As filed with the Securities and Exchange Commission on January 29, 1998
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CENDANT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-0918165
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
(973) 428-9700
FAX: (973) 496-5331
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES E. BUCKMAN, ESQ.
SENIOR EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
CENDANT CORPORATION
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
(973) 428-9700
FAX: (973) 496-5331
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
VINCENT J. PISANO, ESQ. ERIC J. BOCK, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP VICE PRESIDENT - LEGAL
919 THIRD AVENUE CENDANT CORPORATION
NEW YORK, NY 10022 6 SYLVAN WAY
(212) 735-3000 PARSIPPANY, NEW JERSEY 07054
FAX: (212) 735-2000 (973) 428-9700
FAX: (973) 496-5331
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AT SUCH TIME
OR TIMES AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT AS THE SELLING
STOCKHOLDER SHALL DETERMINE.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415
UNDER THE SECURITIES ACT OF 1933, OTHER THAN SECURITIES OFFERED ONLY IN
CONNECTION WITH DIVIDEND OR INTEREST REINVESTMENT PLANS, CHECK THE FOLLOWING
BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING
BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
CALCULATION OF REGISTRATION FEE
-------------------------------
Title of Shares Amount to be Proposed Maximum Proposed Amount
to be Registered Registered Offering Price Maximum of
- ---------------- ---------- Per Aggregate Registration
Share(2) Offering Fee
-------- Price(2) ---
--------
Common Stock, $.01.. 2,401,899 $34.32 $82,433,174 $24,318
par value(1)
(1) These Shares are being offered by the Selling Stockholder and no proceeds
will be received by the Company from the sale of such Shares.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c). The average of the high and low prices reported
on the New York Stock Exchange on January 26, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
2,401,899 SHARES
CENDANT CORPORATION
COMMON STOCK
This Prospectus relates to the offering from time to time of 2,401,899
Shares (the "Shares") of common stock, $.01 par value per share (the "Common
Stock"), of Cendant Corporation, a Delaware corporation (the "Company"), to be
offered from time to time by Christel DeHaan (the "Selling Stockholder") who
received the Shares in connection with the acquisition by HFS Incorporated
("HFS"), a predecessor corporation of the Company, of Resort Condominiums
International, Inc. and its affiliated companies ("RCI") pursuant to a Stock
Purchase Agreement (the "Stock Purchase Agreement"), dated as of October 6,
1996, by and among HFS, RCI and the Selling Stockholder. See "Selling
Stockholder" and "Plan of Distribution" herein. The Company will not receive
any of the proceeds from the sale of the Shares offered hereby.
The distribution and sale of the shares of Common Stock offered hereby
is subject to the provisions of a Registration Rights Agreement dated November
12, 1996, by and between HFS and the Selling Stockholder (the "Registration
Rights Agreement"). The Registration Rights Agreement sets forth certain
restrictions with respect to the transfer of shares of Common Stock offered
hereby, including a restriction on the sale of shares for designated periods
prior to and after the sale of equity securities by the Company, or securities
convertible into or exchangeable or exercisable for equity securities of the
Company, pursuant to a registration statement filed by the Company under the
Securities Act of 1933, as amended, respecting an underwritten offering that is
declared effective by the Securities and Exchange Commission. Subject to the
limitations contained in the Registration Rights Agreement, the Selling
Stockholder may sell all or portions of the Common Stock through agents or
broker-dealers on terms to be determined at the time of sale. The Selling
Stockholder may sell the Common Stock offered hereby from time to time on the
New York Stock Exchange or such other national securities exchange, automated
interdealer quotation system on which the shares of Common Stock are then
listed, through negotiated transactions or otherwise at market prices
prevailing at the time of the sale or at negotiated prices. The number of such
shares proposed to be so offered and the terms of such offering, and the number
of such shares owned prior to and after the completion of any such offering
shall be set forth in an accompanying Prospectus Supplement, to the extent
necessary. The aggregate proceeds to the Selling Stockholder from the sale of
any Shares will be the purchase price of such Shares less the aggregate agents'
or broker-dealers' commission, if any, and other expenses of distribution not
borne by the Company. See "Selling Stockholder" and "Plan of Distribution."
The Company's Common Stock is listed on the New York Stock Exchange
under the symbol "CD." On January 28, 1998, the last reported sale price of the
Common Stock on the New York Stock Exchange was $33.3125 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is January 29, 1998
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR ANY UNDERWRITER, DEALER OR AGENT INVOLVED IN THE OFFERING
DESCRIBED HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661 and 7 World
Trade Center, 13th Floor, New York, New York 10048. The Commission also
maintains a website that contains reports, proxy and information statements and
other information. The website address is http://www.sec.gov. In addition, such
material can be inspected at the offices of the New York Stock Exchange (the
"NYSE"), 20 Broad Street, New York, New York 10005.
The Company has filed a registration statement (the "Registration
Statement") on Form S-3 with respect to the Common Stock offered hereby with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus, which constitutes a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement,
certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
agreement, instrument or other document referred to herein are not necessarily
complete. With respect to each such agreement, instrument or other document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by reference to such agreement,
instrument or document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference:
(i) Annual Report on Form 10-K for the fiscal year ended January 31, 1997; (ii)
Quarterly Reports on Form 10-Q for the fiscal quarters ended April 30, 1997,
July 31, 1997 and October 31, 1997; (iii) Current Reports on Form 8-K dated
January 22, 1997, February 4, 1997, February 13, 1997, February 26, 1997, March
17, 1997, May 29, 1997, August 15, 1997, October 31, 1997, November 4, 1997,
December 18, 1997, January 14, 1998, January 22, 1998, January 27, 1998 and
January 29, 1998; (iv) Current Report on Form 8-K dated July 16, 1997 of HFS
Incorporated (File No. 1-11902) and (v) description of the common stock of the
Company which is contained in the Registration Statements on Form 8-A of the
Company dated July 27, 1984 and August 15, 1989.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to
be incorporated herein by reference and to be a part hereof from the date of
filing of such documents. Any statement contained in this Prospectus or in a
document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated herein by reference or
in any Prospectus Supplement modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
in such documents). Requests for such copies should be directed to James E.
Buckman, Esq., Senior Executive Vice President and General Counsel, Cendant
Corporation, 6 Sylvan Way, Parsippany, New Jersey 07054, (973) 428-9700.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES OFFERED HEREBY,
INCLUDING STABILIZING TRANSACTIONS, THE PURCHASE OF SHARES TO COVER SYNDICATE
SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS.
THE COMPANY
The Company is one of the foremost consumer and business services
companies in the world. The Company was created through the merger of CUC
International, Inc. ("CUC") and HFS in December 1997 and provides all of the
services formerly provided by each of CUC and HFS, including technology-driven,
membership-based consumer services, travel services and real estate services.
Membership Services. The Company's membership-based consumer services
provide more than 70 million members with access to a variety of goods and
services worldwide. These memberships include such components as shopping,
travel, auto, dining, home improvement, lifestyle, vacation exchange, credit
card and checking account enhancement packages, financial products and discount
programs. The Company also administers insurance package programs which are
generally combined with discount shopping and travel for credit union members,
distributes welcoming packages which provide new homeowners with discounts for
local merchants, and provides travelers with value-added tax refunds. The
Company believes that it is the leading provider of membership-based consumer
services of these types in the United States. The Company's membership
activities are conducted principally through its Comp-U-Card division and
certain of the Company's wholly-owned subsidiaries, FISI*Madison Financial
Corporation, Benefit Consultants, Inc., Entertainment Publications, Inc. and
SafeCard Services, Inc.
Travel Services. The Company also provides services to consumers
through intermediaries in the travel and real estate industries. In the travel
industry, the Company, through certain of its subsidiaries, franchises hotels
primarily in the mid-priced and economy markets. It is the world's largest
hotel franchisor, operating the Days Inn(R), Ramada(R) (in the United States),
Howard Johnson(R), Super 8(R), Travelodge(R) (in North America), Villager
Lodge(R), Knights Inn(R) and Wingate Inn(R) franchise systems. Additionally,
the Company owns the Avis worldwide vehicle rental system, which is operated
through its franchisees and is the second-largest car rental system in the
world (based on total revenues and volume of rental transactions). The Company
currently owns approximately 27.5% of the capital stock of the world's largest
Avis franchisee, Avis Rent A Car, Inc. The Company also owns Resort
Condominiums International, Inc., a leading timeshare exchange organization. As
a result of the April 1997 merger between HFS and PHH Corporation, the Company
now operates the second largest provider in North America of comprehensive
vehicle management services and is the market leader in the United Kingdom
among the four nationwide providers of fuel card services and the six
nationwide providers of vehicle management services.
Real Estate Services. In the residential real estate industry, the
Company, through certain of its subsidiaries, franchises real estate brokerage
offices under the Century 21(R), Coldwell Banker(R) and Electronic Realty
Associates(R) (ERA(R)) real estate brokerage franchise systems and is the
world's largest real estate brokerage franchisor. Additionally, the Company,
through Cendant Mobility Services Corporation, is the largest provider of
corporate relocation services in the United States, offering relocation
clients a variety of services in connection with the transfer of a client's
employees. Through PHH Mortgage Services Corporation, the Company originates,
sells and services residential mortgage loans in the United States, marketing
such services to consumers through relationships with corporations, affinity
groups, financial institutions, real estate brokerage firms and other mortgage
banks.
As a franchisor of hotels, residential real estate brokerage offices
and car rental operations, the Company licenses the owners and operators of
independent businesses to use the Company's brand names. The Company does not
own or operate hotels or real estate brokerage offices. Instead, the Company
provides its franchisee customers with services designed to increase their
revenue and profitability.
Other. The Company also offers consumer software in various multimedia
forms. During 1996, the Company acquired Davidson & Associates, Inc., Sierra
On-Line, Inc. and Knowledge Adventure, Inc. These companies develop, publish,
manufacture and distribute educational, entertainment and personal productivity
interactive multimedia products for home and school use.
The Company from time to time explores and conducts discussions with
regard to acquisitions and other strategic corporate transactions in its
industries and in other businesses. Historically, the Company has been involved
in numerous transactions of various magnitudes, for consideration which
included cash or securities (including Common Stock) or combinations thereof.
The Company will evaluate and pursue appropriate acquisition and combination
opportunities as they arise. No assurance can be given with respect to the
timing, likelihood or financial or business effect of any possible transaction.
In the past, acquisitions by the Company have involved both relatively small
acquisitions and acquisitions which have been significant.
As part of its regular on-going evaluation of acquisition
opportunities, the Company is currently engaged in a number of separate and
unrelated preliminary discussions concerning possible acquisitions. The Company
is in the early stages of such
discussions and has not entered into any agreement in principle with respect to
any of these possible acquisitions. The purchase price for the possible
acquisitions may be paid in cash, through the issuance of Common Stock (which
would increase the number of shares of Common Stock outstanding) or other
securities of the Company, borrowings, or a combination thereof. Prior to
consummating any such possible acquisitions, the Company, among other things,
will have to initiate and satisfactorily complete its due diligence
investigation; negotiate the financial and other terms (including price) and
conditions of such acquisitions; obtain appropriate Board of Directors,
regulatory and other necessary consents and approvals; and secure financing.
The Company cannot predict whether any such acquisitions will be consummated
or, if consummated, will result in a financial or other benefit to the Company.
The Company's principal executive offices are located at 6 Sylvan Way,
Parsippany, New Jersey 07054 (telephone number: (973) 428-9700).
RECENT DEVELOPMENTS
Proposed Acquisition of American Bankers. On January 27, 1998, the
Company made a proposal to acquire American Bankers Insurance Group Inc.
("American Bankers") for $58 per share in cash and stock, for an aggregate
purchase price of approximately $2.7 billion on a fully diluted basis. On
January 28, 1998, the Company commenced a tender offer to purchase
approximately 23.5 million of American Bankers' common shares at a price of
$58 per share in cash, which together with shares the Company owns will
equal approximately 51% of the fully diluted shares of American Bankers. The
Company proposes to exchange, on a tax free basis, shares of its common
stock with a fixed value of $58 per share for the balance of American
Bankers' common stock. The tender offer is subject to customary conditions
and there can be no assurance that the Company will be successful in its
proposal to acquire American Bankers.
In connection with the Company's proposal to acquire American
Bankers, the Company entered into a commitment letter, dated January 23, 1998,
with The Chase Manhattan Bank and Chase Securities Inc. to provide a $1.5
billion 364-Day revolving credit facility (the "New Facility") which will
mature 364 days after the execution of the definitive documentation relating
thereto. The New Facility will bear interest, at the option of the Company,
at rates based on competitive bids of lenders participating in such
facilities at a prime rate or at LIBOR plus an applicable variable margin
based on the Company's senior unsecured long-term debt rating.
Harpur Acquisition. On January 20, 1998, the Company completed the
acquisition of Harpur Group, Ltd., a leading fuel card and vehicle management
company in the United Kingdom, from H-G Holdings, Inc. for approximately $186
million in cash plus future contingent payments of up to $20 million over the
next two years.
Jackson Hewitt Acquisition. On January 7, 1998, the Company completed
the acquisition of Jackson Hewitt Inc. ("Jackson Hewitt"), for approximately
$480 million in cash, or $68 per share of common stock of Jackson Hewitt.
Jackson Hewitt is the second largest tax preparation service system in the
United States with locations in 41 states. Jackson Hewitt franchises a system
of approximately 2,050 offices that specialize in computerized preparation of
federal and state individual income tax returns.
