Business_Combinations

Business Combinations Avis Car Rental As the CEO of Avis Budget Group, INC. the need for a merger is great. In this day in age people are traveling more and more, but they are building again too. Operating at the status quo will not cut it anymore. The time for growth is now. Method After careful consideration and extensive research in the historical earnings evaluation it has become obvious that this deal will be good for Avis. It is well known that the $1 billion merger that brought Avis Europe car rental company together has allowed the business to compete nationally and internationally on a scale of unprecedented proportions. As the historical earnings show Hertz boost a sizable revenue on average of $7.9 billion. There was many different ways to research Hertz however, looking at the basic numbers it seems like a good idea to move forward with this deal. Avis has been looking into Hertz for many years. It has been a tough battle to gain their attention since other competitors like Enterprise has also been trying to again them. Buy acquiring Hertz a few things will take place. The first synergy taking place will be the acquisition of their rental car fleet. In 2011, the revenue from that alone was reported as $6.9 billion. Adding this to Avis's rental car fleet will do nothing but great things. The second synergy is the addition of Hertz's amazing equipment rentals that can bring another $1.2 billion in revenue. By offering Hertz the chance to merge with Avis as an equal it will bring about two more synergies. One being that both stocks should rise in the market increasing both companies overall worth and second being that employees with have a greater chance of advancement within the two companies. A fifth synergy is also on the table with the chance of higher pay for employees. This synergy is dependent on several things such as the growth of the companies and the market. Requirements The merger will be painless and pretty fast. Seeing that Hertz had a net income of $196 million in 2011, the offer of $213 million, with $15 million being goodwill, should be accepted. According to Bixby, 2009, these steps must be taken during this merger. 1. " Determine whether the transaction is a business combination, as defined in FAS 141(R), which requires that the assets acquired and liabilities assumed constitute a business. 2. If the transaction is a business combination, account for the combination by applying the acquisition method. (If the transaction is not a business combination, account for it as an asset acquisition.) 3. Identify which of the combining entities is the acquirer. 4. Identify the acquisition date, which is the date the acquirer obtains control of the acquiree. 5. Recognize as of the acquisition date the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree subject to the conditions specified in FAS 141(R). 6. Classify or designate as of the acquisition date the identifiable assets acquired and liabilities assumed as necessary to apply other generally accepted accounting principles subsequent to the acquisition date. 7. Measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their acquisition-date fair values, except as specified in FAS 141(R). 8. Recognize and measure goodwill or a gain from a bargain purchase by comparing (a) the consideration transferred, generally measured at its acquisition-date fair value, plus the fair value of any noncontrolling interest in the acquiree to (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, measured in accordance with FAS 141(R). If (a) exceeds (b), recognize goodwill as of the acquisition date. If (b) exceeds (a), reassess and review the accounting for the transaction and then recognize any resulting gain in earnings on the acquisition date." Because this is not a true business combination and Hertz will still operate as its own separate entity the combination of assets will apply, as well as the combination of liability. By operating this way it protects the company from running the risk of entering into a monopoly. Impairment After two years it has became evident that the goodwill has been impaired. The impairment was found after conducting a study of comparable transactions in the market. It seems that the market value is $2 million less than the book value it was purchased at on Jan.1, 2014. After careful auditing it appears that the Cars asset for Hertz was overstated by $1.2 million. Because of this the Goodwill account will be credited $800,000 and the Goodwill impairment account will be debited $800,000. This mistake will lower the total assets and bottom line affect the shareholders equity. Goodwill Impairment $800,000 Goodwill $800,000 Financial Statements Hertz Years Ended December 31 2011 2010 2009 Revenues: Car rental . . . . . . . . . . . . . . . . . . . . $6,929.6 $6,355.2 $5,872.9 Equipment rental . . . . . . . . . . . . . . . 