated at year-end
exchange rates. Results of operations are translated at the average rates of
exchange in effect during the year. The resultant translation adjustment is
included as a component of accumulated other comprehensive loss within
consolidated common stockholders' equity.
F-10
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Effective September 30, 1997, the Company files a U.S. consolidated federal
income tax return. The Company has adopted the calendar year as its fiscal year.
The Company files separate income tax returns in states where a consolidated
return is not permitted. The Company was included in the consolidated federal
income tax return of Cendant through September 29, 1997. Pursuant to the
regulations under the Internal Revenue Code, the Company's pro rata share of the
consolidated federal income tax liability of Cendant was allocated to the
Company on a separate return basis. In accordance with Statement of Financial
Accounting Standards No. 109, "ACCOUNTING FOR INCOME TAXES" ("SFAS 109"),
deferred income tax assets and liabilities are measured based upon the
difference between the financial accounting and tax basis of assets and
liabilities.
PENSIONS
Costs of the defined benefit plans are actuarially determined under the
projected unit credit cost method and include amounts for current service and
interest on projected benefit obligations and plan assets. The Company's policy
is to fund at least the minimum contribution amount required by the Employee
Retirement Income Security Act of 1974.
ADVERTISING
Advertising costs are expensed as incurred. Advertising costs were $86.7
million, $77.7 million and $65.6 million for the years ended December 31, 1999,
1998 and 1997, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are used to manage exposure to market risks
associated with fluctuations in interest rates. Analyses are performed on an
on-going basis to determine that a high correlation exists between the
characteristics of derivative instruments and the assets or transactions being
hedged. As a matter of policy, derivative activities are not engaged for trading
or speculative purposes. Exposure to credit-related losses exist in the event of
non-performance by counterparties to certain derivative financial instruments.
At December 31, 1999, the Company's identified derivative financial instruments
(see Recent Accounting Pronouncements below) include interest rate swap
agreements, interest rate cap and floor agreements, gasoline options and options
imbedded in certain instruments (see Notes 10, 12 and 14).
Interest on the Company's interest rate swap agreements, and interest rate
cap and floor agreements are cash settled on a net basis for each agreement
quarterly. The Company's swaption agreement is marked to market with adjustments
to the swaption's fair value recorded in earnings. Gains or losses from the sale
or exercise of gasoline options are recognized when the underlying option is
sold.
ENVIRONMENTAL COSTS
The Company's operations include the storage and dispensing of gasoline. The
Company accrues losses associated with the remediation of accidental fuel
discharges when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study. Such
accruals are
F-11
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
presentation of the current year's consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
A recent pronouncement of the Financial Accounting Standards Board which is
not required to be adopted at this date, is 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 any entity recognize all
derivatives as either assets or liabilities in the statement of financial
position at fair value. Avis Rent A Car has not completed its assessment of the
effect on the Company's consolidated financial statements that will result from
the adoption of SFAS 133.
NOTE 2--ACQUISITIONS
On March 19, 1999, and June 30, 1999, the Company purchased the common stock
and franchise rights of Rent-A-Car Company, Incorporated, of Richmond, Virginia
("Rent-A-Car, Inc.") and Motorent, Inc. of Nashville Tennessee ("Motorent") for
approximately $10.1 million and $49.3 million, respectively. These acquisitions
were financed through internally generated funds.
On June 30, 1999, the Company completed the transaction contemplated by the
Merger Agreement with PHH Corporation, PHH Holdings Corporation and the
Acquisition Subsidiary. Pursuant to the Merger Agreement, the Acquisition
Subsidiary and PHH Holdings merged on June 30, 1999 and the Acquisition
Subsidiary acquired the fleet leasing and fuel card businesses of VMS for
approximately $1.8 billion and refinanced VMS indebtedness of approximately $3.5
billion. The acquisition financing included borrowings by the Company of $1.0
billion of term loans, the issuance by the Company of $500 million of senior
subordinated notes, and the issuance by the acquisition subsidiary of $362.0
million of preferred stock (see Notes 10,14 and 15).
In connection with the VMS Acquisition, the Company received a perpetual,
royalty-free license to use the VMS trademarks, including the "PHH" name and
logo. PHH Corporation and PHH Holdings entered into a 5-year non-compete
agreement with Avis Group Holdings, Inc. and the Acquisition Subsidiary. The
Acquisition Subsidiary also received a limited license to use the Cendant name
in Europe and the United States for a period of up to one year. In addition, the
parties have entered into agreements under which Cendant agreed to provide the
Company with computer services and with transitional services with respect to
various administrative services, including payroll and benefits, which had
previously been provided to VMS by Cendant. In addition, the Acquisition
subsidiary has entered into an agreement under which it will provide Cendant
with certain transitional administrative services which had previously been
provided by VMS.
F-12
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITIONS (CONTINUED)
The preliminary purchase cost allocation for the Company's acquisitions of
Rent-A-Car Inc., Motorent and VMS, are subject to adjustment, when additional
information concerning asset and liability valuations are obtained. The final
asset and liability fair values will differ from those set forth in the
accompanying statement of financial position at December 31, 1999. However, the
changes are not expected to have a material effect on the financial position of
the Company.
The following is the preliminary purchase cost allocation of the
acquisitions described above (in thousands):
<TABLE>
<S> <C>
Purchase cost............................................... $1,917,949
----------
Fair value of:
Assets acquired........................................... 4,810,307
Liabilities assumed....................................... (4,271,804)
----------
Net assets.................................................. 538,503
----------
Cost in excess of net assets acquired....................... $1,379,446
==========
</TABLE>
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition of VMS for approximately $1.9
billion (including the issuance of Series A and Series C Preferred Stock) and
the refinancing of VMS indebtedness and related adjustments had taken place on
January 1, 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenue.............................................. $4,144,670 $3,907,039
========== ==========
Income before provision for income taxes............. $ 141,402 $ 65,596
========== ==========
Net income........................................... $ 73,171 $ 26,916
Preferred stock dividends............................ 18,220 18,220
---------- ----------
Earnings applicable to common stockholders........... $ 54,951 $ 8,696
========== ==========
Earnings per share:
Basic................................................ $ 1.75 $ .25
========== ==========
Diluted.............................................. $ 1.72 $ .25
========== ==========
</TABLE>
On May 1, 1998, the Company acquired the assets of the car rental business
of Hayes Leasing Company, Inc., including the Avis System franchises for the
cities of Austin, Fort Worth and San Antonio, and the counties of Dallas and
Tarrant, Texas for approximately $86 million in cash plus the refinancing of
fleet-related indebtedness, which totaled approximately $136 million for a total
purchase price of approximately $222 million. In addition, during the year ended
December 31, 1998, the Company purchased the assets of several other Avis System
franchises for approximately $15 million in cash. If these Acquisitions had
occurred on January 1, 1999 or 1998, they would not have had a material impact
on the Company's results of operations. The excess purchase price over the net
assets acquired for these acquisitions was approximately $90 million.
F-13
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITIONS (CONTINUED)
The following is the purchase cost allocation for the acquisition of the car
rental assets of Hayes Leasing Company, Inc. and other Avis System franchises
during the year ended December 31, 1998 mentioned above (in thousands):
<TABLE>
<S> <C>
Purchase cost............................................... $237,182
--------
Fair value of:
Assets acquired........................................... 153,828
Liabilities assumed....................................... (7,319)
--------
Net assets.................................................. 146,509
--------
Cost in excess of net assets acquired....................... $ 90,673
========
</TABLE>
In 1997, the Company purchased First Gray Line and the franchise rights of
another Avis System franchisee. These acquisitions had an aggregate purchase
cost of approximately $199 million. The excess purchase cost over net assets
acquired was approximately $168 million.
The following is the purchase cost allocation for these 1997 acquisitions
mentioned above (in thousands):
<TABLE>
<S> <C>
Purchase cost............................................... $199,381
--------
Fair value of:
Assets acquired........................................... 351,517
Liabilities assumed....................................... 320,269
--------
Net assets.................................................. 31,248
--------
Cost in excess of net assets acquired....................... $168,133
========
</TABLE>
The acquisition of the franchise rights of the additional Avis System
franchisee, if it had occurred on January 1, 1997, would not have had a material
impact on the results of operations of the Company.
The following unaudited pro-forma information presents the results of
operations of the Company, which assumes that the following transactions had
occurred on January 1, 1997 (i) the acquisition of the Company by Cendant and
the establishment of a franchisor/franchisee relationship, (ii) the acquisition
of First Gray Line and (iii) the repayment of debt with the net proceeds (after
the purchase of First Gray Line) from the IPO (in thousands, except earnings per
share amounts):
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Revenue..................................................... $2,175,897
==========
Net income.................................................. $ 39,432
==========
Basic earnings per share.................................... $ 1.28
==========
Diluted earnings per share.................................. $ 1.26
==========
</TABLE>
F-14
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITIONS (CONTINUED)
The above mentioned acquisitions have been accounted for by the purchase
method. The financial statements include the operating results of acquisitions
subsequent to their dates of acquisition.
NOTE 3--RESTRICTED CASH
At December 31, 1999 and 1998, restricted cash includes an escrow amount of
$90,000,000 as required under the Company's debt agreements, to provide
additional credit enhancement on the Company's Medium Term Notes and Domestic
Asset Backed Securities-Variable Fund Notes (see Note 10). Also included in
restricted cash at December 31, 1999 is $116,244,000 related to the VMS Domestic
and Foreign ABS Facilities and certain amounts which are set aside to satisfy
claims under the Company's self-insurance programs and other obligations of the
Company.
NOTE 4--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net at December 31, 1999 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Vehicle leasing and other fee based................... $ 699,006
Due from General Motors............................... 196,497 $161,377
Vehicle rentals....................................... 109,084 104,032
Vehicle related....................................... 51,282 65,586
Value added and provincial taxes...................... 28,427
Damage claims......................................... 13,715 14,710
Other................................................. 25,398 18,219
---------- --------
1,123,409 363,924
Less allowance for doubtful accounts.................. (7,669) (3,350)
---------- --------
$1,115,740 $360,574
========== ========
</TABLE>
Vehicle related amounts include receivables for vehicles sold under
guaranteed repurchase contracts ("Repurchase Programs") and amounts due for
incentives and allowances. Incentives and allowances are based on all of the
following: the volume of vehicles to be purchased for a model year, the
manufacturers' willingness to encourage the Company to retain vehicles rather
than return the vehicles back to the manufacturer and the purchase of particular
models not subject to repurchase under "buyback" arrangements. Incentives and
allowances are amortized to income over the average holding period of the
vehicles (see Notes 7 and 24).
F-15
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--DUE TO AFFILIATES, NET
Due to affiliates, net at December 31, 1999 and 1998 consist of amounts due
Cendant or its consolidated subsidiaries of $59.4 million and $22.3 million,
respectively, for services. Non-interest bearing advances represent intercompany
transactions relating primarily to royalty fees, reservation processing and data
processing.
Expense items of the Company include the following items from Cendant and
affiliates of Cendant for the years ended December 31, 1999, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Royalty fee................................... $100,031 $ 91,904 $ 81,846
Reservations.................................. 58,063 49,872 43,240
Data processing and other..................... 43,700 35,844 41,896
Rent.......................................... 4,639 4,648 4,927
-------- -------- --------
$206,433 $182,268 $171,909
======== ======== ========
</TABLE>
These charges seek to reimburse the affiliated company for the actual costs
incurred. They are determined in accordance with various intercompany agreements
and include certain allocations which are based upon such factors as square
footage, employee salaries, computer usage time, etc. Effective January 1, 1997,
Cendant charged the Company a royalty fee of 4.0% of revenue for the use of the
Avis trade name. The royalty fee of 4.0% consists of a base royalty of 3.0% of
the vehicle rental segment's gross revenue and a supplemental royalty of 1.0% of
the vehicle rental segment's gross revenue payable quarterly in arrears, which
will increase periodically to a maximum of 1.5% in 2003. The supplemental
royalty or a portion thereof may be deferred if the Company does not meet
certain financial targets.
In addition, for the years ended December 31, 1999 and 1998, the Company was
charged by Cendant approximately $4.1 million and $3.8 million for certain
software developed for internal use, which has been capitalized on the
accompanying Consolidated Statements of Financial Position. Under the Computer
Services Agreement with Cendant, dated July 30, 1997, software developed for the
Company's internal use is charged to the Company at Cendant's cost.
NOTE 6--FINANCE LEASE RECEIVABLES
Under these leases, the minimum lease term is 12 months with a month to
month renewal thereafter. In addition, resale of the vehicles upon termination
of the lease is for either the account of the lessor (PHH Europe) or the lessee
(both PHH North America and PHH Europe). The net investment in leases and leased
vehicles at December 31, 1999 consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Future minimum lease payments receivable.................... $561,157
Estimated unguaranteed residual value....................... 392,191
Less unearned income........................................ (82,314)
--------
$871,034
========
</TABLE>
F-16
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--FINANCE LEASE RECEIVABLES (CONTINUED)
At December 31, 1999, future minimum lease payments on the Company's direct
financing leases are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000........................................................ $243,645
2001........................................................ 175,791
2002........................................................ 94,459
2003........................................................ 33,088
2004........................................................ 7,841
Thereafter.................................................. 6,333
--------
$561,157
========
</TABLE>
NOTE 7--VEHICLES, NET
Vehicles at December 31, 1999 and 1998 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1999
----------------------- 1998
VEHICLE VEHICLE VEHICLE
RENTAL LEASING RENTAL
---------- ---------- ----------
<S> <C> <C> <C>
Rental vehicles.......................................... $3,683,864 $3,443,385
Vehicles under open-end operating leases................. $3,337,191
Vehicles under closed-end operating leases............... 230,693
Buses and support vehicles............................... 81,150 67,786
Vehicles held for sale................................... 19,757 40,400 21,871
---------- ---------- ----------
3,784,771 3,608,284 3,533,042
Less accumulated depreciation............................ (417,409) (474,275) (368,226)
---------- ---------- ----------
$3,367,362 $3,134,009 $3,164,816
========== ========== ==========
</TABLE>
Depreciation expense recorded for rental vehicles was $644.6 million, $576.2
million and $460.6 million for the years ended December 31, 1999, 1998, and
1997, respectively. Depreciation expense recorded for leasing vehicles for the
period June 30, 1999 (date of acquisition) through December 31, 1999 was $507.7
million. Rental vehicle depreciation expense for rental vehicles is stated net
of amortization of certain incentives and allowances from various vehicle
manufacturers of approximately $120 million, $119 million and $121 million for
the years ended December 31, 1999, 1998 and 1997, respectively. Rental vehicle
depreciation expense also reflects a net gain (loss) on the disposal of vehicles
of $(5.4) million, $(6.8) million and $7.0 million for the years ended December
31, 1999, 1998, and 1997, respectively.
F-17
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--VEHICLES, NET (CONTINUED)
At December 31, 1999, future minimum lease payments to be received on the
Company's open-end and closed-end operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
YEARS
2000........................................................ $1,122,002
2001........................................................ 921,121
2002........................................................ 619,250
2003........................................................ 290,897
2004........................................................ 96,987
Thereafter.................................................. 92,673
----------
Total....................................................... $3,142,930
==========
</TABLE>
Other fleet leasing vehicles with net carrying amounts of $233.6 million at
December 31, 1999, are included in special purpose entities which are not owned
by the Company. These entities do not require consolidation as they are not
controlled by the Company and all risks and rewards rest with the owners.
Additionally, managed vehicles totaling approximately $110.9 million at December
31, 1999, are owned by special purpose entities, which are owned by the Company.
However, such assets and related liabilities have been netted in the
Consolidated Statements of Financial Position since there is a two-party
agreement with determinable accounts, a legal right to offset exists and the
Company exercises its right of offset in settlement with client corporations
received from vehicle manufacturers are partially recognized at the time of
acquisition of the leased vehicle, a portion is deferred and recognized on a
straight line basis over the lease term of the vehicle, and a portion is
deferred and recognized at the time the vehicle is disposed of.