Interval Divestiture. On December 17, 1997, in connection with the
merger with HFS, the Company completed the divestiture of its timeshare
exchange subsidiary, Interval International Inc., as contemplated by the
consent decree with the Federal Trade Commission.
Providian Acquisition. On December 10, 1997, the Company announced that
it had entered into a definitive agreement to acquire Providian Auto and Home
Insurance Company ("Providian") and its subsidiaries from an Aegon N.V.
subsidiary for approximately $219 million in cash. Providian sells automobile
insurance to consumers through direct response marketing in 45 states and the
District of Columbia. The closing of this transaction is subject to customary
conditions, including regulatory approval and is anticipated to occur in the
spring of 1998.
Hebdo Mag Acquisition. On October 3, 1997, the Company completed the
acquisition of all of the outstanding capital stock of Hebdo Mag International
Inc. in exchange for the issuance of shares of preferred stock of Getting to
Know You of Canada Ltd., an indirect wholly-owned subsidiary of the Company,
exchangeable for shares of Common Stock (the "Hebdo Acquisition Shares") and
the assumption of certain options of Hebdo Mag exchanged for options to acquire
shares of Common Stock, such Hebdo Acquisition Shares or options having an
aggregate value of approximately $440 million. Based in Paris, France, Hebdo
Mag is an international publisher of over 150 titles and distributor of
classified advertising information with operations in twelve countries,
including Canada, France, Sweden, Hungary, the United States, Italy, Russia and
Holland. The Hebdo Mag Acquisition was accounted for in accordance with the
pooling-of-interests method of accounting.
SELLING STOCKHOLDER
General. The Selling Stockholder received all of her Shares in
exchange for the transfer to HFS of all of the outstanding capital stock of RCI
pursuant to the Stock Purchase Agreement. See "Plan of Distribution." All of
the Shares which may be offered hereby are for the account of the Selling
Stockholder. The number and percentage of Shares beneficially owned before the
offering by the Selling Stockholder, the number of Shares to be sold and the
number of Shares beneficially owned after the offering will be set forth in an
accompanying Prospectus Supplement, to the extent necessary.
Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, for which the Company has assumed all of HFS's obligations, upon the
request of the Company, the Selling Stockholder has agreed not to effect any
public sale or distribution (including sales pursuant to Rule 144 under the
Securities Act) of the Shares of Common Stock, during the ten day period prior
to the date on which the Company has notified the Selling Stockholder that the
Company intends to commence a sale of equity securities of the Company, or
securities convertible into or exchangeable or exercisable for equity
securities of the Company through the filing of a registration statement with
the Commission (a "Company Offering") through the one hundred twenty day period
immediately following the closing date of such Company Offering; provided,
however, that the Selling Stockholder shall not be obligated to comply with the
foregoing on more than one occasion in any twelve month period.
Pursuant to the Registration Rights Agreement, the Company has agreed
to use its reasonable best efforts to keep the Registration Statement of which
this prospectus is a part continuously effective under the Securities Act until
the date that is the earliest to occur of (i) the date by which all Shares of
Common Stock have been sold, (ii) the third anniversary of the date of the
closing of the Stock Purchase and (iii) when, in the written opinion of counsel
to the Company, all outstanding Shares held by persons who are not affiliates
of the Company may be resold without registration under the Securities Act
pursuant to Rule 144(k) under the Securities Act or any successor provision
thereto. Pursuant to the Registration Rights Agreement, the Company shall be
deemed not to have used its reasonable best efforts to keep the Registration
Statement of which this prospectus is a part effective during the requisite
period if the Company voluntarily takes any action that would result in the
Selling Stockholder not being able to offer and sell any Shares during that
period, unless (i) such action is required by applicable law, (ii) the Company
notifies the Selling Stockholder, at any time when a prospectus relating to the
Registration Statement is required to be delivered under the Securities Act,
upon the discovery that, or of the happening of any event as a result of which,
the Registration Statement, as then in effect, contains an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or any fact necessary to make the statements therein not misleading or
(iii) the continued effectiveness of the Registration Statement would require,
on the advice of counsel to the Company, the Company to disclose a material
financing, acquisition or other corporate development, and the proper officers
of the Company shall have determined in good faith that such disclosure is not
in the best interests of the Company and its stockholders, and, in the case of
clause (ii) above, the Company thereafter promptly complies with the
requirements of the Registration Rights Agreement to promptly prepare and
furnish to the Selling Stockholder a supplement or amendment to the prospectus
which is a part of the Registration Statement.
Stock Purchase Agreement. Pursuant to the Stock Purchase Agreement, on
November 12, 1996, the Selling Stockholder was appointed as a member of the
Board of Directors of HFS. In connection with the merger of HFS and CUC, the
Selling Stockholder was appointed as a member of the Board of Directors of the
Company. On January 22, 1998, the Selling Stockholder resigned from the
Board of Directors of the Company.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares offered hereby. All the proceeds will be received by the Selling
Stockholder.
DESCRIPTION OF COMMON STOCK
GENERAL
Subject to the rights of the holders of any shares of the Company's
Preferred Stock which may at the time be outstanding, holders of Common Stock
are entitled to such dividends as the Board of Directors may declare out of
funds legally available therefor. The holders of Common Stock will possess
exclusive voting rights in the Company, except to the extent the Board of
Directors specifies voting power with respect to any Preferred Stock issued.
Except as hereinafter described, holders of Common Stock are entitled to one
vote for each share of Common Stock, but will not have any right to cumulate
votes in the election of directors. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to receive,
after payment of all of the Company's debts and liabilities and of all sums to
which holders of any Preferred Stock may be entitled, the distribution of any
remaining assets of the Company. Holders of the Common Stock will not be
entitled to preemptive rights with
respect to any shares which may be issued. Any shares of Common Stock sold
hereunder will be fully paid and non-assessable upon issuance against full
payment of the purchase price therefor. The Common Stock is listed on the New
York Stock Exchange under the symbol "CD." As of January 15, 1998, there were
839,992,974 shares of Common Stock outstanding.
CERTAIN PROVISIONS
The provisions of the Company's Certificate and By-Laws which are
summarized below may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
consider in such stockholder's best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
CLASSIFIED BOARD
The Board of Directors is divided into three classes that are elected
for staggered three-year terms. A director may be removed by the stockholders
without cause only by the affirmative vote of the holders, voting as a single
class, of 80% or more of the total number of votes entitled to be cast by all
holders of the voting stock, which shall include all capital stock of the
Company which by its terms may vote on all matters submitted to stockholders of
the Company generally. The size of the Board of Directors was set by resolution
at 30 and pursuant to the By-Laws (i) until the third anniversary of the
consummation of the merger of HFS and CUC (the "Effective Time"), an
affirmative vote of 80% of the entire Board of Directors will be required in
order to change the number of directors, and (ii) a quorum, at any meeting of
the Board of Directors, shall consist of a majority of the entire Board of
Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Pursuant to the Certificate, the Board of Director's authority to
designate committees shall be subject to the provisions of the By-Laws.
Pursuant to the By-Laws, the Board of Directors shall have the following
committees: (i) an Executive Committee consisting of four CUC Directors (as
defined below) and four HFS Directors (as defined below) and whose Chairman
shall be the Chairman of the Board; (ii) a Compensation Committee consisting of
two CUC Directors and two HFS Directors and whose Chairman shall be an HFS
Director; and (iii) an Audit Committee consisting of two CUC Directors and two
HFS Directors and whose Chairman shall be a CUC Director. The Board of
Directors may designate one or more directors as alternate members of any
committee to fill any vacancy on a committee and to fill a vacant chairmanship
of a committee occurring as a result of a member or chairman leaving the
committee, whether through death, resignation, removal or otherwise. Until the
third anniversary of the Effective Time, the affirmative vote of 80% of the
entire Board of Directors will be required in order to remove a director from a
committee, change the chairmanship of a committee, designate an alternate
member to any committee, designate any additional committee, or amend, modify
or repeal or adopt any provision inconsistent with the provisions described
herein.
The term "HFS Director" means (A) any person serving as a Director of
HFS on May 27, 1997 (or any person appointed by the Board of Directors of HFS
after May 27, 1997 to fill a vacancy on the HFS Board of Directors created
other than due to an increase in the size of the Board of Directors of HFS) who
continues as a Director of the Company at the Effective Time and (B) any person
who becomes a Director of the Company and who was designated as such by the
remaining HFS Directors prior to his or her election; and the term "CUC
Director" means (A) any person serving as a Director of the Company on May 27,
1997 (or any person appointed by the Board of Directors of the Company after
May 27, 1997 but prior to the Effective Time to fill a vacancy on the Board of
Directors created other than due to an increase in the size of the Board of
Directors) who continues as a Director of the Company at the Effective Time,
(B) any of the four persons designated by the CUC Directors to become a
Director of the Company at the Effective Time and (C) any person who becomes
Director of the Company and who was designated as such by the remaining CUC
Directors prior to his or her election.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Pursuant to the By-Laws, until the third anniversary of the Effective
Time, the Board of Directors will delegate to the Executive Committee the full
and exclusive power and authority to nominate directors for election to the
Board of Directors at the next stockholders' meetings at which directors are to
be elected, elect directors to fill vacancies on the Board of Directors between
stockholders' meetings and fill vacancies on any committee of the Board of
Directors to the extent an alternate member has not been previously designated.
Such nominations and elections of directors and members of committees shall be
undertaken by the Executive Committee such that (i) the number of HFS Directors
and CUC Directors on the Board of Directors or any committee of the Board of
Directors shall be equal and (ii) the remaining HFS Directors (if the number of
HFS Directors is less than the number of CUC
Directors) or the remaining CUC Directors (if the number of CUC Directors is
less than the number of HFS Directors) shall designate the person to be
nominated or elected. Any resolution regarding such election or nomination as
described above in a manner that (a) is consistent with the two preceding
sentences will require the approval by only three members of the Executive
Committee (or only two members if there are then two vacancies on the Executive
Committee) or (b) is inconsistent with the two preceding sentences will require
approval by at least seven members of the Executive Committee. Until the third
anniversary of the Effective Time, the affirmative vote of at least 80% of the
entire Board of Directors shall be required in order for the Board of Directors
to amend, modify or repeal, or adopt any provision inconsistent with, the
provisions of the By-Laws described herein.
OFFICERS
Pursuant to the By-Laws, Walter A. Forbes shall be the Chairman of the
Board from and after the Effective Time and until January 1, 2000, at which
time Henry R. Silverman will be the Chairman of the Board. If, for any reason
Mr. Forbes ceases to serve as Chairman of the Board prior to January 1, 2000
and at such time Mr. Silverman is President and Chief Executive Officer, Mr.
Silverman shall become Chairman of the Board. Mr. Silverman will be President
and Chief Executive Officer from and after the Effective Time and until January
1, 2000, at which time Mr. Forbes will be President and Chief Executive
Officer. If, for any reason Mr. Silverman ceases to serve as President and
Chief Executive Officer prior to January 1, 2000 and at such time Mr. Forbes is
Chairman of the Board, Mr. Forbes shall become President and Chief Executive
Officer. Until January 1, 2002, the affirmative vote of 80% of the entire Board
of Directors shall be required in order for the Board to (i) amend, modify,
repeal or adopt any provision inconsistent with the provisions described
herein, (ii) remove Mr. Forbes or Mr. Silverman from the positions specifically
provided for in their employment agreements with the Company and HFS,
respectively, (iii) modify either of the respective roles, duties or authority
of Messrs. Forbes and Silverman.
SPECIAL MEETINGS OF STOCKHOLDERS
A special meeting of stockholders may be called only by the Chairman
of the Board of Directors, the President or the Board of Directors pursuant to
a resolution approved by a majority of the entire Board of Directors.
QUORUM AT STOCKHOLDER MEETINGS
The holders of one-third of the shares entitled to vote at any meeting
of the stockholders, present in person or by proxy, shall constitute a quorum
at all stockholder meetings.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Stockholder action by written consent in lieu of a meeting is
prohibited under the Certificate. As a result, stockholder action can be taken
only at an annual or special meeting of stockholders. This prevents the holders
of a majority of the outstanding voting stock of the Company from using the
written consent procedure to take stockholder action without giving all the
stockholders of the Company entitled to vote on a proposed action the
opportunity to participate in determining the proposed action.
ADVANCE NOTICE OF STOCKHOLDER--PROPOSED BUSINESS AT ANNUAL MEETINGS
The By-Laws provide that for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 60 days nor more than
90 days prior to the meeting; provided, however, that in the event that less
than 70 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the tenth day following the
date on which such notice of the date of the annual meeting was mailed or such
public disclosure was made. A stockholder's notice to the Secretary must set
forth as to each matter the stockholder proposes to bring before the annual
meeting; (i) a brief description of the business desired to be brought before
the annual meeting, (ii) the name and address, as they appear on the Company's
books, of the stockholder proposing such business, (iii) the class and number
of shares of the Company which are beneficially owned by the stockholder, and
(iv) any material interest of the stockholder in such business.
In addition, the By-Laws provide that for a stockholder to properly
nominate a director at a meeting of stockholders, the stockholder must have
given timely notice thereof in writing to the Secretary of the Company. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company (i) in the case of an annual
meeting, at least 90 days prior to the date of the last annual meeting of the
Company stockholders and (ii) with respect to a special meeting of
stockholders, the close of business on the 10th day following the date on which
notice of such meeting is first given to stockholders. Such stockholder's
notice to the Secretary must set forth: (i) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated, (ii) a representation that the stockholder is holder of record of
Common Stock and intends to appear in person or by proxy at the meeting to
nominate each such nominee, (iii) a description of all arrangements between
such stockholder and each nominee, (iv) such other information with respect to
each nominee as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Commission, and (v) the consent of each
nominee to serve as director of the Company if so elected.