1,208.8 1,069.8 1,110.2 Other . . . . . . . . . . . . . . . . . . . . . . . 160.0 137.5 118.4 Total revenues . . . . . . . . . . . . . . . 8,298.4 7,562.5 7,101.5 Expenses: Direct operating . . . . . . . . . . . . . . . . 4,566.4 4,283.4 4,086.8 Depreciation of revenue earning equipment and lease charges . . . . 1,905.7 1,868.1 1,933.8 Selling, general and administrative . . 745.3 664.5 642.0 Interest expense . . . . . . . . . . . . . . . . 699.7 773.4 680.3 Interest income . . . . . . . . . . . . . . . . (5.5) (12.3) (16.0) Other (income) expense, net . . . . . . . 62.5 — (48.5) Total expenses . . . . . . . . . . . . . . . 7,974.1 7,577.1 7,278.4 Income (loss) before income taxes . . . . 324.3 (14.6) (176.9) (Provision) benefit for taxes on income . (128.5) (16.7) 62.1 Net income (loss) . . . . . . . . . . . . . . . . 195.8 (31.3) (114.8) Noncontrolling interest . . . . . . . . . . . . . (19.6) (17.4) (14.7) Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries’ common stockholders . . $176.2 $(48.7) $(129.5) *all values in millions HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars) December 31, 2011 2010 ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 931,779 $ 2,374,170 Restricted cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 308,039 207,576 Receivables, less allowance for doubtful accounts of $20,282 and $19,708 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,616,382 1,356,553 Inventories, at lower of cost or market . . . . . . . . . . . . . . . . . . . . . . . . 83,978 87,429 Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 421,758 352,782 Revenue earning equipment, at cost: Cars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,678,765 8,435,077 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (1,360,012) (1,215,012) Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,830,176 2,756,101 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (1,043,520) (1,052,414) Total revenue earning equipment . . . . . . . . . . . . . . . . . . . . . . . 10,105,409 8,923,752 Property and equipment, at cost: Land, buildings and leasehold improvements . . . . . . . . . . . . . . . . . 1,146,112 1,071,987 Service equipment and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,915 900,271 2,197,027 1,972,258 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (945,173) (808,689) Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 1,251,854 1,163,569 Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,562,234 2,550,559 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392,094 328,560 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,673,527 $17,344,950 LIABILITIES AND EQUITY Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 897,489 $ 954,261 Accrued salaries and other compensation . . . . . . . . . . . . . . . . . . . . . 426,696 439,217 Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701,762 630,865 Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,803 108,940 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,317,090 11,306,429 Public liability and property damage . . . . . . . . . . . . . . . . . . . . . . . . . 281,534 278,685 Deferred taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,688,478 1,508,102 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,438,852 15,226,499 Commitments and contingencies Equity: Hertz Global Holdings Inc. and Subsidiaries stockholders’ equity Preferred Stock, $0.01 par value, 200,000,000 shares authorized, no shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . — — Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 417,022,853 and 413,462,889 shares issued and outstanding . . . . 4,170 4,135 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,205,964 3,183,225 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (947,064) (1,123,234) Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . (28,414) 37,823 Total Hertz Global Holdings, Inc. and Subsidiaries stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,234,656 2,101,949 Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 16,502 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,234,675 2,118,451 Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,673,527 $17,344,950 Avis Avis Budget Group, Inc. CONSOLIDATED BALANCE SHEETS (In millions, except share data) December 31, 2011 2010 Assets Current assets: Cash and cash equivalents $ 534 $ 911 Receivables (net of allowance for doubtful accounts of $21 and $16) 507 315 Deferred income taxes 120 130 Other current assets 380 282 Total current assets 1,541 1,638 Property and equipment, net 493 425 Deferred income taxes 444 587 Goodwill 353 76 Other intangibles, net 713 481 Other non-current assets 304 255 Total assets exclusive of assets under vehicle programs 3,848 3,462 Assets