VEHICLE SALE--LEASEBACK TRANSACTIONS
During 1999, the Company entered into a sale-leaseback transaction with an
independent third party ("Counterparty") in Canada. In addition, the Company is
party to similar arrangements with the Counterparty resulting from transactions
incurred prior to 1999. Under this arrangement, the Company sells its net
investment in operating leases and leased vehicles to the Counterparty. Then, it
repurchases the leased vehicles (the Counterparty retains the lease rights).
Subsequently, the Company leases the vehicles under a direct financing lease to
the Counterparty. The Counterparty prepays all lease payments except for an
agreed-upon residual amount. These residual amounts are typically 3% to 4.5% of
the total lease exposure from these transactions. The total amount of net
investment in operating leases and leased vehicles sold under this agreement was
$48.1 million. At December 31, 1999, the total outstanding prepaid rent and
residual amounts outstanding under such agreements was $286.7 million and $16.1
million respectively. The total revenues recognized under these agreements was
$60.6 million for 1999.
F-18
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--PROPERTY AND EQUIPMENT, NET
Property and equipment, net at December 31, 1999 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land.................................................... $ 28,270 $ 23,726
Buildings............................................... 8,191 8,655
Leasehold improvements.................................. 119,702 87,830
Furniture, fixtures and equipment....................... 52,823 16,869
Construction-in-progress................................ 32,975 32,236
-------- --------
241,961 169,316
Less accumulated depreciation and amortization.......... (44,134) (24,271)
-------- --------
$197,827 $145,045
======== ========
</TABLE>
In December 1999, VMS in the U.K. entered into a sale and lease back for an
office building. The selling price of the office building was approximately
$32.2 million. The period of the lease is 16 years. The gain on the sale of the
office building of $16.4 million has been reflected in the Consolidated
Statement of Financial Position at December 31, 1999, as a reduction of cost in
excess of net assets acquired, net.
NOTE 9--ACCRUED LIABILITIES
Accrued liabilities at December 31, 1999 and 1998 consist of the following
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Payroll and related costs............................... $106,209 $103,043
Taxes, other than income taxes.......................... 15,664 9,349
Rents and property related.............................. 36,270 22,241
Interest................................................ 28,866 6,140
Sales and marketing..................................... 54,749 43,704
Vehicle related......................................... 29,355 27,102
Other................................................... 98,340 114,625
-------- --------
$369,453 $326,204
======== ========
</TABLE>
F-19
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--FINANCING AND DEBT
Debt outstanding at December 31, 1999 and 1998 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
VEHICLE RENTAL
Commercial Paper Notes...................................... $1,026,261 $ 678,377
Short-term notes-foreign.................................... 111,259 74,881
Series 1997-1A asset backed Medium Term Notes due May
through October 2000 at 6.22%............................. 800,000 800,000
Series 1997-1B asset backed Medium Term Notes due May
through October 2002 at 6.40%............................. 850,000 850,000
Series 1998-1 asset backed Medium Term Notes due December
2004 through May 2005 at 6.14%............................ 600,000 600,000
Revolving credit facility due June 2005..................... 62,000
Other....................................................... 5,902 11,454
---------- ----------
TOTAL VEHICLE RENTAL DEBT................................. 3,455,422 3,014,712
---------- ----------
VEHICLE LEASING AND OTHER FEE BASED
Commercial Paper Notes...................................... 1,521,498
Canadian short term borrowings.............................. 44,563
Series 1999-2 floating rate asset-backed notes, Class A-1... 550,000
Series 1999-2 floating rate asset-backed notes, Class A-2... 450,000
Foreign Asset Backed Securities--UK Advances................ 850,443
Self-fund notes............................................. 30,397
Wright Express Certificates of Deposit...................... 67,482
----------
TOTAL VEHICLE LEASING AND OTHER FEE BASED DEBT............ 3,514,383
----------
ACQUISITION FINANCING
Term A Loan Notes due June 2005............................. 250,000
Term B Loan Notes due June 2006............................. 375,000
Term C Loan Notes due June 2007............................. 375,000
Senior Subordinated Notes due May 2009 at 11.00%............ 500,000
----------
TOTAL ACQUISITION FINANCING............................... 1,500,000
---------- ----------
TOTAL DEBT................................................ $8,469,805 $3,014,712
========== ==========
</TABLE>
VEHICLE RENTAL DEBT
On July 31, 1997, the Company, through its wholly-owned subsidiary Avis Rent
A Car System, Inc. ("ARACS"), entered into a domestic integrated fleet financing
program that provided for financing for vehicles covered by Repurchase Programs,
(the "Avis ABS Facility"). As of December 31, 1999, the availability of the
domestic integrated fleet under this program is $3.75 billion. The domestic
integrated fleet financing program provides for the issuance of up to $1.5
billion of asset-backed variable funding notes (the "Commercial Paper Notes")
and $2.25 billion of asset backed medium term notes (the "Medium Term Notes").
The Commercial Paper Notes and the Medium Term Notes are backed by a first
priority security interest in the domestic rental fleet. Additional credit
enhancement was provided for the Medium Term Notes by establishing an escrow
account of $90 million, which is included in
F-20
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--FINANCING AND DEBT (CONTINUED)
"Restricted Cash" (see Note 3) on the accompanying Consolidated Statements of
Financial Position at December 31, 1999 and 1998, respectively. The weighted
average interest rates on the Commercial Paper Notes were 5.3% and 5.5% for the
years ended December 31, 1999 and 1998. Average borrowings in the Commercial
Paper Notes during the years ended December 31, 1999 and 1998 was $1,079.3
million and $809.7 million, respectively.
On June 30, 1999, the Company entered into a $1.35 billion secured credit
facility (the "Credit Facility") which is guaranteed by certain of it's
subsidiaries. This facility replaced a similar facility that ARAC had entered
into on July 31, 1997. The Credit Facility consists of (i) $1 billion of Term
Loans (see Acquisition Financing below), (ii) a revolving credit facility of up
to $350 million which is available on a revolving basis until June 30, 2005 in
order to finance the working capital needs of the Company in the ordinary course
of business (with up to $75 million of such amount available for the issuance of
standby letters of credit to support workers' compensation and other insurance
and bonding requirements of ARACS, the Company and its subsidiaries in the
ordinary course of business, and a 364 day standby letter of credit facility of
up to $225 million available to fund (a) any shortfall in certain payments owing
to AESOP Leasing, a subsidiary of ARACS pursuant to fleet agreements and (b)
maturing Commercial Paper Notes if such Commercial Paper Notes cannot be repaid
through the issuance of additional Commercial Paper Notes or draws under the
liquidity facility supporting the Commercial Paper Notes). At December 31, 1999
and 1998, the Company had issued letters of credit of $29.2 million and $31.9
million under the revolving credit facility and $150 million and $150 million
under the $225 million standby letter of credit facility, respectively. Under
the terms of the Revolving Credit Facility, the Company had outstanding $62
million as of December 31, 1999 at a variable interest rate with terms identical
to the Term A Loan Notes (see Acquisition Financing below).
The Credit Facility is secured by the tangible and intangible assets of the
Company (including, without limitation, its intellectual property, its rights
under the Master License Agreement and related agreements, real property and all
of the capital stock or equivalent equity ownership interests of the Company and
each of its direct and indirect domestic subsidiaries and 65% of the Company
first-tier foreign subsidiaries), except for those assets which are subject to a
negative pledge or as to which the agents for the Credit Facility shall
determine in their sole discretion that the costs of obtaining such a security
interest are excessive in relation to the value of the security to be afforded
thereby.
The weighted-average interest rates of the short-term notes-foreign as of
December 31, 1999 and 1998 were 5.8% and 6.0%, respectively.
VEHICLE LEASING AND OTHER FEE BASED DEBT
In connection with the VMS Acquisition (see Note 2), Avis Group Holdings,
Inc. refinanced the VMS existing fleet debt with the proceeds of $2,735,507
domestic and $720,000 foreign asset-backed securities issued pursuant to an
offering of asset-backed securities (the "Interim VMS ABS Offering"), under
certain fleet financing facilities and together with the Avis ABS Facility. The
domestic securities comprising the Interim VMS ABS Offering are issued by a
bankruptcy remote special purpose entity (the "Domestic ABS Issuer") and placed
initially with a single multi-seller commercial paper conduit, and thereafter
may be syndicated to one or more other bank sponsored conduits (collectively the
"CP Conduits"). The CP Conduits will acquire Domestic Variable Funding Notes
("VFNs"), Domestic Preferred Membership Interests and U.K. Advances using the
proceeds of commercial paper issuances. In addition, from time to time, the
Domestic ABS Issuer may issue medium-term notes secured by the
F-21
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--FINANCING AND DEBT (CONTINUED)
Domestic ABS Assets, using the proceeds of any such offerings to reduce the
amount of Domestic VFNs then outstanding.
On October 28, 1999, $1 billion of 7 and 12 year Medium Term Notes ("MTN's")
were issued to replace a like amount of Domestic VFN's. This facility consists
of two classes of floating rate asset-backed notes; Class A-1 notes, which total
$550 million and Class A-2 notes, which total $450 million. Both classes of
notes have an interest rate, which is reset monthly at LIBOR plus 32 basis
points for the Class A-1 notes and LIBOR plus 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 in 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-1 notes 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 Standard
and Poors 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. The Domestic VFN agreement
expires in June 2000 and is renewable annually. The blended interest rate in
effect (including program fees from 32 to 35 basis points) at December 31, 1999
for the domestic asset-backed securities is 6.71%. The Company has also issued
two series of Senior Preferred Membership Interests (see Note 11), which total
$99.3 million at a rate (including program fees of 70 basis points) of 6.97 % at
December 31, 1999.
VMS-U.K. currently has a $856 million asset-backed facility (the "U.K. ABS
Facility"), which is supported by the leased vehicles and fuel card receivables
of the various VMS-U.K entities. VMS-U.K. is funded through a group of
multi-seller commercial paper conduits. The interest rate is variable and is
based on commercial paper notes plus a weighted average margin of approximately
45 basis points. As of December 31, 1999, there was approximately $850 million
outstanding at a blended rate of 6.66%. This facility expires in December 2000
and is renewable annually.
SELF-FUND NOTES
Self-fund notes represent loans made by customers to purchase leased
vehicles. Repayment of these notes is matched to payments on the underlying
lease including the disposal of the vehicles at maturity. Interest can be fixed
or floating, depending on the underlying leases. The average interest rate at
December 31, 1999 was 5.1%. The loans are repayable at expiration of the various
lease terms. At December 31, 1999 self-funded notes expire between 2003 and
2013.
WRIGHT EXPRESS CERTIFICATES OF DEPOSIT
At December 31, 1999, scheduled maturities of certificates of deposit of
$67.5 million are all less than one year. The interest rates range from 5.2% to
6.25%.
ACQUISITION FINANCING
In connection with the VMS Acquisition (see Notes 1 and 2 ), the Company
entered into $1 billion of term loans, consisting of $250 million ("Term A
Loan"), $375 million ("Term B Loan") and $375
F-22
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--FINANCING AND DEBT (CONTINUED)
million ("Term C Loan"), under the credit facility described previously. These
amounts are outstanding as of December 31, 1999 and accrue interest as follows:
Term Loans A, B, C and Revolving Loans bear interest at either Chase
Manhattan Bank's ("Chase") alternate base rate ("ABR") or the Eurodollar rate
(at the Company's option) plus the applicable margin. As of December 31, 1999,
the applicable margin and interest rate for each type of loan is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE DECEMBER 31, 1999
ABR LOANS EURODOLLAR LOANS INTEREST RATE
--------- ---------------- -----------------
<S> <C> <C> <C>
Revolving Loans.................... 1.75% 2.75% 8.20%
Term A Loan........................ 1.75% 2.75% 8.41%
Term B Loan........................ 2.25% 3.25% 8.92%
Term C Loan........................ 2.50% 3.50% 9.16%
</TABLE>
The agreements with the Company's lenders include a number of significant
covenants that, among other things, restrict its ability to dispose of non-fleet
assets, incur additional indebtedness, create liens, prohibit the payment of
dividends, enter into certain investments or acquisitions, repurchase or redeem
capital stock, engage in mergers or consolidations or engage in certain
transactions with affiliates and otherwise restrict corporate activities.
Certain of these agreements also require the Company to maintain specified
financial ratios. As of December 31, 1999, the Company was in compliance with
all such covenants related to these agreements.
In addition, the Company issued $500 million of Senior Subordinated Notes
due May 1, 2009 with an interest rate of 11% (the "Senior Subordinated Notes").
The Senior Subordinated Notes are subordinated in the right of payment to all
existing and future senior indebtedness of the Company and are unconditionally
guaranteed on a senior subordinated basis by ARACS and other domestic
subsidiaries of the Company that guarantees the Senior Credit Facility (as
defined). Interest is payable semi-annually commencing November 1, 1999.
Mandatory maturities of long-term obligations, including current maturities,
for each of the next five years ending December 31, and thereafter, are as
follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 828,104
2001........................................................ 387,795
2002........................................................ 1,189,964
2003........................................................ 251,644
2004........................................................ 359,631
Thereafter.................................................. 1,831,164
</TABLE>
OTHER CREDIT FACILITIES
At December 31, 1999, in addition to the credit facilities previously
described, the Company had credit facilities available to support various
international and other operations. At December 31, 1999, the total available
under these facilities was $625.8 million of which $393.0 million was unused and
available. Amounts unused under these facilities require an annual fee of 0.2%
to 0.4% of the unused portion. In addition, the Company had available letters of
credit/overdraft agreements in place,
F-23
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--FINANCING AND DEBT (CONTINUED)
renewable annually at the Company's option and the bank's discretion. At
December 31, 1999, the Company had $45.1 million available, against which there
are outstanding Letters of Credit totaling $27.6 million. The collateral for
certain of these agreements consists of a pledge of certain cash balances, in
the amount of $25 million, which are included in "Restricted Cash" on the
accompanying Consolidated Statements of Financial position.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has derivative financial instruments at December 31, 1999 that
are sensitive to fluctuations in interest rates and gasoline prices. The
following derivative instruments agreements have been entered into by the
Company:
To reduce the risk from interest rate fluctuations under its asset based
debt agreements, the Company has entered into domestic and foreign interest rate
cap and interest rate floor agreements with durations of 10 and 5 years,
respectively. The interest rate cap and interest rate floor agreements have
notional values of $672.8 million and $436.2 million and $591.7 million and
$591.7 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 6.3% and 5.5%, respectively.
The Company was party to twenty five and four interest rate swap agreements
at December 31, 1999 and 1998, respectively, to reduce the impact of changes in
interest rates on certain outstanding debt obligations. These agreements
effectively change the Company's interest rate exposure on $842.2 million and
$288.6 million of its outstanding debt from a weighted average variable interest
rate to an average fixed rate of 5.3% and 4.8% at December 31, 1999 and 1998,
respectively. The variable interest rates for certain of these interest rate
swap agreements are either reset quarterly or monthly based upon various
indices, including 30 day commercial paper, 3 month LIBOR and 3 month Canadian
Bankers Acceptances. Interest is cash settled on a net basis for each agreement
quarterly. The interest rate swap agreements will terminate between May 2000 and
May 2005. Under certain of the swap agreements terminating in August 2003, the
counter-party has the right to terminate one of the agreements in August 2000
and one agreement in August 2001. Under a Swap Agreement terminating in May
2005, the counterparty has the right to terminate the agreement in June 2001.
The differential to be paid or received is recognized ratably as interest rates
change over the life of the agreements as an adjustment to interest expense.
The net interest differential (credited) charged to interest expense for the
periods ended December 31, 1999, 1998 and 1997 was ($773,000), $53,000, and
$909,000, respectively. The Company is exposed to credit risk in the event of
non-performance by counterparties to its interest rate swap agreements. Credit
risk is limited by entering into such agreements with institutions with high
credit ratings. Therefore, the Company does not anticipate that non-performance
by counterparties will occur. Notwithstanding this, the Company monitors
counterparty credit ratings at least quarterly through reviewing independent
credit agency reports.