AMENDMENT OF GOVERNING DOCUMENTS
In addition to the provisions of the Certificate which require a
super-majority of stockholders to approve certain amendments to the Certificate
and the By-Laws, the By-Laws require the affirmative vote of 80% of the entire
Board of Directors in order for the Board of Directors to adopt certain
amendments to the By-Laws as described under "--Board of Directors,"
"--Committees of the Board of Directors," "Newly Created Directorships and
Vacancies" and "--Officers."
FAIR PRICE PROVISIONS
Under the Delaware General Corporation Law and the Certificate, an
agreement of merger, sale, lease or exchange of all or substantially all of the
Company's assets must be approved by the Board of Directors and adopted by the
holders of a majority of the outstanding shares of stock entitled to vote
thereon. However, the Certificate includes what generally is referred to as a
"fair price provision," which requires the affirmative vote of the holders of
at least 80% of the outstanding shares of capital stock entitled to vote
generally in the election of the Company's directors, voting together as a
single class, to approve certain business combination transactions (including
certain mergers, recapitalization and the issuance or transfer of securities of
the Company or a subsidiary having an aggregate fair market value of $10
million or more) involving the Company or a subsidiary and an owner or any
affiliate of an owner of 5% or more of the outstanding shares of capital stock
entitled to vote, unless either (i) such business combination is approved by a
majority of disinterested directors, or (ii) the shareholders receive a "fair
price" for their securities and certain other procedural requirements are met.
The Certificate provides that this provision may not be repealed or amended in
any respect except by the affirmative vote of the holders of not less than 80%
of the outstanding shares of capital stock entitled to vote generally in the
election of directors.
PLAN OF DISTRIBUTION
The distribution and sale of the Shares is subject to the provisions
of the Registration Rights Agreement described above under the heading "Selling
Stockholder -- Registration Rights Agreement." Subject to the Selling
Stockholder's compliance with the provisions of the Registration Rights
Agreement, as the case may be, the distribution of the Shares by the Selling
Stockholder may be effected from time to time, in one or more transactions on
the New York Stock Exchange or otherwise, in secondary distributions pursuant
to, and in accordance with, the rules of the New York Stock Exchange, in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Selling
Stockholder may effect such transactions by selling Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
underwriting discounts, concessions, or commissions from the Selling
Stockholder and/or purchasers of shares for whom they may act as agent (which
compensation may be in excess of customary commissions). The Selling
Stockholder and broker-dealers that participate with the Selling Stockholder in
the distribution of shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933, and any commissions
received by them and any profit on the resale of shares may be deemed to be
underwriting compensation. The Company will bear the costs relating to the
registration of the Shares.
LEGAL OPINION
The validity of the Shares of Common Stock offered hereby will be
passed on for the Company by Eric J. Bock, Esq., Vice President-Legal of the
Company. Mr. Bock holds shares of Common Stock and options to acquire shares of
Common Stock.
EXPERTS
The supplemental consolidated financial statements of the Company
and its consolidated subsidiaries, except PHH Corporation ("PHH"), as of
December 31, 1996 and January 31, 1995 and for the years ended December 31,
1996, January 31, 1996 and 1995 and CUC International Inc. ("CUC") as of
January 31, 1997 and 1996 and for each of the three years in the period ended
January 31, 1997 incorporated in this Prospectus by reference from the
Company Form 8-K dated January 29, 1998, have been audited by Deloitte &
Touche LLP, as stated in their reports which are incorporated herein by
reference. The financial statements of PHH (consolidated with those of the
Company) have been audited by KPMG Peat Marwick LLP, as stated in their
report incorporated herein by reference. Their report contains an explanatory
paragraph that states that PHH adopted the provisions of Statement of
Financial Standards No. 122 "Accounting for Mortgage Service Rights" in the
year ended January 31, 1996. The consolidated financial statements of CUC
(consolidated with those of the Company) have been audited by Ernst & Young
LLP, as stated in their report incorporated herein by reference, which, as
to the years ended January 31, 1996 and 1995, is based in part on the
reports of Deloitte & Touche LLP, independent auditors of Sierra On-Line,
Inc., KPMG Peat Marwick LLP, independent auditors of Davidson & Associates,
Inc., and Price Waterhouse LLP, independent accountants of Ideon Group, Inc.
Such supplement consolidated financial statements of the Company and its
consolidated subsidiaries are incorporated by reference herein in reliance
upon the respective reports of such firms given upon their authority as
experts in accounting and auditing. All of the foregoing firms are
independent auditors.
The consolidated financial statements and schedule of CUC appearing in
CUC's Annual Report on Form 10-K for the fiscal year ended January 31, 1997
incorporated by reference in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference which, as to the years ended
January 31, 1996 and 1995, is based in part on the reports of Deloitte & Touche
LLP, independent auditors of Sierra On-Line, Inc., KPMG Peat Marwick LLP,
independent auditors of Davidson & Associates, Inc., and Price Waterhouse LLP,
independent accountants of Ideon Group, Inc. The financial statements and
schedule referred to above are included in reliance upon such reports given
upon the authority of such firms as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information of CUC for the three-month periods ended April 30, 1997 and 1996,
incorporated by reference in this Prospectus, Ernst & Young LLP have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report,
included in CUC's Form 10-Q for the period ended April 30, 1997, incorporated
herein by reference, states that they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted considering
the limited nature of the review procedures applied. The independent auditors
are not subject to the liability provisions of Section 11 of the Securities Act
for their report on the unaudited interim financial information because the
report is not a "report" or a "part" of the Registration Statement prepared or
certified by the auditors within the meaning of Sections 7 and 11 of the
Securities Act.
The consolidated financial statements of HFS and its consolidated
subsidiaries, except PHH Corporation ("PHH"), as of December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996,
incorporated in this Prospectus by reference from the Current Report on
Form 8-K filed by HFS on July 16, 1997 have been audited by Deloitte &
Touche LLP, as stated in their reports which are incorporated herein by
reference. The financial statements of PHH (consolidated with those of HFS) as
of December 31, 1996 and January 31, 1996 and for the year ended December 31,
1996 and each of the years in the two-year period ended January 31, 1996 have
been audited by KPMG Peat Marwick LLP, as stated in their report incorporated
herein by reference. Their report contains an explanatory paragraph that states
that PHH adopted the provisions of Statement of Financial Standards No. 122
"Accounting for Mortgage Service Rights" in the year ended January 31, 1996.
Such financial statements of HFS and its consolidated subsidiaries are
incorporated by reference herein in reliance upon the respective reports of
such firms given upon their authority as experts in accounting and auditing.
All of the foregoing firms are independent auditors.
The consolidated financial statements incorporated in this prospectus
by reference from the Avis Rent A Car, Inc. Registration Statement on Form
S-1, as amended, dated September 23, 1997 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission
Registration Fee............................... $24,318
*Accounting Fees and Expenses.................. 36,000
*Legal Fees and Expenses....................... 5,000
*Miscellaneous................................. 10,000
------
Total Expenses...... $75,318
------------------
* Estimated for purposes of completing the information required
pursuant to Item 14.
The Company will pay all fees and expenses associated with filing the
Registration Statement. The Selling Stockholder is to pay all of her costs and
expenses (including fees and expenses of counsel, financial advisors or any
other advisors or agents retained by such holder and excluding all reasonable
fees and expenses associated with filing the Registration Statement) associated
with the sale of the Shares.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. A Delaware corporation may indemnify directors, officers, employees
and other agents of such corporation in an action by or in the right of a
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the person to be indemnified has been
adjudged to be liable to the corporation. Where a director, officer, employee
or agent of the corporation is successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to above or in defense of
any claim, issue or matter therein, the corporation must indemnify such person
against the expenses (including attorneys' fees) which he or she actually and
reasonably incurred in connection therewith.
The Registrant's By-Laws contain provisions that provide for
indemnification of officers and directors and their heirs and distributees to
the full extent permitted by, and in the manner permissible under, the General
Corporation Law of the State of Delaware.
As permitted by Section 102(b)(7) of the General Corporation Law of
the state of Delaware, the Registrant's Amended and Restated Certificate of
Incorporation contains a provision eliminating the personal liability of a
director to the registrant or its stockholders for monetary damages for breach
of fiduciary duty as a director, subject to certain exceptions.
The Company maintains, at its expense, a policy of insurance which insures its
directors and officers, subject to certain exclusions and deductions as are
usual in such insurance policies, against certain liabilities which may be
incurred in those capacities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
Exhibit No. Description
- ----------- -----------
2.1 Stock Purchase Agreement, dated as of October 6, 1996, by and
among HFS Incorporated, Resort Condominiums International, Inc.
and Ms. Christel DeHaan (incorporated by reference to the
Registration Statement on Form S-3 of HFS Incorporated,
Registration No. 333-17371, Exhibit 2.1).
2.2 Registration Rights Agreement, dated as of November 12, 1996, by
and between HFS Incorporated and Ms. Christel DeHaan
(incorporated by reference to the Registration Statement on Form
S-3 of HFS Incorporated, Registration No. 333-17371, Exhibit
2.2).
2.3 Agreement and Plan of Merger dated as of November 10, 1996, by
and among HFS Incorporated, PHH Corporation and Mercury
Acquisition Corp. (incorporated by reference to the Form 8-K of
HFS Incorporated dated November 14, 1996).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Appendix B to the Joint
Proxy Statement/Prospectus included as part of the Registration
Statement on Form S-4 of the Registrant, Registration No.
333-34517).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Appendix C of the Registrant's Proxy
Statement/Prospectus included as part of the Registration
Statement on Form S-4 of the Registrant, Registration No.
333-34517).
4.1 Form of Certificate for the Company's Common Stock, par value
$.01 per share.
5.1 Opinion of Eric J. Bock, Esq. regarding the legality of the
Securities being registered hereby.
15.1 Letter of Ernst & Young LLP re: unaudited interim financial
information of CUC International Inc.
23.1 Consent of Deloitte & Touche LLP related to the financial
statements of Cendant Corporation.
23.2 Consent of Ernst & Young LLP relating to the financial statements
of CUC International Inc.
23.3 Consent of Deloitte & Touche LLP relating to the financial
statements of HFS Incorporated.
23.4 Consent of KPMG Peat Marwick LLP relating to the financial
statements of PHH Corporation.
23.5 Consent of Deloitte & Touche LLP relating to the financial
statements of Sierra On-Line, Inc.
23.6 Consent of Deloitte & Touche LLP related to the financial
statements of Avis Rent A Car, Inc.
23.7 Consent of KPMG Peat Marwick LLP relating to the financial
statements of Davidson & Associates, Inc.
23.8 Consent of Price Waterhouse LLP relating to the financial
statements of Ideon Group, Inc.
23.9 Consent of Eric J. Bock (included in Exhibit 5.1).
24.1 Power of attorney (included in the signature page to the
Registration Statement).
99.1 Consolidated Financial Statements of Avis Rent A Car, Inc.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement,
to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT, TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF PARSIPPANY, STATE OF NEW JERSEY, ON
JANUARY 29, 1998.
CENDANT CORPORATION
By: /s/ James E. Buckman
---------------------------------
James E. Buckman
Senior Executive Vice President,
General Counsel and Director
POWER OF ATTORNEY
KNOW ALL THOSE BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS EACH OF STEPHEN P. HOLMES, JAMES E.
BUCKMAN AND ERIC J. BOCK OR ANY OF THEM, EACH ACTING ALONE, HIS TRUE AND LAWFUL
ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION,
FOR SUCH PERSON AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, IN
CONNECTION WITH THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, INCLUDING, WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, TO SIGN THE REGISTRATION STATEMENT IN THE NAME AND ON BEHALF
OF THE REGISTRANT OR ON BEHALF OF THE UNDERSIGNED AS A DIRECTOR OR OFFICER OF
THE REGISTRANT, AND ANY AND ALL AMENDMENTS OR SUPPLEMENTS TO THE REGISTRATION
STATEMENT, INCLUDING ANY AND ALL STICKERS AND POST-EFFECTIVE AMENDMENTS TO THE
REGISTRATION STATEMENT, AND TO SIGN ANY AND ALL ADDITIONAL REGISTRATION
STATEMENTS RELATING TO THE SAME OFFERING OF SECURITIES AS THE REGISTRATION
STATEMENT THAT ARE FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION
AND ANY APPLICABLE SECURITIES EXCHANGE OR SECURITIES SELF-REGULATORY BODY,
GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, EACH ACTING ALONE, FULL POWER
AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL
THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR THEIR SUBSTITUTES OR SUBSTITUTE, MAY
LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
- --------- ----- ----
/s/ Walter A. Forbes Chairman of the Board January 29, 1998
- ----------------------------
(Walter A. Forbes)
/s/ Henry R. Silverman President, Chief Executive January 29, 1998
- ---------------------------- Officer and Director
(Henry R. Silverman)
/s/ Michael P. Monaco Vice Chairman, Chief Financial January 29, 1998
- ---------------------------- Officer and Director
(Michael P. Monaco)
/s/ Scott E. Forbes Senior Vice President-Finance January 29, 1998
- ---------------------------- (Chief Accounting Officer)
(Scott E. Forbes)
/s/ Stephen P. Holmes Vice Chairman and Director January 29, 1998
- ----------------------------
(Stephen P. Holmes)
/s/ Robert D. Kunisch Vice Chairman and Director January 29, 1998
- ----------------------------
(Robert D. Kunisch)
/s/ Christopher K. McLeod Vice Chairman and Director January 29, 1998
- ----------------------------
(Christopher K. McLeod)
/s/ E. Kirk Shelton Vice Chairman and Director January 29, 1998
- ----------------------------
(E. Kirk Shelton)
/s/ Robert T. Tucker Vice Chairman, Director January 29, 1998
- ---------------------------- and Secretary
(Robert T. Tucker)
/s/ James E. Buckman Senior Executive Vice President, January 29, 1998
- ---------------------------- General Counsel and Director
(James E. Buckman)
/s/ John D. Snodgrass Director January 29, 1998
- ----------------------------
(John D. Snodgrass)
/s/ Bartlett Burnap Director January 29, 1998
- ----------------------------
(Bartlett Burnap)
/s/ Leonard S. Coleman Director January 29, 1998
- ----------------------------
(Leonard S. Coleman)
/s/ T. Barnes Donnelley Director January 29, 1998
- ----------------------------
(T. Barnes Donnelley)
/s/ Martin L. Edelman Director January 29, 1998
- ----------------------------
(Martin L. Edelman)
/s/ Frederick D. Green Director January 29, 1998
- ----------------------------
(Frederick D. Green)
/s/ Stephen A. Greyser Director January 29, 1998
- ----------------------------
(Stephen A. Greyser)
/s/ Dr. Carole G. Hankin Director January 29, 1998
- ----------------------------
(Dr. Carole G. Hankin)
/s/ The Rt. Hon. Brian Director January 29, 1998
Mulroney, P.C., LL.D.