under vehicle programs: Program cash 11 4 Vehicles, net 8,356 6,422 Receivables from vehicle manufacturers and other 380 149 Investment in Avis Budget Rental Car Funding (AESOP) LLC—related party 343 290 9,090 6,865 Total assets $ 12,938 $ 10,327 Liabilities and stockholders’ equity Current liabilities: Accounts payable and other current liabilities $ 1,433 $ 925 Short-term debt and current portion of long-term debt 37 8 Total current liabilities 1,470 933 Long-term debt 3,168 2,494 Other non-current liabilities 960 535 Total liabilities exclusive of liabilities under vehicle programs 5,598 3,962 Liabilities under vehicle programs: Debt 990 528 Debt due to Avis Budget Rental Car Funding (AESOP) LLC—related party 4,574 3,987 Deferred income taxes 982 1,333 Other 382 107 6,928 5,955 Commitments and contingencies (Note 17) Stockholders’ equity: Preferred stock, $.01 par value—authorized 10 million shares; none issued and outstanding - - Common stock, $.01 par value—authorized 250 million shares; issued 137,028,464 and 136,982,068 shares 1 1 Additional paid-in capital 8,532 8,828 Accumulated deficit (2,666) (2,637) Accumulated other comprehensive income 78 92 Treasury stock, at cost—31,551,170 and 33,247,139 shares (5,533) (5,874) Total stockholders’ equity 412 410 Total liabilities and stockholders’ equity $ 12,938 $ 10,327 See Notes to Consolidated Financial Statements. F-5 Avis Budget Group, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Year Ended December 31, 2011 2010 2009 Operating activities Net income (loss) $ (29) $ 54 $ (47) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Vehicle depreciation 1,395 1,277 1,391 (Gain) loss on sale of vehicles, net (234) (24) (30) Non-vehicle related depreciation and amortization 95 90 96 Deferred income taxes 32 (20) (60) Impairment - - 33 Non-cash charge on unfavorable license rights reacquired with the acquisition of Avis Europe plc 117 - - Net change in assets and liabilities, excluding the impact of acquisitions and dispositions: Receivables 29 (20) 52 Income taxes (18) (104) 10 Accounts payable and other current liabilities 20 108 (19) Reimbursement from Realogy and Wyndham for taxes paid - 114 - Reimbursement from Wyndham for tax attributes - 89 - Other, net 171 76 65 Net cash provided by operating activities 1,578 1,640 1,491 Investing activities Property and equipment additions (65) (61) (39) Proceeds received on asset sales 14 14 14 Net assets acquired (net of cash acquired) (841) (2) - Other, net (7) (6) - Net cash used in investing activities exclusive of vehicle programs (899) (55) (25) Vehicle programs: Decrease (increase) in program cash (11) 162 (145) Investment in vehicles (8,659) (8,031) (6,775) Proceeds received on disposition of vehicles 7,196 6,319 7,144 Investment in debt securities of Avis Budget Rental Car Funding (AESOP LLC)—related party (400) (570) - Proceeds from debt securities of Avis Budget Rental Car Funding (AESOP LLC)—related party 400 570 - Other, net - 2 (33) (1,474) (1,548) 191 Net cash provided by (used in) investing activities (2,373) (1,603) 166 F-6 Avis Budget Group, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In millions) Year Ended December 31, 2011 2010 2009 Financing activities Proceeds from long-term borrowings 682 1,046 445 Principal payments on long-term borrowings (668) (688) (111) Net change in short-term borrowings (97) - - Proceeds from warrant issuance - - 62 Purchase of call options - - (95) Debt financing fees (78) (46) (11) Other, net 1 10 (2) Net cash provided by (used in) financing activities exclusive of vehicle programs (160) 322 288 Vehicle programs: Proceeds from borrowings 10,534 9,355 7,527 Principal payments on borrowings (9,917) (9,152) (9,147) Net change in short-term borrowings - (110) (107) Debt financing fees (33) (35) (26) 584 58 (1,753) Net cash provided by (used in) financing activities 424 380 (1,465) Effect of changes in exchange rates on cash and cash equivalents (6) 12 32 Net increase (decrease) in cash and cash equivalents (377) 429 224 Cash and cash equivalents, beginning of period 911 482 258 Cash and cash equivalents, end of period $ 534 $ 911 $ 482 Supplemental Disclosure Interest payments $ 465 $ 483 $ 461 Income tax payments, net $ 51 $ 142 $ 20 See Notes to Consolidated Financial Statements. References Avis Budget Group., 2012. http://www.shareholder.com/visitors/dynamicdoc/document.cfm'documentid=3052&co mpanyid=ABEA- 36XVJR&page=1&pin=320489931&language=EN&resizethree=yes&scale=100&zid=9 db49b7c http://www.avisbudgetgroup.com/company-information/our-brands/the-avis-budget- timeline/ Bixby, L., 2009. Accounting News: Accounting for Business Combinations. http://www.fdic.gov/regulations/examinations/supervisory/insights/siwin08/accounting_n ews.html Hertz,. 2012. https://images.hertz.com/pdfs/HTZ_2006_annual_report.pdf‎