Both current and potential exposure are evaluated, as necessary, by
obtaining replacement cost information from alternative dealers. Potential loss
to the Company from credit risk on these agreements is limited to amounts
receivable, if any.
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
F-24
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--FINANCING AND DEBT (CONTINUED)
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 a decrease 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 and losses from the
sale or exercise of options are recognized when the underlying option is sold.
At December 31, 1999, the total contract amount of such options was 31.1 million
gallons of gasoline and the unamortized cost of these options was $313 thousand
and is included in other assets in the accompanying Consolidated Statements of
Financial position.
NOTE 11--MINORITY INTEREST (PREFERRED MEMBERSHIP INTEREST)
In connection with the issuance of the Vehicle Leasing ABS Facility (see
Note 10), the Company has issued two Series 1999-2 Senior Preferred Membership
Interests ("PMI's") of which $99.3 million are outstanding at a distribution
rate of 6.97% at December 31, 1999. The PMI's represent an equity interest in
one of the Company's domestic vehicle leasing subsidiaries and accordingly, are
reported as minority interest (preferred membership interest), on the
accompanying Consolidated Statements of Financial Position at December 31, 1999.
The holders of the Preferred Membership Interest are entitled to receive
dividends based upon the funding costs of the multi-seller commercial paper
conduits, plus a program fee of 0.70% per annum. The dividend periods correspond
to the same interest periods as the 1999-2 floating rate asset-backed notes. For
the year ended December 31, 1999, the Company accrued approximately $5.9 million
of distributions, which are reflected in the accompanying Consolidated
Statements of Operations as minority interest.
NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS
The net interest receivable and the estimated fair value of the Company's
interest rate swaps, caps and floors, swaption agreement and gasoline put
options represent assets of approximately $763 thousand and $15.2 million,
respectively, at December 31, 1999. At December 31, 1998, the net interest
receivable and estimated fair value of the Company's interest rate swap
agreements represent assets of approximately $268 thousand and $885 thousand,
respectively.
For instruments including cash and cash equivalents, restricted cash,
accounts receivable, and accounts payable, the carrying amount approximates fair
value because of the short maturity of these instruments. The fair value of
floating-rate debt approximates carrying value because these instruments
re-price frequently at current market prices. At December 31, 1999 and 1998, the
fair value of the Medium Term Notes, Asset Backed Securities and Senior
Subordinated Notes is (less than), exceeds the carrying value by approximately
$(27.7) million and $44.5 million, respectively.
At December 31, 1999 the Company had $371 million of preferred stock which
approximates fair value. The Company believes that it is not practicable to
estimate the current fair value of the amounts due to affiliates, net, because
of the related party nature of the instruments.
F-25
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--INCOME TAXES
The provision for income taxes for the years ended December 31, 1999, 1998
and 1997 consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................ $ 800
State.......................................... $ 2,010 980 $ 1,013
Foreign........................................ 14,295 8,470 12,676
------- ------- -------
16,305 10,250 13,689
------- ------- -------
Deferred:
Federal........................................ 42,095 33,200 12,463
State.......................................... 3,596 3,520 410
Foreign........................................ 11,336 1,737 (3,712)
------- ------- -------
57,027 38,457 9,161
------- ------- -------
Provision for income taxes....................... $73,332 $48,707 $22,850
======= ======= =======
</TABLE>
The effective income tax rates for the years ended December 31, 1999, 1998
and 1997 vary from the statutory U.S. federal income tax rate due to the
following (dollar amounts in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. federal income tax provision/tax
rate......................................... $58,071 35.0% $39,280 35.0% $17,613 35.0%
Tax effect of foreign operations and
dividends.................................... 2,628 1.6 2,677 2.4 1,436 2.9
Amortization of cost in excess of net assets
acquired and other intangibles............... 8,190 4.9 3,351 3.0 2,369 4.7
State income taxes, net of federal tax
benefit...................................... 3,644 2.2 2,925 2.6 924 1.8
Other non-deductible business expenses......... 799 0.5 474 0.4 508 1.0
------- ---- ------- ---- ------- ----
Effective income tax provision/tax rate........ $73,332 44.2% $48,707 43.4% $22,850 45.4%
======= ==== ======= ==== ======= ====
</TABLE>
F-26
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--INCOME TAXES (CONTINUED)
In accordance with SFAS 109, the net deferred income tax (liabilities)
assets at December 31, 1999 and 1998, include the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
GROSS DEFERRED INCOME TAX ASSETS:
Accrued liabilities......................................... $ 241,631 $ 230,575
Net operating loss carryforwards............................ 138,392 118,437
Alternative minimum income tax credit carryforwards......... 4,199 3,825
--------- ---------
384,222 352,837
--------- ---------
GROSS DEFERRED INCOME TAX LIABILITIES:
Tax depreciation in excess of book depreciation............. (546,938) (247,090)
Prepaids and other.......................................... (18,540) (16,592)
--------- ---------
(565,478) (263,682)
--------- ---------
Net deferred income tax (liabilities) assets................ $(181,256) $ 89,155
========= =========
</TABLE>
In connection with the adoption of SFAS No. 130, "REPORTING COMPREHENSIVE
INCOME" ("SFAS 130"), the Company has included in net deferred income tax
(liabilities) assets and common stockholders' equity, an increase of $4.6
million, $3.1 million, and $3.8 million related to the income tax effects of the
Foreign Currency Translation Adjustment and Minimum Pension Liability for the
years ended December 31, 1999, 1998, and 1997, respectively.
The Company has alternative minimum tax net operating loss carryforwards of
$211.9 million. The federal net operating loss carryforward is $370.9 million
which expires as follows: 2000, $11.6 million; 2001, $7.1 million; 2004, $93.1
million; 2007, $67.7 million; 2008, $41.1 million; 2009, $18.3 million; 2010,
$1.1 million; 2017, $83.7 million; 2018, $1 million and 2019, $46.2 million.
Deferred income taxes were not provided on accumulated earnings of foreign
subsidiaries of $99,164,000 at December 31, 1999 because such accumulated
undistributed earnings are considered to be permanently reinvested. If these
amounts were not considered permanently reinvested, additional deferred income
taxes of approximately $45,133,000 would have been provided at December 31,
1999.
NOTE 14--PREFERRED STOCK (IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK TOTAL
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Issuance of Preferred Stock Series A and Series C on
June 30, 1999 in connection with the acquisition of
VMS (see Notes 1&2)................................. $360,000 $2,000 $362,000
Preferred Stock Dividends accrued..................... $9,000 9,000
-------- ------ ------ --------
Balance December 31, 1999............................. $360,000 $9,000 $2,000 $371,000
======== ====== ====== ========
</TABLE>
F-27
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--PREFERRED STOCK (IN THOUSANDS) (CONTINUED)
SERIES A PREFERRED STOCK
In connection with the VMS Acquisition (see Notes 1 and 2), a total of
7,200,000 shares of Series A Preferred Stock of the Acquisition Subsidiary have
been issued and were outstanding at December 31, 1999. Holders of Series A
Preferred Stock are not entitled to preemptive rights. The Series A Preferred
Stock has an aggregate liquidation preference of $360 million or $50 per share
(the "Series A Liquidation Preference"). Each share of Series A Preferred
accrues dividends at a rate per annum of 5% of the Series A Liquidation
Preference, payable in cash semi-annually in arrears. Until June 30, 2004,
dividends may be paid at the discretion of the Acquisition Subsidiary in shares
of Series B Cumulative PIK Preferred Stock (see Series B Preferred Stock below).
In addition, if the Company is unable to obtain the consent of its Shareholders
to amend its charter by June 30, 2000 to issue Class B Common Stock of the
Company and Class A Common Stock of the Company issuable in exchange for the
Class B Common Stock of the Company, the dividend rate on the Series A Preferred
will increase to 12%, with retroactive effect to the date of issuance. The
Series A Preferred is also entitled to special annual dividends at a rate of 2%
of the Series A Liquidation Preference per annum, payable in cash annually on
March 15th, in the event that the Acquisition Subsidiary achieves targeted
consolidated Earnings Before Income Taxes, Depreciation and Amortization
("EBITDA") levels. Upon liquidation, and after payment of all amounts owed to
all classes of capital stock ranked senior to the Series A Preferred, holders of
shares of Series A Preferred will receive the Series A Liquidation Preference of
such shares plus accrued and unpaid dividends.
The Series A Preferred may be redeemed by the Acquisition Subsidiary, in
whole or in part, on or after the fifth anniversary of the date of issuance,
June 30, 2004, and must be redeemed in whole upon the eleventh anniversary of
the date of issuance for an amount per share equal to the Series A Liquidation
Preference plus accrued and unpaid dividends. In addition, holders of the Series
A Preferred may cause the Acquisition Subsidiary to redeem their shares for
cash, upon the bankruptcy or insolvency of the Company or a change of control
with respect to the Company or the Acquisition Subsidiary.
The holders of the Series A Preferred may convert shares of Series A
Preferred into shares of Class B Common Stock of the Company once specified
levels of 12-month consolidated EBITDA of the Acquisition Subsidiary have been
reached and the average closing price of Class A Common Stock of the Company for
a specified period shall have exceeded a performance conversion price. Such
conversion shall be at a rate (the "Performance Conversion Rate") obtained by
dividing the per share Series A Liquidation Preference by $50 (as adjusted for
antidilution protection, the "Performance Conversion Price").
On or after the fifth anniversary of the closing date of the VMS
Acquisition, June 30, 1999, if the share price of the Class A Common Stock of
the Company has exceeded an amount equal to 110% of the Performance Conversion
Price for 20 trading days within a period of 30 consecutive trading days ending
within five trading days of notice of conversion given by the Acquisition
Subsidiary, then the Acquisition Subsidiary has the right to convert all of the
shares of the Series A Preferred into Class B Common Stock of the Company at the
Performance Conversion Rate. Upon the bankruptcy or insolvency of the
Acquisition Subsidiary or any of its subsidiaries that constitute a Significant
Subsidiary of the Company, as defined in Rule 1-02(w) of Regulation S-X (a
"Significant Subsidiary"), the Series A Preferred automatically converts into
Class B Common Stock of the Company at a rate equal to the quotient obtained by
dividing: (1) the per share Series A Liquidation Preference by (2) the average
F-28
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--PREFERRED STOCK (IN THOUSANDS) (CONTINUED)
trading price per share of Class A Common Stock of the Company for the 30
trading days immediately preceding the date of the holder's conversion notice or
the date on which the bankruptcy case commences, as applicable (the "Series A
Market Conversion Rate"). The Series A Market Conversion Rate is subject to
adjustment for antidilution protection.
Additionally, holders of Series A Preferred may convert their Series A
Preferred into Class B Common Stock of the Company at the Series A Market
Conversion Rate if the Acquisition Subsidiary: (1) fails to make a redemption
payment on the Series A Preferred or the Series B Preferred, (2) fails to pay
dividends when due on either the Series A Preferred or the Series B Preferred,
(3) takes actions requiring consents of its holders of the Series A Preferred or
the Series B Preferred without obtaining such consents or (4) issues additional
shares of the Series A Preferred or Series B Preferred, or reissues shares of
either, in violation of their terms.
Without the affirmative vote or written consent of the holders of a majority
of the outstanding shares of Series A Preferred, the Acquisition Subsidiary
shall not (1) authorize, create or issue any security ranking senior to the
Series A Preferred as to dividends or on liquidation (other than the Series C
Preferred); (2) amend its articles of incorporation or the certificate of
designation for the Series A Preferred in a manner adverse to the holders of the
Series A Preferred; (3) authorize the issuance of additional shares of Series A
Preferred; or (4) reincorporate the Acquisition Subsidiary in a jurisdiction
other than Texas prior to the second anniversary of the date of issuance of the
Series A Preferred. Holders of Series A Preferred are not entitled to voting
rights, except as required by Texas law. In those circumstances where the
holders of Series A Preferred have a right to vote, each holder of a share of
Series A Preferred shall be entitled to one vote per share.
Shares of Series A Preferred are freely transferable. Shares of Series A
Preferred reacquired in any manner will be retired and may not be reissued as
shares of Series A Preferred.
SERIES B PREFERRED STOCK
Series B Cumulative PIK Preferred Stock (the "Series B Preferred") will be
issued as dividends to the Series A Preferred holders by the Acquisition
Subsidiary. Holders of the Series B Preferred are not entitled to preemptive
rights. The Series B Preferred has a liquidation preference of $50 per share
(the "Series B Liquidation Preference"). Each share of Series B Preferred
accrues dividends at a rate per annum of 5% of the Series B Liquidation
Preference, payable in cash semi-annually in arrears. In addition, if the
Company is unable to obtain the consent of its shareholders to amend its charter
by June 30, 2000 to issue Class B Common Stock of the Company and Class A Common
Stock of the Company issuable in exchange for the Class B Common Stock of the
Company, the dividend rate on the Series B Preferred will increase to 12%, with
retroactive effect to the date of issuance. Until the fifth anniversary of the
date of issuance of the Series B Preferred, dividends may, at the discretion of
the Acquisition Subsidiary be paid in kind; thereafter, dividends must be paid
in cash. Upon liquidation, and after payment of all amounts owed to all classes
of capital stock ranked senior to the Series B Preferred, holders of shares of
Series B Preferred will receive the Series B Liquidation Preference of such
shares plus accrued and unpaid dividends.
The Series B Preferred has the same ranking as the Series A Preferred. The
Series B Preferred may be redeemed by the Acquisition Subsidiary, in whole or in
part, on or after the fifth anniversary of the date of issuance, January 30,
2005, and must be redeemed in whole upon the eleventh anniversary
F-29
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--PREFERRED STOCK (IN THOUSANDS) (CONTINUED)
of the date of issuance for an amount per share equal to the Series B
Liquidation Preference plus accrued and unpaid dividends.
Additionally, holders of Series B Preferred may convert their Series B
Preferred into Class B Common Stock of the Company at the Series B Market
Conversion Rate (defined below) if the Acquisition Subsidiary: (1) fails to make
a redemption payment on the Series A Preferred or the Series B Preferred, (2)
fails to pay dividends when due on either the Series A Preferred or the Series B
Preferred, (3) takes actions requiring the consents of the holders of the Series
A Preferred or the Series B Preferred without obtaining such consents or (4)
issues additional shares of the Series A Preferred or Series B Preferred, or
reissues shares of either, in violation of their terms. The Series B Preferred
also automatically converts into Class B Common Stock of the Company at the
Series B Market Conversion Rate upon the bankruptcy or insolvency of the
Acquisition Subsidiary or any of its Significant Subsidiaries.
The Series B Market Conversion Rate ("Series B Market Conversion Rate")
equals the quotient obtained by dividing : (1) the per share Series B
Liquidation Preference by (2) the average trading price per share of the
Company's Common Stock for the 30 trading days immediately preceding the date of
the holder's conversion notice or the date on which the bankruptcy case
commences, as applicable. The Market Conversion Rate is subject to customary
adjustment under certain circumstances.
Holders of Series B Preferred will have voting rights analogous to those of
the holders of the Series A Preferred. Shares of Series B Preferred are freely
transferable. Shares of Series B Preferred reacquired in any manner will be
retired and may not be reissued as shares of Series B Preferred.
SERIES C PREFERRED STOCK
A total of 40,000 shares of Series C Preferred of the Acquisition Subsidiary
were outstanding at December 31, 1999, in connection with the VMS Acquisition
(see Notes 1 and 2). Holders of the Series C Preferred are not entitled to
preemptive rights. The Series C Preferred has an aggregate liquidation
preference of $2,000,000 or $50 per share (the "Series C Liquidation
Preference"). Each share of Series C Preferred accrues dividends at 11% per
annum, payable in cash semi-annually in arrears. An escrow account in the amount
of $1,000,000, which is included in "Restricted Cash", has been established to
cover future dividend payments. Upon liquidation, and after payment of amounts,
if any, owed to all classes of capital stock ranked senior to the Series C
Preferred, holders of shares of Series C Preferred will receive the Series C
Liquidation Preference of such shares plus accrued and unpaid dividends. The
Series C Preferred ranks senior to the Series A Preferred, the Series B
Preferred and the Class A Common Stock in right of payment of dividends. The
Series C Preferred may be redeemed by the Acquisition Subsidiary, in whole or in
part, on or after June 30, 2004, the fifth anniversary of the date of issuance,
and must be redeemed in whole upon June 30, 2006, the seventh anniversary of the
date of issuance, in each case for an amount per share equal to the Series C
Liquidation Preference plus accrued and unpaid dividends.