- ----------------------------
(The Rt. Hon. Brian
Mulroney, P.C., LL.D.)
/s/ Robert E. Nederlander Director January 29, 1998
- ----------------------------
(Robert E. Nederlander)
/s/ Burton C. Perfit Director January 29, 1998
- ----------------------------
(Burton C. Perfit)
/s/ Anthony G. Petrello Director January 29, 1998
- ----------------------------
(Anthony G. Petrello)
/s/ Robert W. Pittman Director January 29, 1998
- ----------------------------
(Robert W. Pittman)
/s/ E. John Rosenwald, Jr. Director January 29, 1998
- ----------------------------
(E. John Rosenwald, Jr.)
/s/ Robert P. Rittereiser Director January 29, 1998
- ----------------------------
(Robert P. Rittereiser)
/s/ Stanley M. Rumbough, Jr. Director January 29, 1998
- ----------------------------
(Stanley M. Rumbough, Jr.)
/s/ Leonard Schutzman Director January 29, 1998
- ----------------------------
(Leonard Schutzman)
/s/ Robert F. Smith Director January 29, 1998
- ----------------------------
(Robert F. Smith)
/s/ Craig R. Stapleton Director January 29, 1998
- ----------------------------
(Craig R. Stapleton)
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Stock Purchase Agreement, dated as of October 6, 1996, by and
among HFS Incorporated, Resort Condominiums International, Inc.
and Ms. Christel DeHaan (incorporated by reference to the
Registration Statement on Form S-3 of HFS Incorporated,
Registration No. 333-17371, Exhibit 2.1).
2.2 Registration Rights Agreement, dated as of November 12, 1996, by
and between HFS Incorporated and Ms. Christel DeHaan
(incorporated by reference to the Registration Statement on Form
S-3 of HFS Incorporated, Registration No. 333-17371, Exhibit
2.2).
2.3 Agreement and Plan of Merger dated as of November 10, 1996, by
and among HFS Incorporated, PHH Corporation and Mercury
Acquisition Corp. (incorporated by reference to the Form 8-K of
HFS Incorporated dated November 14, 1996).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Appendix B to the Joint
Proxy Statement/Prospectus included as part of the Registration
Statement on Form S-4 of the Registrant, Registration No.
333-34517).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Appendix C of the Registrant's Proxy
Statement/Prospectus included as part of the Registration
Statement on Form S-4 of the Registrant, Registration No.
333-34517).
4.1 Form of Certificate for the Company's Common Stock, par value
$.01 per share.
5.1 Opinion of Eric J. Bock, Esq. regarding the legality of the
Securities being registered hereby.
15.1 Letter of Ernst & Young LLP re: unaudited interim financial
information of CUC International Inc.
23.1 Consent of Deloitte & Touche LLP relating to the financial
statements of Cendant Corporation.
23.2 Consent of Ernst & Young LLP relating to the financial statements
of CUC International Inc.
23.3 Consent of Deloitte & Touche LLP relating to the financial
statements of HFS Incorporated.
23.4 Consent of KPMG Peat Marwick LLP relating to the financial
statements of PHH Corporation.
23.5 Consent of Deloitte & Touche LLP relating to the financial
statements of Sierra On-Line, Inc.
23.6 Consent of Deloitte & Touche LLP relating to the financial
statements of Avis Rent A Car, Inc.
23.7 Consent of KPMG Peat Marwick LLP relating to the financial
statements of Davidson & Associates, Inc.
23.8 Consent of Price Waterhouse LLP relating to the financial
statements of Ideon Group, Inc.
23.9 Consent of Eric J. Bock (included in Exhibit 5.1).
24.1 Power of attorney (included in the signature page to the
Registration Statement).
NUMBER
FBU 44306
CENDANT CORPORATION
CORPORATE SEAL
1974
DELAWARE
AMERICAN BANK NOTE COMPANY
COMMON STOCK
Par Value $.01
COMMON STOCK
Par Value $.01
INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NEW YORK
AND RIDGEFIELD PARK, NEW JERSEY
SHARES
CUSIP 151313 10 3
SEE REVERSE FOR CERTAIN DEFINITIONS
[LOGO] CENDANT CORPORATION
THIS CERTIFIES THAT
SPECIMEN
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Cendant Corporation transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Certificate of Incorporation and By-laws of the Corporation and all amendments
thereto. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED
ChaseMellon Shareholder Services, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
Secretary
Chairman of the Board
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT -- .... Custodian......
(Cust) (Minor)
TEN ENT -as tenants by the entireties under Uniform Gifts to Minors
JT TEN -as joint tenants with right
of survivorship and not as Act....................
tenants in common (State)
Additional abbreviations may also be used though not in the above list
For value received,..............hereby sell, assign and transfer unto.
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
..............................................................................
..............................................................................
Please print or typewrite name and address including postal zip code
of assignee
..............................................................................
..............................................................................
........................................................................Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint............................................
..............................................................................
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ........................
...............................................
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
......................................................................
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
......................................................................
SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKHOLDERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
EXHIBIT 5.1
CENDANT CORPORATION
6 Sylvan Way
Parsippany, New Jersey 07054
January 29, 1998
Cendant Corporation
6 Sylvan Way
Parsippany, New Jersey 07054
Re: Cendant Corporation Registration
Statement On Form S-3
Ladies and Gentlemen:
I am a Vice President, Legal of Cendant Corporation, a Delaware
corporation (the "Company"), and am rendering this opinion in connection with
the Company's filing of a Registration Statement on Form S-3 (the "Registration
Statement") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), on the date hereof with the Securities and Exchange Commission (the
"Commission"). The Company is filing this Registration Statement in order to
register up to 2,401,899 shares (the "Shares"), of the common stock, par value
$.01 per share, of the Company ("Common Stock"), to be offered and sold from
time to time by Ms. Christel DeHaan (the "Selling Stcokholder") who received
the Shares in exchange for all the outstanding capital stock of Resort
Condominiums International, Inc. ("RCI"), pursuant to the terms of a Stock
Purchase Agreement, dated as of October 6, 1996, by and among the Company, RCI
and the Selling Stockholder (the "Stock Purchase Agreement").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with rendering this opinion, I have examined and am
familiar with originals or copies, certified or otherwise identified to my
satisfaction, of the following
documents: (i) the Registration Statement; (ii) the Amended and Restated
Certificate of Incorporation of the Company, as amended to the date hereof;
(iii) the By-Laws of the Company, as currently in effect (the "By-Laws"); (iv)
the Stock Purchase Agreement; (v) resolutions of the Board of Directors of the
Company relating to the transactions contemplated by the Stock Purchase
Agreement; and (vi) such other certificates, instruments and documents as I
considered necessary or appropriate for the purposes of this opinion.
In my examination, I have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. In making my examination of
documents executed by parties other than the Company, I have assumed that such
parties had the power, corporate or other, to enter into and perform all
obligations thereunder and also have assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof on such
parties. As to any facts material to the opinion expressed herein which we have
not independently established or verified, I have relied upon statements and
representations of officers and other representatives of the Company and
others.
My opinion is subject to the assumption and qualification that each of
the representations and warranties made by RCI and the Selling Stockholder
that are contained in the Stock Purchase Agreement was true and correct as of
the date of the Stock Purchase Agreement and the date of the closing
thereunder.
I am admitted to the Bars of the State of New York and New Jersey, and
I do not express any opinion as to the law of any jurisdiction except for the
General Corporation Law of the State of Delaware. The Shares may be offered
from time to time on a delayed or continuous basis and this opinion is limited
to the laws specified above as in effect on the date hereof.
Based upon and subject to the foregoing, I am of the opinion that the
shares are fully authorized, validly issued, fully paid and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, however, I do not thereby admit
that I am within the category of persons whose consent is required under
Section 7 of the Securities Act and the rules and regulations of the Commission
thereunder.
Very truly yours,
/s/ Eric J. Bock
Eric J. Bock
2
CENDANT CORPORATION
EXHIBIT 15.1--LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
January 28, 1998
Shareholders and Board of Directors
Cendant Corporation (formerly "CUC International Inc.")
We are aware of the incorporation by reference in the Registration Statement
(Form S-3) and related Prospectus of Cendant Corporation (formerly "CUC
International Inc.") for the registration of 2,401,899 shares of its
common stock of our report dated June 13, 1997 relating to the unaudited
condensed consolidated interim financial statements of CUC International Inc.
that was included in its Quarterly Report on Form 10-Q for the quarter ended
April 30, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a
part of the registration statement prepared or certified by accountants
within the meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Cendant Corporation on Form S-3 of our report dated December 17, 1997,
appearing in the Current Report of Form 8-K of Cendant Corporation expected to
be filed on January 29, 1998, and to the reference to us under the heading
"Experts" in the Prospectus, which is a part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
January 28, 1998
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 10, 1997, with respect to the consolidated
financial statements and schedule of CUC International Inc. incorporated by
reference in the Registration Statement (Form S-3) and related Prospectus
of Cendant Corporation (formerly "CUC International Inc.") for the
registration of 2,401,899 shares of its common stock.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
January 28, 1998
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Cendant Corporation on Form S-3 of our report dated March 31, 1997 (May 27,
1997 as to Note 2a, and April 30, 1997 as to Note 2b), appearing in the Current
Report of Form 8-K of HFS Incorporated dated July 15, 1997, and to the
reference to us under the heading "Experts" in the Prospectus, which is a part
of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
January 28, 1998
The Board of Directors
PHH Corporation:
We consent to the incorporation by reference in the Registration Statement of
Cendant Corporation on Form S-3, of our report dated April 30, 1997, with
respect to the consolidated balance sheets of PHH Corporation and subsidiaries
(the "Company") at December 31, 1996 and January 31, 1996 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year ended December 31, 1996 and each of the years in the two year period ended
January 31, 1996, which report appears in the Form 8-K of Cendant Corporation
dated January 29, 1998, incorporated by reference in the Registration
Statement. We also consent to the reference to our firm under the heading
"Experts" in the Registration Statement.
Our report contains an explanatory paragraph that states that the Company
adopted the provisions of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights," in the year ended January 31, 1996.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Baltimore, Maryland
January 29, 1998
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Cendant Corporation on Form S-3 of our report dated June 24, 1996, appearing in
the Current Report of Form 8-K of Cendant Corporation expected to be filed on
January 29, 1998, and to the reference to us under the heading "Experts" in
the Prospectus, which is a part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
January 28, 1998
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Cendant Corporation on Form S-3 of our report dated May 12, 1997 (August 20,
1997 as to Note 15), appearing in the Registration Statement on Form S-1, as
amended, of Avis Rent A Car, Inc. dated September 23, 1997, and to the
reference to us under the heading "Experts" in the Prospectus, which is a part
of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
New York, New York
January 28, 1998
Exhibit 23.7
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Cendant Corporation
We consent to the use of our report incorporated herein by reference with
respect to the consolidated balance sheet of Davidson & Associates, Inc. and
subsidiaries as of December 31, 1995 and the related consolidated statements
of earnings, shareholders' equity, and cash flows and related schedule for
each of the years in the two-year period ended December 31, 1995, and to
the reference to our firm under the heading "Experts" in the prospectus.
Our report appears in the annual report on Form 10-k of CUC International
Inc. for the year ended January 31, 1997.
/s/ KPMG Peat Marwick LLP
Long Beach, California
January 27, 1998
Exhibit 23.8
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 of Cendant
Corporation (formerly known as CUC International Inc.) of our report dated
February 2, 1996, relating to the consolidated financial statements of
Ideon Group, Inc., which appears in the Annual Report on Form 10-K of
CUC International Inc. for the year ended January 31, 1997. We also
consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PRICE WATERHOUSE LLP
Tampa, Florida
January 28, 1998
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder of
Avis Rent A Car, Inc.