Holders of Series C Preferred are not entitled to voting rights, except
under certain circumstances. Without the affirmative vote or written consent of
the holders of a majority of the outstanding shares of Series C Preferred, the
Acquisition Subsidiary may not take certain specified actions that would
F-30
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--PREFERRED STOCK (IN THOUSANDS) (CONTINUED)
adversely affect the rights of the holders of the Series C Preferred. Shares of
Series C Preferred reacquired in any manner will be retired and may not be
reissued as shares of Series C Preferred.
PREFERRED STOCK OF THE COMPANY
In addition, the Company has authorized the issuance of 20 million shares of
Preferred Stock, par value $.01 of which none has been issued at December 31,
1999 and 1998.
NOTE 15--CLASS B COMMON STOCK
In the event that the Company obtains the consent of its shareholders to
amend its charter by June 30, 2000 to issue Class B Common Stock, the Company
will authorize and reserve for issuance shares of Class B Common Stock to be
issued upon the conversion of the Series A Preferred or the Series B Preferred
of the Acquisition Subsidiary.
The Class B Common Stock will rank (1) junior to any class or series of
preferred stock of the Company and (2) PARI PASSU with the Class A Common Stock
in right of payment of dividends and on liquidation. The Class B Common Stock
will be nonvoting.
At any time that the beneficial ownership by Cendant, together with any
affiliate of Cendant (Cendant and such affiliates, the "Cendant Affiliates"), of
the Class A Common stock is less than 20% of the aggregate number of all of the
outstanding shares of Class A Common Stock, the Cendant Affiliates shall have
the right to convert shares of Class B Common Stock into Class A Common Stock on
a share-for-share basis in an amount such that the ownership by the Cendant
Affiliates of the Class A Common Stock does not exceed 20% of the aggregate
number of all of the outstanding shares of Class A Common Stock after giving
effect to such conversion.
The Cendant Affiliates shall have the right to convert the Class B Common
Stock into shares of Class A Common Stock on a share-for-share basis upon the
occurrence of (1) the bankruptcy or insolvency of the Company and (2) a
Preferred Stock Change of Control, other than any Preferred Stock Change of
Control that is caused solely by the sale by the Cendant Affiliates of its
shares of Class A Common Stock or Class B Common Stock.
Upon the transfer, sale or disposition for value to any person other than
the Cendant Affiliates, each share of Class B Common Stock shall be
automatically exchanged for the Class A Common Stock on a share-for-share basis.
Other than upon conversion of the Series A Preferred or the Series B
Preferred, no additional shares of Class B Common Stock may be issued. Shares of
Class B Common Stock shall be freely transferable. Shares of Class B Common
Stock reacquired in any manner shall be retired and may not be reissued as
shares of Class B Common Stock.
In connection with the VMS Acquisition, the Company entered into a
registration rights agreement pursuant to which Cendant and certain transferees
of Class B Common Stock and Class A Common Stock converted from the Class B
Common stock held by Cendant (the "Holders") will have the right to require the
Company to register all or part of the Class A Common Stock owned by such
Holders under the Securities Act of 1933 as amended (the "Securities Act") (an
"Acquisition Demand Registration"). However, the Company may postpone giving
effect to an Acquisition Demand Registration for a period of up to 30 days if
the Company believes such registration might have a material adverse effect on
any
F-31
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--CLASS B COMMON STOCK (CONTINUED)
plan or proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction or the Company is
in possession of material non-public information that, if publicly disclosed,
could result in a material disruption of a major corporate development or
transaction then pending or in progress or in other material adverse
consequences to the Company. In addition, the Holders have the right to
participate in any registrations by the Company of Class A Common Stock (an
"Acquisition Piggyback Registration"). The Holders will pay all out-of-pocket
expenses incurred in connection with any Acquisition Registration, and the
Company will pay all out-of-pocket expenses incurred in connection with any
Acquisition Demand Piggyback Registration, except for underwriting discounts,
commissions and expenses attributable to the shares of Class A Common Stock sold
by such holders.
F-32
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--TREASURY STOCK
At December 31, 1999 and 1998, treasury stock is comprised of the following:
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
TREASURY TREASURY
STOCK, NET TREASURY STOCK, NET TREASURY
(IN THOUSANDS) SHARES (IN THOUSANDS) SHARES
-------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Balance, beginning of year.................... $ 50,960 2,672,700
Common stock repurchased...................... 57,237 2,327,300 $50,960 2,672,700
Treasury stock issued under the Company's
stock option plan, and other................ (4,365) (206,712)
-------- --------- ------- ---------
$103,832 4,793,288 $50,960 2,672,700
======== ========= ======= =========
</TABLE>
On September 1, 1998, the Board of Directors authorized the Company to
repurchase up to 1,500,000 shares of the outstanding common stock at market
prices. On September 23, 1998, the Board of Directors authorized the Company to
purchase up to 3,500,000 additional shares of outstanding common stock. Of the
total treasury shares repurchased during the year ended December 31, 1999,
1,614,200 were repurchased from Cendant at an aggregate cost of $40.8 million.
No shares were repurchased from Cendant during 1998. As of December 31, 1999,
the acquisition of these treasury shares reduced Cendant's ownership in the
Company's common stock to approximately 18%. (See Notes 1, 2 and 24.)
NOTE 17--RETIREMENT BENEFITS
The Company, through its subsidiary ARACS, sponsors non-contributory defined
benefit plans covering certain employees hired prior to December 31, 1983 who
were age 25 or above on January 1, 1985. ARACS also contributes to union
sponsored pension plans.
Through ARACS, the Company sponsors two Voluntary Investment Savings Plans
under a "qualified cash or deferred arrangement" under Section 401(k) of the
Internal Revenue Code covering its union and non-union employees. For the years
ended December 31, 1999, 1998 and 1997, the Company's cost of these plans was
$3.0 million, $1.6 million and $1.8 million, respectively.
Included in the non-union Investment Savings Plan, ARACS makes a defined
contribution for full-time employees. The contributions were determined at 2% of
each covered employee's compensation through December 31, 1998 and were
increased to 3% of each covered employee's compensation with effect from January
1, 1999. Employer contributions for the years ended December 31, 1999, 1998 and
1997 amounted to $5.0 million, $2.3 million and $2.1 million, respectively.
The vehicle rental defined benefit plan for its Salaried and Hourly
Employees as of June 30, 1985, provides benefits based upon years of credited
service, highest average compensation and social security benefits. Annual
retirement benefits, at age 65, are equal to 1 1/2% of the participating
employee's final average compensation (average compensation during the highest
five consecutive years of employment in the ten years prior to retirement) less
1 1/2% of the Social Security benefits for each year of service up to a maximum
of 35 years. In addition, the plan provides for reduced benefits before age 65
and for a joint and survivor annuity option. Effective January 1, 1999, the
Company curtailed its defined benefit Retirement Plan for Employees as of June
30, 1985. The Company recognized a
F-32
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--RETIREMENT BENEFITS (CONTINUED)
$7,500,000 pre-tax gain as a result of the curtailment during the first quarter
of fiscal year ending December 31, 1999.
The Company also sponsors several foreign pension plans. The most
significant of these are the United Kingdom and Canadian defined benefit pension
plans.
The status of the Company's defined benefit plans at December 31, 1999 and
1998, including the plans to its Salaried and Hourly Employees as of June 1985,
the Bargaining Plan, the Non-Qualified
F-33
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--RETIREMENT BENEFITS (CONTINUED)
Defined Benefit Plan, the Motorent Plan (terminated on September 30, 1999) the
United Kingdom Plan and the Canadian Defined Benefit Plan are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligations at beginning of year.................... $125,251 $106,887
Benefit obligations assumed from acquisitions............. 30,820
Service cost.............................................. 1,588 2,809
Interest cost............................................. 6,611 6,922
Plan participants' contributions.......................... 562 182
Amendments................................................ (19,395) 635
Actuarial (1oss)gain...................................... (11,735) 11,014
Benefits paid............................................. (15,819) (2,798)
Foreign currency translation loss......................... (997) (400)
-------- --------
Benefit obligations at end of year.......................... 116,886 125,251
-------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. 101,449 89,816
Fair value of plan assets acquired from acquisitions...... 25,682
Actual return on plan assets.............................. 8,107 9,060
Plan participants' contributions.......................... 562 182
Employer contributions.................................... 7,022 5,908
Benefits paid............................................. (15,891) (2,798)
Foreign currency translation loss......................... (614) (719)
-------- --------
Fair value of plan assets at end of year.................... 126,317 101,449
-------- --------
Funded status............................................. 9,431 (23,802)
Unrecognized net accrual gain (loss)...................... (6,003) 16,307
Unrecognized prior service cost........................... 1,276 1,703
Unrecognized transition asset............................. (2,237) (2,251)
-------- --------
Prepaid (accrued) benefit cost.............................. $ 2,467 $ (8,043)
======== ========
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION
Prepaid benefit cost........................................ $ 7,320 $ 1,752
Accrued benefit liability................................... (9,122) (14,340)
Intangible asset............................................ 2,761 1,704
Accumulated other comprehensive income...................... 1,508 2,841
-------- --------
Net amount recognized....................................... $ 2,467 $ (8,043)
======== ========
</TABLE>
The fair value of plan assets for funded plans with accumulated benefit
obligations in excess of plan assets amounted to $55.7 million as of
December 31, 1999.
F-34
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--RETIREMENT BENEFITS (CONTINUED)
Net pension costs of the non-qualified defined benefit plans for the years
ended December 31, 1999, 1998 and 1997, include the following components (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost--benefits earned during the year............... $ 1,588 $ 2,809 $ 3,446
Interest cost on projected benefit obligation............... 6,611 6,922 6,956
Return on assets--expected gain on plan assets.............. (8,664) (7,786) (6,804)
Recognized actuarial gain................................... 21
Net amortization of prior service cost...................... 17 70 35
Contributions to union plans and other...................... 2,910 3,894 3,021
Amortization of gain........................................ 127
Amortization of unrecognized net assets at transition....... (122) (123) (132)
------- ------- -------
Net pension cost............................................ $ 2,488 $ 5,786 $ 6,522
======= ======= =======
</TABLE>
At December 31, 1999 and 1998, the measurement of the projected benefit
obligation was based upon the following assumptions weighted average interest
rates:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Discount rate............................................... 6.67% 6.00%
Compensation increase for continuing plans.................. 3.85% 4.72%
Long-term return on plan assets............................. 8.45% 8.77%
</TABLE>
The U.S. plans' assets are invested in corporate bonds, U.S. government
securities and common stock mutual funds. The Canadian plan's assets are
invested in Canadian stocks, bonds, mutual funds, real estate and money market
funds. The UK plan's assets are invested in equity securities, fixed interest
securities and cash.
NOTE 18--EARNINGS PER SHARE ("EPS")
Basic EPS for the years ended December 31, 1999, 1998 and 1997 was
calculated using 31,330,536, 34,172,249 and 30,925,000 weighted-average shares
outstanding. Diluted EPS for the years ended December 31, 1999, 1998 and 1997
was calculated as follows (in thousands, except share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
DILUTED EPS
Earnings available to common stockholders................ $ 83,475 $ 63,521 $ 27,473
========== ========== ==========
Weighted average common shares outstanding............... 31,330,536 34,172,249 30,925,000
Plus: Dilutive effect of the assumed exercise of stock
options................................................ 655,033 780,308 256,134
---------- ---------- ----------
Adjusted weighted average shares outstanding............. 31,985,569 34,952,557 31,181,134
========== ========== ==========
Diluted EPS.............................................. $ 2.61 $ 1.82 $ 0.88
========== ========== ==========
</TABLE>
F-35
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--STOCK OPTION PLAN
On September 23, 1997, the Avis Group Holdings, Inc. 1997 Stock Option Plan
(the "Stock Option Plan") was adopted by the Board of Directors under which
4,620,977 shares of Common Stock were reserved for issuance upon the exercise of
options granted to officers, key employees, independent contractors and
non-employee Directors of the Company and its designated subsidiaries. On
September 23, 1997, 3,953,900 options were granted at $17.00 per share, the fair
market value of the Company's common stock on the date of grant. On May 21,
1998, at the Annual Meeting of Stockholders, the shareholders approved an
amendment to the Company's Stock Option Plan, increasing the maximum number of
shares authorized for issuance under the Stock Option Plan to 6,000,000. On
November 8, 1999, the Board of Directors increased the maximum number of shares
authorized for issuance under the Stock Option Plan to 7,500,000. At December
31, 1999 and 1998, approximately 6,933,613 and 4,443,100, respectively, options
are outstanding under the Stock Option Plan. The primary purpose of the Stock
Option Plan is to provide additional incentive to officers, key employees,
independent contractors and non-employee directors of the Company and to
strengthen their commitment to the Company and its subsidiaries.
Each non-employee director of the Company received an initial automatic
grant of an option to purchase 50,000 shares of Common Stock under the Stock
Option Plan. Subsequently elected non-employee directors will receive a like
grant under the Stock Option Plan upon election or appointment to the Board of
Directors.
The exercise price of each option under the Stock Option Plan may not be
less than the fair market value of a share of Common Stock on the date the
option is granted. Options held by an optionee will generally become exercisable
as to 20% of the shares covered by such options on the first anniversary of the
date of grant and with respect to an additional 20% of the shares covered by
such options on each of the four succeeding anniversaries of the date of grant
if the optionee continues to be employed or retained as an independent
contractor by the Company, on each such date. All options held by an optionee
will become fully exercisable (to the extent not already exercisable) if a
"change of control transaction" (as defined in the Stock Option Plan) occurs.
Shares of Common Stock acquired upon the exercise of the options may be subject
to restrictions on transfer which will be set forth in the agreement evidencing
the grant of the option. Unless otherwise determined by the Compensation
Committee of the Board of Directors, all options granted under the Stock Option
Plan, to the extent not exercised, expire on the earliest of (i) the tenth
anniversary of the date of grant, (ii) two years following the optionee's
termination of employment on account of death, retirement, disability or (iii)
one year following the termination of optionee's employment for any other
reason. Grants of options under the Stock Option Plan are subject to an annual
per-participant maximum grant of shares of Common Stock.
Generally, the Board of Directors of the Company may amend or terminate the
Stock Option Plan, provided that (i) no such amendment or termination may
adversely affect the rights of any participant without the consent of such
participant and (ii) to the extent required by any law, regulation or stock
exchange rule, no amendment shall be effective without the approval of the
Company's stockholders.
The Company makes no recognition of the options in the financial statements
until they are exercised. The Company applies Accounting Principles Board
Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" and related
Interpretations in accounting for its plans and does not recognize compensation
expense for its stock-based compensation plans. The Company has adopted only the
F-36
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--STOCK OPTION PLAN (CONTINUED)
disclosure provisions of Statement of Financial Accounting Standard No. 123,
"ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS 123").
The following is a summary of stock option activity for the years ended
December 31, 1999 and 1998 and for the period September 23, 1997 through
December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Granted September 23, 1997 (inception of the stock option
plan).................................................. 3,953,900 $17.00
Forfeited............................................ (78,200) $17.00
--------- ------
Outstanding at December 31, 1997......................... 3,875,700 $17.00
Granted.............................................. 1,452,000 $23.47
Forfeited............................................ (869,600) $19.32
--------- ------
Outstanding at December 31, 1998......................... 4,458,100 $18.65
Granted.............................................. 2,799,900 $25.41
Exercised............................................ (198,187) $17.00
Forfeited............................................ (126,200) $19.92
--------- ------
Outstanding at December 31, 1999......................... 6,933,613 $21.41
========= ======
Exercisable Options
December 31, 1999........................................ 1,493,263 $17.87
========= ======
</TABLE>
Pro forma disclosures are provided for the years ended December 31, 1999,
1998 and 1997 as if the Company adopted the cost recognition requirements under
SFAS 123. The weighted average fair value of each option granted (estimated on
the date of grant using the Black-Scholes option-pricing model) is $12.95,
$11.73 and $9.80 for 1999, 1998 and 1997, respectively, using the following
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected volatility.................................. 40.0% 40.0% 45.0%
Risk-free interest rate.............................. 6.0 6.0 5.7
Expected option life in years........................ 6.5 6.5 7.5
</TABLE>
The weighted-average remaining contractual life of the stock options is 7.7
years, 7.3 and 9.6 years at December 31, 1999, 1998 and 1997, respectively. Had
compensation expense been recognized for the years ended December 31, 1999 and
1998 and for the period September 23, 1997 through December 31, 1997, grants for
stock-based compensation plans in accordance with provisions of SFAS 123, the
F-37
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--STOCK OPTION PLAN (CONTINUED)
Company would have recorded net income and earnings per share as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
PRO PRO PRO
AS REPORTED FORMA AS REPORTED FORMA AS REPORTED FORMA
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings applicable to common
stockholders.......................... $83,475 $74,563 $63,521 $58,656 $27,473 $26,436
======= ======= ======= ======= ======= =======
Basic earnings per share................ $ 2.66 $ 2.38 $ 1.86 $ 1.72 $ .89 $ .85
======= ======= ======= ======= ======= =======
Diluted earnings per share.............. $ 2.61 $ 2.33 $ 1.82 $ 1.68 $ .88 $ .85
======= ======= ======= ======= ======= =======
</TABLE>
NOTE 20--LEASES, AIRPORT CONCESSION FEES AND COMMITMENTS
The Company is committed to make rental payments under noncancelable
operating leases relating principally to vehicle rental facilities and
equipment. Under certain leases, the Company is obligated to pay certain
additional costs, such as property taxes, insurance and maintenance. Airport
concession agreements usually require a guaranteed minimum amount plus
contingent fees, which are generally based on a percentage of revenues.
Operating lease payments and net airport concession fees charged to expense
for the years ended December 31, 1999, 1998 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Minimum fees.................................. $176,780 $147,034 $122,015
Contingent fees............................... 93,264 89,456 87,937
-------- -------- --------
270,044 236,490 209,952
Sublease rentals.............................. (5,881) (4,701) (4,741)
-------- -------- --------
$264,163 $231,789 $205,211
======== ======== ========
</TABLE>
Future minimum rental commitments under noncancelable operating leases
amounted to approximately $725.1 million at December 31, 1999. The minimum
rental payments due in each of the next five years ending December 31st, and
thereafter, are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $138,180
2001........................................................ 116,921
2002........................................................ 96,665
2003........................................................ 69,351
2004........................................................ 52,603
Thereafter.................................................. 251,384
</TABLE>
At December 31, 1999, future minimum rental commitments include $70.6
million due to a subsidiary of Cendant, related to the Company's corporate
headquarters and Virginia Beach processing facility.
F-38
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20--LEASES, AIRPORT CONCESSION FEES AND COMMITMENTS (CONTINUED)
In addition to the Company's lease commitments, the Company has outstanding
purchase commitments of approximately $2.1 billion at December 31, 1999, which
relate principally to vehicle purchases.
NOTE 21--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 10) in a transaction exempt from registration under the
Securities Act. These securities were subsequently registered on September 24,
1999. The Senior Subordinated Notes are general unsecured obligations of the
Parent, subordinated in right of payment to all existing and future senior
indebtedness of the Company, and guaranteed by certain of the Parent's domestic
subsidiaries. Accordingly, the following condensed consolidating financial
information presents the condensed consolidating financial statements as of
December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and
1997, 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).
F-39
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
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. 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 STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
--------------------------------------------------------------------
AVIS GROUP
NON- HOLDINGS,
GUARANTOR GUARANTOR INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue.................................... $2,329,525 $1,003,202 $3,332,727
---------- ---------- ----------
Costs and expenses:
Direct operating, net...................... 843,787 113,483 957,270
Vehicle depreciation and lease charges,
net...................................... 604,767 569,742 1,174,509
Selling, general and administrative........ 486,295 95,761 582,056
Interest, net.............................. $85,797 186,746 109,760 382,303
Minority interest.......................... 5,890 5,890
Non-vehicle depreciation and
amortization............................. 16,586 18,014 34,600
Amortization of cost in excess of net
assets acquired.......................... 26,969 3,213 30,182
------- ---------- ---------- ----------
85,797 2,165,150 915,863 3,166,810
------- ---------- ---------- ----------
(85,797) 164,375 87,339 165,917
Equity in earnings of subsidiaries......... 144,878 69,842 $(214,720)
------- ---------- ---------- --------- ----------
Income before provision for income taxes... 59,081 234,217 87,339 (214,720) 165,917
Provision (benefit) for income taxes....... (33,504) 89,339 17,497 73,332
------- ---------- ---------- --------- ----------
Net income............................... $92,585 $ 144,878 $ 69,842 $(214,720) $ 92,585
======= ========== ========== ========= ==========
</TABLE>
F-38
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
--------------------------------------------------------------------
AVIS GROUP
NON- HOLDINGS,
GUARANTOR GUARANTOR INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue.................................... $2,061,967 $235,615 $2,297,582
---------- -------- ----------
Costs and expenses:
Direct operating, net...................... 826,370 101,560 927,930
Vehicle depreciation and lease charges,
net...................................... 531,830 61,234 593,064
Selling, general and administrative........ 402,917 33,358 436,275
Interest, net.............................. $ 13,836 174,016 4,228 192,080
Non-vehicle depreciation and
amortization............................. 21,848 2,303 24,151
Amortization of cost in excess of net
assets acquired.......................... 11,702 152 11,854
-------- ---------- -------- ----------
13,836 1,968,683 202,835 2,185,354
-------- ---------- -------- ----------
(13,836) 93,284 32,780 112,228
Equity in earnings of subsidiaries......... 72,514 23,700 $(96,214)
-------- ---------- -------- -------- ----------
Income before provision for income taxes... 58,678 116,984 32,780 (96,214) 112,228
Provision (benefit) for income taxes....... (4,843) 44,470 9,080 48,707
-------- ---------- -------- -------- ----------
Net income............................... $ 63,521 $ 72,514 $ 23,700 $(96,214) $ 63,521
======== ========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
--------------------------------------------------------------------
AVIS GROUP
NON- HOLDINGS,
GUARANTOR GUARANTOR INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue.................................... $1,804,477 $241,677 $2,046,154
---------- -------- ----------
Costs and expenses:
Direct operating, net...................... 744,355 109,412 853,767
Vehicle depreciation and lease charges,
net...................................... 459,963 65,180 525,143
Selling, general and administrative........ $ 8,073 370,635 34,583 413,291
Interest, net.............................. 5,765 169,983 4,860 180,608
Non-vehicle depreciation and
amortization............................. 13,818 2,344 16,162
Amortization of cost in excess of net
assets acquired.......................... 6,728 132 6,860
-------- ---------- -------- ----------
13,838 1,765,482 216,511 1,995,831
-------- ---------- -------- ----------
(13,838) 38,995 25,166 50,323
Equity in earnings of subsidiaries......... 36,468 16,203 $(52,671)
-------- ---------- -------- -------- ----------
Income before provision for income taxes... 22,630 55,198 25,166 (52,671) 50,323
Provision (benefit) for income taxes (4,843) 18,730 8,963 22,850
-------- ---------- -------- -------- ----------
Net income................................. $ 27,473 $ 36,468 $ 16,203 $(52,671) $ 27,473
======== ========== ======== ======== ==========
</TABLE>
F-39
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENT 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, PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY
Accounts payable....................... $ 273,102 $ 315,275 $ 588,377
Accrued liabilities.................... $ 16,774 366,602 (13,923) 369,453
Due (from) to affiliates............... (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>
F-40
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1998
(IN THOUSANDS)
--------------------------------------------------------------------
AVIS GROUP
NON- HOLDINGS,
GUARANTOR GUARANTOR INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................. $ 11 $ 9,776 $ 19,964 $ 29,751
Restricted cash........................... 2,000 131,284 133,284
Accounts receivable, net.................. 136,112 224,462 360,574
Prepaid expenses.......................... 34,666 7,417 42,083
Vehicles, net-rental...................... (73,213) 3,238,029 3,164,816
Property and equipment, net............... 129,090 15,955 145,045
Investment in subsidiaries................ 533,274 422,146 $(955,420)
Other assets.............................. 38,127 2,463 40,590
Deferred income tax assets................ 9,686 107,973 117,659
Cost in excess of net assets acquired,
net..................................... 460,441 2,819 463,260
-------- ---------- ---------- --------- ----------
Total assets............................ $542,971 $1,267,118 $3,642,393 $(955,420) $4,497,062
======== ========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.......................... $ 112,220 $ 86,261 $ 198,481
Accrued liabilities....................... $ 969 277,018 48,217 326,204
Due (from) to affiliates, net............. (80,612) 112,605 (9,700) 22,293
Current income tax liabilities............ 19,413 3,632 23,045
Deferred income tax liabilities, net...... 28,504 28,504
Public liability, property damage and
other insurance liabilities, net........ 210,811 50,398 261,209
Debt...................................... 1,777 3,012,935 3,014,712
Stockholders' equity...................... 622,614 533,274 422,146 $(955,420) 622,614
-------- ---------- ---------- --------- ----------
Total liabilities and stockholders'
equity.................................. $542,971 $1,267,118 $3,642,393 $(955,420) $4,497,062
======== ========== ========== ========= ==========
</TABLE>
F-41
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 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............................................ $ 92,585 $ 144,878 $ 69,842 $(214,720) $ 92,585
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:............... (151,326) 686,838 469,846 1,005,358
----------- --------- ----------- --------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES... (58,741) 831,716 539,688 (214,720) 1,097,943
----------- --------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for vehicle additions........................ 87,291 (5,692,785) (5,605,494)
Vehicle deletions..................................... (465,991) 4,671,212 4,205,221
Increase in finance lease receivables................. (117,407) 94,744 (22,663)
Payments for additions to property and equipment...... (38,798) (9,442) (48,240)
Retirements of property and equipment................. (20,478) 14,059 (6,419)
Investment in subsidiaries............................ (141,241) (69,840) 211,081
Payment for purchase of rental car franchise
licensees, net of cash acquired..................... (44,934) (258) (45,192)
Payment for purchase of PHH Holdings, net of cash
acquired............................................ (1,325,781) (1,325,781)
Proceeds from sale and leaseback of UK office
building............................................ 32,156 32,156
----------- --------- ----------- --------- -----------
NET CASH USED IN INVESTING ACTIVITIES................. (1,467,022) (670,157) (890,314) 211,081 (2,816,412)
----------- --------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock......................... (53,868) (53,868)
Net increase in (repayment of) debt................. 1,562,000 (117,759) 368,767 1,813,008
Payments for debt issuance costs.................... 21,313 (16,453) (11,403) (6,543)
Increase in minority interest (preferred membership
interest)......................................... 99,305 99,305
Cash dividends...................................... 5,926 (5,926)
----------- --------- ----------- --------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES... 1,529,445 (128,286) 450,743 1,851,902
----------- --------- ----------- --------- -----------
Effect of exchange rate changes on cash............. (3,639) (865) 2,908 3,639 2,043
----------- --------- ----------- --------- -----------
Net increase in cash and cash equivalents and cash
held on deposit with financial institutions....... 43 32,408 103,025 135,476
Cash and cash equivalents and cash held on deposit
with financial institutions at beginning of
year.............................................. 11 9,776 19,964 29,751
----------- --------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS AND CASH HELD ON DEPOSIT
WITH FINANCIAL INSTITUTIONS AT END OF YEAR.......... $ 54 $ 42,184 $ 122,989 $ $ 165,227
=========== ========= =========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.......................................... $ 370,247
===========
Income taxes...................................... $ 28,877
===========
BUSINESSES ACQUIRED:
Fair value of assets acquired, net of cash
acquired.......................................... $ 6,004,777
Liabilities assumed................................. 4,271,804
-----------
Net assets acquired................................. 1,732,973
Less issuance of Series A and Series C Preferred
Stock............................................. 362,000
-----------
NET CASH PAID FOR ACQUISITIONS........................ $ 1,370,973
===========
</TABLE>
F-42
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
---------------------------------------------------------------------
AVIS GROUP
NON- HOLDINGS,
GUARANTOR GUARANTOR INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 63,521 $ 72,514 $ 23,700 $ (96,214) $ 63,521
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:................. (101,241) 593,335 96,973 589,067
--------- --------- ----------- --------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES....... (37,720) 665,849 120,673 (96,214) 652,588
--------- --------- ----------- --------- -----------
CASH FLOWS FORM INVESTING ACTIVITIES:
Payments for vehicle additions.......................... 49,363 (4,352,411) (4,303,048)
Vehicle deletions....................................... (218,228) 3,828,949 3,610,721
Payments for additions to property and equipment........ (39,691) (3,242) (42,933)
Retirements of property and equipment................... 4,965 638 5,603
Investment in subsidiaries.............................. (72,514) (131,677) 204,191
Payment for purchase of rental car franchise licensees,
net of cash acquired.................................. (227,213) (9,969) (237,182)
--------- --------- ----------- --------- -----------
NET CASH USED IN INVESTING ACTIVITIES..................... (72,514) (562,481) (536,035) 204,191 (966,839)
--------- --------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from pubic offerings net....................... 161,194 161,194
Purchases of treasury stock............................. (50,960) (50,960)
Net (decrease) increase in debt......................... (116,137) 309,994 193,857
Payments for debt issuance costs........................ (4,654) (4,654)
Capital contribution in Argentina....................... 1,000 (1,000)
Investment in AESOP Leasing LP.......................... 110,000 (110,000)
Cash dividends.......................................... (3,023) 3,023
--------- --------- ----------- --------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... 110,234 (120,791) 417,971 (107,977) 299,437
--------- --------- ----------- --------- -----------
Effect of exchange rate changes on cash................. (334) (334)
--------- --------- ----------- --------- -----------
Net (decrease) increase in cash and cash equivalents.... (17,423) 2,275 (15,148)
Cash and cash equivalents at beginning of year.......... 11 27,199 17,689 44,899
--------- --------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................. $ 11 $ 9,776 $ 19,964 $ $ 29,751
========= ========= =========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.............................................. $ 209,977
===========
Income taxes.......................................... $ 13,338
===========
BUSINESSES ACQUIRED:
Fair value of assets acquired, net of cash acquired..... $ 244,501
Liabilities assumed..................................... 7,319
-----------
NET CASH PAID FOR ACQUISITIONS............................ $ 237,182
===========
</TABLE>
F-43
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
---------------------------------------------------------------------
AVIS GROUP
NON- HOLDINGS,
GUARANTOR GUARANTOR INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 27,473 $ 36,468 $ 16,203 $ (52,671) $ 27,473
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:.............. (350,310) 909,073 (170,637) 388,126