Garden City, New York
We have audited the accompanying consolidated statements of financial
position of Avis Rent A Car, Inc. and subsidiaries (successor to Avis Rent A
Car Systems Holdings, Inc. and subsidiaries, Avis International, Ltd. and
subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance
Company and Global Excess & Reinsurance, Ltd., all previously wholly-owned by
Avis, Inc., collectively the "Predecessor Companies"), (collectively referred
to as "Avis Rent A Car, Inc." or the "Company") as of December 31, 1996 and
as to the Predecessor Companies as of December 31, 1995, and the related
consolidated statements of operations, stockholder's equity and cash flows
for the period October 17, 1996 (Date of Acquisition) to December 31, 1996
and as to the Predecessor Companies the related consolidated statements of
operations, stockholder's equity and cash flows for each of the two years in
the period ended December 31, 1995 and the period January 1, 1996 to October
16, 1996. 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 consolidated financial position of the Company at
December 31, 1996, and the results of its operations and its cash flows for
the period October 17, 1996 to December 31, 1996 (period after the change in
control referred to in Note 1 to the consolidated financial statements), and
with respect to the Predecessor Companies as of December 31, 1995, and for
each of the two years in the period ended December 31, 1995 and the period
January 1, 1996 to October 16, 1996 (period up to the change in control
referred to in Note 1 to the consolidated financial statements) in conformity
with generally accepted accounting principles.
As more fully discussed in Note 1 to the consolidated financial statements,
the Predecessor Companies were acquired in a business combination accounted
for as a purchase. As a result of the acquisition, the consolidated financial
statements for the period subsequent to the acquisition are presented on a
different basis of accounting than those for the periods prior to the
acquisition and, therefore, are not directly comparable.
Deloitte & Touche LLP
New York, New York
May 12, 1997
(August 20, 1997 as to Note 15)
1
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS)
PREDECESSOR
COMPANIES
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- --------------
ASSETS
Cash and cash equivalents........................................ $ 39,081 $ 50,886
Accounts receivable, net......................................... 194,971 311,179
Due from affiliates, net......................................... 61,807
Prepaid expenses................................................. 35,053 40,155
Vehicles, net.................................................... 2,167,167 2,243,492
Property and equipment, net...................................... 140,992 98,887
Other assets..................................................... 20,882 14,526
Deferred income tax assets....................................... 81,974 113,660
Cost in excess of net assets acquired, net....................... 144,778 196,765
-------------- --------------
Total assets................................................. $2,824,898 $3,131,357
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable................................................. $ 228,146 $ 175,535
Accrued liabilities.............................................. 183,595 329,245
Due to affiliates, net........................................... 385,687
Current income tax liabilities................................... 6,696 4,790
Deferred income tax liabilities.................................. 27,990 35,988
Public liability, property damage and other insurance
liabilities..................................................... 194,677 213,785
Debt............................................................. 1,109,747 2,295,474
-------------- --------------
Total liabilities............................................ 2,136,538 3,054,817
-------------- --------------
Commitments and contingencies
Stockholder's equity:
Common stock ($.01 par value, 1,000 shares authorized;
100 shares outstanding at December 31, 1996)................... 2,977 --
Additional paid-in capital...................................... 344,531 75,000
Retained earnings............................................... 340,596 1,184
Foreign currency translation adjustment......................... 256 356
-------------- --------------
Total stockholder's equity................................... 688,360 76,540
-------------- --------------
Total liabilities and stockholder's equity................... $2,824,898 $3,131,357
============== ==============
See accompanying notes to the consolidated financial statements.
2
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
PREDECESSOR COMPANIES OCTOBER 17, 1996
-------------------------------------------- (DATE OF
YEAR ENDED DECEMBER 31, JANUARY 1, 1996 ACQUISITION)
-------------------------- TO TO
1994 1995 OCTOBER 16, 1996 DECEMBER 31, 1996
------------ ------------ ---------------- -------------------
Revenue........................ $1,412,400 $1,615,951 $1,504,673 $362,844
------------ ------------ ---------------- -------------------
Cost and expenses:
Direct operating.............. 664,993 724,759 650,750 167,682
Vehicle depreciation, net .... 266,637 324,186 275,867 66,790
Vehicle lease charges......... 42,778 86,916 100,318 22,658
Selling, general and
administrative............... 252,024 269,434 283,180 68,215
Interest, net................. 128,898 145,199 120,977 34,212
Amortization of cost in
excess of net assets
acquired .................... 4,754 4,757 3,782 1,026
------------ ------------ ---------------- -------------------
1,360,084 1,555,251 1,434,874 360,583
------------ ------------ ---------------- -------------------
Income before provision for
income taxes.................. 52,316 60,700 69,799 2,261
Provision for income taxes .... 30,213 34,635 31,198 1,040
------------ ------------ ---------------- -------------------
Net income..................... $ 22,103 $ 26,065 $ 38,601 $ 1,221
============ ============ ================ ===================
See accompanying notes to the consolidated financial statements.
3
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION
STOCK CAPITAL EARNINGS ADJUSTMENT TOTAL
-------- ------------ ---------- ------------- ----------
Balance, January 1, 1994..................... $2,827 $318,125 $309,902 $(2,598) $628,256
Net income for the year ended December
31, 1994.................................... 22,103 22,103
Tax benefit of ESOP income tax deductions ... 13,104 13,104
Foreign currency translation adjustment ..... 3,466 3,466
Cash dividends............................... (8,578) (8,578)
Stock dividends.............................. 150 (150)
-------- ------------ ---------- ------------- ----------
Balance, December 31, 1994................... 2,977 331,229 323,277 868 658,351
Net income for the year ended December
31, 1995.................................... 26,065 26,065
Tax benefit of ESOP income tax deductions ... 13,302 13,302
Foreign currency translation adjustment ..... (612) (612)
Cash dividends............................... (8,746) (8,746)
-------- ------------ ---------- ------------- ----------
Balance, December 31, 1995................... 2,977 344,531 340,596 256 688,360
Net income for the period ended October
16, 1996.................................... 38,601 38,601
Tax benefit of ESOP income tax deductions ... 12,939 12,939
Foreign currency translation adjustment ..... 2,805 2,805
Cash dividends............................... (1,398) (1,398)
-------- ------------ ---------- ------------- ----------
Balance, October 16, 1996.................... $2,977 $357,470 $377,799 $ 3,061 $741,307
======== ============ ========== ============= ==========
Avis Rent A Car, Inc. ($.01 par value, 1,000
shares authorized; 100 shares outstanding
at October 17, 1996 (Date of Acquisition)) . $-- $ 75,000 $ 75,000
Net income for the period from
October 17, 1996 to December 31, 1996 ...... $ 1,221 1,221
Foreign currency translation adjustment for
the period October 17, 1996 to December 31,
1996........................................ $ 356 356
Additional minimum pension liability
for the period October 17, 1996 to December
31, 1996.................................... (37) (37)
-------- ------------ ---------- ------------- ----------
Balance, December 31, 1996................... $-- $ 75,000 $ 1,184 $ 356 $ 76,540
======== ============ ========== ============= ==========
See accompanying notes to the consolidated financial statements.
4
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR COMPANIES OCTOBER 17, 1996
---------------------------------------------- (DATE OF
YEARS ENDED DECEMBER 31, JANUARY 1, 1996 ACQUISITION)
---------------------------- TO TO
1994 1995 OCTOBER 16, 1996 DECEMBER 31, 1996
------------- ------------- ---------------- -------------------
Cash flows from operating activities:
Net income....................................... $ 22,103 $ 26,065 $ 38,601 $ 1,221
Adjustments to reconcile net income to net cash
provided by operating activities:
Vehicle depreciation............................ 291,360 342,048 306,159 71,343
Depreciation and amortization of property and
equipment...................................... 12,782 13,387 12,333 2,212
Amortization of cost in excess of net assets
acquired....................................... 4,754 4,757 3,782 1,026
Amortization of debt issuance costs ............ 3,454 2,660 2,423
Deferred income tax provision................... 19,384 25,852 22,342 33
Undistributed earnings of associated companies . (65) (376) (232)
Provision for (benefit from) losses on accounts
receivable..................................... 305 (48) 1,238 227
Provision for public liability, property damage
and other insurance liabilities................ 73,900 81,800 74,109 17,355
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable .... 53 (22,644) (204,137) 10,327
Decrease (increase) in prepaid expenses ....... 4,640 (863) (2,125) (2,664)
(Increase) decrease in other assets............ (595) 1,988 3,266 (3,459)
(Decrease) increase in accounts payable ....... (44,087) (5,733) 82,354 (18,712)
Increase (decrease) in accrued liabilities .... 26,399 42,176 101,069 (24,718)
Decrease in public liability, property damage
and other insurance liabilities............... (72,363) (71,159) (56,364) (16,015)
------------- ------------- ---------------- -------------------
Net cash provided by operating activities .... 342,024 439,910 384,818 38,176
------------- ------------- ---------------- -------------------
Cash flows from investing activities:
Payments for vehicle additions.................. (3,218,613) (2,553,324) (2,325,460) (561,117)
Vehicle deletions............................... 2,680,535 2,028,474 1,795,562 565,896
Payments for additions to property and
equipment...................................... (24,487) (36,939) (25,953) (3,484)
Sales of property and equipment................. 2,898 3,715 1,849 361
Investment in associated companies.............. (100)
Investment in Canadian Licensees................ (3,134)
------------- ------------- ---------------- -------------------
Net cash (used in) provided by investing
activities.................................... (559,767) (558,074) (557,136) 1,656
------------- ------------- ---------------- -------------------
Cash flows from financing activities:
Changes in debt:
Proceeds....................................... 423,502 320,940 519,167 63,903
Repayments..................................... (161,523) (287,271) (267,317) (133,457)
------------- ------------- ---------------- -------------------
Net increase (decrease) in debt................ 261,979 33,669 251,850 (69,554)
Deferred debt issuance costs.................... (4,637) (5,515) (2,604)
(Payments on) proceeds from intercompany loans . (29,090) 104,209 (27,696) (6,661)
Cash dividends.................................. (8,578) (8,746) (1,398)
------------- ------------- ---------------- -------------------
Net cash provided by (used in) financing
activities.................................... 219,674 123,617 220,152 (76,215)
------------- ------------- ---------------- -------------------
Effect of exchange rate changes on cash ......... 119 (197) 260 94
------------- ------------- ---------------- -------------------
Net increase (decrease) in cash and cash
equivalents..................................... 2,050 5,256 48,094 (36,289)
Cash and cash equivalents at beginning of
period.......................................... 31,775 33,825 39,081 87,175
------------- ------------- ---------------- -------------------
Cash and cash equivalents at end of period ...... $ 33,825 $ 39,081 $ 87,175 $ 50,886
============= ============= ================ ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest....................................... $ 131,877 $ 149,885 $ 135,733 $ 28,170
============= ============= ================ ===================
Income taxes................................... $ 7,576 $ 8,688 $ 6,220 $ 827
============= ============= ================ ===================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTION -- Recapitalization at
Date of Acquisition ........................... $ -- $ -- $ -- $ 666,307
============= ============= ================ ===================
See accompanying notes to the consolidated financial statements.
5
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include Avis Rent A
Car, Inc. (name changed from and formerly known as Rental Car System
Holdings, Inc. which was incorporated on October 17, 1996) and subsidiaries
(including the carved out corporate operations of HFS Car Rental, Inc. (name
changed from and formerly known as, and hereinafter referred to as, Avis,
Inc.), which is the holding company of Rental Car System Holdings, Inc., and
Prime Vehicles Trust (the "Vehicle Trust")), Avis International, Ltd. and
subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance
Company and Global Excess & Reinsurance, Ltd. (collectively referred to as
"Avis Rent A Car, Inc."). All of the foregoing companies are ultimately
wholly-owned subsidiaries of Avis, Inc., which was acquired by HFS
Incorporated ("HFS") on October 17, 1996 (the "Date of Acquisition") for
approximately $806.5 million. The purchase price was comprised of
approximately $367.2 million in cash, $100.9 million of indebtedness and
$338.4 million of HFS common stock. Prior to October 16, 1996, the
above-named entities were wholly-owned by Avis, Inc. and are referred to
collectively as the "Predecessor Companies". Avis Rent A Car, Inc. and the
Predecessor Companies are referred to throughout the notes as the "Company".
The major shareholder of Avis, Inc. was an Employee Stock Ownership Plan
("ESOP") and the minority shareholder was General Motors Corporation
("General Motors"). The Company purchases a significant portion of its
vehicles, obtains financing, and receives certain financial incentives and
allowances from General Motors (see Notes 2, 4, 7 and 14). As a result of the
acquisition, the consolidated financial statements for the period subsequent
to the acquisition are presented on a different basis of accounting than
those for the periods prior to the acquisition and, therefore, are not
directly comparable. On January 1, 1997, Avis, Inc. contributed the net
assets of its corporate operations and all of its common stock ownership in
Avis International, Ltd., Avis Enterprises, Inc., Pathfinder Insurance
Company and Global Excess & Reinsurance, Ltd. to the Company. After the
transfer, the remaining operations of Avis, Inc. consist of an investment in
a wholly-owned subsidiary which owns the Avis trade names and trademarks.
Pursuant to a plan developed by HFS prior to the Date of Acquisition, HFS
will cause the Company to undertake an initial public offering ("IPO") within
one year of the Date of Acquisition, which will reduce HFS' equity interest
in the Company to 25%. HFS 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. HFS will charge a fee for such services (see
Note 3). In addition, HFS will retain the Avis trade name and charge the
Company a royalty fee for the use of the Avis name.