--------- --------- ----------- --------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES.... (322,837) 945,541 (154,434) (52,671) 415,599
--------- --------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for vehicle additions....................... (73,731) (4,167,078) (4,240,809)
Vehicle deletions.................................... (287,267) 3,669,444 3,382,177
Payments for additions to property and equipment..... (19,588) (5,145) (24,733)
Retirements of property and equipment................ 3,814 157 3,971
Investment in subsidiaries........................... (36,468) (207,603) 244,071
Payment for purchase of rental car franchise
licensees, net of cash acquired.................... (199,381) (199,381)
--------- --------- ----------- --------- -----------
NET CASH USED IN INVESTING ACTIVITIES.................. (36,468) (783,756) (502,622) 244,071 (1,078,775)
--------- --------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offerings, net.................. 359,316 359,316
Net (decrease) increase in debt...................... (116,231) 465,519 349,288
Payments for debt issuance costs..................... (29,302) (29,302)
Investment in AESOP Leasing LP....................... 191,400 (191,400)
--------- --------- ----------- --------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.... 359,316 (145,533) 656,919 (191,400) 679,302
--------- --------- ----------- --------- -----------
Effect of exchange rate changes on cash.............. (945) (945)
--------- --------- ----------- --------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 11 16,252 (1,082) 15,181
Cash and cash equivalents at beginning of year....... 10,947 18,771 29,718
--------- --------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR............... $ 11 $ 27,199 $ 17,689 $ $ 44,899
========= ========= =========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest........................................... $ 189,086
===========
Income taxes....................................... $ 8,899
===========
BUSINESSES ACQUIRED:
Fair value of assets acquired, net of cash
acquired........................................... $ 519,650
Liabilities assumed.................................. 320,269
-----------
NET CASH PAID FOR ACQUISITIONS......................... $ 199,381
===========
</TABLE>
F-44
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22--SEGMENT INFORMATION
Prior to the purchase of VMS on June 30, 1999 (see Note 2), 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:
<TABLE>
<S> <C>
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
</TABLE>
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 segment and geographic area are the same as those described in
the summary of significant accounting policies (see Note 1). EBITDA represents
net income, plus non-vehicle interest expense (acquisition interest), non-
vehicle depreciation and amortization, and income taxes. Corporate represents
primarily acquisition related interest, amortization of net assets acquired and
amortization of deferred financing fees related to the VMS acquisition. The
operations within major business segments and major geographic areas for the
years ended December 31, 1999, 1998 and 1997, are summarized as follows (in
thousands):
F-45
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22--SEGMENT INFORMATION (CONTINUED)
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 YEARS ENDED DECEMBER 31,
--------------------------------------------------- -------------------------
VEHICLE 1998 1997
LEASING
AND OTHER
VEHICLE FEE BASED VEHICLE VEHICLE
RENTAL SERVICES CORPORATE CONSOLIDATED RENTAL RENTAL
---------- ---------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue............... $2,500,746 $ 831,981 $ 3,332,727 $2,297,582 $2,046,154
========== ========== =========== ========== ==========
Interest expense,
net................. $ 210,579 $ 99,763 $ 71,961 $ 382,303 $ 192,080 $ 180,608
========== ========== ========== =========== ========== ==========
EBITDA................ $ 201,648 $ 99,961 $ 1,051 $ 302,660 $ 148,233 $ 73,345
========== ========== ========== =========== ========== ==========
Non-vehicle
depreciation and
amortization........ $ 39,190 $ 11,141 $ 14,451 $ 64,782 $ 36,005 $ 23,022
========== ========== ========== =========== ========== ==========
Income (loss) before
provision for income
taxes............... $ 162,458 $ 88,820 $ (85,361) $ 165,917 $ 112,228 $ 50,323
========== ========== ========== =========== ========== ==========
Income tax expense.... $ 50,536 $ 22,367 $ 429 $ 73,332 $ 48,707 $ 22,850
========== ========== ========== =========== ========== ==========
Finance lease
receivables......... $ 871,034 $ 871,034
========== ===========
Vehicles, net......... $3,367,362 $3,134,009 $ 6,501,371 $3,164,816 $3,018,856
========== ========== =========== ========== ==========
Debt and minority
interest (preferred
membership
interest)........... $3,393,422 $3,613,688 $1,562,000 $ 8,569,110 $3,014,712 $2,826,422
========== ========== ========== =========== ========== ==========
Total assets.......... $4,885,928 $6,107,019 $ 85,311 $11,078,258 $4,497,062 $4,274,657
========== ========== ========== =========== ========== ==========
Capital expenditures
for vehicles and
property and
equipment........... $4,814,597 $ 839,137 $ 5,653,734 $4,345,981 $4,265,542
========== ========== =========== ========== ==========
</TABLE>
F-46
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22--SEGMENT INFORMATION (CONTINUED)
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------
AUSTRALIA/ OTHER
UNITED UNITED NEW FOREIGN
STATES KINGDOM ZEALAND CANADA OPERATIONS CONSOLIDATED
---------- ---------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue........................... $2,910,712 $ 130,298 $124,263 $127,619 $39,835 $ 3,332,727
========== ========== ======== ======== ======= ===========
Interest expense, net............. $ 342,320 $ 27,343 $ 655 $ 8,778 $ 3,207 $ 382,303
========== ========== ======== ======== ======= ===========
EBITDA............................ $ 219,333 $ 46,927 $ 25,450 $ 18,670 $(7,720) $ 302,660
========== ========== ======== ======== ======= ===========
Non-vehicle depreciation and
amortization.................... $ 43,465 $ 17,805 $ 1,303 $ 1,528 $ 681 $ 64,782
========== ========== ======== ======== ======= ===========
Income (loss) before provision for
income taxes.................... $ 104,170 $ 29,122 $ 24,147 $ 17,142 $(8,664) $ 165,917
========== ========== ======== ======== ======= ===========
Income tax expense................ $ 57,224 $ 4,259 $ 5,652 $ 4,939 $ 1,258 $ 73,332
========== ========== ======== ======== ======= ===========
Finance lease receivables......... $ 129,188 $ 725,740 $ 16,106 $ 871,034
========== ========== ======== ===========
Vehicles, net..................... $5,937,503 $ 168,476 $ 75,238 $224,704 $95,450 $ 6,501,371
========== ========== ======== ======== ======= ===========
Debt and minority interest
(preferred membership
interest)....................... $7,545,835 $ 850,443 $ 5,433 $148,022 $19,377 $ 8,569,110
========== ========== ======== ======== ======= ===========
Total assets...................... $9,159,879 $1,416,598 $107,341 $317,298 $77,142 $11,078,258
========== ========== ======== ======== ======= ===========
Capital expenditures for vehicles
and property and equipment...... $5,040,195 $ 42,668 $ 88,429 $436,065 $46,377 $ 5,653,734
========== ========== ======== ======== ======= ===========
</TABLE>
F-47
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22--SEGMENT INFORMATION (CONTINUED)
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------
AUSTRALIA/ OTHER
UNITED NEW FOREIGN
STATES ZEALAND CANADA OPERATIONS CONSOLIDATED
---------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue................................ $2,061,967 $115,790 $ 92,402 $27,423 $2,297,582
========== ======== ======== ======= ==========
Interest expense, net.................. $ 184,869 $ 633 $ 5,587 $ 991 $ 192,080
========== ======== ======== ======= ==========
EBITDA................................. $ 121,803 $ 20,118 $ 5,984 $ 328 $ 148,233
========== ======== ======== ======= ==========
Non-vehicle depreciation and
amortization......................... $ 33,186 $ 1,210 $ 909 $ 700 $ 36,005
========== ======== ======== ======= ==========
Income (loss) before provision for
income taxes......................... $ 88,617 $ 18,908 $ 5,075 $ (372) $ 112,228
========== ======== ======== ======= ==========
Income tax expense..................... $ 38,395 $ 5,925 $ 3,641 $ 746 $ 48,707
========== ======== ======== ======= ==========
Vehicles, net.......................... $2,942,760 $ 72,609 $118,078 $31,369 $3,164,816
========== ======== ======== ======= ==========
Debt................................... $2,930,154 $ 15,881 $ 56,977 $11,700 $3,014,712
========== ======== ======== ======= ==========
Total assets........................... $4,192,961 $ 98,361 $148,230 $57,510 $4,497,062
========== ======== ======== ======= ==========
Capital expenditures for vehicles and
property and equipment............... $3,988,072 $ 87,310 $244,891 $25,708 $4,345,981
========== ======== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------
AUSTRALIA/ OTHER
UNITED NEW FOREIGN
STATES ZEALAND CANADA OPERATIONS CONSOLIDATED
---------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue................................ $1,801,278 $132,309 $ 85,021 $27,546 $2,046,154
========== ======== ======== ======= ==========
Interest expense, net.................. $ 173,269 $ 1,192 $ 5,343 $ 804 $ 180,608
========== ======== ======== ======= ==========
EBITDA................................. $ 37,331 $ 25,551 $ 8,150 $ 2,313 $ 73,345
========== ======== ======== ======= ==========
Non-vehicle depreciation and
amortization......................... $ 20,186 $ 1,457 $ 931 $ 448 $ 23,022
========== ======== ======== ======= ==========
Income before provision for income
taxes................................ $ 16,601 $ 24,094 $ 7,219 $ 2,409 $ 50,323
========== ======== ======== ======= ==========
Income tax expense..................... $ 11,957 $ 6,088 $ 3,902 $ 903 $ 22,850
========== ======== ======== ======= ==========
Vehicles, net.......................... $2,821,297 $ 67,818 $100,985 $28,756 $3,018,856
========== ======== ======== ======= ==========
Debt................................... $2,744,714 $ 19,637 $ 50,741 $11,330 $2,826,422
========== ======== ======== ======= ==========
Total assets........................... $3,988,117 $ 99,001 $133,178 $54,361 $4,274,657
========== ======== ======== ======= ==========
Capital expenditures for vehicles and
property and equipment............... $3,915,299 $ 85,748 $239,276 $25,219 $4,265,542
========== ======== ======== ======= ==========
</TABLE>
F-48
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue...................................... $ 566,917 $ 637,457 $1,122,818 $1,005,535
Cost and expenses............................ 540,087 589,913 1,051,044 985,766
---------- ---------- ---------- ----------
Income before provision for income taxes..... 26,830 47,544 71,774 19,769
Provision for income taxes................... 11,644 20,262 32,399 9,027
---------- ---------- ---------- ----------
Net income................................... 15,186 27,282 39,375 10,742
Preferred dividends.......................... 4,555 4,555
---------- ---------- ---------- ----------
Earnings applicable to common stockholders... $ 15,186 $ 27,282 $ 34,820 $ 6,187
========== ========== ========== ==========
Earnings per share:
Basic........................................ $ .48 $ .87 $ 1.12 $ .20
========== ========== ========== ==========
Diluted...................................... $ .47 $ .85 $ 1.10 $ .20
========== ========== ========== ==========
Shares of common stock used in computing
earnings per share:........................
Basic........................................ 31,873,031 31,188,977 31,129,164 31,130,973
========== ========== ========== ==========
Diluted...................................... 32,517,570 32,237,810 31,760,213 31,426,681
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue...................................... $511,390 $575,280 $652,385 $558,527
Cost and expenses............................ 498,161 535,370 599,679 552,144
---------- ---------- ---------- ----------
Income before provision for income taxes..... 13,229 39,910 52,706 6,383
Provision for income taxes................... 5,821 17,560 22,568 2,758
---------- ---------- ---------- ----------
Net income................................... $ 7,408 $ 22,350 $ 30,138 $ 3,625
========== ========== ========== ==========
Earnings per share:
Basic........................................ $ .24 $ .62 $ .85 $ .11
========== ========== ========== ==========
Diluted...................................... $ .23 $ .61 $ .83 $ .11
========== ========== ========== ==========
Shares of Common Stock used in computing
earnings per share:
Basic........................................ 31,425,000 35,925,000 35,608,000 33,690,798
========== ========== ========== ==========
Diluted...................................... 32,561,483 36,730,233 36,180,000 34,068,603
========== ========== ========== ==========
</TABLE>
F-49
<PAGE>
AVIS GROUP HOLDINGS, INC. (FORMERLY AVIS RENT A CAR, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 24--RELATED PARTY TRANSACTIONS
The Company and Avis Europe, plc cooperate jointly in marketing and
promotional activities, the exchange of reservations, the honoring of charge
cards and vouchers, and the transfer of the related billings. Two members of the
Company's board of directors are executive officers of Cendant and one of these
two Cendant executive officers also serves on the board of Avis Europe Limited,
the parent company of Avis Europe, plc.
The Company is affiliated with Cendant, which at January 1, 2000, owned
approximately 18% of the common stockholders' equity of the Company, excluding
potential conversion of Preferred Stock (see Notes 14 and 16). For the years
ended December 31, 1999, 1998 and 1997, the Company earned vehicle rental
revenues of approximately $63.6 million $62.1 million and $2.2 million,
respectively, from Cendant and its subsidiary companies, of which approximately
$1.1 million and $745 thousand was outstanding and is included in accounts
receivable on the accompanying consolidated statements of financial position at
December 31, 1999 and 1998, respectively. The Company purchased approximately
$106.4 million, $90.4 million and $90.1 million in 1999, 1998 and 1997,
respectively, of goods and services from these affiliated companies.
NOTE 25--LITIGATION
From time to time, the Company is subject to routine litigation incidental
to its business. The Company maintains insurance policies that cover most of the
actions brought against the Company. The Company is not currently involved in
any legal proceeding which it believes would have a material adverse effect upon
its financial position or results of operations.
F-50
<PAGE>
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Vehicle rental .............................. $ 733,694 $ 709,555 $1,989,167 $1,913,929
Vehicle leasing and other fee based ......... 396,581 413,263 1,250,609 413,263
---------- ---------- ---------- ----------
1,130,275 1,122,818 3,239,776 2,327,192
---------- ---------- ---------- ----------
Costs and expenses:
Direct operating, net ....................... 259,573 263,123 715,581 724,843
Vehicle depreciation and lease charges, net . 446,464 442,458 1,273,966 760,929
Selling, general and administrative ......... 171,478 177,119 537,753 408,301
Interest, net ............................... 146,776 145,348 452,770 245,273
Non-vehicle depreciation and amortization ... 10,873 11,019 37,332 23,370
Amortization of cost in excess of
net assets acquired ...................... 10,203 11,977 33,797 18,328
---------- ---------- ---------- ----------
1,045,367 1,051,044 3,051,199 2,181,044
---------- ---------- ---------- ----------
Income before provision for income taxes .... 84,908 71,774 188,577 146,148
Provision for income taxes .................. 36,511 32,399 83,162 64,305
---------- ---------- ---------- ----------
Net income .................................. 48,397 39,375 105,415 81,843
Preferred stock dividend .................... 4,783 4,555 14,118 4,555
---------- ---------- ---------- ----------
Earnings applicable to common stockholders .. $ 43,614 $ 34,820 $ 91,297 $ 77,288
========== ========== ========== ==========
Earnings per share:
Basic ....................................... $ 1.40 $ 1.12 $ 2.93 $ 2.46
========== ========== ========== ==========
Diluted ..................................... $ 1.36 $ 1.10 $ 2.89 $ 2.40
========== ========== ========== ==========
</TABLE>
See notes to the condensed consolidated financial statements.
G-1
<PAGE>
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents ....................... $ 57,911 $ 71,697
Cash held on deposit with financial institution . 48,046 93,530
Restricted cash ................................. 235,799 253,080
Accounts receivable, net ........................ 884,087 1,115,740
Prepaid expenses ................................ 66,550 64,316
Finance lease receivables ....................... 177,379 871,034
Vehicles, net-rental ............................ 4,009,732 3,367,362
Vehicles, net-leasing ........................... 3,013,687 3,134,009
Property and equipment, net ..................... 188,307 197,827
Investment in PHH/Arval joint venture ........... 181,204
Other assets .................................... 108,633 115,273
Cost in excess of net assets acquired, net ...... 1,299,124 1,794,390
------------ ------------
Total assets ................................. $ 10,270,459 $ 11,078,258
============ ============
LIABILITIES, PREFERRED STOCK AND
COMMON STOCKHOLDERS' EQUITY
Accounts payable ................................ $ 550,179 $ 588,377
Accrued liabilities ............................. 378,077 369,453
Due to affiliates, net .......................... 32,718 59,396
Current income tax liabilities .................. 25,807 18,226
Deferred income tax liabilities, net ............ 444,984 181,256
Public liability, property damage and
other insurance liabilities, net ............. 256,435 259,756
Vehicle debt .................................... 6,854,158 6,969,805
Acquisition debt ................................ 500,000 1,500,000
Minority interest (preferred membership interest) 99,305 99,305
------------ ------------
Total liabilities ............................ 9,141,663 10,045,574
------------ ------------
Commitments and contingencies
Preferred Stock of a subsidiary:
Class A Preferred stock ......................... 360,000 360,000
Class B Preferred stock ......................... 22,953 9,000
Class C Preferred stock ......................... 2,000 2,000
------------ ------------
Total preferred stock of a subsidiary ........ 384,953 371,000
------------ ------------
Common stockholders' equity:
Class A Common stock ............................ 359 359
Additional paid-in capital ...................... 593,151 593,106
Retained earnings ............................... 266,987 175,690
Accumulated other comprehensive loss ............ (13,157) (3,639)
Treasury stock .................................. (103,497) (103,832)
------------ ------------
Total common stockholders' equity ............ 743,843 661,684
------------ ------------
Total liabilities, preferred stock and common
stockholders' equity ........................ $ 10,270,459 $ 11,078,258
============ ============
</TABLE>
See notes to the condensed consolidated financial statements.
G-2
<PAGE>
AVIS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................. $ 105,415 $ 81,843
Adjustments to reconcile net income to net cash
provided by operating activities .................... 1,260,561 581,623
----------- -----------
Net cash provided by operating activities ................. 1,365,976 663,466
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for vehicle additions ............................ (5,692,115) (3,650,923)
Vehicle deletions ......................................... 3,677,112 2,669,166
Increase in finance lease receivables ..................... (50,631) (85,569)
Payments for property and equipment ....................... (41,011) (35,022)
Retirements of property and equipment ..................... 9,378 3,742
Proceeds from the sale of 80% of PHH Europe, net of
cash disposed of $104,765 ................................ 695,684
Settlement of PHH Europe intercompany accounts ............ 225,819
Dividend from the PHH/Arval Joint Venture ................. 32,426
Payments for purchase of rental car franchise licensees,
net of cash acquired of $14,208 in 1999 .................. (45,192)
Payment for purchase of PHH Holdings, net of
cash acquired of $170,568 in 1999 ........................ (1,348,530)
-----------
Net cash used in investing activities ..................... (1,143,338) (2,492,328)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in debt:
Proceeds .................................................. 2,442,104 2,538,000
Repayment of acquisition and other debt from the proceeds
of the sale of 80% of PHH Europe ......................... (1,054,437)
Repayments ................................................ (1,652,067) (479,452)
----------- -----------
Net (decrease) increase in debt ........................... (264,400) 2,058,548
Payments for debt issuance costs ........................ (17,280) (1,640)
Purchases of treasury stock ............................... (57,237)
Other ..................................................... 162 3,349
----------- -----------
Net cash (used in) provided by financing activities ....... (281,518) 2,003,020
----------- -----------
Effect of exchange rate changes on cash ..................... (390) 2,612
----------- -----------
Net (decrease) increase in cash and cash equivalents ....... (59,270) 176,770
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 .................... $ 105,957 $ 206,521
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid .......................................... $ 431,369 $ 173,600
=========== ===========
Cash income taxes paid ...................................... $ 30,499 $ 14,835
=========== ===========
Business disposed in August 2000:
Assets disposed ............................................. $ 1,731,488
-----------
Liabilities disposed ........................................ 1,035,804
-----------
Proceeds received from the sale of 80% of PHH Europe, net of
cash disposed of $104,765 ................................ $ 695,684
===========
Businesses acquired in 1999:
Fair value of assets acquired, net of cash acquired
of $184,776 ............................................... $ 6,127,678
Liabilities assumed ......................................... 4,371,956
-----------
Net assets acquired ......................................... 1,755,722
Less: issuance of Series A and Series C Preferred
Stocks .................................................. (362,000)
-----------
Net cash paid for acquisitions .............................. $ 1,393,722
===========
</TABLE>
See notes to the condensed consolidated inancial statements.
G-3
<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") through August 9,
2000 (see Note 6), 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. ("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 August 24, 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 8). 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 - CLASS B COMMON STOCK
At the Company's meeting of shareholders on May 6, 2000, the Company's
shareholders approved a revision to the Company's charter to issue 15,000,000
shares of non-voting Class B Common Stock. The Class B Common Shares will be
issued upon the conversion of Series A Preferred Stock or Series B Preferred
Stock of PHH Leasing and Management, Inc., a subsidiary of the Company. Holders
of Series A and B Preferred Stock may convert their shares into Class B Common
Stock of the Company if certain financial goals are attained or upon the
occurrence of certain events.
The Class B Common Stock ranks (1) junior to any class or series of preferred
stock of the Company and (2) PARI PASSU with the Class A Common Stock in right
of payment of dividends and upon liquidation.
NOTE 4- EARNINGS PER SHARE
Basic earnings per share is computed by dividing earnings applicable to common
stockholders for the three months ended September 30, 2000 and 1999 by
31,138,079 and 31,129,164 weighted average shares outstanding, respectively, and
for the nine months ended September 30, 2000 and 1999 by 31,133,834 and
31,394,335 weighted average shares outstanding, respectively. Diluted earnings
per share is computed by dividing earnings applicable to common stockholders for
the three months ended September 30, 2000 and 1999 by 32,150,494 and 31,760,213
weighted average shares outstanding, respectively, and for the nine months ended
September 30, 2000 and 1999 by 31,609,275 and 32,172,196 weighted average shares
outstanding, respectively. Shares used in calculating diluted earnings per share
include the effects of the assumed exercise of stock options.
G-4
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 - 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. The $1.0 billion of term loans were repaid in August 2000 in connection
with the sale of 80% of PHH Europe (Note 6).
On March 19, 1999 and June 30, 1999, the Company purchased Rent-A-Car, Inc. and
Motorent, respectively, using internally generated funds for approximately $59.4
million.
The combined purchase cost allocation for the Company's acquisitions of VMS,
Rent-A-Car, Inc. and Motorent are as follows (in thousands):
<TABLE>
<S> <C>
Purchase cost ....................... $1,917,949
----------
Fair value of:
Assets acquired .................. 4,806,414
Liabilities assumed .............. 4,281,177
----------
Net assets .......................... 525,237
----------
Cost in excess of net assets acquired $1,392,712
==========
</TABLE>
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.
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 Nine months
ended ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Revenue .................................. $ 1,055,174 $2,945,609
============ ==========
Income before provision for income taxes . $ 71,774 $ 121,616
============ ==========
Net income ............................... $ 39,375 $ 62,413
============ ==========
Preferred stock dividends ................ $ 4,555 $ 13,665
============ ==========
Earnings applicable to common stockholders $ 34,820 $ 48,748
============ ==========
Earnings per share:
Basic .................................... $ 1.12 $ 1.55
============ ==========
Diluted .................................. $ 1.10 $ 1.52
============ ==========
</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 results of operations for
the three and nine months ended September 30, 1999.
G-5
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6 - FORMATION OF JOINT VENTURE
On August 9, 2000, the Company announced that it had completed its transaction
with BNP Paribas ("BNP") to form a joint venture company that owns PHH Europe
and, within one year, will merge with BNP's vehicle management subsidiary, Arval
Service Lease S.A. ("Arval"). As part of the transaction, BNP acquired an 80%
interest in the joint venture, with the Company retaining a 20% interest. The
Company received $800 million in cash and had its intercompany indebtedness with
PHH Europe repaid. PHH Europe, with 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. Accordingly, the Company's 20% investment in
the joint venture is reported as Investment in PHH/Arval Joint Venture in the
accompanying statement of financial position at September 30, 2000 and earnings
of the joint venture are included in the statement of operations on the equity
method. The difference between the carrying value of the net assets of PHH
Europe and the proceeds from the sale have been accounted for as a reduction of
cost in excess of net assets acquired relating to the VMS Acquisition. The
revenue and net income of PHH Europe included in the statement of operations for
the nine months ended September 30, 2000 and 1999 are (in thousands):
<TABLE>
<CAPTION>
Nine Months ended
September 30,
---------------------
2000 1999
<S> <C> <C>
Revenue $158,939 $ 67,644
======== ========
Net Income $ 27,589 $ 9,866
======== ========
</TABLE>
The revenue and net income of PHH Europe for the periods presented above
includes the results of operations of PHH Europe from the date of acquisition
(June 30, 1999) through July 31, 2000 (formation of Joint Venture).
PHH/Arval is an unlimited liability company organized under the laws of the
United Kingdom. A subsidiary of the Company which owns 20% of PHH/Arval, is
liable under the laws of the United Kingdom for all the obligations of PHH/Arval
upon its liquidation which remain after the assets of PHH/Arval are sold.
PHH/Arval incurred a loan of approximately $800 million to complete the BNP
Paribas transaction. The Company's subsidiary is liable for the loan to the
extent PHH/Arval does not have sufficient assets to repay the loan upon its
liquidation. A newly formed subsidiary of the Company has guaranteed its
subsidiary's liability under the loan.
NOTE 7- COMPREHENSIVE INCOME
Comprehensive income is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income ................................................. $ 48,397 $ 39,375 $ 105,415 $ 81,843
Foreign currency translation adjustment, net of income taxes 204 7,351 (27,616) 10,031
Reversal of the accumulated foreign currency translation
adjustment, net of tax, related to the sale of 80% of PHH
Europe (see Note 6) ..................................... 18,098 18,098
--------- --------- --------- ---------
Comprehensive income ....................................... $ 66,699 $ 46,726 $ 95,897 $ 91,874
========= ========= ========= =========
</TABLE>
G-6
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8- FINANCING AND DEBT
Debt outstanding at September 30, 2000 and December 31, 1999 consist of the
following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
VEHICLE RENTAL
Commercial Paper Notes ............................................... $ 872,474 $1,026,261
Short-term notes-foreign ............................................. 207,969 111,259
Series 1997-1A asset-backed Medium Term Notes due May through
October 2000 at 6.22% ............................................ 133,333 800,000
Series 1997-1B asset-backed Medium Term Notes due May through
October 2002 at 6.40% ............................................ 850,000 850,000
Series 1998-1 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
Series 2000-3 floating rate Rental Car Asset-Backed Notes due
May 2003 through October 2003 ................................... 200,000
Series 2000-4 floating rate Rental Car Asset-Backed Notes due
June 2005 through November 2005 ................................ 500,000
Revolving credit facility due June 2005 .............................. 105,000 62,000
Other ................................................................ 5,574 5,902
---------- ----------
TOTAL VEHICLE RENTAL DEBT .................................... 4,024,350 3,455,422
---------- ----------
VEHICLE LEASING AND OTHER FEE BASED
Commercial Paper Notes ............................................... 1,663,688 1,521,498
Canadian short term borrowings ....................................... 29,793 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 6) .......... 850,443
Self-fund notes ...................................................... 27,435 30,397
Wright Express Certificates of Deposit ............................... 108,892 67,482
---------- ----------
TOTAL VEHICLE LEASING AND OTHER FEE BASED DEBT ............... 2,829,808 3,514,383
---------- ----------
TOTAL VEHICLE DEBT ........................................... 6,854,158 6,969,805
---------- ----------
ACQUISITION FINANCING
Term A Loan Notes due June 2005 ..................................... 250,000
Term B Loan Notes due June 2006 ..................................... 375,000
Term C Loan Notes due June 2007 ..................................... 375,000
Senior Subordinated Notes due May 2009 at 11.00% ..................... 500,000 500,000
---------- ----------
TOTAL ACQUISITION FINANCING .................................. 500,000 1,500,000
---------- ----------
TOTAL DEBT ................................................... $7,354,158 $8,469,805
========== ==========
</TABLE>
G-7
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 - 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 8) 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 September 30, 2000 and December 31, 1999 and for the three and nine months
ended September 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 believes that such
information is not material to holders of the Senior Subordinated Notes.
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
------------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue ....................................... $ 1,868,530 $ 1,371,246 $ 3,239,776
----------- ----------- -----------
Costs and expenses:
Direct operating, net ......................... 631,687 83,894 715,581
Vehicle depreciation and lease
charges, net .................................. 432,631 841,335 1,273,966
Selling, general and administrative ........... 394,090 143,663 537,753
Interest, net ................................. $ 105,499 162,150 185,121 452,770
Non-vehicle depreciation and
amortization .................................. 25,780 11,552 37,332
Amortization of cost in excess of net
assets acquired ............................ 30,222 3,575 33,797
----------- ----------- ----------- -----------
105,499 1,676,560 1,269,140 3,051,199
----------- ----------- ----------- -----------
(105,499) 191,970 102,106 188,577
Equity in earnings of subsidiaries ............ 171,726 82,010 $ (253,736)
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes ...... 66,227 273,980 102,106 (253,736) 188,577
Provision (benefit) for income taxes (39,188) 102,254 20,096 83,162
----------- ----------- ----------- ----------- -----------
Net income ................................ $ 105,415 $ 171,726 $ 82,010 $ (253,736) $ 105,415
=========== =========== =========== =========== ===========
</TABLE>
G-8
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
-------------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue ................................... $ 1,759,631 $ 567,561 $ 2,327,192
----------- ----------- -----------
Costs and expenses:
Direct operating, net ..................... 638,371 86,472 724,843
Vehicle depreciation and lease charges, net 457,863 303,066 760,929
Selling, general and administrative ....... $ (464) 361,640 47,125 408,301
Interest, net ............................. 10,376 161,704 73,193 245,273
Non-vehicle depreciation and amortization . 17,871 5,499 23,370
Amortization of cost in excess of net
assets acquired ........................ 13,210 5,118 18,328
----------- ----------- ----------- -----------
9,912 1,650,659 520,473 2,181,044
----------- ----------- ----------- -----------
(9,912) 108,972 47,088 146,148
Equity in earnings of subsidiaries ........ 88,387 40,300 $ (128,687)
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes .. 78,475 149,272 47,088 (128,687) 146,148
Provision (benefit) for income taxes .... (3,368) 60,885 6,788 64,305
----------- ----------- ----------- ----------- -----------
Net income ............................ $ 81,843 $ 88,387 $ 40,300 $ (128,687) $ 81,843
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
-------------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue ................................... $ 688,604 $ 441,671 $ 1,130,275
----------- ----------- -----------
Costs and expenses:
Direct operating, net ..................... 229,974 29,599 259,573
Vehicle depreciation and lease charges, net 167,571 278,893 446,464
Selling, general and administrative ....... 123,807 47,671 171,478
Interest, net ............................. $ 25,250 61,728 59,798 146,776
Non-vehicle depreciation and amortization . 8,466 2,407 10,873
Amortization of cost in excess of net
assets acquired ........................ 9,686 517 10,203
----------- ----------- ----------- -----------
25,250 601,232 418,885 1,045,367
----------- ----------- ----------- -----------
(25,250) 87,372 22,786 84,908
Equity in earnings of subsidiaries ........ 64,268 19,983 $ (84,251)
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes .. 39,018 107,355 22,786 (84,251) 84,908
Provision (benefit) for income taxes .... (9,379) 43,087 2,803 36,511
----------- ----------- ----------- ----------- -----------
Net income ............................ $ 48,397 $ 64,268 $ 19,983 $ (84,251) $ 48,397
=========== =========== =========== =========== ===========
</TABLE>
G-9
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
-------------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue ................................... $ 673,194 $ 449,624 $ 1,122,818
----------- ----------- -----------
Costs and expenses:
Direct operating, net ..................... 231,267 31,856 263,123
Vehicle depreciation and lease charges, net 168,938 273,520 442,458
Selling, general and administrative ....... $ (464) 147,190 30,393 177,119
Interest, net ............................. 3,458 70,585 71,305 145,348
Non-vehicle depreciation and amortization . 6,780 4,239 11,019
Amortization of cost in excess of net
assets acquired ........................ 6,955 5,022 11,977
----------- ----------- ----------- -----------
2,994 631,715 416,335 1,051,044
----------- ----------- ----------- -----------
(2,994) 41,479 33,289 71,774
Equity in earnings of subsidiaries ........ 41,422 30,926 $ (72,348)
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes .. 38,428 72,405 33,289 (72,348) 71,774
Provision (benefit) for income taxes ...... (947) 30,983 2,363 32,399
----------- ----------- ----------- ----------- -----------
Net income ............................ $ 39,375 $ 41,422 $ 30,926 $ (72,348) $ 39,375
=========== =========== =========== =========== ===========
</TABLE>
G-10
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
--------------------------------------------------
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ................................... $ 72 $ 32,676 $ 25,163
Cash held on deposit with financial institution ............. 48,046
Restricted cash ............................................. 235,799
Accounts receivable, net .................................... 57 252,848 631,182
Prepaid expenses ............................................ 52,920 13,630
Finance lease receivables ................................... 177,379
Vehicles, net-rental ........................................ (65,275) 4,075,007
Vehicles, net-leasing ....................................... (712) 3,014,399
Property and equipment, net ................................. 173,567 14,740
Investment in subsidiaries .................................. 2,262,144 1,038,669
Investment in PHH/Arval joint venture ....................... 181,204
Other assets ................................................ 1,000 51,646 55,987
Cost in excess of net assets
acquired, net ........................................... 1,295,773 3,351
----------- ----------- -----------
Total assets ................................................ $ 2,263,273 $ 3,013,316 $ 8,294,683
=========== =========== ===========
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Accounts payable ............................................ $ 250,552 $ 299,627
Accrued liabilities ......................................... $ 18,629 315,562 43,886
Due (from) to affiliates, net ............................... 984,364 (925,326) (26,320)
Current income tax liabilities .............................. 25,807 25,807
Deferred income tax liabilities, net ........................ (88,563) 492,063 41,484
Public liability, property damage and other
insurance liabilities, net ............................... 201,758 54,677
Debt ........................................................ 605,000 5,803 6,743,355
Minority interest (preferred membership interest) ........... 99,305 99,305
Preferred stock ............................................. 384,953
Common stockholders' equity ................................. 743,843 2,262,144 1,038,669
----------- ----------- -----------
Total liabilities, preferred stock and
common stockholders' equity ............................... $ 2,263,273 $ 3,013,316 $ 8,294,683
=========== =========== ===========
<CAPTION>
-----------------------------
AVIS GROUP
HOLDINGS, INC.