The acquisition was accounted for under the purchase method and includes
the operations of the Company subsequent to the Date of Acquisition. A
portion of this purchase price has been allocated to the estimated fair value
of the Company. This estimate is calculated assuming that the Company is an
independent franchisee of Avis, Inc. and is required to pay certain fees for
use of the Avis trade name, reservation services and other franchise related
services. HFS and its advisors have estimated that the value of the Company
at the Date of Acquisition was $75 million. The value of the Company is
expected to increase to approximately $300 million upon completion of the IPO
(with the IPO proceeds retained by the Company) with HFS's equity interest to
be reduced to 25% equal to $75 million. If the results of the IPO do not
confirm the preliminary value as of the Date of Acquisition, then the
allocated purchase price will be adjusted with a corresponding adjustment to
cost in excess of net assets acquired. The estimated fair value of the
Company has been allocated to individual assets and liabilities based on
their estimated fair value at the Date of Acquisition. The final asset and
liability fair values may differ from those set forth in the accompanying
consolidated statement of financial position on December 31, 1996; however,
the changes are not expected to have a material effect on the consolidated
financial position of the Company.
6
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The preliminary purchase cost allocation at the Date of Acquisition has
been allocated to the Company as follows (in thousands):
Allocated purchase cost ........................... $ 75,000
-----------
Fair Value of:
Liabilities assumed .............................. 3,145,395
Assets acquired .................................. 3,022,712
-----------
Net Liabilities ................................... 122,683
-----------
Excess of purchase price over net assets acquired $ 197,683
===========
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 determining
public liability, property damage and other insurance liabilities, and the
realization of deferred income tax assets. Management has exercised
reasonableness at deriving these estimates. However, actual results may
differ.
REVENUE RECOGNITION
Revenue is recognized over the period the vehicle is rented.
CASH AND CASH EQUIVALENTS
The Company considers deposits and short-term investments with an original
maturity of three months or less to be cash equivalents.
VEHICLES
Vehicles are stated at cost net of accumulated depreciation. 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 period of the vehicles.
PROPERTY AND EQUIPMENT
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. Estimated useful lives range
from five to ten years for furniture and office 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 statement of operations.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is amortized over a 40 year period
and is shown net of accumulated amortization of $37.5 million and $1.0
million at December 31, 1995 and 1996, respectively.
7
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IMPAIRMENT ACCOUNTING
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of". 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 future 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 statement of operations. It is at least reasonably possible that
future events or circumstances could cause these estimates to change. The
adoption of this statement had no material effect on the consolidated
financial statements of the Company.
PUBLIC LIABILITY, PROPERTY DAMAGE AND OTHER INSURANCE LIABILITIES
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 and 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 operations as they occur.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of foreign companies are translated at the
year-end exchange rates. The resultant translation adjustment is included as
a component of consolidated stockholder's equity. Results of operations are
translated at the average rates of exchange in effect during the year.
INCOME TAXES
The Company is included in the consolidated federal income tax return of
HFS. Pursuant to the regulations under the Internal Revenue Code, the
Company's pro rata share of the consolidated federal income tax liability of
HFS is allocated to the Company on a separate return basis. The Predecessor
Companies were included in the consolidated federal income tax return of
Avis, Inc. The Company files separate income tax returns in states where a
consolidated return is not permitted. 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 bases 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 $60.4
million, $48.4 million, $66.1 million and $10.3 million for the periods ended
December 31, 1994, December 31, 1995, October 16, 1996 and December 31, 1996,
respectively.
8
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation
obligations are not discounted to their present value. Recoveries from
insurance companies and other reimbursements are generally not significant.
In October 1996, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 96-1
Environmental Remediation Liabilities ("SOP 96-1"). SOP 96-1 provides
guidance on the timing and measurement of liabilities associated with
environmental remediation. The statement is effective for fiscal years
beginning after December 15, 1996. The adoption of this statement is not
expected to have a material effect on the results of operations or financial
position of the Company.
NOTE 2 -- ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1995 and 1996 consist of the following
(in thousands):
1995 1996
---------- ---------
Vehicle rentals....................... $ 90,290 $ 94,480
Due from vehicle manufacturers ...... 11,308 14,758
Due from General Motors .............. 69,504 168,546
Damage claims ........................ 5,969 10,697
Due from licensees ................... 3,297 3,903
Other ................................ 17,349 19,022
---------- ---------
197,717 311,406
Less allowance for doubtful accounts (2,746) (227)
---------- ---------
$194,971 $311,179
========== =========
Amounts due from vehicle manufacturers include receivables for vehicles
sold under guaranteed repurchase contracts and amounts due for incentives and
allowances. Incentives and allowances are based on the volume of vehicles to
be purchased for a model year, or from the manufacturers' willingness to
encourage the Company to retain vehicles rather than return the vehicles back
to the manufacturer or arise from the purchase of particular models not
subject to repurchase under "buyback" arrangements. Incentives and allowances
are amortized to income over the holding period of the vehicles (see Notes 4
and 14).
NOTE 3 -- DUE (TO) FROM AFFILIATES, NET
Due (to) from affiliates, net at December 31, 1995 and 1996 consist of the
following balances due to or from HFS or its consolidated subsidiaries which
will be settled on or before the previously mentioned IPO (in thousands):
9
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1995 1996
------------- -----------
Note receivable from Wizard Co., Inc. (a) .. $ 196,965
Subordinated vehicle financing notes (b) .... $ (180,000) (247,500)
Due to Avis, Inc. for tax advantaged vehicle
financing (c) .............................. (1,000,000)
Non-interest bearing advances (d) ........... 794,313 112,342
------------- -----------
$ (385,687) $ 61,807
============= ===========
NOTES:
(a) Consists of a $194.1 million note receivable from Wizard Co., Inc., an
indirect wholly-owned subsidiary of HFS, plus accrued interest. The
note bears interest at 7.13% and is due on October 1, 2006 and is
guaranteed by HFS.
(b) Represents loans from Avis, Inc. to the Vehicle Trust, as described in
Note 7, to provide additional subordinated financing. The amounts
provided reduce, within certain limits, the amount of subordinated
financing required from other lenders. The loans are made under terms
of a credit agreement which terminates on October 29, 2003. At December
31, 1995 and 1996, the weighted average interest rate under these loans
was 11.16% and 10.75%, respectively.
(c) Represents a $1 billion ESOP related tax advantaged vehicle trust
financing consisting of loans under various agreements with banks,
insurance companies and vehicle manufacturer finance companies. The tax
advantaged notes were issued in September 1987 with a final maturity of
25 years and annual principal reductions commencing in 1998. At
December 31, 1995, the weighted average interest rate under these loans
was 6.0%. Included within the $1 billion ESOP related vehicle trust
financing is $118 million that is ultimately due to General Motors.
This loan was retired as of the Date of Acquisition.
(d) Primarily represents the transfer of assets from the Company to HFS and
subsidiaries, recorded in connection with the October 17, 1996
acquisition of Avis, Inc. by HFS, as well as intercompany transactions
relating to management, service and administrative fees since the Date
of Acquisition. The amounts due to or from HFS and subsidiaries are
interest free and are guaranteed by HFS.
Expense and (income) items of the Company include the following charges
from (to) Avis, Inc. and subsidiaries prior to the Date of Acquisition for
the period ended December 31, 1994, December 31, 1995 and October 16, 1996
(in thousands).
FOR THE YEARS ENDED
DECEMBER 31, JANUARY 1, 1996
--------------------- TO
1994 1995 OCTOBER 16, 1996
--------- ---------- ----------------
Vehicle related costs ........ $(3,954) $(25,134)
Data processing .............. $28,671 29,833 30,209
Employee benefits allocation (2,975) (3,385) (2,776)
Rent ......................... (1,730) (2,188) (2,459)
These charges seek to reimburse the affiliated company for the actual
costs incurred. These amounts reflect the effect of various intercompany
agreements, which are subject to renegotiation from time to time, and certain
allocations which are based upon such factors as square footage, employee
salaries, computer usage time, etc.
10
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Expense items of the Company include the following charges from HFS and
affiliates of HFS for the period October 17, 1996 (Date of Acquisition) to
December 31, 1996 (in thousands):
Reservations ................................ $10,900
Data processing ............................. 8,772
Management, service and administrative fees 8,568
Interest on intercompany debt, net .......... 2,561
Rent ........................................ 950
----------
$31,751
==========
Reservations and data processing services are charged to the Company based
on actual cost. Effective January 1, 1997, HFS will charge the Company a
royalty fee of 4.0% of revenue for the use of the Avis trade name. On an
unaudited pro forma basis, had the royalty fee been charged to the Company
beginning on October 17, 1996, net income for the period October 17, 1996 to
December 31, 1996 would have been reduced by $4.3 million resulting in a pro
forma net loss of $3.1 million.
NOTE 4 -- VEHICLES
Vehicles at December 31, 1995 and 1996 consist of the following (in
thousands):
1995 1996
------------ ------------
Vehicles ................................................ $2,283,003 $2,250,309
Vehicles acquired under long-term capital lease (Note 7) 95,084 19,324
Buses and support vehicles .............................. 42,075 45,868
Vehicles held for sale .................................. 42,332 36,378
------------ ------------
2,462,494 2,351,879
Less accumulated depreciation ........................... (295,327) (108,387)
------------ ------------
$2,167,167 $2,243,492
============ ============
Depreciation expense recorded for vehicles was $266.6 million, $324.2
million, $275.9 million and $66.8 million, for the periods ended December 31,
1994, December 31, 1995, October 16, 1996 and December 31, 1996,
respectively. Depreciation expense reflects a net gain on the disposal of
vehicles of $24.8 million, $17.8 million, $30.3 million and $4.5 million for
the periods ended December 31, 1994, December 31, 1995, October 16, 1996 and
December 31, 1996, respectively. It also reflects the amortization of certain
incentives and allowances from various vehicle manufacturers (the most
significant of which was received from General Motors) of approximately $74
million, $77 million, $61 million and $14 million for the periods ended
December 31, 1994, December 31, 1995, October 16, 1996 and December 31, 1996,
respectively.
During the periods ended December 31, 1994, December 31, 1995, October 16,
1996 and December 31, 1996, the Company purchased from General Motors $2.7
billion, $2.0 billion, $1.8 billion and $0.4 billion of vehicles, net of
incentives and allowances, respectively (see Notes 1 and 14).
In November 1988 and April 1990, the Company entered into seven year
operating leases under which an original amount of $324.3 million of vehicles
were leased, with the ability to exchange such leased vehicles for newly
manufactured vehicles with the same value to the lessor. The leases are
cancelable at the Company's option, however, additional costs may be incurred
upon termination based upon the fair value of the vehicles at the time the
option is exercised. At the termination of the leases, the Company may
purchase the vehicles at the agreed upon fair market value or return them to
the lessor.
11
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In December 1994, the Company entered into a financing arrangement
whereby it may lease up to $503 million of vehicles. This arrangement was
amended on October 17, 1996 to increase the amount to $650 million. Under
this arrangement, at December 31, 1995 and 1996, there were $219 million and
$322 million of vehicles under operating leases. The vehicles leased under
this arrangement may be leased for periods of up to 18 months. The lease cost
charged to the Company varies with the number of vehicles leased and the
repurchase agreement offered by the vehicle manufacturer to the lessor and
includes all expenses including the interest costs of the financing company.
The rental payments due in each of the years ending December 31 for the
operating leases as described above are as follows (in thousands):
1997 ... $69,444
1998 ... 15,388
Rental expense for those vehicles under operating leases as described
above was $59.2 million, $106.1 million, $93.0 million and $16.1 million for
the periods ended December 31, 1994, December 31, 1995, October 16, 1996 and
December 31, 1996, respectively.
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996 consist of the
following (in thousands):
1995 1996
---------- ---------
Land .......................................... $ 19,702 $ 19,523
Buildings ..................................... 13,321 11,862
Leasehold improvements ........................ 139,938 48,898
Furniture, fixtures and equipment ............. 30,779 10,997
Construction-in-progress ...................... 15,813 9,946
---------- ---------
219,553 101,226
Less accumulated depreciation and
amortization.................................. (78,561) (2,339)
---------- ---------
$140,992 $ 98,887
========== =========
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities at December 31, 1995 and 1996 consist of the following
(in thousands):
1995 1996
---------- ---------
Payroll and related costs ..... $ 54,706 $ 73,142
Taxes, other than income taxes 10,740 29,522
Rents and property related .... 10,594 30,889
Interest ....................... 12,081 18,531
Sales and marketing ............ 20,567 20,395
Vehicle related ................ 24,492 18,784
Other various .................. 50,415 137,982
---------- ---------
$183,595 $329,245
========== =========
12
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- FINANCING AND DEBT
Debt outstanding at December 31, 1996 is not guaranteed by HFS and debt
outstanding at December 31, 1995 and 1996 is comprised of the following (in
thousands):
1995 1996
------------ ------------
VEHICLE TRUST FINANCING
Commercial paper........................................... $ 3,000
Short-term vehicle trust financing--revolving credit
facilities ............................................... $1,970,000
Current portion of long-term debt ......................... 56,000
------------ ------------
Total current portion of vehicle trust financing ......... 59,000 1,970,000
------------ ------------
Long-term vehicle trust revolving credit facilities ...... 476,000
Vehicle manufacturer's floating rate notes due September
1998 ($50,719 senior at 8.50% and $16,281 subordinated at
10.00%) .................................................. 67,000
Vehicle manufacturer's floating rate notes due October
2001 ($63,731 senior at 7.16% and $54,269 subordinated at
8.91%) ................................................... 118,000
Floating rate notes due September 1998 .................... 115,000
Insurance company notes due from December 1997 to December
1999 at 7.53% to 8.23% ................................... 112,000
Insurance company notes due from June 1998 to June 2003 at
6.75% to 7.92% ........................................... 150,500
------------ ------------
Total long-term portion of vehicle trust financing ..... 853,500 185,000
------------ ------------
OTHER FINANCING
Short-term notes--foreign at 6.63% to 18.00% in 1995 and
3.89% to 13.00% in 1996 .................................. 37,264 65,516
Short-term floating rate capital lease terminating in 1996 12,801
Current portion of 7.50% capital lease terminating
November 1997 ............................................ 19,153 40,169
Current portion of long-term debt--other .................. 13,605 1,060
------------ ------------
Total current portion of other financing ................ 82,823 106,745
------------ ------------
7.50% capital lease terminating November 1997 ............. 40,169
Other domestic............................................. 3,974 2,916
Debt of foreign subsidiaries:
Floating rate notes due April 1997 at 8.26% to 8.44% .... 51,891
Floating rate notes due July 1997 at 9.42% to 9.63% ..... 10,378
Floating rate notes due February 1998 at 7.65% in 1995
and 4.75% in 1996 ....................................... 8,012 2,935
Floating rate notes due August 1998 at 6.94% to 8.65% ... 27,878
------------ ------------
Total long-term portion of other financing .............. 114,424 33,729
------------ ------------
$1,109,747 $2,295,474
============ ============
13
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Currently, the primary source of funding for domestic vehicles is
provided by the Vehicle Trust (a grantor trust). The Vehicle Trust consists
of loans from banks, vehicle manufacturer finance companies and Avis, Inc.