ELIMINATIONS CONSOLIDATED
------------ -------------
<C> <C>
ASSETS
Cash and cash equivalents ................................... $ 57,911
Cash held on deposit with financial institution ............. 48,046
Restricted cash ............................................. 235,799
Accounts receivable, net .................................... 884,087
Prepaid expenses ............................................ 66,550
Finance lease receivables ................................... 177,379
Vehicles, net-rental ........................................ 4,009,732
Vehicles, net-leasing ....................................... 3,013,687
Property and equipment, net ................................. 188,307
Investment in subsidiaries .................................. $(3,300,813)
Investment in PHH/Arval joint venture ....................... 181,204
Other assets ................................................ 108,633
Cost in excess of net assets
acquired, net ........................................... 1,299,124
----------- -----------
Total assets ................................................ $(3,300,813 $10,270,459
=========== ===========
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Accounts payable ............................................ $ 550,179
Accrued liabilities ......................................... 378,077
Due (from) to affiliates, net ............................... 32,718
Current income tax liabilities ..............................
Deferred income tax liabilities, net ........................ 444,984
Public liability, property damage and other
insurance liabilities, net ............................... 256,435
Debt ........................................................ 7,354,158
Minority interest (preferred membership interest) ...........
Preferred stock ............................................. 384,953
Common stockholders' equity ................................. $(3,300,813) 743,843
----------- -----------
Total liabilities, preferred stock and
common stockholders' equity ............................... $(3,300,813) $10,270,459
=========== ===========
</TABLE>
G-11
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 - 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>
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, PREFERRED STOCK AND COMMONSTOCKHOLDERS' 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>
G-12
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 .............................................. $ 105,415 $ 171,726 $ 82,010 $ (253,736) $ 105,415
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: ......... 1,023,167 (619,384) 856,778 1,260,561
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . 1,128,582 (447,658) 938,788 (253,736) 1,365,976
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for vehicle additions .......................... (68,238) (5,623,877) (5,692,115)
Vehicle deletions ....................................... (422,647) 4,099,759 3,677,112
Increase in finance lease receivables ................... (50,631) (50,631)
Payments for property and equipment ..................... (34,142) (6,869) (41,011)
Retirements of property and equipment ................... 6,188 3,190 9,378
Proceeds from the sale of 80% of PHH Europe, net of
cash disposed of $104,765 ........................... 800,960 (105,276) 695,684
Settlement of PHH Europe intercompany accounts .......... 225,819 225,819
Dividend from the PHH/Arval joint venture ............... 32,426 32,426
Investment in subsidiaries .............................. (171,726) (82,010) 253,736
----------- ----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (171,726) 458,356 (1,683,704) 253,736 (1,143,338)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in (repayment of) debt ..................... 97,437 (4,502) 697,102 790,037
Repayment of acquisition and other debt from the
proceeds of the sale of 80% of PHH Europe ........... (1,054,437) (1,054,437)
Payments for debt issuance costs ........................ (15,704) (1,576) (17,280)
Other ................................................... 162 162
----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES ........................................ (956,838) (20,206) 695,526 (281,518)
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash ................. (390) (390)
----------- -----------
Net (decrease) increase in cash and cash equivalents .... 18 (9,508) (49,780) (59,270)
Cash and cash equivalents at beginning of period ........ 54 42,184 122,989 165,227
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 72 $ 32,676 $ 73,209 $ $ 105,957
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid .................................. $ 431,369
===========
Cash income taxes paid .............................. $ 30,499
===========
BUSINESS DISPOSED:
Assets disposed ..................................... $ 1,731,488
Liabilities disposed ................................ 1,035,804
-----------
Proceeds received from the sale of 80% of PHH Europe,
net of cash disposed of $104,765 ................... $ 695,684
===========
</TABLE>
G-13
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 - GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------------
NON- AVIS GROUP
GUARANTOR GUARANTOR HOLDINGS, INC.
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 81,843 $ 88,387 $ 40,300 $ (128,687) $ 81,843
Adjustments to reconcile net income to net cash
(used in) provided by operating activities: ...... (225,193) 502,204 304,612 581,623
----------- ----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES . (143,350) 590,591 344,912 (128,687) 663,466
----------- ----------- ----------- ----------- -----------
CASH FLOWS FORM INVESTING ACTIVITIES:
Payments for vehicle additions ....................... 104,735 (3,755,658) (3,650,923)
Vehicle deletions .................................... (428,000) 3,097,166 2,669,166
Decrease in finance lease receivables ................ (46,226) (39,343) (85,569)
Payments for property and equipment ................. (29,476) (5,546) (35,022)
Retirements of property and equipment ................ 2,248 1,494 3,742
Investment in subsidiaries ........................... (98,418) (40,300) 138,718
Payment for purchase of rental car franchise
licensees, net of cash acquired of $14,208 ........ (44,934) (258) (45,192)
Payment for purchase of PHH Holdings, net of cash
acquired of $170,568 .............................. (1,348,530) (1,348,530)
----------- ----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ........... (1,446,948) (481,953) (702,145) 138,718 (2,492,328)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in (repayment of) debt .................. 1,615,000 (98,356) 541,904 2,058,548
Payments for debt issuance costs ..................... 19,522 (14,662) (6,500) (1,640)
Purchases of treasury stock .......................... (57,237) (57,237)
Other ................................................ 3,349 3,349
Cash dividends ....................................... 5,926 (5,926) --
----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES ...................................... 1,580,634 (107,092) 529,478 2,003,020
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash .............. 10,031 11 2,601 (10,031) 2,612
----------- ----------- ----------- ----------- -----------
Net increase in cash and cash equivalents ............ 367 1,557 174,846 176,770
Cash and cash equivalents at beginning of period ..... 11 9,776 19,964 29,751
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......... $ 378 $ 11,333 $ 194,810 $ -- $ 206,521
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid ................................ $ 173,600
===========
Cash income taxes paid ............................ $ 14,835
===========
BUSINESS ACQUIRED:
Fair value of assets acquired, net of cash acquired
of $184,776 ....................................... $ 6,127,678
Liabilities assumed .................................. $ 4,371,956
-----------
Net assets acquired .................................. 1,755,722
Less: issuance of Series A and Series C Preferred
Stocks ............................................ (362,000)
-----------
NET CASH PAID FOR ACQUISITIONS ....................... $ 1,393,722
===========
</TABLE>
G-14
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 10 - SEGMENT INFORMATION
Prior to the purchase of VMS on June 30, 1999 (Note 5), the Company operated in
one industry segment; the rental car business. As of July 1, 1999, the Company
began operating in two business segments as follows:
<TABLE>
<S> <C>
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.
</TABLE>
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, and the subsequent sale of 80% of
PHH Europe on August 9, 2000 (Note 6) 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 to
the 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, amortization 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 nine months ended September 30, 2000 and 1999 are summarized as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 2000
-------------------------------------------------------------
VEHICLE
LEASING
AND OTHER
VEHICLE FEE BASED
BUSINESS SEGMENTS RENTAL SERVICES CORPORATE CONSOLIDATED
------------ ----------- ----------- ------------
<S> <C> <C> <C>
Revenue ......................................... $ 1,989,167 $ 1,250,609 $ 3,239,776
=========== =========== ===========
EBITDA .......................................... $ 221,887 $ 127,175 $ 3,516 $ 352,578
=========== =========== =========== ===========
Income (loss) before provision for income taxes . $ 190,213 $ 109,821 $ (111,457) $ 188,577
=========== =========== =========== ===========
Total assets .................................... $ 4,693,064 $ 5,577,395 $10,270,459
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
-------------------------------------------------------------
VEHICLE
LEASING
AND OTHER
VEHICLE FEE BASED
RENTAL SERVICES CORPORATE CONSOLIDATED
------------ ----------- ----------- ------------
<S> <C> <C> <C>
BUSINESS SEGMENTS
Revenue ......................................... $ 1,913,929 $ 413,263 $ 2,327,192
=========== =========== ===========
EBITDA .......................................... $ 175,052 $ 47,875 $ 464 $ 223,391
=========== =========== =========== ===========
Income (loss) before provision for income taxes . $ 146,095 $ 42,512 $ (42,459) $ 146,148
=========== =========== ===========
Total assets .................................... $ 5,299,525 $ 5,884,054 $11,183,579
=========== =========== ===========
</TABLE>
G-15
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 10 - SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 2000
-------------------------------------------------------------
VEHICLE
LEASING
AND OTHER
VEHICLE FEE BASED
BUSINESS SEGMENTS RENTAL SERVICES CORPORATE CONSOLIDATED
------------- ------------ ----------- ------------
<S> <C> <C> <C>
Revenue ......................................... $ 733,694 $ 396,581 $ 1,130,275
=========== =========== ===========
EBITDA .......................................... $ 89,929 $ 35,038 $ 2,058 $ 127,025
=========== =========== =========== ===========
Income (loss) before provision for income taxes . $ 79,473 $ 31,228 $ (25,793) $ 84,908
=========== =========== ===========
Total assets .................................... $ 4,693,064 $ 5,577,395 $10,270,459
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1999
-------------------------------------------------------------
VEHICLE
LEASING
AND OTHER
VEHICLE FEE BASED
BUSINESS SEGMENTS RENTAL SERVICES CORPORATE CONSOLIDATED
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenue ......................................... $ 709,555 $ 413,263 $ 1,122,818
=========== =========== ===========
EBITDA .......................................... $ 81,976 $ 47,875 $ 464 $ 130,315
=========== =========== =========== ===========
Income (loss) before provision for income taxes . $ 71,721 $ 42,512 $ (42,459) $ 71,774
=========== =========== =========== ===========
Total assets .................................... $ 5,299,525 $ 5,884,054 $11,183,579
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------------
OTHER
UNITED UNITED AUSTRALIA/ FOREIGN
GEOGRAPHIC AREAS STATES KINGDOM NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
---------------- ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue ................................ $ 2,838,165 $ 154,714 $ 87,978 $ 129,698 $ 29,221 $ 3,239,776
=========== =========== =========== =========== =========== ===========
EBITDA ................................. $ 266,427 $ 42,177 $ 17,033 $ 23,150 $ 3,791 $ 352,578
=========== =========== =========== =========== =========== ===========
Income before provision for income taxes $ 116,475 $ 30,810 $ 16,122 $ 21,938 $ 3,232 $ 188,577
=========== =========== =========== =========== =========== ===========
Total assets ........................... $ 9,545,417 $ 181,204 $ 107,446 $ 376,922 $ 59,470 $10,270,459
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------------------
OTHER
UNITED UNITED AUSTRALIA/ FOREIGN
GEOGRAPHIC AREAS STATES KINGDOM NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
---------------- ----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ................................. $ 2,052,908 $ 64,592 $ 91,079 $ 92,093 $ 26,520 $ 2,327,192
=========== =========== =========== =========== =========== ===========
EBITDA .................................. $ 175,367 $ 19,651 $ 18,566 $ 14,607 $ (4,800) $ 223,391
=========== =========== =========== =========== =========== ===========
Income (loss) before provision for income
taxes ............................... $ 105,483 $ 14,986 $ 17,588 $ 13,677 $ (5,586) $ 146,148
=========== =========== =========== =========== =========== ===========
Total assets ............................ $ 9,374,964 $ 1,328,108 $ 99,610 $ 317,679 $ 63,218 $11,183,579
=========== =========== =========== =========== =========== ===========
</TABLE>
G-16
<PAGE>
AVIS GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 10 - SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------------------------------
OTHER
UNITED UNITED AUSTRALIA/ FOREIGN
GEOGRAPHIC AREAS STATES KINGDOM NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
---------------- ----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ................................ $ 1,016,168 $ 22,458 $ 27,419 $ 55,207 $ 9,023 $ 1,130,275
=========== =========== =========== =========== =========== ===========
EBITDA ................................. $ 101,454 $ 5,067 $ 4,632 $ 14,266 $ 1,606 $ 127,025
=========== =========== =========== =========== =========== ===========
Income before provision for income taxes $ 61,786 $ 3,473 $ 4,341 $ 13,864 $ 1,444 $ 84,908
=========== =========== =========== =========== =========== ===========
Total assets ........................... $ 9,545,417 $ 181,204 $ 107,446 $ 376,922 $ 59,470 $10,270,459
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------------------
OTHER
UNITED UNITED AUSTRALIA/ FOREIGN
GEOGRAPHIC AREAS STATES KINGDOM NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
---------------- ----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ................................. $ 965,691 $ 64,592 $ 30,016 $ 50,796 $ 11,723 $ 1,122,818
=========== =========== =========== =========== =========== ===========
EBITDA .................................. $ 94,405 $ 19,651 $ 5,664 $ 11,531 $ (936) $ 130,315
=========== =========== =========== =========== =========== ===========
Income (loss) before provision for income
taxes ................................ $ 41,685 $ 14,986 $ 5,330 $ 11,084 $ (1,311) $ 71,774
=========== =========== =========== =========== =========== ===========
Total assets ............................ $ 9,374,964 $ 1,328,108 $ 99,610 $ 317,679 $ 63,218 $11,183,579
=========== =========== =========== =========== =========== ===========
</TABLE>
NOTE 11 - 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 nine
months ended September 30, 1999.
NOTE 12 - CENDANT PURCHASE OFFER
Cendant Corporation ("Cendant") and Avis Group Holdings, Inc., on November 13,
2000 announced that they have entered into a definitive agreement for Cendant to
acquire all of the outstanding shares of Avis Group that are not currently owned
by Cendant at a price of $33.00 per share in cash. Approximately 25.6 million
outstanding shares of Avis Group Class A Common Stock, and options to purchase
an additional approximately 7.9 million Avis Group shares, are not owned by
Cendant. Accordingly, the transaction has an equity value of approximately, $935
million, net of option proceeds.
The shares will be acquired at a price of $33.00 per share in a cash merger
pursuant to which Avis Group will be merged with an indirect wholly owned
subsidiary of Cendant. Upon completion of the transaction, Avis Group will
become a subsidiary of Cendant. The merger is conditioned upon, among other
things, approval of a majority of the votes cast by Avis Group stockholders who
are unaffilitated with Cendant and customary regulatory approvals. The
transaction is expected to close in the first quarter of 2001.
G-17