The Predecessor Companies' financing structure of the Vehicle Trust consisted
of loans from banks, insurance companies, vehicle manufacturer finance
companies and Avis, Inc. Amounts drawn against this facility may be used to
purchase vehicles and pay certain expenses of the Vehicle Trust. The security
for the Vehicle Trust financing facility consists of a lien on the vehicles
acquired under the facility, which at December 31, 1995 and 1996, totaled
approximately $1.9 billion and $2.1 billion, respectively, exclusive of
related valuation reserves. The security for the Vehicle Trust financing
facility also consists of security interests in certain other assets of the
Vehicle Trust. In addition, the Vehicle Trust and its security agreement
require that there be outstanding, at all times, subordinated debt in a
specified percentage range (10% -25%) of the net book value of the vehicles
owned by the Vehicle Trust. Pursuant to the agreement, the subordinated debt
is to be provided by vehicle manufacturer finance companies and Avis, Inc. At
December 31, 1995 and 1996, subordinated debt of $292.1 million and $318.0
million, respectively, was required under the Vehicle Trust financing of
which $180.0 million and $247.5 million, respectively, was due to Avis, Inc.
(Note 3).
At December 31, 1995, the weighted average interest rate on commercial
paper was 6.4%. For the periods ended December 31, 1994, December 31, 1995
and October 16, 1996, the average outstanding borrowings of commercial paper
were $19.9 million, $33.5 million and $30.4 million, respectively, with a
weighted average interest rate of 5.3%, 6.5% and 6.0%, respectively.
The short-term notes are issued pursuant to a $2.5 billion revolving
credit facility dated as of October 17, 1996 which matures on October 16,
1997. At December 31, 1996, the weighted average interest rate on borrowings
under this facility was 6.00%. For the period from October 17, 1996 to
December 31, 1996, the average outstanding borrowings under this facility
were $2.0 billion with a weighted average interest rate of 5.98%. This
facility requires a fee of 1/8 of 1% on the committed amount.
The long-term vehicle trust revolving credit facility consisted of $850
million revolving credit facility expiring on September 30, 1997. The
interest rate on these loans is based on the London interbank rate ("LIBOR")
plus a spread negotiated at the time of borrowing. At December 31, 1995, the
weighted average interest rate on outstanding borrowings under this facility
was 6.3%. For the periods ended December 31, 1994, December 31, 1995 and
October 16, 1996, the average outstanding borrowings under this facility were
$366.5 million, $288.0 million and $516.9 million, respectively, with a
weighted average interest rate of 5.2%, 6.5% and 5.7%, respectively. This
facility was retired on the Date of Acquisition.
The Company also had Vehicle Trust financing outstanding from vehicle
manufacturer finance companies under terms of loan agreements dated October
17, 1996. Under these agreements, the maximum amount of borrowings allowed is
$267 million, of which up to $260 million may be used as subordinated debt.
On December 31, 1996, $185 million was outstanding of which $70.5 million of
the outstanding debt was deemed subordinated. At December 31, 1996, the
weighted average interest rate of borrowings under this facility was 8.5%.
For the period October 17, 1996 to December 31, 1996, the average outstanding
borrowings under this facility was $185 million with a weighted average
interest rate of 8.41%. The Predecessor Companies, through its parent, Avis,
Inc., had substantially similar financing arrangements under a portion of a
$1 billion ESOP related tax advantaged vehicle trust financing facility (Note
3). At December 31, 1995, the outstanding borrowings under this arrangement
was $185 million, of which $112.1 million was subordinated. The average
borrowings under this facility for the periods ended December 31, 1994,
December 31, 1995 and October 16, 1996 were $317.0 million, $268.2 million
and $185.0 million, respectively. The weighted average interest rate on these
average borrowings were 6.2%, 7.7% and 7.3%.
The floating rate notes were issued pursuant to a loan agreement, dated
September 1, 1995, for a period of three years. The interest rate on these
notes is based on the LIBOR, plus a spread of 0.45%. The
14
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
interest rate on these notes at December 31, 1995 was 6.2%. For the periods
ended December 31, 1995 and October 16, 1996, the average outstanding
borrowings under this facility were $35.1 million and $115.0 million,
respectively, with a weighted average interest rate of 6.2% and 6.0%,
respectively. The notes were retired on the Date of Acquisition.
In December 1992 and May 1993, the Company borrowed a total of $318.5
million from a group of insurance companies. The maturities on these notes
ranged from 3 to 10 years, with an average life, when issued, of 6.1 years.
The effective interest rate on these notes was 7.3% at December 31, 1995. The
average amounts outstanding for the periods ended December 31, 1994, December
31, 1995 and October 16, 1996 were $318.5 million, $318.5 million and $287.1
million, respectively, with a weighted average interest rate of 7.3%, 7.3%
and 7.4%, respectively. These notes were retired as of the Date of
Acquisition.
In November 1992, the Predecessor Companies entered into a five year
capital lease under which $96.7 million of vehicles were leased. The lease is
cancelable at the Company's option, however, additional costs may be incurred
upon termination based upon the fair value of the vehicles at the time the
option is exercised. At the termination of the lease, the Company may
purchase the vehicles at an agreed upon fair market value or return them to
the lessor. The future minimum lease payments due under the Company's capital
lease obligation, which terminates on November 30, 1997, are $41.5 million
(including interest of $1.3 million).
Included in total debt at December 31, 1995 and 1996 is indebtedness to
General Motors of $10.1 million and $118.3 million, respectively (see Note
14).
Under the terms of the Company's loan agreements, the Company must
maintain a minimum net worth, minimum earnings and cash flow ratios.
Mandatory maturities of long-term obligations for each of the next five
years ending December 31, and thereafter, are as follows (in thousands):
1997 ......... $ 41,229
1998 ......... 98,950
1999 ......... 1,086
2000 ......... 209
2001 ......... 118,228
Thereafter .. 256
OTHER CREDIT FACILITIES
At December 31, 1995 and 1996, the Company has letters of credit/working
capital agreements totaling $102.6 million and $102.6 million, respectively,
which may be renewed biannually at the Company's option and the banks'
discretion. The collateral for certain of these agreements consists of a lien
on property and equipment and certain receivables with a carrying value of
$140.9 million and $136.9 million, respectively. At December 31, 1995 and
1996, the Company has outstanding letters of credit amounting to $47.6
million and $55.1 million, respectively.
In addition, for certain of its international operations, the Company has
available at December 31, 1995 and 1996, unused lines of credit of $176.9
million and $224.3 million, respectively. The unused lines of credit
agreements require an annual fee of 0.2% to 0.5% of the unused line.
INTEREST RATE SWAP AGREEMENTS
The Company has entered into interest rate swap agreements 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
$29.1 million and $44.0 million of its outstanding debt from a weighted
average
15
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
variable interest rate to a fixed rate of 7.7% and 7.1% at December 31, 1995
and 1996, respectively. The variable interest element with respect to these
interest rate swap agreements is reset quarterly. The interest rate swap
agreements will terminate in March 1997, July 1998 and November 1998. 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 charged to interest expense for the periods
ended December 31, 1994, December 31, 1995, October 16, 1996 and December 31,
1996 was $179,000, $146,000, $582,000 and $285,000, respectively. The Company
is exposed to credit risk in the event of nonperformance by counterparties to
its interest rate swap agreements. Credit risk is limited by entering into
such agreements with primary dealers only; therefore, the Company does not
anticipate that nonperformance by counterparties will occur. Notwithstanding
this, the Company's treasury department 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.
NOTE 8 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and the estimated fair value of the Company's interest
rate swap agreements represent liabilities of approximately $123,600 and
$843,100 at December 31, 1995, and $578,000 and $1.4 million at December 31,
1996, respectively.
For instruments including cash and cash equivalents, 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. The fair value of fixed-rate debt approximates
carrying value.
The Company believes that it is not practicable to estimate the current
fair value of the amounts due from (to) affiliates because of the related
party nature of the instruments.
NOTE 9 -- INCOME TAXES
The provision for income taxes for the periods ended December 31, 1994,
December 31, 1995, October 16, 1996 and December 31, 1996 consists of the
following (in thousands):
OCTOBER 17, 1996
YEARS ENDED DECEMBER (DATE OF
31, JANUARY 1, 1996 ACQUISITION)
-------------------- TO TO
1994 1995 OCTOBER 16, 1996 DECEMBER 31, 1996
--------- --------- ---------------- -------------------
Current:
State..................... $ 735 $ 1,422 $ 2,176 $ 719
Foreign .................. 10,094 7,361 6,680 288
--------- --------- ---------------- -------------------
10,829 8,783 8,856 1,007
--------- --------- ---------------- -------------------
Deferred:
Federal .................. 16,020 19,057 19,614 (85)
Foreign .................. 3,364 6,795 2,728 118
--------- --------- ---------------- -------------------
19,384 25,852 22,342 33
--------- --------- ---------------- -------------------
Provision for income
taxes..................... $30,213 $34,635 $31,198 $1,040
========= ========= ================ ===================
16
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effective income tax rate for the periods ended December 31, 1994,
December 31, 1995, October 16, 1996 and December 31, 1996 varies from the
statutory U.S. federal income tax rate due to the following (dollars amounts
in thousands):
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995
------------------ ------------------
Statutory U.S. federal
income tax rate........... $18,311 35.0% $21,245 35.0%
Tax effect of foreign
operations and dividends 9,447 18.1 8,984 14.8
Amortization of cost in
excess of net assets
acquired and other
intangibles .............. 1,633 3.1 1,633 2.7
State income taxes, net of
federal tax benefit ...... 478 .9 924 1.5
Other non-deductible
business expenses ........ 550 .9
Other ..................... 344 .7 1,299 2.2
--------- ------- --------- -------
Effective income tax rate . $30,213 57.8% $34,635 57.1%
========= ======= ========= =======
(RESTUBBED TABLE CONTINUED FROM ABOVE)
OCTOBER 17, 1996
(DATE OF
JANUARY 1, 1996 ACQUISITION)
TO TO
OCTOBER 16, 1996 DECEMBER 31, 1996
----------------- -----------------
Statutory U.S. federal
income tax rate........... $24,429 35.0% $ 791 35.0%
Tax effect of foreign
operations and dividends 5,134 7.4 (1,073) (47.5)
Amortization of cost in
excess of net assets
acquired and other
intangibles .............. 1,045 1.5 359 15.9
State income taxes, net of
federal tax benefit ...... 1,413 2.0 469 20.8
Other non-deductible
business expenses ........ 462 .6 494 21.8
Other ..................... (1,285) (1.8)
--------- ------- --------- --------
Effective income tax rate . $31,198 44.7% $ 1,040 46.0%
========= ======= ========= ========
In accordance with SFAS 109, the net deferred income tax assets at
December 31, 1995 and 1996 include the following (in thousands):
1995 1996
----------- -----------
GROSS DEFERRED INCOME TAX ASSETS:
Accrued liabilities ........................................ $ 108,914 $ 171,050
Net operating loss carryforwards ........................... 68,474 78,172
Alternative minimum income tax credit carryforwards ....... 3,025 3,025
----------- -----------
180,413 252,247
----------- -----------
GROSS DEFERRED INCOME TAX LIABILITIES:
Tax depreciation in excess of book depreciation ........... (116,304) (152,346)
Tax amortization in excess of book amortization of cost in
excess of net assets acquired and difference in book and
tax basis of intangibles .................................. (13,547)
Prepaids and other ......................................... (10,125) (8,682)
----------- -----------
(126,429) (174,575)
----------- -----------
Net deferred income tax assets.............................. $ 53,984 $ 77,672
=========== ===========
The Company, under its tax disaffiliation agreement with HFS, has
allocated alternative minimum tax net operating loss carryforwards of $139.8
million. The net operating loss carryforward is $223.3 million. The net
operating loss carryforwards expire as follows: 2001, $4.3 million; 2002,
$2.5 million; 2005, $32.6 million; 2008, $23.7 million; 2009, $15.1 million.
The Company also has available unused investment tax credits of approximately
$5.8 million which expire on February 28, 2002.
17
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- RETIREMENT BENEFITS
The Company, through its subsidiary, Avis Rent A Car System, Inc.
("ARACS"), sponsors non-contributory defined benefit plans covering employees
who are members of certain collective bargaining units and non-union
full-time 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 a Voluntary Investment Savings Plan
under a "qualified cash or deferred arrangement" under Section 401(k) of the
Internal Revenue Code. For the periods ended December 31, 1994, December 31,
1995, October 16, 1996, and December 31, 1996, the cost of the plan was $1.6
million, $1.7 million, $1.4 million and $352,000, respectively. Included in
the Investment Savings Plan, ARACS sponsors a defined contribution plan for
substantially all non-union full-time employees not otherwise covered. Costs
for this plan are determined at 2% of each covered employee's compensation.
Employer contributions and costs of the plan for the periods ended December
31, 1994, December 31, 1995, October 16, 1996 and December 31, 1996 amounted
to $1.7 million, $1.8 million, $1.5 million and $394,000, respectively.
The defined benefit plans provide 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 3/7% 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.
The Company also sponsors several foreign pension plans. The most
significant of these is the Canadian pension plan.
The status of the defined benefit plans at December 31, 1995 and 1996 is
as follows (in thousands):
1995
----------------------------
U.S. PLANS
----------------------------
SALARIED AND
HOURLY
EMPLOYEES
AS OF JUNE BARGAINING CANADIAN
30, 1985 PLAN PLAN
-------------- ------------ ----------
Actuarial present value of accumulated benefit obligations:
Vested................................................ $(37,040) $(5,327) $(2,349)
Nonvested ............................................ (4,186) (201)
-------------- ------------ ----------
Total ............................................... $(41,226) $(5,528) $(2,349)
============== ============ ==========
Actuarial present value of projected benefit
obligation............................................ $ 57,780 $ 5,528 $ 2,566
Plan assets at fair value ............................. 51,633 4,426 7,072
-------------- ------------ ----------
Projected benefit obligation (in excess of) less than
plan assets .......................................... (6,147) (1,102) 4,506
Unrecognized net actuarial loss (gain) ................ 4,713 455 (557)
Prior service cost (gain) not yet recognized in net
periodic pension cost ................................ (2,798) 996
Remaining unrecognized obligation ..................... (1,451)
Unrecognized net transition asset ..................... (2,944)
-------------- ------------ ----------
Pension (liability) asset included in the statement of
financial position.................................... $ (4,232) $(1,102) $ 1,005
============== ============ ==========
18
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1996
----------------------------
U.S. PLANS
----------------------------
SALARIED AND
HOURLY
EMPLOYEES
AS OF JUNE BARGAINING CANADIAN
30, 1985 PLAN PLAN
-------------- ------------ ----------
Actuarial present value of accumulated benefit
obligations:
Vested ............................................... $(43,406) $(7,147) $(3,389)
Nonvested ............................................ (4,671) (284)
-------------- ------------ ----------
Total ............................................... $(48,077) $(7,431) $(3,389)
============== ============ ==========
Actuarial present value of projected benefit
obligation ........................................... $ 66,083 $ 7,431 $ 3,703
Plan assets at fair value ............................. 60,697 6,623 8,323
-------------- ------------ ----------
Projected benefit obligation (in excess of) less than
plan assets .......................................... (5,386) (808) 4,620
Unrecognized net actuarial loss (gain) ................ 1,440 37 (336)
Prior service cost not yet recognized in net periodic
pension cost ......................................... 878
Remaining unrecognized obligation ..................... (915)
Unrecognized net transition asset ..................... (2,833)
-------------- ------------ ----------
Pension (liability) asset included in the statement of
financial position.................................... $ (3,946) $ (808) $ 1,451
============== ============ ==========
Net pension costs of the defined benefit plans for the periods ended
December 31, 1994, December 31, 1995, October 16, 1996 and December 31, 1996,
include the following components (in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
--------------------- ----------------------
U.S. CANADIAN U.S. CANADIAN
PLANS PLAN PLANS PLAN
--------- ---------- ---------- ----------
Service cost--benefits earned during the
period .................................. $ 2,820 $ 102 $ 2,566 $ 76
Interest cost on projected benefit
obligation .............................. 3,708 271 4,069 304
Return on assets--Actual loss (gain) on
plan assets ............................. 1,626 (586) (10,768) (578)
Net amortization of actuarial (gain) loss
and prior service cost .................. (5,702) 6,184
Contributions to union plans and other .. 2,057 2,211
Amortization of unrecognized net asset at
transition .............................. (134) (130)
--------- ---------- ---------- ----------
Net pension cost (benefit) ............... $ 4,509 $ (347) $ 4,262 $(328)
========= ========== ========== ==========
19
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 17, 1996
(DATE OF
JANUARY 1, 1996 ACQUISITION)
TO TO
OCTOBER 16, 1996 DECEMBER 31, 1996
--------------------- --------------------
U.S. CANADIAN U.S. CANADIAN
PLANS PLAN PLANS PLAN
--------- ---------- -------- ----------
Service cost--benefits earned during the
period .................................. $ 2,401 $ 59 $ 302 $ 28
Interest cost on projected benefit
obligation .............................. 3,679 206 357 54
Return on assets--Actual (gain) on plan
assets .................................. (3,194) (538) (551) (115)
Net amortization of actuarial (gain) loss
and prior service cost .................. (794) 390
Contributions to union plans and other .. 2,029 733
Amortization of unrecognized net asset at
transition .............................. (106) (28)
--------- ---------- -------- ----------
Net pension cost (benefit) ............... $ 4,121 $ (379) $1,231 $ (61)
========= ========== ======== ==========
At December 31, 1995 and 1996, the measurement of the projected benefit
obligation was based upon the following:
1995 1996
------------------ ------------------
U.S. CANADIAN U.S. CANADIAN
PLANS PLAN PLANS PLAN
------- ---------- ------- ----------
Discount rate ................... 7.50% 9.50% 7.75% 7.00%
Compensation increase ........... 5.00 5.50 5.00 4.00
Long-term return on plan assets 8.75 9.50 8.75 7.00
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 Company also sponsors a non-qualified defined benefit pension plan.
The liability for this unfunded plan was $4.6 million and $8.8 million at
December 31, 1995 and 1996, respectively, and is included in accrued
liabilities on the accompanying statement of financial position. The
projected benefit obligation of the plan was $6.0 million and $10.0 million
at December 31, 1995 and 1996, respectively.
NOTE 11 -- 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.
20
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Operating lease payments and airport concession fees charged to expense
for the periods ended December 31, 1994, December 31, 1995, October 16, 1996
and December 31, 1996 are as follows (in thousands):
OCTOBER 17, 1996
YEARS ENDED DECEMBER (DATE OF
31, JANUARY 1, 1996 ACQUISITION)
---------------------- TO TO
1994 1995 OCTOBER 16, 1996 DECEMBER 31, 1996
---------- ---------- ---------------- -------------------
Minimum fees........... $102,104 $108,965 $ 88,787 $23,576
Contingent fees ....... 45,633 56,624 61,290 13,220
---------- ---------- ---------------- -------------------
147,737 165,589 150,077 36,796
Less sublease rentals (4,082) (4,427) (3,843) (1,000)
---------- ---------- ---------------- -------------------
$143,655 $161,162 $146,234 $35,796
========== ========== ================ ===================
Future minimum rental commitments under noncancelable operating leases
amounted to approximately $338.0 million at December 31, 1996. The minimum
rental payments due in each of the next five years ending December 31, and
thereafter, are as follows (in thousands):
1997 ......... $86,264
1998 ......... 62,400
1999 ......... 43,179
2000 ......... 32,669
2001 ......... 20,805
Thereafter .. 92,709
In addition to the Company's lease commitments, the Company has
outstanding purchase commitments of approximately $1.5 billion at December
31, 1996, which relate principally to vehicle purchases.
21
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- SEGMENT INFORMATION
The Company operates in the United States and in foreign countries. The
operations within major geographic areas for the periods ended December 31,
1994, December 31, 1995, October 16, 1996 and December 31, 1996 are
summarized as follows (in thousands):
OCTOBER 17, 1996
(DATE OF
YEARS ENDED DECEMBER 31, JANUARY 1, 1996 ACQUISITION)
-------------------------- TO TO
1994 1995 OCTOBER 16, 1996 DECEMBER 31, 1996
------------ ------------ ---------------- ------------------
Revenue:
United States................. $1,241,465 $1,414,380 $1,313,619 $ 312,194
Australia/New Zealand ........ 92,929 113,744 105,401 31,107
Canada ....................... 59,571 67,809 69,814 13,467
Other foreign operations .... 18,435 20,018 15,839 6,076
------------ ------------ ---------------- -------------------
$1,412,400 $1,615,951 $1,504,673 $ 362,844
============ ============ ================ ===================
Income (loss) before provision
for income taxes:
United States................. $ 21,759 $ 32,122 $ 48,098 $ (2,346)
Australia/New Zealand ........ 14,736 17,198 15,884 4,706
Canada ....................... 7,434 6,838 8,433 (1,752)
Other foreign operations .... 8,387 4,542 (2,616) 1,653
------------ ------------ ---------------- -------------------
$ 52,316 $ 60,700 $ 69,799 $ 2,261
============ ============ ================ ===================
Total assets at end of period:
United States................. $2,344,723 $2,535,621 $2,859,202 $2,750,119
Australia/New Zealand ........ 109,649 133,629 115,082 120,216
Canada ....................... 96,660 97,426 147,617 122,657
Other foreign operations .... 52,081 58,222 65,796 138,365
------------ ------------ ---------------- -------------------
$2,603,113 $2,824,898 $3,187,697 $3,131,357
============ ============ ================ ===================
NOTE 13 -- LITIGATION
Certain litigation has been initiated against the Company which has arisen
during the normal course of operations. Since litigation is subject to many
uncertainties, the outcome of any individual matter is not predictable with
any degree of certainty, and it is reasonably possible that one or more of
these matters could be decided unfavorably against the Company. The Company
maintains insurance policies that cover most of the actions brought against
the Company. Two legal actions have been filed against ARACS alleging
discrimination in the rental of vehicles. HFS has agreed to indemnify the
Company from any unfavorable outcome with respect to these matters upon the
consummation of an IPO. The Company is currently not involved in any legal
proceeding which it believes would have a material adverse effect upon its
consolidated financial condition or results of operations.
NOTE 14 -- 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. A member of the
board of directors and an executive officer of HFS serve on the board of Avis
Europe Limited (formerly Cilva), the parent company of Avis Europe, plc.
22
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Vehicle manufacturers offer vehicle repurchase programs on an ongoing
basis to assist in the acquisition and disposition of vehicles. These
programs generally allow the Company, at its option, subject to certain
provisions, to sell the vehicles back to the manufacturers at pre-determined
prices. Amounts included under these programs are reflected in "Accounts
receivable" (see Note 2). Under the terms of certain financing agreements
with General Motors, the Company is required to purchase a significant
percentage of its fleet from local dealers of General Motors subject to
market conditions. In addition, the Company participates in an arrangement
whereby General Motors provides payments for purchasing and promoting a
specified number and mix of vehicles (see Note 4). At December 31, 1995 and
1996, the Company has a $450.0 million and a $250.0 million line of credit,
respectively, from General Motors which may be used for either ESOP or
vehicle trust financing (see Note 7). Of this facility, $300.0 million and
$200.0 million is available for subordinated debt at December 31, 1995 and
1996, respectively. As of December 31, 1995 and 1996, the Company utilized
$118.0 million of this facility, of which $93.4 million and $54.3 million was
subordinated, respectively. This facility requires a fee of 1/4 of 1% on the
unused portion.
NOTE 15 -- SUBSEQUENT EVENTS
On August 20, 1997, the Company purchased The First Gray Line Corporation
and its subsidiaries for approximately $210 million, including expenses. The
fair value of unaudited assets and liabilities, exclusive of cost in excess
of the fair value of net assets acquired, at June 30, 1997 are $332.3 million
and $296.3 million, respectively. The transaction is subject to customary
closing conditions and regulatory approval.
On July 31, 1997, the Company refinanced all of its domestic debt. This
debt was refinanced by utilizing a $3.65 billion asset-backed structure,
which consisted of (i) a $2.0 billion Commercial Paper Program and (ii) a
$1.65 billion Medium Term Note Issuance with maturities of 3 and 5 years.
ARACS is party to a $470.0 million secured credit agreement that provides
for (i) a revolving credit facility in the amount of up to $125.0 million
which is available on a revolving basis until December 31, 2000 (the "Final
Maturity Date") in order to finance the general corporate needs of ARACS in
the ordinary course of business (with up to $75.0 million of such amount
available for the issuance of standby letters of credit to support worker's
compensation and other insurance and bonding requirements of ARACS, the
Company and their subsidiaries in the ordinary course of business), (ii) a
term loan facility in the amount of $120.0 million to finance general
corporate needs in the ordinary course of business, which will be repayable
in four installments, the first three of which shall be in the amount of $1.0
million payable on June 30, 1998, June 30, 1999 and June 30, 2000 and the
remainder of which will be due on the Final Maturity Date, and (iii) a
standby letter of credit facility of up to $225.0 million available on a
revolving basis to fund (a) any shortfall in certain payments owing pursuant
to fleet lease 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. Under terms of
this facility, the Company will be required to meet the following covenants
(i) certain maximum leverage ratios, (ii) certain minimum interest coverage
ratios, and (iii) certain minimum fixed charge coverage. In addition, the
Credit Facility prohibits the payment of cash dividends until the fiscal year
ending December 31, 1998 and, thereafter, permits the payment of dividends
only if the Company meets a minimum leverage ratio, the amount of such
dividend does not exceed a designated percentage of the Company's cash flow
and no default exists. Interest rates under these new facilities ranged from
5.6% to 7.8% at July 31, 1997.
23